SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
| ¨ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| OR | ||
| þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the fiscal year ended 31 March | ||
| OR | ||
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| OR | ||
| ¨ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| Date of event requiring this shell company report | ||
| For the transition period from to | ||
Commission file number: 001-14958
NATIONAL GRID PLC
(Exact name of Registrant as specified in its charter)
England and Wales
(Jurisdiction of incorporation or organization)
1-3 Strand, London WC2N 5EH, England
(Address of principal executive offices)
Alison Kay
011 44 20 7004 3000
Facsimile No. 011 44 20 7004 3004
Group General Counsel and Company Secretary
National Grid plc
1-3 Strand London WC2N 5EH, England
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each class | Name of each exchange on which registered | |
| Ordinary Shares of 11 17/43 pence each | The New York Stock Exchange* | |
| American Depositary Shares, each representing five | The New York Stock Exchange | |
| Ordinary Shares of 11 17/43 pence each | ||
| 6.625% Guaranteed Notes due 2018 | The New York Stock Exchange | |
| 6.30% Guaranteed Notes due 2016 | The New York Stock Exchange | |
| Preferred Stock ($100 par value-cumulative): | ||
| 3.90% Series | The New York Stock Exchange | |
| 3.60% Series | The New York Stock Exchange |
| * | Not for trading, but only in connection with the registration of American Depositary Shares representing Ordinary Shares pursuant to the requirements of the Securities and Exchange Commission. |
Securities registered or to be registered pursuant to Section 12(g) of the Securities Exchange Act of 1934: None.
Securities for which there is a reporting obligation pursuant to Section15(d) of the Securities Exchange Act of 1934: None.
The number of outstanding shares of each of the issuer’s classes of capital or common stock as of 31 March 20142015 was
| Ordinary Shares of 11 17/43 pence each |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act: Yes þ No ¨
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ¨ No þ
Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files): Yes ¨ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer þ | Accelerated filer ¨ | Non-accelerated filer ¨ |
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ¨ International Financial Reporting Standards as issued by the International Accounting Standards Board þ Other ¨
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ¨ Item 18 ¨
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
This constitutes the annual report on Form 20-F of National Grid plc (the “Company”) in accordance with the requirements of the US Securities and Exchange Commission (the “SEC”) for the year ended 31 March 20142015 and is dated 5 June 2014.2015. Details of events occurring subsequent to the approval of the annual report on 1820 May 20142015 are summarised in section “Further Information” which forms a part of this Form 20-F . The content of the Group’s website (www.nationalgrid.com/uk) should not be considered to form part of this annual report on Form 20-F.
Form 20-F Cross Reference Table
Item | Form 20-F caption | Location in the document | Page(s) | Form 20-F caption | Location in the document | Page(s) | ||||||||||
1 |
Identity of directors, senior management and advisors |
Not applicable | – |
Identity of directors, senior management and advisors |
Not applicable | – | ||||||||||
2 |
Offer statistics and expected timetable |
Not applicable | – |
Offer statistics and expected timetable |
Not applicable | – | ||||||||||
3 |
Key Information |
Key Information | ||||||||||||||
3A Selected financial data | “Additional Information—Summary consolidated financial information” | 190-191 | ||||||||||||||
3A Selected financial data | “Additional Information—Summary consolidated financial information” | 186-187 | “Strategic Report��Financial review” | 20-23 | ||||||||||||
“Strategic Report—Financial review” | 6-9 | “Financial Statements—Unaudited commentary on consolidated statement of financial position—Net debt” | 91 | |||||||||||||
“Financial Statements—Unaudited commentary on consolidated cash flow statement—Net debt” | 91 | “Financial Statements—Unaudited commentary on the consolidated cash flow statement—Net debt” | 93 | |||||||||||||
“Additional Information—Other unaudited financial information—Reconciliations of adjusted profit measures” | 182 | “Additional Information—Other unaudited financial information—Reconciliations of adjusted profit measures” | 186 | |||||||||||||
“Additional Information—Other disclosures—Exchange rates” | 178 | “Additional Information—Shareholder information—Exchange rates” | 180 | |||||||||||||
“Exchange Rates” | | “Further Information” | | “Exchange Rates” |
| “Further Information” |
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3B Capitalization and indebtedness | Not applicable | – | 3B Capitalization and indebtedness | Not applicable | – | |||||||||||
3C Reasons for the offer and use of proceeds | Not applicable | – | 3C Reasons for the offer and use of proceeds | Not applicable | – | |||||||||||
3D Risk Factors | “Additional Information—Business information in detail—Risk factors” | 167-169 | 3D Risk Factors | “Additional Information—The business in detail—Risk factors” | 173-176 | |||||||||||
4 |
Information on the company | Information on the company | ||||||||||||||
4A History and development of the company | “Want more information or help?” |
| 192- Back cover |
| 4A History and development of the company | “Want more information or help?” |
| 196- Back cover |
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“Additional Information—Other disclosures—Key milestones” | 179 | “Additional Information—The business in detail—Key milestones” | 164 | |||||||||||||
“Strategic Report—Chief Executive’s review” | 4-5 | “Strategic Report—Chief Executive’s review” | 4-5 | |||||||||||||
| �� | “Strategic Report—Our vision and strategy” | 14-15 | “Strategic Report—Our vision and strategy” | 14-15 | ||||||||||||
“Strategic Report—Operating environment” | 12-13 | “Strategic Report—Operating environment” | 6-7 | |||||||||||||
“Additional Information—Other disclosures—Articles of Association” | 176-177 | “Additional Information—Shareholder information—Articles of Association” | 177-178 | |||||||||||||
“Financial Statements—Consolidated statement of financial position—Unaudited commentary on consolidated statement of financial position—Property, plant and equipment” | 89 | “Financial Statements—Consolidated statement of financial position—Unaudited commentary on consolidated statement of financial position—Property, plant and equipment” | 91 | |||||||||||||
“Financial Statements—Consolidated cash flow statement—Unaudited commentary on consolidated cash flow statement—Net capital expenditure” | 91 | “Financial Statements—Consolidated cash flow statement—Unaudited commentary on the consolidated cash flow statement—Net capital expenditure” | 93 | |||||||||||||
“Additional Information—Other unaudited financial information—Commentary on consolidated financial statements for the year ended 31 March 2013” | 183-185 | “Additional Information—Other unaudited financial information—Commentary on consolidated financial statements for the year ended 31 March 2014” | 187-189 | |||||||||||||
“Financial Statements—Notes to the consolidated financial statements—2. Segmental analysis—(c) Capital expenditure, depreciation and amortisation” | 95 | “Financial Statements—Notes to the consolidated financial statements—2. Segmental analysis—(c) Capital expenditure, depreciation and amortisation” | 98 | |||||||||||||
“Strategic Report—How our strategy creates value” | 21 | “Strategic Report—How our strategy creates value” | 15 | |||||||||||||
4B Business overview | “Additional Information—Business information in detail—Where we operate” | 166 | 4B Business overview | “Additional Information—The business in detail—Where we operate” | 165 | |||||||||||
“Strategic Report—Operating environment” | 12-13 | “Strategic Report—Operating environment” | 6-7 | |||||||||||||
“Strategic Report—Our vision and strategy”; “—What we do—Electricity”; “—What we do—Gas”; “—How we make money from our regulated assets”; and “—How our strategy creates value” | 14-21 | “Strategic Report”—What we do – Electricity”; | 8-9 | |||||||||||||
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Item | Form 20-F caption | Location in the document | Page(s) | |||||
“ “—Our Business model”; “—Our vision and and | 10-11 12-13 14-19 | |||||||
“—How our strategy creates value” | ||||||||
“Strategic Report—Principal operations” | ||||||||
“Strategic Report— | ||||||||
“Financial Statements—Notes to the consolidated financial statements—2. Segmental analysis” and “—unaudited commentary on the results of our principal operations by segment” | ||||||||
“Additional Information— |
| 174
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“Additional Information— | ||||||||
“Strategic Report— | ||||||||
4C Organizational structure | “Financial Statements—Notes to the consolidated financial statements—32. Subsidiary undertakings, joint ventures and associates—Principal subsidiary undertakings” | |||||||
4D Property, plants and equipment | “Additional Information— — “Property, plant and equipment | | 185 | | ||||
“Strategic Report—What we | ||||||||
“—Our Business model”; | 12-13 | |||||||
“Strategic Report—Principal operations” | ||||||||
“Strategic Report—Our vision and strategy—Embed sustainability” and “—Drive growth” | ||||||||
“Strategic Report—Operating environment—Changing energy mix”; “—Energy policy”; “—Regulation”; and “—Innovation and technology” | ||||||||
“Financial Statements—Consolidated statement of financial position—Unaudited commentary on consolidated statement of financial position—Property, plant and equipment” | ||||||||
“Additional Information—Other disclosures—Property, plant and equipment” | ||||||||
“Financial Statements—Notes to the consolidated financial statements—11. | ||||||||
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Item | Form 20-F caption | Location in the document | Page(s) | |||||
Property, plant and equipment” | ||||||||
“Financial Statements—Notes to the consolidated financial statements—19. Borrowings” | 123-125 | |||||||
4A | Unresolved staff comments | “Additional Information—Other disclosures—Unresolved SEC staff comments” | 185 | |||||
5 | Operating and financial review and prospects | |||||||
5A Operating results | “Strategic Report—Financial review” | |||||||
“Strategic Report—Operating environment” | ||||||||
“Additional Information— | ||||||||
“Strategic Report—Principal operations” | ||||||||
“Financial Statements—Consolidated income statement—Unaudited commentary on the consolidated income statement” | ||||||||
“Financial Statements—Notes to the consolidated financial statements—2. Segmental analysis—Unaudited commentary on the results of our principal operations by segment” | ||||||||
“Additional Information—Other unaudited financial information” | ||||||||
“Financial Statements—Notes to the consolidated financial statements—30. Financial risk management—(d) Currency risk” | ||||||||
5B Liquidity and capital resources | “Strategic Report—Financial review” | |||||||
“Corporate Governance—Going concern” | ||||||||
“Financial Statements—Consolidated cash flow statement” | ||||||||
“Additional Information— | ||||||||
“Financial Statements—Notes to the consolidated financial statements—2. Segmental analysis—Unaudited commentary on the results of our principal operations by segment” | ||||||||
“Financial Statements—Notes to the consolidated financial statements—26. Net debt” | ||||||||
“Financial Statements—Notes to the consolidated financial statements—19. Borrowings” | ||||||||
“Financial Statements—Notes to the consolidated financial statements—15. Derivative financial instruments” | ||||||||
“Additional Information— | ||||||||
“Additional Information— | ||||||||
“Material Interests in Shares” | ||||||||
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Item | Form 20-F caption | Location in the document | Page(s) | |||||
interest in American Depositary Shares” | ||||||||
5C Research and development, patents and licenses, etc. | “Additional Information—Other disclosures—Research and development” | 185 | ||||||
5D Trend information | “Strategic Report—Financial review” | 20-23 | ||||||
“Strategic Report—Principal operations” | 27-36 | |||||||
“Strategic Report—Operating environment” | 6-7 | |||||||
5E Off-balance sheet arrangements | “Financial Statements—Unaudited commentary on consolidated statement of financial condition—Off balance sheet items” | 91 | ||||||
5F Tabular disclosure of contractual obligations | “Financial Statements—Notes to the consolidated financial statements—27. Commitments and contingencies” | |||||||
5G Safe Harbor | “Important notice” | 1 | ||||||
“Want more information or help?—Cautionary statement” | Back cover | |||||||
6 | Directors, senior management and employees | |||||||
6A Directors and senior management | “Corporate Governance—Our Board” | 43 | ||||||
“Additional Information— | ||||||||
6B Compensation | “Corporate Governance—Directors’ Remuneration Report” | |||||||
“Financial Statements—Notes to the consolidated financial statements—3. Operating costs—(c) Key management compensation” | ||||||||
“Financial Statements—Notes to the consolidated financial statements—22. Pensions and other post-retirement benefits” | ||||||||
“Financial Statements—Notes to the consolidated financial statements—29. Actuarial information on pensions and other post-retirement benefits” | ||||||||
“Share Ownership” | | “Further Information” | ||||||
6C Board practices | “Corporate Governance—Our Board” | |||||||
“Additional Information— | ||||||||
“Additional Information—Other disclosures” “—Conflict of interest”; and —Director’s indemnity” | 184-185 | |||||||
“Corporate Governance—Our Board and its committees—Audit Committee”; “—Finance Committee”; “—Safety, Environment and Health Committee”; “—Nominations Committee”; “—Executive Committee”; | ||||||||
“Corporate Governance—Directors’ Remuneration Report—Annual statement from the Remuneration Committee chairman” | ||||||||
“Corporate Governance—Directors’ Remuneration Report— | ||||||||
“Corporate Governance— Directors’ Remuneration Report— | ||||||||
“Corporate Governance—Directors’ Remuneration Report—Service contracts | ||||||||
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Item | Form 20-F caption | Location in the document | Page(s) | |||||
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6D Employees | “Financial Statements—Notes to the consolidated financial statements—3. Operating costs—(b) Number of employees” | |||||||
“Additional Information—Other disclosures— | ||||||||
6E Share ownership | “Corporate Governance—Directors’ Remuneration Report—Shareholding requirement” and “—Differences in remuneration policy for all employees” | 66 | ||||||
“Corporate Governance—Directors’ Remuneration Report—Statement of Directors’ shareholdings and share interests (audited information)” | 72-73 | |||||||
“Corporate Governance—Directors’ Remuneration Report—Annual report on remuneration” | 69-75 | |||||||
“Additional Information—Other disclosures—All-employee share plans” | 184 | |||||||
“Share ownership” | | “Further Information” | ||||||
7 | Major shareholders and related party transactions | |||||||
7A Major shareholders | “Additional Information— | |||||||
“Material interests in shares” and “Material interest in American Depositary Shares” | | “Further Information” | ||||||
7B Related party transactions | “Financial Statements—Notes to the consolidated financial statements—28. Related party transactions” | |||||||
7C Interests of experts and counsel | Not applicable | – | ||||||
8 |
Financial information | |||||||
8A Consolidated statements and other financial information | ||||||||
“Financial Statements—Report of Independent Registered Public Accounting Firm—Audit opinion for Form 20-F” | ||||||||
“Financial Statements—Notes to the consolidated financial statements—1. Basis of | ||||||||
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“Financial Statements—Consolidated income statement”; “—Consolidated statement of comprehensive income”; “—Consolidated statement of changes in equity”; “—Consolidated statement of financial position”; and “—Consolidated cash flow statement” | ||||||||
“Financial Statements—Notes to the consolidated financial statements – analysis of items in the primary statements” | ||||||||
“Financial Statements—Notes to the consolidated financial statements – supplementary information” | ||||||||
“Strategic Report—Chairman’s statement” | 2-3 | |||||||
8B Significant changes | “Subsequent Events” | | “Further Information” | |
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Item | Form 20-F caption | Location in the document | Page(s) | |||||
9 | The offer and listing | |||||||
9A Offer and listing details | “Additional Information— | |||||||
Shareholder information—“Exchange Rates”, “—Share price”, “— Price History” | | 180-182 “Further | | |||||
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9B Plan of distribution | Not applicable | |||||||
9C Markets | “Additional Information— | |||||||
9D Selling shareholders | Not applicable | – | ||||||
9E Dilution | Not applicable | – | ||||||
9F Expenses of the issue | Not applicable | – | ||||||
10 | Additional information | |||||||
10A Share capital | Not applicable | – | ||||||
10B Memorandum and articles of association | “Additional Information— | 177-178 | ||||||
“Additional Information— Other disclosures—Corporate governance practices: differences from New York Stock Exchange (NYSE) listing standards” |
v
Item | Form 20-F caption | Location in the document | Page(s) | |||||
“Additional Information—Directors’ Report disclosures—Share capital” | 174-175 | |||||||
10C Material contracts | “Additional Information—Other disclosures—Material contracts” | 179 | ||||||
10D Exchange controls | “Additional Information—Other disclosures—Exchange controls” | 178 | ||||||
10E Taxation | “Additional Information——Other disclosures—Taxation” | 179-181 | ||||||
10F Dividends and paying agents | Not applicable | – | ||||||
10G Statement by experts | Not applicable | – | ||||||
10H Documents on display | “Additional Information—Other disclosures—Documents on display” | 178 | ||||||
10I Subsidiary information | Not applicable | – | ||||||
11 |
Quantitative and qualitative disclosures about market risk | |||||||
11A Quantitative information about market risk | “Financial Statements—Notes to the consolidated financial statements—15. Derivative financial instruments” | 114-116 | ||||||
“Financial Statements—Notes to the consolidated financial statements—30. Financial risk management—(a) Credit risk”; “—(b) Liquidity risk”; “—(c) Interest rate risk”; “—(d) Currency risk”; “—(e) Commodity risk”; “—(f) Capital risk management”; and “—(g) Fair value analysis” | 137-144 | |||||||
“Strategic Report—Financial review” | 6-9 | |||||||
11B Qualitative information about market risk | “Financial Statements—Notes to the consolidated financial statements—15. Derivative financial instruments” | 114-116 | ||||||
“Financial Statements—Notes to the consolidated financial statements—30. Financial risk management—(a) Credit risk”; “—(b) Liquidity risk”; “—(c) Interest rate risk”; “—(d) Currency risk”; “—(e) Commodity risk”; “—(f) Capital risk management”; and “—(g) Fair value analysis” | 137-144 | |||||||
“Strategic Report—Financial review” | 6-9 | |||||||
“Additional Information—Risk factors” | 167-169 | |||||||
12 | Description of securities other than equity securities | |||||||
12A Debt securities | Not applicable | – | ||||||
12B Warrants and rights | Not applicable | – | ||||||
12C Other securities | Not applicable | – | ||||||
12D American depositary shares | “Additional Information—Other disclosures—Description of securities other than equity securities: depositary fees and charges” | 178 | ||||||
“Additional Information—Other disclosures—Depositary payments to the Company” | 177 | |||||||
“Additional Information—Definitions and glossary of terms” | 188-191 | |||||||
13 |
Defaults, dividend arrearages and delinquencies | Not applicable | – | |||||
14 |
Material modifications to the rights of security holders and use of proceeds | Not applicable | – | |||||
15 |
Controls and procedures | “Additional Information—Internal control— Disclosure controls” and “—Internal control over financial reporting” | 170 |
vi
Item | Form 20-F caption | Location in the document | Page(s) | |||||
16 | 16A Audit committee financial expert | “Corporate Governance—Audit Committee—Experience” | 49 | |||||
16B Code of ethics | “Additional Information—Other disclosures—Code of Ethics” | 177 | ||||||
16C Principal accountant fees and services | “Corporate Governance—Audit Committee—External audit” | 51 | ||||||
“Financial Statements—Notes to the consolidated financial statements—3. Operating costs—(e) Auditors’ remuneration” | 98 | |||||||
16D Exemptions from the listing standards for audit committees | Not applicable | – | ||||||
16E Purchases of equity securities by the issuer and affiliated purchasers | Not applicable | – | ||||||
16F Change in registrant’s certifying accountant | Not applicable | – | ||||||
16G Corporate governance | “Additional Information—Other disclosures—Corporate governance practices: differences from New York Stock Exchange (NYSE) listing standards” | 177 | ||||||
16H Mine safety disclosure | Not applicable | – | ||||||
17 | Financial statements | Not applicable | – | |||||
18 | Financial statements | “Financial Statements—Company accounting policies” | 155 | |||||
“Financial Statements—Basis of preparation” | 82-83 | |||||||
“Financial Statements—Recent accounting developments” | 83 | |||||||
“Financial Statements—Consolidated income statement”; “—Consolidated statement of comprehensive income”; “—Consolidated statement of changes in equity”; “—Consolidated statement of financial position”; and “—Consolidated cash flow statement” | 84-91 | |||||||
“Financial Statements—Notes to the consolidated financial statements—analysis of items in the primary statements” | 92-131 | |||||||
“Financial Statements—Notes to the consolidated financial statements—supplementary information” | 132-154 | |||||||
“Financial Statements—Report of Independent Registered Public Accounting Firm—Audit opinion for Form 20-F” | 81 | |||||||
19 | Exhibits | Filed with the SEC | – |
vii
“Additional Information—Shareholder information—Share capital” | 181 | ||||||||||||
10C Material contracts | “Additional Information—Other disclosures—Material contracts” | 185 | |||||||||||
10D Exchange controls | “Additional Information—Shareholder information—Exchange controls” | 180 | |||||||||||
10E Taxation | “Additional Information——Shareholder information—Taxation” | 182-183 | |||||||||||
10F Dividends and paying agents | Not applicable | – | |||||||||||
10G Statement by experts | Not applicable | – | |||||||||||
10H Documents on display | “Additional Information—Shareholder information—Documents on display” | 180 | |||||||||||
10I Subsidiary information | Not applicable | – | |||||||||||
11 | Quantitative and qualitative disclosures about market risk | ||||||||||||
11A Quantitative information about market risk | “Financial Statements—Notes to the consolidated financial statements—15. Derivative financial instruments” | 118-120 | |||||||||||
“Financial Statements—Notes to the consolidated financial statements—30. Financial risk management—(a) Credit risk”; “—(b) Liquidity risk”; “—(c) Interest rate risk”; “—(d) Currency risk”; “—(e) Commodity risk”; “—(f) Capital risk management”; and “—(g) Fair value analysis” | 141-148 | ||||||||||||
“Strategic Report—Financial review” | |||||||||||||
| 20-23 | |||||||||||||
11B Qualitative information about market risk |
“Financial Statements—Notes to the consolidated financial statements—15. Derivative financial instruments” | 118-120 | |||||||||||
“Financial Statements—Notes to the consolidated financial statements—30. Financial risk management—(a) Credit risk”; “—(b) Liquidity risk”; “—(c) Interest rate risk”; “—(d) Currency risk”; “—(e) Commodity risk”; “—(f) Capital risk management”; and “—(g) Fair value analysis” | 141-148 | ||||||||||||
“Strategic Report—Financial review” |
| 20-23 |
Item | Form 20-F caption | Location in the document | Page(s) | |||||
“Additional Information—Internal Control and Risk factors—Risk Factors” | 173-176 | |||||||
12 |
Description of securities other than equity securities | |||||||
12A Debt securities | Not applicable | – | ||||||
12B Warrants and rights | Not applicable | – | ||||||
12C Other securities | Not applicable | – | ||||||
12D American depositary shares | “Additional Information—Shareholder information—Description of securities other than equity securities: depositary fees and charges” | 180 | ||||||
“Additional Information—Shareholder information—Depositary payments to the Company” | 180 | |||||||
“Additional Information—Definitions and glossary of terms” | 192-195 | |||||||
13 |
Defaults, dividend arrearages and delinquencies | Not applicable | – | |||||
14 |
Material modifications to the rights of security holders and use of proceeds | Not applicable | – | |||||
15 |
Controls and procedures | “Additional Information—Internal control and risk factors—Disclosure controls” and “—Internal control over financial reporting” | 173 | |||||
16 |
16A Audit committee financial expert | “Corporate Governance—Audit Committee—Experience” | 51 | |||||
16B Code of ethics | “Additional Information—Other disclosures—Code of Ethics” | 184 | ||||||
16C Principal accountant fees and services | “Corporate Governance—Audit Committee—External audit” | 52 | ||||||
“Financial Statements—Notes to the consolidated financial statements—3. Operating costs—(e) Auditors’ remuneration” | 102 | |||||||
16D Exemptions from the listing standards for audit committees | Not applicable | – | ||||||
16E Purchases of equity securities by the issuer and affiliated purchasers | Not applicable | – | ||||||
16F Change in registrant’s certifying accountant | Not applicable | – | ||||||
16G Corporate governance | “Additional Information—Other disclosures—Corporate governance practices: differences from New York Stock Exchange (NYSE) listing standards” | 184 | ||||||
16H Mine safety disclosure | Not applicable | – | ||||||
17 |
Financial statements | Not applicable | – | |||||
18 |
Financial statements | “Financial Statements—Company accounting policies” | 159 | |||||
“Financial Statements—Notes to the consolidated financial statements—1. Basis of preparation and recent accounting developments” | 94-96 | |||||||
“Financial Statements—Consolidated income statement”; “—Consolidated statement of comprehensive income”; “—Consolidated statement of changes in equity”; “—Consolidated statement of financial position”; and “—Consolidated cash flow statement” | 86-93 | |||||||
“Financial Statements—Notes to the | 94-135 |
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Item | Form 20-F caption | Location in the document | Page(s) | |||||
consolidated financial statements – analysis of items in the primary statements” | ||||||||
“Financial Statements—Notes to the consolidated financial statements – supplementary information” | 136-158 | |||||||
“Financial Statements—Report of Independent Registered Public Accounting Firm—Audit opinion for Form 20-F” | 85 | |||||||
19 |
Exhibits | Filed with the SEC | – |
viii
national grid
Connecting to life
Annual Report and Accounts 2014/15
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| About National Grid | 01 | |||||
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Strategic Report pages | |||||
| 02 | |||||
| Chief Executive’s review | 04 | |||||
| Operating environment | 06 | |||||
| 08 | ||||||
| Our business model | 12 | |||||
| Our vision and strategy | 14 | |||||
| 27 | ||||||
| Internal control and risk management | 38 | |||||
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Corporate Governance pages | |||||
The Corporate Governance Report, introduced by the Chairman, contains details about the activities of the Board and its committees during the year, including reports from the Audit, Nominations, Remuneration, Finance, and Safety, Environment and Health Committees, as well as details of our shareholder engagement activities. | ||||||
| Corporate Governance contents | 42 | |||||
| Directors’ Report | 59 | |||||
| Directors’ Remuneration Report | 60 | |||||
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Financial Statements pages | ||||||
Including the independent auditors’ reports, consolidated financial statements prepared in accordance with IFRS and notes to the consolidated financial statements, as well as the Company financial statements prepared in accordance with UK GAAP. | ||||||
| Financial Statements contents | 76 | |||||
| Introduction to the financial statements | 77 | |||||
| Statement of Directors’ responsibilities | 78 | |||||
| Independent auditors’ report | 79 | |||||
| Report of Independent Registered Public Accounting Firm | 85 | ||||
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Additional Information pages | |||||
Additional disclosures and information, definitions and glossary of terms, summary consolidated financial information and other useful information for shareholders, including contact details for more information or help. | ||||||
| Additional Information contents |
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We use a number of technical terms and abbreviations within this document. For brevity, we do not define terms or provide explanations every time they are used; please refer to the glossary | ||||||
| Definitions and glossary of terms | 192 | |||||
| Want more information or help? | 196 | |||||
 | Online | |||
| For a full search facility, please go to the pdf of our Annual Report and Accounts 2014/15 in the investor relations section of our website (www.nationalgrid.com) and use a word search. | ||||
About National Grid
Our job is to connect people to the energy they use, safely. We are at the heart of one of the greatest challenges facing our society – delivering clean energy to support our world long into the future.
Financial highlights
Adjusted operating profit1 Adjusted earnings per share1 Operating profit Earnings per share
£3,863m 58.1p £3,780m 53.6p
+5% +9% +1% -18%
2013/14: £3,664m 2013/14: 53.5p2 2013/14: £3,735m 2013/14: 65.7p2
Group return on equity Regulated assets Cash generated from operations Ordinary dividends
11.8% £37.0bn £5,350m 42.87p
+4% +7% +21% +2%
2013/14: 11.4% 2013/14: £34.7bn 2013/14: £4,419m 2013/14: 42.03p
24,274 £3.5bn 0.13IFR 7.3 75%
Employees Capital investment Best overall group safety performance to date Greenhouse gas emissions (million tonnes
carbon dioxide equivalent) Best employee engagement score to date
Our principal operations
UK Electricity Transmission UK Gas Transmission UK Gas Distribution US Regulated Adjusted operating
We own and operate an electricity transmission network and electricity and gas distribution networks serving consumers across the northeastern US.
profit %
We own and maintain the high voltage electricity transmission network in England and Wales, balancing supply with demand on a minute-by-minute basis.
All gas in the UK passes through National Grid’s national transmission system on its way to consumers.
We own and operate four of the eight regional gas distribution networks in Great Britain.
5 32 30 11 22
UK Electricity Transmission
UK Gas Transmission
UK Gas Distribution
US Regulated
Other activities
See page 28 See page 29 See page 30 See pages 33–35
1. Excludes the impact of exceptional items, remeasurements and stranded cost recoveries. See page 186 for more information about these adjusted profit measures.
Important notice
This document contains certain statements that are neither reported financial results nor other historical information. These statements are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. For a description of factors that could affect future results, please refer to the full cautionary statement on the inside back cover and to the risk factors section on pages 173 to 176.
2. Comparative earnings per share (EPS) data has been restated for the impact of the scrip dividend issues.
Our financial results are reported in sterling. The average exchange rate, as detailed on page 87, was $1.58 to £1 in 2014/15 compared with the average rate of $1.62 to £1 in 2013/14. Except as otherwise noted, the figures in this Report are stated in sterling or US dollars.
All references to dollars or $ are to the US currency.
Acting responsibly
We have won Business in the Community’s highest award, Responsible Business of the Year 2014. This accolade acknowledges all of our efforts in getting involved with the things that really matter to us and to society, and doing the right things in the right way.
RESPONSIBLE BUSINESS OF THE YEAR 2014
BUSINESS IN THE COMMUNITY
NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15
01
Chairman’s statement | ||||
| It’s been a challenging year for the energy sector. Energy policies in the UK and US have continued to evolve against a backdrop of political uncertainty, seeking an acceptable balance between affordability to consumers, security of supply and sustainability considerations. |
 | In focus: | In the UK, we saw debate around the cost of living lead to a sharper focus on the costs of energy and the competitiveness of energy markets. This focus has included an Energy and Climate Change Select Committee inquiry into energy network costs, as well as an investigation by the Competition and Markets Authority into the supply and acquisition of energy in Great Britain. In the UK, Electricity Market Reform | ||
The Board is proposing a recommended full-year dividend of 42.87p (2013/14: 42.03p) | ||||
(EMR) was implemented successfully, and we saw developments in significant interconnector projects (see page 27). In the US, there were mid-term US congressional and gubernatorial elections and debate continued on essential infrastructure, resilience and sustainability. | ||||
Transparency | ||||
In January we announced our decision to stop publishing formal Interim Management Statements (IMSs), following the changes in legislation that removed this requirement. Mandatory requirements to publish information can frequently provide an unnecessary focus on matters of little relevance to a long-term business such as National Grid. | ||||
Alongside our major announcements at the half year and full year we will continue to provide updates covering market and Company developments. | ||||
We also continue to provide commentary on both our IFRS reported results and underlying economic (regulatory) performance, including reconciliations between the key metrics for both results. To help explain this more fully, we have increased the commentary on our regulatory performance on page 23, and have included further analysis of our regulatory performance by segment on page 100. We support the development of an accounting standard for rate-regulated activities, which would reduce the need for additional explanations of our results, and submitted a response to the IASB’s project in January this year. | ||||
Dividend | ||||
The Board has recommended an increase in the final dividend to 28.16 pence per ordinary share ($2.1866 per American Depositary Share). If approved, this will bring the full-year dividend to 42.87 pence per ordinary share ($3.3584 per American Depositary Share), an increase of 2.0% over the 42.03 pence per ordinary share in respect of the financial year ending 31 March 2014. | ||||
In August 2014 we began a share buyback programme designed to operate alongside our scrip dividend option, which we offered for the interim dividend and will offer again for the full-year dividend. The buyback programme, which operates under authorities granted at our 2014 AGM, is designed to balance shareholders’ appetite for the scrip dividend option with our desire to operate an efficient balance sheet with appropriate leverage. | ||||
Effective governance | ||||
In July 2014, John Pettigrew, who joined the Board in April 2014, became Executive Director, UK and Nick Winser and Maria Richter both stepped down from the Board. |
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John and Dean’s appointments bring fresh perspective, experience and challenge to our Board. Dean joined us after a career that has included business leadership roles of major divisions within GE, United Technologies and Tyco. In particular, he has led major change and performance improvement programmes that have improved operational efficiency and customer satisfaction – important priorities for our US I would like to
At National Grid, we believe that what we do and how we do it are equally important. In
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As you can read on page
You can find more information about our approach to being a responsible business, including our Total Contribution Report, on our website. Looking ahead We will face both opportunities and challenges over the coming year. For example, in the UK Ofgem has concluded its Integrated Transmission Planning and Regulation project. As part of this, the System Operator is expected to undertake a number of new advisory roles. We have a long track record in successfully managing potential conflicts of interest from our System Operator role and will work closely with Ofgem to make sure this continues. In the US we We must adapt to developments in corporate governance requirements. For example, the updated UK Corporate Governance Code enhances the quality of Finally, I am confident that our people will continue to help make National Grid a company we
Sir Peter Gershon |
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I was delighted that the |
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In the UK, we are in discussions with the Living Wage Foundation about the opportunity to become a
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| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 03 |
Chief Executive’s review | ||||
| I’m really proud of our performance this year. Overall, our businesses in both the UK and US achieved a strong operating performance. |
 | In focus: | In the UK, there has been a lot of public focus on how secure and reliable our energy supply is, particularly on tighter margins between electricity supply and demand in the winter. Despite tighter margins than previous years, we were able to operate the system without calling upon our additional reserve. This was because of stronger than expected plant availability, mild weather, | ||
Employee engagement score 75% (2013/14: 71%) | ||||
healthy wind output and consistent interconnector imports from France and the Netherlands. We also tendered the two new balancing services for additional reserves of supply. Although these additional reserves were not used, this was a sensible precaution in case of colder weather or a series of unexpected plant shutdowns. | ||||
In the US, we saw an extremely harsh and prolonged period of plunging temperatures and record levels of snowfall in parts of New England, particularly in February and March. Again, our network resilience held up well. We have invested millions of dollars in both our electricity and gas infrastructure to improve resilience and help reduce the impact of service interruptions. | ||||
In December 2014 we received an award for excellence in energy efficiency from Platts Global Energy. Platts commended us for ongoing initiatives to upgrade equipment, reduce emissions, and improve safety and network efficiency. And in March 2015, the Edison Electric Institute presented us with its Emergency Recovery Award for our power restoration efforts following the severe ice storm in northern New York in December 2013. | ||||
Safety Safety remains a hugely important priority for us. Regrettably, there were two fatalities during the year – a member of the public in the UK who fell when climbing on one of our pipelines, and a contractor at our Rhode Island gas distribution business. Despite these incidents, we achieved our best-ever Group safety performance during 2014/15. We can never be complacent about our performance and must continually strive to improve. | ||||
Our operations We have continued to provide good value and reliability for customers while keeping our element of bills as low as possible. | ||||
We are totally committed to providing the best value we can for our customers, investors and other stakeholders, so we’re working hard to make sure we are being as efficient as possible in everything we do. To help achieve this, we have continued to develop a way of working we call ‘Performance Excellence’, which you can read about on page 27. We also reorganised our UK business to increase clarity around what we do and who is accountable. | ||||
In the US, we finally completed the stabilisation work on our new financial systems (see page 34). This fixed a number of long-standing problems, such as inefficient payroll processing, which had previously required expensive manual interventions. Long term, |
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to bring the world of work to life for secondary school children. Our US initiatives include partnering with seven local community colleges to deliver energy utility technology training programmes that are designed to equip people for jobs in the energy industry. We are doing a great deal of work in this area, as you can read on page 24.
All this is business as usual for us – the BITC recognition is not the result of any special new initiative we have done to win the award. But it would not have been possible without the efforts of our employees. I was delighted to see that the results of our 2015 employee opinion survey – a good measure of how satisfied employees are with their employer – included an engagement score of 75% – our highest since we started conducting Group-wide employee opinion surveys.
I would like to thank all our people for making a positive impact, through their work for National Grid, their volunteering and fundraising achievements, and by getting involved in activities that really matter to us and to society.
Priorities for 2015/16
Safety: continue to build on our strong performance so we can achieve a consistent world-class safety performance;
Customers and stakeholders: improve the service we provide for our customers and continue to build trust among our stakeholders;
Performance Excellence: focus on being efficient in our end-to-end processes so we can continue to improve our overall performance and efficiency; and
Regulatory filings: prepare and file applications for new rate plans in New York, Long Island and Massachusetts.
Steve Holliday
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| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 05 | |||
Measurement of financial performance We describe our results principally on an adjusted basis and explain the rationale for this on page 182. We present results on an adjusted basis before exceptional items, remeasurements and stranded cost recoveries. See page 182 for further details and reconciliations from the adjusted profit measures to IFRS, under which we report our financial results and position. The comparative numbers have been restated for the adoption of IAS 19 (revised) ‘Employee benefits’. See further detail in note 1 on page 92.
A reconciliation between reported operating profit and adjusted operating profit is provided below. Further commentary on movements in the income statement is provided on page 85.
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| Year ended 31 March | ||||||||||||||
| £m | 2014 | 2013 | 2012 | |||||||||||
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Total operating profit | 3,735 | 3,749 | 3,535 | |||||||||||
Exceptional items | (55) | 84 | 122 | |||||||||||
Remeasurements – commodity contracts | (16) | (180) | 94 | |||||||||||
Stranded cost recoveries
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Adjusted operating profit | 3,664 | 3,639 | 3,491 | |||||||||||
Adjusted net finance costs | (1,108) | (1,124) | (1,090) | |||||||||||
Share of post-tax results of joint ventures | 28 | 18 | 7 | |||||||||||
Adjusted taxation | (581) | (619) | (697) | |||||||||||
Attributable to non-controlling interests
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Adjusted earnings
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Adjusted EPS
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Group return on equity (RoE) We measure our performance in generating value for our shareholders by dividing our annual return by our equity base.
Group RoE has increased during the year to 11.4%, due to the impact of major storms in the prior year. Excluding major storms, Group RoE has decreased by 30bps reflecting the end of Niagara Mohawk deferral recoveries, together with higher controllable costs and system costs in the US. These negative impacts were partially offset by French interconnector performance and the lower UK tax rate.
Group return on equity %
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Regulated asset growth Our regulated assets have increased by 3% (£1 billion) to £34.7 billion, reflecting the continued high levels of investment in our networks in both the UK and US. Maintaining efficient growth in our regulated assets ensures we are well positioned to continue providing consistently high levels of service to our customers and increases our revenue allowances in future years.
The UK regulatory asset value (RAV) increased by £1.1 billion, reflecting inflation and significant capital expenditure in our UK Electricity Transmission business in particular. The US rate base decreased by £0.1 billion. Foreign exchange movements decreased the rate base reported in sterling by £0.9 billion. Offsetting this, investment in the networks and working capital movements increased rate base by £0.8 billion.
Total regulated assets and regulated asset growth £bn
| The Board is confident that growth in assets, earnings and cash flows, supported by improving cash efficiency and an exposure to attractive regulatory markets, should help the Group to maintain strong, stable credit ratings and a consistent prudent level of gearing, while delivering attractive returns for shareholders.
Other performance measures Dividend growth During the year we generated £1.3 billion of sustainable business net cash flow after our capital expenditure programmes. This has enabled the growth of the dividend in line with RPI, being 2.9%(2012/13: dividend growth of 4%), taking into account the recommended final dividend of 27.54p.
The high level of take-up of this scrip option in the last couple of years has led to concerns about the potential dilutive effect on value of this option. This meant that we decided not to offer the scrip element for the 2013/14 interim dividend paid in January this year, as our forecast capital programme was already fully funded. We continue to offer the scrip option for the year-end dividend.
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How we make money from our regulated assets page 20
UK regulation pages 160 – 162
US regulation pages 162 – 165
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Year ended 31 March
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| Dividend growth | 3 | 4 | 8 | |||||||||||||||||||
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1. US rate base calculated as at 31 December for these years.
2. Estimated figure until the conclusion of the regulatory reporting cycle.
Value added Our dividend is an important part of our returns to shareholders along with growth in the value of the asset base attributable to equity investors. These are reflected in the value added metric that will underpin our approach to sustainable decision making and long-term incentive arrangements.
Overall value added in the year was £2.1 billion or 57.2p per share as set out below: |
Cash generated from operations Cash generated from operations was £4,419 million (2012/13: £4,037 million). Adjusted operating profit before depreciation, amortisation and impairment was £81 million higher year on year. Changes in working capital improved by £351 million over the prior year, principally in the US due to the timing of receivables from LIPA relating to Superstorm Sandy, higher commodity costs and weather differences year on year. Partially offsetting these improvements, cash outflows relating to exceptional items were £38 million higher due to reorganisation in the UK and LIPA MSA transition costs in the US.
UK regulated return on equity The UK RoE has decreased 90bps to 12.7%, reflecting the new regulatory arrangements under the RIIO framework in place from this year. This performance represents 260bps outperformance over allowed returns.
UK return on equity %
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| Year ended 31 March | Change | |||||||||||||||||||||
| £bn at constant currency | 2014 | 2013 | £bn | |||||||||||||||||||
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UK regulated assets1 | 25.2 | 24.3 | +0.9 | |||||||||||||||||||
US regulated assets2 | 11.2 | 10.3 | +0.9 | |||||||||||||||||||
Other invested capital | 1.7 | 1.5 | +0.2 | |||||||||||||||||||
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| Total assets | 38.1 | 36.1 | +2.0 | |||||||||||||||||||
| Dividend paid | +1.1 | |||||||||||||||||||||
| Movement in goodwill | – | |||||||||||||||||||||
| Net debt | (21.2) | (20.2) | -1.0 | |||||||||||||||||||
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| Value added | +2.1 | |||||||||||||||||||||
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| Value added per share | 57.2p | |||||||||||||||||||||
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1. Consists of regulated asset values and other regulatory assets and liabilities of the UK businesses regulated under RIIO price controls.
2. US regulated assets increased from $17.2 billion to $18.7 billion in the year. These represent rate base plus assets outside of rate base, including working capital. | ||||||||||||||||||||||
The UK economy has been recovering steadily in the past year, with 2.6%
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US regulated return on equity The US RoE has decreased 20bps to 9.0%, mainly driven by lower allowed rates in our KEDNY and Long Island Generation businesses following the introduction of new rate plans during the year.
| Interest cover The principal measure we use to monitor financial discipline is interest cover, which is a measure of the cash flows we generate compared with the net interest cost of servicing our borrowings. The table below shows our interest cover for the last three years.
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| Our operations – performance at a glance
Business analysis 2013/14 %
Adjusted operating profit
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US return on equity %
Return on capital employed RoCE provides a performance comparison between our regulated UK and US businesses and is one of the measures that we use to make strategic and investment decisions about our portfolio of businesses. The table below shows the RoCE for our businesses over the last five years:
Return on capital employed %
The UK RoCE has decreased from 8.6% to 8.0% in 2013/14, reflecting the new RIIO regulatory allowances, including lower cost of debt allowance, higher gearing assumption in the gas businesses, and the inclusion of our share of exceptional costs. The decrease in the US RoCE from 7.1% to 6.4% is primarily due to the end of Niagara Mohawk deferral recoveries and controllable cost increases. Excluding the impact of major storm costs, the US RoCE would have been 7.7% in 2012/13.
Net debt We expect our net debt to continue to grow for the next few years as we fund our capital investment programmes and enhance our networks. We continue to borrow at attractive rates when needed and believe that the level of net debt remains appropriate for our business. Our five year net debt trend is shown on page 91. | Year ended 31 March | |||||||||||||||||||||
| Times | 2014 | 2013 | 2012 | |||||||||||||||||||
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| Interest cover | 4.1 | 3.9 | 3.9 | |||||||||||||||||||
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The increase in interest cover in 2013/14 reflects flat finance costs year on year. Our target long-term range for interest cover is in excess of 3 times. Further details on our capital management and credit ratings can be found in note 30 (f) and on the debt investors’ section of our website.
Timing and regulated revenue adjustments As described on page 20, our allowed revenues are set in accordance with our regulatory price controls or rate plans. We calculate the tariffs we charge our customers based on the estimated volume of energy we expect will be delivered during the coming period. The actual volumes delivered will differ from this estimate. Therefore, our total actual revenue will be different from our total allowed revenue. These differences are commonly referred to as timing differences.
If we collect more than the allowed level of revenue, the balance must be returned to customers in subsequent periods, and if we collect less than the allowed level of revenue we may recover the balance from customers in subsequent periods. In the US, a substantial portion of our costs are pass-through costs (including commodity and energy efficiency costs) and are fully recoverable from our customers. Timing differences between costs of this type being incurred and their recovery through revenue are also included in timing.
The amounts calculated as timing differences are estimates and subject to change until the variables that determine allowed revenue are final.
Our operating profit for the year includes a total estimated in-year under-collection of £42 million (2012/13: £16 million over-collection). Our closing balance at 31 March 2014 was £60 million over-recovered.
In the UK, there was a cumulative under-recovery of £57 million at 31 March 2014 (2013: under-recovery of £5 million). All other things being equal, the majority of that balance will normally be recoverable from customers starting in the year ending 31 March 2016. |
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In the US, cumulative timing over-recoveries at 31 March 2014 were £117 million (2013: £110 million). The majority of that balance will be returned to customers next year.
In addition to the timing adjustments described above, following the start of the RIIO price controls in the UK, outperformance against allowances as a result of the totex incentive mechanism, together with changes in output-related allowances included in the original price control, will almost always be adjusted in future revenue recoveries, typically starting in two years’ time.
Our current IFRS revenues and earnings include the amounts that will need to be repaid but exclude amounts that will be recovered in future periods. Such adjustments will form an important part of the continuing difference between reported IFRS results and underlying economic performance based on our regulatory obligations.
For our UK regulated businesses as a whole, regulated revenue adjustments totalled £106 million in the year. This is based on our estimates of: work carried out in line with allowances; in expectation of future allowances; or work avoided altogether – either as a result of us finding innovative solutions or of the need being permanently removed. | In the US, accumulated regulatory entitlements to future revenue net of over- or under-recoveries amounted to £1,027 million at 31 March 2014 (2013: £1,311 million). These entitlements cover a range of different areas, with the most significant being environmental remediation and pension assets, as well as deferred storm costs.
All regulatory entitlements are recoverable (or repayable) over different periods, which are agreed with the regulators to match the expected payment profile for the liabilities. As at 31 March 2014, these extend until 2059.
Major storms Despite the very cold winter across much of the US, there were no major storms in 2013/14. In 2012/13, two major storms in the US, Superstorm Sandy and Storm Nemo, as well as a number of smaller storms, had a material effect on the results of National Grid, reducing operating profit by £136 million.
The table below shows adjusted operating profit and operating profit for the past three years, excluding the impact of timing differences and major storms.
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Non-financial KPIs pages 10 – 11
Our vision and strategy pages 14 – 15
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Year ended 31 March
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| Excluding the impact of timing differences and major storms | 2014 £m
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Adjusted operating profit
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Operating profit | 3,777
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Performance
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UK Principal operations pages 29 – 33
US Principal operations pages 35 – 37
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2009/10 |
2010/11 |
2011/12 |
2012/13 |
2013/14 |
2013/14 | |||||||||||||||||
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UK Electricity Transmission |
99.9999 |
99.9999 |
99.999999 |
99.99999 |
99.99999 |
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UK Gas Transmission
| 100 | 100 | 100 | 100 | 100 | % | 100 | |||||||||||||||
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UK Gas Distribution | 99.999 | 99.999 | 99.999 | 99.999 | 99.999 | % | 99.999 | |||||||||||||||
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Electricity transmission – US | 147 | 414 | 5181 | 346 | 118 | MWh losses | 308 | |||||||||||||||
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Electricity – US: Commercial | 114 | 123 | 121 | 1052 | 107 | Minutes of outage | * | |||||||||||||||
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* Targets are set jurisdictionally by operating company. |
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1. 2011/12 result restated to reflect final data. |
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2. 2012/13 result excludes New Hampshire, which was sold during the year.
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Customer satisfaction
Definition We measure customer satisfaction through our position in customer satisfaction surveys. |
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Strategic element Deliver operational excellence
UK Principal operations
pages 29 – 33
US Principal operations pages 35 – 37
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UK Electricity Transmission
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n/a | n/a | n/a | n/a | 7.4 | Score out of 10 | 6.91 | |||||||||||||||
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UK Gas Transmission | n/a | n/a | n/a | n/a | 7.2 | Score out of 10 | 6.91 | |||||||||||||||
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UK Gas Distribution
| 4th | 4th | 3rd | 3rd | * | Quartile ranking | Improve | |||||||||||||||
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Gas distribution – US: Residential
| 3rd | 2nd | 3rd | 3rd | 2nd | Quartile ranking | Improve | |||||||||||||||
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Gas distribution – US: Commercial
| 2nd | 4th | 3rd | 4th | 4th | Quartile ranking | Improve | |||||||||||||||
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Electricity – US: Residential
| 4th | 3rd | 3rd | 3rd | 2nd | Quartile ranking | Improve | |||||||||||||||
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Electricity – US: Commercial
| 3rd | 2nd | 2nd | 3rd | 2nd | Quartile ranking | Improve | |||||||||||||||
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* Under RIIO-GD1, our customer satisfaction results are now reported on an annual basis, rather than quarterly, which was how we reported them under our previous price control. We will publish the results on our website in the summer as part of our commitment to our stakeholders, and in our Annual Report and Accounts for 2014/15. |
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1. 6.9 represents our baseline target, set by Ofgem, for reward or penalty under RIIO.
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Market driver
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Impact
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Changing energy mix | ||||
UK In February 2015 DECC announced the results of the first Contracts for Difference (CfD) auction allocation rounds, with wind technology making up the bulk of contracted generation. Continued support for solar PV through Feed in Tariffs (FiTs) and the Renewables Obligation contributed to growth in installed solar PV.
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In the US, shale gas Environmental Protection Agency regulations have led to generator retirements or increased costs for compliance. Renewables are growing their share of electricity generation and account for a significant amount of newly installed capacity. Distributed generation, such as rooftop solar, has grown substantially in our service territory. |
UK Increasing deployment of large-scale wind, large-scale solar PV and nuclear will require more investment in
US Lower national wholesale gas prices have increased the amount of gas used for electric generation, causing constraints into the northeast US. Oil to gas conversions will continue as gas maintains its price advantage. New interstate gas pipeline capacity is needed to overcome growing gas demand. The electric transmission system will need upgrades and rebalancing due to generation retirements and to connect new renewable sources. Increasing amounts of distributed generation, particularly solar, will require investment in the electric distribution network.
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Energy policy
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Sustainability, security of supply and affordability underpin EU policy
Negotiations for a new international agreement on climate change continued at the Finally, the creation of a ‘genuine energy union’ was highlighted as one of the main priorities of the new European Commission, which took office in November 2014. | Policy decisions can affect our investment needs and compliance obligations
Greater levels of market integration, interconnection and renewable generation are fundamental to achieving the EU’s policy objectives. While European developments present challenges, the significant level of investment required Such opportunities would help the EU achieve its interconnection targets. See page 27 for more information about our interconnector projects. | |||
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Energy policy continues to evolve from the Climate Change Act 2008, which commits the UK Government to reducing UK greenhouse gas emissions to at least 80% lower than a 1990 baseline by 2050. The Energy Act 2013 implements the main aspects of | National Grid is central to the delivery of EMR and active on driving down costs National Grid has been performing its role as delivery body for the Government on EMR, as described on page 39. The focus on the cost of energy is important to | |||||||
| 06 |
Market driver
| Impact | |||||||||
US policy is evolving to meet environmental and energy diversity goals |
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In the US, many federal level developments have been through federal agency regulations and Presidential executive orders. At a state level, energy policy continues to evolve in the northeastern US, driven by interest in promoting energy efficiency, maintaining reliability and deploying renewable technologies that help meet environmental and energy diversity goals.
| Options for increased renewable and distributed generation are being explored In the US, the impact on natural gas dependency has resulted in an evaluation of the best way of increasing fuel diversity through renewable and distributed generation resources. We continue to support movement towards a clean energy economy; and support additional measures to increase America’s energy productivity. | |||||||||
Regulation | ||||||||||
Infrastructure investment needs must be balanced with affordability | We must accommodate customers’ cost concerns and also provide safe, up-to-date systems | |||||||||
Regulators acknowledge that there is a significant need for infrastructure investment. However, affordability continues to be a primary concern.
| We must accommodate our customers’ affordability concerns while fulfilling our obligations to provide safe and reliable services and upgrading our systems. Investment is required for new connections, to meet the challenges of changing supply and demand patterns, and to replace ageing infrastructure in the UK and US. | |||||||||
UK regulators want greater efficiency and innovation |
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In the UK, the regulatory focus during the year has been on the
We continue to be engaged in the debate on the regulatory approach to electricity transmission investment, stemming from the projected increase in offshore wind generation and interconnection. | This is driving them to favour more market competition In the UK, competition is already in place for offshore development and Ofgem has stated its intent to retain the option of using greater competition for certain large onshore projects. | |||||||||
| For more information about network efficiency and innovation, see pages | |||||||||
In the We are The Integrated Transmission Planning and Regulation (ITPR) project is looking at long-term challenges such as ageing infrastructure, the changing energy mix, technical developments and innovation, to assess whether the regulatory arrangements currently in place are sufficient to ensure coordination and efficiency in the |
Ofgem has proposed enhancing our role as System Operator (SO) so that the SO has a greater role in system planning. No organisation is currently responsible for taking an overarching view of system development, so opportunities for coordination can potentially be missed. We are working with Ofgem to develop the framework for how the system will | |||||||||
US regulators are focused on system modernisation and integration of new distributed energy resources State officials in Massachusetts and New York have approved gas system investment programmes to accelerate replacement of ageing infrastructure. The Massachusetts Grid Modernization proceeding and New York’s Reforming the Energy Vision effort both focus on deploying advanced electric grid capabilities to improve reliability, more fully exploit distributed energy resources, and provide new opportunities for customers to | Investments to modernise networks and integrate distributed resources will offer new options and value to customers We are expanding gas system enhancement investment programmes and are developing electric grid modernisation plans. Through our regulatory efforts and stakeholder engagement we are seeking to create a regulatory framework that integrates distributed energy resources into the electric grid in a way that is cost effective and delivers benefits to customers. | |||||||||
In the US, FERC issued Order 1000 in 2011 to improve transmission planning and increase competition in the transmission industry. Policies to comply with the Order took effect in New York
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Competitive transmission planning provides opportunities for us Order 1000 has opened our service territory to competition from non-incumbent transmission developers and also created opportunities for us to compete for transmission projects outside of our current geographic footprint. | ||||||||||
Innovation and technology | ||||||||||
Performance improvements and cost declines have led to continued growth in new technologies Distributed generation of solar power has grown significantly due to price declines and tax incentives. Energy storage is growing in the US as certain states set goals and other utilities announce investment plans for storage capacity. The UK hit a record high for wind generation in 2014 of 28 terawatt hours (TWh), 15% greater than the previous year. Plug-in electric vehicle sales in the US and worldwide grew, even as gasoline prices dropped throughout the past year. | Further investment in electricity distribution networks may be necessary to integrate these new technologies
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| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 07 |
What we do – Electricity
The electricity industry connects generation sources to homes and businesses through transmission and distribution networks. Companies that pay to use transmission networks buy electricity from generators and sell it to consumers.
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System operator As system operator (SO) for England and Wales, we coordinate and direct electricity flows onto and over the transmission system, balancing generation supply and user demand. Where necessary, we pay sources of supply and demand to increase or decrease their generation or usage. |
We have the same role for the two high voltage electricity transmission networks in Scotland and we
Our charges for SO services in the UK are subject to a price control approved by Ofgem. System users pay us for connection, for using the system and balancing services.
| As electricity transmission
In the US, similar services are provided by independent system operators. |
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will deliver significant benefits to consumers. These include opportunities for interconnection with Iceland, Denmark and a further link with France. |
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We also jointly own and operate a 224 kilometre interconnector between New England in the US and Canada. | ||||||||||||
We sell capacity on our UK interconnectors through auctions and on our US interconnector through wholesale markets and bilateral contracts. | ||||||||||||
Transmission systems generally include overhead lines, underground cables and substations. They connect generation and interconnectors to the distribution system. | ||||||||||||
We own and operate the transmission network in England and Wales. We operate but do not own the Scottish networks. We are also working in a joint venture with Scottish Power Transmission to construct an interconnector to reinforce the GB transmission system between Scotland and England and Wales. | ||||||||||||
Generation is the production of electricity from fossil fuel and nuclear power stations, as well as renewable sources such as wind and solar. In the US, we own and operate 50 fossil fuel-powered stations on Long Island and 4.6 MW of solar generation in Massachusetts. We do not own or operate any electricity generation in the UK. We sell the electricity generated by our plants on Long Island to LIPA under a long-term power supply agreement. The contract allows us to recover our efficient operating costs and provides a return on equity on our investment in the generation assets. For solar generation, we recover our costs and a reasonable return from customers in Massachusetts through a solar cost adjustment factor. This is added to the electricity rate, net of revenues earned from the solar assets.
Transmission grids are often interconnected so that energy can flow from one country or region to another. This helps provide a safe, secure, reliable and affordable energy supply for citizens and society across the region. Interconnectors also allow power suppliers to sell their energy to customers in other countries. Great Britain is linked via interconnectors with France, Ireland, Northern Ireland and The Netherlands. National Grid owns part of the interconnectors with France and The Netherlands. We are also now entering the construction phase for two new interconnectors, between the UK and Belgium and Norway. We are continuing to work on developing additional interconnector projects, which we believe | In the US, we jointly own and operate transmission facilities spanning upstate New York, Massachusetts, New Hampshire, Rhode Island and Vermont.
Distribution systems carry lower voltages than transmission systems over networks of overhead lines, underground cables and substations. They take over the role of transporting electricity from the transmission network, and deliver it to consumers at a voltage they can use. We do not own or operate electricity distribution networks in the UK. In the US, our distribution networks serve around 3.5 million customers in upstate New York, Massachusetts and Rhode Island.
The supply of electricity involves buying electricity and selling it on to customers. It also involves customer services, billing and the collection of customer accounts. We do not sell electricity to consumers in the UK. All our customers in the US can select a competitive supplier for the supply component of electricity utility services. Where customers choose National Grid, they pay us for distribution and electricity costs. Where they choose to buy electricity from third parties, they pay us for distribution only and pay the third-party supplier for the electricity. Our base charges for electricity supply are calculated to recover the purchased power costs. | |||||||||||
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| 08 |
Strategic Report
3.8 GW
Generation produced in the US
1 Generation
260 km
Approximate length of BritNed interconnector
2 Interconnectors
3 Transmission
99.99999%
Electricity transmission reliability in England and Wales
30 TWh
Approximate amount of electricity we forecast, plan for and procure annually across three states in the US
4 Distribution
3.5 million
US electricity customers
ELECTRICITY
5 Supply
NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 09
Strategic Report
4 Supply
3.6 million
US gas customers
7,660 km
of high pressure pipeline in the UK
3 Distribution
2 Transmission
26,882
New gas heating customers in the US
10.9 million
Customers serviced in the UK
1 Production and importation
14.9%
Approximate percentage of UK gas from LNG imports
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| The gas industry connects producers, processors, storage, transmission and distribution network operators, as well as suppliers to industrial, commercial and domestic users. |
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System operator As system operator we are responsible for the high pressure gas National Transmission System (NTS) in Great Britain. We have responsibility for the residual balancing activities on the NTS and for keeping the physical system within safe operating limits.
| Our price control, set by Ofgem, includes incentives that aim to maintain and improve our daily operational efficiency and are subject to renegotiation at set intervals. | We are the sole owner and operator of gas transmission infrastructure in Great Britain. In the US, we hold a minority interest in two interstate pipelines: Millennium Pipeline Company and Iroquois Gas Transmission System. Interstate pipelines are regulated by the Federal Energy Regulatory Commission (FERC).
In the UK, gas leaves the transmission system and enters the distribution networks at high pressure. It is then transported through a number of reducing pressure tiers until it is finally delivered to consumers. There are eight regional gas distribution networks in the UK, four of which are owned by National Grid. In the US, gas is delivered by the interstate pipeline companies to local distribution networks. Each local distribution company has a geographically defined service territory and is the only local distribution company within that territory. Local distribution companies are regulated by the relevant local state’s utility commission. Our networks deliver gas to 10.9 million consumers in the UK and 3.6 million customers in the US.
Pipeline shippers bring gas from producers to suppliers, who in turn sell it to customers. We do not supply gas in the UK. However, we own National Grid Metering, which provides meters and metering services to supply companies, under contract. In the UK, customers pay the supplier for the cost of gas and for its transportation. We transport the gas through our network on behalf of shippers, who pay us transportation charges. In the US, gas distribution companies, including National Grid, sell gas to consumers connected to their distribution systems. In most cases in the US, where customers choose National Grid, they pay us for distribution and gas costs. Where they choose to buy gas from third parties, they pay us for distribution only and pay the third-party supplier for the gas and upstream transportation capacity. Also in the US, except for residential consumers in Rhode Island, customers may purchase their supply from independent providers with the option of billing for those purchases to be provided by us. |
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Gas used in the UK is mainly sourced from gas fields in the North and Irish seas, piped from Europe and imported as LNG. There are seven gas reception terminals, three LNG importation terminals and three interconnectors connecting Great Britain via undersea pipes with Ireland, Belgium and the Netherlands. Importers bring LNG from the Middle East, the Americas and other places. Gas used in the US is produced mainly in North America. We import LNG from a number of countries. We do not produce gas in either the UK or US. In the UK, we own and operate Grain LNG, an importation terminal and storage facility at the Isle of Grain in Kent, which charges customers under long-term contracts for various services. These include access to our importation terminal, storage facilities and capacity rights. In the US, we own and operate LNG storage and vaporisation facilities, as well as an LNG storage facility in Providence, Rhode Island, where we store gas for third parties for a fee. We also buy gas directly from producers and LNG importers for resale to our customers.
The transmission systems generally include pipes, compressor stations and storage facilities, including LNG storage. They connect production through terminals to the distribution systems. In the UK, gas enters the transmission system through importation and reception terminals and interconnectors and may include gas previously held in storage. Compressor stations located along the network play a vital role in keeping large quantities of gas flowing through the system, particularly at times of high demand. The gas transmission system has to be kept constantly in balance, which is achieved by buying, selling and using stored gas. This means that, under normal circumstances, demand can be met. | ||||||||||||||
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| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 11 |
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| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 13 |
Our vision and strategy
Our vision describes our intentions and aspirations at the highest level. Our strategic objectives set out what we believe we need to achieve to deliver our vision and be recognised as a leader in the development and operation of safe, reliable and resilient energy infrastructure.
Strategic objective | Description | How we deliver | ||||||||||||||
Deliver
| Achieve world-class levels of safety, reliability, security and customer service. | Our customers, communities and other stakeholders demand safe, reliable and secure supply of their energy. This is reflected in our regulatory contracts where we are measured and rewarded on the basis of meeting our commitments to customers and other stakeholders. Pursuing excellence in all our operational processes will allow us to manage our assets efficiently, deliver network improvements quickly and provide services that meet the changing demands of our customers. | ||||||||||||||
Engage
| Create an inclusive, high-performance culture by developing all our employees. | It is through the hard work of our employees that we will achieve our vision, respond to the needs of our stakeholders and create a competitive advantage. Encouraging engaged and talented teams that are in step with our strategic objectives is vital to our success. Our presence within the communities we serve, the people we work with and our opportunities to grow both individually and as a business are all important to making National Grid a great place to work. | ||||||||||||||
Stimulate
| Promote new ideas to work more efficiently and effectively. | Our commitment to innovation allows us to run our networks more efficiently and effectively and achieve our regulatory incentives. Across our business, we explore new ways of thinking and working to benefit every aspect of what we do. Embedding innovation and new technology into our operations helps us deliver continuous improvements in the quality and cost of our services. | ||||||||||||||
Engage
| Work with external stakeholders to shape UK, EU and US energy policy. | Policy decisions by regulators, governments and others directly affect our business. We engage widely in the energy policy debate, so our position and perspective can influence future policy direction. We also engage with our regulators to help them provide the right mechanisms so we can deliver infrastructure that meets the changing needs of our stakeholders. | ||||||||||||||
Embed
| Integrate sustainability into our decision making to create value, preserve natural resources and respect the interests of our communities. | Our long-term sustainability strategy sets our ambition to deliver these aims and to embed a culture of sustainability within our organisation. That culture will allow us to make decisions that protect and preserve natural resources and benefit the communities in which we operate. We remain committed to our targets of a 45% reduction in Scope 1 and 2 greenhouse gas emissions by 2020 and 80% by 2050. | ||||||||||||||
Drive growth
| Grow our core businesses and develop future new business options. | We continue to maximise value from our existing portfolio, while exploring and evaluating opportunities for growth. Making sure our portfolio of businesses maintains the appropriate mix of growth and cash generation is necessary to meet the expectations of our shareholders. We review investment opportunities carefully and will only invest where we can reasonably expect to earn acceptable returns. Combining this disciplined approach with operational and procurement efficiencies gives us the best possible opportunity to drive strong returns and meet our commitments to investors. | ||||||||||||||
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remuneration alignsDelivering our strategy – key performance indicators
to Company strategy
The Remuneration Committee determines remuneration policy and practices through which we aim to promote the success of the Company by attracting, motivating and retaining high-calibre Executive Directors and other senior employees to deliver value for our shareholders, customers and the communities in which we operate.
Our strategy To be a recognised leader in the development and operation of safe, reliable and sustainable energy infrastructure, to meet the needs of our customers and communities and to generate value for our investors.
Our strategic objectives | The Committee believes that the changes will further enhance the long-term alignment between executive remuneration and the delivery of the corporate strategy.
The information set out below describes current rather than future policy.
Alignment to strategy Annual Performance Plan (APP) Our APP aims to incentivise and reward the achievement of annual financial and strategic business measures, and the delivery of annual individual objectives. Performance metrics, including corporate financial measures and individual objectives, are agreed at the start of each performance year and are aligned with the strategic business priorities for that year.
The table below shows the financial measures and their relative weightings that were included within the APP for the Executive Directors for 2013/14:
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Our vision and strategy pages 14 – 15
Remuneration Report
pages 58 – 73
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Deliver operational excellence
Engage our people
Stimulate innovation
Engage externally
Embed sustainability
Drive growth | |||||||||||||||
Andrew Bonfield and Steve Holliday | ||||||||||||||||
| Tom King | Nick Winser | |||||||||||||||
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| Adjusted EPS | 24% | 24% | 24% | |||||||||||||
| Cash flow (Group or regional) | 38% | 28% | 43% | |||||||||||||
UK RoE |
14% |
n/a |
33% | |||||||||||||
| US RoE | 14% | 24% | n/a | |||||||||||||
US capital plan delivery
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24% |
n/a | |||||||||||||
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Financial measures together represent 70% of the APP.
Individual performance objectives in the APP reflect 30% of the plan and are defined in terms of target and stretch performance requirements. The performance objectives change each year, depending upon business priorities. Examples of individual objectives include those relating to safety, stakeholder relations, employee engagement and capability, and the development of Group and financial strategy.
In order to provide balance for all our stakeholders, at the end of the year the Remuneration Committee has discretion to reduce APP awards to take account of any safety, customer, service-related, environmental or governance issues that may have occurred.
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The Remuneration Committee aligns the remuneration policy to our Company strategy and main business objectives. Performance-based incentives are earned through achieving demanding targets for short-term business and individual performance, as well as creating long-term value for our shareholders, customers and the communities in which we operate.
Remuneration Committee review of remuneration During the year, the Remuneration Committee undertook a detailed review of the remuneration arrangements for Executive Directors, with the aim of achieving further alignment between executive reward and long-term shareholder value.
As a result of this review, the Committee is proposing some significant changes to the arrangements for the 2014/15 financial year, and these are set out in detail on pages 58 to 73. Shareholders are being asked to approve these changes at the AGM on 28 July 2014. | ||||||||||||||||
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The Board uses a range of financial and non-financial metrics, reported periodically, against which we measure Group performance.
KPI and definition | ||||||||||||||||
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Adjusted Adjusted earnings represent profit for the year attributable to equity shareholders. This excludes exceptional items, remeasurements and stranded cost recoveries (see pages 103 and 104). Adjusted earnings per share |
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Group return on equity (RoE) We measure our performance in generating value for our shareholders by dividing our annual return by our equity base. This calculation provides a measure of the performance of the whole Group compared with the amounts invested by the Group in assets attributable to equity shareholders. |
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Regulated asset growth Maintaining efficient growth in our regulated assets ensures we are well positioned to provide consistently high levels of service to our customers and increases our revenue allowances in future years. |
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2. Estimated figure until the conclusion of the regulatory reporting cycle.
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Value added Reflects value to shareholders of dividend and growth in National Grid’s assets, net of the growth in overall debt. |
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Employee lost time injury frequency rate Number of employee lost time injuries per 100,000 hours worked in a 12 month period. Our ambition is to achieve a world-class safety performance of below 0.1. |
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We are adding new KPIs to better reflect the issues that matter most to our Company and our stakeholders. For this 2014/15 Report, we have included information about workforce diversity, as set out on pages 18 and 19. We aim to include two further new KPIs in our 2015/16 Report. These relate to community engagement and investment in education, skills and capabilities. Executive remuneration is linked to some of our KPIs. |
Commentary | Target | |||||
For the year ended 31 March 2015, adjusted earnings attributable to equity shareholders increased by £174 million to £2,189 million. This increase in earnings resulted in an adjusted earnings per share of 58.1 pence, an increase of 9% on 2013/14. The earnings increase was driven by a £199 million increase in adjusted operating profit. With the exception of our UK Gas Distribution business, we saw increases in adjusted operating profit across all of our business segments. | Overall adjusted net finance costs reduced by £75 million across the Group which was broadly offset by a higher adjusted tax charge of £114 million reflecting the increase in profits across the Group.
| The adjusted EPS target set as part of executive remuneration for APP was more than met with 100% of maximum achieved (see page 70). | ||||
Group RoE has increased during the year to 11.8%, from 11.4% in 2013/14. The UK regulated businesses delivered good returns of 13.7% in aggregate in the second year of their new price controls, including the assumed 3% long run average RPI inflation. | US returns of 8.4% were slightly down on last year, reflecting the additional costs incurred on gas leak repair and compliance and the increased level of rate base growth since 2013.
| The Group RoE target set as part of executive remuneration for APP was more than met with 100% of maximum achieved (see page 70). | ||||
Our regulated assets have increased by 7% (£2.3 billion) to £37.0 billion. This reflects the continued high levels of investment in our networks in both the UK and US, together with the impact of the stronger US dollar. The rate of growth at constant currency was 3%. | The UK regulatory asset value (RAV) increased by £0.5 billion, reflecting significant capital expenditure, together with inflation, although at 0.9% RPI, this has had a smaller impact than in recent years. US rate base has increased by £1.8 billion this year. Of this, £1.2 billion was due to foreign exchange movements increasing the rate base reported in sterling. Excluding foreign exchange, rate base increased by £0.6 billion, reflecting a record year of US investment.
| No specific target. Our overall aim is to increase regulated asset growth above the underlying rate of inflation. | ||||
Value added in the year was lower than 2013/14, primarily due to the impact of lower RPI on UK regulated asset growth. RPI inflation for March 2015 was 0.9% compared with 2.5% in March 2014 and National Grid’s long run assumption of 3%. | Of the £1.7 billion value added in 2014/15, £1,271 million was paid to shareholders as cash dividends and £335 million as share repurchases (offsetting the scrip issuance during the year), with £79 million retained in the business.
| No specific target. Our overall aim is to sustainably grow value added over the long term while maintaining performance of our other financial KPIs. | ||||
In the UK we maintained a world-class employee safety performance during 2014/15, with an employee injury frequency rate of 0.09. Our US business improved its safety performance, with an employee injury frequency rate of 0.15. | Overall, our Company-wide injury frequency rate of 0.13 is better than last year and means that we bettered our target of 0.15. However, we did not meet our ambition to reach a world-class level by 2015.
and US Principal operations: pages 33–35 | We achieved our Company-wide employee IFR target of 0.15. |
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| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 17 |
Strategic Report | ||
Delivering our strategy – key performance indicatorscontinued | ||
KPI and definition
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Our performance
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Network reliability | Performance | Measure | Target | |||||||||||||||||||||
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The reliability of our electricity and gas networks. | UK Electricity Transmission | 99.9999 | 99.999999 | 99.99999 | 99.99999 | 99.99999 | % | 99.9999 | ||||||||||||||||
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UK Gas Transmission | 100 | 100 | 100 | 100 | 100 | % | 100 | |||||||||||||||||
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UK Gas Distribution | 99.999 | 99.999 | 99.999 | 99.999 | 99.999 | % | 99.999 | |||||||||||||||||
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Electricity transmission – US | 99.969 | 99.960 | 99.958 | 99.957 | 99.942 | % | – | |||||||||||||||||
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Electricity distribution – US | 99.997 | 99.977 | 99.980 | 99.980 | 99.969 | % | 1 | |||||||||||||||||
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1. Targets are set individually by each of our US jurisdictions.
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Customer satisfaction | Performance | Measure | Target | |||||||||||||||||||||
| 10/11 | 11/12 | 12/13 | 13/14 | 14/15 | 14/15 | |||||||||||||||||||
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We measure customer satisfaction in the UK using RIIO related metrics agreed with Ofgem. In the US, we use J.D. Power and Associates customer satisfaction surveys. | UK Electricity Transmission | n/a | n/a | n/a | 7.4 | 7.4 | Score out of 10 | 6.91 | ||||||||||||||||
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UK Gas Transmission | n/a | n/a | n/a | 7.2 | 7.6 | Score out of 10 | 6.91 | |||||||||||||||||
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UK Gas Distribution | n/a | n/a | n/a | 8.2 | 2 | Score out of 10 | 8.31 | |||||||||||||||||
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US Gas distribution – Residential | 2nd | 3rd | 3rd | 2nd | 4th | Quartile ranking | To improve | |||||||||||||||||
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US Gas distribution – Commercial | 4th | 3rd | 4th | 4th | 4th | Quartile ranking | To improve | |||||||||||||||||
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US Electricity – Residential | 3rd | 3rd | 3rd | 2nd | 3rd | Quartile ranking | To improve | |||||||||||||||||
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US Electricity – Commercial | 2nd | 2nd | 3rd | 2nd | 2nd | Quartile ranking | To improve | |||||||||||||||||
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1. Figures represent our baseline targets set by Ofgem for reward or penalty under RIIO. | ||||||||||||||||||||||||
2. Under RIIO-GD1, our customer satisfaction results are now reported on an annual basis, rather than quarterly, which was how we reported them under our previous price control. We will publish the results on our website in the summer as part of our commitment to our stakeholders, and in our Annual Report and Accounts for 2015/16.
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Employee engagement index | Employee engagement index % | |||||||||||||||||||||||
A measure of how engaged our employees feel, based on the percentage of favourable responses to certain indicator questions repeated annually in our employee opinion survey. |
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Greenhouse gas emissions | Greenhouse gas emissions million tonnes carbon dioxide equivalent | |||||||||||||||||||||||
Scope 1 and Scope 2 greenhouse gas emissions of the six primary Kyoto greenhouse gases (excluding electricity transmission and distribution line losses). Our target is to reduce our greenhouse gas emissions by 45% by 2020 and 80% by 2050, compared with our 1990 emissions of 19.6 million tonnes.
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Workforce diversity | Workforce diversity % | |||||||||||||||||||||||
Percentage of women and ethnic minorities in our workforce. |
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| 18 |
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Commentary | Target | |||||||
We aim to deliver reliability by: planning our capital investments to meet challenging demand and supply patterns; designing and building robust networks; risk-based maintenance and replacement programmes; and detailed and tested incident response plans. In the UK, our networks performed well. Despite tighter winter margins than previous years, we were able to operate the system without calling upon our additional reserve. | In the US, despite low temperatures and record levels of snowfall in parts of New England our network resilience held up well. We invested millions of dollars in both our electricity and gas infrastructure to improve resilience and help reduce the impact of service interruptions.
and US Principal operations: pages 32–35 | We achieved our targets, which are set out in the table for our UK networks, and are set individually for each of our US jurisdictions. | ||||||
Our customer satisfaction KPI comprises seven components: Ofgem’s UK electricity transmission, gas transmission and gas distribution customer satisfaction scores; and four J.D. Power and Associates customer satisfaction surveys in the US. We have exceeded the two UK electricity and gas transmission targets; the outcome for the third UK KPI component will be published later this year (see note opposite). | In the US, we did not achieve our targets. Customers were concerned about higher-than-normal winter bills as a result of electricity commodity price increases and higher gas usage due to cold weather. In an effort to rebuild trust and customer satisfaction, we put in place a customer outreach and education programme that focused on energy saving solutions and bill management.
and US Principal operations: pages 32–35 | Our targets for each business area are set out in the table. We achieved our UK transmission targets, but did not achieve our US targets. | ||||||
We measure employee engagement through our employee opinion survey. The results of our 2015 survey, which was completed by 83% of our employees, have helped us identify specific areas where we are performing well and those areas we need to improve. Our engagement index has risen by four points to 75%, our highest engagement score since we started conducting Group-wide employee opinion surveys. Managers receive a scorecard that aims to | create greater leadership accountability and we produce survey reports and action plans at Company, regional, business unit, function and team levels.
| We achieved our target of increasing engagement compared with the previous year. | ||||||
Our Scope 1 and 2 greenhouse gas emissions (excluding electricity transmission and distribution line losses) for 2014/15 equate to 7.3 million tonnes carbon dioxide equivalent; a 63% reduction against our 1990 baseline. These emissions are equivalent to an intensity of around 478 tonnes per £million of revenue. We measure and report our greenhouse gas emissions in accordance with the World Resources Institute and World Business Council on Sustainable Development | Greenhouse Gas Protocol: Corporate Accounting and Reporting Standard (Revised Edition) for all six Kyoto gases, using the operational approach for emissions accounting. Those Scope 1 and 2 emissions are independently assured against the international standard ISO 14064-3 Greenhouse Gas assurance protocol. A copy of this statement of assurance is available on our website. | Our target, described on the facing page, is in progress. | ||||||
During 2014/15, the percentage of both women and ethnic minorities in our workforce increased slightly. For more details about the breakdown by gender at different levels of the organisation, as well as information relating to subsidiary directors, see page 25. During 2014/15 we were recognised as a Times Top 50 Employer for Women for 2015 and reached the Gold level in our benchmarking with both Race for | Opportunity and Opportunity Now. In the UK and US, our Employee Resource Groups continue to support our business goals and inclusion and diversity initiatives.
| No specific target set. We aim to develop and operate a business that has an inclusive and diverse culture. |
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| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 19 |
Financial review | ||||
| We have delivered another year of strong financial performance in the UK and solid performance in the US with record investment levels. |
Additional commentary on financial KPIs Adjusted operating profit Adjusted operating profit for the year ended 31 March 2015 was £3,863 million, up £199 million (5%) from last year. With the exception of our UK Gas Distribution business, we saw increases in operating profit in all of our business segments. Adjusted operating profit by segment£m
For the year ended 31 March 2015, adjusted operating profit in the UK Electricity Transmission segment increased by £150 million. Net regulated income after pass-through costs was £230 million higher, principally reflecting increases in allowed transmission owner revenues this year and a £43 million benefit relating to legal settlements. This was partially offset by under-recoveries of allowed revenue in the year of £89 million compared with under-recoveries of £60 million in the prior year. Regulated controllable costs were £14 million higher due to inflation, organisational change costs and additional tower maintenance costs. Depreciation and amortisation was £33 million higher reflecting the continued capital investment programme, and other costs were £4 million higher than prior year. UK Gas Transmission adjusted operating profit increased by £20 million to £437 million. Net regulated income after pass-through costs was £42 million higher due to earned gas permit and constraint management incentives. In addition, under-recoveries of allowed revenue in the year of £18 million were £3 million favourable to last year’s under-recoveries of £21 million. Partially offsetting the revenue gains, regulated controllable costs were £8 million higher, including additional system operator costs relating to EU work. Other operating costs were also £17 million higher, including decommissioning costs of the Avonmouth LNG plant. UK Gas Distribution adjusted operating profit decreased to £826 million from £904 million in 2013/14. Net regulated income after pass-through costs was £11 million lower, reflecting changes in allowed revenues for repex expenditure. Timing differences reduced net revenues by a further £16 million, with £13 million over-recoveries in 2014/15 compared with a £29 million over-recovery in the prior year. Regulated controllable costs were £22 million higher primarily due to inflation and organisational change costs. Depreciation and amortisation was £15 million higher reflecting the continued capital investment programme, and other costs were £14 million higher than prior year, including provision for additional asset protection costs. | Within our US Regulated businesses, adjusted operating profit increased by £39 million to £1,164 million. The stronger dollar increased operating profit in the year by £30 million. Excluding the impact of foreign exchange, net regulated income increased by £81 million, reflecting increased revenue allowances under the Niagara Mohawk three year rate plan and other regulated revenue increases, partially offset by the impact of the end of LIPA management services agreement (MSA) in December 2013. In addition, over-recoveries of allowed revenues in the year of £30 million were £20 million favourable to last year’s over-recoveries of £10 million. Regulated controllable costs increased by £17 million excluding the impact of foreign exchange, as a result of increased gas leak and compliance work and additional costs incurred to improve data quality to bring regulatory filings up to date. This was partly offset by the removal of costs associated with the LIPA MSA activities. Following last year’s exceptionally cold winter, bad debt costs were £62 million higher excluding the impact of foreign exchange. There were no major storms affecting our operations in the years ended 31 March 2014 and 2015. Adjusted operating profit in Other activities was £68 million higher at £199 million. Operating profit in the French interconnector was £18 million higher as a result of strong auction revenues this year. In the US, corporate and other activities losses were £63 million lower, mainly as a result of the completion of the enterprise resource planning system stabilisation in the first half of the year. Adjusted earnings For the year ended 31 March 2015, adjusted net finance costs were £75 million lower than 2013/14 at £1,033 million, mainly as a result of lower average gross debt through the year, lower RPI rates in the UK and refinancing debt at lower rates. The adjusted tax charge was £114 million higher than 2013/14. This was mainly due to higher profits before tax and the non-recurrence of one-off items that benefited the prior year. As a result of this, the effective tax rate for 2014/15 was 24.2% (2013/14: 22.5%). The earnings performance described above has translated into adjusted earnings of £2,189 million, up £174 million on last year. This equates to adjusted earnings per share (EPS) of 58.1 pence, up 4.6 pence (9%) on 2013/14. Scrip restatement In accordance with IAS 33, all EPS and adjusted EPS amounts for comparative periods have been restated as a result of shares issued via scrip dividends. Measurement of financial performance We describe and explain our results principally on an adjusted basis and explain the rationale for this on page 186. We present results on an adjusted basis before exceptional items, remeasurements and stranded cost recoveries. See page 186 for further details and reconciliations from the adjusted profit measures to IFRS, under which we report our financial results and position. |  | ||||||||
| 20 |
This section provides additional commentary on our KPIs and other performance metrics we use to monitor our business performance. Analysis of our financial performance and position as at 31 March 2015, including detailed commentary on the performance of our operating segments, is located in the financial statements. However, this analysis still forms part of our Strategic Report financial review. See page 77 for further information. See pages 187 to 189 for commentary on our financial performance and position for the year ended 31 March 2014 compared with 31 March 2013. We have also included analysis of our UK regulated financial performance by segment on page 100. |
A reconciliation between reported operating profit and adjusted operating profit is provided below. Further commentary on movements in the income statement is provided on page 87. | US rate base has increased by £1.8 billion this year. Of this, £1.2 billion was due to foreign exchange movements increasing the rate base reported in sterling. Excluding foreign exchange, rate base increased by £0.6 billion, reflecting a record year of US investment.
Value added Our dividend is an important part of returns to shareholders along with growth in the value of the asset base attributable to equity investors. These are reflected in the value added metric that underpins our approach to sustainable decision-making and long-term incentive arrangements.
Overall value added in the year was £1.7 billion or 44.7 pence per share as set out below: |
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| Year ended 31 March | ||||||||||||||||||||||||||||||
| £m | 2015 | 2014 | 2013 | |||||||||||||||||||||||||||
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Total operating profit Exceptional items Remeasurements – commodity contracts Stranded cost recoveries |
| 3,780 –
83 – |
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| 3,735 (55)
(16) – |
| 3,749 84
(180) (14) | |||||||||||||||||||||||
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Adjusted operating profit | 3,863 | 3,664 | 3,639 | |||||||||||||||||||||||||||
Adjusted net finance costs | (1,033) | (1,108) | (1,124) | |||||||||||||||||||||||||||
Share of post-tax results of | ||||||||||||||||||||||||||||||
joint ventures | 46 | 28 | 18 | |||||||||||||||||||||||||||
Adjusted taxation | (695) | (581) | (619) | |||||||||||||||||||||||||||
Attributable to non- | ||||||||||||||||||||||||||||||
controlling interests | 8 | 12 | (1) | |||||||||||||||||||||||||||
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Adjusted earnings | 2,189 | 2,015 | 1,913 | |||||||||||||||||||||||||||
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Adjusted EPS (pence) | 58.1 | 53.5 | 50.9 | Year ended 31 March | ||||||||||||||||||||||||||
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| £bn at constant currency | 2015 | 2014 | Change | |||||||||||||||||||||||||||
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| UK regulated assets1 | 25.5 | 25.2 | +0.3 | |||||||||||||||||||||||||||
| Group return on equity (RoE) | US regulated assets1 | 13.5 | 12.6 | +0.9 | ||||||||||||||||||||||||||
We measure our performance in generating value for our shareholders by dividing our annual return by our equity base.
Group RoE has increased during the year to 11.8%, from 11.4% in 2013/14. During the year, the UK regulated businesses delivered good returns of 13.7% in aggregate in the second year of their new price controls (2013/14: 12.7%), including the assumed 3% long-run average RPI inflation. US returns (on a higher average equity ratio than the UK) of 8.4% were down on last year, reflecting the additional costs incurred on gas mains repair and emergency leak response and the increased level of rate base growth since 2013. Overall, other activities in the Group delivered a good performance, including an improved result from the French interconnector and lower US corporate costs following the completion of the enterprise resource planning system stabilisation during the year. Treasury performance also helped the result, partly assisted by lower RPI accretions on the Group’s index-linked debt. Together, these helped to offset the headwind from lower cost of debt allowances under the tracker within the new UK price controls.
Regulated asset growth In total our UK regulated asset value (RAV) and US rate base increased by £2.3 billion (7%) to £37.0 billion. This reflects the continued high levels of investment in our networks in both the UK and US, together with the impact of the stronger US dollar. The rate of growth at constant currency was 3%.
The UK RAV increased by £0.5 billion, reflecting significant capital expenditure, together with inflation, although at 0.9% RPI, this has had a smaller impact than in recent years. UK RAV growth also included capitalised efficiencies or ‘performance RAV’ of £111 million this year. | Other invested capital | 1.6 | 1.7 | -0.1 | ||||||||||||||||||||||||||
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Total assets | 40.6 | 39.5 | +1.1 | |||||||||||||||||||||||||||
Dividend paid |
+1.3 | |||||||||||||||||||||||||||||
Share buyback |
+0.3 | |||||||||||||||||||||||||||||
Movement in goodwill | – | |||||||||||||||||||||||||||||
Net debt |
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(23.9) |
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(22.9) |
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-1.0 | |||||||||||||||||||||||
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Value added |
+1.7 | |||||||||||||||||||||||||||||
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Value added per share |
44.7p | |||||||||||||||||||||||||||||
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1. Includes assets held outside RAV and rate base. | ||||||||||||||||||||||||||||||
Value added in the year was lower than 2013/14 (£2.1 billion or 57.2 pence per share), primarily led by the impact of lower RPI on UK regulated asset growth. RPI inflation for March 2015 was 0.9% compared with 2.5% in March 2014 and National Grid’s long-run assumption of 3.0%. Of the £1.7 billion value added in 2014/15, £1,271 million was paid to shareholders as cash dividends and £335 million (excluding £3 million of transaction costs) as share repurchases (offsetting the scrip issuance during the year), with £79 million retained in the business.
The Board is confident that growth in assets, earnings and cash flows, supported by improving cash efficiency and an exposure to attractive regulatory markets, should help the Group to maintain strong, stable credit ratings and a consistent prudent level of gearing, while delivering attractive returns for shareholders.
Other performance measures UK regulated return on equity The UK RoE has increased 100bps to 13.7%, reflecting particularly strong incentive performance in the Gas Transmission business and further outperformance against our totex targets in Electricity Transmission, achieved through efficiencies within the capital investment programme. This performance represents 360bps outperformance over allowed returns. Our UK RoE does not include the impact of legal settlement benefits of £56 million. If these were included UK RoE would increase by 60bps to 14.3%. | ||||||||||||||||||||||||||||||
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| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 21 |
Strategic Report | ||
Financial reviewcontinued | ||
UK return on equity%
US regulated return on equity The US RoE has decreased 60bps to 8.4%, reflecting the additional costs incurred this year as a result of the severe winter weather and the additional gas mains leak investigation and repair work required, together with rate base growth. US return on equity1%
1. Calculated on a calendar year basis. Cash generated from operations Cash generated from operations was £5,350 million (2013/14: £4,419 million). Changes in working capital improved by £360 million over the prior year, principally in the US (£441 million) due to the collection of high winter 2014 billings and other settlements including Superstorm Sandy reinsurance claims and LIPA receipts. Cash outflows relating to exceptional items were £133 million lower, as the prior year included reorganisation costs in the UK and LIPA MSA transition costs in the US. Net debt and credit metrics Our net debt levels will continue to grow for the next few years as we fund our capital investment programmes and enhance our networks. We continue to borrow at attractive rates when needed and the level of net debt remains appropriate for our business. During 2014/15, net debt has increased by £2.7 billion. This is predominantly due to movements in foreign exchange rates as the US dollar strengthened against sterling. Gross borrowings are relatively consistent year on year, reflecting the current year net refinancing of maturities and bond repurchases, while cash and investment levels have been actively managed down. With the commencement of the RIIO price controls in 2013 and the slow down in our planned near-term UK capital investment programme as the industry assesses the impact of Electricity Market Reform, we reviewed and restructured the Group debt portfolio. The review resulted in a £924 million bond repurchase programme, of which £295 million was achieved through a cash tender offer for five bonds. The net repurchase cost of £131 million has been presented as exceptional finance costs in the income statement, as noted on page 104. | A key measure we use to monitor financial discipline is retained cash flow divided by adjusted net debt (RCF/net debt). This is a measure of the operating cash flows we generate, before capital investment but after dividends paid to shareholders, compared with the level of debt we hold. The principal adjustment made to net debt is to include pension deficits. RCF/net debt was 11.2% for the year (2013/14: 10.5%; 2012/13: 11.4%). For the current year we have used this measure to actively manage scrip uptake through buying back shares when supported by sufficient headroom. Deducting the cost of buying back these shares reduces RCF/net debt to 9.9% for the year. Our long-term target range for RCF/net debt is to exceed 9.0%, which is consistent with the A3 rating threshold used by Moody’s, the rating agency. |
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We additionally monitor interest cover, which is a measure of the cash flows we generate compared with the net interest cost of servicing our borrowings. Interest cover for the year was 5.1 times (2013/14: 4.1 times; 2012/13: 3.9 times). Our target long-term rate for interest cover is in excess of 3 times. Return on capital employed RoCE provides a performance comparison between our regulated UK and US businesses and is one of the measures that we use to monitor our portfolio of businesses. The table below shows our RoCE for our businesses over the last five years: Return on capital employed%
The UK RoCE has increased from 8.0% to 8.6% in 2014/15. This reflects the strong incentive performance in Gas Transmission and further totex outperformance in Electricity Transmission, together with one-off benefits of legal settlements in the year. US RoCE has decreased by 40bps in the year to 6.0%, as a result of the additional maintenance to improve reliability and safety and bring regulatory filings up to date, together with rate base growth driven by capital expenditure spend. Capital expenditure For the year ended 31 March 2015, capital expenditure of £3,470 million was at a similar level to last year, with reductions in spend in UK Electricity Transmission being offset by increases in capital spend in our US Regulated businesses. The reduction in spend in UK Electricity Transmission reflected delays in the manufacture of cable for the Western HVDC link and a reduced level of overhead line work, with a number of projects having completed over the last two years. In addition |
| 22 |
we continue to look for innovative ways to reduce total expenditure (totex) under our RIIO regulatory arrangements while still delivering agreed outputs. Within our US Regulated businesses, capital expenditure was higher year on year reflecting higher levels of mains replacement work, gas system reinforcement and growth spend, electricity capacity spend and progress on the New England East-West Solution (NEEWS) electricity transmission project. Capital expenditure£m
Dividend growth We remain committed to our dividend policy to grow the dividend at least in line with the rate of average RPI inflation each year for the foreseeable future. During the year we generated £2.1 billion of business net cash flow after our capital expenditure programmes. This has enabled the growth of the dividend in line with average RPI, being 2.0% (2013/14: 2.9%; 2012/13: 4.0%), taking into account the recommended final dividend of 28.16 pence. During the year, the Company has repurchased shares in the market with the overall goal being to reduce the dilutive effect of the scrip as much as possible to the extent that is consistent with maintaining the Group’s strong financial position as reflected in its credit rating. Regulatory financial performance Timing and regulated revenue adjustments As described on pages 166 to 172, our allowed revenues are set in accordance with our regulatory price controls or rate plans. We calculate the tariffs we charge our customers based on the estimated volume of energy we expect will be delivered during the coming period. The actual volumes delivered will differ from this estimate. Therefore, our total actual revenue will be different from our total allowed revenue. These differences are commonly referred to as timing differences. If we collect more than the allowed level of revenue, the balance must be returned to customers in subsequent periods, and if we collect less than the allowed level of revenue we may recover the balance from customers in subsequent periods. In the US, a substantial portion of our costs are pass-through costs (including commodity and energy efficiency costs) and are fully recoverable from our customers. Timing differences between costs of this type being incurred and their recovery through revenue are also included in timing. | The amounts calculated as timing differences are estimates and subject to change until the variables that determine allowed revenue are final. Our operating profit for the year includes a total estimated in-year under-collection of £64 million (2013/14: £42 million under-collection). Our closing balance at 31 March 2015 was £27 million under-recovered. In the UK, there was a cumulative under-recovery of £177 million at 31 March 2015 (2014: under-recovery of £83 million). All other things being equal, the balance will start to be recovered from customers in the year ending 31 March 2016. In the US, cumulative timing over-recoveries at 31 March 2015 were £150 million (2014: £117 million over-recovery). The majority of that balance will be returned to customers next year. In addition to the timing adjustments described above, as part of the RIIO price controls in the UK, outperformance against allowances as a result of the totex incentive mechanism, together with changes in output-related allowances included in the original price control, will almost always be adjusted in future revenue recoveries, typically starting in two years’ time. Our current IFRS revenues and earnings include these amounts that will need to be repaid or recovered in future periods. Such adjustments will form an important part of the continuing difference between reported IFRS results and underlying economic performance based on our regulatory obligations. For our UK regulated businesses as a whole, regulated revenue adjustments totalled £174 million in the year (2013/14: £106 million). This is based on our estimates of: work carried out in line with allowances; in expectation of future allowances; or work avoided altogether – either as a result of us finding innovative solutions or of the need being permanently removed. In the US, accumulated regulatory entitlements to future revenue net of over- or under-recoveries amounted to £1,528 million at 31 March 2015 (2014: £1,024 million). These entitlements cover a range of different areas, with the most significant being environmental remediation and pension assets, as well as deferred storm costs. All regulatory entitlements are recoverable (or repayable) over different periods, which are agreed with the regulators to match the expected payment profile for the liabilities. As at 31 March 2015, these extend until 2071. Major storms Despite the very cold winter across much of the US including record snowfall in parts of New England, there were no major storms in 2014/15 or 2013/14. |
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| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 23 |
Our people | ||
If we are to achieve our strategic objectives, we need to make sure our employees have the right skills and capabilities. |
| Safeguarding the future There is a significant skills challenge facing the engineering profession in the UK. Research by EngineeringUK has highlighted a need for 1.8 million engineers, technicians and crafts people over the period 2012–2022. Around 60% of all new jobs in this period will need science, technology, engineering and maths (STEM) qualifications, yet not enough school children succeed in these areas. There is a similar challenge in the US where the number of scientists and engineers needed to meet growth and net replacement needs between 2012 and 2022 is 2.3 million, including 1.2 million in the computer occupations and more than 540,000 engineers. We are helping schools, parents and children see engineering as a modern, dynamic, desirable career with a great future. Our employees act as education ambassadors who volunteer their time for a range of activities in the classroom and at science and engineering fairs, most notably on STEM enrichment, careers education and work experience programmes. Our careers education programmes in the UK include Careers Lab, an initiative we developed that was taken up by the charity Business in the Community in November 2014. It links working professionals from a range of sectors with schools to bring the world of work to life for secondary school children. A further initiative is the ‘Engineer Your Future’ exhibition at London’s Science Museum, which opened in December 2014 and explores engineering challenges through interactive games and digital experiences. During 2014/15, we have expanded our residential work experience programme (balanced 50/50 between girls and boys) to include a non-residential programme for students aged 16–19 who are in sixth form or college and do not have an existing relationship with an employer. This year, we invested nearly £900,000 in our education outreach, bringing benefits to 70 schools and more than 9,000 students who receive at least one hour of STEM/careers experience with our education ambassadors. We expect this to grow considerably in the UK through Careers Lab. In the US, we continue to partner with seven local community colleges to deliver energy utility technology training programmes, designed to equip people for jobs in the energy industry. These programmes currently focus on future line workers. We plan to expand them to include technical skills for the gas industry. We are continuing our partnership with the Center for Energy Workforce Development on its ‘energy industry fundamentals’, and we work with veterans through the US Troops to Energy Jobs programme. This is designed to help veterans make the transition from military service to the energy/utility industry. | We completed the fifth year of our Engineering Pipeline Program. This is a developmental programme designed to inspire promising students to become engineers and provide them an opportunity for fast tracked employment with National Grid. We are working with the State University of New York and its network of colleges and universities. The aim is to prepare students for careers in the energy and utilities industry by improving the educational opportunities available to them. We expect this partnership to increase the volume of qualified entry-level candidates looking to join National Grid. Our US work experience opportunities include six to eight week summer internships for college students, so they can gain work experience with National Grid. A number of these interns start their journey into the energy industry through our Engineering Our Future programme and go on to join our Company. In the UK, we offer summer internships and also 12 month industrial placements to undergraduates in their penultimate year. These programmes offer students the opportunity to experience the culture, working and ethical practices of National Grid before they make the all-important decision to join the organisation as graduates. Building skills and expertise During 2014/15, we have worked on boosting the capabilities of our employees in the areas of Performance Excellence (see page 27), stakeholder engagement, customer focus and contract management. We see these capabilities as being crucial in helping us improve our performance and meet regulatory and customer expectations. More than 900 employees have attended our Performance Excellence programmes; more than 650 employees have attended our stakeholder engagement and customer focus programmes; and around 250 employees have attended our contract management programmes. Our executive team and senior leaders in the UK and US are participating in a programme to develop performance leadership skills. To prepare for our future engineering skills needs, we have built aT-pylon development facility at our Eakring learning centre in the UK. We remain committed to investing in our people, providing the training and other support necessary for them to build, maintain and operate our networks safely and reliably, and this year we provided more than one million learner hours of training across our UK and US businesses. |
| 24 |
Promoting an inclusive and diverse workforce We aim to develop and operate our business with an inclusive and diverse culture, with equal opportunity to all in recruitment, career development, training and reward. This applies to all employees regardless of race, gender identity, nationality, age, disability, sexual orientation, religion and background. Our policies support the attraction and retention of the best people, improve effectiveness, deliver superior performance and enhance our success.
In the UK we were recognised as a Times Top 50 Employer for Women for 2015 and reached the Gold level in our benchmarking with both Race for Opportunity and Opportunity Now during 2014. Both these campaigns also recognised us as a Top 10 private sector employer. Our Employee Resource Groups (ERGs) continue to support our business goals and participate in events that encourage students to consider careers needing STEM qualifications.
In the US, our ERGs support our business goals and ambitions. They are at the forefront of our inclusion and diversity initiatives – including our commitment to hire veterans and people with disabilities, as well as our efforts to promote understanding of unconscious bias.
The table below shows the breakdown by gender at different levels of the organisation. We have included information relating to subsidiary directors, as this is required by the Companies Act 2006 (Strategic Report and Directors’ Reports) Regulations 2013. We define ‘senior management’ as those managers who are at the same level, or one level below our Executive Committee. It also includes those who are directors of subsidiaries, or who have responsibility for planning, directing or controlling the activities of the Company, or a strategically significant part of the Company, and are employees of the Company.
| Health and wellbeing Among our programmes for 2014/15 we have worked to address the stigma and discrimination associated with mental health. We signed the UK Government-led ‘Time to Change’ pledge and have trained a further 92 employees in mental health first aid. We have also helped more than 4,000 of our employees and our service providers’ staff understand their ‘heart age’ and run a weight-loss campaign that raised more than £4,000 for Macmillan Cancer Support.
In the US we have refreshed our soft tissue injury programme, aimed at helping reduce muscular skeletal disorders. Our employee opinion survey results continue to show that employees have a growing awareness of our wellbeing programmes.
Volunteering Our employees continue to support our local communities, sharing their time and expertise on a range of skills-based volunteering and fundraising activities.
In the UK we raised over £500,000 for good causes and provided over 9,000 hours of support to community projects. Our support of City Year now includes a new mentoring programme in Birmingham and we launched ‘Good Leaders’, a programme that shares our leadership expertise with the charity sector. In the US, our Power to Serve employee volunteering programme supports our stewardship and safety principles. It seeks to acknowledge existing community service, as well as to create new volunteer opportunities for employees.
Human rights Respect for human rights is incorporated into our employment practices and our values. See page 185 for more information. |
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| Financial year ended 31 March 2015 | ||||||||||||||||||||||||||
| Male | Female | Total | Male % | Female % | ||||||||||||||||||||||
Our Board | 8 | 3 | 11 | 72.7 | 27.3 | |||||||||||||||||||||
Senior management | 183 | 58 | 241 | 75.9 | 24.1 | |||||||||||||||||||||
Whole Company* | 18,554 | 5,720 | 24,274 | 76.4 | 23.6 | |||||||||||||||||||||
* This measure is also one of our Company KPIs. See pages 18 and 19 for more information. | ||||||||||||||||||||||||||
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Inspiring future engineers
Connecting to life:
Engineer Your Future
We are part of a business consortium supporting ‘Engineer Your Future’ at the UK’s Science Museum in London. The exhibition will run until the end of 2017 and is designed to inspire and engage young people about the exciting world of engineering. This complements the work we are doing with young people and organisations like VEX Robotics, shown above.
The exhibition features a series of interactive hands-on exhibits, including FutureVille, a vibrant futuristic cityscape controlled by the visitor’s smartphone. The Science Museum is using ‘Engineer Your Future’ to pledge support to the UK Government’s Your Life campaign, which aims to boost the number of young people in the UK studying physics and mathematics. nationalgridconnecting.com/inspiring-for-the-future sciencemuseum.org.uk/engineeryourfuture
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We have responded to concerns about the cost of energy and the security of the UK’s energy supply. In evidence to parliamentary inquiries we have explained our role, the services we provide and what those services cost. We have also been working with stakeholders in Europe to plan for Our non-regulated businesses have
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Principal risks
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System Operator (SO) progress Our SO role is described on pages 08 and 11. The UK faces tightening capacity margins between supply and demand for the next three years. Helping the market to make the right decisions to maintain security of supply has been an important theme in our role as SO during 2014/15. Following a number of generation plant outages over the winter, the two new balancing services developed to provide additional reserves were tendered as a precaution. Although these additional reserves were not used this year, they have also been tendered to procure additional capacity for winter 2015/16 when margins are predicted to tighten further. We have continued to work with stakeholders to develop and implement EMR. We completed pre-qualification and auctions for the Capacity Market and the Contract for Difference (CfD) feed-in tariff regime. The capacity market auction this year procured additional capacity ready for the first year of delivery in 2018/19. Contracts were signed with 25 applicants following the first auction for CfD. We have led the development of changes to the gas transmission regulatory framework that will help customers plan their long-term projects through an improved way of reserving capacity. We have also developed a new framework that adds current system operation knowledge to long-term predictions about the future energy landscape. This helps us plan for the right services and products to operate the system in the future. | ||||||||||
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Our role as SO is set to evolve during 2015/16, following the conclusion of Ofgem’s Integrated Transmission Planning and Regulation project. As part of this, the SO is expected to undertake a number of new advisory roles. We have a long track record in successfully managing potential conflicts of interest from our SO role and will work closely with Ofgem to make sure this continues. We will also be engaging further with the industry, aiming to increase opportunities for demand-side participation within the GB market. |
Performance Excellence Performance Excellence is an approach that will help us to achieve our Company objectives by looking for improvements to all of our processes. It aims to save time and make us more efficient so we can deliver better value for our customers and stakeholders – from new ideas that improve processes, to introducing equipment that does things more effectively. For example, in our UK Gas Distribution business, regional Performance Excellence teams are working with our operational teams to identify their common challenges and find the right solutions. As a result we have introduced a new helpdesk service for our Gas Distribution field force. This new service means technology problems are resolved more quickly, helping them to be more productive and better meet customer needs. See page 35 to read more about Performance Excellence in the US. | ||||||||||||
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Principal operationscontinued | ||
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What we do We own the electricity transmission system in England and Wales. Our networks comprise approximately 7,200 kilometres (4,470 miles) of overhead line,
Although demand for electricity is generally increasing around the world, in the UK it is expected to remain broadly flat over the next five to 10 years.
| Changes in the sources and characteristics of generation connecting to our network, such as wind and nuclear generation, mean we need to
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The full tunnel network on our London Power Tunnels project has been completed, and the remaining works programme is forecast to complete ahead of schedule and under budget. We have also completed the development of a £164 million asset replacement and customer connection project for Wimbledon.
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Our Visual Impact Provision (VIP) project gathered pace. Our policy to make use of the £500 million allowance under RIIO to mitigate the visual impact of our overhead lines in National Parks and Areas of Outstanding Natural Beauty was agreed with Ofgem. A stakeholder advisory group, including representatives of organisations with a national focus on our natural heritage, is helping us choose which transmission lines should be prioritised and how the fund should be allocated. We agreed an RPI-linked bank loan facility of £1.5 billion with the European Investment Bank (EIB). This is the largest ever single loan by the EIB and is now available to fund capital investment in National Grid Electricity Transmission plc. We also deployed new tools and systems to our field workforce, winning the Mobile Innovation category at the SAP UK
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Priorities for the year ahead Safety: Make sure our suppliers and employees manage their safety performance when working near our transmission assets. This includes seeking evidence that they are using effective safety management systems. Maintenance: Establish a programme to change the way we plan and deliver all work on our assets by balancing risk, performance and delivery costs. | ||||||||
| Hinkley Point C connection: Continue to progress the regulatory submissions needed for the Hinkley Point C connection project to secure the funding for delivery. Visual Impact Provision: Through our VIP project we will identify the final locations where the visual impact of our networks will be reduced. Data and technology: Continue to improve how we define and capture the network data that helps us make better decisions on our assets and respond more quickly to customer demand for new connections. | |||||||
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| UK Gas Transmission |
In focus: | What we do | the remainder coming from Norway, continental Europe, or further afield via shipped imports of LNG. Overall, supply capacity now exceeds peak demand by more than 25%, giving our customers significant flexibility over which sources of gas they choose to meet demand. Newer sources of supply, such as LNG importation terminals and storage sites, can respond to demand more quickly than traditional UKCS supplies. Our network therefore needs to be able to respond to changing day-to-day supply and demand patterns. We also need to prepare for an uncertain energy landscape in the long term. UK reliance on imported gas supplies will vary depending on the level of gas supply from the UKCS and the development of indigenous gas sources. We are working closely with our customers and stakeholders to meet these operational challenges. We are focused on continuing to develop our network and services to meet their needs safely, reliably and efficiently. | ||||||
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approximately 7,660 kilometres (4,760 miles) of high pressure pipe and
The UK’s gas market and sources of gas are
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What we’ve achieved in 2014/15 We delivered a strong safety performance, particularly in our operations business where we have achieved 24 months (from April 2013) without a single lost time injury suffered by our employees or contractors. We reached record levels of compressor availability in our network. Operational availability was at 100% several times during | To meet the stricter environmental limits imposed by the Industrial Emissions Directive (IED), our larger gas turbines will need modifying or replacing. We have sought feedback from our stakeholders on the impact of the IED, adapting our proposed solutions in response. This has helped us develop investment options to make sure the network can meet the future needs of our customers and operate as efficiently as possible. | |||||||
We received £5.7 million from Ofgem following a successful bid in the Network Innovation Competition for designing and
| Priorities for the year ahead Safety: Sustain and improve our safety performance by implementing a new safety culture improvement programme across UK Gas Transmission. Reliability: Build on improvements we have made this year in compressor availability, extending this across other critical assets in our network to further improve the service we deliver to our customers. Efficiency: Continue improving end-to-end processes and deliver greater value for | |||||||
| customers by being more efficient. Where we create additional capacity, we will look to insource some maintenance work and increase specialist pipeline services for customers. Innovation: Use the innovation opportunities available through the Network Innovation Competition and Network Innovation Allowance funding. This will help us to create value for customers and the industry, and to achieve our RIIO-T1 commitments. Emissions compliance projects: Continue work on existing emissions compliance projects and secure funding for continued works over the remainder of the RIIO-T1 period and beyond. | |||||||
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Strategic Report
Principal operationscontinued
UK Gas Distribution
In focus: | What we do | Ofgem is able to make comparisons across all eight networks. It establishes outputs they are expected to deliver so that we all maintain a safe and reliable network; make a positive contribution to sustainability and protect the environment; provide connections to supply new consumers and support new gas entry points into the network; meet their social obligations; and provide an agreed standard of service to consumers and other stakeholders. We collaborate with the industry on issues that are common to all networks and customers, such as innovation, safety and the future of networks to deliver outcomes that customers value. Gas remains an important part of the current and future energy mix and we are working with our customers and stakeholders to develop our networks to accommodate gas from new sources, such as bio-methane. | ||||||||||
Gas consumption in our networks was 260 TWh in 2014/15. | We own and operate four gas distribution networks comprising approximately 131,000 kilometres (82,000 miles) of pipeline. We transport gas from the national transmission system to around | |||||||||||
We manage the National Gas Emergency number (0800 111 999) on behalf of all gas distribution networks. | 10.9 million consumers on behalf of 37 shippers. Market context We manage our networks to keep our customers safe and warm. We are incentivised through RIIO | |||||||||||
We handled nearly 2.4 million calls during 2014/15 across the emergency number, enquiry lines, appliance repair helpline and meter enquiry service. | to operate efficiently and deliver services that our customers and stakeholders value. | |||||||||||
What we’ve achieved during 2014/15 We believe we are making progress towards our ambition to be the best gas distribution business in Britain by 2017. We understand where we need to | However, against a backdrop of increased customer complaints across the industry, our volumes have also increased. To help improve this, a particular focus this year has been on simplifying the process | |||||||||||
focus to deliver our RIIO outputs and deliver better customer service. We are investing in our networks to make sure we meet customer and stakeholder needs. This includes replacing approximately 1,450 kilometres of old metal pipelines with more durable materials as part of our mains replacement programme developed with the HSE and Ofgem. In London, we have replaced around 300 kilometres of iron mains, including projects in Battersea and around the City. We have also completed ten commercial bio-methane connections, more than any other UK gas distribution network, including the first 100% food waste plant and the first commercial sewerage connection with Severn Trent Water. Overall, we have delivered successfully against our targets to deliver world-class levels of safety performance across our combined field workers and contractor workforce. In terms of cable strikes and injuries to members of the public, although we have missed our targets, we have increased our efforts to make improvements. We have also used innovative technology that has helped reduce excavation volumes, so we can minimise disruption. We have also been helping stakeholders such as landowners and the construction industry understand how we protect pipelines and how they can operate safely around them. During 2014/15, we were recognised by Ofgem as the best performing gas distribution network in understanding our customer and stakeholder needs for the previous year. Our focus in this area has seen over 1,200 fuel poor customers benefiting from an alternative, more affordable method of heating their homes since we have connected them to our gas networks. | for customers who want to connect to our networks by improving our website experience and providing them with a single point of contact. We have invested in new mobile technology for our field workforce to increase productivity and provide our supervisors with real-time information. This has also helped improve employee engagement scores and the desire to drive better outcomes for our customers; our field workforce now compares favourably with industry benchmarks. | |||||||||||
Priorities for the year ahead Improve our safety performance by further reducing cable strikes, injuries to members of the public and preventing third-party encroachment. This will continue to be an important area of focus. Continue to use innovative technology to deliver better services that reduce the impact on customers’ bills and minimise disruption caused by our work. Improve our customers’ experience of planned replacement work projects by working with our partners to improve our processes, data capture and how we communicate and engage with our customers. Continue to work with government and industry on setting out the vision for the future role of gas in the UK’s energy mix and policies that support this role, while considering how domestic smart meters can create value for customers. Motivate and equip our workforce with the tools and knowledge they need to deliver the services and outcomes our customers value, while increasing productivity. | ||||||||||||
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Capital investment in the pipeline
Connecting to life:
London gas mains replacement
We are investing nearly £1 billion over an eight year period to 2021 in London’s gas distribution network. In particular, we’re replacing and upgrading more than 2,500 kilometres of gas mains. The work will provide vital infrastructure, supporting London’s economic growth by continuing to provide a safe and reliable gas supply.
We own and maintain more than 20,000 kilometres of gas distribution pipeline under London’s streets. Our use of innovative technologies, like Core&Vac keyhole technology, helps us to keep disruption to a minimum, allowing the City to go about its daily business while we improve the network for the future. nationalgrid.com/LondonGasMainsReplacement
NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15
Strategic Report
31
A network fit for the future
Connecting to life:
Improved reliability for Aquidneck Island
The electrical system that serves Aquidneck Island, part of the State of Rhode Island, is antiquated and currently stretched to its limits. The forecasted future demand peaks at 167 MW, which is 20 MW more than the current system can deliver. Our customers, like Judy Crosby of Island Books, rely on power for their livelihood. The $93 million Aquidneck Island Reliability Project will bring more reliable power to the nearly 32,000 homes and businesses in Portsmouth, Middletown and Newport.
The project includes two state-of-the-art substations, reconfiguration of two transmission lines, local distribution work, and retirement of five substations on the island. onislandngrid.com
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What we do and where we do it
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We jointly own and operate transmission facilities across upstate New York, Massachusetts, New Hampshire, Rhode Island and Vermont. We own and operate electricity distribution networks in upstate New York, Massachusetts and Rhode Island.
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3.5m | 16bn | 3.6m | 30 TWh | |||||||
electricity consumers in New England and upstate New York. | standard cubic metres of gas that we forecast, plan for and procure annually. | consumers receive services from our gas distribution networks, including 26,882 new gas heating customers in
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169km | 14,355km | 15 year PSA | ||||||||
(105 miles) of underground cable, 520 transmission substations and 644 distribution substations we operate | (8,920 miles) of electricity transmission system |
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Principle operations
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to double between 1990 and 2040, making gas the
leading fuel for electricity generation.
— Advance innovative technologies: harness existing
technologies to put energy information and usage
control in the hands of customers, which will help drive
improvements in our consumption behaviours.
Leverage technology to build smarter, more resilient
electric and natural gas networks that can withstand
the extreme weather.
Principal risks
systems improvements required to deliver core business processes and regulatory requirements;
existing
influence the development of the future US utility business model; ● our ability to enhance our US business structure and end-to-end processes to support an evolved jurisdictional performance environment; and
reliability, security and resilience.
What we’ve achieved
In 2010, the Massachusetts Department of Public Utilities (MADPU) approved a power purchase agreement between National Grid and Cape Wind for a proposed large-scale, offshore wind farm in Nantucket Sound. In 2014, Cape Wind did not satisfy certain critical milestone deadlines set out in the power purchase agreement and did not post collateral to extend the deadlines in the power purchase agreement. As a result, the power purchase agreement was terminated in January of 2015. We continue to believe the solution to New England’s energy challenge is a diversity of energy sources, which is why we support renewable projects consistent with our goal of reducing emissions while minimising the cost In a joint programme with Earth Networks, we purchased 55 Weatherbug stations to donate to our communities in Massachusetts, New York and Rhode Island. These stations provide customers with more localised weather information and we use them to better prepare for and respond to storms. They also contribute to STEM education in giving free real-time local weather data to schools and emergency responders. We continue to invest more in reinforcing the electricity distribution system and also in replacing |
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gas mains. The NYPSC approved $414 million gas infrastructure investment in Long Island to speed up the replacement of ageing pipe and extend the use of natural gas to more customers. The NYPSC also published the results of the regulatory audit of our New York gas companies. These audits are a regular feature of the New York regulatory process. The audit was broadly supportive of our performance and structure and, as is usual, made some recommendations for further improvement. It specifically recommended stronger local leadership and a number of more cost-effective and customer-focused operational enhancements. We have responded with an implementation plan to provide these benefits on behalf of New York customers. Last year, regulatory audits in New York also identified an unacceptable number of violations of the regulations relating to our gas operations. To improve our regulatory compliance performance, we are investing in compliance monitoring systems, adding compliance personnel, and enhancing our training and safety protocols. Our regulators and customers have heightened expectations around safety and compliance for all gas utilities. We are committed to doing everything we can to meet their expectations and making sure sufficient resources are dedicated to support this priority. Building on performance improvements in 2013/14, we saw a reduction in safety incidents in 2014/15. In the past year, there has been a 7% reduction in the number of injuries requiring medical attention and a 26% reduction in the number of cases requiring employees to stay out of work. These reductions result from programmes and initiatives based on risk areas, improved incident investigations and root cause analysis. There is still much work to do as we strive for zero injuries. Soft tissue injury prevention, safety observations, road traffic collisions and slips, trips and falls will remain a focus for us in 2015/16. Each of our jurisdictions has projects under way to develop economic and environmental health in three ways: by driving economic growth; providing cleaner energy; and advancing innovative technologies. We have highlighted some of our 2014/15 achievements below. Massachusetts We are preparing to file a grid modernisation plan – a blueprint for the modernisation of the electric system – with MADPU in August 2015. We have announced plans to build, own, and operate an additional 16 MW of solar generation, bringing total solar capabilities in the state to 21 MW. As of late 2014, we had installed 39.9 miles of new gas mains and added more than 8,400 new natural gas customers. | Our Sustainability Hub in Worcester, MA.
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We are helping to shape new energy policy in the state through our REV filings. REV is aimed at transforming the electricity energy industry and
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We are adding new electricity capacity and infrastructure to RiverBend, Buffalo, a former industrial brownfield that is bringing growth and jobs to the state. Companies including Solar City and Soraa will bring investment, much needed jobs, and new and advanced energy technologies that could make this region a hub for energy development regionally, nationally and internationally.
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We have been working with Toray Plastics, one of the largest employers in the state, on customised energy solutions. In 2014 the company opened its second cogeneration system at its 70-acre campus in North Kingstown and we supported them with an energy efficiency incentive of $15.9 million. We are FERC We are part of a joint venture to form New York Transco. This aims to construct, own, and operate incremental electric transmission assets in New York State to improve reliability and reduce congestion. | It is initially pursuing five projects that support public policy objectives and provide broad-based benefits across the state. New York Transco filed with FERC in December 2014 for rate recovery and cost allocation for proposed transmission projects, estimated at $1.7 billion. We have joined Spectra Energy’s $3 billion proposed Access Northeast pipeline project that aims to significantly increase natural gas capacity to generators in New England. Our three New England electric distribution companies have established memoranda of understanding with project developers to explore the development of an innovative tariff that would enable them to take capacity from the pipeline and release it into the market as needed to mitigate wholesale electricity price spikes. In December 2014, we announced we had joined forces with Anbaric Transmission to develop large-scale HVDC transmission projects to deliver a combination of domestic wind energy and Canadian hydropower to New England load centres. We are currently developing a 1,000 MW hybrid land and sea HVDC project from northern Maine to Greater Boston and a 400 MW underground HVDC project from upstate New York to Vermont under Lake Champlain. We are working with Eversource Energy in implementing the Greater Boston and New Hampshire Solution to address critical grid reliability needs. We will be investing approximately $190 million in the Solution for new infrastructure in southern New Hampshire, northern Massachusetts, and the Greater Boston area. We expect the Solution to | |||||||||||
Priorities for the year ahead
Performance Excellence: We will improve the way we work as teams to become more efficient, innovative, and responsive to our customers’ needs in
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Talent and capabilities: We will provide employees with the tools and resources they need to achieve the performance measures required by our customers and shareholders. Future energy
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Upgrading the power lines in Rhode Island.
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Strategic Report
Principal operationscontinued
Other activities
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In focus: | Grain LNG | |||||||||||
| timescale). Intraday markets help | ||||||||||||
14.9%
percentage of UK gas from LNG imports, up from 9.7% in 2013/14. | Grain LNG is one of three LNG importation facilities in the UK. It This year, we have continued to explore | market participants adjust their positions better over short time periods. Metering National Grid Metering (NGM) provides installation and maintenance services to energy suppliers in the regulated market | ||||||||||
| developments to our LNG services to increase | in Great Britain. It maintains an asset | |||||||||||
| revenue, including the | base of around 14.1 million domestic, | |||||||||||
| reloading. | industrial and commercial meters. | |||||||||||
We have started a ship cool-down service. This process helps ships that have been out of service or having maintenance to reload full LNG cargo. In 2015/16, we will also commission and launch our LNG road tanker loading facility. This will provide tankered LNG to off-grid customers and operators of heavy goods vehicles.
Interconnectors The England-France interconnector (IFA) is a 2,000 MW HVDC link between the French and British transmission systems with ownership shared between National Grid and Réseau de Transport d’Electricité
BritNed is a joint venture between National Grid and TenneT, the Dutch transmission system operator. It
IFA and
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The domestic traditional gas metering business continues to operate in its role as the National Metering Manager,
| UK Property National Grid Property is responsible in the UK for the management, clean-up and disposal of surplus sites, most of which are former gas works. During
Xoserve Xoserve delivers transactional services on behalf of all the major gas network transportation companies in Great Britain, including National Grid. Xoserve is | ||||||||||
 | jointly owned by National Grid, as majority shareholder, and the other gas distribution network companies. Xoserve celebrated its 10 year anniversary as a company on 1 May 2015.
US non-regulated businesses Some of our US businesses are not subject to state or federal rate-making authority. These include interests in some of our LNG road transportation, some gas transmission pipelines (our minority equity interests in these are not regulated) and certain commercial services relating to solar installations, fuel cells and other new technologies.
Corporate activities Corporate activities comprise central overheads, Group insurance and expenditure incurred on business development. | |||||||||||
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Internal control and risk management
The Board is committed to protecting and enhancing our reputation and assets,
while safeguarding the interests of our shareholders. It has overall responsibility
for the Company’s system of risk management and internal control.
National Grid is exposed to a variety of uncertainties that could have a material adverse effect on the Company’s financial condition, our operational results, our reputation, and the value and liquidity of our shares. The Board oversees risk management, and, as part of this role, it reviews the main elements of our process and sets and monitors risk appetite. Risk appetite establishes the amount of uncertainty the Company may seek or accept at any given time when pursuing our strategic objectives. The Board regularly reviews our internal controls and risk management processes. This year specific consideration was given to the guidance in the new UK Corporate Governance Code 2014 (the New Code) which applies to the Company in the next fiscal year and refinements to our processes will be introduced, as appropriate, over the coming year. Risk management approach Our Company-wide corporate risk management process provides a framework through which we can consistently identify, assess and prioritise, manage, monitor and report risks, as shown in the diagram below. The process is designed to support the delivery of our vision and strategy as described on pages 14 and 15. Our process involves a continuous cycle of bottom-up review and reporting and top-down review and feedback. All our business functions participate in the bottom-up risk management process. They identify the main risks to achieving their objectives and the actions being taken to manage and monitor them. They assess each risk by considering the potential ‘worst case credible’ financial and reputational impacts and how likely the risk is to materialise. The risks we identify are collated in risk registers and are reported at functional and regional levels of the Company. The risk registers also describe the adequacy of our existing risk controls. | An important feature of our risk management process is that each business function owns and is responsible for managing its particular risks. A central risk management team acts as an advisory function and also provides independent challenge and review. This team partners with the business functions through nominated risk liaisons and collaborates with assurance teams and specialists, such as internal audit and compliance management, to sense check risk information. Regional senior management regularly review and debate the outputs of the bottom-up process and agree the prioritisation of the risks. The main risks for the UK and US businesses are highlighted in regional risk profiles and reported to the Chief Executive through quarterly performance reports. An overview of current risk themes for the UK and US businesses is provided on pages 27 and 34 respectively. Our main strategic uncertainties or ‘principal risks’ for the Company are developed through top-down discussions with the Executive leadership team. These risks are reported and debated with the Executive Committee and Audit Committee every six months. The Board participates in an annual risk workshop to make sure that the principal risks remain closely aligned to our strategic aims and that no important risks (or combination of risks) are being overlooked. In addition, the Board considers emerging risks (uncertainties that are still developing and sit outside the principal risks profile) together with our strategy team’s annual long-term update. The outcomes from each level of the risk review process are fed back to the relevant teams and incorporated as appropriate into the next cycle of our ongoing process as shown below. | |||||||||||
Risk management process
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38
Our principal risks Accepting that it is not possible to identify, anticipate or eliminate every risk that may arise and that risk is an inherent part of doing business, our risk management process aims to provide reasonable assurance that we understand, monitor and manage the main uncertainties that we face in delivering our objectives. This includes consideration of inherent risks, which exist because of the nature of day-to-day operations in our industry, and financial risks, which exist because of our financing activities. An overview of the key inherent risks we face is provided on pages 173 to 176, | as well as an overview of our key financial risks, which is incorporated within the Notes to our consolidated financial statements on pages 94 to 158. Our corporate risk profile contains the principal risks that the Board considers to be the main uncertainties currently faced by the Company as we endeavour to achieve our strategic objectives. An overview of these risks is provided below, together with examples of the relevant controls and current mitigating actions we are taking. | |||||||||||||
Strategic objective | Risk description | Example of mitigations | ||||||||||||
Drive growth | Failure to identify and execute the right opportunities to deliver our growth strategy. Failure to sufficiently grow our core business and have viable options for new business over the longer term would negatively affect the Group’s credibility and jeopardise the achievement of intended financial returns. Our ability to achieve our ambition for growth is subject to a wide range of external uncertainties, including the availability of potential investment targets and attractive financing and the impact of competition for onshore transmission in both the UK and US; and internal uncertainties, such as the performance of our operating businesses and our business planning model assumptions. | ● We regularly monitor and analyse market conditions, competitors and their potential strategies, the advancement and proliferation of new energy technologies, as well as the performance of our Group portfolio. We are also looking to access new sources of finance and capabilities through partnering. ● We have internal processes for reviewing and approving investments in new businesses, disposals of existing ones and organic growth investment opportunities. These processes are reviewed regularly to make sure our approach supports our short- and long-term strategies. We undertake due diligence exercises on investment or partnering opportunities and carry out post-investment reviews to make sure we learn lessons for the future. | ||||||||||||
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Engage externally | Inability to influence future energy policy. Policy decisions by regulators, governments and others directly affect our business. We must engage widely in the energy policy debate, making sure our position and perspective help to shape future policy direction. | ● In the UK, we are continuing to work closely with DECC and Ofgem on Electricity Market Reform (EMR) plans. We successfully implemented the first Capacity Market Auction and Contracts for Difference Allocation process and are working with the Regulator to finalise the enduring EMR Business Plan to ensure we continue to deliver value under RIIO. We continue to maintain strong relationships with government, engage in consultations, and develop comprehensive stakeholder communication plans. The Board is also continuing to monitor the increasing public debate around the cost, availability, security and sustainability of UK energy supplies. | ||||||||||||
| ● | In the US, we are engaging our external stakeholders about the role of the utility company of the future, under the banner of Connect21. We believe this conversation will help shape the regulatory and fiscal regime in the US in the future. Regulatory proceedings related to utility of the future have been launched in New York (Reforming the Energy Vision) and Massachusetts (Grid Modernization) and our Connect21 aligns well with them. We are continuing to strengthen our jurisdictional focus and are improving our rate case filing capabilities so our businesses can continue to earn a fair and reasonable rate of return. Our rate filings include structural changes where appropriate, such as revenue decoupling mechanisms, capital trackers, commodity-related bad debt true-ups and pension and other post-employment benefit true-ups, as described on pages 169 and 172. | |||||||||||||
| ● | We maintain and monitor a reputation ‘watch list’ at both Company and regional levels to support awareness and proactive management of issues that could cause us reputational harm. | ||||||||||||
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Strategic Report
Internal control and risk managementcontinued
This has involved a focus on future leaders, operational leaders, engineers and stakeholder relationship managers. In addition to increasing our capability across these groups we also need to make sure we have enough people in each group. We will also be developing plans to improve our succession planning for our operational leader, engineer and stakeholder relationship manager roles.
Building skills and expertise
As we continue working under RIIO in the UK and become increasingly focused on driving performance on both sides of the Atlantic, we have identified three main business capabilities we need to develop among our workforce to support us in achieving our strategic objectives: performance excellence; customer and stakeholder management; and contract management.
We believe that by focusing on these capabilities we will make sure we meet our customers’ and stakeholders’ expectations while building a systematic approach to improving performance.
To help us do this, we have brought all our learning and development resources together under our Academy.
To date, 110 of our senior leaders in the UK have attended our performance excellence senior leadership programme through our Academy and similar programmes have started in the US.
Attracting the best people
We are involved in a number of initiatives to help attract new talent into our organisation and industry. In the UK, these include:
— working with the energy sector towards delivering 11,000 new
apprenticeships and traineeships over the next three years through
the Energy & Efficiency Industrial Partnership;
— developing our own people through Advanced Apprenticeships
and engineer training;
— supporting power systems undergraduate bursaries through the
Power Academy; and
— making sure our graduates continue their development throughout
their career with us.
Initiatives in the US include:
— energy utility technology certificate programmes – partnerships
with seven local community colleges to develop and prepare
students to become future electric line workers;
— ‘Troops to Energy Jobs’ – a programme designed to help veterans
determine how their military skills and experience translate into the
skills we are looking for;
— real work experience and leadership training for qualified
graduates in engineering and business disciplines; and
— summer internships – providing six to eight week opportunities
for college students to gain work experience with us.
Safeguarding the future
In the UK, around 89,000 people are needed annually to meet demand in the UK’s engineering sector over the next decade, yet only around 51,000 are joining the profession each year.
To address this shortage, we are running or are involved with a number of programmes and initiatives aimed at encouraging young people to study STEM subjects. These include:
— ‘School Power’, which provides classroom resources,
including a dedicated website, to support the teaching of STEM
subjects;
— work experience, offering year 10 students a week-long
residential course at our Eakring Academy (totalling 100 each
year); and
— open house visits to our sites to give students and teachers an
insight into gas and electricity systems, as well as future energy
challenges.
We are leading a consortium of businesses to create an exhibition called ‘That Could Be Me’ at the Science Museum in London, which will provide insight into engineering as a career. It is due to launch in December 2014.
A further initiative, called ‘Careers Lab’, aims to help establish a coordinated approach towards businesses taking responsibility for the skills agenda. The pilot scheme, which began in January 2014, involves businesses and schools in the Midlands working together to progress careers advice programmes for young people.
In the US, overall engineering employment is expected to grow by 11% through to 2018, varying by specialty. By 2018, STEM occupations will account for about 1.1 million new jobs and 1.3 million replacement positions due to STEM workers leaving the workforce.
We are working with high schools and community colleges to build a curriculum that meets future workforce needs – and supporting STEM education at K-12 levels. An example of this is the National Grid Engineering Pipeline Program – a six year developmental journey designed to inspire young people to pursue an education and career in engineering. To date 164 young people have entered into the programme.
We also work closely with the National Centre for Energy Workforce Development on its ‘energy industry fundamentals’ curriculum and competency models.
Strategic objective | Risk description | Example of mitigations | ||||||||||
Engage our people | Inability to secure the business capacity, appropriate leadership capability and employee engagement levels required to deliver our vision and strategy. It is through the high-quality work of our employees that we will achieve our vision, respond to the changing needs of our stakeholders and create a competitive advantage. Obtaining and fostering an engaged and talented team that has the knowledge, training, skills and experience to deliver on our strategic objectives is vital to our success. We must attract, integrate and retain the talent we need at all levels of the business. | ● We have identified the core capabilities that align with our strategic ambition and defined our set of leadership standards. ● We have filled key leadership roles with a mix of internal and external hires. ● We are involved in a number of initiatives to help secure the future engineering talent required (see page 24). ● We continue to develop our succession plans for key roles, including leadership. ● We continue to actively promote inclusion and diversity. ● We monitor employee engagement and formally solicit employee opinions via a Company-wide employee survey annually. | ||||||||||
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Deliver operational excellence | Failure to achieve levels of financial performance required to meet regulatory requirements. The Group operates under a number of regulatory regimes and we must maintain the performance levels required. Failure to achieve the agreed returns could damage our reputation and threaten future growth opportunities and regulatory arrangements. | ● We have a US strategy focused on safety and reliability, customer responsiveness, stewardship and cost competitiveness. Performance measures are tracked and reported monthly. US jurisdictional presidents continue to develop strong relationships with local regulators and communities. A Performance Excellence framework is firmly established to deliver sustainable and innovative performance improvements. ● The UK operating model implemented in 2013 to support our performance under RIIO is now established and we continue to roll out our Performance Excellence framework across the business. We actively engage with local communities and non-governmental actors. ● We monitor network reliability and customer satisfaction as KPIs, as described on pages 18 and 19. | ||||||||||
Failure to deliver appropriate information systems and data integrity. The Company is increasingly reliant on technology to support and maintain our business-critical processes. We must be able to rely on the performance of these systems and the underlying data to demonstrate the value of our business to our shareholders, and to meet our obligations under our regulatory agreements, and comply with agreements with bond holders and other providers of finance. | ● We implemented a new US enterprise resource planning system at the end of 2012. After a significant effort to combat programme difficulties, the system is now stabilised and enhancements to drive business value are under way. ● We are undertaking a programme to strengthen identified weaknesses in US controls over financial reporting. ● We are implementing a global information management framework focusing on data integrity and security. ● We completed a data assurance programme last year and actions to improve our data quality and integrity processes based on the results are being managed by the business functions. | |||||||||||
We experience a catastrophic/major cyber security breach. Due to the nature of our business we recognise that our critical national infrastructure (CNI) systems may be a potential target for cyber threats. We must protect our business assets and infrastructure and be prepared for any malicious attack. | ● | We use industry best practices as part of our cyber security policies, processes and technologies. | ||||||||||
| ● | We continually invest in cyber strategies that are commensurate with the changing nature of the security landscape. This includes collaborative working with DECC and the Centre for Protection of National Infrastructure (CPNI) on key cyber risks and development of an enhanced CNI security strategy and our involvement in the US with developing the National Institute of Standards and Technology Cyberspace Security Framework. | |||||||||||
| Failure to prevent a significant process safety event. Safety is paramount. Some of the assets owned and operated by National Grid are inherently hazardous and process safety incidents, whilst extremely unlikely, can occur. | ● We continue to commit significant resources and financial investment to maintain the integrity of our assets and we strive to continuously improve our key process safety controls. ● We continue to implement our Group-wide process safety management system to ensure a robust and consistent framework of risk management exists across our higher hazard asset portfolio. | ||||||||||
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Strategic objective | Risk description | Example of mitigations | ||||||||
Deliver operational excellencecontinued
| Our objective is to be an industry leader in managing the process safety risks from our assets to protect our employees, contractors and the communities in which we operate. We operate in compliance with local legislation and regulation. In addition we identify and adopt good practices for safety management. | ● We are developing a suite of risk models to assess the risk of specific asset types and support targeted investment to reduce risk. ● We monitor a mix of leading and lagging process safety indicators and test the effectiveness of our controls with periodic audits. |
Our internal control process We have a number of processes to support our internal control environment. These processes are managed by dedicated specialist teams, including risk management, ethics and compliance management, corporate audit and internal controls, and safety, environment and health. Oversight of these activities is provided through regular review and reporting to the appropriate Board committees as outlined in the Corporate Governance section on pages 42 to 59. Reviewing the effectiveness of our internal control and risk management Each year the Board reviews the effectiveness of our internal control systems and risk management process covering all material systems, including financial, operational and compliance controls, to make sure they remain robust. The latest review covered the financial year to 31 March 2015 and the period to the approval of this Annual Report and Accounts. It included: ● the Certificate of Assurance for noting following consideration by the Audit Committee to provide overall assurance around the effectiveness of our risk management and internal controls systems; ● where appropriate, assurance from our committees, with particular reference to the reports received from the Audit, and Safety, Environment and Health Committees on reviews undertaken at their meetings; and ● assurances about the certifications required under Sarbanes-Oxley as a result of our US reporting obligations. The Board evaluated the effectiveness of management’s processes for monitoring and reviewing internal control and risk management, noting that no significant failings or weaknesses had been identified by the review and confirmed that it was satisfied the systems and processes were functioning effectively. Our internal control and risk management processes comply with the Turnbull guidance on internal control and the requirements of the UK Corporate Governance Code and the Financial Reporting | Council’s Guidance on Risk Management, Internal Control and Related Financial and Business Reporting. They are also the basis of our compliance with obligations set by the Sarbanes-Oxley Act 2002 and other internal assurance activities. The New Code, published in September 2014, contained changes related to risk management. These changes have been reviewed against our risk management and internal control systems and processes. Refinements will be implemented, as appropriate, over the coming year. Internal control over financial reporting We have specific internal mechanisms to govern the financial reporting process and the preparation of the Annual Report and Accounts. Our financial controls guidance sets out the fundamentals of internal control over financial reporting, which are applied across the Company. Our financial processes include a range of system, transactional and management oversight controls. In addition, our businesses prepare detailed monthly management reports that include analysis of their results along with comparisons to relevant budgets, forecasts and prior year results. These are presented to and reviewed by senior management within our Finance function. These reviews are supplemented by quarterly performance reviews, attended by the Chief Executive and Finance Director which consider historical results and expected future performance and involve senior management from both operational and financial areas of the business. Each month the Finance Director presents a consolidated financial report to the Board. As part of our assessment of financial controls in the prior year, we identified a number of weaknesses in our US financial control framework. We are making progress in remediating these weaknesses. For more information, including our opinion on internal control over financial reporting, see page 173. | |||||||||||
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In the US, we have focused on boosting membership and awareness of our Employee Resource Groups, which have measurable goals that are in line with our vision and Elevate 2015 ambitions.
These groups aim to build awareness and understanding of inclusion and diversity throughout the organisation. Their activities include programmes designed to build skills that help manage differences.
The table below shows the breakdown by gender at different levels of the organisation. We have included information relating to subsidiary directors, as this is required by the Companies Act 2006 (Strategic Report and Directors’ Reports) Regulations 2013. We define ‘senior management’ as those managers who are at levels Executive –1 and Executive –2, as well as those who are directors of subsidiaries or who have responsibility for planning, directing or controlling the activities of the Company, or a strategically significant part of the Company, and are employees of the Company.
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Senior management | 182 | 56 | 238 | 76.5 | 23.5 | |||||||||||||||||||
Whole company
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Human rights National Grid does not have a specific policy relating to human rights, but respect for human rights is incorporated into our employment practices and our values, which include respecting others and valuing diversity.
‘Doing the Right Thing’ is our guide to ethical business conduct. The way in which we conduct ourselves allows us to build trust with the people we work with. We earn this trust by doing things in the right way, building our reputation as an ethical company that our stakeholders want to do business with, and that our employees want to work for.
Our procurement policies integrate sustainability into the way we do business throughout our supply chain, so that we create value, preserve natural resources and respect the interests of the communities we serve and from which we procure goods and services. Additionally, through our supplier code of conduct, we expect our suppliers to keep to all laws relating to their business, as well as the principles of the United Nations Global Compact, the United Nations Declaration of Human Rights and the International Labour Organization (ILO). |
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The Strategic Report was approved by the Board of Directors on | ||||||||
Alison Kay Group General Counsel & Company Secretary | ||||||||
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| Dear Shareholders, Our Board is responsible for shaping the culture, values and ethics of National Grid, both within the boardroom and across the organisation, by setting the tone from the top and establishing high standards of behaviour.
The updates to the New Code have been considered by the Board and refinements approved so we can report on compliance next year as required. It is the intention of the Board that any changes to the frequency and level of reporting received by the Board and Audit Committee in relation to risk management, compliance and internal control as a result of these updates, will also add value to the business. A review of our compliance procedures is also underway to make sure that we continue to develop and improve our compliance with external reporting obligations. In order to further develop our internal assurance programme, we formed the Engineering Assurance Committee to promote the application of common, consistent, engineering assurance methodologies across the Company. The Board received an in-depth presentation on security and cyber security which provided a framework for discussion around the threats we face and the effectiveness of our strategy to mitigate the inherent risks. We have made a significant investment over the last five years to improve our capabilities in this area so we can adapt to and address an ever-changing threat landscape. Following this session, we agreed that responsibility for making sure we have an effective process for managing cyber security risk should be delegated to the Audit Committee. You can read more about this on page 50. The Board will continue to receive an annual in-depth presentation on information systems and security, including cyber security. This year, in addition to Nick Winser and Maria Richter stepping down at the 2014 AGM, we have said goodbye to Philip Aiken and Tom King and have welcomed John Pettigrew and Dean Seavers as Executive Directors in the UK and US respectively. In my role as Chairman and leader of the Board I am responsible for ensuring effectiveness in all aspects of its role. This includes promoting effective relationships and open communication between Directors and encouraging active engagement by all members. This is particularly important as the membership of the Board changes and new relationships are formed. I am pleased to report that the positive outcome of the Board and Committee evaluation process reflects this effectiveness. You can read more about this on page 46 and the rigorous selection process prior to Dean’s appointment on page 58. Clear and concise communications with our shareholders remain a focus for the Board and we hope that the overview of our business model on page 12 helps to articulate how we create value for you, our shareholders, as well as our other stakeholders.
Sir Peter Gershon Chairman |
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Compliance statement The Board considers that it complied in full with the provisions of the UK Corporate Governance Code 2012 (the Code) during the financial year being reported, see page |
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This report explains the main features of the Company’s governance structure to give a greater understanding of how the main principles of the Code have been applied. The report also includes items required by the Disclosure and Transparency Rules. The index on page | ||||||||
UK Corporate Governance Code 2014 The new UK Corporate Governance Code 2014 (the New Code) applies to the Company for the next financial year, 2015/16. In March, the Board considered the current governance arrangements and approved refinements to support compliance with the New Code. Details will be provided in the 2015/16 Annual Report and Accounts. Fair, balanced and understandable | ||||||||
The drafting and review process. The coordination and review of the Annual Report This process gives the
Our current Board membership is set out on the previous page, 179. The Directors |
Role of Our Board is collectively responsible for the
The Board’s full responsibilities are set out in the matters reserved for the Board, | |||||||
Our Chairman is responsible for the leadership and management of the Board and its governance.
Our Chief Executive is responsible for the executive leadership and day-to-day management of the Company, to ensure the delivery of the strategy agreed by the Board. Through his leadership of the Executive Committee, he demonstrates commitment to safety, operational and financial performance.
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Our Senior Independent Director acts as a sounding board for the Chairman and serves as an intermediary for the other Directors, as well as shareholders
Independent of management,our Non-executive Directors bring diverse skills and experience, vital to constructive challenge and debate. Exclusively, they form the Audit, Nominations and Remuneration Committees, and have an important role in developing proposals on strategy.
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Examples of Board focus during the year: Board strategy session. In addition to time allocated during the year at Board meetings, in January the Board took part in a half-day interactive strategy session, involving a combination of full Board discussions and breakout groups. The Board considered questions raised by the business plan and recent strategic analysis, future opportunities for the Company including business development, mergers and acquisitions and how our core capabilities could be exploited. The Board found the additional session extremely useful and suggested that further regular updates and discussions would help consolidate its thinking, in particular in relation to the development of a longer-term perspective on potential growth in other geographical areas. European energy policy. The Board received updates on how changes in the EU will affect and influence the UK energy policy, including Electricity Market Reform, support for interconnectors and Carbon Capture and Storage. The 2014 UK Winter Outlook. This annual publication confirmed that the Company was in a strong position in respect of gas in the UK, with no heightened concerns, but for electricity, margins were expected to be tight. Updates to the Board confirmed that the UK business had a good understanding of the issues and risks. A robust mitigation strategy, agreed with the UK Government, was approved and implemented. Interconnector projects. In January, the Board received a presentation on Great Britain’s interconnector market and our pipeline of opportunities, including an overview of our two most advanced projects; potential new links to Belgium and Norway. Following feedback provided, the Board approved the final investment decision in relation to the Belgium interconnector in February 2015 and the interconnector with Norway in March 2015. Emerging risks. The Board received a risk update paper including an overview of the framework that has been developed to track emerging risks and the resulting opportunities and/or threats. Additionally, the Board received an update on three themes that had emerged from the 2014 risk workshop to make sure that we were sufficiently prepared for ‘black swan’ events (catastrophic events of extremely high impact and extremely low likelihood). |
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Updates will continue to be provided to the Board on a regular basis, as appropriate. Risk workshop. The Board participated in a risk workshop that included an update on the changes introduced by the New Code, the annual risk appetite review and an in-depth review of the current risk profile of the Company. At the workshop, it was agreed that the evaluation of risk appetite should permeate through to the evaluation of all new projects and further work was required in relation to the risk appetite definitions and the Company’s risk profile. Safety updates. Safety is discussed at every Board meeting. The Board receives safety updates in the Chief Executive’s report and supplementary to this, the Safety, Environment and Health (SEH) Committee chairman provides an oral summary of matters considered at Committee meetings. Annual talent management review. The Board noted the progress of the development of capacity, capability and the talent pipeline and the accelerated development programme, which had resulted in long-term career plans being put in place and graduates moving through the Company more speedily than in the past. Examples of expected Board focus for next year: ● regular reviews of safety activities; ● mid-term review of our progress and performance under RIIO; ● continued detailed review of strategy and financing; ● key US rate case filings; ● regulatory compliance; ● implications of the Integrated Transmission Planning and Regulation project on our activities; ● review of the political situation following the UK general election and the impact on energy policy in the UK and EU; ● refined reporting to strengthen our assessment and monitoring of internal control and risk management following the updates to the New Code; ● reviews into UK and US regulation and the major projects in the UK; ● the 2015 UK Winter Outlook; and ● results of the 2015 employee opinion survey. The successful delivery of our strategy depends upon attracting and retaining the right talent. This starts with having a high-quality Board. Balance is an important requirement for the composition of the Board, not only in terms of the number of Executive and Non-executive Directors, but also in terms of | |||||||
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Responsibility: Chairman | The Company Secretariat team engaged with external specialists in effective reporting to support the development of the information that goes to the Board. The new reporting framework has resulted in clearer, more concise papers, which has supported improved Board discussion and decision making. Following the successful implementation of the new reporting framework at Board level it has also been rolled out to the Board committees and the Executive Committee. | ||||||||
Degree of challenge | The Executive Directors to speak to the Chairman about what would make them feel more comfortable to challenge and debate, both with the Non-executive Directors and Responsibility: Executive Directors
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A number of topics were identified that Directors felt needed additional focus by the Board at its meetings, for example cyber risk and the UK political landscape. Ways to improve the focus on each of these topics were discussed at the March 2014 Board meeting and specific actions were agreed and allocated. Responsibility: various Board members | The Board has taken into account the need for additional focus in certain areas and this has been reflected in the meeting agendas. Strategy: several papers focusing on strategy and growth have been received by the Board over the year in addition to the Board strategy session. Topics included: review of the UK gas market; US and other market opportunities; exploitation of core capabilities; expansion in and outside our core geographies; and a general update on the interconnectors. Political risk: political updates are provided in the Chief Executive’s report to the Board as appropriate. Additional papers on the politics of UK and US energy and a general update on politics in Europe have been presented to the Board and updates will continue to be provided as appropriate. Cyber risk: an update on cyber risk and security went to the Board and Audit Committee in September. At this meeting, the Board decided that responsibility for making sure there is an effective process for managing cyber security risk should be undertaken by the Audit Committee. The Board is scheduled to receive an in-depth presentation in November 2015. Relationship with UK and US regulators: updates on the meetings that take place between our Chairman and the Chairman of Ofgem are provided to the Board. Updates on US regulation and the meetings that take place with the US regulators are also provided to the Board in the Chief Executive’s report. | ||||||||
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We believe it is important to maintain effective channels of communication with our debt and equity institutional investors and individual shareholders. This helps us to understand their views about the Company and allows us to make sure they are provided with timely and appropriate information on our strategy, performance, objectives, financing and other developments. Institutional investors We carry out a comprehensive engagement programme for institutional investors and research analysts. This includes meetings, presentations, webinars, attendance at investor conferences across the UK and US, and holding road shows in major investor centres across Europe, the US and Asia Pacific. The programme provides the opportunity for our current and potential investors to meet with executive and operational management. In the past year, our engagement programme has focused on clarifying our Group growth expectations and explaining to investors how we expect the Company to continue to perform under the RIIO price controls in the UK. These areas of focus have been reflected in our regular results presentations as well as in more detail during an investor seminar at our Castle Donington site. In addition to these engagement activities, we also held a stewardship meeting in July last year. The event provided major investors with an understanding of our performance and an insight into the operation of our Board with a particular focus on the work of our Remuneration and Audit Committees. The event also provided the opportunity for attendees to ask questions and meet members of the Board and for our Non-executive Directors to further develop their understanding of our shareholders’ views and concerns. A copy of the presentation given on the day is available in the Investors section of our website. Sir Peter also contacted our major shareholders in April 2015 to offer them the opportunity to meet him or the chairman of the Remuneration Committee, Jonathan Dawson, to discuss the Board changes that have taken place during the year and the associated remuneration arrangements. The Board receives regular feedback on investor perceptions and opinions about the Company. Specialist advisors and the Director of Investor Relations provide updates on market sentiment. Each year, the Board receives the results of an independent audit of investor perceptions. Interviews with key investors were carried out to establish their views on the performance of the business and management. The findings and recommendations of the audit were discussed in depth by the Board. | Debt investors Over the last year representatives from our treasury team, together with other senior managers from across the business, have met with debt investors in Europe, Canada and the US to discuss various topics such as the full-year results. We also communicate with our debt investors through regular announcements and the debt investor section of our website. This contains bond prospectuses, credit ratings, materials relating to the retail bond issued in 2011 and subsidiary year-end reports. The website also contains information about the long-term debt maturity profile, so investors can see our future refinancing needs. Individual shareholders Engagement with individual shareholders, who represent more than 95% of the total number of shareholders on our share register, is led by the Group General Counsel & Company Secretary. Shareholders are invited to learn more about the Company through the exhibits at our AGM and the shareholder networking programme. The shareholder networking programme includes visits to UK operational sites and presentations by senior managers and employees over two days. UK resident shareholders can apply to take part online via the Investors section of our website. Annual General Meeting (AGM) Our AGM will be held on Tuesday 21 July 2015 at The International Convention Centre in Birmingham and broadcast via our website. The Notice of Meeting for the 2015 AGM, available on our website, sets out in full the resolutions for consideration by shareholders, together with explanatory notes and further information on the Directors standing for election and re-election. The Chairman sets the Board’s agenda in line with its responsibilities
To support discussion and decision making, Board and committee members receive papers sufficiently in advance of meetings so that they can prepare for and consider agenda items. Additionally, the Chairman holds a short meeting with the Non-executive Directors before
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Board membership and attendance Attendance is expressed as the number of meetings attended out of the number possible or applicable for the individual Director during the year to 31 March
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The role and responsibilities of the committees are set out in their respective terms of reference, available on our website. The committee structure,
In addition to the vertical lines of responsibility and reporting, the committees communicate and work together where required. For example, on some risk matters the
Committee agendas and schedules of items to be discussed at future meetings are prepared in line with the terms of reference of each
At committee meetings, items are discussed and, as appropriate, matters are endorsed, approved or recommended to the Board by the committee.
Below the Board committees are a number of management committees, including the Executive Committee.
The Executive Committee has responsibility for making management and operational decisions about the day-to-day running of the Company. Further information on some of the management committees, including the membership and operation of the Executive Committee, is set out on pages
Reports from each of the Board committees together with details of their activities during the year, are set out on the following pages. | ||||||||||||
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28 July 2014. 3. Philip Aiken stepped down from the Board on 25 February 2015. Dean Seavers was appointed to the Board with effect from 1 April
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| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 49 |
Corporate Governance | ||
Corporate Governancecontinued | ||
Role Oversees the Company’s financial reporting, and internal controls and their effectiveness, together with the procedures for identifying, assessing and reporting risks. It also oversees the services provided by the external auditors and their remuneration.
Review of the year
The US leadership team has been strengthened with the appointment of a new US Chief Financial Officer (CFO). The Finance Director and the US CFO have continued to keep the Committee up to date on progress with regular reports throughout the year on further proposed improvements and priorities. The past year has also seen two other key appointments – a new Head of Corporate Audit (approved by the Committee in accordance with its terms of reference) and a new Head of Assurance. The Committee has received reports from both individuals on their initial observations of their respective functions and proposed changes and priorities for the year. Following the delegation by the Board for oversight of risk management in relation to cyber security, the Committee received its first The Committee has been briefed on the changes to the regulatory environment, in particular the audit tender regulations published by the Financial Reporting Council, the implications of the Competition and Market Authority Order and the final European Commission regulations. We discussed and considered the timing of a tender for the external audit and agreed that an audit tender process should be run later this year. See page 53 for further details. Committee membership has also undergone some changes. Maria Richter stepped down from the Board at the 2014 AGM. In 2015 we have
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Other matters reviewed Examples of other matters the Audit Committee reviewed:
Accounting for rate regulated activities. The Committee endorsed management’s response to the discussion paper issued by the International Accounting Standards Board in September 2014 and believe that guidance should be introduced that results in the IFRS financial statements of the Company more closely reflecting its economic performance and position. Fair, balanced and understandable. The requirement of the Code to ensure that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable in the context of the applicable accounting standards and confirmed this view to the Board. Interim Management Statements (IMS). The Board’s decision to cease the publication of an IMS and the impact on the traditional role of the Committee. Depending on the content of future market updates, the Committee will review these prior to publication. Cyber security risk management. A paper from internal (corporate) audit on the status of our cyber security risk management and external good practice in September 2014. In setting the scope of its new responsibilities, the Committee considered the level of assurance currently provided by internal (corporate) audit and other assurance providers and the frequency and extent of information received. Subsequently, the Committee’s terms of reference were amended to include this additional responsibility in relation to the review of the governance processes over cyber security risk and the Committee now receives a regular update from the Head of Corporate Audit. Risk management. Half-yearly updates on the management of key risks faced by the Company including changes to the corporate risk profile to reflect Executive Committee risk management discussions. |
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Committee membership and attendance table
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Summarised below are the issues which attracted the most focus, and time, of the Committee in relation to the financial statements during the year. | US financial controls. The Committee has continued to devote a significant amount of time challenging management on the action they are taking to continue to improve the US finance control environment. There has been continued focus on embedding the enterprise resource planning system in the US and the benefits this system now brings. The Committee has received regular updates from management on progress against the measures taken to remediate US financial control deficiencies. In October, a new US CFO was appointed to lead the US finance team. She initiated a granular review of the US finance function to understand the current service levels and key learnings from prior initiatives, including the successes as well as initiatives that did not fully achieve their goals. The outputs from this review were incorporated into a new US finance function initiative which is intended to address the root cause of issues identified by the review and simplify and standardise processes. In January 2015, the Committee received a presentation on the initiative to understand the approach being taken, the stages involved and the underlying issues that the initiative was aiming to resolve. Management sought input and feedback from the Committee on the direction, focus and timing of the proposed initiative. The Committee discussed the proposal and asked questions about the initiative before approving the approach. Regular updates will be provided to the Committee through the year so that progress can be monitored. During the year, the Committee challenged management in the US on its regulatory filing obligations, noting that due to the system implementation issues, not all filings were made on time. Management presented and, during the course of the year, delivered on a detailed plan to complete the filings and remediate the process. All regulatory filings are now up to date and management communicated with the regulators throughout the process. Presentation of exceptional items. At the half year and year end, the Committee examined an analysis of items to be classified as exceptional to make sure the items did not include income or costs relating to the underlying business performance. In particular, the Committee considered the treatment of the liability management programme costs at the year end. Management proposed that the costs associated with the debt redemptions should be treated as exceptional as they were one-off, significant and outside the ordinary course of business. To include this cost in underlying finance costs would otherwise distort users’ understanding of the business performance. This proposal was in line with the exceptional items accounting policy in the Annual Report and Accounts and the historical treatment of debt redemption costs. The Committee agreed that the classification of this item was appropriate. See note 4 footnote 8 on page 104. | |||||||||||||||
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Mark Williamson (chairman) |
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Paul Golby1 | 1 of 1 | |||||||||||||||
Ruth Kelly | 8 of 8 | |||||||||||||||
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Philip Aiken2 |
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Maria Richter3 | 4 of 4 | |||||||||||||||
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1. | ||||||||||||||||
Paul Golby joined the Committee on 25 February 2015. 2. 3. Maria Richter stepped down from the Board with effect from 28 July | Therese Esperdy was appointed to the Committee with effect from 22 April 2015.
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Experience
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the meaning of the SEC requirements; and
Exchange listing rules. |
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Financial reporting The Committee monitors the integrity of the Company’s financial information and other formal documents relating to its financial
An important factor in the integrity of financial statements is making sure that suitable and compliant accounting policies are adopted and applied consistently on a year-on-year basis and across the Company. In this respect, the Committee also
These considerations are supported by input from other assurance providers such as the group controls, risk management and ethics and compliance teams, the business separation compliance officer, internal (corporate) audit and the SEH Committee, as well as our external auditors. In addition, the Committee also considers reports of the Disclosure Committee. See page
The Committee reviews and approves the external audit plan annually (see
Other risks, including the accuracy and valuation of treasury derivative transactions, accounting for pension obligations, accuracy of capital expenditure, revenue recognition and | |||||||||
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| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 51 |
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The Committee has also challenged and reviewed management’s remediation plans and the design of compensating controls, including enhanced analytical reviews to make sure the Company maintains an effective internal control environment over financial reporting.
Given the significance of this work, Mark Williamson visited the US and held detailed meetings with senior management in January 2014 to confirm remediation plans were progressing as expected.
LIPA MSA transition contract accounting: on 31 December 2013, our US business moved the MSA with LIPA to a third party. This transition was particularly complex. It involved many areas of our US business and required us to manage the transition of more than 2,000 employees, including more than 40 finance
be exceptional for the year. The Committee reviewed and challenged the
Confidential reporting procedures and whistleblowing The integrity of the financial statements is further supported by the confidential reporting and whistleblowing procedures we have in place. The Committee reviews these procedures once a year to make sure that complaints are treated confidentially and that a proportionate, independent investigation is carried out in all cases.
Internal The
appropriate, summarise common control themes arising from the work of the team and update on progress with implementing management actions. Where
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In order to meet the responsibility and objectives set out in the Corporate Audit Charter, audits of varying types and scopes are performed as part of the annual corporate audit plan. The audit plan is based on a combination of risk-based and cyclical reviews, together with a small amount of work that is mandated, typically by US regulators. Inputs to the audit plan include risk registers, corporate priorities, external research of emerging risks and trends and discussions with senior management to ensure that the plan aligns with the Committee and Company’s view of risk. The audit plan is considered and approved by the Committee annually. | ||||||||||||||
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External audit The Committee is responsible for overseeing relations with the external auditors, including the approval of fees, and makes recommendations to the Board on their appointment and reappointment. Details of total remuneration to auditors for the year, including audit services, audit-related services and other non-audit services, can be found in note
Auditor independence and objectivity The independence of the external auditors is essential to the provision of an objective opinion on the true and fair view presented in the financial statements.
Auditor independence and objectivity is safeguarded by a number of control measures, | ||||||||||||
| ● | limiting the nature and value of non-audit services performed by the external | |||||||||||
| ● | ensuring that employees of the external auditors who have worked on the audit in the past two years are not appointed to senior financial positions within the Company in line with our internal code; | |||||||||||
| ● | monitoring the changes in legislation related to auditor objectivity and independence to help ensure we remain compliant; | |||||||||||
| ● | providing a business conduct helpline that employees can use to report any concerns, including those relating to the relationships between Company personnel and the external auditor; | |||||||||||
| ● | the rotation of the lead engagement partner at least every five | |||||||||||
| ● | PwC’s internal independence rules and processes which have been designed to exceed professional standards and focus on both personal independence and scope of services; | |||||||||||
| ● | independent reporting lines from PwC to the Committee and the opportunity to meet with the Committee independently; and | |||||||||||
| ● | an annual review by the Committee of the structures, policies and practices in place to make sure the external auditors’ objectivity and independence is maintained. | |||||||||||
A new lead engagement partner | ||||||||||||
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| 52 |
Non-audit services provided by the external auditors In accordance with our policy, non-audit services provided by the external auditors above a threshold of £50,000 require approval in advance by the Committee. Below this threshold, all requests are approved in advance by the Finance Director and do not require Committee pre-approval. This reduces the administrative burden on the Committee. A full list of all Committee and Finance Director approved non-audit work requests is presented to the Committee annually to ensure the Committee is aware of all non-audit services provided. Additionally, the Committee receives quarterly reports from management on non-audit services and other consultants’ fees to monitor the types of services being provided and fees incurred. Approval for the provision of non-audit services is given on the basis the service will not compromise independence and is a natural extension of the audit or if there are overriding business or efficiency reasons making the external auditors most suited to provide the service. Certain services are prohibited from being performed by the external auditors, as required under the
Total non-audit services provided by PwC during the year ended 31 March
Total audit and audit-related fees include the statutory fee and fees paid to PwC for other services that the external auditors are required to perform, for example regulatory audits and
The Committee
| Auditor appointment An annual review is conducted by the Committee of the level and constitution of the external audit and non-audit fees and the effectiveness, independence and objectivity of the external auditors. The annual review includes consideration of: ● audit quality and the external audit process globally; ● the auditors’ performance and delivery against the audit plan; ● the expertise of the firm and our relationship with them including the level of challenge; and ● the results of online questionnaires completed by the Chairman, Committee members, Executive Directors and senior representatives from the finance team. The questions focused on: the quality of service; sufficiency of resources; planning and execution of the audit; communication and interaction; and overall satisfaction. No material issues were identified. Following this year’s annual review, the Committee was satisfied with the effectiveness, independence and objectivity of the external auditors, and recommended to the Board their reappointment for a further year. A resolution to reappoint PwC and giving authority to the Directors to determine their remuneration will be submitted to shareholders at the 2015 AGM. Audit tender PwC have been the Company’s external auditors since the merger with Lattice Group plc in 2002, having been the incumbent external auditors of both the merging parties and the audit contract has not been put out to tender since then. Their performance has been reviewed annually by the Committee since that time. The Committee discussed the implications of the Competition and Market Authority Order requiring FTSE 350 companies to hold an audit tender every 10 years as well as the final European Commission (EC) regulations, which came into EU legislation in June 2014. The Committee noted that based on the EC transitional arrangements, the final year in which PwC can be appointed as the Group’s auditors is for the year ended 31 March 2020. At its meeting in May 2015, the Committee considered the timing of a potential tender for the external audit. The Committee considered the continued US financial controls improvement programme and the services we currently receive from other external audit firms that may be considered in a tender process. It concluded that, firstly, in order to ensure an orderly transition and secondly, to ensure compliance with the EC regulations on the provision of prohibited services, an audit tender process will be run later this year for the audit of the year ending 31 March 2018. PwC will not be invited to tender. No representatives from PwC were present during the Committee’s discussion of the options for a tender of the external audit. There are no contractual obligations restricting our choice of external auditors and we have not entered into any auditor liability agreement. | |||||||||
Audit quality To maintain audit quality and provide comfort on the integrity of financial reporting, the Committee reviews and challenges the proposed external audit plan including the scope and materiality to make sure that PwC have identified all key risks and developed robust audit procedures and communication plans. The Committee also considers PwC’s response to accounting, financial control and audit issues as they arise, and meets with them at least annually without management present, providing the external auditors with the opportunity to raise any matters in confidence. | ||||||||||
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| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 53 |
Corporate Governance Corporate Governancecontinued |
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The Audit
In support of our compliance with the New Code, reporting to the Audit Committee on risk management and internal control has been reviewed by the Board and refinements will be adopted for the financial year 2015/16. Details of our internal control systems, including those relating to the financial reporting Risk management The Executive Committee discusses the principal risks faced by the Company and updates the corporate risk profile every six months. The approved profile is subsequently shared with
To continuously improve and remain at best practice levels, the risk management team reviews risk process standards, emerging trends and concepts being driven by the main consultancy firms and seeks to apply these as appropriate. The standards issued by the
Compliance management
Biannual reports to the Committee focus on
The Committee | Going concern
Our business plan considers the significant solvency and liquidity risks involved in delivering our business model in light of our strategic priorities. The business plan models a number of upside and downside scenarios, derived from the risks and opportunities identified, and determines the impact these would have on our results and financial position over the five year period. In addition, we have reviewed and challenged a number of worst case scenarios and their possible remediation.
Our business model calls for significant capital investment to maintain and expand our network infrastructure. To deliver this, our business plan highlights that we will need to access capital markets to raise additional funds from time to time. We have a long and successful history in this
Having made enquiries and reviewed management’s assessment of the going concern assumption, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the period of the going concern assessment. For this reason, the Directors are satisfied that, at the time of approving the financial statements, it is appropriate to continue to adopt the going concern basis in preparing the consolidated and individual financial statements of the Company. More detail on our financial risks, including liquidity and solvency, is provided in note 30 to the consolidated financial statements. There have been no major changes to the Group’s significant liquidity and solvency risks in the year.
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| 54 |
| Matters considered | ||||||||||||
Role Sets policy and grants authority for financing decisions, credit exposure, hedging and foreign exchange transactions, guarantees and indemnities subject to the risk appetite approved by the Board. It also approves other treasury, tax, pension funding and insurance strategies and, if appropriate, recommends
Review of the year
This year, we continued to focus on funding plans to take into account international debt market conditions. The Committee
We also considered the financial headroom policy. During the financial crisis, the Committee
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Examples of matters the Committee considered during the year include:
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● funding business plan; | ||||||||||||
●setting and reviewing treasury policies; | ||||||||||||
●treasury performance updates provided at each meeting; | ||||||||||||
●UK and US tax updates; | ||||||||||||
● US energy procurement activities; | ||||||||||||
● annual update on the activities in the UK; | ||||||||||||
●credit rating agencies’ | ||||||||||||
●foreign exchange policy; | ||||||||||||
● interest rate risk management; | ||||||||||||
● the draft going concern statement for the half and full-year results prior to consideration by the Audit Committee and Board; | ||||||||||||
● pensions updates, including funding of the Company’s pension deficits; and |
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● insurance renewal strategy. | ||||||||||||
Committee membership and attendance |
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Attendance is expressed as the number of meetings attended out of the number possible or applicable for the individual Director during the year to 31 March
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| Name | Attendance | |||||||||||
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Therese Esperdy¹ (chairman) | 4 of 4 | |||||||||||
Steve Holliday | 4 of 4 | |||||||||||
Andrew Bonfield | 4 of 4 | |||||||||||
Jonathan Dawson | 4 of 4 | |||||||||||
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Ruth Kelly | 4 of 4 | |||||||||||
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Maria Richter² | 2 of 2 | |||||||||||
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2. Maria Richter stepped down from the 2014.
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The Committee in action Evaluation of Committee performance The Committee performance evaluation process this year was an upward facing process undertaken by non-Committee members and regular attendees/presenters. This was in line with the process adopted by the other committees (except the Nominations Committee). The Committee concluded that it had operated effectively throughout the year and agreed an action plan for 2015/16 to further improve performance. An update on the evaluation including the draft Committee action plan was reported to the Board in May 2015. Progress against the action plan will be monitored through the year by the Committee and the Board. | ||||||||||||
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| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 55 | |||||||||
Corporate Governance | ||||||||||||
Corporate Governancecontinued | ||||||||||||
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| Matters considered | ||||||||||||||
Role
Review of the year
We welcomed Andrew Bonfield to the Committee at the beginning of the year. Andrew is a member of the Chief Financial Officers Leader Group of the Accounting for Sustainability (A4S) project, which challenges organisations to demonstrate the commercial rationale for incorporating sustainability into decision making and to manage the related risks and opportunities. He also chairs the Company’s Engineering Assurance Committee, which now reports on a six monthly basis to the Committee. We have continued to focus
Following a fatality
In
We
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Examples of matters the SEH Committee reviewed during the year include:
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●ongoing monitoring of safety performance and significant incidents in both the US and the UK; | ||||||||||||||
●lessons learnt and steps taken following a fatality of a member of the public in the UK in April 2014 and a contractor fatality in the US in November 2014; | ||||||||||||||
● in-depth reviews of incidents in both the UK and US due process led to high pressure releases placing the employees involved in danger; | ||||||||||||||
● compliance with US gas pipeline safety regulations in the light of new regulations and evolving enforcement policies by our regulators; | ||||||||||||||
● review of Assurance Committee which was formed last year to promote the application of common, consistent, engineering assurance methodologies across the | ||||||||||||||
● conclusion of a review of between our IT systems and safety processes; | ||||||||||||||
● the use of business for the break up and removal of mains below 6” in diameter, looking at safety issues and available alternatives; and | ||||||||||||||
●climate change strategy, including performance against emissions targets and carbon budgets. | ||||||||||||||
Committee membership and attendance |
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Attendance is expressed as the number of meetings attended out of the number possible or applicable for the individual Director during the year to 31 March
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| Name | Attendance | |||||||||||||
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Paul Golby (chairman)1 | 5 of 5 | |||||||||||||
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Andrew Bonfield | 4 of | |||||||||||||
Nora Mead Brownell | 5 of 5 | |||||||||||||
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Philip Aiken2 | 5 of 5 | |||||||||||||
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1. |
25 February 2015. |
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2. Philip Aiken stepped down from the Board with effect from 25 February 2015. | ||||||||||||||
US LNG assets As part of its focus on process safety and the management of major hazard assets, the Committee has spent time with the US business looking at the risks surrounding its LNG assets, as a number of these assets are located close to areas that have pockets of relatively dense population. The Committee considered the possible risk reduction measures for two key sites, Commercial Point in Massachusetts and Providence in Rhode Island, where the risk levels had been established to be highest. Philip Aiken visited both sites and members of the Committee received additional training on LNG process safety risks and the relevant risk assessment methodologies. Over the following 12 months the Committee, through regular reports, oversaw the implementation of the measures proposed, including the installation of automatic shutdown mechanisms which was completed at these plants in June 2014. The Committee also reviewed the proposed timetable for dike redesign and construction to improve containment of LNG escapes in the event of an incident and recommended completion be brought forward by several months.
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| Matters considered | ||||||||||||
| Examples of matters the Nominations Committee considered during the year include: | |||||||||||
● Director appointments and leavers, see page 58 for details of the Executive Director appointment process; |
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● Board and committee membership following changes to the composition of the Board; | ||||||||||||
● the executive succession planning focusing on the identification, development and readiness of successors to the Executive Committee in particular; | ||||||||||||
Role Responsible for considering the structure, size and composition of the Board and committees, and succession planning. It also identifies and proposes individuals to be Directors and executive management reporting directly to the Chief Executive, and establishes the criteria for any new position. | ● review of Sir Peter’s performance as Chairman, led by Mark Williamson, the SID; |
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● the proposed structure for the UK business; | ||||||||||||
● feedback on the key issues to be covered by the talent update paper to the Board to provide focus for the discussion; and | ||||||||||||
● the Committee’s performance; see ‘The Committee in action’ below. | ||||||||||||
Review of the year Succession planning continues to be an important responsibility of this Committee, and is reflected in the time spent on the topic this year. The process of building a strong and effective Board requires a good balance of continuity and refreshment. As described in my foreword to the Corporate Governance report, during the year we have undertaken a rigorous recruitment process to select Dean Seavers as a successor to Tom King, a key appointment to the Board. Details of our process are included later in this report on page 58. Balance is an important consideration in recruitment, not only in terms of the number of Executive and Non-executive Directors, but also in terms of the range of expertise and backgrounds. In setting the specification of the role, we reviewed the existing skills, experience and diversity of the Board, including diversity of thinking styles, and identified areas that were essential or highly desirable in potential candidates. The Last year we set out eight measurable objectives to support our Board diversity policy. We have conducted our annual review of We currently have
Following the changes in Board membership, the composition of the committees was
The Committee
effectively managed. |
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| Name | Attendance | |||||||||||
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Sir Peter Gershon (chairman) | ||||||||||||
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| 5 |
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Nora Mead Brownell |
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Jonathan Dawson | 5 of | |||||||||||
Therese Esperdy | 5 of 5 | |||||||||||
Paul Golby | 5 of 5 | |||||||||||
Ruth Kelly | 5 of 5 | |||||||||||
Mark Williamson | 5 of 5 |
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Philip Aiken1 | 4 of 4 | |||||||||||
Maria Richter2 |
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1. Philip Aiken stepped down from the Board with effect from 25 February 2015. | |||||||||||
2. Maria Richter stepped down from the Board with effect from 28 July 2014. | |||||||||||
The Committee in action Evaluation of Committee performance The Nominations Committee performance evaluation process took a slightly different approach to the evaluations for the Board and other committees. Committee members were asked to provide feedback on how effectively it had dealt with the main topics considered in the last year and its duties and responsibilities; how it had worked together as a unit; and the strengths and weaknesses of the Committee and how these could be addressed by the action plan. Following consideration of the Committee’s performance over the year and the above questions, the Committee concluded that it had operated effectively throughout the year and agreed an action plan for 2015/16, which included refinements to the appointment process of future non-executive and executive directors to make sure that we continuously improve our robust approach, including briefings for Non-executive Directors on their role in the selection and appointment of executive directors. Additionally, the time spent discussing senior executive succession planning will be reviewed to make sure that Committee input continues to be provided, as appropriate, to support senior appointments. An update on the evaluation including the draft Committee action plan was reported to the Board in May 2015. | |||||||||||
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Corporate Governance
Corporate Governancecontinued
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| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 59 |
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Annual statement from the Remuneration Committee chairman Overview
National Grid’s shareholder returns are earned progressively through two main contributing factors. First, through careful management of
● the bulk of ● senior executives should be required to have a significant mandatory shareholding (500% of
● shares that vested under the LTPP, following the three year performance measurement period, had to be retained for a further two years, irrespective of whether the mandatory shareholding level had been attained; and
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The Performance for the year APP National Grid has achieved another year of strong financial performance in the UK and solid performance in the US with record investment levels. The financial measures for the APP were adjusted EPS and either Group RoE, UK or US RoE depending on role. At 60.6 pence, the adjusted EPS figure for APP was up 6.3 pence (12%) on 2013/14. The EPS figure used for the APP calculation differs slightly to the reported EPS figure of 58.1 pence as it is adjusted for the impact of timing and actuarial assumptions on pensions and other post-employment benefits (OPEB). Group RoE was 11.8%, ahead of last year’s 11.4% result. Our UK RoE was 14.3%, including the benefit of a legal settlement referred to in the report of the Audit Committee on page 52. In the US, our RoE was 8.4%, which was slightly down on last year. As a result, in respect of financial metrics for the APP (representing 70% of the value of the award), we have made awards of between 50% and 100% of the maximum potential to the Executive Directors. The balance LTPP 2014 was the The LTPP that vested during 2014/15 was that awarded in 2011. This included three performance measures: adjusted EPS; relative total shareholder return (TSR); and UK and US returns. The EPS measure vested at 31%, reflecting EPS growth just above the threshold target for this measure. The TSR measure vested at 98.3%, which reflects an annualised return to shareholders of 18.9% over the period. The UK and US returns measures are expected to vest at 100% and 25.9% respectively, reflecting strong operational performance in the UK, including the first two years of RIIO, and the impact of rate base growth and higher winter related costs in the US. As a result, the 2011 LTPP vested at between 46% and 66% for the Executive Directors. Details of each Executive Director’s vested LTPP are set out on pages 70 and 71. Future targets Details of future targets and historical performance are disclosed each year in respect of the LTPP. Details of historical performance against targets are disclosed each year in respect of the APP. We provide these details on pages 70 to 72 and page 74. Taking account of this year’s performance, as well as the challenges |
| 60 |
ahead, after careful consideration the Committee has decided to retain the same weighting of performance metrics performance. For the Executive Director shareholdings Executive Directors are now required to build up and hold a significant shareholding in the Executive Director changes Nick Winser stepped down from the Board at the 2014 AGM and will leave the Company at the end of July 2015 when his role will be redundant. Details of his termination payments are summarised on page 72. In October last year, it was announced that Tom King would also leave the Company at the end of March 2015 and would be succeeded as an Executive Director and President of National Grid’s US business by Dean Seavers. Tom King’s termination payments are also detailed on page 72. I confirm that all such payments to Nick Winser and to Tom King are in line with approved policy. Dean Seavers joined the Company on 1 December 2014, and joined the Board on 1 April 2015, with a starting salary of US$1,000,000. He will be eligible for a prorated APP in respect of 2014/15 and also received an award of 300% of salary in respect of the
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2014 LTPP. In addition to his starting package, he also received compensation for bonuses from his former employer that have been foregone amounting to US$250,000 paid on joining and a further US$250,000 to be paid one year later. He is a member of the Salaries For the year ahead, the Committee has awarded a
John Pettigrew joined the Board on 1 April 2014 with a starting salary of £475,000 and
| to the wider workforce and inflation, subject to his performance. The Committee has decided to award him a 7% increase in salary from 1 June 2015 with further above inflation increases planned in the future to bring him closer to the market rate for his role, subject to his ongoing performance. Conclusion The Committee considers that the remuneration earned last year by Executive Directors is a fair reflection of the value achieved for shareholders. Their remuneration is, however, in a transitional phase since the APP outturn reflects a lower maximum potential (125% of salary versus 150% previously) while the level of LTPP vesting reflects both the previous policy limits and also the previous bases of measurement. This transitional phase will continue until 2017 when the last element of the 2013 LTPP finally vests and the 2014 LTPP (under the new policy) matures. We will report in detail on each element during this period to give shareholders as clear a view as is possible about the underlying performance of the new policy. This year the Committee is not seeking any changes to remuneration policy, so the only shareholder vote on remuneration is an advisory vote on the Directors’ Remuneration Report (Resolution 16). We believe we have correctly and fairly implemented the approved policy during the past year. We also believe that, while it is too early to be definitive, the new incentive arrangements that we initiated last year are beginning to prove their merits. On behalf of the Committee, I commend this report to you and ask for your support for the resolution at the Annual General Meeting. Directors’ remuneration policy – approved by shareholders in 2014 The
There may be circumstances from time to time when the Committee will consider it appropriate to apply some judgement and exercise discretion in respect of the approved policy. This ability to apply discretion is highlighted where relevant in the policy,
The Committee will honour any commitments made to Directors before the policy outlined in this report | |||||||
Our peer group The Committee benchmarks its remuneration policy against appropriate peer groups annually to | ||||||||
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| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 61 |
Corporate Governance | ||||||
Directors’ Remuneration Reportcontinued | ||||||
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Salary | Purpose and link to strategy: to attract, motivate and retain high-calibre individuals, while
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Operation
| Maximum levels
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Performance metrics, weighting and | ||||||||||
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Salaries are targeted broadly at mid-market level.
They are generally reviewed annually. Salary reviews take into account: ● business and individual contribution; ● the individual’s skills and experience; ● scope of the role, including any changes in responsibility; and ● market data in the relevant comparator group. |
No prescribed maximum annual increase.
Any increases are generally aligned to salary increases received by other Company employees and to market movement. Increases in excess of this may be made at the Committee’s discretion in circumstances such as a significant change in responsibility; progression in the role; and alignment to market level. |
Not applicable. | ||||||||||
Benefits | ||||||||||||
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Operation
| Maximum levels
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Performance metrics, weighting and | ||||||||||
| ||||||||||||
Benefits provided include:
● company car or a cash alternative (UK only); ● use of a driver when required; ● private medical insurance; ● life assurance; ● personal accident insurance; ● opportunity to purchase additional benefits under flexible benefits schemes available to all employees; and ● opportunity to participate in the following HM Revenue & Customs (UK) or Internal Revenue Service (US) tax advantaged all-employee share plans: Sharesave: UK employees may make monthly contributions from net salary for a period of 3 or 5 years. The savings can be used to purchase shares at a discounted price, set at the launch of each plan period. Share Incentive Plan (SIP): UK employees may use gross salary to purchase shares. These shares are placed in trust. |
Benefits have no pre-determined maximum, as the cost of providing these varies from year to year.
Participation in tax approved all-employee share plans is subject to limits set by the relevant tax authorities from time to time. |
Not applicable. | ||||||||||
| ||||||||||||
| ||||||||||||
| ||||||||||||
Incentive Thrift Plans (401(k) plans): US employees may participate in these tax-advantaged savings plans. They are DC pension plans in which employees can invest their own and Company contributions.
| ||||||||||||
Employee Stock Purchase Plan (ESPP) (423(b) plan): eligible US employees may purchase ADSs on a monthly basis at a discounted price.
| ||||||||||||
Other benefits may be offered at the discretion of the Committee.
| ||||||||||||
| 62 |
| Pension |
|
|
|
|
| |||||||||||||||
and
| ||||||||||||
Operation
| Maximum levels
|
Performance metrics, weighting and time | ||||||||||
| ||||||||||||
Pension for a new Executive Director will reflect whether they are internally promoted or externally appointed.
If internally promoted: ● retention of existing DB benefits without enhancement, except for capping of pensionable pay increases following promotion to Board; or ● retention of existing UK DC benefits or equivalent cash in lieu; or ● retention of existing US DC benefits plus 401(k) plan match, provided through 401(k) plan and non-qualified plans. If externally appointed: ● UK DC benefits or equivalent cash in lieu; or ● US DC benefits plus 401(k) plan match. Andrew Bonfield, John Pettigrew and Dean Seavers are treated in line with the above policy. Steve Holliday and Nick Winser are provided with final salary pension benefits. For service prior to 1 April 2013, pensionable pay is normally the base salary in the 12 months prior to leaving the Company. For service from 1 April 2013 increases to pensionable pay are capped at the lower of 3% or the increase in inflation. The pension scheme rules allow for indexed prior salaries to be used for all members. They participate in the unfunded scheme in respect of benefits in excess of the Lifetime Allowance. Tom King participated in a qualified pension plan and in an Executive Supplemental Retirement Plan. These plans were non-contributory, cash balance and final average pay plans. Tom’s benefits included compensation to buy out entitlements from his former employer that were lost on recruitment to National Grid. In line with market practice, pensionable pay for UK-based Executive Directors includes salary only and for US-based Executive Directors it includes salary and APP award. |
UK DB: a maximum pension on retirement, at age 60, of two thirds final capped pensionable pay or up to one thirtieth accrual. On death in service, a lump sum of four times pensionable pay and a two thirds dependant’s pension is provided.
UK DC: annual contributions of 30% of salary. Life assurance provision of four times pensionable salary and a spouse’s pension equal to one third of the Director’s salary are provided on death in service.
US DB: an Executive Supplemental Retirement Plan provides for an unreduced pension benefit at age 62 (at age 55 in Tom King’s case). For retirements at age 62 with 35 years of service, the pension benefit would be approximately two thirds of pensionable pay. Upon death in service, the spouse would receive 50% of the pension benefit (100% if the participant died while an active employee after the age of 55).
US DC: 9% of base salary plus APP with additional 401(k) plan match of up to 4%. |
Not applicable. | ||||||||||
| ||||||||||||
| ||||||||||||
| ||||||||||||
| ||||||||||||
| ||||||||||||
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|
|
| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 63 |
Corporate Governance
| ||
Directors’ Remuneration Reportcontinued | ||
|
Annual
| Purpose and link to strategy: to incentivise and reward the achievement of annual
| ||||||||||||
Operation
| Maximum levels
|
Performance metrics, weighting and time period applicable | |||||||||||
| |||||||||||||
Performance metrics and targets are agreed at the start of each financial year. Performance metrics are aligned with strategic business priorities. Targets are set with reference to the budget. Awards are paid in June.
For APP awards made in 2013/14, 50% of any award was deferred into shares in the Deferred Share Plan (DSP). The DSP has no performance conditions and vests after three years, subject to continued employment. These shares are subject to forfeiture for leavers in certain circumstances.
Awards are subject to clawback and malus provisions. |
|
A significant majority of the APP is based on performance against corporate financial measures, with the remainder based on performance against individual objectives. Individual objectives are role specific.
The Committee may use its discretion to set measures that it considers appropriate in each financial year and reduce the amount payable, taking account of significant safety or customer service standard incidents, environmental and governance issues.
| |||||||||||
Long Term Performance Plan |
| ||||||||||||
Operation
| Maximum levels
|
Performance metrics, weighting and time period applicable | |||||||||||
| |||||||||||||
Awards of shares may be granted each year, with vesting subject to long-term performance conditions.
The performance metrics have been chosen as the Committee believes they reflect the creation of long-term value within the business. Targets are set each year with reference to the business plan.
Awards are subject to clawback and malus provisions. Notwithstanding the level of award achieved against the performance conditions, the Committee may use its discretion to reduce the amount vesting, and in particular will take account of compliance with the dividend policy. |
For awards made between 2011 and 2013, the maximum award for the CEO was 225% of salary and 200% for the other Executive Directors. |
For awards between 2011 and 2013 the performance measures and weightings were:
| |||||||||||
| adjusted EPS (50%) measured over three years; | ||||||||||||
| TSR relative to the FTSE 100 (25%) measured over three years; and | ||||||||||||
| UK or US RoE relative to allowed regulatory returns (25%) measured over four years. | ||||||||||||
From 2014,
| |||||||||||||
| value growth and Group RoE (for the CEO and Finance Director); and | ||||||||||||
●value growth, Group RoE and UK or US RoE (for the UK and US Executive Directors respectively).
| |||||||||||||
LTPP table continued opposite | |||||||||||||
| 64 |
| ||||||||||||
| ||||||||||||
|
|
| |||
Long Term Performance Plan continued
| Purpose and link to strategy: to drive long-term performance, aligning Executive Director to key strategic objectives and shareholder interests.
| |||||||||||||||
Operation
| Maximum levels
|
Performance metrics, weighting and time period applicable
| ||||||||||||||
| ||||||||||||||||
For awards granted from 2014, |
All
The weightings of these measures may vary year to year, but would always remain such that the value growth metric would never fall below a 25% weighting and never rise above a 75% weighting.
Between 2011 and 2013, 25% of the award vested at threshold and 100% at stretch, with straight-line vesting in between. From 2014,
| |||||||||||||||
| ||||||||||||||||
Fees for NEDs | Purpose and link to strategy: to attract NEDs who have a broad range of experience and skills the implementation of our strategy.
| |||||||||||||||
Operation
| Maximum levels
|
Performance metrics, weighting and time period applicable
| ||||||||||||||
NED fees (excluding those of the Chairman) are set by the Executive Committee in conjunction with the Chairman; the Chairman’s fees are set by the Committee. |
|
| ||||||||||||||
Fee structure:
| ||||||||||||||||
| ||||||||||||||||
| ||||||||||||||||
Fees are reviewed every year and are benchmarked against those in companies of similar scale and complexity.
| ||||||||||||||||
NEDs do not participate in incentive or pension plans and, with the exception of the Chairman, are not eligible to receive benefits. The Chairman is covered by the Company’s private medical and personal accident insurance plans and receives a fully expensed car or cash alternative to a car, with the use of a driver, when required.
| ||||||||||||||||
There is no provision for termination payments.
| There are no maximum fee levels. The benefits provided to the Chairman are not subject to a predetermined maximum cost, as the cost of providing these varies from year to year. | |||||||||||||||
Not applicable. | ||||||||||||||||
|
| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 65 |
| ||||||||||
Directors’ Remuneration Reportcontinued | ||||||||||
|
Shareholding requirement The requirement of Executive Directors to build up and hold a relatively high value of National Grid shares ensures they share a significant level of risk with shareholders and their interests are aligned.
From 2014/15,
Unless the shareholding requirement is met, Executive Directors will not be permitted to sell shares, other than to pay tax or in exceptional circumstances.
| The Company includes in its annual employee opinion survey questions on the appropriateness of the pay arrangements within the Company. It does not specifically invite employees to comment on the Directors’ remuneration policy but any comments made by employees are noted.
Policy on recruitment remuneration Salaries for new Executive Directors appointed to the Board will be set in accordance with the terms of the approved remuneration policy in force at the time of appointment, and in particular will take account of the appointee’s skills and experience as well as the scope and market rate for the role.
Where appropriate, salaries may be set below market level initially, with the Committee retaining discretion to award increases in salary in excess of those of the wider workforce and inflation to bring salary to a market level over time, where this is justified by individual and Company performance.
Benefits consistent with those offered to other Executive Directors under the approved remuneration policy in force at the time of appointment will be offered, taking account of local market practice. The Committee may also agree that the Company will meet certain costs associated with the recruitment, for example legal fees, and the Committee may agree to meet certain relocation expenses or provide tax equalisation as appropriate.
Pensions for new Executive Directors appointed to the Board will be set in accordance with the terms of the approved remuneration policy in force at the time of appointment.
Ongoing incentive pay (APP and LTPP) for new Executive Directors will be in accordance with the approved remuneration policy in force at the time of appointment. This means the maximum APP award in any year would be 125% of salary and the maximum LTPP award would be 300% of salary (350% of salary for a new CEO).
For an externally appointed Executive Director, the Company may offer additional cash or share-based payments that it considers necessary to buy out current entitlements from the former employer that will be lost on recruitment to National Grid. Any such arrangements would reflect the delivery mechanisms, time horizons and levels of conditionality of the remuneration lost.
In order to facilitate
For an internally appointed Executive Director, any outstanding variable pay element awarded in respect of the prior role will continue on its original terms.
Fees for a new Chairman or Non-executive Director will be set in line with the approved policy in force at the time of appointment. | |||||||
Differences in remuneration policy for all employees The remuneration policy for the Executive Directors is designed with regard to the policy for employees across the Company as a whole. However, there are some differences in the structure of remuneration policy for the senior executives. In general, these differences arise from the development of remuneration arrangements that are market competitive for our various employee categories. They also reflect the fact that, in the case of the Executive Directors, a greater emphasis tends to be placed on performance-related pay in the market, in particular long-term performance-related pay.
All employees are entitled to base salary, benefits and pension. Many employees are eligible for an APP award based on Company and/or individual performance. Eligibility and the maximum opportunity available is based on market practice for the employee’s job band. In addition, around 350 senior management employees are eligible to participate in the LTPP.
The Company has a number of all-employee share plans that provide employees with the opportunity to become, and to think like, a shareholder. These plans include Sharesave and the SIP in the UK and the 401(k) and 423(b) plans in the US. Further information is provided on page
Consideration of remuneration policy elsewhere in the Company In setting the remuneration policy, the Committee considers the remuneration packages offered to employees across the Company. As a point of principle, salaries, benefits, pensions and other elements of remuneration are benchmarked regularly to ensure they remain competitive in the markets in which we operate. In undertaking such benchmarking, our aim is to be at mid-market level for all job bands, including those subject to union negotiation.
As would be expected, we have differences in pay and benefits across the business which reflect individual responsibility and there are elements of remuneration policy which apply to all, for example, flexible benefits and share plans.
When considering annual salary increases, the Committee reviews the proposals for salary increases for the employee population generally, as it does for any other changes to remuneration policy being considered. This will include a report on the status of negotiations with any trade union represented employees. | ||||||||
| 66 |
| ||||||||||||
| ||||||||||||
|
|
|
Service contracts and policy on payment for loss of office In line with our policy, all Executive Directors have service contracts which are terminable by either party with 12 months’ notice.
The contracts contain provisions for payment in lieu of notice, at the sole and absolute discretion of the Company. Such payments are limited to payment of salary only for the remainder of the notice
In the event of a UK Director being made redundant, statutory compensation would apply and the relevant pension plan rules may result in the early payment of an unreduced pension.
On termination of employment, no APP award would generally be payable and any DSP awards would generally lapse. However, the Committee has the discretion to deem an individual to be a ‘good leaver’, in which case an APP award would be payable on the termination date, based on performance during the financial year up to termination, and DSP awards would vest on the termination date. Examples of circumstances in which a Director would be treated as a ‘good leaver’ include redundancy, retirement, illness, injury, disability and death. Any APP award would be prorated and would be subject to performance achieved against the objectives for that year.
On termination of employment, outstanding awards under the share plans will be treated in accordance with the relevant plan rules approved by shareholders. Share awards would normally lapse. ‘Good leaver’ provisions apply at the Committee’s discretion and in specified circumstances, including redundancy, retirement, illness, injury, disability and death, where awards will be released to the departing Executive Director or, in the case of death, to their estate. Long-term share plan awards held by ‘good leavers’ may vest subject to performance measured at the normal vesting date and are prorated. Such awards would vest at the same time as for other participants.
The Chairman’s appointment is subject to six months’ notice by either party; for the other Non-executive Directors, notice is one month. No compensation is payable to Non-executive Directors if required to stand down.
Copies of Directors’ service contracts and letters of appointment are available to view at the Company’s registered office. | Dates of Directors’ service contracts/letters of appointment
| |||||||||
Date of service contract/appointment | ||||||||||
| ||||||||||
Executive Directors | ||||||||||
Andrew Bonfield | 1 November 2010 | |||||||||
Steve Holliday | 1 April 2006 | |||||||||
John Pettigrew | 1 April 2014 | |||||||||
Dean Seavers | 1 | |||||||||
Executive Director 1 April | ||||||||||
| 2015)
| ||||||||||
Non-executive Directors | ||||||||||
Nora Mead Brownell | 1 June 2012 | |||||||||
Jonathan Dawson | 4 March 2013 | |||||||||
Therese Esperdy | 18 March | |||||||||
Sir Peter Gershon | 1 August 2011 | |||||||||
Paul Golby | 1 | |||||||||
Ruth Kelly | 1 | |||||||||
Mark Williamson | 3 September 2012 | |||||||||
| ||||||||||
| ||||||||||
Please note that the information shown above is different to that contained in the approved policy as it has been updated to take account of Board departures and joiners during the year. External appointments The Executive Directors may, with the approval of the Board, accept one external appointment as a non-executive director of another company and retain any fees received for the appointment. Experience as a board member of another company is considered to be beneficial personal development, that in turn is of value to the Company. | ||||||||||
|
| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 67 |
| ||||||
Directors’ Remuneration Reportcontinued | ||||||
|
Total remuneration opportunity The total remuneration for each of the Executive Directors that could result from the remuneration policy in Note that the information shown below is different to that contained in the approved policy as it has been updated to take account of Board departures and joiners during the year, and also to reflect the impact of the policy on 2015 remuneration, rather than 2014. | ||||||
| Andrew Bonfield£’000 | Steve Holliday£’000 | |||||
|
| |||||
| John Pettigrew£’000 | Dean Seavers£’000 | |||||
|
| |||||
1. |
| |||||
2. | Salary is that to be paid in | |||||
3. | Benefits in kind | |||||
4. | Pension is as shown in the single total figure of remuneration table for 2014/15 on page 69, except for Andrew Bonfield for whom pension is shown as 30% of salary and Dean Seavers, for whom pension is shown as 13% of salary plus 13% of APP. This is made up of a 9% Core Plan contribution and a 4% Company match to his 401(k) plan. The element of Dean’s pension that is aligned with salary is shown within ‘Fixed pay’ and the element of his pension that is aligned with APP is shown within ‘APP’. 5. APP calculations are based on 125% of salary for the period 1 April | |||||
| 2016. For Dean Seavers, APP also includes the part of his pension that is aligned with APP (see footnote 4 above). 6. LTPP calculations are based on awards with a face value at grant of 350% of 1 June | ||||||
| They, therefore, exclude future share price movement. 7. LTPP and APP payout is 50% for on target performance and the maximum is 100% for achieving stretch performance. | ||||||
8. Dean Seaver’s remuneration opportunity has been converted at | ||||||
Statement of consideration of shareholder views The Committee considers all feedback received from shareholders throughout the year. While the Committee understands that not all shareholders’ views will be the same, we consult with our larger shareholders on a regular basis to understand their expectations with regard to executive remuneration issues and any changes in shareholder views in this regard. In 2013/14, we consulted larger shareholders | ||||||
| 68 |
| ||||||||||||
| ||||||||||||
|
|
| |||
| Annual report on remuneration Statement of implementation of remuneration policy in 2013/14
Role of Remuneration Committee The Committee is responsible for recommending to the Board the remuneration policy for Executive Directors and the other members of the Executive Committee and for setting the remuneration policy for the Chairman. The aim is to align remuneration policy to Company strategy and key business objectives and ensure it reflects our shareholders’, customers’ and regulators’ interests.
76 Introduction to the financial statements
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Audit opinion for Form 20-F In our opinion, the accompanying consolidated
Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of 31 March
Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. | A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorisations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
PricewaterhouseCoopers LLP London United Kingdom
| |||
|
| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 85 |
Consolidated income statement |
| for the years ended 31 March |
| Notes | 2015 £m | 2015 £m | 2014 £m | 2014 £m | 2013 £m | 2013 £m | ||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||
Revenue | 2(a) | 15,201 | 14,809 | 14,359 | ||||||||||||||||||||||||||
Operating costs
|
| 3
|
|
| (11,421)
|
|
| (11,074)
|
|
| (10,610)
|
| ||||||||||||||||||
| ||||||||||||||||||||||||||||||
Operating profit | ||||||||||||||||||||||||||||||
Before exceptional items, remeasurements and stranded cost recoveries | 2(b) | 3,863 | 3,664 | 3,639 | ||||||||||||||||||||||||||
Exceptional items, remeasurements and stranded cost recoveries
|
| 4
|
|
| (83)
|
|
| 71
|
|
| 110
|
| ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||
Total operating profit | 2(b) | 3,780 | 3,735 | 3,749 | ||||||||||||||||||||||||||
Finance income | 5 | 36 | 36 | 30 | ||||||||||||||||||||||||||
Finance costs | ||||||||||||||||||||||||||||||
Before exceptional items and remeasurements | 5 | (1,069) | (1,144) | (1,154) | ||||||||||||||||||||||||||
Exceptional items and remeasurements
|
| 4,5
|
|
| (165)
|
|
| 93
|
|
| 68
|
| ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||
Total finance costs | 5 | (1,234) | (1,051) | (1,086) | ||||||||||||||||||||||||||
Share of post-tax results of joint ventures and associates
|
| 14
|
|
| 46
|
|
| 28
|
|
| 18
|
| ||||||||||||||||||
| ||||||||||||||||||||||||||||||
Profit before tax | ||||||||||||||||||||||||||||||
Before exceptional items, remeasurements and stranded cost recoveries | 2(b) | 2,876 | 2,584 | 2,533 | ||||||||||||||||||||||||||
Exceptional items, remeasurements and stranded cost recoveries
|
| 4
|
|
| (248)
|
|
| 164
|
|
| 178
|
| ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||
Total profit before tax | 2(b) | 2,628 | 2,748 | 2,711 | ||||||||||||||||||||||||||
Tax | ||||||||||||||||||||||||||||||
Before exceptional items, remeasurements and stranded cost recoveries | 6 | (695) | (581) | (619) | ||||||||||||||||||||||||||
Exceptional items, remeasurements and stranded cost recoveries
|
| 4,6
|
|
| 78
|
|
| 297
|
|
| 62
|
| ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||
Total tax
|
| 6
|
|
| (617)
|
|
| (284)
|
|
| (557)
|
| ||||||||||||||||||
| ||||||||||||||||||||||||||||||
Profit after tax | ||||||||||||||||||||||||||||||
Before exceptional items, remeasurements and stranded cost recoveries | 2,181 | 2,003 | 1,914 | |||||||||||||||||||||||||||
Exceptional items, remeasurements and stranded cost recoveries
|
| 4
|
|
| (170)
|
|
| 461
|
|
| 240
|
| ||||||||||||||||||
| ||||||||||||||||||||||||||||||
Profit for the year
|
| 2,011
|
|
| 2,464
|
|
| 2,154
|
| |||||||||||||||||||||
| ||||||||||||||||||||||||||||||
Attributable to: | ||||||||||||||||||||||||||||||
Equity shareholders of the parent | 2,019 | 2,476 | 2,153 | |||||||||||||||||||||||||||
Non-controlling interests
|
| (8)
|
|
| (12)
|
|
| 1
|
| |||||||||||||||||||||
| ||||||||||||||||||||||||||||||
|
| 2,011
|
|
| 2,464
|
|
| 2,154
|
| ||||||||||||||||||||||
| ||||||||||||||||||||||||||||||
Earnings per share1 | ||||||||||||||||||||||||||||||
Basic | 7(a) | 53.6p | 65.7p | 57.2p | ||||||||||||||||||||||||||
Diluted
|
| 7(b)
|
|
| 53.4p
|
|
| 65.4p
|
|
| 57.0p
|
| ||||||||||||||||||
| ||||||||||||||||||||||||||||||
1. Comparative amounts have been restated to reflect the impact of additional shares issued as scrip dividends. |
| |||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||
| 86 |
|
|
|
| |||||
| ||||||
|
|
|
|
|
|
|
|
| ||||||||||||
|
| Notes | | 2014 £m | | | 2014 £m | |
| 2013 (restated £m | )1
|
| 2013 (restated £m | )1
|
| 2012 (restated £m | )1
|
| 2012 (restated)1 £m |
| ||||||||||||
| ||||||||||||||||||||||||||||||
Revenue | 2(a | ) | 14,809 | 14,359 | 13,832 | |||||||||||||||||||||||||
Operating costs | 3 | (11,074 | ) | (10,610 | ) | (10,297) | ||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||
Operating profit | ||||||||||||||||||||||||||||||
Before exceptional items, remeasurements and stranded cost recoveries | 2(b | ) | 3,664 | 3,639 | 3,491 | |||||||||||||||||||||||||
Exceptional items, remeasurements and stranded cost recoveries | 4 | 71 | 110 | 44 | ||||||||||||||||||||||||||
Total operating profit | 2(b | ) | 3,735 | 3,749 | 3,535 | |||||||||||||||||||||||||
Finance income | 5 | 36 | 30 | 28 | ||||||||||||||||||||||||||
Finance costs | ||||||||||||||||||||||||||||||
Before exceptional items and remeasurements | 5 | (1,144 | ) | (1,154 | ) | (1,118 | ) | |||||||||||||||||||||||
Exceptional items and remeasurements | 4,5 | 93 | 68 | (70 | ) | |||||||||||||||||||||||||
Total finance costs | 5 | (1,051 | ) | (1,086 | ) | (1,188) | ||||||||||||||||||||||||
Share of post-tax results of joint ventures and associates | 14 | 28 | 18 | 7 | ||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||
Profit before tax | ||||||||||||||||||||||||||||||
Before exceptional items, remeasurements and stranded cost recoveries | 2(b | ) | 2,584 | 2,533 | 2,408 | |||||||||||||||||||||||||
Exceptional items, remeasurements and stranded cost recoveries | 4 | 164 | 178 | (26 | ) | |||||||||||||||||||||||||
Total profit before tax | 2(b | ) | 2,748 | 2,711 | 2,382 | |||||||||||||||||||||||||
Taxation | ||||||||||||||||||||||||||||||
Before exceptional items, remeasurements and stranded cost recoveries | 6 | (581 | ) | (619 | ) | (697 | ) | |||||||||||||||||||||||
Exceptional items, remeasurements and stranded cost recoveries | 4,6 | 297 | 62 | 234 | ||||||||||||||||||||||||||
Total taxation | 6 | (284 | ) | (557 | ) | (463) | ||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||
Profit after tax | ||||||||||||||||||||||||||||||
Before exceptional items, remeasurements and stranded cost recoveries | 2,003 | 1,914 | 1,711 | |||||||||||||||||||||||||||
Exceptional items, remeasurements and stranded cost recoveries | 4 | 461 | 240 | 208 | ||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||
Profit for the year | 2,464 | 2,154 | 1,919 | |||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||
Attributable to: | ||||||||||||||||||||||||||||||
Equity shareholders of the parent | 2,476 | 2,153 | 1,917 | |||||||||||||||||||||||||||
Non-controlling interests | (12 | ) | 1 | 2 | ||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||
| 2,464 | 2,154 | 1,919 | ||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||
Earnings per share2 | ||||||||||||||||||||||||||||||
Basic | 7(a | ) | 66.4p | 57.8p | 51.6p | |||||||||||||||||||||||||
Diluted | 7(b | ) | 66.1p | 57.5p | 51.3p | |||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||
1. See note 1 on page 92.
2. Comparative amounts have been restated to reflect the impact of additional shares issued as scrip dividends.
|
| |||||||||||||||||||||||||||||
Unaudited commentary on the consolidated income statement
|
|
|
|
|
| ||
The consolidated income statement shows all revenue earned and costs incurred in the year, with the difference being the overall profit for the year. |
| |
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| |
|
| |
Revenue
Revenue for the year ended 31 March 2015 increased by £392m to £15,201m. This increase was driven by higher revenues in our UK Electricity Transmission business, reflecting increases in allowed Transmission Owner revenues, and higher core allowances and pass-through costs in UK Gas Transmission. Revenues in our UK Gas Distribution business were slightly lower as a result of changes in allowed revenues for replacement expenditure (repex). Our US Regulated businesses revenues were also lower, as a result of the end of the LIPA Management Services Agreement (MSA) last year, partially offset by revenue increases from existing rate plans, including capex trackers, together with additional income from gas customer growth and the impact of the strengthening US dollar.
Operating costs
Operating costs for the year ended 31 March 2015 of £11,421m were £347m higher than the prior year. This increase in costs included a £154m year on year impact of changes in exceptional items, remeasurements and stranded cost recoveries, which is discussed below. Excluding exceptional items, remeasurements and stranded cost recoveries, operating costs were £193m higher, principally due to: increases in controllable costs, including the impact of inflation and additional costs incurred in the US to improve data quality and bring regulatory filings up to date; higher US bad debt costs following last year’s exceptionally cold winter; and higher depreciation and amortisation as a result of continued investment programmes. These cost increases were partly offset by a reduction in spend on US financial systems implementation and stabilisation upgrades, with the project completing in the first half of this year.
Net finance costs
For the year ended 31 March 2015, net finance costs before exceptional items and remeasurements were £75m lower than 2013/14 at £1,033m, mainly as a result of lower average gross debt through the year, lower RPI in the UK and refinancing debt at lower rates.
Tax
The tax charge on profit before exceptional items, remeasurements and stranded cost recoveries was £114m higher than 2013/14. This was mainly due to higher profits before tax and the non-recurrence of one-off items that benefited the prior year.
Exceptional items, remeasurements and stranded cost recoveries
Operating profit for the year ended 31 March 2015 included an £83m loss (2013/14: £16m gain) on remeasurement of commodity contracts. The year ended 31 March 2014 also included a net £55m gain on exceptional items, including a net gain on the LIPA MSA transition in the US of £254m; restructuring costs of £136m, primarily in the UK as we reorganised certain parts of our business to deliver under the new RIIO price controls; and a £79m provision for the demolition of UK gas holders that are no longer required.
Finance costs for the year ended 31 March 2015 included exceptional debt redemption costs of £131m and a loss of £34m on financial remeasurements, relating to net losses on derivative financial instruments.
Adjusted earnings and EPS
The following chart shows the five year trend in adjusted profit attributable to equity shareholders of the parent (adjusted earnings) and adjusted earnings per share. See page 186 for a reconciliation of adjusted basic EPS to EPS.
Adjusted earnings and adjusted EPS1
1. Adjusted earnings and adjusted EPS are attributable to equity shareholders of the parent.
The above earnings performance translated into adjusted EPS growth in 2014/15 of 4.6p (9%).
In accordance with IAS 33, all earnings per share and adjusted earnings per share amounts for comparative periods have been restated for shares issued via scrip dividends.
Exchange rates
Our financial results are reported in sterling. Transactions for our US operations are denominated in dollars, so the related amounts that are reported in sterling depend on the dollar to sterling exchange rate.
| 2014/15 | 2013/14 | % change | ||||
| ||||||
Weighted average (income statement) | 1.58 | 1.62 | (2)% | |||
Year end (balance sheet) | 1.49 | 1.67 | (11)% | |||
| ||||||
If 2013/14 results had been translated at 2014/15 exchange rates, revenue, adjusted operating profit and operating profit reported in sterling would have been £212m, £25m and £32m higher respectively.
 |
| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 87 |
| ||||||||||
|
| Notes | | 2014 £m | |
| 2013 (restated £m | )1
| | 2012 (restated)1 £m | | |||||||||||
| ||||||||||||||||||||
Profit for the year | 2,464 | 2,154 | 1,919 | |||||||||||||||||
Other comprehensive income/(loss) | ||||||||||||||||||||
Items that will never be reclassified to profit or loss | ||||||||||||||||||||
Remeasurements of net retirement benefit obligations | 22 | 485 | (714 | ) | (1,140) | |||||||||||||||
Tax on items that will never be reclassified to profit or loss | 6 | (172 | ) | 179 | 342 | |||||||||||||||
| ||||||||||||||||||||
Total items that will never be reclassified to profit or loss | 313 | (535 | ) | (798) | ||||||||||||||||
| ||||||||||||||||||||
Items that may be reclassified subsequently to profit or loss | ||||||||||||||||||||
Exchange adjustments | (158 | ) | 117 | 27 | ||||||||||||||||
Net gains/(losses) in respect of cash flow hedges | 63 | (31 | ) | (18) | ||||||||||||||||
Transferred to profit or loss in respect of cash flow hedges | 27 | 73 | 19 | |||||||||||||||||
Net gains on available-for-sale investments | 6 | 20 | 16 | |||||||||||||||||
Transferred to profit or loss on sale of available-for-sale investments | (14 | ) | (10 | ) | (9) | |||||||||||||||
Tax on items that may be reclassified subsequently to profit or loss | 6 | (2 | ) | (15 | ) | – | ||||||||||||||
| ||||||||||||||||||||
Total items that may be reclassified subsequently to profit or loss | (78 | ) | 154 | 35 | ||||||||||||||||
| ||||||||||||||||||||
Other comprehensive income/(loss) for the year, net of tax | 235 | (381 | ) | (763) | ||||||||||||||||
| ||||||||||||||||||||
Total comprehensive income for the year | 2,699 | 1,773 | 1,156 | |||||||||||||||||
| ||||||||||||||||||||
Attributable to: | ||||||||||||||||||||
Equity shareholders of the parent | 2,711 | 1,772 | 1,154 | |||||||||||||||||
Non-controlling interests | (12 | ) | 1 | 2 | ||||||||||||||||
| ||||||||||||||||||||
| 2,699 | 1,773 | 1,156 | ||||||||||||||||||
| ||||||||||||||||||||
1. See note 1 on page 92. | ||||||||||||||||||||
| ||||
| for the years ended 31 March | ||||
| Notes | 2015 £m | 2014 £m | 2013 £m | |||||||||||||||
| ||||||||||||||||||
Profit for the year | 2,011 | 2,464 | 2,154 | |||||||||||||||
Other comprehensive (loss)/income | ||||||||||||||||||
Items that will never be reclassified to profit or loss: | ||||||||||||||||||
Remeasurements of net retirement benefit obligations | 22 | (771 | ) | 485 | (714) | |||||||||||||
Tax on items that will never be reclassified to profit or loss | 6 | 299 | (172 | ) | 179 | |||||||||||||
| ||||||||||||||||||
Total items that will never be reclassified to profit or loss | (472 | ) | 313 | (535) | ||||||||||||||
| ||||||||||||||||||
Items that may be reclassified subsequently to profit or loss: | ||||||||||||||||||
Exchange adjustments | 175 | (158 | ) | 117 | ||||||||||||||
Net (losses)/gains in respect of cash flow hedges | (154 | ) | 63 | (31) | ||||||||||||||
Transferred to profit or loss in respect of cash flow hedges | 13 | 27 | 73 | |||||||||||||||
Net gains on available-for-sale investments | 41 | 6 | 20 | |||||||||||||||
Transferred to profit or loss on sale of available-for-sale investments | (8 | ) | (14 | ) | (10) | |||||||||||||
Tax on items that may be reclassified subsequently to profit or loss | 6 | 11 | (2 | ) | (15) | |||||||||||||
| ||||||||||||||||||
Total items that may be reclassified subsequently to profit or loss | 78 | (78 | ) | 154 | ||||||||||||||
| ||||||||||||||||||
Other comprehensive (loss)/income for the year, net of tax | (394 | ) | 235 | (381) | ||||||||||||||
| ||||||||||||||||||
Total comprehensive income for the year | 1,617 | 2,699 | 1,773 | |||||||||||||||
| ||||||||||||||||||
Attributable to: | ||||||||||||||||||
Equity shareholders of the parent | 1,624 | 2,711 | 1,772 | |||||||||||||||
Non-controlling interests | (7 | ) | (12 | ) | 1 | |||||||||||||
| ||||||||||||||||||
| 1,617 | 2,699 | 1,773 | ||||||||||||||||
| ||||||||||||||||||
Unaudited commentary on consolidated statement of comprehensive income
The consolidated statement of comprehensive income records certain items as prescribed by the accounting rules. For us, the majority of the income or expense included here relates to movements in actuarial assumptions on pension schemes and the associated tax impact. These items are not part of profit for the year, yet are important to allow the reader to gain a more comprehensive picture of our performance as a whole.
|
Remeasurements of net retirement benefit obligations
We had a net loss after tax of £472m (2013/14: net gain of £313m) on our pension and other post-retirement benefit schemes which is due to changes in key assumptions made in the valuation calculation of pension liabilities and differences between the expected and actual pension asset returns.
Exchange adjustments
Adjustments are made when we translate the results and net assets of our companies operating outside the UK, as well as debt we have issued in foreign currencies. The net movement for the year resulted in a gain of £175m (2013/14: £158m loss).
Net (losses)/gains in respect of cash flow hedges
The value of derivatives held to hedge cash flows is impacted by changes in expected interest rates and exchange rates. The net loss for the year was £154m (2013/14: £63m gain).
| 88 |
| ||
| for the years ended 31 March |
| | Share capital £m | | | Share premium account £m | | | Retained earnings £m | |
| Other equity reserves £m | 1
|
| Total shareholders’ equity £m |
|
| Non- controlling interests £m |
| Total equity £m | ||||||||||
| ||||||||||||||||||||||||||||
At 1 April 2012 | 422 | 1,355 | 12,294 | (4,835 | ) | 9,236 | 7 | 9,243 | ||||||||||||||||||||
Profit for the year | – | – | 2,153 | – | 2,153 | 1 | 2,154 | |||||||||||||||||||||
Total other comprehensive (loss)/income for the year | – | – | (535 | ) | 154 | (381 | ) | – | (381) | |||||||||||||||||||
| ||||||||||||||||||||||||||||
Total comprehensive income for the year | – | – | 1,618 | 154 | 1,772 | 1 | 1,773 | |||||||||||||||||||||
Equity dividends | – | – | (810 | ) | – | (810 | ) | – | (810) | |||||||||||||||||||
Scrip dividend related share issue2 | 11 | (11 | ) | – | – | – | – | – | ||||||||||||||||||||
Issue of treasury shares | – | – | 19 | – | 19 | – | 19 | |||||||||||||||||||||
Purchase of own shares | – | – | (6 | ) | – | (6 | ) | – | (6) | |||||||||||||||||||
Other movements in non-controlling interests | – | – | – | – | – | (3 | ) | (3) | ||||||||||||||||||||
Share-based payment | – | – | 20 | – | 20 | – | 20 | |||||||||||||||||||||
Tax on share-based payment | – | – | (2 | ) | – | (2 | ) | – | (2) | |||||||||||||||||||
| ||||||||||||||||||||||||||||
At 31 March 2013 | 433 | 1,344 | 13,133 | (4,681 | ) | 10,229 | 5 | 10,234 | ||||||||||||||||||||
Profit for the year | – | – | 2,476 | – | 2,476 | (12 | ) | 2,464 | ||||||||||||||||||||
Total other comprehensive income/(loss) for the year | – | – | 313 | (78 | ) | 235 | – | 235 | ||||||||||||||||||||
| ||||||||||||||||||||||||||||
Total comprehensive income/(loss) for the year | – | – | 2,789 | (78 | ) | 2,711 | (12 | ) | 2,699 | |||||||||||||||||||
Equity dividends | – | – | (1,059 | ) | – | (1,059 | ) | – | (1,059) | |||||||||||||||||||
Scrip dividend related share issue2 | 6 | (8 | ) | – | – | (2 | ) | – | (2) | |||||||||||||||||||
Issue of treasury shares | – | – | 14 | – | 14 | – | 14 | |||||||||||||||||||||
Purchase of own shares | – | – | (5 | ) | – | (5 | ) | – | (5) | |||||||||||||||||||
Other movements in non-controlling interests | – | – | (4 | ) | – | (4 | ) | 15 | 11 | |||||||||||||||||||
Share-based payment | – | – | 20 | – | 20 | – | 20 | |||||||||||||||||||||
Tax on share-based payment | – | – | 7 | – | 7 | – | 7 | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
At 31 March 2014 | 439 | 1,336 | 14,895 | (4,759 | ) | 11,911 | 8 | 11,919 | ||||||||||||||||||||
Profit for the year | – | – | 2,019 | – | 2,019 | (8 | ) | 2,011 | ||||||||||||||||||||
Total other comprehensive (loss)/income for the year | – | – | (472 | ) | 77 | (395 | ) | 1 | (394) | |||||||||||||||||||
| ||||||||||||||||||||||||||||
Total comprehensive income/(loss) for the year | – | – | 1,547 | 77 | 1,624 | (7 | ) | 1,617 | ||||||||||||||||||||
Equity dividends | – | – | (1,271 | ) | – | (1,271 | ) | – | (1,271) | |||||||||||||||||||
Scrip dividend related share issue2 | 4 | (5 | ) | – | – | (1 | ) | – | (1) | |||||||||||||||||||
Purchase of treasury shares | – | – | (338 | ) | – | (338 | ) | – | (338) | |||||||||||||||||||
Issue of treasury shares | – | – | 23 | – | 23 | – | 23 | |||||||||||||||||||||
Purchase of own shares | – | – | (7 | ) | – | (7 | ) | – | (7) | |||||||||||||||||||
Other movements in non-controlling interests | – | – | (3 | ) | – | (3 | ) | 11 | 8 | |||||||||||||||||||
Share-based payment | – | – | 20 | – | 20 | – | 20 | |||||||||||||||||||||
Tax on share-based payment | – | – | 4 | – | 4 | – | 4 | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
At 31 March 2015 | 443 | 1,331 | 14,870 | (4,682 | ) | 11,962 | 12 | 11,974 | ||||||||||||||||||||
| ||||||||||||||||||||||||||||
1. For further details of other equity reserves, see note 25. 2. Included within share premium account are costs associated with scrip dividends. | ||||||||||||||||||||||||||||
Unaudited commentary on consolidated statement of changes in equity
The consolidated statement of changes in equity shows additions and reductions to equity. For us, the main items are |
Dividends
The Directors are proposing a final dividend of 28.16p, bringing the total dividend for the year to 42.87p, a 2.0% increase on 2013/14. The Directors intend to continue the dividend policy of increasing the annual dividend by at least the rate of RPI inflation for the foreseeable future.
|
| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 89 |
| Notes | 2015 £m | 2014 £m | ||||||||||||
| ||||||||||||||
Non-current assets | ||||||||||||||
Goodwill | 9 | 5,145 | 4,594 | |||||||||||
Other intangible assets | 10 | 802 | 669 | |||||||||||
Property, plant and equipment | 11 | 40,723 | 37,179 | |||||||||||
Other non-current assets | 12 | 80 | 87 | |||||||||||
Pension assets | 22 | 121 | 174 | |||||||||||
Financial and other investments | 13 | 330 | 284 | |||||||||||
Investments in joint ventures and associates | 14 | 318 | 351 | |||||||||||
Derivative financial assets | 15 | 1,539 | 1,557 | |||||||||||
| ||||||||||||||
Total non-current assets | 49,058 | 44,895 | ||||||||||||
| ||||||||||||||
Current assets | ||||||||||||||
Inventories and current intangible assets | 16 | 340 | 268 | |||||||||||
Trade and other receivables | 17 | 2,836 | 2,855 | |||||||||||
Financial and other investments | 13 | 2,559 | 3,599 | |||||||||||
Derivative financial assets | 15 | 177 | 413 | |||||||||||
Cash and cash equivalents | 18 | 119 | 354 | |||||||||||
| ||||||||||||||
Total current assets | 6,031 | 7,489 | ||||||||||||
| ||||||||||||||
Total assets | 55,089 | 52,384 | ||||||||||||
| ||||||||||||||
Current liabilities | ||||||||||||||
Borrowings | 19 | (3,028 | ) | (3,511) | ||||||||||
Derivative financial liabilities | 15 | (635 | ) | (339) | ||||||||||
Trade and other payables | 20 | (3,292 | ) | (3,031) | ||||||||||
Current tax liabilities | (184 | ) | (168) | |||||||||||
Provisions | 23 | (235 | ) | (282) | ||||||||||
| ||||||||||||||
Total current liabilities | (7,374 | ) | (7,331) | |||||||||||
| ||||||||||||||
Non-current liabilities | ||||||||||||||
Borrowings | 19 | (22,882 | ) | (22,439) | ||||||||||
Derivative financial liabilities | 15 | (1,764 | ) | (824) | ||||||||||
Other non-current liabilities | 21 | (1,919 | ) | (1,841) | ||||||||||
Deferred tax liabilities | 6 | (4,297 | ) | (4,082) | ||||||||||
Pensions and other post-retirement benefit obligations | 22 | (3,379 | ) | (2,585) | ||||||||||
Provisions | 23 | (1,500 | ) | (1,363) | ||||||||||
| ||||||||||||||
Total non-current liabilities | (35,741 | ) | (33,134) | |||||||||||
| ||||||||||||||
Total liabilities | (43,115 | ) | (40,465) | |||||||||||
| ||||||||||||||
Net assets | 11,974 | 11,919 | ||||||||||||
| ||||||||||||||
Equity | ||||||||||||||
Share capital | 24 | 443 | 439 | |||||||||||
Share premium account | 1,331 | 1,336 | ||||||||||||
Retained earnings | 14,870 | 14,895 | ||||||||||||
Other equity reserves | 25 | (4,682 | ) | (4,759) | ||||||||||
| ||||||||||||||
Shareholders’ equity | 11,962 | 11,911 | ||||||||||||
Non-controlling interests | 12 | 8 | ||||||||||||
| ||||||||||||||
Total equity | 11,974 | 11,919 | ||||||||||||
| ||||||||||||||
The consolidated financial statements set out on pages 86 to 158 were approved by the Board of Directors on 20 May 2015 and were signed on its behalf by:
Sir Peter Gershon Chairman Andrew Bonfield Finance Director
National Grid plc Registered number: 4031152
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| |||||||||||||
| 90 |
Unaudited commentary on consolidated statement of financial position
The consolidated statement of financial position shows all of the Group’s assets and |
Goodwill and other intangible assets
Goodwill and intangibles increased by £684m to £5,947m as at 31 March 2015. This increase primarily relates to foreign exchange movements of £602m and software additions of £207m, partially offset by software amortisation of £121m.
Property, plant and equipment
Property, plant and equipment increased by £3,544m to £40,723m as at 31 March 2015. This was principally due to capital expenditure of £3,263m on the renewal and extension of our regulated networks and foreign exchange movements of £1,703m, offset by depreciation of £1,361m in the year. See page 22 for further details of our capital expenditure.
Investments and other non-current assets
Investments in joint ventures and associates, financial and other investments and other non-current assets have increased by £6m to £728m. This is primarily due to a decrease in investments in joint ventures of £33m, which includes dividends received of £79m, partially offset by our share of post-tax results for the year of £46m, more than offset by an increase in available-for-sale investments of £46m.
Inventories and current intangible assets, and trade and other receivables
Inventories and current intangible assets, and trade and other receivables have increased by £53m to £3,176m as at 31 March 2015. This is due to an increase in inventories and current intangible assets of £72m, offset by a net decrease in trade and other receivables of £19m. The £19m decrease consists of an increase in foreign exchange of £211m due to the stronger US dollar against sterling and a decrease in the underlying balances of £229m, reflecting collection of large prior year balances, including LIPA MSA and Superstorm Sandy re-insurance receivables.
Trade and other payables
Trade and other payables have increased by £261m to £3,292m, primarily due to foreign exchange movements of £161m and an increase in VAT liability following a change in regulations on wholesale gas and electricity trading.
Current tax balances
Current tax balances have decreased by £33m to £124m as at 31 March 2015. This is primarily due to the tax payments made in 2014/15 being only partially offset by a smaller current year tax charge.
Deferred tax balances
Deferred tax balances have increased by £215m to £4,297m as at 31 March 2015. This was primarily due to the impact of the £299m deferred tax credit on actuarial losses (a £172m tax charge in 2013/14) being offset by the impact of the reduction in the UK statutory tax rate, foreign exchange movements of £203m and the reduction in prior year charges.
Provisions and other non-current liabilities
Provisions (both current and non-current) and other non-current liabilities increased by £168m to £3,654m as at 31 March 2015.
Total provisions increased by £90m in the year. The underlying movements include additions of £105m relating to an increase to the provision for the estimated environmental restoration and remediation costs for a number of sites and other provision increases of £57m, together with foreign exchange movements of £133m, offset by utilisation of £209m in relation to all classes of provisions.
Net debt
Net debt is the aggregate of cash and cash equivalents, current financial and other investments, borrowings, and derivative financial assets and liabilities. See further analysis with the consolidated cash flow statement on page 92.
Net pension and other post-retirement obligations
A summary of the total UK and US assets and liabilities and the overall net IAS 19 (revised) accounting deficit is shown below:
| Net plan liability | UK £m | US £m | Total £m | |||||||||
| ||||||||||||
As at 1 April 2014 | (753 | ) | (1,658 | ) | (2,411) | |||||||
Exchange movements | – | (236 | ) | (236) | ||||||||
Current service cost | (70 | ) | (116 | ) | (186) | |||||||
Net interest cost | (27 | ) | (74 | ) | (101) | |||||||
Curtailments and other | (34 | ) | (27 | ) | (61) | |||||||
Actuarial gains/(losses) | ||||||||||||
– on plan assets | 1,929 | 225 | 2,154 | |||||||||
– on plan liabilities | (1,975 | ) | (950 | ) | (2,925) | |||||||
Employer contributions | 258 | 250 | 508 | |||||||||
| ||||||||||||
As at 31 March 2015 | (672 | ) | (2,586 | ) | (3,258) | |||||||
| ||||||||||||
Represented by: | ||||||||||||
Plan assets | 19,453 | 6,955 | 26,408 | |||||||||
Plan liabilities | (20,125 | ) | (9,541 | ) | (29,666) | |||||||
| ||||||||||||
| (672 | ) | (2,586 | ) | (3,258) | ||||||||
| ||||||||||||
The principal movements in net obligations during the year include net actuarial losses of £771m and employer contributions of £508m. Net actuarial losses include actuarial losses on plan liabilities of £2,746m arising as a consequence of increases in the UK real discount rate and the nominal discount rate in the US. This is partially offset by actuarial gains of £2,154m arising on plan assets.
Further information on our pension and other post-retirement obligations can be found in notes 22 and 29 to the consolidated financial statements.
Off balance sheet items
There were no significant off balance sheet items other than the contractual obligations shown in note 30(b) to the consolidated financial statements, and the commitments and contingencies discussed in note 27.
Through the ordinary course of our operations, we are party to various litigation, claims and investigations. We do not expect the ultimate resolution of any of these proceedings to have a material adverse effect on our results of operations, cash flows or financial position.
|
| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 91 |
Consolidated cash flow statement | ||
| for the |
Net gains/(losses) in respect of cash flow hedges
The value of derivatives held to hedge cash flows is impacted by changes in expected interest rates and exchange rates. The net gain for the year was £63m (2012/13: £31m loss).
| 2015 | 2014 | 2013 | ||||||||||||||||
| Notes | £m | £m | £m | |||||||||||||||
| ||||||||||||||||||
Cash flows from operating activities | ||||||||||||||||||
Total operating profit | 2(b) | 3,780 | 3,735 | 3,749 | ||||||||||||||
Adjustments for: | ||||||||||||||||||
Exceptional items, remeasurements and stranded cost recoveries | 4 | 83 | (71) | (110) | ||||||||||||||
Depreciation, amortisation and impairment | 1,494 | 1,417 | 1,361 | |||||||||||||||
Share-based payment charge | 20 | 20 | 20 | |||||||||||||||
Changes in working capital | 301 | (59) | (410) | |||||||||||||||
Changes in provisions | (41) | (150) | (53) | |||||||||||||||
Changes in pensions and other post-retirement benefit obligations | (270) | (323) | (408) | |||||||||||||||
Cash flows relating to exceptional items | (17) | (150) | (112) | |||||||||||||||
| ||||||||||||||||||
Cash generated from operations | 5,350 | 4,419 | 4,037 | |||||||||||||||
Tax paid | (343) | (400) | (287) | |||||||||||||||
| ||||||||||||||||||
Net cash inflow from operating activities | 5,007 | 4,019 | 3,750 | |||||||||||||||
| ||||||||||||||||||
Cash flows from investing activities | ||||||||||||||||||
Acquisition of investments | – | (4) | (14) | |||||||||||||||
Proceeds from sale of investments in subsidiaries | – | – | 183 | |||||||||||||||
Purchases of intangible assets | (207) | (179) | (175) | |||||||||||||||
Purchases of property, plant and equipment | (3,076) | (2,944) | (3,214) | |||||||||||||||
Disposals of property, plant and equipment | 9 | 4 | 32 | |||||||||||||||
Dividends received from joint ventures | 79 | 38 | 21 | |||||||||||||||
Interest received | 37 | 35 | 29 | |||||||||||||||
Net movements in short-term financial investments | 1,157 | 1,720 | (2,992) | |||||||||||||||
| ||||||||||||||||||
Net cash flow used in investing activities | (2,001) | (1,330) | (6,130) | |||||||||||||||
| ||||||||||||||||||
Cash flows from financing activities | ||||||||||||||||||
Purchase of treasury shares | (338) | – | – | |||||||||||||||
Proceeds from issue of treasury shares | 23 | 14 | 19 | |||||||||||||||
Purchase of own shares | (7) | (5) | (6) | |||||||||||||||
Proceeds received from loans | 1,534 | 1,134 | 5,062 | |||||||||||||||
Repayment of loans | (2,839) | (2,192) | (1,210) | |||||||||||||||
Net movements in short-term borrowings and derivatives | 623 | 37 | 452 | |||||||||||||||
Interest paid | (826) | (901) | (792) | |||||||||||||||
Exceptional finance costs on the redemption of debt | (152) | – | – | |||||||||||||||
Dividends paid to shareholders | (1,271) | (1,059) | (810) | |||||||||||||||
| ||||||||||||||||||
Net cash flow (used in)/from financing activities | (3,253) | (2,972) | 2,715 | |||||||||||||||
| ||||||||||||||||||
Net (decrease)/increase in cash and cash equivalents | 26(a) | (247) | (283) | 335 | ||||||||||||||
Exchange movements | 24 | (26) | 14 | |||||||||||||||
Net cash and cash equivalents at start of year | 339 | 648 | 299 | |||||||||||||||
| ||||||||||||||||||
Net cash and cash equivalents at end of year1 | 18 | 116 | 339 | 648 | ||||||||||||||
| ||||||||||||||||||
1. Net of bank overdrafts of £3m (2014: £15m; 2013: £23m).
| ||||||||||||||||||
| 92 |
| ||
| ||
Unaudited commentary on the consolidated cash flow statement
The consolidated cash flow statement shows how the cash balance has moved during the year. Cash inflows and outflows are presented to allow users to understand how they relate to the day-to-day operations of the business (Operating activities); the money that has been spent or earned on assets in the year, including acquisitions of physical assets or other businesses (Investing activities); and the cash raised from debt or share issues and other loan borrowings or repayments (Financing activities). |
Reconciliation of cash flow to net debt
2015 £m | 2014 £m | |||||||
| ||||||||
Cash generated from operations | 5,350 | 4,419 | ||||||
Net capital expenditure | (3,274) | (3,119) | ||||||
| ||||||||
Business net cash flow | 2,076 | 1,300 | ||||||
Net interest paid (including exceptional interest) | (941) | (866) | ||||||
Tax paid | (343) | (400) | ||||||
Net acquisitions and disposals | – | (4) | ||||||
Dividends paid | (1,271) | (1,059) | ||||||
Other cash movements | (243) | 47 | ||||||
Non-cash movements | (2,003) | 1,221 | ||||||
| ||||||||
(Increase)/decrease in net debt | (2,725) | 239 | ||||||
| ||||||||
Opening net debt | (21,190) | (21,429) | ||||||
| ||||||||
Closing net debt | (23,915) | (21,190) | ||||||
| ||||||||
Cash generated from operations
Cash generated from operations £m
Cash flows from our operations are largely stable when viewed over the longer term. Our electricity and gas transmission and distribution operations in the UK are subject to multi-year rate agreements with regulators. In the UK, we have largely stable inter-year cash flows. However, in the US our short-term cash flows are dependent on the price of gas and electricity and the timing of customer payments. The regulatory mechanisms for recovering costs from customers can result in significant cash flow swings from year to year. Changes in volumes in the US, for example as a consequence of abnormally mild or extreme weather can affect cash flows, particularly in the winter months.
For the year ended 31 March 2015, cash flow from operations increased by £931m to £5,350m.
Changes in working capital improved by £360m over the prior year, principally in the US (£441m) due to the collection of high winter 2014 billings and other settlements including Hurricane Sandy re-insurance claims and LIPA receipts. Cash outflows relating to exceptional items were £133m lower, as the prior year included reorganisation costs in the UK and LIPA MSA transition costs in the US.
Net capital expenditure
Net capital expenditure in the year of £3,274m was £155m higher than the prior year. This was a result of higher spend in our US regulated businesses, reflecting a record year of investment, partially offset by lower spend in our UK regulated businesses.
Net interest paid
Net interest paid and exceptional finance costs in 2014/15 were £941m, £75m higher than 2013/14 due to £152m debt redemption cash outflows.
Tax paid
Tax paid in the year to 31 March 2015 was £343m, £57m lower than prior year. This reflected repayments received in the US during the period.
Dividends paid
Dividends paid in the year ended 31 March 2015 amounted to £1,271m. This was £212m higher than 2013/14, reflecting the increase in the final dividend for the year ended 31 March 2014 paid in August 2014, together with a lower average scrip dividend take-up in the year.
Other cash movements
Other cash flows principally arise from dividends from joint ventures and movements in treasury shares, including the cost of repurchasing shares as part of the share buyback programme (£338m).
Non-cash movements
The non-cash movements are predominantly due to the strengthening of the US dollar against sterling, resulting in movements in foreign exchange arising on net debt held in currencies other than sterling. In the year, the dollar strengthened from $1.67 at 31 March 2014 to $1.49 at 31 March 2015.
Other non-cash movements are from changes in fair values of financial assets and liabilities and interest accretions and accruals.
Net debt
Net debt at 31 March£m
|
| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 93 |
Notes to the consolidated financial statements
– analysis of items in the primary statements
Accounting policies describe our approach to recognising and measuring transactions and balances in the year. Accounting policies applicable across the financial statements are shown below. Accounting policies that are specific to a component of the financial statements have been incorporated into the relevant note. | ||||||||||||
This section also shows areas of judgement and key sources of estimation uncertainty in these financial statements. In addition, we summarise new EU endorsed accounting standards, amendments and interpretations and whether these are effective in 2015 or later years, explaining how significant changes are expected to affect our reported results. | ||||||||||||
| ||||||||||||
The Company has its primary listing on the London Stock Exchange and is also quoted on the New York Stock Exchange. | ||||||||||||
These consolidated financial statements were approved for issue by the Board of Directors on 20 May 2015. | ||||||||||||
These consolidated financial statements have been prepared in accordance with International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) and related interpretations as issued by the IASB and IFRS as adopted by the EU. They are prepared on the basis of all IFRS accounting standards and interpretations that are mandatory for periods ended 31 March 2015 and in accordance with the Companies Act 2006 applicable to companies reporting under IFRS and Article 4 of the EU IAS Regulation. The 2014 and 2013 comparative financial information has also been prepared on this basis. | ||||||||||||
The consolidated financial statements have been prepared on an historical cost basis, except for the recording of pension assets and liabilities, the revaluation of derivative financial instruments and certain commodity contracts and investments classified as available-for-sale. | ||||||||||||
The consolidated financial statements have been prepared on a going concern basis. The going concern basis presumes that the Group has adequate resources to remain in operation, and that the Directors intend it to do so, for at least one year from the date the financial statements are signed. Further details of the Directors’ assessment are set out on page 54. | ||||||||||||
These consolidated financial statements are presented in pounds sterling, which is also the functional currency of the Company. | ||||||||||||
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities and the reported amounts of revenue and expenses during the reporting period (see accounting policy C). | ||||||||||||
A. Basis of consolidation | ||||||||||||
| The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries, together with a share of the results, assets and liabilities of jointly controlled entities (joint ventures) and associates using the equity method of accounting, where the investment is carried at cost plus post-acquisition changes in the share of net assets of the joint venture or associate, less any provision for impairment. | ||||||||||||
A subsidiary is defined as an entity controlled by the Company. Control is achieved where the Company has the power to affect the returns of an entity to which it is exposed or to which it has rights. | ||||||||||||
Losses in excess of the consolidated interest in joint ventures and associates are not recognised, except where the Company or its subsidiaries have made a commitment to make good those losses. | ||||||||||||
Where necessary, adjustments are made to bring the accounting policies used in the individual financial statements of the Company, subsidiaries, joint ventures and associates into line with those used by the Company in its consolidated financial statements under IFRS. Intercompany transactions are eliminated. | ||||||||||||
The results of subsidiaries, joint ventures and associates acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. | ||||||||||||
Acquisitions are accounted for using the acquisition method, where the purchase price is allocated to the identifiable assets acquired and liabilities assumed on a fair value basis and the remainder recognised as goodwill. |
| 94 |
|
| | Called up share capital £m | | | Share premium account £m | | | Retained earnings £m | |
| Other equity reserves £m | 1
|
| Total shareholders’ equity £m |
|
| Non- controlling interests £m |
| Total equity £m | ||||||||||||
| ||||||||||||||||||||||||||||||
Equity as at 1 April 2011 as previously reported | 416 | 1,361 | 12,153 | (4,870 | ) | 9,060 | 9 | 9,069 | ||||||||||||||||||||||
Impact of change in accounting policy2 | – | – | (8 | ) | – | (8 | ) | – | (8) | |||||||||||||||||||||
| ||||||||||||||||||||||||||||||
Equity as at 1 April 2011 (restated) | 416 | 1,361 | 12,145 | (4,870 | ) | 9,052 | 9 | 9,061 | ||||||||||||||||||||||
Profit for the year2 | – | – | 1,917 | – | 1,917 | 2 | 1,919 | |||||||||||||||||||||||
Total other comprehensive (loss)/income for the year2 | – | – | (798 | ) | 35 | (763 | ) | – | (763) | |||||||||||||||||||||
| ||||||||||||||||||||||||||||||
Total comprehensive income for the year2 | – | – | 1,119 | 35 | 1,154 | 2 | 1,156 | |||||||||||||||||||||||
Equity dividends | – | – | (1,319 | ) | – | (1,319 | ) | – | (1,319) | |||||||||||||||||||||
Scrip dividend related share issue3 | 6 | (6 | ) | 313 | – | 313 | – | 313 | ||||||||||||||||||||||
Issue of treasury shares | – | – | 13 | – | 13 | – | 13 | |||||||||||||||||||||||
Purchase of own shares | – | – | (4 | ) | – | (4 | ) | – | (4) | |||||||||||||||||||||
Other movements in non-controlling interests | – | – | – | – | – | (4 | ) | (4) | ||||||||||||||||||||||
Share-based payment | – | – | 24 | – | 24 | – | 24 | |||||||||||||||||||||||
Tax on share-based payment | – | – | 3 | – | 3 | – | 3 | |||||||||||||||||||||||
| ||||||||||||||||||||||||||||||
At 31 March 2012 (restated) | 422 | 1,355 | 12,294 | (4,835 | ) | 9,236 | 7 | 9,243 | ||||||||||||||||||||||
Profit for the year2 | – | – | 2,153 | – | 2,153 | 1 | 2,154 | |||||||||||||||||||||||
Total other comprehensive (loss)/income for the year2 | – | – | (535 | ) | 154 | (381 | ) | – | (381) | |||||||||||||||||||||
| ||||||||||||||||||||||||||||||
Total comprehensive income for the year2 | – | – | 1,618 | 154 | 1,772 | 1 | 1,773 | |||||||||||||||||||||||
Equity dividends | – | – | (1,433 | ) | – | (1,433 | ) | – | (1,433) | |||||||||||||||||||||
Scrip dividend related share issue3 | 11 | (11 | ) | 623 | – | 623 | – | 623 | ||||||||||||||||||||||
Issue of treasury shares | – | – | 19 | – | 19 | – | 19 | |||||||||||||||||||||||
Purchase of own shares | – | – | (6 | ) | – | (6 | ) | – | (6) | |||||||||||||||||||||
Other movements in non-controlling interests | – | – | – | – | – | (3 | ) | (3) | ||||||||||||||||||||||
Share-based payment | – | – | 20 | – | 20 | – | 20 | |||||||||||||||||||||||
Tax on share-based payment | – | – | (2 | ) | – | (2 | ) | – | (2) | |||||||||||||||||||||
| ||||||||||||||||||||||||||||||
At 31 March 2013 (restated) | 433 | 1,344 | 13,133 | (4,681 | ) | 10,229 | 5 | 10,234 | ||||||||||||||||||||||
Profit for the year | – | – | 2,476 | – | 2,476 | (12 | ) | 2,464 | ||||||||||||||||||||||
Total other comprehensive income/(loss) for the year | – | – | 313 | (78 | ) | 235 | – | 235 | ||||||||||||||||||||||
| ||||||||||||||||||||||||||||||
Total comprehensive income/(loss) for the year | – | – | 2,789 | (78 | ) | 2,711 | (12 | ) | 2,699 | |||||||||||||||||||||
Equity dividends | – | – | (1,503 | ) | – | (1,503 | ) | – | (1,503) | |||||||||||||||||||||
Scrip dividend related share issue3 | 6 | (8 | ) | 444 | – | 442 | – | 442 | ||||||||||||||||||||||
Issue of treasury shares | – | – | 14 | – | 14 | – | 14 | |||||||||||||||||||||||
Purchase of own shares | – | – | (5 | ) | – | (5 | ) | – | (5) | |||||||||||||||||||||
Other movements in non-controlling interests | – | – | (4 | ) | – | (4 | ) | 15 | 11 | |||||||||||||||||||||
Share-based payment | – | – | 20 | – | 20 | – | 20 | |||||||||||||||||||||||
Tax on share-based payment | – | – | 7 | – | 7 | – | 7 | |||||||||||||||||||||||
| ||||||||||||||||||||||||||||||
At 31 March 2014 | 439 | 1,336 | 14,895 | (4,759 | ) | 11,911 | 8 | 11,919 | ||||||||||||||||||||||
| ||||||||||||||||||||||||||||||
1. For further details of other equity reserves, see note 25 on page 129. 2. See note 1 on page 92. 3. Included within share premium account are costs associated with scrip dividends. | ||||||||||||||||||||||||||||||
| |||||||
| 1. Basis of preparation and recent accounting developmentscontinued | ||||||
| |||||||
| Transactions in currencies other than the functional currency of the Company or subsidiary concerned are recorded at the rates of exchange prevailing on the dates of the transactions. At each reporting date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at closing exchange rates. Non-monetary assets are not retranslated unless they are carried at fair value. | |||||||
| Gains and losses arising on the retranslation of monetary assets and liabilities are included in the income statement, except where the adoption of hedge accounting requires inclusion in other comprehensive income – note 15. | |||||||
| On consolidation, the assets and liabilities of operations that have a functional currency different from the Company’s functional currency of pounds sterling, principally our US operations that have a functional currency of dollars, are translated at exchange rates prevailing at the reporting date. Income and expense items are translated at the average exchange rates for the period where these do not differ materially from rates at the date of the transaction. Exchange differences arising are classified as equity and transferred to the consolidated translation reserve. | |||||||
| C. Areas of judgement and key sources of estimation uncertainty | |||||||
| The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. Information about such judgements and estimations is contained in the notes to the financial statements, and the key areas are summarised below. | |||||||
| Areas of judgement that have the most significant effect on the amounts recognised in the financial statements are as follows: | |||||||
| ● | the categorisation of certain items as exceptional items and the definition of adjusted earnings – notes 4 and 7; and | ||||||
| ● | energy purchase contracts as being for normal purchase, sale or usage – note 27. | ||||||
| IFRS provides certain options available within accounting standards. Choices we have made, and continue to make, include the following: | |||||||
| Presentational formats: we use the nature of expense method for our income statement and aggregate our statement of financial position to net assets and total equity. In the income statement, we present subtotals of total operating profit, profit before tax and profit from continuing operations, together with additional subtotals excluding exceptional items, remeasurements and stranded cost recoveries. Exceptional items, remeasurements and stranded cost recoveries are presented separately on the face of the income statement. | ||||||
● | Customer contributions: contributions received prior to 1 July 2009 towards capital expenditure are recorded as deferred income and amortised in line with the depreciation on the associated asset. | ||||||
● | Financial instruments: we normally opt to apply hedge accounting in most circumstances where this is permitted. For net investment hedges, we have chosen to use the spot rate method, rather than the alternative forward rate method. | ||||||
| Key sources of estimation uncertainty that have significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial | |||||||
| ● | review of residual lives, carrying values and impairment charges for other intangible assets and property, plant and equipment – notes 10 and 11; | ||||||
| ● | estimation of liabilities for pensions and other post-retirement benefits – notes 22 and 29; | ||||||
| ● | valuation of financial instruments and derivatives – notes 15 and 30; | ||||||
| ● | revenue recognition and assessment of unbilled revenue – note 2; and | ||||||
| ● | environmental and decommissioning provisions – note 23. | ||||||
In order to illustrate the impact that changes in assumptions could have on our results and financial position, we have included sensitivity analysis in note 33. | |||||||
| New IFRS accounting standards and interpretations adopted in 2014/15 | |||||||
| The following standards, interpretations and amendments, issued by the IASB and by the IFRS Interpretations Committee (IFRIC), are effective for the year ended 31 March 2015. None of the pronouncements has had a material impact on the Company’s consolidated results or assets and liabilities for the year ended 31 March 2015. | |||||||
| ● | IFRIC 21 ‘Levies’; | ||||||
| ● | amendments to IAS 32 ‘Financial Instruments: Presentation’ in respect of offsetting financial assets and financial liabilities; | ||||||
| ● | amendments to IFRS 10 ‘Consolidated Financial Statements’, IFRS 12 ‘Disclosure of Interests in Other Entities’ and IAS 27 ‘Separate Financial Statements’ in respect of investment entities; | ||||||
| ● | amendments to IAS 36 ‘Impairment of Assets’ in respect of recoverable amount disclosures for non-financial assets; and | ||||||
| ● | amendments to IAS 39 ‘Financial Instruments: Recognition and Measurement’, in respect of novation of derivatives and continuation of hedge accounting. | ||||||
|
| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 95 |
| ||||||||||||
|
| Notes | 2014 £m | 2013 £m | ||||||||||||||
| ||||||||||||||||
Non-current assets | ||||||||||||||||
Goodwill | 9 | 4,594 | 5,028 | |||||||||||||
Other intangible assets | 10 | 669 | 589 | |||||||||||||
Property, plant and equipment | 11 | 37,179 | 36,592 | |||||||||||||
Other non-current assets | 12 | 87 | 104 | |||||||||||||
Pension assets | 22 | 174 | 195 | |||||||||||||
Financial and other investments | 13 | 284 | 278 | |||||||||||||
Investments in joint ventures and associates | 14 | 351 | 371 | |||||||||||||
Derivative financial assets | 15 | 1,557 | 1,972 | |||||||||||||
| ||||||||||||||||
Total non-current assets | 44,895 | 45,129 | ||||||||||||||
| ||||||||||||||||
Current assets | ||||||||||||||||
Inventories and current intangible assets | 16 | 268 | 291 | |||||||||||||
Trade and other receivables | 17 | 2,855 | 2,910 | |||||||||||||
Financial and other investments | 13 | 3,599 | 5,431 | |||||||||||||
Derivative financial assets | 15 | 413 | 273 | |||||||||||||
Cash and cash equivalents | 18 | 354 | 671 | |||||||||||||
| ||||||||||||||||
Total current assets | 7,489 | 9,576 | ||||||||||||||
| ||||||||||||||||
Total assets | 52,384 | 54,705 | ||||||||||||||
| ||||||||||||||||
Current liabilities | ||||||||||||||||
Borrowings | 19 | (3,511 | ) | (3,448) | ||||||||||||
Derivative financial liabilities | 15 | (339 | ) | (407) | ||||||||||||
Trade and other payables | 20 | (3,031 | ) | (3,051) | ||||||||||||
Current tax liabilities | (168 | ) | (231) | |||||||||||||
Provisions | 23 | (282 | ) | (308) | ||||||||||||
| ||||||||||||||||
Total current liabilities | (7,331 | ) | (7,445) | |||||||||||||
| ||||||||||||||||
Non-current liabilities | ||||||||||||||||
Borrowings | 19 | (22,439 | ) | (24,647) | ||||||||||||
Derivative financial liabilities | 15 | (824 | ) | (1,274) | ||||||||||||
Other non-current liabilities | 21 | (1,841 | ) | (1,884) | ||||||||||||
Deferred tax liabilities | 6 | (4,082 | ) | (4,077) | ||||||||||||
Pensions and other post-retirement benefit obligations | 22 | (2,585 | ) | (3,692) | ||||||||||||
Provisions | 23 | (1,363 | ) | (1,452) | ||||||||||||
| ||||||||||||||||
Total non-current liabilities | (33,134 | ) | (37,026) | |||||||||||||
| ||||||||||||||||
Total liabilities | (40,465 | ) | (44,471) | |||||||||||||
| ||||||||||||||||
Net assets | 11,919 | 10,234 | ||||||||||||||
| ||||||||||||||||
Equity | ||||||||||||||||
Share capital | 24 | 439 | 433 | |||||||||||||
Share premium account | 1,336 | 1,344 | ||||||||||||||
Retained earnings | 14,895 | 13,133 | ||||||||||||||
Other equity reserves | 25 | (4,759 | ) | (4,681) | ||||||||||||
| ||||||||||||||||
Shareholders’ equity | 11,911 | 10,229 | ||||||||||||||
Non-controlling interests | 8 | 5 | ||||||||||||||
| ||||||||||||||||
Total equity | 11,919 | 10,234 | ||||||||||||||
| ||||||||||||||||
1. See note 1 on page 92.
The consolidated financial statements set out on pages 82 to 154 were approved by the Board of Directors on 18 May 2014 and were signed on its behalf by:
Sir Peter Gershon Chairman Andrew Bonfield Finance Director
|
| |||||||||||||||
|
| Financial Statements
|
|
|
Unaudited commentary on consolidated statement of financial position
| ||||||||||
The consolidated statement of financial position sets out all the Group’s assets and liabilities at the year end. As a capital-intensive business, we have significant amounts of physical assets and corresponding borrowings. | of £42m, more than offset by foreign exchange movements of £112m and utilisation of £288m in relation to all classes of provisions. Other non-current liabilities decreased by £43m principally due to foreign exchange movements of £47m.
Net debt Net debt is the aggregate of cash and cash equivalents, current financial and other investments, borrowings, and derivative financial assets and liabilities. See further analysis with the consolidated cash flow statement on page 90.
Net pension and other post-retirement obligations A summary of the total UK and US assets and liabilities and the overall net IAS 19 (revised) accounting deficit is shown below: | |||||||||
Goodwill and other intangible assets Goodwill and intangibles decreased by £354m to £5,263m as at 31 March 2014. This decrease primarily relates to foreign exchange movements of £472m and software amortisation of £127m, partially offset by software additions of £179m. | ||||||||||
Property, plant and equipment Property, plant and equipment increased by £587m to £37,179m as at 31 March 2014. This was principally due to capital expenditure of £3,262m on the renewal and extension of our regulated networks, offset by foreign exchange movements of £1,244m, and £1,299m of depreciation in the year.
Investments and other non-current assets Investments in joint ventures and associates, financial and other investments and other non-current assets have decreased by £31m to £722m. This is principally due to changes in the fair value of our US commodity contract assets and available-for-sale investments.
Inventories and current intangible assets, and trade and other receivables Inventories and current intangible assets, and trade and other receivables have decreased by £78m to £3,123m at 31 March 2014. This decrease is principally due to foreign exchange movements of £195m, partially offset by an increase in trade and other receivables of £120m mostly due to colder weather in the US in February and March 2014 compared with 2013 resulting in increased billings for commodity costs and customer usage.
Trade and other payables Trade and other payables have decreased by £20m to £3,031m due to favourable foreign exchange movements of £150m, partially offset by higher payables in the UK due in part to changes in payment terms with new Gas Distribution strategic partners and increased activity on the Western Link project.
Current tax liabilities Current tax liabilities have decreased by £63m to £168m as at 31 March 2014. This is primarily due to higher tax payments made in 2013/14 although these were partially offset by a larger current year tax charge.
Deferred tax liabilities Deferred tax liabilities have increased by £5m to £4,082m as at 31 March 2014. This was primarily due to the impact of the £172m deferred tax charge on actuarial gains (a £179m tax credit in 2012/13) being offset by the impact of the reduction in the UK statutory tax rate for future periods, foreign exchange movements and the reduction in prior year charges.
Provisions and other non-current liabilities Provisions (both current and non-current) and other non-current liabilities decreased by £158m to £3,486m as at 31 March 2014.
Total provisions decreased by £115m in the year. The underlying movements include additions of £230m primarily relating to a provision for the demolition of certain gas holders in the UK of £79m, restructuring provisions of £86m and other provisions
| Net plan liability | UK £m | US £m | Total £m | ||||||
| ||||||||||
| As at 1 April 2013 (as restated) | (1,169) | (2,328) | (3,497) | |||||||
| Exchange movements | – | 186 | 186 | |||||||
| Current service cost | (96) | (129) | (225) | |||||||
| Net interest cost | (47) | (81) | (128) | |||||||
| Curtailments and settlements – LIPA | – | 214 | 214 | |||||||
| Curtailments and settlements – other | (30) | (12) | (42) | |||||||
| Actuarial (losses)/gains | ||||||||||
– on plan assets | (98) | 283 | 185 | |||||||
– on plan liabilities | 452 | (152) | 300 | |||||||
| Employer contributions | 235 | 361 | 596 | |||||||
| ||||||||||
| As at 31 March 2014 | (753) | (1,658) | (2,411) | |||||||
| ||||||||||
| Represented by: | ||||||||||
Plan assets | – | 174 | 174 | |||||||
Plan liabilities | (753) | (1,832) | (2,585) | |||||||
| ||||||||||
| (753) | (1,658) | (2,411) | ||||||||
| ||||||||||
The principal movements in net obligations during the year include a curtailment gain of £214m following the LIPA MSA transition, net actuarial gains of £485m and employer contributions of £596m. Net actuarial gains include actuarial gains on plan liabilities of £542m arising as a consequence of an increase in the UK real discount rate and the nominal discount rate in the US. This is partially offset by actuarial losses of £283m arising from increases in life expectancy in the US. Actuarial (losses)/gains on plan assets reflects the asset allocations in the different plans. In both the UK and US, returns on equities were above the assumed rate; however, UK government securities had negative returns and corporate bonds were close to nil.
Further information on our pension and other post-retirement obligations can be found in notes 22 and 29 to the consolidated financial statements. Details of the restatements made for IAS 19 (revised) can be found in note 1.
Off balance sheet items There were no significant off balance sheet items other than the contractual obligations shown in note 30 (b) to the consolidated financial statements, and the commitments and contingencies discussed in note 27.
Through the ordinary course of our operations, we are party to various litigation, claims and investigations. We do not expect the ultimate resolution of any of these proceedings to have a material adverse effect on our results of operations, cash flows or financial position.
This unaudited commentary does not form part of the financial statements. | ||||||||||
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| Notes | 2014 £m | 2013 (restated)1 £m | 2012 (restated)1 £m | |||||||||||||||
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Cash flows from operating activities | ||||||||||||||||||
Total operating profit | 2(b | ) | 3,735 | 3,749 | 3,535 | |||||||||||||
Adjustments for: | ||||||||||||||||||
Exceptional items, remeasurements and stranded cost recoveries | 4 | (71 | ) | (110) | (44) | |||||||||||||
Depreciation, amortisation and impairment | 1,417 | 1,361 | 1,282 | |||||||||||||||
Share-based payment charge | 20 | 20 | 24 | |||||||||||||||
Changes in working capital | (59 | ) | (410) | 146 | ||||||||||||||
Changes in provisions | (150 | ) | (53) | (116) | ||||||||||||||
Changes in pensions and other post-retirement benefit obligations | (323 | ) | (408) | (382) | ||||||||||||||
Cash flows relating to exceptional items | (150 | ) | (112) | (205) | ||||||||||||||
Cash flows relating to stranded cost recoveries | – | – | 247 | |||||||||||||||
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Cash generated from operations | 4,419 | 4,037 | 4,487 | |||||||||||||||
Tax paid | (400 | ) | (287) | (259) | ||||||||||||||
| ||||||||||||||||||
Net cash inflow from operating activities | 4,019 | 3,750 | 4,228 | |||||||||||||||
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Cash flows from investing activities | ||||||||||||||||||
Acquisition of investments | (4 | ) | (14) | (13) | ||||||||||||||
Proceeds from sale of investments in subsidiaries | – | 183 | 365 | |||||||||||||||
Purchases of intangible assets | (179 | ) | (175) | (203) | ||||||||||||||
Purchases of property, plant and equipment | (2,944 | ) | (3,214) | (3,147) | ||||||||||||||
Disposals of property, plant and equipment | 4 | 32 | 24 | |||||||||||||||
Dividends received from joint ventures | 38 | 21 | 26 | |||||||||||||||
Interest received | 35 | 29 | 24 | |||||||||||||||
Net movements in short-term financial investments | 1,720 | (2,992) | 553 | |||||||||||||||
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Net cash flow used in investing activities | (1,330 | ) | (6,130) | (2,371) | ||||||||||||||
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Cash flows from financing activities | ||||||||||||||||||
Proceeds from issue of treasury shares | 14 | 19 | 13 | |||||||||||||||
Purchase of own shares | (5 | ) | (6) | (4) | ||||||||||||||
Proceeds received from loans | 1,134 | 5,062 | 1,809 | |||||||||||||||
Repayment of loans | (2,192 | ) | (1,210) | (1,914) | ||||||||||||||
Net movements in short-term borrowings and derivatives | 37 | 452 | (49) | |||||||||||||||
Interest paid | (901 | ) | (792) | (749) | ||||||||||||||
Dividends paid to shareholders | (1,059 | ) | (810) | (1,006) | ||||||||||||||
| ||||||||||||||||||
Net cash flow (used in)/from financing activities | (2,972 | ) | 2,715 | (1,900) | ||||||||||||||
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Net (decrease)/increase in cash and cash equivalents | 26(a | ) | (283 | ) | 335 | (43) | ||||||||||||
Exchange movements | (26 | ) | 14 | – | ||||||||||||||
Net cash and cash equivalents at start of year | 648 | 299 | 342 | |||||||||||||||
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Net cash and cash equivalents at end of year2 | 18 | 339 | 648 | 299 | ||||||||||||||
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1. See note 1 on page 92.
2. Net of bank overdrafts of £15m (2013: £23m; 2012: £33m).
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Unaudited commentary on consolidated cash flow statement
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The consolidated cash flow statement shows how the cash balance has moved during the year. Cash inflows and outflows are presented to allow users to understand how they relate to the day-to-day operations of the business (operating activities); the money that has been spent or earned on assets in the year, including acquisitions of physical assets or other businesses (investing activities); and the cash raised from debt or share issues and other loan borrowings or repayments (financing activities).
| receivables increased due to colder weather in the US in February and March 2014, cash outflows relating to exceptional items were £38m higher due to reorganisation in the UK and LIPA MSA transition costs in the US.
Net capital expenditure Net capital expenditure in the year of £3,119m was £238m lower than the prior year. This was a result of lower spend in our UK regulated businesses, the impact of the weaker dollar, and reduced capital spend on the US enterprise resource system in 2013/14.
Net interest paid Net interest paid in 2013/14 was £866m, £103m higher than 2012/13, due to higher average net debt levels.
Tax paid Tax paid in the year to 31 March 2014 was £400m, £113m higher than prior year. This reflected higher tax payments in the UK on higher taxable profits.
Net acquisitions and disposals There were no material acquisitions or disposals in the year. The year ended 31 March 2013 included proceeds received on the disposal of our gas and electricity businesses in New Hampshire in the US.
Dividends paid Dividends paid in the year ended 31 March 2014 amounted to £1,059m. This was £249m higher than 2012/13, reflecting the 4% increase in the final dividend for the year ended 31 March 2013 paid in August 2013, together with a lower average scrip dividend take-up in the year. Given the relatively high scrip uptake for the dividend paid in August 2013, no scrip option was offered for the interim dividend paid in January 2014.
Other cash movements Other cash flows principally arise from dividends from joint ventures and movements in treasury shares.
Non-cash movements The non-cash movements are predominantly due to the change in foreign exchange arising on net debt held in currencies other than sterling. In the year ended 31 March 2014, the dollar weakened from $1.52 at 31 March 2013 to $1.67 at 31 March 2014. This has caused a reduction in the sterling value of net debt.
Other non-cash movements are from changes in fair values of financial assets and liabilities and interest accretions and accruals.
Net debt
Net debt at 31 March £m
This unaudited commentary does not form part of the financial statements.
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Reconciliation of cash flow to net debt | ||||||||||||
| 2014 | 2013 | |||||||||||
| £m | £m | |||||||||||
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Cash generated from operations | 4,419 | 4,037 | ||||||||||
Net capital expenditure | (3,119) | (3,357) | ||||||||||
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Business net cash flow | 1,300 | 680 | ||||||||||
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Net interest paid | (866) | (763) | ||||||||||
Tax paid | (400) | (287) | ||||||||||
Net acquisitions and disposals | (4) | 169 | ||||||||||
Dividends paid | (1,059) | (810) | ||||||||||
Other cash movements | 47 | 34 | ||||||||||
Non-cash movements | 1,221 | (855) | ||||||||||
| ||||||||||||
Decrease/(increase) in net debt | 239 | (1,832) | ||||||||||
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Opening net debt | (21,429) | (19,597) | ||||||||||
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Closing net debt | (21,190) | (21,429) | ||||||||||
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Cash generated from operations
Cash generated from operations £m
Cash flows from our operations are largely stable when viewed over the longer term. Our electricity and gas transmission and distribution operations in the UK and US are subject to multi-year rate agreements with regulators. In the UK, we have largely stable intra-year cash flows. However, in the US our short-term cash flows are dependent on the price of gas and electricity and the timing of customer payments. The regulatory mechanisms for recovering costs from customers can result in significant cash flow swings from year to year. Changes in volumes in the US, for example as a consequence of abnormally mild or extreme weather can affect cash flows, particularly in the winter months.
For the year ended 31 March 2014, cash flow from operations increased by £382m to £4,419m.
Adjusted operating profit before depreciation, amortisation and impairment was £81m higher year on year. Changes in working capital improved by £351m over the prior year, principally in the US due to the collection of receivables from LIPA relating to Superstorm Sandy. Partially offsetting this improvement, | ||||||||||||
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Notes to the consolidated financial statements |
| – analysis of items in the primary statementscontinued |
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| 96 |
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2. Segmental analysiscontinued The following table describes the main activities for each operating segment:
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| UK Electricity Transmission | High voltage electricity transmission networks in Great Britain. | |||||||||||||||||||
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| UK Gas Transmission | The gas transmission network in Great Britain and UK LNG storage activities. | |||||||||||||||||||
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| UK Gas Distribution | Four of the eight regional networks of Great Britain’s gas distribution system. | |||||||||||||||||||
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| US Regulated | Gas distribution networks, electricity distribution networks and high voltage electricity transmission networks in New York and New England (including EnergyNorth and Granite State up to the date they were sold on 3 July 2012) and electricity generation facilities in New York and Massachusetts. | |||||||||||||||||||
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Other activities primarily relate to non-regulated businesses and other commercial operations not included within the above segments, including: the Great Britain-France electricity interconnector; UK-based gas metering activities; UK property management; a UK LNG import terminal; US LNG operations; US unregulated transmission pipelines; together with corporate activities.
Sales between operating segments are priced considering the regulatory and legal requirements to which the businesses are subject. The analysis of revenue by geographical area is on the basis of destination. There are no material sales between the UK and US geographical areas.
(a) Revenue
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| 2014 | 2013 | 2012 | ||||||||||||||||||
| Total sales £m | Sales between segments £m | Sales to third parties £m | Total sales (restated)1 £m | Sales between segments (restated)1 £m | Sales to third parties (restated)1 £m | Total sales (restated)1 £m | Sales between segments (restated)1 £m | Sales to third parties (restated)1 £m | ||||||||||||
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Operating segments | ||||||||||||||||||||
UK Electricity Transmission | 3,387 | (14) | 3,373 | 3,110 | (15) | 3,095 | 2,811 | (16) | 2,795 | |||||||||||
UK Gas Transmission | 941 | (104) | 837 | 1,118 | (89) | 1,029 | 983 | (8) | 975 | |||||||||||
UK Gas Distribution | 1,898 | (49) | 1,849 | 1,714 | (47) | 1,667 | 1,605 | (52) | 1,553 | |||||||||||
US Regulated | 8,040 | – | 8,040 | 7,918 | – | 7,918 | 7,795 | – | 7,795 | |||||||||||
Other activities | 736 | (26) | 710 | 678 | (28) | 650 | 744 | (30) | 714 | |||||||||||
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| 15,002 | (193) | 14,809 | 14,538 | (179) | 14,359 | 13,938 | (106) | 13,832 | ||||||||||||
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Total excluding stranded cost recoveries | 14,809 | 14,359 | 13,553 | |||||||||||||||||
Stranded cost recoveries | – | – | 279 | |||||||||||||||||
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| 14,809 | 14,359 | 13,832 | ||||||||||||||||||
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Geographical areas | ||||||||||||||||||||
UK | 6,759 | 6,421 | 6,000 | |||||||||||||||||
US | 8,050 | 7,938 | 7,832 | |||||||||||||||||
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| 14,809 | 14,359 | 13,832 | ||||||||||||||||||
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1. Restated to reflect the changes in operating segment presentation as described on page 93.
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| 2. Segmental analysiscontinued | ||||||||||||||||||||||||||||
| (b) Operating profit | ||||||||||||||||||||||||||||
A reconciliation of the operating segments’ measure of profit to total profit before tax is provided below. Further details of the exceptional items, remeasurements and stranded cost recoveries are provided in note 4.
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| Before exceptional items, remeasurements and stranded cost recoveries | After exceptional items, remeasurements and stranded cost recoveries | |||||||||||||||||||||||||||
2014 £m | 2013 (restated)1 £m | 2012 (restated)1 £m | 2014 £m | 2013 (restated)1 £m | 2012 (restated)1 £m | |||||||||||||||||||||||
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Operating segments | ||||||||||||||||||||||||||||
UK Electricity Transmission | 1,087 | 1,049 | 876 | 1,027 | 1,020 | 876 | ||||||||||||||||||||||
UK Gas Transmission | 417 | 531 | 453 | 406 | 517 | 453 | ||||||||||||||||||||||
UK Gas Distribution | 904 | 794 | 763 | 780 | 763 | 739 | ||||||||||||||||||||||
US Regulated | 1,125 | 1,254 | 1,192 | 1,388 | 1,438 | 1,156 | ||||||||||||||||||||||
Other activities | 131 | 11 | 207 | 134 | 11 | 311 | ||||||||||||||||||||||
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| 3,664 | 3,639 | 3,491 | 3,735 | 3,749 | 3,535 | |||||||||||||||||||||||
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Geographical areas | ||||||||||||||||||||||||||||
UK | 2,723 | 2,530 | 2,347 | 2,531 | 2,456 | 2,351 | ||||||||||||||||||||||
US | 941 | 1,109 | 1,144 | 1,204 | 1,293 | 1,184 | ||||||||||||||||||||||
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| 3,664 | 3,639 | 3,491 | 3,735 | 3,749 | 3,535 | |||||||||||||||||||||||
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Reconciliation to profit before tax | ||||||||||||||||||||||||||||
Operating profit | 3,664 | 3,639 | 3,491 | 3,735 | 3,749 | 3,535 | ||||||||||||||||||||||
Finance income | 36 | 30 | 28 | 36 | 30 | 28 | ||||||||||||||||||||||
Finance costs | (1,144) | (1,154) | (1,118) | (1,051) | (1,086) | (1,188) | ||||||||||||||||||||||
Share of post-tax results of joint ventures and associates | 28 | 18 | 7 | 28 | 18 | 7 | ||||||||||||||||||||||
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Profit before tax | 2,584 | 2,533 | 2,408 | 2,748 | 2,711 | 2,382 | ||||||||||||||||||||||
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1. See note 1 on page 92. Also restated to reflect the changes in operating segment presentation as described on page 93. | ||||||||||||||||||||||||||||
(c) Capital expenditure, depreciation and amortisation | ||||||||||||||||||||||||||||
| Capital expenditure | Depreciation and amortisation | |||||||||||||||||||||||||||
| 2014 £m | 2013 (restated)1 £m | 2012 (restated)1 £m | 2014 £m | 2013 (restated)1 £m | 2012 (restated)1 £m | |||||||||||||||||||||||
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Operating segments | ||||||||||||||||||||||||||||
UK Electricity Transmission | 1,381 | 1,430 | 1,153 | (343) | (323) | (281) | ||||||||||||||||||||||
UK Gas Transmission | 181 | 249 | 235 | (172) | (162) | (146) | ||||||||||||||||||||||
UK Gas Distribution | 480 | 666 | 645 | (271) | (261) | (251) | ||||||||||||||||||||||
US Regulated | 1,219 | 1,124 | 1,052 | (419) | (430) | (411) | ||||||||||||||||||||||
Other activities | 180 | 217 | 290 | (211) | (185) | (183) | ||||||||||||||||||||||
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| 3,441 | 3,686 | 3,375 | (1,416) | (1,361) | (1,272) | |||||||||||||||||||||||
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Geographical areas | ||||||||||||||||||||||||||||
UK | 2,155 | 2,471 | 2,217 | (938) | (902) | (849) | ||||||||||||||||||||||
US | 1,286 | 1,215 | 1,158 | (478) | (459) | (423) | ||||||||||||||||||||||
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| 3,441 | 3,686 | 3,375 | (1,416) | (1,361) | (1,272) | |||||||||||||||||||||||
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By asset type | ||||||||||||||||||||||||||||
Property, plant and equipment | 3,262 | 3,511 | 3,172 | (1,289) | (1,260) | (1,193) | ||||||||||||||||||||||
Non-current intangible assets | 179 | 175 | 203 | (127) | (101) | (79) | ||||||||||||||||||||||
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| 3,441 | 3,686 | 3,375 | (1,416) | (1,361) | (1,272) | |||||||||||||||||||||||
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1. Restated to reflect the changes in operating segment presentation as described on page 93. | ||||||||||||||||||||||||||||
Total non-current assets other than derivative financial assets, financial and other investments, deferred tax assets and pension assets located in the UK and US were £24,531m and £18,349m respectively as at 31 March 2014 (31 March 2013: UK £23,344m, US £19,340m; 31 March 2012: UK £21,793m, US £17,666m).
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The following table describes the main activities for each operating segment: | ||||||||
| UK Electricity Transmission | High voltage electricity transmission networks in Great Britain. | |||||||
| UK Gas Transmission | The gas transmission network in Great Britain and UK LNG storage activities. | |||||||
| UK Gas Distribution | Four of the eight regional networks of Great Britain’s gas distribution system. | |||||||
| US Regulated | Gas distribution networks, electricity distribution networks and high voltage electricity transmission networks in New York and New England and electricity generation facilities in New York. | |||||||
| Other activities primarily relate to non-regulated businesses and other commercial operations not included within the above segments, including: the Great Britain-France electricity interconnector; UK based gas metering activities; UK property management; a UK LNG import terminal; US LNG operations; US unregulated transmission pipelines; together with corporate activities. | ||||||||
Sales between operating segments are priced considering the regulatory and legal requirements to which the businesses are subject. The analysis of revenue by geographical area is on the basis of destination. There are no material sales between the UK and US geographical areas. | ||||||||
(a) Revenue
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| 2015 | 2014 | 2013 | ||||||||||||||||||||||||||||||||||||
Total sales £m | Sales between segments £m | Sales to third £m | Total sales £m | Sales between segments £m | Sales to third £m | Total sales £m | Sales between segments £m | Sales to third | ||||||||||||||||||||||||||||||
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Operating segments: | ||||||||||||||||||||||||||||||||||||||
UK Electricity Transmission | 3,754 | (12 | ) | 3,742 | 3,387 | (14 | ) | 3,373 | 3,110 | (15 | ) | 3,095 | ||||||||||||||||||||||||||
UK Gas Transmission | 1,022 | (107 | ) | 915 | 941 | (104 | ) | 837 | 1,118 | (89 | ) | 1,029 | ||||||||||||||||||||||||||
UK Gas Distribution | 1,867 | (43 | ) | 1,824 | 1,898 | (49 | ) | 1,849 | 1,714 | (47 | ) | 1,667 | ||||||||||||||||||||||||||
US Regulated | 7,986 | – | 7,986 | 8,040 | – | 8,040 | 7,918 | – | 7,918 | |||||||||||||||||||||||||||||
Other activities | 762 | (28 | ) | 734 | 736 | (26 | ) | 710 | 678 | (28 | ) | 650 | ||||||||||||||||||||||||||
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| 15,391 | (190 | ) | 15,201 | 15,002 | (193 | ) | 14,809 | 14,538 | (179 | ) | 14,359 | |||||||||||||||||||||||||||
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Geographical areas: | ||||||||||||||||||||||||||||||||||||||
UK | 7,191 | 6,759 | 6,421 | |||||||||||||||||||||||||||||||||||
US | 8,010 | 8,050 | 7,938 | |||||||||||||||||||||||||||||||||||
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| 15,201 | 14,809 | 14,359 | ||||||||||||||||||||||||||||||||||||
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| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 97 |
Financial Statements |
Notes to the consolidated financial statements |
| – analysis of items in the primary statementscontinued |
| 2. Segmental analysis continued | ||||||||||||||||
| (b) Operating profit | ||||||||||||||||
A reconciliation of the operating segments’ measure of profit to total profit before tax is provided below. Further details of the exceptional items, remeasurements and stranded cost recoveries are provided in note 4.
| ||||||||||||||||
Before exceptional items, remeasurements and stranded cost recoveries | After exceptional items, remeasurements and stranded cost recoveries | |||||||||||||||
2015 £m | 2014 £m | 2013 £m | 2015 £m | 2014 £m | 2013 £m | |||||||||||
| ||||||||||||||||
Operating segments: | ||||||||||||||||
UK Electricity Transmission | 1,237 | 1,087 | 1,049 | 1,237 | 1,027 | 1,020 | ||||||||||
UK Gas Transmission | 437 | 417 | 531 | 437 | 406 | 517 | ||||||||||
UK Gas Distribution | 826 | 904 | 794 | 826 | 780 | 763 | ||||||||||
US Regulated | 1,164 | 1,125 | 1,254 | 1,081 | 1,388 | 1,438 | ||||||||||
Other activities | 199 | 131 | 11 | 199 | 134 | 11 | ||||||||||
| ||||||||||||||||
| 3,863 | 3,664 | 3,639 | 3,780 | 3,735 | 3,749 | |||||||||||
| ||||||||||||||||
Geographical areas: | ||||||||||||||||
UK | 2,820 | 2,723 | 2,530 | 2,820 | 2,531 | 2,456 | ||||||||||
US | 1,043 | 941 | 1,109 | 960 | 1,204 | 1,293 | ||||||||||
| ||||||||||||||||
| 3,863 | 3,664 | 3,639 | 3,780 | 3,735 | 3,749 | |||||||||||
| ||||||||||||||||
Reconciliation to profit before tax: | ||||||||||||||||
Operating profit | 3,863 | 3,664 | 3,639 | 3,780 | 3,735 | 3,749 | ||||||||||
Finance income | 36 | 36 | 30 | 36 | 36 | 30 | ||||||||||
Finance costs | (1,069) | (1,144) | (1,154) | (1,234) | (1,051) | (1,086) | ||||||||||
Share of post-tax results of joint ventures and associates | 46 | 28 | 18 | 46 | 28 | 18 | ||||||||||
| ||||||||||||||||
Profit before tax | 2,876 | 2,584 | 2,533 | 2,628 | 2,748 | 2,711 | ||||||||||
| ||||||||||||||||
(c) Capital expenditure, depreciation and amortisation
| ||||||||||||||||
| Capital expenditure | Depreciation and amortisation | |||||||||||||||
2015 £m | 2014 £m | 2013 £m | 2015 £m | 2014 £m | 2013 £m | |||||||||||
| ||||||||||||||||
| Operating segments: | ||||||||||||||||
UK Electricity Transmission | 1,074 | 1,381 | 1,430 | (376) | (343) | (323) | ||||||||||
UK Gas Transmission | 184 | 181 | 249 | (172) | (172) | (162) | ||||||||||
UK Gas Distribution | 498 | 480 | 666 | (286) | (271) | (261) | ||||||||||
US Regulated | 1,501 | 1,219 | 1,124 | (452) | (419) | (430) | ||||||||||
Other activities | 213 | 180 | 217 | (196) | (211) | (185) | ||||||||||
| ||||||||||||||||
| 3,470 | 3,441 | 3,686 | (1,482) | (1,416) | (1,361) | |||||||||||
| ||||||||||||||||
Geographical areas: | ||||||||||||||||
UK | 1,864 | 2,155 | 2,471 | (983) | (938) | (902) | ||||||||||
US | 1,606 | 1,286 | 1,215 | (499) | (478) | (459) | ||||||||||
| ||||||||||||||||
| 3,470 | 3,441 | 3,686 | (1,482) | (1,416) | (1,361) | |||||||||||
| ||||||||||||||||
By asset type: | ||||||||||||||||
Property, plant and equipment | 3,263 | 3,262 | 3,511 | (1,361) | (1,289) | (1,260) | ||||||||||
Non-current intangible assets | 207 | 179 | 175 | (121) | (127) | (101) | ||||||||||
| ||||||||||||||||
| 3,470 | 3,441 | 3,686 | (1,482) | (1,416) | (1,361) | |||||||||||
| ||||||||||||||||
Total non-current assets other than financial instruments, deferred tax assets and pension assets located in the UK and US were £25,278m and £21,790m respectively as at 31 March 2015 (31 March 2014: UK £24,531m, US £18,349m; 31 March 2013: UK £23,344m, US £19,340m). | ||||||||||||||||
| 98 |
Unaudited commentary on the results of our principal operations by segment
As a business, we have three measures of operating profit that are used on a regular basis and disclosed in this Annual Report.
Statutory operating profit: This is operating profit as calculated under International Financial Reporting Standards (IFRS). Statutory operating profit by segment is shown in note 2 on page 98.
Adjusted operating profit: Adjusted operating profit (business performance) excludes items that if included could distort understanding of our performance for the year and the comparability between periods. Further details of items that are excluded in adjusted operating profit are shown in note 4 on page 103.
Regulatory financial performance: This is particularly relevant for our UK operations and is a measure of operating profit that reflects the impact of the businesses’ regulatory arrangements when presenting financial performance.
Reconciliations between statutory and adjusted operating profit can be found on page 186. Reconciliations between adjusted operating profit and regulatory financial performance for UK Electricity Transmission, UK Gas Transmission and UK Gas Distribution can be found on page 100.
Commentary on segmental adjusted operating profit results
We have summarised the results of our principal operating segments here by segment to provide direct reference to the results as disclosed in note 2. This analysis has been
|
| |||||
UK Electricity Transmission
For the year ended 31 March 2015, revenue in the UK Electricity Transmission segment was £367m higher at £3,754m, and adjusted operating profit increased by £150m to £1,237m.
Net regulated income after pass-through costs was £230m higher, principally reflecting increases in allowed Transmission Owner revenues this year and a £43m benefit relating to legal settlements. This was partially offset by under-recoveries of allowed revenue in the year of £89m compared with under-recoveries of £60m in the prior year. Regulated controllable costs were £14m higher due to inflation, organisational change costs and additional tower maintenance costs. Depreciation and amortisation was £33m higher reflecting the continued capital investment programme (investment in the year was £1,074m). Other costs were £4m higher than prior year.
UK Gas Transmission
Revenue in the UK Gas Transmission segment increased by £81m in 2014/15 to £1,022m and adjusted operating profit increased by £20m to £437m.
Net regulated income after pass-through costs was £42m higher due to earned gas permit and constraints management incentives. In addition, under-recoveries of allowed revenue in the year of £18m
were £3m favourable to last year’s under-recoveries of £21m. Partially offsetting the revenue gains, regulated controllable costs were £8m higher, mainly as a result of additional system operator costs relating to EU work and some organisation change costs.
Other operating costs were also £17m higher, including a £13m provision for decommissioning the Avonmouth LNG plant.
Capital investment remained around the same level as last year at £184m.
UK Gas Distribution
UK Gas Distribution revenue decreased by £31m in 2014/15 to £1,867m, and adjusted operating profit decreased by £78m to £826m.
Net regulated income after pass-through costs was £11m lower, reflecting changes in allowed revenues for replacement expenditure (repex). Timing differences reduced net revenues by a further £16m, with £13m over-recoveries in 2014/15, compared with a £29m over-recovery in the prior year. Regulated controllable costs were £22m higher primarily due to inflation and some organisation change costs. Depreciation and amortisation was £15m higher reflecting the continued capital investment programme (investment in the year was £498m). Other costs were £14m higher, reflecting a provision for additional asset protection costs.
US Regulated
Revenue in our US Regulated businesses was £54m lower in 2014/15 at £7,986m, while adjusted operating profit increased by £39m to £1,164m.
The stronger dollar increased operating profit in the year by £30m. Excluding the impact of foreign exchange, net regulated income increased by £81m, reflecting increased revenue from existing rate plans, including capex trackers, together with additional income from gas customer growth, partially offset by the impact of the end of LIPA management services activities (MSA) in December 2013. In addition, over-recoveries of allowed revenues in the year of £30m were £20m favourable to last year’s over-recoveries of £10m. Regulated controllable costs increased by £17m excluding the impact of foreign exchange, as a result of increased gas leak and compliance work and additional costs incurred to improve data quality and bring regulatory filings up to date, partly offset by the cessation of costs associated with the LIPA MSA activities. Bad debt costs were £62m higher excluding the impact of foreign exchange, following last year’s exceptionally cold winter. There were no major storms affecting our operations in the years ended 31 March 2014 and 2015.
Our capital investment programme continues in the US, with a further £1,501m invested in 2014/15, including gas leak reduction programmes and electricity capacity and reinforcement work.
Other activities
Revenue in Other activities increased by £26m to £762m in the year ended 31 March 2015. Adjusted operating profit was £68m higher at £199m.
Operating profit in the French interconnector was £18m higher as a result of strong auction revenues this year. In the US, corporate and other activities losses were £63m lower, mainly as a result of our finance system upgrade completing in the first half of this year. Capital investment in our Other activities was £33m higher at £213m.
The weaker dollar reduced operating profit in the year by £38m. Excluding the impact of foreign exchange, net regulated income fell by £52m, principally due to the end of deferral income recoveries for Niagara Mohawk at 31 March 2013. Timing differences added another £29m profit compared with prior year. Regulated controllable costs increased by £89m at constant currency as a result of inflation and wage increases, higher insurance costs post Superstorm Sandy, and cost true-ups identified during the implementation of new financial systems. Other operating costs (excluding major storms) increased by £61m at constant currency due to the higher cost of non-major storm remediation, higher property taxes and depreciation of the new US enterprise resource system.
There were no major storms affecting our operations in the year ended 31 March 2014. In 2012/13, two major storms in the US, Superstorm Sandy and Storm Nemo, reduced operating profit within US Regulated by £82m at constant currency.
Our capital investment programme continues in the US, with a further £1,219m invested in 2013/14, including gas leak reduction programmes and gas growth and connection spend.
Other activities
Revenue in Other activities increased by £58m to £736m in the year ended 31 March 2014. Adjusted operating profit was £120m higher at £131m.
There was no repeat of the major storm cost of £51m incurred in our insurance captive in the prior year due to Superstorm Sandy. Operating profit in the French interconnector was £62m higher as a result of strong auction revenues this year. In our other non-regulated businesses, adjusted operating profit was £7m higher due to improved results in our UK metering business and insurance captive, partially offset by higher costs associated with the stabilisation of the new US enterprise resource system.
Capital expenditure in our Other activities was £37m lower at £180m, principally reflecting reduced capital spend on the new US enterprise resource system.
This unaudited commentary does not form part of the financial statements.
UK Electricity Transmission
For the year ended 31 March 2014, revenue in the UK Electricity Transmission segment increased by £277m, and adjusted operating profit increased by £38m.
Net regulated income after pass-through costs was £170m higher, reflecting increases in allowed revenues under the new RIIO regulatory framework. This was partially offset by under-recoveries of revenue in the year of £60m compared with over-recoveries of £29m in the prior year. Regulated controllable costs were £27m higher due to inflation, legal fees and one-off credits in the prior year. Depreciation and amortisation was £20m higher reflecting the continued capital investment programme (investment in the year was £1,381m). Other costs were £4m lower than prior year.
UK Gas Transmission
Revenue in the UK Gas Transmission segment decreased by £177m in 2013/14 to £941m and adjusted operating profit fell by £114m to £417m.
Net regulated income after pass-through costs was £80m lower, with lower permit income than prior year under the new RIIO arrangements. In addition, under-recoveries in the year of £21m compared with over-recoveries last year of £17m, gave rise to an adverse timing movement of £38m. Depreciation and amortisation was £10m higher due to investment, with £181m invested in the year. Partially offsetting these, other operating costs were £14m lower.
UK Gas Distribution
UK Gas Distribution revenue increased by £184m in the year to £1,898m, and adjusted operating profit increased to £904m from £794m in 2012/13.
Net regulated income after pass-through costs was £96m higher, reflecting increases in allowed revenues under the new RIIO regulatory framework. Timing differences added another £39m, with £29m over-recoveries in 2013/14, compared with a £10m under-recovery in the prior year. Partially offsetting these, regulated controllable costs were £14m higher primarily due to inflation. Depreciation and amortisation was £10m higher reflecting the continued capital investment programme (investment in the year was £480m). Other costs were £1m higher than prior year.
| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 99 |
Financial Statements
Notes to the consolidated financial statements
– analysis of items in the primary statementscontinued
Unaudited commentary on the results of our principal operations by segmentcontinued
Commentary on UK regulated financial performance
The regulated financial performance calculation provides a measure of the performance of the regulated operations before the impacts of interest and taxation. It adjusts reported operating profit under IFRS to reflect the impact of the businesses’ regulatory arrangements when presenting financial performance. |
Adjustments in calculating regulatory financial performance
The principal adjustments from reported operating profit to UK regulated financial performance are:
Movement in UK regulatory ‘IOUs’: Revenue related to performance in one year may be recovered in later years. Revenue may be recovered in one year but be required to be returned to customers in future years. IFRS recognises these revenues when they flow through invoices to customers and not in the period to which they relate.
Performance RAV: UK performance efficiencies are in part remunerated by the creation of additional RAV which is expected to result in future earnings under regulatory arrangements.
Pension adjustment: Cash payments against pension deficits in the UK are recoverable under regulatory contracts.
3% RAV indexation: Future UK revenues expected to be set using an asset base adjusted for inflation. This will be billed in future periods and recognised under IFRS at that time.
UK deferred taxation adjustment: Future UK revenues are expected to recover cash taxation cost including the unwinding of deferred taxation balances created in the current year.
Regulatory depreciation: US and UK regulated revenues include allowance for a return of regulatory capital in accordance with regulatory assumed asset lives. This return does not form part of regulatory profit.
Fast/slow money adjustment: The regulatory remuneration of costs incurred is split between in year revenue allowances and the creation of additional RAV. This does not align with the classification of costs as operating costs and fixed asset additions under IFRS accounting principles.
UK Electricity Transmission
Regulated financial performance for UK Electricity Transmission increased to £1,232m from £1,066m, up 16%. The year on year movement reflected the higher opening regulated asset value and the higher achieved operational return on equity. There was also a one-off benefit of £56m from legal settlements. These were partially offset by a reduced price control ‘tracker’ cost of debt allowance.
Reconciliation of regulated financial performance to operating profit | 2015 £m | 2014 £m | % change | |||||||||
| ||||||||||||
Reported operating profit | 1,237 | 1,087 | 14 | |||||||||
Movement in regulatory ‘IOUs’ | (130 | ) | (19 | ) | ||||||||
Deferred taxation adjustment | 88 | 53 | ||||||||||
RAV indexation (average 3% long-run inflation) | 326 | 301 | ||||||||||
Regulatory vs IFRS depreciation difference | (352 | ) | (337 | ) | ||||||||
Fast/slow money adjustment | 34 | (2 | ) | |||||||||
Pensions | (48 | ) | (47 | ) | ||||||||
Performance RAV created | 77 | 30 | ||||||||||
| ||||||||||||
Regulated financial performance | 1,232 | 1,066 | 16 | |||||||||
| ||||||||||||
UK Gas Transmission
Regulated financial performance for UK Gas Transmission increased to £648m from £552m, up 17%. This reflected improved operational return on equity, mainly as a result of incentive performance, and the increase in underlying revenues associated with increased regulated asset value. This was partly offset by lower allowed cost of debt (2.72% real compared with 2.92% real in 2013/14).
Reconciliation of regulated financial performance to operating profit | 2015 £m | 2014 £m | % change | |||||||||
| ||||||||||||
Reported operating profit | 437 | 417 | 5 | |||||||||
Movement in regulatory ‘IOUs’ | (16 | ) | (28 | ) | ||||||||
Deferred taxation adjustment | 85 | 12 | ||||||||||
RAV indexation (average 3% long-run inflation) | 166 | 162 | ||||||||||
Regulatory vs IFRS depreciation difference | (22 | ) | (2 | ) | ||||||||
Fast/slow money adjustment | 54 | 44 | ||||||||||
Pensions | (49 | ) | (46 | ) | ||||||||
Performance RAV created | (7 | ) | (7 | ) | ||||||||
| ||||||||||||
Regulated financial performance | 648 | 552 | 17 | |||||||||
| ||||||||||||
UK Gas Distribution
Regulated financial performance for UK Gas Distribution decreased to £819m from £855m. The year on year movement in regulated financial performance reflected an increase in underlying revenues associated with increased regulated asset value, more than offset by lower allowed cost of debt and a slightly reduced achieved return on equity.
Reconciliation of regulated financial performance to operating profit | 2015 £m | 2014 £m | % change | |||||||||
| ||||||||||||
Reported operating profit | 826 | 904 | (9) | |||||||||
Movement in regulatory ‘IOUs’ | (28 | ) | (59 | ) | ||||||||
Deferred taxation adjustment | 60 | 85 | ||||||||||
RAV indexation (average 3% long-run inflation) | 255 | 252 | ||||||||||
Regulatory vs IFRS depreciation difference | (148 | ) | (149 | ) | ||||||||
Fast/slow money adjustment | (182 | ) | (197 | ) | ||||||||
Pensions | (5 | ) | (9 | ) | ||||||||
Performance RAV created | 41 | 28 | ||||||||||
| ||||||||||||
Regulated financial performance | 819 | 855 | (4) | |||||||||
| ||||||||||||
| 100 |
| ||||||||||||||||||||||||||||||||||||||||||
Below we have presented separately certain items included in our operating costs. These include a breakdown of payroll costs (including disclosure of amounts paid to key management personnel) and fees paid to our auditors.
|
| |||||||||||||||||||||||||||||||||||||||||
Rentals under operating leases are charged to the income statement on a straight-line basis over the term of the relevant lease.
|
| |||||||||||||||||||||||||||||||||||||||||
Before exceptional items, cost recoveries | Exceptional items, remeasurements and stranded cost recoveries | Total | ||||||||||||||||||||||||||||||||||||||||
2015 £m | 2014 £m | 2013 £m | 2015 £m | 20141 £m | 20131 £m | 2015 £m | 20141 £m | 20131 £m | ||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||
Depreciation and amortisation | 1,482 | 1,416 | 1,361 | – | – | – | 1,482 | 1,416 | 1,361 | |||||||||||||||||||||||||||||||||
Payroll costs | 1,459 | 1,373 | 1,434 | – | (155 | ) | 26 | 1,459 | 1,218 | 1,460 | ||||||||||||||||||||||||||||||||
Purchases of electricity | 1,615 | 1,513 | 1,251 | 70 | (49 | ) | (111 | ) | 1,685 | 1,464 | 1,140 | |||||||||||||||||||||||||||||||
Purchases of gas | 1,403 | 1,722 | 1,384 | 13 | 33 | (69 | ) | 1,416 | 1,755 | 1,315 | ||||||||||||||||||||||||||||||||
Rates and property taxes | 1,004 | 963 | 969 | – | – | – | 1,004 | 963 | 969 | |||||||||||||||||||||||||||||||||
Balancing Services Incentive Scheme | 874 | 872 | 805 | – | – | – | 874 | 872 | 805 | |||||||||||||||||||||||||||||||||
Payments to other UK network owners | 801 | 630 | 487 | – | – | – | 801 | 630 | 487 | |||||||||||||||||||||||||||||||||
Other | 2,700 | 2,656 | 3,029 | – | 100 | 44 | 2,700 | 2,756 | 3,073 | |||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||
| 11,338 | 11,145 | 10,720 | 83 | (71 | ) | (110 | ) | 11,421 | 11,074 | 10,610 | ||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||
Operating costs include: |
| |||||||||||||||||||||||||||||||||||||||||
Inventory consumed |
| 365 | 422 | 389 | ||||||||||||||||||||||||||||||||||||||
Operating leases |
| 98 | 115 | 109 | ||||||||||||||||||||||||||||||||||||||
Research and development expenditure |
| 23 | 12 | 15 | ||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||
1. Comparatives have been represented on a basis consistent with the current year presentation. |
| |||||||||||||||||||||||||||||||||||||||||
(a) Payroll costs
| ||||||||||||||||||||||||||||||||||||||||||
2015 £m | 20141 £m | 20131 £m | ||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||
Wages and salaries2 |
| 1,598 | 1,377 | 1,597 | ||||||||||||||||||||||||||||||||||||||
Social security costs |
| 129 | 126 | 120 | ||||||||||||||||||||||||||||||||||||||
Other pension costs (note 22) |
| 224 | 229 | 234 | ||||||||||||||||||||||||||||||||||||||
Share-based payment |
| 20 | 20 | 20 | ||||||||||||||||||||||||||||||||||||||
Severance costs (excluding pension costs) |
| 4 | 30 | 16 | ||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||
| 1,975 | 1,782 | 1,987 | ||||||||||||||||||||||||||||||||||||||||
Less: payroll costs capitalised |
| (516 | ) | (564 | ) | (527) | ||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||
| 1,459 | 1,218 | 1,460 | ||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||
1. Comparatives have been represented on a basis consistent with the current year presentation. 2. Included within wages and salaries are US other post-retirement benefit costs of £39m (2014: £44m; 2013: £43m); a curtailment gain on LIPA MSA transaction of £nil (2014: £198m; 2013: £nil) and a curtailment loss following disposal of businesses of £nil (2014: £nil; 2013: £1m). For further information refer to note 22. |
| |||||||||||||||||||||||||||||||||||||||||
(b) Number of employees |
| |||||||||||||||||||||||||||||||||||||||||
| 31 March 2015 | Monthly average 2015 | 31 March 2014 | Monthly average 2014 | 31 March 2013 | Monthly average 2013 | |||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||
UK | 9,701 | 9,670 | 9,693 | 9,641 | 9,990 | 9,816 | ||||||||||||||||||||||||||||||||||||
US | 14,573 | 14,434 | 14,216 | 15,094 | 15,438 | 15,555 | ||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||
| 24,274 | 24,104 | 23,909 | 24,735 | 25,428 | 25,371 | |||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||
| The vast majority of employees in the US are either directly or indirectly employed in the transmission, distribution and generation of electricity or the distribution of gas, while those in the UK are either directly or indirectly employed in the transmission and distribution of gas or the transmission of electricity. At 31 March 2015, there were 2,131 (2014: 2,044; 2013: 2,151) employees in other operations, excluding shared services. | ||||||||||||||||||||||||||||||||||||||||||
|
| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 101 |
Financial Statements | ||
Notes to the consolidated financial statements | ||
| – analysis of items in the primary statementscontinued |
| 3. Operating costscontinued | ||||||||||||||
| (c) Key management compensation | ||||||||||||||
| 2015 £m | 2014 £m | 2013 £m | ||||||||||||
| ||||||||||||||
Short-term employee benefits | 10 | 9 | 8 | |||||||||||
Post-employment benefits | 9 | 1 | 3 | |||||||||||
Share-based payment | 4 | 5 | 5 | |||||||||||
| ||||||||||||||
| 23 | 15 | 16 | ||||||||||||
| ||||||||||||||
| Key management compensation relates to the Board of Directors, including the Executive Directors and Non-executive Directors for the years presented. | ||||||||||||||
| (d) Directors’ emoluments | ||||||||||||||
| Details of Directors’ emoluments are contained in the audited part of the Remuneration Report on page 69, which forms part of these financial statements. | ||||||||||||||
| (e) Auditors’ remuneration | ||||||||||||||
| Auditors’ remuneration is presented below in accordance with the requirements of the UK Companies Act 2006 and the principal accountant fees and services disclosure requirements of Item 16C of Form 20-F: | ||||||||||||||
| 2015 £m | 20141 £m | 2013 £m | ||||||||||||
| ||||||||||||||
Audit fees2payable to the parent Company’s auditors and their associates in respect of: | ||||||||||||||
Audit of the parent Company’s individual and consolidated financial statements | 1.3 | 0.9 | 1.1 | |||||||||||
The auditing of accounts of any associate of the Company | 8.1 | 9.2 | 6.0 | |||||||||||
Other services supplied3 | 3.3 | 3.2 | 2.7 | |||||||||||
| ||||||||||||||
| 12.7 | 13.3 | 9.8 | ||||||||||||
| ||||||||||||||
Total other services4 | ||||||||||||||
Tax fees5: | ||||||||||||||
Tax compliance services | 0.4 | 0.5 | 0.5 | |||||||||||
Tax advisory services | 0.1 | 0.3 | 0.3 | |||||||||||
All other fees6: | ||||||||||||||
Other assurance services | 0.1 | 0.1 | 0.1 | |||||||||||
Services relating to corporate finance transactions not covered above | – | – | 0.3 | |||||||||||
Other non-audit services not covered above | 0.3 | 0.8 | 1.1 | |||||||||||
| ||||||||||||||
| 0.9 | 1.7 | 2.3 | ||||||||||||
| ||||||||||||||
Total auditors’ remuneration | 13.6 | 15.0 | 12.1 | |||||||||||
| ||||||||||||||
1. The audit fees for the year ended 31 March 2014 have been restated to reflect the final audit fee following completion of the statutory audit process. 2. Audit fees in each year represent fees for the audit of the Company’s financial statements and regulatory reporting for the years ended 31 March 2015, 2014 and 2013, and the review of interim financial statements for the six month periods ended 30 September 2014, 2013 and 2012 respectively. 3. Other services supplied represent fees payable for services in relation to other statutory filings or engagements that are required to be carried out by the auditors. In particular, this includes fees for reports under section 404 of the US Public Company Accounting Reform and Investor Protection Act of 2002 (Sarbanes-Oxley) and audit reports on regulatory returns. 4. There were no audit related fees as described in Item 16C(b) of Form 20-F. 5. Tax fees include amounts charged for tax compliance, tax advice and tax planning. 6. All other fees include amounts relating to market research on the metering industry and sundry services, all of which have been subject to approval by the Audit Committee. Total other fees for the year ended 31 March 2015 were £0.4m (2014: £0.9m; 2013: £1.5m). |
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In addition, fees of £0.2m were incurred in 2015 in relation to the audits of the pension schemes of the Company (2014: £0.1m; 2013: £0.1m). |
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Subject to the Company’s Articles of Association and the Companies Act 2006, the Audit Committee is solely and directly responsible for the approval of the appointment, reappointment, compensation and oversight of the Company’s independent auditors. It is our policy that the Audit Committee must approve in advance all non-audit work in excess of £50,000 to be performed by the independent auditors to ensure that the service will not compromise auditor independence. The Committee has delegated the approval in advance for all non-audit work below this level to the Finance Director. Certain services are prohibited from being performed by the external auditors under the Sarbanes-Oxley Act 2002.
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| 102 |
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Below we have presented separately certain items included in our operating costs. These include a breakdown of payroll costs (including disclosure of amounts paid to key management personnel) and fees paid to our auditors.
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Rentals under operating leases are charged to the income statement on a straight-line basis over the term of the relevant lease. | ||||||||||||||||||||||||
Before exceptional items, remeasurements and stranded cost recoveries | Exceptional items, remeasurements and stranded cost recoveries | Total | ||||||||||||||||||||||
2014 £m | 2013 (restated)1 £m | 2012 (restated)1 £m | 2014 £m | 2013 (restated)1 £m | 2012 (restated)1 £m | 2014 £m | 2013 (restated)1 £m | 2012 (restated)1 £m | ||||||||||||||||
| ||||||||||||||||||||||||
Depreciation and amortisation | 1,416 | 1,361 | 1,267 | – | – | 5 | 1,416 | 1,361 | 1,272 | |||||||||||||||
Payroll costs | 1,373 | 1,434 | 1,381 | 59 | 22 | 82 | 1,432 | 1,456 | 1,463 | |||||||||||||||
Purchases of electricity | 1,513 | 1,251 | 1,356 | (49) | (111) | 89 | 1,464 | 1,140 | 1,445 | |||||||||||||||
Purchases of gas | 1,722 | 1,384 | 1,518 | 33 | (69) | 5 | 1,755 | 1,315 | 1,523 | |||||||||||||||
Rates and property taxes | 963 | 969 | 955 | – | – | – | 963 | 969 | 955 | |||||||||||||||
Balancing Services Incentive Scheme | 872 | 805 | 818 | – | – | – | 872 | 805 | 818 | |||||||||||||||
Payments to other UK network owners | 630 | 487 | 407 | – | – | – | 630 | 487 | 407 | |||||||||||||||
Other | 2,656 | 3,029 | 2,360 | (114) | 48 | 54 | 2,542 | 3,077 | 2,414 | |||||||||||||||
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| 11,145 | 10,720 | 10,062 | (71) | (110) | 235 | 11,074 | 10,610 | 10,297 | ||||||||||||||||
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Operating costs include: | ||||||||||||||||||||||||
Inventory consumed | 422 | 389 | 360 | |||||||||||||||||||||
Operating leases | 115 | 109 | 97 | |||||||||||||||||||||
Research and development expenditure | 12 | 15 | 15 | |||||||||||||||||||||
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1. See note 1 on page 92. | ||||||||||||||||||||||||
(a) Payroll costs | ||||||||||||||||||||||||
2014 £m | 2013 (restated)1 £m | 2012 (restated)1 £m | ||||||||||||||||||||||
| ||||||||||||||||||||||||
Wages and salaries2 | 1,575 | 1,596 | 1,566 | |||||||||||||||||||||
Social security costs | 126 | 120 | 116 | |||||||||||||||||||||
Pension costs (note 22) | 245 | 231 | 231 | |||||||||||||||||||||
Share-based payment | 20 | 20 | 24 | |||||||||||||||||||||
Severance costs (excluding pension costs) | 30 | 16 | 35 | |||||||||||||||||||||
| ||||||||||||||||||||||||
| 1,996 | 1,983 | 1,972 | ||||||||||||||||||||||
Less: payroll costs capitalised | (564) | (527) | (509) | |||||||||||||||||||||
| ||||||||||||||||||||||||
| 1,432 | 1,456 | 1,463 | ||||||||||||||||||||||
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1. See note 1 on page 92. | ||||||||||||||||||||||||
2. Included within wages and salaries are US other post-retirement benefit costs of £44m (2013: £43m; 2012: £60m). For further information refer to note 22 on page 122. | ||||||||||||||||||||||||
(b) Number of employees
| ||||||||||||||||||||||||
| 31 March 2014 Number | Monthly average 2014 Number | 31 March 2013 Number1 | Monthly average 2013 Number1 | 31 March 2012 Number1 | Monthly average 2012 | |||||||||||||||||||
| ||||||||||||||||||||||||
UK | 9,693 | 9,641 | 9,990 | 9,816 | 9,696 | 9,769 | ||||||||||||||||||
US | 14,216 | 15,094 | 15,438 | 15,555 | 15,843 | 16,080 | ||||||||||||||||||
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| 23,909 | 24,735 | 25,428 | 25,371 | 25,539 | 25,849 | |||||||||||||||||||
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1. Comparatives have been re-presented on a basis consistent with the current year classification.
The vast majority of employees in the US are either directly or indirectly employed in the transmission, distribution and generation of electricity or the distribution of gas, while those in the UK are either directly or indirectly employed in the transmission and distribution of gas or the transmission of electricity. At 31 March 2014, there were 2,044 (2013: 2,151; 2012: 2,357) employees in other operations, excluding shared services.
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| 3. Operating costscontinued | ||||||||||||||
| (c) Key management compensation | ||||||||||||||
2014 £m | 2013 £m | 2012 £m | ||||||||||||
| ||||||||||||||
Short-term employee benefits | 9 | 8 | 10 | |||||||||||
Post-employment benefits | 1 | 3 | 6 | |||||||||||
Share-based payment | 5 | 5 | 5 | |||||||||||
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| 15 | 16 | 21 | ||||||||||||
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Key management compensation relates to the Board of Directors, including the Executive Directors and Non-executive Directors for the years presented. |
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(d) Directors’ emoluments | ||||||||||||||
| Details of Directors’ emoluments are contained in the audited part of the Remuneration Report, which forms part of these financial statements. | ||||||||||||||
(e) Auditors’ remuneration | ||||||||||||||
Auditors’ remuneration is presented below in accordance with the requirements of the UK Companies Act 2006 and the principal accountant fees and services disclosure requirements of Item 16C of Form 20-F.
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2014 £m | 2013 £m | 2012 £m | ||||||||||||
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Audit fees1payable to the parent Company’s auditors and their associates in respect of: | ||||||||||||||
Audit of the parent Company’s individual and consolidated financial statements | 0.9 | 1.1 | 1.1 | |||||||||||
The auditing of accounts of any associate of the Company | 7.8 | 6.0 | 5.2 | |||||||||||
Other services supplied2 | 2.3 | 2.7 | 2.3 | |||||||||||
| ||||||||||||||
| 11.0 | 9.8 | 8.6 | ||||||||||||
| ||||||||||||||
Total other services3 | ||||||||||||||
Tax fees4 | ||||||||||||||
Tax compliance services | 0.5 | 0.5 | 0.5 | |||||||||||
Tax advisory services | 0.3 | 0.3 | 0.2 | |||||||||||
All other fees5 | ||||||||||||||
Other assurance services | 0.1 | 0.1 | 0.3 | |||||||||||
Services relating to corporate finance transactions not covered above | – | 0.3 | 0.2 | |||||||||||
Other non-audit services not covered above | 0.8 | 1.1 | 2.6 | |||||||||||
| ||||||||||||||
| 1.7 | 2.3 | 3.8 | ||||||||||||
| ||||||||||||||
Total auditors’ remuneration | 12.7 | 12.1 | 12.4 | |||||||||||
| ||||||||||||||
1. Audit fees in each year represent fees for the audit of the Company’s financial statements and regulatory reporting for the years ended 31 March 2014, 2013 and 2012, and the review of interim financial statements for the six month periods ended 30 September 2013, 2012 and 2011 respectively. |
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2. Other services supplied represent fees payable for services in relation to other statutory filings or engagements that are required to be carried out by the auditors. In particular, this includes fees for reports under section 404 of the US Public Company Accounting Reform and Investor Protection Act of 2002 (Sarbanes-Oxley) and audit reports on regulatory returns. |
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3. There were no audit related fees as described in Item 16C(b) of Form 20-F. |
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4. Tax fees include amounts charged for tax compliance, tax advice and tax planning. Total tax fees for the year ended 31 March 2014 were £0.8m (2013: £0.8m; 2012: £0.7m). |
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5. All other fees include amounts relating to the review of US pensions and other post-retirement benefits census data and sundry services, all of which have been subject to approval by the Audit Committee. Total other fees for the year ended 31 March 2014 were £0.9m (2013: £1.5m; 2012: £3.1m). |
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In addition, fees of £0.1m were incurred in 2014 in relation to the audits of the pension schemes of the Company (2013: £0.1m; 2012: £0.1m). |
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Subject to the Company’s Articles of Association and the Companies Act 2006, the Audit Committee is solely and directly responsible for the approval of the appointment, reappointment, compensation and oversight of the Company’s independent auditors. It is our policy that the Audit Committee must approve in advance all non-audit work to be performed by the independent auditors to ensure that the service will not compromise auditor independence. Certain services are prohibited from being performed by the external auditors under the Sarbanes-Oxley Act 2002.
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| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 103 |
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Financial Statements
Notes to the consolidated financial statements
– analysis of items in the primary statementscontinued
|
| 4 . Exceptional items, remeasurements and stranded cost recoveriescontinued | ||||||||||||
| 2015 £m | 2014 £m | 2013 £m | ||||||||||
| ||||||||||||
Included within operating profit | ||||||||||||
Exceptional items: | ||||||||||||
Restructuring costs1 | – | (136 | ) | (87) | ||||||||
Gas holder demolition costs2 | – | (79 | ) | – | ||||||||
LIPA MSA transition3 | – | 254 | – | |||||||||
Other4 | – | 16 | – | |||||||||
Net gain on disposal of businesses5 | – | – | 3 | |||||||||
| ||||||||||||
| – | 55 | (84) | ||||||||||
Remeasurements – commodity contracts6 | (83 | ) | 16 | 180 | ||||||||
Stranded cost recoveries7 | – | – | 14 | |||||||||
| ||||||||||||
| (83 | ) | 71 | 110 | |||||||||
| ||||||||||||
Included within finance costs | ||||||||||||
Exceptional items: | ||||||||||||
Debt redemption costs8 | (131 | ) | – | – | ||||||||
Remeasurements – net (losses)/gains on derivative financial instruments9 | (34 | ) | 93 | 68 | ||||||||
| ||||||||||||
| (165 | ) | 93 | 68 | |||||||||
| ||||||||||||
Total included within profit before tax | (248 | ) | 164 | 178 | ||||||||
| ||||||||||||
Included within tax | ||||||||||||
Exceptional credits/(charges) arising on items not included in profit before tax: | ||||||||||||
Deferred tax credit arising on the reduction in the UK corporation tax rate10 | 6 | 398 | 128 | |||||||||
Deferred tax charge arising from an increase in US state income tax rates11 | – | (8 | ) | – | ||||||||
Tax on exceptional items | 28 | (57 | ) | 31 | ||||||||
Tax on remeasurements6,8 | 44 | (36 | ) | (92) | ||||||||
Tax on stranded cost recoveries | – | – | (5) | |||||||||
| ||||||||||||
| 78 | 297 | 62 | ||||||||||
| ||||||||||||
Total exceptional items, remeasurements and stranded cost recoveries after tax | (170 | ) | 461 | 240 | ||||||||
| ||||||||||||
Analysis of total exceptional items, remeasurements and stranded cost recoveries after tax | ||||||||||||
Exceptional items after tax | (97 | ) | 388 | 75 | ||||||||
Remeasurements after tax | (73 | ) | 73 | 156 | ||||||||
Stranded cost recoveries after tax | – | – | 9 | |||||||||
| ||||||||||||
Total exceptional items, remeasurements and stranded cost recoveries after tax | (170 | ) | 461 | 240 | ||||||||
| ||||||||||||
1. No exceptional restructuring costs have been incurred in the year ended 31 March 2015. Restructuring costs for 2014 included: costs related to the continued restructuring of our UK operations in preparedness to deliver RIIO, other transformation-related initiatives in the UK and US and an associated software impairment for licences that will no longer be used. For the year ended 31 March 2013, restructuring costs included: costs for the restructuring of our UK operations of £66m in preparedness for delivering RIIO; costs for transformation-related initiatives in the UK and US of £31m; and a credit of £10m for the release of restructuring provisions in the UK recognised in prior years. 2. No further provision (2014: £79m) has been made for the demolition of non-operational gas holders in the UK. 3. For the year ended 31 March 2014, a net gain of £254m was recognised. This included a pension curtailment and settlement (£214m) for employees who transferred to a new employer following the cessation of the Management Services Agreement (MSA) with the Long Island Power Authority (LIPA) on 31 December 2013. There was also a gain of £142m following the extinguishment of debt obligations of £98m and a £56m cash payment received, in compensation for the Company forgiving an historical pension receivable and carrying charges. These gains were offset by transition costs and other provisions incurred to effect the transition. 4. During the year ended 31 March 2014, £16m was received following the sale to a third party of a settlement award which arose as a result of a legal ruling in 2008. 5. For the year ended 31 March 2013, we recognised a gain of £3m on the disposal of two subsidiaries in New Hampshire. 6. Remeasurements – commodity contracts represent mark-to-market movements on certain physical and financial commodity contract obligations in the US. These contracts primarily relate to the forward purchase of energy for supply to customers, or to the economic hedging thereof, that are required to be measured at fair value and that do not qualify for hedge accounting. Under the existing rate plans in the US, commodity costs are recoverable from customers although the timing of recovery may differ from the pattern of costs incurred. 7. For the year ended 31 March 2013, stranded cost recoveries of £14m substantially represented the release of an unutilised provision recognised in a prior period. 8. Represents costs arising from a liability management programme. We have reviewed and restructured the Group debt portfolio following the commencement of the RIIO price controls in 2013 and the slow down in our planned short term UK capital investment programme as the industry assesses the impact of EMR. This resulted in a bond repurchase programme with a notional value of £924m. 9. Remeasurements – net (losses)/gains on derivative financial instruments comprise (losses)/gains arising on derivative financial instruments reported in the income statement. These exclude gains and losses for which hedge accounting has been effective, which have been recognised directly in other comprehensive income or which are offset by adjustments to the carrying value of debt. The tax charge in the year includes a credit of £1m (2014: £nil; 2013: £1m) in respect of prior years. 10. The Finance Act 2013 enacted reductions in the UK corporation tax rate from 23% to 21% from 1 April 2014, and from 21% to 20% from 1 April 2015. Other UK tax legislation also reduced the UK corporation tax rate in prior periods (2013: from 24% to 23%). These reductions have resulted in decreases to UK deferred tax liabilities in these periods. 11. The exceptional tax charge in the prior year arose from a net increase in US state income tax rates. Effective from 1 April 2014, the state income tax rate for Massachusetts regulated utilities increased from 6.5% to 8% and, effective from 1 April 2016, the state income tax rate for New York will decrease from 7.1% to 6.5%. | ||||||||||||
4. Exceptional items, remeasurements and stranded cost recoveriescontinued
|
| |||||||||||||
| 2014 £m | 2013 £m | 2012 £m | ||||||||||||
| ||||||||||||||
Included within operating profit | ||||||||||||||
Exceptional items | ||||||||||||||
Restructuring costs1 | (136 | ) | (87 | ) | (101) | |||||||||
Gas holder demolition costs2 | (79 | ) | – | – | ||||||||||
LIPA MSA transition3 | 254 | – | (64) | |||||||||||
Other4 | 16 | – | 1 | |||||||||||
Environmental charges | – | – | (55) | |||||||||||
Net gain on disposal of businesses5 | – | 3 | 97 | |||||||||||
| ||||||||||||||
| 55 | (84 | ) | (122) | |||||||||||
Remeasurements – commodity contracts6 | 16 | 180 | (94) | |||||||||||
Stranded cost recoveries7 | – | 14 | 260 | |||||||||||
| ||||||||||||||
| 71 | 110 | 44 | ||||||||||||
| ||||||||||||||
Included within finance costs | ||||||||||||||
Remeasurements – net gains/(losses) on derivative financial instruments8 | 93 | 68 | (70) | |||||||||||
| ||||||||||||||
| 93 | 68 | (70) | ||||||||||||
| ||||||||||||||
Total included within profit before tax | 164 | 178 | (26) | |||||||||||
| ||||||||||||||
Included within taxation | ||||||||||||||
Exceptional credits/(charges) arising on items not included in profit before tax | ||||||||||||||
Deferred tax credit arising on the reduction in the UK corporation tax rate9 | 398 | 128 | 242 | |||||||||||
Deferred tax charge arising from an increase in US state income tax rates10 | (8 | ) | – | – | ||||||||||
Tax on exceptional items | (57 | ) | 31 | 54 | ||||||||||
Tax on remeasurements6,8 | (36 | ) | (92 | ) | 42 | |||||||||
Tax on stranded cost recoveries | – | (5 | ) | (104) | ||||||||||
| ||||||||||||||
| 297 | 62 | 234 | ||||||||||||
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Total exceptional items, remeasurements and stranded cost recoveries after tax | 461 | 240 | 208 | |||||||||||
| ||||||||||||||
Analysis of total exceptional items, remeasurements and stranded cost recoveries after tax | ||||||||||||||
Exceptional items after tax | 388 | 75 | 174 | |||||||||||
Remeasurements after tax | 73 | 156 | (122) | |||||||||||
Stranded cost recoveries after tax | – | 9 | 156 | |||||||||||
| ||||||||||||||
Total | 461 | 240 | 208 | |||||||||||
| ||||||||||||||
1. Restructuring costs for the period of £136m related to the continued restructuring of our UK operations in preparedness to deliver RIIO, other transformation-related initiatives in the UK and US and an associated software impairment for licences that will no longer be used.
Restructuring costs for 2013 included: costs related to the restructuring of our UK operations of £66m in preparedness for delivering RIIO; costs for transformation-related initiatives in the UK and US of £31m; and a credit of £10m for the release of restructuring provisions in the UK recognised in prior years. For the year ended 31 March 2012, restructuring costs included: costs for the restructuring of our US operations of £58m, which included severance costs and pension and other post-retirement curtailment gains and losses; costs for transformation-related initiatives of £54m; and a credit of £11m for the release of restructuring provisions in the UK recognised in prior years.
2. A provision of £79m (2013: £nil) has been made for the demolition of certain non-operational gas holders in the UK.
3. A net gain of £254m (2013: £nil) has been recognised in the year ended 31 March 2014. This includes a pension curtailment and settlement gain of £214m for employees who transferred to a new employer following the cessation of the Management Services Agreement (MSA) with LIPA on 31 December 2013. There was also a gain of £142m following the extinguishment of debt obligations of £98m and a £56m cash payment to be received, in compensation for the Company forgiving a historic pension receivable and carrying charges. These gains were offset by transition costs and other provisions incurred to effect the transition. For the year ended 31 March 2012, an impairment charge of £64m was recognised, representing intangibles (originally recognised on the acquisition of KeySpan) related to our LIPA MSA contract. This amount was previously disclosed as impairment charges and related costs.
4. During the year ended 31 March 2014, £16m (2013: £nil) was received following the sale to a third party of a settlement award which arose as a result of a legal ruling in 2008. For the year ended 31 March 2012, an amortisation charge of £5m in relation to acquisition-related intangibles was offset by a release of £6m of unutilised provisions in our UK metering business.
5. For the year ended 31 March 2013, we recognised a gain of £3m on the disposal of two subsidiaries in New Hampshire. During the year ended 31 March 2012, we sold two other subsidiaries resulting in a gain on disposal of £72m. We also recognised gains of £25m in relation to disposals of businesses in prior years, representing the release of various unutilised provisions.
6. Remeasurements – commodity contracts represent mark-to-market movements on certain physical and financial commodity contract obligations in the US. These contracts primarily relate to the forward purchase of energy for supply to customers, or to the economic hedging thereof, that are required to be measured at fair value and that do not qualify for hedge accounting. Under the existing rate plans in the US, commodity costs are recoverable from customers although the timing of recovery may differ from the pattern of costs incurred.
7. For the year ended 31 March 2013, stranded cost recoveries of £14m substantially represented the release of an unutilised provision recognised in a prior period. For the year ended 31 March 2012, stranded cost recoveries on a pre-tax basis consisted of revenue of £279m offset by operating costs of £19m. This represented the recovery of some of our historical investments in generating plants that were divested as part of the restructuring and wholesale power deregulation process in New England and New York during the 1990s.
8. Remeasurements – net gains/(losses) on derivative financial instruments comprise gains/(losses) arising on derivative financial instruments reported in the income statement. These exclude gains and losses for which hedge accounting has been effective, which have been recognised directly in other comprehensive income or which are offset by adjustments to the carrying value of debt. The tax charge in the year includes a credit of £nil (2013: £1m; 2012: £1m) in respect of prior years.
9. The exceptional tax credit arises from reductions in the UK corporation tax rate, from 23% to 21% applicable from 1 April 2014, and a further reduction from 21% to 20% applicable from 1 April 2015. The rate reductions were enacted in the Finance Act 2013. Other UK tax legislation also reduced the UK corporation tax rate in the prior periods (2013: from 24% to 23%; 2012: from 26% to 24%). These reductions have resulted in a decrease in deferred tax liabilities.
10. The exceptional tax charge arises from a net increase in US state income tax rates. Effective from 1 April 2014, the state income tax rate for Massachusetts regulated utilities increased from 6.5% to 8% and, effective from 1 April 2016, the state income tax rate for New York will decrease from 7.1% to 6.5%.
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This note details the interest income generated by our financial assets and interest expense incurred on our financial liabilities. It also includes the expected return on our pensions and other post-retirement assets, which is offset by the interest payable on pensions and other post-retirement obligations and presented on a net basis. In reporting business performance, we adjust net financing costs to exclude any net gains or losses on derivative financial instruments included in remeasurements. In addition, the current year debt redemption costs have been treated as exceptional (see note 4).
|
| |||||||||||||
2015 £m | 2014 £m | 2013 £m | ||||||||||||
| ||||||||||||||
Finance income | ||||||||||||||
Interest income on financial instruments: | ||||||||||||||
Bank deposits and other financial assets | 28 | 22 | 20 | |||||||||||
Gains on disposal of available-for-sale investments | 8 | 14 | 10 | |||||||||||
| ||||||||||||||
| 36 | 36 | 30 | ||||||||||||
| ||||||||||||||
Finance costs | ||||||||||||||
Net interest on pensions and other post-retirement benefit obligations | (101 | ) | (128 | ) | (135) | |||||||||
Interest expense on financial liabilities held at amortised cost: | ||||||||||||||
Bank loans and overdrafts | (45 | ) | (61 | ) | (65) | |||||||||
Other borrowings | (992 | ) | (1,109 | ) | (1,052) | |||||||||
Derivatives | 56 | 79 | 51 | |||||||||||
Unwinding of discount on provisions | (73 | ) | (73 | ) | (75) | |||||||||
Less: interest capitalised1 | 86 | 148 | 122 | |||||||||||
| ||||||||||||||
| (1,069 | ) | (1,144 | ) | (1,154) | ||||||||||
| ||||||||||||||
Exceptional items | ||||||||||||||
Debt redemption costs | (131 | ) | – | – | ||||||||||
Remeasurements | ||||||||||||||
Net gains/(losses) on derivative financial instruments included in remeasurements2: | ||||||||||||||
Ineffectiveness on derivatives designated as: | ||||||||||||||
Fair value hedges3 | 36 | 22 | 17 | |||||||||||
Cash flow hedges | (13 | ) | 4 | (7) | ||||||||||
Net investment hedges | 2 | 38 | (26) | |||||||||||
Net investment hedges – undesignated forward rate risk | 33 | (7 | ) | 26 | ||||||||||
Derivatives not designated as hedges or ineligible for hedge accounting | (92 | ) | 36 | 58 | ||||||||||
| ||||||||||||||
| (165 | ) | 93 | 68 | |||||||||||
| ||||||||||||||
| (1,234 | ) | (1,051 | ) | (1,086) | ||||||||||
| ||||||||||||||
Net finance costs | (1,198 | ) | (1,015 | ) | (1,056) | |||||||||
| ||||||||||||||
1. Interest on funding attributable to assets in the course of construction in the current year was capitalised at a rate of 3.8% (2014: 4.5%; 2013: 4.4%). In the UK, capitalised interest qualifies for a current year tax deduction with tax relief claimed of £24m (2014: £32m). In the US, capitalised interest is added to the cost of plant and qualifies for tax depreciation allowances. 2. Includes a net foreign exchange gain on financing activities of £636m (2014: £268m gain; 2013: £32m loss) offset by foreign exchange gains and losses on derivative financial instruments measured at fair value. 3. Includes a net gain on instruments designated as fair value hedges of £219m (2014: £183m loss; 2013: £67m gain) offset by a net loss of £162m (2014: £205m gain; 2013: £50m loss) arising from fair value adjustments to the carrying value of debt. |
| |||||||||||||
| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 105 |
Financial Statements
Notes to the consolidated financial statements
– analysis of items in the primary statementscontinued
| 2014 £m | 2013 (restated)1 £m | 2012 (restated)1 £m | ||||||||||||||
| ||||||||||||||||
Finance income | ||||||||||||||||
Interest income on financial instruments | ||||||||||||||||
Bank deposits and other financial assets | 22 | 20 | 19 | |||||||||||||
Gains on disposal of available-for-sale investments | 14 | 10 | 9 | |||||||||||||
| ||||||||||||||||
Finance income | 36 | 30 | 28 | |||||||||||||
| ||||||||||||||||
Finance costs | ||||||||||||||||
Net interest on pensions and other post-retirement benefit obligations | (128 | ) | (135) | (103) | ||||||||||||
Interest expense on financial liabilities held at amortised cost | ||||||||||||||||
Bank loans and overdrafts | (61 | ) | (65) | (84) | ||||||||||||
Other borrowings | (1,109 | ) | (1,052) | (1,105) | ||||||||||||
Derivatives | 79 | 51 | 122 | |||||||||||||
Unwinding of discounts on provisions | (73 | ) | (75) | (72) | ||||||||||||
Less: interest capitalised2 | 148 | 122 | 124 | |||||||||||||
| ||||||||||||||||
Finance costs before exceptional items and remeasurements | (1,144 | ) | (1,154) | (1,118) | ||||||||||||
| ||||||||||||||||
Remeasurements | ||||||||||||||||
Net gains/(losses) on derivative financial instruments included in remeasurements3: | ||||||||||||||||
Ineffectiveness on derivatives designated as: | ||||||||||||||||
Fair value hedges4 | 22 | 17 | 9 | |||||||||||||
Cash flow hedges | 4 | (7) | 14 | |||||||||||||
Net investment hedges | 38 | (26) | (15) | |||||||||||||
Net investment hedges – undesignated forward rate risk | (7 | ) | 26 | 39 | ||||||||||||
Derivatives not designated as hedges or ineligible for hedge accounting | 36 | 58 | (117) | |||||||||||||
| ||||||||||||||||
Exceptional items and remeasurements included within finance costs (note 4) | 93 | 68 | (70) | |||||||||||||
| ||||||||||||||||
Finance costs | (1,051 | ) | (1,086) | (1,188) | ||||||||||||
| ||||||||||||||||
Net finance costs | (1,015 | ) | (1,056) | (1,160) | ||||||||||||
| ||||||||||||||||
1. See note 1 on page 92. |
| |||||||||||||||
2. Interest on funding attributable to assets in the course of construction was capitalised during the year at a rate of 4.5% (2013: 4.4%; 2012: 5.2%). | �� | |||||||||||||||
3. Includes a net foreign exchange gain on financing activities of £268m (2013: £32m loss; 2012: £280m gain) offset by foreign exchange gains and losses on derivative financial instruments measured at fair value. |
| |||||||||||||||
4. Includes a net loss on instruments designated as fair value hedges of £183m (2013: £67m gain; 2012: £233m gain) offset by a net gain of £205m (2013: £50m loss; 2012: £224m loss) arising from fair value adjustments to the carrying value of debt.
|
| |||||||||||||||
| ||||||||||||
|
Tax is payable in the territories where we operate, mainly the UK and the US. This note gives further details of the total tax charge and tax liabilities, including current and deferred tax. The current tax charge is the tax payable on this year’s taxable profits. Deferred tax is an accounting adjustment to provide for tax that is expected to arise in the future due to differences in the accounting and tax
| ||||
The tax charge for the period is recognised in the income statement, the statement of comprehensive income or directly in equity, according to the accounting treatment of the related transaction. The tax charge comprises both current and deferred tax.
Current tax assets and liabilities are measured at the amounts expected to be recovered from or paid to the
The calculation of the Group’s total tax charge involves a degree of estimation and judgement, and management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred tax is provided for using the balance sheet liability method and is recognised on temporary differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit.
Deferred tax liabilities are generally recognised on all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. However, deferred tax assets and liabilities are not recognised if the temporary differences arise from the initial recognition of goodwill or from the initial recognition of other assets and liabilities in a transaction (other than a business combination) that affects neither the accounting nor the taxable profit or loss.
Deferred tax liabilities are recognised on taxable temporary differences arising on investments in subsidiaries and jointly controlled entities except where the Company is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised, based on the tax rates and tax laws that have been enacted or substantively enacted by the reporting date.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the deferred tax asset to be recovered. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same | ||||
| 106 |
6. Taxcontinued
Tax charged/(credited) to the income statement
| ||||||||||||||
| 2015 £m | 2014 £m | 2013 £m | ||||||||||||
| ||||||||||||||
Tax before exceptional items, remeasurements and stranded cost recoveries | 695 | 581 | 619 | |||||||||||
| ||||||||||||||
Exceptional tax on items not included in profit before tax (note 4) | (6 | ) | (390 | ) | (128) | |||||||||
Tax on other exceptional items, remeasurements and stranded cost recoveries | (72 | ) | 93 | 66 | ||||||||||
| ||||||||||||||
Tax on total exceptional items, remeasurements and stranded cost recoveries (note 4) | (78 | ) | (297 | ) | (62) | |||||||||
| ||||||||||||||
Total tax charge | 617 | 284 | 557 | |||||||||||
| ||||||||||||||
Tax as a percentage of profit before tax
| ||||||||||||||
| 2015 % | 2014 % | 2013 % | ||||||||||||
| ||||||||||||||
Before exceptional items, remeasurements and stranded cost recoveries | 24.2 | 22.5 | 24.4 | |||||||||||
| ||||||||||||||
After exceptional items, remeasurements and stranded cost recoveries | 23.5 | 10.3 | 20.5 | |||||||||||
| ||||||||||||||
The tax charge for the year can be analysed as follows:
| ||||||||||||||
| 2015 £m | 2014 £m | 2013 £m | ||||||||||||
| ||||||||||||||
Current tax | ||||||||||||||
UK corporation tax at 21% (2014: 23%; 2013: 24%) | 309 | 355 | 306 | |||||||||||
UK corporation tax adjustment in respect of prior years | (2 | ) | (9 | ) | (17) �� | |||||||||
| ||||||||||||||
| 307 | 346 | 289 | ||||||||||||
| ||||||||||||||
Overseas corporation tax | 51 | 54 | 50 | |||||||||||
Overseas corporation tax adjustment in respect of prior years | (62 | ) | (88 | ) | (222) | |||||||||
| ||||||||||||||
| (11 | ) | (34 | ) | (172) | ||||||||||
| ||||||||||||||
Total current tax | 296 | 312 | 117 | |||||||||||
| ||||||||||||||
Deferred tax | ||||||||||||||
UK deferred tax | 123 | (292 | ) | 35 | ||||||||||
UK deferred tax adjustment in respect of prior years | 7 | (3 | ) | (17) | ||||||||||
| ||||||||||||||
| 130 | (295 | ) | 18 | |||||||||||
| ||||||||||||||
Overseas deferred tax | 138 | 276 | 283 | |||||||||||
Overseas deferred tax adjustment in respect of prior years | 53 | (9 | ) | 139 | ||||||||||
| ||||||||||||||
| 191 | 267 | 422 | ||||||||||||
| ||||||||||||||
Total deferred tax | 321 | (28 | ) | 440 | ||||||||||
| ||||||||||||||
| ||||||||||||||
Total tax charge | 617 | 284 | 557 | |||||||||||
| ||||||||||||||
Adjustments in respect of prior years include the following amounts that relate to exceptional items, remeasurements and stranded cost recoveries: £1m credit (2014: £nil; 2013: £1m credit).
|
| |||||||||||||
|
| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 107 |
Financial Statements
Notes to the consolidated financial statements
– analysis of items in the primary statementscontinued
6. Taxcontinued
Tax (credited)/charged to other comprehensive income and equity |
| |||||||||||||||||||||||||
2015 £m | 2014 £m | 2013 £m | ||||||||||||||||||||||||
| ||||||||||||||||||||||||||
Current tax |
| |||||||||||||||||||||||||
Share-based payment |
| (7 | ) | (3 | ) | 1 | ||||||||||||||||||||
Available-for-sale investments |
| 5 | (5 | ) | – | |||||||||||||||||||||
Deferred tax |
| |||||||||||||||||||||||||
Available-for-sale investments |
| 2 | 2 | 2 | ||||||||||||||||||||||
Cash flow hedges |
| (18 | ) | 5 | 13 | |||||||||||||||||||||
Share-based payment |
| 3 | (4 | ) | 1 | |||||||||||||||||||||
Remeasurements of net retirement benefit obligations |
| (299 | ) | 172 | (179) | |||||||||||||||||||||
| ||||||||||||||||||||||||||
| (314 | ) | 167 | (162) | |||||||||||||||||||||||
| ||||||||||||||||||||||||||
Total tax recognised in the statement of comprehensive income |
| (310 | ) | 174 | (164) | |||||||||||||||||||||
Total tax relating to share-based payment recognised directly in equity |
| (4 | ) | (7 | ) | 2 | ||||||||||||||||||||
| ||||||||||||||||||||||||||
| (314 | ) | 167 | (162) | |||||||||||||||||||||||
| ||||||||||||||||||||||||||
The tax charge for the year after exceptional items, remeasurements and stranded cost recoveries is higher (2014: lower; 2013: lower) than the standard rate of corporation tax in the UK of 21% (2014: 23%; 2013: 24%):
|
| |||||||||||||||||||||||||
Before exceptional items, remeasurements and stranded cost recoveries 2015 £m | After exceptional items, remeasurements and stranded cost recoveries 2015 £m | Before exceptional items, remeasurements and stranded cost recoveries 2014 £m | After exceptional items, remeasurements and stranded cost recoveries 2014 £m | Before £m | After exceptional 2013 £m | |||||||||||||||||||||
| ||||||||||||||||||||||||||
Profit before tax | ||||||||||||||||||||||||||
Before exceptional items, remeasurements and stranded cost recoveries | 2,876 | 2,876 | 2,584 | 2,584 | 2,533 | 2,533 | ||||||||||||||||||||
Exceptional items, remeasurements and stranded cost recoveries | – | (248 | ) | – | 164 | – | 178 | |||||||||||||||||||
| ||||||||||||||||||||||||||
Profit before tax | 2,876 | 2,628 | 2,584 | 2,748 | 2,533 | 2,711 | ||||||||||||||||||||
| ||||||||||||||||||||||||||
Profit before tax multiplied by UK corporation tax rate of 21% (2014: 23%; 2013: 24%) | 604 | 552 | 594 | 632 | 608 | 651 | ||||||||||||||||||||
Effect of: | ||||||||||||||||||||||||||
Adjustments in respect of prior years | (3 | ) | (4 | ) | (109 | ) | (109 | ) | (116 | ) | (117) | |||||||||||||||
Expenses not deductible for tax purposes | 31 | 327 | 32 | 284 | 37 | 169 | ||||||||||||||||||||
Non-taxable income | (20 | ) | (320 | ) | (24 | ) | (268 | ) | (24 | ) | (152) | |||||||||||||||
Adjustment in respect of foreign tax rates | 91 | 77 | 98 | 138 | 116 | 140 | ||||||||||||||||||||
Impact of share-based payment | (1 | ) | (1 | ) | (3 | ) | (3 | ) | 2 | 2 | ||||||||||||||||
Deferred tax impact of change in UK and US tax rates | – | (6 | ) | – | (390 | ) | – | (128) | ||||||||||||||||||
Other | (7 | ) | (8 | ) | (7 | ) | – | (4 | ) | (8) | ||||||||||||||||
| ||||||||||||||||||||||||||
Total tax charge | 695 | 617 | 581 | 284 | 619 | 557 | ||||||||||||||||||||
| ||||||||||||||||||||||||||
| % | % | % | % | % | % | |||||||||||||||||||||
| ||||||||||||||||||||||||||
Effective tax rate | 24.2 | 23.5 | 22.5 | 10.3 | 24.4 | 20.5 | ||||||||||||||||||||
| ||||||||||||||||||||||||||
| 108 |
6. Taxcontinued
Tax included within the statement of financial position The following are the major deferred tax assets and liabilities recognised, and the movements thereon, during the current and prior reporting periods:
| ||||||||||||||||||||||||
Accelerated tax depreciation £m | Share- based payment £m | Pensions and other post- retirement benefits £m | Financial instruments £m | Other net temporary differences £m | Total £m | |||||||||||||||||||
| ||||||||||||||||||||||||
Deferred tax (assets)/liabilities | ||||||||||||||||||||||||
Deferred tax assets at 31 March 2013 | (2 | ) | (15 | ) | (1,362 | ) | (16 | ) | (777 | ) | (2,172) | |||||||||||||
Deferred tax liabilities at 31 March 2013 | 5,963 | – | 154 | 9 | 123 | 6,249 | ||||||||||||||||||
| ||||||||||||||||||||||||
At 1 April 2013 | 5,961 | (15 | ) | (1,208 | ) | (7 | ) | (654 | ) | 4,077 | ||||||||||||||
Exchange adjustments | (282 | ) | – | 78 | – | 59 | (145) | |||||||||||||||||
(Credited)/charged to income statement | (30 | ) | (3 | ) | 141 | (7 | ) | (126 | ) | (25) | ||||||||||||||
(Credited)/charged to other comprehensive income and equity | – | (4 | ) | 172 | 7 | – | 175 | |||||||||||||||||
| ||||||||||||||||||||||||
At 31 March 2014 | 5,649 | (22 | ) | (817 | ) | (7 | ) | (721 | ) | 4,082 | ||||||||||||||
| ||||||||||||||||||||||||
Deferred tax assets at 31 March 2014 | (1 | ) | (22 | ) | (960 | ) | (13 | ) | (796 | ) | (1,792) | |||||||||||||
Deferred tax liabilities at 31 March 2014 | 5,650 | – | 143 | 6 | 75 | 5,874 | ||||||||||||||||||
| ||||||||||||||||||||||||
At 1 April 2014 | 5,649 | (22 | ) | (817 | ) | (7 | ) | (721 | ) | 4,082 | ||||||||||||||
Exchange adjustments | 408 | – | (99 | ) | (2 | ) | (104 | ) | 203 | |||||||||||||||
Charged/(credited) to income statement | 599 | 1 | 38 | (34 | ) | (280 | ) | 324 | ||||||||||||||||
Charged/(credited) to other comprehensive income and equity | – | 3 | (299 | ) | (16 | ) | – | (312) | ||||||||||||||||
| ||||||||||||||||||||||||
At 31 March 2015 | 6,656 | (18 | ) | (1,177 | ) | (59 | ) | (1,105 | ) | 4,297 | ||||||||||||||
| ||||||||||||||||||||||||
Deferred tax assets at 31 March 2015 | (1 | ) | (18 | ) | (1,337 | ) | (64 | ) | (1,186 | ) | (2,606) | |||||||||||||
Deferred tax liabilities at 31 March 2015 | 6,657 | – | 160 | 5 | 81 | 6,903 | ||||||||||||||||||
| ||||||||||||||||||||||||
| 6,656 | (18 | ) | (1,177 | ) | (59 | ) | (1,105 | ) | 4,297 | |||||||||||||||
| ||||||||||||||||||||||||
Deferred tax assets and liabilities are only offset where there is a legally enforceable right of offset and there is an intention to settle the balances net. The deferred tax balances (after offset) for statement of financial position purposes consist solely of deferred tax liabilities of £4,297m (2014: £4,082m).
Deferred tax assets in respect of capital losses, trading losses and non-trade deficits have not been recognised as their future recovery is uncertain or not currently anticipated. The deferred tax assets not recognised are as follows:
| ||||||||||||||||||||||||
| 2015 £m | 2014 £m | |||||||||||||||||||||||
| ||||||||||||||||||||||||
Capital losses | 250 | 274 | ||||||||||||||||||||||
Non-trade deficits | 1 | 1 | ||||||||||||||||||||||
Trading losses | 4 | 5 | ||||||||||||||||||||||
| ||||||||||||||||||||||||
The capital losses and non-trade deficits that arise in the UK are available to carry forward indefinitely. However, the capital losses can only be offset against specific types of future capital gains and non-trade deficits against specific future non-trade profits. The trading losses arising in the US have up to a 20 year carry forward time limit.
The aggregate amount of temporary differences associated with the unremitted earnings of overseas subsidiaries and joint ventures for which deferred tax liabilities have not been recognised at the reporting date is approximately £773m (2014: £2,118m). No liability is recognised in respect of the differences because the Company and its subsidiaries are in a position to control the timing of the reversal of the temporary differences and it is probable that such differences will not reverse in the foreseeable future. In addition, as a result of UK tax legislation, which largely exempts overseas dividends received, the temporary differences are unlikely to lead to additional tax. | ||||||||||||||||||||||||
|
| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 109 |
Financial Statements | ||
Notes to the consolidated financial statements | ||
| – analysis of items in the primary statementscontinued |
Unaudited commentary on tax
Tax strategy
National Grid manages its tax affairs in a proactive and responsible way in order to comply with all relevant legislation and minimise reputational risk. As a regulated public utility we are very conscious of the need to manage our tax affairs responsibly in the eyes of our stakeholders. We have a good working relationship with all relevant tax authorities and actively engage with them in order to ensure that they are fully aware of our view of the tax implications of our business initiatives. Management responsibility and oversight for our tax strategy, which is approved by the Finance Committee, rests with the Finance Director and the Global Tax and Treasury Director who monitor our tax activities and report to the Finance Committee.
Total UK tax contribution
This is the third year we have disclosed additional information in respect of our total UK tax contribution for consistency and to aid transparency in an area in which there remains significant public interest. As was the case in prior years, the total amount of taxes we pay and collect in the UK year on year is significantly more than just the corporation tax which we pay on our UK profits. Within the total, we again include other taxes paid such as business rates and taxes on employment together with employee taxes and other indirect taxes.
For 2014/15 our total tax contribution to the UK Exchequer was £1.5bn (2013/14: £1.4bn). Taxes borne in 2015 were £761m, a 4% increase on taxes borne in 2014 of £733m and primarily due to higher corporation tax payments in the current year. Our 2013/14 total tax contribution of £1.4bn resulted in National Grid being the 13th highest contributor of UK taxes based on the results of the Hundred Group’s 2014 Total Tax Contribution Survey, a position commensurate with the size of our business and capitalisation relative to other contributors to the Survey. In 2013 we were in 17th position. In 2014 we ranked 9th in respect of taxes borne.
National Grid’s contribution to the UK economy is again broader than just the taxes it pays over to and collects on behalf of HMRC. The Hundred Group’s 2014 Total Tax Contribution Survey ranks National Grid in 4th place in respect of UK capital expenditure on fixed assets. For instance, National Grid’s economic contribution also supports a significant number of UK jobs in our supply chain.
The most significant amounts making up the 2014/15 total tax contribution were as follows:
UK total tax contribution 2014/15
Tax transparency
The UK tax charge for the year disclosed in the financial statements in accordance with accounting standards and the UK corporation tax paid during the year will differ. For transparency we have included a reconciliation below of the tax charge per the income statement to the UK corporation tax paid in 2014/15.
The tax charge for the Group as reported in the income statement is £617m (2013/14: £284m). The UK tax charge is £437m (2013/14: £51m) and UK corporation tax paid was £353m (2013/14: £329m), with the principal differences between these two measures as follows:
| Year ended 31 March | ||||||||
Reconciliation of UK total tax charge to UK corporation tax paid | 2015 £m | 2014 £m | ||||||
| ||||||||
Total UK tax charge (current tax £307m (2014: £346m) and deferred tax £130m (2014: £295m credit)) | 437 | 51 | ||||||
Adjustment for non-cash deferred tax (charge)/credit | (130 | ) | 295 | |||||
Adjustments for current tax credit in respect of prior years | 2 | 9 | ||||||
| ||||||||
UK current tax charge | 309 | 355 | ||||||
UK corporation tax instalment payments not payable until the following year | (127 | ) | (179) | |||||
UK corporation tax instalment payments in respect of prior years paid in current year | 171 | 153 | ||||||
| ||||||||
UK corporation tax paid | 353 | 329 | ||||||
| ||||||||
Tax losses
We have total unrecognised deferred tax assets in respect of losses of £255m (2013/14: £280m) of which £250m (2013/14: £274m) are capital losses in the UK as set out above. These losses arose as a result of the disposal of certain businesses or assets and may be available to offset against future capital gains in the UK.
Development of future tax policy
We believe that the continued development of a coherent and transparent tax policy in the UK is critical to help drive growth in the economy.
We continue to contribute to research into the structure of business tax and its economic impact by contributing to the funding of the Oxford University Centre for Business Tax at the Saïd Business School.
We are a member of a number of industry groups which participate in the development of future tax policy, including the Hundred Group, which represents the views of Finance Directors of FTSE 100 companies and several other large UK companies. Our Group Finance Director is Chairman of its Tax Committee. This helps to ensure that we are engaged at the earliest opportunity on tax issues which affect our business. In the current year we have reviewed and responded to a number of HMRC consultations, the subject matter of which directly impacts taxes borne or collected by our business.
| 110 |
| ||||||||||||||||||||||||||
EPS is the amount of post-tax profit attributable to each ordinary share. Basic EPS is calculated on profit for the year attributable to equity shareholders divided by the weighted average number of shares in issue during the year. Diluted EPS shows what the impact would be if all outstanding share options were exercised and treated as ordinary shares at year end. The weighted average number of shares is increased by additional shares issued as scrip dividends and reduced by shares repurchased by the Company during the year.
|
| |||||||||||||||||||||||||
Adjusted earnings and EPS, which exclude exceptional items, remeasurements and stranded cost recoveries, are provided to reflect the business performance subtotals used by the Company. For further details of exceptional items, remeasurements and stranded cost recoveries, see note 4.
(a) Basic earnings per share
|
| |||||||||||||||||||||||||
|
| Earnings 2015 £m |
|
| Earnings per share 2015 pence |
|
| Earnings 2014 £m |
|
| Earnings per share 2014 (restated)1 pence |
|
| Earnings 2013 £m |
|
| Earnings per share 2013 (restated)1 pence |
| |||||||||
| ||||||||||||||||||||||||||
Adjusted earnings | 2,189 | 58.1 | 2,015 | 53.5 | 1,913 | 50.9 | ||||||||||||||||||||
Exceptional items after tax | (97 | ) | (2.6 | ) | 388 | 10.3 | 75 | 2.0 | ||||||||||||||||||
Remeasurements after tax | (73 | ) | (1.9 | ) | 73 | 1.9 | 156 | 4.1 | ||||||||||||||||||
Stranded cost recoveries after tax | – | – | – | – | 9 | 0.2 | ||||||||||||||||||||
| ||||||||||||||||||||||||||
Earnings | 2,019 | 53.6 | 2,476 | 65.7 | 2,153 | 57.2 | ||||||||||||||||||||
| ||||||||||||||||||||||||||
| | 2015 millions | |
| 2014 millions |
| | 2013 millions | | ||||||||||||||||||
| ||||||||||||||||||||||||||
Weighted average number of shares – basic1 | 3,766 | 3,766 | 3,761 | |||||||||||||||||||||||
| ||||||||||||||||||||||||||
1. Comparative amounts have been restated to reflect the impact of additional shares issued as scrip dividends.
(b) Diluted earnings per share
|
| |||||||||||||||||||||||||
|
| Earnings 2015 £m |
|
| Earnings per share 2015 pence |
|
| Earnings 2014 £m |
|
| Earnings per share 2014 (restated)1 pence |
|
| Earnings 2013 £m |
|
| Earnings per share 2013 pence |
| |||||||||
| ||||||||||||||||||||||||||
Adjusted earnings | 2,189 | 57.9 | 2,015 | 53.2 | 1,913 | 50.6 | ||||||||||||||||||||
Exceptional items after tax | (97 | ) | (2.6 | ) | 388 | 10.3 | 75 | 2.0 | ||||||||||||||||||
Remeasurements after tax | (73 | ) | (1.9 | ) | 73 | 1.9 | 156 | 4.1 | ||||||||||||||||||
Stranded cost recoveries after tax | – | – | – | – | 9 | 0.3 | ||||||||||||||||||||
| ||||||||||||||||||||||||||
Earnings | 2,019 | 53.4 | 2,476 | 65.4 | 2,153 | 57.0 | ||||||||||||||||||||
| ||||||||||||||||||||||||||
| 2015 millions | 2014 millions | 2013 millions | ||||||||||||||||||||||||
| ||||||||||||||||||||||||||
Weighted average number of shares – diluted1 | 3,783 | 3,785 | 3,779 | |||||||||||||||||||||||
| ||||||||||||||||||||||||||
1. Comparative amounts have been restated to reflect the impact of additional shares issued as scrip dividends. |
| |||||||||||||||||||||||||
(c) Reconciliation of basic to diluted average number of shares
|
| |||||||||||||||||||||||||
| | 2015 millions | |
| 2014 (restated)1 millions |
|
| 2013 (restated)1 millions |
| ||||||||||||||||||
| ||||||||||||||||||||||||||
Weighted average number of ordinary shares – basic | 3,766 | 3,766 | 3,761 | |||||||||||||||||||||||
Effect of dilutive potential ordinary shares – employee share plans | 17 | 19 | 18 | |||||||||||||||||||||||
| ||||||||||||||||||||||||||
Weighted average number of ordinary shares – diluted | 3,783 | 3,785 | 3,779 | |||||||||||||||||||||||
| ||||||||||||||||||||||||||
1. Comparative amounts have been restated to reflect the impact of additional shares issued as scrip dividends. |
| |||||||||||||||||||||||||
|
| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 |
|
| |||||
Financial Statements
| |||||
|
|
| 6. Taxationcontinued | |||||||||||||
Tax charged/(credited) to the income statement
| ||||||||||||||
|
| 2014 £m |
|
| 2013 (restated £m | )1
|
| 2012 (restated)1 £m |
| ||||||
| ||||||||||||||
Tax before exceptional items, remeasurements and stranded cost recoveries | 581 | 619 | 697 | |||||||||||
| ||||||||||||||
Exceptional tax on items not included in profit before tax (note 4) | (390 | ) | (128 | ) | (242) | |||||||||
Tax on other exceptional items, remeasurements and stranded cost recoveries | 93 | 66 | 8 | |||||||||||
| ||||||||||||||
Tax on total exceptional items, remeasurements and stranded cost recoveries (note 4) | (297 | ) | (62 | ) | (234) | |||||||||
| ||||||||||||||
Total tax charge | 284 | 557 | 463 | |||||||||||
| ||||||||||||||
1. See note 1 on page 92. | ||||||||||||||
Taxation as a percentage of profit before tax | ||||||||||||||
|
| 2014 % |
|
| 2013 (restated % | )1
|
| 2012 (restated)1 % |
| ||||||
| ||||||||||||||
Before exceptional items, remeasurements and stranded cost recoveries | 22.5 | 24.4 | 28.9 | |||||||||||
| ||||||||||||||
After exceptional items, remeasurements and stranded cost recoveries | 10.3 | 20.5 | 19.4 | |||||||||||
| ||||||||||||||
1. See note 1 on page 92. | ||||||||||||||
The tax charge for the year can be analysed as follows: | ||||||||||||||
|
| 2014 £m |
|
| 2013 (restated £m | )1
| | 2012 (restated)1 £m | | ||||||
| ||||||||||||||
Current tax | ||||||||||||||
UK corporation tax at 23% (2013: 24%; 2012: 26%) | 355 | 306 | 186 | |||||||||||
UK corporation tax adjustment in respect of prior years | (9 | ) | (17 | ) | (5) | |||||||||
| ||||||||||||||
| 346 | 289 | 181 | ||||||||||||
| ||||||||||||||
Overseas corporation tax | 54 | 50 | 98 | |||||||||||
Overseas corporation tax adjustment in respect of prior years | (88 | ) | (222 | ) | (144) | |||||||||
| ||||||||||||||
| (34 | ) | (172 | ) | (46) | ||||||||||
| ||||||||||||||
Total current tax | 312 | 117 | 135 | |||||||||||
| ||||||||||||||
Deferred tax | ||||||||||||||
UK deferred tax | (292 | ) | 35 | (12) | ||||||||||
UK deferred tax adjustment in respect of prior years | (3 | ) | (17 | ) | (18) | |||||||||
| ||||||||||||||
| (295 | ) | 18 | (30) | |||||||||||
| ||||||||||||||
Overseas deferred tax | 276 | 283 | 191 | |||||||||||
Overseas deferred tax adjustment in respect of prior years | (9 | ) | 139 | 167 | ||||||||||
| ||||||||||||||
| 267 | 422 | 358 | ||||||||||||
| ||||||||||||||
Total deferred tax | (28 | ) | 440 | 328 | ||||||||||
| ||||||||||||||
| ||||||||||||||
Total tax charge | 284 | 557 | 463 | |||||||||||
| ||||||||||||||
1. See note 1 on page 92.
Adjustments in respect of prior years include the following amounts that relate to exceptional items, remeasurements and stranded cost recoveries: £nil (2013: £1m credit; 2012: £1m credit).
|
| |||||||||||||
| continued | |||||||||||
|
| ||||||||||||||||||||||||||||||||||||||||
Dividends represent the return of profits to shareholders. Dividends are paid as an amount per ordinary share held. We retain part of the profits generated in the year to meet future growth plans and pay out the remainder in accordance with our dividend policy.
|
| |||||||||||||||||||||||||||||||||||||||
Interim dividends are recognised when they become payable to the Company’s shareholders. Final dividends are recognised when they are approved by shareholders.
|
| |||||||||||||||||||||||||||||||||||||||
| 2015 | 2014 | 2013 | ||||||||||||||||||||||||||||||||||||||
| Pence per share | Cash £m | Scrip dividend £m | Pence per share | Cash £m | Scrip dividend £m | Pence per share | Cash £m | Scrip dividend £m | ||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
Interim dividend in respect of the current year | 14.71 | 531 | 26 | 14.49 | 539 | – | 14.49 | 340 | 187 | |||||||||||||||||||||||||||||||
| Final dividend in respect of the prior year | 27.54 | 740 | 289 | 26.36 | 520 | 444 | 25.35 | 470 | 436 | |||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
| 42.25 | 1,271 | 315 | 40.85 | 1,059 | 444 | 39.84 | 810 | 623 | ||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
The Directors are proposing a final dividend for the year ended 31 March 2015 of 28.16p per share that will absorb approximately £1,054m of shareholders’ equity (assuming all amounts are settled in cash). It will be paid on 5 August 2015 to shareholders who are on the register of members at 5 June 2015 and a scrip dividend will be offered as an alternative, subject to shareholders’ approval at the Annual General Meeting. |
| |||||||||||||||||||||||||||||||||||||||
| 6. Taxationcontinued | ||||||||||||||
| Tax charged/(credited) to other comprehensive income and equity | ||||||||||||||
|
| 2014 £m |
|
| 2013 (restated £m | )1
|
| 2012 (restated)1 £m |
| ||||||
| ||||||||||||||
Current tax | ||||||||||||||
Share-based payment | (3 | ) | 1 | (3) | ||||||||||
Available-for-sale investments | (5 | ) | – | – | ||||||||||
Deferred tax | ||||||||||||||
Available-for-sale investments | 2 | 2 | 2 | |||||||||||
Cash flow hedges | 5 | 13 | (2) | |||||||||||
Share-based payment | (4 | ) | 1 | – | ||||||||||
Remeasurements of net retirement benefit obligations | 172 | (179 | ) | (342) | ||||||||||
| ||||||||||||||
| 167 | (162 | ) | (345) | |||||||||||
| ||||||||||||||
Total tax recognised in the statement of comprehensive income | 174 | (164 | ) | (342) | ||||||||||
Total tax relating to share-based payment recognised directly in equity | (7 | ) | 2 | (3) | ||||||||||
| ||||||||||||||
| 167 | (162 | ) | (345) | |||||||||||
| ||||||||||||||
1. See note 1 on page 92.
|
| |||||||||||||
The tax charge for the year after exceptional items, remeasurements and stranded cost recoveries is lower (2013: lower; 2012: lower) than the standard rate of corporation tax in the UK of 23% (2013: 24%; 2012: 26%).
|
| |||||||||||||
|
| Before exceptional items, remeasurements and stranded cost recoveries 2014 £m |
|
| After exceptional items, remeasurements and stranded cost recoveries 2014 £m |
|
| Before exceptional items, remeasurements and stranded cost recoveries 2013 (restated £m |
)1
|
| After exceptional items, remeasurements and stranded cost recoveries 2013 (restated £m |
)1
|
| Before exceptional items, remeasurements and stranded cost recoveries 2012 (restated £m |
)1
|
| After exceptional items, remeasurements and stranded cost recoveries 2012 (restated)1 £m |
| |||||||||
| ||||||||||||||||||||||||||
Profit before tax | ||||||||||||||||||||||||||
Before exceptional items, remeasurements and stranded cost recoveries | 2,584 | 2,584 | 2,533 | 2,533 | 2,408 | 2,408 | ||||||||||||||||||||
Exceptional items, remeasurements and stranded cost recoveries | – | 164 | – | 178 | – | (26) | ||||||||||||||||||||
| ||||||||||||||||||||||||||
Profit before tax | 2,584 | 2,748 | 2,533 | 2,711 | 2,408 | 2,382 | ||||||||||||||||||||
| ||||||||||||||||||||||||||
Profit before tax multiplied by UK corporation tax rate of 23% (2013: 24%; 2012: 26%) | 594 | 632 | 608 | 651 | 626 | 619 | ||||||||||||||||||||
Effect of: | ||||||||||||||||||||||||||
Adjustments in respect of prior years | (109 | ) | (109 | ) | (116 | ) | (117 | ) | 1 | – | ||||||||||||||||
Expenses not deductible for tax purposes | 32 | 284 | 37 | 169 | 36 | 55 | ||||||||||||||||||||
Non-taxable income | (24 | ) | (268 | ) | (24 | ) | (152 | ) | (19 | ) | (30) | |||||||||||||||
Adjustment in respect of foreign tax rates | 98 | 138 | 116 | 140 | 63 | 63 | ||||||||||||||||||||
Impact of share-based payment | (3 | ) | (3 | ) | 2 | 2 | 1 | 1 | ||||||||||||||||||
Deferred tax impact of change in UK and US tax rates | – | (390 | ) | – | (128 | ) | – | (242) | ||||||||||||||||||
Other | (7 | ) | – | (4 | ) | (8 | ) | (11 | ) | (3) | ||||||||||||||||
| ||||||||||||||||||||||||||
Total tax | 581 | 284 | 619 | 557 | 697 | 463 | ||||||||||||||||||||
| ||||||||||||||||||||||||||
| % | % | % | % | % | % | |||||||||||||||||||||
| ||||||||||||||||||||||||||
Effective tax rate | 22.5 | 10.3 | 24.4 | 20.5 | 28.9 | 19.4 | ||||||||||||||||||||
| ||||||||||||||||||||||||||
1. See note 1 on page 92.
Factors that may affect future tax charges The Finance Act 2013 (the Act) was substantively enacted on 2 July 2013. The Act further reduced the main rate of UK corporation tax to 21% with effect from 1 April 2014 and 20% from 1 April 2015.
The reduction in the UK corporation tax rate to 20% from 1 April 2015 has been enacted and deferred tax balances have been calculated at this rate.
Effective from 1 April 2014, the state income tax rate for Massachusetts regulated utilities increased from 6.5% to 8% and, effective from 1 April 2016, the state income tax rate for New York will decrease from 7.1% to 6.5%. Neither of these rate changes is expected to have a material impact on the Group’s effective tax rate.
|
| |||||||||||||||||||||||||
|
|
|
|
|
| 6. Taxationcontinued | |||||||||||||||||||||||
| Taxation included within the statement of financial position | ||||||||||||||||||||||||
The following are the major deferred tax assets and liabilities recognised, and the movements thereon, during the current and prior reporting periods:
| ||||||||||||||||||||||||
| | Accelerated tax depreciation £m | | | Share- based payment £m | | | Pensions and other post- retirement benefits (restated £m | )1 | | Financial instruments | | | Other net temporary differences | | Total (restated)1 £m | |||||||||
| ||||||||||||||||||||||||
Deferred tax (assets)/liabilities | ||||||||||||||||||||||||
Deferred tax assets at 31 March 2012 | (1 | ) | (18 | ) | (1,173 | ) | (98 | ) | (702 | ) | (1,992) | |||||||||||||
Deferred tax liabilities at 31 March 2012 | 5,484 | – | 128 | 9 | 109 | 5,730 | ||||||||||||||||||
| ||||||||||||||||||||||||
At 1 April 2012 as previously reported | 5,483 | (18 | ) | (1,045 | ) | (89 | ) | (593 | ) | 3,738 | ||||||||||||||
Impact of change in accounting policy1 | – | – | (2 | ) | – | – | (2) | |||||||||||||||||
| ||||||||||||||||||||||||
At 1 April 2012 (restated) | 5,483 | (18 | ) | (1,047 | ) | (89 | ) | (593 | ) | 3,736 | ||||||||||||||
Exchange adjustments | 149 | – | (47 | ) | (1 | ) | (32 | ) | 69 | |||||||||||||||
Charged/(credited) to income statement | 329 | 2 | 65 | 68 | (23 | ) | 441 | |||||||||||||||||
Charged/(credited) to other comprehensive income and equity | – | 1 | (179 | ) | 15 | – | (163) | |||||||||||||||||
Other | – | – | – | – | (6 | ) | (6) | |||||||||||||||||
| ||||||||||||||||||||||||
At 31 March 2013 (restated) | 5,961 | (15 | ) | (1,208 | ) | (7 | ) | (654 | ) | 4,077 | ||||||||||||||
| ||||||||||||||||||||||||
Deferred tax assets at 31 March 2013 | (2 | ) | (15 | ) | (1,362 | ) | (16 | ) | (777 | ) | (2,172) | |||||||||||||
Deferred tax liabilities at 31 March 2013 | 5,963 | – | 154 | 9 | 123 | 6,249 | ||||||||||||||||||
| ||||||||||||||||||||||||
At 1 April 2013 | 5,961 | (15 | ) | (1,208 | ) | (7 | ) | (654 | ) | 4,077 | ||||||||||||||
Exchange adjustments | (282 | ) | – | 78 | – | 59 | (145) | |||||||||||||||||
(Credited)/charged to income statement | (30 | ) | (3 | ) | 141 | (7 | ) | (126 | ) | (25) | ||||||||||||||
(Credited)/charged to other comprehensive income and equity | – | (4 | ) | 172 | 7 | – | 175 | |||||||||||||||||
| ||||||||||||||||||||||||
At 31 March 2014 | 5,649 | (22 | ) | (817 | ) | (7 | ) | (721 | ) | 4,082 | ||||||||||||||
| ||||||||||||||||||||||||
Deferred tax assets at 31 March 2014 | (1 | ) | (22 | ) | (960 | ) | (13 | ) | (796 | ) | (1,792) | |||||||||||||
Deferred tax liabilities at 31 March 2014 | 5,650 | – | 143 | 6 | 75 | 5,874 | ||||||||||||||||||
| ||||||||||||||||||||||||
| 5,649 | (22 | ) | (817 | ) | (7 | ) | (721 | ) | 4,082 | |||||||||||||||
| ||||||||||||||||||||||||
1. See note 1 on page 92. | ||||||||||||||||||||||||
Deferred tax assets and liabilities are only offset where there is a legally enforceable right of offset and there is an intention to settle the balances net. The deferred tax balances (after offset) for statement of financial position purposes consist solely of deferred tax liabilities of £4,082m (2013: £4,077m). | ||||||||||||||||||||||||
At the reporting date there were no material current deferred tax assets or liabilities (2013: £nil). | ||||||||||||||||||||||||
Deferred tax assets in respect of capital losses, trading losses and non-trade deficits have not been recognised as their future recovery is uncertain or not currently anticipated. The deferred tax assets not recognised are as follows:
| ||||||||||||||||||||||||
2014 £m | 2013 £m | |||||||||||||||||||||||
| ||||||||||||||||||||||||
Capital losses | 274 | 323 | ||||||||||||||||||||||
Non-trade deficits | 1 | 1 | ||||||||||||||||||||||
Trading losses | 5 | 11 | ||||||||||||||||||||||
| ||||||||||||||||||||||||
The capital losses and non-trade deficits that arise in the UK are available to carry forward indefinitely. However, the capital losses can only be offset against specific types of future capital gains and non-trade deficits against specific future non-trade profits. The trading losses arising in the US have up to a 20 year carry forward time limit. | ||||||||||||||||||||||||
The aggregate amount of temporary differences associated with the unremitted earnings of overseas subsidiaries and joint ventures for which deferred tax liabilities have not been recognised at the reporting date is approximately £2,118m (2013: £1,817m). No liability is recognised in respect of the differences because the Company and its subsidiaries are in a position to control the timing of the reversal of the temporary differences and it is probable that such differences will not reverse in the foreseeable future. In addition, as a result of a change in UK tax legislation, which largely exempts overseas dividends received on or after 1 July 2009 from UK tax, the temporary differences are unlikely to lead to additional tax.
| ||||||||||||||||||||||||
| ||||||||||||
|
Unaudited commentary on taxation
Tax strategy National Grid manages its tax affairs in a proactive and responsible way in order to comply with all relevant legislation and minimise reputational risk. We have a good working relationship with all relevant tax authorities and actively engage with them in order to ensure that they are fully aware of our view of the tax implications of our business initiatives. Management responsibility and oversight for our tax strategy, which is approved by the Finance Committee, rests with the Finance Director and the Global Tax and Treasury Director who monitor our tax activities and report to the Finance Committee.
Total UK tax contribution National Grid has taken the decision to provide additional information in respect of its total UK tax contribution and first disclosed this in last year’s annual report. This year we have again disclosed information in respect of our total UK tax contribution for consistency and to aid transparency in an area in which there has been increasing public interest. As was the case in the prior year, the total amount of taxes we pay and collect in the UK year on year is significantly more than just the corporation tax which we pay on our UK profits. Within the total, we again include significant other taxes paid such as business rates and taxes on employment together with employee taxes and other indirect taxes.
For 2013/14 our total tax contribution to the UK Exchequer was £1.4bn (2012/13: £1.2bn). Taxes borne in 2014 were £733m, an 8% increase on taxes borne in 2013 of £678m and primarily due to higher corporation tax payments in the current year. Our 2012/13 total tax contribution of £1.2bn resulted in National Grid being the 17th highest contributor of UK taxes based on the results of the Hundred Group’s 2013 Total Tax Contribution Survey, a position commensurate with the size of our business and capitalisation relative to other contributors to the survey. In 2012 we were in 16th position. In 2013 we ranked 9th in respect of taxes borne.
Of course, National Grid’s contribution to the UK economy is broader than just the taxes it pays over to and collects on behalf of HMRC. The Hundred Group’s 2013 Total Tax Contribution Survey ranks National Grid in 4th place in respect of UK capital expenditure on fixed assets and we also rank highly in respect of investment in research and development. National Grid’s economic contribution also supports a significant number of UK jobs in our supply chain.
The most significant amounts making up the 2013/14 total tax contribution were as follows:
UK total tax contribution 2013/14
|
Tax transparency The UK tax charge for the year disclosed in the accounts in accordance with accounting standards and the UK corporation tax paid during the year will differ. For transparency we have included a reconciliation below of the tax charge per the income statement to the UK corporation tax paid in 2013/14.
The tax charge for the Group as reported in the income statement is £284m (2012/13: £557m). The UK tax charge is £51m (2012/13: £307m) and UK corporation tax paid was £329m (2012/13: £243m), with the principal differences between these two measures as follows:
|
| ||||||||
Year ended 31 March
| ||||||||||
| Reconciliation of UK total tax charge to UK corporation tax paid |
| 2014 £m |
|
| 2013 (restated)1 £m |
| ||||
| ||||||||||
Total UK tax charge (current tax £346m (2013: £289m) and deferred tax £295m credit (2013: £18m charge)) | 51 | 307 | ||||||||
Adjustment for non-cash deferred tax credit/(charge) | 295 | (18) | ||||||||
Adjustment for the current tax credit in respect of prior years | 9 | 17 | ||||||||
| ||||||||||
UK current tax charge | 355 | 306 | ||||||||
UK corporation tax instalment payments in respect of current year not payable until the following year | (179 | ) | (155) | |||||||
UK corporation tax instalment payments in respect of prior years paid in current year | 153 | 92 | ||||||||
| ||||||||||
UK corporation tax paid | 329 | 243 | ||||||||
| ||||||||||
1. All comparatives restated for IAS 19 (revised). See note 1 on page 92.
Tax losses We have total unrecognised deferred tax assets in respect of losses of £280m (2012/13: £335m) of which £274m (2012/13: £319m) are capital losses in the UK as set out on page 105. These losses arose as a result of the disposal of certain businesses or assets and may be available to offset against future capital gains in the UK.
Development of future tax policy We believe that the continued development of a coherent and transparent tax policy in the UK is critical to help drive growth in the economy.
We continue to contribute to research into the structure of business taxation and its economic impact by contributing to the funding of the Oxford University Centre for Business Taxation at the Saïd Business School.
We are a member of a number of industry groups which participate in the development of future tax policy, including the Hundred Group, which represents the views of finance directors of FTSE 100 companies and several other large UK companies. Our Finance Director is Chairman of its Tax Committee. This helps to ensure that we are engaged at the earliest opportunity on taxation issues which affect our business. For example, in the current year we have engaged with and responded to a number of HMRC consultations, the subject matter of which has a direct impact on taxes borne or collected by our business, and reviewed numerous others with a potential impact.
This unaudited commentary does not form part of the financial statements.
|
| |||||||||
|
|
|
|
|
| ||||||||||||||||||||||||||
EPS is the amount of post-tax profit attributable to each ordinary share. Basic EPS is calculated on profit for the year attributable to equity shareholders divided by the weighted average number of shares in issue during the year. Diluted EPS shows what the impact would be if all outstanding share options were exercised and treated as ordinary shares at year end.
|
| |||||||||||||||||||||||||
Adjusted EPS, excluding exceptional items, remeasurements and stranded cost recoveries, are provided to reflect the business performance subtotals used by the Company. For further details of exceptional items, remeasurements and stranded cost recoveries, see note 4.
|
| |||||||||||||||||||||||||
| (a) Basic earnings per share | ||||||||||||||||||||||||||
|
| Earnings 2014 £m |
| | Earnings per share 2014 pence | | | Earnings 2013 (restated £m | )1 | | Earnings per share | | | Earnings 2012 (restated £m | )1 | | Earnings per share 2012 | | |||||||||
| ||||||||||||||||||||||||||
Adjusted earnings | 2,015 | 54.0 | 1,913 | 51.4 | 1,709 | 46.0 | ||||||||||||||||||||
Exceptional items after tax | 388 | 10.4 | 75 | 2.0 | 174 | 4.7 | ||||||||||||||||||||
Remeasurements after tax | 73 | 2.0 | 156 | 4.2 | (122 | ) | (3.3) | |||||||||||||||||||
Stranded cost recoveries after tax | – | – | 9 | 0.2 | 156 | 4.2 | ||||||||||||||||||||
| ||||||||||||||||||||||||||
Earnings | 2,476 | 66.4 | 2,153 | 57.8 | 1,917 | 51.6 | ||||||||||||||||||||
| ||||||||||||||||||||||||||
| 2014 millions | 2013 millions | 2012 millions | ||||||||||||||||||||||||
| ||||||||||||||||||||||||||
Weighted average number of shares – basic2 | 3,729 | 3,724 | 3,719 | |||||||||||||||||||||||
| ||||||||||||||||||||||||||
1. See note 1 on page 92. | ||||||||||||||||||||||||||
2. Comparative amounts have been restated to reflect the impact of additional shares issued as scrip dividends. |
| |||||||||||||||||||||||||
(b) Diluted earnings per share
| ||||||||||||||||||||||||||
|
| Earnings 2014 £m |
| | Earnings per share 2014 pence | | | Earnings 2013 (restated £m | )1 | | Earnings per share 2013 (restated pence | )1,2 | | Earnings 2012 (restated £m | )1 | | Earnings per share 2012 (restated)1,2 pence | | |||||||||
| ||||||||||||||||||||||||||
Adjusted earnings | 2,015 | 53.8 | 1,913 | 51.1 | 1,709 | 45.7 | ||||||||||||||||||||
Exceptional items after tax | 388 | 10.4 | 75 | 2.0 | 174 | 4.7 | ||||||||||||||||||||
Remeasurements after tax | 73 | 1.9 | 156 | 4.2 | (122 | ) | (3.3) | |||||||||||||||||||
Stranded cost recoveries after tax | – | – | 9 | 0.2 | 156 | 4.2 | ||||||||||||||||||||
| ||||||||||||||||||||||||||
Earnings | 2,476 | 66.1 | 2,153 | 57.5 | 1,917 | 51.3 | ||||||||||||||||||||
| ||||||||||||||||||||||||||
| 2014 millions | 2013 millions | 2012 millions | ||||||||||||||||||||||||
| ||||||||||||||||||||||||||
Weighted average number of shares – diluted2 | 3,748 | 3,742 | 3,738 | |||||||||||||||||||||||
| ||||||||||||||||||||||||||
1. See note 1 on page 92. | ||||||||||||||||||||||||||
2. Comparative amounts have been restated to reflect the impact of additional shares issued as scrip dividends. |
| |||||||||||||||||||||||||
(c) Reconciliation of basic to diluted average number of shares
|
| |||||||||||||||||||||||||
| 2014 millions | 2013 millions | 2012 millions | ||||||||||||||||||||||||
| ||||||||||||||||||||||||||
Weighted average number of ordinary shares – basic | 3,729 | 3,724 | 3,719 | |||||||||||||||||||||||
Effect of dilutive potential ordinary shares – employee share plans | 19 | 18 | 19 | |||||||||||||||||||||||
| ||||||||||||||||||||||||||
Weighted average number of ordinary shares – diluted | 3,748 | 3,742 | 3,738 | |||||||||||||||||||||||
| ||||||||||||||||||||||||||
| ||||||||||||
|
| ||||||||||||||||||||||||||||||||||||||||
Dividends represents the return of profits to shareholders. Dividends are paid as an amount per ordinary share held. We retain part of the profits generated in the year to meet future growth plans and pay out the remainder in accordance with our dividend policy.
|
| |||||||||||||||||||||||||||||||||||||||
Interim dividends are recognised when they become payable to the Company’s shareholders. Final dividends are recognised when they are approved by shareholders. |
| |||||||||||||||||||||||||||||||||||||||
The following table shows the actual dividends paid to equity shareholders:
|
| |||||||||||||||||||||||||||||||||||||||
| 2014 | 2013 | 2012 | ||||||||||||||||||||||||||||||||||||||
| Pence per share | Total £m | Settled via scrip £m | Pence per share | Total £m | Settled via scrip £m | Pence per share | Total £m | Settled via scrip £m | ||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
Interim – year ended 31 March 2014 | 14.49 | 539 | – | – | – | – | – | – | – | |||||||||||||||||||||||||||||||
Final – year ended 31 March 2013 | 26.36 | 964 | 444 | – | – | – | – | – | – | |||||||||||||||||||||||||||||||
Interim – year ended 31 March 2013 | – | – | – | 14.49 | 527 | 187 | – | – | – | |||||||||||||||||||||||||||||||
Final – year ended 31 March 2012 | – | – | – | 25.35 | 906 | 436 | – | – | – | |||||||||||||||||||||||||||||||
Interim – year ended 31 March 2012 | – | – | – | – | – | – | 13.93 | 497 | 34 | |||||||||||||||||||||||||||||||
Final – year ended 31 March 2011 | – | – | – | – | – | – | 23.47 | 822 | 279 | |||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
| 40.85 | 1,503 | 444 | 39.84 | 1,433 | 623 | 37.40 | 1,319 | 313 | ||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
The Directors are proposing a final dividend for the year ended 31 March 2014 of 27.54p per share that will absorb approximately £1,028m of shareholders’ equity (assuming all amounts are settled in cash). It will be paid on 20 August 2014 to shareholders who are on the register of members at 6 June 2014 and a scrip dividend will be offered as an alternative, subject to shareholders’ approval at the AGM. |
| |||||||||||||||||||||||||||||||||||||||
Unaudited commentary on dividends
Following the announcement of our
With the exception of the 2013/14 interim dividend paid in January In August 2014 we began a share buyback programme that will allow us to offer the scrip dividend option for both the full-year and interim dividend. The buyback programme is designed to balance shareholders’ appetite for the scrip dividend option with our desire to operate an efficient balance sheet with appropriate leverage. |
Dividend cover
| |||||||||||||||||||
|
|
|
|
|
| ||||
Goodwill represents the excess of what we paid to acquire businesses over the fair value of their net assets at the acquisition date. We assess whether goodwill is recoverable each year by performing an impairment review.
| ||||
Goodwill is recognised as an asset and is not amortised, but is tested for impairment annually or more frequently if events or changes in circumstances indicate a potential impairment. Any impairment is recognised immediately in the income statement and is not subsequently reversed. | ||||
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing exchange rate. | ||||
Impairment | ||||
Goodwill is allocated to cash-generating units and this allocation is made to those cash-generating units that are expected to benefit from the business combination in which the goodwill arose. | ||||
Impairments of goodwill are calculated as the difference between the carrying value of the goodwill and the estimated recoverable amount of the cash-generating unit to which that goodwill has been allocated. Recoverable amount is defined as the higher of fair value less costs to sell and estimated value-in-use at the date the impairment review is undertaken. | ||||
Value-in-use represents the present value of expected future cash flows, discounted using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. | ||||
Impairments are recognised in the income statement and are disclosed separately.
| ||||
Total £m | ||||
| ||||
| ||||
| ||||
| 5,028 | |||
Additions | 12 | |||
Exchange adjustments | (446) | |||
| ||||
| 4,594 | |||
Impairment | (12) | |||
| ||||
|
| |||
| ||||
Net book value at 31 March 2015 | 5,145 | |||
The cost of goodwill at 31 March 2015 was £5,157m (2014: £4,594m) with an accumulated impairment charge of £12m (2014: £nil).
The amounts disclosed above as at 31 March | ||||
| ||||
Goodwill is reviewed annually for impairment and the recoverability of goodwill | ||||
The future economic growth rate used to extrapolate projections beyond five years has been maintained at 2.25% | ||||
While it is possible that a key assumption in the calculation could change, the Directors believe that no reasonably foreseeable change would result in an impairment of goodwill, in view of the long-term nature of the key assumptions and the margin by which the estimated fair value exceeds the carrying amount. | ||||
As part of their review, the Directors specifically reviewed the carrying value of goodwill associated with Clean Line Energy Partners LLC. This review resulted in a full impairment being recorded of £12m. | ||||
| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 113 | |||||||||||
| ||||||||||||
Financial Statements
Notes to the consolidated financial statements
– analysis of items in the primary statements continued
|
| ||||||||
Other intangible assets include software and acquisition-related assets (such as brand names and customer relationships), which are written down (amortised) over the length of period we expect to receive a benefit from the asset.
| ||||||||
Identifiable intangible assets are recorded at cost less accumulated amortisation and any provision for impairment. Other intangible assets are tested for impairment only if there is an indication that the carrying value of the assets may have been impaired. Impairments of assets are calculated as the difference between the carrying value of the asset and the recoverable amount, if lower. Where such an asset does not generate cash flows that are independent from other assets, the recoverable amount of the cash-generating unit to which that asset belongs is estimated. Impairments are recognised in the income statement and are disclosed separately. Any assets which suffered impairment in a previous period are reviewed for possible reversal of the impairment at each reporting date.
Internally generated intangible assets, such as software, are recognised only if: an asset is created that can be identified; it is probable that the asset created will generate future economic benefits; and the development cost of the asset can be measured reliably. Where no internally generated intangible asset can be recognised, development expenditure is recorded as an expense in the period in which it is incurred.
On a business combination, as well as recording separable intangible assets possessed by the acquired entity at their fair value, identifiable intangible assets that arise from contractual or other legal rights are also included in the statement of financial position at their fair value. Acquisition-related intangible assets principally comprise customer relationships.
Other intangible assets are amortised on a straight-line basis over their estimated useful economic lives. Amortisation periods for categories of intangible assets are:
| ||||||||
| Years | ||||||||
| ||||||||
Software | 3 to 10 | |||||||
Acquisition-related intangibles | 10 to 25 | |||||||
| ||||||||
| Software £m | Acquisition- £m | Total £m | ||||||
| ||||||||
Cost at 1 April 2013 | 1,031 | 122 | 1,153 | |||||
Exchange adjustments | (38) | (7) | (45) | |||||
Additions | 179 | – | 179 | |||||
Disposals | (16) | (115) | (131) | |||||
Reclassifications1 | 66 | – | 66 | |||||
| ||||||||
Cost at 31 March 2014 | 1,222 | – | 1,222 | |||||
Exchange adjustments | 59 | – | 59 | |||||
Additions | 207 | – | 207 | |||||
Reclassifications1 | 16 | – | 16 | |||||
| ||||||||
Cost at 31 March 2015 | 1,504 | – | 1,504 | |||||
| ||||||||
Accumulated amortisation at 1 April 2013 | (442) | (122) | (564) | |||||
Exchange adjustments | 12 | 7 | 19 | |||||
Amortisation charge for the year | (127) | – | (127) | |||||
Impairment charge | (5) | – | (5) | |||||
Disposals | 12 | 115 | 127 | |||||
Reclassifications1 | (3) | – | (3) | |||||
| ||||||||
Accumulated amortisation at 31 March 2014 | (553) | – | (553) | |||||
Exchange adjustments | (20) | – | (20) | |||||
Amortisation charge for the year | (121) | – | (121) | |||||
Reclassifications1 | (8) | – | (8) | |||||
| ||||||||
Accumulated amortisation at 31 March 2015 | (702) | – | (702) | |||||
| ||||||||
Net book value at 31 March 2015 | 802 | – | 802 | |||||
| ||||||||
Net book value at 31 March 2014 | 669 | – | 669 | |||||
| ||||||||
1. Reclassifications includes amounts transferred (to)/from property, plant and equipment (see note 11) and reclasses between cost and accumulated amortisation of £6m. | ||||||||
| ||||||||||||
Other intangible assets includes software and acquisition-related assets (such as brand names and customer relationships), which are written down (amortised) over the period we expect to receive a benefit from the asset.
| ||||||||||||
Identifiable intangible assets are recorded at cost less accumulated amortisation and any provision for impairment. Other intangible assets are tested for impairment only if there is an indication that the carrying value of the assets may have been impaired. Impairments of assets are calculated as the difference between the carrying value of the asset and the recoverable amount, if lower. Where such an asset does not generate cash flows that are independent from other assets, the recoverable amount of the cash-generating unit to which that asset belongs is estimated. Impairments are recognised in the income statement and are disclosed separately. Any assets which suffered impairment in a previous period are reviewed for possible reversal of the impairment at each reporting date. | ||||||||||||
Internally generated intangible assets, such as software, are recognised only if: an asset is created that can be identified; it is probable that the asset created will generate future economic benefits; and the development cost of the asset can be measured reliably. Where no internally generated intangible asset can be recognised, development expenditure is recorded as an expense in the period in which it is incurred. | ||||||||||||
On a business combination, as well as recording separable intangible assets possessed by the acquired entity at their fair value, identifiable intangible assets that arise from contractual or other legal rights are also included in the statement of financial position at their fair value. Acquisition-related intangible assets principally comprise customer relationships. | ||||||||||||
Other intangible assets are amortised on a straight-line basis over their estimated useful economic lives. Amortisation periods for categories of intangible assets are: | ||||||||||||
| Years | ||||||||||||
| ||||||||||||
| Software | 3 to 10 | |||||||||||
| Acquisition-related intangibles | 10 to 25 | |||||||||||
| ||||||||||||
| Software £m |
Acquisition- related £m | Total £m | ||||||||||
| ||||||||||||
| Cost at 1 April 2012 | 899 | 116 | 1,015 | |||||||||
| Exchange adjustments | 20 | 6 | 26 | |||||||||
| Additions | 175 | – | 175 | |||||||||
| Disposals | (26) | – | (26) | |||||||||
| Reclassifications1 | (37) | – | (37) | |||||||||
| ||||||||||||
| Cost at 31 March 2013 | 1,031 | 122 | 1,153 | |||||||||
| Exchange adjustments | (38) | (7) | (45) | |||||||||
| Additions | 179 | – | 179 | |||||||||
| Disposals | (16) | (115) | (131) | |||||||||
| Reclassifications1 | 66 | – | 66 | |||||||||
| ||||||||||||
| Cost at 31 March 2014 | 1,222 | – | 1,222 | |||||||||
| ||||||||||||
| Accumulated amortisation at 1 April 2012 | (353) | (116) | (469) | |||||||||
| Exchange adjustments | (6) | (6) | (12) | |||||||||
| Amortisation charge for the year | (101) | – | (101) | |||||||||
| Disposals | 9 | – | 9 | |||||||||
| Reclassifications1 | 9 | – | 9 | |||||||||
| ||||||||||||
| Accumulated amortisation at 31 March 2013 | (442) | (122) | (564) | |||||||||
| Exchange adjustments | 12 | 7 | 19 | |||||||||
| Amortisation charge for the year | (127) | – | (127) | |||||||||
| Impairment charge | (5) | – | (5) | |||||||||
| Disposals | 12 | 115 | 127 | |||||||||
| Reclassifications1 | (3) | – | (3) | |||||||||
| ||||||||||||
| Accumulated amortisation at 31 March 2014 | (553) | – | (553) | |||||||||
| ||||||||||||
| Net book value at 31 March 2014 | 669 | – | 669 | |||||||||
| ||||||||||||
| Net book value at 31 March 2013 | 589 | – | 589 | |||||||||
| ||||||||||||
1. Reclassifications represents amounts transferred (to)/from property, plant and equipment (see note 11 on page 112). | ||||||||||||
| 114 |
|
|
|
|
| ||||||
|
| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 115 |
| ||||||||||||
Financial Statements
Notes to the consolidated financial statements
– analysis of items in the primary statements continued
|
| 11. Property, plant and equipmentcontinued | ||||||||||||
| Assets | Motor | |||||||||||
| in the | vehicles | |||||||||||
| Land and | Plant and | course of | and office | |||||||||
| buildings | machinery | construction | equipment | Total | ||||||||
| £m | £m | £m | £m | £m | ||||||||
| ||||||||||||
| Cost at 1 April 2013 | 2,325 | 45,366 | 3,960 | 803 | 52,454 | |||||||
| Exchange adjustments | (99) | (1,471) | (82) | (28) | (1,680) | |||||||
| Additions | 69 | 623 | 2,514 | 56 | 3,262 | |||||||
| Disposals | (32) | (288) | (2) | (98) | (420) | |||||||
| Reclassifications1 | (15) | 2,195 | (2,366) | 120 | (66) | |||||||
| ||||||||||||
| Cost at 31 March 2014 | 2,248 | 46,425 | 4,024 | 853 | 53,550 | |||||||
| Exchange adjustments | 132 | 2,019 | 82 | 47 | 2,280 | |||||||
| Additions | 55 | 544 | 2,514 | 150 | 3,263 | |||||||
| Disposals | (30) | (334) | (1) | (74) | (439) | |||||||
| Reclassifications1 | 105 | 1,981 | (2,104) | 8 | (10) | |||||||
| ||||||||||||
| Cost at 31 March 2015 | 2,510 | 50,635 | 4,515 | 984 | 58,644 | |||||||
| ||||||||||||
| Accumulated depreciation at 1 April 2013 | (499) | (14,806) | – | (557) | (15,862) | |||||||
| Exchange adjustments | 16 | 399 | – | 21 | 436 | |||||||
| Depreciation charge for the year2 | (84) | (1,112) | – | (103) | (1,299) | |||||||
| Impairment charge for the year | (1) | – | – | – | (1) | |||||||
| Disposals | 25 | 234 | – | 93 | 352 | |||||||
| Reclassifications1 | 107 | (65) | – | (39) | 3 | |||||||
| ||||||||||||
| Accumulated depreciation at 31 March 2014 | (436) | (15,350) | – | (585) | (16,371) | |||||||
| Exchange adjustments | (15) | (533) | – | (29) | (577) | |||||||
| Depreciation charge for the year2 | (82) | (1,138) | – | (143) | (1,363) | |||||||
| Disposals | 7 | 307 | – | 74 | 388 | |||||||
| Reclassifications1 | (4) | 1 | – | 5 | 2 | |||||||
| ||||||||||||
| Accumulated depreciation at 31 March 2015 | (530) | (16,713) | – | (678) | (17,921) | |||||||
| ||||||||||||
| Net book value at 31 March 2015 | 1,980 | 33,922 | 4,515 | 306 | 40,723 | |||||||
| ||||||||||||
| Net book value at 31 March 2014 | 1,812 | 31,075 | 4,024 | 268 | 37,179 | |||||||
| ||||||||||||
1. Represents amounts transferred between categories and (to)/from other intangible assets (see note 10). 2. Includes amounts in respect of capitalised depreciation of £2m (2014: £10m).
| ||||||||||||
| 2015 | 2014 | |||||||||||
| £m | £m | |||||||||||
| ||||||||||||
| Information in relation to property, plant and equipment | ||||||||||||
| Capitalised interest included within cost | 1,506 | 1,409 | ||||||||||
| Net book value of assets held under finance leases (all relating to motor vehicles and office equipment) | 184 | 170 | ||||||||||
| Additions to assets held under finance leases (all relating to motor vehicles and office equipment) | 61 | 25 | ||||||||||
| Contributions to cost of property, plant and equipment included within: | ||||||||||||
Trade and other payables | 47 | 44 | ||||||||||
Non-current liabilities | 1,569 | 1,526 | ||||||||||
| ||||||||||||
| ||||||||||||
Other non-current assets include assets that do not fall into any other non-current asset category (such as goodwill or property, plant and equipment) and the benefit to be received from the asset is not due to be received until after 31 March 2016. | ||||||||||||
| 2015 | 2014 | |||||||||||
| £m | £m | |||||||||||
| ||||||||||||
| Commodity contract assets | 29 | 45 | ||||||||||
| Other receivables | 39 | 33 | ||||||||||
| Prepayments | 12 | 9 | ||||||||||
| ||||||||||||
| 80 | 87 | |||||||||||
| ||||||||||||
| 11. Property, plant and equipmentcontinued | ||||||||||||||||||||
| Land and buildings £m | Plant and machinery £m | Assets in the course of construction £m | Motor vehicles and office equipment £m | Total £m | ||||||||||||||||
| ||||||||||||||||||||
Cost at 1 April 2012 | 2,013 | 42,699 | 2,975 | 770 | 48,457 | |||||||||||||||
Exchange adjustments | 55 | 803 | 45 | 13 | 916 | |||||||||||||||
Additions | 141 | 704 | 2,584 | 82 | 3,511 | |||||||||||||||
Disposals | (24 | ) | (311 | ) | (2 | ) | (130 | ) | (467) | |||||||||||
Reclassifications1 | 140 | 1,471 | (1,642 | ) | 68 | 37 | ||||||||||||||
| ||||||||||||||||||||
Cost at 31 March 2013 | 2,325 | 45,366 | 3,960 | 803 | 52,454 | |||||||||||||||
Exchange adjustments | (99 | ) | (1,471 | ) | (82 | ) | (28 | ) | (1,680) | |||||||||||
Additions | 69 | 623 | 2,514 | 56 | 3,262 | |||||||||||||||
Disposals | (32 | ) | (288 | ) | (2 | ) | (98 | ) | (420) | |||||||||||
Reclassifications1 | (15 | ) | 2,195 | (2,366 | ) | 120 | (66) | |||||||||||||
| ||||||||||||||||||||
Cost at 31 March 2014 | 2,248 | 46,425 | 4,024 | 853 | 53,550 | |||||||||||||||
| ||||||||||||||||||||
Accumulated depreciation at 1 April 2012 | (436 | ) | (13,804 | ) | (2 | ) | (514 | ) | (14,756) | |||||||||||
Exchange adjustments | (11 | ) | (216 | ) | – | (9 | ) | (236) | ||||||||||||
Depreciation charge for the year2 | (75 | ) | (1,085 | ) | – | (121 | ) | (1,281) | ||||||||||||
Disposals | 23 | 299 | 2 | 96 | 420 | |||||||||||||||
Reclassifications1 | – | – | – | (9 | ) | (9) | ||||||||||||||
| ||||||||||||||||||||
Accumulated depreciation at 31 March 2013 | (499 | ) | (14,806 | ) | – | (557 | ) | (15,862) | ||||||||||||
Exchange adjustments | 16 | 399 | – | 21 | 436 | |||||||||||||||
Depreciation charge for the year2 | (84 | ) | (1,112 | ) | – | (103 | ) | (1,299) | ||||||||||||
Impairment charge for the year | (1 | ) | – | – | – | (1) | ||||||||||||||
Disposals | 25 | 234 | – | 93 | 352 | |||||||||||||||
Reclassifications1 | 107 | (65 | ) | – | (39 | ) | 3 | |||||||||||||
| ||||||||||||||||||||
Accumulated depreciation at 31 March 2014 | (436 | ) | (15,350 | ) | – | (585 | ) | (16,371) | ||||||||||||
| ||||||||||||||||||||
Net book value at 31 March 2014 | 1,812 | 31,075 | 4,024 | 268 | 37,179 | |||||||||||||||
| ||||||||||||||||||||
Net book value at 31 March 2013 | 1,826 | 30,560 | 3,960 | 246 | 36,592 | |||||||||||||||
| ||||||||||||||||||||
1. Represents amounts transferred between categories and from/(to) other intangible assets (see note 10 on page 110). | ||||||||||||||||||||
2. Includes amounts in respect of capitalised depreciation of £10m (2013: £21m).
| ||||||||||||||||||||
2014 £m | 2013 £m | |||||||||||||||||||
| ||||||||||||||||||||
Information in relation to property, plant and equipment | ||||||||||||||||||||
Capitalised interest included within cost | 1,409 | 1,275 | ||||||||||||||||||
Net book value of assets held under finance leases (all relating to motor vehicles and office equipment) | 170 | 188 | ||||||||||||||||||
Additions to assets held under finance leases (all relating to motor vehicles and office equipment) | 25 | 48 | ||||||||||||||||||
Contributions to cost of property, plant and equipment included within: | ||||||||||||||||||||
Trade and other payables | 44 | 43 | ||||||||||||||||||
Non-current liabilities | 1,526 | 1,492 | ||||||||||||||||||
| ||||||||||||||||||||
| ||||||||||||||||||||
Other non-current assets includes assets that do not fall into any other non-current asset category (such as goodwill or property, plant and equipment) and where the benefit to be received from the asset is not due to be received until after 31 March 2015.
| ||||||||||||||||||||
2014 £m | 2013 £m | |||||||||||||||||||
| ||||||||||||||||||||
Commodity contract assets | 45 | 47 | ||||||||||||||||||
Other receivables | 33 | 51 | ||||||||||||||||||
Prepayments | 9 | 6 | ||||||||||||||||||
| ||||||||||||||||||||
| 87 | 104 | |||||||||||||||||||
| ||||||||||||||||||||
| 116 |
|
| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 |
|
| |||||
Financial Statements
| |||||
|
|
| continued | |||||||||||
|
| 118 |
15. Derivative financial instrumentscontinued
The maturity profile of derivative financial instruments is as follows:
|
| |||||||||||||||||||||||||
| 2015 | 2014 | |||||||||||||||||||||||||
Assets £m | Liabilities £m | Total £m | Assets £m | Liabilities £m | Total £m | |||||||||||||||||||||
| ||||||||||||||||||||||||||
| Current | ||||||||||||||||||||||||||
| Less than 1 year | 177 | (635) | (458) | 413 | (339) | 74 | ||||||||||||||||||||
| ||||||||||||||||||||||||||
| 177 | (635) | (458) | 413 | (339) | 74 | |||||||||||||||||||||
| ||||||||||||||||||||||||||
| Non-current | ||||||||||||||||||||||||||
| In 1 to 2 years | 15 | (97) | (82) | 54 | (26) | 28 | ||||||||||||||||||||
| In 2 to 3 years | 37 | (252) | (215) | 73 | (57) | 16 | ||||||||||||||||||||
| In 3 to 4 years | 136 | (238) | (102) | 71 | (103) | (32) | ||||||||||||||||||||
| In 4 to 5 years | 125 | (235) | (110) | 244 | (128) | 116 | ||||||||||||||||||||
| More than 5 years | 1,226 | (942) | 284 | 1,115 | (510) | 605 | ||||||||||||||||||||
| ||||||||||||||||||||||||||
| 1,539 | (1,764) | (225) | 1,557 | (824) | 733 | |||||||||||||||||||||
| ||||||||||||||||||||||||||
| 1,716 | (2,399) | (683) | 1,970 | (1,163) | 807 | |||||||||||||||||||||
| ||||||||||||||||||||||||||
For each class of derivative the notional contract1 amounts are as follows:
|
| |||||||||||||||||||||||||
2015 £m | 2014 £m | |||||||||||||||||||||||||
| ||||||||||||||||||||||||||
Interest rate swaps |
| (11,125) | (15,406) | |||||||||||||||||||||||
Cross-currency interest rate swaps |
| (8,103) | (8,614) | |||||||||||||||||||||||
Foreign exchange forward contracts |
| (6,579) | (4,698) | |||||||||||||||||||||||
Inflation linked swaps |
| (1,361) | (1,391) | |||||||||||||||||||||||
| ||||||||||||||||||||||||||
| (27,168) | (30,109) | |||||||||||||||||||||||||
| ||||||||||||||||||||||||||
1. The notional contract amounts of derivatives indicate the gross nominal value of transactions outstanding at the reporting date.
Where possible, derivatives held as hedging instruments are formally designated as hedges as defined in IAS 39. Derivatives may qualify as hedges for accounting purposes if they are fair value hedges, cash flow hedges or net investment hedges. Our use of derivatives may entail a derivative transaction qualifying for one or more hedge type designations under IAS 39.
Hedge accounting allows derivatives to be designated as a hedge of another non-derivative financial instrument, to mitigate the impact of potential volatility in the income statement of changes in the fair value of the derivative instruments. To qualify for hedge accounting, documentation is prepared specifying the hedging strategy, the component transactions and methodology used for effectiveness measurement. National Grid uses three hedge accounting methods, which are described as follows:
Fair value hedges Fair value hedges principally consist of interest rate and cross-currency swaps that are used to protect against changes in the fair value of fixed-rate, long-term financial instruments due to movements in market interest rates. For qualifying fair value hedges, all changes in the fair value of the derivative and changes in the fair value of the item in relation to the risk being hedged are recognised in the income statement to the extent the fair value hedge is effective. Adjustments made to the carrying amount of the hedged item for fair value hedges will be amortised over the remaining life, in line with the hedged item.
|
| |||||||||||||||||||||||||
2015 £m | 2014 £m | |||||||||||||||||||||||||
| ||||||||||||||||||||||||||
Cross-currency interest rate/interest rate swaps |
| 379 | 367 | |||||||||||||||||||||||
| ||||||||||||||||||||||||||
Cash flow hedges Exposure arises from the variability in future interest and currency cash flows on assets and liabilities which bear interest at variable rates or are in a foreign currency. Interest rate and cross-currency swaps are maintained, and designated as cash flow hedges, where they qualify, to manage this exposure. Fair value changes on designated cash flow hedges are initially recognised directly in the cash flow hedge reserve, as gains or losses recognised in equity and any ineffective portion is recognised immediately in the income statement. Amounts are transferred from equity and recognised in the income statement as the income or expense is recognised on the hedged item.
Forward foreign currency contracts are used to hedge anticipated and committed future currency cash flows. Where these contracts qualify for hedge accounting they are designated as cash flow hedges. On recognition of the underlying transaction in the financial statements, the associated hedge gains and losses, deferred in equity, are transferred and included with the recognition of the underlying transaction. |
| |||||||||||||||||||||||||
|
| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 |
|
| |||||
Financial Statements
| |||||
|
|
15. Derivative financial instrumentscontinued
The maturity profile of derivative financial instruments is as follows:
|
| |||||||||||||||||||||||||
| 2014 | 2013 | |||||||||||||||||||||||||
| Assets £m | Liabilities £m | Total £m | Assets £m | Liabilities £m | Total £m | |||||||||||||||||||||
| ||||||||||||||||||||||||||
Less than 1 year | 413 | (339) | 74 | 273 | (407) | (134) | ||||||||||||||||||||
| ||||||||||||||||||||||||||
Current | 413 | (339) | 74 | 273 | (407) | (134) | ||||||||||||||||||||
| ||||||||||||||||||||||||||
In 1-2 years | 54 | (26) | 28 | 42 | (44) | (2) | ||||||||||||||||||||
In 2-3 years | 73 | (57) | 16 | 75 | (51) | 24 | ||||||||||||||||||||
In 3-4 years | 71 | (103) | (32) | 119 | (121) | (2) | ||||||||||||||||||||
In 4-5 years | 244 | (128) | 116 | 84 | (55) | 29 | ||||||||||||||||||||
More than 5 years | 1,115 | (510) | 605 | 1,652 | (1,003) | 649 | ||||||||||||||||||||
| ||||||||||||||||||||||||||
Non-current | 1,557 | (824) | 733 | 1,972 | (1,274) | 698 | ||||||||||||||||||||
| ||||||||||||||||||||||||||
| 1,970 | (1,163) | 807 | 2,245 | (1,681) | 564 | |||||||||||||||||||||
| ||||||||||||||||||||||||||
For each class of derivative the notional contract* amounts are as follows:
|
| |||||||||||||||||||||||||
2014 £m | 2013 £m | |||||||||||||||||||||||||
| ||||||||||||||||||||||||||
| Interest rate swaps | (15,406) | (16,603) | ||||||||||||||||||||||||
| Cross-currency interest rate swaps | (8,614) | (9,641) | ||||||||||||||||||||||||
| Foreign exchange forward contracts | (4,698) | (3,142) | ||||||||||||||||||||||||
| Forward rate agreements | – | (2,443) | ||||||||||||||||||||||||
| Inflation linked swaps | (1,391) | (1,390) | ||||||||||||||||||||||||
| ||||||||||||||||||||||||||
| Total | (30,109) | (33,219) | ||||||||||||||||||||||||
| ||||||||||||||||||||||||||
*The notional contract amounts of derivatives indicate the gross nominal value of transactions outstanding at the reporting date.
Where possible, derivatives held as hedging instruments are formally designated as hedges as defined in IAS 39. Derivatives may qualify as hedges for accounting purposes if they are fair value hedges, cash flow hedges or net investment hedges. Our use of derivatives may entail a derivative transaction qualifying for one or more hedge type designations under IAS 39.
Hedge accounting allows derivatives to be designated as a hedge of another non-derivative financial instrument, to mitigate the impact of potential volatility in the income statement of changes in the fair value of the derivative financial instruments. To qualify for hedge accounting, documentation is prepared specifying the hedging strategy, the component transactions and methodology used for effectiveness measurement. National Grid uses three hedge accounting methods, which are described as follows:
Fair value hedges Fair value hedges principally consist of interest rate and cross-currency swaps that are used to protect against changes in the fair value of fixed-rate, long-term financial instruments due to movements in market interest rates. For qualifying fair value hedges, all changes in the fair value of the derivative and changes in the fair value of the item in relation to the risk being hedged are recognised in the income statement to the extent the fair value hedge is effective. Adjustments made to the carrying amount of the hedged item for fair value hedges will be amortised over the remaining life, in line with the hedged item.
|
| |||||||||||||||||||||||||
2014 £m | 2013 £m | |||||||||||||||||||||||||
| ||||||||||||||||||||||||||
| Cross-currency interest rate/interest rate swaps | 367 | 732 | ||||||||||||||||||||||||
| ||||||||||||||||||||||||||
| Fair value hedges | 367 | 732 | ||||||||||||||||||||||||
| ||||||||||||||||||||||||||
Cash flow hedges | ||||||||||||||||||||||||||
Exposure arises from the variability in future interest and currency cash flows on assets and liabilities which bear interest at variable rates or are in a foreign currency. Interest rate and cross-currency swaps are maintained, and designated as cash flow hedges, where they qualify, to manage this exposure. Fair value changes on designated cash flow hedges are initially recognised directly in the cash flow hedge reserve, as gains or losses recognised in equity and any ineffective portion is recognised immediately in the income statement. Amounts are transferred from equity and recognised in the income statement as the income or expense is recognised on the hedged item.
|
| |||||||||||||||||||||||||
Forward foreign currency contracts are used to hedge anticipated and committed future currency cash flows. Where these contracts qualify for hedge accounting they are designated as cash flow hedges. On recognition of the underlying transaction in the financial statements, the associated hedge gains and losses, deferred in equity, are transferred and included with the recognition of the underlying transaction.
|
| |||||||||||||||||||||||||
| continued | |||||||||||
|
15. Derivative financial instrumentscontinued
| ||||||||||
| Cash flow hedgescontinued | ||||||||||
When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is transferred to the income statement.
|
| |||||||||
Where a non-financial asset or a non-financial liability results from a forecasted transaction or firm commitment being hedged, the amounts deferred in equity are included in the initial measurement of that non-monetary asset or liability.
|
| |||||||||
| 2014 £m | 2013 £m | |||||||||
| ||||||||||
| Cross-currency interest rate/interest rate swaps | 224 | 123 | ||||||||
| Foreign exchange forward contracts | (11) | 1 | ||||||||
| Inflation linked swaps | (32) | (16) | ||||||||
| ||||||||||
| Cash flow hedges | 181 | 108 | ||||||||
| ||||||||||
Net investment hedges |
| |||||||||
Borrowings, cross-currency swaps and forward currency contracts are used in the management of the foreign exchange exposure arising from the investment in non-sterling denominated subsidiaries. Where these contracts qualify for hedge accounting they are designated as net investment hedges.
|
| |||||||||
| 2014 £m | 2013 £m | |||||||||
| ||||||||||
| Cross-currency interest rate swaps | 342 | (56) | ||||||||
| �� | Foreign exchange forward contracts | 66 | (39) | |||||||
| ||||||||||
| Net investment hedges | 408 | (95) | ||||||||
| ||||||||||
The cross-currency swaps and forward foreign currency contracts are hedge accounted using the spot to spot method. The foreign exchange gain or loss on retranslation of the borrowings and the spot to spot movements on the cross-currency swaps and forward currency contracts are transferred to equity to offset gains or losses on translation of the net investment in the non-sterling denominated subsidiaries, with any ineffective portion recognised immediately in the income statement.
|
| |||||||||
| Derivatives not in a formal hedge relationship | ||||||||||
Our policy is not to use derivatives for trading purposes. However, due to the complex nature of hedge accounting under IAS 39 some derivatives may not qualify for hedge accounting, or are specifically not designated as a hedge where natural offset is more appropriate. Changes in the fair value of any derivative instruments that do not qualify for hedge accounting are recognised in remeasurements within the income statement.
|
| |||||||||
| 2014 £m | 2013 £m | |||||||||
| ||||||||||
| Cross-currency interest rate/interest rate swaps | 15 | 16 | ||||||||
| Foreign exchange forward contracts | 1 | (10) | ||||||||
| Forward rate agreements | – | (5) | ||||||||
| Inflation linked swaps | (165) | (182) | ||||||||
| ||||||||||
| Derivatives not in a formal hedge relationship | (149) | (181) | ||||||||
| ||||||||||
Discontinuation of hedge accounting | ||||||||||
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, exercised or no longer qualifies for hedge accounting. At that time, any cumulative gains or losses relating to cash flow hedges recognised in equity are initially retained in equity and subsequently recognised in the income statement in the same periods in which the previously hedged item affects net profit or loss. Amounts deferred in equity with respect to net investment hedges are subsequently recognised in the income statement in the event of the disposal of the overseas operations concerned. For fair value hedges, the cumulative adjustment recorded to the carrying value of the hedged item at the date hedge accounting is discontinued is amortised to the income statement using the effective interest method.
|
| |||||||||
| Embedded derivatives | ||||||||||
No adjustment is made with respect to derivative clauses embedded in financial instruments or other contracts that are defined as closely related to those instruments or contracts. Consequently these embedded derivatives are not accounted for separately from the debt instrument. Where there are embedded derivatives in host contracts not closely related, the embedded derivative is separately accounted for as a derivative financial instrument.
|
| |||||||||
15. Derivative financial instrumentscontinued
Cash flow hedgescontinued When a forecast transaction is no longer expected to occur, the cumulative gain or loss previously reported in equity is transferred to the income statement.
Where a non-financial asset or a non-financial liability results from a forecast transaction or firm commitment being hedged, the amounts deferred in equity are included in the initial measurement of that non-monetary asset or liability.
|
| |||||||||
2015 £m | 2014 £m | |||||||||
| ||||||||||
| Cross-currency interest rate/interest rate swaps | (453) | 224 | ||||||||
| Foreign exchange forward contracts | (34) | (11) | ||||||||
| Inflation linked swaps | (109) | (32) | ||||||||
| ||||||||||
| (596) | 181 | |||||||||
| ||||||||||
Net investment hedges Borrowings, cross-currency swaps and forward currency contracts are used in the management of the foreign exchange exposure arising from the investment in non-sterling denominated subsidiaries. Where these contracts qualify for hedge accounting they are designated as net investment hedges.
|
| |||||||||
2015 £m | 2014 £m | |||||||||
| ||||||||||
| Cross-currency interest rate swaps | (72) | 342 | ||||||||
| Foreign exchange forward contracts | (218) | 66 | ||||||||
| ||||||||||
| (290) | 408 | |||||||||
| ||||||||||
The cross-currency swaps and forward foreign currency contracts are hedge accounted using the spot to spot method. The foreign exchange gain or loss on retranslation of the borrowings and the spot to spot movements on the cross-currency swaps and forward currency contracts are transferred to equity to offset gains or losses on translation of the net investment in the non-sterling denominated subsidiaries, with any ineffective portion recognised immediately in the income statement.
Derivatives not in a formal hedge relationship Our policy is not to use derivatives for trading purposes. However, due to the complex nature of hedge accounting under IAS 39 some derivatives may not qualify for hedge accounting, or are specifically not designated as a hedge where natural offset is more appropriate. Changes in the fair value of any derivative instruments that do not qualify for hedge accounting are recognised in remeasurements within the income statement.
|
| |||||||||
2015 £m | 2014 £m | |||||||||
| ||||||||||
| Cross-currency interest rate/interest rate swaps | 119 | 15 | ||||||||
| Foreign exchange forward contracts | (24) | 1 | ||||||||
| Inflation linked swaps | (271) | (165) | ||||||||
| ||||||||||
| (176) | (149) | |||||||||
| ||||||||||
Discontinuation of hedge accounting Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, exercised or no longer qualifies for hedge accounting. At that time, any cumulative gains or losses relating to cash flow hedges recognised in equity are initially retained in equity and subsequently recognised in the income statement in the same periods in which the previously hedged item affects profit or loss. Amounts deferred in equity with respect to net investment hedges are subsequently recognised in the income statement in the event of the disposal of the overseas operations concerned. For fair value hedges, the cumulative adjustment recorded to the carrying value of the hedged item at the date hedge accounting is discontinued is amortised to the income statement using the effective interest method.
Embedded derivatives No adjustment is made with respect to derivative clauses embedded in financial instruments or other contracts that are defined as closely related to those instruments or contracts. Consequently these embedded derivatives are not accounted for separately from the debt instrument. Where there are embedded derivatives in host contracts not closely related, the embedded derivative is separately accounted for as a derivative financial instrument. |
| |||||||||
| 120 |
|
| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 |
|
| |||||
Financial Statements
| |||||
|
|
| continued | |||||||||||
|
| 122 |
| ||||||||||
Cash and cash equivalents include cash balances, together with short-term investments with an original maturity of less than three months that are readily convertible to cash.
|
| |||||||||
Net cash and cash equivalents reflected in the cash flow statement are net of bank overdrafts, which are reported in borrowings. The carrying amounts of cash and cash equivalents and bank overdrafts approximate their fair values.
Cash at bank earns interest at floating rates based on daily bank deposit rates. Short-term deposits are made for periods varying between one day and three months, depending on the immediate cash requirements, and earn interest at the respective short-term deposit rates.
Net cash and cash equivalents held in currencies other than sterling have been converted into sterling at year-end exchange rates. For further information on currency exposures, refer to note 30(d).
|
| |||||||||
2015 £m | 2014 £m | |||||||||
| ||||||||||
| Cash at bank | 109 | 75 | ||||||||
| Short-term deposits | 10 | 279 | ||||||||
| ||||||||||
| Cash and cash equivalents excluding bank overdrafts | 119 | 354 | ||||||||
| Bank overdrafts | (3 | ) | (15) | |||||||
| ||||||||||
| Net cash and cash equivalents | 116 | 339 | ||||||||
| ||||||||||
At 31 March 2015, £1m (2014: £24m) of cash and cash equivalents were restricted. This primarily relates to cash held in captive insurance companies.
|
| |||||||||
We borrow money primarily in the form of bonds and bank loans. These are for a fixed term and may have fixed or floating interest rates or are linked to RPI. As indicated in note 15, we use derivatives to manage risks associated with interest rates and foreign exchange.
Our strategy in action Our price controls and rate plans require us to fund our networks within a certain ratio of debt to equity and, as a result, we have issued a significant amount of debt. As we continue to invest in our networks, the value of debt is expected to increase over time. To maintain a strong balance sheet and to allow us to access capital markets at commercially acceptable interest rates, we balance the amount of debt we issue with the value of our assets, and take account of certain other metrics used by credit rating agencies. |
| |||||||||
Borrowings, which include interest-bearing and inflation linked debt and overdrafts, are recorded at their initial fair value which normally reflects the proceeds received, net of direct issue costs less any repayments. Subsequently these are stated at amortised cost, using the effective interest method. Any difference between the proceeds after direct issue costs and the redemption value is recognised over the term of the borrowing in the income statement using the effective interest method.
|
| |||||||||
2015 £m | 2014 £m | |||||||||
| ||||||||||
| Current | ||||||||||
| Bank loans | 561 | 1,485 | ||||||||
| Bonds | 1,068 | 1,730 | ||||||||
| Commercial paper | 1,349 | 252 | ||||||||
| Finance leases | 44 | 19 | ||||||||
| Other loans | 3 | 10 | ||||||||
| Bank overdrafts | 3 | 15 | ||||||||
| ||||||||||
| 3,028 | 3,511 | |||||||||
| ||||||||||
| Non-current | ||||||||||
| Bank loans | 1,417 | 1,414 | ||||||||
| Bonds | 21,156 | 20,732 | ||||||||
| Finance leases | 159 | 151 | ||||||||
| Other loans | 150 | 142 | ||||||||
| ||||||||||
| 22,882 | 22,439 | |||||||||
| ||||||||||
| 25,910 | 25,950 | |||||||||
| ||||||||||
|
| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 |
|
| |||||
Financial Statements
| |||||
|
|
| ||||||||||
Cash and cash equivalents includes cash balances, together with short-term investments with a maturity of less than three months that are readily convertible to cash. |
| |||||||||
Net cash and cash equivalents reflected in the cash flow statement are net of bank overdrafts, which are reported in borrowings. The carrying amounts of cash and cash equivalents and bank overdrafts approximate their fair values. |
| |||||||||
Cash at bank earns interest at floating rates based on daily bank deposit rates. Short-term deposits are made for periods varying between one day and three months, depending on the immediate cash requirements, and earn interest at the respective short-term deposit rates. |
| |||||||||
Net cash and cash equivalents held in currencies other than sterling have been converted into sterling at year-end exchange rates. |
| |||||||||
For further information on currency exposures, refer to note 30 (d).
|
| |||||||||
| 2014 | 2013 | |||||||||
| £m | £m | |||||||||
| ||||||||||
| Cash at bank | 75 | 99 | ||||||||
| Short-term deposits | 279 | 572 | ||||||||
| ||||||||||
| Cash and cash equivalents excluding bank overdrafts | 354 | 671 | ||||||||
| Bank overdrafts | (15) | (23) | ||||||||
| ||||||||||
| Net cash and cash equivalents | 339 | 648 | ||||||||
| ||||||||||
At 31 March 2014, £24m (2013: £21m) of cash and cash equivalents were restricted. This primarily relates to cash held in captive insurance companies. |
| |||||||||
| ||||||||||
We borrow money primarily in the form of bonds and bank loans. These are for a fixed term and may have fixed or floating interest rates or are linked to RPI. As indicated in note 15, we use derivatives to manage risks associated with interest rates and foreign exchange. |
| |||||||||
Our strategy in action |
| |||||||||
Our price controls and rate plans require us to fund our networks within a certain ratio of debt to equity and, as a result, we have issued a significant amount of debt. As we continue to invest in our networks, the level of debt is expected to increase over time. To maintain a strong balance sheet and to allow us to access capital markets at commercially acceptable interest rates, we balance the amount of debt we issue with the value of our assets and take account of certain other metrics used by credit rating agencies.
|
| |||||||||
Borrowings, which include interest-bearing and inflation linked debt and overdrafts are recorded at their initial fair value which normally reflects the proceeds received, net of direct issue costs less any repayments. Subsequently these are stated at amortised cost, using the effective interest method. Any difference between the proceeds after direct issue costs and the redemption value is recognised over the term of the borrowing in the income statement using the effective interest method. |
| |||||||||
The Finance Committee controls refinancing risk by limiting the amount of our debt maturities arising from borrowings in any one year which is demonstrated by our maturity profile.
|
| |||||||||
| 2014 | 2013 | |||||||||
| £m | £m | |||||||||
| ||||||||||
| Current | ||||||||||
| Bank loans | 1,485 | 1,194 | ||||||||
| Bonds | 1,730 | 1,761 | ||||||||
| Commercial paper | 252 | 438 | ||||||||
| Finance leases | 19 | 20 | ||||||||
| Other loans | 10 | 12 | ||||||||
| Bank overdrafts | 15 | 23 | ||||||||
| ||||||||||
| 3,511 | 3,448 | |||||||||
| ||||||||||
| Non-current | ||||||||||
| Bank loans | 1,414 | 1,863 | ||||||||
| Bonds | 20,732 | 22,435 | ||||||||
| Finance leases | 151 | 175 | ||||||||
| Other loans | 142 | 174 | ||||||||
| ||||||||||
| 22,439 | 24,647 | |||||||||
| ||||||||||
| Total | 25,950 | 28,095 | ||||||||
| ||||||||||
| continued | |||||||||||
|
| 19. Borrowingscontinued | ||||||||
| Total borrowings are repayable as follows: | ||||||||
| 2014 | 2013 | |||||||
| £m | £m | |||||||
| ||||||||
Less than 1 year | 3,511 | 3,448 | ||||||
In 1-2 years | 895 | 1,872 | ||||||
In 2-3 years | 1,177 | 860 | ||||||
In 3-4 years | 1,661 | 1,255 | ||||||
In 4-5 years | 1,509 | 1,420 | ||||||
More than 5 years: | ||||||||
by instalments | 175 | 71 | ||||||
other than by instalments | 17,022 | 19,169 | ||||||
| ||||||||
| 25,950 | 28,095 | |||||||
| ||||||||
The fair value of borrowings at 31 March 2014 was £28,131m (2013: £30,792m). Where market values were available, fair value of borrowings (Level 1) was £17,388m (2013: £20,543m). Where market values were not available, fair value of borrowings (Level 2) was £10,743m (2013: £10,249m), calculated by discounting cash flows at prevailing interest rates. The notional amount outstanding of the debt portfolio at 31 March 2014 was £25,539m (2013: £27,391m). |
| |||||||
The assets of the Colonial Gas Company and the Niagara Mohawk Power Corporation and certain gas distribution assets of the Narragansett Electric Company are subject to liens and other charges and are provided as collateral over borrowings totalling £438m at 31 March 2014 (2013: £512m). |
| |||||||
Collateral is placed with or received from any counterparty where we have entered into a credit support annex to the ISDA Master Agreement once the current mark-to-market valuation of the trades between the parties exceeds an agreed threshold. Included in current bank loans is £843m (2013: £730m) in respect of cash received under collateral agreements. For further details of our borrowing facilities, refer to note 31. For further details of our bonds in issue, please refer to the debt investor section of our website. |
| |||||||
Assets held under finance leases are recognised at their fair value or, if lower, the present value of the minimum lease payments on inception. The corresponding liability is recognised as a finance lease obligation within borrowings. Rental payments are apportioned between finance costs and reduction in the finance lease obligation, so as to achieve a constant rate of interest. |
| |||||||
Assets held under finance leases are depreciated over the shorter of their useful life and the lease term. |
| |||||||
Finance lease obligations |
| |||||||
| 2014 | 2013 | |||||||
| £m | £m | |||||||
| ||||||||
Gross finance lease liabilities are repayable as follows: | ||||||||
Less than 1 year | 19 | 20 | ||||||
1-5 years | 89 | 109 | ||||||
More than 5 years | 100 | 101 | ||||||
| ||||||||
| 208 | 230 | |||||||
| ||||||||
Less: finance charges allocated to future periods | (38) | (35) | ||||||
| ||||||||
| 170 | 195 | |||||||
| ||||||||
The present value of finance lease liabilities is as follows: | ||||||||
Less than 1 year | 19 | 20 | ||||||
1-5 years | 70 | 96 | ||||||
More than 5 years | 81 | 79 | ||||||
| ||||||||
| 170 | 195 | |||||||
| ||||||||
19. Borrowingscontinued
| ||||||
Total borrowings are repayable as follows:
| ||||||
| 2015 | 2014 | |||||
| £m | £m | |||||
| ||||||
| Less than 1 year | 3,028 | 3,511 | ||||
| In 1 to 2 years | 873 | 895 | ||||
| In 2 to 3 years | 1,601 | 1,177 | ||||
| In 3 to 4 years | 1,437 | 1,661 | ||||
| In 4 to 5 years | 1,709 | 1,509 | ||||
| More than 5 years: | ||||||
| by instalments | 154 | 175 | ||||
| other than by instalments | 17,108 | 17,022 | ||||
| ||||||
| 25,910 | 25,950 | |||||
| ||||||
The fair value of borrowings at 31 March 2015 was £30,103m (2014: £28,131m). Where market values were available, fair value of borrowings (Level 1) was £14,583m (2014: £17,388m). Where market values were not available, fair value of borrowings (Level 2) was £15,520m (2014: £10,743m), calculated by discounting cash flows at prevailing interest rates. The notional amount outstanding of the debt portfolio at 31 March 2015 was £25,419m (2014: £25,539m). | ||||||
The assets of the Colonial Gas Company and the Niagara Mohawk Power Corporation and certain gas distribution assets of the Narragansett Electric Company are subject to liens and other charges and are provided as collateral over borrowings totalling £424m at 31 March 2015 (2014: £438m). | ||||||
Collateral is placed with or received from any counterparty where we have entered into a credit support annex to the ISDA Master Agreement once the current mark-to-market valuation of the trades between the parties exceeds an agreed threshold. Included in current bank loans is £540m (2014: £843m) in respect of cash received under collateral agreements. For further details of our borrowing facilities, refer to note 31. For further details of our bonds in issue, please refer to the debt investor section of our website. | ||||||
Assets held under finance leases are recognised at their fair value or, if lower, the present value of the minimum lease payments on inception. The corresponding liability is recognised as a finance lease obligation within borrowings. Rental payments are apportioned between finance costs and reduction in the finance lease obligation, so as to achieve a constant rate of interest. | ||||||
Assets held under finance leases are depreciated over the shorter of their useful life and the lease term. | ||||||
Finance lease obligations
| ||||||
| 2015 | 2014 | |||||
| £m | £m | |||||
| ||||||
| Gross finance lease liabilities are repayable as follows: | ||||||
Less than 1 year | 44 | 19 | ||||
1 to 5 years | 125 | 89 | ||||
| More than 5 years | 72 | 100 | ||||
| ||||||
| 241 | 208 | |||||
| Less: finance charges allocated to future periods | (38) | (38) | ||||
| ||||||
| 203 | 170 | |||||
| ||||||
| The present value of finance lease liabilities is as follows: | ||||||
Less than 1 year | 44 | 19 | ||||
1 to 5 years | 110 | 70 | ||||
| More than 5 years | 49 | 81 | ||||
| ||||||
| 203 | 170 | |||||
| ||||||
| 124 |
|
|
|
|
|
Unaudited commentary on borrowings
| ||
As at 31 March
| ||
The maturity profile of long-term debt in our major entities is illustrated below:
| ||
National Grid long-term debt maturity profile
| ||
 | ||
1. Includes hybrid bonds at first callable date (euro: 2020; sterling: 2025). Actual maturity of these bonds is euro: 2076; sterling: 2073.
| ||
Further information on our bonds can be found in the debt investor section of our website.
|
|
| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 125 |
Financial Statements | ||
Notes to the consolidated financial statements | ||
| – analysis of items in the primary statements continued |
| 126 |
22. Pensions and other post-retirement benefitscontinued
| ||||||||||||||||||||||||
The Group’s obligation in respect of DB pension plans is calculated separately for each plan by projecting the estimated amount of future benefit payments that employees have earned for their pensionable service in the current and prior periods. These future benefit payments are discounted to determine the present value of the liabilities and the fair value of plan assets and any unrecognised past service cost is then deducted. The discount rate used is the yield at the valuation date on high-quality corporate bonds.
| ||||||||||||||||||||||||
The Group takes advice from independent actuaries relating to the appropriateness of any key assumptions applied which include life expectancy of members, expected salary and pension increases, and inflation. It should be noted that comparatively small changes in the assumptions used may have a significant effect on the amounts recognised in the income statement and the statement of other comprehensive income and the net liability recognised in the statement of financial position.
| ||||||||||||||||||||||||
Remeasurements of net retirement obligations are recognised in full in the period in which they occur in the statement of other comprehensive income.
| ||||||||||||||||||||||||
| Risks | ||||||||||||||||||||||||
The DB pension obligations and other post-retirement benefit liabilities are exposed to the primary risks outlined below.
| ||||||||||||||||||||||||
Liabilities are calculated using discount rates set with reference to yields on high-quality corporate bonds prevailing in the US and UK debt markets and will fluctuate as yields change. Plan funds are invested in a variety of asset classes, principally: equities, government securities, corporate bonds and property. Consequently, actual returns will differ from the underlying discount rate adopted and therefore have an impact on the net balance sheet liability.
| ||||||||||||||||||||||||
Changes in inflation will affect both current and future pension payments and are partially mitigated through investment in inflation matching assets and hedging instruments.
| ||||||||||||||||||||||||
Longevity is also a key driver of liabilities and changes in expected mortality will have a direct impact on liabilities. The liabilities are, in aggregate, relatively mature which serves to mitigate this risk to some extent.
| ||||||||||||||||||||||||
Each plan’s investment strategy seeks to balance the level of investment return sought with the aim of reducing volatility and risk. In undertaking this approach reference is made both to the maturity of the liabilities and the funding level of that plan. A number of further strategies are employed to manage underlying risks, including liability matching asset strategies, diversification of asset portfolios, interest rate hedging and active management of foreign exchange exposure.
| ||||||||||||||||||||||||
Amounts recognised in the statement of financial position
| ||||||||||||||||||||||||
| UK pensions | US pensions | US other post-retirement benefits | ||||||||||||||||||||||
| 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | ||||||||||||||||
| £m | £m | £m | £m | £m | £m | £m | £m | £m | ||||||||||||||||
| ||||||||||||||||||||||||
Present value of funded obligations | (20,053) | (18,100) | (18,495) | (5,827) | (4,566) | (4,915) | (3,412) | (2,680) | (3,020) | |||||||||||||||
Fair value of plan assets | 19,453 | 17,409 | 17,392 | 5,052 | 4,229 | 4,378 | 1,903 | 1,620 | 1,515 | |||||||||||||||
| ||||||||||||||||||||||||
| (600) | (691) | (1,103) | (775) | (337) | (537) | (1,509) | (1,060) | (1,505) | ||||||||||||||||
Present value of unfunded obligations | (72) | (62) | (66) | (228) | (186) | (200) | – | – | – | |||||||||||||||
Other post-employment liabilities | – | – | – | – | – | (3) | (74) | (75) | (83) | |||||||||||||||
| ||||||||||||||||||||||||
Net defined benefit liability | (672) | (753) | (1,169) | (1,003) | (523) | (740) | (1,583) | (1,135) | (1,588) | |||||||||||||||
| ||||||||||||||||||||||||
Represented by: | ||||||||||||||||||||||||
Liabilities | (672) | (753) | (1,169) | (1,124) | (697) | (935) | (1,583) | (1,135) | (1,588) | |||||||||||||||
Assets | – | – | – | 121 | 174 | 195 | – | – | – | |||||||||||||||
| ||||||||||||||||||||||||
| (672) | (753) | (1,169) | (1,003) | (523) | (740) | (1,583) | (1,135) | (1,588) | ||||||||||||||||
| ||||||||||||||||||||||||
|
| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 127 |
Financial Statements | ||
Notes to the consolidated financial statements | ||
| – analysis of items in the primary statementscontinued |
22. Pensions and other post-retirement benefitscontinued
| ||||||||||||||||||||||||
Amounts recognised in the income statement and statement of other comprehensive income
| ||||||||||||||||||||||||
| UK pensions | US pensions | US other post-retirement benefits | ||||||||||||||||||||||
| 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | ||||||||||||||||
| £m | £m | £m | £m | £m | £m | £m | £m | £m | ||||||||||||||||
| ||||||||||||||||||||||||
| Included within operating costs | ||||||||||||||||||||||||
| Administration costs | 6 | 6 | 6 | 7 | 5 | 4 | 1 | 1 | 2 | |||||||||||||||
| ||||||||||||||||||||||||
| Included within payroll costs | ||||||||||||||||||||||||
| Defined contribution scheme costs | 26 | 19 | 16 | 22 | 21 | 23 | – | – | – | |||||||||||||||
| Defined benefit scheme costs: | ||||||||||||||||||||||||
| Current service cost | 70 | 96 | 90 | 77 | 85 | 87 | 39 | 44 | 43 | |||||||||||||||
| Past service costs – augmentations | 7 | 15 | 2 | – | – | – | – | – | – | |||||||||||||||
| Past service cost/(credit) – redundancies | 1 | (19) | (7) | – | – | – | – | – | – | |||||||||||||||
| Past service (credit)/cost – plan amendments | – | (11) | – | 1 | – | – | – | – | – | |||||||||||||||
| Special termination benefit cost – redundancies | 20 | 39 | 20 | – | – | – | – | – | – | |||||||||||||||
| LIPA MSA transition | – | – | – | – | (16) | – | – | (198) | – | |||||||||||||||
| Net loss on disposal of businesses | – | – | – | – | – | 3 | – | – | 1 | |||||||||||||||
| ||||||||||||||||||||||||
| 124 | 139 | 121 | 100 | 90 | 113 | 39 | (154) | 44 | ||||||||||||||||
| ||||||||||||||||||||||||
| Included within finance income and costs | ||||||||||||||||||||||||
| Net interest cost | 27 | 47 | 31 | 25 | 27 | 34 | 49 | 54 | 70 | |||||||||||||||
| ||||||||||||||||||||||||
| Total included in income statement | 157 | 192 | 158 | 132 | 122 | 151 | 89 | (99) | 116 | |||||||||||||||
| ||||||||||||||||||||||||
Remeasurements of net retirement benefit obligations | (46) | 354 | (560) | (408) | 81 | (35) | (317) | 50 | (119) | |||||||||||||||
| Exchange adjustments | – | – | – | (88) | 60 | (37) | (148) | 126 | (75) | |||||||||||||||
| ||||||||||||||||||||||||
Total included in the statement of other comprehensive income | (46) | 354 | (560) | (496) | 141 | (72) | (465) | 176 | (194) | |||||||||||||||
| ||||||||||||||||||||||||
Reconciliation of the net defined benefit liability
| ||||||||||||||||||||||||
| UK pensions | US pensions | US other post-retirement benefits | ||||||||||||||||||||||
| 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | ||||||||||||||||
| £m | £m | £m | £m | £m | £m | £m | £m | £m | ||||||||||||||||
| ||||||||||||||||||||||||
| Opening net defined benefit liability | (753) | (1,169) | (668) | (523) | (740) | (766) | (1,135) | (1,588) | (1,504) | |||||||||||||||
| (Cost)/credit recognised in the income statement | (131) | (173) | (142) | (110) | (101) | (128) | (89) | 99 | (116) | |||||||||||||||
Remeasurement effects recognised in the statement of other comprehensive income | (46) | 354 | (560) | (496) | 141 | (72) | (465) | 176 | (194) | |||||||||||||||
| Employer contributions | 258 | 235 | 201 | 126 | 174 | 224 | 124 | 187 | 262 | |||||||||||||||
| Other movements | – | – | – | – | 3 | 2 | (18) | (9) | (36) | |||||||||||||||
| ||||||||||||||||||||||||
| Closing net defined benefit liability | (672) | (753) | (1,169) | (1,003) | (523) | (740) | (1,583) | (1,135) | (1,588) | |||||||||||||||
| ||||||||||||||||||||||||
| 128 |
22. Pensions and other post-retirement benefitscontinued
|
| |||||||||||||||||||||||||||||||||||||||||
| UK pensions | US pensions | US other post-retirement benefits | ||||||||||||||||||||||||||||||||||||||||
2015 £m | 2014 £m | 2013 £m | 2015 £m | 2014 £m | 2013 £m | 2015 £m | 2014 £m | 2013 £m | ||||||||||||||||||||||||||||||||||
Changes in the present value of defined benefit obligations (including unfunded obligations) | ||||||||||||||||||||||||||||||||||||||||||
Opening defined benefit obligations | (18,162 | ) | (18,561 | ) | (16,775 | ) | (4,752 | ) | (5,115 | ) | (4,611 | ) | (2,680 | ) | (3,020 | ) | (2,630 | ) | ||||||||||||||||||||||||
Current service cost | (70 | ) | (96 | ) | (90 | ) | (77 | ) | (85 | ) | (87 | ) | (39 | ) | (44 | ) | (43 | ) | ||||||||||||||||||||||||
Interest cost | (762 | ) | (780 | ) | (788 | ) | (235 | ) | (221 | ) | (232 | ) | (130 | ) | (123 | ) | (133 | ) | ||||||||||||||||||||||||
Actuarial gains/(losses) – experience | 100 | 16 | 74 | (22 | ) | (22 | ) | 1 | 85 | 47 | 60 | |||||||||||||||||||||||||||||||
Actuarial losses – demographic assumptions | (95 | ) | – | – | (125 | ) | (129 | ) | 5 | (122 | ) | (154 | ) | (18 | ) | |||||||||||||||||||||||||||
Actuarial (losses)/gains – financial assumptions | (1,980 | ) | 436 | (1,765 | ) | (486 | ) | 57 | (245 | ) | (280 | ) | 49 | (218 | ) | |||||||||||||||||||||||||||
Past service (cost)/credit – redundancies | (1 | ) | 19 | 7 | – | 16 | 36 | – | 119 | 5 | ||||||||||||||||||||||||||||||||
Special termination benefit cost – redundancies | (20 | ) | (39 | ) | (20 | ) | – | – | – | – | – | – | ||||||||||||||||||||||||||||||
Past service cost – augmentations | (7 | ) | (15 | ) | (2 | ) | – | – | – | – | – | – | ||||||||||||||||||||||||||||||
Past service credit – plan amendments | – | 11 | – | (1 | ) | – | – | – | 19 | – | ||||||||||||||||||||||||||||||||
Medicare subsidy received | – | – | – | – | – | – | (19 | ) | (17 | ) | (19 | ) | ||||||||||||||||||||||||||||||
Liabilities extinguished on settlements | – | – | – | – | – | – | – | 60 | – | |||||||||||||||||||||||||||||||||
Employee contributions | (2 | ) | (2 | ) | (3 | ) | – | – | – | – | – | – | ||||||||||||||||||||||||||||||
Benefits paid | 874 | 849 | 801 | 269 | 291 | 269 | 125 | 117 | 123 | |||||||||||||||||||||||||||||||||
Exchange adjustments | – | – | – | (626 | ) | 456 | (251 | ) | (352 | ) | 267 | (147 | ) | |||||||||||||||||||||||||||||
Closing defined benefit obligations | (20,125 | ) | (18,162 | ) | (18,561 | ) | (6,055 | ) | (4,752 | ) | (5,115 | ) | (3,412 | ) | (2,680 | ) | (3,020 | ) | ||||||||||||||||||||||||
Changes in the fair value of plan assets | ||||||||||||||||||||||||||||||||||||||||||
Opening fair value of plan assets | 17,409 | 17,392 | 16,107 | 4,229 | 4,378 | 3,850 | 1,620 | 1,515 | 1,192 | |||||||||||||||||||||||||||||||||
Interest income | 735 | 733 | 757 | 210 | 194 | 198 | 81 | 69 | 63 | |||||||||||||||||||||||||||||||||
Return on assets greater/(less)than assumed | 1,929 | (98 | ) | 1,131 | 225 | 175 | 204 | – | 108 | 57 | ||||||||||||||||||||||||||||||||
Administration costs | (6 | ) | (6 | ) | (6 | ) | (7 | ) | (5 | ) | (4 | ) | (1 | ) | (1 | ) | (2 | ) | ||||||||||||||||||||||||
Employer contributions | 258 | 235 | 201 | 126 | 174 | 224 | 124 | 187 | 262 | |||||||||||||||||||||||||||||||||
Employee contributions | 2 | 2 | 3 | – | – | – | – | – | – | |||||||||||||||||||||||||||||||||
Benefits paid | (874 | ) | (849 | ) | (801 | ) | (269 | ) | (291 | ) | (269 | ) | (125 | ) | (117 | ) | (123 | ) | ||||||||||||||||||||||||
Assets distributed in settlements and transfers | – | – | – | – | – | (39 | ) | – | – | (6 | ) | |||||||||||||||||||||||||||||||
Exchange adjustments | – | – | – | 538 | (396 | ) | 214 | 204 | (141 | ) | 72 | |||||||||||||||||||||||||||||||
Closing fair value of plan assets | 19,453 | 17,409 | 17,392 | 5,052 | 4,229 | 4,378 | 1,903 | 1,620 | 1,515 | |||||||||||||||||||||||||||||||||
Actual return on plan assets | 2,664 | 635 | 1,888 | 435 | 369 | 402 | 81 | 177 | 120 | |||||||||||||||||||||||||||||||||
Expected contributions to plans in the following year | 225 | 182 | 181 | 204 | 118 | 183 | 104 | 109 | 196 | |||||||||||||||||||||||||||||||||
|
| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 129 |
Financial Statements
Notes to the consolidated financial statements
– analysis of items in the primary statementscontinued
| ||||||||||||||||||||||||||
We make provisions when an obligation exists, resulting from a past event and it is probable that cash will be paid to settle it, but the exact amount of cash required can only be estimated.
|
| |||||||||||||||||||||||||
The main estimates relate to environmental remediation and decommissioning costs for various sites we own or have owned and other provisions, including restructuring plans and lease contracts we have entered into that are now loss making.
|
| |||||||||||||||||||||||||
Our strategy in action |
| |||||||||||||||||||||||||
We are committed to the protection and enhancement of the environment. However, we have acquired, owned and operated a number of businesses which have, during the course of their operations, created an environmental impact. Therefore we have a provision that reflects the expected cost to remediate these sites. Current operations will seldom result in new sites with significant expected costs being added to the provision.
|
| |||||||||||||||||||||||||
Provisions are recognised where a legal or constructive obligation exists at the reporting date, as a result of a past event, where the amount of the obligation can be reliably estimated and where the outflow of economic benefit is probable.
|
| |||||||||||||||||||||||||
Provision is made for decommissioning and environmental costs, based on future estimated expenditures, discounted to present values. An initial estimate of decommissioning and environmental costs attributable to property, plant and equipment is recorded as part of the original cost of the related property, plant and equipment.
|
| |||||||||||||||||||||||||
Changes in the provision arising from revised estimates or discount rates or changes in the expected timing of expenditures that relate to property, plant and equipment are recorded as adjustments to their carrying value and depreciated prospectively over their remaining estimated useful economic lives; otherwise such changes are recognised in the income statement.
|
| |||||||||||||||||||||||||
The unwinding of the discount is included within the income statement as a financing charge.
|
| |||||||||||||||||||||||||
| Environmental £m | Decommissioning £m | Restructuring £m | Emissions £m | Other £m | Total provisions £m | |||||||||||||||||||||
| ||||||||||||||||||||||||||
| At 1 April 2013 | 1,198 | 81 | 53 | 8 | 420 | 1,760 | ||||||||||||||||||||
| Exchange adjustments | (79 | ) | (7 | ) | – | (1 | ) | (25 | ) | (112 | ) | |||||||||||||||
| Additions | 11 | 84 | 86 | 7 | 42 | 230 | ||||||||||||||||||||
| Unused amounts reversed | (14 | ) | – | (1 | ) | – | (3 | ) | (18 | ) | ||||||||||||||||
| Unwinding of discount | 57 | – | – | – | 16 | 73 | ||||||||||||||||||||
| Utilised | (101 | ) | (14 | ) | (59 | ) | – | (114 | ) | (288 | ) | |||||||||||||||
| ||||||||||||||||||||||||||
| At 31 March 2014 | 1,072 | 144 | 79 | 14 | 336 | 1,645 | ||||||||||||||||||||
| Exchange adjustments | 95 | 8 | – | 2 | 28 | 133 | ||||||||||||||||||||
| Additions | 25 | 7 | 9 | 7 | 57 | 105 | ||||||||||||||||||||
| Unused amounts reversed | (5 | ) | – | (2 | ) | – | (5 | ) | (12 | ) | ||||||||||||||||
| Unwinding of discount | 57 | 3 | 1 | – | 12 | 73 | ||||||||||||||||||||
| Utilised | (80 | ) | (25 | ) | (48 | ) | – | (56 | ) | (209 | ) | |||||||||||||||
| ||||||||||||||||||||||||||
| At 31 March 2015 | 1,164 | 137 | 39 | 23 | 372 | 1,735 | ||||||||||||||||||||
| ||||||||||||||||||||||||||
2015 £m | 2014 £m | |||||||||||||||||||||||||
| ||||||||||||||||||||||||||
| Current | 235 | 282 | ||||||||||||||||||||||||
| Non-current | 1,500 | 1,363 | ||||||||||||||||||||||||
| ||||||||||||||||||||||||||
| 1,735 | 1,645 | |||||||||||||||||||||||||
| ||||||||||||||||||||||||||
| 130 |
| 23. Provisionscontinued | ||||||||||||||||||||||||||||
Environmental provision |
| |||||||||||||||||||||||||||
The environmental provision represents the estimated restoration and remediation costs relating to a number of sites owned and managed by subsidiary undertakings, together with certain US sites that National Grid no longer owns. The environmental provision is as follows:
|
| |||||||||||||||||||||||||||
| 2015 | 2014 | |||||||||||||||||||||||||||
Discounted £m | Undiscounted £m | Real discount rate | Discounted £m | Undiscounted £m | Real rate | |||||||||||||||||||||||
| ||||||||||||||||||||||||||||
UK sites | 286 | 367 | 2% | 286 | 367 | 2% | ||||||||||||||||||||||
US sites | 878 | 999 | 2% | 786 | 891 | 2% | ||||||||||||||||||||||
| ||||||||||||||||||||||||||||
| 1,164 | 1,366 | 1,072 | 1,258 | |||||||||||||||||||||||||
| ||||||||||||||||||||||||||||
The remediation expenditure in the UK relates to old gas manufacturing sites and also to electricity transmission sites. Cash flows are expected to be incurred between 2015 and 2060. A number of estimation uncertainties affect the calculation of the provision, including the impact of regulation, accuracy of the site surveys, unexpected contaminants, transportation costs, the impact of alternative technologies and changes in the discount rate. This provision incorporates our best estimate of the financial effect of these uncertainties, but future changes in any of the assumptions could materially impact the calculation of the provision. The undiscounted amount is the undiscounted best estimate of the liability having regard to these uncertainties.
|
| |||||||||||||||||||||||||||
The remediation expenditure in the US is expected to be incurred between 2015 and 2071. The uncertainties regarding the calculation of this provision are similar to those considered in respect of UK sites. This expenditure is expected to be largely recoverable from ratepayers under the terms of various rate agreements in the US.
|
| |||||||||||||||||||||||||||
| Decommissioning provision | ||||||||||||||||||||||||||||
The decommissioning provision represents £51m (2014: £55m) of expenditure relating to asset retirement obligations expected to be incurred until 2075, and £64m (2014: £72m) of expenditure relating to the demolition of gas holders expected to be incurred until 2022. It also includes the net present value of the estimated expenditure (discounted at a real rate of 2%) expected to be incurred until 2033 in respect of the decommissioning of certain US nuclear generating units that National Grid no longer owns.
|
| |||||||||||||||||||||||||||
| Restructuring provision | ||||||||||||||||||||||||||||
The restructuring provision principally relates to business reorganisation costs in the UK and is expected to be incurred until 2023.
|
| |||||||||||||||||||||||||||
| Emissions provision | ||||||||||||||||||||||||||||
The provision for emission costs is expected to be settled using emission allowances granted.
|
| |||||||||||||||||||||||||||
| Other provisions | ||||||||||||||||||||||||||||
Included within other provisions at 31 March 2015 are amounts provided in respect of onerous lease commitments and rates payable on surplus properties of £117m (2014: £117m) with expenditure expected to be incurred until 2039.
| ||||||||||||||||||||||||||||
| Other provisions also include £182m (2014: £160m) of estimated liabilities in respect of past events insured by insurance subsidiary undertakings, including employer liability claims. In accordance with insurance industry practice, these estimates are based on experience from previous years and there is, therefore, no identifiable payment date. It also includes £13m (2014: £13m) in respect of obligations associated with investments in joint ventures. | ||||||||||||||||||||||||||||
|
| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 131 |
Financial Statements
Notes to the consolidated financial statements
– analysis of items in the primary statementscontinued
| ||||||||||
Ordinary share capital represents the total number of shares issued which are publicly traded. We also disclose the number of treasury shares the Company holds, which are shares that the Company has bought itself, predominantly to satisfy employee share option plan liabilities.
|
| |||||||||
Share capital is accounted for as an equity instrument. An equity instrument is any contract that includes a residual interest in the consolidated assets of the Company after deducting all its liabilities and is recorded at the proceeds received, net of direct issue costs, with an amount equal to the nominal amount of the shares issued included in the share capital account and the balance recorded in the share premium account. |
| |||||||||
| Allotted, called up and fully paid | ||||||||||
| million | £m | |||||||||
| ||||||||||
At 1 April 2013 | 3,795 | 433 | ||||||||
Issued during the year in lieu of dividends1 | 59 | 6 | ||||||||
| ||||||||||
At 31 March 2014 | 3,854 | 439 | ||||||||
Issued during the year in lieu of dividends1 | 38 | 4 | ||||||||
| ||||||||||
At 31 March 2015 | 3,892 | 443 | ||||||||
| ||||||||||
1. The issue of shares under the scrip dividend programme is considered to be a bonus issue under the terms of the Companies Act 2006 and the nominal value of the shares is charged to the share premium account.
|
| |||||||||
The share capital of the Company consists of ordinary shares of 11 17⁄43 pence nominal value each including ADSs. The ordinary shares and ADSs allow holders to receive dividends and vote at general meetings of the Company. The Company holds treasury shares but may not exercise any rights over these shares including the entitlement to vote or receive dividends. There are no restrictions on the transfer or sale of ordinary shares.
|
| |||||||||
In line with the provisions of the Companies Act 2006, the Company has amended its Articles of Association and ceased to have authorised share capital.
|
| |||||||||
| Treasury shares | ||||||||||
At 31 March 2015, the Company held 153m (2014: 124m) of its own shares. The market value of these shares as at 31 March 2015 was £1,323m (2014: £1,019m).
|
| |||||||||
The Company made the following transactions in respect of its own shares during the year ended 31 March 2015:
|
| |||||||||
1. During the year, the Company, as part of management of the dilutive effect of share issuances under the scrip dividend programme, repurchased 37m ordinary shares for aggregate consideration of £338m, including transaction costs. The shares repurchased have a nominal value of £4m and represented approximately 1% of the ordinary shares in issue as at 31 March 2015.
|
| |||||||||
2. During the year, 3m (2014: 2m) treasury shares were gifted to National Grid Employee Share Trusts and 5m (2014: 3m) treasury shares were re-issued in relation to employee share schemes, in total representing approximately 0.2% (2014: 0.1%) of the ordinary shares in issue as at 31 March 2015. The nominal value of these shares was £1m (2014: £1m) and the total proceeds received were £23m (2014: £14m).
|
| |||||||||
3. During the year, the Company made payments totalling £7m (2014: £3m) to National Grid Employee Share Trusts, outside of its share repurchase programme, to enable the trustees to make purchases of National Grid plc shares in order to satisfy the requirements of employee share option and reward plans.
|
| |||||||||
| The maximum number of shares held during the year was 153m ordinary shares (2014: 129m) representing approximately 3.9% (2014: 3.4%) of the ordinary shares in issue as at 31 March 2015 and having a nominal value of £17m (2014: £15m). | ||||||||||
| 132 |
| ||||||||||||||||||||||||||
Other equity reserves are different categories of equity as required by accounting standards and represent the impact of a number of our historical transactions.
|
| |||||||||||||||||||||||||
Other equity reserves comprise the translation reserve (see accounting policy B in note 1), cash flow hedge reserve (see note 15), available-for-sale reserve (see note 13), the capital redemption reserve and the merger reserve. The merger reserve arose as a result of the application of merger accounting principles under the then prevailing UK GAAP, which under IFRS 1 was retained for mergers that occurred prior to the IFRS transition date. Under merger accounting principles, the difference between the carrying amount of the capital structure of the acquiring vehicle and that of the acquired business was treated as a merger difference and included within reserves.
|
| |||||||||||||||||||||||||
As the amounts included in other equity reserves are not attributable to any of the other classes of equity presented, they have been disclosed as a separate classification of equity.
|
| |||||||||||||||||||||||||
| Translation £m | Cash flow hedge £m | Available- for-sale £m | Capital redemption £m | Merger £m | Total £m | |||||||||||||||||||||
| ||||||||||||||||||||||||||
At 1 April 2012 | 346 | (100 | ) | 65 | 19 | (5,165 | ) | (4,835 | ) | |||||||||||||||||
Exchange adjustments | 117 | – | – | – | – | 117 | ||||||||||||||||||||
Net (losses)/gains taken to equity | – | (31 | ) | 20 | – | – | (11 | ) | ||||||||||||||||||
Transferred to/(from) profit or loss | – | 73 | (10 | ) | – | – | 63 | |||||||||||||||||||
Tax | – | (13 | ) | (2 | ) | – | – | (15 | ) | |||||||||||||||||
| ||||||||||||||||||||||||||
At 31 March 2013 | 463 | (71 | ) | 73 | 19 | (5,165 | ) | (4,681 | ) | |||||||||||||||||
Exchange adjustments | (158 | ) | – | – | – | – | (158 | ) | ||||||||||||||||||
Net gains taken to equity | – | 63 | 6 | – | – | 69 | ||||||||||||||||||||
Transferred to/(from) profit or loss | – | 27 | (14 | ) | – | – | 13 | |||||||||||||||||||
Tax | – | (5 | ) | 3 | – | – | (2 | ) | ||||||||||||||||||
| ||||||||||||||||||||||||||
At 31 March 2014 | 305 | 14 | 68 | 19 | (5,165 | ) | (4,759 | ) | ||||||||||||||||||
Exchange adjustments | 174 | – | – | – | – | 174 | ||||||||||||||||||||
Net (losses)/gains taken to equity | – | (154 | ) | 41 | – | – | (113 | ) | ||||||||||||||||||
Transferred to/(from) profit or loss | – | 13 | (8 | ) | – | – | 5 | |||||||||||||||||||
Tax | – | 18 | (7 | ) | – | – | 11 | |||||||||||||||||||
| ||||||||||||||||||||||||||
At 31 March 2015 | 479 | (109 | ) | 94 | 19 | (5,165 | ) | (4,682 | ) | |||||||||||||||||
| ||||||||||||||||||||||||||
The merger reserve represents the difference between the carrying value of subsidiary undertaking investments and their respective capital structures following the Lattice demerger from BG Group plc and the 1999 Lattice refinancing.
|
| |||||||||||||||||||||||||
| The cash flow hedge reserve on interest rate swap contracts will be continuously transferred to the income statement until the borrowings are repaid. The amount due to be released from reserves to the income statement next year is £15m (pre-tax) and the remainder released with the same maturity profile as borrowings due after more than one year. | ||||||||||||||||||||||||||
|
| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 133 |
Financial Statements | ||
Notes to the consolidated financial statements | ||
| – analysis of items in the primary statementscontinued |
| ||||||||||||||
Net debt represents the amount of borrowings and overdrafts less cash, financial investments and related derivatives.
|
| |||||||||||||
Funding and liquidity risk management is carried out by the treasury function under policies and guidelines approved by the Finance Committee of the Board. The Finance Committee is responsible for the regular review and monitoring of treasury activity and for the approval of specific transactions, the authority for which fall outside the delegation of authority to management.
|
| |||||||||||||
The primary objective of the treasury function is to manage our funding and liquidity requirements. A secondary objective is to manage the associated financial risks, in the form of interest rate risk and foreign exchange risk, to within pre-authorised parameters. Details of the main risks arising from our financing and commodity hedging activities can be found in the risk factors discussion starting on page 173 and in note 30 to the consolidated financial statements on pages 141 to 148.
|
| |||||||||||||
Investment of surplus funds, usually in short-term fixed deposits or placements with money market funds that invest in highly liquid instruments of high credit quality, is subject to our counterparty risk management policy.
|
| |||||||||||||
The movement in cash and cash equivalents is reconciled to movements in net debt.
|
| |||||||||||||
(a) Reconciliation of net cash flow to movement in net debt
|
| |||||||||||||
2015 £m | 2014 £m | 2013 £m | ||||||||||||
| ||||||||||||||
(Decrease)/increase in cash and cash equivalents | (247 | ) | (283 | ) | 335 | |||||||||
(Decrease)/increase in financial investments | (1,157 | ) | (1,720 | ) | 2,992 | |||||||||
Increase/(decrease) in borrowings and related derivatives | 682 | 1,021 | (4,304 | ) | ||||||||||
Net interest paid on the components of net debt1 | 925 | 841 | 756 | |||||||||||
| ||||||||||||||
Change in debt resulting from cash flows | 203 | (141 | ) | (221 | ) | |||||||||
Changes in fair value of financial assets and liabilities and exchange movements | (1,777 | ) | 1,360 | (536 | ) | |||||||||
Net interest charge on the components of net debt1 | (1,068 | ) | (1,053 | ) | (1,017 | ) | ||||||||
Extinguishment of debt resulting from LIPA MSA transition (note 4) | – | 98 | – | |||||||||||
Other non-cash movements | (83 | ) | (25 | ) | (58 | ) | ||||||||
| ||||||||||||||
Movement in net debt (net of related derivative financial instruments) in the year | (2,725 | ) | 239 | (1,832 | ) | |||||||||
Net debt (net of related derivative financial instruments) at start of year | (21,190 | ) | (21,429 | ) | (19,597 | ) | ||||||||
| ||||||||||||||
Net debt (net of related derivative financial instruments) at end of year | (23,915 | ) | (21,190 | ) | (21,429 | ) | ||||||||
| ||||||||||||||
| Composition of net debt | ||||||||||||||
Net debt is made up as follows:
|
| |||||||||||||
2015 £m | 2014 £m | 2013 £m | ||||||||||||
| ||||||||||||||
Cash, cash equivalents and financial investments | 2,678 | 3,953 | 6,102 | |||||||||||
Borrowings and bank overdrafts | (25,910 | ) | (25,950 | ) | (28,095 | ) | ||||||||
Derivatives | (683 | ) | 807 | 564 | ||||||||||
| ||||||||||||||
| (23,915 | ) | (21,190 | ) | (21,429 | ) | |||||||||
| ||||||||||||||
1. An exceptional charge of £131m (2014: £nil; 2013: £nil) is included in net interest charge on the components of net debt and an exceptional cash outflow of £152m (2014: £nil; 2013: £nil) is included in net interest paid on the components of net debt. |
| |||||||||||||
| 134 |
| ||||
|
26. Net debtcontinued
| ||||||||||||||||||||||||||||||
(b) Analysis of changes in net debt
|
| |||||||||||||||||||||||||||||
Cash and cash | Bank overdrafts £m | Net cash and cash equivalents £m | Financial investments £m | Borrowings £m | Derivatives £m | Total1 £m | ||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||
At 1 April 2012 | 332 | (33 | ) | 299 | 2,391 | (22,992 | ) | 705 | (19,597 | ) | ||||||||||||||||||||
Cash flow | 325 | 10 | 335 | 2,963 | (3,433 | ) | (86 | ) | (221 | ) | ||||||||||||||||||||
Fair value gains and losses and exchange movements | 14 | – | 14 | 47 | (452 | ) | (145 | ) | (536 | ) | ||||||||||||||||||||
Interest income/(charges) | – | – | – | 30 | (1,137 | ) | 90 | (1,017 | ) | |||||||||||||||||||||
Other non-cash movements | – | – | – | – | (58 | ) | – | (58 | ) | |||||||||||||||||||||
| ||||||||||||||||||||||||||||||
At 31 March 2013 | 671 | (23 | ) | 648 | 5,431 | (28,072 | ) | 564 | (21,429 | ) | ||||||||||||||||||||
Cash flow | (291 | ) | 8 | (283 | ) | (1,755 | ) | 2,009 | (112 | ) | (141 | ) | ||||||||||||||||||
Fair value gains and losses and exchange movements | (26 | ) | – | (26 | ) | (113 | ) | 1,223 | 276 | 1,360 | ||||||||||||||||||||
Interest income/(charges) | – | – | – | 36 | (1,168 | ) | 79 | (1,053 | ) | |||||||||||||||||||||
Extinguishment of debt resulting from LIPA MSA transition (note 4) | – | – | – | – | 98 | – | 98 | |||||||||||||||||||||||
Other non-cash movements | – | – | – | – | (25 | ) | – | (25 | ) | |||||||||||||||||||||
| ||||||||||||||||||||||||||||||
At 31 March 2014 | 354 | (15 | ) | 339 | 3,599 | (25,935 | ) | 807 | (21,190 | ) | ||||||||||||||||||||
Cash flow | (259 | ) | 12 | (247 | ) | (1,194 | ) | 1,721 | (77 | ) | 203 | |||||||||||||||||||
Fair value gains and losses and exchange movements | 24 | – | 24 | 118 | (451 | ) | (1,468 | ) | (1,777 | ) | ||||||||||||||||||||
Interest income/(charges)2 | – | – | – | 36 | (1,160 | ) | 56 | (1,068 | ) | |||||||||||||||||||||
Other non-cash movements | – | – | – | – | (82 | ) | (1 | ) | (83 | ) | ||||||||||||||||||||
| ||||||||||||||||||||||||||||||
At 31 March 2015 | 119 | (3 | ) | 116 | 2,559 | (25,907 | ) | (683 | ) | (23,915 | ) | |||||||||||||||||||
| ||||||||||||||||||||||||||||||
Balances at 31 March 2015 comprise: | ||||||||||||||||||||||||||||||
Non-current assets | – | – | – | – | – | 1,539 | 1,539 | |||||||||||||||||||||||
Current assets | 119 | – | 119 | 2,559 | – | 177 | 2,855 | |||||||||||||||||||||||
Current liabilities | – | (3 | ) | (3 | ) | – | (3,025 | ) | (635 | ) | (3,663 | ) | ||||||||||||||||||
Non-current liabilities | – | – | – | – | (22,882 | ) | (1,764 | ) | (24,646 | ) | ||||||||||||||||||||
| ||||||||||||||||||||||||||||||
| 119 | (3 | ) | 116 | 2,559 | (25,907 | ) | (683 | ) | (23,915 | ) | ||||||||||||||||||||
| ||||||||||||||||||||||||||||||
1. Includes accrued interest at 31 March 2015 of £230m (2014: £239m; 2013: £250m). |
| |||||||||||||||||||||||||||||
2. An exceptional expense of £131m (2014: £nil; 2013: £nil) is included in net interest charge on the components of net debt and an exceptional cash outflow of £152m (2014: £nil; 2013: £nil) is included in net interest paid on the components of net debt. |
| |||||||||||||||||||||||||||||
|
| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 135 |
| 136 |
|
|
|
|
| ||||||
22. Pensions and other post-retirement benefitscontinued
| ||||||||||||||||||||||||
The Group takes advice from independent actuaries relating to the appropriateness of any key assumptions applied which include life expectancy of members, expected salary and pension increases, and inflation. It should be noted that comparatively small changes in the assumptions used may have a significant effect on the amounts recognised in the income statement and the statement of other comprehensive income and the net liability recognised in the statement of financial position.
| ||||||||||||||||||||||||
Remeasurements of net retirement obligations are recognised in full in the period in which they occur in the statement of other comprehensive income.
| ||||||||||||||||||||||||
| Risks | ||||||||||||||||||||||||
The DB pension obligations and other post-retirement benefit liabilities are exposed to the primary risks outlined below.
| ||||||||||||||||||||||||
Liabilities are calculated using discount rates set with reference to yields on high-quality corporate bonds prevailing in the US and UK debt markets and will fluctuate as yields change. Plan funds are invested in a variety of asset classes, principally: equities, government securities, corporate bonds and property. Consequently, actual returns will differ from the underlying discount rate adopted and therefore have an impact on the net balance sheet liability.
| ||||||||||||||||||||||||
Changes in inflation will affect both current and future pension payments and are partially mitigated through investment in inflation matching assets and hedging instruments.
| ||||||||||||||||||||||||
Longevity is also a key driver of liabilities and changes in expected mortality will have a direct impact on liabilities. The liabilities are, in aggregate, relatively mature which serves to mitigate this risk to some extent.
| ||||||||||||||||||||||||
Each plan’s investment strategy seeks to balance the level of investment return sought with the aim of reducing volatility and risk. In undertaking this approach reference is made both to the maturity of the liabilities and the funding level of that plan. A number of further strategies are employed to manage underlying risks, including liability matching asset strategies, diversification of asset portfolios, interest rate hedging and active management of foreign exchange exposure.
| ||||||||||||||||||||||||
Amounts recognised in the statement of financial position
| ||||||||||||||||||||||||
| UK pensions | US pensions | US other post-retirement benefits | ||||||||||||||||||||||
| 2014 £m | 2013 (restated)1 £m | 2012 (restated)1 £m | 2014 £m | 2013 (restated)1 £m | 2012 (restated)1 | 2014 £m | 2013 (restated)1 £m | 2012 (restated)1 £m | ||||||||||||||||
| ||||||||||||||||||||||||
Present value of funded obligations | (18,100) | (18,495) | (16,719) | (4,566) | (4,915) | (4,424) | (2,680) | (3,020) | (2,630) | |||||||||||||||
Fair value of plan assets | 17,409 | 17,392 | 16,107 | 4,229 | 4,378 | 3,850 | 1,620 | 1,515 | 1,192 | |||||||||||||||
| ||||||||||||||||||||||||
| (691) | (1,103) | (612) | (337) | (537) | (574) | (1,060) | (1,505) | (1,438) | ||||||||||||||||
Present value of unfunded obligations | (62) | (66) | (56) | (186) | (200) | (187) | – | – | – | |||||||||||||||
Other post-employment liabilities | – | – | – | – | (3) | (5) | (75) | (83) | (66) | |||||||||||||||
| ||||||||||||||||||||||||
Net defined benefit liability | (753) | (1,169) | (668) | (523) | (740) | (766) | (1,135) | (1,588) | (1,504) | |||||||||||||||
| ||||||||||||||||||||||||
Represented by: | ||||||||||||||||||||||||
Liabilities | (753) | (1,169) | (668) | (697) | (935) | (921) | (1,135) | (1,588) | (1,504) | |||||||||||||||
Assets | – | – | – | 174 | 195 | 155 | – | – | – | |||||||||||||||
| ||||||||||||||||||||||||
| (753) | (1,169) | (668) | (523) | (740) | (766) | (1,135) | (1,588) | (1,504) | ||||||||||||||||
| ||||||||||||||||||||||||
1. See note 1 on page 92.
| ||||||||||||||||||||||||
|
| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 137 |
| ||||||||||||
|
22. Pensions and other post-retirement benefitscontinued Amounts recognised in the income statement and the statement of other comprehensive income
| ||||||||||||||||||||
| UK pensions | US pensions | US other post-retirement benefits | ||||||||||||||||||
|
|
| ||||||||||||||||||
| 2014 £m | 2013 (restated)1 £m | 2012 (restated)1 £m | 2014 £m | 2013 (restated)1 £m | 2012 (restated)1 £m | 2014 £m | 2013 (restated)1 £m | 2012 (restated)1 £m | ||||||||||||
| ||||||||||||||||||||
Included within operating costs | ||||||||||||||||||||
| Administration costs | 6 | 6 | 6 | 5 | 4 | 5 | 1 | 2 | 1 | |||||||||||
| ||||||||||||||||||||
Included within payroll costs | ||||||||||||||||||||
Defined contribution scheme costs | 19 | 16 | 13 | 21 | 23 | 25 | – | – | – | |||||||||||
Defined benefit scheme costs | ||||||||||||||||||||
Current service cost | 96 | 90 | 84 | 85 | 87 | 75 | 44 | 43 | 37 | |||||||||||
Past service cost – augmentations | 15 | 2 | 2 | – | – | – | – | – | – | |||||||||||
Past service (credit)/cost – redundancies | (19) | (7) | (6) | – | – | 19 | – | – | �� | 23 | ||||||||||
Past service credit – plan amendments | (11) | – | – | – | – | – | – | – | – | |||||||||||
Special termination benefit cost – redundancies | 39 | 20 | 19 | – | – | – | – | – | – | |||||||||||
| ||||||||||||||||||||
| 139 | 121 | 112 | 106 | 110 | 119 | 44 | 43 | 60 | ||||||||||||
| ||||||||||||||||||||
Included within exceptional items | ||||||||||||||||||||
| LIPA MSA transition | – | – | – | (16) | – | – | (198) | – | – | |||||||||||
Net (gain)/loss on disposal of businesses | – | – | (6) | – | 3 | – | – | 1 | – | |||||||||||
| ||||||||||||||||||||
| – | – | (6) | (16) | 3 | – | (198) | 1 | – | ||||||||||||
| ||||||||||||||||||||
Included within finance income and costs | ||||||||||||||||||||
Net interest cost | 47 | 31 | 1 | 27 | 34 | 26 | 54 | 70 | 76 | |||||||||||
| ||||||||||||||||||||
Total included in income statement | 192 | 158 | 113 | 122 | 151 | 150 | (99) | 116 | 137 | |||||||||||
| ||||||||||||||||||||
Remeasurements of net retirement benefit obligations | 354 | (560) | (676) | 81 | (35) | (367) | 50 | (119) | (97) | |||||||||||
Exchange adjustments | – | – | – | 60 | (37) | (2) | 126 | (75) | (6) | |||||||||||
| ||||||||||||||||||||
Total included in the statement of other comprehensive income | 354 | (560) | (676) | 141 | (72) | (369) | 176 | (194) | (103) | |||||||||||
| ||||||||||||||||||||
1. See note 1 on page 92. | ||||||||||||||||||||
Reconciliation of the net defined benefit liability
| ||||||||||||||||||||
| UK pensions | US pensions | US other post-retirement benefits | ||||||||||||||||||
|
|
| ||||||||||||||||||
| 2014 £m | 2013 (restated)1 £m | 2012 (restated)1 £m | 2014 £m | 2013 (restated)1 £m | 2012 (restated)1 £m | 2014 £m | 2013 (restated)1 £m | 2012 (restated)1 £m | ||||||||||||
| ||||||||||||||||||||
Opening net defined benefit liability | (1,169) | (668) | (90) | (740) | (766) | (484) | (1,588) | (1,504) | (1,452) | |||||||||||
(Cost)/credit recognised in the income statement | (173) | (142) | (100) | (101) | (128) | (125) | 99 | (116) | (137) | |||||||||||
Remeasurement effects recognised in the statement of other comprehensive income | 354 | (560) | (676) | 141 | (72) | (369) | 176 | (194) | (103) | |||||||||||
Employer contributions | 235 | 201 | 198 | 174 | 224 | 217 | 187 | 262 | 198 | |||||||||||
Other movements | – | – | – | 3 | 2 | (5) | (9) | (36) | (10) | |||||||||||
| ||||||||||||||||||||
Closing net defined benefit liability | (753) | (1,169) | (668) | (523) | (740) | (766) | (1,135) | (1,588) | (1,504) | |||||||||||
| ||||||||||||||||||||
1. See note 1 on page 92.
| ||||||||||||||||||||
|
| Financial Statements
| ||||||||||
|
|
22. Pensions and other post-retirement benefitscontinued
| ||||||||||||||||||||
| UK pensions | US pensions | US other post-retirement benefits | ||||||||||||||||||
|
|
| ||||||||||||||||||
2014 £m | 2013 (restated)1 £m | 2012 (restated)1 £m | 2014 £m | 2013 (restated)1 £m | 2012 (restated)1 £m | 2014 £m | 2013 (restated)1 £m | 2012 (restated)1 £m | ||||||||||||
| ||||||||||||||||||||
Changes in the present value of defined benefit obligations (including unfunded obligations) | ||||||||||||||||||||
Opening defined benefit obligations | (18,561) | (16,775) | (15,443) | (5,115) | (4,611) | (4,037) | (3,020) | (2,630) | (2,458) | |||||||||||
Current service cost | (96) | (90) | (84) | (85) | (87) | (75) | (44) | (43) | (37) | |||||||||||
Interest cost | (780) | (788) | (830) | (221) | (232) | (233) | (123) | (133) | (140) | |||||||||||
Actuarial gains/(losses) – experience | 16 | 74 | (112) | (22) | 1 | (13) | 47 | 60 | 71 | |||||||||||
Actuarial losses – demographic assumptions | – | – | – | (129) | 5 | (64) | (154) | (18) | (84) | |||||||||||
Actuarial gains/(losses) – financial assumptions | 436 | (1,765) | (1,062) | 57 | (245) | (422) | 49 | (218) | (70) | |||||||||||
Past service credit/(cost) – redundancies | 19 | 7 | 6 | 16 | 36 | (19) | 119 | 5 | (23) | |||||||||||
Special termination benefit cost – redundancies | (39) | (20) | (13) | – | – | – | – | – | – | |||||||||||
Past service cost – augmentations | (15) | (2) | (2) | – | – | – | – | – | – | |||||||||||
Past service credit – plan amendments | 11 | – | – | – | – | – | 19 | – | – | |||||||||||
Transfers in | – | – | 1 | – | – | – | – | – | – | |||||||||||
Medicare subsidy received | – | – | – | – | – | – | (17) | (19) | (6) | |||||||||||
Liabilities extinguished on settlements | – | – | – | – | – | – | 60 | – | – | |||||||||||
Employee contributions | (2) | (3) | (3) | – | – | – | – | – | – | |||||||||||
Benefits paid | 849 | 801 | 767 | 291 | 269 | 268 | 117 | 123 | 127 | |||||||||||
Transferred to liabilities of businesses held for sale | – | – | – | – | – | 3 | – | – | 2 | |||||||||||
Exchange adjustments | – | – | – | 456 | (251) | (19) | 267 | (147) | (12) | |||||||||||
| ||||||||||||||||||||
Closing defined benefit obligations | (18,162) | (18,561) | (16,775) | (4,752) | (5,115) | (4,611) | (2,680) | (3,020) | (2,630) | |||||||||||
| ||||||||||||||||||||
Changes in the fair value of plan assets | ||||||||||||||||||||
Opening fair value of plan assets | 17,392 | 16,107 | 15,353 | 4,378 | 3,850 | 3,550 | 1,515 | 1,192 | 1,066 | |||||||||||
Interest income | 733 | 757 | 829 | 194 | 198 | 207 | 69 | 63 | 64 | |||||||||||
Return on assets (less)/greater than assumed | (98) | 1,131 | 498 | 175 | 204 | 132 | 108 | 57 | (14) | |||||||||||
Administration costs | (6) | (6) | (6) | (5) | (4) | (5) | (1) | (2) | (1) | |||||||||||
Transfers out | – | – | (1) | – | – | – | – | – | – | |||||||||||
Employer contributions | 235 | 201 | 198 | 174 | 224 | 217 | 187 | 262 | 198 | |||||||||||
Employee contributions | 2 | 3 | 3 | – | – | – | – | – | – | |||||||||||
Benefits paid | (849) | (801) | (767) | (291) | (269) | (268) | (117) | (123) | (127) | |||||||||||
Assets distributed in settlements and transfers | – | – | – | – | (39) | – | – | (6) | – | |||||||||||
Exchange adjustments | – | – | – | (396) | 214 | 17 | (141) | 72 | 6 | |||||||||||
| ||||||||||||||||||||
Closing fair value of plan assets | 17,409 | 17,392 | 16,107 | 4,229 | 4,378 | 3,850 | 1,620 | 1,515 | 1,192 | |||||||||||
| ||||||||||||||||||||
Actual return on plan assets | 635 | 1,888 | 1,327 | 369 | 402 | 339 | 177 | 120 | 50 | |||||||||||
| ||||||||||||||||||||
Expected contributions to plans in the following year | 182 | 181 | 129 | 118 | 183 | 224 | 109 | 196 | 248 | |||||||||||
| ||||||||||||||||||||
1. See note 1 on page 92.
| ||||||||||||||||||||
| continued | |||||||||||
|
| ||||||||||||||||||||||||||
We make provisions when an obligation exists, resulting from a past event and it is probable that cash will be paid to settle it, but the exact amount of cash required can only be estimated.
The main estimates relate to environmental remediation and decommissioning costs for various sites we own or have owned and other provisions, including restructuring plans and lease contracts we have entered into that are now loss making.
Our strategy in action We are committed to the protection and enhancement of the environment. However, we have acquired, owned and operated a number of businesses which have, during the course of their operations, created an environmental impact. Therefore we have a provision that reflects the expected cost to remediate these sites. Current operations will seldom result in new sites with significant expected costs being added to the provision. |
| |||||||||||||||||||||||||
Provisions are recognised where a legal or constructive obligation exists at the reporting date, as a result of a past event, where the amount of the obligation can be reliably estimated and where the outflow of economic benefit is probable.
Provision is made for decommissioning and environmental costs, based on future estimated expenditures, discounted to present values. An initial estimate of decommissioning and environmental costs attributable to property, plant and equipment is recorded as part of the original cost of the related property, plant and equipment.
Changes in the provision arising from revised estimates or discount rates or changes in the expected timing of expenditures that relate to property, plant and equipment are recorded as adjustments to their carrying value and depreciated prospectively over their remaining estimated useful economic lives; otherwise such changes are recognised in the income statement.
The unwinding of the discount is included within the income statement as a financing charge.
|
| |||||||||||||||||||||||||
Environmental £m | Decommissioning £m | Restructuring £m | Emissions £m | Other £m | Total provisions £m | |||||||||||||||||||||
| ||||||||||||||||||||||||||
| At 1 April 2012 | 1,158 | 112 | 70 | 23 | 368 | 1,731 | ||||||||||||||||||||
| Exchange adjustments | 45 | 5 | – | 1 | 14 | 65 | ||||||||||||||||||||
| Additions | 92 | – | 31 | 1 | 83 | 207 | ||||||||||||||||||||
Unused amounts reversed | (55) | (20) | (5) | (3) | (4) | (87) | ||||||||||||||||||||
| Unwinding of discount | 59 | – | – | – | 16 | 75 | ||||||||||||||||||||
| Utilised | (101) | (16) | (43) | (14) | (57) | (231) | ||||||||||||||||||||
| ||||||||||||||||||||||||||
| At 31 March 2013 | 1,198 | 81 | 53 | 8 | 420 | 1,760 | ||||||||||||||||||||
| Exchange adjustments | (79) | (7) | – | (1) | (25) | (112) | ||||||||||||||||||||
| Additions | 11 | 84 | 86 | 7 | 42 | 230 | ||||||||||||||||||||
Unused amounts reversed | (14) | – | (1) | – | (3) | (18) | ||||||||||||||||||||
| Unwinding of discount | 57 | – | – | – | 16 | 73 | ||||||||||||||||||||
| Utilised | (101) | (14) | (59) | – | (114) | (288) | ||||||||||||||||||||
| ||||||||||||||||||||||||||
| At 31 March 2014 | 1,072 | 144 | 79 | 14 | 336 | 1,645 | ||||||||||||||||||||
| ||||||||||||||||||||||||||
| 2014 | 2013 | |||||||||||||||||||||||||
| £m | £m | |||||||||||||||||||||||||
| ||||||||||||||||||||||||||
| Current | 282 | 308 | ||||||||||||||||||||||||
| Non-current | 1,363 | 1,452 | ||||||||||||||||||||||||
| ||||||||||||||||||||||||||
| 1,645 | 1,760 | |||||||||||||||||||||||||
| ||||||||||||||||||||||||||
|
|
|
|
|
23. Provisionscontinued Environmental provision The environmental provision represents the estimated restoration and remediation costs relating to a number of sites owned and managed by subsidiary undertakings, together with certain US sites that National Grid no longer owns. The environmental provision is as follows:
|
| |||||||||||||||||||||||||
| 2014 | 2013 | |||||||||||||||||||||||||
|
| |||||||||||||||||||||||||
Discounted £m | Undiscounted £m | Real discount rate | Discounted £m | Undiscounted £m | Real discount rate | |||||||||||||||||||||
| ||||||||||||||||||||||||||
UK sites1 | 286 | 367 | 2% | 302 | 397 | 2% | ||||||||||||||||||||
US sites2
|
| 786
|
|
| 891
|
|
| 2%
|
|
| 896
|
|
| 1,014
|
|
| 2%
|
| ||||||||
| ||||||||||||||||||||||||||
|
1,072
|
|
| 1,258
|
|
| 1,198
|
|
| 1,411
|
| |||||||||||||||
| ||||||||||||||||||||||||||
1. The remediation expenditure in the UK relates to old gas manufacturing sites and also to electricity transmission sites. Cash flows are expected to be incurred between 2014 and 2067. A number of uncertainties affect the calculation of the provision, including the impact of regulation, accuracy of the site surveys, unexpected contaminants, transportation costs, the impact of alternative technologies and changes in the discount rate. This provision incorporates our best estimate of the financial effect of these uncertainties, but future material changes in any of the assumptions could have a material impact on the calculation of the provision. The undiscounted amount is the undiscounted best estimate of the liability having regard to these uncertainties.
2. The remediation expenditure in the US is expected to be incurred between 2014 and 2059. The uncertainties regarding the calculation of this provision are similar to those considered in respect of UK sites. However, unlike the UK, with the exception of immaterial amounts of such costs, this expenditure is expected to be largely recoverable from ratepayers under the terms of various rate agreements in the US.
Decommissioning provision The decommissioning provision primarily represents both £55m (2013: £69m) of expenditure relating to asset retirement obligations expected to be incurred until 2058, and £72m (2013: £nil) of expenditure relating to the demolition of gas holders expected to be incurred until 2022. It also includes the net present value of the estimated expenditure (discounted at a real rate of 2%) expected to be incurred until 2038 in respect of the decommissioning of certain US nuclear generating units that National Grid no longer owns.
Restructuring provision The restructuring provision principally relates to business reorganisation costs in the UK and the US and is expected to be incurred until 2021.
Emissions provision The provision for emission costs is expected to be settled using emission allowances granted.
Other provisions Included within other provisions at 31 March 2014 are amounts provided in respect of onerous lease commitments and rates payable on surplus properties of £117m (2013: £165m) with expenditure expected to be incurred until 2018.
Other provisions also include £160m (2013: £174m) of estimated liabilities in respect of past events insured by insurance subsidiary undertakings, including employer liability claims. In accordance with insurance industry practice, these estimates are based on experience from previous years and there is, therefore, no identifiable payment date. It also includes £13m (2013: £13m) in respect of obligations associated with investments in joint ventures.
|
| |||||||||||||||||||||||||
| ||||||||||||
|
| ||||||
Ordinary share capital represents the total number of shares issued which are publicly traded. We also disclose the number of treasury shares the Company holds, which are shares that the Company has bought itself, predominantly to satisfy employee share option plan liabilities. | ||||||
Share capital is accounted for as an equity instrument. An equity instrument is any contract that includes a residual interest in the consolidated assets of the Company after deducting all its liabilities and is recorded at the proceeds received, net of direct issue costs, with an amount equal to the nominal amount of the shares issued included in the share capital account and the balance recorded in the share premium account.
| ||||||
Allotted, called up and fully paid | ||||||
| ||||||
| millions | £m | |||||
| ||||||
| At 1 April 2012 | 3,701 | 422 | ||||
| Issued during the year in lieu of dividends1 | 94 | 11 | ||||
| ||||||
| At 31 March 2013 | 3,795 | 433 | ||||
| Issued during the year in lieu of dividends1 | 59 | 6 | ||||
| ||||||
| At 31 March 2014 | 3,854 | 439 | ||||
| ||||||
1. The issue of shares in lieu of dividends is considered to be a bonus issue under the terms of the Companies Act 2006 and the nominal value of the shares is charged to the share premium account.
The share capital of the Company consists of ordinary shares of 11 17⁄43 pence nominal value each including ADSs. The ordinary and ADSs allow holders to receive dividends and vote at general meetings 43 of the Company. The Company holds treasury shares but may not exercise any rights over these shares including the entitlement to vote or receive dividends. There are no restrictions on the transfer or sale of ordinary shares.
In line with the provisions of the Companies Act 2006, the Company has amended its Articles of Association and ceased to have authorised share capital.
Treasury shares At 31 March 2014, the Company held 124m (2013: 129m) of its own shares. The market value of these shares as at 31 March 2014 was £1,019m (2013: £989m).
The maximum number of shares held during the year was 129m ordinary shares (2013: 135m) representing approximately 3.4% (2013: 3.6%) of the ordinary shares in issue as at 31 March 2014 and having a nominal value of £15m (2013: £15m).
| ||||||
|
|
|
|
|
| ||||||||||||||
| Other equity reserves are different categories of equity as required by accounting standards and represent the impact of a number of our historical transactions. | ||||||||||||||
Other equity reserves comprise the translation reserve (see accounting policy B), cash flow hedge reserve (see note 15), available-for-sale reserve (see note 13), the capital redemption reserve and the merger reserve. The merger reserve arose as a result of the application of merger accounting principles under the then prevailing UK GAAP, which under IFRS 1 was retained for mergers that occurred prior to the IFRS transition date. Under merger accounting principles, the difference between the carrying amount of the capital structure of the acquiring vehicle and that of the acquired business was treated as a merger difference and included within reserves.
As the amounts included in other equity reserves are not attributable to any of the other classes of equity presented, they have been disclosed as a separate classification of equity.
| ||||||||||||||
| Translation £m | Cash flow hedge £m | Available- for-sale £m | Capital redemption £m | Merger £m | Total £m | |||||||||
| ||||||||||||||
At 1 April 2011 | 319 | (103) | 60 | 19 | (5,165) | (4,870) | ||||||||
Exchange adjustments | 27 | – | – | – | – | 27 | ||||||||
Net (losses)/gains taken to equity | – | (18) | 16 | – | – | (2) | ||||||||
Transferred to profit or loss | – | 19 | (9) | – | – | 10 | ||||||||
Tax | – | 2 | (2) | – | – | – | ||||||||
| ||||||||||||||
At 31 March 2012 | 346 | (100) | 65 | 19 | (5,165) | (4,835) | ||||||||
Exchange adjustments | 117 | – | – | – | – | 117 | ||||||||
Net (losses)/gains taken to equity | – | (31) | 20 | – | – | (11) | ||||||||
Transferred to profit or loss | – | 73 | (10) | – | – | 63 | ||||||||
Tax | – | (13) | (2) | – | – | (15) | ||||||||
| ||||||||||||||
At 31 March 2013 | 463 | (71) | 73 | 19 | (5,165) | (4,681) | ||||||||
Exchange adjustments | (158) | – | – | – | – | (158) | ||||||||
Net gains taken to equity | – | 63 | 6 | – | – | 69 | ||||||||
Transferred to profit or loss | – | 27 | (14) | – | – | 13 | ||||||||
Tax | – | (5) | 3 | – | – | (2) | ||||||||
| ||||||||||||||
At 31 March 2014 | 305 | 14 | 68 | 19 | (5,165) | (4,759) | ||||||||
| ||||||||||||||
The merger reserve represents the difference between the carrying value of subsidiary undertaking investments and their respective capital structures following the Lattice demerger from BG Group plc and the 1999 Lattice refinancing of £5,745m and merger differences of £221m and £359m.
The cash flow hedge reserve on interest rate swap contracts will be continuously transferred to the income statement until the borrowings are repaid. The amount due to be released from reserves to the income statement next year is £17m (pre-tax) and the remainder released with the same maturity profile as borrowings due after more than one year.
| ||||||||||||||
| ||||||||||||
|
| ||||||||||||||
| Net debt represents the amount of borrowings and overdrafts, less cash, financial investments and related derivatives. | ||||||||||||||
Funding and liquidity risk management is carried out by the treasury function under policies and guidelines approved by the Finance Committee of the Board. The Finance Committee is responsible for the regular review and monitoring of treasury activity and for the approval of specific transactions, the authority for which falls outside the delegation of authority to management.
The primary objective of the treasury function is to manage our funding and liquidity requirements. A secondary objective is to manage the associated financial risks, in the form of interest rate risk and foreign exchange risk, to within pre-authorised parameters. Details of the main risks arising from our financing and commodity hedging activities can be found in the risk factors discussion starting on page 167 and in note 30 to the consolidated financial statements on pages 137 to 144.
Investment of surplus funds, usually in short-term fixed deposits or placements with money market funds that invest in highly liquid instruments of high credit quality, is subject to our counterparty risk management policy.
The movement in cash and cash equivalents is reconciled to movements in net debt.
(a) Reconciliation of net cash flow to movement in net debt
|
| |||||||||||||
2014 £m | 2013 £m | 2012 £m | ||||||||||||
| ||||||||||||||
| (Decrease)/increase in cash and cash equivalents | (283) | 335 | (43) | |||||||||||
| (Decrease)/increase in financial investments | (1,720) | 2,992 | (553) | |||||||||||
| Decrease/(increase) in borrowings and related derivatives | 1,021 | (4,304) | 154 | |||||||||||
| Net interest paid on the components of net debt | 841 | 756 | 721 | |||||||||||
| ||||||||||||||
| Change in debt resulting from cash flows | (141) | (221) | 279 | |||||||||||
| Changes in fair value of financial assets and liabilities and exchange movements | 1,360 | (536) | (87) | |||||||||||
| Net interest charge on the components of net debt | (1,053) | (1,017) | (1,042) | |||||||||||
| Reclassified as held for sale | – | – | (2) | |||||||||||
| Extinguishment of debt resulting from LIPA MSA transition (note 4) | 98 | – | – | |||||||||||
| Other non-cash movements | (25) | (58) | (14) | |||||||||||
| ||||||||||||||
| Movement in net debt (net of related derivative financial instruments) in the year | 239 | (1,832) | (866) | |||||||||||
| Net debt (net of related derivative financial instruments) at start of year | (21,429) | (19,597) | (18,731) | |||||||||||
| ||||||||||||||
| Net debt (net of related derivative financial instruments) at end of year | (21,190) | (21,429) | (19,597) | |||||||||||
| ||||||||||||||
Composition of net debt | ||||||||||||||
Net debt is made up as follows:
| ||||||||||||||
| 2014 £m | 2013 £m | 2012 £m | ||||||||||||
| ||||||||||||||
| Cash, cash equivalents and financial investments | 3,953 | 6,102 | 2,723 | |||||||||||
| Borrowings and bank overdrafts | (25,950) | (28,095) | (23,025) | |||||||||||
| Derivatives | 807 | 564 | 705 | |||||||||||
| ||||||||||||||
| Total net debt | (21,190) | (21,429) | (19,597) | |||||||||||
| ||||||||||||||
|
|
|
|
|
| 26. Net debtcontinued | ||||||||||||||||||||||||||||||
(b) Analysis of changes in net debt
|
| |||||||||||||||||||||||||||||
Cash and cash | Bank overdrafts £m | Net cash and cash equivalents £m | Financial investments £m | Borrowings £m | Derivatives £m | Total1 £m | ||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||
At 1 April 2011 | 384 | (42) | 342 | 2,939 | (23,156) | 1,144 | (18,731) | |||||||||||||||||||||||
Cash flow | (52) | 9 | (43) | (577) | 1,343 | (444) | 279 | |||||||||||||||||||||||
Fair value gains and losses and exchange movements | – | – | – | 8 | 22 | (117) | (87) | |||||||||||||||||||||||
Interest income/(charges) | – | – | – | 23 | (1,187) | 122 | (1,042) | |||||||||||||||||||||||
Reclassified as held for sale | – | – | – | (2) | – | – | (2) | |||||||||||||||||||||||
Other non-cash movements | – | – | – | – | (14) | – | (14) | |||||||||||||||||||||||
| ||||||||||||||||||||||||||||||
At 31 March 2012 | 332 | (33) | 299 | 2,391 | (22,992) | 705 | (19,597) | |||||||||||||||||||||||
Cash flow | 325 | 10 | 335 | 2,963 | (3,433) | (86) | (221) | |||||||||||||||||||||||
Fair value gains and losses and exchange movements | 14 | – | 14 | 47 | (452) | (145) | (536) | |||||||||||||||||||||||
Interest income/(charges) | – | – | – | 30 | (1,137) | 90 | (1,017) | |||||||||||||||||||||||
Other non-cash movements | – | – | – | – | (58) | – | (58) | |||||||||||||||||||||||
| ||||||||||||||||||||||||||||||
At 31 March 2013 | 671 | (23) | 648 | 5,431 | (28,072) | 564 | (21,429) | |||||||||||||||||||||||
Cash flow | (291) | 8 | (283) | (1,755) | 2,009 | (112) | (141) | |||||||||||||||||||||||
Fair value gains and losses and exchange movements | (26) | – | (26) | (113) | 1,223 | 276 | 1,360 | |||||||||||||||||||||||
Interest income/(charges) | – | – | – | 36 | (1,168) | 79 | (1,053) | |||||||||||||||||||||||
Extinguishment of debt resulting from LIPA MSA transition (note 4) | – | – | – | – | 98 | – | 98 | |||||||||||||||||||||||
Other non-cash movements | – | – | – | – | (25) | – | (25) | |||||||||||||||||||||||
| ||||||||||||||||||||||||||||||
At 31 March 2014 | 354 | (15) | 339 | 3,599 | (25,935) | 807 | (21,190) | |||||||||||||||||||||||
| ||||||||||||||||||||||||||||||
Balances at 31 March 2014 comprise: | ||||||||||||||||||||||||||||||
Non-current assets | – | – | – | – | – | 1,557 | 1,557 | |||||||||||||||||||||||
Current assets | 354 | – | 354 | 3,599 | – | 413 | 4,366 | |||||||||||||||||||||||
Current liabilities | – | (15) | (15) | – | (3,496) | (339) | (3,850) | |||||||||||||||||||||||
Non-current liabilities | – | – | – | – | (22,439) | (824) | (23,263) | |||||||||||||||||||||||
| ||||||||||||||||||||||||||||||
| 354 | (15) | 339 | 3,599 | (25,935) | 807 | (21,190) | ||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||
1. Includes accrued interest at 31 March 2014 of £239m (2013: £250m).
|
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| ||||||||||||
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|
|
|
|
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| ||||||||||||
|
29. Actuarial information on pensions and other post-retirement benefitscontinued | ||
| National Grid UK Pension Scheme | ||
The
| ||
Following the
| ||
This scheme ceased to allow new hires to join from 1 April 2002. A DC section of the scheme was offered for employees joining after this date, which
| ||
| National Grid Electricity Group of the Electricity Supply Pension Scheme | ||
The
| ||
Following the 2026/27. As part of National Grid has also agreed to make a payment in respect of the deficit up to a maximum of
| ||
The scheme closed to new members from 1 April 2006.
| ||
| The National Grid YouPlan | ||
YouPlan is the qualifying scheme used for automatic enrolment and
| ||
| US pension plans | ||
National
| ||
National Grid also has several DC pension plans, primarily comprised of employee savings and Company matching contributions. Non-union employees hired after 1 January 2011 as well as new hires in 10 groups of represented union employees, receive a core contribution into the DC plan, irrespective of the employee’s contribution into the plan. | ||
| US retiree healthcare and life insurance plans | ||
| National Grid provides healthcare and life insurance benefits to eligible retired US employees. Eligibility is based on certain age and length of service requirements and in most cases retirees contribute to the cost of their healthcare coverage. In the US, there is no governmental requirement to pre-fund post-retirement health and welfare plans. However, in general, the Company’s policy for funding the US retiree healthcare and life insurance plans is to contribute amounts collected in rates and capitalised in the rate base during the year. |
| 138 |
29. Actuarial information on pensions and other post-retirement benefitscontinued
| ||||||||||||||||||||||||||||||||||||||||
| Asset allocations | ||||||||||||||||||||||||||||||||||||||||
Within the asset allocations below there is significant diversification across regions, asset managers, currencies and bond categories.
|
| |||||||||||||||||||||||||||||||||||||||
| UK pensions | ||||||||||||||||||||||||||||||||||||||||
| 2015 | 2014 | 2013 | ||||||||||||||||||||||||||||||||||||||
Quoted £m | Unquoted £m | Total £m | Quoted £m | Unquoted £m | Total £m | Quoted £m | Unquoted £m | Total £m | ||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
Equities1 | 3,848 | 761 | 4,609 | 4,045 | 620 | 4,665 | 4,825 | 546 | 5,371 | |||||||||||||||||||||||||||||||
Corporate bonds2 | 6,494 | – | 6,494 | 5,706 | – | 5,706 | 5,804 | – | 5,804 | |||||||||||||||||||||||||||||||
Government securities | 4,637 | – | 4,637 | 4,161 | – | 4,161 | 4,743 | – | 4,743 | |||||||||||||||||||||||||||||||
Property | 86 | 1,082 | 1,168 | 33 | 1,057 | 1,090 | – | 1,072 | 1,072 | |||||||||||||||||||||||||||||||
Diversified alternatives3 | – | 716 | 716 | – | 793 | 793 | – | – | – | |||||||||||||||||||||||||||||||
Liability matching assets4,6 | 878 | – | 878 | 598 | – | 598 | – | – | – | |||||||||||||||||||||||||||||||
Other5,6 | 936 | 15 | 951 | 433 | (37 | ) | 396 | 426 | (24 | ) | 402 | |||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
| 16,879 | 2,574 | 19,453 | 14,976 | 2,433 | 17,409 | 15,798 | 1,594 | 17,392 | ||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
1. Included within equities at 31 March 2015 were ordinary shares of National Grid plc with a value of £14m (2014: £15m; 2013: £16m). 2. Included within corporate bonds at 31 March 2015 was an investment in a number of bonds issued by subsidiary undertakings with a value of £80m (2014: £72m; 2013: £69m). 3. Includes return seeking non-conventional asset classes. 4. Includes liability-driven investment vehicles. 5. Includes cash and cash type instruments. 6. Comparatives have been represented on a basis consistent with the current year presentation. |
| |||||||||||||||||||||||||||||||||||||||
US pensions |
| |||||||||||||||||||||||||||||||||||||||
| 2015 | 2014 | 2013 | ||||||||||||||||||||||||||||||||||||||
Quoted £m | Unquoted £m | Total £m | Quoted £m | Unquoted £m | Total £m | Quoted £m | Unquoted £m | Total £m | ||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
Equities | 617 | 1,455 | 2,072 | 508 | 1,225 | 1,733 | 507 | 1,289 | 1,796 | |||||||||||||||||||||||||||||||
Corporate bonds | 971 | 139 | 1,110 | 823 | 336 | 1,159 | 863 | 295 | 1,158 | |||||||||||||||||||||||||||||||
Government securities | 1,059 | – | 1,059 | 632 | 28 | 660 | 707 | 19 | 726 | |||||||||||||||||||||||||||||||
Property | – | 249 | 249 | – | 189 | 189 | – | 175 | 175 | |||||||||||||||||||||||||||||||
Diversified alternatives1 | – | 498 | 498 | – | 434 | 434 | – | 465 | 465 | |||||||||||||||||||||||||||||||
Other | – | 64 | 64 | – | 54 | 54 | – | 58 | 58 | |||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
| 2,647 | 2,405 | 5,052 | 1,963 | 2,266 | 4,229 | 2,077 | 2,301 | 4,378 | ||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
1. Includes return seeking non-conventional asset classes. |
| |||||||||||||||||||||||||||||||||||||||
US other post-retirement benefits | ||||||||||||||||||||||||||||||||||||||||
| 2015 | 2014 | 2013 | ||||||||||||||||||||||||||||||||||||||
Quoted £m | Unquoted £m | Total £m | Quoted £m | Unquoted £m | Total £m | Quoted £m | Unquoted £m | Total £m | ||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
Equities | 289 | 939 | 1,228 | 245 | 852 | 1,097 | 195 | 774 | 969 | |||||||||||||||||||||||||||||||
Corporate bonds | 34 | – | 34 | 2 | 10 | 12 | 2 | 11 | 13 | |||||||||||||||||||||||||||||||
Government securities | 382 | – | 382 | 357 | 1 | 358 | 361 | 2 | 363 | |||||||||||||||||||||||||||||||
Diversified alternatives1 | 47 | 100 | 147 | 43 | 110 | 153 | 43 | 127 | 170 | |||||||||||||||||||||||||||||||
Other | – | 112 | 112 | – | – | – | – | – | – | |||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
| 752 | 1,151 | 1,903 | 647 | 973 | 1,620 | 601 | 914 | 1,515 | ||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
1. Includes return seeking non-conventional asset classes.
|
| |||||||||||||||||||||||||||||||||||||||
| Target asset allocations | ||||||||||||||||||||||||||||||||||||||||
Each plan’s investment strategy is formulated specifically in order to manage risk, through investment in diversified asset classes, including the use of liability matching assets and where appropriate through the employment of interest rate and inflation hedging instruments. The target asset allocation of the plans as at 31 March 2015 is as follows:
|
| |||||||||||||||||||||||||||||||||||||||
UK pensions % | US pensions % | US other post-retirement % | ||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
Equities |
| 21 | 42 | 65 | ||||||||||||||||||||||||||||||||||||
Other |
| 79 | 58 | 35 | ||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
| 100 | 100 | 100 | ||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
|
| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 139 |
|
| Financial Statements
| ||||||||||
|
| |||||||||||
| – supplementary informationcontinued |
29. Actuarial information on pensions and other post-retirement benefitscontinued
| ||||||||||||||||||||||||||||||||||||||
| Actuarial assumptions | ||||||||||||||||||||||||||||||||||||||
The Company has applied the following financial assumptions in assessing DB liabilities.
|
| |||||||||||||||||||||||||||||||||||||
| UK pensions | US pensions | US other post-retirement benefits | ||||||||||||||||||||||||||||||||||||
| 2015 % | 2014 % | 2013 % | 2015 % | 2014 % | 2013 % | 2015 % | 2014 % | 2013 % | ||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Discount rate1 | 3.3 | 4.3 | 4.3 | 4.1 | 4.8 | 4.7 | 4.1 | 4.8 | 4.7 | |||||||||||||||||||||||||||||
Rate of increase in salaries2 | 3.2 | 3.6 | 4.1 | 3.5 | 3.5 | 3.5 | 3.5 | 3.5 | 3.5 | |||||||||||||||||||||||||||||
Rate of increase in RPI3 | 2.9 | 3.3 | 3.4 | n/a | n/a | n/a | n/a | n/a | n/a | |||||||||||||||||||||||||||||
Initial healthcare cost trend rate | n/a | n/a | n/a | n/a | n/a | n/a | 8.0 | 8.0 | 8.0 | |||||||||||||||||||||||||||||
Ultimate healthcare cost trend rate | n/a | n/a | n/a | n/a | n/a | n/a | 5.0 | 5.0 | 5.0 | |||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
1. The discount rates for pension liabilities have been determined by reference to appropriate yields on high-quality corporate bonds prevailing in the UK and US debt markets at the reporting date.
|
| |||||||||||||||||||||||||||||||||||||
2. A promotional scale has also been used where appropriate. The UK assumption stated is that relating to service prior to 1 April 2014. The UK assumption for the rate of increase in salaries for service after this date is 2.1%.
|
| |||||||||||||||||||||||||||||||||||||
3. This is the key assumption that determines assumed increases in pensions in payment and deferment in the UK only. The assumptions for the UK were 2.9% (2014: 3.3%; 2013: 3.4%) for increases in pensions in payment and 2.1% (2014: 3.3%; 2013: 3.4%) for increases in pensions in deferment.
For sensitivity analysis see note 33.
|
| |||||||||||||||||||||||||||||||||||||
| 2015 | 2014 | 2013 | ||||||||||||||||||||||||||||||||||||
| UK years | US years | UK years | US years | UK years | US years | |||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
| Assumed life expectations for a retiree age 65 | ||||||||||||||||||||||||||||||||||||||
Today: |
| |||||||||||||||||||||||||||||||||||||
Males |
| 22.7 | 21.7 | 22.9 | 20.6 | 22.7 | 19.5 | |||||||||||||||||||||||||||||||
Females |
| 25.1 | 23.9 | 25.4 | 22.9 | 25.2 | 21.4 | |||||||||||||||||||||||||||||||
In 20 years: |
| |||||||||||||||||||||||||||||||||||||
Males |
| 24.9 | 23.4 | 25.2 | 22.8 | 25.0 | 21.0 | |||||||||||||||||||||||||||||||
Females |
| 27.4 | 25.6 | 27.8 | 24.7 | 27.6 | 22.2 | |||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Maturity profile of DB obligations |
| |||||||||||||||||||||||||||||||||||||
| The weighted average duration of the DB obligation for each category of scheme is 16 years for UK pension schemes; 14 years for US pension schemes and 18 years for US other post-retirement benefits. | ||||||||||||||||||||||||||||||||||||||
| 140 |
29. Actuarial information on pensions and other post-retirement benefitscontinued US retiree healthcare and life insurance plans National Grid provides healthcare and life insurance benefits to eligible retired US employees. Eligibility is based on certain age and length of service requirements and in most cases retirees contribute to the cost of their healthcare coverage. In the US, there is no governmental requirement to pre-fund post-retirement health and welfare plans. However, in general, the Company’s policy for funding the US retiree healthcare and life insurance plans is to contribute amounts collected in rates and capitalised in the rate bases during the year.
Asset allocations Within the asset allocations below there is significant diversification across regions, asset managers, currencies and bond categories.
UK pensions
|
| |||||||||||||||||||||||||||||||||||||||
| 2014 | 2013 | 2012 | ||||||||||||||||||||||||||||||||||||||
| Quoted | Unquoted | Total | Quoted | Unquoted | Total | Quoted | Unquoted | Total | ||||||||||||||||||||||||||||||||
| £m | £m | £m | £m | £m | £m | £m | £m | £m | ||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
Equities1 | 4,045 | 620 | 4,665 | 4,825 | 546 | 5,371 | 4,796 | 570 | 5,366 | |||||||||||||||||||||||||||||||
Corporate bonds2 | 5,706 | – | 5,706 | 5,804 | – | 5,804 | 5,330 | – | 5,330 | |||||||||||||||||||||||||||||||
Government securities | 4,161 | – | 4,161 | 4,743 | – | 4,743 | 3,906 | – | 3,906 | |||||||||||||||||||||||||||||||
Property | 33 | 1,057 | 1,090 | – | 1,072 | 1,072 | – | 1,160 | 1,160 | |||||||||||||||||||||||||||||||
Diversified alternatives3 | – | 793 | 793 | – | – | – | – | – | – | |||||||||||||||||||||||||||||||
Other4 | 1,031 | (37 | ) | 994 | 426 | (24 | ) | 402 | 407 | (62 | ) | 345 | ||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
Total | 14,976 | 2,433 | 17,409 | 15,798 | 1,594 | 17,392 | 14,439 | 1,668 | 16,107 | |||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
1. Included within equities at 31 March 2014 were ordinary shares of National Grid plc with a value of £15m (2013: £16m; 2012: £13m). 2. Included within corporate bonds at 31 March 2014 was an investment in a number of bonds issued by subsidiary undertakings with a value of £72m (2013: £69m; 2012: £50m). 3. Includes return seeking non-conventional asset classes. 4. Includes liability-driven investment vehicles, cash and cash type instruments.
US pensions
|
| |||||||||||||||||||||||||||||||||||||||
| 2014 | 2013 | 2012 | ||||||||||||||||||||||||||||||||||||||
| Quoted | Unquoted | Total | Quoted | Unquoted | Total | Quoted | Unquoted | Total | ||||||||||||||||||||||||||||||||
| £m | £m | £m | £m | £m | £m | £m | £m | £m | ||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
Equities | 508 | 1,225 | 1,733 | 507 | 1,289 | 1,796 | 619 | 1,025 | 1,644 | |||||||||||||||||||||||||||||||
Corporate bonds | 823 | 336 | 1,159 | 863 | 295 | 1,158 | 733 | 229 | 962 | |||||||||||||||||||||||||||||||
Government securities | 632 | 28 | 660 | 707 | 19 | 726 | 649 | 20 | 669 | |||||||||||||||||||||||||||||||
Property | – | 189 | 189 | – | 175 | 175 | – | 148 | 148 | |||||||||||||||||||||||||||||||
Diversified alternatives1 | – | 434 | 434 | – | 465 | 465 | – | 411 | 411 | |||||||||||||||||||||||||||||||
Other | – | 54 | 54 | – | 58 | 58 | – | 16 | 16 | |||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
Total | 1,963 | 2,266 | 4,229 | 2,077 | 2,301 | 4,378 | 2,001 | 1,849 | 3,850 | |||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
1. Includes return seeking non-conventional asset classes.
US other post-retirement benefits
|
| |||||||||||||||||||||||||||||||||||||||
| 2014 | 2013 | 2012 | ||||||||||||||||||||||||||||||||||||||
| Quoted | Unquoted | Total | Quoted | Unquoted | Total | Quoted | Unquoted | Total | ||||||||||||||||||||||||||||||||
| £m | £m | £m | £m | £m | £m | £m | £m | £m | ||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
Equities | 245 | 852 | 1,097 | 195 | 774 | 969 | 252 | 523 | 775 | |||||||||||||||||||||||||||||||
Corporate bonds | 2 | 10 | 12 | 2 | 11 | 13 | 1 | 10 | 11 | |||||||||||||||||||||||||||||||
Government securities | 357 | 1 | 358 | 361 | 2 | 363 | 262 | 4 | 266 | |||||||||||||||||||||||||||||||
Diversified alternatives1 | 43 | 110 | 153 | 43 | 127 | 170 | 87 | 53 | 140 | |||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
Total | 647 | 973 | 1,620 | 601 | 914 | 1,515 | 602 | 590 | 1,192 | |||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
1. Includes return seeking non-conventional asset classes.
Target asset allocations Each plan’s investment strategy is formulated specifically in order to manage risk, through investment in diversified asset classes, including the use of liability matching assets and where appropriate through the employment of interest rate and inflation hedging instruments. The target asset allocation of the plans as at 31 March 2014 is as follows:
|
| |||||||||||||||||||||||||||||||||||||||
| UK pensions | US pensions | US other post-retirement benefits | ||||||||||||||||||||||||||||||||||||||
| % | % | % | ||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
Equities | 31 | 47 | 70 | |||||||||||||||||||||||||||||||||||||
Other | 69 | 53 | 30 | |||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
Total | 100 | 100 | 100 | |||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
| ||||||||||||
|
29. Actuarial information on pensions and other post-retirement benefitscontinued
Actuarial assumptions The Company has applied the following financial assumptions in assessing DB liabilities:
|
| |||||||||||||||||||||||||||||||||||||
| UK pensions | US pensions | US other post-retirement benefits | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
| 2014 | 2013 | 2012 | 2014 | 2013 | 2012 | 2014 | 2013 | 2012 | ||||||||||||||||||||||||||||||
| % | % | % | % | % | % | % | % | % | ||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Discount rate1 | 4.3 | 4.3 | 4.8 | 4.8 | 4.7 | 5.1 | 4.8 | 4.7 | 5.1 | |||||||||||||||||||||||||||||
Rate of increase in salaries2 | 3.6 | 4.1 | 4.0 | 3.5 | 3.5 | 3.5 | 3.5 | 3.5 | 3.5 | |||||||||||||||||||||||||||||
Rate of increase in RPI3 | 3.3 | 3.4 | 3.2 | n/a | n/a | n/a | n/a | n/a | n/a | |||||||||||||||||||||||||||||
Initial healthcare cost trend rate | n/a | n/a | n/a | n/a | n/a | n/a | 8.0 | 8.0 | 8.0 | |||||||||||||||||||||||||||||
Ultimate healthcare cost trend rate | n/a | n/a | n/a | n/a | n/a | n/a | 5.0 | 5.0 | 5.0 | |||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
1. |
The discount rates for pension liabilities have been determined by reference to appropriate yields on high-quality corporate bonds prevailing in the UK and US debt markets at the reporting date. |
| ||||||||||||||||||||||||||||||||||||
2. |
A promotional scale has also been used where appropriate. The UK assumption stated is that relating to service prior to 1 April 2013. The UK assumption for the rate of increase in salaries for service after this date is 2.5%. |
| ||||||||||||||||||||||||||||||||||||
3. |
This is the key assumption that determines assumed increases in pensions in payment and deferment in the UK only. The assumptions for the UK were 3.3% (2013: 3.4%; 2012: 3.2%) for increases in pensions in payment and 3.3% (2013: 3.4%; 2012: 3.2%) for increases in pensions in deferment.
|
| ||||||||||||||||||||||||||||||||||||
| 2014 | 2013 | 2012 | ||||||||||||||||||||||||||||||||||||
| UK | US | UK | US | UK | US | |||||||||||||||||||||||||||||||||
| years | years | years | years | years | years | |||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Assumed life expectations for a retiree age 65 |
| |||||||||||||||||||||||||||||||||||||
Today | ||||||||||||||||||||||||||||||||||||||
Males | 22.9 | 20.6 | 22.7 | 19.5 | 22.5 | 19.4 | ||||||||||||||||||||||||||||||||
Females | 25.4 | 22.9 | 25.2 | 21.4 | 25.0 | 21.3 | ||||||||||||||||||||||||||||||||
In 20 years | ||||||||||||||||||||||||||||||||||||||
Males | 25.2 | 22.8 | 25.0 | 21.0 | 24.9 | 20.9 | ||||||||||||||||||||||||||||||||
Females
| 27.8 | 24.7 | 27.6 | 22.2 | 27.5 | 22.2 | ||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Maturity profile of defined benefit obligations The weighted average duration of the DB obligation for each category of scheme is 16 years for UK pension schemes; 13 years for US pension schemes and 15 years for US other post-retirement benefits. The forecast timing of benefits payable to scheme members for each of these categories is shown on a net present value basis in the chart below.
Maturity profile £m |
| |||||||||||||||||||||||||||||||||||||
| ||||||||||||
|
| ||||||||||||
Our activities expose us to a variety of financial risks including currency risk, interest rate risk, commodity price risk, credit risk, capital risk and liquidity risk. Our risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential volatility of financial performance from these risks. We use financial instruments, including derivative financial instruments, to manage risks of this type. |
| |||||||||||
This note describes our approach to managing risk, including an analysis of assets and liabilities by currency type and an analysis of interest rate category for our net debt. We are required by accounting standards to also include a number of specific disclosures (such as a maturity analysis of contractual undiscounted cash flows) and have included these requirements below.
|
| |||||||||||
Risk management related to financing activities is carried out by a central treasury department under policies approved by the Finance Committee of the Board. The objective of the treasury department is to manage funding and liquidity requirements, including managing associated financial risks, to within acceptable boundaries. The Finance Committee provides written principles for overall risk management, as well as written policies covering specific areas such as foreign exchange risk, interest rate risk, credit risk, liquidity risk, use of derivative financial instruments and non-derivative financial instruments, and investment of excess liquidity. |
| |||||||||||
We have exposure to the following risks, which are described in more detail below:
|
| |||||||||||
| ● | credit risk; | |||||||||||
| ● | liquidity risk; | |||||||||||
| ● | interest rate risk; | |||||||||||
| ● | currency risk; | |||||||||||
| ● | commodity risk; and | |||||||||||
| ● | capital risk. | |||||||||||
(a) Credit risk |
| |||||||||||
We are exposed to the risk of loss resulting from counterparties’ default on their commitments including failure to pay or make a delivery on a contract. This risk is inherent in our commercial business activities. We are exposed to credit risk on our cash and cash equivalents, derivative financial instruments, deposits with banks and financial institutions, as well as credit exposures to wholesale and retail customers, including outstanding receivables and committed transactions. |
| |||||||||||
Treasury credit risk |
| |||||||||||
Counterparty risk arises from the investment of surplus funds and from the use of derivative financial instruments. As at 31 March 2015, the following limits were in place for investments held with banks and financial institutions:
|
| |||||||||||
Maximum limit £m | Long-term limit £m | |||||||||||
| ||||||||||||
Triple ‘A’ G8 sovereign entities (AAA) | Unlimited | Unlimited | ||||||||||
Triple ‘A’ vehicles (AAA) | 319 | 270 | ||||||||||
Triple ‘A’ range institutions and non G8 sovereign entities (AAA) | 1,088 to 1,642 | 548 to 859 | ||||||||||
Double ‘A+’ G8 sovereign entities (AA+) | 1,642 | 859 | ||||||||||
Double ‘A’ range institutions (AA) | 650 to 818 | 331 to 409 | ||||||||||
Single ‘A’ range institutions (A) | 224 to 319 | 114 to 163 | ||||||||||
| ||||||||||||
As at 31 March 2014 and 2015, we had a number of exposures to individual counterparties. In accordance with our treasury policies, counterparty credit exposure utilisations are monitored daily against the counterparty credit limits. Counterparty credit ratings and market conditions are reviewed continually with limits being revised and utilisation adjusted, if appropriate. Management does not expect any significant losses from non performance by these counterparties. |
| |||||||||||
Commodity credit risk The credit policy for commodity transactions is owned and monitored by the Executive Energy Risk Committee, under authority delegated by the Board and Executive Committee, and establishes controls and procedures to determine, monitor and minimise the credit risk of counterparties. |
| |||||||||||
Wholesale and retail credit risk Our principal commercial exposure in the UK is governed by the credit rules within the regulated codes: Uniform Network Code and Connection and Use of System Code. These set out the level of credit relative to the RAV for each credit rating. In the US, we are required to supply electricity and gas under state regulations. Our credit policies and practices are designed to limit credit exposure by collecting security deposits prior to providing utility services, or after utility service has commenced if certain applicable regulatory requirements are met. Collection activities are managed on a daily basis. Sales to retail customers are usually settled in cash, cheques, electronic bank payments or by using major credit cards. We are committed to measuring, monitoring, minimising and recording counterparty credit risk in our wholesale business. The utilisation of credit limits is regularly monitored and collateral is collected against these accounts when necessary. Management does not expect any significant losses of receivables that have not been provided for as shown in note 17.
|
| |||||||||||
|
| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 141 |
Financial Statements
| |||
|
| ||
| – supplementary informationcontinued |
| 30. Financial risk managementcontinued | ||||||||||||||
(a) Credit riskcontinued | ||||||||||||||
| Offsetting financial assets and liabilities | ||||||||||||||
| The following tables set out our financial assets and liabilities which are subject to offset and to enforceable master netting arrangements or similar agreements. The tables show the amounts which are offset and reported net in the statement of financial position. Amounts which cannot be offset under IFRS, but which could be settled net under terms of master netting agreements if certain conditions arise, and with collateral received or pledged, are shown to present National Grid’s net exposure. | ||||||||||||||
Financial assets and liabilities on different transactions are only reported net if the transactions are with the same counterparty, a legal right of offset exists and the cash flows are intended to be settled on a net basis. | ||||||||||||||
Amounts which do not meet the criteria for offsetting on the statement of financial position but could be settled net in certain circumstances principally relate to derivative transactions under ISDA agreements where each party has the option to settle amounts on a net basis in the event of default of the other party. | ||||||||||||||
Commodity contracts that have not been offset on the balance sheet may be settled net in certain circumstances under ISDA or NAESB (North American Energy Standards Board) agreements. | ||||||||||||||
National Grid has similar arrangements in relation to bank account balances and bank overdrafts; and trade payables and trade receivables which are subject to general terms and conditions. However, these balances are immaterial.
| ||||||||||||||
| Related amounts available statement of financial position |
| ||||||||||||
| At 31 March 2015 | Gross carrying amounts £m | Gross £m | Net amount £m | Financial £m | Cash collateral £m | Net amount £m | ||||||||
| ||||||||||||||
| Assets | ||||||||||||||
Derivative financial instruments | 1,716 | – | 1,716 | (839) | (527) | 350 | ||||||||
Commodity contracts | 64 | – | 64 | (11) | – | 53 | ||||||||
| ||||||||||||||
| 1,780 | – | 1,780 | (850) | (527) | 403 | |||||||||
| ||||||||||||||
| Liabilities | ||||||||||||||
Derivative financial instruments | (2,399) | – | (2,399) | 839 | 1,125 | (435) | ||||||||
Commodity contracts | (182) | 11 | (171) | 11 | – | (160) | ||||||||
| ||||||||||||||
| (2,581) | 11 | (2,570) | 850 | 1,125 | (595) | |||||||||
| ||||||||||||||
| ||||||||||||||
| (801) | 11 | (790) | – | 598 | (192) | |||||||||
| ||||||||||||||
|
Related amounts available to be offset but not offset in statement of financial position |
| ||||||||||||
| At 31 March 2014 | Gross carrying amounts £m | Gross amounts offset1 £m | Net amount presented in statement of financial position £m | Financial instruments £m | Cash collateral received/ pledged £m | Net amount £m | ||||||||
| ||||||||||||||
| Assets | ||||||||||||||
Derivative financial instruments | 1,970 | – | 1,970 | (609) | (831) | 530 | ||||||||
Commodity contracts | 89 | (2) | 87 | (7) | (2) | 78 | ||||||||
| ||||||||||||||
| 2,059 | (2) | 2,057 | (616) | (833) | 608 | |||||||||
| ||||||||||||||
| Liabilities | ||||||||||||||
Derivative financial instruments | (1,163) | – | (1,163) | 609 | 374 | (180) | ||||||||
Commodity contracts | (123) | – | (123) | 7 | – | (116) | ||||||||
| ||||||||||||||
| (1,286) | – | (1,286) | 616 | 374 | (296) | |||||||||
| ||||||||||||||
| ||||||||||||||
| 773 | (2) | 771 | – | (459) | 312 | |||||||||
| ||||||||||||||
1. The gross financial assets and liabilities offset in the statement of financial position primarily relate to commodity contracts. Offsets relate to margin payments for NYMEX gas futures which are traded on a recognised exchange.
| ||||||||||||||
| 142 |
| ||||||||||
Our activities expose us to a variety of financial risk including currency risk, interest rate risk, commodity price risk, credit risk, capital risk and liquidity risk. Our risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential volatility of financial performance of these risks. We use financial instruments, including derivative financial instruments, to manage risks of this type.
This note describes our approach to managing risk, including an analysis of assets and liabilities by currency type and an analysis of interest rate category for our net debt. We are required by accounting standards to also include a number of specific disclosures (such as a maturity analysis of contractual undiscounted cash flows) and have included these requirements below. |
| |||||||||
Risk management related to financing activities is carried out by a central treasury department under policies approved by the Finance Committee of the Board. The objective of the treasury department is to manage funding and liquidity requirements, including managing associated financial risks, to within acceptable boundaries. The Finance Committee provides written principles for overall risk management, as well as written policies covering specific areas such as foreign exchange risk, interest rate risk, credit risk, liquidity risk, use of derivative financial instruments and non-derivative financial instruments, and investment of excess liquidity.
We have exposure to the following risks, which are described in more detail below:
— credit risk; — liquidity risk; — interest rate risk; — currency risk; — commodity risk; and — capital risk
(a) Credit risk We are exposed to the risk of loss resulting from counterparties’ default on their commitments including failure to pay or make a delivery on a contract. This risk is inherent in our commercial business activities. We are exposed to credit risk on our cash and cash equivalents, derivative financial instruments, deposits with banks and financial institutions, as well as credit exposures to wholesale and retail customers, including outstanding receivables and committed transactions.
Treasury credit risk Counterparty risk arises from the investment of surplus funds and from the use of derivative instruments. As at 31 March 2014, the following limits were in place for investments held with banks and financial institutions:
|
| |||||||||
| Maximum limit | Long-term limit | |||||||||
| £m | £m | |||||||||
| ||||||||||
AAA rated G8 sovereign entities | Unlimited | Unlimited | ||||||||
Triple ‘A’ vehicles | 311 | 263 | ||||||||
Triple ‘A’ range institutions (AAA) | 1,060 to 1,599 | 534 to 837 | ||||||||
Double ‘A’ range institutions (AA) | 633 to 797 | 322 to 398 | ||||||||
Single ‘A’ range institutions (A) | 218 to 311 | 111 to 159 | ||||||||
| ||||||||||
As at 31 March 2013 and 2014, we had a number of exposures to individual counterparties. In accordance with our treasury policies, counterparty credit exposure utilisations are monitored daily against the counterparty credit limits. Counterparty credit ratings and market conditions are reviewed continually with limits being revised and utilisation adjusted, if appropriate. Management does not expect any significant losses from non performance by these counterparties.
Commodity credit risk The credit policy for commodity transactions is owned and monitored by the Executive Energy Risk Committee, under authority delegated by the Board and Executive Committee, and establishes controls and procedures to determine, monitor and minimise the credit risk of counterparties.
Wholesale and retail credit risk Our principal commercial exposure in the UK is governed by the credit rules within the regulated codes Uniform Network Code and Connection and Use of System Code. These set out the level of credit relative to the RAV for each credit rating. In the US, we are required to supply electricity and gas under state regulations. Our credit policies and practices are designed to limit credit exposure by collecting security deposits prior to providing utility services, or after utility service has commenced if certain applicable regulatory requirements are met. Collection activities are managed on a daily basis. Sales to retail customers are usually settled in cash, cheques, electronic bank payments or by using major credit cards. We are committed to measuring, monitoring, minimising and recording counterparty credit risk in our wholesale business. The utilisation of credit limits is regularly monitored and collateral is collected against these accounts when necessary. Management does not expect any significant losses of receivables that have not been provided for as shown in note 17.
|
| |||||||||
| ||||||||||||
|
30. Financial risk managementcontinued
(a) Credit riskcontinued Offsetting financial assets and liabilities The following tables set out our financial assets and liabilities which are subject to offset and to enforceable master netting arrangements or similar agreements. The tables show the amounts which are offset and reported net in the statement of financial position. Amounts which cannot be offset under IFRS, but which could be settled net under terms of master netting agreements if certain conditions arise, and with collateral received or pledged, are shown to present National Grid’s net exposure.
Financial assets and liabilities on different transactions are only reported net if the transactions are with the same counterparty, a legal right of offset exists and the cash flows are intended to be settled on a net basis.
Amounts which do not meet the criteria for offsetting on the statement of financial position but could be settled net in certain circumstances principally relate to derivative transactions under ISDA (International Swaps and Derivatives Association) agreements where each party has the option to settle amounts on a net basis in the event of default of the other party.
Commodity contracts that have not been offset on the balance sheet may be settled net in certain circumstances under ISDA or NAESB (North American Energy Standards Board) agreements.
National Grid has similar arrangements in relation to bank account balances and bank overdrafts; and trade payables and trade receivables which are subject to general terms and conditions. However, these balances are immaterial.
|
| |||||||||||||||||||||||||||
| Related amounts available to be offset but not offset in statement of financial position | ||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||
As at 31 March 2014 | Gross £m | Gross £m | Net amount £m | Financial £m | Cash £m | Net amount £m | ||||||||||||||||||||||
| ||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||
Derivative financial instruments | 1,970 | – | 1,970 | (609 | ) | (831 | ) | 530 | ||||||||||||||||||||
Commodity contracts
|
| 89
|
|
| (2
| )
|
| 87
|
|
| (7
| )
|
| (2
| )
|
| 78
|
| ||||||||||
| ||||||||||||||||||||||||||||
| 2,059 | (2 | ) | 2,057 | (616 | ) | (833 | ) | 608 | ||||||||||||||||||||
| ||||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||
Derivative financial instruments | (1,163 | ) | – | (1,163 | ) | 609 | 374 | (180) | ||||||||||||||||||||
Commodity contracts
|
| (123
| )
|
| –
|
|
| (123
| )
|
| 7
|
|
| –
|
|
| (116)
|
| ||||||||||
| ||||||||||||||||||||||||||||
| (1,286 | ) | – | (1,286 | ) | 616 | 374 | (296) | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||
Total | 773 | (2 | ) | 771 | – | (459 | ) | 312 | ||||||||||||||||||||
| ||||||||||||||||||||||||||||
Related amounts available to be offset but not offset in statement of financial position | ||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||
| As at 31 March 2013 | Gross £m | Gross £m | Net amount £m | Financial £m | Cash £m | Net amount £m | ||||||||||||||||||||||
| ||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||
Derivative financial instruments | 2,245 | – | 2,245 | (891 | )2 | (709 | ) | 645 | ||||||||||||||||||||
Commodity contracts
|
| 91
|
|
| (2
| )
|
| 89
|
|
| (1
| )
|
| –
|
|
| 88
|
| ||||||||||
| ||||||||||||||||||||||||||||
| 2,336 | (2 | ) | 2,334 | (892 | ) | (709 | ) | 733 | ||||||||||||||||||||
| ||||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||
Derivative financial instruments | (1,681 | ) | – | (1,681 | ) | 891 | 2 | 440 | (350) | |||||||||||||||||||
Commodity contracts
|
| (140
| )
|
| 1
|
|
| (139
| )
|
| 1
|
|
| –
|
|
| (138)
|
| ||||||||||
| ||||||||||||||||||||||||||||
| (1,821 | ) | 1 | (1,820 | ) | 892 | 440 | (488) | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||
Total | 515 | (1 | ) | 514 | – | (269 | ) | 245 | ||||||||||||||||||||
| ||||||||||||||||||||||||||||
1. |
The gross financial assets and liabilities offset in the statement of financial position primarily relate to commodity contracts. Offsets relate to margin payments for NYMEX gas futures which are traded on a recognised exchange. |
| ||||||||||||||||||||||||||
2. |
Comparatives have been restated to present items on a basis consistent with the current year.
|
| ||||||||||||||||||||||||||
| ||||||||||||
|
| 30. Financial risk managementcontinued | ||||||||||||
(b) Liquidity risk | ||||||||||||
| Our policy is to determine our liquidity requirements by the use of both short-term and long-term cash flow forecasts. These forecasts are supplemented by a financial headroom analysis which is used to assess funding requirements for at least a 24 month period and maintain adequate liquidity for a continuous 12 month period. | ||||||||||||
We believe our contractual obligations, including those shown in commitments and contingencies in note 27 can be met from existing cash and investments, operating cash flows and other financings that we reasonably expect to be able to secure in the future, together with the use of committed facilities if required. | ||||||||||||
Our debt agreements and banking facilities contain covenants, including those relating to the periodic and timely provision of financial information by the issuing entity and financial covenants such as restrictions on the level of subsidiary indebtedness. Failure to comply with these covenants, or to obtain waivers of those requirements, could in some cases trigger a right, at the lender’s discretion, to require repayment of some of our debt and may restrict our ability to draw upon our facilities or access the capital markets. | ||||||||||||
The following is an analysis of the contractual undiscounted cash flows payable under financial liabilities and derivative assets and liabilities as at the reporting date:
| ||||||||||||
| At 31 March 2015 |
Less than 1 year £m | 1 to 2 years £m | 2 to 3 years £m |
More than 3 years £m | Total £m | |||||||
| ||||||||||||
| Non-derivative financial liabilities | ||||||||||||
Borrowings, excluding finance lease liabilities | (2,289) | (1,179) | (1,513) | (20,235) | (25,216) | |||||||
Interest payments on borrowings1 | (790) | (790) | (766) | (13,587) | (15,933) | |||||||
Finance lease liabilities | (44) | (41) | (32) | (86) | (203) | |||||||
Other non-interest bearing liabilities | (2,744) | (216) | – | – | (2,960) | |||||||
| Derivative financial liabilities | ||||||||||||
Derivative contracts – receipts | 602 | 244 | 411 | 1,194 | 2,451 | |||||||
Derivative contracts – payments | (935) | (318) | (952) | (1,631) | (3,836) | |||||||
Commodity contracts | (116) | (43) | (21) | – | (180) | |||||||
| ||||||||||||
| (6,316) | (2,343) | (2,873) | (34,345) | (45,877) | ||||||||
| ||||||||||||
At 31 March 2014 | Less than 1 year £m | 1 to 2 years £m | 2 to 3 years £m | More than 3 years £m | Total £m | |||||||
| ||||||||||||
| Non-derivative financial liabilities | ||||||||||||
Borrowings, excluding finance lease liabilities | (3,091) | (864) | (1,140) | (20,275) | (25,370) | |||||||
Interest payments on borrowings1 | (826) | (812) | (796) | (14,571) | (17,005) | |||||||
Finance lease liabilities | (18) | (19) | (20) | (112) | (169) | |||||||
Other non-interest bearing liabilities | (2,584) | (190) | – | – | (2,774) | |||||||
| Derivative financial liabilities | ||||||||||||
Derivative contracts – receipts | 1,068 | 950 | 153 | 1,155 | 3,326 | |||||||
Derivative contracts – payments | (556) | (861) | (144) | (1,638) | (3,199) | |||||||
Commodity contracts | (177) | (30) | (22) | 2 | (227) | |||||||
| ||||||||||||
| (6,184) | (1,826) | (1,969) | (35,439) | (45,418) | ||||||||
| ||||||||||||
1. The interest on borrowings is calculated based on borrowings held at 31 March without taking account of future issues. Floating rate interest is estimated using a forward interest rate curve as at 31 March. Payments are included on the basis of the earliest date on which the Company can be required to settle.
| ||||||||||||
|
| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 143 |
Financial Statements
| |||
|
| ||
| – supplementary informationcontinued |
| 30. Financial risk managementcontinued | ||||||||||||||||||||||||||||||||||||||||||
(c) Interest rate risk |
| |||||||||||||||||||||||||||||||||||||||||
| National Grid’s interest rate risk arises from our long-term borrowings. Borrowings issued at variable rates expose National Grid to cash flow interest rate risk, partially offset by cash held at variable rates. Borrowings issued at fixed rates expose National Grid to fair value interest rate risk. | ||||||||||||||||||||||||||||||||||||||||||
Our interest rate risk management policy is to seek to minimise total financing costs (being interest costs and changes in the market value of debt) subject to constraints. We do this by using fixed and floating rate debt and derivative financial instruments including interest rate swaps, swaptions and forward rate agreements. |
| |||||||||||||||||||||||||||||||||||||||||
We hold some borrowings on issue that are inflation linked. We believe that these provide a partial economic offset to the inflation risk associated with our UK inflation linked revenues. |
| |||||||||||||||||||||||||||||||||||||||||
The table in note 19 sets out the carrying amount, by contractual maturity, of borrowings that are exposed to interest rate risk before taking into account interest rate swaps. |
| |||||||||||||||||||||||||||||||||||||||||
During 2015 and 2014, net debt was managed using derivative instruments to hedge interest rate risk as follows:
|
| |||||||||||||||||||||||||||||||||||||||||
2015 |
2014 | |||||||||||||||||||||||||||||||||||||||||
Fixed rate £m | Floating rate £m | Inflation linked £m | Other1 £m | Total £m | Fixed rate £m | Floating rate £m | Inflation linked £m | Other1 £m | Total £m | |||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | 1 | 118 | – | – | 119 | 175 | 179 | – | – | 354 | ||||||||||||||||||||||||||||||||
Financial investments | 281 | 2,273 | – | 5 | 2,559 | 615 | 2,979 | – | 5 | 3,599 | ||||||||||||||||||||||||||||||||
Borrowings2 | (16,229) | (2,746) | (6,933) | (2) | (25,910) | (15,585) | (3,520) | (6,836) | (9) | (25,950) | ||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||
Pre-derivative position | (15,947) | (355) | (6,933) | 3 | (23,232) | (14,795) | (362) | (6,836) | (4) | (21,997) | ||||||||||||||||||||||||||||||||
Derivative effect3 | 1,593 | (2,294) | 18 | – | (683) | 3,359 | (2,743) | 191 | – | 807 | ||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||
Net debt position | (14,354) | (2,649) | (6,915) | 3 | (23,915) | (11,436) | (3,105) | (6,645) | (4) | (21,190) | ||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||
1. Represents financial instruments which are not directly affected by interest rate risk, such as investments in equity or other similar financial instruments. 2. Includes bank overdrafts. 3. The impact of 2015/16 (2014: 2014/15) maturing short-dated interest rate derivatives is included.
(d) Currency risk National Grid operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the dollar. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities, and investments in foreign operations. |
| |||||||||||||||||||||||||||||||||||||||||
Our policy for managing foreign exchange transaction risk is to hedge contractually committed foreign currency cash flows over a prescribed minimum size. Where foreign currency cash flow forecasts are less certain, our policy is to hedge a proportion of such cash flows based on the probability of those cash flows occurring. Instruments used to manage foreign exchange transaction risk include foreign exchange forward contracts and foreign exchange swaps. |
| |||||||||||||||||||||||||||||||||||||||||
Our policy for managing foreign exchange translation risk relating to our net investment in foreign operations is to maintain a percentage of net debt and foreign exchange forwards so as to provide an economic offset of our cash flows arising in the foreign currency. The primary managed foreign exchange exposure arises from the dollar denominated assets and liabilities held by our US operations, with a further small euro exposure in respect of a joint venture investment. |
| |||||||||||||||||||||||||||||||||||||||||
During 2015 and 2014, derivative financial instruments were used to manage foreign currency risk as follows:
|
| |||||||||||||||||||||||||||||||||||||||||
2015 |
2014 | |||||||||||||||||||||||||||||||||||||||||
Sterling £m | Euro £m | Dollar £m | Other £m | Total £m | Sterling £m | Euro £m | Dollar £m | Other £m | Total £m | |||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | 12 | – | 107 | – | 119 | 16 | – | 338 | – | 354 | ||||||||||||||||||||||||||||||||
Financial investments | 1,227 | 90 | 1,181 | 61 | 2,559 | 1,879 | 111 | 1,553 | 56 | 3,599 | ||||||||||||||||||||||||||||||||
Borrowings1 | (11,791) | (5,099) | (7,604) | (1,416) | (25,910) | (12,780) | (4,479) | (7,330) | (1,361) | (25,950) | ||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||
Pre-derivative position | (10,552) | (5,009) | (6,316) | (1,355) | (23,232) | (10,885) | (4,368) | (5,439) | (1,305) | (21,997) | ||||||||||||||||||||||||||||||||
Derivative effect | 1,608 | 5,203 | (8,858) | 1,364 | (683) | 3,137 | 4,670 | (8,326) | 1,326 | 807 | ||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||
Net debt position | (8,944) | 194 | (15,174) | 9 | (23,915) | (7,748) | 302 | (13,765) | 21 | (21,190) | ||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||
1. Includes bank overdrafts.
The overall exposure to dollars largely relates to our net investment hedge activities as described in note 15.
|
| |||||||||||||||||||||||||||||||||||||||||
| 144 |
30. Financial risk managementcontinued
(b) Liquidity risk Our policy is to determine our liquidity requirements by the use of both short-term and long-term cash flow forecasts. These forecasts are supplemented by a financial headroom analysis which is used to assess funding requirements for at least a 24 month period and maintain adequate liquidity for a continuous 12 month period.
We believe our contractual obligations, including those shown in commitments and contingencies in note 27 can be met from existing cash and investments, operating cash flows and other financings that we reasonably expect to be able to secure in the future, together with the use of committed facilities if required.
Our debt agreements and banking facilities contain covenants, including those relating to the periodic and timely provision of financial information by the issuing entity and financial covenants such as restrictions on the level of subsidiary indebtedness. Failure to comply with these covenants, or to obtain waivers of those requirements, could in some cases trigger a right, at the lender’s discretion, to require repayment of some of our debt and may restrict our ability to draw upon our facilities or access the capital markets.
The following is an analysis of the contractual undiscounted cash flows payable under financial liabilities and derivative assets and liabilities as at the reporting date:
|
| |||||||||||||||||||||||
| At 31 March 2014 | Less £m | 1-2 years £m | 2-3 years £m | More £m | Total £m | |||||||||||||||||||
| ||||||||||||||||||||||||
Non-derivative financial liabilities | ||||||||||||||||||||||||
Borrowings, excluding finance lease liabilities | (3,091 | ) | (864 | ) | (1,140 | ) | (20,275 | ) | (25,370) | |||||||||||||||
Interest payments on borrowings1 | (826 | ) | (812 | ) | (796 | ) | (14,571 | ) | (17,005) | |||||||||||||||
Finance lease liabilities | (18 | ) | (19 | ) | (20 | ) | (112 | ) | (169) | |||||||||||||||
Other non-interest bearing liabilities | (2,584 | ) | (190 | ) | – | – | (2,774) | |||||||||||||||||
| ||||||||||||||||||||||||
Derivative financial liabilities | ||||||||||||||||||||||||
Derivative contracts – receipts | 1,068 | 950 | 153 | 1,155 | 3,326 | |||||||||||||||||||
Derivative contracts – payments | (556 | ) | (861 | ) | (144 | ) | (1,638 | ) | (3,199) | |||||||||||||||
Commodity contracts
|
| (177
| )
|
| (30
| )
|
| (22
| )
|
| 2
|
|
| (227)
|
| |||||||||
| ||||||||||||||||||||||||
Total
|
| (6,184
| )
|
| (1,826
| )
|
| (1,969
| )
|
| (35,439
| )
|
| (45,418)
|
| |||||||||
| ||||||||||||||||||||||||
At 31 March 2013 | Less £m | 1-2 years £m | 2-3 years £m | More £m | Total £m | |||||||||||||||||||
| ||||||||||||||||||||||||
Non-derivative financial liabilities | ||||||||||||||||||||||||
Borrowings, excluding finance lease liabilities | (3,061 | ) | (1,836 | ) | (790 | ) | (21,704 | ) | (27,391) | |||||||||||||||
Interest payments on borrowings1 | (951 | ) | (861 | ) | (842 | ) | (15,775 | ) | (18,429) | |||||||||||||||
Finance lease liabilities | (27 | ) | (26 | ) | (26 | ) | (151 | ) | (230) | |||||||||||||||
Other non-interest bearing liabilities | (2,696 | ) | (235 | ) | – | – | (2,931) | |||||||||||||||||
| ||||||||||||||||||||||||
Derivative financial liabilities | ||||||||||||||||||||||||
Derivative contracts – receipts | 1,388 | 816 | 1,053 | 441 | 3,698 | |||||||||||||||||||
Derivative contracts – payments2 | (1,309 | ) | (469 | ) | (969 | ) | (1,039 | ) | (3,786) | |||||||||||||||
Commodity contracts
|
| (150
| )
|
| (41
| )
|
| (35
| )
|
| (25
| )
|
| (251)
|
| |||||||||
| ||||||||||||||||||||||||
Total
|
| (6,806
| )
|
| (2,652
| )
|
| (1,609
| )
|
| (38,253
| )
|
| (49,320)
|
| |||||||||
| ||||||||||||||||||||||||
1. |
The interest on borrowings is calculated based on borrowings held at 31 March without taking account of future issues. Floating-rate interest is estimated using a forward interest rate curve as at 31 March. Payments are included on the basis of the earliest date on which the Company can be required to settle. |
| ||||||||||||||||||||||
2. |
The comparatives have been restated on a basis consistent with the current year.
|
| ||||||||||||||||||||||
| ||||||||||||
|
30. Financial risk management continued
(c) Interest rate risk National Grid’s interest rate risk arises from our long-term borrowings. Borrowings issued at variable rates expose National Grid to cash flow interest rate risk, partially offset by cash held at variable rates. Borrowings issued at fixed rates expose National Grid to fair value interest rate risk.
Our interest rate risk management policy is to seek to minimise total financing costs (being interest costs and changes in the market value of debt) subject to constraints. We do this by using fixed and floating rate debt and derivative financial instruments including interest rate swaps, swaptions and forward rate agreements.
We hold some borrowings on issue that are inflation linked. We believe that these provide a partial economic offset to the inflation risk associated with our UK inflation linked revenues.
The table in note 19 sets out the carrying amount, by contractual maturity, of borrowings that are exposed to interest rate risk before taking into account interest rate swaps.
During 2014 and 2013, net debt was managed using derivative instruments to hedge interest rate risk as follows:
| ||||||||||||||||||||||||
| 2014 | 2013 | |||||||||||||||||||||||
Fixed rate £m | Floating £m | Inflation £m | Other1 £m | Total £m | Fixed rate £m | Floating £m | Inflation £m | Other1 £m | Total £m | |||||||||||||||
| ||||||||||||||||||||||||
Cash and cash equivalents | 175 | 179 | – | – | 354 | 577 | 94 | – | – | 671 | ||||||||||||||
Financial investments | 615 | 2,979 | – | 5 | 3,599 | 540 | 4,843 | – | 48 | 5,431 | ||||||||||||||
Borrowings2 | (15,585) | (3,520) | (6,836) | (9) | (25,950) | (17,767) | (3,700) | (6,617) | (11) | (28,095) | ||||||||||||||
| ||||||||||||||||||||||||
Pre-derivative position | (14,795) | (362) | (6,836) | (4) | (21,997) | (16,650) | 1,237 | (6,617) | 37 | (21,993) | ||||||||||||||
Derivative effect3 | 3,359 | (2,743) | 191 | – | 807 | 1,555 | (1,132) | 141 | – | 564 | ||||||||||||||
| ||||||||||||||||||||||||
Net debt position | (11,436) | (3,105) | (6,645) | (4) | (21,190) | (15,095) | 105 | (6,476) | 37 | (21,429) | ||||||||||||||
| ||||||||||||||||||||||||
1. |
Represents financial instruments which are not directly affected by interest rate risk, such as investments in equity or other similar financial instruments. | |||||||||||||||||||||||
| 2. | Includes bank overdrafts. | |||||||||||||||||||||||
| 3. | The impact of 2014/15 (2013: 2013/14) maturing short-dated interest rate derivatives is included. | |||||||||||||||||||||||
(d) Currency risk National Grid operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the dollar. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities, and investments in foreign operations.
Our policy for managing foreign exchange transaction risk is to hedge contractually committed foreign currency cash flows over a prescribed minimum size. Where foreign currency cash flow forecasts are less certain, our policy is to hedge a proportion of such cash flows based on the probability of those cash flows occurring. Instruments used to manage foreign exchange transaction risk include foreign exchange forward contracts and foreign exchange swaps.
Our policy for managing foreign exchange translation risk relating to our net investment in foreign operations is to maintain a percentage of net debt and foreign exchange forwards so as to provide an economic offset of our cash flows arising in the foreign currency. The primary managed foreign exchange exposure arises from the dollar denominated assets and liabilities held by our US operations, with a further small euro exposure in respect of a joint venture investment.
During 2014 and 2013, derivative financial instruments were used to manage foreign currency risk as follows:
| ||||||||||||||||||||||||
| 2014 | 2013 | |||||||||||||||||||||||
| Sterling £m | Euro £m | Dollar £m | Other £m | Total £m | Sterling £m | Euro £m | Dollar £m | Other £m | Total £m | |||||||||||||||
| ||||||||||||||||||||||||
Cash and cash equivalents | 16 | – | 338 | – | 354 | 238 | 1 | 432 | – | 671 | ||||||||||||||
Financial investments | 1,879 | 111 | 1,553 | 56 | 3,599 | 3,938 | 124 | 1,289 | 80 | 5,431 | ||||||||||||||
Borrowings1 | (12,780) | (4,479) | (7,330) | (1,361) | (25,950) | (12,573) | (5,220) | (8,678) | (1,624) | (28,095) | ||||||||||||||
| ||||||||||||||||||||||||
Pre-derivative position | (10,885) | (4,368) | (5,439) | (1,305) | (21,997) | (8,397) | (5,095) | (6,957) | (1,544) | (21,993) | ||||||||||||||
Derivative effect | 3,137 | 4,670 | (8,326) | 1,326 | 807 | 320 | 5,368 | (6,684) | 1,560 | 564 | ||||||||||||||
| ||||||||||||||||||||||||
Net debt position | (7,748) | 302 | (13,765) | 21 | (21,190) | (8,077) | 273 | (13,641) | 16 | (21,429) | ||||||||||||||
| ||||||||||||||||||||||||
1. |
Includes bank overdrafts. | |||||||||||||||||||||||
The overall exposure to dollars largely relates to our net investment hedge activities as described in note 15.
| ||||||||||||||||||||||||
| ||||||||||||
|
30. Financial risk managementcontinued
(d) Currency riskcontinued The currency exposure on other financial instruments is as follows:
|
| |||||||||||||||||||||||||||||||||||||||||
2015 |
2014 | |||||||||||||||||||||||||||||||||||||||||
| Sterling £m | Euro £m | Dollar £m | Other £m | Total £m | Sterling £m | Euro £m | Dollar £m | Other £m | Total £m | |||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||
Trade and other receivables | 200 | – | 1,495 | – | 1,695 | 142 | – | 1,623 | – | 1,765 | ||||||||||||||||||||||||||||||||
Trade and other payables | (1,403 | ) | – | (1,457 | ) | – | (2,860 | ) | (1,370 | ) | – | (1,291 | ) | – | (2,661) | |||||||||||||||||||||||||||
Other non-current assets | (19 | ) | – | (252 | ) | – | (271 | ) | (16 | ) | – | (220 | ) | – | (236) | |||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||
The carrying amounts of other financial instruments are denominated in the above currencies, which in most instances are the functional currency of the respective subsidiaries. Our exposure to dollars is due to activities in our US subsidiaries. We do not have any other significant exposure to currency risk on these balances.
|
| |||||||||||||||||||||||||||||||||||||||||
(e) Commodity risk We purchase electricity and gas to supply our customers in the US and to meet our own energy needs. Substantially all our costs of purchasing electricity and gas for supply to customers are recoverable at an amount equal to cost. The timing of recovery of these costs can vary between financial periods leading to an under- or over-recovery within any particular year that can lead to large fluctuations in the income statement. We follow approved policies to manage price and supply risks for our commodity activities. |
| |||||||||||||||||||||||||||||||||||||||||
| Our energy procurement risk management policy and delegations of authority govern our US commodity trading activities for energy transactions. The purpose of this policy is to ensure we transact within pre-defined risk parameters and only in the physical and financial markets where we or our customers have a physical market requirement. In addition, state regulators require National Grid to manage commodity risk and cost volatility prudently through diversified pricing strategies. In some jurisdictions we are required to file a plan outlining our strategy to be approved by regulators. In certain cases we might receive guidance with regard to specific hedging limits. | ||||||||||||||||||||||||||||||||||||||||||
| Energy purchase contracts for the forward purchase of electricity or gas that are used to satisfy physical delivery requirements to customers or for energy that the Company uses itself meet the normal purchase, sale or usage exemption of IAS 39. They are, therefore, not recognised in the financial statements. Disclosure of commitments under such contracts is made in note 27. | ||||||||||||||||||||||||||||||||||||||||||
We enter into forward contracts for the purchase of commodities, some of which do not meet the own use exemption for accounting purposes and hence are accounted for as derivatives. We also enter into derivative financial instruments linked to commodity prices, including index-linked futures, swaps and options contracts. These derivative financial instruments are used to manage market price volatility and are carried at fair value on the statement of financial position, with the mark-to-market changes reflected through earnings.
|
| |||||||||||||||||||||||||||||||||||||||||
|
| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 145 |
Financial Statements
| |||
|
| ||
| – supplementary informationcontinued |
| 30. Financial risk managementcontinued | ||||||||||||||||||||||||||||
(e) Commodity riskcontinued The fair value of our commodity contracts by type can be analysed as follows:
|
| |||||||||||||||||||||||||||
| 2015 | 2014 | |||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||
Assets £m | Liabilities £m | Total £m | Assets £m | Liabilities £m | Total £m | |||||||||||||||||||||||
| ||||||||||||||||||||||||||||
Commodity purchase contracts accounted for as derivative contracts | ||||||||||||||||||||||||||||
Forward purchases of electricity | – | (42 | ) | (42 | ) | 1 | (49 | ) | (48) | |||||||||||||||||||
Forward purchases of gas | 42 | (42 | ) | – | 30 | (66 | ) | (36) | ||||||||||||||||||||
Derivative financial instruments linked to commodity prices | ||||||||||||||||||||||||||||
Electricity swaps | 21 | (59 | ) | (38 | ) | 26 | (6 | ) | 20 | |||||||||||||||||||
Electricity options | – | (1 | ) | (1 | ) | 22 | – | 22 | ||||||||||||||||||||
Gas swaps | 1 | (27 | ) | (26 | ) | 7 | (2 | ) | 5 | |||||||||||||||||||
Gas options | – | – | – | 1 | – | 1 | ||||||||||||||||||||||
| ||||||||||||||||||||||||||||
| 64 | (171 | ) | (107 | ) | 87 | (123 | ) | (36) | ||||||||||||||||||||
| ||||||||||||||||||||||||||||
The maturity profile of commodity contracts is as follows:
|
| |||||||||||||||||||||||||||
| 2015 | 2014 | |||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||
Assets £m | Liabilities £m | Total £m | Assets £m | Liabilities £m | Total £m | |||||||||||||||||||||||
| ||||||||||||||||||||||||||||
Current | ||||||||||||||||||||||||||||
Less than one year | 35 | (116 | ) | (81 | ) | 42 | (77 | ) | (35) | |||||||||||||||||||
| ||||||||||||||||||||||||||||
| 35 | (116 | ) | (81 | ) | 42 | (77 | ) | (35) | ||||||||||||||||||||
| ||||||||||||||||||||||||||||
Non-current | ||||||||||||||||||||||||||||
In 1 to 2 years | 25 | (37 | ) | (12 | ) | 13 | (22 | ) | (9) | |||||||||||||||||||
In 2 to 3 years | 2 | (18 | ) | (16 | ) | 15 | (17 | ) | (2) | |||||||||||||||||||
In 3 to 4 years | 1 | – | 1 | 4 | (7 | ) | (3) | |||||||||||||||||||||
In 4 to 5 years | 1 | – | 1 | 3 | – | 3 | ||||||||||||||||||||||
More than 5 years | – | – | – | 10 | – | 10 | ||||||||||||||||||||||
| ||||||||||||||||||||||||||||
| 29 | (55 | ) | (26 | ) | 45 | (46 | ) | (1) | ||||||||||||||||||||
| ||||||||||||||||||||||||||||
| 64 | (171 | ) | (107 | ) | 87 | (123 | ) | (36) | ||||||||||||||||||||
| ||||||||||||||||||||||||||||
For each class of commodity contract, our exposure based on the notional quantities is as follows:
|
| |||||||||||||||||||||||||||
2015 | 2014 | |||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||
Forward purchases of electricity1 | | 984 GWh | | 1,740 GWh | ||||||||||||||||||||||||
Forward purchases/sales of gas2 | | 55m Dth | | 84m Dth | ||||||||||||||||||||||||
Electricity swaps | | 10,779 GWh | | 6,603 GWh | ||||||||||||||||||||||||
Electricity options | | 25,157 GWh | | 28,760 GWh | ||||||||||||||||||||||||
Gas swaps | | 65m Dth | | 50m Dth | ||||||||||||||||||||||||
Gas options | | 4m Dth | | 23m Dth | ||||||||||||||||||||||||
NYMEX gas futures3 | | 20m Dth | | 20m Dth | ||||||||||||||||||||||||
| ||||||||||||||||||||||||||||
1. Forward electricity purchases have terms up to three years. The contractual obligations under these contracts are £77m (2014: £106m). |
| |||||||||||||||||||||||||||
2. Forward gas purchases have terms up to five years. The contractual obligations under these contracts are £26m (2014: £171m). |
| |||||||||||||||||||||||||||
3. NYMEX gas futures have been offset with related margin accounts (see note 30(a)). |
| |||||||||||||||||||||||||||
(f) Capital risk management The capital structure of the Group consists of shareholders’ equity, as disclosed in the consolidated statement of changes in equity, and net debt (note 26). National Grid’s objectives when managing capital are: to safeguard our ability to continue as a going concern; to remain within regulatory constraints of our regulated operating companies; and to maintain an efficient mix of debt and equity funding thus achieving an optimal capital structure and cost of capital. We regularly review and manage the capital structure as appropriate in order to achieve these objectives. |
| |||||||||||||||||||||||||||
Maintaining appropriate credit ratings for our regulated companies is an important aspect of our capital risk management strategy and balance sheet efficiency. As noted on page 22, we monitor our balance sheet efficiency using several metrics including our retained cash flow/net debt and interest cover. Interest cover for the year ended 31 March 2015 was 5.1 (2014: 4.1). Our long-term target range for interest cover is greater than 3.0, which we believe is consistent with single A range long-term senior unsecured debt credit ratings within our main UK operating companies, NGET and NGG, based on guidance from the rating agencies.
|
| |||||||||||||||||||||||||||
| 146 |
30. Financial risk managementcontinued
(d) Currency risk continued The currency exposure on other financial instruments is as follows:
|
| |||||||||||||||||||||||||||||||||||||||||
| 2014 | 2013 | |||||||||||||||||||||||||||||||||||||||||
| Sterling £m | Euro £m | Dollar £m | Other £m | Total £m | Sterling £m | Euro £m | Dollar £m | Other £m | Total £m | |||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||
Trade and other receivables | 142 | – | 1,623 | – | 1,765 | 151 | – | 1,338 | – | 1,489 | ||||||||||||||||||||||||||||||||
Trade and other payables | (1,370 | ) | – | (1,291 | ) | – | (2,661) | (1,328 | ) | – | (1,437) | – | (2,765) | |||||||||||||||||||||||||||||
Other non-current liabilities | (16 | ) | – | (220 | ) | – | (236) | (22 | ) | – | (283) | – | (305) | |||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||
The carrying amounts of other financial instruments are denominated in the above currencies, which in most instances are the functional currency of the respective subsidiaries. Our exposure to dollars is due to activities in our US subsidiaries. We do not have any other significant exposure to currency risk on these balances.
(e) Commodity risk We purchase electricity and gas to supply our customers in the US and to meet our own energy needs. Substantially all our costs of purchasing electricity and gas for supply to customers are recoverable at an amount equal to cost. The timing of recovery of these costs can vary between financial periods leading to an under- or over-recovery within any particular year, that can lead to large fluctuations in the income statement. We follow approved policies to manage price and supply risks for our commodity activities.
Our energy procurement risk management policy and delegations of authority govern our US commodity trading activities for energy transactions. The purpose of this policy is to ensure we transact within pre-defined risk parameters and only in the physical and financial markets where we or our customers have a physical market requirement. In addition, state regulators require National Grid to manage commodity risk and cost volatility prudently through diversified pricing strategies. In some jurisdictions we are required to file a plan outlining our strategy to be approved by regulators. In certain cases we might receive guidance with regard to specific hedging limits.
Energy purchase contracts for the forward purchase of electricity or gas that are used to satisfy physical delivery requirements to customers or for energy that the Company uses itself meet the normal purchase, sale or usage exemption of IAS 39. They are, therefore, not recognised in the financial statements. Disclosure of commitments under such contracts is made in note 27.
We enter into forward contracts for the purchase of commodities, some of which do not meet the own use exemption for accounting purposes and hence are accounted for as derivatives. We also enter into derivative financial instruments linked to commodity prices, including index-linked futures, swaps and options contracts. These derivative financial instruments are used to manage market price volatility and are carried at fair value on the statement of financial position, with the mark-to-market changes reflected through earnings.
|
| |||||||||||||||||||||||||||||||||||||||||
| ||||||||||||
|
30. Financial risk management continued
(e) Commodity riskcontinued The fair value of our commodity contracts by type can be analysed as follows:
|
| |||||||||||||||||||||||||
| 2014 | 2013 | |||||||||||||||||||||||||
| Assets £m | Liabilities £m | Total £m | Assets £m | Liabilities £m | Total £m | |||||||||||||||||||||
| ||||||||||||||||||||||||||
Commodity purchase contracts accounted for as derivative contracts | ||||||||||||||||||||||||||
Forward purchases of electricity | 1 | (49 | ) | (48) | – | (89) | (89) | |||||||||||||||||||
Forward purchases of gas | 30 | (66 | ) | (36) | 46 | (45) | 1 | |||||||||||||||||||
Derivative financial instruments linked to commodity prices | ||||||||||||||||||||||||||
Electricity swaps | 26 | (6 | ) | 20 | 16 | (1) | 15 | |||||||||||||||||||
Electricity options | 22 | – | 22 | 16 | – | 16 | ||||||||||||||||||||
Gas swaps | 7 | (2 | ) | 5 | 10 | (4) | 6 | |||||||||||||||||||
Gas options | 1 | – | 1 | 1 | – | 1 | ||||||||||||||||||||
| ||||||||||||||||||||||||||
| 87 | (123 | ) | (36) | 89 | (139) | (50) | ||||||||||||||||||||
| ||||||||||||||||||||||||||
| The maturity profile of commodity contracts is as follows: | ||||||||||||||||||||||||||
| 2014 | 2013 | |||||||||||||||||||||||||
Assets £m | Liabilities £m | Total £m | Assets £m | Liabilities £m | Total £m | |||||||||||||||||||||
| ||||||||||||||||||||||||||
Less than one year | 42 | (77 | ) | (35) | 42 | (69) | (27) | |||||||||||||||||||
| ||||||||||||||||||||||||||
Current | 42 | (77 | ) | (35) | 42 | (69) | (27) | |||||||||||||||||||
| ||||||||||||||||||||||||||
In 1-2 years | 13 | (22 | ) | (9) | 13 | (23) | (10) | |||||||||||||||||||
In 2-3 years | 15 | (17 | ) | (2) | 10 | (23) | (13) | |||||||||||||||||||
In 3-4 years | 4 | (7 | ) | (3) | 14 | (16) | (2) | |||||||||||||||||||
In 4-5 years | 3 | – | 3 | 2 | (8) | (6) | ||||||||||||||||||||
More than 5 years | 10 | – | 10 | 8 | – | 8 | ||||||||||||||||||||
| ||||||||||||||||||||||||||
Non-current | 45 | (46 | ) | (1) | 47 | (70) | (23) | |||||||||||||||||||
| ||||||||||||||||||||||||||
Total | 87 | (123 | ) | (36) | 89 | (139) | (50) | |||||||||||||||||||
| ||||||||||||||||||||||||||
For each class of commodity contract, our exposure based on the notional quantities is as follows:
|
| |||||||||||||||||||||||||
| 2014 | 2013 | |||||||||||||||||||||||||
| ||||||||||||||||||||||||||
Forward purchases of electricity1 | 1,740 GWh | 2,595 GWh | ||||||||||||||||||||||||
Forward purchases/sales of gas2 | 84m Dth | 59m Dth | ||||||||||||||||||||||||
Electricity swaps | 6,603 GWh | 6,309 GWh | ||||||||||||||||||||||||
Electricity options | 28,760 GWh | 32,999 GWh | ||||||||||||||||||||||||
Gas swaps | 50m Dth | 66m Dth | ||||||||||||||||||||||||
Gas options | 23m Dth | 4m Dth | ||||||||||||||||||||||||
NYMEX gas futures3 | 20m Dth | 17m Dth | ||||||||||||||||||||||||
| ||||||||||||||||||||||||||
1. |
Forward electricity purchases have terms up to four years. The contractual obligations under these contracts are £106m (2013: £174m). |
| ||||||||||||||||||||||||
| 2. | Forward gas purchases have terms up to five years. The contractual obligations under these contracts are £171m (2013: £119m). | |||||||||||||||||||||||||
| 3. | NYMEX gas futures have been offset with related margin accounts (see note 30 (a) on page 137). | |||||||||||||||||||||||||
(f) Capital risk management National Grid’s objectives when managing capital are: to safeguard our ability to continue as a going concern; to remain within regulatory constraints of our regulated operating companies; and to maintain an efficient mix of debt and equity funding thus achieving an optimal capital structure and cost of capital. We regularly review and maintain or adjust the capital structure as appropriate in order to achieve these objectives.
Maintaining appropriate credit ratings for our regulated companies is an important aspect of our capital risk management strategy and balance sheet efficiency. We monitor our balance sheet efficiency using several metrics including our interest cover. Interest cover for the year ended 31 March 2014 was 4.1 (2013: 3.9). Our long-term target range for interest cover is greater than 3.0, which we believe is consistent with single A range long-term senior unsecured debt credit ratings within our main UK operating companies, NGET and NGG, based on guidance from the rating agencies.
In addition, we monitor the RAV gearing within each of NGET and the regulated transmission and distribution businesses within NGG. This is calculated as net debt expressed as a percentage of RAV, and indicates the level of debt employed to fund our UK regulated businesses. It is compared with the level of RAV gearing indicated by Ofgem as being appropriate for these businesses, at around 60-65%.
|
| |||||||||||||||||||||||||
| ||||||||||||
|
| 30. Financial risk managementcontinued | ||||||||||||||||||||||||||||||||||||
(f) Capital risk managementcontinued |
| |||||||||||||||||||||||||||||||||||
| In addition, we monitor the RAV gearing within each of NGET and the regulated transmission and distribution businesses within NGG. This is calculated as net debt expressed as a percentage of RAV, and indicates the level of debt employed to fund our UK regulated businesses. It is compared with the level of RAV gearing indicated by Ofgem as being appropriate for these businesses, at around 60 to 65%. | ||||||||||||||||||||||||||||||||||||
The majority of our regulated operating companies in the US and the UK (and one intermediate UK holding company), are subject to certain restrictions on the payment of dividends by administrative order, contract and/or licence. The types of restrictions that a company may have that would prevent a dividend being declared or paid unless they are met include:
|
| |||||||||||||||||||||||||||||||||||
● dividends must be approved in advance by the relevant US state regulatory commission; |
| |||||||||||||||||||||||||||||||||||
● the subsidiary must have at least two recognised rating agency credit ratings of at least investment grade; |
| |||||||||||||||||||||||||||||||||||
● dividends must be limited to cumulative retained earnings, including pre-acquisition retained earnings; |
| |||||||||||||||||||||||||||||||||||
● National Grid plc must maintain an investment grade credit rating and if that rating is the lowest investment grade bond rating it cannot have a negative watch/review for downgrade notice by a credit rating agency; |
| |||||||||||||||||||||||||||||||||||
● the subsidiary must not carry on any activities other than those permitted by the licences; |
| |||||||||||||||||||||||||||||||||||
● the subsidiary must not create any cross-default obligations or give or receive any intra-group cross-subsidies; and |
| |||||||||||||||||||||||||||||||||||
● the percentage of equity compared with total capital of the subsidiary must remain above certain levels. |
| |||||||||||||||||||||||||||||||||||
There is a further restriction relating only to the Narragansett Electric Company, which is required to maintain its consolidated net worth above certain levels. |
| |||||||||||||||||||||||||||||||||||
These restrictions are subject to alteration in the US as and when a new rate case or rate plan is agreed with the relevant regulatory bodies for each operating company and in the UK through the normal licence review process. |
| |||||||||||||||||||||||||||||||||||
As most of our business is regulated, at 31 March 2015 the majority of our net assets are subject to some of the restrictions noted above. These restrictions are not considered to be significantly onerous, nor do we currently expect they will prevent the planned payment of dividends in future in line with our dividend policy. |
| |||||||||||||||||||||||||||||||||||
Some of our regulatory and bank loan agreements additionally impose lower limits for the long-term credit ratings that certain companies within the Group must hold. All the above requirements are monitored on a regular basis in order to ensure compliance. The Company has complied with all externally imposed capital requirements to which it is subject. |
| |||||||||||||||||||||||||||||||||||
(g) Fair value analysis |
| |||||||||||||||||||||||||||||||||||
The financial instruments included on the statement of financial position are measured at fair value. These fair values can be categorised into hierarchy levels that are representative of the inputs used in measuring the fair value. The best evidence of fair value is a quoted price in an actively traded market. In the event that the market for a financial instrument is not active, a valuation technique is used.
|
| |||||||||||||||||||||||||||||||||||
| 2015 | 2014 | |||||||||||||||||||||||||||||||||||
| Level 1 £m | Level 2 £m | Level 3 £m | Total £m | Level 1 £m | Level 2 £m | Level 3 £m | Total £m | |||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||
Available-for-sale investments | 1,315 | 247 | – | 1,562 | 2,786 | 214 | – | 3,000 | ||||||||||||||||||||||||||||
Derivative financial instruments | – | 1,702 | 14 | 1,716 | – | 1,950 | 20 | 1,970 | ||||||||||||||||||||||||||||
Commodity contracts | – | 22 | 42 | 64 | – | 34 | 53 | 87 | ||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||
| 1,315 | 1,971 | 56 | 3,342 | 2,786 | 2,198 | 73 | 5,057 | |||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||||||
Derivative financial instruments | – | (2,219 | ) | (180 | ) | (2,399 | ) | – | (1,043 | ) | (120 | ) | (1,163) | |||||||||||||||||||||||
Commodity contracts | – | (87 | ) | (84 | ) | (171 | ) | – | (12 | ) | (111 | ) | (123) | |||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||
| – | (2,306 | ) | (264 | ) | (2,570 | ) | – | (1,055 | ) | (231 | ) | (1,286) | ||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||
| 1,315 | (335 | ) | (208 | ) | 772 | 2,786 | 1,143 | (158 | ) | 3,771 | ||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||
Level 1: Financial instruments with quoted prices for identical instruments in active markets. |
| |||||||||||||||||||||||||||||||||||
Level 2: Financial instruments with quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in inactive markets and financial instruments valued using models where all significant inputs are based directly or indirectly on observable market data. |
| |||||||||||||||||||||||||||||||||||
Level 3: Financial instruments valued using valuation techniques where one or more significant inputs are based on unobservable market data.
|
| |||||||||||||||||||||||||||||||||||
|
| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 147 |
Financial Statements
| |||||
|
|
30. Financial risk management continued
(f) Capital risk management continued The majority of our regulated operating companies in the US and the UK (and one intermediate UK holding company), which are all consolidated subsidiaries of National Grid, are subject to certain restrictions on the payment of dividends by administrative order (by regulators relevant to the individual company), contract and/or licence. The types of restrictions that a company may have that would prevent a dividend being declared or paid unless they are met include:
| ||||||||||||||||||||
— dividends must be approved in advance by the relevant US state regulatory commission; | ||||||||||||||||||||
— the subsidiary must have at least two recognised rating agency credit ratings of at least investment grade; | ||||||||||||||||||||
— dividends must be limited to cumulative retained earnings, including pre-acquisition retained earnings; | ||||||||||||||||||||
— National Grid plc must maintain an investment grade credit rating and if that rating is the lowest investment grade bond rating it cannot have a negative watch/review downgrade notice by a credit rating agency; | ||||||||||||||||||||
— the subsidiary must not carry on any activities other than those permitted by the licences; | ||||||||||||||||||||
— the subsidiary must not create any cross-default obligations or give or receive any intra-group cross-subsidies; and | ||||||||||||||||||||
— the percentage of equity compared with total capital of the subsidiary must remain above certain levels. | ||||||||||||||||||||
There is a further restriction relating only to the Narragansett Electric Company, which is required to maintain its consolidated net worth above certain levels.
These restrictions are subject to alteration in the US as and when a new rate case or rate plan is agreed with the relevant regulatory bodies for each operating company and in the UK through the normal licence review process.
As most of our business is regulated, at 31 March 2014 the majority of our net assets are subject to some of the restrictions noted above. These restrictions are not considered to be significantly onerous, nor do we currently expect they will prevent the planned payment of dividends in future in line with our dividend policy.
Some of our regulatory and bank loan agreements additionally impose lower limits for the long-term credit ratings that certain companies within the Group must hold. All the above requirements are monitored on a regular basis in order to ensure compliance. The Company has complied with all externally imposed capital requirements to which it is subject.
(g) Fair value analysis The financial instruments included on the statement of financial position are measured at fair value. These fair values can be categorised into hierarchy levels that are representative of the inputs used in measuring the fair value. The best evidence of fair value is a quoted price in an actively traded market. In the event that the market for a financial instrument is not active, a valuation technique is used.
| ||||||||||||||||||||
| 2014 | 2013 | |||||||||||||||||||
Level 1 £m | Level 2 £m | Level 3 £m | Total £m | Level 1 £m | Level 2 £m | Level 3 £m | Total £m | |||||||||||||
| ||||||||||||||||||||
| Assets | ||||||||||||||||||||
Available-for-sale investments | 2,786 | 214 | – | 3,000 | 4,510 | 209 | – | 4,719 | ||||||||||||
Derivative financial instruments | – | 1,950 | 20 | 1,970 | – | 2,197 | 48 | 2,245 | ||||||||||||
Commodity contracts | – | 34 | 53 | 87 | – | 26 | 63 | 89 | ||||||||||||
| ||||||||||||||||||||
| 2,786 | 2,198 | 73 | 5,057 | 4,510 | 2,432 | 111 | 7,053 | |||||||||||||
| ||||||||||||||||||||
| Liabilities | ||||||||||||||||||||
Derivative financial instruments | – | (1,043) | (120) | (1,163) | – | (1,529) | (152) | (1,681) | ||||||||||||
Commodity contracts | – | (12) | (111) | (123) | – | (5) | (134) | (139) | ||||||||||||
| ||||||||||||||||||||
| – | (1,055) | (231) | (1,286) | – | (1,534) | (286) | (1,820) | |||||||||||||
| ||||||||||||||||||||
Total | 2,786 | 1,143 | (158) | 3,771 | 4,510 | 898 | (175) | 5,233 | ||||||||||||
| ||||||||||||||||||||
Level 1: |
Financial instruments with quoted prices for identical instruments in active markets. | |||||||||||||||||||
Level 2: |
Financial instruments with quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in inactive markets and financial instruments valued using models where all significant inputs are based directly or indirectly on observable market data. | |||||||||||||||||||
Level 3: |
Financial instruments valued using valuation techniques where one or more significant inputs are based on unobservable market data.
| |||||||||||||||||||
| continued | |||||||||||
|
30. Financial risk managementcontinued
|
| |||||||||||||||||||||||||
| (g) Fair value analysiscontinued | ||||||||||||||||||||||||||
| Our level 3 derivative financial instruments include cross-currency swaps with an embedded call option, currency swaps where the currency forward curve is illiquid and inflation linked swaps where the inflation curve is illiquid. In valuing these instruments a third-party valuation is obtained to support each reported fair value. | ||||||||||||||||||||||||||
Our level 3 commodity contracts primarily consist of our forward purchases of electricity and gas where pricing inputs are unobservable, as well as other complex transactions. Complex transactions can introduce the need for internally developed models based on reasonable assumptions. Industry standard valuation techniques such as the Black-Scholes pricing model and Monte Carlo simulation are used for valuing such instruments. Level 3 is also applied in cases when optionality is present or where an extrapolated forward curve is considered unobservable. All published forward curves are verified to market data; if forward curves differ from market data by 5% or more they are considered unobservable. |
| |||||||||||||||||||||||||
The changes in value of our level 3 derivative financial instruments are as follows:
|
| |||||||||||||||||||||||||
| Derivative financial instruments | Commodity contracts | Total | ||||||||||||||||||||||||
| 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |||||||||||||||||||||
| £m | £m | £m | £m | £m | £m | |||||||||||||||||||||
| ||||||||||||||||||||||||||
| At 1 April | (100) | (104) | (58) | (71) | (158) | (175) | ||||||||||||||||||||
| Net gains/(losses) for the year1,2 | (63) | 7 | (53) | 19 | (116) | 26 | ||||||||||||||||||||
| Purchases | – | – | 38 | 1 | 38 | 1 | ||||||||||||||||||||
| Settlements | (3) | (3) | 28 | (7) | 25 | (10) | ||||||||||||||||||||
| Reclassification/transfers out of level 3 | – | – | 3 | – | 3 | – | ||||||||||||||||||||
| ||||||||||||||||||||||||||
At 31 March | (166) | (100) | (42) | (58) | (208) | (158) | ||||||||||||||||||||
| ||||||||||||||||||||||||||
1. Loss of £63m (2014: £7m gain) is attributable to derivative financial instruments held at the end of the reporting period and has been recognised in finance costs in the income statement. |
| |||||||||||||||||||||||||
2. Loss of £48m (2014: £30m loss) is attributable to commodity contract financial instruments held at the end of the reporting period.
|
| |||||||||||||||||||||||||
The impacts on a post-tax basis of reasonably possible changes in significant level 3 assumptions are as follows:
|
| |||||||||||||||||||||||||
| Derivative financial instruments | Commodity contracts | |||||||||||||||||||||||||
2015 Income | 2014 Income | 2015 Income | 2014 Income | |||||||||||||||||||||||
| £m | £m | £m | £m | |||||||||||||||||||||||
| ||||||||||||||||||||||||||
10% increase in commodity prices1 |
| – | – | 4 | 33 | |||||||||||||||||||||
10% decrease in commodity prices1 |
| – | – | (3) | (15) | |||||||||||||||||||||
Volume forecast uplift2 |
| – | – | (2) | (2) | |||||||||||||||||||||
Volume forecast reduction2 |
| – | – | 2 | 2 | |||||||||||||||||||||
Forward curve extrapolation |
| – | – | – | 1 | |||||||||||||||||||||
+10% market area price change |
| – | – | (4) | – | |||||||||||||||||||||
–10% market area price change |
| – | – | 4 | – | |||||||||||||||||||||
+20 basis point change in Limited Price Inflation (LPI) market curve3 |
| (77) | (54) | – | – | |||||||||||||||||||||
–20 basis points change in LPI market curve3 |
| 75 | 53 | – | – | |||||||||||||||||||||
| ||||||||||||||||||||||||||
1. Level 3 commodity price sensitivity is included within the sensitivity analysis disclosed in note 33. |
| |||||||||||||||||||||||||
2. Volumes were flexed using maximum and minimum historical averages, or by >10% where historical averages were not available. |
| |||||||||||||||||||||||||
3. A reasonably possible change in assumption of other level 3 derivative financial instruments is unlikely to result in a material change in fair values.
|
| |||||||||||||||||||||||||
| The impacts disclosed above were considered on a contract by contract basis with the most significant unobservable inputs identified. | ||||||||||||||||||||||||||
| 148 |
30. Financial risk managementcontinued
(g) Fair value analysis continued Our level 3 derivative financial instruments include cross-currency swaps with an embedded call option, currency swaps where the currency forward curve is illiquid and inflation linked swaps where the inflation curve is illiquid. In valuing these instruments a third-party valuation is obtained to support each reported fair value.
Our level 3 commodity contracts primarily consist of our forward purchases of electricity and gas where pricing inputs are unobservable, as well as other complex transactions. Complex transactions can introduce the need for internally developed models based on reasonable assumptions. Industry standard valuation techniques such as the Black-Scholes pricing model and Monte Carlo simulation are used for valuing such instruments. Level 3 is also applied in cases when optionality is present or where an extrapolated forward curve is considered unobservable. All published forward curves are verified to market data; if forward curves differ from market data by 5% or more they are considered unobservable.
The changes in value of our level 3 derivative financial instruments are as follows:
|
| |||||||||||||||||||||
Derivative financial instruments | Commodity contracts | Total | ||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||
| 2014 Level 3 valuation £m | 2013 Level 3 valuation £m | 2014 Level 3 valuation £m | 2013 Level 3 valuation £m | 2014 Level 3 valuation £m | 2013 Level 3 valuation £m | |||||||||||||||||
| ||||||||||||||||||||||
At 1 April | (104 | ) | (180) | (71 | ) | (140) | (175 | ) | (320) | |||||||||||||
Net gains/(losses) for the year1,2 | 7 | 79 | 19 | 45 | 26 | 124 | ||||||||||||||||
Purchases | – | – | 1 | (14) | 1 | (14) | ||||||||||||||||
Settlements | (3 | ) | (3) | (7 | ) | 39 | (10 | ) | 36 | |||||||||||||
Reclassification out of level 3 | – | – | – | (1) | – | (1) | ||||||||||||||||
| ||||||||||||||||||||||
At 31 March | (100 | ) | (104) | (58 | ) | (71) | (158 | ) | (175) | |||||||||||||
| ||||||||||||||||||||||
1. Gain of £7m (2013: £79m gain) is attributable to derivative financial instruments held at the end of the reporting period. 2. Loss of £30m (2013: £51m gain) is attributable to commodity contract financial instruments held at the end of the reporting period.
In 2014 the transfers out of level 3 were immaterial.
The impacts on a post-tax basis of reasonably possible changes in significant level 3 assumptions are as follows:
|
| |||||||||||||||||||||
Derivative financial instruments | Commodity contracts | |||||||||||||||||||||
|
|
|
| |||||||||||||||||||
| 2014 Income statement £m | 2013 Income statement £m | 2014 Income statement £m | 2013 Income statement £m | |||||||||||||||||||
| ||||||||||||||||||||||
10% increase in commodity prices1 | – | – | 33 | 40 | ||||||||||||||||||
10% decrease in commodity prices1 | – | – | (15 | ) | (23) | |||||||||||||||||
Volume forecast uplift2 | – | – | (2 | ) | (4) | |||||||||||||||||
Volume forecast reduction2 | – | – | 2 | 4 | ||||||||||||||||||
Forward curve extrapolation | – | – | 1 | – | ||||||||||||||||||
+20 basis point change in LPI market curve3 | (54 | ) | (62) | – | – | |||||||||||||||||
–20 basis point change in LPI market curve3 | 53 | 60 | – | – | ||||||||||||||||||
| ||||||||||||||||||||||
1. Level 3 commodity price sensitivity is included within the sensitivity analysis disclosed in note 33 on page 147. 2. Volumes were flexed using maximum and minimum historical averages, or by >10% where historical averages were not available. 3. A reasonably possible change in assumption of other level 3 derivative financial instruments is unlikely to result in a material change in fair values.
The impacts disclosed above were considered on a contract by contract basis with the most significant unobservable inputs identified.
|
| |||||||||||||||||||||
|
|
|
|
|
To support our long-term liquidity requirements and provide backup to commercial paper and other borrowings, we agree loan facilities with financial institutions over and above the value of borrowings that may be required. These facilities have never been drawn, and our undrawn amounts are listed below.
| ||||||||
At 31 March 2014, we had bilateral committed credit facilities of £2,073m (2013: £2,009m). In addition, we had committed credit facilities from syndicates of banks of £800m at 31 March 2014 (2013: £877m). All committed credit facilities were undrawn in 2014 and 2013. An analysis of the maturity of these undrawn committed facilities is shown below:
| ||||||||
2014 £m | 2013 £m | |||||||
| ||||||||
Undrawn committed borrowing facilities expiring: | ||||||||
Less than 1 year | – | – | ||||||
In 1-2 years | 800 | 1,140 | ||||||
In 2-3 years | – | 877 | ||||||
In 3-4 years | 853 | – | ||||||
In 4-5 years | 1,220 | 869 | ||||||
| ||||||||
| 2,873 | 2,886 | |||||||
| ||||||||
Of the unused facilities at 31 March 2014, £2,583m (2013: £2,568m) was held as backup to commercial paper and similar borrowings, while £290m (2013: £318m) is available as backup to specific US borrowings.
Further information on our bonds can be found on the debt investor section of our website. | ||||||||
| ||||||||||||
|
| ||||||||||
To support our long-term liquidity requirements and provide backup to commercial paper and other borrowings, we agree loan facilities with financial institutions over and above the value of borrowings that may be required. These facilities have never been drawn, and our undrawn amounts are listed below.
|
| |||||||||
At 31 March 2015, we had bilateral committed credit facilities of £2,094m (2014: £2,073m). In addition, we had committed credit facilities from syndicates of banks of £884m at 31 March 2015 (2014: £800m). All committed credit facilities were undrawn in 2015 and 2014. An analysis of the maturity of these undrawn committed facilities is shown below:
|
| |||||||||
| 2015 | 2014 | |||||||||
| £m | £m | |||||||||
| ||||||||||
| Undrawn committed borrowing facilities expiring: | ||||||||||
Less than 1 year | 572 | – | ||||||||
In 1 to 2 years | – | 800 | ||||||||
In 2 to 3 years | 874 | – | ||||||||
In 3 to 4 years | 1,220 | 853 | ||||||||
In 4 to 5 years | 312 | 1,220 | ||||||||
| ||||||||||
| 2,978 | 2,873 | |||||||||
| ||||||||||
| Of the unused facilities at 31 March 2015, £2,666m (2014: £2,583m) was held as backup to commercial paper and similar borrowings, while £312m (2014: £290m) is available as backup to specific US borrowings. | ||||||||||
| In addition to the above the Group has an RPI-linked bank loan agreement totalling £1,500m with the European Investment Bank (EIB), which is currently undrawn. | ||||||||||
Further information on our bonds can be found on the debt investor section of our website.
|
| |||||||||
|
| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 149 |
Financial Statements
Notes to the consolidated financial statements
– supplementary informationcontinued
| 150 |
|
|
|
|
|
| ||||||||||||
|
|
| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 151 |
Financial Statements
Notes to the consolidated financial statements
– supplementary informationcontinued
| 152 |
| 34. Additional disclosures in respect of guaranteed securitiescontinued | ||||||||||||||||||||||||||||||||||||||||||
| Summary statements of comprehensive income are presented, on a consolidated basis, for the three years ended 31 March 2015. Summary statements of comprehensive income of National Grid plc and National Grid Gas plc are presented under IFRS measurement principles, as modified by the inclusion of the results of subsidiary undertakings on the basis of equity accounting principles. | ||||||||||||||||||||||||||||||||||||||||||
| The summary statements of financial position of National Grid plc and National Grid Gas plc include the investments in subsidiaries recorded on the basis of equity accounting principles for the purposes of presenting condensed consolidating financial information under IFRS. The summary statements of financial position present these investments within non-current financial and other investments. | ||||||||||||||||||||||||||||||||||||||||||
| The consolidation adjustments column includes the necessary amounts to eliminate the intercompany balances and transactions between National Grid plc, National Grid Gas plc, British Transco Finance Inc., Niagara Mohawk Power Corporation and other subsidiaries. | ||||||||||||||||||||||||||||||||||||||||||
Summary statements of comprehensive income for the year ended 31 March 2015 – IFRS
|
| |||||||||||||||||||||||||||||||||||||||||
| Parent guarantor | Issuer of notes | Subsidiary guarantor |
| |||||||||||||||||||||||||||||||||||||||
National £m | Niagara Mohawk Power Corporation £m | British Transco Finance Inc. £m | National £m | Other subsidiaries £m | Consolidation adjustments £m | National Grid consolidated £m | ||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||
Revenue | – | 2,109 | – | 3,136 | 10,125 | (169 | ) | 15,201 | ||||||||||||||||||||||||||||||||||
Operating costs: | ||||||||||||||||||||||||||||||||||||||||||
Depreciation and amortisation | – | (146 | ) | – | (540) | (796 | ) | – | (1,482) | |||||||||||||||||||||||||||||||||
Payroll costs | – | (256 | ) | – | (253) | (950 | ) | – | (1,459) | |||||||||||||||||||||||||||||||||
Purchases of electricity | – | (604 | ) | – | – | (1,081 | ) | – | (1,685) | |||||||||||||||||||||||||||||||||
Purchases of gas | – | (147 | ) | – | (98) | (1,171 | ) | – | (1,416) | |||||||||||||||||||||||||||||||||
Rates and property tax | – | (146 | ) | – | (247) | (611 | ) | – | (1,004) | |||||||||||||||||||||||||||||||||
Balancing Service Incentive Scheme | – | – | – | – | (874 | ) | – | (874) | ||||||||||||||||||||||||||||||||||
Payments to other UK network owners | – | – | – | – | (801 | ) | – | (801) | ||||||||||||||||||||||||||||||||||
Other operating costs | – | (501 | ) | – | (655) | (1,713 | ) | 169 | (2,700) | |||||||||||||||||||||||||||||||||
| – | (1,800 | ) | – | (1,793) | (7,997 | ) | 169 | (11,421) | ||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||
Total operating profit | – | 309 | – | 1,343 | 2,128 | – | 3,780 | |||||||||||||||||||||||||||||||||||
Net finance costs | (223) | (76 | ) | – | (352) | (547 | ) | – | (1,198) | |||||||||||||||||||||||||||||||||
Dividends receivable | – | – | – | – | 700 | (700 | ) | – | ||||||||||||||||||||||||||||||||||
Interest in equity accounted affiliates | 2,192 | – | – | 8 | 46 | (2,200 | ) | 46 | ||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||
Profit before tax | 1,969 | 233 | – | 999 | 2,327 | (2,900 | ) | 2,628 | ||||||||||||||||||||||||||||||||||
Tax | 50 | (98 | ) | – | (230) | (339 | ) | – | (617) | |||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||
Profit for the year | 2,019 | 135 | – | 1 | 769 | 1,988 | (2,900 | ) | 2,011 | |||||||||||||||||||||||||||||||||
Amounts recognised in other comprehensive income2 | (395) | 1 | – | 22 | (588 | ) | 566 | (394) | ||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||
Total comprehensive income for the year | 1,624 | 136 | – | 791 | 1,400 | (2,334 | ) | 1,617 | ||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||
Attributable to: | ||||||||||||||||||||||||||||||||||||||||||
Equity shareholders | 1,624 | 136 | – | 791 | 1,407 | (2,334 | ) | 1,624 | ||||||||||||||||||||||||||||||||||
Non-controlling interests | – | – | – | – | (7 | ) | – | (7) | ||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||
| 1,624 | 136 | – | 791 | 1,400 | (2,334 | ) | 1,617 | |||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||
1. Profit for the year for British Transco Finance Inc. is £nil as interest payable to external bond holders is offset by interest receivable on loans to National Grid Gas plc. 2. Includes other comprehensive income relating to interest in equity accounted affiliates.
|
| |||||||||||||||||||||||||||||||||||||||||
|
| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 153 |
Financial Statements
Notes to the consolidated financial statements
– supplementary informationcontinued
| 34. Additional disclosures in respect of guaranteed securitiescontinued | ||||||||||||||||||||||||||||||||||||||||||
| Summary statements of comprehensive income for the year ended 31 March 2014 – IFRS | ||||||||||||||||||||||||||||||||||||||||||
| Parent guarantor | Issuer of notes | Subsidiary guarantor |
| |||||||||||||||||||||||||||||||||||||||
|
| National Grid plc £m |
| | Niagara Mohawk Power Corporation £m | | | British Transco Finance Inc. £m | |
| National Grid Gas plc £m |
|
| Other subsidiaries £m | 1
| | Consolidation adjustments £m | | | National Grid consolidated1 £m | | ||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||
Revenue | 4 | 2,185 | – | 3,141 | 9,653 | (174 | ) | 14,809 | ||||||||||||||||||||||||||||||||||
Operating costs: | ||||||||||||||||||||||||||||||||||||||||||
Depreciation and amortisation | – | (127 | ) | – | (529) | (760 | ) | – | (1,416) | |||||||||||||||||||||||||||||||||
Payroll costs | – | (278 | ) | – | (251) | (689 | ) | – | (1,218) | |||||||||||||||||||||||||||||||||
Purchases of electricity | – | (647 | ) | – | – | (817 | ) | – | (1,464) | |||||||||||||||||||||||||||||||||
Purchases of gas | – | (194 | ) | – | (112) | (1,449 | ) | – | (1,755) | |||||||||||||||||||||||||||||||||
Rates and property tax | – | (137 | ) | – | (241) | (585 | ) | – | (963) | |||||||||||||||||||||||||||||||||
Balancing Service Incentive Scheme | – | – | – | – | (872 | ) | – | (872) | ||||||||||||||||||||||||||||||||||
Payments to other UK network owners | – | – | – | – | (630 | ) | – | (630) | ||||||||||||||||||||||||||||||||||
Other operating costs | 15 | (440 | ) | – | (661) | (1,844 | ) | 174 | (2,756) | |||||||||||||||||||||||||||||||||
| 15 | (1,823 | ) | – | (1,794) | (7,646 | ) | 174 | (11,074) | ||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||
Total operating profit | 19 | 362 | – | 1,347 | 2,007 | – | 3,735 | |||||||||||||||||||||||||||||||||||
Net finance costs | (128) | (85 | ) | – | (285) | (517 | ) | – | (1,015) | |||||||||||||||||||||||||||||||||
Dividends receivable | – | – | – | – | 600 | (600 | ) | – | ||||||||||||||||||||||||||||||||||
Interest in equity accounted affiliates | 2,550 | – | – | 11 | 28 | (2,561 | ) | 28 | ||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||
Profit before tax | 2,441 | 277 | – | 1,073 | 2,118 | (3,161 | ) | 2,748 | ||||||||||||||||||||||||||||||||||
Tax | 35 | (97 | ) | – | 3 | (225 | ) | – | (284) | |||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||
Profit for the year | 2,476 | 180 | – | 2 | 1,076 | 1,893 | (3,161 | ) | 2,464 | |||||||||||||||||||||||||||||||||
Amounts recognised in other comprehensive income3 | 235 | (8 | ) | – | 9 | 383 | (384 | ) | 235 | |||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||
Total comprehensive income for the year | 2,711 | 172 | – | 1,085 | 2,276 | (3,545 | ) | 2,699 | ||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||
Attributable to: | ||||||||||||||||||||||||||||||||||||||||||
Equity shareholders | 2,711 | 172 | – | 1,085 | 2,288 | (3,545 | ) | 2,711 | ||||||||||||||||||||||||||||||||||
Non-controlling interests | – | – | – | – | (12 | ) | – | (12) | ||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||
| 2,711 | 172 | – | 1,085 | 2,276 | (3,545 | ) | 2,699 | |||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||
1. Comparatives have been represented on a basis consistent with the current year presentation. 2. Profit for the year for British Transco Finance Inc. is £nil as interest payable to external bond holders is offset by interest receivable on loans to National Grid Gas plc. 3. Includes other comprehensive income relating to interest in equity accounted affiliates.
|
| |||||||||||||||||||||||||||||||||||||||||
| 154 |
| 34. Additional disclosures in respect of guaranteed securitiescontinued | ||||||||||||||||||||||||||||||||||||||||||
| Summary statements of comprehensive income for the year ended 31 March 2013 – IFRS | ||||||||||||||||||||||||||||||||||||||||||
| Parent guarantor | Issuer of notes | Subsidiary guarantor |
| |||||||||||||||||||||||||||||||||||||||
|
| National Grid plc £m |
| | Niagara Mohawk Power Corporation £m | | | British Transco Finance Inc. £m | |
| National Grid Gas plc £m |
|
| Other subsidiaries £m | 1
| | Consolidation adjustments £m | | | National Grid consolidated1 £m | | ||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||
Revenue | – | 2,129 | – | 3,062 | 9,345 | (177 | ) | 14,359 | ||||||||||||||||||||||||||||||||||
Operating costs: | ||||||||||||||||||||||||||||||||||||||||||
Depreciation and amortisation | – | (119 | ) | – | (511) | (731 | ) | – | (1,361) | |||||||||||||||||||||||||||||||||
Payroll costs | – | (276 | ) | – | (238) | (946 | ) | – | (1,460) | |||||||||||||||||||||||||||||||||
Purchases of electricity | – | (561 | ) | – | – | (579 | ) | – | (1,140) | |||||||||||||||||||||||||||||||||
Purchases of gas | – | (151 | ) | – | (128) | (1,036 | ) | – | (1,315) | |||||||||||||||||||||||||||||||||
Rates and property tax | – | (141 | ) | – | (235) | (593 | ) | – | (969) | |||||||||||||||||||||||||||||||||
Balancing Service Incentive Scheme | – | – | – | – | (805 | ) | – | (805) | ||||||||||||||||||||||||||||||||||
Payments to other UK network owners | – | – | – | – | (487 | ) | – | (487) | ||||||||||||||||||||||||||||||||||
Other operating costs | – | (357 | ) | – | (579) | (2,314 | ) | 177 | (3,073) | |||||||||||||||||||||||||||||||||
| – | (1,605 | ) | – | (1,691) | (7,491 | ) | 177 | (10,610) | ||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||
Total operating profit | – | 524 | – | 1,371 | 1,854 | – | 3,749 | |||||||||||||||||||||||||||||||||||
Net finance costs | (181) | (88 | ) | – | (274) | (513 | ) | – | (1,056) | |||||||||||||||||||||||||||||||||
Dividends receivable | – | – | – | – | 1,900 | (1,900 | ) | – | ||||||||||||||||||||||||||||||||||
Interest in equity accounted affiliates | 2,295 | – | – | 8 | 18 | (2,303 | ) | 18 | ||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||
Profit before tax | 2,114 | 436 | – | 1,105 | 3,259 | (4,203 | ) | 2,711 | ||||||||||||||||||||||||||||||||||
Tax | 39 | (168 | ) | – | (174) | (254 | ) | – | (557) | |||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||
Profit for the year | 2,153 | 268 | – | 2 | 931 | 3,005 | (4,203 | ) | 2,154 | |||||||||||||||||||||||||||||||||
Amounts recognised in other comprehensive income3 | (381) | (35 | ) | – | 3 | (353 | ) | 385 | (381) | |||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||
Total comprehensive income for the year | 1,772 | 233 | – | 934 | 2,652 | (3,818 | ) | 1,773 | ||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||
Attributable to: | ||||||||||||||||||||||||||||||||||||||||||
Equity shareholders | 1,772 | 233 | – | 934 | 2,651 | (3,818 | ) | 1,772 | ||||||||||||||||||||||||||||||||||
Non-controlling interests | – | – | – | – | 1 | – | 1 | |||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||
| 1,772 | 233 | – | 934 | 2,652 | (3,818 | ) | 1,773 | |||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||
1. Comparatives have been represented on a basis consistent with the current year presentation. 2. Profit for the year for British Transco Finance Inc. is £nil as interest payable to external bond holders is offset by interest receivable on loans to National Grid Gas plc. 3. Includes other comprehensive income relating to interest in equity accounted affiliates.
|
| |||||||||||||||||||||||||||||||||||||||||
|
| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 155 |
Financial Statements
Notes to the consolidated financial statements
– supplementary informationcontinued
| 34. Additional disclosures in respect of guaranteed securitiescontinued | ||||||||||||||||||||||||||||
Statements of financial position as at 31 March 2015 – IFRS | ||||||||||||||||||||||||||||
| Parent guarantor | Issuer of notes | Subsidiary guarantor |
| |||||||||||||||||||||||||
National Grid plc £m | Niagara Mohawk Power Corporation £m | British Transco Finance Inc. £m | National Grid Gas plc £m | Other subsidiaries £m | Consolidation adjustments £m | National Grid consolidated £m | ||||||||||||||||||||||
| ||||||||||||||||||||||||||||
| Non-current assets | ||||||||||||||||||||||||||||
| Goodwill | – | 653 | – | – | 4,492 | – | 5,145 | |||||||||||||||||||||
| Other intangible assets | – | – | – | 232 | 570 | – | 802 | |||||||||||||||||||||
| Property, plant and equipment | – | 5,025 | – | 12,428 | 23,270 | – | 40,723 | |||||||||||||||||||||
| Other non-current assets | – | 11 | – | 18 | 51 | – | 80 | |||||||||||||||||||||
| Amounts owed by subsidiary undertakings | 341 | – | 202 | 5,609 | 3,017 | (9,169 | ) | – | ||||||||||||||||||||
| Pension assets | – | 121 | – | – | – | – | 121 | |||||||||||||||||||||
| Financial and other investments | 14,988 | 26 | – | 56 | 9,905 | (24,327 | ) | 648 | ||||||||||||||||||||
| Derivative financial assets | 148 | – | – | 988 | 403 | – | 1,539 | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
| Total non-current assets | 15,477 | 5,836 | 202 | 19,331 | 41,708 | (33,496 | ) | 49,058 | ||||||||||||||||||||
| ||||||||||||||||||||||||||||
| Current assets | ||||||||||||||||||||||||||||
| Inventories and current intangible assets | – | 40 | – | 26 | 274 | – | 340 | |||||||||||||||||||||
| Trade and other receivables | 2 | 502 | – | 417 | 1,915 | – | 2,836 | |||||||||||||||||||||
| Amounts owed by subsidiary undertakings | 11,484 | 254 | 5 | 298 | 13,052 | (25,093 | ) | – | ||||||||||||||||||||
| Financial and other investments | 740 | 9 | – | 363 | 1,447 | – | 2,559 | |||||||||||||||||||||
| Derivative financial assets | 281 | – | – | 70 | 88 | (262 | ) | 177 | ||||||||||||||||||||
| Cash and cash equivalents | 10 | 11 | – | 4 | 104 | (10 | ) | 119 | ||||||||||||||||||||
| ||||||||||||||||||||||||||||
| Total current assets | 12,517 | 816 | 5 | 1,178 | 16,880 | (25,365 | ) | 6,031 | ||||||||||||||||||||
| ||||||||||||||||||||||||||||
| Total assets | 27,994 | 6,652 | 207 | 20,509 | 58,588 | (58,861 | ) | 55,089 | ||||||||||||||||||||
| ||||||||||||||||||||||||||||
| Current liabilities | ||||||||||||||||||||||||||||
| Borrowings | (1,068) | (44) | (5) | (521) | (1,400) | 10 | (3,028) | |||||||||||||||||||||
| Derivative financial liabilities | (289) | – | – | (133) | (475) | 262 | (635) | |||||||||||||||||||||
| Trade and other payables | (39) | (267) | – | (877) | (2,109) | – | (3,292) | |||||||||||||||||||||
| Amounts owed to subsidiary undertakings | (11,208) | – | – | (1,973) | (11,912) | 25,093 | – | |||||||||||||||||||||
| Current tax liabilities | (3) | (61) | – | (34) | (86) | – | (184) | |||||||||||||||||||||
| Provisions | – | – | – | (39) | (196) | – | (235) | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
| Total current liabilities | (12,607) | (372) | (5) | (3,577) | (16,178) | 25,365 | (7,374) | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
| Non-current liabilities | ||||||||||||||||||||||||||||
| Borrowings | (1,117) | (2,021) | (202) | (6,056) | (13,486) | – | (22,882) | |||||||||||||||||||||
| Derivative financial liabilities | (411) | – | – | (481) | (872) | – | (1,764) | |||||||||||||||||||||
| Other non-current liabilities | – | (287) | – | (1,038) | (594) | – | (1,919) | |||||||||||||||||||||
| Amounts owed to subsidiary undertakings | (1,894) | – | – | (1,123) | (6,152) | 9,169 | – | |||||||||||||||||||||
| Deferred tax liabilities | (3) | (782) | – | (1,655) | (1,857) | – | (4,297) | |||||||||||||||||||||
| Pensions and other post-retirement benefit obligations | – | (801) | – | – | (2,578) | – | (3,379) | |||||||||||||||||||||
| Provisions | – | (267) | – | (168) | (1,065) | – | (1,500) | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
| Total non-current liabilities | (3,425) | (4,158) | (202) | (10,521) | (26,604) | 9,169 | (35,741) | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
| Total liabilities | (16,032) | (4,530) | (207) | (14,098) | (42,782) | 34,534 | (43,115) | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
| Net assets | 11,962 | 2,122 | – | 6,411 | 15,806 | (24,327 | ) | 11,974 | ||||||||||||||||||||
| ||||||||||||||||||||||||||||
| Equity | ||||||||||||||||||||||||||||
| Share capital | 443 | 126 | – | 45 | 182 | (353 | ) | 443 | ||||||||||||||||||||
| Share premium account | 1,331 | 2,039 | – | 204 | 8,033 | (10,276 | ) | 1,331 | ||||||||||||||||||||
| Retained earnings | 14,870 | (43) | – | 4,885 | 7,761 | (12,603 | ) | 14,870 | ||||||||||||||||||||
| Other equity reserves | (4,682) | – | – | 1,277 | (182) | (1,095 | ) | (4,682) | ||||||||||||||||||||
| ||||||||||||||||||||||||||||
| Shareholders’ equity | 11,962 | 2,122 | – | 6,411 | 15,794 | (24,327 | ) | 11,962 | ||||||||||||||||||||
| Non-controlling interests | – | – | – | – | 12 | – | 12 | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
| Total equity | 11,962 | 2,122 | – | 6,411 | 15,806 | (24,327 | ) | 11,974 | ||||||||||||||||||||
| ||||||||||||||||||||||||||||
| 156 |
| 34. Additional disclosures in respect of guaranteed securitiescontinued | ||||||||||||||||||||||||||||
| Statements of financial position as at 31 March 2014 – IFRS | ||||||||||||||||||||||||||||
| Parent guarantor | Issuer of notes | Subsidiary guarantor |
| |||||||||||||||||||||||||
National Grid plc £m | Niagara Power £m | British Transco £m | National Grid Gas plc £m | Other £m | Consolidation £m | National Grid £m | ||||||||||||||||||||||
| ||||||||||||||||||||||||||||
| Non-current assets | ||||||||||||||||||||||||||||
| Goodwill | – | 581 | – | – | 4,013 | – | 4,594 | |||||||||||||||||||||
| Other intangible assets | – | – | – | 230 | 439 | – | 669 | |||||||||||||||||||||
| Property, plant and equipment | – | 4,266 | – | 12,259 | 20,654 | – | 37,179 | |||||||||||||||||||||
| Other non-current assets | – | 26 | – | 15 | 46 | – | 87 | |||||||||||||||||||||
| Amounts owed by subsidiary undertakings | 305 | – | 180 | 5,609 | 2,676 | (8,770 | ) | – | ||||||||||||||||||||
| Pension assets | – | – | – | – | 174 | – | 174 | |||||||||||||||||||||
| Financial and other investments | 14,520 | 22 | – | 50 | 9,896 | (23,853 | ) | 635 | ||||||||||||||||||||
| Derivative financial assets | 643 | – | – | 642 | 272 | – | 1,557 | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
| Total non-current assets | 15,468 | 4,895 | 180 | 18,805 | 38,170 | (32,623 | ) | 44,895 | ||||||||||||||||||||
| ||||||||||||||||||||||||||||
| Current assets | ||||||||||||||||||||||||||||
| Inventories and current intangible assets | – | 27 | – | 24 | 217 | – | 268 | |||||||||||||||||||||
| Trade and other receivables | 3 | 572 | – | 361 | 1,855 | 64 | 2,855 | |||||||||||||||||||||
| Amounts owed by subsidiary undertakings | 9,025 | 11 | 5 | 262 | 11,100 | (20,403 | ) | – | ||||||||||||||||||||
| Financial and other investments | 1,481 | 10 | – | 420 | 1,688 | – | 3,599 | |||||||||||||||||||||
| Derivative financial assets | 284 | – | – | 63 | 174 | (108 | ) | 413 | ||||||||||||||||||||
| Cash and cash equivalents | 24 | 16 | – | – | 314 | – | 354 | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
| Total current assets | 10,817 | 636 | 5 | 1,130 | 15,348 | (20,447 | ) | 7,489 | ||||||||||||||||||||
| ||||||||||||||||||||||||||||
| Total assets | 26,285 | 5,531 | 185 | 19,935 | 53,518 | (53,070 | ) | 52,384 | ||||||||||||||||||||
| ||||||||||||||||||||||||||||
| Current liabilities | ||||||||||||||||||||||||||||
| Borrowings | (1,327) | (328) | (4) | (568) | (1,284) | – | (3,511) | |||||||||||||||||||||
| Derivative financial liabilities | (286) | – | – | (99) | (62) | 108 | (339) | |||||||||||||||||||||
| Trade and other payables | (37) | (252) | – | (809) | (1,933) | – | (3,031) | |||||||||||||||||||||
| Amounts owed to subsidiary undertakings | (8,695) | (56) | – | (2,212) | (9,440) | 20,403 | – | |||||||||||||||||||||
| Current tax liabilities | – | (64) | – | (27) | (13) | (64 | ) | (168) | ||||||||||||||||||||
| Provisions | – | – | – | (74) | (208) | – | (282) | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
| Total current liabilities | (10,345) | (700) | (4) | (3,789) | (12,940) | 20,447 | (7,331) | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
| Non-current liabilities | ||||||||||||||||||||||||||||
| Borrowings | (1,850) | (1,321) | (180) | (6,048) | (13,040) | – | (22,439) | |||||||||||||||||||||
| Derivative financial liabilities | (154) | – | – | (279) | (391) | – | (824) | |||||||||||||||||||||
| Other non-current liabilities | – | (245) | – | (1,045) | (551) | – | (1,841) | |||||||||||||||||||||
| Amounts owed to subsidiary undertakings | (2,022) | – | – | (654) | (6,094) | 8,770 | – | |||||||||||||||||||||
| Deferred tax liabilities | (3) | (609) | – | (1,601) | (1,869) | – | (4,082) | |||||||||||||||||||||
| Pensions and other post-retirement benefit obligations | – | (652) | – | – | (1,933) | – | (2,585) | |||||||||||||||||||||
| Provisions | – | (243) | – | (158) | (962) | – | (1,363) | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
| Total non-current liabilities | (4,029) | (3,070) | (180) | (9,785) | (24,840) | 8,770 | (33,134) | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
| Total liabilities | (14,374) | (3,770) | (184) | (13,574) | (37,780) | 29,217 | (40,465) | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
| Net assets | 11,911 | 1,761 | 1 | 6,361 | 15,738 | (23,853 | ) | 11,919 | ||||||||||||||||||||
| ||||||||||||||||||||||||||||
| Equity | ||||||||||||||||||||||||||||
| Share capital | 439 | 112 | – | 45 | 182 | (339 | ) | 439 | ||||||||||||||||||||
| Share premium account | 1,336 | 1,808 | – | 204 | 8,032 | (10,044 | ) | 1,336 | ||||||||||||||||||||
| Retained earnings | 14,895 | (159) | 1 | 4,814 | 7,628 | (12,284 | ) | 14,895 | ||||||||||||||||||||
| Other equity reserves | (4,759) | – | – | 1,298 | (112) | (1,186 | ) | (4,759) | ||||||||||||||||||||
| ||||||||||||||||||||||||||||
| Shareholders’ equity | 11,911 | 1,761 | 1 | 6,361 | 15,730 | (23,853 | ) | 11,911 | ||||||||||||||||||||
| Non-controlling interests | – | – | – | – | 8 | – | 8 | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
| Total equity | 11,911 | 1,761 | 1 | 6,361 | 15,738 | (23,853 | ) | 11,919 | ||||||||||||||||||||
| ||||||||||||||||||||||||||||
|
| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 157 |
Financial Statements
Notes to the consolidated financial statements
– supplementary informationcontinued
| 34. Additional disclosures in respect of guaranteed securitiescontinued | ||||||||||||||||||||||||||||
Cash flow statements | ||||||||||||||||||||||||||||
| Parent guarantor | Issuer of notes | Subsidiary guarantor |
| |||||||||||||||||||||||||
| National Grid plc £m | Niagara Mohawk Power Corporation £m | British Transco Finance Inc. £m | National £m | Other subsidiaries £m | Consolidation adjustments £m | National Grid consolidated £m | ||||||||||||||||||||||
| ||||||||||||||||||||||||||||
Year ended 31 March 2015 | ||||||||||||||||||||||||||||
Net cash flow from operating activities | 38 | 531 | – | 1,575 | 2,863 | – | 5,007 | |||||||||||||||||||||
Net cash flow from/(used in) investing activities | 2,103 | (393 | ) | – | (603) | (1,051 | ) | (2,057 | ) | (2,001) | ||||||||||||||||||
Net cash flow (used in)/from financing activities | (2,169) | (145 | ) | – | (959) | (2,037 | ) | 2,057 | (3,253) | |||||||||||||||||||
| ||||||||||||||||||||||||||||
Net (decrease)/increase in cash and cash equivalents in the year | (28) | (7 | ) | – | 13 | (225 | ) | – | (247) | |||||||||||||||||||
| ||||||||||||||||||||||||||||
Year ended 31 March 2014 | ||||||||||||||||||||||||||||
Net cash flow from operating activities | 52 | 581 | – | 1,717 | 1,669 | – | 4,019 | |||||||||||||||||||||
Net cash flow from/(used in) investing activities | 1,358 | (555 | ) | – | (91) | (993 | ) | (1,049 | ) | (1,330) | ||||||||||||||||||
Net cash flow (used in)/from financing activities | (1,724) | (18 | ) | – | (1,632) | (647 | ) | 1,049 | (2,972) | |||||||||||||||||||
| ||||||||||||||||||||||||||||
Net (decrease)/increase in cash and cash equivalents in the year | (314) | 8 | – | (6) | 29 | – | (283) | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
Year ended 31 March 2013 | ||||||||||||||||||||||||||||
Net cash flow from operating activities | 36 | 162 | – | 1,608 | 1,944 | – | 3,750 | |||||||||||||||||||||
Net cash flow used in investing activities | (979) | (286 | ) | – | (1,345) | (1,048 | ) | (2,472 | ) | (6,130) | ||||||||||||||||||
Net cash flow from/(used in) financing activities | 1,255 | 132 | – | (240) | (904 | ) | 2,472 | 2,715 | ||||||||||||||||||||
| ||||||||||||||||||||||||||||
Net increase/(decrease) in cash and cash equivalents in the year | 312 | 8 | – | 23 | (8 | ) | – | 335 | ||||||||||||||||||||
| ||||||||||||||||||||||||||||
| Cash dividends were received by National Grid plc from subsidiary undertakings amounting to £1,355m during the year ended 31 March 2015 (2014: £1,050m; 2013: £570m). | ||||||||||||||||||||||||||||
| Maturity analysis of parent Company borrowings | ||||||||||||||||||||||||||||
2015 £m | 2014 £m | |||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||
Total borrowings are repayable as follows: | ||||||||||||||||||||||||||||
Less than 1 year | 1,068 | 1,327 | ||||||||||||||||||||||||||
In 1 to 2 years | – | 46 | ||||||||||||||||||||||||||
In 2 to 3 years | – | 580 | ||||||||||||||||||||||||||
In 3 to 4 years | 443 | – | ||||||||||||||||||||||||||
In 4 to 5 years | 360 | 506 | ||||||||||||||||||||||||||
More than 5 years | 314 | 718 | ||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||
| 2,185 | 3,177 | |||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||
158 |
|
|
|
|
|
34. Additional disclosures in respect of guaranteed securitiescontinued
Summary statements of comprehensive income are presented, on a consolidating basis, for the three years ended 31 March 2014. Summary statements of comprehensive income of National Grid plc and National Grid Gas plc are presented under IFRS measurement principles, as modified by the inclusion of the results of subsidiary undertakings on the basis of equity accounting principles.
The summary statements of financial position of National Grid plc and National Grid Gas plc include the investments in subsidiaries recorded on the basis of equity accounting principles for the purposes of presenting condensed consolidating financial information under IFRS. The summary statements of financial position present these investments within non-current financial and other investments.
The consolidation adjustments column includes the necessary amounts to eliminate the intercompany balances and transactions between National Grid plc, National Grid Gas plc, British Transco Finance Inc., Niagara Mohawk Power Corporation and other subsidiaries.
Summary statements of comprehensive income for the year ended 31 March 2014 – IFRS
| ||||||||||||||||||||||||||||
Parent guarantor | Issuer of notes | Subsidiary guarantor | ||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||
National Grid plc £m | Niagara Mohawk Power Corporation | British Transco Finance Inc. | National Grid Gas plc £m | Other subsidiaries £m | Consolidation adjustments £m | National Grid consolidated £m | ||||||||||||||||||||||
| ||||||||||||||||||||||||||||
Revenue | 4 | 2,185 | – | 3,141 | 9,653 | (174) | 14,809 | |||||||||||||||||||||
Operating costs | ||||||||||||||||||||||||||||
Depreciation and amortisation | – | (127) | – | (529) | (760) | – | (1,416) | |||||||||||||||||||||
Payroll costs | – | (278) | – | (251) | (903) | – | (1,432) | |||||||||||||||||||||
Purchases of electricity | – | (647) | – | – | (817) | – | (1,464) | |||||||||||||||||||||
Purchases of gas | – | (194) | – | (112) | (1,449) | – | (1,755) | |||||||||||||||||||||
Rates and property tax | – | (137) | – | (241) | (585) | – | (963) | |||||||||||||||||||||
Balancing Service Incentive Scheme | – | – | – | – | (872) | – | (872) | |||||||||||||||||||||
Payments to other UK network owners | – | – | – | – | (630) | – | (630) | |||||||||||||||||||||
Other operating costs | 15 | (440) | – | (661) | (1,630) | 174 | (2,542) | |||||||||||||||||||||
| 15 | (1,823) | – | (1,794) | (7,646) | 174 | (11,074) | ||||||||||||||||||||||
| ||||||||||||||||||||||||||||
Operating profit | 19 | 362 | – | 1,347 | 2,007 | – | 3,735 | |||||||||||||||||||||
Net finance costs | (128) | (85) | – | (285) | (517) | – | (1,015) | |||||||||||||||||||||
Dividends receivable | – | – | – | – | 600 | (600) | – | |||||||||||||||||||||
Interest in equity accounted affiliates | 2,550 | – | – | 11 | 28 | (2,561) | 28 | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
Profit before tax | 2,441 | 277 | – | 1,073 | 2,118 | (3,161) | 2,748 | |||||||||||||||||||||
Taxation | 35 | (97) | – | 3 | (225) | – | (284) | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
Profit for the year | 2,476 | 180 | –1 | 1,076 | 1,893 | (3,161) | 2,464 | |||||||||||||||||||||
Amounts recognised in other comprehensive income2 | 235 | (8) | – | 9 | 383 | (384) | 235 | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
Total comprehensive income for the year | 2,711 | 172 | – | 1,085 | 2,276 | (3,545) | 2,699 | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
Attributable to: | ||||||||||||||||||||||||||||
Equity shareholders | 2,711 | 172 | – | 1,085 | 2,288 | (3,545) | 2,711 | |||||||||||||||||||||
Non-controlling interests | – | – | – | – | (12) | – | (12) | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
| 2,711 | 172 | – | 1,085 | 2,276 | (3,545) | 2,699 | ||||||||||||||||||||||
| ||||||||||||||||||||||||||||
1. Profit for the year for British Transco Finance Inc. is £nil as interest payable to external bond holders is offset by interest receivable on loans to National Grid Gas plc. 2. Includes other comprehensive income relating to interest in equity accounted affiliates. | ||||||||||||||||||||||||||||
| ||||||||||||
|
34. Additional disclosures in respect of guaranteed securitiescontinued Summary statements of comprehensive income for the year ended 31 March 2013 – IFRS
| ||||||||||||||||||||||||||||
Parent guarantor | Issuer of notes | Subsidiary guarantor | ||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||
National Grid plc (restated)1 £m | Niagara Mohawk Power Corporation (restated)1 £m | British Transco Finance Inc. (restated)1 £m | National Grid Gas plc (restated)1 £m | Other subsidiaries (restated)1 £m | Consolidation adjustments (restated)1 £m | National Grid consolidated (restated)1 £m | ||||||||||||||||||||||
| ||||||||||||||||||||||||||||
Revenue | – | 2,129 | – | 3,062 | 9,345 | (177) | 14,359 | |||||||||||||||||||||
Operating costs | ||||||||||||||||||||||||||||
Depreciation and amortisation | – | (119) | – | (511) | (731) | – | (1,361) | |||||||||||||||||||||
Payroll costs | – | (276) | – | (238) | (942) | – | (1,456) | |||||||||||||||||||||
Purchases of electricity | – | (561) | – | – | (579) | – | (1,140) | |||||||||||||||||||||
Purchases of gas | – | (151) | – | (128) | (1,036) | – | (1,315) | |||||||||||||||||||||
Rates and property tax | – | (141) | – | (235) | (593) | – | (969) | |||||||||||||||||||||
Balancing Service Incentive Scheme | – | – | – | – | (805) | – | (805) | |||||||||||||||||||||
Payments to other UK network owners | – | – | – | – | (487) | – | (487) | |||||||||||||||||||||
Other operating costs | – | (357) | – | (579) | (2,318) | 177 | (3,077) | |||||||||||||||||||||
| – | (1,605) | – | (1,691) | (7,491) | 177 | (10,610) | ||||||||||||||||||||||
| ||||||||||||||||||||||||||||
Operating profit | – | 524 | – | 1,371 | 1,854 | – | 3,749 | |||||||||||||||||||||
Net finance costs | (181) | (88) | – | (274) | (513) | – | (1,056) | |||||||||||||||||||||
Dividends receivable | – | – | – | – | 1,900 | (1,900) | – | |||||||||||||||||||||
Interest in equity accounted affiliates | 2,295 | – | – | 8 | 18 | (2,303) | 18 | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
Profit before tax | 2,114 | 436 | – | 1,105 | 3,259 | (4,203) | 2,711 | |||||||||||||||||||||
Taxation | 39 | (168) | – | (174) | (254) | – | (557) | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
Profit for the year | 2,153 | 268 | –2 | 931 | 3,005 | (4,203) | 2,154 | |||||||||||||||||||||
Amounts recognised in other comprehensive income3 | (381) | (35) | – | 3 | (353) | 385 | (381) | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
Total comprehensive income for the year | 1,772 | 233 | – | 934 | 2,652 | (3,818) | 1,773 | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
Attributable to: | ||||||||||||||||||||||||||||
Equity shareholders | 1,772 | 233 | – | 934 | 2,651 | (3,818) | 1,772 | |||||||||||||||||||||
Non-controlling interests | – | – | – | – | 1 | – | 1 | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
| 1,772 | 233 | – | 934 | 2,652 | (3,818) | 1,773 | ||||||||||||||||||||||
| ||||||||||||||||||||||||||||
1. See note 1 on page 92. 2. Profit for the year for British Transco Finance Inc. is £nil as interest payable to external bond holders is offset by interest receivable on loans to National Grid Gas plc. 3. Includes other comprehensive income relating to interest in equity accounted affiliates.
| ||||||||||||||||||||||||||||
|
|
|
|
|
34. Additional disclosures in respect of guaranteed securitiescontinued Summary statements of comprehensive income for the year ended 31 March 2012 – IFRS
| ||||||||||||||||||||||||||||
| Parent guarantor | Issuer of notes | Subsidiary guarantor | ||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||
National Grid plc | Niagara Mohawk Power Corporation (restated)1 £m | British £m | National Grid Gas plc | Other subsidiaries (restated)1 £m | Consolidation adjustments (restated)1 £m | National Grid £m | ||||||||||||||||||||||
| ||||||||||||||||||||||||||||
| Revenue | – | 2,269 | – | 2,909 | 8,828 | (174) | 13,832 | |||||||||||||||||||||
| Operating costs | ||||||||||||||||||||||||||||
Depreciation and amortisation | – | (115) | – | (491) | (666) | – | (1,272) | |||||||||||||||||||||
Payroll costs | – | (267) | – | (228) | (968) | – | (1,463) | |||||||||||||||||||||
Purchases of electricity | – | (530) | – | – | (915) | – | (1,445) | |||||||||||||||||||||
Purchases of gas | – | (169) | – | (133) | (1,221) | – | (1,523) | |||||||||||||||||||||
Rates and property tax | – | (137) | – | (236) | (582) | – | (955) | |||||||||||||||||||||
Balancing Service Incentive Scheme | – | – | – | – | (818) | – | (818) | |||||||||||||||||||||
Payments to other UK network owners | – | – | – | – | (407) | – | (407) | |||||||||||||||||||||
Other operating costs | 1 | (502) | – | (492) | (1,595) | 174 | (2,414) | |||||||||||||||||||||
| 1 | (1,720) | – | (1,580) | (7,172) | 174 | (10,297) | ||||||||||||||||||||||
| ||||||||||||||||||||||||||||
Operating profit | 1 | 549 | – | 1,329 | 1,656 | – | 3,535 | |||||||||||||||||||||
Net finance costs | (133) | (97) | – | (400) | (530) | – | (1,160) | |||||||||||||||||||||
Dividends receivable | – | – | – | – | 350 | (350) | – | |||||||||||||||||||||
Interest in equity accounted affiliates | 2,022 | – | – | 5 | 7 | (2,027) | 7 | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
Profit before tax | 1,890 | 452 | – | 934 | 1,483 | (2,377) | 2,382 | |||||||||||||||||||||
Taxation | 27 | (187) | – | (102) | (201) | – | (463) | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
Profit for the year | 1,917 | 265 | –2 | 832 | 1,282 | (2,377) | 1,919 | |||||||||||||||||||||
Amounts recognised in other comprehensive income3 | (763) | (33) | – | 9 | (773) | 797 | (763) | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
Total comprehensive income for the year | 1,154 | 232 | – | 841 | 509 | (1,580) | 1,156 | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
Attributable to: | ||||||||||||||||||||||||||||
Equity shareholders | 1,154 | 232 | – | 841 | 507 | (1,580) | 1,154 | |||||||||||||||||||||
Non-controlling interests | – | – | – | – | 2 | – | 2 | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
| 1,154 | 232 | – | 841 | 509 | (1,580) | 1,156 | ||||||||||||||||||||||
| ||||||||||||||||||||||||||||
1. See note 1 on page 92. 2. Profit for the year for British Transco Finance Inc. is £nil as interest payable to external bond holders is offset by interest receivable on loans to National Grid Gas plc. 3. Includes other comprehensive income relating to interest in equity accounted affiliates. | ||||||||||||||||||||||||||||
| ||||||||||||
|
34. Additional disclosures in respect of guaranteed securitiescontinued Statements of financial position as at 31 March 2014 – IFRS | ||||||||||||||||||||||||||||
Parent guarantor | Issuer of notes | Subsidiary guarantor | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
National Grid plc £m | Niagara Mohawk Power Corporation £m | British Transco Finance Inc. £m | National Grid Gas plc £m | Other subsidiaries £m | Consolidation £m | National Grid consolidated £m | ||||||||||||||||||||||
| ||||||||||||||||||||||||||||
Non-current assets | ||||||||||||||||||||||||||||
Goodwill | – | 581 | – | – | 4,013 | – | 4,594 | |||||||||||||||||||||
Other intangible assets | – | – | – | 230 | 439 | – | 669 | |||||||||||||||||||||
Property, plant and equipment | – | 4,266 | – | 12,259 | 20,654 | – | 37,179 | |||||||||||||||||||||
Other non-current assets | – | 26 | – | 15 | 46 | – | 87 | |||||||||||||||||||||
Amounts owed by subsidiary undertakings | 305 | – | 180 | 5,609 | 2,676 | (8,770) | – | |||||||||||||||||||||
Pension assets | – | – | – | – | 174 | – | 174 | |||||||||||||||||||||
Financial and other investments | 14,520 | 22 | – | 50 | 9,896 | (23,853) | 635 | |||||||||||||||||||||
Derivative financial assets | 643 | – | – | 642 | 272 | – | 1,557 | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
Total non-current assets | 15,468 | 4,895 | 180 | 18,805 | 38,170 | (32,623) | 44,895 | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
Current assets | ||||||||||||||||||||||||||||
Inventories and current intangible assets | – | 27 | – | 24 | 217 | – | 268 | |||||||||||||||||||||
Trade and other receivables | 3 | 572 | – | 361 | 1,855 | 64 | 2,855 | |||||||||||||||||||||
Amounts owed by subsidiary undertakings | 9,025 | 11 | 5 | 262 | 11,100 | (20,403) | – | |||||||||||||||||||||
Financial and other investments | 1,481 | 10 | – | 420 | 1,688 | – | 3,599 | |||||||||||||||||||||
Derivative financial assets | 284 | – | – | 63 | 174 | (108) | 413 | |||||||||||||||||||||
Cash and cash equivalents | 24 | 16 | – | – | 314 | – | 354 | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
| Total current assets | 10,817 | 636 | 5 | 1,130 | 15,348 | (20,447) | 7,489 | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
| Total assets | 26,285 | 5,531 | 185 | 19,935 | 53,518 | (53,070) | 52,384 | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
Current liabilities | ||||||||||||||||||||||||||||
Borrowings | (1,327) | (328) | (4) | (568) | (1,284) | – | (3,511) | |||||||||||||||||||||
Derivative financial liabilities | (286) | – | – | (99) | (62) | 108 | (339) | |||||||||||||||||||||
Trade and other payables | (37) | (252) | – | (809) | (1,933) | – | (3,031) | |||||||||||||||||||||
Amounts owed to subsidiary undertakings | (8,695) | (56) | – | (2,212) | (9,440) | 20,403 | – | |||||||||||||||||||||
Current tax liabilities | – | (64) | – | (27) | (13) | (64) | (168) | |||||||||||||||||||||
Provisions | – | – | – | (74) | (208) | – | (282) | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
Total current liabilities | (10,345) | (700) | (4) | (3,789) | (12,940) | 20,447 | (7,331) | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
Non-current liabilities | ||||||||||||||||||||||||||||
Borrowings | (1,850) | (1,321) | (180) | (6,048) | (13,040) | – | (22,439) | |||||||||||||||||||||
Derivative financial liabilities | (154) | – | – | (279) | (391) | – | (824) | |||||||||||||||||||||
Other non-current liabilities | – | (245) | – | (1,045) | (551) | – | (1,841) | |||||||||||||||||||||
Amounts owed to subsidiary undertakings | (2,022) | – | – | (654) | (6,094) | 8,770 | – | |||||||||||||||||||||
Deferred tax liabilities | (3) | (609) | – | (1,601) | (1,869) | – | (4,082) | |||||||||||||||||||||
Pension and other post-retirement benefit obligations | – | (652) | – | – | (1,933) | – | (2,585) | |||||||||||||||||||||
Provisions | – | (243) | – | (158) | (962) | – | (1,363) | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
Total non-current liabilities | (4,029) | (3,070) | (180) | (9,785) | (24,840) | 8,770 | (33,134) | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
Total liabilities | (14,374) | (3,770) | (184) | (13,574) | (37,780) | 29,217 | (40,465) | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
Net assets | 11,911 | 1,761 | 1 | 6,361 | 15,738 | (23,853) | 11,919 | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
Equity | ||||||||||||||||||||||||||||
Share capital | 439 | 112 | – | 45 | 182 | (339) | 439 | |||||||||||||||||||||
Share premium account | 1,336 | 1,808 | – | 204 | 8,032 | (10,044) | 1,336 | |||||||||||||||||||||
Retained earnings | 14,895 | (159) | 1 | 4,814 | 7,628 | (12,284) | 14,895 | |||||||||||||||||||||
Other equity reserves | (4,759) | – | – | 1,298 | (112) | (1,186) | (4,759) | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
Shareholders’ equity | 11,911 | 1,761 | 1 | 6,361 | 15,730 | (23,853) | 11,911 | |||||||||||||||||||||
Non-controlling interests | – | – | – | – | 8 | – | 8 | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
Total equity | 11,911 | 1,761 | 1 | 6,361 | 15,738 | (23,853) | 11,919 | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
|
|
|
|
|
34. Additional disclosures in respect of guaranteed securitiescontinued Statements of financial position as at 31 March 2013 – IFRS
| ||||||||||||||||||||||||||||
| Parent guarantor | Issuer of notes | Subsidiary guarantor | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
| National Grid plc (restated)1 £m | Niagara £m | British Finance Inc. £m | National plc £m | Other subsidiaries (restated)1 £m | Consolidation adjustments (restated)1 £m | National (restated)1 £m | ||||||||||||||||||||||
| ||||||||||||||||||||||||||||
Non-current assets | ||||||||||||||||||||||||||||
Goodwill | – | 737 | – | – | 4,291 | – | 5,028 | |||||||||||||||||||||
Other intangible assets | – | – | – | 199 | 390 | – | 589 | |||||||||||||||||||||
Property, plant and equipment | – | 4,441 | – | 12,122 | 20,029 | – | 36,592 | |||||||||||||||||||||
Other non-current assets | – | 21 | – | 12 | 71 | – | 104 | |||||||||||||||||||||
Amounts owed by subsidiary undertakings | 295 | – | – | 5,609 | 2,043 | (7,947) | – | |||||||||||||||||||||
Pension assets | – | 195 | – | – | – | – | 195 | |||||||||||||||||||||
Financial and other investments | 12,167 | 21 | – | 43 | 9,896 | (21,478) | 649 | |||||||||||||||||||||
Derivative financial assets | 585 | – | – | 977 | 410 | – | 1,972 | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
Total non-current assets | 13,047 | 5,415 | – | 18,962 | 37,130 | (29,425) | 45,129 | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
Current assets | ||||||||||||||||||||||||||||
Inventories and current intangible assets | – | 28 | – | 22 | 241 | – | 291 | |||||||||||||||||||||
Trade and other receivables | 3 | 428 | – | 380 | 2,099 | – | 2,910 | |||||||||||||||||||||
Amounts owed by subsidiary undertakings | 9,470 | 18 | 202 | 202 | 12,250 | (22,142) | – | |||||||||||||||||||||
Financial and other investments | 2,385 | 32 | – | 854 | 2,160 | – | 5,431 | |||||||||||||||||||||
Derivative financial assets | 163 | – | – | 119 | 60 | (69) | 273 | |||||||||||||||||||||
Cash and cash equivalents | 338 | 9 | – | 20 | 304 | – | 671 | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
Total current assets | 12,359 | 515 | 202 | 1,597 | 17,114 | (22,211) | 9,576 | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
Total assets | 25,406 | 5,930 | 202 | 20,559 | 54,244 | (51,636) | 54,705 | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
Current liabilities | ||||||||||||||||||||||||||||
Borrowings | (613) | (69) | (4) | (1,103) | (1,659) | – | (3,448) | |||||||||||||||||||||
Derivative financial liabilities | (228) | – | – | (86) | (162) | 69 | (407) | |||||||||||||||||||||
Trade and other payables | (44) | (132) | – | (590) | (2,285) | – | (3,051) | |||||||||||||||||||||
Amounts owed to subsidiary undertakings | (9,029) | (70) | – | (3,152) | (9,891) | 22,142 | – | |||||||||||||||||||||
Current tax liabilities | – | (59) | – | (26) | (146) | – | (231) | |||||||||||||||||||||
Provisions | – | – | – | (63) | (245) | – | (308) | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
Total current liabilities | (9,914) | (330) | (4) | (5,020) | (14,388) | 22,211 | (7,445) | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
Non-current liabilities | ||||||||||||||||||||||||||||
Borrowings | (2,762) | (1,798) | (198) | (6,247) | (13,642) | – | (24,647) | |||||||||||||||||||||
Derivative financial liabilities | (458) | – | – | (420) | (396) | – | (1,274) | |||||||||||||||||||||
Other non-current liabilities | – | (281) | – | (1,053) | (550) | – | (1,884) | |||||||||||||||||||||
Amounts owed to subsidiary undertakings | (2,042) | – | – | – | (5,905) | 7,947 | – | |||||||||||||||||||||
Deferred tax liabilities | (1) | (562) | – | (1,817) | (1,697) | – | (4,077) | |||||||||||||||||||||
Pension and other post-retirement benefit obligations | – | (980) | – | – | (2,712) | – | (3,692) | |||||||||||||||||||||
Provisions | – | (268) | – | (121) | (1,063) | – | (1,452) | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
Total non-current liabilities | (5,263) | (3,889) | (198) | (9,658) | (25,965) | 7,947 | (37,026) | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
Total liabilities | (15,177) | (4,219) | (202) | (14,678) | (40,353) | 30,158 | (44,471) | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
Net assets | 10,229 | 1,711 | – | 5,881 | 13,891 | (21,478) | 10,234 | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
Equity | ||||||||||||||||||||||||||||
Share capital | 433 | 123 | – | 45 | 182 | (350) | 433 | |||||||||||||||||||||
Share premium account | 1,344 | 1,930 | – | 204 | 7,426 | (9,560) | 1,344 | |||||||||||||||||||||
Retained earnings | 13,133 | (342) | – | 4,325 | 6,471 | (10,454) | 13,133 | |||||||||||||||||||||
Other equity reserves | (4,681) | – | – | 1,307 | (193) | (1,114) | (4,681) | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
Shareholders’ equity | 10,229 | 1,711 | – | 5,881 | 13,886 | (21,478) | 10,229 | |||||||||||||||||||||
Non-controlling interests | – | – | – | – | 5 | – | 5 | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
Total equity | 10,229 | 1,711 | – | 5,881 | 13,891 | (21,478) | 10,234 | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
| 1. See note 1 on page 92. | ||||||||||||||||||||||||||||
| ||||||||||||
|
34. Additional disclosures in respect of guaranteed securitiescontinued Cash flow statements
|
| |||||||||||||||||||||||||||||
| Parent guarantor | Issuer of notes | Subsidiary guarantor | ||||||||||||||||||||||||||||
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| |||||||||||||||||||||||
National £m | Niagara Mohawk Power Corporation £m | British Inc. £m | National £m | Other subsidiaries £m | Consolidation adjustments £m | National Grid consolidated £m | ||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||
Year ended 31 March 2014 | ||||||||||||||||||||||||||||||
Net cash flow from operating activities | 52 | 581 | – | 1,717 | 1,669 | – | 4,019 | |||||||||||||||||||||||
Net cash flow from/(used in) investing activities | 1,358 | (555) | – | (91) | (993) | (1,049) | (1,330) | |||||||||||||||||||||||
Net cash flow (used in)/from financing activities | (1,724) | (18) | – | (1,632) | (647) | 1,049 | (2,972) | |||||||||||||||||||||||
| ||||||||||||||||||||||||||||||
Net (decrease)/increase in cash and cash equivalents in the year | (314) | 8 | – | (6) | 29 | – | (283) | |||||||||||||||||||||||
| ||||||||||||||||||||||||||||||
Year ended 31 March 2013 | ||||||||||||||||||||||||||||||
Net cash flow from operating activities | 36 | 162 | – | 1,608 | 1,944 | – | 3,750 | |||||||||||||||||||||||
Net cash flow used in investing activities | (979) | (286) | – | (1,345) | (1,048) | (2,472) | (6,130) | |||||||||||||||||||||||
Net cash flow from/(used in) financing activities | 1,255 | 132 | – | (240) | (904) | 2,472 | 2,715 | |||||||||||||||||||||||
| ||||||||||||||||||||||||||||||
Net increase/(decrease) in cash and cash equivalents in the year | 312 | 8 | – | 23 | (8) | – | 335 | |||||||||||||||||||||||
| ||||||||||||||||||||||||||||||
Year ended 31 March 2012 | ||||||||||||||||||||||||||||||
Net cash flow from operating activities | 75 | 441 | – | 1,596 | 2,116 | – | 4,228 | |||||||||||||||||||||||
Net cash flow from/(used in) investing activities | 559 | (287) | – | (1,171) | (1,166) | (306) | (2,371) | |||||||||||||||||||||||
Net cash flow (used in)/from financing activities | (808) | (155) | – | (502) | (741) | 306 | (1,900) | |||||||||||||||||||||||
| ||||||||||||||||||||||||||||||
Net (decrease)/increase in cash and cash equivalents in the year | (174) | (1) | – | (77) | 209 | – | (43) | |||||||||||||||||||||||
| ||||||||||||||||||||||||||||||
Cash dividends were received by National Grid plc from subsidiary undertakings amounting to £1,050m during the year ended 31 March 2014 (2013: £570m; 2012: £200m).
|
| |||||||||||||||||||||||||||||
Maturity analysis of parent Company borrowings
|
| |||||||||||||||||||||||||||||
| 2014 | 2013 | |||||||||||||||||||||||||||||
| £m | £m | |||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||
| Total borrowings are repayable as follows: | ||||||||||||||||||||||||||||||
Less than 1 year | 1,327 | 613 | ||||||||||||||||||||||||||||
In 1-2 years | 46 | 835 | ||||||||||||||||||||||||||||
In 2-3 years | 580 | 51 | ||||||||||||||||||||||||||||
In 3-4 years | – | 642 | ||||||||||||||||||||||||||||
In 4-5 years | 506 | – | ||||||||||||||||||||||||||||
More than 5 years | 718 | 1,234 | ||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||
| 3,177 | 3,375 | |||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||
|
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|
|
|
| ||
We are required to include the stand-alone balance sheet of our ultimate parent Company, National Grid plc, under the Companies Act 2006. This is because the publicly traded shares are actually those of National Grid plc (the Company) and the following disclosures provide additional information to shareholders.
| D. Foreign currencies Transactions in currencies other than the functional currency of the Company are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at closing exchange rates. Gains and losses arising on retranslation of monetary assets and liabilities are included in the profit and loss account.
E. Financial instruments The Company’s accounting policies under UK GAAP, namely FRS 25 ‘Financial Instruments: Presentation’, FRS 26 ‘Financial Instruments: Measurement’ and FRS 29 ‘Financial Instruments: Disclosures’, are the same as the Group’s accounting policies under IFRS, namely IAS 32 ‘Financial Instruments: Presentation’, IAS 39 ‘Financial Instruments: Recognition and Measurement’ and IFRS 7 ‘Financial Instruments: Disclosures’. The Company applies these policies only in respect of the financial instruments that it has, namely investments, derivative financial instruments, debtors, cash at bank and in hand, borrowings and creditors.
The policies are set out in notes 13, 15, 17, 18, 19 and 20 to the consolidated financial statements. The Company is taking the exemption for financial instruments disclosures, because IFRS 7 disclosures are given in notes 30 and 33 to the consolidated financial statements.
F. Hedge accounting The Company applies the same accounting policy as the Group in respect of fair value hedges and cash flow hedges. This policy is set out in note 15 to the consolidated financial statements.
G. Parent Company guarantees The Company has guaranteed the repayment of the principal sum, any associated premium and interest on specific loans due by certain subsidiary undertakings primarily to third parties. In the event of default or non performance by the subsidiary, the Company recognises such guarantees as insurance contracts, at fair value with a corresponding increase in the carrying value of the investment.
H. Share awards to employees of subsidiary undertakings The issuance by the Company to employees of its subsidiaries of a grant over the Company’s options represents additional capital contributions by the Company to its subsidiaries. An additional investment in subsidiaries results in a corresponding increase in shareholders’ equity. The additional capital contribution is based on the fair value of the option at the date of grant, allocated over the underlying grant’s vesting period. Where payments are subsequently received from subsidiaries, these are accounted for as a return of a capital contribution and credited against the Company’s investments in subsidiaries. The Company has no employees.
I. Dividends Interim dividends are recognised when they are paid to the Company’s shareholders. Final dividends are recognised when they are approved by shareholders. J. Directors’ remuneration Full details of directors’ remuneration are disclosed on pages 60 To 75. | |||||
A. Basis of preparation of individual financial statements under UK GAAP These individual financial statements of the Company have been prepared in accordance with applicable UK accounting and financial reporting standards and the Companies Act 2006. They have been prepared on an historical cost basis, except for the revaluation of financial instruments, and are presented in pounds sterling, which is the currency of the primary economic environment in which the Company operates. The
These individual financial statements have been prepared on a going concern basis,
The Company has not presented its own profit and loss account as permitted by section 408 of the Companies Act 2006.
The Company has taken advantage of the exemptions in FRS 8 ‘Related Party Disclosures’ from disclosing transactions with other members of the National Grid plc group of companies.
In accordance with exemptions under FRS 29 ‘Financial Instruments: Disclosures’, the Company has not presented the financial instruments disclosures required by the standard, as disclosures which comply with the standard are included in the consolidated financial statements.
B. Fixed asset investments Investments held as fixed assets are stated at cost less any provisions for impairment. Investments are reviewed for impairment if events or changes in circumstances indicate that the carrying amount may not be recoverable. Impairments are calculated such that the carrying value of the fixed asset investment is the lower of its cost or recoverable amount. Recoverable amount is the higher of its net realisable value and its value-in-use.
C. Current tax for the current and prior periods 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
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. |
|
| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 159 |
Company balance sheet
at 31 March
| Notes | 2015 £m | 2014 £m | ||||||||||||
| ||||||||||||||
Fixed assets | ||||||||||||||
Investments | 1 | 8,823 | 8,803 | |||||||||||
| ||||||||||||||
Current assets | ||||||||||||||
Debtors (amounts falling due within one year) | 2 | 11,767 | 9,312 | |||||||||||
Debtors (amounts falling due after more than one year) | 2 | 489 | 948 | |||||||||||
Investments | 5 | 750 | 1,504 | |||||||||||
Cash at bank and in hand | – | 1 | ||||||||||||
| ||||||||||||||
Total current assets | 13,006 | 11,765 | ||||||||||||
Creditors (amounts falling due within one year) | 3 | (12,607 | ) | (10,345) | ||||||||||
| ||||||||||||||
Net current assets | 399 | 1,420 | ||||||||||||
| ||||||||||||||
Total assets less current liabilities | 9,222 | 10,223 | ||||||||||||
Creditors (amounts falling due after more than one year) | 3 | (3,425 | ) | (4,029) | ||||||||||
| ||||||||||||||
Net assets | 5,797 | 6,194 | ||||||||||||
| ||||||||||||||
Capital and reserves | ||||||||||||||
Share capital | 7 | 443 | 439 | |||||||||||
Share premium account | 8 | 1,331 | 1,336 | |||||||||||
Cash flow hedge reserve | 8 | 17 | 20 | |||||||||||
Available-for-sale reserve | 8 | – | 1 | |||||||||||
Other equity reserves | 8 | 280 | 260 | |||||||||||
Profit and loss account | 8 | 3,726 | 4,138 | |||||||||||
| ||||||||||||||
Total shareholders’ funds | 9 | 5,797 | 6,194 | |||||||||||
| ||||||||||||||
| The notes on pages 161 to 163 form part of the individual financial statements of the Company, which were approved by the Board of Directors on 20 May 2015 and were signed on its behalf by: | ||||||||||||||
Sir Peter Gershon Chairman Andrew Bonfield Finance Director | ||||||||||||||
National Grid plc Registered number: 4031152 | ||||||||||||||
| 160 |
|
| Notes | 2014 £m | 2013 £m | ||||||||||||
| ||||||||||||||
Fixed assets | ||||||||||||||
Investments | 1 | 8,803 | 8,177 | |||||||||||
| ||||||||||||||
Current assets | ||||||||||||||
Debtors (amounts falling due within one year) | 2 | 9,312 | 9,636 | |||||||||||
Debtors (amounts falling due after more than one year) | 2 | 948 | 880 | |||||||||||
Investments | 5 | 1,504 | 2,723 | |||||||||||
Cash at bank and in hand | 1 | – | ||||||||||||
| ||||||||||||||
Total current assets | 11,765 | 13,239 | ||||||||||||
Creditors (amounts falling due within one year) | 3 | (10,345) | (9,914) | |||||||||||
| ||||||||||||||
Net current assets | 1,420 | 3,325 | ||||||||||||
| ||||||||||||||
Total assets less current liabilities | 10,223 | 11,502 | ||||||||||||
Creditors (amounts falling due after more than one year) | 3 | (4,029) | (5,263) | |||||||||||
| ||||||||||||||
Net assets | 6,194 | 6,239 | ||||||||||||
| ||||||||||||||
Capital and reserves | ||||||||||||||
Called up share capital | 7 | 439 | 433 | |||||||||||
Share premium account | 8 | 1,336 | 1,344 | |||||||||||
Cash flow hedge reserve | 8 | 20 | 12 | |||||||||||
Available-for-sale reserve | 8 | 1 | – | |||||||||||
Other equity reserves | 8 | 260 | 240 | |||||||||||
Profit and loss account | 8 | 4,138 | 4,210 | |||||||||||
| ||||||||||||||
Total shareholders’ funds | 9 | 6,194 | 6,239 | |||||||||||
| ||||||||||||||
The notes on pages 157 to 159 form part of the individual financial statements of the Company, which were approved by the Board of Directors on 18 May 2014 and were signed on its behalf by:
Sir Peter Gershon Chairman Andrew Bonfield Finance Director |
| |||||||||||||
| ||||||||
| Shares in subsidiary undertakings £m | ||||||||
| ||||||||
At 1 April 2013 | 8,177 | |||||||
Additions | 626 | |||||||
| ||||||||
At 31 March 2014 | 8,803 | |||||||
Additions | 20 | |||||||
| ||||||||
At 31 March 2015 | 8,823 | |||||||
| ||||||||
During the year there was a capital contribution of £20m (2014: £20m) which represents the fair value of equity instruments granted to subsidiaries’ employees arising from equity-settled employee share schemes. During the year ended 31 March 2014, the Company acquired a further 98,851 ordinary shares of £1 each in National Grid (US) Holdings Limited for a total consideration of £606m.
The names of the principal subsidiary undertakings, joint ventures and associates are included in note 32 to the consolidated financial statements. The Directors believe that the carrying value of the investments is supported by the fair value of their underlying net assets.
| ||||||||
2015 £m | 2014 £m | |||||||
| ||||||||
Amounts falling due within one year | ||||||||
Derivative financial instruments (note 4) | 281 | 284 | ||||||
Amounts owed by subsidiary undertakings | 11,484 | 9,025 | ||||||
Prepayments and accrued income | 2 | 3 | ||||||
| ||||||||
| 11,767 | 9,312 | |||||||
| ||||||||
Amounts falling due after more than one year | ||||||||
Derivative financial instruments (note 4) | 148 | 643 | ||||||
Amounts owed by subsidiary undertakings | 341 | 305 | ||||||
| ||||||||
| 489 | 948 | |||||||
| ||||||||
The carrying values stated above are considered to represent the fair values of the assets.
| ||||||||
2015 £m | 2014 £m | |||||||
| ||||||||
Amounts falling due within one year | ||||||||
Borrowings (note 6) | 1,068 | 1,327 | ||||||
Derivative financial instruments (note 4) | 289 | 286 | ||||||
Amounts owed by subsidiary undertakings | 11,208 | 8,695 | ||||||
Corporation tax payable | 3 | – | ||||||
Other creditors | 39 | 37 | ||||||
| ||||||||
| 12,607 | 10,345 | |||||||
| ||||||||
Amounts falling due after more than one year | ||||||||
Borrowings (note 6) | 1,117 | 1,850 | ||||||
Derivative financial instruments (note 4) | 411 | 154 | ||||||
Amounts owed by subsidiary undertakings1 | 1,894 | 2,022 | ||||||
Deferred tax | 3 | 3 | ||||||
| ||||||||
| 3,425 | 4,029 | |||||||
| ||||||||
1. All amounts owed by subsidiary undertakings in 2014 and 2015 are repayable after five years. | ||||||||
|
| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 161 |
Financial Statements
Notes to the Company financial statements
continued
| 162 |
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| 163 |
164
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| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 165 |
Additional Information
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Our licences are established under the Gas Act 1986 and Electricity Act 1989, as amended (the Acts)
Our networks are regulated by Ofgem, which has established price control mechanisms that set the amount of revenue that
The price control includes a number of mechanisms designed to help achieve its | RIIO price controls On 1 April 2013, our UK regulator introduced a new regulatory framework called RIIO (revenue = incentives + innovation + outputs), which lasts for eight years. The building blocks of the RIIO price control are broadly similar to the historical price controls used in the UK. However, there are some significant differences in the mechanics of the calculations. How is revenue calculated? Under RIIO the outputs we deliver are clearly articulated and are integrally linked to the calculation of our allowed revenue. These outputs have been determined through an extensive consultation process, which has given stakeholders a greater opportunity to influence the decisions. The clarity around outputs should lead to greater transparency in how we deliver them. The six output categories are: Safety: ensuring the provision of a safe energy network. Reliability (and availability): promoting networks capable of delivering long-term reliability, as well as minimising the number and duration of interruptions experienced over the price control period, and ensuring adaptation to climate change. Environmental impact: encouraging companies to play their role in achieving broader environmental objectives – specifically, facilitating the reduction of carbon emissions – as well as minimising their own carbon footprint. Customer and stakeholder satisfaction: maintaining high levels of customer satisfaction and stakeholder engagement, and improving service levels. Customer connections: encouraging networks to connect customers quickly and efficiently. Social obligations (UK Gas Distribution only): extending the gas network to communities that are fuel poor where it is efficient to do so, and introducing measures to address carbon monoxide poisoning incidents. Within each of these output categories are a number of primary and secondary deliverables, reflecting what our stakeholders want us to deliver over the coming price control period. The nature and number of these deliverables varies according to the output category, with some being linked directly to our allowed revenue, some linked to legislation, and others having only a reputational impact. Ofgem, using information we have submitted, along with independent assessments, determines the efficient level of expected costs necessary to deliver them. Under RIIO this is known as totex, which is total allowable expenditure, and is similar to the sum of what was controllable opex, capex (and repex for UK Gas Distribution) under the previous price control periods. A number of assumptions are necessary in setting these outputs, such as certain prices or the volumes of work that will be needed. Consequently, there are a number of uncertainty mechanisms within the RIIO framework that can result in adjustments to totex if actual prices or volumes differ from the assumptions. These mechanisms protect us and our customers from windfall gains and losses. | ||||||||||
● | continuously improve the cost and effectiveness of our services; | ||||||||||
● | manage and operate our networks efficiently; | ||||||||||
| ● | deliver high-quality services to our customers and wider stakeholder community; and | ||||||||||
| ● | invest in | ||||||||||
Our UK Electricity Transmission (UK ET), UK Gas Transmission (UK GT) and UK Gas Distribution (UK GD) businesses operate under eight separate price controls in the UK. These comprise two for our UK ET operations, one covering our role as transmission owner (TO) and the other for our role as system operator (SO); two for our UK GT operations, again one as TO and one as SO; and one for each of our four regional gas distribution networks. While each of the eight price controls may have differing terms, they are based on a consistent regulatory framework.
In addition to the eight price controls, our LNG storage business has a price control covering some aspects of its operations. There is also a tariff cap price control applied to certain elements of domestic metering and daily meter reading activities
Interconnectors derive their revenues from congestion revenues. Congestion revenues
There are
| |||||||||||
| |||||||||||
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| ||||||||||||
| ||||||||||||
|
Where we under- or over-spend the allowed totex for reasons that are not covered by uncertainty mechanisms, there is a sharing factor. This means the under- or over-spend is shared between us and customers through an adjustment to allowed revenues in a future year. This sharing factor provides an incentive for us to provide the outputs efficiently, as we are able to keep a portion of the savings, with the remainder benefiting our customers.
This sharing factor is one of the ways that RIIO has given innovation more prominence. Innovation includes traditional areas such as new technologies, as well as the broader challenge of finding new ways of working to deliver outputs more efficiently. This broader challenge has an impact on everyone in our business.
Totex is then split between fast and slow money – a new concept under RIIO, based on a specified percentage. Fast money represents the amount of totex we are able to recover in the current year. Slow money is added to our RAV. For more details on the sharing factors under RIIO, please see the table below. | RIIO regulatory building blocks
Allowed returns The cost of capital allowed under RIIO is as follows: | |||||||||||||||||||
Transmission | Gas Distribution | |||||||||||||||||||
| Gas | Electricity | |||||||||||||||||||
In addition to fast money, in each year we are allowed to collect a depreciation of and a return on our RAV.
This works in a similar way to the previous price control. However, there have been changes to the asset lives for electricity transmission (transition from 20 years to 45 years evenly across the RIIO period) and the depreciation calculation for UK GD (changed from 45 years straight line to 45 years sum of digits for assets added post 2002). We are also allowed to collect additional revenues related to non-controllable costs and incentives.
The incentive mechanisms can increase or decrease our allowed revenue and result from our performance against various measures related to our outputs. RIIO has introduced new incentive mechanisms as a way to provide further incentives to align our objectives with those of our customers and other stakeholders. For example, performance against our customer satisfaction targets can have a positive or negative effect of up to 1% of allowed annual revenues. Incentives will normally affect our revenues two years after the year of performance. | Cost of equity(post-tax real) |
6.8% |
7.0% |
6.7% | ||||||||||||||||
| Cost of debt(pre-tax real) | iBoxx 10 year simple trailing average index (2.92% for 2013/14) | |||||||||||||||||||
| Notional gearing | 62.5% | 60.0% | 65.0% | |||||||||||||||||
| Vanilla WACC1 | 4.38% | 4.55% | 4.24% | |||||||||||||||||
1. Vanilla WACC = cost of debt x gearing + cost of equity x (1- gearing). | ||||||||||||||||||||
The sharing factor means that any over- and under-spend is shared between the businesses and consumers. The shared figures displayed are the sharing factors that apply to the UK ET, UK GT and UK GD.
For more information on RIIO, including incentive mechanisms, please see the relevant investor fact sheets on the Investor Relations section of our website. | ||||||||||||||||||||
Sharing factors under RIIO are as follows:
| ||||||||||||||||||||
Gas Transmission | Electricity Transmission | Gas Distribution | ||||||||||||||||||
| Transmission Operator | System Operator | Transmission Operator | System Operator | North West | East of England | West Midlands | London | |||||||||||||
| ||||||||||||||||||||
| Baseline3 35.6% | Repex: Stepped decline from 50% in 2013/14 to 0% in 2020/21 in seven equal instalments of 7.14% per annum | |||||||||||||||||||
| ||||||||||||||||||||
Fast1 | Uncertainty 10% | 62.60% | 15.00% | 72.10% | 73.90% | 73.37% | 75.05% | 76.53% | ||||||||||||
| ||||||||||||||||||||
| Repex: | ||||||||||||||||||||
Baseline3 64.4% | Stepped increase from 50% in 2013/14 to 100% in 2020/21 in seven equal instalments of 7.14% per annum | |||||||||||||||||||
| ||||||||||||||||||||
Slow2 | Uncertainty 90% | 37.40% | 85.00% | 27.90% | 26.10% | 26.63% | 24.95% | 23.47% | ||||||||||||
| ||||||||||||||||||||
Sharing | 44.36% | 46.89% | 63.04% | |||||||||||||||||
| ||||||||||||||||||||
1. Fast money allows network companies to recover a percentage of total expenditure within a one year period. | ||||||||||||||||||||
2. Slow money is where costs are added to RAV and, therefore, revenues are recovered slowly (e.g. over 20 years) from both current and future consumers. | ||||||||||||||||||||
3. The Baseline is the expenditure that is funded through ex ante allowances whereas the Uncertainty adjusts the allowed expenditure automatically where the level outputs delivered differ from the baseline level, or if triggered by an event. | ||||||||||||||||||||
 |
| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 167 |
Additional Information
| ||||
|
RIIO price controls Our UK regulator has introduced a new regulatory framework called RIIO (revenue = incentives + innovation + outputs) that became effective on 1 April 2013 and lasts for eight years. The building blocks of the RIIO price control are broadly similar to the historical price controls used in the UK; however there are some significant differences in the mechanics of the calculations.
How is revenue calculated? Under RIIO the outputs we deliver are clearly articulated and are integrally linked to the calculation of our allowed revenue. These outputs have been determined through an extensive consultation process which has given stakeholders a greater opportunity to input to these decisions. The clarity around outputs should lead to greater transparency of our performance in delivering them.
The six key output categories are:
· Safety: ensuring the provision of a safe energy network. · Reliability (and availability): promoting networks capable of delivering long-term reliability, as well as minimising the number and duration of interruptions experienced over the price control period, and ensuring adaptation to climate change. · Environmental impact: encouraging companies to play their role in achieving broader environmental objectives – specifically facilitating the reduction of carbon emissions – as well as minimising their own carbon footprint. · Customer and stakeholder satisfaction: maintaining high levels of customer satisfaction and stakeholder engagement, and improving service levels. · Customer connections: encouraging networks to connect customers quickly and efficiently. · Social obligations (UK GD only): extending the gas network to communities that are fuel poor where it is efficient to do so and introducing measures to address carbon monoxide poisoning incidents.
Within each of these output categories are a number of primary and secondary deliverables, reflecting what our stakeholders want us to deliver over the coming price control period. The nature and number of these deliverables varies according to the output category, with some being linked directly to our allowed revenue, some linked to legislation, and others having only a reputational impact. Ofgem, using information submitted by us along with independent assessments, determines the efficient level of expected costs necessary to deliver them. Under RIIO this is known as totex, short for total expenditure, and is similar to the sum of controllable opex, capex and repex (for UK GD) under the previous price control.
A number of assumptions are necessary in setting these outputs, such as certain prices or the volumes of work that will be needed. As a result, to protect us and our customers from windfall gains and losses, there are a number of uncertainty mechanisms within the RIIO framework that can result in adjustments to totex if actual prices or volumes differ from the assumptions.
Where we under- or over-spend the allowed totex for reasons that are not covered by uncertainty mechanisms, there is a sharing factor, ie the under- or over-spend is shared between us and customers through an adjustment to allowed revenues in a future year. This sharing factor provides an incentive for us to provide the outputs efficiently as we are able to keep a portion of the savings, with the remainder benefiting our customers. | This sharing factor is one of the ways that RIIO has given innovation more prominence. Innovation includes traditional areas such as new technologies, as well as the broader challenge of finding new ways of working to deliver outputs more efficiently. This broader challenge will have an impact on everyone in our business.
Totex is then split between fast and slow money, a new concept under RIIO, based on a specified percentage. Fast money represents the amount of totex that we are able to recover in the current year. Slow money is added to our RAV.
In addition to fast money, in each year we are allowed to collect a depreciation of and a return on our RAV.
This operates in a similar way to the previous price control, although there have been changes to the asset lives for electricity transmission (transition from 20 years to 45 years evenly across the RIIO period) and the depreciation calculation for UK GD (changed from 45 years straight line to 45 years sum of digits for assets added post 2002). We are also allowed to collect additional revenues related to non-controllable costs and incentives.
The incentive mechanisms can increase or decrease our allowed revenue and result from our performance against various measures related to our outputs. RIIO has introduced new incentive mechanisms as a way to provide further incentives to align our objectives with those of our customers and other stakeholders. For example, performance against our customer satisfaction targets can have a positive or negative effect of up to 1% of allowed annual revenues. Incentives will normally affect our revenues two years after the year of performance.
RIIO regulatory building blocks
Allowed returns The cost of capital allowed under RIIO is as follows: | |||||||||||||||
| Transmission | Gas Distribution | |||||||||||||||
| Gas | Electricity | |||||||||||||||
| Cost of equity (post-tax real) | 6.8% | 7.0% | 6.7% | |||||||||||||
| Cost of debt (pre-tax real) | iBoxx 10 year simple trailing average index (2.92% for 2013/14) | |||||||||||||||
| Notional gearing | 62.5% | 60.0% | 65.0% | |||||||||||||
| Vanilla WACC1 | 4.38% | 4.55% | 4.24% | |||||||||||||
1. Vanilla WACC = cost of debt x gearing + cost of equity x (1- gearing). | ||||||||||||||||
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| Repex: | Stepped decline from 50% in 2013/14 to 0% in 2020/21 | |||||||||||||||||||||
| Baseline 35.6% | in seven equal instalments of 7.14% per annum | |||||||||||||||||||||
1 Fast | Uncertainty 10% | 62.60% | 15.00% | 72.10% | 73.90% | 73.37% | 75.05% | 76.53% | ||||||||||||||
| Repex: | Stepped increase from 50% in 2013/14 to 100% in 2020/21 | |||||||||||||||||||||
| Baseline 64.4% | in seven equal instalments of 7.14% per annum | |||||||||||||||||||||
2 Slow | Uncertainty 90% | 37.40% | 85.00% | 27.90% | 26.10% | 26.63% | 24.95% | 23.47% | ||||||||||||||
3 Sharing | 44.36% | 46.89% | 63.04% | |||||||||||||||||||
Regulators In the US, public utilities’ retail transactions are regulated by state utility
Utilities are regulated at the federal level (FERC) for wholesale transactions, such as interstate transmission and wholesale electricity sales, including rates for these services. FERC also regulates public utility holding companies and centralised service companies, including those of our US businesses.
The US regulatory regime is premised on allowing the
commission. Utilities
The rate case prudent and
| Gas and electricity rates are established from a revenue requirement,
The The revenue requirement is derived from a comprehensive study of the utility’s total costs during a recent 12 month period of operations, referred to as a test year. Each commission has its own rules and standards for adjustments to the test | US regulatory
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Our rate plans Each operating company has a set of rates for service. We have three electric distribution operations (upstate New York, Massachusetts, and Rhode Island) and six gas distribution |
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networks (upstate New York, New York City, Long Island, Massachusetts Our operating companies have revenue decoupling mechanisms that de-link the companies’ revenues from the quantity of energy delivered and
Our rate plans are designed to a specific allowed RoE, by reference to an allowed operating expense level and rate base. Some rate plans include earnings sharing mechanisms that allow us to retain a proportion of the earnings above our allowed RoE,
In addition, our performance under certain rate plans is subject to service performance targets. We may be subject to monetary penalties in cases where we do not meet those targets.
One measure used to monitor the performance of our regulated businesses is a comparison of achieved RoE to allowed RoE, with a target that the achieved should be equal to or above the allowed.
We work to increase achieved | ||||||
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Features of our rate plans We | or recovered from, our customers. Our FERC-regulated transmission companies use formula rates (instead of rate cases) to set rates annually to recover their cost of service. Through the use of annual true-ups, formula rates recover our actual costs
Revenue for our wholesale transmission businesses in New England and New York is collected from wholesale transmission customers, who are typically other utilities and include our own New England electricity distribution businesses. With the exception of upstate New York, which continues to combine retail transmission and distribution rates to Our Long Island generation plants sell capacity to LIPA under
US regulatory filings The objectives of our rate case filings are to
Below we summarise significant developments in rate filings and the regulatory environment during the year. We completed the final stabilisation upgrade to our new financial systems in July 2014. The new systems will facilitate future regulatory filings and capture the benefit of the increased investments in asset replacement, network reliability and customer growth. Planning has started to prepare suitable ‘test years’ to support new regulatory filings. We expect to make a number of such filings over the next two to three years to update the capital investment allowances and rate base across many of our businesses. Specifically, we anticipate that KEDLI, KEDNY, and Massachusetts Electric will file applications for new rate plans with their regulators during the 12 months ending 31 March 2016. Moreover, as part of current regulatory initiatives, we will file proposals for investments in grid modernisation in Massachusetts and for innovative technology deployments and service offerings as part of the Reforming the Energy Vision effort | in New York. Effective 1 April 2015, we implemented changes to our US management structure to strengthen our jurisdictional focus and address recommendations made by our regulators, including giving jurisdictional presidents more authority over operations and other functions.
Massachusetts Capital investment programmes
On the gas side, MADPU allowed approximately Solar investment legislation Recent legislation extended our ability to construct, own and operate a total of up to 25 MW of solar facilities within our electricity service territory if the facilities are constructed by 30 June 2016. On 28 June 2014, MADPU approved our proposal for up to 20 MW of solar facilities, in addition to the 4.6 MW of solar generation that we already own and operate under the same legislation. MADPU also pre-approved an amount not to exceed $97.6 million for ownership costs, lease expenses and property tax expenses associated with the solar facilities. We have entered into contracts with developers to deliver constructed solar generation facilities by 2015, and will petition MADPU for cost recovery in 2016 once the solar facilities become operational.
Storm fund recovery The Massachusetts electricity business collects $4.3 million
Storm management audit
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The business in detailcontinued | ||||||||||||
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Grid modernisation MADPU is increasingly focused on improving service and reliability to customers, with a focus on greater choice for customers and integrating distributed energy resources. MADPU has directed the Company to file a grid modernisation plan in August 2015 that demonstrates how the Company will make measurable progress towards reducing the effect of outages, optimising demand, integrating distributed resources and improving workforce and asset management. The grid modernisation plan represents a new capital investment opportunity for the Company. MADPU established criteria that, if met, would allow the capital costs from the plan to be recovered through a separate capital recovery mechanism. Additionally, the Company’s Worcester, Massachusetts Smart Energy Solutions pilot began on 1 January 2015. The pilot is testing grid modernisation technologies for approximately 15,000 customers, with a goal of reducing peak and average loads by 5%. The Company has an opportunity to earn a performance incentive if load reduction exceeds 5%. The Company filed on 15 September 2014 to recover $11 million of costs incurred in 2012 and 2013 to implement this pilot. MADPU is currently reviewing the Company’s request and a decision is expected in early 2016. Service quality MADPU issued its final order and service quality guidelines for all gas and electricity companies on 22 December 2014. The order shifted the goal of the service quality guidelines from preventing the deterioration of performance to improved service quality. The reasons stated by MADPU included that: the companies are able to achieve higher levels of service quality than in 2002, when the guidelines were first implemented; customers expect improved levels of service quality; and advances in available technologies and the expected grid modernisation efforts of the electricity companies will help them meet the new standards and at a more reasonable cost. In shifting the goals of service quality, MADPU made changes to the current service quality structure, including removing financial offsets to penalties, setting state-wide benchmarks and changing the calculation of benchmarks and penalties. The new guidelines are effective from 1 January 2015. However, there is a motion for clarification and reconsideration currently pending before MADPU on this matter. New York Upstate New York 2012 rate plan filing Effective from 1 April Reforming the Energy Vision (REV) In April 2014, the NYPSC instituted the REV proceeding, which considers options for
utilities as distributed system platform (DSP) providers who create markets for DER and more fully integrate DER in distribution system operations and planning. The REV proceeding’s objectives include: enhanced customer energy choices and control; improved electricity system efficiency, reliability, and resiliency; and cleaner more diverse electricity generation. In | The
2013 New York gas management audit
The
In June 2013,
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Rhode Island Rhode Island 2014/15 electricity and gas infrastructure, safety and reliability (ISR) plans
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In December 2015. The electricity ISR plan encompasses a The gas ISR plan encompasses
FERC Complaints on New England transmission allowed RoE In September 2011, FERC has scheduled hearings on the December 2012 and July 2014 New England RoE complaints in June 2015, with non-binding preliminary findings due by the end of 2015. A FERC order acting on these preliminary findings is not expected until the end of 2016. Complaints on New York transmission allowed RoE In September 2012, November 2012 and February 2014, complaints were filed with FERC against our New York electricity transmission subsidiary to lower the total RoE from the FERC approved rate of 11.5% and to modify certain other aspects of our New York transmission formula rates. In September 2014, FERC set these three complaints for settlement and hearing procedures. In December 2014, we reached a settlement agreement in principle with the complainants to resolve these complaints. In May 2015, FERC approved the uncontested settlement agreement.
Short-term borrowing In October | required New York Transco On 14 November 2014, the four New York investor-owned utilities (IOUs), including Niagara Mohawk Power Corporation, formed NY Transco LLC, a New York company whose sole business will be to plan, develop, construct and own major new high voltage electricity transmission projects across New York State. In early December 2014, the four IOUs and NY Transco filed on behalf of NY Transco an application with FERC to establish a formula rate, rate incentives and cost allocation for a portfolio of five new transmission projects with a combined estimated total cost of over $1.7 billion. A number of entities intervened in the docket and challenged various aspects of the application. In April 2015, FERC approved certain elements of our filing (including some rate incentives), rejected others, and set the remainder for hearing and settlement. New England gas and electricity interdependency The region’s electricity and gas systems have become increasingly interdependent as the region’s reliance on gas-fired electricity generation has grown without commensurate pipeline infrastructure expansion, resulting in severe constraints at certain times of the year. These constraints have restricted gas availability for generation and decreased electricity reliability. They have also resulted in significant increases to spot gas prices for electricity generation, driving significant increases to the region’s wholesale and retail electricity costs. To address this We are working with representatives from several states, other regional electricity and gas utilities, interstate gas pipelines, state regulators, and FERC in realising the governors’ goals. We have put forward structural proposals which would support the development of additional gas pipeline infrastructure to serve the region’s needs and are also developing electricity transmission proposals to increase the ability to deliver clean low carbon energy to enable a balanced solution to the region’s energy needs. FERC Order 1000 Issued in 2011, Order 1000 was FERC’s major policy order intended to foster regional and inter-regional transmission planning, address transmission needs driven by public policy requirements and increase competition in the electric transmission industry. In 2014 and 2015, FERC issued orders on filings made by the New York and New England system operators to comply with Order 1000 and continue to implement a package of reforms addressing transmission planning and cost allocation. A federal court upheld key provisions of Order 1000 against legal challenges in an August 2014 decision. Policies to comply with Order 1000 have been in effect in New York since January 2014 and became effective in New England in May 2015. The competitive transmission planning processes instituted under Order 1000 have opened National Grid’s service territory to competition from non-incumbent transmission developers and also created opportunities for National Grid to compete for transmission projects outside of the Company’s current geographic footprint. |
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Summary of US price controls and rate plans | ||||||||
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†Revenue decoupling A mechanism that removes the link between a utility’s revenue and sales volume so that the utility is indifferent to changes in usage. Revenues are reconciled to a revenue target, with differences billed or credited to customers. Allows the utility to support energy efficiency.
‡Capital tracker A mechanism that allows for the recovery of the revenue requirement of incremental capital investment above that embedded in base rates, including depreciation, property taxes and a return on the incremental investment.
| §Commodity-related bad debt true-up A mechanism that allows a utility to reconcile commodity-related bad debt to either actual commodity-related bad debt or to a specified commodity-related bad debt write-off percentage. For electricity utilities, this mechanism also includes working capital.
¯Pension/OPEB true-up A mechanism that reconciles the actual non-capitalised costs of pension and OPEB and the actual amount recovered in base rates. The difference may be amortised and recovered over a period or deferred for a future rate case. | |||||||
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Additional Information | ||
Internal control and risk factorscontinued | ||
Risk factors | ||||||||||||||
Infrastructure and IT systems
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We may suffer a major network failure or interruption, or may not be able to carry out critical or a lack of supply. Operational performance could be materially adversely affected by a failure to maintain the health of This in turn could cause us to fail to meet agreed standards of service, incentive and reliability targets, or be in breach of a licence, approval, regulatory requirement or contractual obligation. Even incidents that do not amount to a breach could result in adverse regulatory and financial consequences, as well as harming our reputation.
Where demand for electricity or gas exceeds supply and our balancing mechanisms are not able to mitigate this fully, a lack of supply to consumers may damage our reputation. In addition to these risks, we may be affected by other potential events that are largely outside our control, such as the impact of weather (including as a result of climate change and major storms), unlawful or unintentional acts of third parties, insufficient or unreliable supply or force majeure. | Weather conditions can affect financial performance and severe weather that causes outages or damages infrastructure together with our actual or perceived response |
Malicious attack, sabotage or other intentional acts, including breaches of our cyber security, may also damage our assets (which include critical national infrastructure) or otherwise significantly affect corporate activities and, as a consequence, have a material adverse impact on our reputation, business, results of operations and financial condition. Unauthorised access to, or deliberate breaches of, our IT systems may also lead to manipulation of our proprietary business data or customer information.
Unauthorised access to private customer information may make us liable for a violation of data privacy regulations. Even where we establish business continuity controls and security against threats against our systems, these may not be sufficient.
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Changes in law or regulation or decisions by governmental bodies or regulators could materially adversely affect us. Most of our businesses are utilities or networks subject to regulation by governments and other authorities. Changes in law or regulation or regulatory policy and precedent, including decisions of governmental bodies or regulators, in the countries or states in which we operate could materially adversely affect us. If we fail to engage in the energy policy debate, we may not be able to influence future energy policy and deliver our strategy.
Decisions or rulings concerning, for example:
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advancing energy could have a material adverse impact on our results of operations, cash flows, the financial condition of our businesses and the ability to develop those businesses in the future.
The remediation plans in place or being implemented to address control weaknesses in our US business may not operate as expected, as a result of which we may be unable to provide timely regulatory reporting, which may include the provision of financial statements. This could result in the imposition of regulatory fines, penalties and other sanctions, which could impact our operations, our reputation and our relationship with our regulators and other stakeholders.
For further information see pages
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| (i) | whether licences, approvals or agreements to operate or supply are granted, amended or renewed, whether consents for construction projects are granted in a timely manner or whether there has been any breach of the terms of a licence, approval or regulatory requirement; and | |||||||||||
| (ii) | timely recovery of incurred expenditure or obligations, the ability to pass through commodity costs, a decoupling of energy usage and revenue, and other decisions relating to the impact of general economic conditions on us, our markets and customers, implications of climate change and of | |||||||||||
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Business performance | ||||||||||||
Current and future business performance may not meet our expectations or those of our regulators and shareholders. Earnings maintenance and growth from our regulated gas and electricity businesses will be affected by our ability to meet or exceed efficiency targets and service quality standards set by, or agreed with, our regulators. |
If we do not meet these targets and standards, or if we do not implement the transformation projects we are carrying out as envisaged, including to our US
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Risk factors | ||||||||||||
Growth and business development activity | ||||||||||||
Failure to respond to external market developments and execute our Failure to grow our core business sufficiently and have viable options for new future business over the longer term could negatively affect the Group’s credibility and reputation and jeopardise the achievement of intended financial returns.
Business development activities and the delivery of our growth ambition, including acquisitions, disposals, joint ventures, partnering and organic investment opportunities (including organic investments made as a result of changes to the energy | mix), are subject to a wide range of both external uncertainties (including the availability of potential investment targets and | attractive
We may also be liable for the past acts, omissions or liabilities of companies or businesses we have acquired, which may be unforeseen or greater than anticipated. In the case of joint ventures, we may have limited control over operations and our joint venture partners may have interests that diverge from our own. The occurrence of any of these events could have a material adverse impact on our results of operations or financial condition, and could also impact our ability to enter into other transactions. | ||||||||||
| Cost escalation | |||||||||||
Changes in foreign currency rates, interest rates or commodity prices could materially impact earnings or our financial condition. We have significant operations in the US and so are subject to the exchange rate risks normally associated with non UK operations, including the need to translate US assets and liabilities, and income and expenses, into sterling, our primary reporting currency. In addition, our results of operations and net debt position may be affected because a significant proportion of our borrowings, | derivative financial instruments and commodity contracts are | affected by changes in interest rates, commodity price indices and exchange rates, in particular the dollar to sterling exchange rate.
Furthermore, our cash flow may be materially affected as a result of settling hedging arrangements entered into to manage our exchange rate, interest rate and commodity price exposure, or by cash collateral movements relating to derivative market values, which also depend on the sterling exchange rate into euro and other currencies. | ||||||||||
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Our results of operations could be affected by inflation or deflation.
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There is also a risk that year-on-year RPI inflation is negative with no corresponding decrease in costs or insufficient decrease to offset the impact on revenues. | Our income under our rate plans in the US is not typically linked to inflation. In periods of inflation in the US, our operating costs may increase by more than our revenues. In both the UK and US such increased costs may materially adversely affect the results of our operations. | |||||
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We may be required to make significant contributions to fund pension and other post-retirement benefits. We participate in a number of pension schemes that together cover substantially all our employees. In both the UK and US, the principal schemes are DB schemes where the scheme assets are held independently of our own financial resources. In the US, we also have other post-retirement benefit schemes. Estimates of the amount and timing of future funding for the UK and US schemes are based on actuarial assumptions | and other factors including: the actual and projected market performance of the scheme | Actual performance of scheme assets may be affected by volatility in debt and equity markets. Changes in these assumptions or other factors may require us to make additional contributions to these pension schemes which, to the extent they are not recoverable under our price controls or state rate plans, could materially adversely affect the results of our operations and financial condition. | ||||
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Additional Information
Internal control and risk factorscontinued
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Financing and liquidity | ||||||
An inability to access capital markets at commercially acceptable interest rates could affect how we maintain and grow our businesses. Our businesses are financed through cash generated from our ongoing operations, bank lending facilities and the capital markets, particularly the long-term debt capital markets. Some of the debt we issue is rated by credit rating agencies and changes to these ratings may affect both our borrowing capacity and borrowing costs. In addition, restrictions imposed by regulators may also limit how we service the financial requirements of our current businesses or the financing of newly acquired or developing businesses.
Financial markets can be subject to periods of volatility and shortages of liquidity. If we were unable to access the capital markets or other sources of finance at competitive rates for a prolonged period, our cost of financing may increase, the discretionary and uncommitted elements of our proposed capital investment programme may need to be reconsidered and the manner in which we implement our strategy may need to be reassessed.
Such events could have a material adverse impact on our business, results of operations and prospects.
Some of our regulatory agreements impose lower limits for the long-term senior unsecured debt credit ratings that certain | companies within the Group must hold or the amount of equity within their capital structures. | One of the principal limits requires National Grid plc to hold an investment grade long-term senior unsecured debt credit rating. In addition, some of our regulatory arrangements impose restrictions on the way we can operate. These include regulatory requirements for us to maintain adequate financial resources within certain parts of our operating businesses and may restrict the ability of National Grid plc and some of our subsidiaries to engage in certain transactions, including paying dividends, lending cash and levying charges. The inability to meet such requirements or the occurrence of any such restrictions may have a material adverse impact on our business and financial condition.
Our debt agreements and banking facilities contain covenants, including those relating to the periodic and timely provision of financial information by the issuing entity and financial covenants, such as restrictions on the level of subsidiary indebtedness. Failure to comply with these covenants, or to obtain waivers of those requirements, could in some cases trigger a right, at the lender’s discretion, to require repayment of some of our debt and may restrict our ability to draw upon our facilities or access the capital markets. | ||||
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Customers and counterparties | ||||||
Customers and counterparties may not perform their obligations. Our operations are exposed to the risk that customers, suppliers, banks and other financial institutions and others with whom we do business will not satisfy their obligations, which could materially adversely affect our financial position. |
This risk is significant where our subsidiaries have concentrations of receivables from gas and electricity utilities and their affiliates, such as from our previous LIPA managed services agreement (MSA) and current PSEG-LI transition services agreement (TSA), as well as industrial customers and other purchasers, and may also arise where customers are unable to pay us as a result of increasing commodity prices or adverse economic conditions. | To the extent that counterparties are contracted with for physical commodities (gas and electricity) and they experience events that impact their own ability to deliver, we may suffer supply interruption as described inInfrastructure and IT systems on page 174. There is also a risk to us where we invest excess cash or enter into derivatives and other financial contracts with banks or other financial institutions. Banks who provide us with credit facilities may also fail to perform under those contracts. | ||||
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We may fail to attract, develop and retain employees with the competencies, including leadership and business capabilities, values and behaviours required to deliver our strategy and vision and ensure they are engaged to act in our best interests. Our ability to implement our strategy depends on the capabilities and performance of our employees and leadership at all levels of the business. Our ability to implement our strategy and vision may be negatively affected by the loss of key personnel or an inability to attract, integrate, engage and retain appropriately qualified |
There is a risk that an employee or someone acting on our behalf may breach our internal controls or internal governance framework or may contravene applicable laws and regulations. This could have an impact on the results of our operations, our reputation and our relationship with our regulators and other stakeholders. | |||||
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The following description is a summary of the material terms of our Articles and applicable English law.
Summary The Articles set out the Company’s internal
General The Company is incorporated under the name National Grid plc and is registered in England and Wales with registered number
Directors Under the Articles, a Director must disclose any personal interest in a matter and may not vote in respect of that matter, subject to certain limited exceptions. As permitted under the Companies Act 2006, the Articles
The Directors (other than a Director acting in an executive capacity) are paid fees for their
The Directors
Directors can be appointed or removed by the Board or shareholders in a general meeting. Directors must stand for election at the first AGM following their appointment to the Board. Each Director must retire at least every three years, | by the UK Corporate Governance Code, all Directors wishing to continue in office currently offer themselves for re-election annually. No person is disqualified from being a Director or is required to vacate that office by reason of attaining a maximum age.
A Director is not required to hold shares in National Grid in order to qualify as a Director. |
Rights, preferences and restrictions (i) Dividend rights National Grid may not pay any dividend otherwise than out of profits available for distribution under the Companies Act 2006 and other applicable provisions of English law. In addition, as a public company, National Grid may only make a distribution if, at the time of the distribution, the amount of its net assets is not less than the aggregate of its called up share capital and undistributable reserves (as defined in the Companies Act 2006) and to the extent that the distribution does not reduce the amount of those assets to less than that aggregate. Ordinary shareholders and ADS holders receive dividends. Subject to
(ii) Voting rights Subject to any rights or restrictions attached to any shares and to any other provisions of the Articles, at any general meeting on a show of hands, every shareholder who is present in person will have one vote and on a poll, every shareholder will have one vote for every share
(iii) Liquidation rights In a winding up, a liquidator may, in each case with the sanction of a special resolution passed by the shareholders and any other sanction required under English law, (a) divide among the shareholders the whole or any part of National Grid’s assets (whether the assets are of the same kind or not)
(iv) Restrictions There are no restrictions on the transfer or sale of ordinary shares. Some of the Company’s employee share plans, details of which are contained in the Directors’ Remuneration Report, include restrictions on the transfer of shares while the shares are subject to the plan. Where, under an employee share plan operated by the Company, participants are the beneficial owners of the shares but not the registered owner, the voting rights may be exercised by the registered owner at the direction of the participant. Treasury shares do not attract a vote or dividends. Variation of rights Subject to applicable provisions of English law, the rights attached to any class of shares of National Grid may be varied or |
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Additional Information | ||
Shareholder informationcontinued | ||
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General meetings AGMs must be convened each year within six months of the Company’s accounting reference date upon 21 clear days’ advance written
Rights of non residents There are no restrictions under National Grid’s Articles that would limit the rights of persons not resident in the UK to vote in relation to ordinary shares. | ||||||||
Disclosure of interests Under the Companies Act 2006, National Grid may, by written notice, require a person whom it has reasonable cause to believe to be or to have been in the last three years interested in its shares to provide additional information relating to that interest. Under the Articles, failure to provide such information may result in a shareholder losing their rights to attend, vote or exercise any other right in relation to shareholders’ meetings.
Under the UK Disclosure and Transparency Rules, there is also an obligation on a person who acquires or ceases to have a notifiable interest in shares in National Grid to notify the Company of that fact. The disclosure threshold is 3% and disclosure is required each time the person’s direct and indirect holdings reach, exceed or fall below each 1% threshold thereafter.
The UK City Code on Takeovers and Mergers imposes strict disclosure requirements with regard to dealings in the securities of an offeror or offeree company, and also on their respective associates, during the course of an offer period. Other regulators in the UK, US and elsewhere may have, or assert, notification or approval rights over acquisitions or transfers of shares. | ||||||||
Sir Peter Gershon CBE FREng, Chairman Appointment to the Board: 1 August 2011 as Deputy Chairman, Chairman with effect from 1 January 2012 Committee membership: N (ch) Previous appointments: Chairman of Premier Farnell plc, Chief Executive of the Office of Government Commerce, Managing Director of Marconi Electronic Systems and member of the UK Defence Academy Advisory Board. External appointments: Chairman of Tate & Lyle plc and the Aircraft Carrier Alliance and member of The Sutton Trust Board. Experience: | ||||||||
● Chairman | ● City | |||||||
● Engineer | ● High tech industry | |||||||
● Government | ● US | |||||||
● Partnering/JV/contract | ● International | |||||||
management | ● General management | |||||||
Steve Holliday FREng, Chief Executive Appointment to the Board: October 2002, appointed to National Grid Group plc on 30 March 2001, Chief Executive with effect from January 2007 Committee membership: F Previous appointments: Executive Director of British Borneo Oil and Gas; he also spent 19 years within the Exxon Group, where he held senior positions in the international gas business and managed major operational areas such as refining and shipping. Most recently Chairman of UK Business Council for Sustainable Energy, the Prince’s National Ambassador and Non-executive Director of Marks and Spencer Group plc. External appointments: Chairman of Crisis UK and of the En ergy and Efficiency Industrial Partnership, and Vice Chairman for Business in the Community and of The Careers and Enterprise Company. Experience: | ||||||||
● Chief Executive | ● Utilities – energy | |||||||
● Engineer | ● Customer | |||||||
● Government/regulatory | ● Oil and gas | |||||||
● Partnering/JV/contract | ● US | |||||||
management | ● International | |||||||
● City | ||||||||
Andrew Bonfield, Finance Director Appointment to the Board: 1 November 2010 Committee membership: F, S Previous appointments: Chief Financial Officer at Cadbury plc until March 2010; he also spent five years as Executive Vice President & Chief Financial Officer of Bristol-Myers Squibb Company and has previous experience in the energy sector as Finance Director of BG Group plc. External appointments: Non-executive Director of Kingfisher plc. Experience: | ||||||||
● Finance Director | ● City | |||||||
● Accountant | ● Utilities – energy | |||||||
● Government/regulatory | ● Customer | |||||||
● Partnering/JV/contract | ● US | |||||||
management | ● International | |||||||
Nora Mead Brownell, Non-executive Director Appointment to the Board: 1 June 2012 Committee membership: N, R, S Previous appointments: Commissioner of the Pennsylvania Public Utility Commission from 1997 to 2001, Commissioner for the Federal Energy Regulatory Commission from 2001 to 2006 and former President of the National Association of Regulatory Utility Commissioners. Board member of ONCOR Electric Delivery Holding Company LLC and Comverge, Inc. External appointments:Board member of Spectra Energy Partners LP, Direct Energy Advisory Board and the Advisory Board of Morgan Stanley Infrastructure Partners and partner in ESPY Energy Solutions, LLC. Experience: | ||||||||
● US Government/regulatory | ● Various non-executive | |||||||
● US utilities – energy | directorships | |||||||
● FERC | ● US | |||||||
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Jonathan Dawson, Non-executive Director | ||||||||
Appointment to the Board: 4 March 2013 Committee membership: F, N, R (ch) | ||||||||
| Previous appointments: Various roles within the Ministry of Defence before joining Lazard where he spent over 20 years. Non-executive Director of Galliford Try plc 2004 to 2008, National Australia Group Europe Limited 2005 to 2012 and Standard Life Investments (Holdings) Limited 2010 to 2013, and most recently Senior Independent Director and Chairman of the Remuneration Committee of Next plc. | ||||||||
| External appointments: Non-executive Director of Jardine Lloyd Thompson Group plc and Chairman of Penfida Limited. | ||||||||
| Experience: | ||||||||
| ● | City | ● | Banking | |||||
| ● | Corporate finance | ● | Pensions | |||||
Therese Esperdy, Non-executive Director | ||||||||
| Appointment to the Board: 18 March 2014, and to the Board of National Grid USA with effect from 1 May 2015 | ||||||||
| Committee membership: A, F (ch), N | ||||||||
| Previous appointments: Joined Chase Securities in 1997, having started her banking career with Lehman Brothers. Various senior roles at JPMorgan Chase & Co. including Head of US Debt Capital Markets and Global Head of Debt Capital Markets and most recently co head of Banking, Asia Pacific at JPMorgan. | ||||||||
| External appointments: Global Chairman of the Financial Institutions Group, JPMorgan Chase & Co. | ||||||||
| Experience: | ||||||||
| ● | City | ● | US | |||||
| ● | Corporate finance | ● | International | |||||
| ● | Banking | |||||||
Paul Golby CBE FREng, Non-executive Director | ||||||||
Appointment to the Board: 1 February 2012 Committee membership: A, N, R, S (ch) | ||||||||
| Previous appointments: Executive Director of Clayhithe plc before joining East Midlands Electricity plc in 1998 as Managing Director, Chief Executive of E.ON UK plc in 2002, and later additionally as Chairman, stepping down from the E.ON board in December 2011 and most recently Non-executive Chairman of AEA Technology Group plc. | ||||||||
| External appointments: Chairman of EngineeringUK and the UK National Air Traffic System, Chair of the Engineering and Physical Sciences Research Council and a member of the Council for Science and Technology and of the Nurse Review Advisory Group. | ||||||||
| Experience: | ||||||||
| ● | Chairman and chief executive | ● | City | |||||
| ● | Engineer | ● | Utilities – energy | |||||
| ● | Government/regulatory | |||||||
Ruth Kelly, Non-executive Director | ||||||||
Appointment to the Board: 1 October 2011 Committee membership: A, F, N | ||||||||
Previous appointments: Various senior roles in Government from 2001 to 2008, including Secretary of State for Transport, Secretary of State for Communities and Local Government, Secretary of State for Education and Skills and Financial Secretary to the Treasury. External appointments: Senior Executive at HSBC and Governor for the National Institute of Economic and Social Research. | ||||||||
| Experience: | ||||||||
| ● | Government/regulatory | ● | Financial and economic | |||||
| ● | Partnering/JV/contract management | ● | Infrastructure projects | |||||
John Pettigrew, Executive Director, UK | ||||||||||
| Appointment to the Board: 1 April 2014 | ||||||||||
| Previous appointments: Joined The National Grid Company plc in 1991 and held various senior management roles, becoming Director of Engineering in 2003. He went on to become Chief Operating Officer and Executive Vice President for the US Electricity Distribution & Generation business between 2007 and 2010; Chief Operating Officer for UK Gas Distribution between 2010 and 2012; and UK Chief Operating Officer from 2012 to 2014. | ||||||||||
| Experience: | ||||||||||
| ● | Government/regulatory | ● | Utilities – energy | |||||||
| ● | Partnering/JV/contract management | ● | US | |||||||
Dean Seavers, Executive Director, US | ||||||||||
| Appointment to the Board: 1 April 2015 | ||||||||||
| Previous appointments: Various senior management positions at Tyco International Ltd. from 2000 to 2007 before joining General Electric Company/United Technologies Corporation in 2007. President and Chief Executive Officer of General Electric Security from 2007 to 2010 and then President, Global Services of United Technologies Fire & Security from 2010 to 2011. Additionally, a member of the Board of Directors of National Fire Protection Association from 2010 to 2014, lead network member at City Light Capital from 2011 to 2015 and President and Chief Executive at Red Hawk Fire & Security, LLC from 2012 to 2014. | ||||||||||
| External appointments: Board member of Red Hawk Fire & Security, LLC. | ||||||||||
| Experience: | ||||||||||
| ● | Chief executive | ● | Customer | |||||||
| ● | Partnering/JV/contract | ● | US | |||||||
| management | ● | International | ||||||||
| ● | City | ● | Change and performance | |||||||
| ● | Corporate finance | improvement programmes | ||||||||
| ● | Financial services | ● | General management | |||||||
Mark Williamson, Non-executive Director | ||||||||||
Appointment to the Board: 3 September 2012 Committee membership: A (ch), N, R | ||||||||||
| Previous appointments: Chief Accountant then Group Financial Controller of Simon Group plc before joining International Power plc as Group Financial Controller in 2000 and appointed as Chief Financial Officer in 2003. | ||||||||||
| External appointments: Non-executive, Chairman of the Audit Committee and Senior Independent Director of Alent plc, and Chairman of Imperial Tobacco Group PLC. | ||||||||||
| Experience: | ||||||||||
| ● | Finance director | ● | City | |||||||
| ● | Accountant | ● | Utilities – energy | |||||||
| ● | Government/regulatory | ● | International | |||||||
Alison Kay, Group General Counsel & Company Secretary | ||||||||||
| Appointment as Company Secretary: 24 January 2013 | ||||||||||
Previous appointments: Various roles since joining National Grid in 1996 including UK General Counsel and Company Secretary from 2000 to 2008 and Commercial Director, UK Transmission from 2008 to 2012. | ||||||||||
| Key | ||||||||||
| A Audit Committee | ||||||||||
| F Finance Committee | ||||||||||
| N Nominations Committee | ||||||||||
| R Remuneration Committee | ||||||||||
| S Safety, Environment and Health Committee | ||||||||||
| (ch) Chairman of committee | ||||||||||
|
| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 179 |
Additional Information | ||
Shareholder informationcontinued | ||
| 180 |
On 20 April 2015, The Capital Group of Companies, Inc. notified us of a holding in voting rights of 3.881%, 145,094,617 ordinary shares, as at 16 April 2015.
As at 20 May 2015, no further notifications have been received.
The rights attached to ordinary shares are detailed on page 177. All ordinary shares carry the same voting rights.
The share capital of the Company consists of ordinary shares of 11 17⁄43 pence nominal value each and ADSs, which represent five ordinary shares each.
Authority to purchase shares Shareholder approval was given at the 2014 AGM to purchase up to 10% of the Company’s share capital (being 373,477,508 ordinary shares). The Directors intend to seek shareholder approval to renew this authority at this year’s AGM.
In some circumstances, the Company may find it advantageous to have the authority to purchase its own shares in the market, where the Directors believe this would be in the interests of shareholders generally. The Directors believe that it is an important part of the financial management of the Company to have the flexibility to repurchase issued shares in order to manage its capital base, including actively managing share issuances from the operation of the scrip dividend scheme. It is expected that such repurchases will not exceed 2.5% of the issued share capital (excluding treasury shares) per annum.
When purchasing shares, the Company have and will, take into account market conditions prevailing at the time, other investment and financing opportunities and the overall financial position of the Company.
During the year the Company purchased ordinary shares in the capital of the Company as part of the management of the dilutive effect of share issuances under the scrip dividend scheme. | Authority to allot shares Shareholder approval was given at the 2014 AGM to allot shares of up to one third of the Company’s share capital. The Directors are seeking this same lower level of authority this year. The Directors consider that the Company will have sufficient flexibility with the lower level of authority to respond to market developments. This authority is in line with investor guidelines.
The Directors currently have no intention of issuing new shares, or of granting rights to subscribe for or convert any security into shares, except in relation to, or in connection with, the operation and management of the Company’s scrip dividend scheme and the exercise of options under the Company’s share plans. No issue of shares will be made which would effectively alter control of the Company without the sanction of shareholders in general meeting.
The Company expects to actively manage the dilutive effect of share issuance arising from the operation of the scrip dividend scheme. In some circumstances, additional shares may be allotted to the market for this purpose under the authority provided by this resolution. Under these unlikely circumstances, it is expected that the associated allotment of new shares (or rights to subscribe for or convert any security into shares) will not exceed 1% of the issued share capital (excluding treasury shares) per year.
Dividend waivers The trustees of the National Grid Employees Share Trust, which are independent of the Company, waived the right to dividends paid during the year, and have agreed to waive the right to future dividends, in relation to the ordinary shares and American Depositary Receipts (ADR) held by the trust.
Under the Company’s ADR programme, the right to dividends in relation to the ordinary shares underlying the ADRs was waived during the year by the ADR Depositary, under an arrangement whereby the Company pays the monies to satisfy any dividends separately to the Depositary for distribution to ADR holders entitled to the dividend. This arrangement is expected to continue for future dividends.
National Grid ordinary shares are listed on the London Stock Exchange under the symbol NG and the ADSs are listed on the New York Stock Exchange under the symbol NGG. | |||||||||||||||
| Number of shares | Total nominal value | Percentage of called up share capital1 | ||||||||||||||
| ||||||||||||||||
Shares held in Treasury purchased in prior years | 123,948,354 | £14,124,347.32 | 3.18% | |||||||||||||
Shares purchased and held in Treasury during the year2,3 | 37,350,216 | £4,256,187.40 | 0.96% | |||||||||||||
Shares transferred from Treasury during the year (to employees under employee share plans)2 | 8,353,093 | £951,864.09 | 0.21% | |||||||||||||
Maximum number of shares held in Treasury during the year2 | 152,970,767 | £17,431,552.52 | 3.93% | |||||||||||||
| ||||||||||||||||
1. Called up share capital of 3,891,691,900 ordinary shares as at the date of this Report. 2. From 7 August 2014 to 31 March 2015. 3. Shares purchased for a total cost of £338,170,931.
As at the date of this Report, the Company held 150,305,846 ordinary shares as treasury shares, representing 3.86% of the Company’s called up share capital.
| ||||||||||||||||
|
| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 181 | |||
Additional Information | ||
Shareholder informationcontinued | ||
Price history The following table shows the highest and lowest intraday market prices for our ordinary shares and ADSs for the periods indicated:
| This discussion is not a comprehensive description of all the US federal income tax and UK tax considerations that may be relevant to any particular investor (including consequences under the US alternative minimum tax or net investment income tax) and does not address state, local, or other tax laws. National Grid has assumed that shareholders, including US Holders, are familiar with the tax rules applicable to investments in securities generally and with any special rules to which they may be subject. This discussion deals only with US Holders who hold ADSs or ordinary shares as capital assets. It does not address the tax treatment of investors who are subject to special rules, such as:
● financial institutions; ● insurance companies; ● dealers in securities or currencies; ● investors who elect mark-to-market treatment; ● partnerships or other pass-through entities and their partners; ● individual retirement accounts and other tax-deferred accounts; ● tax-exempt organisations; ● investors who own (directly or indirectly) 10% or more of our voting stock; ● investors who hold ADSs or ordinary shares as a position in a straddle, hedging transaction or conversion transaction; and ● investors whose functional currency is not the US dollar.
The statements regarding US and UK tax laws and administrative practices set forth below are based on laws, treaties, judicial decisions and regulatory interpretations in effect on the date of this document. These laws and practices are subject to change without notice, potentially with retroactive effect. In addition, the statements set forth below are based on the representations of the Depositary and assume that each party to the Deposit Agreement will perform its obligations thereunder in accordance with its terms.
US Holders of ADSs will be treated as the owners of the ordinary shares represented by those ADSs for US federal income tax purposes. For the purposes of the Tax Convention, the Estate Tax Convention and UK tax considerations, this discussion assumes that a US Holder of ADSs will be treated as the owner of the ordinary shares represented by those ADSs. HMRC has stated that it will continue to apply its long-standing practice of treating a holder of ADSs as holding the beneficial interest in the ordinary shares represented by the ADSs; however, we note that this is an area of some uncertainty and may be subject to change.
US Holders should consult their own advisors regarding the tax consequences of buying, owning and disposing of ADSs or ordinary shares in light of their particular circumstances, including the effect of any state, local, or other tax laws.
Taxation of dividends The UK does not currently impose a withholding tax on dividends paid to US Holders.
Cash distributions paid out of our current or accumulated earnings and profits (as determined for US federal income tax purposes) generally will be taxable to a US Holder as dividend income. Distributions in excess of current and accumulated earnings and profits will be treated as a non-taxable return of capital to the extent of a US Holder’s basis in its ADSs or ordinary shares, as applicable, and thereafter as a capital gain. However, we do not maintain calculations of our earnings and profits in accordance with US federal income tax principles. US Holders should therefore assume that any distribution by us with respect to ADSs or ordinary shares will be reported as dividend income. | |||||||||||||||||||||||||
Ordinary share (pence) | ADS ($) | |||||||||||||||||||||||||
| High | Low | High | Low | |||||||||||||||||||||||
| ||||||||||||||||||||||||||
| 2014/15 | 965.00 | 806.22 | 77.21 | 62.25 | ||||||||||||||||||||||
| 2013/14 | 849.50 | 711.00 | 70.07 | 55.16 | ||||||||||||||||||||||
| 2012/13 | 770.00 | 627.00 | 58.33 | 49.55 | ||||||||||||||||||||||
| 2011/12 | 660.50 | 545.50 | 52.18 | 45.80 | ||||||||||||||||||||||
| 2010/111 | 666.00 | 474.80 | 51.00 | 36.72 | ||||||||||||||||||||||
| 2014/15 Q4 | 954.00 | 842.60 | 72.41 | 62.25 | ||||||||||||||||||||||
| Q3 | 965.00 | 853.78 | 75.08 | 67.01 | ||||||||||||||||||||||
| Q2 | 916.00 | 835.76 | 77.21 | 70.37 | ||||||||||||||||||||||
| Q1 | 897.92 | 806.22 | 75.09 | 67.62 | ||||||||||||||||||||||
| 2013/14 Q4 | 842.50 | 769.00 | 70.07 | 63.19 | ||||||||||||||||||||||
| Q3 | 797.50 | 725.16 | 65.39 | 58.85 | ||||||||||||||||||||||
| Q2 | 817.75 | 727.45 | 61.59 | 55.30 | ||||||||||||||||||||||
| Q1 | 849.50 | 711.00 | 64.56 | 55.16 | ||||||||||||||||||||||
| April 2015 | 910.90 | 863.60 | 68.88 | 64.65 | ||||||||||||||||||||||
| March 2015 | 897.80 | 842.60 | 68.22 | 62.25 | ||||||||||||||||||||||
| February 2015 | 942.10 | 868.20 | 71.13 | 67.12 | ||||||||||||||||||||||
| January 2015 | 954.00 | 890.89 | 72.41 | 67.87 | ||||||||||||||||||||||
| December 2014 | 936.90 | 860.03 | 73.54 | 67.01 | ||||||||||||||||||||||
| ||||||||||||||||||||||||||
1. On 20 May 2010, we announced a 2 for 5 rights issue of 990,439,017 ordinary shares at 355 pence per share. | ||||||||||||||||||||||||||
The following table includes a brief analysis of shareholder numbers and shareholdings as at 31 March 2015.
| ||||||||||||||||||||||||||
Number of shareholders | % of shareholders | Number of shares | % of shares | |||||||||||||||||||||||
| Size of shareholding | ||||||||||||||||||||||||||
| ||||||||||||||||||||||||||
| 1–50 | 170,300 | 17.7275 | 4,916,530 | 0.1263 | ||||||||||||||||||||||
| 51–100 | 259,888 | 27.0532 | 18,391,904 | 0.4726 | ||||||||||||||||||||||
| 101–500 | 415,128 | 43.2131 | 87,234,245 | 2.2416 | ||||||||||||||||||||||
| 501–1,000 | 57,930 | 6.0303 | 40,551,745 | 1.0420 | ||||||||||||||||||||||
| 1,001–10,000 | 54,252 | 5.6474 | 133,804,248 | 3.4382 | ||||||||||||||||||||||
| 10,001–50,000 | 2,074 | 0.2159 | 37,223,848 | 0.9565 | ||||||||||||||||||||||
| 50,001–100,000 | 196 | 0.0204 | 14,049,218 | 0.3610 | ||||||||||||||||||||||
| 100,001–500,000 | 444 | 0.0462 | 107,102,598 | 2.7521 | ||||||||||||||||||||||
| 500,001–1,000,000 | 133 | 0.0138 | 94,059,625 | 2.4169 | ||||||||||||||||||||||
| 1,000,001+ | 309 | 0.0322 | 3,354,357,939 | 86.1928 | ||||||||||||||||||||||
| ||||||||||||||||||||||||||
| Total | 960,654 | 100 | 3,891,691,900 | 100 | ||||||||||||||||||||||
| ||||||||||||||||||||||||||
|
The discussion in this section provides information about certain US federal income tax and UK tax consequences for US Holders (defined below) of owning ADSs and ordinary shares. A US Holder is beneficial owner of ADSs or ordinary shares that:
● is (i) an individual citizen or resident of the United States, (ii) a corporation created or organised under the laws of the United States, any State thereof or the District of Columbia, (iii) an estate the income of which is subject to US federal income tax without regard to its source or (iv) a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more US persons have the authority to control all substantial decisions of the trust, or the trust has elected to be treated as a domestic trust for US federal income tax purposes; ● is not resident or ordinarily resident in the UK for UK tax purposes; and ● does not hold ADSs or ordinary shares in connection with the conduct of a business or the performance of services in the UK or otherwise in connection with a branch, agency or permanent establishment in the UK. | |||||||||||||||||||||||||
| 182 |
Dividends received by non-corporate US Holders with respect to ADSs or ordinary shares will generally be taxable at the reduced rate applicable to long-term capital gains provided (i) either (a) we are eligible for the benefits of the Tax Convention or (b) ADSs or ordinary shares are treated as ‘readily tradable’ on an established securities market in the United States and (ii) we are not, for our taxable year during which the dividend is paid or the prior year, a passive foreign investment company for US federal income tax purposes (a PFIC), and certain other requirements are met. We (1) expect that our shares will be treated as ‘readily tradable’ on an established securities market in the United States as a result of the trading of ADSs on the New York Stock Exchange and (2) believe we are eligible for the benefits of the Tax Convention. Based on our audited financial statements and the nature of our business activities, we believe that we were not treated as a PFIC for US federal income tax purposes with respect to our taxable year ending 31 March 2015. In addition, based on our current expectations regarding the value and nature of our assets, the sources and nature of our income, and the nature of our business activities, we do not anticipate becoming a PFIC in the foreseeable future. Dividends received by corporate US Holders with respect to ADSs or ordinary shares will not be eligible for the dividends received deduction generally allowed to corporations. Taxation of capital gains US Holders will not be subject to UK taxation on any capital gain realised on the sale or other disposition of ADSs or ordinary shares. Provided that we are not a PFIC for any taxable year during which a US Holder holds their ADSs or ordinary shares, upon a sale or other disposition of ADSs or ordinary shares, a US Holder generally will recognise capital gain or loss equal to the difference between the US dollar value of the amount realised on the sale or other disposition and the US Holder’s adjusted tax basis in the ADSs or ordinary shares. Such capital gain or loss generally will be long-term capital gain or loss if the ADSs or ordinary shares were held for more than one year. For non-corporate US Holders, long-term capital gain is generally taxed at a lower rate than ordinary income. A US Holder’s ability to deduct capital losses is subject to significant limitations. UK stamp duty and stamp duty reserve tax (SDRT) Transfers of ordinary shares – SDRT at the rate of 0.5% of the amount or value of the consideration will generally be payable on any agreement to transfer ordinary shares that is not completed using a duly stamped instrument of transfer (such as a stock transfer form). Where an instrument of transfer is executed and duly stamped before the expiry of the six year period beginning with the date on which the agreement is made, the SDRT liability will be cancelled. If a claim is made within the specified period, any SDRT which has been paid will be refunded. SDRT is due whether or not the agreement or transfer is made or carried out in the UK and whether or not any party to that agreement or transfer is a UK resident. Purchases of ordinary shares completed using a stock transfer form will generally result in a UK stamp duty liability at the rate of 0.5% (rounded up to the nearest £5) of the amount or value of the consideration. Paperless transfers under the CREST paperless settlement system will generally be liable to SDRT at the rate of 0.5%, and not stamp duty. SDRT is generally the liability of the purchaser and UK stamp duty is usually paid by the purchaser or transferee. | Transfers of ADSs – No UK stamp duty will be payable on the acquisition or transfer of existing ADSs or beneficial ownership of ADSs, provided that any instrument of transfer or written agreement to transfer is executed outside the UK and remains at all times outside the UK. An agreement for the transfer of ADSs in the form of ADRs will not result in a SDRT liability. A charge to stamp duty or SDRT may arise on the transfer of ordinary shares to the Depositary or The Bank of New York Mellon as agent of the Depositary (the Custodian). The rate of stamp duty or SDRT will generally be 1.5% of the value of the consideration or, in some circumstances, the value of the ordinary shares concerned. However, there is no 1.5% SDRT charge on the issue of ordinary shares (or, where it is integral to the raising of new capital, the transfer of ordinary shares) to the Depositary or the Custodian. The Depositary will generally be liable for the stamp duty or SDRT. Under the terms of the Deposit Agreement, the Depositary will charge any tax payable by the Depositary or the Custodian (or their nominees) on the deposit of ordinary shares to the party to whom the ADSs are delivered against such deposits. If the stamp duty is not a multiple of £5, the duty will be rounded up to the nearest multiple of £5. US information reporting and backup withholding tax Dividend payments made to US Holders and proceeds paid from the sale, exchange, redemption or disposal of ADSs or ordinary shares to US Holders may be subject to information reporting to the US Internal Revenue Service (IRS). Such payments may be subject to backup withholding taxes unless the holder (i) is a corporation or other exempt recipient or (ii) provides a taxpayer identification number on a properly completed IRS Form W-9 and complies with applicable certification requirements. US Holders should consult their tax advisors about these rules and any other reporting obligations that may apply to the ownership or disposition of ADSs or ordinary shares, including reporting requirements related to the holding of certain foreign financial assets. UK inheritance tax An individual who is domiciled in the US for the purposes of the Estate Tax Convention and who is not a UK national for the purposes of the Estate Tax Convention will generally not be subject to UK inheritance tax in respect of (i) the ADSs or ordinary shares on the individual’s death or (ii) a gift of the ADSs or ordinary shares during the individual’s lifetime. This is not the case where the ADSs or ordinary shares are part of the business property of the individual’s permanent establishment in the UK or relate to a fixed base in the UK of an individual who performs independent personal services. Special rules apply to ADSs or ordinary shares held in trust. In the exceptional case where the ADSs or shares are subject both to UK inheritance tax and to US federal gift or estate tax, the Estate Tax Convention generally provides for the tax paid in the UK to be credited against tax paid in the US. Capital gains tax (CGT) for UK resident shareholders You can find CGT information relating to National Grid shares for UK resident shareholders on our website under: Investors, Shareholder centre, More information and help. Share prices on specific dates are also available on our website. |
|
| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 183 |
| 184 |
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| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 185 |
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|
|
|
|
Some of the key dates and actions in the corporate history of National Grid are listed below. The full history goes back much further. | The following table includes a brief analysis of shareholder numbers and shareholdings as at 31 March 2014. | |||||||||||||||||
Size of shareholding | Number of shareholders | % of shareholders | Number of shares | % of shares | ||||||||||||||
| ||||||||||||||||||
| 1986 | British Gas (BG) privatisation | |||||||||||||||||
|
| |||||||||||||||||
| 1990 | Electricity transmission network in England and Wales transferred to National Grid on electricity privatisation | 1–50 | 174,219 | 17.6366 | 5,070,597 | 0.1316 | ||||||||||||
| ||||||||||||||||||
| 1995 | National Grid listed on the London Stock Exchange | 51–100 | 269,540 | 27.2862 | 19,092,359 | 0.4953 | ||||||||||||
| ||||||||||||||||||
| 1997 | Centrica demerged from BG | 101–500 | 427,082 | 43.2345 | 89,577,097 | 2.3241 | ||||||||||||
| ||||||||||||||||||
| 1997 | Energis demerged from National Grid | 501–1,000 | 58,849 | 5.9574 | 41,182,963 | 1.0685 | ||||||||||||
| ||||||||||||||||||
| 2000 | Lattice Group demerged from BG and listed separately | 1,001–10,000 | 55,016 | 5.5694 | 135,292,646 | 3.5101 | ||||||||||||
| ||||||||||||||||||
| 2000 | New England Electric System and Eastern Utilities Associates acquired | 10,001–50,000 | 2,079 | 0.2105 | 37,261,484 | 0.9667 | ||||||||||||
| ||||||||||||||||||
| 2002 | Niagara Mohawk Power Corporation merged with National Grid in US | 50,001–100,000 | 203 | 0.0206 | 14,546,599 | 0.3774 | ||||||||||||
| ||||||||||||||||||
| 2002 | National Grid and Lattice Group merged to form National Grid Transco | 100,001–500,000 | 429 | 0.0434 | 104,413,484 | 2.709 | ||||||||||||
| ||||||||||||||||||
| 2004 | UK wireless infrastructure network acquired from Crown Castle International Corp | 500,001–1,000,000 | 122 | 0.0124 | 85,852,431 | 2.2274 | ||||||||||||
| ||||||||||||||||||
| 2005 | Four UK regional gas distribution networks sold and National Grid adopted as our name | 1,000,001+ | 287 | 0.029 | 3,322,050,361 | 86.1899 | ||||||||||||
|
| |||||||||||||||||
| 2006 | Rhode Island gas distribution network acquired | Total | 987,826 | 100 | 3,854,340,021 | 100 | ||||||||||||
|
| |||||||||||||||||
| 2007 | UK and US wireless infrastructure operations and the Basslink electricity interconnector in Australia sold |
This section discusses certain US federal income tax and UK tax consequences of the ownership of ADSs and ordinary shares by certain beneficial holders thereof. This discussion applies to holders who qualify for benefits under the income tax convention between the US and the UK (the Tax Convention) and are a resident of the US for the purposes of the Tax Convention and are not resident or ordinarily resident in the UK for UK tax purposes at any material time (a US Holder).
US Holders generally will be entitled to benefits under the Tax Convention if they are:
• the beneficial owner of the ADSs or ordinary shares, as applicable, and of any dividends that they receive; • an individual resident or citizen of the US, a US corporation, or a US partnership, estate, or trust (but only to the extent the income of the partnership, estate, or trust is subject to US taxation in the hands of a US resident person); and • not also a resident of the UK for UK tax purposes.
If a US Holder holds ADSs or ordinary shares in connection with the conduct of business or the performance of personal services in the UK or otherwise in connection with a branch, agency or permanent establishment in the UK, then the US Holder will not be entitled to benefits under the Tax Convention. Special rules, including a limitation of benefits provision, apply in limited circumstances to ADSs or ordinary shares owned by an investment or holding company. This section does not discuss the treatment of holders described in the preceding two sentences. This section does not purport to be a comprehensive description of all the tax considerations that may be relevant to any particular investor. National Grid has assumed that shareholders, including US Holders, are familiar with the tax rules applicable to investments in securities generally and with any special rules to which they may be subject. In particular, the discussion deals only with investors that will beneficially hold ADSs or ordinary shares as capital assets and does not address the tax treatment of investors that are subject to special rules, such as banks, insurance companies, dealers in securities or currencies, partnerships or other entities classified as partnerships for US federal income tax purposes, persons that control (directly or indirectly) 10% or more of our voting stock, persons that elect mark-to-market treatment, persons that hold ADSs or ordinary shares as a position in a straddle, conversion transaction, synthetic security, or other integrated financial transaction, persons who are liable for the alternative minimum tax, or the Medicare tax on net investment income, and persons whose functional currency is not the dollar. | ||||||||||||||||
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| 2007 | KeySpan Corporation acquired | |||||||||||||||||
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| 2008 | Ravenswood generation station sold | |||||||||||||||||
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| 2010 | Rights issue raised £3.2 billion | |||||||||||||||||
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| 2012 | New Hampshire electricity and gas distribution businesses sold | |||||||||||||||||
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Each of our Executive Directors has a service agreement and each Non-executive Director has a letter of appointment. No contract (other than contracts entered into in the ordinary course of business) has been entered into by National Grid within the two years immediately preceding the date of this report which is, or may be, material; or which contains any provision under which any member of National Grid has any obligation or entitlement which is material to National Grid at the date of this report.
This information can be found under the heading note 11 property, plant and equipment on page 111, note 19 Borrowings on pages 119 to 121, Strategic Report pages 12 to 20, where we operate on page 166 and principal operations on pages 29 to 38.
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| Reconciliations of adjusted profit measures | |||||||||||
|
Use of adjusted profit measures In considering the financial performance of our businesses and segments, we analyse each of our primary financial measures of operating profit, profit before tax, profit for the year attributable to equity shareholders and EPS into two components.
The first of these components is referred to as an adjusted profit measure, also known as a business performance measure. This is the principal measure used by management to assess the performance of the underlying business.
Adjusted results exclude exceptional items, remeasurements and stranded cost recoveries. These items are reported collectively as the second component of the financial measures. Note 4 on page 103 explains in detail the items which are excluded from our adjusted profit measures.
Adjusted profit measures have limitations in their usefulness compared with the comparable total profit measures as they exclude important elements of our financial performance. However, we believe that by presenting our financial performance in two components it is easier to read and interpret financial performance between periods, as adjusted profit measures are more comparable having removed the distorting effect of the excluded items. Those items are more clearly understood if separately identified and analysed.
The presentation of these two components of financial performance is additional to, and not a substitute for, the comparable total profit measures presented.
Management uses adjusted profit measures as the basis for monitoring financial performance and in communicating financial performance to investors in external presentations and announcements of financial results.
Internal financial reports, budgets and forecasts are primarily prepared on the basis of adjusted profit measures, although planned exceptional items, such as significant restructurings, are also reflected in budgets and forecasts. We separately monitor and disclose the excluded items as a component of our overall financial performance.
Reconciliation of adjusted operating profit to total operating profit Adjusted operating profit is presented on the face of the income statement under the heading operating profit before exceptional items, remeasurements and stranded cost recoveries. |
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| Year ended 31 March | ||||||||||||||
|
| 2015 £m |
|
| 2014 £m |
|
| 2013 £m |
| ||||||
| ||||||||||||||
Adjusted operating profit
| 3,863 | 3,664 | 3,639 | |||||||||||
| Exceptional items | – | 55 | (84) | |||||||||||
Remeasurements – commodity contracts
| (83 | ) | 16 | 180 | ||||||||||
| Stranded cost recoveries | – | – | 14 | |||||||||||
| ||||||||||||||
| Total operating profit |
| 3,780
|
|
| 3,735
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|
| 3,749
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Reconciliation of adjusted operating profit to adjusted earnings and earnings Adjusted earnings is presented in note 7 to the consolidated financial statements on page 111. |
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| Year ended 31 March | ||||||||||||
|
| 2015 £m |
|
| 2014 £m |
|
| 2013 £m |
| ||||
| ||||||||||||
Adjusted operating profit | 3,863 | 3,664 | 3,639 | |||||||||
Adjusted net finance costs
| (1,033 | ) | (1,108 | ) | (1,124) | |||||||
| Share of post-tax results of joint ventures and associates | 46 | 28 | 18 | |||||||||
| ||||||||||||
Adjusted profit before tax
| 2,876 | 2,584 | 2,533 | |||||||||
Adjusted tax | (695 | ) | (581 | ) | (619) | |||||||
| ||||||||||||
Adjusted profit after tax
| 2,181 | 2,003 | 1,914 | |||||||||
Attributable to non-controlling interests | 8 | 12 | (1) | |||||||||
| ||||||||||||
Adjusted earnings
| 2,189 | 2,015 | 1,913 | |||||||||
Exceptional items after tax
| (97 | ) | 388 | 75 | ||||||||
Remeasurements after tax
| (73 | ) | 73 | 156 | ||||||||
Stranded cost recoveries after tax | – | – | 9 | |||||||||
| ||||||||||||
Earnings | 2,019 | 2,476 | 2,153 | |||||||||
| ||||||||||||
Reconciliation of adjusted EPS to EPS Adjusted EPS is presented in note 7 to the consolidated financial statements. |
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| Year ended 31 March | ||||||||||||
|
| 2015 pence |
|
| 2014 pence |
|
| 2013 pence |
| ||||
| ||||||||||||
Adjusted EPS | 58.1 | 53.5 | 50.9 | |||||||||
Exceptional items after tax
| (2.6 | ) | 10.3 | 2.0 | ||||||||
Remeasurements after tax
| (1.9 | ) | 1.9 | 4.1 | ||||||||
Stranded cost recoveries after tax | – | – | 0.2 | |||||||||
| ||||||||||||
EPS | 53.6 | 65.7 | 57.2 | |||||||||
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Reconciliation of adjusted operating profit excluding timing differences and major storms to total operating profit Adjusted operating profit excluding timing differences and major storms is discussed on page 23. |
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| Year ended 31 March | ||||||||||||
|
| 2015 £m |
|
| 2014 £m |
|
| 2013 £m |
| ||||
| ||||||||||||
Adjusted operating profit excluding timing differences and major storms
| 3,927 | 3,706 | 3,759 | |||||||||
Major storms | – | – | (136) | |||||||||
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Adjusted operating profit excluding timing differences
| 3,927 | 3,706 | 3,623 | |||||||||
Timing differences | (64 | ) | (42 | ) | 16 | |||||||
| ||||||||||||
Adjusted operating profit
| 3,863 | 3,664 | 3,639 | |||||||||
| Exceptional items, remeasurements and stranded cost recoveries | (83 | ) | 71 | 110 | ||||||||
| ||||||||||||
Total operating profit | 3,780 | 3,735 | 3,749 | |||||||||
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| 186 |
Commentary on consolidated financial statements
for the year ended 31 March 2014
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US information reporting and backup withholding tax Dividend payments made to US Holders and proceeds paid from the sale, exchange, redemption or disposal of ADSs or ordinary shares to US Holders may be subject to information reporting to the US Internal Revenue Service (IRS). Such payments may be subject to backup withholding taxes unless the holder (i) is a corporation or other exempt recipient or (ii) provides a taxpayer identification number on a properly completed IRS Form W-9 and certifies that no loss of exemption from backup withholding has occurred.
US Holders should consult their tax advisors regarding these rules and any other reporting obligations that may apply to the ownership or disposition of ADSs or ordinary shares, including reporting requirements related to the holding of certain foreign financial assets.
UK inheritance tax An individual who is domiciled in the US for the purposes of the Estate Tax Convention and who is not a national of the UK for the purposes of the Estate Tax Convention will generally not be subject to UK inheritance tax in respect of the ADSs or ordinary shares on the individual’s death or on a gift of the ADSs or ordinary shares during the individual’s lifetime, unless the ADSs or ordinary shares are part of the business property of a permanent establishment of the individual in the UK or pertain to a fixed base in the UK of an individual who performs independent personal services.
Special rules apply to ADSs or ordinary shares held in trust. In the exceptional case where the ADSs or shares are subject both to UK inheritance tax and to US federal gift or estate tax, the Estate Tax Convention generally provides for the tax paid in the UK to be credited against tax paid in the US.
The all-employee share plans allow UK- or US-based employees to participate in either HMRC (UK) or Internal Revenue Service (US) approved plans. We believe by offering participation in such plans, it encourages all employees (including Executive Directors) to become shareholders in National Grid.
Sharesave Employees resident in the UK are eligible to participate in the Sharesave plan. Under this plan, participants may contribute between £5 and £250 in total each month, for a fixed period of three years, five years or both. Contributions are taken from net salary.
SIP Employees resident in the UK are eligible to participate in the SIP. Contributions up to £125 are deducted from participants’ gross salary and used to purchase ordinary shares in National Grid each month. The shares are placed in trust.
US Incentive Thrift Plans Employees of National Grid’s US companies are eligible to participate in the Thrift Plans, which are tax-advantaged savings plans (commonly referred to as 401(k) plans). They are DC pension plans that give participants the opportunity to invest up to applicable federal salary limits. The federal limits for calendar year 2013 are: for pre-tax contributions a maximum of 50% of salary limited to $17,500 for those under the age of 50 and $23,000 for those over 50; for post-tax contributions, up to 15% of salary. The total contributions (pre-tax and post-tax) are limited to the
| lesser of 50% of compensation or $51,000. For calendar year 2014, participants may invest up to the applicable federal salary limits: for pre-tax contributions a maximum of 50% of salary limited to $17,500 for those under the age of 50 and $23,000 for those over 50; for post-tax contributions up to 15% of salary. The total contributions (pre-tax and post-tax) are limited to the lesser of 50% of compensation or $52,000.
ESPP Employees of National Grid’s US companies are eligible to participate in the ESPP (commonly referred to as a 423(b) plan). Eligible employees have the opportunity to purchase ADSs on a monthly basis at a 15% discounted price. Under the plan employees may contribute up to 20% of base pay each year up to a maximum annual contribution of $18,888 to purchase ADSs in National Grid.
Price history The following table shows the highest and lowest intraday market prices for our ordinary shares and ADSs for the periods indicated: |
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Ordinary share (pence) | ADS ($) | |||||||||||||||||||||
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| High | Low | High | Low | |||||||||||||||||||
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| 2013/14 | 849.50 | 711.00 | 70.07 | 55.16 | ||||||||||||||||||
| 2012/13 | 770.00 | 627.00 | 58.33 | 49.55 | ||||||||||||||||||
| 2011/12 | 660.50 | 545.50 | 52.18 | 45.80 | ||||||||||||||||||
| 2010/111 | 666.00 | 474.80 | 51.00 | 36.72 | ||||||||||||||||||
| 2009/10 | 685.50 | 511.00 | 56.59 | 38.25 | ||||||||||||||||||
| 2013/14 Q4 | 842.50 | 769.00 | 70.07 | 63.19 | ||||||||||||||||||
| Q3 | 797.50 | 725.16 | 65.39 | 58.85 | ||||||||||||||||||
| Q2 | 817.75 | 727.45 | 61.59 | 55.30 | ||||||||||||||||||
| Q1 | 849.50 | 711.00 | 64.56 | 55.16 | ||||||||||||||||||
| 2012/13 Q4 | 770.00 | 678.00 | 58.33 | 52.81 | ||||||||||||||||||
| Q3 | 724.97 | 679.59 | 58.03 | 54.28 | ||||||||||||||||||
| Q2 | 706.13 | 635.56 | 56.72 | 49.55 | ||||||||||||||||||
| Q1 | 689.50 | 627.00 | 55.00 | 49.85 | ||||||||||||||||||
| April 2014 | 844.50 | 806.22 | 71.23 | 67.62 | ||||||||||||||||||
| March 2014 | 839.50 | 808.00 | 69.86 | 67.02 | ||||||||||||||||||
| February 2014 | 842.50 | 777.50 | 70.07 | 63.24 | ||||||||||||||||||
| January 2014 | 809.50 | 769.00 | 66.40 | 63.19 | ||||||||||||||||||
| December 2013 | 797.50 | 742.50 | 65.39 | 60.67 | ||||||||||||||||||
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1. On 20 May 2010, we announced a 2 for 5 rights issue of 990,439,017 ordinary shares at 355 pence per share. |
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There are no unresolved staff comments required to be reported. |
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| �� | ||||||||||||||||||||||
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|
Use of adjusted profit measures In considering the financial performance of our businesses and segments, we analyse each of our primary financial measures of operating profit, profit before tax, profit for the year attributable to equity shareholders and EPS into two components.
The first of these components is referred to as an adjusted profit measure, also known as a business performance measure. This is the principal measure used by management to assess the performance of the underlying business.
Adjusted results exclude exceptional items, remeasurements and stranded cost recoveries. These items are reported collectively as the second component of the financial measures. Note 4 on page 99 explains in detail the items which are excluded from our adjusted profit measures.
Adjusted profit measures have limitations in their usefulness compared with the comparable total profit measures as they exclude important elements of our financial performance. However, we believe that by presenting our financial performance in two components it is easier to read and interpret financial performance between periods, as adjusted profit measures are more comparable having removed the distorting effect of the excluded items. Those items are more clearly understood if separately identified and analysed.
The presentation of these two components of financial performance is additional to, and not a substitute for, the comparable total profit measures presented.
Management uses adjusted profit measures as the basis for monitoring financial performance and in communicating financial performance to investors in external presentations and announcements of financial results.
Internal financial reports, budgets and forecasts are primarily prepared on the basis of adjusted profit measures, although planned exceptional items, such as significant restructuring, are also reflected in budgets and forecasts. We separately monitor and disclose the excluded items as a component of our overall financial performance.
Reconciliation of adjusted operating profit to total operating profit Adjusted operating profit is presented on the face of the income statement under the heading operating profit before exceptional items, remeasurements and stranded cost recoveries. | Reconciliation of adjusted operating profit to adjusted earnings and earnings | |||||||||||||||||
| Adjusted earnings is presented in note 7 to the consolidated financial statements on page 107. | ||||||||||||||||||
Year ended 31 March | ||||||||||||||||||
| 2013 | 2012 | |||||||||||||||||
| 2014 | (restated)1 | (restated)1 | ||||||||||||||||
| £m | £m | £m | ||||||||||||||||
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| Adjusted operating profit | 3,664 | 3,639 | 3,491 | |||||||||||||||
| Adjusted net finance costs | (1,108) | (1,124) | (1,090) | |||||||||||||||
| Share of post-tax results of joint ventures | 28 | 18 | 7 | |||||||||||||||
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| Adjusted profit before tax | 2,584 | 2,533 | 2,408 | |||||||||||||||
| Adjusted taxation | (581) | (619) | (697) | |||||||||||||||
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| Adjusted profit after tax | 2,003 | 1,914 | 1,711 | |||||||||||||||
| Attributable to non-controlling interests | 12 | (1) | (2) | |||||||||||||||
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| Adjusted earnings | 2,015 | 1,913 | 1,709 | |||||||||||||||
| Exceptional items after tax | 388 | 75 | 174 | |||||||||||||||
| Remeasurements after tax | 73 | 156 | (122) | |||||||||||||||
| Stranded cost recoveries after tax | – | 9 | 156 | |||||||||||||||
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| Earnings | 2,476 | 2,153 | 1,917 | |||||||||||||||
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1. See note 1 on page 92. | ||||||||||||||||||
Reconciliation of adjusted basic EPS to EPS | ||||||||||||||||||
| Adjusted basic EPS is presented in note 7 to the consolidated financial statements on page 107. | ||||||||||||||||||
Year ended 31 March | ||||||||||||||||||
| 2013 | 2012 | |||||||||||||||||
| 2014 | (restated)1 | (restated)1 | ||||||||||||||||
| pence | pence | pence | ||||||||||||||||
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| Adjusted EPS | 54.0 | 51.4 | 46.0 | |||||||||||||||
| Exceptional items after tax | 10.4 | 2.0 | 4.7 | |||||||||||||||
| Remeasurements after tax | 2.0 | 4.2 | (3.3) | |||||||||||||||
| Stranded cost recoveries after tax | – | 0.2 | 4.2 | |||||||||||||||
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| Earnings per share | 66.4 | 57.8 | 51.6 | |||||||||||||||
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1. See note 1 on page 92. | ||||||||||||||||||
Reconciliation of adjusted operating profit excluding timing differences and major storms to total operating profit | ||||||||||||||||||
| Adjusted operating profit excluding timing differences and major storms is discussed on page 09. | ||||||||||||||||||
| Year ended 31 March |
Year ended 31 March | |||||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||||
| 2014 | (restated)1 | (restated)1 | 2014 | (restated)1 | (restated)1 | |||||||||||||
| £m | £m | £m | £m | £m | £m | |||||||||||||
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| Adjusted operating profit | 3,664 | 3,639 | 3,491 | Adjusted operating profit | ||||||||||||||
| Exceptional items | 55 | (84) | (122) | excluding timing differences and | ||||||||||||||
| Remeasurements – commodity | major storms | 3,706 | 3,759 | 3,589 | ||||||||||||||
| contracts | 16 | 180 | (94) | Major storms | – | (136) | (116) | |||||||||||
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| Stranded cost recoveries | – | 14 | 260 | Adjusted operating profit | ||||||||||||||
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| Total operating profit | 3,735 | 3,749 | 3,535 | excluding timing differences | 3,706 | 3,623 | 3,473 | |||||||||||
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1. See note 1 on page 92. | Timing differences | (42) | 16 | 18 | ||||||||||||||
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| Adjusted operating profit | 3,664 | 3,639 | 3,491 | |||||||||||||||
| Exceptional items, remeasurements and stranded cost recoveries | 71 | 110 | 44 | |||||||||||||||
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| Total operating profit | 3,735 | 3,749 | 3,535 | |||||||||||||||
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1. See note 1 on page 92.
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| In compliance with SEC rules, we present a summarised analysis of movements in the income statement, an analysis of movements in adjusted operating profit by operating segment and a summarised analysis of movements in the statement of financial position for the year ended 31 March | ||||||||||
Analysis of the income statement for the years ended 31 March Revenue Revenue for the year ended 31 March 2014 increased by £450 million to £14,809 million. This increase was driven by higher revenues in our UK ET and UK GD businesses, principally as a result of the new RIIO regulatory arrangements. Revenue in our US Regulated businesses was also higher, reflecting higher pass-through costs such as gas and electricity commodity costs, partially offset by the end of Niagara Mohawk deferral revenue recoveries at March 2013 and the impact of the weaker dollar. Revenue for the year ended 31 March 2013 increased by £527 million to £14,359 million driven by the UK ET business, which increased by £300 million principally due to inflationary increases in allowable revenue and higher pass-through costs. The UK GD segment also delivered an additional £114 million primarily for the same reason. Finally, US Regulated revenue was £123 million higher due to the recovery of Niagara Mohawk deferral revenues and higher FERC rate bases.
Operating costs for the year ended 31 March Exceptional items, remeasurements and stranded cost recoveries included in operating costs for the year ended 31 March
Operating costs for the year ended 31 March 2013 of £10,610 million were £313 million
Exceptional items included in operating profit of £110 million in 2012/13 consisted of restructuring costs of £87 million, less a gain on sale of our EnergyNorth gas business and Granite State electricity business in New Hampshire of £3 million. There were also gains of £180 million on commodity contract remeasurements.
|
For the year ended 31 March
|
Total
Financial remeasurements relate to net gains and losses on derivative financial instruments. The year ended 31 March
The 2013/14 adjusted tax charge was £38 million lower than 2012/13 at £581 million. This was mainly due to a 1% decrease in the UK statutory corporation tax rate in the year and a change in the UK/US profit mix where higher UK profits were taxed at the lower UK tax rate. Our tax charge was also affected by changes in tax provisions in respect of prior years. For the year ended 31 March 2013, our adjusted tax charge was £78 million lower than 2011/12, mainly due to changes in tax provisions in respect of prior years and a 2% decrease in the UK statutory corporation tax rate in the year, partially offset by increased taxes on higher taxable profits.
Exceptional tax A similar reduction in the UK corporation tax rate in
Adjusted earnings and EPS As a result of the variances described above, adjusted earnings for the year ended 31 March
The above earnings performance translated into adjusted EPS growth in In accordance with IAS 33, all EPS and adjusted EPS amounts for comparative periods have been restated for shares issued via scrip dividends and the bonus element of the 2010 rights issue. | ||||||||
|
| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 187 |
Additional Information
Other unaudited financial informationcontinued
Analysis of the adjusted operating profit by segment for the year ended 31 March 2014 UK Electricity Transmission For the year ended 31 March Net regulated income after pass-through costs was UK Gas Transmission Revenue in the UK Gas Transmission segment decreased by £177 million in 2013/14 to £941 million and adjusted operating profit fell by £114 million to £417 million. Net regulated income after pass-through costs was £80 million lower, with lower permit income than prior year under the new RIIO arrangements. In addition, under-recoveries in the year of £21 million compared with over-recoveries last year of £17 million, gave rise to an adverse timing movement of £38 million. Depreciation and amortisation was £10 million higher due to investment, with £181 million invested in the year. Partially offsetting these, other operating costs were £14 million lower. UK Gas Distribution UK Gas Distribution revenue increased by £184 million in the year to £1,898 million, and adjusted operating profit increased by £110 million to £904 million. Net regulated income after pass-through costs was £96 million higher, reflecting increases in allowed revenues under the new RIIO regulatory framework. Timing differences added another £39 million, with £29 million over-recoveries in 2013/14, compared with a £10 million under-recovery in the prior year. Partially offsetting these, regulated controllable costs were £14 million higher primarily due to inflation. Depreciation and amortisation was £10 million higher reflecting the continued capital investment programme (investment in the year was £480 million). Other costs were £1 million higher than prior year. | US Regulated Revenue in our US Regulated businesses was £122 million higher at £8,040 million, and adjusted operating profit fell by £129 million to £1,125 million. The weaker dollar reduced operating profit in the year by £38 million. Excluding the impact of foreign exchange, net regulated income fell by £52 million, principally due to the end of deferral income recoveries at Niagara Mohawk in March 2013. Timing differences added another £29 million profit compared with prior year. Regulated controllable costs increased by £89 million at constant currency as a result of inflation and wage increases, higher insurance costs post Superstorm Sandy, and cost true-ups identified during the implementation of the new enterprise resource planning system. Other operating costs (excluding major storms) increased by £61 million at constant currency due to the higher cost of non-major storm remediation, higher property taxes and depreciation of the new US enterprise resource planning system. There were no major storms affecting our operations in the year ended 31 March 2014. In 2012/13, two major storms in the US, Superstorm Sandy and Storm Nemo, reduced operating profit within US Regulated by £82 million at constant currency. Our capital investment programme continued in the US, with a further £1,219 million invested in 2013/14. Other activities Revenue in Other activities increased by £58 million to £736 million in the year ended 31 March 2014. Adjusted operating profit was £120 million higher at £131 million. There was no repeat of the major storm cost of £51 million incurred in our insurance captive in the prior year due to Superstorm Sandy. Operating profit in the French interconnector was £62 million higher as a result of strong auction revenues this year. In our other non-regulated businesses, adjusted operating profit was £7 million higher due to improved results in our UK metering business and insurance captive, partially offset by higher costs associated with the stabilisation of the new US enterprise resource planning system. Capital expenditure in our Other activities was £37 million lower at £180 million, principally reflecting reduced capital spend on the new US enterprise resource planning system. |
| 188 |
Analysis of the statement of financial position for the year ended 31 March 2014 Goodwill and other intangible assets Goodwill and intangibles decreased by £354 million to £5,263 million as at 31 March 2014. This decrease was due to foreign exchange movements of £472 million and software amortisation of £127 million, partially offset by software additions of £179 million. Property, plant and equipment Property, plant and equipment increased by £587 million to £37,179 million as at 31 March 2014. This was due to capital expenditure of £3,262 million on the renewal and extension of our regulated networks, offset by foreign exchange movements of £1,244 million, and £1,299 million of depreciation in the year. Investments and other non-current assets Investments in joint ventures and associates; financial and other investments and other non-current assets decreased by £31 million to £722 million as at 31 March 2014. This was principally due to changes in the fair value of our US commodity contract assets and available-for-sale investments. Inventories and current intangible assets, and trade and other receivables Inventories and current intangible assets, and trade and other receivables decreased by £78 million to £3,123 million as at 31 March 2014. This decrease was principally due to foreign exchange movements of £195 million, partially offset by an increase in trade and other receivables of £120 million mostly due to colder weather in the US in February and March 2014 compared with 2013 resulting in increased billings for commodity costs and customer usage. Trade and other payables Trade and other payables decreased by £20 million to £3,031 million as at 31 March 2014 due to favourable foreign exchange movements of £150 million, partially offset by higher payables in the UK due in part to changes in payment terms with new Gas Distribution strategic partners and increased activity on the Western Link project. Current tax liabilities Current tax liabilities decreased by £63 million to £168 million at 31 March 2014. This was primarily due to higher tax payments made in 2013/14 although these were partially offset by a larger current tax charge. Deferred tax liabilities Deferred tax liabilities increased by £5 million to £4,082 million as at 31 March 2014. This was primarily due to the impact of the £172 million deferred tax charge on actuarial gains (a £179 million tax credit in 2012/13) being offset by the impact of the reduction in the UK statutory tax rate for future periods, foreign exchange movements and the reduction in prior year charges. Provisions and other non-current liabilities Provisions (both current and non-current) and other non-current liabilities decreased by £158 million to £3,486 million as at 31 March 2014. Total provisions decreased by £115 million to £1,645 million as at 31 March 2014. The underlying movements included additions of £230 million primarily relating to a provision for the demolition of certain gas holders in the UK of £79 million, restructuring provisions of £86 million and other provisions of £42 million, more than offset by foreign exchange movements of £112 million and utilisation of £288 million in relation to all classes of provisions. |
Other non-current liabilities decreased by £43 million principally due to foreign exchange movements of £47 million.
Net debt
Net debt is the aggregate of cash and cash equivalents, current financial and other investments, borrowings, and derivative financial assets and liabilities.
Net pension and other post-retirement obligations
A summary of the total UK and US assets and liabilities and the overall net IAS 19 (revised) accounting deficit is shown below:
| Net plan liability |
| UK £m |
|
| US £m |
| Total £m | |||
As at 1 April 2013
|
| (1,169
| )
|
| (2,328
| )
| (3,497)
| |||
Exchange movements
|
| –
|
|
| 186
|
| 186
| |||
Current service cost
|
| (96
| )
|
| (129
| )
| (225)
| |||
Net interest cost
|
| (47
| )
|
| (81
| )
| (128)
| |||
Curtailments and settlements – LIPA
|
| –
|
|
| 214
|
| 214
| |||
Curtailments and settlements – other
|
| (30
| )
|
| (12
| )
| (42)
| |||
Actuarial (losses)/gains
| ||||||||||
– on plan assets
|
| (98
| )
|
| 283
|
| 185
| |||
– on plan liabilities
|
| 452
|
|
| (152
| )
| 300
| |||
Employer contributions
|
| 235
|
|
| 361
|
| 596
| |||
As at 31 March 2014
|
| (753
| )
|
| (1,658
| )
| (2,411)
| |||
Represented by:
| ||||||||||
Plan assets
|
| 17,409
|
|
| 5,849
|
| 23,258
| |||
Plan liabilities
|
| (18,162
| )
|
| (7,507
| )
| (25,669)
| |||
|
| (753
| )
|
| (1,658
| )
| (2,411)
|
The principal movements in net obligations during the year included a curtailment gain of £214 million following the LIPA MSA transition, net actuarial gains of £485 million and employer contributions of £596 million. Net actuarial gains included actuarial gains on plan liabilities of £542 million arising as a consequence of an increase in the UK real discount rate and the nominal discount rate in the US. This was partially offset by actuarial losses of £283 million arising from increases in life expectancy in the US. Actuarial losses/gains on plan assets reflects the asset allocations in the different plans. In both the UK and US, returns on equities were above the assumed rate; however, UK Government securities had negative returns and corporate bonds were close to nil.
Off balance sheet items
There were no significant off balance sheet items other than the contractual obligations shown in note 30(b) to the consolidated financial statements, and the commitments and contingencies discussed in note 27.
Through the ordinary course of our operations, we are party to various litigation, claims and investigations. We do not expect the ultimate resolution of any of these proceedings to have a material adverse effect on our results of operations, cash flows or financial position.
| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 189 |
Summary consolidated financial information
|
| |||||||||||||||||||||
Financial summary (unaudited) The financial summary set out below has been derived from the audited consolidated financial statements of National Grid for the five financial years ended 31 March 2015. It should be read in conjunction with the consolidated financial statements and related notes, together with the Strategic Report. The information presented below for the years ended 31 March 2011, 2012, 2013, 2014 and 2015 has been prepared under IFRS issued by the IASB and as adopted by the EU1. |
| |||||||||||||||||||||
| 2015 | 2014 | 20131 | 20121 | 20111 | ||||||||||||||||||
| ||||||||||||||||||||||
Summary income statement | ||||||||||||||||||||||
Revenue | 15,201 | 14,809 | 14,359 | 13,832 | 14,343 | |||||||||||||||||
Operating profit | ||||||||||||||||||||||
Before exceptional items, remeasurements and stranded cost recoveries | 3,863 | 3,664 | 3,639 | 3,491 | 3,619 | |||||||||||||||||
Exceptional items, remeasurements and stranded cost recoveries | (83 | ) | 71 | 110 | 44 | 145 | ||||||||||||||||
| 3,780 | 3,735 | 3,749 | 3,535 | 3,764 | ||||||||||||||||||
Profit before tax | ||||||||||||||||||||||
Before exceptional items, remeasurements and stranded cost recoveries | 2,876 | 2,584 | 2,533 | 2,408 | 2,283 | |||||||||||||||||
Exceptional items, remeasurements and stranded cost recoveries | (248 | ) | 164 | 178 | (26 | ) | 151 | |||||||||||||||
| 2,628 | 2,748 | 2,711 | 2,382 | 2,434 | ||||||||||||||||||
Profit for the year | 2,011 | 2,464 | 2,154 | 1,919 | 2,043 | |||||||||||||||||
Profit for the year attributable to equity shareholders | ||||||||||||||||||||||
Before exceptional items, remeasurements and stranded cost recoveries | 2,189 | 2,015 | 1,913 | 1,709 | 1,627 | |||||||||||||||||
Exceptional items, remeasurements and stranded cost recoveries | (170 | ) | 461 | 240 | 208 | 412 | ||||||||||||||||
| 2,019 | 2,476 | 2,153 | 1,917 | 2,039 | ||||||||||||||||||
| ||||||||||||||||||||||
Earnings per share | ||||||||||||||||||||||
Basic – continuing operations (pence)2 | 53.6 | 65.7 | 57.2 | 51.1 | 56.3 | |||||||||||||||||
Diluted – continuing operations (pence)2 | 53.4 | 65.4 | 57.0 | 50.8 | 56.0 | |||||||||||||||||
Basic (pence)2 | 53.6 | 65.7 | 57.2 | 51.1 | 56.3 | |||||||||||||||||
Diluted (pence)2 | 53.4 | 65.4 | 57.0 | 50.8 | 56.0 | |||||||||||||||||
| ||||||||||||||||||||||
Number of shares – basic (millions)3 | 3,766 | 3,766 | 3,761 | 3,755 | 3,622 | |||||||||||||||||
Number of shares – diluted (millions)3 | 3,783 | 3,785 | 3,779 | 3,774 | 3,641 | |||||||||||||||||
| ||||||||||||||||||||||
Dividends per ordinary share | ||||||||||||||||||||||
Paid during the year (pence) | 42.25 | 40.85 | 39.84 | 37.40 | 37.74 | |||||||||||||||||
Approved or proposed during the year (pence) | 42.87 | 42.03 | 40.85 | 39.28 | 36.37 | |||||||||||||||||
Paid during the year ($) | 0.697 | 0.636 | 0.633 | 0.599 | 0.592 | |||||||||||||||||
Approved or proposed during the year ($) | 0.672 | 0.696 | 0.632 | 0.623 | 0.571 | |||||||||||||||||
| ||||||||||||||||||||||
| 190 |
| 2015 | 2014 | 20131 | 20121 | 20111 | ||||||||||||||||||
| ||||||||||||||||||||||
Summary statement of net assets
| ||||||||||||||||||||||
Non-current assets
| 49,058 | 44,895 | 45,129 | 41,684 | 39,787 | |||||||||||||||||
Current assets
| 6,031 | 7,489 | 9,576 | 5,387 | 6,323 | |||||||||||||||||
Assets of businesses held for sale
| – | – | – | 264 | 290 | |||||||||||||||||
Total assets
| 55,089 | 52,384 | 54,705 | 47,335 | 46,400 | |||||||||||||||||
Current liabilities
| (7,374 | ) | (7,331 | ) | (7,445) | (6,004) | (6,826) | |||||||||||||||
Non-current liabilities
| (35,741 | ) | (33,134 | ) | (37,026) | (32,001) | (30,403) | |||||||||||||||
Liabilities of businesses held for sale
| – | – | – | (87) | (110) | |||||||||||||||||
Total liabilities
| (43,115 | ) | (40,465 | ) | (44,471) | (38,092) | (37,339) | |||||||||||||||
Net assets | 11,974 | 11,919 | 10,234 | 9,243 | 9,061 | |||||||||||||||||
| ||||||||||||||||||||||
Shareholders’ equity | 11,962 | 11,911 | 10,229 | 9,236 | 9,052 | |||||||||||||||||
| ||||||||||||||||||||||
Summary cash flow statement
| ||||||||||||||||||||||
Cash generated from continuing operations | 5,350 | 4,419 | 4,037 | 4,487 | 4,854 | |||||||||||||||||
| ||||||||||||||||||||||
Tax (paid)/received | (343 | ) | (400 | ) | (287) | (259) | 4 | |||||||||||||||
| ||||||||||||||||||||||
Net cash inflow from operating activities
| 5,007 | 4,019 | 3,750 | 4,228 | 4,858 | |||||||||||||||||
Net cash flows used in investing activities
| (2,001 | ) | (1,330 | ) | (6,130) | (2,371) | (4,774) | |||||||||||||||
Net cash flows (used in)/from financing activities
| (3,253 | ) | (2,972 | ) | 2,715 | (1,900) | (430) | |||||||||||||||
Net (decrease)/increase in cash and cash equivalents | (247 | ) | (283 | ) | 335 | (43) | (346) | |||||||||||||||
| ||||||||||||||||||||||
| ||||||||||||||
|
|
3. Number of shares previously reported for 2011 to 2014 have been restated to reflect the impact of the |
|
|
|
|
|
Analysis of the statement of financial position for the year ended 31 March 2013 Goodwill and other intangible assets Goodwill and intangibles increased by £295 million to £5,617 million as at 31 March 2013. This increase primarily related to foreign exchange movements of £266 million and software additions of £175 million offset by amortisation of £101 million.
Property, plant and equipment Property, plant and equipment increased by £2,891 million to £36,592 million as at 31 March 2013. This was principally due to capital expenditure of £3,511 million on the extension of our regulated networks and foreign exchange movements of | Other non-current liabilities decreased by £37 million to £1,884 million, reflecting changes in the fair value of US commodity contract liabilities.
Net debt Net debt is the aggregate of cash and cash equivalents, current financial and other investments, borrowings, and derivative financial assets and liability. At 31 March 2013, net debt had increased by £1,832 million to £21,429 million as a result of debt issuances in the year, including the hybrid bonds of £2.1 billion.
Net pension and other post-retirement obligations A summary of the total UK and US assets and liabilities and the overall net IAS 19 accounting deficit (as restated for IAS 19 (revised)) is shown below: | |||||||||
£680 million, offset by £1,281 million of depreciation in the year.
Capital expenditure increased in each of the three regulated businesses including record amounts in our UK Transmission and US Regulated businesses.
Investments and other non-current assets Investments in joint ventures and associates, financial and other investments and other non-current assets increased by £66 million to £753 million. This was principally due to changes in the fair value of our US commodity contract assets and available-for-sale investments, and an equity investment in Clean Line Energy Partners LLC of $12.5 million by 31 March 2013.
Inventories and current intangible assets, and trade and other receivables | Net plan liability | UK £m | US £m | Total £m | ||||||
| ||||||||||
As at 1 April 2012 (as restated) | (668) | (2,270) | (2,938) | |||||||
Exchange movements | – | (112) | (112) | |||||||
Current service cost | (90) | (130) | (220) | |||||||
Net interest cost | (31) | (104) | (135) | |||||||
Curtailments and settlements | (21) | (44) | (65) | |||||||
Actuarial gains/(losses) | ||||||||||
– on plan assets | 1,131 | 261 | 1,392 | |||||||
– on plan liabilities | (1,691) | (415) | (2,106) | |||||||
Employer contributions | 201 | 486 | 687 | |||||||
| ||||||||||
As at 31 March 2013 | (1,169) | (2,328) | (3,497) | |||||||
| ||||||||||
Represented by: | ||||||||||
Plan assets | – | 195 | 195 | |||||||
Plan liabilities | (1,169) | (2,523) | (3,692) | |||||||
| ||||||||||
Net plan liability | (1,169) | (2,328) | (3,497) | |||||||
| ||||||||||
Inventories and current intangible assets, and trade and other receivables increased by £854 million to £3,201 million at 31 March 2013. Driven by the US, this primarily reflected the timing of cost recoveries from LIPA relating to Superstorm Sandy and an increase in trade receivables due to colder weather in February and March 2013 compared with 2012, which also led to an offsetting decrease in inventories which were £85 million lower.
Trade and other payables Trade and other payables increased by £366 million to £3,051 million due to increased payables and accruals relating to Superstorm Sandy and Storm Nemo.
Current tax liabilities Current tax liabilities of £231 million at 31 March 2013 were £152 million lower primarily due to higher tax payments made in 2012/13 and larger prior year tax credits arising in 2012/13, although these were partially offset by a larger current year tax charge.
Deferred tax liabilities The net deferred tax liability increased by £341 million to £4,077 million. The main reasons for this movement were the £441 million deferred tax charge, including the impact of the reduction in the statutory tax rate for future periods of £128 million, partially offset by the deferred tax credit on actuarial losses on pensions and other post-retirement benefits.
Provisions and other non-current liabilities Provisions (both current and non-current) increased by £29 million to £1,760 million as at 31 March 2013. The underlying movements included additions of £92 million and £83 million to the environmental and other provisions respectively, as well as foreign exchange movements of £65 million. The other provisions additions included £33 million of increased liabilities insured by our insurance subsidiaries. These were offset by payments of £231 million in relation to all classes of provisions.
|
The principal movements in net obligations during the year arose as a consequence of a decrease in the discount rate following declines in corporate bond yields. Actuarial gains on plan assets reflected improvements in financial markets.
Commitments and contingencies Capital expenditure contracted but not provided for increased by £283 million to £3,011 million a result of the continued ramp up in our capital investment programme.
Off balance sheet items There were no significant off balance sheet items other than the contractual obligations shown in note 30 (b) on page 139. | |||||||||
| ||||||||||||
|
Financial summary (unaudited) The financial summary set out below has been derived from the audited consolidated financial statements of National Grid for the five financial years ended 31 March 2014. It should be read in conjunction with the consolidated financial statements and related notes, together with the Strategic Review. The information presented below for the years ended 31 March 2010, 2011, 2012, 2013 and 2014 has been prepared under IFRS issued by the IASB and as adopted by the EU1.
| ||||||||||||||||||||
|
| 31 March 2014 £m |
|
| 31 March 2013 (restated £m | )1
|
| 31 March 2012 (restated £m | )1
|
| 31 March 2011 (restated £m | )1
| 31 March 2010 (restated)1 £m | ||||||||
| ||||||||||||||||||||
Summary income statement | ||||||||||||||||||||
Revenue2 | 14,809 | 14,359 | 13,832 | 14,343 | 14,007 | |||||||||||||||
Operating profit | ||||||||||||||||||||
Before exceptional items, remeasurements and stranded cost recoveries | 3,664 | 3,639 | 3,491 | 3,619 | 3,134 | |||||||||||||||
Exceptional items, remeasurements and stranded cost recoveries | 71 | 110 | 44 | 145 | 172 | |||||||||||||||
| 3,735 | 3,749 | 3,535 | 3,764 | 3,306 | ||||||||||||||||
Profit before tax | ||||||||||||||||||||
Before exceptional items, remeasurements and stranded cost recoveries | 2,584 | 2,533 | 2,408 | 2,283 | 1,999 | |||||||||||||||
Exceptional items, remeasurements and stranded cost recoveries | 164 | 178 | (26 | ) | 151 | 219 | ||||||||||||||
| 2,748 | 2,711 | 2,382 | 2,434 | 2,218 | ||||||||||||||||
Profit for the year | 2,464 | 2,154 | 1,919 | 2,043 | 1,418 | |||||||||||||||
Profit for the year attributable to equity shareholders | ||||||||||||||||||||
Before exceptional items, remeasurements and stranded cost recoveries | 2,015 | 1,913 | 1,709 | 1,627 | 1,447 | |||||||||||||||
Exceptional items, remeasurements and stranded cost recoveries | 461 | 240 | 208 | 412 | (32) | |||||||||||||||
| 2,476 | 2,153 | 1,917 | 2,039 | 1,415 | ||||||||||||||||
| ||||||||||||||||||||
Earnings per share | ||||||||||||||||||||
Basic – continuing operations (pence)3 | 66.4 | 57.8 | 51.6 | 56.9 | 46.1 | |||||||||||||||
Diluted – continuing operations (pence)3 | 66.1 | 57.5 | 51.3 | 56.6 | 45.9 | |||||||||||||||
Basic (pence)3 | 66.4 | 57.8 | 51.6 | 56.9 | 46.1 | |||||||||||||||
Diluted (pence)3 | 66.1 | 57.5 | 51.3 | 56.6 | 45.9 | |||||||||||||||
| ||||||||||||||||||||
Number of shares – basic (millions)4 | 3,729 | 3,724 | 3,719 | 3,585 | 3,071 | |||||||||||||||
Number of shares – diluted (millions)4 | 3,748 | 3,742 | 3,738 | 3,604 | 3,084 | |||||||||||||||
| ||||||||||||||||||||
Dividends per ordinary share | ||||||||||||||||||||
Paid during the year (pence) | 40.85 | 39.84 | 37.40 | 37.74 | 36.65 | |||||||||||||||
Approved or proposed during the year (pence) | 42.03 | 40.85 | 39.28 | 36.37 | 38.49 | |||||||||||||||
Paid during the year ($) | 0.636 | 0.633 | 0.599 | 0.592 | 0.579 | |||||||||||||||
Approved or proposed during the year ($) | 0.696 | 0.632 | 0.623 | 0.571 | 0.608 | |||||||||||||||
| ||||||||||||||||||||
|
|
|
|
|
31 March £m | 31 March 2013 (restated)1 £m | 31 March 2012 (restated)1 £m | 31 March 2011 (restated)1 £m | 31 March 2010 (restated)1 £m | ||||||||||||||||||
| ||||||||||||||||||||||
Summary statement of net assets | ||||||||||||||||||||||
Non-current assets | 44,895 | 45,129 | 41,684 | 39,787 | 38,488 | |||||||||||||||||
Current assets | 7,489 | 9,576 | 5,387 | 6,323 | 5,065 | |||||||||||||||||
Assets of businesses held for sale | – | – | 264 | 290 | – | |||||||||||||||||
Total assets | 52,384 | 54,705 | 47,335 | 46,400 | 43,553 | |||||||||||||||||
Current liabilities | (7,331 | ) | (7,445) | (6,004) | (6,826) | (6,559) | ||||||||||||||||
Non-current liabilities | (33,134 | ) | (37,026) | (32,001) | (30,403) | (32,800) | ||||||||||||||||
Liabilities of businesses held for sale | – | – | (87) | (110) | – | |||||||||||||||||
Total liabilities | (40,465 | ) | (44,471) | (38,092) | (37,339) | (39,359) | ||||||||||||||||
Net assets | 11,919 | 10,234 | 9,243 | 9,061 | 4,194 | |||||||||||||||||
| ||||||||||||||||||||||
Shareholders’ equity | 11,911 | 10,229 | 9,236 | 9,052 | 4,182 | |||||||||||||||||
| ||||||||||||||||||||||
Summary cash flow statement | ||||||||||||||||||||||
Cash generated from continuing operations | 4,419 | 4,037 | 4,487 | 4,854 | 4,372 | |||||||||||||||||
| ||||||||||||||||||||||
Tax (paid)/received | (400 | ) | (287) | (259) | 4 | 144 | ||||||||||||||||
| ||||||||||||||||||||||
Net cash inflow from operating activities | 4,019 | 3,750 | 4,228 | 4,858 | 4,516 | |||||||||||||||||
Net cash flows used in investing activities | (1,330 | ) | (6,130) | (2,371) | (4,774) | (2,332) | ||||||||||||||||
Net cash flows from/(used in) financing activities | (2,972 | ) | 2,715 | (1,900) | (430) | (2,212) | ||||||||||||||||
Net increase/(decrease) in cash and cash equivalents | (283 | ) | 335 | (43) | (346) | (28) | ||||||||||||||||
| ||||||||||||||||||||||
1. For the year ended 31 March 2014, the adoption of IAS 19 (revised) ‘Employee benefits’ has resulted in a significant change in how we account for pensions and employee benefits. The numbers included in the selected financial data above for the years 31 March 2010, 2011, 2012 and 2013 have been restated to show the impact of IAS 19 (revised) had it been adopted since 2010. There have been no other significant changes in accounting standards, interpretations or policies that have a material financial impact on the selected financial data.
2. Items previously reported for 2010 separately as other operating income have been included within revenue.
3. Items previously reported for 2010 – 2013 have been restated to reflect the impact of the bonus element of the rights issue and the additional shares issued as scrip dividends.
4. Number of shares previously reported for 2010 – 2013 have been restated to reflect the impact of the additional shares issued as scrip dividends.
|
| |||||||||||||||||||||
|
| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 |
|
Definitions and glossary of terms
|
Our aim is to use plain English in this Annual Report and Accounts. However, where necessary, we do use a number of technical terms and/or abbreviations and we summarise the principal ones below, together with an explanation of their meanings. The descriptions below are not formal legal definitions.
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A American Depositary Shares (ADSs) Securities of National Grid listed on the New York Stock Exchange, each of which represents five ordinary shares. They are evidenced by American Depositary Receipts or ADRs.
Annual General Meeting (AGM) Meeting of shareholders of the Company held each year to consider ordinary and special business as provided in the Notice of AGM.
B Board The Board of Directors of the Company (for more information see pages 43 and
bps Basis point (bps) is a unit that is equal to 1/100th of 1% and is typically used to denote the movement in a percentage based metric such as interest rates or RoE. A 0.1% change in a percentage represents 10 basis points.
BritNed BritNed Development Limited.
C called up share capital Shares (common stock) that have been issued and have been fully paid for.
carrying value The amount at which an asset or a liability is recorded in the Group’s statement of financial position and the Company’s balance sheet.
circuit See route length.
the Company, the Group, National Grid, we, our or us We use the terms ‘the Company’, ‘the Group’, ‘National Grid’, ‘we’, ‘our’ or ‘us’ to refer to either National Grid plc itself or to National Grid plc and/or all or certain of its subsidiaries, depending on context.
consolidated financial statements Financial statements that include the results and financial position of the Company and its subsidiaries together as if they were a single entity.
contingent liabilities Possible obligations or potential liabilities arising from past events for which no provision has been recorded, but for which disclosure in the financial statements is made.
| D Dth Decatherm, being an amount of energy equal to 1 million British thermal units (BTUs), equivalent to approximately 293 kWh.
DB Defined benefit, relating to our UK or US (as the context requires) final salary pension schemes.
DC Defined contribution, relating to our UK or US (as the context requires) pension schemes to which National Grid, as an employer, pays contributions based on a percentage of employees’ salaries. | DECC The Department of Energy & Climate Change, the UK Government ministry responsible for energy and climate change.
deferred tax For most assets and liabilities, deferred tax is the amount of tax that will be payable or receivable in respect of that asset or liability in future tax returns as a result of a difference between the carrying value for accounting purposes in the statement of financial position or balance sheet and the value for tax purposes of the same asset or liability.
delivery body Under the Energy Act 2013, and
derivative A financial instrument or other contract where the value is linked to an underlying index, such as exchange rates, interest rates or commodity prices. In most cases, contracts for the sale or purchase of commodities that are used to supply customers or for our own needs are excluded from this definition.
Deposit Agreement Deposit Agreement means the agreement entered into between National Grid Transco plc (now National Grid plc), the Depositary and the registered holders of ADRs, pursuant to which ADSs have been issued, dated as of 21 November 1995 and amended and restated as of 1 August 2005, and any related agreement. Depositary Depositary means the Bank of New York Mellon acting as depositary. Directors/Executive Directors/Non-executive Directors The Directors/Executive Directors and Non-executive Directors of the Company whose names are set out on page 43 of this document.
dollars or $ Except as otherwise noted all references to dollars or $ in this Annual Report and Accounts relate to the US currency.
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E earnings per share (EPS) Profit for the year attributable to equity shareholders of the parent allocated to each ordinary share.
Electricity Market Reform (EMR) An energy policy initiative, introduced by the Energy Act 2013, designed to provide greater financial certainty to investors in both low carbon and conventional generation in order to meet environmental targets and maintain security of supply, and to do so at the lowest cost to consumers. |
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employee engagement A key performance indicator, based on the percentage of favourable responses to certain indicator questions repeated in each employee survey, which provides a measure of how employees think, feel and act in relation to National Grid. Research shows that a highly engaged workforce leads to increased productivity and employee retention, therefore we use employee engagement as a measure of organisational health in relation to business performance.
Estate Tax Convention The Estate Tax Convention is the convention between the US and the UK for the avoidance of double taxation with respect to estate and gift taxes.
EU The European Union, being the economic and political union of
Exchange Act The US Securities Exchange Act 1934, as amended.
F FERC The US Federal Energy Regulatory Commission.
finance lease A lease where the asset is treated as if it was owned for the period of the lease and the obligation to pay future rentals is treated as if they were borrowings. Also known as a capital lease.
financial year For National Grid this is an accounting year ending on 31 March. Also known as a fiscal year.
FRS A UK Financial Reporting Standard as issued by the UK Financial Reporting Council (FRC). These apply to the Company’s individual financial statements on pages
G Grain LNG National Grid Grain LNG Limited.
Great Britain England, Wales and Scotland.
Group return on equity (Group RoE) The Group return on equity calculation provides a measure of the performance of the whole Group compared with the amounts invested by the Group in assets attributable to equity shareholders. The Group return on equity measure is calculated using the Group capital employed in accordance with the definition used in the RoCE measures, adjusted for Group net debt and goodwill. GW Gigawatt, being an amount of power equal to 1 billion watts (109 watts). | H HMRC HM Revenue & Customs. The UK tax authority.
HVDC High voltage, direct current electric power transmission which uses direct current for the bulk transmission of electrical power, in contrast with the more common alternating current systems.
I IAS or IFRS An International Accounting Standard or International Financial Reporting Standard, as issued by the International Accounting Standards Board (IASB). IFRS is also used as the term to describe international generally accepted accounting principles as a whole.
individual financial statements Financial statements of a company on its own, not including its subsidiaries or joint ventures.
J joint venture A company or other entity which is controlled jointly with other parties.
K kV Kilovolt, being an amount of electric force equal to 1,000 volts.
L LIPA The Long Island Power Authority.
LNG Liquefied natural gas, being natural gas that has been condensed into a liquid form, typically at temperatures at or below -161°C (-258°F).
lost time injury (LTI) An incident arising out of National Grid’s operations which leads to an injury where the employee or contractor normally has time off the following day or shift following the incident. It relates to one specific (acute) identifiable incident which arises as a result of National Grid’s premises, plant or activities, which was reported to the supervisor at the time and was subject to appropriate investigation.
lost time injury frequency rate (IFR) The number of lost time injuries per 100,000 hours worked in a 12 month period.
M MADPU The Massachusetts Department of Public Utilities.
MSA The managed services agreement, under which the Company maintained and operated the electricity transmission and distribution system on Long Island owned by LIPA, which was transitioned to a third party with effect from 31 December 2013.
MW Megawatt, being an amount of power equal to 1 million watts.
MWh Megawatt hours, being an amount of energy equivalent to delivering 1 million watts of power for a period of one hour. |
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Additional Information
Definitions and glossary of termscontinued
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N National Grid Metering (NGM) National Grid Metering Limited, National Grid’s UK regulated metering business.
New England The term refers to a region within the northeastern US that includes the states of Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont. National Grid’s New England operations are primarily in the states of Massachusetts and Rhode Island.
northeastern US The northeastern region of the US, comprising the states of Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island and Vermont.
NYPSC The New York Public Service Commission.
O Ofgem The UK Office of Gas and Electricity Markets, part of the UK Gas and Electricity Markets Authority (GEMA), which regulates the energy markets in the UK.
ordinary shares Voting shares entitling the holder to part ownership of a company. Also known as common stock. National Grid’s ordinary shares have a nominal value of 11 17⁄43 pence.
P price control The mechanism by which Ofgem sets restrictions on the amounts of revenue we are allowed to collect from customers in our UK businesses. The allowed revenues are intended to cover efficiently incurred operational expenditure, capital expenditure and financing costs, including a return on equity invested.
PSA The 15 year power supply agreement with LIPA which came into effect on 28 May 2013, under which the Company supplies electricity to communities and businesses across Long Island.
R rate base The base investment on which the utility is authorised to earn a cash return. It includes the original cost of facilities, minus depreciation, an allowance for working capital and other accounts.
rate plan The term given to the mechanism by which a US utility regulator sets terms and conditions for utility service including, in particular, tariffs and rate schedules. The term can mean a multi-year plan that is approved for a specified period, or an order approving tariffs and rate schedules that remain in effect until changed as a result of future regulatory proceedings. Such proceedings can be commenced through a filing by the utility or on the regulator’s own initiative.
regulated controllable operating costs Total operating costs under IFRS less depreciation and certain regulatory costs where, under our regulatory agreements, mechanisms are in place to recover such costs in current or future periods.
| regulatory asset value (RAV) The value ascribed by Ofgem to the capital employed in the relevant licensed business. It is an estimate of the initial market value of the regulated asset base at privatisation, plus subsequent allowed additions at historical cost, less the deduction of annual regulatory depreciation. Deductions are also made to reflect the value realised from the disposal of certain assets that formed part of the regulatory asset base. It is also indexed to the RPI to allow for the effects of inflation.
return on capital employed (RoCE) The return on capital employed metric is designed to give an alternative comparison between the UK and US businesses showing the overall return on capital provided by both debt and equity. The calculation reflects regulatory treatments of costs.
return on equity (RoE) A performance metric measuring returns from the investment of shareholders’ funds. It is a financial ratio of a measure of earnings divided by an equity base.
revenue decoupling Revenue decoupling is the term given to the elimination of the dependency of a utility’s revenue on the volume of gas or electricity transported. The purpose of decoupling is to eliminate the disincentive a utility otherwise has to encourage energy efficiency programmes.
RIIO The revised regulatory framework issued by Ofgem which was implemented in the eight year price controls which started on 1 April 2013.
RIPUC The Rhode Island Public Utilities Commission.
route length The route length of an electricity transmission line is the geographical distance from the start tower to the end tower. In most cases in the UK, and in many cases in the US, the transmission line consists of a double circuit for additional reliability. In such cases, the circuit length is twice the route length. |
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RPI The UK retail price index as published by the Office for National Statistics.
S Scope 1 greenhouse gas emissions Scope 1 emissions are direct greenhouse gas emissions that occur from sources that are owned or controlled by the Company, for example, emissions from combustion in owned or controlled boilers, furnaces, vehicles, etc.
Scope 2 greenhouse gas emissions Scope 2 emissions are greenhouse gas emissions from the generation of purchased electricity consumed by the Company. Purchased electricity is defined as electricity that is purchased or otherwise brought into the organisational boundary of the Company. Scope 2 emissions physically occur at the facility where electricity is generated. |
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SEC The US Securities and Exchange Commission, the financial regulator for companies with registered securities in the US, including National Grid and certain of its subsidiaries.
share premium The difference between the amount shares are issued for and the nominal value of those shares.
standard cubic metre A quantity of gas which at 15°C and atmospheric pressure (1.013 bar) occupies the volume of 1m3.
stranded cost recoveries The recovery of historical generation-related costs in the US, related to generation assets that are no longer owned by us.
STEM Science, technology, engineering and mathematics; the Company is currently looking to recruit people with skills in these subjects.
subsidiary A company or other entity that is controlled by National Grid.
swaption A swaption gives the buyer, in exchange for an option premium, the right, but not the obligation, to enter into an interest rate swap at some specified date in the future. The terms of the swap are specified on the trade date of the swaption.
T taxes borne Those taxes that represent a cost to the Company and which are reflected in our results.
taxes collected Those taxes that are generated by our operations but which do not affect our results; we generate the commercial activity giving rise to these taxes and then collect and administer them on behalf of HMRC.
| Tax Convention Tax Convention means the income tax convention between the US and the UK. tonne A unit of mass equal to 1,000 kilogrammes, equivalent to approximately 2,205 pounds.
tonnes carbon dioxide equivalent (CO2e) A measure of greenhouse gas emissions in terms of the equivalent amount of carbon dioxide.
treasury shares Shares that have been repurchased but not cancelled. These shares can then be allotted to meet obligations under the Company’s employee share schemes.
TWh Terawatt hours, being an amount of energy equivalent to delivering 1 billion watts of power for a period of 1,000 hours.
| U UK The United Kingdom, comprising England, Wales, Scotland and Northern Ireland.
UK Corporate Governance Code 2012 (the Code) Guidance, issued by the Financial Reporting Council in September 2012, on how companies should be governed, applicable to UK listed companies, including National UK Corporate Governance Code 2014 (the New Code) Updated guidance, issued by the Financial Reporting Council in September 2014, on how companies should be governed, applicable to UK listed companies, including National Grid, in respect of reporting periods beginning on or after 1 October 2014.
UK GAAP Generally accepted accounting principles in the UK. These differ from IFRS and from US GAAP. UK regulated return on equity (UK RoE) UK regulated return on equity is a measure of how a business is performing operationally against the assumptions used by Ofgem. These returns are calculated using the assumption that the businesses are financed in line with the regulatory adjudicated capital structure, at the assumed cost of debt and that UK taxation paid is at the level assumed by Ofgem.
US The United States of America, its territories and possessions, any state of the United States and the District of Columbia.
US GAAP Generally accepted accounting principles in the US. These differ from IFRS and from UK GAAP. US regulated return on equity (US RoE) US regulated return on equity is a measure of how a business is performing operationally against the assumptions used by the relevant regulator. This US operational return measure is calculated using the assumption that the businesses are financed in line with the regulatory adjudicated capital structure. This is a post-tax US GAAP metric as calculated annually (on a calendar year to 31 December).
US state regulators (state utility commissions) In the US, public utilities’ retail transactions are regulated by state utility commissions, including the New York Public Service Commission (NYPSC), the Massachusetts Department of Public Utilities (MADPU) and the Rhode Island Public Utilities Commission (RIPUC).
V value added Value added is a measure to capture the value created through investment attributable to equity holders, being the change in total regulated and non-regulated assets including goodwill (both at constant currency) plus the cash dividend paid in the year less the growth in net debt (at constant currency). This is then presented on an absolute and a per share basis.
value growth Value growth is the growth in the value of our regulated and non-regulated assets including goodwill plus dividend less net debt, on a per share basis. |
| NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 | 195 |
Want more information or help?
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Capita Asset Services For queries aboutordinary shares: | The Bank of New York Mellon For queries aboutAmerican
| Further information about National Grid including share price and interactive tools can be found on our website: www.nationalgrid.com | ||||||||||||||
| 0371 402 3344 Calls are charged at the standard geographic rate and will vary by provider. Calls outside the UK will be charged at the applicable international rate. Lines are open 8.30am to 5.30pm, Monday to Friday, excluding public holidays. If calling from outside the UK: +44 (0)371 402 3344 Visit the National Grid share portal www.nationalgridshareholders.com Email: nationalgrid@capita.co.uk National Grid Share Register Capita Asset Services The Registry 34 Beckenham Road Beckenham, Kent BR3 4TU |
| 1-800-466-7215 If calling from outside the US: +1-201-680-6825 www.mybnymdr.com Email: shrrelations@ cpushareownerservices.com The Bank of New York Mellon Depositary Receipts PO Box 30170 College Station, Texas 77842-3170 | Have you received unsolicited investment advice? Shareholders are advised to be wary of any unsolicited advice or offers, whether over the telephone, through the post or by email. If you receive any such unsolicited communication please check the company or person contacting you is properly authorised by the Financial Conduct Authority (FCA) before getting involved. You can check at www.fca.org.uk/ consumers/protect-yourself and can report calls from unauthorised firms to the FCA by calling 0800 111 6768. | ||||||||||||
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Financial calendar The following dates have been announced or are indicative:
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| 4 June 2015 |
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| 5 June 2015 | Record date for 2014/15 final dividend | ||||||||||||||
| 11 June 2015 | Scrip reference price announced | ||||||||||||||
| 22 June 2015 | Scrip election date | ||||||||||||||
| 21 July 2015 | 2015 AGM | ||||||||||||||
| 2014/15 final dividend paid to qualifying | |||||||||||||||
| 5 August 2015 | shareholders | ||||||||||||||
| 10 November 2015 | 2015/16 half year results | ||||||||||||||
| 26 November 2015 | Ordinary shares | ||||||||||||||
| 27 November 2015 | Record date for 2015/16 interim dividend | ||||||||||||||
| 2015/16 interim dividend paid to | |||||||||||||||
| 13 January 2016 | shareholders | ||||||||||||||
| May 2016 | 2015/16 preliminary results | ||||||||||||||
Dividends
The Directors are recommending a final dividend of 28.16 pence per ordinary share ($2.1866 per ADS) to be paid on 5 August 2015 to shareholders on the register as at 5 June 2015. Further details in respect of dividend payments can be found on page 23. If you live outside the UK, you may be able to request that your dividend payments be converted into your local currency.
Under the Deposit Agreement, a fee of up to $0.05 per ADS can be charged for any cash distribution made to ADS holders, including cash dividends. ADS holders who receive cash in relation to the 2014/15 final dividend will be charged a fee of $0.02 per ADS by the Depositary prior to the distribution of the cash dividend.
Have your dividends paid directly into your bank or building society account:
| ● | Your dividend reaches your account on the payment day |
| ● | It is more secure – cheques do sometimes get lost in the post |
| ● | No more trips to the bank |
Elect to receive your dividends as additional shares: ● Join our scrip dividend scheme ● No stamp duty or commission to pay
Electronic communications To receive an email notifying you as soon as new shareholder information is available to view online, including your electronic tax voucher, sign up for electronic communications. Simply go to the National Grid share portalwww.nationalgridshareholders.com and once you have registered, click on the ‘manage your account’ link and follow the on screen instructions to change your communication preference.
Manage your shareholding online via the National Grid share portal:
vote
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Share dealing Capita Share Dealing Services offer our European Economic Area resident shareholders a range of quick and easy share dealing services by post, online or telephone from 10p per share (plus stamp duty as applicable). Dealing at live prices is available online or by telephone, different fees apply.
Visit
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ShareGift: If you only have a small number of shares which would cost more for you to sell than they are worth, you may wish to consider donating them to the charity.
ShareGift is a registered charity (no. 1052686) which specialises in accepting such shares as donations. For more information visitwww.sharegift.org.uk or contact Capita Asset Services.
Individual Savings Accounts (ISAs): Corporate ISAs for National Grid shares are available from Stocktrade. For more information, call Stocktrade on 0131 240 0443, email isa@stocktrade.co.uk or write to Stocktrade, 6th floor, Atria One, 144 Morrison Street, Edinburgh EH3 8BR.
Cautionary statement This document comprises the Annual Report and Accounts for the year ending 31 March
This document contains certain statements that are neither reported financial results nor other historical information. These statements are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include information with respect to our financial condition, our results of operations and businesses, strategy, plans and objectives. Words such as ‘anticipates’, ‘expects’, ‘should’, ‘intends’, ‘plans’, ‘believes’, ‘outlook’, ‘seeks’, ‘estimates’, ‘targets’, ‘may’, ‘will’, ‘continue’, ‘project’ and similar expressions, as well as statements in the future tense, identify forward-looking statements. These forward-looking statements are not guarantees of our future performance and are subject to assumptions, risks and uncertainties that could cause actual future results to differ materially from those expressed in or implied by such forward-looking statements. Many of these assumptions, risks and uncertainties relate to factors that are beyond our ability to control or estimate precisely, such as changes in laws or regulations, announcements from and decisions by governmental bodies or regulators (including the timeliness of consents for construction projects); the timing of construction and delivery by third parties of new generation projects requiring connection; breaches of, or changes in, environmental, climate change and health and safety laws or regulations, including breaches or other incidents arising | from the potentially harmful nature of our activities; network failure or interruption, the inability to carry out critical non network | operations and damage to infrastructure, due to adverse weather conditions including the impact of major storms as well as the results of climate change, due to counterparties being unable to deliver physical commodities, or due to the failure of or unauthorised access to or deliberate breaches of our IT systems and supporting technology; performance against regulatory targets and standards and against our peers with the aim of delivering stakeholder expectations regarding costs and efficiency savings, including those related to investment programmes and internal transformation
For further details regarding these and other assumptions, risks and uncertainties that may affect National Grid, please read the Strategic Report and the Risk factors on pages
The contents of any website references in this document do not form part of this document.
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Further Information
Exchange Rates
The following table sets forth the history of the exchange rates of one pound sterling to US dollars for the periods indicated and as at the latest practicable date, 3 June 2014.2015.
| High | Low | High | Low | |||||
June 2014* | 1.6757 | 1.6738 | ||||||
June 2015* | 1.5331 | 1.5207 | ||||||
May 2014 | 1.6992 | 1.6706 | 1.5789 | 1.5177 | ||||
| * | For the period to 3 June |
Share ownership
At 3 June 2014,2015, the latest practicable date, none of the directors had an individual beneficial interest amounting to greater than 1% of the Company’s shares.
Material interests in shares
The following summarizes the significant changes in the percentage ownership held by our major shareholders during the past three years:
Capital Group Companies, Inc. held 5.04%10.02% of our outstanding share capital as at 912 June 2011.2012 Their shareholding increased to 10. 91%10.91% of our outstanding share capital as at 31 March 2013 and that such holdings increased as at 5 April 2013 to 11.02 %.% and then as at 31 March 2014 to 11.103%. As noted on page 174180 of the 2013/20142014/2015 Annual Report and Accounts, we have been notified that Capital Group Companies, Inc. held 11.103%4.981% of our outstanding share capital as at 31 March 20142015 and such holdings decreased as at 20 April 2015 to 3.881% which percentage remains unchanged as at 3 June 2014.2015.
Since 31 March 2014,2015, we have not been notified of any other subsequent significant change in the percentage of shares held by the shareholders, listed on page 174180 of the 2013/20142014/2015 Annual Report and Accounts.Accounts
Material interest in American Depositary Shares
As at 3 June 2015, we had 15,499 registered holders of our American Depositary Shares (ADSs) representing ownership of 9.7% of our issued and outstanding share capital, excluding ordinary shares held in treasury. As at 3 June 2015, based on information available to us, we believe that approximately 9.7% of our issued and outstanding share capital (whether in the form of shares or ADSs), excluding shares held in treasury, was held beneficially in the United States.
Price history
The following table sets forth the highest and lowest intraday market prices for our ordinary shares and ADSs for the periods indicated.
| Ordinary Share (Pence) | ADS ($) | |||||||
| High | Low | High | Low | |||||
June 2014* | 897.92 | 874.50 | 75.09 | 73.15 | ||||
May 2014 | 895.50 | 835.86 | 74.86 | 70.42 | ||||
| Ordinary Share (Pence) | ADS ($) | |||||||
| High | Low | High | Low | |||||
June 2015* | 937.90 | 905.20 | 71.54 | 67.81 | ||||
May 2015 | 940.90 | 851.50 | 72.14 | 65.74 | ||||
| * | For the period to 3 June |
Subsequent Events
NONE APPLICABLE
Exhibits
Pursuant to the rules and regulations of the SEC, National Grid has filed certain agreements as exhibits to this Annual Report on Form 20-F. These agreements may contain representations and warranties by the parties to them. These representations and warranties have been made solely for the benefit of the other party or parties to such agreement and (i) may be intended not as statements of fact, but rather as a way of allocating the risk to one of the parties to such agreements if those statements turn out to be inaccurate, (ii) may have been qualified by disclosures that were made to such other party or parties and that either have been reflected in the company’s filings or are not required to be disclosed in those filings, (iii) may apply materiality standards different from what may be viewed as material to investors and (iv) were made only as of the date of such agreements or such other date or dates as may be specified in such agreements.
In accordance with the instructions to Item 2(b)(i) of the Instructions to Exhibits to the Form 20-F, National Grid agrees to furnish to the SEC, upon request, a copy of any instrument relating to long-term debt that does not exceed 10 percent of the total assets of National Grid and its subsidiaries on a consolidated basis.
Description | ||||||||
1.1 | Articles of Association of National Grid plc adopted by Special Resolution passed on 30 July 2012. | Incorporated by reference | ||||||
2(a) | Amended and restated Deposit Agreement dated as of 23 May 2013 among National Grid plc and The Bank of New York Mellon, as Depository, and all Owners and Holders from time to time of American Depositary Shares issued thereunder. (Exhibit 1 to National Grid plc Form F-6 dated 15 May 2013 File No. 333-178045) | Incorporated by reference | ||||||
2(b).1 | Amended and Restated Trust Deed dated 26 July 2010 among National Grid plc, National Grid Electricity Transmission plc and the Law Debenture Trust Corporation p.l.c. relating to a €15,000,000,000 Euro Medium Term Note Programme. (Exhibit 2(b).1 to National Grid plc Form 20-F dated 13 June 2011 File No. 1-14958) | Incorporated by reference | ||||||
2(b).2 | Amended and Restated Trust Deed dated 18 February 2011 among National Grid Gas plc, National Grid Gas Finance (no 1) plc and the Law Debenture Trust Corporation | Incorporated by reference | ||||||
2(b).3 | Amended and Restated Trust Deed dated 22 February 2012 among National Grid Gas plc, National Grid Gas Finance (No 1) plc and the Law Debenture Trust Corporation p.l.c. relating to a €10,000,000,000 Euro Medium Term Note Programme. (Exhibit 2(b).3 to National Grid plc Form 20-F dated 12 June 2012 File No. 1-14958) | Incorporated by reference | ||||||
2(b).4 | Amended and Restated Trust Deed dated 2 August 2011 among National Grid plc, National Grid Electricity Transmission plc and the Law Debenture Trust Corporation p.l.c. relating to a €15,000,000,000 Euro Medium Term Note Programme. (Exhibit 2(b).5 to National Grid plc Form 20-F dated 12 June 2012 File No. 1-14958) | Incorporated by reference | ||||||
2(b).5 | Amended and Restated Trust Deed dated 27 March 2013 among National Grid Gas plc, National Grid Gas Finance (No 1) plc and the Law Debenture Trust Corporation p.l.c. relating to a €10,000,000,000 Euro Medium Term Note Programme. (Exhibit 2(b).5 to National Grid plc Form 20-F dated 6 June 2013 File No. 1-14958) | Incorporated by reference | ||||||
2(b).6 | Amended and Restated Trust Deed dated 10 September 2012 among National Grid plc, National Grid Electricity Transmission plc and the Law Debenture Trust Corporation p.l.c. relating to a €15,000,000,000 Euro Medium Term Note Programme. (Exhibit 2(b).6 to National Grid plc Form 20-F dated 6 June 2013 File No. 1-14958) | Incorporated by reference | ||||||
2(b).7 | Amended and Restated Trust Deed dated 12 September 2013 among National Grid plc, National Grid Electricity Transmission plc and the Law Debenture Trust Corporation p.l.c. relating to National Grid plc and National Grid Electricity Transmission plc €15,000,000,000 Euro Medium Term Note Programme. | |||||||
2(b).8 | Amended and Restated Trust Deed dated 20 December 2013 among National Grid USA, National Grid North America Inc. and the Law Debenture Trust Corporation p.l.c. relating to National Grid USA €4,000,000,000 Euro Medium Term Note Programme. | Incorporated by Reference | ||||||
2(b).9 | Amended and Restated Trust Deed dated 12 September 2014 among National Grid plc, National Grid Electricity Transmission plc and the Law Debenture Trust Corporation p.l.c. relating to National Grid plc and National Grid Electricity Transmission plc €15,000,000,000 Euro Medium Term Note Programme. | Filed herewith | ||||||
2(b).10 | Amended and Restated Trust Deed dated 18 December 2014 among National Grid USA, National Grid North America Inc. and the Law Debenture Trust Corporation p.l.c. relating to National Grid USA €4,000,000,000 Euro Medium Term Note Programme. | Filed herewith | ||||||
2(b).11 | Amended and Restated Trust Deed dated 18 July 2014 among National Grid Gas plc, National Grid Gas Finance (No 1) plc and the Law Debenture Trust Corporation p.l.c. relating to a €10,000,000,000 Euro Medium Term Note Programme. | Filed herewith | ||||||
4(c).1 | Service Agreement among The National Grid plc and Steven Holliday dated 1 April 2006. (Exhibit 4.(c).3 to National Grid Transco Form 20-F dated 19 June 2007 File | Incorporated by reference | ||||||
No. 1-14958) | ||||||||
4(c).2 | Service Agreement among The National Grid plc and Andrew Bonfield dated 1 November 2010. (Exhibit 4(c).20 to National Grid plc Form 20-F dated 13 June 2011 File No 1-14958) | Incorporated by reference | ||||||
4(c).3 | Service Agreement among National Grid Transco plc, National Grid Company plc and Nicholas Winser dated 28 April 2003. (Exhibit 4.8 to National Grid Transco Form 20-F dated 16 June 2004 File No. 1-14958) | Incorporated by reference | ||||||
4(c).4 | Employment Agreement among National Grid plc, National Grid USA and Thomas King dated 11 July 2007. (Exhibit 4 (c).9 to National Grid plc Form 20-F dated 17 June 2008 File No. 1-14958) | Incorporated by reference | ||||||
4(c).5 | Service Agreement among National Grid Electricity Transmission plc and John Mark Pettigrew dated 28 February 2014. (Exhibit 4(c).5 to National Grid plc Form 20-F dated 5 June 2014 File No. 1-14958) | |||||||
4(c).6 | Letter of Appointment—Philip Aiken. (Exhibit 4 (c).11 to National Grid plc Form 20-F dated 17 June 2008 File No. 1-14958) | Incorporated by reference | ||||||
4(c).7 | Letter of Appointment—Sir Peter Gershon. (Exhibit 4(c).10 to National Grid plc Form 20-F dated 12 June 2012 File No. 1-14958) | Incorporated by reference | ||||||
4(c).8 | Letter of Appointment—Paul Golby. (Exhibit 4(c).11 to National Grid plc Form 20-F dated 12 June 2012 File No. 1-14958) | Incorporated by reference | ||||||
4(c).9 | Letter of Appointment—Ruth Kelly. (Exhibit 4(c).14 to National Grid plc Form 20-F dated 12 June 2012 File No. 1-14958) | Incorporated by reference | ||||||
4(c).10 | Letter of Appointment—Maria Richter. (Exhibit 4.14 to National Grid Transco Form 20-F dated 16 June 2004 File No. 1-14958) | Incorporated by reference | ||||||
4(c).11 | Letter of Appointment—Nora Mead Brownell. (Exhibit 4(c).13 to National Grid plc Form 20-F dated 6 June 2013 File No. 1-14958) | Incorporated by reference | ||||||
4(c).12 | Letter of Appointment—Mark Williamson. (Exhibit 4(c).14 to National Grid plc Form 20-F dated 6 June 2013 File No. 1-14958) | Incorporated by reference | ||||||
4(c).13 | Letter of Appointment—Jonathan Dawson. (Exhibit 4(c).15 to National Grid plc Form 20-F dated 6 June 2013 File No. 1-14958) | Incorporated by reference | ||||||
4(c).14 | Letter of Appointment—Therese Esperdy. (Exhibit 4(c).14 to National Grid plc Form 20-F dated 5 June 2014 File No. 1-14958) | |||||||
4(c).15 | Employment Agreement among National Grid plc, National Grid USA and Dean Seavers dated 22 October 2014. | Filed herewith | ||||||
4(c).16 | National Grid plc Deferred Share Plan. (Exhibit 4.2 to National Grid plc S-8 dated 28 July 2011 File No. 333-175852) | Incorporated by reference | ||||||
4(c) | National Grid Executive Share Option Plan 2002. (Exhibit 4 (c) to National Grid Group Form 20-F dated 21 June 2002 File No. 1-14958) | Incorporated by reference | ||||||
4(c) | National Grid Group Share Matching Plan 2002. (Exhibit 4 (c) to National Grid Group Form 20-F dated 21 June 2002 File No. 1-14958) | Incorporated by reference | ||||||
4(c) | National Grid Transco Performance Share Plan 2002 (as approved 23 July 2002 by a resolution of the shareholders of National Grid Group plc, adopted 17 October 2002 by a resolution of the Board of National Grid Group plc, amended 26 June 2003 by the Share Schemes Sub-Committee of National Grid Transco plc, and amended 5 May 2004 by the Share Schemes Sub-Committee of National Grid Transco plc). (Exhibit 4.19 to National Grid Transco Form 20-F dated 16 June 2004 File No. 1-14958) | Incorporated by reference | ||||||
4(c) | National Grid Executive Share Option Scheme. (Exhibit 4D to National Grid Group S-8 dated 26 July 2001 File No. 333-65968) | Incorporated by reference | ||||||
4(c) | Lattice Group Short Term Incentive Scheme (approved by a resolution of the shareholders of BG Group plc effective 23 October 2000; approved by a resolution of the Board of National Grid Transco plc on 30 April 2004; amended by resolutions of the Board of Lattice Group plc effective on 21 October 2002 and 13 May 2004). (Exhibit 4.23 to National Grid Transco Form 20-F dated 16 June 2004 File No. 1-14958) | Incorporated by reference | ||||||
4(c) | National Grid USA Companies’ Defined Contribution Supplemental Executive Retirement Plan. (Exhibit 4.2 to National Grid plc S-8 dated 23 October 2012 File No. 14958) | Incorporated by reference | ||||||
8 | List of subsidiaries—The list of the Company’s significant subsidiaries as of 31 March 2015 is incorporated by reference to “Financial Statements—Notes to the consolidated financial statements—32. Subsidiary undertakings, joint venture and associates — Principal subsidiary undertakings” on page 150 included in the Annual Report on Form 20-F for the financial year ended 31 March 2015. This list excludes subsidiaries that do not, in aggregate, constitute a “significant subsidiary” as defined in Rule 1-02(w) of Regulation S-X as at 31 March 2015. | |||||||
12.1 | Certification of Steve Holliday pursuant to Rule 13a-14(a) of the Exchange Act. | Filed herewith | ||||||
12.2 | Certification of Andrew Bonfield pursuant to Rule 13a-14(a) of the Exchange Act. | Filed herewith | ||||||
13.1 | Certifications of Steve Holliday and Andrew Bonfield furnished pursuant to Rule 13a-14(b) of the Exchange Act (such certifications are not deemed filed for purpose of Section18 of the Exchange Act and not incorporated by reference in any filing under the Securities Act). | Filed herewith | ||||||
15 | Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm to National Grid plc. | Filed herewith | ||||||
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorised the undersigned to sign this annual report on its behalf.
| NATIONAL GRID PLC | ||||||
| By: | /s/Andrew Bonfield | |||||
| Andrew Bonfield | ||||||
| Finance Director | ||||||
London, England
5 June 20142015
See pages 16–19
