exv15w1
Exhibit
15.1
This document is an extracted form of the Annual Report and
Accounts 2010/11. Certain pages, images and text have been
deleted from it. The Annual Report and Accounts is available in
full on our website, at www.nationalgrid.com.
NATIONAL
GRID PLC
TABLE OF
CONTENTS
FORM 20-F
EXTRACTED
FORM OF THE ANNUAL REPORT AND ACCOUNTS 2010/11
Exhibit 15.1
Business Overview
Board of Directors
Board of Directors
1. Sir John Parker, Chairman
Committee membership: Nominations Committee (chairman)
Skills and experience: Sir John Parker became Chairman in October 2002 following the merger of
National Grid Group plc and Lattice Group plc having been Chairman of Lattice Group plc since its
demerger from BG Group plc in 2000. Sir John’s career has encompassed the engineering, shipbuilding
and defence industries. Sir John was previously Senior Non-executive Director (Chair) of the Court
of the Bank of England, a former joint Chairman of Mondi plc, a former Chairman of P&O Group and of
RMC Group plc, and a former Chairman and Chief Executive of Harland & Wolff plc and Babcock
International Group PLC.
External appointments: Chairman of Anglo American plc and Vice Chairman of DP World Limited,
Non-executive Director of Carnival plc, Carnival Corporation, Inc., and the European Aeronautic
Defence and Space Company and Chancellor of the University of Southampton.
2. Steve Holliday, Chief Executive
Committee membership: Executive Committee (chairman),
Finance Committee
Skills and experience: Steve Holliday became Chief Executive of National Grid in January 2007
having joined National Grid Group plc as Group Director, UK and Europe in March 2001, becoming
responsible for the electricity and gas transmission businesses in 2002. He was appointed as Group
Director responsible for UK Gas Distribution and Business Services in 2003. He was formerly an
Executive Director of British Borneo Oil and Gas. Previously, Steve 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.
External appointments: Non-executive Director of Marks and Spencer Group plc and Chairman of the UK
Business Council for Sustainable Energy, Chair of the Technician Council and a member of the Board
of Trustee Directors for Business in the Community and Infrastructure UK.
3. Andrew Bonfield, Finance Director
Committee membership: Executive Committee, Finance Committee
Skills and experience: Andrew Bonfield joined National Grid on 1 November 2010 as Executive
Director Finance, with responsibility for Shared Services. Andrew was Chief Financial Officer at
Cadbury plc until March 2010 when Cadbury was acquired by Kraft Foods Inc. He 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. Prior to this, Andrew’s early
career was spent with SmithKline Beecham plc, where he was promoted to Chief Financial Officer.
External appointments: Non-executive Director of Kingfisher plc.
4. Tom King, Executive Director
Committee membership: Executive Committee
Skills and experience: Tom King was appointed to the Board as Executive Director in August 2007
with responsibility for Electricity Distribution & Generation operations. Following the recent
reorganisation, Tom is responsible for all US businesses in the new position of Executive Director
and President, US. He was President of PG&E Corporation and Chairman and CEO of Pacific Gas and
Electric Company from 2003 to 2007. Before that, he held a number of senior positions within the
PG&E group having joined in 1998. Previously, Tom served as President and Chief Operating Officer
of Kinder Morgan Energy Partners and served for nine years in officer positions in Enron’s
interstate pipeline businesses.
5. Nick Winser, Executive Director
Committee membership: Executive Committee
Skills and experience: Nick Winser joined the Board in April 2003 as Executive Director responsible
for Transmission. Following the recent reorganisation, Nick has assumed the new position of
Executive Director, UK, responsible for all UK businesses. He was previously Chief Operating
Officer of the US transmission business for National Grid Transco plc. He joined National Grid
Company plc in 1993, becoming Director of Engineering in 2001. Prior to this, Nick had been with
Powergen since 1991 as principal negotiator on commercial matters, having joined the Central
Electricity Generating Board in 1983 where he served in a variety of technical engineering roles.
External appointments: Non-executive Director of Kier Group plc and co-Chair of the Energy Research
Partnership.
6. Ken Harvey CBE, Non-executive Director and
Senior Independent Director
Committee membership: Nominations Committee,
Remuneration Committee, Risk & Responsibility Committee
Skills and experience: Ken Harvey, a chartered engineer, joined the Board in October 2002 following
the merger of National Grid Group plc and Lattice Group plc, having been appointed to the Lattice
Group plc board in 2000. He was appointed Senior Independent Director in October 2004. Ken is a
former Chairman of Comax Holdings Ltd, The Intercare Group plc and Beaufort International Group plc
and a former Chairman and Chief Executive of Norweb plc.
External appointments: Chairman of Pennon Group Plc.
08 National Grid plc | Annual Report and Accounts 2010/11
7. Linda Adamany, Non-executive Director
Committee membership: Audit Committee,
Risk & Responsibility Committee
Skills and experience: Linda Adamany joined the Board in November 2006. Until April 2008, she was
Group Vice President, BP plc. Linda has over 35 years’ business experience, with 28 years in the
international energy sector, having held various executive roles for BP in both the UK and US,
including Chief Executive of BP Shipping and Group Vice President and Commercial Director,
BP Refining & Marketing. She has also held board level positions in international bodies and is a
certified public accountant.
External appointments: Member of a not for profit board.
8. Philip Aiken, Non-executive Director
Committee membership: Audit Committee,
Risk & Responsibility Committee
Skills and experience: Philip Aiken joined the Board in May 2008. He was formerly Group President
of BHP Billiton’s Energy business, Executive Director of BTR plc, held senior positions in BOC
Group plc and was senior advisor to Macquarie Capital (Europe) Limited.
External appointments: Chairman of Robert Walters plc, a Non-executive and Senior Independent
Director of Kazakhmys PLC and a Non-executive Director of Miclyn Express Offshore Limited and Essar
Energy plc.
9. John Allan CBE, Non-executive Director
Committee membership: Finance Committee,
Remuneration Committee (chairman)
Skills and experience: John Allan joined the Board in May 2005. John was previously Chairman of
Samsonite Corporation, a Non-executive Director of PHS Group plc, Wolseley plc, Hamleys plc and
Connell plc. He retired as CFO of Deutsche Post in 2009, having been appointed to the Management
Board following its acquisition of Exel plc in 2005 where he was Chief Executive. John is a former
member of the Supervisory Boards of both Lufthansa AG and Deutsche Postbank. Until 30 April 2011,
John was a Non-executive Director of 3i Group plc. Following the conclusion of the 2011 Annual
General Meeting, John will be stepping down from the Board.
External appointments: Chairman of Dixons Retail plc, WorldPay (UK) Limited and Care UK Health &
Social Care Holdings Limited and a Non-executive Director of ISS A/S. He is also a senior advisor
to Deutsche Bank and Alix Partners, and a member of the University of Edinburgh Campaign Board
and of the Supervisory Board of the Home Office.
10. Stephen Pettit, Non-executive Director
Committee membership: Finance Committee, Remuneration
Committee, Risk & Responsibility Committee
(chairman)
Skills and experience: Stephen Pettit was appointed to the Board in October 2002 following the
merger of National Grid Group plc and Lattice Group plc, having been appointed to the Lattice Group
plc board in 2001. He is a former Chairman of ROK plc and Executive Director of Cable & Wireless
plc. Before joining Cable & Wireless, Stephen was Chief Executive, Petrochemicals at
British Petroleum.
External appointments: Non-executive Director of Halma p.l.c and a member of BT Group plc’s
Equality of Access Board.
11. Maria Richter, Non-executive Director
Committee membership: Audit Committee,
Finance Committee (chairman), Nominations Committee
Skills and experience: Maria Richter was appointed to the Board in October 2003. Maria worked for
Morgan Stanley between 1993 and 2002, latterly as Managing Director of its Corporate Finance Retail
Group. Previous appointments include Vice President of Independent Power Group for Salomon Brothers
and Vice President of Prudential Capital Corporation and Power Funding Associates.
External appointments: Non-executive Director and Chairman of Pro Mujer UK, Non-executive Director
of Pro Mujer International, The Pantry, Inc., The Vitec Group plc and The Bessemer Group Inc.
12. George Rose, Non-executive Director
Committee membership: Audit Committee (chairman),
Nominations Committee, Remuneration Committee
Skills and experience: George Rose was appointed to the Board in October 2002 following the merger
of National Grid Group plc and Lattice Group plc, having been appointed to the Lattice Group plc
board in 2000. George was formerly a member of the Financial Reporting Review Panel and a
Non-executive Director of Orange plc and most recently, a Non-executive Director of Saab AB and
until 31 March 2011 Finance Director of BAE Systems plc.
External appointments: Member of the UK Industrial Development Advisory Board.
13. Helen Mahy, Company Secretary & General Counsel
Committee membership: Executive Committee
Skills and experience: Helen Mahy was appointed Company Secretary in October 2002 following the
merger of National Grid Group plc and Lattice Group plc, having been Company Secretary at Lattice
Group plc since 2002. She was additionally appointed General Counsel from October 2003. She is a
barrister and an Associate of the Chartered Insurance Institute. Helen was formerly a Non-executive
Director of Aga Rangemaster Group plc and Chair of the GC100 Group.
External appointments: Non-executive Director of Stagecoach Group plc and an advisory board member
of Opportunity Now.
Annual Report and Accounts 2010/11 | National Grid plc 09
Operating and Financial Review
Connecting our energy future
We are facing a number of challenging opportunities for the future of the energy industry in the UK
and US. National Grid is at the heart of securing energy supplies for future generations.
2010 ONGOING
Our huge investment programme will help our network meet future energy challenges.
2012
We will continue to work closely with schools and colleges to enthuse and inspire young students
about the world of science and engineering.
2050
The Climate Change Act requires the UK to cut greenhouse gases by 2050.
Meeting these targets requires us to dramatically change the way we produce gas and electricity.
2020
We will play a key role in connecting new generation to the grid. |
10 National Grid plc | Annual Report and Accounts 2010/11
Operating and Financial Review
National Grid is an international electricity and gas company cross listed on the London and New
York stock exchanges and is one of the largest investor owned energy companies in the world. We
play a vital role in delivering gas and electricity to many millions of people across Great Britain
and northeastern US.
This Operating and Financial Review describes the main trends and factors underlying our
development, performance and position during the year ended 31 March 2011 as well as those likely
to affect us in the future. It has been prepared in line with the guidance provided in the
Reporting Statement on the Operating and Financial Review issued by the UK Accounting Standards
Board and the Practice Statement on Management Commentary issued by the International Accounting
Standards Board.
Annual Report and Accounts 2010/11 | National Grid plc 11
Operating and Financial Review
How the UK electricity industry works
Electricity is generated from coal, gas, oil and nuclear power plants, and renewable resources
including hydroelectric plants and wind farms. Generation voltage is typically 22 kV, and
generators normally have their own transformers to increase the voltage to transmission voltages.
There are also interconnectors with France, Northern Ireland and the Netherlands, allowing
electricity generated in those countries to meet demand in the UK and vice versa.
We do not own or operate electricity generation assets in the UK.
Physical
National Grid transmits electricity in England and Wales at 400 kV and 275 kV. In Scotland, 132 kV
is also considered to be transmission voltage. The national electricity transmission system (NETS)
typically comprises the assets from the connection to the generator’s transformer as far as the
substation at which the voltage is stepped down to 132 kV or lower for distribution.
We are responsible for balancing the system, managing generation output to ensure that it matches demand
second by second throughout the day, to ensure that voltage and frequency are kept within
acceptable limits.
Electricity generators sell the electricity they produce in the wholesale market. The majority of
the electricity sold in the wholesale market is to electricity suppliers in bilateral contracts.
Electricity produced by the generators is transported by transmission and distribution networks to
the end user.
National Grid is not an electricity supply company in the UK; we do not buy or sell the electricity
we transport there.
Commercial
Generators, distribution network operators and suppliers pay us for the right to connect their
assets to the NETS and to use the system to transport electricity on their behalf. These connection
and use of system charges reflect the costs of providing, maintaining and operating connection
assets and are reviewed annually.
Generators, distribution network operators and suppliers also pay us for procuring balancing
services to ensure the electricity system is kept in balance.
Finally, the transmission network use of system charge, paid by generators and suppliers, allows us
to recover the costs of installing, operating and maintaining the NETS.
12 National Grid plc | Annual Report and Accounts 2010/11
Electricity is carried at 132 kV and lower voltages in 14 electricity distribution networks, owned
and operated by seven distribution network operators.
The distribution systems typically comprise the assets from the connection to the step down
transformer on the NETS either to the meter in a consumer’s premises or, for larger users, to their
own step down transformer.
We do not own or operate electricity distribution networks in the UK.
Heavy and medium industrial consumers, towns and villages are typically supplied by a variety of
voltages from 132 kV to 11 kV. For most consumers, the voltage is reduced through transformers and
is ultimately provided to users at 230 V.
We do not sell electricity to end users in the UK.
Suppliers pay distribution network operators for the right to connect to and use their distribution
networks. Those costs are passed on by the suppliers to their end user customers.
Each of the 14
distribution networks are regional monopolies and Ofgem regulates their revenues through price
controls.
End users contract with electricity supply companies to provide electricity. The supply companies
in turn purchase electricity from generators which is transported to the end user along the
transmission and distribution systems.
Suppliers also contract with metering companies, including National Grid Metering and OnStream,
which we own, for the provision of meters and metering services.
Of the average residential electricity bill, transmission charges represent approximately 4% and
distribution charges approximately 17%. The majority of the bill is the cost of the electricity
itself.
Annual Report and Accounts 2010/11 | National Grid plc 13
Operating and Financial Review
How the US electricity industry works
Electricity generating stations produce electricity from another form of energy such as
fossil fuel (coal, oil or natural gas), nuclear, hydroelectric, geothermal, solar or wind.
We own 57 generation units on Long Island that together provide 4.1 GW of power under contract to
the Long Island Power Authority (LIPA). We also own 3.4 MW of solar generation in Massachusetts,
making us the largest owner of solar generation in the state.
Physical
The transmission system supplies electricity to substations in individual service areas.
Transmission lines transmit electricity from the generation source or substation to distribution
substations. Transmission voltages at National Grid vary from 69 kV to 345 kV. Transmission
voltages can also be converted to lower subtransmission voltages, typically 15 kV to 69 kV, to
supply distribution substations and/or provide electricity to large industrial customers.
We own and operate transmission facilities in upstate New York, Massachusetts, Rhode Island, New
Hampshire and Vermont. We also own and operate a 224 km transmission interconnector between New
England and Canada. We operate and maintain the transmission system on Long Island, owned by LIPA.
Utilities may generate all the electricity they sell or may purchase electricity on the wholesale
market from other utilities, independent power producers, power marketers or from a market based on
membership in a regional transmission reliability organisation such as an independent system
operator (ISO).
We purchase electricity through the New York ISO and ISO New England for transmission and
distribution to our customers. We also contract directly with generators to purchase electricity.
All available power from our Long Island generation facilities is made available to the New York
ISO market to meet the Long Island Power Authority’s requirements and for sale to others.
Commercial
The independent system operators operate as independent administrators for the oversight of
electricity transmission while providing fair and open access to the electricity grid. Each
independent system operator is the clearing house for load serving entities’ bids to purchase
electricity and generating stations’ offers to sell electricity. New York ISO and ISO New England
markets determine the wholesale energy price for New York and New England respectively.
We are
permitted to recover the cost of electricity transmission across the regional grid from our
customers as a transmission service charge.
14 National Grid plc | Annual Report and Accounts 2010/11
The distribution system receives electricity from the substation and supplies it to customers at a
voltage that they can use. The distribution system can be considered to begin at a substation. The
substation transformer converts the transmission voltage to a distribution voltage. Electricity at
the distribution voltage, also called primary voltage, is typically 4 kV to 35 kV and is supplied
to the service area by distribution lines.
Distribution lines may be located overhead on utility poles or buried underground. Distribution
transformers convert distribution voltage to a secondary voltage, which is the voltage used by
customers. We own distribution facilities and provide service to 3.4 million customers in upstate
New York, Massachusetts, Rhode Island and New Hampshire. We maintain and operate the distribution
system on Long Island, providing service to 1.1 million LIPA customers.
Utilities such as National Grid and qualified retail marketers purchase electricity for customers
connected to the distribution system. Qualified retail marketers buy and sell electricity only in
deregulated states, but usually do not own or operate generation, transmission or distribution
facilities.
Unlike in the UK, supply and distribution are not necessarily separate in the US;
electricity distribution companies often sell electricity to their own customers connected to their
distribution system.
Distribution rates are regulated by the state public utility commissions. Utility distribution
facilities provide electricity services to end users. This contrasts with the UK, where
distribution companies do not sell electricity to end users.
Customer bills typically comprise a
commodity rate, covering the cost of electricity delivered, without a profit margin, and a delivery
rate, covering our delivery service.
In deregulated states, which includes all the states in which we operate, consumers have the option
to select their energy supply from the incumbent utility or retail marketers/energy supply
companies.
Where customers choose National Grid, those customers pay us for distribution and commodity cost.
Where they choose to purchase from third parties, they pay us for distribution only and pay the
third party supplier for the commodity.
Annual Report and Accounts 2010/11 | National Grid plc 15
Operating and Financial Review
How the UK gas industry works
Gas producers, liquefied natural gas (LNG) importers and interconnector operators bring gas
onshore. In the UK, there are seven gas reception terminals, three LNG importation terminals and
three interconnectors, connecting Great Britain with Ireland, Belgium and the Netherlands.
National Grid gas does not participate in either the production of gas for the UK market, or the
transportation of LNG by sea. However, we own and operate an LNG importation terminal at the Isle
of Grain in Kent.
Physical
Gas from importation terminals is injected into the national transmission system (NTS) after
the gas has been checked for quality. Gas previously extracted from the NTS and held in storage may
be reintroduced into the system.
The NTS operates at pressures of up to 91 bar, transporting gas in high grade welded steel pipes of
up to 1.2m diameter.
National Grid is the sole owner and operator of gas transmission
infrastructure in Great Britain.
Gas producers and importers sell the gas to licensed shippers, who then own the gas as it travels
through the transmission and distribution networks. National Grid is not a gas shipper; we do not
buy or sell the gas we transport.
LNG importers pay us for the right to land LNG at our terminal.
Commercial
Shippers pay us for the use of the NTS via entry and exit capacity charges.
Entry capacity allows shippers to put gas into the NTS at system entry points. Entry capacity is
sold in a variety of auctions, ranging from daily to quarterly.
Exit capacity allows shippers to take gas off the NTS at NTS exit points into distribution networks
and to other users who are supplied directly from the NTS.
For shippers who use the system, there is also a commodity charge based on the actual flows of gas
into the NTS.
16 National Grid plc | Annual Report and Accounts 2010/11
Gas exits the NTS at 53 offtake points where it is odourised. Gas is transported in the
distribution networks at various pressures ranging from 75 bar down to 21 mbar for final delivery
to end users.
Within the distribution networks, gas storage assets such as gas holders are used to help manage
daily variation in demand.
In the UK, there are 13 local distribution zones grouped into eight
regional distribution networks. We own four of the eight distribution networks and three other
companies own the other four. As with the transmission system, the owners of the distribution
networks do not buy or sell gas; the commodity is transported on behalf of shippers.
Although consumers in the UK have a choice of gas supply company, the gas is physically delivered
to most consumers’ premises through a pipe belonging to the local distribution network. National
Grid’s distribution networks deliver gas to approximately 10.8 million consumers.
Although we do not sell gas, and are not involved in billing consumers, we consider the consumers
connected to our distribution network to be our customers because our activities directly affect
them.
Shippers pay us transportation charges for the use of our gas distribution networks. These charges
are ultimately passed on to consumers.
The transportation charges reflect the costs of building and operating the networks, and also the
costs of operating a 24 hour emergency telephone helpline.
Consumers contract with gas supply companies for the supply of gas. The supply companies in turn
contract with gas shippers who purchase the gas and arrange for it to be transported.
Suppliers also contract with metering companies, including National Grid Metering and OnStream,
which we own, for the provision of meters and metering services.
Of the average residential gas bill, transmission charges represent approximately 3% and
distribution charges approximately 21%. The majority of the bill is the cost of the gas itself.
Annual Report and Accounts 2010/11 | National Grid plc 17
Operating and Financial Review
How the US gas industry works
Gas is produced in the gulf coast, mid-continent, Rockies, western Canada, shale formations
and other unconventional sources in North America. Liquefied natural gas (LNG) importers bring LNG
from the mideast, South America and other places.
Physical
Gas is delivered into the US interstate and Canadian pipeline network by producers and LNG
importers. National Grid holds only 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).
We own and operate LNG storage and vaporisation facilities to support our gas distribution
businesses as well as an LNG storage facility in Providence, Rhode Island, where we store gas for
third parties for a fee. We also own a small gas production company, Seneca Upshur Petroleum, which
operates in the Appalachian Basin in West Virginia. National Grid purchases gas supply directly
from producers and LNG importers for resale to our customers.
Commercial
We pay to reserve firm transportation and storage capacity on the US interstate and Canadian
pipeline network to transport natural gas from the various supply sources to its distribution
facilities. The initial term under these agreements is typically from 10 to 20 years.
We are permitted to recover the cost of transportation and storage capacity as well as the gas
commodity cost from our customers.
18 National Grid plc | Annual Report and Accounts 2010/11
Gas is delivered by the interstate pipeline companies to National Grid’s and other companies’ local
distribution companies for distribution to their customers. As is the case with the distribution
networks in the UK, 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 state utility commission of the state in which their service territory is located.
National Grid and other qualified gas marketers purchase gas for customers connected to our
distribution systems.
Unlike the situation in the UK, supply and distribution are not necessarily
separate: gas distribution companies often sell gas to consumers connected to their distribution
systems.
The gas transported by our local distribution companies includes gas purchased by National Grid for
our own end user customers as well as third party gas that we deliver to our transportation
customers. This contrasts with the UK, where we do not purchase or sell the gas we transport.
In most cases, customers can choose whether to purchase gas from National Grid or other companies.
Where they choose National Grid, those customers pay us for distribution and they reimburse us for
the cost of the gas and upstream transportation capacity. When customers choose to purchase gas
from third parties, they pay us for distribution only and pay the third party supplier for the cost
of gas and upstream transportation capacity.
Annual Report and Accounts 2010/11 | National Grid plc 19
Operating and Financial Review
Where we operate
National Grid owns and operates regulated electricity and gas infrastructure networks in the
UK and northeastern US, serving
around 19 million customers directly and many more indirectly.
20 National Grid plc | Annual Report and Accounts 2010/11
Annual Report and Accounts 2010/11 | National Grid plc 21
Operating and Financial Review
Management structure –
from 4 April 2011
Management structure
The performance of our principal businesses is reported by segment, reflecting the management
responsibilities and economic characteristics of each activity.
Throughout the year ended 31 March 2011, the management structure was as described on the following
page. Throughout this report, the following colours are used to indicate references to a particular
segment:
█ Transmission
█ Gas Distribution
█ Electricity Distribution & Generation
Activities which do
not fall within these segments are reported separately and are identified thus:
█ Non-regulated businesses and other activities
Discussion relating to the Company as a whole is identified thus:
█ Company activities
In next year’s Annual Report and Accounts, and in subsequent years, we will
report by new segments reflecting the revised management structure.
New management structure
Four years ago we introduced the common operating model, consisting of global lines of
business, in order to promote common standards and ways of working. Following a strategic review
this year, and in response to feedback received from customers, regulators and other stakeholders,
we announced on 31 January 2011 substantial changes to the way in which we organise National Grid.
With effect from 4 April 2011, we have moved to a management structure more closely aligned with
local responsibilities.
Certain functions will continue to have global responsibilities; these
include finance, human resources, information systems and security, and procurement. There will
also be regional functions, with responsibility for our operations in each country. In the US,
there will be five local teams, each headed by a jurisdictional president: one each for New York
and Massachusetts; one for Rhode Island and New Hampshire; one for Long Island where we work with
the Long Island Power Authority and one with responsibility for federal regulatory affairs dealing
with the Federal Energy Regulatory Commission.
The diagram below represents the new management structure.
22 National Grid plc | Annual Report and Accounts 2010/11
Management structure –
until 3 April 2011
As noted opposite, this page and those following represent the management structure and lines
of business as they were throughout 2010/11.
Our principal businesses and segments, together with other activities, are described on pages 24
and 25. Significant developments during the year for each business can be found on pages 26 and 27.
Each line of business was headed by an Executive Director who had primary responsibility for that
line of business. Responsibility for our non-regulated businesses was allocated to Executive
Directors according to the nature of each business.
Annual Report and Accounts 2010/11 | National Grid plc 23
Operating and Financial Review
Principal operations
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Transmission UK |
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Electricity transmission owner
We own the electricity transmission system
in England and Wales.
Electricity system operator
We are the national electricity transmission
system operator, responsible for managing
the operation of both the England and Wales
transmission system, which we own, and the
two high voltage transmission networks in
Scotland, which we do not own. Day-to-day
operation of the system involves the continuous
real-time matching of demand and generation
output, ensuring the stability and security of
the power system and the maintenance of
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satisfactory voltage and frequency. We are
also designated as system operator for the
new offshore electricity transmission regime.
Gas transmission owner
We own the gas national transmission system
(NTS) in Great Britain, connecting to eight
distribution networks and to third party
independent systems for onward transportation
of gas to end consumers.
Gas system operator
We operate the NTS. Day-to-day operation
involves balancing supply and demand.
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Gas Distribution UK |
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Gas distribution operator
We own and operate four of the eight regional
gas distribution networks in Great Britain. Our
networks comprise approximately 132,000 km
(82,000 miles) of gas distribution pipeline
and we transport gas from the gas NTS to
around 10.8 million consumers on behalf of
26 active gas shippers. Gas consumption in
our UK networks was 304 TWh in 2010/11
compared with 299 TWh in 2009/10.
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National gas emergency number operator
We manage the national gas emergency
number (0800 111 999) for all the gas
distribution networks and for other gas
transporters in Great Britain. This service,
along with the enquiries line, appliance repair
helpline and meter number enquiry service,
handled 2,816,403 calls during 2010/11.
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Electricity distribution
We own and operate electricity distribution
networks in upstate New York, Massachusetts,
Rhode Island and New Hampshire.
Through our electricity distribution networks,
we serve approximately 3.4 million electricity
consumers in New England and upstate
New York.
We also maintain and operate the electricity
transmission and distribution system on
Long Island owned by the Long Island Power
Authority (LIPA), providing energy to homes,
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small businesses, and large commercial and
industrial enterprises.
The LIPA service territory covers approximately
3,185 square km (1,230 square miles),
encompassing nearly 90% of Long Island’s
total land area. LIPA owns approximately
2,170 km (1,350 miles) of transmission line
facilities that deliver power to approximately
177 substations. From these substations,
approximately 24,300 circuit km (15,100 miles)
of transmission and distribution facilities
distribute electricity to 1.1 million consumers. |
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Grain LNG
Grain LNG is one of three LNG importation
facilities in the UK. It was constructed in three
phases, phases I and II becoming operational
in 2005 and 2008 respectively and phase III
being commissioned in December 2010.
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BritNed
BritNed is a joint venture between National
Grid and TenneT, the Dutch transmission
system operator, to build and operate a
1,000 MW, 260 km (162 mile) subsea electricity
link between the UK and the Netherlands.
BritNed was fully commissioned and went
live on 1 April 2011.
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24 National Grid plc | Annual Report and Accounts 2010/11
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Transmission US
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French interconnector
We own and operate the UK assets, and a
portion of the subsea cables, that comprise
the electricity interconnector between England
and France as part of a joint arrangement
with the French transmission operator.
LNG storage
We own and operate three liquefied natural
gas (LNG) storage facilities in Great Britain.
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Electricity transmission owner
We own and operate an electricity transmission
network spanning upstate New York,
Massachusetts, Rhode Island, New Hampshire
and Vermont. Our US electricity transmission
facilities operate at voltages ranging from
69 kV to 345 kV. We are the largest electricity
transmission service provider in New England
and New York by reference to the length of
these high voltage transmission lines.
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Canadian interconnector
We own and operate a 224 km (139 mile)
direct current transmission line rated
at 450 kV that is a key section of an
interconnector between New England
and Canada.
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Gas Distribution US
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Gas distribution owner
Our US gas distribution networks provide
services to around 3.5 million consumers
across the northeastern US, located in service
territories in upstate New York, New York City,
Long Island, Massachusetts, New Hampshire
and Rhode Island. Our network of approximately
58,000 km (36,000 miles) of gas pipeline serves
an area of approximately 26,400 square km
(10,200 square miles). We are actively seeking
to increase our customer base in these areas
and in 2010/11 added more than 42,000 new
gas heating customers.
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Gas storage
We maintain a diversified and flexible
portfolio of gas supply and storage assets,
and are able to deliver additional benefits to
customers and shareholders by optimising
the use of these assets. During cold weather,
we supplement gas from the interstate
pipeline system with LNG and propane
facilities in 19 locations.
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Electricity generation
We own 57 electricity generation units on
Long Island that together provide 4.1 GW
of power under contract to LIPA. Our plants
consist of oil and gas fired steam turbine,
gas turbine and diesel driven generating
units ranging from 2 MW to 385 MW. Any
available power not needed to meet LIPA’s
requirements is made available for sale
on the open market.
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Shared activities
Customer operations
In addition to the operation of our gas and electricity distribution networks, we are also
responsible for billing, customer service and supply services.
Energy procurement
We are responsible for the planning, procurement and administration of gas and electricity
commodity supply for our customers. We forecast, plan for and procure approximately 15 billion
standard cubic metres of gas and 34 TWh of electricity annually across four states. We also manage
gas assets such as transportation and storage capacity to ensure supply adequacy for delivery to
customers. Through our fuel management services, we procure gas and fuel oil to supply the power
generation units on Long Island, most of which we own.
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Metering
National Grid Metering and OnStream
provide installation and maintenance services
to energy suppliers in the regulated and
unregulated markets respectively in Great
Britain. OnStream also provides meter reading
services. Our metering businesses provide
services for an asset base of about 20 million
domestic, industrial and commercial meters.
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UK Property
National Grid Property is responsible for
managing our occupied properties in the UK and
for the management, clean up and disposal of
surplus sites, most of which are former gasworks.
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.
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US non-regulated businesses
Includes LNG storage, LNG road
transportation, transmission pipelines
and West Virginia gas fields.
Corporate activities
and shared services function
Corporate activities comprise central
overheads, insurance and expenditure
incurred on business development.
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Annual Report and Accounts 2010/11 | National Grid plc 25
Operating and Financial Review
Review of the year
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Transmission
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•
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In October 2010, we finished
commissioning the Wormington
to Sapperton gas pipeline. This
pipeline, of approximately 44 km
(27 miles), is required to provide
additional exit capacity in the
southwest of England to meet
increases in distribution network
and forecast power station demand
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•
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On 16 November 2010, we signed our
largest ever connection contract,
with East Anglia Offshore Wind Ltd,
for the full 7.2 GW of its capacity.
The project will commission wind
turbines in 10 stages between 2015
and 2021, delivering 6.6 GW before
2020, and connects to existing
substations at Bramford and
Norwich along with a new site
to be developed in the area
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Gas Distribution
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•
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In the UK, the first release of the
new Gas Distribution front office
system, a significant investment
in the replacement of legacy IT
applications, went live in October
2010 to over 1,000 employees. The
full rollout of the programme is due
to be completed by spring 2012
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•
•
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Gas Distribution contractor safety
in the UK and US improved
substantially with the lost time injury
frequency rate reducing to 0.08
A new campaign to reduce the
number of electric cable strikes
was introduced in the UK and has
contributed to a 10% reduction
during 2010/11
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Electricity Distribution
& Generation
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•
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We met all New York regulatory
reliability targets for the third year
in a row
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The outcome of our Niagara Mohawk
rate case in upstate New York was
disappointing |
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•
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By March 2011, we had delivered
$1.41 billion of the $1.47 billion
investment in New York in line
with the KeySpan merger agreement
and ahead of schedule
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Capital recovery mechanisms were
agreed in Massachusetts, Rhode
Island and New York |
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Non-regulated businesses
and other
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•
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On 1 December 2010, Grain LNG
phase III started full commercial
operation, the first operating day
for all three phases at Grain. The
terminal now has 1 million cubic
metres of storage capacity and
has a capacity of approximately
650 GWh per day
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•
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On 1 April 2011, BritNed successfully
achieved ‘go live’, with a capacity
of 1,000 MW along the 260 km
(162 mile) high voltage direct current
interconnector between Maasvlakte
in the Netherlands and the Isle of
Grain in the UK
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26 National Grid plc | Annual Report and Accounts 2010/11
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• By November 2010, the number of
contracted generation agreements
had met a significant milestone.
Enough transmission-connected
renewable generation had been
contracted to meet our plans for
achieving the government’s 2020
renewable energy targets (32 GW
contracted against a target of
approximately 29 GW)
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• On 13 December 2010, the Secretary
of State gave consent for a pressure
reduction installation at Tirley in
Gloucestershire. Construction
started on this installation in March
2011. Accordingly, we envisage
that the full contracted capacity
of 950 GWh in the Milford Haven
gas pipeline will be available for
winter 2012/13
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• We have funded an independent
report on the costs of undergrounding
electric cables compared with the
use of overhead lines. The work is
being conducted by Kema, and will
be endorsed and published by the
Institution of Engineering and
Technology. We have also launched
a public consultation on our approach
to undergrounding new electricity
transmission lines
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• Severe winter weather in the
UK led to us failing several of our
emergency standards of service.
We met all but one of our other
regulatory standards
• In the US, we connected 42,416
new gas heating customers
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• In the UK, Ofgem imposed a
fine of £8 million for inaccurate
reporting of gas mains replacement
data during 2005/06 to 2007/08
• Our first biomethane injection plant
has been constructed to connect
Adnams Bio Energy Ltd, the first
production facility built for injecting
biomethane into the UK gas network
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• In our UK networks, actual gas
consumption was 304 TWh in
2010/11 compared with 299 TWh
in 2009/10
• During the winter of 2010/11, the US
gas network supported consumption
of more than 218 TWh compared
with 201 TWh in 2009/10
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• The central and eastern regional
control centres both achieved the
significant milestone of one year
without a switching error
• We reduced lost time injuries by 7%
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• The Edison Electric Institute (EEI)
recognises companies that make an
outstanding effort to restore service
to their customers through the EEI
Emergency Response Awards. In
March 2011 EEI presented an award
to National Grid for our response to
a storm on 13 and 14 March 2010,
which affected nearly 270,000
LIPA customers
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• The Port Jefferson power station
and the generation materials
management division both recently
passed the threshold of 1,000 days
without a lost time incident. The
Northport, E. F. Barrett, Glenwood,
and Far Rockaway power stations
have all gone more than a year
without a lost time incident
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• Our competitive metering business,
OnStream, won Innovation of the
Year and Meter Manufacturer
and Technology of the Year at
the European Smart Metering
Awards 2011
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• Our application to appeal against
the £15 million fine imposed last
year on our metering business for
a breach of the Competition Act
was unsuccessful
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Annual Report and Accounts 2010/11 | National Grid plc 27
Operating and Financial Review
Operating environment
National Grid, in common with all international companies, operates in a complex environment
with a number of external factors affecting our operations.
UK and European energy policy
This is a crucial time for energy policy decisions, with the focus of debate being on the
electricity market and the network regulatory reviews. The government is determined to drive the
low carbon agenda. In December 2010, the Department of Energy and Climate Change launched its
consultation on electricity market reform, which is designed to enable the UK to meet its climate
goals by encouraging low carbon generation, and also to ensure the UK has a secure, affordable
supply of electricity in the long term. It is vital that the electricity market frameworks provide
the right incentives for investors.
In the UK, there is now a strong political focus on delivering a low carbon economy. The Climate
Change Act requires the UK to cut greenhouse gas emissions by 80% from the 1990 levels by 2050 and
by 34% by 2020. Dramatic changes in the way we produce and use our energy will be required. We must
become less dependent on fossil fuels, use our energy more efficiently and integrate greater use of
electric vehicles and electric heating in homes. If we are to meet our 2020 renewable energy
target, 15% of our energy for electricity, heat and transport will need to come from renewable
sources by 2020. It is estimated that 30% of electricity would need to be from renewables to meet
this target. If developed, a North Sea grid could deliver significant benefits by connecting wind
generation to the grid and providing greater interconnection with the rest of Europe. Our forecasts
for gas supply continue to be built on UK continental shelf decline and higher levels of
importation. The changing sources of supply necessitate greater gas transmission network
flexibility.
Creating the appropriate, joined up policies to deliver an affordable and secure, low carbon energy
system presents an enormous challenge for the UK government. However, the move to a low carbon
economy also represents a great opportunity for the UK in terms of new jobs and economic growth. At
National Grid, we have a privileged perspective. We operate the grid to which the different energy
sources are connected. So we sit at the heart of the energy transformation and we are working
closely with government and other stakeholders to ensure the UK can seize the opportunities it
presents.
US energy policy
US energy policy continues to be shaped by the economy, budget deficits and growing political
unrest in the Middle East and North Africa. The low probability, high impact oil spill in the Gulf
of Mexico, the nuclear crisis in Japan caused by the earthquake and tsunami, and the steep rise in
oil prices have added significant volatility to the nation’s energy debate. The President and
Congressional leaders have called for strong energy legislation this year that might include a
clean, renewable energy standard, energy efficiency incentives for electric and natural gas
vehicles, infrastructure development and domestic energy supplies. With the partisan divide in
Washington, the outlook for successful energy legislation remains unclear.
Even so, the Federal Energy Regulatory Commission continues to work on electricity transmission
policy, the Department of Energy on appliance and energy efficiency standards and the Department of
Homeland Security on cyber security issues. The largest energy agenda rests with the Environmental
Protection Agency (EPA), which is working on power plant regulations, addressing mercury
and hazardous air pollutant emissions and interregional transport and water discharge impacts on
bays, rivers and estuaries, while also addressing the environmental impact of coal ash waste. In
addition, while climate change is currently off the legislative calendar, EPA is expected to
promulgate regulations on greenhouse gas emissions, although there is considerable pressure from
some members of Congress to either delay action or strip EPA of its authority altogether.
At the state level, an overarching concern continues to be the cost of energy and its impact on
citizens, business and industry. Anticipating action on climate change is another focus. New York
and Massachusetts have published formal climate action plans with carbon reduction goals and
recommended steps to achieve them. In this context, they have adopted goals and policies to promote
aggressive utility pursuit of cost effective energy efficiency, revenue decoupling to encourage
focus on energy efficiency and consideration of the best business models for delivering expanded
efficiency programmes.
The states in which we operate have set renewable portfolio standards to achieve ambitious targets
for renewable energy’s contribution to the resource mix, addressing climate and security concerns.
Massachusetts and Rhode Island have gone further, requiring utilities to enter into long-term
contracts to support renewable energy development. Transmission investment continues to receive
attention at the state level, largely in the context of renewable energy policy.
State policy with respect to smart technology varies, with legislation in Massachusetts requiring
utilities to file smart grid pilot programmes and a generic proceeding in New York to define the
appropriate role and benefits for customers of smart technology investment. Smart technology and
innovation can support energy efficiency, demand response, and renewable and clean distributed
generation.
Economic environment
Since the financial crisis in 2008/09, there has been a significant recovery. The UK, Europe
and the US have emerged from recession and stock markets have risen during 2010/11.
In the UK, inflation has returned after a period of deflation, the retail price index having risen
by 5.3% during 2010/11. Our UK regulated revenues are linked to inflation (see page 30 for an
explanation of the UK regulatory regime), so higher inflation leads to higher revenue. We also have
a significant quantity of index-linked debt, so our financing costs increase as inflation rises,
providing an economic offset. However, revenues and financing costs are both based on lagged
measures of inflation, and the time lags are not the same, so the economic offset is not perfect.
In the US, although GDP grew by 2.3% in 2010/11, unemployment remains high and in March 2011 still
stood at 8.8%. Unlike the position in the UK, we sell gas and electricity directly to consumers in
the US and so we are exposed to bad debt risk, which is affected by unemployment rates. Some of our
rate plans include protection against such risk (see page 35 for an explanation), but in most cases
these do not cover the full cost.
In March 2011, global oil prices reached their highest level since 2008. Our direct exposure to oil
prices is very limited. However, the price of oil affects the willingness of consumers to switch
from oil to gas for domestic heating purposes, which is a significant driver of the increase in our
Gas Distribution customer numbers in the US.
28 National Grid plc | Annual Report and Accounts 2010/11
Corporate responsibility
Our reputation depends on our stakeholders being able to trust us and be confident in us. We
can only retain our right to operate by working to the highest standards, by trusting our employees
to do the right thing and by running our Company responsibly and sustainably.
Our Framework for Responsible Business, revised and relaunched in June 2010, provides a clear line
of sight from our vision to how we manage our business and our day-to-day dealings with our
stakeholders. Our Company wide policies and position statements, available on our website, underpin
the Framework.
This Operating and Financial Review includes summary information and performance
metrics for our key non-financial impacts, including process and employee safety (page 43),
customer service (page 44), an inclusive, diverse and talented workforce (page 52) and climate
change (page 53). Further information on these, together with other non-financial impacts, such as
employee wellbeing, electric and magnetic fields and contaminated land, can be found in the
responsibility section of our website www.nationalgrid.com. This also includes an overview of our
approach to assuring the corporate responsibility information and data in this report and in our
other public corporate responsibility reporting.
Business conduct
This year, we amended and reissued ‘Doing the Right Thing —Our Standards of Ethical Business
Conduct’. Doing the Right Thing provides a common set of practical guidelines to help ensure our
behaviours are lawful, comply with our policies and licences, and follow the values set out in the
Framework and our core values. We undertake face to face training of new starters and are making
available online training for employees annually to ensure they understand the Standards.
We have taken steps to prepare for the implementation of the Bribery Act 2010 which comes into
force in the UK in July 2011. This has included undertaking a risk assessment, review of Company
policies (including Doing the Right Thing mentioned above) and an extensive training and awareness
programme that will include eLearning for all employees.
In 2010/11, there were 13.9 substantiated breaches of the Standards per 1,000 employees compared
with 13.6 in 2009/10. Offences include such things as fraud, internet and email abuse, drugs and
alcohol abuse, and misuse of Company vehicles and other assets. We take all breaches very seriously
and disciplinary action can range from a verbal warning to dismissal.
More information on our approach to business ethics is included in the Corporate Governance section
starting on page 80.
Annual Report and Accounts 2010/11 | National Grid plc 29
Operating and Financial Review
Regulatory environment –
UK regulation
Regulatory framework
In the UK, energy networks are regulated by the Office of Gas and Electricity Markets
(Ofgem). Ofgem operates under the direction and governance of the Gas and Electricity Markets
Authority (GEMA) and has established price control mechanisms that restrict the amount of revenue
that can be earned by regulated businesses.
Ofgem’s main priority is to protect the interests of
consumers. It does this by regulating monopoly activities such as the companies that run the gas
and electricity networks and by promoting competitive gas and electricity markets.
The Gas Act 1986 and Electricity Act 1989, as amended (the Acts), provide the fundamental legal
framework for gas and electricity companies. The Acts establish the licences for electricity
generation, transmission, distribution and supply, and for gas transmission, distribution, shipping
and supply.
Regulatory licences
Our main licensed businesses in the UK are:
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the gas transportation businesses of National Grid Gas plc, consisting of the national
transmission system and the retained distribution network businesses. There are also four
independent distribution networks, which we previously owned and which we sold in 2005; |
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National Grid Metering, which is a subsidiary of National Grid Gas and manages the
latter’s domestic and non domestic metering assets; |
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the electricity transmission
business of National Grid Electricity Transmission plc; and |
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the interconnector business
of National Grid Interconnectors Ltd. |
The licences established under the Acts require each of these
business activities to develop, maintain and operate an economic and efficient network and to
facilitate competition in the supply of gas and electricity in Great Britain. The Acts also provide
the licensed businesses statutory powers such as the right to bury our pipes or cables under public
highways and the ability to purchase land compulsorily in order to facilitate the conduct of
our businesses.
To ensure that our licensed businesses are operating efficiently, and that consumers are protected,
we operate under eight price controls in the UK, comprising: two for our UK electricity
transmission operations, one covering our role as transmission owner (TO) and the other for our
role as system operator (SO); two for our gas transmission operations, again one as TO and one as
SO; and one for each of our four regional gas distribution networks. 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 undertaken by National Grid Metering.
Price control mechanism
Because price control mechanisms restrict revenues, not profits, they encourage efficiencies
within our regulated businesses. Savings that are made can be retained for the remainder of the
price control period, but the higher level of efficiency that led to these savings is then used to
inform a new baseline level for the next price control period.
Price control regulation is designed to ensure that, as a monopoly, we charge reasonable prices,
and to provide us with a future level of revenue sufficient to enable us to meet our statutory
duties and licence obligations. It also provides financial incentives to manage and operate our
networks in an economic, efficient and coordinated manner in accordance with our legal and licence
obligations, offer good quality of service to network users and invest in our networks in a timely
and efficient manner to help ensure long-term security of supply is maintained.
During each price control review period, the amount of money that can be earned by our regulated
businesses is restricted by what is referred to as an RPI-X price control, which is normally
reviewed every five years by Ofgem. The RPI-X allowance is based upon Ofgem’s estimates of
efficient operating expenditure (opex), capital expenditure (capex) and asset replacement, together
with an allowance for depreciation and an allowed rate of return on capital invested in our
businesses. This is summarised in the diagram below, representing a building block model of the
price control.
Building blocks
The inputs of the building block model are used, together with the regulatory asset base
value (RAV) to calculate the allowed revenue. The RAV, which represents the value ascribed by Ofgem
to the capital employed in our regulated businesses, is adjusted to reflect asset additions,
removals, depreciation and the rate of inflation.
The RPI-X price control takes the retail price
index as its benchmark and subtracts X, an
efficiency factor, from it. For example, at a time when annual inflation was 3%, a value for X
of 2% would allow our regulatory businesses to raise prices by no more than 1%. Price controls also
include incentive mechanisms to encourage us to improve our performance in particular areas.
The price control provides our regulated businesses with a level of revenue that is sufficient to
finance the businesses if they are efficiently run. The revenue allowance is based on an estimate
of the costs an efficient company would face in running its regulated businesses and includes
operating expenditure, capital expenditure, financing costs including both debt and equity,
and taxation.
30 National Grid plc | Annual Report and Accounts 2010/11
Current price controls
The key elements of the current price controls for both gas and electricity transmission are
that we are allowed to earn a 4.4% post-tax real return on our RAV, equivalent to a 5.05% vanilla
return, with a £4.4 billion baseline five year capex allowance and a £1.2 billion five year
controllable opex allowance.
In addition, we are subject to a number of incentives that can adjust our transmission network
revenue. For electricity transmission, these include incentives for network reliability, sulphur
hexafluoride losses, efficiency and balancing services. For gas transmission, our incentive schemes
cover areas such as the cost of investment for additional capacity to facilitate new connections to
the system.
The key elements of the current price controls for gas distribution are that we are
allowed to earn a 4.3% post-tax real rate of return on our RAV, equivalent to a 4.94% vanilla
return, with a £2.5 billion baseline five year capex allowance and a £1.6 billion five year
controllable opex allowance.
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Allowed |
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Actual |
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Return |
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vanilla |
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vanilla |
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on |
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RAV |
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return |
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return |
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equity |
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Electricity transmission |
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£8,388m |
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5.05% |
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6.40% |
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13.6% |
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Gas transmission |
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£4,889m |
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5.05% |
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7.20% |
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15.8% |
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Gas distribution |
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£7,520m |
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4.94% |
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5.54% |
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12.1% |
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Total |
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£20,797m |
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13.6% |
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Ofgem’s review of price controls: RPI-X@20
Since privatisation, the RPI-X mechanism has provided the industry with strong incentives to
be more efficient. The level of opex costs has decreased over the years, transforming previously
inefficient nationalised industries. However, over the past few years new challenges, such as Great
Britain’s transition to lower carbon emissions and the requirement to renew ageing networks, have
caused Ofgem to review the continuing appropriateness of the RPI-X approach.
In March 2008, Ofgem announced the RPI-X@20 review, which was a two year project to review the
workings of the current approach to regulating Great Britain’s energy networks and develop future
policy recommendations.
Ofgem’s RPI-X@20 review aims were to: drive improvements in quality of service and efficiency;
ensure that the regulatory framework is flexible to adapt to structural changes in the energy
industry; and enable efficient network companies to finance themselves efficiently.
To allow the lessons of the review to be accommodated in full, Ofgem extended the current
transmission price control from its scheduled end in March 2012 by one year to March 2013.
Following the RPI-X@20 review, Ofgem has identified a modified price control approach, designated
as RIIO, to deliver and meet the changing future needs of the energy market. The fundamental
building block approach shown in the diagram opposite will still be at the heart of the model.
The RIIO model
Ofgem’s revised RIIO regulatory framework will be implemented in the next round of gas
distribution and gas and electricity transmission price controls, which will start in April 2013.
RIIO refers to the formula:
Revenue = Incentives + Innovation + Outputs
To attract the efficient investment needed for the industry, Ofgem’s RIIO model is intended to incentivise network companies
to deliver the outputs demanded by consumers and network users in an efficient and innovative way.
The key features of the RIIO model are:
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a longer price control, lasting eight years, to provide stronger incentives for
networks to manage costs; |
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encouraging network companies to work more closely with
stakeholders to identify what they want from energy network companies. This should help networks to
identify, and so better meet, the developing needs of the energy market; |
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rewarding
network companies with higher returns where they meet the needs of the network users and consumers
in innovative and efficient ways. However, network companies that perform poorly can expect to
receive lower returns; |
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encouraging network companies to become actively involved in
delivering a sustainable energy sector; |
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supporting the development and delivery of a
network service that provides long-term value for money to existing and future consumers; and |
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providing clarity to future investors to ensure that network companies can raise the finance
needed in a timely manner and at a reasonable cost to consumers. |
Impact on National Grid
The RIIO model will not only reward us for increased efficiency but also encourage us to
engage more openly and effectively with our stakeholders. This will allow us to develop more robust
commercial relationships with current and future network users to help us fulfil our vital role in
the delivery of a sustainable future energy sector. It will also help us to respond and adapt our
delivery plans to provide long-term value for money to network users.
Output measures in future
price controls will give stakeholders a clear understanding of what we will deliver in return for
the revenue that we receive from our customers. The proposed output categories are: customer
satisfaction; reliability and availability;
safe network services; connection terms; environmental impact; and social obligations. These
outputs will cover both primary and secondary deliverables. We will be required to demonstrate in
price controls that the primary outputs are material, controllable, measurable, comparable and
legally compliant. The secondary deliverables will be evidenced through our business plans to
demonstrate the costs required to deliver the primary outputs. Four years into the eight year price
control, there will be an interim review of the outputs that we were required to deliver, to ensure
that they remain relevant.
As the energy landscape evolves, Ofgem’s RIIO model should encourage us in our gas distribution and
electricity and gas transmission roles to play a full part in the delivery of a sustainable energy
sector and to deliver network services offering long-term value for money to existing and future
consumers.
Annual Report and Accounts 2010/11 | National Grid plc 31
Operating and Financial Review
Regulatory environment –
US regulation
Regulators
In the US, public utilities’ retail transactions are regulated by state utility commissions,
including the New York Public Service Commission, the Massachusetts Department of Public Utilities,
the Rhode Island Public Utilities Commission and the New Hampshire Public Utilities Commission.
Utility commissions serve as economic regulators in approving cost recovery and authorised rates of
return. The state commissions establish the retail rates to recover the cost of transmission and
distribution services, and focus on services and costs within their jurisdictions. The Federal
Energy Regulatory Commission (FERC) regulates the wholesale transactions of public utilities, such
as interstate transmission and electricity generation, and provides for the cost recovery of these
services.
Utility commissions are also charged with serving the public interest by ensuring utilities provide
safe and reliable service at just and reasonable prices. They establish service standards and
approve mergers and acquisitions of public utilities. FERC also regulates public utility holding
companies and centralised service companies, including those of the US businesses of National Grid.
In the US, many states have deregulated the commodity or supply component of electricity and gas
utility service. Customers in deregulated states have been given the opportunity to purchase
electricity or gas service from competitive suppliers. All the states in which we operate have
deregulated electricity and gas supply.
Regulatory process
Utilities in the US submit a formal rate filing requesting a revenue adjustment in a
proceeding known as a rate case. The rate case process is conducted in a litigated setting and, in
the states in which we operate, it can take six to 13 months for the commission to render a final
decision. In all states, the utility is required to prove that its requested rate change is prudent
and reasonable. The utility may request a rate plan that can span multiple years.
During the rate case process, consumer advocates and other intervening parties scrutinise and often
file opposing positions to the utility’s rate request. The rate case decision reflects a weighing
of the facts in light of the regulator’s policy objectives. During a rate case, the utility,
consumer advocates and intervening parties may agree on the resolution of aspects of a case and
file a negotiated settlement with a commission for approval.
Gas and electricity rates are established from a revenue requirement, or cost of service,
representing the utility’s total cost of providing distribution or delivery service to its
customers. It includes operating expenses, depreciation, taxes and a fair and reasonable return on
the utility’s regulated asset base, typically referred to as its rate base. The rate of return
applied to the rate base is the utility’s weighted average cost of capital, representing its cost
of debt and an adjudicated return on equity (ROE) intended to provide the utility with an
opportunity to attract capital from investors and maintain its financial integrity. The total cost
of service is apportioned among different customer classes and categories of service to establish
the rates, through a process called rate design, for these classes of customers. The final cost of
service and rate design are ultimately approved in the rate case decision.
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 year which are intended to arrive at the total costs
expected in the first year new rates will be in effect, or the rate year, and may include
forecasted capital investments in determining rate year rate base. Often, known and measurable
adjustments are made to test year
data to reflect normal operating conditions. In Massachusetts and New Hampshire, only limited
adjustments to this test year are allowed, which are required to be both known and measurable. New
York and Rhode Island allow more comprehensive adjustments to the test year.
In summary, the US regulatory regime is based on a building block approach intended to allow the
utility to recover its cost of service and earn a return on past investments.
Regulatory lag
Once approved, base rates are typically either fixed until the next request is filed and
litigated, or may be adjusted pursuant to a multi-year rate plan. Consequently, if costs change
substantially between rate cases and base rates remain unchanged during the same period, the result
can be large discrepancies between revenue generated from rates and actual costs incurred, commonly
referred to as regulatory lag.
One of the ways to reduce the effects of regulatory lag has been to propose and gain approval for
rate adjustment mechanisms in respect of certain costs which are generally outside the control of
the utility management, such as pension and other post-employment benefit (OPEB) costs. Such
mechanisms may be known as true ups or reconciling mechanisms. Base rates generally provide an
allowance for such costs, but the actual costs incurred by the utility may turn out to be higher or
lower than the allowance. A reconciling mechanism allows the utility to charge or refund to
customers an amount in addition to or in place of base rates, so that the overall revenue providing
for the recovery of the specified costs matches the actual costs incurred. A summary of these
arrangements can be found on page 35.
Another way to reduce regulatory lag is by gaining approval of a formula rate from the regulator.
FERC allows transmission cost recovery from wholesale transmission customers based upon a formula.
The charges to wholesale customers are updated at least annually, based upon actual costs incurred
and investments made. A calculation is performed each year to compare the actual with the projected
revenue requirement. Any refund or surcharge in rates is an adjustment to the revenue requirement
for the subsequent period. For our New England wholesale transmission business, the formula
operates on a monthly basis, which virtually eliminates regulatory lag.
Our rate plans
We have five sets of electricity rates and seven sets of gas rates, covering our electricity
distribution operations in upstate New York, Massachusetts, Rhode Island and New Hampshire, and our
gas distribution networks in upstate New York, New York City, Long Island, Massachusetts, Rhode
Island and New Hampshire. Distribution and transmission electricity services in upstate
32 National Grid plc | Annual Report and Accounts 2010/11
New York continue to be subject to a combined rate that is billed to end use customers. In New
England, retail transmission rates reflect the recovery from our end use customers of wholesale
transmission charges assessed to our electricity distribution companies. Wholesale rates for our
electricity transmission network in New England and New York are subject to FERC approval.
We have
regulatory arrangements that provide for the recovery of our historical investments and commitments
related to our former electricity generation business that were stranded when some of our US
subsidiaries divested their generation assets as part of industry restructuring and wholesale power
deregulation in New England and New York. These arrangements include the recovery of certain above
market costs of electricity power purchase contracts that were in place at that time. We recover
most of these costs through the rates charged to our electricity customers. We will have fully
recovered our sunk investments in generation assets by the end of 2011 at which time revenue
associated with stranded cost recovery will decline significantly.
Our rate plans are designed to produce a specific allowed ROE, by reference to an allowed operating
expense level and rate base. Some rate plans include earned savings mechanisms that allow us to
retain a proportion of the savings we achieve through improving efficiency, with the balance
benefiting customers.
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.
Features of our rate plans
Unlike the position in the UK, we are responsible for billing our customers for their use of
electricity and gas services. Customer bills typically comprise a commodity charge, covering the
cost of the electricity or gas delivered, and delivery charges, covering our delivery service.
Depending on the state, delivery rates are either based upon actual sales volumes and costs
incurred in an historical test year, or on estimates of sales volumes and costs, and in both cases
may differ from actual amounts. A substantial proportion of our costs, in particular electricity
and gas purchases for supply to customers, are pass-through costs, meaning they are fully
recoverable from our customers. Our charges to customers are designed to recover these costs with
no profit. Rates are adjusted from time to time to ensure any over- or under-recovery of these
costs is returned to, or recovered from, our customers. There can be timing differences between
costs being incurred and rates being adjusted.
Our electricity and gas distribution businesses operate under franchise agreements that provide us
with certain rights and obligations regarding facilities and the provision of service within each
state in which we operate. In addition, there are federal and state laws and regulations covering
both general business practices and electricity and gas operations in particular, especially with
respect to safety, energy transactions, customer sales and service, levels of performance, rates,
finances and environmental concerns.
Our Long Island generation plants sell capacity to the Long Island Power Authority under a
contract, approved by FERC, which provides a similar economic effect to cost of service rate
regulation.
Revenue for our wholesale transmission business 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 end use customers, these wholesale
transmission costs are incurred by distribution utilities on behalf
of their customers and are fully recovered as a pass-through from end use customers as approved by
each state commission.
Regulatory filings
The objectives of our rate case filings are to ensure that we have the right cost of service
with the ability to earn a fair and reasonable rate of return, while providing safe and reliable
service to our customers. In order to achieve these objectives and to reduce regulatory lag, we
have been requesting structural changes, such as revenue decoupling mechanisms, capital trackers,
commodity related bad debt true ups, and pension and OPEB true ups, separately from base rates.
These terms are explained below the table on page 35.
The chart below shows the progress we have made on these regulatory principles (excluding New
Hampshire). We continue to work towards implementing these regulatory principles across our US
business.
Although many of our rate plans feature revenue decoupling, in some cases decoupling applies only
to some classes of customer. As a result, the proportion of revenues which is decoupled is 81% for
our electricity businesses and 57% for our gas businesses for 2010/11. Transmission revenue is
effectively decoupled.
Massachusetts gas rate case
On 16 April 2010, we filed a rate case for the Boston, Essex and Colonial Gas companies. The
filing included requests for approval of: an increase in revenue to fund distribution operations
and prior capital additions; a revenue decoupling mechanism; an infrastructure investment tracker;
true up mechanisms for commodity bad debt and pension costs; and an annual inflation adjustment
tracker.
On 2 November 2010, the Massachusetts regulator ruled on our request. We were granted an increase
in revenue of $58 million, based upon an allowed return on equity of 9.75% and a 50% equity ratio.
We also received approval for the implementation of a revenue decoupling
mechanism, true up mechanisms for commodity bad debt and pension costs, and an infrastructure
investment tracker with a cap on annual base rate increases of 1% of revenues for the prior
calendar year. The regulator denied our proposed inflation adjustment tracking mechanism. Rates
went into effect on 2 November 2010. The regulator also approved consolidated base rates for the
merged Boston Gas and Essex Gas operations, as well as for the two operating divisions of Colonial
Gas, so that we have two sets of base rates instead
Annual Report and Accounts 2010/11 | National Grid plc 33
Operating and Financial Review
Regulatory environment –
US regulation continued
of four. On 22 November 2010, we filed a motion for recalculation on certain rate case items,
worth approximately $10 million in additional annual revenue. We expect a regulatory decision
during the first half of 2011/12.
Massachusetts electricity revenue decoupling
and pension expense filing
On 25 February 2011, the Massachusetts regulator approved, subject to further review, rate
adjustments resulting from our revenue decoupling mechanism and pension and OPEB expenses. The
revenue decoupling mechanism allows for annual adjustments to our distribution rates to support
incremental capital investment of up to $170 million, less the annual base rate allowance for
depreciation expense of $96 million, and the reconciliation between allowed annual revenue targets
and billed revenue. The approved revenue decoupling mechanism rate adjustments provide for the
recovery of $2.6 million in revenue beginning on 1 March 2011. The regulator also approved recovery
of forecast pension and OPEB expenses for calendar year 2011, one third of the balance of the
expenses in excess of revenue for calendar year 2010 and carrying charges associated with pension
and OPEB assets and liabilities. The approval permits the recovery of $50.3 million in costs
beginning on 1 March 2011, representing an annual increase of $17.4 million.
Upstate New York electricity rate case
In January 2010, we filed a three year rate proposal for our upstate New York electricity
business, to take effect from 1 January 2011. The filing included a request for an increase in
revenue to fund electricity operations, a revenue decoupling mechanism proposal as requested by the
regulator and annual reconciliation mechanisms for certain non controllable costs. During the
proceeding, the rate case proposal was limited to one year.
In January 2011, the regulator ruled on our request, increasing base delivery rates by $119.3
million with effect from 1 February 2011, and allowing for a full calendar year of cost recovery as
if new rates had come into effect on 1 January 2011. We were granted a 9.3% ROE with a capital
structure of 48% common equity. An amount equivalent to 0.2% ROE, approximately $7 million, is
refundable to customers if we file for new rates before 1 January 2012. Of the $119.3 million
increase, approximately $40 million represents a one-off recovery of stranded costs. The increase
in 2011 is entirely offset by extending the recovery period of certain deferred costs to prevent an
increase in customer bills for 2011. The increase in delivery rates is therefore to be deferred
until 2012 and will be subject to a filing by July 2011 for the recovery of deferral balances. In
addition, $50 million of the annual revenue increase was approved on a temporary basis pending the
outcome of a review of affiliate service company costs. The regulator approved the decoupling of
revenues from energy delivered for all customer classes eligible for energy efficiency programmes
and continues to allow for the full recovery of pension, OPEB and energy supply costs.
Downstate New York deferrals filing
The downstate New York rate plans allow us to request recovery or refund of certain costs and
forecast expenses which vary from rate plan allowances. Such costs include: site investigation and
environmental remediation; property tax; and pension and OPEB expenses. On 29 January 2010, our
downstate New York companies made a filing with the New York regulator to request up to $65 million
in cost recovery per year over five years. The proceeding is ongoing.
Rhode Island filings
In May 2010, Rhode Island enacted legislation requiring us to decouple revenue from energy
delivered and providing revenue
support for prospective infrastructure investment and certain electricity operation and maintenance
expenses. In October 2010, we submitted our electricity and gas revenue decoupling mechanism
petitions, and expect a regulatory decision in June 2011 that will include an effective start date
of 1 April 2011. Incremental funding of our expanded electricity energy efficiency programmes was
approved, beginning in January 2011. Due to conflicting statutes, the expanded gas efficiency
programmes were not approved, but we anticipate that this will be resolved in 2011/12.
In December 2010, we filed petitions seeking approval of our 2011/12 infrastructure, safety and
reliability plans for the electricity and gas businesses. In the filings, we requested revenue for
the costs of capital investment programmes, along with vegetation management and inspection and
maintenance expenses for the electricity distribution business. Both petitions were approved in
March 2011, providing additional annual electricity and gas distribution revenues of approximately
$3.3 million and $1.8 million, respectively.
New Hampshire gas rate case
On 26 February 2010, we filed a rate case for the EnergyNorth gas distribution business. The
filing included a request for an overall increase in revenue of $11.4 million and a return on
equity of 11.2%. We also proposed a revenue decoupling mechanism, an expanded capital tracker,
reconciling mechanisms for pension and OPEB and for commodity related bad debt and an inflation
tracker on operations and maintenance
costs. On 14 May 2010, the regulator approved $5 million in temporary rates which will become
effective on 1 June 2010, reconcilable to the final decision with new rates effective from 1 April
2011.
We entered into a settlement agreement for permanent rates in January 2011. The final decision,
approving the settlement of the case, was issued on 10 March 2011. We received a revenue increase
of $6.8 million, based upon an imputed return on equity of 9.67% and a capital structure of 50%
equity. In addition, we received approval for a reconciling mechanism for commodity related bad
debt, once certain thresholds are achieved, as well as updated pension and property tax expense for
current year data. The final decision did not include approval of a revenue decoupling mechanism,
pension and OPEB tracker or inflation tracker.
Disposal of New Hampshire businesses
On 8 December 2010, National Grid signed an agreement with a subsidiary of Algonquin Power &
Utilities Corp. for the sale of the EnergyNorth gas and Granite State electricity companies. The
transaction is expected to close in the second half of 2011/12.
Liberty Consulting Group audit
In September 2010, we commissioned Liberty Consulting Group (Liberty), a nationally
recognised leader in providing independent audits of regulated businesses, to conduct a
comprehensive review of our cost allocation process. Liberty was hired following questions about
our cost allocation processes which surfaced during the upstate New York electricity and
Massachusetts gas rate cases in August 2010. After a five month review, Liberty issued its final
report including recommendations on our US accounting systems and practices. The review found no
evidence of deliberate misallocation of expenses. Liberty’s recommendations, including a focus on
financial reporting by jurisdiction rather than by line of business, improving controls and
training related to cost allocation, and moving toward a single, consolidated financial platform
and cost allocation methodology, are generally in line with actions we are already taking to
implement improvements.
34 National Grid plc | Annual Report and Accounts 2010/11
Summary of US price controls and rate plans
|
† |
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 the Company 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 other
post-employment benefits 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. |
Annual Report and Accounts 2010/11 | National Grid plc 35
Operating and Financial Review
Business drivers, principal risks
and opportunities
36 National Grid plc | Annual Report and Accounts 2010/11
Annual Report and Accounts 2010/11 | National Grid plc 37
Operating and Financial Review
Vision, strategy and objectives
Vision
Our vision is the long-term aspiration for National Grid: what we want to be in the future.
Our vision statement has remained unchanged since we first published it in 2007:
We, at National Grid, will be the foremost international electricity and gas company, delivering
unparalleled safety, reliability and efficiency, vital to the wellbeing of our customers and
communities.
We are committed to being an innovative leader in energy management and to safeguarding our global
environment for future generations.
Strategy
Our strategy is a medium-term step in our journey to achieve the vision: what we will be
doing over the next few years. It is also the overarching principle which provides commercial
context to each of the objectives and actions.
Our strategy is designed to ensure that the objectives remain aligned with the factors that drive
our business. To see how those factors are aligned, see pages 36 and 37. For the last three years,
our strategy has been expressed in these terms:
We will build on our core UK and US, electricity and gas, regulated business base and financial
discipline to deliver sustainable growth and superior financial performance.
Objectives
To guide leaders, managers and individuals in our businesses and help deliver the strategy,
we set out eight Company objectives:
l |
|
Driving improvements in our safety, customer and operational performance |
|
l |
|
Delivering strong, sustainable regulatory and long-term contracts with good returns |
|
l |
|
Modernising and extending our transmission and distribution networks |
|
l |
|
Expanding our capabilities and identifying new financeable opportunities to grow |
|
l |
|
Becoming more efficient through transforming our operating model and increasingly aligning our processes |
|
l |
|
Building trust, transparency and an inclusive and engaged workforce |
|
l |
|
Developing our talent, leadership skills and capabilities |
|
l |
|
Positively shaping the energy and climate change agenda with our external stakeholders
in both regions |
These are the objectives against which our performance has been measured this year.
A summary of our progress is set out below, and a detailed discussion of our performance against
each of the objectives can be found on pages 42 to 53.
Line of sight
In a number of places in this report, we refer to the principle of line of sight. What we
mean by this principle is that the individual objectives of every employee should be set by
reference to the Company objectives, strategy and vision, ensuring that every individual is
encouraged and incentivised to contribute to the same collective goals. Consequently the actions
required to deliver the strategy are allocated and aligned with employee responsibilities.
Performance for growth
Our performance, talent and reward management process for managers is known as performance
for growth (P4G). Formal annual P4G performance appraisals are carried out for every manager
against their individual objectives and against the National Grid leadership qualities.
The appraisal assesses both what the individual has achieved during the year and how those outcomes
have been achieved. Our staff performance and reward framework for non managerial grades,
delivering performance, applies the same principles in aligning individual objectives with those of
the Company.
Strategy for 2011/12
We have updated our line of sight framework and this refreshed framework reflects the new
organisational arrangement, namely moving from a line of business structure to a regional
structure, as set out on page 22. In addition, we have increased the level of transparency of our
strategic actions. This change will improve the connection between individual actions and the
achievements the organisation needs to make in the year.
The refreshed framework is shown opposite. This reflects our modified operating model in explicitly
organising our business on a regional basis: UK and US. Our strategy is evolving to reflect the
different challenges and operating environments we face (eg the regulatory frameworks differ
significantly between the UK and US, as well as differences in energy policy direction). We will
continue to exploit the scale benefits of having a global business, as set out in the shared
strategic actions, but our new regional organisation will also help us to overcome the different
challenges that our businesses face while ensuring a clear link with all our stakeholders.
We have worked hard to ensure that future UK price controls reflect the need for substantial and
timely investments to ensure climate change targets and security of supply requirements are met,
while delivering acceptable and timely returns.
In the US, our focus remains on filing rate plans and achieving appropriate rate outcomes, while
also addressing our cost base. 2010/11 has seen some progress but there is more to do.
38 National Grid plc | Annual Report and Accounts 2010/11
*These are the forthcoming price controls for our UK regulated businesses. Transmission price
control 4 (TPCR4) is the one year extension of the current price control for transmission to March
2013. The first RIIO price controls (RIIO-T1 for transmission, RIIO-GD1 for gas distribution) will
start in April 2013
Annual Report and Accounts 2010/11 | National Grid plc 39
Operating and Financial Review
Key performance indicators (KPIs)
|
|
|
|
|
Financial KPIs |
|
|
|
|
|
Company strategy and objectives |
|
Financial KPIs |
|
Definitions |
|
|
|
|
|
|
Sustainable growth and superior financial
performance
|
|
Adjusted earnings per share
|
|
Adjusted earnings* divided by the weighted
average number of shares |
|
|
|
|
|
|
|
Total shareholder return
|
|
Average of the closing daily TSR levels
for the 30 day period up to and including
that date, assuming dividends have been
reinvested |
|
Delivering strong, sustainable regulatory
and long-term contracts with good returns
|
|
Group return on equity
|
|
Adjusted earnings* with certain regulatory
based adjustments divided by equity |
|
Becoming more efficient through
transforming our operating model
and increasingly aligning our processes
|
|
Regulated controllable operating costs
|
|
Regulated controllable operating costs,
excluding bad debts, as a proportion of
regulated assets |
|
|
|
|
|
|
Our performance and the progress we have made against our strategic aims and against the objectives
we have set ourselves are described below and on the following pages. Commentary on our overall
financial results can be found on pages 54 to 59, and information on the performance and financial
results of each line of business is set out on pages 60 to 68.
We measure the achievement of our objectives both through the use of qualitative assessments and
through the monitoring of quantitative indicators. To provide a full and rounded view of our
business, we use non-financial as well as financial measures. Although all these measures are
important, some are considered
to be of more significance than others, and these more significant measures are designated as KPIs.
Our financial and non-financial KPIs are highlighted here. KPIs are used as our primary measures of
whether we are achieving our principal strategic aims of sustainable growth and superior financial
performance. We also use KPIs to measure our performance against our objectives; the relationships
between the objectives and the KPIs is explained above.
|
|
|
*
|
|
Adjusted earnings exclude exceptional items, remeasurements and stranded cost recoveries |
+
|
|
2007/08 data include continuing operations acquired with KeySpan for the period from 24 August 2007 to 31 March 2008 or as at 31 March 2008 |
†
|
|
Comparative data have been restated for the impact of the bonus element of the rights issue and the scrip dividend issues |
^
|
|
2007/08 results include KeySpan operations on a pro forma financial performance basis assuming the acquisition occurred on 1 April 2007 |
◊
|
|
Prior years have been restated on a constant currency basis |
40 National Grid plc | Annual Report and Accounts 2010/11
|
|
|
|
|
Non-financial KPIs |
|
|
|
|
|
|
Company objectives |
|
Non-financial KPIs |
|
Definitions |
|
Modernising and extending our transmission
and distribution networks
|
|
Network reliability targets
|
|
Various definitions appropriate to the
relevant line of business |
|
Driving improvements in our safety,
customer and operational performance
|
|
Customer satisfaction
|
|
Our position in customer satisfaction
surveys |
|
|
|
|
|
|
|
Employee lost time injury frequency rate
|
|
Number of employee lost time injuries per
100,000 hours worked on a 12 month basis |
|
Building trust, transparency and an inclusive
and engaged workforce
|
|
Employee engagement index
|
|
Employee engagement index calculated
using responses to our employee survey |
|
Positively shaping the energy and climate
change agenda with our stakeholders in
both regions
|
|
Greenhouse gas emissions
|
|
Percentage reduction in greenhouse gas
emissions against our 1990 baseline |
|
|
|
|
|
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Network reliability |
|
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Performance |
|
|
Measure |
|
|
Target |
|
targets |
|
|
|
|
06/07 |
|
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07/08 |
|
|
08/09 |
|
|
09/10 |
|
|
10/11 |
|
|
|
|
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|
10/11 |
|
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|
Electricity transmission – UK |
|
|
99.9999 |
|
|
|
99.9999 |
|
|
|
99.9999 |
|
|
|
99.9999 |
|
|
|
99.9999 |
|
|
|
% |
|
|
|
99.9999 |
|
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|
Gas transmission – UK |
|
|
100 |
|
|
|
100 |
|
|
|
100 |
|
|
|
100 |
|
|
|
100 |
|
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|
% |
|
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|
100 |
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|
Gas distribution – UK |
|
|
99.999 |
|
|
|
99.999 |
|
|
|
99.9999 |
|
|
|
99.999 |
|
|
|
99.999 |
|
|
|
% |
|
|
|
99.999 |
|
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|
Electricity transmission – US |
|
|
259 |
|
|
|
437 |
|
|
|
266 |
|
|
|
147 |
|
|
|
414 |
|
|
MWh losses |
|
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|
<204 |
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See page 45 for additional details on network reliability |
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Gas Distribution – UK |
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Gas Distribution – US: Residential |
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Gas Distribution – US: Commercial |
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Electricity Distribution & Generation: Residential |
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Electricity Distribution & Generation: Commercial |
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~ 2007/08 restated due to improved baseline data relating to KeySpan. Previously published figure excluding KeySpan was 30%
Annual Report and Accounts 2010/11 | National Grid plc 41
Operating and Financial Review
Performance against objectives
We use a number of detailed performance measures in addition to the key performance
indicators (KPIs) shown on pages 40 and 41, reflecting the scale and complexity of our operations.
We use qualitative assessments to judge progress against our objectives in areas where numerical
measures are less relevant.
Alignment of performance measures and strategy
Our strategy and the Company objectives for 2010/11 are set out on page 38. Our performance
in implementing the key elements of our strategy is measured in the following ways.
We will build on our core UK and US electricity and gas regulated business base...
We invest in our existing business in order to improve efficiency and reliability and to
support our targeted dividend growth. We will also consider acquisitions in these core areas, but
only where we believe we can derive added value for our investors.
Our KPIs in this area, as shown on pages 40 and 41, are total shareholder return and network
reliability. Other performance measures include capital investment (see pages 47 to 49), and
dividend growth (see page 55).
...and financial discipline...
We seek to control operating costs and to invest capital only where we expect to be able to
obtain an acceptable return. We are committed to maintaining a single A range credit rating at the
UK operating company level.
Our KPI in this area, as shown on page 40, is regulated controllable operating costs presented as a
proportion of regulated assets. Other performance indicators include regulatory returns (see page
31 for UK returns and page 35 for returns for US businesses) and interest cover (see page 56).
...to deliver sustainable growth...
There are a number of factors that determine the extent to which growth is sustainable. We
believe that operational excellence will help us to build and maintain good relationships with our
customers and regulators. Managing the skills and talents of our employees helps us to recruit,
retain and develop the best possible talent, creating a diverse and motivated workforce and
positioning ourselves to take advantage of present and future opportunities.
Our KPIs in this area,
as shown on page 41, are customer satisfaction, employee lost time injury frequency rate, employee
engagement index and greenhouse gas emissions. Other performance measures include measures of
gender and ethnic mix.
...and superior financial performance.
We aim to deliver superior returns to our investors, and to ensure that the value we create
is reflected in our share price.
Our KPIs in this area, as shown on page 40 and discussed on page 55, are total shareholder return
and adjusted earnings per share. Other performance measures include adjusted operating profit for
the year (see pages 56 to 59) and operating cash flows (see page 69). A full discussion of our
financial performance can be found on pages 54 to 69.
Future changes to performance measures
Following the strategic review discussed on page 38, and the adoption of the new Company and
regional objectives noted on page 39, we will be reviewing our KPIs and other performance measures
and will report any changes in the 2011/12 Annual Report and Accounts.
42 National Grid plc | Annual Report and Accounts 2010/11
Driving improvements in our safety, customer and operational performance
Safety
Safety is critical both to business performance and to helping to define the culture of the
Company for our employees. We recognise that our operations potentially give rise to risk and that
some of our assets could have catastrophic consequences to surrounding communities if not properly
controlled. We believe we can eliminate or minimise those risks to achieve zero injuries or harm
and to safeguard members of the public. We further believe that everyone in National Grid,
collectively and individually, has a part to play in achieving this.
Process safety
Process safety has been in the headlines in recent years as a result of incidents affecting
other companies such as the Deepwater Horizon incident in the Gulf of Mexico, the Buncefield
explosion in the UK and the San Bruno pipeline explosion in California. While we have not had any
significant incidents, operating major hazard sites and pipelines means managing process safety
risks is always at the front of our thoughts in the way we run our business. As well as ensuring we
have effective management systems in place, we look to incidents at other companies to learn any
lessons.
We have continued to report process safety KPIs up to Executive level throughout the year and have
focused on the effectiveness of the action plans to address any issues. This has been reinforced by
getting our leadership team out into the field to discuss process safety. We see this as a critical
element to demonstrating both leadership commitment and that we listen to the views of our
employees.
In 2010/11, we continued to converge our approach to process safety management across the Company
with the development of a Group level major accident hazard framework. Each part of our business
has an effective safety management system in place which is the product of the legislation in the
region and specific asset management policies. While this has delivered compliance, the
implementation of a Group framework will ensure greater consistency and support the drive for
continual improvement. With elements covering risk assessment, control standards and overarching
management requirements, implementation throughout 2011/12 will require each part of the business
to demonstrate it has adequate controls in place. This will be supported by a cross group peer
review process to provide assurance and facilitate the sharing of good practice.
Occupational safety
We report our employee lost time injury frequency rate, expressed as lost time injuries per
100,000 hours worked, as a key measure that can be compared with other companies. This takes into
account the number of employees and the hours worked. As well as reporting our lost time injury
frequency rate, we also report the number of lost time injuries.
Following a significant reduction in lost time injury frequency rate from 0.25 in 2008/09 to 0.15
in 2009/10, this year saw a slight deterioration, although most of the gains made in the previous
year have been sustained. At the end of 2010/11, lost time injury frequency rate was 0.18 and the
number of lost time injuries was 96 compared with 86 in 2009/10. Definitions for lost time injury
and lost time injury frequency rate are included in the glossary on page 185.
At the same time, we have seen a significant improvement in the lost time injury performance of our
contract partners’ workforce. In 2010/11, there were 51 contractor lost time injuries compared with
85 in 2009/10.
The principal causes of lost time injuries were road traffic collisions, musculoskeletal injuries
and slips, trips and falls. This year has seen a range of programmes implemented to improve
performance in these areas including: installing cameras in our vehicles in the US to enable better
investigation of road traffic collisions; running safe driving workshops in conjunction with local
police forces in the UK; sharing good practice from the US soft tissue injury prevention programme
to develop a similar programme in the UK looking at ergonomic assessment; early referral of injury
to physiotherapists; and rehabilitation of people with long-term injuries.
However, lost time injury frequency rate only shows part of the picture and we measure a range of
other KPIs internally to ensure we control our safety risks. This year has seen particular emphasis
on high potential incidents. These are typically the near misses that do not result in harm, but
have the potential for serious injuries. Examples include: dropped loads, vehicles overturning,
contact with overhead electrical conductors and damaging underground cables. Distinguishing these
incidents in terms of potential severity has allowed us to use novel ways to communicate learning
to our workforce, such as publishing a ‘red top’ style newspaper featuring the stories of people
involved in the incidents. It also provides the focus on developing campaigns to improve
performance before people get hurt.
Public safety
The safety of the public in the communities we serve is of prime importance to us. In
2010/11, 52 members of the public were injured as a result of our activities, compared with 39 in
2009/10 (restated from 44 to remove five incidents not attributable to National Grid activities).
The principal causes of injury were slips, trips and falls around our streetworks and road traffic
collisions with our vehicles.
Enforcement action
During 2010/11, we received two Improvement Notices in the UK from the Health and Safety
Executive (HSE). The first was in relation to the maintenance of a short section of buried steel
pipe running from an LPG vessel at one of our training centres. The notice was complied with and
the pipe was subsequently found to be plastic. The second notice was in relation to our approach to
collecting data on the condition of service pipes in blocks of flats. We have agreed a programme of
work with the HSE to be completed by the end of September 2011.
In the US, we received five citations from the Occupational Safety and Health Administration
totalling $21,750 (£13,854). These were as a result of an incident in an excavation where the side
collapsed injuring an employee.
Annual Report and Accounts 2010/11 | National Grid plc 43
Operating and Financial Review
Performance against objectives continued
Customer service
Excellent customer service is not only consistent with our values and simply the right thing to do,
it makes good business sense as good customer service means fewer complaints and decreased rework.
Gas Distribution UK
Over the summer of 2010, work was completed on a new five year Gas Distribution customer strategy.
While building on a number of existing initiatives to improve customer performance, we expect to
benefit from continuous improvement to our current working practices and processes, and the
implementation of our new customer and user friendly systems (see Gas Distribution front office on
page 50).
We recognise that system and process change alone is not enough to get us to our targets; we
require more to deliver the standards of customer service to which we aspire. In 2011/12, we aim to
change the look and feel of the interaction customers experience with us through the internet and
printed media, including reviewing other companies’ methods to determine best practice. We will be
able to use better management information to identify areas for closer focus for continuous
improvement. We will develop and implement a stakeholder communication plan and implement training
to support delivery of customer service. We will also improve our complaints handling processes to
ensure we meet the Ofgem incentive and drive down complaints by understanding root causes and
learning from them.
It is important to develop meaningful performance measurement tools, including performance targets
for employees and contract partners to incentivise excellent performance.
Early indications are that our new strategy is driving improvements. All our networks are moving
forward and we are scoring at or above our expectations for customer satisfaction.
Transmission UK
Transmission UK is facing a period of unprecedented change within the energy sector. To deliver our
part in meeting the government targets we will need to be a flexible organisation that is in tune
with the market environment and with our customers.
Our growing list of customers includes new developers, (from nuclear to wind, both on and offshore,
wave and tidal power), gas storage and our more conventional gas and electricity customer
connections. These new entrants will need our help in understanding our business and its
complexity. We should not forget that we have a significant existing customer group who rightly
expect us to deliver great customer service too. As customers ourselves, this is something we can
and do expect.
Using information we have gathered from our customers and our employees, we are on
our way to making the cultural shift in the way we behave and the way in which we do things. We are
reviewing our internal interactions to assess their impact on our service provision, we are looking
to ensure our website is a valued information resource, we will communicate the service level our
customers can expect and are supporting our employees in developing their customer service skills.
We will continue to listen and respond to our customers and act upon their feedback. It is
important to us that our customers recognise us as a company that is good to do business with and
one that listens.
44 National Grid plc | Annual Report and Accounts 2010/11
US
Anticipating the wants and needs of our customers is essential to creating a future which delivers
customer satisfaction. This year we have advanced projects supporting further consolidation of our
customer systems which will drive efficiency and also provide improved customer service. The focus
remained on strengthening our proactive collections strategy which provides for flexibility to
treat customers differently based on their risk profile, no longer employing a uniform approach for
all customers. In addition, we are piloting a home working programme for some of our employees
designed to enhance employee satisfaction and loyalty while driving cost efficiencies.
Customer satisfaction
Reliable and efficient customer services are priorities. Improvements in our operations and how
customers conduct their business with us have led to improvements in customer satisfaction. A key
customer satisfaction metric comes from the J.D. Power and Associates independent customer
satisfaction studies. Since the beginning of 2009, we have shown improvement overall in the J.D.
Power satisfaction studies, moving from third to second quartile in two surveys, moving from fourth
to third quartile in a third survey but falling to the fourth quartile in the commercial gas
distribution survey in 2011.
We continue to enhance the experience customers have with us, giving them the channels and options
they want to conduct their business with us. Our contact and support centre exceeded all regulatory
service level and customer satisfaction targets in 2010.
The contact and support centre is the face
of the Company to each and every one of our customers. Last year the centre handled 14.5 million
calls, conducted 850,000 customer office interviews and responded to 90,000 customer emails. The
success of our credit and collection programmes have helped to mitigate the effects of the economy
on our bad debts, with write-offs being reduced by over $54 million (£34 million). Our consumer
advocacy group assisted over 18,000 of our most vulnerable customers, who have demonstrated an
inability to pay their energy bills, by identifying available programmes or services and
implementing personalised payment plans designed to meet their individual needs.
Customer energy solutions
The customer energy solutions (CES, formerly customers and markets) group was designed to deliver
integrated energy management solutions to help customers make better energy choices. Established in
May 2010, CES is responsible for understanding market and customer needs, developing energy
products and services, delivering integrated energy solutions and maintaining relationships with
communities, key customers and local governments in support of business plans and priorities.
Given our customers’ economic concerns, CES’s marketing communications use bill inserts, direct mail and
social media to provide customers with tips on how to manage their energy usage. To drive energy
efficiency performance in our service territory, CES manages more than 100 different programmes
across our regions and a budget of more than $400 million (£250 million) and growing. Since the
inception of our efficiency programmes, more
than 5.5 million National Grid customer projects have been completed in New England, saving over
$4.0 billion (£2.5 billion) in lifetime energy costs and other benefits. Our programmes save
customers nearly $80 million (£50 million) annually.
CES is also responsible for stakeholder management, which involves engaging the communities we
serve when we are planning large construction projects to improve our service to customers.
Further, as part of our energy management portfolio we consistently
engage in research and development opportunities to provide diverse energy solutions offerings that
include solar generation, alternative fuel and energy efficient options for our residential and
commercial customers. We also help drive regional economic growth through economic development
programmes.
Reliability
Transmission
We continue to maintain a world class standard of transmission network reliability in the UK, with
reliability scores of 99.9999% for electricity and 100% for gas. Electricity network availability,
which is affected by asset replacement activity, was 93.6% on average (2009/10: 94.76%), increasing
to 96.95% (2009/10: 97.55%) for the winter peak demand.
In the US, annual electricity transmission network availability improved significantly to 99.97%
from 98.8% last year. Peak demands were 7.580 GW in New England and 6.915 GW in upstate New York.
Gas Distribution
In the UK, despite the severe winter, we again achieved a high network reliability level of
99.999%, reflecting the low volume of customer interruptions during the year. We met our regulatory
standards of service with the exception of one dealing with a category of connection quotations and
several dealing with gas escapes. The coldest weather in December in over a century significantly
increased emergency workload and hindered our engineers’ travel. As a result we fell short in six
of our eight standards of service for gas escapes, where we are required to attend 97% of the
escapes between one and two hours of the report.
The US Gas Distribution business met all regulatory requirements regarding service quality indices
and performance measures. These standards are set by state regulatory agencies and cover
operational activities including, but not limited to: damage prevention; leak repair; emergency
response; inspections; meter changes; and main and service replacements.
Electricity Distribution & Generation
We achieved all our regulatory reliability targets in upstate New York, Long Island and Nantucket.
Massachusetts Electric achieved one regulatory target but failed to meet the other because of a
wind storm in February. We have filed a request for this event to be excluded, but may incur a
penalty of $5.5 million (£3.5 million) if that request is not granted. In New Hampshire we achieved
one of our two regulatory targets, but no penalty applies for failure to meet the second target. In
Rhode Island we failed to meet our regulatory targets and may incur a small penalty.
Annual Report and Accounts 2010/11 | National Grid plc 45
Operating and Financial Review
Performance against objectives continued
Delivering strong, sustainable regulatory and long-term contracts with good returns
Regulation
For a full description of UK regulation, including the key elements of current price controls and
developments in the year, see pages 30 and 31.
For a full description of US regulation, including the key elements of our current rate plans and
developments in the year, see pages 32 to 35.
Long-term contracts
On 7 May 2010, we signed an agreement with Cape Wind Associates to buy clean power from the first
large scale offshore wind farm in the US. On 22 November 2010, the Massachusetts regulator approved
the amended 15 year power purchase agreement between Massachusetts Electric, Nantucket Electric,
Cape Wind Associates and the Attorney General of the Commonwealth of Massachusetts. We have an
option to extend the contract for a further 10 years. Under the contract, we will purchase 50% of
the wind farm’s output at a fixed rate per kilowatt hour in the first full year of operation,
rising at 3.5% per annum thereafter. This includes electricity, capacity and renewable energy
attributes, and will begin on the commercial operation date of the facility, which is anticipated
to be by the end of 2012. The contract will enable us to comply with the Massachusetts renewable
energy and greenhouse gas emissions reduction requirements, and will enhance reliability and
moderate peak load. Cape Wind has a capacity of 468 MW.
On 30 June 2010, pursuant to Rhode Island legislation passed in 2010, Narragansett Electric and
Deepwater Wind signed an amended 20 year power purchase agreement for electricity generated from
Deepwater’s initial 28.8 MW offshore wind project near Block Island, Rhode Island. On 11 August
2010, the Rhode Island regulator approved the power purchase agreement between the two companies.
The agreement is an amendment of an earlier purchased power agreement executed in 2009 but
includes, among other things, a fixed bundled price under the contract in its first year as well as
the ability of any project savings to be flowed through the agreement for the benefit of our
customers. The initial offshore wind project will include up to eight turbines and we would buy
Deepwater’s output for a fixed rate per kilowatt hour in 2013, escalating at 3.5% per year.
46 National Grid plc | Annual Report and Accounts 2010/11
Modernising and extending our transmission and distribution networks
The principal measure we use to monitor organic investment is capital expenditure, including
investment in property, plant and equipment, and software. The graph below shows our capital
expenditure over the last five years, by segment. The largest area of organic growth is in the
Transmission segment in the UK, and we expect that to be the case for the next few years.
We have delivered a record level of capital investment this year of £3,603 million, including joint
ventures, with significant projects across the Company but particularly in the UK where investment
is focused on structural changes to the sources of gas and electricity supply. Ageing equipment and
carbon reduction targets are leading to the retirement of existing generating capacity and demands
to connect low carbon and renewable generation. Our role is to ensure that these new sources of
energy can be delivered to areas of demand: a critical role in meeting the UK government’s
climate change agenda and achieving the associated CO2
reduction targets by 2020. We continue
to expect this to drive further growth in capital investment in coming years.
Over the past year we saw further increases in demand for connections of renewable generation to
the UK electricity transmission system. In 2010/11, the level of renewable generation already
connected or with firm connection requests reached the level required to meet the UK renewable
energy target of more than 30% of electricity being generated from renewable sources by 2020.
We ensure, before any investment is undertaken, that we are clear how and when it will be remunerated
and we only look to invest capital where we expect to be able to earn an acceptable return.
Combined with procurement efficiencies this disciplined approach to capital investment has
restricted the level of increase in our capital expenditure to approximately £265 million compared
with last year.
Annual Report and Accounts 2010/11 | National Grid plc 47
Operating and Financial Review
Performance against objectives continued
Transmission UK
Capital investment of £1,432 million in 2010/11 (2009/10: £1,254 million; 2008/09: £1,259 million)
mainly related to UK electricity transmission including investment to facilitate connection of
renewable generation, the Thames Estuary reinforcement and our London cable tunnels project.
Capital investment included £27 million with respect to intangible assets, principally software
applications (2009/10: £21 million; 2008/09: £18 million).
Transmission US
Capital investment was £310 million in 2010/11 (2009/10:
£240 million; 2008/09: £182 million). After excluding the £1 million effect of exchange movements,
capital investment increased by £69 million in 2010/11 compared with 2009/10. The change
principally reflects the increased investment in improving regional reliability including the New
England East-West Solution, and the refurbishment of overhead lines in New England.
Gas Distribution UK
Capital investment of £669 million in 2010/11 (2009/10: £670 million; 2008/09: £598 million)
consisted of £476 million replacement expenditure (2009/10: £465 million; 2008/09: £425 million)
and £193 million other capital investment (2009/10: £205 million; 2008/09: £173 million).
Expenditure on software applications included within the above amounts was £75 million (2009/10:
£54 million; 2008/09: £22 million). The increase in expenditure is primarily driven by the Gas
Distribution front office system (see page 50).
Replacement expenditure increased by £11 million compared with 2009/10. Performance under the mains
and services replacement incentive scheme has been adversely affected by the severe winter weather
and we therefore expect to make a loss on this incentive in 2010/11.
In collaboration with our gas alliance and coalition partners, we have replaced 1,791 kilometres of
metallic gas main this year and more than 15,000 kilometres since 2002/03. The vast majority of
this relates to the long-term gas main replacement programme agreed with the Health and Safety
Executive.
The reduction in other capital expenditure in 2010/11 compared with 2009/10 primarily reflects the
completion of a major new pipeline in west London in 2009/10.
Gas Distribution US
Capital expenditure of £415 million in 2010/11 (2009/10: £409 million; 2008/09: £421 million)
mainly related to the replacement, reinforcement and extension of our US gas distribution networks.
After excluding the effect of exchange movements of £1 million in 2010/11 compared with 2009/10,
capital expenditure increased by £5 million, reflecting a greater volume of main and service
replacements, coupled with higher growth programme spending, partially offset by a decrease in
reliability programme spending.
Electricity Distribution & Generation
Capital investment of £367 million in 2010/11 (2009/10: £372 million; 2008/09: £355 million) mainly
related to distribution line mandatory installations and statutory inspection and maintenance
programmes, and policy driven spending associated with our feeder hardening, reliability, asset
improvement and load relief programmes, substation asset condition improvement, solar investment
and main office and special purpose facility renovations. After excluding the effect of exchange
movements of £1 million in 2010/11 compared with 2009/10, capital investment decreased by £6
million.
Non-regulated businesses and other
Capital investment amounted to £275 million in 2010/11 (2009/10: £307 million; 2008/09: £427
million). We have delayed a decision on the construction of a fourth phase at our Isle of Grain LNG
terminal until demand is clearer.
48 National Grid plc | Annual Report and Accounts 2010/11
Expanding our capabilities and identifying
new financeable opportunities to grow
In addition to the capital expenditure discussed above, we are actively investigating opportunities
in relation to offshore transmission, possible electricity interconnectors with Belgium and Norway,
and carbon capture and storage technology.
We will consider acquiring new businesses in our core
markets of electricity and gas delivery in the UK and US.
We use the aggregate consideration paid and debt assumed to monitor this investment in new
businesses. There is no specific target because each investment is considered on its own merits. We
also monitor synergy savings generated following an acquisition.
There have been no acquisitions
during the last two years.
Grain LNG
On 1 December 2010, we commenced commercial operations for the phase III capacity expansion of our
LNG importation terminal at the Isle of Grain (Grain LNG), on time and to budget. Following the
arrival of the first commissioning cargo of LNG on 29 October, the commissioning process was
completed in just over a month, delivering a 50% increase in terminal capacity for the start of the
winter period. This was achieved while continuing to deliver a high standard of service and meeting
the daily operational needs of our existing customers.
At Grain LNG, work will continue through 2011/12 on reducing our carbon footprint. An innovative
solution has been developed to use hot water from a nearby electricity plant to heat the LNG to
convert it back to its gaseous form for supply.
The commitment to safety at Grain LNG was recognised by the Gas Industry Safety Group who gave us
the accolade of an outstanding safety performance award.
An investment of around £1 billion has made Grain LNG one of the world’s largest importation
facilities, making a vital contribution to UK energy supply security.
Offshore transmission
The UK government has stated its commitment to supporting offshore wind generation and, together
with Ofgem, has established a competitive offshore transmission regulatory regime. The first and
second round of tenders, collectively known as the transitional regime, are under way to identify
licensees to own and operate offshore transmission assets. In April 2011, National Grid Offshore
Ltd was selected, along with three other bidders, to tender for each of the Lincs, Gwynt-y-Mor and
London Array phase 1 wind farm projects, which collectively have a value of just over £1 billion.
Belgian interconnector
National Grid and Elia, the Belgian transmission system operator, continue to develop a project to
construct a 1,000 MW electricity interconnector between the two countries. During 2010, a
geophysical survey was completed and work is well under way in respect of a geotechnical survey.
The results of the surveys will be used to inform the marine consenting activities and subsea cable
design.
Discussions between National Grid, Elia and the two national energy regulators to find an
acceptable regulatory framework are ongoing. During 2011, applications will be submitted to the
respective consenting authorities in the UK and Belgium.
National Grid is also exploring further
electricity interconnector projects to Norway and a second link to France.
Annual Report and Accounts 2010/11 | National Grid plc 49
Operating and Financial Review
Performance against objectives continued
Carbon capture and storage (CCS)
Since 2009, we have been working in partnership with Scottish Power and Shell on a CCS
demonstration project at Longannet in Scotland. As part of this project, we are investigating the
potential to reuse one of our high pressure natural gas transmission pipelines for the
transportation of carbon dioxide. During 2010, National Grid conducted a range of tests at
Spadeadam in Cumbria to help establish safety standards in relation to this new technology. On
Humberside, we are working to develop a potential shared pipeline network and storage site – a CCS
cluster – and we are involved in a further project on Teesside.
Technological developments
The breadth of technological advances that offer opportunities and challenges to us across our
businesses is vast, and we continually seek to identify them and feed them into our assessment
process as early as possible.
Smart grid technology offers many possibilities, from radically improving our customer engagement
and satisfaction through to further automating our electricity distribution systems, to reduce or
eliminate interruptions to supply. Future networks will be cleaner, more integrated and more
resilient and will offer the customer control over how and when they use their energy.
Advancements in gasification and anaerobic digestion technologies already mean many sources of waste in society
and industry can be used as cost effective sources of gas for injection into the gas distribution
networks. This offsets natural gas requirements and contributes to lower carbon intensity at the
point of combustion.
Large scale battery energy storage is beginning to look attractive for a
number of applications in managing our networks as we integrate more intermittent renewable and
distributed generation sources. Adding large scale storage onto our network offers numerous
operational and commercial opportunities.
Breakthroughs in voltage source converter technology will lead to high voltage direct current
becoming the technology of choice within the next five to 10 years for bulk energy transfer over
long distances, opening up opportunities for greater interconnection of networks and the
development of offshore supergrids.
We are active participants in these and many other technologies
as we look to trial and deploy those that offer business value and environmental benefits as soon
as possible on our networks. To meet the challenges of a low carbon future, we believe new
technology breakthroughs will be required and the pace of development will increase. To keep
abreast we take a proactive approach with many external partners including leading technology
providers, academics, research agencies, industry commentators and venture capitalists.
Becoming more efficient through transforming our operating model and increasingly aligning our processes
Gas Distribution front office (GDFO)
GDFO is a significant investment for National Grid in the replacement of our legacy IT applications
for asset and work management systems and is planned to be deployed in three stages. The core of
the new system is SAP with three further satellite applications providing the specialist software
we need to optimise our asset management capabilities and ensure our field staff are able to
respond to customers quickly and effectively.
The first release of the new front office system went
live in October 2010 to over 1,000 employees who operate the maintenance process. We were also able
to implement an early release to emergency response teams in the West and East Midlands areas ahead
of the winter. As with all major IT projects, there were teething problems to resolve in the first
few weeks after going live and we were able to gain valuable experience through the winter of how
the new system works.
The next two stages of GDFO implementation will take place in 2011/12. In the spring/summer, we
will complete the full rollout to the remaining 1,000 emergency response staff, add additional data
capture functionality to the maintenance teams’ application and introduce a new customer system
into our call centres. The customer system will benefit from the integrated design. It will provide
much greater information on job progress and any previous work at the customer’s premises, and
enable rapid communication of issues to and from the field in response to customers’ needs. The
final stage, following later in 2011/12, will be for our repair teams and to get all remaining new
construction and mains replacement work flowing through the new system.
GDFO is not just a large IT
replacement project. It forms the foundation of a wider transformation that is under way in Gas
Distribution. The emphasis in our new operating model is to focus on improvements to all our
processes. This focus will deliver big benefits for our customers and will enhance the efficiency
and effectiveness of our operations. Coupled with the enhanced functionality from the investment in
IT, we will be able to streamline our organisation and take advantage of our scale of operation.
Information services (IS) transformation
The IS transformation programme establishes a global IS function delivering services and new
solutions to all parts of the Company.
The transformation programme is underpinned by establishing
a number of contracts for services that National Grid can leverage from the broader IT marketplace
where such commodities (eg email and virtualisation services) can deliver excellence with economy
of scale pricing. Some of the key contracts have been put in place this year with the remainder
planned for next year. Sourcing decisions are taken with full consultation with the appropriate
bodies and sympathetic consideration of the impact on employees.
An essential component of the transformation programme is to ensure that the structure of the IS
department and its commercial arrangements are consistent with the overall National Grid strategy
and specific line of business objectives. The IS strategy and associated architecture plans are
well developed to deliver efficiencies in the existing IT services through consolidation and
rationalisation but also to invest in the new capabilities necessary to meet the challenges ahead.
50 National Grid plc | Annual Report and Accounts 2010/11
The is leadership team is well established and the overall organisational structure is evolving as
the commercial contracts are put in place. Key functions that are critical to IS delivery are being
developed to ensure we have the right internal capabilities in areas such as business
relationships, security, architecture and strategy.
The next stages for the transformation are the
completion of the contract placements, the transitioning activities necessary to establish the new
arrangements and ensuring the delivery of the benefits. Alongside transformation, the demand for
investments in IT systems next year is significant with a range of large projects across the UK and
US being delivered or initiated to support key business initiatives.
US foundation
The US foundation programme is a critical enabler in the delivery of many of our strategic
objectives. The primary focus of the programme is to provide an integrated SAP platform that will
ensure process and systems standardisation. Creating a highly integrated IS infrastructure in the
US, this programme will move the systems and business processes used to support finance, human
resources, supply chain and certain elements of our operational systems such as fleet and inventory
management to one common structure that will streamline reporting and reduce risk.
UK business process outsourcing
The outsourcing of some of our UK shared services activities to an external service provider in
India was undertaken during the year. This should deliver both financial and process benefits over
the next five years.
Building trust, transparency and an inclusive and engaged workforce
Employees
We employ over 27,000 people. Communication is a key theme both at a corporate and business level.
Multiple communication channels are used throughout National Grid, including the use of various
business specific intranets, which we continue to develop to ensure the timely passing of
information to employees.
Employee engagement continues to be a key focus for National Grid. 2010 saw an unprecedented
employee survey response rate of 97%. This response rate generated an extremely large amount of
data and feedback to review.
As always, we have worked to engage teams throughout the business in creating action plans to
address survey feedback. We also regularly seek feedback about the survey process, and teams have
consistently expressed a desire to have more time to ensure their actions translate into meaningful
results. Therefore, we have decided to postpone the 2011 survey to enable us to work more deeply on
action planning and other key engagement activities.
We are working at an Executive level to ensure
we create visible links between performance and engagement, as we feel the two are interconnected
and vital to our success. Throughout 2011, we will be working on reinforcing the link between
performance and engagement, and supporting our survey champions as we prepare to launch the 2012
employee survey.
Annual Report and Accounts 2010/11 | National Grid plc 51
Operating and Financial Review
Performance against objectives continued
Inclusion and diversity
Measures such as the percentages of female and ethnic minority employees continue to be reviewed
regularly at Executive Committee level. As at 31 March 2011, 22.3% of our employees were female and
13.5% were from ethnic minority groups. This compares with respectively 22.7% and 13.5% at 31 March
2010 and 22.6% and 13.2% at 31 March 2009.
We aim to ensure equal opportunity in recruitment, career development, promotion, training and
reward for all employees, including those with disabilities. Where existing employees become
disabled, our policy is to provide continuing employment and training wherever practical.
Following the decision not to undertake a full employee survey in 2011, we are using an external
partner to conduct a number of focus groups with a cross section of employees. These focus groups,
in conjunction with interviews with senior management, will provide us with valuable insight into
how inclusion and diversity are perceived within National Grid.
We have continued to make our inclusive leadership programme available to our middle managers in
the UK, while the Foundations of Leadership (FoL) programme, which is aimed at the next generation
of managers and which contains an inclusive leadership module, has been completed by 500 employees
since 1 April 2010. In addition, in the US a programme focusing on the prevention of workplace
bullying and sexual harassment was also implemented; approximately 97% of US non union employees
had completed the training by 31 March 2011.
For a fourth year we have received 100% in the Human Rights Campaign’s Equality Index in the US. In
the UK, we have been placed in the Top 100 of the Stonewall Workplace Equality Index for the third
year running, and were also in the Times Top 50 Employers for Women. In December 2010, National
Grid was featured in Profiles in Diversity Journal as a leader in diversity, and was also
recognised for its work in the US on supplier diversity.
Our employee resource groups, which cover
areas including gender, ethnicity, disability, faith, sexual orientation and new employees,
continue to deliver results in three areas: providing professional development opportunities for
members through workshops and programmes; supporting the Company’s community relations activities
through fundraising, volunteering, and providing support to organisations such as the American
Association of Blacks in Energy; and working to increase broader understanding of inclusion through
workshops, presentations and other educational events.
We have established a programme known as level playing field which seeks to address the ongoing
challenge we face around retention of under represented groups such as women and ethnic minorities.
The programme is designed to enhance or make better use of existing processes such as mentoring and
sponsorship, drive individual accountability for inclusion within the performance management
framework, and encourage the application of flexible working policies.
Developing our talent, leadership skills and capabilities
Talent development continues to be a critical lever for successful business performance. During the
past year, we completed the development of our leadership transitions strategy. In 2008, developing
future leaders (DFL) was created for senior leaders, in 2009, FoL was created for front line or
first time leaders and in 2010, we launched two programmes targeted at middle level leaders focused
on their leadership style and business acumen. Middle managers also have access to a suite of
solutions that can be used to customise a curriculum for their unique needs. Given our significant
investment in leadership development, we set out to evaluate the impact of DFL and FoL with the
help of an external party. The results were compelling. For FoL, participation in the programme was
associated with lower turnover rates and improvements in performance ratings. For DFL, participants
showed improvements in leadership ratings and in several managerial indices from the employee
survey.
To support the development needs of the broader management population, a comprehensive portfolio of
classroom based and eLearning solutions was introduced covering the areas of communication,
performance management, business acumen and general management. More will be added as further
business needs are identified. In 2010/11, over 97,000 learning hours were delivered in
professional and leadership development.
We continued our focus on safeguarding our future talent. In the US, 21 highly energetic and
skilled graduates have taken on a variety of roles as the first class to graduate from the graduate
development programme. Across the US, 51 high school students participated in a one week
‘introduction to engineering’ academy as part of the US launch of Engineering our Future. In the
UK, 164 new early career learners were inducted into various strategic technical programmes. The UK
apprenticeship training programmes enjoy Ofsted outstanding ratings on all criteria and we were
awarded the East Midlands National Training Award for our advanced apprenticeship model.
To accommodate year on year growth in technical training needs in both the UK and US, significant
investments have been made in expanding the Eakring, Nottinghamshire and Millbury, Massachusetts
learning centres. In 2010/11, nearly one million learning hours of technical development were
delivered.
We have incorporated cutting edge technology into our learning strategy to accommodate diverse
learning styles and manage costs. This includes 3D technology, eLearning modules, online
assessments, SmartBoards and virtual classrooms.
52 National Grid plc | Annual Report and Accounts 2010/11
Positively shaping the energy and climate change agenda
We aim to take the lead on the energy and climate change issues facing society. We will not simply
react to the initiatives of other relevant bodies. Instead, we will be proactive in leading the
agenda to make sure we help to safeguard the environment. We will continue to press for ambitious
national and international plans to tackle the causes and consequences of climate change.
We are invited to have a seat at the table on a range of policy debates on facilitating the move to
a low carbon economy. For example, in New York and Massachusetts we were asked to serve on both the
climate change policy teams and adaptation committees. In the UK, we have worked closely with the
Department for Environment, Food and Rural Affairs (Defra) on the implementation of climate change
adaptation reporting.
We have continued to work with Ceres in the US and with the Worldwide Fund
for Nature (WWF) in the UK to seek their views on our internal and external efforts to reduce our
climate change impacts and shape our positive influence on legislators and regulators.
We run nationally recognised energy efficiency programmes with customers in the US, where we are
also actively promoting the use of renewables, having signed a contract with the country’s first
offshore wind development project (see page 46).
Climate change
We have continued with our climate change strategy and energy efficiency programmes, focusing on
initiatives that are cost effective and regulated. We remain committed to our 45% by 2020 and 80%
by 2050 greenhouse gas emissions reduction targets for our Scope 1 and 2 emissions.
During 2010/11, each line of business worked to deliver their targets under year one of our first
five year plan for greenhouse gas reduction. The plan established a trajectory to 2015 as the half
way point to our 2020 target. Performance against the plan is linked to the executive compensation
scheme. A more detailed breakdown of our emissions and performance against the plan can be found on
our website.
Our total Scope 1 and 2 emissions for 2010/11 were 9.7 million
tonnes carbon dioxide equivalent (CO2e), compared with 8.8 million
tonnes in 2009/10. Our 2010/11 performance equates to a 51% reduction against our 1990 baseline,
but is an increase of 4% with respect to our 1990 baseline compared with 2009/10. Virtually all of
this is attributable to increased utilisation of our generating plant on Long Island in order to
meet increased consumer demand and to pick up capacity shortfall from other generators. We have
continued to invest in modernisation of these plants and this has resulted in a 3.8% increase in
efficiency, or a saving of 35,375
tonnes CO2e over the year on a like for like output basis.
As a result of participating in the World Resources Institute/World Business Council for
Sustainable Development pilot study during 2010, we are now in a position to report our Scope 3
emissions in more detail. Our Scope 3 emissions for 2010/11 consisted of:
5.1 million tonnes CO2e associated with electricity transmission
and distribution losses; 2.8 million tonnes associated with the procurement of goods and services;
and 29.6 million tonnes associated with sold product (gas and electricity) in the US.
A significant part of our investment in infrastructure is associated with modernising our networks
and building connections to low carbon sources of energy. As a consequence, we expect our Scope 3
emissions due to this to increase in the short term as we play our part in decarbonising the
economy. We then anticipate a reduction in our reported transmission and distribution losses as the
grid average carbon intensity decreases. In the US, our reported emissions associated with
customers may rise as our customer base increases. However, as many of our new customers were
previously using fuel oil supplied by others for domestic heating, which is a more carbon intensive
fuel, on a like for like basis this will have resulted in a regional reduction in emissions that
does not appear on our inventory. Our energy efficiency campaigns are also supporting a reduction
in the energy used by our customers.
We believe that a strong carbon price signal in the economy is
essential to driving the right behaviours and to the delivery of a low carbon society. During
2010/11, we introduced a carbon price of £52 per tonne into our investment appraisals in order to
challenge our designs and better understand where our opportunities for decarbonisation exist. As a
regulated utility, we recognise that we will not always be funded to invest on this basis under
existing rate agreements and, in such circumstances, the information that we gather will be used to
inform future discussions.
It is equally important we understand the impact of past global emissions on future climate change.
We have been working with the UK Met Office to understand how these changes might affect our UK and
US infrastructure and future energy demand.
During 2010, we were asked by Defra to represent the energy sector on a project to develop climate
adaptation risk assessments for our regulated UK gas and electricity businesses. Our assessment
process used the government’s latest available climate change scenarios to test the resilience of
our networks to a range of future conditions. The feedback from the process showed that National
Grid has a good understanding of the risks posed by potential future climate change and has a high
degree of resilience already built into its networks. The ongoing monitoring and appropriate
mitigation of the risks from a changing climate will be through our day-to-day business risk
management processes. The full reports can be found on our website. In the US, we are working with
state task forces and the primary focus of our adaptation work has been on flood risk assessment
and mitigation requirements for our electricity assets. In 2011/12, we will continue to work with
our respective governmental and local agencies as this field of study and research evolves.
Annual Report and Accounts 2010/11 | National Grid plc 53
Operating and Financial Review
Financial performance
Contents
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Comparative financial information |
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Measurement of financial performance
We report our financial results and position in accordance
with International Financial Reporting Standards (IFRS).
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 earnings per share 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,
stranded cost recoveries, and the amortisation of
acquisition-related intangibles. These items are reported
collectively as the second component of the financial measures.
The items comprising the second component are excluded from the
adjusted profit measures used by management to monitor financial
performance as they are considered to distort the comparability of
our reported financial performance from year to year.
Accounting policy T on page 117 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 made more comparable by removing the
distorting effect of the excluded items, and 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, and stranded cost recoveries are also
reflected in budgets and forecasts. Management compensates for the
limitations inherent in the use of adjusted profit measures through
the separate monitoring and disclosure of the excluded items as a
component of our overall financial performance.
Exchange rates
Our financial results are reported in sterling. Transactions
for our US operations are denominated in dollars and so the related
amounts that are reported in sterling depend on the dollar to
sterling exchange rate. As the average rate of the dollar at
$1.57:£1 in 2010/11 was stronger than the average rate of $1.58:£1
in 2009/10, the same amount of revenue, adjusted operating profit
and operating profit in dollars earned in 2009/10 would have been
reported as £29 million, £3 million and £4 million higher
respectively if earned in 2010/11. In 2008/09 the average rate was
$1.54:£1; if the revenue, adjusted operating profit and operating
profit in dollars recognised in 2008/09 was earned in 2009/10 it
would have been reported as £261 million, £27 million and £23
million lower respectively.
54 National Grid plc | Annual Report and Accounts 2010/11
However, the effect of movements in the dollar exchange rate on
adjusted operating profit and operating profit in 2010/11 was
entirely offset by the impact of interest and tax charges
denominated in dollars, when translated into sterling. This includes
the effect of derivative financial instruments that swap debt raised
in other currencies into dollars as part of the financing of our US
operations. As a result, adjusted profit for the year and profit for
the year from continuing operations for 2009/10 would have been no
different if translated at the 2010/11 average exchange rate of
$1.57:£1 (2008/09: £7 million and £5 million lower respectively if
translated at the 2009/10 average exchange rate of
$1.58:£1).
The
balance sheet at the end of the financial year has been translated
at an exchange rate of $1.61:£1 at 31 March 2011
($1.52:£1 at 31 March 2010).
Continuing and discontinued operations
The financial results of our businesses and segments and of
our other activities (as described on pages 60 to 68) are presented
within continuing operations. There were no discontinued operations
in 2010/11 or in 2009/10. Discontinued operations in 2008/09
comprised the Ravenswood generation station in New York, KeySpan
Communications and KeySpan engineering companies.
Timing
Our profit for the year includes a number of timing
differences, including an over-recovery of revenues compared to
regulatory allowed revenues, of £270 million. These timing
differences are, by their nature, unpredictable, but our current
expectation is that they will not recur in 2011/12. The closing
balance of over-recovery at 31 March 2011 was £66 million. All other
things being equal, that balance should be returned to customers in
2011/12, which would lead to a variance of £336 million when
comparing 2011/12 operating profit to 2010/11.
Key performance indicators (KPIs)
Total shareholder return (TSR)
We measure total shareholder return as a KPI on a cumulative
three year basis. The measure reflects changes in our share price
and also assumes that dividends paid to shareholders over that
period were reinvested in our shares. Cumulative total shareholder
return for the period from 1 April 2008 to 31 March 2011 was 4% (1
April 2007 to 31 March 2010: -3%; 1 April 2006 to 31 March 2009:
11%). This reflects the fact that, although equity prices generally
fell sharply amid the turbulence in the financial markets during
2008/09, the subsequent recovery during 2009/10 and 2010/11 has
reversed those losses.
We have changed the presentation of TSR from previous years in order
to align the Company KPI with the methodology which will be used to
determine an element of Executive Directors’ remuneration under the
new Long Term Performance Plan (see page 98).
Group return on equity
We measure our performance in generating value from the
investments we make by dividing our annual return by our equity
base. Our annual return consists of adjusted earnings, amended for a
number of items including regulatory depreciation, retail price
index (RPI) inflation on our UK regulatory asset value (RAV), and a
pension deficit adjustment. Our equity base consists of invested
capital less opening net debt. Invested capital is the opening UK
RAV inflated to mid year using RPI inflation, plus opening US
invested capital excluding stranded cost assets and assets disposed
in the year, plus the closing net book value of assets and
liabilities of UK based non-regulated businesses, corporate
activities and joint ventures. Opening net debt is adjusted for
significant individual transactions during the year such as disposal
proceeds and our rights issue.
We monitor our performance using a three year average return rather
than a return for a specific year. We believe this provides a better
measure of our ongoing performance because it helps to reduce
short-term fluctuations due to temporary market conditions such as
inflation volatility. For 2010/11, our three year average return on
equity was 11.9%, compared with 11.3% in 2009/10 and 10.8% in
2008/09. The increase in the year was primarily driven by movements
in UK inflation.
Regulated controllable operating costs
We measure regulated controllable operating costs as a
proportion of our regulated assets, as measured by our RAV in the UK
and our rate base in the US.
This ratio decreased to 7.3% in 2010/11, compared with 7.5% in
2009/10 and 8.0% in 2008/09 on a constant currency basis,
reflecting our continuing drive to improve our efficiency while
maintaining safety and reliability.
Adjusted earnings per share
We monitor our financial performance during the year by
measuring adjusted earnings per share. This and other profit
measures are described on the following pages.
Other performance measures
Dividends and dividend cover
The proposed total ordinary dividend for 2010/11 amounts to
£1,275 million or 36.37 pence per ordinary share. This represents
an increase of 8% over the previous year’s ordinary dividend per
share of 38.49 pence, after adjusting for the bonus element of the
rights issue.
The table below shows the ordinary dividends paid or payable
by National Grid for the past five financial years. These dividends
do not include any associated UK tax credit in respect of such
dividends, and represent the gross dividends declared whether
settled in cash or by new shares.
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2011 |
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2010 |
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2009 |
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2008 |
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2007 |
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Dividends |
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pence |
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pence |
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pence |
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pence |
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pence |
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Interim |
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12.90 |
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13.65 |
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12.64 |
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11.70 |
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10.90 |
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Final |
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23.47 |
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24.84 |
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23.00 |
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21.30 |
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17.80 |
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Total |
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36.37 |
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38.49 |
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35.64 |
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33.00 |
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28.70 |
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Dividends per ADS |
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$ |
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$ |
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$ |
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|
Interim |
|
|
1.02 |
|
|
|
1.15 |
|
|
|
0.95 |
|
|
|
1.21 |
|
|
|
1.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Final |
|
|
1.90 |
|
|
|
1.77 |
|
|
|
1.74 |
|
|
|
2.05 |
|
|
|
1.76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
2.92 |
|
|
|
2.92 |
|
|
|
2.69 |
|
|
|
3.26 |
|
|
|
2.79 |
|
|
Annual
Report and Accounts 2010/11
| National Grid plc 55
Operating and Financial Review
Financial performance continued
Dividends expressed in dollars per American Depositary Share
(ADS) in the table on page 55 reflect the amounts paid or payable
to ADS holders, rounded to two decimal places.
The total ordinary dividend per share was covered 1.4 times by
adjusted earnings from continuing operations per ordinary share
(2009/10: covered 1.5 times; 2008/09: covered 1.4 times) and covered
1.8 times by earnings per ordinary share from continuing operations
(2009/10: covered 1.5 times; 2008/09: covered 1.0 times).
For the
final dividend of 2008/09, and subsequent dividends, shareholders
were offered the option of a scrip dividend, whereby they could
elect to receive the dividend in the form of new shares rather than
cash. The proportion of shareholders taking up the scrip dividend
option was as follows:
|
|
|
|
|
Dividend |
Proportion taking up scrip |
|
|
|
|
|
|
|
2008/09 final |
|
|
25% |
|
|
|
|
|
|
2009/10 interim |
|
|
20% |
|
|
|
|
|
|
2009/10 final |
|
|
23% |
|
|
|
|
|
|
2010/11 interim |
|
|
14% |
|
|
In accordance with IFRS, the final dividend proposed in
respect of each financial year is reported in the financial
statements for the following year. Therefore, the proposed final
dividend for 2010/11 of 23.47 pence per share, amounting to
approximately £824 million (assuming all dividends are settled in
cash), will be reported in the financial statements for the year
ending 31 March 2012.
Interest cover
In order to deliver sustainable growth, we must be
disciplined in the way we manage our balance sheet. The principal
measure we use to monitor financial discipline is interest cover,
being a measure of the cash flows we generate compared with the net
interest cost of servicing our borrowings.
Our long-term target range for interest cover is between 3.0 and
3.5. Interest cover for the year ended 31 March 2011 was above our
target range, having fallen slightly to 3.8 compared with 3.9 for
the year ended 31 March 2010 (year ended 31 March 2009: 3.1). The
primary reasons for the decrease in 2010/11 were increased interest
expense on our index-linked debt, due to the return of UK inflation,
offset by a reduction in debt following the rights issue in June
2010 and higher levels of cash inflows from operations during the
financial year.
Profit for the year
Adjusted profit, adjusted earnings and adjusted earnings per
share
Adjusted profit for the year from continuing operations was
£1,751 million in 2010/11 (2009/10: £1,421 million; 2008/09: £1,253
million). Adjusted earnings, being adjusted profit for the year from
continuing operations attributable to equity shareholders of the
parent, were £1,747 million (2009/10: £1,418 million; 2008/09:
£1,250 million).
Adjusted earnings per share from continuing operations were 51.7
pence in 2010/11, 49.5 pence per share in 2009/10 and 43.3 pence
per share in 2008/09.
The following chart shows the five year trend in adjusted profit
and adjusted earnings per share.
Profit, earnings and earnings per share
Profit for the year from continuing operations was £2,163
million in 2010/11 (2009/10: £1,389 million; 2008/09: £922 million).
After excluding amounts attributable to non-controlling interests,
earnings were £2,159 million in 2010/11, compared with £1,386
million in 2009/10 and £919 million in 2008/09.
Total earnings per
share from continuing operations were 63.9 pence in 2010/11, 48.4
pence per share in 2009/10 and 31.8 pence per share in 2008/09.
The following chart shows the five year trend in profit and earnings
per share from continuing operations.
The increases in profit and adjusted profit, and in earnings
and adjusted earnings, were a consequence of the changes in
operating profit, net finance costs, exceptional finance costs and
remeasurements, and taxation described in the following sections.
In accordance with IAS 33, all earnings per share and adjusted
earnings per share amounts for comparative periods have been
restated as a result of shares issued via scrip dividends and the
bonus element of the rights issue.
56 National Grid plc | Annual Report and Accounts 2010/11
Reconciliation of adjusted earnings to earnings
Adjusted earnings are presented in note 8 to the
consolidated financial statements, under the heading adjusted
earnings – continuing operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended 31 March |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
Continuing operations |
|
£m |
|
|
£m |
|
|
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted earnings |
|
|
1,747 |
|
|
|
1,418 |
|
|
|
1,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exceptional items |
|
|
(16 |
) |
|
|
(270 |
) |
|
|
(247 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Remeasurements |
|
|
219 |
|
|
|
17 |
|
|
|
(340 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stranded cost recoveries |
|
|
209 |
|
|
|
221 |
|
|
|
256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings |
|
|
2,159 |
|
|
|
1,386 |
|
|
|
919 |
|
|
Reconciliation of adjusted earnings per share to total
earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended 31 March |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
Continuing operations |
|
£m |
|
|
£m |
|
|
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted earnings per share |
|
|
51.7 |
|
|
|
49.5 |
|
|
|
43.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exceptional items |
|
|
(0.5 |
) |
|
|
(9.4 |
) |
|
|
(8.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Remeasurements |
|
|
6.5 |
|
|
|
0.6 |
|
|
|
(11.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stranded cost recoveries |
|
|
6.2 |
|
|
|
7.7 |
|
|
|
8.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share |
|
|
63.9 |
|
|
|
48.4 |
|
|
|
31.8 |
|
|
Revenue by operating segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended 31 March |
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
Continuing operations |
|
£m |
|
|
£m |
|
|
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transmission UK
|
|
|
3,484 |
|
|
|
3,475 |
|
|
|
3,517 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transmission US
|
|
|
429 |
|
|
|
405 |
|
|
|
420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas Distribution UK
|
|
|
1,524 |
|
|
|
1,518 |
|
|
|
1,468 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas Distribution US
|
|
|
3,811 |
|
|
|
3,708 |
|
|
|
4,786 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity Distribution & Generation
|
|
|
4,567 |
|
|
|
4,339 |
|
|
|
4,972 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other activities
|
|
|
678 |
|
|
|
741 |
|
|
|
750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segmental revenues
|
|
|
14,493 |
|
|
|
14,186 |
|
|
|
15,913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: sales between operating segments
|
|
|
(150 |
) |
|
|
(179 |
) |
|
|
(226 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
14,343 |
|
|
|
14,007 |
|
|
|
15,687 |
|
|
Operating profit by segment
Adjusted operating profit by segment
Reconciliation of adjusted operating profit to adjusted
profit and adjusted earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended 31 March |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
Continuing operations |
|
£m |
|
|
£m |
|
|
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating profit |
|
|
3,600 |
|
|
|
3,121 |
|
|
|
2,915 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net finance costs excluding exceptional
items and remeasurements |
|
|
(1,134 |
) |
|
|
(1,155 |
) |
|
|
(1,150 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Share of post-tax results of joint ventures |
|
|
7 |
|
|
|
8 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted profit before taxation |
|
|
2,473 |
|
|
|
1,974 |
|
|
|
1,770 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxation excluding tax on exceptional
items, remeasurements and stranded
cost recoveries |
|
|
(722 |
) |
|
|
(553 |
) |
|
|
(517 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted profit |
|
|
1,751 |
|
|
|
1,421 |
|
|
|
1,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to non-controlling interests |
|
|
(4 |
) |
|
|
(3 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted earnings |
|
|
1,747 |
|
|
|
1,418 |
|
|
|
1,250 |
|
|
|
|
pence |
|
|
pence |
|
|
pence |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted earnings per share |
|
|
51.7 |
|
|
|
49.5 |
|
|
|
43.3 |
|
|
Reconciliation of operating profit to profit and earnings
|
|
|
|
Years ended 31 March |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
Continuing operations |
|
£m |
|
|
£m |
|
|
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating profit |
|
|
3,745 |
|
|
|
3,293 |
|
|
|
2,623 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net finance costs |
|
|
(1,128 |
) |
|
|
(1,108 |
) |
|
|
(1,234 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Share of post-tax results of joint ventures |
|
|
7 |
|
|
|
8 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before taxation |
|
|
2,624 |
|
|
|
2,193 |
|
|
|
1,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxation |
|
|
(461 |
) |
|
|
(804 |
) |
|
|
(472 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit |
|
|
2,163 |
|
|
|
1,389 |
|
|
|
922 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to non-controlling interests |
|
|
(4 |
) |
|
|
(3 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings |
|
|
2,159 |
|
|
|
1,386 |
|
|
|
919 |
|
|
|
|
pence |
|
|
pence |
|
|
pence |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share |
|
|
63.9 |
|
|
|
48.4 |
|
|
|
31.8 |
|
|
Annual
Report and Accounts 2010/11
|
National Grid plc 57
Operating and Financial Review
Financial performance continued
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended 31 March |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
Continuing operations |
|
£m |
|
|
£m |
|
|
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating profit |
|
|
3,600 |
|
|
|
3,121 |
|
|
|
2,915 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exceptional items |
|
|
(350 |
) |
|
|
(268 |
) |
|
|
(275 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Remeasurements |
|
|
147 |
|
|
|
71 |
|
|
|
(443 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stranded cost recoveries |
|
|
348 |
|
|
|
369 |
|
|
|
426 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating profit |
|
|
3,745 |
|
|
|
3,293 |
|
|
|
2,623 |
|
|
|
Reconciliation of adjusted profit before tax to total profit
before tax
|
Adjusted profit before tax is presented on the face of the
income statement under the heading profit before tax before
exceptional items, remeasurements and stranded cost recoveries.
|
|
|
|
Years ended 31 March |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
Continuing operations |
|
£m |
|
|
£m |
|
|
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted profit before taxation |
|
|
2,473 |
|
|
|
1,974 |
|
|
|
1,770 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exceptional items |
|
|
(380 |
) |
|
|
(301 |
) |
|
|
(275 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Remeasurements |
|
|
183 |
|
|
|
151 |
|
|
|
(527 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stranded cost recoveries |
|
|
348 |
|
|
|
369 |
|
|
|
426 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total profit before taxation |
|
|
2,624 |
|
|
|
2,193 |
|
|
|
1,394 |
|
|
Diluted earnings per share
Diluted adjusted earnings per share from continuing
operations were 51.4 pence in 2010/11 (0.3 pence lower than basic
adjusted earnings per share), compared with 49.3 pence in 2009/10
(0.2 pence lower) and 43.1 pence in 2008/09 (0.2 pence lower).
Diluted earnings per share from continuing operations were 63.6
pence in 2010/11 (0.3 pence lower than basic earnings per share from
continuing operations), compared with 48.2 pence in 2009/10 (0.2
pence lower) and 31.7 pence in 2008/09 (0.1 pence lower).
The
principal reason for the dilution in each year relates to employee
share plans.
Net finance costs
Net finance costs excluding exceptional items and
remeasurements were £1,134 million in 2010/11 compared with £1,155
million in 2009/10 and £1,150 million in 2008/09. The slight
decrease in 2010/11 compared with 2009/10 primarily reflected lower
net pension interest due to higher plan assets and higher rates of
return on those assets, offset by higher accretions on index-linked
debt following the return of UK inflation. The slight increase in
2009/10 compared with 2008/09 primarily reflected an increase in
net pension interest due to a fall in the value of plan assets,
partially offset by a lower effective interest rate due to lower
RPI and LIBOR rates.
Exceptional items
Exceptional charges of £350 million in 2010/11 consisted of
restructuring costs of £89 million, environmental charges of £128
million, impairment costs and related charges of £133 million and
other charges of £15 million, offset by net gains on disposals of
three subsidiaries and an associate of £15 million.
Exceptional charges of £268 million in 2009/10 consisted of
restructuring charges of £149 million, environmental charges of £63
million and other charges of £67 million, offset by net gains on
disposals of £11 million.
Exceptional charges of £275 million in
2008/09 consisted of restructuring charges of £192 million,
environmental charges of £78 million and other charges of £5
million.
Exceptional finance costs and remeasurements
There were £73 million of exceptional finance costs during
2010/11 relating to the early redemption of debt following the
rights issue in June 2010, offset by £43 million of exceptional
interest income relating to tax settlements in the US. There were
£33 million of exceptional finance costs during 2009/10 relating
to the early redemption of debt. There were no exceptional finance
costs in 2008/09.
Financial remeasurements relate to net gains on derivative financial
instruments of £36 million (2009/10: £81 million gains; 2008/09: £82
million losses). The financial element of commodity contract
revaluations was nil in 2010/11 (2009/10: £1 million loss; 2008/09:
£2 million loss).
Taxation
A net charge of £461 million arose in 2010/11 (2009/10: £804
million; 2008/09: £472 million) comprising a £722 million charge
(2009/10: £553 million charge; 2008/09: £517 million charge) on
profit before tax excluding exceptional items, remeasurements and
stranded cost recoveries, and a £261 million credit (2009/10: £251
million charge; 2008/09: £45 million credit) on exceptional items,
remeasurements and stranded cost recoveries.
In 2010/11, exceptional items, remeasurements and stranded cost
recoveries included a £226 million deferred tax credit arising on a
reduction in the UK tax rate, and a £59 million tax credit primarily
arising as a result of settling a number of KeySpan pre-acquisition
items with the US tax authorities.
In 2009/10, exceptional items, remeasurements and stranded cost
recoveries included a £41 million tax charge due to a change in US
tax legislation under the Patient Protection and Affordable Care
Act.
In 2008/09, exceptional items, remeasurements and stranded cost
recoveries included a £49 million tax charge for increased deferred
tax liabilities due to a change in the UK industrial buildings
allowance regime.
The effective tax rates before and after exceptional items,
remeasurements and stranded cost recoveries were 29.2% and 17.6%
respectively (2009/10: 28.0% and 36.7%; 2008/09: 29.2% and 33.9%).
58 National Grid plc | Annual Report and Accounts 2010/11
Analysis of adjusted operating profit
The charts on this page analyse the movements in adjusted operating profit by
segment, comparing 2010/11 with 2009/10 and comparing 2009/10 with 2008/09. The
charts on the following pages show the principal movements in each segment.
Analysis of 2010/11 compared with 2009/10 can be found on pages 60 to 65 and
analysis of 2009/10 compared with 2008/09 can be found on pages 66 to 68.
2010/11 compared with 2009/10
2009/10
compared with 2008/09
Annual
Report and Accounts 2010/11
|
National Grid
plc 59
Operating and Financial Review
Financial performance continued
Transmission UK
The results of the Transmission UK segment for the years ended
31 March 2011, 2010 and 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended 31 March |
|
|
|
2011 |
|
|
|
2010 |
|
|
2009 |
|
|
|
£m |
|
|
|
£m |
|
|
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue and other operating income |
|
|
3,484 |
|
|
|
3,475 |
|
|
|
3,517 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs excluding exceptional items |
|
|
(2,121 |
) |
|
|
(2,164 |
) |
|
|
(2,391 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating profits |
|
|
1,363 |
|
|
|
1,311 |
|
|
|
1,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exceptional items |
|
|
(70 |
) |
|
|
(59 |
) |
|
|
(63 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
|
|
1,293 |
|
|
|
1,252 |
|
|
|
1,063 |
|
|
2010/11 compared with 2009/10
60 National Grid plc | Annual Report and Accounts 2010/11
Transmission US
The results of the Transmission US segment for the years
ended
31 March 2011, 2010 and 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended 31 March |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue and other operating income |
|
|
429 |
|
|
|
405 |
|
|
|
420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs excluding exceptional items |
|
|
(273 |
) |
|
|
(252 |
) |
|
|
(245 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating profits |
|
|
156 |
|
|
|
153 |
|
|
|
175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exceptional items |
|
|
(2 |
) |
|
|
(2 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
|
|
154 |
|
|
|
151 |
|
|
|
173 |
|
|
2010/11 compared with 2009/10
Annual
Report and Accounts 2010/11
|
National Grid
plc 61
Operating and Financial Review
Financial performance continued
Gas Distribution UK
The results of the Gas Distribution UK segment for the years
ended
31 March 2011, 2010 and 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended 31 March |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue and other operating income |
|
|
1,524 |
|
|
|
1,518 |
|
|
|
1,468 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs excluding exceptional items |
|
|
(813 |
) |
|
|
(795 |
) |
|
|
(796 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating profits |
|
|
711 |
|
|
|
723 |
|
|
|
672 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exceptional items |
|
|
(40 |
) |
|
|
(41 |
) |
|
|
(43 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
|
|
671 |
|
|
|
682 |
|
|
|
629 |
|
|
2010/11 compared with 2009/10
62 National Grid plc | Annual Report and Accounts 2010/11
Gas Distribution US
The results of the Gas Distribution US segment for the years
ended
31 March 2011, 2010 and 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended 31 March |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
|
3,811 |
|
|
|
3,708 |
|
|
|
4,786 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs excluding exceptional
items and remeasurements |
|
|
(3,157 |
) |
|
|
(3,294 |
) |
|
|
(4,174 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating profits |
|
|
654 |
|
|
|
414 |
|
|
|
612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exceptional items and remeasurements |
|
|
(14 |
) |
|
|
34 |
|
|
|
(386 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
|
|
640 |
|
|
|
448 |
|
|
|
226 |
|
|
2010/11 compared with 2009/10
Annual
Report and Accounts 2010/11
|
National Grid
plc 63
Operating and Financial Review
Financial performance continued
Electricity Distribution & Generation
The results of the Electricity Distribution & Generation
segment
for the years ended 31 March 2011, 2010 and 2009 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended 31 March |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue excluding stranded cost recoveries |
|
|
4,212 |
|
|
|
3,963 |
|
|
|
4,537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs excluding exceptional
items and remeasurements |
|
|
(3,615 |
) |
|
|
(3,589 |
) |
|
|
(4,272 |
) |
|
Adjusted operating profits |
|
|
597 |
|
|
|
374 |
|
|
|
265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exceptional items and remeasurements |
|
|
(35 |
) |
|
|
(42 |
) |
|
|
(160 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stranded cost recoveries |
|
|
348 |
|
|
|
369 |
|
|
|
426 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
|
|
910 |
|
|
|
701 |
|
|
|
531 |
|
|
2010/11 compared with 2009/10
64 National Grid plc | Annual Report and Accounts 2010/11
Non-regulated businesses and other
The results of our non-regulated businesses and other
activities
for the years ended 31 March 2011, 2010 and 2009 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended 31 March |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue and other operating income |
|
|
678 |
|
|
|
741 |
|
|
|
750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs excluding exceptional items |
|
|
(559 |
) |
|
|
(595 |
) |
|
|
(685 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating profit |
|
|
119 |
|
|
|
146 |
|
|
|
65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exceptional items |
|
|
(42 |
) |
|
|
(87 |
) |
|
|
(64 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
|
|
77 |
|
|
|
59 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
2010/11 compared with 2009/10
Annual
Report and Accounts 2010/11
|
National Grid
plc 65
Operating and Financial Review
Financial performance continued
Transmission UK
The principal movements between 2008/09 and 2009/10 for the Transmission UK segment were as follows:
Transmission US
The principal movements between 2008/09 and 2009/10 for the Transmission US segment were as
follows:
66 National Grid plc | Annual Report and Accounts 2010/11
Gas Distribution UK
The principal movements between 2008/09 and 2009/10 for the Gas Distribution UK segment were
as follows:
Gas Distribution US
The principal movements between 2008/09 and 2009/10 for the Gas Distribution US segment were
as follows:
Annual
Report and Accounts 2010/11
|
National Grid
plc 67
Operating and Financial Review
Financial performance continued
Electricity Distribution & Generation
The principal movements between 2008/09 and 2009/10 for the Electricity Distribution &
Generation segment were as follows:
Non-regulated businesses and other
The principal movements between 2008/09 and 2009/10 for non-regulated businesses and other
activities were as follows:
68 National Grid plc | Annual Report and Accounts 2010/11
Cash flows
Cash flows from operating activities
Cash generated from continuing operations was £4,854 million
in 2010/11, compared with £4,372 million in 2009/10 and £3,564
million in 2008/09. This included cash outflows for continuing
operations relating to exceptional items of £147 million, £135
million and £131 million respectively, and cash inflows from
stranded cost recoveries of £343 million, compared with £361
million and £359 million respectively.
After reflecting taxes, net cash inflow from operating
activities was £4,858 million, compared with £4,516 million in
2009/10 and £3,413 million in 2008/09. This included net corporate
tax receipts amounting to £4 million in 2010/11 (2009/10: £144
million tax receipts; £143 million tax payments).
Cash flows from investing activities
Cash outflows from investing activities were £4,774 million
in 2010/11, compared with £2,332 million in 2009/10 and £1,998
million in 2008/09.
Net purchases of financial investments were £1,577 million in
2010/11, compared with net sales of £805 million in 2009/10 and £99
million in 2008/09. Proceeds from sales of subsidiaries, joint
ventures and other investments were £11 million in 2010/11, compared
with £6 million in 2009/10 and £nil in 2008/09.
Excluding
acquisitions and disposals of financial investments, cash outflows
from investing activities for continuing operations increased by £60
million compared with 2009/10 (2009/10: decreased by £9 million
compared with 2008/09). Investing activities of discontinued
operations were £nil in the period and in 2009/10, compared with a
cash inflow of £1,049 million in 2008/09.
Cash flows from financing activities
Net cash outflows from financing activities excluding the
rights issue were £3,644 million in 2010/11 compared with £2,212
million in 2009/10 and £877 million in 2008/09. This reflected net
outflows from borrowings of £1,763 million (2009/10: £499 million
outflow; 2008/09: £1,641 million inflow) and share repurchases of £3
million (2009/10: £7 million; 2008/09: £627 million).
Payments to providers of finance, in the form of interest and
dividends, totalled £1,823 million in 2010/11 compared with £1,691
million in 2009/10 and £1,899 million in 2008/09.
Interest payments decreased from £1,003 million in 2009/10 to £965
million in 2010/11 (decreased from £1,061 million in 2008/09 to
£1,003 million in 2009/10).
Dividends paid to shareholders increased from £688 million in
2009/10 to £858 million in 2010/11 reflecting both the increase in
the amount of the dividend per share and the increase in the number
of shares in issue following the rights issue in June 2010.
Dividends paid to shareholders decreased from £838 million in
2008/09 to £688 million in 2009/10.
Statutory disclosures
Research and development
Expenditure on research and development during the year was
£16 million (2009/10: £19 million; 2008/09: £10 million). This
included development of new materials for use in the electricity
transmission business and research into low carbon energy such as
carbon capture and storage.
Charitable donations
During 2010/11, approximately £13 million (2009/10: £11
million; 2008/09: £10 million) was invested in support of community
initiatives and relationships. The London Benchmarking Group model
was used to assess this overall community investment. Direct
donations to charitable organisations amounted to £0.8 million
(2009/10: £1.1 million; 2008/09: £1.4 million). In addition to our
charitable donations, financial support was provided for our
affordable warmth programme, education programme, university
research and our Young Offenders Programme.
Political donations and expenditure
National Grid made no donations in the UK or European Union
during the year, including donations as defined for the purposes of
the Political Parties, Elections and Referendums Act 2000. National
Grid USA and certain of its subsidiaries made political donations
in the US of $151,000 (£96,000) (2009/10: $177,000; 2008/09:
$180,000) during the year to affiliated Federal and New York and
New Hampshire state political action committees (PACs). National
Grid USA’s affiliated New York PACs were funded partly by
contributions from National Grid USA and certain of its
subsidiaries and partly by voluntary employee contributions.
National Grid USA’s affiliated New Hampshire PAC was funded wholly
by contributions from National Grid USA and certain of its
subsidiaries. National Grid USA’s affiliated federal PACs were
funded wholly by voluntary employee contributions.
Policy and practice on payment of creditors
It is National Grid’s policy to include in contracts or other
agreements terms of payment with suppliers. Once agreed, National
Grid aims to abide by these payment terms. The average creditor
payment period at 31 March 2011 for National Grid’s principal
operations in the UK was 20 days (14 days at 31 March 2010).
Annual
Report and Accounts 2010/11
|
National Grid
plc 69
Operating and Financial Review
Financial position and financial management
Contents
|
|
|
|
|
|
|
|
70 |
|
|
|
|
|
|
|
|
|
70 |
|
|
|
|
70 |
|
|
|
|
70 |
|
|
|
|
71 |
|
|
|
|
71 |
|
|
|
|
71 |
|
|
|
|
71 |
|
|
|
|
72 |
|
|
|
|
72 |
|
|
|
|
72 |
|
|
|
|
72 |
|
|
|
|
72 |
|
|
|
|
73 |
|
|
|
|
73 |
|
|
|
|
74 |
|
|
|
|
74 |
|
|
|
|
|
|
|
|
|
74 |
|
|
|
|
75 |
|
|
|
|
75 |
|
|
|
|
75 |
|
|
|
|
75 |
|
|
|
|
|
|
|
|
|
75 |
|
|
|
|
75 |
|
|
|
|
76 |
|
|
|
|
76 |
|
|
|
|
76 |
|
|
|
|
76 |
|
|
|
|
76 |
|
|
|
|
76 |
|
|
|
|
|
|
|
|
|
76 |
|
|
|
|
|
|
|
|
|
77 |
|
|
|
|
77 |
|
|
|
|
77 |
|
|
|
|
77 |
|
|
|
|
77 |
|
|
Going concern
Having made enquiries, the Directors consider that the Company and its subsidiary undertakings have
adequate resources to continue in business for the foreseeable future, and that it is therefore
appropriate to adopt the going concern basis in preparing the consolidated and individual financial
statements of the Company. More details of our liquidity position are provided under the heading
Funding and liquidity management on page 72 and in note 32(d) to the consolidated financial
statements.
Financial position
Balance sheet
Our balance sheet at 31 March 2011 can be summarised as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net |
|
|
|
Assets |
|
|
Liabilities |
|
|
assets |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
Property, plant and equipment and
non-current intangible assets |
|
|
32,457 |
|
|
|
– |
|
|
|
32,457 |
|
|
Goodwill and non-current investments |
|
|
5,369 |
|
|
|
– |
|
|
|
5,369 |
|
|
Current assets and liabilities |
|
|
2,822 |
|
|
|
(3,794 |
) |
|
|
(972 |
) |
|
Other non-current assets and
liabilities |
|
|
135 |
|
|
|
(3,405 |
) |
|
|
(3,270 |
) |
|
Post-retirement assets and
obligations |
|
|
556 |
|
|
|
(2,574 |
) |
|
|
(2,018 |
) |
|
Deferred tax |
|
|
– |
|
|
|
(3,766 |
) |
|
|
(3,766 |
) |
|
|
Total before net debt |
|
|
41,339 |
|
|
|
(13,539 |
) |
|
|
27,800 |
|
|
Net debt |
|
|
5,061 |
|
|
|
(23,792 |
) |
|
|
(18,731 |
) |
|
|
Total as at 31 March 2011 |
|
|
46,400 |
|
|
|
(37,331 |
) |
|
|
9,069 |
|
|
|
Total as at 31 March 2010 |
|
|
43,553 |
|
|
|
(39,342 |
) |
|
|
4,211 |
|
|
The increase in net assets from £4,211 million at 31 March 2010 to £9,069 million at 31 March 2011
resulted from: the profit for the year of £2,163 million; the rights issue which raised £3,214
million net of costs; income recognised directly in equity of £301 million; and other items
totalling £38 million; offset by dividends payable net of scrip issues of £858 million.
Net debt
Net debt decreased by £3,408 million from £22,139 million at 31 March 2010 to £18,731 million at 31
March 2011. Cash flow from operations of £4.9 billion and the net proceeds of the rights issue of
£3.2 billion were offset by capital expenditure of £3.3 billion and payment of dividends of £0.9
billion, resulting in a net cash inflow of £3.9 billion. Interest charges of £1.2 billion were
offset by a £0.7 billion impact of the movement in the dollar exchange rate on our dollar
denominated debt and other fair value movements. A five year history of net debt is shown below.
At 31 March 2011, net debt comprised borrowings of £23,198 million (2010: £25,124 million)
including bank overdrafts of £42 million (2010: £29 million), less cash and cash equivalents of
£384 million (2010: £720 million), financial investments of £2,939 million (2010: £1,397 million)
and derivative financial instruments with a net carrying value of £1,144 million (2010: £868
million).
70 National Grid plc | Annual Report and Accounts 2010/11
The maturity of borrowings at 31 March 2011 is provided in note 19 to the consolidated
financial statements and is illustrated below.
The maturity of net debt, defined as borrowings plus derivative financial liabilities, less cash
and cash equivalents, current financial investments and derivative financial assets, is illustrated
below.
|
|
* |
Negative figure indicates that cash and short-term financial investments exceed debt maturities |
Capital structure
The principal measure of our balance sheet efficiency is our interest cover ratio as described on
page 56. Our target long-term range for interest cover is between 3.0 and 3.5, which we believe is
consistent with single A range long-term senior unsecured debt credit ratings within our main UK
operating companies, National Grid Electricity Transmission plc (NGET plc) and National Grid Gas
plc (NGG plc).
Interest cover for the year ended 31 March 2011 was above our target range, having
fallen slightly to 3.8 from 3.9 for the year ended 31 March 2010. The primary reasons for the
decrease in 2010/11 were increased interest expense on our retail price index (RPI) linked debt,
due to the return of UK inflation, offset by a reduction in debt following the rights issue which
completed in June 2010 and higher levels of operating cash inflows.
Gearing at 31 March 2011 and 31 March 2010, calculated as net debt expressed as a percentage of net
debt plus net assets shown in the balance sheet, amounted to 67% and 84% respectively. We do not
consider that this standard gearing ratio is an appropriate measure of our balance sheet efficiency
as it does not reflect the economic value of the assets of our UK and US regulated businesses.
In addition, we monitor the regulatory asset value (RAV) gearing within each of NGET plc and the
regulated transmission and distribution businesses within NGG plc. 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%. The table below shows the RAV gearing for NGET plc and for the
regulated transmission and distribution businesses within NGG plc as at 31 March 2011 and 31 March
2010.
To calculate RAV gearing for the regulated transmission and distribution businesses within NGG plc,
we exclude an element of debt that is associated with funding the metering business within NGG plc
which no longer has a RAV associated with it.
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
RAV gearing |
|
% |
|
|
% |
|
|
|
Regulated transmission and distribution businesses
within National Grid Gas plc |
|
|
54 |
|
|
|
57 |
|
|
National Grid Electricity Transmission plc |
|
|
54 |
|
|
|
56 |
|
|
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. These requirements are monitored on a regular basis in order to ensure
compliance. One of the key limits requires National Grid plc to hold an investment grade long-term
senior unsecured debt credit rating. We believe that our aim of maintaining single A range
long-term senior unsecured debt credit ratings within our main UK operating companies is consistent
with this.
Rights issue
On 19 May 2010, the Board resolved to offer a fully underwritten rights issue to raise
approximately £3.2 billion, net of expenses. The rights issue completed successfully in June, with
94.2% of qualifying shareholders taking up their rights. The capital raised will allow us to
increase our capital investment in the UK significantly, and assist in maintaining single A credit
ratings for our UK operating companies, thereby improving our long-term competitive position.
Liquidity and treasury management
Treasury policy
Funding and treasury risk management is carried out by the treasury function under policies and
guidelines approved by the Finance Committee of the Board. The Finance Committee (for further
details see page 84) has authority delegated from the Board, and is responsible for the regular
review and monitoring of treasury activity and for the approval of specific transactions, the
authority for which may be further delegated.
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 acceptable boundaries. Further details of the management
of funding and liquidity and the main risks arising from our financing activities are set out
below, as are the policies for managing these risks, including the use of financial derivatives,
which are agreed and reviewed by the Finance Committee.
The treasury function is not operated as a profit centre. Debt and treasury positions are managed
in a non speculative manner, such that all transactions in financial instruments or products are
matched to an underlying current or anticipated business requirement.
Commodity derivatives entered
into in respect of gas and electricity commodities are used in support of the operational
requirements of the business, and the policy regarding their use is explained on page 74.
Annual
Report and Accounts 2010/11
|
National Grid
plc 71
Operating and Financial Review
Financial position and financial management continued
Current condition of the financial markets
The financial markets have essentially returned to normal for National Grid following the turmoil
in the capital markets in 2008 and 2009. Following our rights issue, which completed in June 2010,
our funding requirements were modest. Nevertheless, we issued approximately £0.8 billion of new
long-term debt but also repurchased £1.3 billion and did not refinance £1.6 billion of debt
maturities. In addition, we have issued £1.6 billion of commercial paper, £457 million of which
remained outstanding as at 31 March 2011. We remain confident of our ability to access the public
debt markets in the future.
Cash flow and cash flow forecasting
Cash flows from our operations are largely stable over a period of years. 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 annual 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 very
significant cash flow swings from year to year. Significant changes in volumes in the US, for
example as a consequence of abnormally mild or extreme weather or economic conditions affecting the
level of demand, can affect cash inflows in particular. In addition, our cash flows arising in the
US are exposed to movements in the dollar exchange rate, although our foreign exchange risk
management policy aims to limit this exposure. Further detail is provided under the foreign
exchange risk management section on page 73.
Both short- and long-term cash flow forecasts are produced regularly to assist the treasury
function in identifying short-term liquidity and long-term funding requirements, and we seek to
enhance our cash flow forecasting processes on an ongoing basis. Cash flow forecasts, supplemented
by a financial headroom analysis, are monitored regularly to assess funding adequacy for at least a
12 month period.
As part of our regulatory arrangements, our operations are subject to a number of restrictions on
the way we can operate. These include regulatory ‘ring fences’ that require us to maintain adequate
financial resources within certain parts of our operating businesses and restrict our ability to
undertake transactions between certain subsidiary companies including paying dividends, lending
cash and levying charges. Our assessment of National Grid’s liquidity takes into account these
restrictions.
Funding and liquidity management
We maintain a number of commercial paper and medium-term note programmes in both the UK and US to
facilitate short- and long-term debt issuance into the money markets and capital markets. National
Grid plc also has a Securities and Exchange Commission registered debt shelf in place to facilitate
long-term debt issuance specifically into the US capital markets. Details of the programmes we
maintain can be found in the debt investors section of our website.
In addition, we have both committed and uncommitted bank borrowing facilities that are available
for general corporate purposes to support our liquidity requirements. The vast majority of our
committed borrowing facilities are used to provide back up to our commercial paper programmes or
other specific debt issuances. These have never been drawn and there is currently no intention to
draw them in the future.
Details of the bank facilities we maintain can be found in the debt investors section of our
website. During the year, the $850 million short-term syndicated committed facility at National
Grid plc expired and was renewed at the same level, but over five years instead of 364 days. In
addition, the long-term committed facilities at National Grid Electricity Transmission plc and
National Grid Gas plc were renewed for four years at levels of £715 million and £425 million
respectively.
None of the committed facilities were drawn at any time during the year. Note 34 to the
consolidated financial statements shows the maturity profile of undrawn committed borrowing
facilities at 31 March 2011.
To facilitate debt issuance into the capital and money markets, many of the companies within
National Grid maintain credit ratings. Details of the long-term senior unsecured debt and
short-term debt credit ratings respectively provided by Moody’s Investor Services, Standard &
Poor’s and Fitch Ratings can be found in the debt investors section of our website.
We invest surplus funds on the money markets, usually in the form of short-term fixed deposits and
placements with money market funds that are invested in highly liquid instruments of high credit
quality. Investment of surplus funds is subject to our counterparty risk management policy, and we
continue to believe that our cash management and counterparty risk management policies provide
appropriate liquidity and credit risk management. Details relating to cash, short-term investments
and other financial assets at 31 March 2011 are shown in notes 13 and 17 to the consolidated
financial statements.
We believe that maturing amounts in respect of contractual obligations as shown in commitments and
contingencies in note 28 to the consolidated financial statements 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.
In line with our normal treasury practice we expect to continue to access the markets in order to
manage actively our debt portfolio, optimise our finance costs and manage our refinancing risk.
Use of derivative financial instruments
As part of our business operations, including our treasury activities, we are exposed to risks
arising from fluctuations in interest rates and exchange rates. We use financial instruments,
including derivative financial instruments, to manage exposures of this type. Our policy is not to
use derivative financial instruments for trading purposes.
More details on derivative financial instruments are provided in note 14 to the consolidated
financial statements.
Refinancing risk management
The Board controls refinancing risk mainly by limiting the amount of debt maturities arising on
borrowings in any financial year.
The following chart shows the maturities of our long-term debt,
which extend to 2058/59. This shows that, at 31 March 2011, we had £1.36 billion of long-term debt
maturing in 2011/12, and no more than £1.64 billion of long-term debt maturing in any future year.
We expect to be able to refinance this debt through the capital and money markets.
72 National Grid plc | Annual Report and Accounts 2010/11
Interest rate risk management
Our interest rate exposure arising from borrowings and deposits is managed by the use of fixed-rate
and floating-rate debt and derivative financial instruments, including interest rate swaps,
swaptions and forward rate agreements. 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 so that, even with an extreme movement in interest rates, neither the
interest cost nor the total financing cost is expected to exceed preset limits with a high degree
of certainty.
Some of the bonds in issue from NGET plc and NGG plc are inflation linked, that is their cost is
linked to changes in the UK retail price index (RPI). We believe that these bonds provide an
appropriate hedge for revenues and our regulatory asset values that are also RPI linked under our
price control formulae in the UK.
The performance of the treasury function in interest rate risk management is measured by comparing
the actual total financing costs of its debt portfolio with those of a passively managed benchmark
portfolio with set ratios of fixed-rate to floating-rate debt, to identify the impact of actively
managing National Grid’s interest rate risk. This is monitored regularly by the Finance Committee.
Within the constraints of our interest rate risk management policy, and as approved by the Finance
Committee, we actively manage our interest rate exposure and therefore the interest rate profile
shown at 31 March 2011 will change over time.
The chart below shows the interest rate profile of our net debt before derivatives.
The chart below shows the impact, as at 31 March 2011, of derivatives on our net debt for 2011/12
and for future years. The 2011/12 position reflects the use of derivatives, including forward rate
agreements, to lock in interest rates in the short term. The future years’ position excludes
derivatives that mature within the next year.
In 2011/12, we expect our financing costs to continue to benefit from low short-term interest
rates, some of which have already been locked in using short-term
interest rate derivatives.
More
information on the interest rate profile of our debt is included in note 32(a)(ii) to the
consolidated financial statements.
Foreign exchange risk management
Translation risk arising from assets and liabilities denominated in dollars forms our principal
foreign exchange exposure. In relation to this risk, our objective is to maintain the ratio of
dollar denominated financial liabilities to dollar denominated gross assets between 85% and 95%, by
using debt and foreign exchange derivatives, so as to provide an economic offset of our cash flows
that arise in dollars against the servicing of those liabilities.
We have a policy of managing our foreign exchange transaction risk by hedging contractually
committed foreign exchange transactions occurring in currencies other than the dollar over a
prescribed minimum size. This covers a minimum of 75% of such transactions occurring in the next
six months and a minimum of 50% of such transactions occurring between six and 12 months in the
future. In addition, where foreign currency cash flow forecasts are uncertain and a judgement has
to be made, our policy is to hedge a proportion of such cash flows based on the likelihood of them
occurring, with the aim of hedging substantially all the cash flows without overhedging. Cover
generally takes the form of forward sale or purchase of foreign currencies and must always relate
to forecast underlying operational cash flows.
Annual
Report and Accounts 2010/11
|
National Grid
plc 73
Operating and Financial Review
Financial position and financial management continued
The result of this hedging activity is that our cash flow has limited exposure to foreign
currencies.
Our capital expenditure programme over the next few years will result in material foreign currency
exposures as we purchase raw materials and components from overseas suppliers. The treasury
function will seek to manage these exposures through a range of hedging strategies and instruments.
In addition, we are exposed to currency exposures on borrowings in currencies other than sterling
and the dollar, principally the euro. This currency exposure is managed through the use of
cross-currency swaps, so that post-derivatives the currency profile of our debt is almost entirely
sterling/dollar, as shown below.
More
details can be found in note 32(a)(i) to the consolidated financial
statements.
Counterparty risk management
Counterparty risk arises from the investment of surplus funds, from the use of derivative
instruments including commodity contracts, and from commercial contracts entered into by the
businesses. The Finance Committee has agreed a policy for managing such risk. This policy sets
limits as to the exposure that we can have with any one counterparty, based on that counterparty’s
credit rating from independent credit rating agencies. Our exposure to individual counterparties is
monitored daily and counterparty limits are regularly updated for changes in credit ratings. We
have a central treasury department, which is responsible for managing the policy. Where business
areas enter into contracts carrying credit risk, part of the relevant counterparty limit can be
allocated to the business area involved. This ensures that our overall exposure is managed within
the appropriate limit.
Where multiple transactions are entered into with a single counterparty, a
netting arrangement is usually put in place to reduce our exposure to credit risk in relation to
that counterparty. When transacting interest rate and exchange rate derivatives, we use market
standard documentation, which provides for netting in respect of all transactions governed by a
specific agreement with a counterparty.
Further information on the management of counterparty risk is provided in note 32(c) to the
consolidated financial statements.
Valuation and sensitivity analysis
We calculate the fair value of debt and financial derivatives by discounting all future cash flows
by the market yield curve, at the balance sheet date, including the credit spread for debt, and, in
the case of financial derivatives, taking into account the credit quality of both parties. The
market yield curve for each currency is obtained from external sources for interest and foreign
exchange rates. In the case of derivative instruments that include options, the Black’s variation
of the Black-Scholes model is used to calculate fair value.
For debt and derivative instruments held, we utilise a sensitivity analysis technique to evaluate
the effect that changes in relevant rates or prices would have on the market value of such
instruments.
As described in note 32(e) to the consolidated financial statements, movements in
financial indices would have the following estimated impact on the financial statements as a
consequence of changes in the value of financial instruments. This analysis does not take account
of the change in value in our income stream or in the value of our US operations that certain of
these financial instruments are being used to hedge.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010/11 |
|
|
2009/10 |
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Other |
|
|
|
Income |
|
|
equity |
|
|
Income |
|
|
equity |
|
|
|
statement |
|
|
reserves |
|
|
statement |
|
|
reserves |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
|
UK retail price index ±0.50% |
|
|
19 |
|
|
|
– |
|
|
|
17 |
|
|
|
– |
|
|
UK interest rates ±0.50% |
|
|
38 |
|
|
|
50 |
|
|
|
51 |
|
|
|
71 |
|
|
US interest rates ±0.50% |
|
|
39 |
|
|
|
15 |
|
|
|
52 |
|
|
|
14 |
|
|
US dollar exchange rate ±10% |
|
|
44 |
|
|
|
636 |
|
|
|
68 |
|
|
|
623 |
|
|
Commodity contracts
We purchase electricity and gas in order to supply our customers in the US and also to meet our own
energy requirements, primarily in the UK. We also enter into physical and financial derivative
transactions to manage electricity and gas cost volatility on behalf of customers in the US.
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 financial period.
Our US operating companies participate in the physical and financial markets related only to those
commodities for which we or our customers have a physical market requirement, and transact only
within pre-defined risk parameters. These parameters are approved by the energy procurement risk
management committee, which operates in accordance with authority delegated to it by the Finance
Committee and Executive Committee of the Board.
The most significant gas purchases for our own use relate to the operation of our gas transmission
and gas distribution networks, mainly in the UK. We also purchase fuel for our vehicle fleets in
the UK. In the US, we also sell gas produced by our West Virginia gas fields.
In the US, during the
year we also had a management contract with ConocoPhillips, under which we and ConocoPhillips
shared the responsibilities for managing upstream gas distribution assets associated with our
Massachusetts gas distribution operations, as well as providing city gate delivered supply. This
contract allowed for both parties to employ derivative instruments to maximise the profitability of
the portfolio of gas distribution assets. Profits associated with these activities were shared
between us, ConocoPhillips and our customers in Massachusetts. This contract expired on 31 March
2011.
In our UK gas transmission operations, we are obliged to offer for sale through a series of
auctions, both short- and long-term, a predetermined quantity of entry capacity for every day in
the year at pre-defined locations. Where, on the day, the gas transmission system’s capability is
constrained, such that gas is prevented from entering the system for which entry capacity rights
have been sold, then UK gas transmission is required to buy back those entry capacity rights sold
in excess of system capability. Forward and option contracts may be used to reduce the risk and
exposure to on the day entry capacity prices.
74 National Grid plc | Annual Report and Accounts 2010/11
Our UK electricity transmission operations have also entered into electricity options, pursuant to
the requirement to stabilise the electricity system in Great Britain through the operation of the
British Electricity Trading and Transmission Arrangements. The contracts are for varying terms and
have been entered into so that we have the ability to deliver electricity as required to meet our
obligations under our UK electricity transmission licence. We have not and do not expect to enter
into any significant derivatives in connection with our Great Britain national electricity
transmission system operator role.
Energy purchase contracts
The majority of our electricity contracts and certain of our gas contracts are entered into to meet
our expected purchase, sale or usage requirements and so are accounted for as ordinary sales or
purchase contracts. These include contractual commitments to purchase energy under long-term
contracts amounting to £3,543 million as at 31 March 2011 (2010: £3,948 million) of which £1,081
million is due within one year (2010: £1,195 million). Further information is included in note 28
to the consolidated financial statements.
Commodity purchase contracts accounted for as derivative contracts
Certain of our forward purchases of electricity, gas and electricity capacity do not meet the own
use exemption for accounting purposes and hence are accounted for as derivatives. Mark-to-market
changes in the value of these contracts are reflected through earnings under the heading of
commodity remeasurements. The fair value of these contracts includes contracts with a positive
value of £42 million (2010: £51 million), recorded as assets in our balance sheet and contracts
with a negative value of £184 million (2010: £228 million) recorded as liabilities.
Commodity purchase contracts accounted for as derivatives include contracts for the forward
purchase of electricity that reverted to us as part of the settlement arising from USGen’s
bankruptcy in 2005, which were originally entered into prior to the restructuring of the
electricity industry in New England. The electricity purchased under these contracts is not
required for our normal activities and is sold in the energy markets at prices which are currently
significantly below the amount we are required to pay. The fair value of these contracts amounted
to a £101 million liability at 31 March 2011 (2010: £127 million liability).
Derivative financial instruments linked to
commodity prices
We also enter into derivative financial instruments linked to commodity prices, including
index-linked swaps and futures contracts. These derivative financial instruments are used to reduce
market price volatility and are principally used to manage commodity prices associated with our gas
and electricity delivery operations in the US on behalf of our customers.
Derivative financial instruments are carried at fair value in the balance sheet and mark-to-market
changes in the value of these contracts are reflected through earnings under commodity
remeasurements with the exception of those relating to our West Virginia gas fields that are
designated as cash flow hedges.
We use NYMEX electricity and natural gas futures to reduce the cash
flow variability associated with the purchase price for a portion of future electricity and gas
purchases associated with certain of our electricity and gas distribution operations in the US.
These had a negative fair value at 31 March 2011 of £12 million (2010: £41 million), but the
liability on the balance sheet has been reduced by the amount of collateral paid to counterparties
in respect of these contracts due to accounting netting requirements for such instruments.
In addition, we utilise over the counter swaps and options to reduce the cash flow variability
associated with the purchase price for a portion of future electricity and gas purchases associated
with certain of our electricity and gas distribution operations in the US. These had a net fair
value at 31 March 2011 of £33 million (2010: £45 million negative).
We also utilise over the counter gas swaps in the US to hedge the cash flow variability associated
with forecast sales of a portion of gas production from our West Virginia gas fields.
Sensitivity analysis
As described in note 33(d) to the consolidated financial statements, movements in commodity prices
would have the following estimated impact on the financial statements in the value of commodities.
This analysis does not take account of any change in the composition of our commodity portfolio.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010/11 |
|
|
2009/10 |
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Other |
|
|
|
Income |
|
|
equity |
|
|
Income |
|
|
equity |
|
|
|
statement |
|
|
reserves |
|
|
statement |
|
|
reserves |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
|
10% increase in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
commodity prices |
|
|
58 |
|
|
|
– |
|
|
|
71 |
|
|
|
(1 |
) |
|
10% decrease in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
commodity prices |
|
|
(54 |
) |
|
|
– |
|
|
|
(64 |
) |
|
|
1 |
|
|
Commitments and contingencies
Commitments and contingencies outstanding at 31 March 2011 and 2010 are summarised in the table
below:
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010* |
|
|
|
£m |
|
|
£m |
|
|
|
Future capital expenditure contracted |
|
|
|
|
|
|
|
|
but not provided for |
|
|
1,614 |
|
|
|
1,738 |
|
|
Total operating lease commitments |
|
|
795 |
|
|
|
926 |
|
|
Power commitments |
|
|
3,543 |
|
|
|
3,948 |
|
|
Guarantees and letters of credit |
|
|
762 |
|
|
|
1,189 |
|
|
|
|
* |
Comparatives have been restated to present items on a basis consistent with the current year
classification |
The energy commitments shown in the commitments and contingencies table above reflect obligations
to purchase energy under long-term contracts. These contracts are used in respect of our normal
sale and purchase requirements and do not include commodity contracts carried at fair value as
described above.
We propose to meet all our commitments from existing cash and investments,
operating cash flows, existing credit facilities, future facilities and other financing that we
reasonably expect to be able to secure in the future.
Contractual obligations at 31 March 2011
The table of contractual obligations shown below analyses our long-term contractual obligations
according to payment period.
Purchase obligations reflect commitments under power contracts and
future capital expenditure contracted for but not provided. The other long-term liabilities
reflected in the balance sheet at 31 March 2011 comprise commodity contracts carried at fair value
and other creditors that represent contractual obligations falling due after more than one year.
Annual
Report and Accounts 2010/11
|
National Grid
plc 75
Operating and Financial Review
Financial position and financial management continued
Interest on borrowings is calculated based on borrowings at 31 March 2011 and does not reflect
future debt issues. Floating-rate interest has been estimated using future interest rate curves at
31 March 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less |
|
|
|
|
|
|
|
|
|
|
More |
|
|
|
|
|
|
than |
|
|
1-3 |
|
|
3-5 |
|
|
than |
|
|
|
|
|
|
1 year |
|
|
years |
|
|
years |
|
|
5 years |
|
|
Total |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings |
|
|
2,616 |
|
|
|
2,762 |
|
|
|
2,141 |
|
|
|
15,314 |
|
|
|
22,833 |
|
|
Interest payments
on borrowings |
|
|
828 |
|
|
|
1,548 |
|
|
|
1,278 |
|
|
|
8,050 |
|
|
|
11,704 |
|
|
Finance lease liabilities |
|
|
20 |
|
|
|
71 |
|
|
|
52 |
|
|
|
105 |
|
|
|
248 |
|
|
Other non interest-
bearing liabilities |
|
|
2,320 |
|
|
|
279 |
|
|
|
– |
|
|
|
– |
|
|
|
2,599 |
|
|
Derivatives payments |
|
|
1,213 |
|
|
|
514 |
|
|
|
881 |
|
|
|
464 |
|
|
|
3,072 |
|
|
Derivatives receipts |
|
|
(1,596 |
) |
|
|
(1,056 |
) |
|
|
(1,151 |
) |
|
|
(455 |
) |
|
|
(4,258 |
) |
|
Commodity contracts |
|
|
290 |
|
|
|
124 |
|
|
|
62 |
|
|
|
(19 |
) |
|
|
457 |
|
|
Other contractual
obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital commitments |
|
|
1,217 |
|
|
|
294 |
|
|
|
92 |
|
|
|
11 |
|
|
|
1,614 |
|
|
Operating leases |
|
|
83 |
|
|
|
172 |
|
|
|
142 |
|
|
|
398 |
|
|
|
795 |
|
|
Energy commitments |
|
|
1,081 |
|
|
|
808 |
|
|
|
513 |
|
|
|
1,141 |
|
|
|
3,543 |
|
|
Total at 31 March 2011 |
|
|
8,072 |
|
|
|
5,516 |
|
|
|
4,010 |
|
|
|
25,009 |
|
|
|
42,607 |
|
|
Off balance sheet arrangements
There were no significant off balance sheet arrangements other than the contractual obligations and
commitments described above.
Details of material litigation as at 31 March 2011
Details of material litigation as at 31 March 2011
We were not party to litigation that we considered to be material as at 31 March 2011. Save as set
out below, there have been no governmental, legal or arbitration proceedings in the last 12 months
which may have or have had significant effects on the Company’s financial position or
profitability.
Metering competition investigation
As previously reported, on 25 February 2008 the Gas and Electricity Markets Authority (GEMA)
announced it had decided we breached Chapter II of the Competition Act 1998 and Article 82 (now
Article 102) of the Treaty of the Functioning of the European Union and fined us £41.6 million.
Following appeals, the Competition Appeal Tribunal reduced the fine to £30 million and the Court of
Appeal further reduced the fine to £15 million. On 22 March 2010, we applied to the Supreme Court
for leave to appeal the Court of Appeal’s judgement. On 28 July 2010, the Supreme Court denied our
application and this ends the legal process. The £15 million fine was paid to GEMA on 1 April 2010.
Gas Distribution mains replacement investigation
As previously reported, in October 2008 we informed Ofgem that mains replacement activity carried
out by the UK Gas Distribution business may have been inaccurately reported. Ofgem has now
concluded its investigation and, following the reaching of a settlement between Ofgem and National
Grid Gas plc, on 6 January 2011 Ofgem announced its intention to impose a penalty of £8 million and
to find National Grid Gas plc in breach of certain obligations in respect of the reporting of mains
replacement data. Ofgem also stated that the penalty would have been higher had it not been for the
cooperation
and corrective action by National Grid Gas plc. On 10 March 2011, following the end of the period
in which representations could be made in respect of the proposed decision, Ofgem wrote to National
Grid Gas plc to confirm its decision. On 13 May 2011, we received the Final Penalty Notice and must
pay the penalty by 27 June 2011.
KeySpan Department of Justice investigation
As previously reported, in May 2007 KeySpan received a civil investigative demand (CID) from the
Antitrust Division of the United States Department of Justice (DOJ), requesting the production of
documents and information relating to its investigation of competitive issues in the New York City
electricity capacity market prior to our acquisition of KeySpan. In April 2008, we received a
second CID in connection with this matter.
On 22 February 2010, DOJ filed a proposed final judgement in the US District Court for the Southern
District of New York. Under the terms of the proposed settlement, DOJ and KeySpan agreed that
KeySpan would pay $12 million (£7.5 million) in full and final resolution of DOJ’s CIDs. This
amount has been paid in full. The agreement contained no admissions of wrongdoing by KeySpan and
was subject to court approval, which was obtained on 2 February 2011. On 9 February 2011, we
transferred $12 million to DOJ in full and final settlement and this matter is now closed.
KeySpan class action
Two putative class actions were commenced against KeySpan and Morgan Stanley, one in a New York
state court and one in the federal court. The claims are based on allegations that the financial
swap transaction between KeySpan and Morgan Stanley dated 18 January 2006 caused customers of
Consolidated Edison, Inc. to overpay for electricity between May 2006 and February 2008. We believe
that both complaints and their allegations are without merit and we have applied to have both
actions dismissed. Our application for dismissal in the federal court was granted on 22 March 2011
but the plaintiffs may still appeal.
Related party transactions
We provide goods and services to and receive goods and services from related parties, principally
joint ventures. In the year ended 31 March 2011, we charged £11 million and received charges of £84
million from related parties (other than Directors) compared with £5 million and £73 million in
2009/10 and £4 million and £44 million in 2008/09.
Further information relating to related party transactions is contained within note 29 to the
consolidated financial statements. Details on amounts paid to Directors are included within the
Directors’ Remuneration Report on pages 96 to 108.
76 National Grid plc | Annual Report and Accounts 2010/11
Retirement arrangements
We operate pension arrangements on behalf of our employees in both the UK and US and also provide
post-retirement healthcare and life insurance benefits to qualifying retirees in the US.
In the UK, the defined benefit section of the National Grid UK Pension Scheme and the National Grid
section of the Electricity Supply Pension Scheme (National Grid Electricity Supply Pension Scheme)
are closed to new entrants. Membership of the defined contribution section of the National Grid UK
Pension Scheme is offered to all new employees in the UK.
In September 2010 the UK government changed the basis for statutory pension increases from the
retail price index (RPI) to the consumer price index (CPI). The scheme rules of our two UK pension
schemes specifically reference RPI. As a consequence, the impact of the Government’s move to CPI
was predominantly limited to our guaranteed minimum pensions and the financial consequence was an
approximate £55 million reduction in plan liabilities.
In the US, we operate a number of pension plans in the various states in which we operate, which
provide both defined benefits and defined contribution benefits. We also provide post-retirement
benefits other than pensions to the majority of employees. Benefits include health care and life
insurance coverage to eligible retired employees.
Net pension and other post-retirement obligations
The following table summarises the pension and other post-retirement obligations recorded in the
consolidated financial statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK |
|
|
US |
|
|
Total |
|
Net plan liability |
|
£m |
|
|
£m |
|
|
£m |
|
|
|
As at 1 April 2010 |
|
|
(646 |
) |
|
|
(2,452 |
) |
|
|
(3,098 |
) |
|
Exchange movements |
|
|
– |
|
|
|
125 |
|
|
|
125 |
|
|
Current service cost |
|
|
(90 |
) |
|
|
(112 |
) |
|
|
(202 |
) |
|
Expected return less interest |
|
|
79 |
|
|
|
(54 |
) |
|
|
25 |
|
|
Curtailments, settlements and other |
|
|
(7 |
) |
|
|
2 |
|
|
|
(5 |
) |
|
Actuarial gains/(losses) |
|
|
|
|
|
|
|
|
|
|
|
|
|
– on plan assets |
|
|
124 |
|
|
|
234 |
|
|
|
358 |
|
|
– on plan liabilities |
|
|
301 |
|
|
|
(88 |
) |
|
|
213 |
|
|
Employer contributions |
|
|
149 |
|
|
|
417 |
|
|
|
566 |
|
|
|
As at 31 March 2011 |
|
|
(90 |
) |
|
|
(1,928 |
) |
|
|
(2,018 |
) |
|
|
Represented by: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan assets |
|
|
15,353 |
|
|
|
4,616 |
|
|
|
19,969 |
|
|
Plan liabilities |
|
|
(15,443 |
) |
|
|
(6,544 |
) |
|
|
(21,987 |
) |
|
|
Net plan liability |
|
|
(90 |
) |
|
|
(1,928 |
) |
|
|
(2,018 |
) |
|
The amounts recorded in the balance sheet are based on International Accounting Standard 19, which
requires pension obligations to be calculated on a different basis from that used by the actuaries
to determine the funding we need to make into each arrangement.
Plan assets are measured at the bid market value at the balance sheet date. Plan liabilities are
measured by discounting the best estimate of future cash flows to be paid out by the plans using
the projected unit method. Estimated future cash flows are discounted at the current rate of return
on high quality corporate bonds in UK and US debt markets of an equivalent term to the liability.
The principal movements in net obligations during the year arose as a consequence of actuarial
gains on plan assets reflecting improvements in bond markets in particular and actuarial gains in
the UK on plan liabilities principally as a consequence of using
higher real discount rates partially offset by actuarial losses in the US due to a decrease in
nominal discount rates.
UK funding valuation
A triennial valuation is carried out for the independent trustees of our two UK defined benefit
plans by professionally qualified actuaries, using the projected unit method. The purpose of the
valuation is to design a funding plan to ensure that present and future contributions should be
sufficient to meet future liabilities.
The 2010 valuations are nearing completion but the formal
agreement has not yet been completed with the trustees. The valuations are on track to be completed
by no later than the end of June 2011.
The last completed full actuarial valuation of the National Grid UK Pension Scheme was as at 31
March 2007. This concluded that the pre-tax funding deficit was £442 million in the defined benefit
section on the basis of the funding assumptions. Employer cash contributions for the ongoing cost
of this plan are currently being made at a rate of 29.4% of pensionable payroll.
The last completed full actuarial valuation of National Grid Electricity Supply Pension Scheme was
as at 31 March 2007. This concluded that the pre-tax funding deficit was £405 million on the basis
of the funding assumptions. Employer cash contributions for the ongoing cost of this plan are
currently being made at a rate of 20.5% of pensionable payroll.
Contributions
In addition to ongoing employer contributions, as part of the initial valuation discussions with
the trustees of the National Grid Electricity Supply Pension Scheme it was agreed that a deficit
payment of £45 million would be made in March 2011.
In accordance with our funding policy for US pension and other post-retirement benefit plans, we
made contributions of £417 million in 2010/11 and expect to contribute approximately £413 million
to these plans during 2011/12.
Plan assets
Plan assets are predominantly invested in equities, corporate bonds, gilts, property and short-term
investments. Our plans are trustee administered and the trustees are responsible for setting the
investment strategy and monitoring investment performance, consulting with us where appropriate.
Annual
Report and Accounts 2010/11
|
National Grid
plc 77
Operating and Financial Review
Accounting policies
Basis of accounting
The consolidated financial statements present our results for the years ended 31 March 2011, 2010
and 2009 and our financial position as at 31 March 2011 and 2010. They have been prepared using the
accounting policies shown, in accordance with International Financial Reporting Standards (IFRS).
In complying with IFRS, we are also complying with the version of IFRS that has been endorsed by
the European Union for use by listed companies.
Choices permitted under IFRS
IFRS provides certain options available within accounting standards. Material choices we have made,
and continue to make, include the following:
Presentation formats
We use the nature of expense method for our income statement and total our
balance sheet 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.
Timing of goodwill
impairment reviews
Goodwill impairment reviews are carried out annually in the final quarter of the financial year.
Critical accounting policies
The application of accounting principles requires us to make estimates, judgements and assumptions
that may affect the reported amounts of assets, liabilities, revenue and expenses and the
disclosure of contingent assets and liabilities in the accounts. On an ongoing basis, we evaluate
our estimates using historical experience, consultation with experts and other methods that we
consider reasonable in the particular circumstances to ensure compliance with IFRS. Actual results
may differ significantly from our estimates, the effect of which will be recognised in the period
in which the facts that give rise to the revision become known.
Certain accounting policies,
described below, have been identified as critical accounting policies, as these policies involve
particularly complex or subjective decisions or assessments. The discussion of critical accounting
policies below should be read in conjunction with the description of our accounting policies set
out in the consolidated financial statements on pages 112 to 118.
Revenue
Revenue includes an assessment of energy and accruals for transportation services supplied to
customers between the date of the last meter reading and the year end. Changes to the estimate of
the energy or transportation services supplied during this period would have an impact on our
reported results.
Unbilled revenues at 31 March 2011 are estimated at £303 million in the UK and £445 million in the
US compared with £308 million and £415 million respectively at 31 March 2010.
Estimated economic lives of property, plant and equipment
The reported amounts for depreciation of
property, plant and equipment and amortisation of non-current intangible assets can be materially
affected by the judgements exercised in determining their estimated economic lives.
Hedge accounting
We use derivative financial instruments to hedge certain economic exposures
arising from movements in exchange and interest rates or other factors that could affect either the
value of our assets or liabilities or our future cash flows. Movements in the fair values of
derivative financial instruments may be accounted for using hedge accounting where we meet the
relevant eligibility, documentation and effectiveness testing requirements. If a hedge does not
meet the strict criteria for hedge accounting, or where there is ineffectiveness or partial
ineffectiveness, then the movements will be recorded in the income statement immediately instead of
being recognised in other comprehensive income or by being offset by adjustments to the carrying
value of debt.
Exceptional items, remeasurements and stranded cost recoveries
Exceptional items, remeasurements
and stranded cost recoveries are items of income and expense that, in the judgement of management,
should be disclosed separately on the basis that they are material, either by their nature or their
size, to an understanding of our financial performance and distort the comparability of our
financial performance between periods.
Items of income or expense that are considered by management for designation as exceptional items
include such items as significant restructurings, write-downs or impairments of non-current assets,
significant changes in environmental or decommissioning provisions, integration of acquired
businesses, gains or losses on disposals of businesses or investments and debt redemption costs as
a consequence of transactions such as significant disposals or issues of equity.
Remeasurements comprise gains or losses recorded in the income statement arising from changes in
the fair value of commodity contracts and of derivative financial instruments. These fair values
increase or decrease as a consequence of changes in commodity and financial indices and prices over
which we have no control.
Stranded cost recoveries relate to the recovery, through charges to
electricity customers in upstate New York and in New England, of costs mainly incurred prior to
divestiture of generation assets.
Our tax charge is based on the profit for the year and tax rates in effect. The determination of
appropriate provisions for taxation requires us to take into account anticipated decisions of tax
authorities and estimate our ability to utilise tax benefits through future earnings and tax
planning.
78 National Grid plc | Annual Report and Accounts 2010/11
Carrying value of assets and potential for impairments
The carrying value of assets recorded in the
consolidated balance sheet could be materially reduced if an impairment were to be assessed as
being required. Impairment reviews are carried out either when a change in circumstance is
identified that indicates an asset might be impaired or, in the case of goodwill, annually. An
impairment review involves calculating either or both of the fair value or the value in use of an
asset or group of assets and comparing with the carrying value in the balance sheet.
These calculations involve the use of assumptions as to the price that could be obtained for, or the
future cash flows that will be generated by, an asset or group of assets, together with an
appropriate discount rate to apply to those cash flows.
Assets and liabilities carried
at fair value
Certain assets and liabilities, principally financial
investments, derivative financial instruments and certain commodity contracts, are carried in the
balance sheet at their fair value rather than historical cost.
The fair value of financial
investments is based on market prices, as is that of derivative financial instruments where market
prices exist. Other derivative financial instruments and those commodity contracts carried at fair
value are valued using financial models, which include judgements on, in particular, future
movements in exchange and interest rates as well as equity and commodity prices.
Provisions
Provisions are made for liabilities, the timing and amount of which is uncertain. These include
provisions for the cost of environmental restoration and remediation, decommissioning of nuclear
facilities we no longer own but to which we still have a responsibility to contribute,
restructuring, and employer and public liability claims.
Calculations of these provisions are based on estimated cash flows relating to these costs,
discounted at an appropriate rate where significant. The amounts and timing of cash flows relating
to these liabilities are based on management estimates supported by external consultants.
Pensions and other post-retirement obligations
Pensions and other post-retirement benefit
obligations recorded in the balance sheet are calculated actuarially using a number of assumptions
about the future, including inflation, salary increases, life expectancy, length of service and
pension and investment returns, together with the use of a discount rate to calculate the present
value of the obligation.
These assumptions can have a significant impact on both the pension obligation recorded in the
balance sheet and on the net charge recorded in the income statement.
Energy commitments
Our energy commitments relate to contractual commitments to purchase electricity or gas to satisfy
physical delivery requirements to our customers or for energy that we use ourselves. In
management’s judgement these commitments meet the normal purchase, sale or usage exemption in IAS
39 and are not recognised in the financial statements.
If these commitments were judged not to meet the exemption under IAS 39 they would have to be
carried in the balance sheet at fair value as derivative instruments, with movements in their fair
value shown in the income statement under remeasurements.
In order to illustrate the impact that changes in assumptions could have on our results and
financial position, the following sensitivities are presented:
Revenue accruals
A 10%
change in our estimate of unbilled revenues at 31 March 2011 would result in an increase or
decrease in our recorded net assets and profit for the year by approximately £49 million net of
tax.
Asset useful lives
An increase in the economic useful lives of assets of one year on average would reduce our annual
depreciation charge on property, plant and equipment by £40 million (pre-tax) and our annual
amortisation charge on intangible assets by £7 million (pre-tax).
Hedge accounting
If using
our derivative financial instruments, hedge accounting had not been achieved during the
year ended 31 March 2011 then the profit after tax for the year
would have been £336 million higher
than that reported net of tax, and net assets would have been
£82 million lower.
Assets carried at fair value
A 10% change in assets and liabilities carried at fair value would
result in an increase or decrease in the carrying value of derivative financial instruments and
commodity contract liabilities of £114 million and £11 million respectively.
Provisions
A 10% change in the estimates of future cash flows estimated in respect of provisions for
liabilities would result in an increase or decrease in our provisions of approximately £181
million.
Pensions and other post-retirement obligations
Our pension and post-retirement obligations are
sensitive to the actuarial assumptions used. A 0.1% increase in the discount rate, a 0.5% increase
in the rate of salary increases or an increase of one year in life expectancy would result in a
change in the net obligation of £304 million, £162 million and £653 million and a change in the
annual pension cost of £7 million, £8 million and £7 million respectively.
Accounting developments
Accounting standards, amendments to standards
and interpretations adopted in 2010/11
In preparing our consolidated financial statements we have complied with International Financial
Reporting Standards, International Accounting Standards and interpretations applicable for 2010/11.
The standards, amendments to standards and interpretations adopted during 2010/11 are discussed in
the consolidated financial statements on page 119. None of these resulted in a material change to
our consolidated results, assets or liabilities in 2010/11 or in those of previous periods.
Accounting
standards, amendments to standards
and interpretations not yet adopted
New accounting standards, amendments to standards
and interpretations which have been issued but
not yet adopted by National Grid are discussed in the consolidated financial statements on page
119.
Annual
Report and Accounts 2010/11
|
National Grid
plc 79
Corporate Governance
Corporate Governance
Chairman’s foreword
I am delighted to report we are again compliant with the Combined Code and have made preparations
for our future reporting under the UK Corporate Governance Code.
I have always endeavoured to take my responsibilities as Chairman seriously and to lead the Board
by example. I review and discuss with each Director the outcomes of the annual performance
evaluation process and continually look for enhancements to the way we function and perform to
ensure we are as effective as we ought to be. The Non-executive Directors constructively challenge
our Executive team and continue to be highly engaged in developing strategy.
The Nominations Committee and I regularly review the balance of skills, experience, independence
and knowledge on the Board and its Committees. These will continue to be important factors when
pursuing our diversity objectives on the Board. In this regard, we have conducted a review of the
recommendations in the Davies Review ‘Women on boards’, are committed to the principles and will be
publishing our aspirational goals by the end of September.
Our new Finance Director, Andrew
Bonfield, has had a varied induction programme including meetings with senior management across the
Company, briefings on key processes such as audit, governance, human resources and risk, together
with meetings with external stakeholders such as the auditors, corporate brokers and analysts.
Combined with his previous international experience and his clear capabilities, this induction
programme has assisted him in making a valuable early contribution to our business.
The Board is collectively responsible for the long-term success of the Company. We take decisions
only after the necessary level of information has been made available to us and with due
consideration of all the relevant facts including the risk profile. The Board is always mindful of
its obligations to act in the best interests of the Company, its shareholders and all its
stakeholders.
We continually strive for best practice in our communications and I truly hope you
find the revised format of the Corporate Governance report transparent and informative.
Sir John Parker
Chairman
Board focus during the year
= |
|
safety, including actions taken to reduce risks and improve performance; |
|
= |
|
the rights issue and subsequent investor reaction; |
|
= |
|
reorganisation of the Company and associated changes in Executive Director responsibilities
announced 31 January 2011; |
|
= |
|
risks associated with the political and regulatory landscape, including the US rate cases; and |
|
= |
|
the performance evaluation process, including how the Board and its Committees could operate more
effectively. |
Expected Board focus for the next year
= |
|
safety, as part of the Chief Executive’s monthly report; |
|
= |
|
monitoring implementation of the
reorganisation, including progress with anticipated efficiencies and associated employee relations
issues; |
|
= |
|
strategy sessions, including business development; |
|
= |
|
UK and US regulatory updates; |
|
= |
|
impact of the Bribery Act 2010; |
|
= |
|
reviewing and implementing as appropriate the recommendations of the Davies Review; |
|
= |
|
updates on
the allocation of US expenses; and |
|
= |
|
monitoring and discussing progress with Ofgem on price
controls. |
Governance framework
The Company is committed to operating our businesses in a responsible and sustainable manner. Our
corporate governance framework forms an integral part of this approach in order to safeguard
shareholder value. Our Company wide policies and procedures including risk management, which are
referred to later in this report, are considered as part of the overall governance of the business.
This report focuses on the Company’s approach to corporate governance as provided in the Combined
Code on Corporate Governance as revised in 2008 (the Code) which is applicable to the Company for
the financial year being reported. The Company also has regard to, and regularly reviews,
developing corporate governance best practice including matters contained in various investor
guidelines.
The Board considers that it complied in full with the provisions of the Code during the year.
This report explains key features of the Company’s governance structure and how it applies the
principles of the Code, and includes reporting required by the Disclosure and Transparency Rules.
The location within the Annual Report and Accounts of each of the disclosures required in the
Directors’ Report is set out in the index at the top of the following page.
80 National Grid plc | Annual Report and Accounts 2010/11
Directors’ Report statutory disclosures
Our Board
During the year, Steve Lucas retired following 10 years’
service and Andrew Bonfield was appointed as Finance Director.
Additionally, Mark Fairbairn stepped down from the Board at the
year end, in conjunction with the reorganisation of the Company to
a regional model. The Directors during the year are as set out on
page 85.
Balance is considered a key requirement for the composition of the
Board, not only in terms of the Executives and Non-executives, but
also with regard to the mix of skills, experience, knowledge,
independence and diversity. Biographical details for all the
Directors can be found on pages 8 and 9, together with details of
Board Committee memberships.
The role of the Board
During the year, the Board has reviewed its role and matters
reserved for its consideration as part of a review of the
Delegations of Authority. As a result of this review, minor changes
to add clarity and update terminology were made to the matters
reserved to the Board in September 2010.
The Board reserves a number of matters for its sole consideration where these matters impact the
strategic direction and effective oversight of the Company and its businesses. Examples include:
• |
|
corporate governance, including policy and procedure statements, codes of conduct, the
Delegations of Authority, the Framework for Responsible Business and Doing the Right Thing – Our
Standards of Ethical Business Conduct; |
|
• |
|
overall business strategy; |
|
• |
|
financial policy, the budget and business
plan; |
|
• |
|
acquisitions or divestments; |
|
• |
|
shareholder documents; |
|
• |
|
Director/employee issues such as Director succession planning, with input and
recommendations from the Nominations Committee; and |
|
• |
|
stock exchange and listing
requirements such as approval/ recommendation of dividend and approval of results announcements,
interim management statements and the Annual Report and Accounts. |
A full description of the matters reserved to the Board and the
framework and standards described above, together with other
documentation relating to the Company’s governance, are available
on our website at www.nationalgrid.com.
In addition to the above matters reserved to the Board, certain
items of strategic, operational or governance importance are
considered at every scheduled Board meeting including:
• |
|
safety, health and the environment; |
|
• |
|
financial status of the Company; |
|
• |
|
operational headlines from the Company’s businesses, together with a detailed update
from one of the business areas on a rotating basis; |
|
• |
|
business development and strategy
implementation; |
|
• |
|
external matters affecting the Company and any legal or new risk
issues; |
|
• |
|
reports from the Board Committees; and |
|
• |
|
updates on the governance of the Company and its businesses. |
The Board and its Committees
In order to operate effectively and to give appropriate
attention and consideration to matters, the Board has delegated
authority to its Committees to carry out certain tasks as defined
in, and regulated by, the Committees’ terms of reference, which are
available on our website at www.nationalgrid.com. The Board has
delegated to the Executive Committee responsibility for day-to-day
management decisions. The Committee structure is set out on pages 84
and 85.
The Board is kept apprised by the Committee chairmen through the
provision of a summary of the issues discussed and decisions taken
by the Committee. Minutes of Committee meetings are circulated to
other Directors once available and as appropriate.
Board members
are required to attend Board and Committee meetings regularly in
order to ensure they are kept up to date with the business and
accordingly can contribute to meetings. Should any Director be
unable to attend a meeting, the Chairman and Committee chairman are
informed and the absent Director is encouraged to communicate
opinions and comments on the matters to be considered. Instances of
non attendance during the year were considered and determined as
being reasonable in each case due to the individual circumstances.
In order to have the opportunity to discuss matters, for example
relating to governance, independently of management, the Chairman
and other Non-executive Directors meet formally at least once a year
without Executive Directors or other members of management present.
The Chairman and Non-executive Directors also meet formally at least
once a year with the Chief Executive. Ad hoc meetings may also be
held as required.
Non-executive Director independence
In order for the Non-executive Directors to contribute fully,
and in particular to challenge the Executive Directors over
strategic matters where appropriate, it is important the
Non-executive Directors bring experience, probity and independence
to the Board. Accordingly, the independence of the Non-executive
Directors is considered at least annually along with their
character, judgement, commitment and performance on the Board and
relevant Committees.
The Board in its deliberations specifically took into consideration
the Code and examples of indicators of potential non independence
including length of service, with a particularly rigorous review for
those Directors
who have served greater than six years. Following this evaluation,
each of the Non-executive Directors at year end has been determined
by the Board to be independent notwithstanding that Ken Harvey,
George Rose and Stephen Pettit have served on the Board for more
than nine years when their appointments as directors of Lattice
Group plc are included. The Board believes they have retained
independent character and judgement and recognise the significant
changes in the Company’s operations over the years noting that
Lattice Group plc had limited overseas operations and no electricity
businesses. The Board acknowledges that some of its Non-executive
Directors have been in tenure for a number of years and the
Nominations Committee will be actively considering Board and
Committee composition in the year ahead. The Board considers the
varied and relevant experience of all the Non-executive Directors to
be of great benefit to the Company.
Roles of the Chairman, Chief Executive
and
Senior Independent Director
In order to avoid the potential for apparent concentration of
power in one individual, the Chairman and the Chief Executive have
separate roles and responsibilities, which have been approved by
the Board. The Chairman’s main responsibility is the leadership
Annual Report and Accounts 2010/11 | National Grid plc 81
Corporate Governance
Corporate Governance continued
and management of the Board and its governance, ensuring a
culture of openness which encourages active debate. He chairs the
Board meetings ensuring that, for example, the forward agendas are
appropriate, relevant business is brought to the Board for
consideration in accordance with the schedule of matters reserved
to the Board, the Delegations of Authority and the Board’s
strategic remit, and each Director has the opportunity to consider
the matters brought to the meeting and to contribute accordingly.
The Chief Executive, as head of the Company’s Executive team,
retains responsibility for the leadership and day-to-day management
of the Company and the execution of its strategy as approved by the
Board. In addition to the other Executive Directors, key corporate
executives report directly to the Chief Executive.
The Senior Independent Director, Ken Harvey, was appointed to this
role in 2004. His responsibilities include leading the Non-executive
Directors’ annual consideration of the Chairman’s performance and
holding discussions with Non-executive Directors without Executive
Directors or other members of management present as well as acting
as a sounding board for the Chairman. He is also available to
shareholders in the event they feel it inappropriate to communicate
via the Chairman, the Chief Executive or the Finance Director. The
Senior Independent Director did not meet with shareholders during
the year.
Director induction, development and support
The Chairman, with the support of the Company Secretary & General Counsel, is responsible for
the induction of new Directors and involved with ongoing development of all Directors. This
includes a discussion on any personal development needs at the one-to-one meetings held with the
Chairman as part of the performance evaluation process. On appointment to the Board, new Directors
receive a tailored induction programme including one-to-one meetings with other Directors and
senior management, and a Directors’ information pack to provide background information on the
Company’s businesses and operations including issues relating to corporate responsibility. For
further details of Andrew Bonfield’s induction programme, see Chairman’s foreword on page 80. Board
meetings are regularly held at the Company’s sites and additional visits are organised in order for
the Directors to develop their understanding of the business.
Ongoing development for Non-executive
Directors includes:
• |
|
informing them at each Board meeting of the latest training courses
which may be of interest; |
|
• |
|
attendance at key site visits; |
|
• |
|
providing updates
on legal, economic, corporate governance and best practice matters; and |
|
• |
|
tailored
management presentations. |
For Executive Directors, coaching and development programmes include:
• |
|
external
coaching; |
|
• |
|
attendance at external training; and |
|
• |
|
experience of other
boardrooms through non-executive appointments. |
Accordingly, as part of their development and with the agreement of
the Board, Steve Holliday, Andrew Bonfield, Nick Winser and the
Company Secretary & General Counsel hold other directorships as set
out on pages 8 and 9. The fees for these positions are retained by
the Directors and the Company Secretary & General Counsel and
details for Directors are on page 101.
The number and perceived responsibility of other directorships are
considered annually to satisfy the Board that Directors do not have
excessive commitments that could potentially affect the time they
are able to devote to the Company. Prior to any new commitment,
agreement is sought from the Chairman. The Board is satisfied that
the Chairman and other Non-executive Directors, if required, would
be available as needed outside their contracted hours.
The Company Secretariat is available to provide assistance and
information on governance, corporate administration and legal
matters to Directors as appropriate. Directors may also seek, at
the Company’s expense, advice directly from independent
professional advisors should they so wish. This is in addition to
the advice provided by independent advisors to the Board
Committees. No such requests for external professional advice were
received during the year.
Performance evaluation
Continuous improvement and development through a cycle of
action monitoring and engagement is key to ensuring the Board and
Board Committee processes, procedures and governance structures
remain in line with best practice. Following a review of the
appropriateness of the internal process, the Nominations Committee
agreed the performance evaluation process remains robust. This year,
the Board survey was supplemented with additional questions
following Professor Andrew Kakabadse’s (Professor of International
Management Development, Cranfield School of Management) review last
year and the Committee questionnaires were enhanced to reflect the
UK Corporate Governance Code. The Nominations Committee also
considers if an external party should be engaged to facilitate
and/or perform the annual performance evaluation and going forward
will take into account the requirements of the UK Corporate
Governance Code to conduct an external evaluation at least every
three years.
The 2010/11 process, led by the Chairman and assisted by the Company
Secretary & General Counsel, was a formal and rigorous evaluation of
the performance of the Board, its Committees and the Directors. A
summary of the annual cycle for this process is set out in the
diagram above.
82 National Grid plc | Annual Report and Accounts 2010/11
A positive set of results was recorded once again across all
surveys, indicating the Board and Committees are working
effectively.
Examples of actions completed in 2010/11 and actions
identified as a result of this year’s evaluation are set out in the
tables below.
|
|
|
|
Area |
|
|
Actions completed 2010/11 |
|
|
|
|
Training and
development
|
|
|
Enhancement of the Non-executive Directors’
familiarity and interaction with each line
of business. |
|
|
|
Responsibility: Board |
|
|
|
|
|
|
|
|
|
|
|
|
Information
and support
|
|
|
Development of a more standard
presentation format for in depth line of
business reviews, in order to promote
consistency and ease of comparison.
|
|
|
|
Responsibility: Executive Directors |
|
|
|
|
|
|
|
|
|
|
|
|
Information
and support
|
|
|
Greater transparency of key performance
indicator data provided to the Board.
|
|
|
|
Responsibility: Chief Executive |
|
|
|
|
|
|
|
|
|
|
|
|
Area |
|
|
Actions for 2011/12 |
|
|
|
|
Training and
development
|
|
|
Ongoing review and assessment of training
and development opportunities for Board
members, including any areas of interest for
training sessions to be delivered by internal
or external parties. |
|
|
|
Responsibility: Board |
|
|
|
|
|
|
|
|
|
|
|
|
Board composition
|
|
|
Review and agree clarity of succession
planning focus between the Nominations
Committee and the Board. |
|
|
|
Responsibility: Board and Nominations
Committee |
|
|
|
|
|
|
|
|
|
|
|
|
Role and structure
|
|
|
Continue to monitor and review advice from,
and effectiveness of, advisors including
appropriateness of each advisor. |
|
|
|
Responsibility: Remuneration and Risk
& Responsibility Committees |
|
|
|
|
|
|
|
|
Taking into account the views of the Executive Directors, the
Non-executive Directors, led by the Senior Independent Director,
reviewed the Chairman’s performance at a private meeting. The
Chairman’s leadership and performance were considered to have been
of a high standard.
Director appointment and election
Shareholders have the opportunity to consider the appointment
and performance of each Director by voting in relation to their
election or re-election as a Director at the Annual General Meeting
(AGM). Following Andrew Bonfield’s appointment during the year, he
will seek election at the AGM. In accordance with best practice and
our commitment last year, all Directors, with the exception of John
Allan, will seek re-election this year as set out in the Notice of
2011 AGM.
In order to ensure transparency regarding the terms of their
appointment, the service contracts (Executive Directors) and
letters of appointment (Non-executive Directors) are available to
our shareholders and may also be inspected at the AGM prior to the
meeting. For further details regarding the Directors’ service
contracts and letters of appointment see pages 101 and 102 in the
Directors’ Remuneration Report.
Conflicts of interest
The Board continues to monitor and note possible conflicts of
interest that each Director may have and Directors are reminded of
their continuing obligations in relation to conflicts at each Board
meeting. Potential conflicts are considered and, if appropriate,
approved and noted, with the conflicted Director not voting on the
matter. During the year ended 31 March 2011, the Board has been
advised by the Directors of a number of situations in relation to
which no actual conflict of interest was identified and has
therefore authorised such situations in accordance with its powers.
Directors’ indemnity
In addition to the Directors’ and Officers’ liability
insurance cover for each Director, the Company has arranged, in
accordance with the Companies Act 2006 and the Articles of
Association, qualifying third party indemnities against financial
exposure that Directors may incur in the course of their
professional duties.
Code of Ethics
In accordance with US legal requirements, the Board has
adopted a Code of Ethics for senior financial professionals. This
code is available on our website at www.nationalgrid.com (where any
amendments or waivers will also be posted). There were no amendments
to, or waivers of, our Code of Ethics during the year.
Change of control provisions
No compensation would be paid for loss of office of Directors
on a change of control of the Company. As at 31 March 2011, the
Company had undrawn borrowing facilities with a number of its banks
of £1.8 billion and a further £1.2 billion of drawn bank loans
which, on a change of control of the Company following a takeover
bid, may alter or terminate. All the Company’s share plans contain
provisions relating to a change of control. Outstanding awards and
options would normally vest and become exercisable on a change of
control, subject to the satisfaction of any performance conditions
at that time. No other agreements that take effect, alter or
terminate upon a change of control of the Company following a
takeover bid are considered to be significant in terms of their
potential impact on the business as a whole.
Articles of Association
The Articles of Association set out the internal regulation of
the Company and cover such matters as the rights of shareholders and
the conduct of the Board and general meetings. Copies are available
upon request and are displayed on the Company’s website at
www.nationalgrid.com. In accordance with the Articles of
Association, Directors can be appointed or removed by the Board or
shareholders in general meeting. Amendments to the Articles of
Association have to be approved by at least 75% of those voting in
person or by proxy at a general meeting of the Company. Subject to
company law and the Articles of Association, the Directors may
exercise all the powers of the Company, and may delegate authorities
to Committees and day-to-day management and decision making to
individual Executive Directors. The Committee structure is set out
on pages 84 and 85.
Post balance sheet events
There have been no material post balance sheet events.
Annual Report and Accounts 2010/11 | National Grid plc 83
Corporate Governance
Corporate Governance continued
Our Board and Committee governance structure
The Board
The Board provides effective oversight of the Company and its
businesses and determines the governance structure and strategic
direction of the Company.
In order to operate efficiently and to give appropriate attention
and consideration to matters, the Board has delegated authority to
its Committees to carry out tasks as summarised below, with further
details on the following pages.
Listed below is the Committee membership and attendance together with
details of the other attendees who are invited to ensure the respective
Committees receive relevant updates and background information.
Executive Committee
Role and focus
The Committee oversees the financial, operational
and safety performance of the Company, taking
management action it considers necessary to
safeguard the interests of the Company and to
further the strategy, business objectives and
targets established by the Board.
Membership and attendance
|
|
|
Name |
|
Attendance* |
|
Committee chairman |
|
|
Steve Holliday
|
|
11 of 11 |
|
Executive Directors |
|
|
Andrew Bonfield **
|
|
5 of 5 |
Tom King
|
|
11 of 11 |
Nick Winser
|
|
11 of 11 |
|
Steve Lucas ***
|
|
8 of 8 |
Mark Fairbairn ****
|
|
11 of 11 |
|
Other members |
|
|
David Lister |
|
|
chief information officer
|
|
11 of 11 |
Helen Mahy |
|
|
Company Secretary & General Counsel
|
|
11 of 11 |
George Mayhew |
|
|
corporate affairs director
|
|
11 of 11 |
Mike Westcott |
|
|
global human resources director
|
|
11 of 11 |
Alison Wood |
|
|
global director of strategy and business |
|
|
development
|
|
11 of 11 |
|
Other attendees:
Senior management as necessary to keep the
Committee fully apprised of the Company’s
businesses.
Finance Committee
Role and focus
The Committee sets policy and grants authority for
financing decisions, bank accounts, credit
exposure, control mechanisms for hedging and
foreign exchange transactions, guarantees and
indemnities and approves, or if appropriate
recommends to the Board, other treasury, tax,
pensions and insurance strategies.
Membership and attendance
|
|
|
Name |
|
Attendance* |
|
Committee chairman |
|
|
Maria Richter
|
|
5 of 5 |
|
Executive Directors |
|
|
Steve Holliday
|
|
5 of 5 |
Andrew Bonfield **
|
|
3 of 3 |
|
Steve Lucas ***
|
|
3 of 3 |
|
Non-executive Directors |
|
|
John Allan
|
|
5 of 5 |
Stephen Pettit
|
|
5 of 5 |
|
Other attendees:
• |
|
global director of tax and treasury; |
|
• |
|
head of group tax; |
|
• |
|
head of risk and insurance; |
|
• |
|
global head of retirement plans; |
|
• |
|
external advisors as appropriate; and |
|
• |
|
management, as required. |
|
Nominations Committee
Role and focus
The Committee is responsible for considering the
structure, size and composition of the Board and
for identifying and proposing individuals to be
Directors and senior management, together with
establishing the criteria for any new position.
Membership and attendance
|
|
|
Name |
|
Attendance* |
|
Committee chairman |
|
|
Sir John Parker
|
|
5 of 5 |
|
Non-executive Directors |
|
|
Ken Harvey
|
|
5 of 5 |
Maria Richter
|
|
5 of 5 |
George Rose
|
|
4 of 5 |
|
Other attendees:
• |
|
Chief Executive; |
|
• |
|
global human resources director; and |
|
• |
|
external advisors, as required. |
84 National Grid plc | Annual Report and Accounts 2010/11
Board composition, attendance and independence
|
|
|
|
|
Non independent |
|
|
|
|
|
|
|
Name |
|
Attendance* |
|
|
Non-executive Chairman |
|
|
|
|
Sir John Parker |
|
10 of 10 |
|
|
Chief Executive |
|
|
|
|
Steve Holliday |
|
10 of 10 |
|
|
Executive Directors |
|
|
|
|
Andrew Bonfield ** |
|
4 of 5 |
|
Tom King |
|
10 of 10 |
|
Nick Winser |
|
9 of 10 |
|
|
Steve Lucas *** |
|
7 of 7 |
|
Mark Fairbairn **** |
|
10 of 10 |
|
|
|
|
|
|
|
Independent |
|
|
|
|
|
|
|
Name |
|
Attendance* |
|
|
Non-executive Directors |
|
|
|
|
Ken Harvey
(Senior Independent Director) |
|
10 of 10 |
|
Linda Adamany |
|
10 of 10 |
|
Philip Aiken |
|
10 of 10 |
|
John Allan |
|
10 of 10 |
|
Stephen Pettit |
|
10 of 10 |
|
Maria Richter |
|
10 of 10 |
|
George Rose |
|
8 of 10 |
|
|
|
|
* |
Attendance is expressed as number of
meetings attended out of number possible or
applicable for the individual Director |
|
** |
Andrew Bonfield was appointed to the Board on 1 November 2010 |
|
*** |
Steve Lucas retired on 31
December 2010 |
|
**** |
Mark Fairbairn left the Company on 31 March 2011 |
Remuneration Committee
Role and focus
The Committee is responsible for developing policy
regarding executive remuneration, and determining
the remuneration of the Executive Directors and
certain executives below Board level. It also has
oversight of the remuneration policies for other
employees and provides direction over the Company’s
employee share plans.
Membership and attendance
|
|
|
|
|
Name |
|
Attendance* |
|
|
Committee chairman |
|
|
|
|
John Allan |
|
9 of 9 |
|
|
Non-executive Directors |
|
|
|
|
Ken Harvey |
|
9 of 9 |
|
Stephen Pettit |
|
9 of 9 |
|
George Rose |
|
8 of 9 |
|
|
Other attendees:
• |
|
Chairman; |
|
• |
|
Chief Executive; |
|
• |
|
global human resources director and global head of compensation & benefits; and |
|
• |
|
independent external advisors. |
Risk & Responsibility Committee
Role and focus
The Committee monitors and reviews the Company’s
non-financial risks and interfaces with the Audit
Committee. The Committee is responsible for
reviewing the strategies, policies, targets and
performance of the Company within its Framework for
Responsible Business.
Membership and attendance
|
|
|
|
|
Name |
|
Attendance* |
|
|
Committee chairman |
|
|
|
|
Stephen Pettit |
|
4 of 4 |
|
|
Non-executive Directors |
|
|
|
|
Linda Adamany |
|
4 of 4 |
|
Philip Aiken |
|
4 of 4 |
|
Ken Harvey |
|
4 of 4 |
|
|
Other attendees:
• |
|
Chief Executive; |
|
• |
|
Company Secretary & General Counsel; |
|
• |
|
director of UK safety, health and environment; |
|
• |
|
US senior VP safety, health, environmental services; |
|
• |
|
Executive Directors, as appropriate; and |
|
• |
|
director of corporate audit or corporate affairs director on an alternate basis. |
Audit Committee
Role and focus
The Committee has oversight of the Company’s
internal controls and their effectiveness, together
with financial reporting and the procedures for the
identification, assessment and reporting of risks.
It also has oversight of the services provided by
the external auditors and their remuneration.
Membership and attendance
|
|
|
Name |
|
Attendance* |
|
Committee chairman |
|
|
George Rose
|
|
6 of 6 |
|
Non-executive Directors |
|
|
Linda Adamany
|
|
6 of 6 |
Philip Aiken
|
|
6 of 6 |
Maria Richter
|
|
6 of 6 |
|
Other attendees:
• |
|
external auditors; |
|
• |
|
Chairman; |
|
• |
|
Chief Executive; |
|
• |
|
Finance Director; |
|
• |
|
director of corporate audit, financial controller, Company Secretary & General Counsel; and |
|
• |
|
other Executive Directors, global director of tax and treasury, chief accountant and global head of
risk management, as appropriate. |
áReporting line
|
|
|
Disclosure committee
|
|
See page 88 |
Annual Report and Accounts 2010/11 |
National Grid plc 85
Corporate Governance
Corporate Governance continued
Steve Holliday
Committee chairman
Review of the year
Examples of matters the Committee considered
during the year include:
|
• |
|
the financial, operational, safety and environmental performance of the Company and its
businesses, including process safety improvements; |
|
|
• |
|
strategic business development and implementation, in particular the redesign of our
organisational structure; |
|
|
• |
|
approving capital and operational expenditure under the authorities delegated to it by the Board; |
|
|
• |
|
global regulatory matters, including the UK price controls RIIO –T1 and RIIO –GD1, and US rate
filings; |
|
|
• |
|
business conduct, risk and compliance reports, including adequacy and effectiveness of internal
control and risk management; |
|
|
• |
|
employee issues such as inclusion and diversity, employee reward and succession planning; and |
|
|
• |
|
global information systems strategic issues. |
“Our focus this year has been on the delivery
of our strategic actions, including the step up in
our capital plan and regulatory developments. We
have also reviewed and redesigned our
organisational structure from a global line of
business model to a regional model, as our
customers and regulators look for a business more
closely tuned to their needs. This represents an
evolution in the way we run our business. We will
of course continue to collaborate to share best
practice and knowledge and maintain the value that
we have gained from our global lines of business.”
Steve Holliday
Maria Richter
Committee chairman
Review of the year
Examples of matters the Committee considered
during the year include:
|
• |
|
transaction structure for the rights issue; |
|
|
• |
|
debt management policy, with policy changes to take advantage of market conditions, an external
presentation on the 2010 debt capital markets and key drivers for 2011; |
|
|
• |
|
UK and US tax strategy; |
|
|
• |
|
activities of the energy procurement risk management committee in the US; |
|
|
• |
|
pensions update, including the funding status of all plans, discussions on actions to address
funding deficits and their treatment in price control reviews; |
|
|
• |
|
insurance, including a review of premium levels and liability policy limits; and |
|
|
• |
|
approved financing to meet the Company’s anticipated increased role in US energy efficiency
programmes. |
“It has been a particularly busy year for the
Committee. We’ve considered several proposals
between the scheduled meetings to enable the
Company to remain competitive with its financing
activities and to secure the best market deals
available. Despite the uncertainties within the
economy, I am pleased to say that our specialist
finance, treasury, tax, insurance and pensions
teams have all risen to the challenges and we
remain well placed for the year ahead.”
Maria Richter
Sir John Parker
Committee chairman
Review of the year
Appointment during the year
Andrew Bonfield was appointed to the Board on the
recommendation of the Nominations Committee, which
deemed him to be the most suitable candidate. The
selection process undertaken in relation to this
appointment was formal and rigorous with due regard
to diversity, skills, experience and other time
commitments. External recruitment consultants were
engaged to ensure the widest possible candidate
pool.
Examples of other matters the Committee considered
during the year include:
|
• |
|
the size of the Board, its structure and composition; |
|
|
• |
|
aspects of the performance evaluation process, see pages 82 and 83 for details; |
|
|
• |
|
ongoing succession planning for Board members and senior management; and |
|
|
• |
|
development plans for senior management, as proposed by the Chief Executive and global human
resources director. |
“Succession planning ensures the Company
continues to be managed by people with the
necessary skills, experience and knowledge and that
the Board itself has the right balance of skills
and experience to be able to perform its duties
effectively. With the renewed focus on Board gender
diversity, the Committee will continue to review
Board succession aiming to ensure that, following
the Davies Review, we can meet our aspirational
goals.”
Sir John Parker
86 National Grid plc | Annual Report and Accounts 2010/11
John Allan
Committee chairman
Review of the year
Examples of matters the Committee considered
during the year include:
|
• |
|
impact of the rights issue on the employee share plans, including on the earnings per share
performance condition in the Performance Share Plan; |
|
|
• |
|
salary review proposals and performance objectives; |
|
|
• |
|
compensation and benefit arrangements for departing and new Executive Directors; |
|
|
• |
|
market trends in remuneration and benchmarking of individual roles; |
|
|
• |
|
long-term ill health benefits within the defined contribution section of The National Grid UK
Pension Scheme; and |
|
|
• |
|
impact of UK income tax relief changes on pensions. |
See Directors’ Remuneration Report on pages 96
to 108 for further details on remuneration and
remuneration policy, including Directors’ interests
in shares and in options to receive shares, and any
changes that have occurred since 31 March 2011.
“Remuneration at Board and senior management level
has again been firmly in the public eye over the
last year. The Committee acknowledges that there is
considerable focus on this topic and that decisions
it makes must be fully justifiable. We have
continued to consider the interests of
shareholders, customers, regulators and other
stakeholders as appropriate, which has been
illustrated by the consultation with major
shareholders in respect of the new Long Term
Performance Plan.”
John Allan
Stephen Pettit
Committee chairman
Review of the year
Examples of matters the Committee considered
during the year include:
|
• |
|
serious incident and near miss reports, such as an electric arc flash incident at a US
substation, noting root causes and associated learning; |
|
|
• |
|
climate change strategy, performance against targets and the challenges related to Scope III
emissions; |
|
|
• |
|
safety, health and environment audit plans and findings from such audits; |
|
|
• |
|
progress toward embedding a security culture and actions being taken to improve digital and asset
security; |
|
|
• |
|
changes in the non-financial risk profile of the Company; and |
|
|
• |
|
findings from the new external safety
advisor and subsequent response from
management. |
“We undertook a number of site visits during
the year starting with a tour of a US LNG site,
which focused on process safety. We also went to a
London electricity substation, where we gained a
greater understanding of the issues associated with
the failure of certain types of transformer and the
actions being taken to manage them. Later in the
year, we visited a Gas Distribution training centre
in the UK, where we observed the work under way to
increase our level of performance in the field.
During all these visits, we were impressed by the
commitment of everyone we met to safety – of
themselves, their colleagues and the public.”
Stephen Pettit
George Rose
Committee chairman
Experience
As required, the Board has determined that George
Rose, finance director of BAE Systems plc until 31
March this year, has recent and relevant financial
experience and is a suitably qualified financial
expert.
Review of the year
Examples of matters the Committee considered
during the year include:
|
• |
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developments in the US finance environment including recruitment to strengthen
capabilities; |
|
|
• |
|
accounting for goodwill, including an outline of the approach adopted for goodwill impairment
testing; |
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• |
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implications of the Bribery Act 2010, including a review of policies and procedures to ensure
adequate controls are in place; |
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• |
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the risk management process in Transmission, noting the principal risks; and |
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• |
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the rights issue, including the transaction structure and the external auditors’ review of
working capital projections. |
“The role and responsibilities of audit
committees have come under continued scrutiny.
During the year, the bodies responsible for
oversight of financial reporting, both in the UK
and internationally, have consulted on initiatives
to improve the accountability and transparency of
companies’ reporting. We have observed closely and
participated in these processes and aim to be at
the forefront of transparent financial reporting.
The Committee will continue to consider best
practice reporting to stakeholders as an integral
part of its business.”
George Rose
Annual Report and Accounts 2010/11 | National Grid plc 87
Corporate Governance
Corporate Governance continued
Audit Committee
The Audit Committee, in accordance with the authority
delegated to it by the Board, together with the Risk &
Responsibility Committee, supports the Board with oversight of the
risks facing the Company. It has primary responsibility for
consideration of the transparency of reporting of financial
performance of the Company to its stakeholders.
Regular updates are provided by management where issues are
ongoing, as was the case with the Ofgem investigation into the
inaccurate reporting of the gas mains replacement data and is
currently the case with the review of the allocation of expenses in
the US. Management is also required to demonstrate how the lessons
learned from certain events have been implemented, including
changes to systems and processes, in order to provide satisfactory
assurance to the Committee, the Board and other stakeholders.
Financial reporting
The Audit Committee is responsible for reviewing the Company’s
results statements, interim management statements, Performance
Summary and Annual Report and Accounts before publication, and
making appropriate recommendations to the Board following review.
The financial information in such documents, including in particular
the consolidated accounts, is prepared and reviewed by experienced
accountants in a specialist financial control team. When considering
the financial information to be published, the director of investor
relations attends the Audit Committee meeting and provides it with
the opportunity to review particular drafting and content. In
addition, the Committee also reviews reports of, and discusses any
issues raised by, the disclosure committee (see below for more
information).
Accounting policies are reviewed in the context of international
accounting developments and regular reports are provided to the
Committee on topical financial reporting matters from management
and the external auditors. The Committee also considers best
practice in light of the Company’s operations and business
environment. If there is scope under the accounting regulations
for assumptions or judgements, the Committee is informed of
management’s suggested position in reporting financial performance
and the views of the external auditors are also considered.
Disclosure committee
The role of the Company’s disclosure committee is to assist
the Chief Executive and the Finance Director in fulfilling their
responsibility for oversight of the accuracy and timeliness of the
disclosures made by the Company whether in connection with its
financial reporting obligations or other material stock exchange
announcements and presentations to analysts. It is chaired by the
Finance Director and its members are the Company Secretary & General
Counsel, the global director of tax and treasury, the financial
controller, the director of investor relations, the director of
corporate audit and the corporate counsel together with such other
attendees as may be appropriate.
Accordingly, during the year the committee reviewed the process
and controls over external disclosures and key documents before
their release including the Annual Report and Accounts, the
preliminary and half year results statements and the interim
management statements, as well as the changes in Executive
Directors and Company reorganisation. Additionally, the committee
considered the announcement for the rights issue, as well as the
financial information contained in the rights issue prospectus and
the presentations made by the Chief Executive and the Finance
Director on the day of announcement.
Confidential reporting procedures and whistleblowing
Any employee may, via National Grid’s confidential helplines
(one of which is run internally and one by an independent third
party), raise concerns relating to potential fraud, health and
safety, harassment, discrimination, security or any other matter.
Such concerns can be raised anonymously if the employee wishes and
employees are protected from any retaliation. The Company also
ensures that a proportionate and independent investigation is
undertaken in each case with disciplinary or other follow up action
being taken as appropriate.
The Audit Committee reviews at least annually the procedures for
the receipt, retention and treatment of complaints received to
ensure that all concerns raised by employees are treated
confidentially and are investigated and reported appropriately.
Matters relating to business conduct and other relevant subjects
within the Risk & Responsibility Committee’s terms of reference are
reported to the Audit Committee as appropriate.
All instances of alleged fraud, irrespective of the amounts
involved, and actions taken as a result of fraud investigations,
including consequential amendments to processes by management, are
considered and reviewed by the Audit Committee.
Internal (corporate) audit
The Committee is responsible for monitoring and reviewing the
effectiveness of internal audit activities. This includes
discussions with the director of corporate audit without management
present on the remit of the internal audit function and issues
arising from its activities.
The appointment and removal of the director of corporate audit is
subject to the approval of the Committee and that person is
accountable to the Committee and works closely with it. The
Committee receives, reviews and approves the corporate audit
charter, the plan for the upcoming year’s activities and ensures
that the corporate audit function has sufficient resources to carry
out its work effectively. The internal auditors provide regular
reports on key control issues and significant control findings and
management’s response to such matters.
External audit
The Committee is responsible for making recommendations to the
Board on the appointment, reappointment and fees of the external
auditors, which are then subject to shareholder approval each year
at the AGM. The lead partner from the external auditors and other
senior representatives are invited to attend meetings to provide
additional information to aid the Committee’s discussions.
Additionally, meetings of the Committee without management
present are held at least annually so that the external auditors
have the opportunity to raise any matters in confidence.
Auditor independence and objectivity
Safeguards are in place to eliminate, or reduce to an
acceptable level, any threat to objectivity and independence in the
conduct of the audit resulting from the provision of non-audit
services by the external auditors, with this work being subject to
prior approval by the Audit Committee. The engagement of the
external auditors for non-audit services is also restricted by the
Sarbanes-Oxley Act 2002, which prohibits them from providing certain
services. Where a service is permissible, the Company’s policy is
that the external auditors will not be used for non statutory audit
work unless it can be demonstrated as part of the approval process
the engagement will not compromise independence, is a natural
extension of their audit work or there are other overriding reasons
that make them the most suitably qualified to undertake it. The
non-audit services in the year ended 31 March 2011 related primarily
to work in
88 National Grid plc | Annual Report and Accounts 2010/11
connection with the rights issue and tax advice. Approval was given
for the provision of non-audit services by the external auditors
where the services were legally required to be provided, as in the
case of the rights issue, were otherwise closely related to the
statutory audit, or where the Audit Committee was satisfied that
the external auditors were able to provide better value for money
or had specialist knowledge not available from other providers.
Details of the fees paid to the external auditors for non-audit
work carried out during the year can be found in note 2(e) to the
consolidated financial statements on page 128.
An annual review is
conducted by the Committee of the level and constitution of
external audit and non-audit fees and the independence and
objectivity of the external auditors, including an evaluation of
the external audit process globally, incorporating a review of the
expertise of the audit firm and our relationship with them.
Following the latest annual review, the Committee is satisfied with
the effectiveness, objectivity and independence of the external
auditors, who have been engaged since the merger with Lattice Group
plc in 2002, and they will be recommended to shareholders for
reappointment at the AGM. There are no contractual obligations
restricting the Company’s choice of external auditors and no auditor
liability agreement has been entered into by the Company. The
external auditors are required to rotate the audit partner
responsible for the Company every five years and a new partner was
appointed during the year.
In addition to the annual review of the service provided by the
external auditors, the Committee considers formally at least every
three years whether the audit might be provided more efficiently or
effectively by an alternative audit firm. However, the Company may
put the audit out to tender at any time.
Audit information
Having made the requisite enquiries, so far as the Directors
in office at the date of the signing of this report are aware,
there is no relevant audit information of which the auditors are
unaware and each Director has taken all reasonable steps to make
themselves aware of any relevant audit information and to establish
that the auditors are aware of that information.
Internal control, risk and compliance
The Audit Committee regularly considers the effectiveness of
the Company’s financial reporting, internal controls and compliance
with applicable legal requirements. The Committee monitors risk and
compliance management procedures across the Company and reviewed
specific risks during the year, details of which can be found below
and on pages 91 to 93.
The Committee also receives reports from the business separation
compliance officer via the compliance committees as required under
National Grid Gas plc’s gas transporter licences. The Committee
oversees the business separation compliance officer’s role in
ensuring that no unfair commercial advantage is conferred by the UK
regulated gas transportation businesses on any National Grid
business. Robust systems are in place to prevent this and the
business separation compliance officer monitors the situation and
reports his findings to the Committee.
The Committee reviews the Company’s systems for risk identification,
how the risks are graded and what methods are employed to mitigate
those risks. During the year, the Committee also received regular
updates on the status of the risks and any changes, including
lessons learned from other companies and industries and the Bribery
Act 2010.
As with the risk management process, the Audit Committee also
reviews the compliance management process at least once a year and
reports on this to the Board. The compliance management process also
contributes toward the entity level testing that is performed under
the Sarbanes-Oxley Act 2002, as well as some of the Company’s other
internal assurance activities.
Risk management and internal control
The Board is committed to the long-term success of the Company
and the protection of the value of our reputation and assets. The
Board ensures that the Company maintains a sound system of internal
control in order to safeguard the interests of our shareholders. An
effective system of operational and financial controls, including
the maintenance of qualitative financial records, is an important
element of internal control.
In order to understand the risks and potential control issues facing
the Company, the following sections as well as pages 36 and 37 in
the Operating and Financial Review should be considered. The system
of internal control, and in particular the risk management policy,
has been designed to manage rather than eliminate material risks to
the achievement of our strategic and business objectives while also
recognising that any such process can provide only reasonable, and
not absolute, assurance against material misstatement or loss. This
process complies with the Turnbull working party guidance, revised
October 2005, and additionally contributes to our compliance with
the obligations under the Sarbanes-Oxley Act 2002 and other internal
assurance activities.
Framework
In accordance with the Code and the schedule of matters
reserved to the Board, the Board retains overall responsibility for
the Company’s system of internal control and monitoring its
effectiveness. There is an established system of internal control
throughout the Company and its businesses. This system is based on
thorough and systematic processes for the identification and
assessment of business critical risks and their management and
monitoring over time. In depth reports are provided from both line
managers and certain internal assurance providers such as corporate
audit and risk and compliance. These reports are provided to
the Board Committees in relation to their specific areas of
responsibility. The Committees then, in turn, provide reports to
the Board.
Review
The Board reviews the internal control process, including
around financial reporting, and its effectiveness on an annual
basis to ensure it remains robust and to identify any control
weaknesses. The latest review covered the financial year to 31
March 2011 and included the period to the approval of this Annual
Report and Accounts.
This review includes:
• |
|
the receipt of a Letter of Assurance from the Chief Executive, which consolidates key
matters of interest raised through the year-end assurance process; |
|
• |
|
assurance from its Committees as appropriate, with particular reference to the reports
received from the Audit Committee and Risk & Responsibility Committee on the reviews
undertaken at their respective meetings; and |
|
• |
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assurances in relation to the certifications required under the Sarbanes-Oxley Act
2002 as a result of the Company’s NYSE listing. |
Annual Report and Accounts 2010/11 | National Grid plc 89
Corporate Governance
Corporate Governance continued
Risk management
Our risk management programme is designed to protect value and
enhance performance by building vigilance, agility and resilience
into our management process. We continue to have a well established,
enterprise wide risk management process that ensures our business
leaders look to the future to identify risks to our strategic plan.
Once identified, the process ensures that risks are assessed against
a uniform set of criteria, continuously managed and regularly
reported in a visible and structured manner. We rely on the output
of this process both to inform management decisions and to provide
assurance to management and the Board, thus helping to safeguard our
assets and reputation.
The risk management process is based on
comprehensive bottom-up and top-down assessments of a wide range of
risks, which typically include operational (including safety and
reliability), financial, strategic and project. All businesses and
the corporate and global functions that support them, prepare and
maintain risk registers that capture their key risks and the actions
being taken to manage them. Executive Directors and other senior
management review, challenge and debate these bottom-up results,
thereby producing an overall evaluation of the risks facing the
Company. The Executive, Audit and Risk & Responsibility Committees
review the risk profile and any changes to it in accordance with
their terms of reference, and the Audit Committee reviews the
overall risk management process.
The risk management process is subject to regular review. In the
last year, a comprehensive assessment of the process has been
undertaken and we are currently implementing a number of
enhancements. A closer alignment with the activities of the
corporate strategy, corporate audit and Sarbanes-Oxley compliance
functions has been achieved as a result. Additionally, new
analytical tools that support the strategic planning process have
been developed, together with a risk based process to better
evaluate the safety risks associated with key facilities, such as
electricity generation plants, LNG facilities and compressor
stations. Also in progress is the implementation of a state of the
art governance risk and compliance system that will improve our
ability to link risks, automate risk metrics and capture a full
range of assurance data.
Compliance management
Our enterprise wide compliance management process is
comprehensive, well established and continues to provide visibility
on performance against key internal and external obligations. The
process provides assurance to senior management on the effectiveness
of control frameworks to manage key internal and external
obligations and also highlights any instances of significant non
compliance with those obligations. Our external obligations are
driven primarily by key legal and regulatory requirements, whereas
our internal obligations focus on compliance with the Company’s own
corporate policies and procedures.
In examining a business area’s compliance performance, we look for
any actual or potential instances of non compliance and consult with
other assurance providers such as internal and external auditors,
and frequently review the effectiveness of communications and
training programmes. Before issuing an opinion on an area’s
compliance control framework, we obtain the views of experts in the
field such as internal safety and environmental experts.
The compliance management process is consistent with, and complementary
to, our risk management process and provides, among other things, a
more detailed breakdown of the risk of non compliance with laws,
regulations, standards of service, corporate policies and
procedures.
The Executive, Risk & Responsibility and Audit Committees each
receive a report twice a year setting out the key internal and
external compliance obligations across the Company and any
significant non compliance with those obligations, together with
compliance opinions and action plans to improve controls where
necessary.
Internal control
Internal
control – information assurance
The Board considers that it is imperative to have accurate
and reliable information within the Company to enable informed
decisions to be taken that further the Company’s objectives. Key
elements in managing information assurance risks include
education, training and awareness.
These initiatives emphasise the importance of information security,
the quality of data collection and the affirmation process that
supports our business transactions, evidencing our decisions and
actions. All communication channels, including training for our
newly revised Doing the Right Thing, make it clear that the accurate
and honest reporting of data must never be compromised. These
initiatives are supported by the Letter of Assurance process in
which managers affirm, among other things, that they have control
frameworks in place to ensure data is reported accurately.
The Company continues to work collaboratively with a variety of
organisations and professional bodies to develop and implement best
practice, examples being the Institute of Business Ethics in the UK
and the Ethics and Compliance Officer Association in the US.
Internal
control over financial reporting – Sarbanes-Oxley
National Grid has carried out an assessment of its internal
control over consolidated financial reporting pursuant to Section
404 of the Sarbanes-Oxley Act 2002 and the Disclosure and
Transparency Rules. The management of the Company, which is
responsible under the Sarbanes-Oxley Act 2002 for establishing and
maintaining an adequate system of internal control over consolidated
financial reporting, evaluated the effectiveness of that system
using the Committee of Sponsoring Organizations of the Treadway
Commission framework. Based on that evaluation, the management of
the Company expects to conclude in its Annual Report on Form 20-F
filing with the US Securities and Exchange Commission that the
system of internal control over consolidated financial reporting was
effective as at 31 March 2011.
90 National Grid plc | Annual Report and Accounts 2010/11
Risk factors
Our risk management process has identified the following risk factors that could have a
material adverse effect on our business, financial condition, results of operations and reputation,
as well as the value and liquidity of our securities. Not all of these factors are within our
control. Any investment decision regarding our securities and any forward-looking statements made
by us should be considered in the light of these risk factors and the cautionary statement set out
on the back cover.
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Changes in law or
regulation and
decisions by
governmental bodies
or regulators
|
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Many of our businesses are utilities or networks that are subject to regulation by governments and other authorities.
Changes in law or regulation or regulatory policy and precedent in the countries or states in which we operate
(including the new RIIO approach in the UK) could materially adversely affect us. Decisions or rulings concerning,
for example:
• whether licences, approvals or agreements to operate or supply are granted or are renewed or whether
there has been any breach of the terms of a licence, approval or regulatory requirement; and
• 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, remuneration for stranded assets, the level of
permitted revenues and dividend distributions for our businesses and in relation to proposed business development
activities,
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.
For further information, see the Operating and Financial Review and, in particular, the operating environment section. |
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Potentially harmful
activities, the
environment and
climate change
|
|
Aspects of our activities are potentially dangerous and could potentially harm members of the public and our
employees, such as the operation and maintenance of electricity generation facilities and electricity lines and the
transmission and distribution of gas. We are subject to laws and regulations in the UK and US governing health and
safety matters protecting the public and our employees. Electricity and gas utilities also typically use and generate
in their operations hazardous and potentially hazardous products and by-products. In addition, there may be other
aspects of our operations that are not currently regarded or proved to have adverse effects but could become so, such
as the effects of electric and magnetic fields.
We are subject to laws and regulations relating to pollution, the protection of the environment, and the use and
disposal of hazardous substances and waste materials. These expose us to costs and liabilities relating to our
operations and our properties whether current, including those inherited from predecessor bodies, or formerly owned
by us and sites used for the disposal of our waste. The cost of future environmental remediation obligations is often
inherently difficult to estimate and uncertainties can include the extent of contamination, the appropriate
corrective actions and our share of the liability. We are increasingly subject to regulation in relation to climate
change and are affected by requirements to reduce our own carbon emissions as well as reduction in energy use by our
customers.
We commit significant expenditure toward complying with these laws and regulations and to meeting our obligations
under negotiated settlements. If additional requirements are imposed, or our ability to recover these costs under
regulatory frameworks changes, this could have a material adverse impact on our businesses, results of operations and
financial position. Furthermore, any breach of our regulatory or contractual obligations, or our climate change
targets, or even incidents that do not amount to a breach, could materially adversely affect our results of
operations and our reputation.
For further information about environmental, climate change and health and safety matters relating to our businesses,
see the Corporate responsibility section of our website at www.nationalgrid.com. |
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Network failure or
interruption, the
inability to carry
out critical non
network operations
and damage to
infrastructure
|
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We may suffer a major network failure or interruption or may not be able to carry out critical non network
operations. Operational performance could be materially adversely affected by a failure to maintain the health of the
system or network, inadequate forecasting of demand, inadequate record keeping or control of data or failure of
information systems and supporting technology. This could cause us to fail to meet agreed standards of service or
incentive and reliability targets or be in breach of a licence, approval, regulatory requirement or contractual
obligation, and even incidents that do not amount to a breach could result in adverse regulatory and financial
consequences, as well as harming 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), unlawful or unintentional acts of third parties,
insufficient supply or force majeure. Weather conditions, including prolonged periods of adverse weather, can affect
financial performance and severe weather that causes outages or damages infrastructure will materially adversely
affect operational and potentially business performance and our reputation. Malicious attack, sabotage or other
intentional acts may also damage our assets or affect corporate activities and as a consequence have a material
adverse impact on our results of operations and financial condition. Even where we establish business continuity
controls, these may not be sufficient. |
Annual Report and Accounts 2010/11 | National Grid plc 91
Corporate Governance
Corporate Governance continued
|
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Business performance
|
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Earnings maintenance and growth
from our regulated businesses
will be affected by our ability
to meet or exceed efficiency and
integration targets and service
quality standards set by, or
agreed with, our regulators. In
addition, from time to time, we
publish cost and efficiency
savings targets for our
businesses. If we are to meet
these targets and standards,
perform well against our peers,
meet the expectations of our
stakeholders and deliver our
business plan, we must continue
to improve operational
performance, service reliability
and customer service and continue
to invest in our infrastructure
and the development of our
information technology. We are
also restructuring our
organisation and carrying out
other major internal
transformation projects. If we do
not meet these targets and
standards, deliver our business
plan or implement the
restructuring or transformation
projects as envisaged, we may not
achieve the expected benefits,
our business may be materially
adversely affected and our
performance, results of
operations and reputation may be
materially harmed. |
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Exchange rates, interest rates and
commodity price indices
|
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We have significant operations in
the US and we are therefore
subject to the exchange rate
risks normally associated with
non domestic 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 exchange rates,
interest rates and commodity
price indices, 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, commodity and
interest rate exposure, or by
cash collateral movements
relating to derivative market
values, which also depend on euro
and other exchange rates. For
further information see the
financial performance section of
the Operating and Financial
Review. |
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Borrowing and debt arrangements,
funding costs, tax, access to financing
and holding company
|
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Our business is financed through
cash generated from 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 the cost of those
borrowings. In addition,
restrictions imposed by
regulators may limit the manner
in which we service the financial
requirements of our current
businesses or the financing of
newly acquired or developing
businesses. The effective rate of
tax we pay may be influenced by a
number of factors including
changes in law and accounting
standards, the results of which
could increase that rate and
therefore have a material adverse
impact on our results of
operations.
Financial markets can be subject
to periods of volatility and
shortages of liquidity and, 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
uncommitted and discretionary
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. The
occurrence of any such events
could have a material adverse
impact on our business, results
of operations and prospects.
In addition, National Grid plc is
a holding company and, as such,
has no revenue generating
operations of its own. As a
result, National Grid plc depends
on (i) the earnings and cash
flows of its operating
subsidiaries, (ii) the ability of
its subsidiaries to pay dividends
(which may be restricted due to
legal or regulatory constraints
or otherwise), (iii) subsidiaries
repaying funds due to it and (iv)
the maintenance by its
subsidiaries of certain minimum
credit ratings (which also depend
on the credit rating of National
Grid plc). If National Grid plc’s
subsidiaries are unable to
achieve any of the foregoing,
National Grid plc may be unable
to pay dividends and there may be
a material adverse impact on its
operations, costs associated with
financing or its ability to
access the capital markets or
other forms of bank financing at
competitive rates. |
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Inflation
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Our income under our price
controls in the UK is linked to
the retail price index. During a
period of inflation our operating
costs may increase without a
corresponding increase in the
retail price index and therefore
without a corresponding increase
in UK revenues. Our income under
the 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 our results of operations. |
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Business development activity
|
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Business development activities,
including acquisitions and
disposals, entail a number of
risks, including an inability to
identify suitable acquisition
opportunities or obtain funding
for such acquisitions, that such
transactions may be based on
incorrect assumptions or
conclusions, the inability to
integrate acquired businesses
effectively with our existing
operations, failure to realise
planned levels of synergy and
efficiency savings from
acquisitions, unanticipated
operational, financial and tax
impacts (including unanticipated
costs) and other unanticipated
effects. 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 at the
time of the relevant acquisition.
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. |
92 National Grid plc | Annual Report and Accounts 2010/11
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Funding of our pension schemes and
other post- retirement benefits
|
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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 defined benefit 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
these schemes are based on
actuarial assumptions and other
factors including the actual and
projected market performance of the
scheme assets, future long-term
bond yields, average life
expectancies and relevant legal
requirements. The impact of these
assumptions and 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 our
results of operations and financial
condition. |
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Customers and counterparty risk
|
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Our operations are exposed to the
risk that customers and
counterparties to our transactions
that owe us money or commodities
will not perform their obligations,
which could materially adversely
affect our financial position. This
risk is most significant where our
subsidiaries have concentrations of
receivables from gas and
electricity utilities and their
affiliates, 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.
A substantial portion of our US
electricity distribution and
generation business’s revenues are
derived from a series of agreements
with the Long Island Power
Authority (LIPA) pursuant to which
we manage LIPA’s transmission and
distribution system and supply the
majority of LIPA’s generating
capacity. These agreements are
largely scheduled to expire in
2013. If these agreements are not
renewed, our income may be reduced
and we may suffer stranded costs,
for which we may not be
remunerated. |
|
|
|
Employees and others
|
|
Our ability to implement our
long-term business strategy depends
on the capabilities and performance
of our personnel. Loss of key
personnel or an inability to
attract, train or retain
appropriately qualified personnel
(in particular for technical
positions where availability of
appropriately qualified personnel
may be limited), or if significant
disputes arise with our employees,
our ability to implement our
long-term business strategy may be
affected and there may be a
material adverse effect on our
business, financial condition,
results of operations and
prospects.
There is a risk that an employee or
someone acting on our behalf
commits a breach of anti-bribery
legislation or otherwise commits a
breach of our internal controls or
internal governance framework. This
could impact our results of
operations, our reputation and our
relationship with our regulators
and other stakeholders. |
|
|
|
Seasonal fluctuations
|
|
Our electricity and gas businesses
are seasonal businesses and are
subject to weather conditions. In
particular, revenues from our gas
distribution networks in the US are
weighted towards the end of our
financial year, when demand for gas
increases due to colder weather
conditions. As a result, we are
subject to seasonal variations in
working capital because we purchase
gas supplies for storage in the
first half of our financial year
and must finance these purchases.
Accordingly, our results of
operations for this business
fluctuate substantially on a
seasonal basis. In addition,
portions of our electricity
businesses are seasonal and subject
to weather and weather related
market conditions. Sales of
electricity to customers are
influenced by temperature changes.
Significant changes in heating or
cooling requirements, for example,
could have a substantial effect. As
a result, fluctuations in weather
and competitive supply between
years may have a significant effect
on our results of operations for
both gas and electricity
businesses. |
Annual Report and Accounts 2010/11 | National Grid plc 93
Corporate Governance
Corporate Governance continued
Shareholder and share capital information
Shareholders
Our aim is to ensure the appropriate value of our business is
fully reflected in our share price and that capital markets have
up-to-date information on which to base their decisions.
The Company
considers it has an effective and open process of engagement with
all shareholders through its regular communications, the AGM and
other investor relations activities.
In line with established best
practice and in support of The UK Stewardship Code for institutional
investors, the Board has responsibility for ensuring effective
communication takes place with all shareholders and it considers
carefully major announcements to the market. Relations with
shareholders are managed mainly by the Chief Executive, Finance
Director and director of investor relations. Meetings are held
regularly throughout the year with institutional investors, fund
managers and analysts to discuss the public disclosures and
announcements made by the Company.
The Chairman also writes to major
shareholders following the announcement of the Company’s preliminary
and half year results to offer them the opportunity to meet with
him, the Senior Independent Director or any of the other
Non-executive Directors. This enables major shareholders to take up
with these individuals any issue they feel unable to raise with
members of the Executive team.
The Board receives feedback from the Company’s brokers and the
director of investor relations to ensure that they are aware of and
understand the views of our shareholders. An independent audit of
investor sentiment is also undertaken on a periodic basis and
presented to the Board in full. In addition, analysts’ notes on the
Company are also circulated regularly to Directors for their
information.
During the year we conducted over 250 investor meetings in the UK
and Europe and 220 investor meetings in the US, maintaining a
presence at five UK and European conferences and at 10 North
American conferences. We presented to 16 broker sales teams and
held three web based presentations, covering UK and US regulation
and the Company reorganisation. We also presented to debt investors
in the major European financial centres, as well as across the US.
Following the appointment of Andrew Bonfield, a number of meetings
were arranged, either as part of established roadshows or
separately, to introduce him to major shareholders and analysts.
Issues relevant to our smaller shareholders are also considered by
the Board. During the year ended 31 March 2011, the Company offered
initiatives such as duplicate account amalgamation, a low cost share
dealing service for sales and purchases, the shareholder networking
programme and cost reduction of calls to Capita Registrars.
Shareholder networking
The shareholder networking programme, which is normally run
twice a year with each event over two days, includes visits to UK
operational sites and presentations by senior managers and
employees. The costs of the programme (including shareholder
travel to and from the event) are paid for by the Company. Open to
UK resident shareholders, participation is by application and
selection by ballot, with priority given to those who have not
recently attended.
If you would like to take part please apply online at
www.nationalgrid.com/corporate/Investor+Relations/
ShareholderServices/ShareholderNetworking/. There is also the
opportunity to apply in person at the AGM. Only those
successful in the ballot will be contacted.
Annual General Meeting
National Grid’s 2011 AGM will be held on Monday 25 July
2011 at The International Convention Centre in Birmingham.
Details are set out in the Notice of AGM.
Share capital
The share capital of the Company consists of ordinary shares of
1117/43 pence nominal value each
and American Depositary Shares (ADSs) only. The ordinary shares and
ADSs allow holders to receive dividends and vote at general
meetings of the Company. Shares held in treasury do not attract a
vote or dividends. 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 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.
A number of our share plans have been reviewed this year. The
all-employee share plans, namely the Sharesave Plan, Share
Incentive Plan and Employee Stock Purchase Plan, are subject to
shareholder approval or reapproval under corporate governance
guidelines with minor, administrative changes being suggested.
With respect to the Performance Share Plan, the long term
incentive plan for the most senior employees, all aspects of the
plan have been reviewed and a replacement plan, the Long Term
Performance Plan, is to be presented for approval by shareholders
at this year’s AGM.
Further details of the operation of this new plan and changes to
the other plans can be found in the Directors’ Remuneration Report.
Resolutions regarding the reapproval of the plan rules for the
Share Incentive Plan and Employee Stock Purchase Plan and the
approval of the plan rules for the Sharesave Plan and the new Long
Term Performance Plan are set out in the Notice of AGM.
At the
Company’s 2010 AGM, shareholder authority was given to purchase up
to 10% of the Company’s ordinary shares. The Directors intend to
seek shareholder approval to renew this authority at this year’s
AGM. No shares were repurchased during the year. Of the shares
repurchased in prior years and held in treasury, 3,951,389 have
been transferred to employees under the employee share plans and,
as at the date of this report, 137,141,164 were held in treasury.
Shareholders also approved the authority for the Directors to allot
relevant securities up to approximately one third of the issued
share capital and a further third in connection with an offer by way
of a rights issue. The Directors intend to seek shareholder approval
to renew this authority at this year’s AGM, details of which are
contained in the Notice of AGM.
The Directors consider it desirable to have the maximum flexibility
permitted by investor guidelines to respond to market developments.
No issue of shares will be made which would effectively alter
control of the Company without the sanction of shareholders in
general meeting. Each authority will be subject to renewal annually.
94 National Grid plc | Annual Report and Accounts 2010/11
The Directors currently have no intention of issuing new shares,
or of granting rights to subscribe for or to convert any security
into shares, except in relation to the Company’s Scrip Dividend
Scheme and in connection with the exercise of options under the
Company’s share schemes.
Dividends
The Company normally pays dividends twice each year, in
accordance with the timetable set out on page 188. We encourage
shareholders to elect to have their dividends paid directly into
their bank or building society account. As well as being convenient
for the shareholder, as the dividend will normally reach their
account on the day of payment, there will be no delays from paying
in or losing cheques.
Shareholders can elect to acquire further National Grid ordinary
shares without payment of dealing charges or stamp duty reserve tax
through the Scrip Dividend Scheme. Details and an application form
are available from Capita Registrars for ordinary shareholders, or
from Bank of New York Mellon for ADS holders, contact information
is set out on the back cover. Ordinary shareholders can also elect
to participate in the Scrip Dividend Scheme at
www.nationalgridshareholders.com.
The Directors are recommending a final dividend of 23.47 pence per
ordinary share ($1.9005 per ADS) to be paid on 17 August 2011 to
shareholders on the register at 3 June 2011. Further details in
respect of dividend payments can be found on pages 55 and 56.
Shareholdings
Shareholder analysis
The following table includes a brief analysis of
shareholder numbers and shareholdings as at 31 March 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Size of |
|
Number of |
|
|
% of |
|
|
Number of |
|
|
% of |
|
shareholding |
|
shareholders |
|
|
shareholders |
|
|
shares |
|
|
shares |
|
|
1–50 |
|
|
190,832 |
|
|
|
17.3231 |
|
|
|
5,656,922 |
|
|
|
0.1551 |
|
|
51–100 |
|
|
309,117 |
|
|
|
28.0606 |
|
|
|
21,879,729 |
|
|
|
0.5997 |
|
|
101–500 |
|
|
475,163 |
|
|
|
43.1337 |
|
|
|
98,764,846 |
|
|
|
2.7071 |
|
|
501–1,000 |
|
|
62,591 |
|
|
|
5.6818 |
|
|
|
43,761,154 |
|
|
|
1.1995 |
|
|
1,001–10,000 |
|
|
60,728 |
|
|
|
5.5127 |
|
|
|
148,499,028 |
|
|
|
4.0703 |
|
|
10,001–50,000 |
|
|
2,095 |
|
|
|
0.1902 |
|
|
|
37,952,684 |
|
|
|
1.0403 |
|
|
50,001–100,000 |
|
|
204 |
|
|
|
0.0185 |
|
|
|
14,789,851 |
|
|
|
0.4054 |
|
|
100,001–500,000 |
|
|
424 |
|
|
|
0.0385 |
|
|
|
101,943,724 |
|
|
|
2.7942 |
|
|
500,001–1,000,000 |
|
|
155 |
|
|
|
0.0140 |
|
|
|
114,266,975 |
|
|
|
3.1320 |
|
|
1,000,001+ |
|
|
296 |
|
|
|
0.0269 |
|
|
|
3,060,824,562 |
|
|
|
83.8964 |
|
|
Total |
|
|
1,101,605 |
|
|
|
100 |
|
|
|
3,648,339,475 |
|
|
|
100 |
|
|
Material interests in shares
As at the date of this report, National Grid had been
notified of the following holdings in voting rights of 3% or more
in the issued share capital of the Company:
|
|
|
|
|
|
|
% of voting rights |
|
|
Black Rock Inc |
|
|
5.21 |
|
|
Capital Group Companies, Inc |
|
|
5.04 |
|
|
Crescent Holding GmbH |
|
|
4.31 |
|
|
Legal and General Group plc |
|
|
3.99 |
|
|
No further notifications have been received.
Share dealing, individual savings accounts (ISAs) and ShareGift
A share dealing service is available from Capita Registrars.
For more information please call 0800 022 3374 or +44 203 367 2693
if calling from outside the UK or visit www.capitadeal.com/nationalgrid. Lines are open from 8am to 4.30pm Monday to Friday.
High street banks may also offer share dealing services. Corporate
ISAs for National Grid shares are available from Stocktrade. For
more information, call Stocktrade on 0131 240 0443 or 0845 213 4443,
email isa@stocktrade.co.uk or write to Stocktrade, 81 George Street,
Edinburgh EH2 3ES.
If you hold only a few shares and feel that it is
uneconomical or otherwise not worthwhile to sell them, you could
consider donating your shares to charity. ShareGift is an
independent registered charity (no. 1052686) that provides a free
service for shareholders wishing to give holdings of shares to
benefit charitable causes. For more information please visit
www.sharegift.org or call Capita Registrars, see contact details on
the back cover.
These details are provided for information only and any action you
take is at your own risk. National Grid cannot advise you on what
action, if any, you should take in respect of your shares. If you
have any doubt as to the action you should take, you are recommended
to seek your own financial advice from your stockbroker, bank
manager, accountant or other independent financial advisor
authorised pursuant to the Financial Services and Markets Act 2000.
Corporate governance practices: differences from New York
Stock Exchange (NYSE) listing standards
As the Company has a US listing, it is required to disclose differences in corporate
governance practices adopted by the Company as a UK listed company, compared with those of a US
company. The corporate governance practices of the Company are primarily based on UK requirements
but substantially conform to those required of US companies listed on the NYSE. The principal
differences between the Company’s governance practices pursuant to the Code and UK best practice
and the Section 303A Corporate Governance Rules of the NYSE are:
• |
|
different tests of
independence for Board members are applied under the Code and Section 303A; |
|
• |
|
there is no
requirement for a separate corporate governance committee in the UK; all Directors on the Board
discuss and decide upon governance issues and the Nominations Committee makes recommendations to
the Board with regard to certain of the responsibilities of a corporate governance committee; |
|
• |
|
while the Company reports compliance with the Code in each Annual Report and Accounts, there
is no requirement to adopt and disclose separate corporate governance guidelines; and |
|
• |
|
while the Audit Committee, having a membership of four independent Non-executive Directors,
exceeds the minimum membership requirements under Section 303A of three independent Non-executive
Directors, it should be noted that the quorum for a meeting of the Audit Committee, of two
independent Non-executive Directors, is less than the minimum membership requirements under Section
303A. |
Annual Report and Accounts 2010/11 |
National Grid plc 95
\
Directors’ Remuneration Report
Directors’ Remuneration Report
Review of the year by John Allan, Chairman of the
Remuneration Committee
I am pleased to present the Directors’ Remuneration Report for
2010/11. This year we have reviewed a number of our share plans,
some purely on the basis they are subject to shareholder approval
under corporate governance guidelines ie our all-employee share
plans – the Sharesave Plan, Share Incentive Plan and Employee Stock
Purchase Plan, where only minor, administrative changes have been
made. With respect to the Performance Share Plan, the long-term
incentive plan for our most senior employees, we have reviewed all
aspects of the plan and a replacement plan, the Long Term
Performance Plan, will be presented for approval by shareholders at
this year’s Annual General Meeting (AGM). While the changes to the
long-term incentive are not major, we believe the introduction of a
new measure (return on equity) provides a strong link with our key
objectives. Details of the operation of this new plan are provided
later in this report.
Our policy of relating pay to the performance of the Company
continues to be a strong principle underlying the Remuneration
Committee’s consideration of executive remuneration. We aim to
ensure the Company continues to attract, motivate and retain high
calibre individuals to deliver the highest possible performance for
our shareholders.
We firmly believe the mix of our remuneration package provides an
appropriate and balanced opportunity for executives and their
senior teams. Our incentive plans remain aligned with the
Company’s strategic objectives and our shareholders’ interests,
while continuing to motivate and engage the team leading the
Company to achieve stretching targets.
Remuneration Committee
The Remuneration Committee members are John Allan, Ken
Harvey, Stephen Pettit and George Rose. Each of these Non-executive
Directors is regarded by the Board as independent and served
throughout the year.
The Global Human Resources Director and Global Head of Compensation
& Benefits provide advice on remuneration policies and practices and
are usually invited to attend meetings, along with the Chairman and
the Chief Executive.
No Director or other attendee is present during any discussion
regarding his or her own remuneration.
The Remuneration Committee is responsible for developing Company
policy regarding executive remuneration and for determining the
remuneration of the Executive Directors and executives below
Board level who report directly to the Chief Executive. It also
has oversight of the remuneration policies for other employees
of the Company and provides direction over the Company’s
employee share plans.
The Board has accepted all the recommendations made by the
Remuneration Committee during the year.
The Remuneration Committee has authority to obtain the advice of
external independent remuneration consultants. It is solely
responsible for their appointment, retention and termination; and
for approval of the basis of their fees and other terms.
In the year to 31 March 2011, the following advisors provided
services to the Remuneration Committee:
• |
|
Towers Watson, independent remuneration advisors. It
also provides general remuneration and benefits advice to the
Company. In this respect, the Remuneration Committee is
satisfied that any potential conflicts are appropriately
managed. The Remuneration Committee has carefully reviewed the
voluntary code of conduct in relation to executive consulting
in the UK; |
• |
|
Alithos Limited, provision of Total Shareholder
Return calculations for the Performance Share Plan; |
• |
|
Linklaters LLP, advice relating to Directors’
service contracts as well as providing other legal advice to
the Company; and |
• |
|
KPMG LLP, advice relating to pension taxation legislation. |
96 National Grid plc | Annual Report and Accounts 2010/11
Remuneration policy
The Remuneration Committee determines remuneration policy and practices with the aim of
attracting, motivating and retaining high calibre Executive Directors and other senior employees to
deliver value for shareholders and high levels of customer service, safety and reliability in an
efficient and responsible manner. The Remuneration Committee sets remuneration policies and
practices in line with best practice in the markets in which the Company operates. Remuneration
policies continue to be framed around the following key principles:
• |
|
total rewards
should be set at levels that are competitive in the relevant market. For UK-based Executive
Directors, the primary focus is placed on companies ranked (in terms of market capitalisation)
11-40 in the FTSE 100. This peer group is therefore weighted towards companies smaller than
National Grid and positioning the package slightly below median against this group is considered to
be appropriate for a large, international but predominately regulated business. For US-based
Executive Directors, the primary focus is placed on US utility companies; |
|
• |
|
a significant
proportion of the Executive Directors’ total reward should be performance based. Performance based
incentives will be earned through the achievement of demanding targets for short-term business and
individual performance as well as long-term shareholder value creation, consistent with our
Framework for Responsible Business which can be found at: www.nationalgrid.com/corporate/About+Us/
CorporateGovernance/Other; |
|
• |
|
for higher levels of performance, rewards should be
substantial but not excessive; |
|
• |
|
incentive plans, performance measures and targets should
be stretching and aligned as closely as possible with shareholders’ long-term interests; and |
|
• |
|
remuneration structures should motivate employees to enhance the Company’s performance
without encouraging them to take undue risks, whether financial or operational. |
It is currently intended to continue this policy in subsequent
years.
To ensure salary and employment benefits across the Company
are taken into consideration when decisions regarding Executive
Directors’ remuneration are made, the Remuneration Committee is
briefed on any key changes impacting employees; and depending on the
scope of that change its approval is sought.
Executive Directors’ remuneration
Remuneration packages for Executive Directors consist of
the following elements:
• |
|
salary; |
|
• |
|
Annual Performance Plan including the Deferred Share Plan; |
|
• |
|
long-term
incentive, the Performance Share Plan, to be replaced by the Long Term Performance Plan; |
|
• |
|
all-employee share plans; |
|
• |
|
pension contributions; and |
|
• |
|
non-cash benefits. |
Salary
Salaries are reviewed annually and targeted broadly at the
median position against the relevant market. In determining the
relevant market, the Remuneration Committee takes account of the
regulated nature of the majority of the Company’s operating
activities along with the size, complexity and international scope
of the business. For UK-based and US-based Executive Directors, UK
and US markets are used respectively. In setting individual salary
levels, the Remuneration Committee takes into account business
performance, the individual’s performance and experience in the role
together with salary practices prevailing for other employees in the
Company to ensure any increases are broadly in line with those for
employees generally.
Annual Performance Plan including the Deferred Share Plan
(DSP)
The Annual Performance Plan is based on the achievement of a
combination of demanding Company, individual and, where applicable,
divisional targets. The plan is cascaded through the management
population, which provides a line of sight for employees to connect
day to day activities with National Grid’s vision, strategy and key
financial and service provision metrics. The principal measures of
Company performance in 2010/11 were adjusted earnings per share
(EPS), see page 56 for further details, consolidated cash flow and
regulated controllable costs. The main divisional measures were
operating profit and line of business returns targets, with some
employees having slightly different targets dependent upon their
role and area of the business.
Financial targets for Executive
Directors represent 70% of the plan. Individual targets,
representing 30% of the plan, are set in relation to key operating
and strategic objectives. These include, for example, stretch goals
in regulatory management, business development activities, customer
satisfaction improvement programmes and carbon efficiency targets.
The split between financial targets and individual objectives
changes at different levels of seniority in the Company to reflect
line of sight and the impact of those different levels of seniority
on the Company’s performance.
The Remuneration Committee sets financial targets at the start of
the year, including Executive Directors’ individual objectives. It
reviews performance against those targets and individual objectives
at year end. When setting financial targets and individual
objectives, and when reviewing performance against them, the
Remuneration Committee takes into account the long-term impact and
any risks that could be associated with those targets and
objectives. In addition, the chairmen of the Audit and Risk &
Responsibility Committees are both members of the Remuneration
Committee and therefore are able to provide input from those
Committees’ reviews of the Company’s performance.
The Remuneration
Committee may use its discretion to reduce payments to take account
of significant safety or service standard incidents; or to increase
them in the event of exceptional value creation. The Remuneration
Committee also has discretion to consider environmental, social and
governance issues when determining payments to Executive Directors.
Those principles may then be cascaded down the organisation to
appropriate employee groups based on the specific circumstances.
In addition, the Remuneration Committee retains the right, in
exceptional circumstances, to reclaim any monies based on financial
misstatement and/or the misconduct of an individual through means
deemed appropriate to those specific circumstances.
Annual Report and Accounts 2010/11 |
National Grid plc 97
Directors’ Remuneration Report
Directors’ Remuneration Report continued
Performance against Company and divisional financial targets for this year is shown in the
following table:
|
|
|
|
Level of performance achieved in 2010/11 |
|
as determined by the Remuneration Committee |
Financial measures |
Company targets |
Divisional targets |
|
Adjusted EPS
|
Between target
and stretch |
|
|
Consolidated cash flow
|
Stretch |
|
|
Regulated controllable costs
|
Between target
and stretch |
|
|
Operating profit
|
|
Varied performance
(i), (ii) |
|
Line of business returns targets
|
|
Varied performance
(iii), (iv), (v) |
|
|
|
|
(i) |
|
Transmission and Gas Distribution between target and stretch. |
|
(ii) |
|
Electricity
Distribution & Generation at stretch. |
|
(iii) |
|
Transmission between target and stretch, UK and US. |
|
(iv) |
|
Gas Distribution between threshold and target (UK), at stretch (US). |
|
(v) |
|
Electricity
Distribution & Generation at stretch (US only). |
In 2010/11, the maximum opportunity under the Annual Performance Plan for Executive Directors
was 150% of base salary, with 40% of the plan (60% of salary) being paid for target performance.
One half of any award earned is automatically deferred into National Grid shares (ADSs for US-based
Executive Directors) through the DSP. The shares are held in trust for three years before release.
The Remuneration Committee may, at the time of release of the shares, use its discretion to pay a
cash amount equivalent to the value of the dividends that would have accumulated on the deferred
shares. The deferred shares may be forfeited if the Executive Director ceases employment during the
three year holding period as a ‘bad leaver’, for example, resignation. We believe the forfeiture
provision serves as a strong retention tool.
The Remuneration Committee believes that requiring Executive Directors to invest a substantial
amount of their Annual Performance Plan award in National Grid shares increases the proportion of
rewards linked to both short-term performance and longer-term Total Shareholder Return (TSR). This
practice also ensures that Executive Directors share a significant level of risk with the Company’s
shareholders. Awards for UK-based Executive Directors are not pensionable but, in line with current
US market practice, US-based Executive Directors’ awards are pensionable.
Long-term
incentive – Performance Share Plan (PSP)
operated for awards between 2003 and 2010
inclusive
Executive Directors and approximately 400 other senior employees who have significant
influence over the Company’s ability to meet its strategic objectives, may receive an award which
will vest subject to the achievement of performance conditions set by the Remuneration Committee at
the date of grant. The value of shares (ADSs for US-based Executive Directors and relevant
employees) constituting an award (as a percentage of salary) varies by grade and seniority subject
to a maximum, for Executive Directors, of 200% of salary. Typically awards of 200% of salary have
been awarded to Executive Directors. The provisions in the PSP rules allow awards up to a maximum
value of 250% of salary.
Shares vest after three years, conditional upon the satisfaction of the relevant performance
criteria. Vested shares must then be held for a further period (the retention period) after which
they are released to the participant on the fourth anniversary of the date of grant. During the
retention period, the Remuneration Committee has discretion to pay an amount, in cash or shares,
equivalent to the dividend which would have been paid on the vested shares.
Awards vest based on
the Company’s TSR performance when compared to the FTSE 100 at the date of grant (50% of the award)
and the annualised growth of the Company’s EPS (50% of the award).
In calculating TSR it is assumed
that all dividends are reinvested. No shares will be released under the TSR part of the award if
the Company’s TSR over the three year performance period, when ranked against that of the FTSE 100
comparator group, falls below the median. For TSR at the median, 30% of those shares will be
released, 100% will be released where National Grid’s TSR performance on an annualised compound
basis is 7.5% above that of the median company in the FTSE 100 (upper target).
The EPS measure is
calculated by reference to National Grid’s real EPS growth, see page 56 for further details. Where
annualised growth in adjusted EPS (on a continuing basis and excluding exceptional items,
remeasurements and stranded costs) over the three year performance period exceeds
the average annual increase in RPI (the general index of retail prices for all items) over the same
period by 3% (threshold performance), 30% of the shares under the EPS part of the award will be
released. All the shares will be released where EPS growth exceeds RPI growth by 8% (upper target).
Vested 2007 PSP award
The upper target for the EPS performance criteria was reached and vesting on a partial basis
occurred for the TSR performance measure for the 2007 award. This resulted in vesting at 65.15% of
the award. The shares then entered the retention period. The Remuneration Committee agreed to pay a
cash amount equivalent in value to the net dividends (after taxes, commissions and any other
charges) that would be paid during the retention period in respect of the shares comprised in the
vested award. These payments were made in August 2010 and February 2011, to align broadly with
dividend payments to our shareholders.
New
long-term incentive – Long Term Performance Plan (LTPP)
This plan will replace the PSP effective from the 2011 award which will be made after the
2011 AGM, subject to shareholder approval. Further details of the LTPP can be found in the Notice
of the 2011 AGM.
The plan will operate largely on the basis of the current PSP with respect to participants and
their award levels, except the Remuneration Committee has decided the maximum award level for the
Chief Executive will increase from 200% to 225% of salary, in order to further emphasise longer
term performance related pay in his package. The provisions in the LTPP rules allow awards up to a
maximum value of 250% of salary, as permissible under the current plan, in order to provide a
degree of flexibility for the future.
98 National Grid plc | Annual Report and Accounts 2010/11
Shares will vest (over three and four years) conditional upon the satisfaction of the relevant
performance criteria. Awards will vest based on the annualised growth of the Company’s EPS (50% of
the award), the Company’s TSR performance when compared to the FTSE 100 at the date of grant (25%
of the award) and a return on equity (ROE) target measuring performance against allowed regulatory
returns established through price control reviews in the UK and rate case settlements in the US
(25% of the award).
The TSR and EPS targets will be measured over a three year performance period
and ROE will be measured over four years. This will result in partial vesting after three years,
subject to performance and the remainder relating purely to ROE after four years.
The Remuneration Committee is taking the opportunity to introduce ROE into the LTPP as return
measures are established key performance indicators for our shareholders and regulators. Inclusion
of returns in the plan will focus participants further on increasing efficiency and enhancing
returns for shareholders over the longer term.
The ROE measure is derived from returns on pages 31 and 35. In the UK, this is based on electricity
and gas Transmission returns and the Gas Distribution return. For the US, it is based on US
electricity Transmission, Gas Distribution and Electricity Distribution & Generation by
jurisdiction. The Chief Executive and Finance Director will be targeted on both the UK and US
targets. For the UK and US-based operational Directors, they will be targeted on their respective
UK or US targets.
The performance range for ROE will be measured as follows: threshold performance will be met where
the allowed regulatory returns in the UK and -1% of the allowed regulatory returns in the US are
achieved. The upper target will represent out-performance of regulatory returns by 2% UK and 1% US.
The Remuneration Committee believes the level of challenge for the performance ranges in the UK and
the US are broadly similar, to provide stretch in both cases while at the same time being
motivational for participants. The performance ranges reflect the different impacts of regulated
incentives in the UK and US. The targets will be subject to review prior to any subsequent awards
being made to ensure they remain appropriate and stretching.
The TSR and EPS targets will remain
unchanged from those operated under the PSP, as detailed on page 98. However, the percentage of
each element of the award that will vest for threshold performance will be reduced from 30% to 25%.
For performance, under each measure, between threshold and the upper target, the number of shares
released is pro rated on a straight-line basis.
These measures will be used because the Remuneration Committee believes they offer a balance
between meeting the needs of shareholders (by measuring TSR performance against other large UK
companies) and providing a measure of performance (EPS growth and now ROE) over which the Executive
Directors have direct influence.
In order to better align the interests of participants with those of shareholders, the rules of the
LTPP allow the Remuneration Committee to determine that dividends accrue on the shares comprised in
the award. The dividends will be released in shares when the award vests, if and to the extent that
the performance criteria are achieved.
Common elements of the PSP and LTPP
The Remuneration Committee believes the overall mix of measures used in the plans are
appropriate as they align with the Company’s strategy. In addition, the LTPP will ensure continued
focus on returns (particularly in the US) and shareholders’ interests through the continued use of
TSR and EPS.
No re-testing of performance is permitted for the awards that do not vest after the performance
periods and any such awards lapse.
If the Remuneration Committee considers, in its absolute
discretion, the underlying financial performance of the Company does not justify the vesting of
awards, even if some or all of the performance measures are satisfied in whole or in part, it can
declare that some or all of the award lapses.
In addition, the Remuneration Committee retains the right, in exceptional circumstances, to reclaim
any monies based on financial misstatement and/or the misconduct of an individual through means
deemed appropriate to those specific circumstances.
Under the terms of the plans, the Remuneration
Committee may allow shares to vest early to departing participants, including Executive Directors,
to the extent the performance conditions have been met, in which event the number of shares that
vest will be pro rated to reflect the proportion of the performance period that has elapsed at the
date of departure.
Recruitment
promise – Special Retention Award (SRA)
As part of a contractual commitment made at the time of Tom King’s recruitment, Tom received
an SRA in November 2007. This one-off award of National Grid ADSs vested in equal tranches, over
three years, on the anniversary of the award (November 2008 through to November 2010) and was
subject to his continued employment. There were no performance conditions attached to this award.
Details of the final tranche of vested ADSs can be found on page 106.
Share ownership guidelines
The Chief Executive is required to build up and retain a shareholding representing at least
200% of annual salary. For other Executive Directors, the requirement is 125% of salary. This will
be achieved by retaining at least 50% of the after-tax gain on any options exercised or shares
received through the long-term incentive or all-employee share plans and will include any shares
held beneficially. Each of the Executive Directors has surpassed the respective share ownership
guideline (except for Andrew Bonfield who is newly appointed).
Share dilution through the operation of share-based incentive plans
Where shares may be issued or treasury shares reissued to satisfy incentives, the aggregate
dilution resulting from executive share-based incentives will not exceed 5% in any 10 year period.
Dilution resulting from all incentives, including all-employee incentives, will not exceed 10% in
any 10 year period. The Remuneration Committee reviews dilution against these limits regularly and
under these limits, the Company currently has headroom of 4.00% and 7.14% respectively.
Annual Report and Accounts 2010/11 |
National Grid plc 99
Directors’ Remuneration Report
Directors’ Remuneration Report continued
Executive Directors’ remuneration package
Illustrated below is the current remuneration package for Executive Directors (excluding
pensions, all-employee share plans and non-cash benefits) for both ‘maximum stretch’ performance
and assuming ‘on target’ performance based on 40% (60% of salary) for the Annual Performance Plan;
and TSR and EPS performance such that 30% (60% of salary) of PSP awards are released to
participants at the end of the performance period and subsequent retention period. All Executive
Directors have the same proportion of fixed and variable remuneration in this respect.
Executive Directors’ remuneration package
2010/11 UK & US
All-employee share plans
• |
|
Sharesave: Employees resident in the UK, including UK-based Executive Directors, are
eligible to participate in HM Revenue & Customs approved all-employee Sharesave schemes. Under
these schemes, 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. At the end of
the savings period, these contributions can be used to purchase ordinary shares in National Grid at
a discount capped at 20% of the market price set at the launch of each scheme. |
|
• |
|
Share Incentive Plan (SIP): Employees resident in the UK, including UK-based Executive
Directors, 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 and if they are left in trust for at least five years, they can be
removed free of UK income tax and National Insurance Contributions. |
|
• |
|
US Incentive Thrift Plans: Employees of National Grid’s US companies (including
US-based Executive Directors) are eligible to participate in the Thrift Plans, which are
tax-advantaged savings plans (commonly referred to as 401(k) plans). These are defined contribution
pension plans that give participants the opportunity to invest up to applicable Federal salary
limits ie for pre-tax contributions, a maximum of 50% of salary limited to $16,500 for those under
the age of 50 and $22,000 for those over 50 for calendar years 2010 and 2011; for post-tax
contributions, up to 15% of salary limited to the lesser of 100% of compensation or $49,000 for
calendar years 2010 and 2011. Employees may invest their own and Company contributions in National
Grid shares or various mutual fund options. |
|
|
|
With effect from 1 January 2011, the Company matches 50% of the first 8% of salary contributed.
Prior to that, the Company matched 100% of the first 2% and 75% of the next 4% of salary
contributed, resulting in a maximum matching contribution of 5% of salary up to the Federal salary
cap. For employees in legacy KeySpan plans, the Company matched 50% of the first 6% of salary
contributed. With effect from 1 January 2011, the Company no longer provides a discount to purchase
Company |
|
|
stock, however, prior to this date legacy KeySpan employees invested in National Grid shares
at a 10% discount. |
|
• |
|
Employee Stock Purchase Plan (ESPP): Employees of National Grid’s US companies
(including US-based Executive Directors) are eligible to participate in the ESPP (commonly referred
to as a 423b plan). Eligible employees have the opportunity to purchase ADSs on a monthly basis at
a 10% 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. Any ADSs purchased
through the ESPP may be sold at any time, however, there are tax advantages for ADSs held for at
least two years from the offer date. |
Pensions
Steve Holliday and Nick Winser are provided with final salary pension benefits. These pension
provisions are designed to provide a pension of one thirtieth of final salary at age 60 for each
year of service subject to a maximum of two thirds of final salary, including any pension rights
earned in previous employment. Within the pension schemes, the pensionable salary is normally the
base salary in the 12 months prior to leaving the Company. Both Executive Directors participate in
Flexible Pension Savings (FPS), a salary sacrifice arrangement available to all members of the
Company’s pension arrangements. Life assurance provision of four times pensionable salary and a
spouse’s pension equal to two thirds of the Executive Director’s pension are provided on death.
Both aforementioned Executive Directors have elected to participate in the unfunded scheme in
respect of any benefits in excess of the Lifetime Allowance or their Personal Lifetime Allowance.
An appropriate provision in respect of the unfunded scheme has been made in the Company’s balance
sheet.
Alternatively, these Executive Directors are able to cease accrual in the pension schemes and take
a 30% cash allowance in lieu of pension if they so wish. These choices are in line with those
offered to current senior employees in the Company, except the cash allowance varies depending upon
organisational grade.
Andrew
Bonfield is a member of the National Grid UK Pension Scheme – Defined
Contribution Section. He has chosen to participate in FPS, the Company’s salary sacrifice
arrangement. Under this arrangement, if the Executive Director chooses the maximum standard
contribution of 5% of salary, the Company will typically pay a pension contribution of 30%.
Alternatively, the Company will pay a non-pensionable cash allowance to ensure the total value of
the Company contribution (not including contributions paid via FPS) and the cash allowance is equal
to 30% of base salary. The latter option was chosen by Andrew Bonfield. These benefits are in line
with those offered to current senior employees in the Company, except the total value of the
Company contribution and cash allowance varies depending upon organisational grade. Life assurance
provision of four times pensionable salary and a spouse’s pension equal to one third of the
Executive Director’s base salary are provided on death.
Following the changes to pensions tax relief introduced from April 2011, the Company has reviewed
the pension benefits offered to members. The Company has agreed that senior employees most likely
to be affected by the legislative changes will be offered more flexibility to take cash in lieu of
Company contributions. The total level of benefits offered in the form of cash and/or pension
contributions will not change. The Company continues to honour existing unfunded promises, however,
no new unfunded promises have been granted since April 2006.
100 National Grid plc | Annual Report and Accounts 2010/11
US-based Executive Directors participate in a qualified pension plan and an executive supplemental
retirement plan provided by National Grid’s US companies. These plans are non-contributory defined
benefit arrangements. The qualified plan is directly funded, while the executive supplemental
retirement plan is indirectly funded through a ‘rabbi trust’. Benefits are calculated using a
formula based on years of service and highest average compensation over five or three consecutive
years. In line with many US plans, the calculation of benefits under the arrangements takes into
account salary, Annual Performance Plan awards and incentive share awards (DSP) but not share
options or PSP awards. The normal retirement age under the qualified pension plan is 65. The
executive supplemental retirement plan provides unreduced pension benefits from age 55. On the
death of the Executive Director, the plans also provide for a spouse’s pension of at least 50% of
that accrued by the Executive Director. Benefits under these arrangements do not increase once in
payment.
Non-cash benefits
The Company provides competitive benefits to Executive Directors, such as a fully expensed
car or a cash alternative in lieu of car, use of a driver when required, private medical insurance
and life assurance. Business expenses incurred are reimbursed in such a way as to give rise to no
benefit to the Executive Director.
Flexible benefits plan
Additional benefits may be purchased under the flexible benefits plan (the Plan), in which
UK-based Executive Directors, along with most other UK employees, have been given the opportunity
to participate. The Plan operates by way of salary sacrifice, that is, the participants’ salaries
are reduced by the monetary value used to purchase benefits under the Plan. Many of the benefits
are linked to purchasing additional healthcare and insurance products for employees and their
families. A number of the Executive Directors participate in this Plan and details of the impact on
their salaries are shown in Table 1A on page 103.
Similar plans are offered to US-based employees. However, they are not salary sacrifice plans and
therefore do not affect salary values. Tom King was a participant in such a plan during the year.
Executive Directors’ service contracts, termination and mitigation
In its consideration of these matters, the Remuneration Committee takes into account the
Companies Act 2006, the UK Listing Authority’s Listing Rules, the Combined Code on Corporate
Governance, as revised in 2008, and other requirements of legislation, regulation and good
governance. Service contracts for all Executive Directors provide for one year’s notice by either
party.
In the event of early termination by the Company of an Executive Director’s employment,
contractual base salary reflecting the notice period would normally be payable. The Remuneration
Committee operates a policy of mitigation in these circumstances with any payments being made on a
monthly basis. The departing Executive Director would generally be expected to mitigate any losses
where employment is taken up during the notice period, however, this policy remains subject to the
Remuneration Committee’s discretion, based on the circumstances of the termination.
|
|
|
|
|
|
|
Date of contract |
|
Notice period |
|
Executive Directors |
|
|
|
|
|
Steve Holliday
|
|
1 April 2006
|
|
12 months |
|
Andrew Bonfield (i)
|
|
1 November 2010
|
|
12 months |
|
Nick Winser
|
|
28 April 2003
|
|
12 months |
|
Tom King
|
|
11 July 2007
|
|
12 months |
|
Steve Lucas (ii)
|
|
13 June 2002
|
|
12 months |
|
Mark Fairbairn (iii)
|
|
23 January 2007
|
|
12 months |
|
|
|
|
(i) |
|
Andrew Bonfield joined the Board on 1 November 2010. |
|
(ii) |
|
Steve Lucas retired from the
Board on 31 December 2010. |
|
(iii) |
|
Mark Fairbairn left the Company on 31 March 2011. |
External appointments and retention of fees
With the approval of the Board in each case, Executive Directors may normally accept an
external appointment as a non-executive director of another company and retain any fees received
for this appointment. The table below details the Executive Directors who served as non-executive
directors in other companies during the year ended 31 March 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained |
|
|
|
Company |
|
fees (£) |
|
|
Executive Directors |
|
|
|
|
|
|
|
|
|
Steve Holliday |
|
Marks and Spencer Group plc |
|
|
81,000 |
|
|
Andrew Bonfield (i) |
|
Kingfisher plc |
|
|
30,000 |
|
|
Nick Winser |
|
Kier Group plc |
|
|
43,000 |
|
|
Steve Lucas (ii) |
|
Compass Group PLC |
|
|
71,000 |
|
|
|
|
|
(i) |
|
Andrew Bonfield’s paid external appointment was taken up prior to joining the Board on 1
November 2010. The retained fees shown reflect the period 1 November 2010 to 31 March 2011. |
|
(ii) |
|
The retained fees for Steve Lucas reflect the period 1 April 2010 to 31 December 2010 when he
was an Executive Director of National Grid. |
Non-executive
Directors’ remuneration –
pre January 2011
Non-executive Directors’ fees are determined by the Executive Directors subject to the limits
applied by National Grid’s Articles of Association. Non-executive Directors’ remuneration comprised
an annual fee (£45,000) and a fee for each Board meeting attended (£1,500) with a higher fee for
meetings held outside the Non-executive Director’s country of residence (£4,000). An additional fee
of £12,500 pa was payable for chairmanship of a Board Committee and for holding the position of
Senior Independent Director. The Audit Committee chairman received a chairmanship fee of £15,000 pa
to recognise the additional responsibilities commensurate with this role. The Chairman is covered
by the Company’s personal accident and private medical insurance schemes and the Company provides
him with life assurance cover, a car (with driver when appropriate) and fuel expenses.
Annual Report and Accounts 2010/11 |
National Grid plc 101
Directors’ Remuneration Report
Directors’ Remuneration Report continued
Non-executive
Directors’ remuneration –
post January 2011
From 1 January 2011, the framework for Non-executive Directors’ fees has been amended to
reflect market practice more generally, fees having last been adjusted in January 2007.
Non-executive Directors’ remuneration now comprises a basic fee (£60,000 pa for those who are
UK-based and £72,000 pa for those who are US-based), a Committee membership fee of £8,000 pa per
membership and for those who are chairmen of committees, an additional fee of £12,500 pa. The Audit
Committee chairman will continue to receive a fee of £15,000 pa to recognise the additional
responsibilities commensurate with that role and the Senior Independent Director fee has been
increased to £20,000 pa.
Non-executive Directors do not participate in the Annual Performance Plan
or the long-term incentive plan, nor do they receive any pension benefits from the Company.
Non-executive Directors’ letters of appointment
The Chairman’s letter of appointment provides for a period of six months’ notice by either
party to give the Company reasonable security with regard to his service. The terms of engagement
of Non-executive Directors other than the Chairman are also set out in letters of appointment. For
all Non-executive Directors, their initial appointment and any subsequent reappointment is subject
to election by shareholders. The letters of appointment do not contain provision for termination
payments.
|
|
|
|
|
|
|
Date of |
|
|
|
|
appointment |
|
Date of next |
|
|
to the Board |
|
election |
|
Non-executive Directors |
|
|
|
|
|
Sir John Parker
|
|
21 October 2002
|
|
2011 AGM |
|
Ken Harvey
|
|
21 October 2002
|
|
2011 AGM |
|
Linda Adamany
|
|
1 November 2006
|
|
2011 AGM |
|
Philip Aiken
|
|
15 May 2008
|
|
2011 AGM |
|
John Allan
|
|
1 May 2005
|
|
– |
|
Stephen Pettit
|
|
21 October 2002
|
|
2011 AGM |
|
Maria Richter
|
|
1 October 2003
|
|
2011 AGM |
|
George Rose
|
|
21 October 2002
|
|
2011 AGM |
|
Performance graph
The graph below represents the comparative TSR performance of the Company from 31 March 2006
to 31 March 2011.
This graph represents the Company’s performance against the performance of the
FTSE 100 index, which is considered suitable for this purpose as it is a broad equity market index
of which National Grid is a constituent. This graph has been produced in accordance with the
requirements of Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and
Reports) Regulations 2008.
In drawing this graph, it has been assumed that all dividends have been reinvested. The TSR level
shown at 31 March each year is the average of the closing daily TSR levels for the 30 day period up
to and including that date.
102 National Grid plc | Annual Report and Accounts 2010/11
Remuneration during the year ended 31 March 2011
Sections 1, 2, 3, 4 and 6 comprise the ‘auditable’ part of the Directors’ Remuneration
Report, being the information required by Schedule 8 of the Large and Medium-sized Companies and
Groups (Accounts and Reports) Regulations 2008.
1. Directors’ emoluments
The following tables set out the pre-tax emoluments for the years ended 31 March 2011 and
2010, including Annual Performance Plan awards but excluding pensions, for individual Directors who
held office in National Grid during the year ended 31 March 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31 March |
|
Table 1A |
|
Year ended 31 March 2011 |
|
|
|
|
|
|
2010 |
|
|
|
|
|
|
|
Annual |
|
|
Benefits |
|
|
Benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance |
|
|
in kind (ii) |
|
|
in kind (ii) |
|
|
Other |
|
|
|
|
|
|
|
|
|
Salary (i) |
|
|
Plan |
|
|
(cash) |
|
|
(non-cash) |
|
|
emoluments |
|
|
Total |
|
|
Total |
|
|
|
£000s |
|
|
£000s |
|
|
£000s |
|
|
£000s |
|
|
£000s |
|
|
£000s |
|
|
£000s |
|
|
Executive Directors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steve Holliday |
|
|
946 |
|
|
|
1,154 |
|
|
|
12 |
|
|
|
14 |
|
|
|
– |
|
|
|
2,126 |
|
|
|
2,273 |
|
|
Andrew Bonfield (iii) |
|
|
281 |
|
|
|
346 |
|
|
|
83 |
|
|
|
1 |
|
|
|
– |
|
|
|
711 |
|
|
|
– |
|
|
Nick Winser |
|
|
482 |
|
|
|
573 |
|
|
|
– |
|
|
|
15 |
|
|
|
– |
|
|
|
1,070 |
|
|
|
1,129 |
|
|
Tom King (iv) |
|
|
684 |
|
|
|
855 |
|
|
|
5 |
|
|
|
17 |
|
|
|
– |
|
|
|
1,561 |
|
|
|
1,582 |
|
|
Steve Lucas (v) |
|
|
375 |
|
|
|
500 |
|
|
|
– |
|
|
|
12 |
|
|
|
201 |
|
|
|
1,088 |
|
|
|
1,270 |
|
|
Mark Fairbairn (iii),
(vi), (vii) |
|
|
469 |
|
|
|
540 |
|
|
|
2 |
|
|
|
13 |
|
|
|
– |
|
|
|
1,024 |
|
|
|
1,002 |
|
|
Total |
|
|
3,237 |
|
|
|
3,968 |
|
|
|
102 |
|
|
|
72 |
|
|
|
201 |
|
|
|
7,580 |
|
|
|
7,256 |
|
|
|
|
(i) |
With effect from 1 June 2011, the Executive Directors’ salaries are as follows: Steve
Holliday £975,000; Andrew Bonfield £695,000; Nick Winser £530,000 and Tom King £714,740. |
|
(ii) |
Benefits in kind comprise benefits such as private medical insurance, life assurance, either a
fully expensed car or cash in lieu of a car and the use of a driver when required. In the case of
Andrew Bonfield, a cash allowance in lieu of additional Company pension contributions is included
(see Table 2 for further details). |
|
(iii) |
These Executive Directors participate in the UK flexible benefits plan which operates by way
of salary sacrifice, therefore, their salaries are reduced by the benefits they have purchased. The
value of these benefits is included in the Benefits in kind (non-cash) figure. The values are:
Andrew Bonfield £155.68 and Mark Fairbairn £543.36. |
|
(iv) |
For the US-based Executive Director, the exchange rate averaged over the year 1 April 2010 to
31 March 2011 to convert dollars to UK pounds sterling is $1.574:£1. |
|
(v) |
Steve Lucas left National Grid on 31 December 2010. He had a contractual entitlement of one
year’s salary on leaving, of which he worked three months. He therefore was entitled to nine months
salary, which is payable in six monthly instalments and is subject to mitigation, at the
Remuneration Committee’s discretion, should he take employment during the period.
Payment of £201,000 referred to above in Other emoluments reflects the first three months of those
instalments. |
|
(vi) |
Mark Fairbairn left National Grid on 31 March 2011. He had a contractual entitlement to one year’s salary on leaving, of which he worked two months. He therefore was
entitled to 10 months salary, which is payable in six monthly instalments and is subject to mitigation, at the Remuneration Committee’s discretion, should he take employment
during the period. |
|
(vii) |
In addition to the amounts shown in the above table, Mark
Fairbairn, on leaving, was entitled to a statutory redundancy payment of £10,200. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31 March |
|
Table 1B |
|
Year ended 31 March 2011 |
|
|
2010 |
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Fees |
|
|
emoluments |
|
|
Total |
|
|
Total |
|
|
|
£000s |
|
|
£000s |
|
|
£000s |
|
|
£000s |
|
|
Non-executive Directors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sir John Parker (i) |
|
|
550 |
|
|
|
71 |
|
|
|
621 |
|
|
|
615 |
|
|
Ken Harvey |
|
|
83 |
|
|
|
– |
|
|
|
83 |
|
|
|
80 |
|
|
Linda Adamany |
|
|
74 |
|
|
|
– |
|
|
|
74 |
|
|
|
78 |
|
|
Philip Aiken |
|
|
68 |
|
|
|
– |
|
|
|
68 |
|
|
|
68 |
|
|
John Allan |
|
|
81 |
|
|
|
– |
|
|
|
81 |
|
|
|
82 |
|
|
Stephen Pettit |
|
|
83 |
|
|
|
– |
|
|
|
83 |
|
|
|
82 |
|
|
Maria Richter |
|
|
89 |
|
|
|
– |
|
|
|
89 |
|
|
|
94 |
|
|
George Rose |
|
|
79 |
|
|
|
– |
|
|
|
79 |
|
|
|
81 |
|
|
Total |
|
|
1,107 |
|
|
|
71 |
|
|
|
1,178 |
|
|
|
1,180 |
|
|
|
|
|
(i) |
|
Sir John Parker’s Other emoluments comprise private medical insurance, life assurance and
a fully expensed car. |
Annual Report and Accounts 2010/11 |
National Grid plc 103
Directors’ Remuneration Report
Directors’ Remuneration Report continued
2. Directors’ pensions
The table below provides details of the Executive Directors’ pension benefits.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of increase in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
accrued benefit in |
|
|
|
Additional benefit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional benefit |
|
|
the year ended |
|
|
|
earned during |
|
|
Accrued |
|
|
Transfer value of accrued |
|
|
|
|
|
|
earned in the year |
|
|
31 March 2011 |
|
|
|
year ended |
|
|
entitlement as at |
|
|
benefits as at 31 March (i) |
|
|
Increase in transfer |
|
|
ended 31 March 2011 |
|
|
(excluding inflation |
|
|
|
31 March 2011 |
|
|
31 March 2011 |
|
|
|
|
|
|
|
|
|
|
value less Director's |
|
|
(excluding inflation) |
|
|
& Director's |
|
|
|
pension |
|
|
pension |
|
|
2011 |
|
|
2010 |
|
|
contributions (ii) |
|
|
pension |
|
|
contributions) (ii) |
|
Table 2 |
|
£000s |
|
|
£000s |
|
|
£000s |
|
|
£000s |
|
|
£000s |
|
|
£000s |
|
|
£000s |
|
|
Steve Holliday (iii) |
|
|
39 |
|
|
|
352 |
|
|
|
7,122 |
|
|
|
5,995 |
|
|
|
1,127 |
|
|
|
24 |
|
|
|
478 |
|
|
Andrew Bonfield (iv) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
Nick Winser (v) |
|
|
18 |
|
|
|
215 |
|
|
|
3,888 |
|
|
|
3,379 |
|
|
|
509 |
|
|
|
9 |
|
|
|
157 |
|
|
Tom King (vi) |
|
|
62 |
|
|
|
222 |
|
|
|
1,212 |
|
|
|
832 |
|
|
|
380 |
|
|
|
62 |
|
|
|
341 |
|
|
Steve Lucas (vii) |
|
|
30 |
|
|
|
299 |
|
|
|
6,985 |
|
|
|
6,006 |
|
|
|
979 |
|
|
|
23 |
|
|
|
543 |
|
|
Mark Fairbairn (viii) |
|
|
30 |
|
|
|
229 |
|
|
|
7,200 |
|
|
|
3,714 |
|
|
|
3,486 |
|
|
|
21 |
|
|
|
657 |
|
|
|
|
(i) |
The transfer values shown at 31 March 2010 and 2011 represent the value of each Executive
Director’s accrued benefits based on total service to the relevant date. Transfer values for the
UK-based Executive Directors have been calculated in line with transfer value bases agreed by the
UK Pension Scheme Trustees. The transfer values for the US-based Executive Director have been
calculated using discount rates based on high quality US corporate bonds and associated yields at
the relevant dates. |
|
(ii) |
The UK-based Executive Directors participate in Flexible Pension Savings (FPS), a salary
sacrifice arrangement, the effects of which have not been taken into account in the table above.
Contributions paid via FPS should be deducted from the figures shown above. |
|
(iii) |
In addition to the pension above, for Steve Holliday there is an accrued lump sum entitlement
of £111,000 as at 31 March 2011. The increase to the accumulated lump sum including inflation was
£2,000 and excluding inflation was nil in the year to 31 March 2011. The transfer value information
above includes the value of the lump sum.
Contributions were paid via FPS of £19,000. |
|
(iv) |
Andrew Bonfield does not participate in either of the Company’s defined benefit pension
arrangements. Andrew joined the Defined Contribution Section of the National Grid UK Pension Scheme
and the Company has made contributions of £9,000 to this arrangement. In addition, £4,500 was paid
via FPS. Andrew also received a cash allowance in lieu of additional Company contributions equal to
26% of base salary. This allowance is included in Table 1A on page 103. |
|
(v) |
In addition to the pension above, for Nick Winser there is an accrued lump sum entitlement of
£271,000 as at 31 March 2011. The increase to the accumulated lump sum including inflation was
£11,000 and excluding inflation was nil in the year to 31 March 2011. The transfer value
information above includes the value of the lump sum. Contributions were paid via FPS of £29,000. |
|
(vi) |
For Tom King, the exchange rate as at 31 March 2011 was $1.60700:£1 and as at 31 March 2010
was $1.51845:£1. In addition to the pension quoted above, through participation in the 401(k) plan
in the US, the Company made contributions worth £5,497 to a defined contribution arrangement. |
|
(vii) |
Contributions were paid via FPS of £24,000. It was agreed that £293,000, representing the
value of 52,984 shares which Steve Lucas would otherwise have received in respect of his PSP awards
(see Table 4 on page 107), instead be transferred into his pension fund. This is equivalent to nine
months additional pension credit and is included above. Steve received a deferred pension on
cessation of employment. He opted to take an immediate pension which was reduced for early
retirement under the standard terms of the Trust Deed and Rules of the Pension Scheme. |
|
(viii) |
In addition to the pension above, for Mark Fairbairn there is an accrued lump sum
entitlement of £306,000 as at 31 March 2011. The increase to the accumulated lump sum including
inflation was £26,000 and excluding inflation was £13,000 in the year to 31 March 2011. The
transfer value information above includes the value of the lump sum.
Contributions were paid via FPS of £28,000. Mark left the Company on 31 March 2011 and received an
immediate unreduced pension on cessation of employment under the standard redundancy terms of the
Trust Deed and Rules of the Pension Scheme. |
104 National
Grid plc | Annual Report and Accounts 2010/11
3. Directors’ interests in share options
Executive Share Option Plan (ESOP)
No further awards will be made under this plan but there are outstanding options granted in
previous years. Such options will normally be exercisable between the third and tenth anniversary
of the date of grant, subject to a performance condition.
Options worth up to 100% of an optionholder’s base salary will become exercisable in full if TSR,
measured over the period of three years beginning with the financial year in which the option is
granted, is at least median compared with a comparator group of energy distribution companies; and
UK and international utilities.
Grants in excess of 100% of salary vest on a sliding scale and become fully exercisable if the
Company’s TSR is in the top quartile.
The outstanding options have reached the required performance
criteria and remain subject to exercise only.
The table below provides details of the Executive Directors’ holdings of share options awarded
under the ESOP, the Share Matching Plan (Share Match) and Sharesave schemes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted no. of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
options held |
|
|
Adjusted no. |
|
|
|
|
|
|
|
|
|
|
Adjusted no. of |
|
|
|
|
|
|
|
|
|
at 1 April |
|
|
options |
|
|
|
|
|
|
Options |
|
|
options held at |
|
|
Adjusted |
|
|
|
|
|
|
2010 or, if later, |
|
|
exercised or |
|
|
Market price at |
|
|
granted |
|
|
31 March 2011 |
|
|
exercise price |
|
|
|
|
|
|
on appointment * |
|
|
lapsed during |
|
|
exercise |
|
|
during |
|
|
or, if earlier, on |
|
|
per share |
|
|
|
|
Table 3 |
|
(i) |
|
|
the year (i) |
|
|
(pence) |
|
|
the year |
|
|
retirement † (i) |
|
|
(pence) (ii) |
|
|
Normal exercise period |
|
|
Steve Holliday |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ESOP |
|
|
77,129 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
77,129 |
|
|
|
421.36 |
|
|
Jun 2005 to Jun 2012 |
|
|
Share Match |
|
|
11,827 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
11,827 |
|
|
100 in total |
|
|
Jun 2005 to Jun 2012 |
|
|
|
|
|
16,092 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
16,092 |
|
|
100 in total |
|
|
Jun 2006 to Jun 2013 |
|
|
|
|
|
21,383 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
21,383 |
|
|
|
nil |
|
|
May 2007 to May 2014 |
|
|
Sharesave |
|
|
3,921 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
3,921 |
|
|
|
427.05 |
|
|
Apr 2014 to Sep 2014 |
|
|
Total |
|
|
130,352 |
|
|
|
– |
|
|
|
|
|
|
|
– |
|
|
|
130,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrew Bonfield |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sharesave |
|
|
– * |
|
|
|
– |
|
|
|
– |
|
|
|
3,421 |
|
|
|
3,421 |
|
|
|
445 |
|
|
Apr 2016 to Sep 2016 |
|
|
Total |
|
|
– * |
|
|
|
– |
|
|
|
|
|
|
|
3,421 |
|
|
|
3,421 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steve Lucas (iii) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ESOP |
|
62,167 (iv) |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
62,167 † |
|
|
|
380.02 |
|
|
Jan 2011 to Dec 2011 |
|
|
Sharesave |
|
3,416 (iv) |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
3,416 † |
|
|
|
455.06 |
|
|
Jan 2011 to Jun 2011 |
|
|
Total |
|
|
65,583 |
|
|
|
– |
|
|
|
|
|
|
|
– |
|
|
|
65,583 † |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark Fairbairn (iii) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sharesave |
|
|
2,011 (v) |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
2,011 |
|
|
|
488.31 |
|
|
Apr 2011 to Sep 2011 |
|
|
|
|
|
585 (v) |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
585 |
|
|
|
573.19 |
|
|
Apr 2011 to Sep 2011 |
|
|
Total |
|
|
2,596 |
|
|
|
– |
|
|
|
|
|
|
|
– |
|
|
|
2,596 |
|
|
|
|
|
|
|
|
|
|
|
|
(i) |
The option numbers shown, for awards granted prior to the rights issue which completed on
14 June 2010, were adjusted using an adjustment factor of 1.14271765. |
|
(ii) |
The exercise prices
shown above, for awards granted prior to the rights issue which completed on 14 June 2010, were
adjusted using an adjustment factor of 0.87510681. |
|
(iii) |
On 1 April 2010, the first day of the
financial year, Steve Lucas and Mark Fairbairn exercised Sharesave options over 1,693 and 862
shares respectively as reported in footnote (i) of Table 3 of the 2009/10 Directors’ Remuneration
Report. As a result, these options were not adjusted for the rights issue which completed on 14
June 2010 and are not included in this table. |
|
(iv) |
On leaving, Steve Lucas was permitted 12 months from his termination date in which to exercise
his ESOP options and six months to exercise his Sharesave options. |
|
(v) |
On leaving, Mark Fairbairn
was permitted six months from his termination date in which to exercise his Sharesave options. |
Annual Report and Accounts 2010/11 |
National Grid plc 105
Directors’ Remuneration Report
Directors’ Remuneration Report continued
4. Directors’ interests in the PSP, DSP and SRA
The table below provides details of the Executive Directors’ holdings of shares awarded under
the PSP whereby Executive Directors receive a conditional award of shares, up to a current maximum
of 200% of salary, which is subject to performance criteria over a three year performance period.
Awards vest based on the Company’s TSR performance when compared to the FTSE 100 at the date of
grant (50% of the award) and the annualised growth of the Company’s EPS (50% of the award), see
page 98 for further information. Shares are then released on the fourth anniversary of the date of
grant, following a retention period. The table includes share awards under the DSP, where Executive
Directors receive an award of shares representing one half of any Annual Performance Plan award
earned in the year. The deferred shares are held in trust for three years before release. As part
of a contractual commitment made at the time of Tom King’s recruitment, he received a SRA. The
one-off award of National Grid ADSs vested in equal tranches, over three years, on the anniversary
of the award (November 2008 through to November 2010). There were no performance conditions
attached to the award.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted no. of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PSP, DSP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and SRA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
conditional |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted |
|
|
|
|
|
|
Adjusted no. of |
|
|
|
|
|
|
|
|
|
|
awards at |
|
|
Adjusted no. of |
|
|
Adjusted no. of |
|
|
|
|
|
|
|
|
|
|
market price |
|
|
|
|
|
|
conditional awards |
|
|
|
|
|
|
|
|
|
|
1 April 2010 or, if |
|
|
awards |
|
|
awards |
|
|
Release |
|
|
|
|
|
|
at award |
|
|
|
|
|
|
at 31 March 2011 |
|
|
|
|
|
|
|
|
|
|
later, on |
|
|
lapsed |
|
|
vested |
|
|
of PSP |
|
|
|
|
|
|
(pence |
|
|
|
|
|
|
or, if earlier, on |
|
|
|
|
|
|
Type of |
|
|
appointment * |
|
|
during year |
|
|
in year |
|
|
awards |
|
|
Awards granted |
|
|
except #) |
|
|
|
|
|
|
retirement † |
|
|
|
|
Table 4 |
|
award |
|
|
(i) |
|
|
(i) |
|
|
(i) |
|
|
in year |
|
|
during year |
|
|
(ii) |
|
|
Date of award |
|
|
(i) |
|
|
Release date |
|
|
Steve Holliday |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PSP |
|
|
159,085 |
|
|
55,441 (iii) |
|
|
103,644 (iii) |
|
|
|
– |
|
|
|
– |
|
|
|
648.24 |
|
|
Jun 2007 |
|
|
|
103,644 |
|
|
Jun 2011 |
|
|
|
|
PSP |
|
|
88,271 |
|
|
30,763 (iii) |
|
|
57,508 (iii) |
|
|
|
– |
|
|
|
– |
|
|
|
700.95 |
|
|
Nov 2007 |
|
|
|
57,508 |
|
|
Nov 2011 |
|
|
|
|
PSP |
|
|
316,472 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
584.57 |
|
|
Jun 2008 |
|
|
|
316,472 |
|
|
Jun 2012 |
|
|
|
|
PSP |
|
|
391,212 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
472.89 |
|
|
Jun 2009 |
|
|
|
391,212 |
|
|
Jun 2013 |
|
|
|
|
PSP |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
384,220 |
|
|
|
494.5076 |
|
|
Jun 2010 |
|
|
|
384,220 |
|
|
Jun 2014 |
|
|
|
|
DSP |
|
|
97,481 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
610.37 |
|
|
Jun 2008 |
|
|
|
97,481 |
|
|
Jun 2011 |
|
|
|
|
DSP |
|
68,960 (iv) |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
541.14 |
|
|
Jun 2009 |
|
|
|
68,960 |
|
|
Jun 2012 |
|
|
|
|
DSP |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
130,636 |
|
|
|
506.294 |
|
|
Jun 2010 |
|
|
|
130,636 |
|
|
Jun 2013 |
|
|
Total |
|
|
|
|
|
|
1,121,481 |
|
|
|
86,204 |
|
|
|
161,152 |
|
|
|
– |
|
|
|
514,856 |
|
|
|
|
|
|
|
|
|
|
|
1,550,133 |
|
|
|
|
|
|
Andrew Bonfield |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PSP |
|
|
– * |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
236,464 (v) |
|
|
|
570.9098 |
|
|
Nov 2010 |
|
|
|
236,464 |
|
|
Nov 2014 |
|
|
Total |
|
|
– * |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
236,464 |
|
|
|
|
|
|
|
|
|
|
|
236,464 |
|
|
|
|
|
|
Nick Winser |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PSP |
|
|
85,712 |
|
|
29,871 (iii) |
|
|
55,841 (iii) |
|
|
|
– |
|
|
|
– |
|
|
|
648.24 |
|
|
Jun 2007 |
|
|
|
55,841 |
|
|
Jun 2011 |
|
|
|
|
PSP |
|
|
47,559 |
|
|
16,574 (iii) |
|
|
30,985 (iii) |
|
|
|
– |
|
|
|
– |
|
|
|
700.95 |
|
|
Nov 2007 |
|
|
|
30,985 |
|
|
Nov 2011 |
|
|
|
|
PSP |
|
|
158,166 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
584.57 |
|
|
Jun 2008 |
|
|
|
158,166 |
|
|
Jun 2012 |
|
|
|
|
PSP |
|
|
195,521 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
472.89 |
|
|
Jun 2009 |
|
|
|
195,521 |
|
|
Jun 2013 |
|
|
|
|
PSP |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
196,356 |
|
|
|
494.5076 |
|
|
Jun 2010 |
|
|
|
196,356 |
|
|
Jun 2014 |
|
|
|
|
DSP |
|
|
41,146 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
610.37 |
|
|
Jun 2008 |
|
|
|
41,146 |
|
|
Jun 2011 |
|
|
|
|
DSP |
|
33,804 (iv) |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
541.14 |
|
|
Jun 2009 |
|
|
|
33,804 |
|
|
Jun 2012 |
|
|
|
|
DSP |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
64,370 |
|
|
|
506.294 |
|
|
Jun 2010 |
|
|
|
64,370 |
|
|
Jun 2013 |
|
|
Total |
|
|
561,908 |
|
|
|
46,445 |
|
|
|
86,826 |
|
|
|
– |
|
|
|
260,726 |
|
|
|
|
|
|
|
|
|
|
|
776,189 |
|
|
|
|
|
|
Tom King |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PSP |
|
ADSs 27,432 |
|
|
9,560 (iii) |
|
|
17,872 (iii) |
|
|
|
– |
|
|
|
– |
|
|
|
$72.907 # |
|
|
Nov 2007 |
|
|
17,872 |
|
|
Nov 2011 |
|
|
|
|
PSP |
|
ADSs 36,680 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
$ |
57.2505 # |
|
|
Jun 2008 |
|
|
36,680 |
|
|
Jun 2012 |
|
|
|
|
PSP |
|
ADSs 54,403 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
$ |
38.6002 # |
|
|
Jun 2009 |
|
|
54,403 |
|
|
Jun 2013 |
|
|
|
|
PSP |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
ADSs 57,762 (vi) |
|
|
$ |
37.4465 # |
|
|
Jun 2010 |
|
|
57,762 |
|
|
Jun 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nov 2008 |
|
|
|
SRA |
|
ADSs 13,517 |
|
|
|
– |
|
|
|
13,517 (vii) |
|
|
|
– |
|
|
|
– |
|
|
|
$73.978 # |
|
|
Nov 2007 |
|
|
– |
|
|
to Nov 2010 |
|
|
|
|
DSP |
|
ADSs 5,534 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
$59.61 # |
|
|
Jun 2008 |
|
|
5,534 |
|
|
Jun 2011 |
|
|
|
|
DSP |
|
ADSs 13,804 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
$ |
39.2373 # |
|
|
Jun 2009 |
|
|
13,804 |
|
|
Jun 2012 |
|
|
|
|
DSP |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
ADSs 18,776 (vi) |
|
|
$ |
37.7474 # |
|
|
Jun 2010 |
|
|
18,776 |
|
|
Jun 2013 |
|
|
Total ADSs |
|
ADSs 151,370 |
|
|
ADSs 9,560 |
|
|
ADSs 31,389 |
|
|
|
– |
|
|
ADSs 76,538 |
|
|
|
|
|
|
|
|
|
|
ADSs 204,831 |
|
|
|
|
|
|
106 National
Grid plc | Annual Report and Accounts 2010/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted no. of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PSP, DSP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and SRA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
conditional |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted |
|
|
|
|
|
|
Adjusted no. of |
|
|
|
|
|
|
|
|
|
|
awards at |
|
|
Adjusted no. of |
|
|
Adjusted no. of |
|
|
|
|
|
|
|
|
|
|
market price |
|
|
|
|
|
|
conditional awards |
|
|
|
|
|
|
|
|
|
|
1 April 2010 or, if |
|
|
awards |
|
|
awards |
|
|
Release |
|
|
|
|
|
|
at award |
|
|
|
|
|
|
at 31 March 2011 |
|
|
|
|
|
|
|
|
|
|
later, on |
|
|
lapsed |
|
|
vested |
|
|
of PSP |
|
|
|
|
|
|
(pence |
|
|
|
|
|
|
or, if earlier, on |
|
|
|
|
|
|
Type of |
|
|
appointment * |
|
|
during year |
|
|
in year |
|
|
awards |
|
|
Awards granted |
|
|
except #) |
|
|
|
|
|
|
retirement † |
|
|
|
|
Table 4 |
|
award |
|
|
(i) |
|
|
(i) |
|
|
(i) |
|
|
in year |
|
|
during year |
|
|
(ii) |
|
|
Date of award |
|
|
(i) |
|
|
Release date |
|
|
Steve Lucas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PSP |
|
|
97,051 |
|
|
33,822 (iii) |
|
|
63,229 (iii) |
|
|
|
– |
|
|
|
– |
|
|
|
648.24 |
|
|
Jun 2007 |
|
|
|
63,229 † |
|
|
Jan 2011 |
|
|
|
|
PSP |
|
|
53,850 |
|
|
18,767 (iii) |
|
|
35,083 (iii) |
|
|
|
– |
|
|
|
– |
|
|
|
700.95 |
|
|
Nov 2007 |
|
|
|
35,083 † |
|
|
Jan 2011 |
|
|
|
|
PSP |
|
179,619 (viii) |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
584.57 |
|
|
Jun 2008 |
|
|
|
179,619 † |
|
|
Jan 2011 |
|
|
|
PSP |
|
222,039 (viii) |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
472.89 |
|
|
Jun 2009 |
|
|
|
222,039 † |
|
|
Jan 2011 |
|
|
|
PSP |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
216,579 (viii) |
|
|
|
494.5076 |
|
|
Jun 2010 |
|
|
|
216,579 † |
|
|
Jan 2011 |
|
|
|
DSP |
|
54,008 (ix) |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
610.37 |
|
|
Jun 2008 |
|
|
|
54,008 † |
|
|
Jan 2011 |
|
|
|
DSP |
|
38,656 (iv), (ix) |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
541.14 |
|
|
Jun 2009 |
|
|
|
38,656 † |
|
|
Jan 2011 |
|
|
|
DSP |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
72,073 (ix) |
|
|
|
506.294 |
|
|
Jun 2010 |
|
|
|
72,073 † |
|
|
Jan 2011 |
|
Total |
|
|
|
|
|
|
645,223 |
|
|
|
52,589 |
|
|
|
98,312 |
|
|
|
– |
|
|
|
288,652 |
|
|
|
|
|
|
|
|
|
|
|
881,286 † |
|
|
|
|
|
|
Mark Fairbairn |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PSP |
|
|
77,132 |
|
|
26,881 (iii) |
|
|
50,251 (iii) |
|
|
|
– |
|
|
|
– |
|
|
|
648.24 |
|
|
Jun 2007 |
|
|
|
50,251 |
|
|
Apr 2011 |
|
|
|
|
PSP |
|
|
42,798 |
|
|
14,916 (iii) |
|
|
27,882 (iii) |
|
|
|
– |
|
|
|
– |
|
|
|
700.95 |
|
|
Nov 2007 |
|
|
|
27,882 |
|
|
Apr 2011 |
|
|
|
|
PSP |
|
|
158,065 (x) |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
584.57 |
|
|
Jun 2008 |
|
|
|
158,065 |
|
|
Apr 2011 |
|
|
|
|
PSP |
|
|
195,394 (x) |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
472.89 |
|
|
Jun 2009 |
|
|
|
195,394 |
|
|
Apr 2011 |
|
|
|
|
PSP |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
190,694 (x) |
|
|
|
494.5076 |
|
|
Jun 2010 |
|
|
|
190,694 |
|
|
Apr 2011 |
|
|
|
|
DSP |
|
|
46,446 (x) |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
610.37 |
|
|
Jun 2008 |
|
|
|
46,446 |
|
|
Apr 2011 |
|
|
|
|
DSP |
|
32,605 (iv), (x) |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
541.14 |
|
|
Jun 2009 |
|
|
|
32,605 |
|
|
Apr 2011 |
|
|
|
|
DSP |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
52,015 (x) |
|
|
|
506.294 |
|
|
Jun 2010 |
|
|
|
52,015 |
|
|
Apr 2011 |
|
|
Total |
|
|
|
|
|
|
552,440 |
|
|
|
41,797 |
|
|
|
78,133 |
|
|
|
– |
|
|
|
242,709 |
|
|
|
|
|
|
|
|
|
|
|
753,352 |
|
|
|
|
|
|
|
|
(i) |
The award numbers shown, for awards granted prior to the rights issue which completed on
14 June 2010, except those shares detailed in note (iv) below, were adjusted using an adjustment
factor of 1.14271765. |
|
(ii) |
The market prices of awards above, for awards granted prior to the rights issue which
completed on 14 June 2010, except those shares detailed in note (iv) below, were adjusted using an
adjustment factor of 0.87510681. |
|
(iii) |
The 2007 PSP award vested partially in June 2010 at a vesting level of 65.15% of the award.
The award then entered a retention period. Cash payments in lieu of dividends accrued during the
retention period were paid as follows: Steve Holliday £44,478 in August 2010 and £23,098 in
February 2011; Nick Winser £23,964 and £12,445; Tom King £20,139 and £11,626; Steve Lucas £27,134
in August 2010; and Mark Fairbairn £21,565 and £11,199 respectively. |
|
(iv) |
Exceptionally, the 2009 DSP award for UK-based Executive Directors was made over restricted
shares. The award was subject to income tax and National Insurance Contributions on grant and
therefore shares shown reflect the net number of shares. As these shares are beneficially owned,
UK-based Executive Directors were able to participate in the rights issue. They chose to take up
their rights in full and these additional shares are included in Table 5 on page 108. |
|
(v) |
Andrew Bonfield was appointed after the June 2010 PSP award was granted and he received a full
award in November 2010. |
|
(vi) |
Awards were made over ADSs and each ADS represents five ordinary
shares. |
|
(vii) |
Tom King received a SRA as part of a contractual commitment made at the time of his
recruitment. The award vested in three equal tranches over three years, the final vesting for which
was November 2010 for 13,517 ADSs. The ADS price on vesting for the final tranche was $44.8449. |
|
(viii) |
Shortly after leaving, Steve Lucas received 246,712 PSP shares that vested as a result of
time pro ration from the date of grant to his leave date, taking into account the performance
criteria achieved for each award. In order to recognise his significant contribution to the
business, the Remuneration Committee exercised its discretion and allowed a further 52,984 shares
to vest. Instead of receiving the additional 52,984 shares, it was agreed an equivalent monetary
value (using a share price of 553p) would be transferred into his pension fund. See Table 2 on page
104. All remaining PSP shares shown in the table above lapsed. |
|
(ix) |
Shortly after leaving, Steve Lucas received the DSP shares awarded to him, as detailed in the
table above. This treatment aligns with normal practice for such leavers under the plan rules. |
|
(x) |
Shortly after leaving, Mark Fairbairn received the PSP shares for each award that vested as a
result of time pro ration from the date of grant to his leave date, taking into account the
performance criteria achieved for each award. This amounted to 231,407 shares. All remaining PSP
shares shown in the table above lapsed. He also received his DSP shares, as detailed in the table
above. This treatment aligns with normal practice for such leavers under the plan rules. |
Annual Report and Accounts 2010/11 |
National Grid plc 107
Directors’ Remuneration Report
Directors’ Remuneration Report continued
5. Directors’ beneficial interests
The Directors’ beneficial interests (which include those of their families) in National Grid
ordinary shares of 1117/43 pence each are shown below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted no. of |
|
|
Adjusted no. of |
|
|
|
Ordinary shares at |
|
|
Ordinary shares at |
|
|
options/awards over |
|
|
options/awards over |
|
|
|
31 March 2011 |
|
|
1 April 2010 |
|
|
ordinary shares at |
|
|
ordinary shares at |
|
|
|
or, if earlier, on |
|
|
or, if later, on |
|
|
31 March 2011 or, if earlier, on |
|
|
1 April 2010 or, if later, on |
|
Table 5 |
|
retirement † (i) |
|
|
appointment * |
|
|
retirement † (ii) |
|
|
appointment * (ii) |
|
|
Sir John Parker |
|
|
134,712 |
|
|
|
81,635 |
|
|
|
– |
|
|
|
– |
|
|
Steve Holliday (iii), (iv), (v) |
|
|
339,451 |
|
|
|
221,472 |
|
|
|
1,680,485 |
|
|
|
1,251,839 |
|
|
Andrew Bonfield (iii), (iv), (v) |
|
|
44 |
|
|
|
– * |
|
|
|
239,885 |
|
|
|
– * |
|
|
Nick Winser (iv) |
|
|
325,914 |
|
|
|
223,138 |
|
|
|
776,189 |
|
|
|
561,912 |
|
|
Tom King |
|
|
155,195 |
|
|
|
97,640 |
|
|
|
1,024,155 |
|
|
|
756,856 |
|
|
Steve Lucas (iv), (vi), (vii) |
|
|
214,720 † |
|
|
|
167,503 |
|
|
|
946,869 † |
|
|
|
712,743 |
|
|
Mark Fairbairn (iv), (viii) |
|
|
219,781 |
|
|
|
143,372 |
|
|
|
755,948 |
|
|
|
556,023 |
|
|
Ken Harvey |
|
|
5,236 |
|
|
|
3,740 |
|
|
|
– |
|
|
|
– |
|
|
Linda Adamany |
|
|
2,800 |
|
|
|
2,000 |
|
|
|
– |
|
|
|
– |
|
|
Philip Aiken |
|
|
4,900 |
|
|
|
3,500 |
|
|
|
– |
|
|
|
– |
|
|
John Allan |
|
|
14,500 |
|
|
|
7,000 |
|
|
|
– |
|
|
|
– |
|
|
Stephen Pettit |
|
|
3,906 |
|
|
|
2,632 |
|
|
|
– |
|
|
|
– |
|
|
Maria Richter |
|
|
14,357 |
|
|
|
10,255 |
|
|
|
– |
|
|
|
– |
|
|
George Rose |
|
|
6,792 |
|
|
|
4,852 |
|
|
|
– |
|
|
|
– |
|
|
|
|
(i) |
The number of shares shown represent beneficial holdings, including those shares
subscribed for by Directors under the rights issue. |
|
(ii) |
The option/award numbers shown, for awards granted prior to the rights issue which completed
on 14 June 2010, except those shares detailed in Table 4 note (iv) on page 107, were adjusted using
an adjustment factor of 1.14271765. |
|
(iii) |
There has been no other change in the beneficial interests of the Directors in ordinary
shares between 1 April 2011 and 18 May 2011, except in respect of routine monthly purchases under
the SIP (see note (v) below). |
|
(iv) |
Each of the Executive Directors, with the exception of Tom King, was for Companies Act
purposes deemed to be a potential beneficiary under the National Grid plc 1996 Employee Benefit
Trust and the National Grid Employee Share Trust; Steve Holliday, Andrew Bonfield, Nick Winser,
Steve Lucas and Mark Fairbairn thereby have an interest in 178,690 and 693,481 ordinary shares in
the aforementioned trusts respectively, as at 31 March 2011 (with the latter trust holding 9,977
ADSs in addition). |
|
(v) |
Beneficial interests includes shares purchased under the monthly operation
of the SIP in the year to 31 March 2011. In April and May 2011 a further 42 shares were purchased
on behalf of Steve Holliday and a further 41 shares were purchased on behalf of Andrew Bonfield
thereby increasing their beneficial interests. |
|
(vi) |
Steve Lucas was for Companies Act purposes deemed to be a potential beneficiary in 6,188
ordinary shares held by Lattice Group Trustees Limited as trustee of the Lattice Group Employee
Share Ownership Trust as at 31 March 2011. |
|
(vii) |
Steve Lucas retired from the Board as a Director on 31 December 2010. |
|
(viii) |
Mark Fairbairn left the Company on 31 March 2011. |
6. National Grid share price range
The closing price of a National Grid ordinary share on 31 March 2011 was 594p. The rights
issue adjusted range during the year was 596.17p (high) and 484.20p (low). The Register of
Directors’ Interests contains full details of shareholdings and options/awards held by Directors as
at 31 March 2011.
The Remuneration Report has been approved by the Board and signed on its behalf by:
John Allan
Chairman of the Remuneration Committee
18 May 2011
The Directors’ Report on pages 10 to 108 was approved by the Board and signed on its behalf by:
Helen Mahy
Company Secretary & General Counsel
18 May 2011
National Grid plc, 1-3 Strand, London WC2N 5EH
Registered in England and Wales No. 4031152
108 National Grid plc | Annual Report and Accounts 2010/11
Contents of financial statements
|
|
|
|
|
|
Directors’ statement and independent
Auditors’ report |
|
|
|
|
|
|
110 |
|
|
|
|
111 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated financial statements under IFRS |
|
|
|
|
|
|
Basis of preparation |
|
112 |
|
|
|
|
119 |
|
|
|
|
|
|
|
|
|
Primary statements |
|
120 |
|
|
|
|
121 |
|
|
|
|
122 |
|
|
|
|
123 |
|
|
|
|
124 |
|
|
|
|
|
|
|
|
|
Notes to the consolidated financial statements –
analysis of items in the primary statements |
|
125 |
|
|
|
|
127 |
|
|
|
|
129 |
|
|
|
|
131 |
|
|
|
|
132 |
|
|
|
|
134 |
|
|
|
|
134 |
|
|
|
|
135 |
|
|
|
|
136 |
|
|
|
|
137 |
|
|
|
|
138 |
|
|
|
|
139 |
|
|
|
|
139 |
|
|
|
|
140 |
|
|
|
|
141 |
|
|
|
|
141 |
|
|
|
|
142 |
|
|
|
|
142 |
|
|
|
|
143 |
|
|
|
|
144 |
|
|
|
|
144 |
|
|
|
|
145 |
|
|
|
|
146 |
|
|
|
|
148 |
|
|
|
|
149 |
|
|
|
|
150 |
|
|
|
|
151 |
|
|
|
|
|
|
|
|
|
Notes to the consolidated financial statements –
supplementary information |
|
152 |
|
|
|
|
153 |
|
|
|
|
153 |
|
|
|
|
156 |
|
|
|
|
157 |
|
|
|
|
162 |
|
|
|
|
165 |
|
|
|
|
167 |
|
|
|
|
169 |
|
|
|
|
170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company financial statements under UK GAAP |
|
|
|
|
|
|
Basis of preparation |
|
177 |
|
|
|
|
|
|
|
|
|
Primary statement |
|
179 |
|
|
|
|
|
|
|
|
|
Notes to the Company financial statements |
|
180 |
|
|
|
|
180 |
|
|
|
|
180 |
|
|
|
|
181 |
|
|
|
|
181 |
|
|
|
|
181 |
|
|
|
|
182 |
|
|
|
|
182 |
|
|
|
|
183 |
|
|
|
|
183 |
|
|
|
Annual Report and Accounts 2010/11 | National Grid plc 109
Financial Statements
Statement of Directors’ responsibilities
The Directors are responsible for preparing the Annual Report and Accounts, including the
consolidated financial statements and the Company financial statements, and the Directors’ Report
including the Directors’ Remuneration Report, in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under
that law the Directors have prepared the consolidated financial statements in accordance with
International Financial Reporting Standards (IFRS) as adopted by the European Union, and the
Company financial statements and the Directors’ Remuneration Report in accordance with applicable
law and United Kingdom Accounting Standards (United Kingdom generally accepted accounting practice,
UK GAAP). In preparing the consolidated financial statements, the Directors have also elected to
comply with IFRS, issued by the International Accounting Standards Board. Under company law the
Directors must not approve the financial statements unless they are satisfied that they give a true
and fair view of the state of affairs of the Company on a consolidated and individual basis and of
the profit or loss of the Company on a consolidated and individual basis for that period.
In preparing these financial statements, the Directors are required to:
• |
|
select suitable accounting policies and then apply them consistently; |
|
• |
|
make judgements and estimates that are reasonable and prudent; |
|
• |
|
state that the consolidated financial statements comply with IFRS as adopted by the
European Union and, with regard to the Company financial statements, that applicable UK Accounting
Standards have been followed, subject to any material departures disclosed and explained in the
financial statements; and |
|
• |
|
prepare the consolidated financial statements and Company financial statements on a
going concern basis unless it is inappropriate to presume that the Company, on a consolidated and
individual basis, will continue in business, in which case there should be supporting assumptions
or qualifications as necessary. |
The Directors are responsible for keeping adequate accounting records that are sufficient to show
and explain the Company’s transactions and disclose with reasonable accuracy at any time the
financial position of the Company on a consolidated and individual basis, and to enable them to
ensure that the consolidated financial statements comply with the Companies Act 2006 and Article 4
of the IAS Regulation and the Company financial statements and the Directors’ Remuneration Report
comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the
Company and its subsidiaries and hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
Each of the Directors, whose names and functions are listed on pages 8 and 9, confirms that, to the
best of their knowledge:
• |
|
the consolidated financial statements and the Company financial statements, which have
been prepared in accordance with IFRS as adopted by the European Union and UK GAAP respectively,
give a true and fair view of the assets, liabilities, financial position and profit of the Company
on a consolidated and individual basis; and |
|
• |
|
the Annual Report includes a fair review of the development and performance of the
business and the position of the Company on a consolidated and individual basis, together with a
description of the principal risks and uncertainties that it faces. |
By order of the Board
Helen Mahy
Company Secretary & General Counsel
18 May 2011
110 National Grid plc | Annual Report and Accounts 2010/11
Independent Auditors’ report to the
Members of National Grid plc
We have audited the consolidated and Company financial statements (the ‘financial statements’) of
National Grid plc for the year ended 31 March 2011, which comprise the consolidated income
statement, the consolidated statement of comprehensive income, the consolidated and Company balance
sheets, the consolidated statement of changes in equity, the consolidated cash flow statement, the
accounting policies and Company accounting policies, the adoption of new accounting standards, the
notes to the consolidated financial statements and the notes to the Company financial statements.
The financial reporting framework that has been applied in the preparation of the consolidated
financial statements is applicable law and International Financial Reporting Standards (IFRS) as
adopted by the European Union. The financial reporting framework that has been applied in the
preparation of the Company financial statements is applicable law and United Kingdom Accounting
Standards (United Kingdom Generally Accepted Accounting Practice).
Respective responsibilities of Directors and Auditors
As explained more fully in the Statement of Directors’ responsibilities set out on page 110, the
Directors are responsible for the preparation of the financial statements and for being satisfied
that they give a true and fair view. Our responsibility is to audit and express an opinion on the
financial statements in accordance with applicable law and International Standards on Auditing (UK
and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical
Standards for Auditors.
This report, including the opinions, has been prepared for and only for the Company’s members as a
body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We
do not, in giving these opinions, accept or assume responsibility for any other purpose or to any
other person to whom this report is shown or into whose hands it may come save where expressly
agreed by our prior consent in writing.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements
sufficient to give reasonable assurance that the financial statements are free from material
misstatement, whether caused by fraud or error. This includes an assessment of: whether the
accounting policies are appropriate to the group’s and Company’s circumstances and have been
consistently applied and adequately disclosed; the reasonableness of significant accounting
estimates made by the Directors; and the overall presentation of the financial statements. In
addition, we read all the financial and non-financial information in the annual report to identify
material inconsistencies with the audited financial statements. If we become aware of any apparent
material misstatements or inconsistencies we consider the implications for our report.
Opinion on financial statements
In our opinion:
• |
|
the financial statements give a true and fair view of the state of the group’s and of the
Company’s affairs as at 31 March 2011 and of the group’s profit and cash flows for the year then
ended; |
|
• |
|
the consolidated financial statements have been properly prepared in accordance with IFRS as
adopted by the European Union; |
|
• |
|
the Company financial statements have been properly prepared in accordance with United Kingdom
Generally Accepted Accounting Practice; and |
|
• |
|
the financial statements have been prepared in accordance with the requirements of the Companies
Act 2006 and, as regards the consolidated financial statements, Article 4 of the lAS Regulation. |
Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
• |
|
the part of the Directors’ Remuneration Report to be audited has been properly prepared in
accordance with the Companies Act 2006; and |
|
• |
|
the information given in the Directors’ Report for the financial year for which the financial
statements are prepared is consistent with the financial statements. |
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• |
|
adequate accounting records have not been kept by the Company, or returns adequate for our audit
have not been received from branches not visited by us; or |
|
• |
|
the Company financial statements and the part of the Directors’ Remuneration Report to be audited
are not in agreement with the accounting records and returns; or |
|
• |
|
certain disclosures of Directors’ remuneration specified by law are not made; or |
|
• |
|
we have not received all the information and explanations we require for our audit. |
Under the Listing Rules we are required to review:
• |
|
the Directors’ statement, set out on page 70, in relation to going concern; |
|
• |
|
the part of the Corporate Governance Statement relating to the Company’s compliance with the nine
provisions of the June 2008 Combined Code specified for our review; and |
|
• |
|
certain elements of the report to shareholders by the Board on Directors’ remuneration. |
Nicholas Blackwood (Senior Statutory Auditor)
for and on
behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
18 May 2011
Annual Report and Accounts 2010/11 | National Grid plc 111
Financial Statements
Accounting policies
A. Basis of preparation of consolidated financial statements under IFRS
National Grid’s principal activities involve the transmission and distribution of electricity and
gas in Great Britain and the northeastern United States. The Company is a public limited liability
company incorporated and domiciled in England, with its registered office at 1-3 Strand, London
WC2N 5EH.
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 18 May 2011.
These consolidated financial statements have been prepared in accordance with International
Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board
(IASB) and IFRS as adopted by the European Union. They are prepared on the basis of all IFRS
accounting standards and interpretations that are mandatory for periods ending 31 March 2011 and in
accordance with the Companies Act 2006 applicable to companies reporting under IFRS and Article 4
of the European Union IAS Regulation. The 2010 and 2009 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.
These consolidated financial statements are presented in pounds sterling, which is 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 Y). Actual results could differ from these estimates.
B. 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, 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 govern the financial and operating policies of an entity so as to obtain
benefits from its activities. A joint venture is an entity established to engage in economic
activity, which the Company jointly controls with its fellow venturers. An associate is an entity
which is neither a subsidiary nor a joint venture, but over which the Company has significant
influence.
Losses in excess of the consolidated interest in joint ventures 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 purchase 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.
C. Foreign currencies
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 balance sheet 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 (accounting policy R).
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
balance sheet date. Income and expense items are translated at the weighted 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.
D. Goodwill
Goodwill arising on a business combination represents the difference between the cost of
acquisition and the Company’s consolidated interest in the fair value of the identifiable assets
and liabilities of a subsidiary or joint venture as at the date of acquisition.
Goodwill is recognised as an asset and is not amortised, but is reviewed for impairment at least
annually. Any impairment is recognised immediately in the income statement and is not subsequently
reversed.
Goodwill recorded under UK GAAP arising on acquisitions before 1 April 2004, the date of transition
to IFRS, has been frozen at that date, subject to subsequent testing for impairment.
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.
112 National Grid plc | Annual Report and Accounts 2010/11
E. Intangible assets other than goodwill
With the exception of goodwill, as described above, identifiable intangible assets are recorded at
cost less accumulated amortisation and any provision for impairment.
Internally generated intangible fixed 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 balance sheet at their fair value. Acquisition-related
intangible assets principally comprise customer relationships.
Non-current intangible assets, other than goodwill, are amortised on a straight-line basis over
their estimated useful economic lives. Amortisation periods for categories of intangible assets
are:
|
|
|
|
|
Amortisation periods |
|
Years |
|
|
Software |
|
|
3 to 7 |
|
Acquisition-related intangibles |
|
|
10 to 25 |
|
Other – licences and other intangibles |
|
|
3 to 5 |
|
|
Intangible emission allowances are accounted for in accordance with accounting policy U.
F. Property, plant and equipment
Property, plant and equipment is recorded at cost or deemed cost at the date of transition to IFRS,
less accumulated depreciation and any impairment losses.
Cost includes payroll and finance costs incurred which are directly attributable to the
construction of property, plant and equipment as well as the cost of any associated asset
retirement obligations.
Property, plant and equipment includes assets in which the Company’s
interest comprises legally protected statutory or contractual rights of use.
Additions represent the purchase or construction of new assets, including capital expenditure for
safety and environmental assets, and extensions to, enhancements to, or replacement of existing
assets.
Contributions received prior to 1 July 2009 towards the cost of property, plant and
equipment are included in trade and other payables as deferred income and credited on a
straight-line basis to the income statement over the estimated useful economic lives of the assets
to which they relate.
Contributions received post 1 July 2009 are recognised in revenue immediately, except where the
contributions are consideration for a future service, in which case they are recognised initially
as deferred income and revenue is subsequently recognised over the period in which the service is
provided.
No depreciation is provided on freehold land or assets in the course of construction.
Other items of property, plant and equipment are depreciated, principally on a straight-line basis,
at rates estimated to write off their book values over their estimated useful economic lives. In
assessing estimated useful economic lives, which are reviewed on a regular basis, consideration is
given to any contractual arrangements and operational requirements relating to particular assets.
Unless otherwise determined by operational requirements, the depreciation periods for the principal
categories of property, plant and equipment are, in general, as shown in the table below:
|
|
|
|
|
Depreciation periods |
|
Years |
|
|
Freehold and leasehold buildings |
|
up to 65 |
|
Plant and machinery |
|
|
|
|
Electricity transmission plant |
|
|
15 to 60 |
|
Electricity distribution plant |
|
|
15 to 60 |
|
Electricity generation plant |
|
|
20 to 40 |
|
Interconnector plant |
|
|
15 to 60 |
|
Gas plant – mains, services and regulating equipment |
|
|
30 to 100 |
|
Gas plant – storage |
|
|
40 |
|
Gas plant – meters |
|
|
10 to 33 |
|
Motor vehicles and office equipment |
|
up to 10 |
|
|
G. Impairment of assets
Impairments of assets are calculated as the difference between the carrying value of the asset and
its 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. 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.
Goodwill is tested for impairment at least annually. Otherwise, tests for impairment are carried
out only if there is some indication that the carrying value of the assets may have been impaired.
Material impairments are recognised in the income statement and are disclosed separately.
Annual Report and Accounts 2010/11 | National Grid plc 113
Financial Statements
Accounting policies continued
H. Taxation
Current tax
Current tax assets and liabilities are measured at the amounts expected to be recovered from or
paid to the taxation authorities. The tax rates and tax laws used to compute the amounts are those
that are enacted or substantively enacted by the balance sheet date. Current tax is charged or
credited to the income statement, except to the extent that it relates to items recognised in other
comprehensive income or directly in equity. In these cases the tax is also recognised in other
comprehensive income or directly in equity, respectively.
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 and investment tax credits
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. Such assets and liabilities are not
recognised if the temporary difference arises 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 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 balance sheet date. Deferred
tax is charged or credited to the income statement, except to the extent that it relates to items
recognised in other comprehensive income or directly in equity. In these cases the tax is also
recognised in other comprehensive income or directly in equity, respectively.
The carrying amount
of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is
no longer probable that sufficient taxable profits will be available to allow all or part of the
deferred tax asset to be recovered. Unrecognised deferred tax assets are reassessed at each balance
sheet 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 taxation authority and the Company and its subsidiaries intend to settle their current tax
assets and liabilities on a net basis.
Investment tax credits are amortised over the economic life of the assets that give rise to the
credits.
I. Discontinued operations, assets and businesses held for sale
Cash flows and operations that relate to a major component of the business or geographical region
that has been sold or is classified as held for sale are shown separately from continuing
operations.
Assets and businesses classified as held for sale are measured at the lower of carrying amount and
fair value less costs to sell. No depreciation is charged on assets and businesses classified as
held for sale.
Assets and businesses are classified as held for sale if their carrying amount will be recovered or
settled principally through a sale transaction rather than through continuing use. This condition
is regarded as being met only when the sale is highly probable and the assets or businesses are
available for immediate sale in their present condition or the sale relates to a subsidiary
acquired exclusively with a view to resale. Management must be committed to the sale, which should
be expected to qualify for recognition as a completed sale within one year from the date of
classification.
Finance income or costs are included in discontinued operations only in respect of financial assets
or liabilities classified as held for sale or derecognised on sale.
J. Inventories
Inventories are stated at the lower of cost, calculated on a weighted average basis, and net
realisable value. Cost comprises direct materials and, where applicable, direct labour costs as
well as those overheads that have been incurred in bringing the inventories to their present
location and condition.
K. Decommissioning and environmental costs
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
economic useful 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.
114 National Grid plc | Annual Report and Accounts 2010/11
L. Revenue
Revenue primarily represents the sales value derived from the generation, transmission, and
distribution of energy and recovery of US stranded costs together with the sales value derived from
the provision of other services to customers during the year and excludes value added tax and
intra-group sales.
US stranded costs are various generation-related costs incurred prior to the divestiture of
generation assets beginning in the late 1990s and costs of legacy contracts that are being
recovered from customers. The recovery of stranded costs and other amounts allowed to be collected
from customers under regulatory arrangements is recognised in the period in which these amounts are
recoverable from customers.
Revenue includes an assessment of unbilled energy and transportation services supplied to customers
between the date of the last meter reading and the year end.
Where revenue received or receivable exceeds the maximum amount permitted by regulatory agreement
and adjustments will be made to future prices to reflect this over-recovery, no liability is
recognised as such an adjustment to future prices relates to the provision of future services.
Similarly no asset is recognised where a regulatory agreement permits adjustments to be made to
future prices in respect of an under-recovery.
M. Segmental information
Segmental information is based on the information the Board of Directors uses internally for the
purposes of evaluating the performance of operating segments and determining resource allocation
between operating segments. The Board of Directors is deemed to be the chief operating decision
maker and assesses the performance of operations principally on the basis of operating profit
before exceptional items, remeasurements and stranded cost recoveries (see accounting policy T).
N. Pensions and other post-retirement benefits
For defined benefit retirement schemes, the cost of providing benefits is determined using the
projected unit method, with actuarial valuations being carried out at each balance sheet date.
Current service cost is recognised in operating costs in the period in which the defined benefit
obligation increases as a result of employee services.
Actuarial gains and losses are recognised in full in the period in which they occur in the
statement of other comprehensive income.
Past service costs are recognised immediately to the extent that benefits are already vested.
Otherwise such costs are amortised on a straight-line basis over the period until the benefits
vest.
Settlements are recognised when a transaction is entered into that eliminates all further legal or
constructive obligations for benefits under a scheme.
Curtailments are recognised when a commitment is made to a material reduction in the number of
employees covered by a scheme.
The retirement benefit obligations recognised in the balance sheet represent the present value of
the defined benefit obligations, as reduced by the fair value of scheme assets and any unrecognised
past service cost.
The expected return on scheme assets and the unwinding of the discount on defined benefit
obligations are recognised within interest income and expense respectively.
O. Leases
Rentals under operating leases are charged to the income statement on a straight-line basis over
the term of the relevant lease.
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.
P. Financial instruments
Financial assets, liabilities and equity instruments are classified according to the substance of
the contractual arrangements entered into, and recognised on trade date. Available-for-sale
financial assets are non-derivatives that are either designated in this category or not classified
in any other categories.
Trade receivables are initially recognised at fair value and subsequently measured at amortised
cost, less any appropriate allowances for estimated irrecoverable amounts. A provision is
established for irrecoverable amounts when there is objective evidence that amounts due under the
original payment terms will not be collected. Indications that the trade receivable may become
irrecoverable would include financial difficulties of the debtor, likelihood of the debtor’s
insolvency, and default or significant failure of payment. Trade payables are initially recognised
at fair value and subsequently measured at amortised cost.
Loans receivable and other receivables are carried at amortised cost using the effective interest
method. Interest income, together with gains and losses when the loans and receivables are
derecognised or impaired, are recognised in the income statement.
Annual Report and Accounts 2010/11 | National Grid plc 115
Financial Statements
Accounting policies continued
Other financial investments are recognised at fair value plus, in the case of
available-for-sale financial investments, directly related incremental transaction costs, and are
subsequently carried at fair value on the balance sheet. Changes in the fair value of investments
classified as fair value through profit and loss are included in the income statement, while
changes in the fair value of investments classified as available-for-sale are recognised directly
in equity, until the investment is disposed of or is determined to be impaired. At this time the
cumulative gain or loss previously recognised in equity is included in the income statement for the
period. In the case of securities classified as available-for-sale, a significant or prolonged
decline in the fair value of the securities below their cost is considered as an indicator that the
securities are impaired. Investment income on investments classified as fair value through profit
and loss and on available-for-sale investments is recognised using the effective interest method
and taken through interest income in the income statement.
Borrowings, which include interest bearing loans, UK retail price index (RPI) 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.
Borrowing costs directly attributable to the acquisition,
construction or production of qualifying assets (being assets that necessarily take a substantial
period of time to prepare for their intended use or sale) are added to their cost. Such additions
cease when the assets are substantially ready for their intended use.
Derivative financial instruments are recorded at fair value. Where the fair value of a derivative
is positive it is carried as a derivative asset, and where negative as a derivative liability.
Assets and liabilities on different transactions are only netted if the transactions are with the
same counterparty, a legal right of set off exists and the cash flows are intended to be settled on
a net basis. Gains and losses arising from the changes in fair value are included in the income
statement in the period they arise.
No adjustment is made with respect to derivative clauses embedded in financial instruments or other
contracts that are closely related to those instruments or contracts. In particular, interest
payments on UK RPI debt are linked to movements in the UK retail price index. The link to RPI is
considered to be an embedded derivative, which is closely related to the underlying debt instrument
based on the view that there is a strong relationship between interest rates and inflation in the
UK economy. 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 and recorded
at fair value.
An equity instrument is any contract that evidences 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.
Subsequent to initial recognition, the fair values of financial instruments measured at fair value
that are quoted in active markets are based on bid prices for assets held and offer prices for
issued liabilities. When independent prices are not available, fair values are determined by using
valuation techniques which are consistent with techniques commonly used by the relevant market. The
techniques use observable market data.
Q. Commodity contracts
Commodity contracts that meet the definition of a derivative and which do not meet the
exemption for normal sale, purchase or usage are carried at fair value.
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 32 ‘Financial Instruments: Presentation’. They are,
therefore, not recognised in the financial statements. Disclosure of commitments under such
contracts is made in the notes to the financial statements (see note 28).
Remeasurements of commodity contracts carried at fair value are recognised in the income statement,
with changes due to movements in commodity prices recorded in operating costs and changes relating
to movements in interest rates recorded in finance costs.
Where contracts are traded on a recognised exchange and margin payments are made, the contract fair
values are reported net of the associated margin payments.
R. Hedge accounting
The Company and its subsidiaries enter into both derivative financial instruments
(derivatives) and non-derivative financial instruments in order to manage interest rate and foreign
currency exposures, and commodity price risks associated with underlying business activities and
the financing of those activities.
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.
116 National Grid plc | Annual Report and Accounts 2010/11
Firstly, changes in the carrying value of financial instruments that are designated and effective
as hedges of future cash flows (cash flow hedges) are recognised directly in equity and any
ineffective portion is recognised immediately in the income statement. Amounts deferred in equity
in respect of cash flow hedges are subsequently recognised in the income statement in the same
period in which the hedged item affects net profit or loss. 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.
Secondly, fair value hedge accounting offsets the changes in the fair value of the hedging
instrument against the change in the fair value of the hedged item with respect to the risk being
hedged. These changes 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.
Thirdly, foreign exchange gains or losses arising on financial instruments that are designated and
effective as hedges of the Company’s consolidated net investment in overseas operations (net
investment hedges) are recorded directly in equity, with any ineffective portion recognised
immediately in the income statement.
Changes in the fair value of derivatives that do not qualify for hedge accounting are recognised in
the income statement as they arise, within finance costs (included in remeasurements – see
accounting policy T).
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.
If a hedged forecast transaction is no longer expected to occur, the net cumulative gain or loss
recognised in equity is transferred to the income statement immediately.
S. Share-based payments
The Company issues equity-settled, share-based payments to certain employees of the Company’s
subsidiary undertakings.
Equity-settled, share-based payments are measured at fair value at the
date of grant. The fair value determined at the grant date of the equity-settled, share-based
payments is expensed on a straight-line basis over the vesting period, based on an estimate of the
number of shares that will eventually vest.
T. Business performance and exceptional items, remeasurements and stranded cost recoveries
Our financial performance is analysed into two components: business performance, which
excludes exceptional items, remeasurements, stranded cost recoveries and amortisation of
acquisition-related intangibles; and exceptional items, remeasurements, stranded cost recoveries
and amortisation of acquisition-related intangibles. Business performance is used by management to
monitor financial performance as it is considered that it improves the comparability of our
reported financial performance from year to year. Business performance subtotals, which exclude
exceptional items, remeasurements, stranded cost recoveries and amortisation of acquisition-related
intangibles are presented on the face of the income statement or in the notes to the financial
statements.
Exceptional items, remeasurements, stranded cost recoveries and amortisation of acquisition-related
intangibles are items of income and expense that, in the judgement of management, should be
disclosed separately on the basis that they are material, either by their nature or their size, to
an understanding of our financial performance and significantly distort the comparability of
financial performance between periods.
Items of income or expense that are considered by management for designation as exceptional items
include such items as significant restructurings, write-downs or impairments of non-current assets,
significant changes in environmental or decommissioning provisions, integration of acquired
businesses, restructuring costs, gains or losses on disposals of businesses or investments and debt
redemption costs as a consequence of transactions such as significant disposals or issues of
equity.
Costs arising from restructuring programmes include redundancy costs. Redundancy costs are charged
to the income statement in the year in which an irrevocable commitment is made to incur the costs
and the main features of the restructuring plan have been announced to affected employees.
Remeasurements comprise gains or losses recorded in the income statement arising from changes in
the fair value of commodity contracts and of derivative financial instruments to the extent that
hedge accounting is not achieved or is not effective.
Annual Report and Accounts 2010/11 | National Grid plc 117
Financial Statements
Accounting policies continued
Stranded cost recoveries represent the recovery of historical generation-related costs in the US,
related to generation assets that are no longer owned by National Grid. Such costs are being
recovered from customers as permitted by regulatory agreements.
Acquisition-related intangibles comprise intangible assets, principally customer relationships,
that are only recognised as a consequence of accounting required for a business combination. The
amortisation of acquisition-related intangibles distorts the comparison of the financial
performance of acquired businesses with non-acquired businesses.
U. Emission allowances
Emission allowances, principally relating to the emissions of carbon dioxide in the UK and sulphur
and nitrous oxides in the US, are recorded as intangible assets within current assets and are
initially recorded at cost and subsequently at the lower of cost and net realisable value. Where
emission allowances are granted by relevant authorities, cost is deemed to be equal to the fair
value at the date of allocation. Receipts of such grants are treated as deferred income, which is
recognised in the income statement as the related charges for emissions are recognised or on
impairment of the related intangible asset. A provision is recorded in respect of the obligation to
deliver emission allowances and emission charges are recognised in the income statement in the
period in which emissions are made.
Income from emission allowances that are sold is reported in revenue.
V. Cash and cash equivalents
Cash and cash equivalents include cash held at bank and in hand, together with short-term highly
liquid investments with an original maturity of less than three months that are readily convertible
to known amounts of cash and subject to an insignificant change in value. Net cash and cash
equivalents reflected in the cash flow statement are net of bank overdrafts, which are reported in
borrowings.
W. Other equity reserves
Other equity reserves comprise the translation reserve (see accounting policy C), cash flow hedge
reserve (see accounting policy R), available-for-sale reserve (see accounting policy P), 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 of 1 April 2004. 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.
X. Dividends
Interim dividends are recognised when they become payable to the Company’s shareholders. Final
dividends are recognised when they are approved by shareholders.
Y. 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 accounting policies or 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,
remeasurements and stranded cost recoveries and the definition
of adjusted earnings – notes 3 and 8. |
|
• |
|
The exemptions adopted on transition to IFRS on 1 April 2004
including, in particular, those relating to business
combinations. |
|
• |
|
Classification of business activities as held for sale
and discontinued operations – accounting policy I. |
|
• |
|
Hedge accounting – accounting policy R. |
|
• |
|
Energy purchase contracts – classification as being for
normal purchase, sale or usage – accounting policy Q and
note 28. |
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 year are as follows:
• |
|
Impairment of goodwill – accounting policy D and note 9. |
|
• |
|
Review of residual lives, carrying values and impairment
charges for other intangible assets and property, plant and
equipment – accounting policies E, F and G. |
|
• |
|
Estimation of liabilities for pensions and other
post-retirement benefits – note 23. |
|
• |
|
Valuation of financial instruments and derivatives –
notes 14 and 31. |
|
• |
|
Revenue recognition and assessment of unbilled revenue –
accounting policy L. |
|
• |
|
Recoverability of deferred tax assets – accounting policy
H and note 22. |
|
• |
|
Environmental and decommissioning provisions – note 24. |
118 National Grid plc | Annual Report and Accounts 2010/11
Adoption of new accounting standards
Adoption of new accounting standards
New IFRS accounting standards and interpretations adopted in 2010/11
During the year ended 31 March 2011, the Company adopted the following International
Financial Reporting Standards (IFRS), International Accounting Standards (IAS) or amendments, and
interpretations by the IFRS Interpretations Committee. None of the pronouncements had a material
impact on the Company’s consolidated results or assets and liabilities.
• |
|
IFRS 3R on business combinations |
|
• |
|
IAS 27R on consolidated and individual financial statements |
|
• |
|
Amendment to IAS 39 Financial Instruments: Recognition and measurement on eligible
hedged items |
|
• |
|
Revised IFRS 1 on first time adoption of IFRS |
|
• |
|
IFRIC 17 on distribution of non-cash assets to owners |
|
• |
|
Improvements to IFRS 2009 |
|
• |
|
Amendment to IFRS 2 on group cash-settled share-based payments |
|
• |
|
Amendment to IFRS 1 on first time adoption of IFRS |
|
• |
|
Amendment to IAS 32 on classification of rights issues |
New IFRS accounting standards and interpretations not yet adopted
The standards and interpretations listed below were not effective for the year ended 31 March
2011.
The Company enters into a significant number of transactions which fall within the scope of IFRS 9
on financial instruments. The International Accounting Standards Board is completing IFRS 9 on
financial instruments in phases and the Company is evaluating the impact of the standard as it
develops.
IFRS 10, 11, 12 and 13 and the consequent amendments to IAS 27 and IAS 28 were issued on 12 May
2011. The Company is evaluating the impact of these standards on the financial statements.
None of the other standards and interpretations listed below are expected to have a material impact
on the Company’s consolidated results or assets and liabilities.
• |
|
IFRS 9 on financial instruments |
|
• |
|
Revised IAS 24 on related party disclosures |
|
• |
|
IFRIC 19 on extinguishing financial liabilities with equity instruments |
|
• |
|
Amendment to IFRIC 14 on prepayments of a minimum funding requirement |
|
• |
|
Amendment to IFRS 1 on comparative IFRS 7 disclosures |
|
• |
|
Improvements to IFRS 2010 |
|
• |
|
Amendment to IFRS 7 on disclosures for transfers of financial assets |
|
• |
|
Amendment to IFRS 1 on severe hyperinflation and removal of fixed dates for first-time
adoption |
|
• |
|
Amendment to IAS 12 on deferred tax on recovery of underlying assets |
|
• |
|
IFRS 10 on consolidated financial statements |
|
• |
|
IFRS 11 on joint arrangements |
|
• |
|
IFRS 12 on disclosures of interests in other entities |
|
• |
|
IFRS 13 on fair value measurements |
|
• |
|
IAS 27 on separate financial statements |
|
• |
|
IAS 28 on investment in associates and joint ventures |
Annual Report and Accounts 2010/11 | National Grid plc 119
Financial Statements
Consolidated income statement
for the years ended 31 March
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2011 |
|
|
2010 |
|
|
2010 |
|
|
2009 |
|
|
2009 |
|
|
|
Notes |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
|
|
|
|
|
|
|
Revenue* |
|
|
1(a) |
|
|
|
|
|
|
|
14,343 |
|
|
|
|
|
|
|
14,007 |
|
|
|
|
|
|
|
15,687 |
|
Operating costs |
|
|
2 |
|
|
|
|
|
|
|
(10,598) |
|
|
|
|
|
|
|
(10,714 |
) |
|
|
|
|
|
|
(13,064 |
) |
|
|
|
|
|
|
|
|
Operating profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before exceptional items, remeasurements
and stranded cost recoveries |
|
|
1(b) |
|
|
|
3,600 |
|
|
|
|
|
|
|
3,121 |
|
|
|
|
|
|
|
2,915 |
|
|
|
|
|
Exceptional items, remeasurements and
Stranded cost recoveries |
|
|
3 |
|
|
|
145 |
|
|
|
|
|
|
|
172 |
|
|
|
|
|
|
|
(292 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating profit |
|
|
1(b) |
|
|
|
|
|
|
|
3,745 |
|
|
|
|
|
|
|
3,293 |
|
|
|
|
|
|
|
2,623 |
|
Interest income and similar income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before exceptional items |
|
|
4 |
|
|
|
1,281 |
|
|
|
|
|
|
|
1,005 |
|
|
|
|
|
|
|
1,315 |
|
|
|
|
|
Exceptional items |
|
|
3,4 |
|
|
|
43 |
|
|
|
|
|
|
|
– |
|
|
|
|
|
|
|
– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income and similar income |
|
|
4 |
|
|
|
|
|
|
|
1,324 |
|
|
|
|
|
|
|
1,005 |
|
|
|
|
|
|
|
1,315 |
|
Interest expense and other finance costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before exceptional items and remeasurements |
|
|
4 |
|
|
|
(2,415) |
|
|
|
|
|
|
|
(2,160) |
|
|
|
|
|
|
|
(2,465 |
) |
|
|
|
|
Exceptional items and remeasurements |
|
|
3,4 |
|
|
|
(37) |
|
|
|
|
|
|
|
47 |
|
|
|
|
|
|
|
(84 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense and other finance costs |
|
|
4 |
|
|
|
|
|
|
|
(2,452) |
|
|
|
|
|
|
|
(2,113 |
) |
|
|
|
|
|
|
(2,549 |
) |
Share of post-tax results of joint ventures and associates |
|
|
13 |
|
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
Profit before tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before
exceptional items, remeasurements and stranded cost recoveries |
|
|
1(b) |
|
|
|
2,473 |
|
|
|
|
|
|
|
1,974 |
|
|
|
|
|
|
|
1,770 |
|
|
|
|
|
Exceptional items, remeasurements
and Stranded cost recoveries |
|
|
3 |
|
|
|
151 |
|
|
|
|
|
|
|
219 |
|
|
|
|
|
|
|
(376 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total profit before tax |
|
|
1(b) |
|
|
|
|
|
|
|
2,624 |
|
|
|
|
|
|
|
2,193 |
|
|
|
|
|
|
|
1,394 |
|
Taxation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before exceptional items, remeasurements
and stranded cost recoveries |
|
|
5 |
|
|
|
(722) |
|
|
|
|
|
|
|
(553) |
|
|
|
|
|
|
|
(517 |
) |
|
|
|
|
Exceptional items, remeasurements and
stranded cost recoveries |
|
|
3,5 |
|
|
|
261 |
|
|
|
|
|
|
|
(251) |
|
|
|
|
|
|
|
45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total taxation |
|
|
5 |
|
|
|
|
|
|
|
(461) |
|
|
|
|
|
|
|
(804 |
) |
|
|
|
|
|
|
(472 |
) |
|
|
|
|
|
|
|
|
Profit from continuing operations after tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before exceptional items, remeasurements
and stranded cost recoveries |
|
|
|
|
|
|
1,751 |
|
|
|
|
|
|
|
1,421 |
|
|
|
|
|
|
|
1,253 |
|
|
|
|
|
Exceptional items, remeasurements and
stranded cost recoveries |
|
|
3 |
|
|
|
412 |
|
|
|
|
|
|
|
(32) |
|
|
|
|
|
|
|
(331 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the year from continuing operations |
|
|
|
|
|
|
|
|
|
|
2,163 |
|
|
|
|
|
|
|
1,389 |
|
|
|
|
|
|
|
922 |
|
Profit for the year from discontinued operations |
|
|
6 |
|
|
|
|
|
|
|
– |
|
|
|
|
|
|
|
– |
|
|
|
|
|
|
|
25 |
|
|
|
|
|
|
|
|
|
Profit for the year |
|
|
|
|
|
|
|
|
|
|
2,163 |
|
|
|
|
|
|
|
1,389 |
|
|
|
|
|
|
|
947 |
|
|
|
|
|
|
|
|
|
Attributable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity shareholders of the parent |
|
|
|
|
|
|
|
|
|
|
2,159 |
|
|
|
|
|
|
|
1,386 |
|
|
|
|
|
|
|
944 |
|
Non-controlling interests |
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,163 |
|
|
|
|
|
|
|
1,389 |
|
|
|
|
|
|
|
947 |
|
|
|
|
|
|
|
|
|
Earnings per share from continuing operations** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
8 |
|
|
|
|
|
|
|
63.9p |
|
|
|
|
|
|
|
48.4p |
|
|
|
|
|
|
|
31.8p |
|
Diluted |
|
|
8 |
|
|
|
|
|
|
|
63.6p |
|
|
|
|
|
|
|
48.2p |
|
|
|
|
|
|
|
31.7p |
|
Earnings per share** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
8 |
|
|
|
|
|
|
|
63.9p |
|
|
|
|
|
|
|
48.4p |
|
|
|
|
|
|
|
32.7p |
|
Diluted |
|
|
8 |
|
|
|
|
|
|
|
63.6p |
|
|
|
|
|
|
|
48.2p |
|
|
|
|
|
|
|
32.5p |
|
|
|
|
|
|
|
|
|
* Items previously reported separately as ‘other operating income’ have been included within
revenue
**Restated to reflect the impact of the bonus element of the rights issue and as a result of the
additional shares issued as scrip dividends
The notes on pages 125 to 176 form part of the consolidated financial statements.
120 National
Grid plc | Annual Report and Accounts 2010/11
Consolidated statement
of comprehensive income
for the years ended 31 March
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
Notes |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
|
|
|
|
|
|
|
Profit for the year |
|
|
|
|
|
|
2,163 |
|
|
|
1,389 |
|
|
|
947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income/(loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange adjustments |
|
|
|
|
|
|
(95 |
) |
|
|
33 |
|
|
|
464 |
|
Actuarial net gains/(losses) |
|
|
23 |
|
|
|
571 |
|
|
|
(731 |
) |
|
|
(2,018 |
) |
Deferred tax on actuarial net gains and losses |
|
|
5 |
|
|
|
(181 |
) |
|
|
175 |
|
|
|
678 |
|
Net gains/(losses) in respect of cash flow hedges |
|
|
|
|
|
|
7 |
|
|
|
(45 |
) |
|
|
(1 |
) |
Transferred to profit or loss on cash flow hedges |
|
|
|
|
|
|
(7 |
) |
|
|
3 |
|
|
|
(53 |
) |
Deferred tax on cash flow hedges |
|
|
5 |
|
|
|
(2 |
) |
|
|
9 |
|
|
|
19 |
|
Net gains on available-for-sale investments |
|
|
|
|
|
|
16 |
|
|
|
54 |
|
|
|
9 |
|
Transferred to profit or loss on sale of available-for-sale investments |
|
|
|
|
|
|
(3 |
) |
|
|
(6 |
) |
|
|
(18 |
) |
Deferred tax on available-for-sale investments |
|
|
5 |
|
|
|
(1 |
) |
|
|
(5 |
) |
|
|
7 |
|
Share of post-tax other comprehensive (loss)/income of joint ventures |
|
|
|
|
|
|
(4 |
) |
|
|
5 |
|
|
|
– |
|
|
|
|
|
|
|
|
|
Other comprehensive income/(loss) for the year, net of tax |
|
|
|
|
|
|
301 |
|
|
|
(508 |
) |
|
|
(913 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income for the year |
|
|
|
|
|
|
2,464 |
|
|
|
881 |
|
|
|
34 |
|
|
|
|
|
|
|
|
|
Total comprehensive income attributable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity shareholders of the parent |
|
|
|
|
|
|
2,460 |
|
|
|
879 |
|
|
|
26 |
|
Non-controlling interests |
|
|
|
|
|
|
4 |
|
|
|
2 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,464 |
|
|
|
881 |
|
|
|
34 |
|
|
|
|
|
|
|
|
|
Annual
Report and Accounts 2010/11 | National Grid plc 121
Financial Statements
Consolidated balance sheet
as at 31 March
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
Notes |
|
|
£m |
|
|
£m |
|
|
Non-current assets |
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
9 |
|
|
|
4,776 |
|
|
|
5,102 |
|
Other intangible assets |
|
|
10 |
|
|
|
501 |
|
|
|
389 |
|
Property, plant and equipment |
|
|
11 |
|
|
|
31,956 |
|
|
|
30,855 |
|
Other non-current assets |
|
|
12 |
|
|
|
135 |
|
|
|
162 |
|
Pension assets |
|
|
23 |
|
|
|
556 |
|
|
|
– |
|
Financial and other investments |
|
|
13 |
|
|
|
593 |
|
|
|
486 |
|
Derivative financial assets |
|
|
14 |
|
|
|
1,270 |
|
|
|
1,494 |
|
|
Total non-current assets |
|
|
|
|
|
|
39,787 |
|
|
|
38,488 |
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
Inventories and current intangible assets |
|
|
15 |
|
|
|
320 |
|
|
|
407 |
|
Trade and other receivables |
|
|
16 |
|
|
|
2,212 |
|
|
|
2,293 |
|
Financial and other investments |
|
|
13 |
|
|
|
2,939 |
|
|
|
1,397 |
|
Derivative financial assets |
|
|
14 |
|
|
|
468 |
|
|
|
248 |
|
Cash and cash equivalents |
|
|
17 |
|
|
|
384 |
|
|
|
720 |
|
|
Total current assets |
|
|
|
|
|
|
6,323 |
|
|
|
5,065 |
|
|
Assets of businesses held for sale |
|
|
18 |
|
|
|
290 |
|
|
|
– |
|
|
Total assets |
|
|
|
|
|
|
46,400 |
|
|
|
43,553 |
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings |
|
|
19 |
|
|
|
(2,952 |
) |
|
|
(2,806 |
) |
Derivative financial liabilities |
|
|
14 |
|
|
|
(190 |
) |
|
|
(212 |
) |
Trade and other payables |
|
|
20 |
|
|
|
(2,828 |
) |
|
|
(2,847 |
) |
Current tax liabilities |
|
|
|
|
|
|
(503 |
) |
|
|
(391 |
) |
Provisions |
|
|
24 |
|
|
|
(353 |
) |
|
|
(303 |
) |
|
Total current liabilities |
|
|
|
|
|
|
(6,826 |
) |
|
|
(6,559 |
) |
|
Non-current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings |
|
|
19 |
|
|
|
(20,246 |
) |
|
|
(22,318 |
) |
Derivative financial liabilities |
|
|
14 |
|
|
|
(404 |
) |
|
|
(662 |
) |
Other non-current liabilities |
|
|
21 |
|
|
|
(1,944 |
) |
|
|
(1,974 |
) |
Deferred tax liabilities |
|
|
22 |
|
|
|
(3,766 |
) |
|
|
(3,324 |
) |
Pensions and other post-retirement benefit obligations |
|
|
23 |
|
|
|
(2,574 |
) |
|
|
(3,098 |
) |
Provisions |
|
|
24 |
|
|
|
(1,461 |
) |
|
|
(1,407 |
) |
|
Total non-current liabilities |
|
|
|
|
|
|
(30,395 |
) |
|
|
(32,783 |
) |
|
Liabilities of businesses held for sale |
|
|
18 |
|
|
|
(110 |
) |
|
|
– |
|
|
Total liabilities |
|
|
|
|
|
|
(37,331 |
) |
|
|
(39,342 |
) |
|
Net assets |
|
|
|
|
|
|
9,069 |
|
|
|
4,211 |
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
Called up share capital |
|
|
25 |
|
|
|
416 |
|
|
|
298 |
|
Share premium account |
|
|
|
|
|
|
1,361 |
|
|
|
1,366 |
|
Retained earnings |
|
|
|
|
|
|
12,153 |
|
|
|
7,316 |
|
Other equity reserves |
|
|
26 |
|
|
|
(4,870 |
) |
|
|
(4,781 |
) |
|
Shareholders’ equity |
|
|
|
|
|
|
9,060 |
|
|
|
4,199 |
|
Non-controlling interests |
|
|
|
|
|
|
9 |
|
|
|
12 |
|
|
Total equity |
|
|
|
|
|
|
9,069 |
|
|
|
4,211 |
|
|
These financial statements comprising the consolidated income statement, consolidated
statement of comprehensive income, consolidated balance sheet, consolidated statement of changes in
equity, consolidated cash flow statement, accounting policies, adoption of new accounting standards
and the notes to the consolidated financial statements 1 to 37, were approved by the Board of
Directors on 18 May 2011 and were signed on its behalf by:
Sir John Parker Chairman
Andrew Bonfield Finance Director
122 National Grid plc | Annual Report and Accounts 2010/11
Consolidated statement of changes in equity
for the years ended 31 March
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Called-up |
|
|
Share |
|
|
|
|
|
|
Other |
|
|
Total |
|
|
Non- |
|
|
|
|
|
|
share |
|
|
premium |
|
|
Retained |
|
|
equity |
|
|
shareholders’ |
|
|
controlling |
|
|
Total |
|
|
|
capital |
|
|
account |
|
|
earnings |
|
|
reserves(i) |
|
|
equity |
|
|
interests |
|
|
equity |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
At 31 March 2008 |
|
|
294 |
|
|
|
1,371 |
|
|
|
8,943 |
|
|
|
(5,252 |
) |
|
|
5,356 |
|
|
|
18 |
|
|
|
5,374 |
|
Total comprehensive (loss)/income for the year |
|
|
– |
|
|
|
– |
|
|
|
(396 |
) |
|
|
422 |
|
|
|
26 |
|
|
|
8 |
|
|
|
34 |
|
Equity dividends |
|
|
– |
|
|
|
– |
|
|
|
(838 |
) |
|
|
– |
|
|
|
(838 |
) |
|
|
– |
|
|
|
(838 |
) |
Issue of treasury shares |
|
|
– |
|
|
|
– |
|
|
|
8 |
|
|
|
– |
|
|
|
8 |
|
|
|
– |
|
|
|
8 |
|
Repurchase of share capital and purchase of treasury shares |
|
|
– |
|
|
|
– |
|
|
|
(603 |
) |
|
|
– |
|
|
|
(603 |
) |
|
|
– |
|
|
|
(603 |
) |
Other movements in non-controlling interests |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(12 |
) |
|
|
(12 |
) |
Share-based payment |
|
|
– |
|
|
|
– |
|
|
|
22 |
|
|
|
– |
|
|
|
22 |
|
|
|
– |
|
|
|
22 |
|
Tax on share-based payment |
|
|
– |
|
|
|
– |
|
|
|
(1 |
) |
|
|
– |
|
|
|
(1 |
) |
|
|
– |
|
|
|
(1 |
) |
|
At 31 March 2009 |
|
|
294 |
|
|
|
1,371 |
|
|
|
7,135 |
|
|
|
(4,830 |
) |
|
|
3,970 |
|
|
|
14 |
|
|
|
3,984 |
|
Total comprehensive income for the year |
|
|
– |
|
|
|
– |
|
|
|
830 |
|
|
|
49 |
|
|
|
879 |
|
|
|
2 |
|
|
|
881 |
|
Equity dividends |
|
|
– |
|
|
|
– |
|
|
|
(893 |
) |
|
|
– |
|
|
|
(893 |
) |
|
|
– |
|
|
|
(893 |
) |
Scrip dividend related share issue |
|
|
4 |
|
|
|
(5 |
) |
|
|
205 |
|
|
|
– |
|
|
|
204 |
|
|
|
– |
|
|
|
204 |
|
Issue of treasury shares |
|
|
– |
|
|
|
– |
|
|
|
18 |
|
|
|
– |
|
|
|
18 |
|
|
|
– |
|
|
|
18 |
|
Purchase of own shares |
|
|
– |
|
|
|
– |
|
|
|
(7 |
) |
|
|
– |
|
|
|
(7 |
) |
|
|
– |
|
|
|
(7 |
) |
Other movements in non-controlling interests |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(4 |
) |
|
|
(4 |
) |
Share-based payment |
|
|
– |
|
|
|
– |
|
|
|
25 |
|
|
|
– |
|
|
|
25 |
|
|
|
– |
|
|
|
25 |
|
Tax on share-based payment |
|
|
– |
|
|
|
– |
|
|
|
3 |
|
|
|
– |
|
|
|
3 |
|
|
|
– |
|
|
|
3 |
|
|
At 31 March 2010 |
|
|
298 |
|
|
|
1,366 |
|
|
|
7,316 |
|
|
|
(4,781 |
) |
|
|
4,199 |
|
|
|
12 |
|
|
|
4,211 |
|
Total comprehensive income for the year |
|
|
– |
|
|
|
– |
|
|
|
2,549 |
|
|
|
(89 |
) |
|
|
2,460 |
|
|
|
4 |
|
|
|
2,464 |
|
Rights issue |
|
|
113 |
|
|
|
– |
|
|
|
– |
|
|
|
3,101 |
|
|
|
3,214 |
|
|
|
– |
|
|
|
3,214 |
|
Transfer between reserves |
|
|
– |
|
|
|
– |
|
|
|
3,101 |
|
|
|
(3,101 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
Equity dividends |
|
|
– |
|
|
|
– |
|
|
|
(1,064 |
) |
|
|
– |
|
|
|
(1,064 |
) |
|
|
– |
|
|
|
(1,064 |
) |
Scrip dividend related share issue |
|
|
5 |
|
|
|
(5 |
) |
|
|
206 |
|
|
|
– |
|
|
|
206 |
|
|
|
– |
|
|
|
206 |
|
Issue of treasury shares |
|
|
– |
|
|
|
– |
|
|
|
18 |
|
|
|
– |
|
|
|
18 |
|
|
|
– |
|
|
|
18 |
|
Purchase of own shares |
|
|
– |
|
|
|
– |
|
|
|
(3 |
) |
|
|
– |
|
|
|
(3 |
) |
|
|
– |
|
|
|
(3 |
) |
Other movements in non-controlling interests |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(7 |
) |
|
|
(7 |
) |
Share-based payment |
|
|
– |
|
|
|
– |
|
|
|
25 |
|
|
|
– |
|
|
|
25 |
|
|
|
– |
|
|
|
25 |
|
Tax on share-based payment |
|
|
– |
|
|
|
– |
|
|
|
5 |
|
|
|
– |
|
|
|
5 |
|
|
|
– |
|
|
|
5 |
|
|
At 31 March 2011 |
|
|
416 |
|
|
|
1,361 |
|
|
|
12,153 |
|
|
|
(4,870 |
) |
|
|
9,060 |
|
|
|
9 |
|
|
|
9,069 |
|
|
|
|
(i) |
For further details of other reserves, see note 26. |
Annual Report and Accounts 2010/11 | National Grid plc 123
Financial Statements
Consolidated cash flow statement
for the years ended 31 March
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
Notes |
|
£m |
|
|
£m |
|
|
£m |
|
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating profit |
|
|
1 |
(b) |
|
|
3,745 |
|
|
|
3,293 |
|
|
|
2,623 |
|
Adjustments for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exceptional items, remeasurements and stranded cost recoveries |
|
|
|
3 |
|
|
(145 |
) |
|
|
(172 |
) |
|
|
292 |
|
Depreciation and amortisation |
|
|
|
|
|
|
1,245 |
|
|
|
1,188 |
|
|
|
1,122 |
|
Share-based payment charge |
|
|
|
|
|
|
25 |
|
|
|
25 |
|
|
|
22 |
|
Changes in working capital |
|
|
|
|
|
|
185 |
|
|
|
431 |
|
|
|
54 |
|
Changes in provisions |
|
|
|
|
|
|
(93 |
) |
|
|
(98 |
) |
|
|
(99 |
) |
Changes in pensions and other post-retirement benefit obligations |
|
|
|
|
|
|
(304 |
) |
|
|
(521 |
) |
|
|
(678 |
) |
Cash flows relating to exceptional items |
|
|
|
|
|
|
(147 |
) |
|
|
(135 |
) |
|
|
(131 |
) |
Cash flows relating to stranded cost recoveries |
|
|
|
|
|
|
343 |
|
|
|
361 |
|
|
|
359 |
|
|
Cash flows generated from continuing operations |
|
|
|
|
|
|
4,854 |
|
|
|
4,372 |
|
|
|
3,564 |
|
Cash flows relating to discontinued operations (excluding tax) |
|
|
27 |
(a) |
|
|
– |
|
|
|
– |
|
|
|
(8 |
) |
|
Cash generated from operations |
|
|
|
|
|
|
4,854 |
|
|
|
4,372 |
|
|
|
3,556 |
|
Tax received/(paid) |
|
|
|
|
|
|
4 |
|
|
|
144 |
|
|
|
(143 |
) |
|
Net cash inflow from operating activities |
|
|
|
|
|
|
4,858 |
|
|
|
4,516 |
|
|
|
3,413 |
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of investments |
|
|
|
|
|
|
(135 |
) |
|
|
(86 |
) |
|
|
(73 |
) |
Net proceeds from sale of investments in subsidiaries |
|
|
|
|
|
|
11 |
|
|
|
6 |
|
|
|
– |
|
Purchases of intangible assets |
|
|
|
|
|
|
(176 |
) |
|
|
(104 |
) |
|
|
(78 |
) |
Purchases of property, plant and equipment |
|
|
|
|
|
|
(2,958 |
) |
|
|
(3,007 |
) |
|
|
(3,107 |
) |
Disposals of property, plant and equipment |
|
|
|
|
|
|
26 |
|
|
|
15 |
|
|
|
27 |
|
Dividends received from joint ventures |
|
|
|
|
|
|
9 |
|
|
|
18 |
|
|
|
– |
|
Interest received |
|
|
|
|
|
|
26 |
|
|
|
21 |
|
|
|
85 |
|
Net movement in short-term financial investments |
|
|
|
|
|
|
(1,577 |
) |
|
|
805 |
|
|
|
99 |
|
|
Cash flows used in continuing operations – investing activities |
|
|
|
|
|
|
(4,774 |
) |
|
|
(2,332 |
) |
|
|
(3,047 |
) |
Cash flows relating to discontinued operations – investing activities (net of tax) |
|
|
27 |
(b) |
|
|
– |
|
|
|
– |
|
|
|
1,049 |
|
|
Net cash flow used in investing activities |
|
|
|
|
|
|
(4,774 |
) |
|
|
(2,332 |
) |
|
|
(1,998 |
) |
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds of rights issue |
|
|
|
|
|
|
3,214 |
|
|
|
– |
|
|
|
– |
|
Proceeds from issue of treasury shares |
|
|
|
|
|
|
18 |
|
|
|
18 |
|
|
|
8 |
|
Proceeds from loans received |
|
|
|
|
|
|
767 |
|
|
|
1,933 |
|
|
|
4,892 |
|
Repayment of loans |
|
|
|
|
|
|
(2,878 |
) |
|
|
(2,257 |
) |
|
|
(2,618 |
) |
Net movements in short-term borrowings and derivatives |
|
|
|
|
|
|
348 |
|
|
|
(175 |
) |
|
|
(633 |
) |
Interest paid |
|
|
|
|
|
|
(965 |
) |
|
|
(1,003 |
) |
|
|
(1,061 |
) |
Exceptional finance costs on the redemption of debt |
|
|
|
|
|
|
(73 |
) |
|
|
(33 |
) |
|
|
– |
|
Dividends paid to shareholders |
|
|
|
|
|
|
(858 |
) |
|
|
(688 |
) |
|
|
(838 |
) |
Repurchase of share capital and purchase of treasury shares |
|
|
|
|
|
|
(3 |
) |
|
|
(7 |
) |
|
|
(627 |
) |
|
Net cash flow used in financing activities |
|
|
|
|
|
|
(430 |
) |
|
|
(2,212 |
) |
|
|
(877 |
) |
|
Net (decrease)/increase in cash and cash equivalents |
|
|
27 |
(c) |
|
|
(346 |
) |
|
|
(28 |
) |
|
|
538 |
|
Exchange movements |
|
|
|
|
|
|
(3 |
) |
|
|
(1 |
) |
|
|
18 |
|
Net cash and cash equivalents at start of year |
|
|
|
|
|
|
691 |
|
|
|
720 |
|
|
|
164 |
|
|
Net cash and cash equivalents at end of year (i) |
|
|
|
17 |
|
|
342 |
|
|
|
691 |
|
|
|
720 |
|
|
|
|
(i) |
Net of bank overdrafts of £42m (2010: £29m; 2009: £17m). |
124 National Grid plc | Annual Report and Accounts 2010/11
Notes to the consolidated financial statements – analysis of items in the primary statements
1. Segmental analysis
The Board of Directors is National Grid’s chief operating decision making body (as defined by
IFRS 8 on operating segments). The segmental analysis is based on the information the Board of
Directors uses internally for the purposes of evaluating the performance of operating segments and
determining resource allocation between segments. The performance of operating segments is assessed
principally on the basis of operating profit before exceptional items, remeasurements and stranded
cost recoveries. The following table describes the main activities for each operating segment:
|
|
|
|
Transmission UK
|
|
High voltage electricity transmission networks, the gas transmission network in Great Britain,
UK liquefied natural gas (LNG) storage activities and the French electricity interconnector. |
|
|
|
Transmission US
|
|
High voltage electricity transmission networks in New York and New England. |
|
|
|
Gas Distribution UK
|
|
Four of the eight regional networks of Great Britain’s gas distribution system. |
|
|
|
Gas Distribution US
|
|
Gas distribution networks in New York and New England. |
|
|
|
Electricity Distribution & Generation US
|
|
Electricity distribution 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: UK-based gas and electricity metering activities; UK
property management; a UK LNG import terminal; other LNG operations; US unregulated transmission
pipelines; US gas fields; together with corporate activities.
For the year ended 31 March 2009, discontinued operations comprise the Ravenswood generation
station in New York City and the engineering and communications operations in the US acquired as
part of the KeySpan acquisition which were sold during the years ended 31 March 2009 and 2010. For
additional disclosures relating to discontinued operations, see note 6.
Sales between operating segments are priced having regard to 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.
As a consequence of the introduction of a new operating model, which took effect on 4 April 2011,
there will be a corresponding change to our reported segments in future reporting periods. The US
Transmission, US Gas Distribution and US Electricity Distribution & Generation segments are
expected to be combined and reported as a single US segment.
(a) Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
|
Sales |
|
|
|
|
|
|
Sales |
|
|
Sales |
|
|
|
|
|
|
Sales |
|
|
Sales |
|
|
|
Total |
|
|
between |
|
|
to third |
|
|
Total |
|
|
between |
|
|
to third |
|
|
Total |
|
|
between |
|
|
to third |
|
|
|
sales |
|
|
segments |
|
|
parties |
|
|
sales |
|
|
segments |
|
|
parties |
|
|
sales |
|
|
segments |
|
|
parties |
|
|
|
2011 |
|
|
2011 |
|
|
2011 |
|
|
2010 |
|
|
2010 |
|
|
2010 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
Operating segments – continuing operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transmission UK* |
|
|
3,484 |
|
|
|
(7) |
|
|
|
3,477 |
|
|
|
3,475 |
|
|
|
(6) |
|
|
|
3,469 |
|
|
|
3,517 |
|
|
|
(2) |
|
|
|
3,515 |
|
Transmission US |
|
|
429 |
|
|
|
(56) |
|
|
|
373 |
|
|
|
405 |
|
|
|
(74) |
|
|
|
331 |
|
|
|
420 |
|
|
|
(83) |
|
|
|
337 |
|
Gas Distribution UK* |
|
|
1,524 |
|
|
|
(60) |
|
|
|
1,464 |
|
|
|
1,518 |
|
|
|
(70) |
|
|
|
1,448 |
|
|
|
1,468 |
|
|
|
(79) |
|
|
|
1,389 |
|
Gas Distribution US |
|
|
3,811 |
|
|
|
(4) |
|
|
|
3,807 |
|
|
|
3,708 |
|
|
|
(5) |
|
|
|
3,703 |
|
|
|
4,786 |
|
|
|
(3) |
|
|
|
4,783 |
|
Electricity Distribution & Generation US |
|
|
4,567 |
|
|
|
(1) |
|
|
|
4,566 |
|
|
|
4,339 |
|
|
|
(1) |
|
|
|
4,338 |
|
|
|
4,972 |
|
|
|
(1) |
|
|
|
4,971 |
|
Other activities* |
|
|
678 |
|
|
|
(22) |
|
|
|
656 |
|
|
|
741 |
|
|
|
(23) |
|
|
|
718 |
|
|
|
750 |
|
|
|
(58) |
|
|
|
692 |
|
|
|
|
|
14,493 |
|
|
|
(150) |
|
|
|
14,343 |
|
|
|
14,186 |
|
|
|
(179) |
|
|
|
14,007 |
|
|
|
15,913 |
|
|
|
(226) |
|
|
|
15,687 |
|
|
Total excluding stranded cost recoveries |
|
|
|
|
|
|
|
|
|
|
13,988 |
|
|
|
|
|
|
|
|
|
|
|
13,631 |
|
|
|
|
|
|
|
|
|
|
|
15,252 |
|
Stranded cost recoveries |
|
|
|
|
|
|
|
|
|
|
355 |
|
|
|
|
|
|
|
|
|
|
|
376 |
|
|
|
|
|
|
|
|
|
|
|
435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
14,343 |
|
|
|
|
|
|
|
|
|
|
|
14,007 |
|
|
|
|
|
|
|
|
|
|
|
15,687 |
|
|
Geographical areas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK |
|
|
|
|
|
|
|
|
|
|
5,556 |
|
|
|
|
|
|
|
|
|
|
|
5,543 |
|
|
|
|
|
|
|
|
|
|
|
5,397 |
|
US |
|
|
|
|
|
|
|
|
|
|
8,787 |
|
|
|
|
|
|
|
|
|
|
|
8,464 |
|
|
|
|
|
|
|
|
|
|
|
10,290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
14,343 |
|
|
|
|
|
|
|
|
|
|
|
14,007 |
|
|
|
|
|
|
|
|
|
|
|
15,687 |
|
|
|
|
* |
Items previously reported separately as ‘other operating income’ have been included within revenue |
Where revenue received or receivable exceeds the maximum amount permitted by regulatory
agreement and adjustments will be made to future prices to reflect the over-recovery, no liability
is recognised. Similarly, no asset is recognised where a regulatory agreement permits adjustments
to be made to future prices in respect of an under-recovery. In the UK, there was an under-recovery
of £34m at 31 March 2011 (2010: £100m; 2009: £52m). In the US, under-recoveries and other
regulatory entitlements to future revenue (including stranded cost recoveries) amounted to £1,618m
at 31 March 2011 (2010: £2,333m; 2009: £2,289m).
Annual Report and Accounts 2010/11 | National Grid plc 125
Financial Statements
Notes to the consolidated financial statements continued
1. Segmental analysis continued
(b) Operating profit
A reconciliation of the operating segments’ measure of profit to total profit before taxation
is provided below. Further details of the exceptional items, remeasurements and stranded cost
recoveries are provided in note 3.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before exceptional items, |
|
After exceptional items, |
|
|
remeasurements and stranded |
|
remeasurements and stranded |
|
|
cost recoveries |
|
cost recoveries |
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
Operating segments – continuing operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transmission UK |
|
|
1,363 |
|
|
|
1,311 |
|
|
|
1,126 |
|
|
|
1,293 |
|
|
|
1,252 |
|
|
|
1,063 |
|
Transmission US |
|
|
156 |
|
|
|
153 |
|
|
|
175 |
|
|
|
154 |
|
|
|
151 |
|
|
|
173 |
|
Gas Distribution UK |
|
|
711 |
|
|
|
723 |
|
|
|
672 |
|
|
|
671 |
|
|
|
682 |
|
|
|
629 |
|
Gas Distribution US |
|
|
654 |
|
|
|
414 |
|
|
|
612 |
|
|
|
640 |
|
|
|
448 |
|
|
|
226 |
|
Electricity Distribution & Generation US |
|
|
597 |
|
|
|
374 |
|
|
|
265 |
|
|
|
910 |
|
|
|
701 |
|
|
|
531 |
|
Other activities |
|
|
119 |
|
|
|
146 |
|
|
|
65 |
|
|
|
77 |
|
|
|
59 |
|
|
|
1 |
|
|
|
|
|
3,600 |
|
|
|
3,121 |
|
|
|
2,915 |
|
|
|
3,745 |
|
|
|
3,293 |
|
|
|
2,623 |
|
|
Geographical areas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK |
|
|
2,226 |
|
|
|
2,180 |
|
|
|
1,875 |
|
|
|
2,055 |
|
|
|
2,007 |
|
|
|
1,729 |
|
US |
|
|
1,374 |
|
|
|
941 |
|
|
|
1,040 |
|
|
|
1,690 |
|
|
|
1,286 |
|
|
|
894 |
|
|
|
|
|
3,600 |
|
|
|
3,121 |
|
|
|
2,915 |
|
|
|
3,745 |
|
|
|
3,293 |
|
|
|
2,623 |
|
|
Reconciliation to profit before tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
|
|
3,600 |
|
|
|
3,121 |
|
|
|
2,915 |
|
|
|
3,745 |
|
|
|
3,293 |
|
|
|
2,623 |
|
Interest income and similar income |
|
|
1,281 |
|
|
|
1,005 |
|
|
|
1,315 |
|
|
|
1,324 |
|
|
|
1,005 |
|
|
|
1,315 |
|
Interest expense and other finance costs |
|
|
(2,415 |
) |
|
|
(2,160 |
) |
|
|
(2,465 |
) |
|
|
(2,452 |
) |
|
|
(2,113 |
) |
|
|
(2,549 |
) |
Share of post-tax results of joint ventures and associates |
|
|
7 |
|
|
|
8 |
|
|
|
5 |
|
|
|
7 |
|
|
|
8 |
|
|
|
5 |
|
|
Profit before tax – continuing operations |
|
|
2,473 |
|
|
|
1,974 |
|
|
|
1,770 |
|
|
|
2,624 |
|
|
|
2,193 |
|
|
|
1,394 |
|
|
(c) Capital expenditure and depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditure |
|
Depreciation and amortisation |
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
Operating segments – continuing operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transmission UK |
|
|
1,432 |
|
|
|
1,254 |
|
|
|
1,259 |
|
|
|
(400 |
) |
|
|
(373 |
) |
|
|
(353 |
) |
Transmission US |
|
|
310 |
|
|
|
240 |
|
|
|
182 |
|
|
|
(63 |
) |
|
|
(59 |
) |
|
|
(56 |
) |
Gas Distribution UK |
|
|
669 |
|
|
|
670 |
|
|
|
598 |
|
|
|
(218 |
) |
|
|
(201 |
) |
|
|
(177 |
) |
Gas Distribution US |
|
|
415 |
|
|
|
409 |
|
|
|
421 |
|
|
|
(175 |
) |
|
|
(173 |
) |
|
|
(172 |
) |
Electricity Distribution & Generation US |
|
|
367 |
|
|
|
372 |
|
|
|
355 |
|
|
|
(207 |
) |
|
|
(215 |
) |
|
|
(223 |
) |
Other activities |
|
|
275 |
|
|
|
307 |
|
|
|
427 |
|
|
|
(189 |
) |
|
|
(173 |
) |
|
|
(146 |
) |
|
|
|
|
3,468 |
|
|
|
3,252 |
|
|
|
3,242 |
|
|
|
(1,252 |
) |
|
|
(1,194 |
) |
|
|
(1,127 |
) |
|
Geographical areas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK |
|
|
2,310 |
|
|
|
2,187 |
|
|
|
2,270 |
|
|
|
(789 |
) |
|
|
(733 |
) |
|
|
(679 |
) |
US |
|
|
1,158 |
|
|
|
1,065 |
|
|
|
972 |
|
|
|
(463 |
) |
|
|
(461 |
) |
|
|
(448 |
) |
|
|
|
|
3,468 |
|
|
|
3,252 |
|
|
|
3,242 |
|
|
|
(1,252 |
) |
|
|
(1,194 |
) |
|
|
(1,127 |
) |
|
By asset type |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
3,292 |
|
|
|
3,148 |
|
|
|
3,164 |
|
|
|
(1,182 |
) |
|
|
(1,131 |
) |
|
|
(1,058 |
) |
Other non-current intangible assets |
|
|
176 |
|
|
|
104 |
|
|
|
78 |
|
|
|
(70 |
) |
|
|
(63 |
) |
|
|
(69 |
) |
|
|
|
|
3,468 |
|
|
|
3,252 |
|
|
|
3,242 |
|
|
|
(1,252 |
) |
|
|
(1,194 |
) |
|
|
(1,127 |
) |
|
126 National Grid plc | Annual Report and Accounts 2010/11
2. Operating costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before exceptional items, |
|
Exceptional items, |
|
|
|
|
remeasurements and stranded |
|
|
remeasurements and stranded |
|
|
|
|
cost recoveries |
|
cost recoveries |
|
Total |
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
Depreciation and amortisation |
|
|
1,245 |
|
|
|
1,188 |
|
|
|
1,122 |
|
|
|
7 |
|
|
|
6 |
|
|
|
5 |
|
|
|
1,252 |
|
|
|
1,194 |
|
|
|
1,127 |
|
Payroll costs |
|
|
1,460 |
|
|
|
1,354 |
|
|
|
1,415 |
|
|
|
36 |
|
|
|
48 |
|
|
|
34 |
|
|
|
1,496 |
|
|
|
1,402 |
|
|
|
1,449 |
|
Purchases of electricity |
|
|
1,547 |
|
|
|
1,592 |
|
|
|
2,199 |
|
|
|
(65 |
) |
|
|
(19 |
) |
|
|
28 |
|
|
|
1,482 |
|
|
|
1,573 |
|
|
|
2,227 |
|
Purchases of gas |
|
|
2,102 |
|
|
|
2,294 |
|
|
|
3,228 |
|
|
|
(82 |
) |
|
|
(52 |
) |
|
|
334 |
|
|
|
2,020 |
|
|
|
2,242 |
|
|
|
3,562 |
|
Rates and property taxes |
|
|
945 |
|
|
|
907 |
|
|
|
881 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
945 |
|
|
|
907 |
|
|
|
881 |
|
Balancing Service Incentive Scheme |
|
|
581 |
|
|
|
691 |
|
|
|
904 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
581 |
|
|
|
691 |
|
|
|
904 |
|
Payments to Scottish transmission
owners |
|
|
298 |
|
|
|
260 |
|
|
|
243 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
298 |
|
|
|
260 |
|
|
|
243 |
|
Other |
|
|
2,210 |
|
|
|
2,224 |
|
|
|
2,345 |
|
|
|
314 |
|
|
|
221 |
|
|
|
326 |
|
|
|
2,524 |
|
|
|
2,445 |
|
|
|
2,671 |
|
|
|
|
|
10,388 |
|
|
|
10,510 |
|
|
|
12,337 |
|
|
|
210 |
|
|
|
204 |
|
|
|
727 |
|
|
|
10,598 |
|
|
|
10,714 |
|
|
|
13,064 |
|
|
Operating costs include: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory consumed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
451 |
|
|
|
475 |
|
|
|
788 |
|
Operating leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89 |
|
|
|
87 |
|
|
|
81 |
|
Research expenditure |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16 |
|
|
|
19 |
|
|
|
10 |
|
|
(a) Payroll costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
Wages and salaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,592 |
|
|
|
1,596 |
|
|
|
1,615 |
|
Social security costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119 |
|
|
|
120 |
|
|
|
118 |
|
Other pension costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
208 |
|
|
|
161 |
|
|
|
160 |
|
Share-based payments (note 35) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25 |
|
|
|
25 |
|
|
|
22 |
|
Severance costs (excluding pension costs) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56 |
|
|
|
16 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000 |
|
|
|
1,918 |
|
|
|
1,931 |
|
Less: payroll costs capitalised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(504 |
) |
|
|
(516 |
) |
|
|
(482 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,496 |
|
|
|
1,402 |
|
|
|
1,449 |
|
|
Payroll costs of discontinued operations for the year ended 31 March 2009 were £11m.
(b) Number of employees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31 March |
|
|
Average |
|
|
31 March |
|
|
Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2011 |
|
|
2010 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number |
|
|
Number |
|
|
Number |
|
|
Number |
|
|
UK |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,807 |
|
|
|
9,953 |
|
|
|
10,211 |
|
|
|
10,269 |
|
US |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,282 |
|
|
|
17,719 |
|
|
|
17,895 |
|
|
|
17,798 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,089 |
|
|
|
27,672 |
|
|
|
28,106 |
|
|
|
28,067 |
|
|
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 2011, there were 2,597 (2010: 3,533) employees in
other operations, excluding shared services.
Annual Report and Accounts 2010/11 | National Grid plc 127
Financial Statements
Notes to the consolidated financial statements continued
2. Operating costs continued
(c) Key management compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
Salaries and short-term employee benefits |
|
|
10 |
|
|
|
10 |
|
|
|
11 |
|
Post-retirement benefits |
|
|
6 |
|
|
|
4 |
|
|
|
3 |
|
Share-based payments |
|
|
6 |
|
|
|
5 |
|
|
|
5 |
|
|
|
|
|
22 |
|
|
|
19 |
|
|
|
19 |
|
|
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 auditable part of the Directors’
Remuneration Report, which forms part of these financial statements.
(e) Auditors’ remuneration
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
Total services pursuant to legislation |
|
|
|
|
|
|
|
|
|
|
|
|
Audit services: |
|
|
|
|
|
|
|
|
|
|
|
|
Audit of parent company and consolidated financial statements |
|
|
1.0 |
|
|
|
1.1 |
|
|
|
1.5 |
|
Other services pursuant to legislation: (i) |
|
|
|
|
|
|
|
|
|
|
|
|
Audit of subsidiary financial statements |
|
|
4.8 |
|
|
|
5.4 |
|
|
|
5.8 |
|
Other services supplied |
|
|
2.1 |
|
|
|
1.9 |
|
|
|
2.4 |
|
|
|
|
|
7.9 |
|
|
|
8.4 |
|
|
|
9.7 |
|
|
Total other services |
|
|
|
|
|
|
|
|
|
|
|
|
Services relating to tax compliance |
|
|
0.5 |
|
|
|
0.6 |
|
|
|
0.6 |
|
Services relating to tax advice |
|
|
0.4 |
|
|
|
0.8 |
|
|
|
0.3 |
|
Services relating to information technology |
|
|
0.2 |
|
|
|
– |
|
|
|
– |
|
Services relating to corporate finance transactions* |
|
|
0.4 |
|
|
|
0.4 |
|
|
|
0.1 |
|
All other services* (ii) |
|
|
1.2 |
|
|
|
0.8 |
|
|
|
0.8 |
|
|
|
|
|
2.7 |
|
|
|
2.6 |
|
|
|
1.8 |
|
|
Total auditors’ remuneration |
|
|
10.6 |
|
|
|
11.0 |
|
|
|
11.5 |
|
|
|
|
* Comparatives have been re-presented on a basis consistent with the current year
classification |
|
(i) |
Other services supplied pursuant to legislation 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. |
|
(ii) |
All other services include fees relating to corporate responsibility reporting, treasury
related projects and sundry services, all of which have been subject to prior approval by the Audit
Committee. |
In addition, fees of £0.1m were incurred in 2011 in relation to the audits of the pension
schemes of the Company (2010: £0.1m; 2009: £0.1m).
128 National Grid plc | Annual Report and Accounts 2010/11
3. Exceptional items, remeasurements and stranded cost recoveries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
Included within operating profit: |
|
|
|
|
|
|
|
|
|
|
|
|
Exceptional items: |
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring costs(1) |
|
|
(89 |
) |
|
|
(149 |
) |
|
|
(192 |
) |
Environmental charges(2) |
|
|
(128 |
) |
|
|
(63 |
) |
|
|
(78 |
) |
Net gain on disposal of subsidiaries and associate(3) |
|
|
15 |
|
|
|
11 |
|
|
|
– |
|
Impairment charges and related costs(4) |
|
|
(133 |
) |
|
|
– |
|
|
|
– |
|
Other(5) |
|
|
(15 |
) |
|
|
(67 |
) |
|
|
(5 |
) |
|
|
|
|
(350 |
) |
|
|
(268 |
) |
|
|
(275 |
) |
Remeasurements – commodity contracts(6) |
|
|
147 |
|
|
|
71 |
|
|
|
(443 |
) |
Stranded cost recoveries(7) |
|
|
348 |
|
|
|
369 |
|
|
|
426 |
|
|
|
|
|
145 |
|
|
|
172 |
|
|
|
(292 |
) |
|
Included within interest income and similar income: |
|
|
|
|
|
|
|
|
|
|
|
|
Exceptional items: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest credit on tax settlement(8) |
|
|
43 |
|
|
|
– |
|
|
|
– |
|
|
Included within finance costs: |
|
|
|
|
|
|
|
|
|
|
|
|
Exceptional items: |
|
|
|
|
|
|
|
|
|
|
|
|
Debt redemption costs(9) |
|
|
(73 |
) |
|
|
(33 |
) |
|
|
– |
|
Remeasurements: |
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts(6) |
|
|
– |
|
|
|
(1 |
) |
|
|
(2 |
) |
Net gains/(losses) on derivative financial instruments(10) |
|
|
36 |
|
|
|
81 |
|
|
|
(82 |
) |
|
|
|
|
(37 |
) |
|
|
47 |
|
|
|
(84 |
) |
|
Total included within profit before tax |
|
|
151 |
|
|
|
219 |
|
|
|
(376 |
) |
|
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 tax rate(11) |
|
|
226 |
|
|
|
– |
|
|
|
– |
|
Deferred tax charge arising from change in UK industrial building allowance regime(12) |
|
|
– |
|
|
|
– |
|
|
|
(49 |
) |
Other(13,14) |
|
|
59 |
|
|
|
(41 |
) |
|
|
– |
|
Tax on exceptional items |
|
|
79 |
|
|
|
72 |
|
|
|
77 |
|
Tax on remeasurements (6,10) |
|
|
36 |
|
|
|
(134 |
) |
|
|
187 |
|
Tax on stranded cost recoveries |
|
|
(139 |
) |
|
|
(148 |
) |
|
|
(170 |
) |
|
|
|
|
261 |
|
|
|
(251 |
) |
|
|
45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total exceptional items, remeasurements and stranded cost recoveries after tax |
|
|
412 |
|
|
|
(32 |
) |
|
|
(331 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Analysis of total exceptional items, remeasurements and stranded cost recoveries after tax: |
|
|
|
|
|
|
|
|
|
|
|
|
Exceptional items after tax |
|
|
(16 |
) |
|
|
(270 |
) |
|
|
(247 |
) |
Remeasurements after tax |
|
|
219 |
|
|
|
17 |
|
|
|
(340 |
) |
Stranded cost recoveries after tax |
|
|
209 |
|
|
|
221 |
|
|
|
256 |
|
|
Total |
|
|
412 |
|
|
|
(32 |
) |
|
|
(331 |
) |
|
(1) |
|
Restructuring costs include: |
|
|
|
– |
costs related to the integration of KeySpan of £15m (2010: £30m; 2009: £53m); |
|
|
|
– |
transformation related initiatives of £103m (2010: £78m; 2009: £68m); |
|
|
|
– |
a charge of £10m related to the restructuring of our US operations, which includes a severance
provision offset by a pension and other post-retirement benefits curtailment gain; and |
|
|
|
– |
a release of £39m of restructuring provisions recognised in prior years. |
|
|
|
Charges in 2010 and 2009 also included an amount for the restructuring of our liquefied natural gas
(LNG) storage facilities of £41m and £50m respectively and in 2009 charges related to planned cost
reduction programmes in our UK businesses of £21m. |
|
(2) |
|
Environmental charges include £70m (2010: £42m; 2009: £37m) and £58m (2010: £21m; 2009: £41m)
related to specific exposures in the UK and US respectively. Costs incurred with respect to US
environmental provisions are substantially recoverable from customers. |
|
(3) |
|
During the year we sold
three wholly-owned subsidiaries and an interest in an associate resulting in a gain of £15m. During
the year ended 31 March 2010 there was a gain of £5m on the sale of an associate and the release of
various unutilised provisions amounting to £6m originally recorded on the sale of a wholly-owned
subsidiary in 2008. |
Annual Report and Accounts 2010/11 | National Grid plc 129
Financial Statements
Notes to the consolidated financial statements continued
3. Exceptional items, remeasurements and stranded cost recoveries continued
(4) |
|
Impairment charges and related costs include: |
|
|
|
– |
a charge of £49m relating to our investment in Blue-NG, a joint venture investing in combined heat and power generation.
The charge comprises an impairment of the carrying value of the investment together with committed funding and associated
exit costs; |
|
|
|
– |
an impairment charge of £34m against the carrying value of the goodwill relating to our US companies in New Hampshire
following our announcement in December 2010 of the proposed sale of these businesses; and |
|
|
|
– |
a charge of £50m relating to our US generation assets for impairment and associated decommissioning. |
|
(5) |
|
Other exceptional charges for the year include an amortisation charge of £7m (2010: £6m;
2009: £5m) in relation to acquisition-related intangibles plus an £8m penalty levied by Ofgem
on our UK Gas Distribution business. For the year ended 31 March 2010, other exceptional items
also included an impairment charge of £11m in relation to acquisition-related intangibles, a
charge of £9m relating to US healthcare costs arising from legislative changes, and £41m
related to a fine of £15m levied by the Gas and Electricity Markets Authority (GEMA) together
with associated costs and provisions against receivables and other balance sheet items. For
further details of the fine levied upon us by GEMA refer to note 28. |
|
(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. These movements
are comprised of those affecting operating profit which are based on the change in the
commodity contract liability and those recorded in finance costs as a result of the time value
of money. |
|
(7) |
|
Stranded cost recoveries include 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. Stranded cost recoveries on
a pre-tax basis consist of revenue of £355m (2010: £376m; 2009: £435m) and operating costs of
£7m (2010: £7m; 2009: £9m). |
|
(8) |
|
During the year we reached agreement with the US tax authorities on the settlement of
pre-acquisition tax liabilities which resulted in the repayment of tax and interest accruing. |
|
(9) |
|
Debt redemption costs represent costs arising from our debt repurchase programme, undertaken
primarily in the first half of the year, to manage our cash resources efficiently following
the rights issue. Debt redemption costs in the year ended 31 March 2010 represented costs
relating to the early redemption of a significant loan. |
|
(10) |
|
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 credit in the year includes a credit of £104m (2010: £78m
charge; 2009: £1m charge) in respect of prior years. |
|
(11) |
|
The exceptional tax credit arises from a reduction in the UK corporation tax rate from 28% to
26% included and enacted in the Finance (No. 2) Act 2010 and the Provisional Collection of
Taxes Act 1968 and applicable from 1 April 2011. This results in a reduction in deferred tax
liabilities. |
|
(12) |
|
The exceptional tax charge of £49m in the year ended 31 March 2009 arose from a change in the
UK industrial building allowance regime arising in the 2008 Finance Act. This resulted in an
increase in deferred tax liabilities. |
|
(13) |
|
The exceptional tax charge of £41m in the year ended 31 March 2010 arose from a change in US
tax legislation under the Patient Protection and Affordable Care Act. |
|
(14) |
|
The exceptional tax credit for the year ended 31 March 2011 primarily arose from a settlement
of pre-acquisition tax liabilities with the US tax authorities. |
130 National Grid plc | Annual Report and Accounts 2010/11
4. Finance income and costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
Interest income and similar income |
|
|
|
|
|
|
|
|
|
|
|
|
Expected return on pension and other post-retirement benefit plan assets |
|
|
1,256 |
|
|
|
981 |
|
|
|
1,236 |
|
Interest income on financial instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
Bank deposits and other financial assets |
|
|
22 |
|
|
|
18 |
|
|
|
61 |
|
Gains on disposal of available-for-sale investments |
|
|
3 |
|
|
|
6 |
|
|
|
18 |
|
|
Interest income and similar income before exceptional items |
|
|
1,281 |
|
|
|
1,005 |
|
|
|
1,315 |
|
|
Exceptional items |
|
|
|
|
|
|
|
|
|
|
|
|
Exceptional interest credit on tax settlement |
|
|
43 |
|
|
|
– |
|
|
|
– |
|
|
Interest income and similar income |
|
|
1,324 |
|
|
|
1,005 |
|
|
|
1,315 |
|
|
Interest expense and other finance costs |
|
|
|
|
|
|
|
|
|
|
|
|
Interest on pension and other post-retirement benefit plan obligations |
|
|
(1,231 |
) |
|
|
(1,193 |
) |
|
|
(1,250 |
) |
Interest expense on financial liabilities held at amortised cost: |
|
|
|
|
|
|
|
|
|
|
|
|
Bank loans and overdrafts |
|
|
(85 |
) |
|
|
(80 |
) |
|
|
(136 |
) |
Other borrowings |
|
|
(1,184 |
) |
|
|
(938 |
) |
|
|
(1,149 |
) |
Derivatives |
|
|
84 |
|
|
|
22 |
|
|
|
5 |
|
Unwinding of discounts on provisions |
|
|
(128 |
) |
|
|
(70 |
) |
|
|
(68 |
) |
Less: Interest capitalised (i) |
|
|
129 |
|
|
|
99 |
|
|
|
133 |
|
|
Interest expense and other finance costs before exceptional items and remeasurements |
|
|
(2,415 |
) |
|
|
(2,160 |
) |
|
|
(2,465 |
) |
|
Exceptional items |
|
|
|
|
|
|
|
|
|
|
|
|
Exceptional debt redemption costs |
|
|
(73 |
) |
|
|
(33 |
) |
|
|
– |
|
|
Remeasurements |
|
|
|
|
|
|
|
|
|
|
|
|
Net gains/(losses) on derivative financial instruments included in remeasurements (ii): |
|
|
|
|
|
|
|
|
|
|
|
|
Ineffectiveness on derivatives designated as: |
|
|
|
|
|
|
|
|
|
|
|
|
Fair value hedges (iii) |
|
|
40 |
|
|
|
67 |
|
|
|
(34 |
) |
Cash flow hedges |
|
|
9 |
|
|
|
(5 |
) |
|
|
(18 |
) |
Net investment hedges |
|
|
7 |
|
|
|
(19 |
) |
|
|
(2 |
) |
Net investment hedges – undesignated forward rate risk |
|
|
(16 |
) |
|
|
51 |
|
|
|
112 |
|
Derivatives not designated as hedges or ineligible for hedge accounting |
|
|
(4 |
) |
|
|
(13 |
) |
|
|
(140 |
) |
Financial element of remeasurements on commodity contracts |
|
|
– |
|
|
|
(1 |
) |
|
|
(2 |
) |
|
|
|
|
36 |
|
|
|
80 |
|
|
|
(84 |
) |
|
Exceptional items and remeasurements included within interest expense |
|
|
(37 |
) |
|
|
47 |
|
|
|
(84 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense and other finance costs |
|
|
(2,452 |
) |
|
|
(2,113 |
) |
|
|
(2,549 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net finance costs |
|
|
(1,128 |
) |
|
|
(1,108 |
) |
|
|
(1,234 |
) |
|
|
|
(i) |
Interest on funding attributable to assets in the course of construction was capitalised
during the year at a rate of 5.3% (2010: 2.8%; 2009: 5.7%). |
|
(ii) |
Includes a net foreign exchange gain on financing activities of £173m (2010: £334m gain;
2009: £1,500m loss) offset by foreign exchange gains and losses on derivative financial
instruments measured at fair value. |
|
(iii) |
Includes a net gain on instruments designated as fair value hedges of £86m (2010: £90m loss;
2009: £382m gain) offset by a net loss of £46m (2010: £157m gain; 2009: £416m loss) arising
from fair value adjustments to the carrying value of debt. |
Annual Report and Accounts 2010/11 | National Grid plc 131
Financial Statements
Notes to the consolidated financial statements continued
5. Taxation
Taxation on items charged/(credited) to the income statement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
Tax before exceptional items, remeasurements and stranded cost recoveries |
|
|
722 |
|
|
|
553 |
|
|
|
517 |
|
|
Exceptional tax on items not included in profit before tax (see note 3) |
|
|
(285 |
) |
|
|
41 |
|
|
|
49 |
|
Tax on other exceptional items, remeasurements and stranded cost recoveries |
|
|
24 |
|
|
|
210 |
|
|
|
(94 |
) |
|
Tax on total exceptional items, remeasurements and stranded cost recoveries (see note 3) |
|
|
(261 |
) |
|
|
251 |
|
|
|
(45 |
) |
|
Total tax charge |
|
|
461 |
|
|
|
804 |
|
|
|
472 |
|
|
Taxation as a percentage of profit before tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
% |
|
|
% |
|
|
% |
|
|
Before exceptional items, remeasurements and stranded cost recoveries |
|
|
29.2 |
|
|
|
28.0 |
|
|
|
29.2 |
|
After exceptional items, remeasurements and stranded cost recoveries |
|
|
17.6 |
|
|
|
36.7 |
|
|
|
33.9 |
|
|
The tax charge for the year can be analysed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
United Kingdom |
|
|
|
|
|
|
|
|
|
|
|
|
Corporation tax at 28% |
|
|
168 |
|
|
|
197 |
|
|
|
37 |
|
Corporation tax adjustment in respect of prior years |
|
|
(161 |
) |
|
|
(31 |
) |
|
|
(54 |
) |
Deferred tax |
|
|
53 |
|
|
|
259 |
|
|
|
339 |
|
Deferred tax adjustment in respect of prior years |
|
|
(43 |
) |
|
|
(5 |
) |
|
|
– |
|
|
|
|
|
17 |
|
|
|
420 |
|
|
|
322 |
|
|
Overseas |
|
|
|
|
|
|
|
|
|
|
|
|
Corporate tax |
|
|
105 |
|
|
|
74 |
|
|
|
105 |
|
Corporate tax adjustment in respect of prior years |
|
|
(2 |
) |
|
|
(364 |
) |
|
|
38 |
|
Deferred tax |
|
|
393 |
|
|
|
279 |
|
|
|
37 |
|
Deferred tax adjustment in respect of prior years |
|
|
(52 |
) |
|
|
395 |
|
|
|
(30 |
) |
|
|
|
|
444 |
|
|
|
384 |
|
|
|
150 |
|
|
Total tax charge |
|
|
461 |
|
|
|
804 |
|
|
|
472 |
|
|
Adjustments in respect of prior years include a £207m corporation tax credit (2010: £76m
charge; 2009: £2m credit) and a £44m deferred tax charge (2010: £1m; 2009: £1m) that relate to
exceptional items, remeasurements and stranded cost recoveries.
Tax on items (credited)/charged to other comprehensive income and equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
Corporation tax |
|
|
|
|
|
|
|
|
|
|
|
|
Share-based payments |
|
|
(1 |
) |
|
|
(3 |
) |
|
|
(2 |
) |
Deferred tax |
|
|
|
|
|
|
|
|
|
|
|
|
Share of other comprehensive income of joint ventures and associates |
|
|
(2 |
) |
|
|
4 |
|
|
|
– |
|
Available-for-sale investments |
|
|
1 |
|
|
|
5 |
|
|
|
(7 |
) |
Cash flow hedges |
|
|
2 |
|
|
|
(9 |
) |
|
|
(19 |
) |
Share-based payments |
|
|
(4 |
) |
|
|
– |
|
|
|
3 |
|
Actuarial gains/(losses) (i) |
|
|
181 |
|
|
|
(175 |
) |
|
|
(678 |
) |
|
|
|
|
177 |
|
|
|
(178 |
) |
|
|
(703 |
) |
|
Total tax recognised in the statement of comprehensive income |
|
|
182 |
|
|
|
(175 |
) |
|
|
(704 |
) |
Total tax relating to share-based payments recognised directly in equity |
|
|
(5 |
) |
|
|
(3 |
) |
|
|
1 |
|
|
|
|
|
177 |
|
|
|
(178 |
) |
|
|
(703 |
) |
|
|
|
(i) |
2010 includes a £42m charge relating to a change in US tax legislation under the Patient
Protection and Affordable Care Act. |
132 National Grid plc | Annual Report and Accounts 2010/11
5. Taxation continued
The tax charge for the year after exceptional items, remeasurements and stranded cost
recoveries is lower than (2010: higher; 2009: higher) the standard rate of corporation tax in the
UK of 28% (2010: 28%; 2009: 28%):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before |
|
|
After |
|
|
Before |
|
|
After |
|
|
Before |
|
|
After |
|
|
|
exceptional |
|
|
exceptional |
|
|
exceptional |
|
|
exceptional |
|
|
exceptional |
|
|
exceptional |
|
|
|
items, |
|
|
items, |
|
|
items, |
|
|
items, |
|
|
items, |
|
|
items, |
|
|
|
remeasurements |
|
|
remeasurements |
|
|
remeasurements |
|
|
remeasurements |
|
|
remeasurements |
|
|
remeasurements |
|
|
|
and stranded |
|
|
and stranded |
|
|
and stranded |
|
|
and stranded |
|
|
and stranded |
|
|
and stranded |
|
|
|
cost recoveries |
|
|
cost recoveries |
|
|
cost recoveries |
|
|
cost recoveries |
|
|
cost recoveries |
|
|
cost recoveries |
|
|
|
2011 |
|
|
2011 |
|
|
2010 |
|
|
2010 |
|
|
2009 |
|
|
2009 |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
Profit before tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before exceptional items, remeasurements
and stranded cost recoveries |
|
|
2,473 |
|
|
|
2,473 |
|
|
|
1,974 |
|
|
|
1,974 |
|
|
|
1,770 |
|
|
|
1,770 |
|
Exceptional items, remeasurements and
stranded cost recoveries |
|
|
– |
|
|
|
151 |
|
|
|
– |
|
|
|
219 |
|
|
|
– |
|
|
|
(376 |
) |
|
Profit before tax |
|
|
2,473 |
|
|
|
2,624 |
|
|
|
1,974 |
|
|
|
2,193 |
|
|
|
1,770 |
|
|
|
1,394 |
|
|
Profit before tax multiplied by UK
corporation
tax rate of 28% |
|
|
692 |
|
|
|
735 |
|
|
|
553 |
|
|
|
614 |
|
|
|
496 |
|
|
|
390 |
|
Effects of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments in respect of prior years |
|
|
(95 |
) |
|
|
(258 |
) |
|
|
(82 |
) |
|
|
(5 |
) |
|
|
(45 |
) |
|
|
(46 |
) |
Expenses not deductible for tax purposes |
|
|
42 |
|
|
|
204 |
|
|
|
62 |
|
|
|
237 |
|
|
|
76 |
|
|
|
82 |
|
Non-taxable income |
|
|
5 |
|
|
|
(136 |
) |
|
|
(6 |
) |
|
|
(131 |
) |
|
|
(35 |
) |
|
|
(34 |
) |
Adjustment in respect of foreign tax rates |
|
|
74 |
|
|
|
120 |
|
|
|
37 |
|
|
|
77 |
|
|
|
38 |
|
|
|
32 |
|
Impact of share-based payments |
|
|
1 |
|
|
|
1 |
|
|
|
– |
|
|
|
– |
|
|
|
1 |
|
|
|
1 |
|
Deferred tax impact of change in UK tax rate |
|
|
– |
|
|
|
(226 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
Other |
|
|
3 |
|
|
|
21 |
|
|
|
(11 |
) |
|
|
12 |
|
|
|
(14 |
) |
|
|
47 |
|
|
Total tax |
|
|
722 |
|
|
|
461 |
|
|
|
553 |
|
|
|
804 |
|
|
|
517 |
|
|
|
472 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
Effective tax rate |
|
|
29.2 |
|
|
|
17.6 |
|
|
|
28.0 |
|
|
|
36.7 |
|
|
|
29.2 |
|
|
|
33.9 |
|
|
Factors that may affect future tax charges
A number of changes to the UK corporation tax system were announced in the 2011 UK Budget
Report and are expected to be enacted in the Finance Act 2011. However, the reduction in the UK
corporation tax rate to 26% from 1 April 2011 has been substantively enacted and deferred tax
balances have been calculated at this rate.
Other changes such as the reduction in the UK corporation tax rate to 25% from April 2012, with
further 1% reductions to follow in each of the succeeding two years, will result in a UK
corporation tax rate of 23% from April 2014. These changes have not been substantively enacted as
at the balance sheet date and have therefore not been reflected in these financial statements.
The outcome of the ongoing UK consultation process on the reform of the controlled foreign company
legislation, as part of the wider UK corporate tax reform agenda, is expected in the UK Finance
Bill 2012. We will monitor the expected changes for their implications on our holdings in foreign
operations.
Annual Report and Accounts 2010/11 | National Grid plc 133
Financial Statements
Notes to the consolidated financial statements continued
6. Discontinued operations
For the year ended 31 March 2009, discontinued operations comprised the Ravenswood generation
station in New York and the engineering and communications operations in the US acquired as part of
the KeySpan acquisition. The Ravenswood generation station, KeySpan Communications and one of the
KeySpan engineering companies were sold in the year ended 31 March 2009. The two further KeySpan
engineering companies were sold at the beginning of the year ended 31 March 2010 and consequently
did not have material operating results in that year.
Results of discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
Revenue |
|
|
– |
|
|
|
– |
|
|
|
97 |
|
Operating costs |
|
|
– |
|
|
|
– |
|
|
|
(84 |
) |
|
Total operating profit |
|
|
– |
|
|
|
– |
|
|
|
13 |
|
Taxation |
|
|
– |
|
|
|
– |
|
|
|
(4 |
) |
|
Profit after tax |
|
|
– |
|
|
|
– |
|
|
|
9 |
|
|
Gain on disposal |
|
|
– |
|
|
|
– |
|
|
|
27 |
|
Taxation (i) |
|
|
– |
|
|
|
– |
|
|
|
(11 |
) |
|
Gain on disposal after tax |
|
|
– |
|
|
|
– |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total profit for the year from discontinued operations |
|
|
– |
|
|
|
– |
|
|
|
25 |
|
|
|
|
(i) |
The tax charge for the year ended 31 March 2009 included a current tax charge of £564m
offset by a deferred tax credit of £564m. |
7. Dividends
The following table shows the actual dividends paid to equity shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
|
|
|
|
|
|
|
2011 |
|
|
2011 |
|
|
settled |
|
|
2010 |
|
|
2010 |
|
|
settled |
|
|
2009 |
|
|
2009 |
|
|
|
pence |
|
|
Total |
|
|
via scrip |
|
|
pence |
|
|
Total |
|
|
via scrip |
|
|
pence |
|
|
Total |
|
|
|
per share |
|
|
£m |
|
|
£m |
|
|
per share |
|
|
£m |
|
|
£m |
|
|
per share |
|
|
£m |
|
|
Interim – year ended 31 March 2011 |
|
|
12.90 |
|
|
|
451 |
|
|
|
65 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
Final – year ended 31 March 2010 |
|
|
24.84 |
|
|
|
613 |
|
|
|
141 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
Interim – year ended 31 March 2010 |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
13.65 |
|
|
|
336 |
|
|
|
68 |
|
|
|
– |
|
|
|
– |
|
Final – year ended 31 March 2009 |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
23.00 |
|
|
|
557 |
|
|
|
137 |
|
|
|
– |
|
|
|
– |
|
Interim – year ended 31 March 2009 |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
12.64 |
|
|
|
307 |
|
Final – year ended 31 March 2008 |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
21.30 |
|
|
|
531 |
|
|
|
|
|
37.74 |
|
|
|
1,064 |
|
|
|
206 |
|
|
|
36.65 |
|
|
|
893 |
|
|
|
205 |
|
|
|
33.94 |
|
|
|
838 |
|
|
For comparability purposes the table below presents rebased dividends per share after taking
account of the impact of the rights issue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2011 |
|
|
2011 |
|
|
2010 |
|
|
2010 |
|
|
2010 |
|
|
2009 |
|
|
2009 |
|
|
|
pence |
|
|
impact |
|
|
pence |
|
|
pence |
|
|
impact |
|
|
pence |
|
|
pence |
|
|
pence |
|
|
|
per share |
|
|
of rights |
|
|
per share |
|
|
per share |
|
|
of rights |
|
|
per share |
|
|
per share |
|
|
per share |
|
|
|
(actual |
) |
|
issue |
|
|
(rebased |
) |
|
(actual |
) |
|
issue |
|
|
(rebased |
) |
|
(actual |
) |
|
(rebased |
) |
|
Interim – year ended 31 March 2011 |
|
|
12.90 |
|
|
|
– |
|
|
|
12.90 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
Final – year ended 31 March 2010 |
|
|
24.84 |
|
|
|
(3.10 |
) |
|
|
21.74 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
Interim – year ended 31 March 2010 |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
13.65 |
|
|
|
(1.71 |
) |
|
|
11.94 |
|
|
|
– |
|
|
|
– |
|
Final – year ended 31 March 2009 |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
23.00 |
|
|
|
(1.87 |
) |
|
|
20.13 |
|
|
|
– |
|
|
|
– |
|
Interim – year ended 31 March 2009 |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
12.64 |
|
|
|
11.06 |
|
Final – year ended 31 March 2008 |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
21.30 |
|
|
|
18.64 |
|
|
|
|
|
37.74 |
|
|
|
(3.10 |
) |
|
|
34.64 |
|
|
|
36.65 |
|
|
|
(3.58 |
) |
|
|
32.07 |
|
|
|
33.94 |
|
|
|
29.70 |
|
|
The Directors are proposing a final dividend for 2011 of 23.47p per share that will absorb
approximately £824m of shareholders’ equity (assuming all amounts are settled in cash). It will be
paid on 17 August 2011 to shareholders
who are on the register of members at 3 June 2011 and a scrip dividend will be offered as an
alternative, subject to shareholders’ approval at the Annual General Meeting.
134 National Grid plc | Annual Report and Accounts 2010/11
8. Earnings per share
Adjusted earnings per share, 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 3.
(a) Basic earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings |
|
|
|
|
|
|
Earnings |
|
|
|
|
|
|
Earnings |
|
|
|
Earnings |
|
|
per share |
|
|
Earnings |
|
|
per share |
|
|
Earnings |
|
|
per share |
|
|
|
2011 |
|
|
2011 |
|
|
2010 |
|
|
2010 |
* |
|
2009 |
|
|
2009 |
* |
|
|
£m |
|
|
pence |
|
|
£m |
|
|
pence |
|
|
£m |
|
|
pence |
|
|
Adjusted earnings – continuing operations |
|
|
1,747 |
|
|
|
51.7 |
|
|
|
1,418 |
|
|
|
49.5 |
|
|
|
1,250 |
|
|
|
43.3 |
|
Exceptional items after tax |
|
|
(16 |
) |
|
|
(0.5 |
) |
|
|
(270 |
) |
|
|
(9.4 |
) |
|
|
(247 |
) |
|
|
(8.6 |
) |
Remeasurements after tax |
|
|
219 |
|
|
|
6.5 |
|
|
|
17 |
|
|
|
0.6 |
|
|
|
(340 |
) |
|
|
(11.8 |
) |
Stranded cost recoveries after tax |
|
|
209 |
|
|
|
6.2 |
|
|
|
221 |
|
|
|
7.7 |
|
|
|
256 |
|
|
|
8.9 |
|
|
Earnings – continuing operations |
|
|
2,159 |
|
|
|
63.9 |
|
|
|
1,386 |
|
|
|
48.4 |
|
|
|
919 |
|
|
|
31.8 |
|
|
Earnings – discontinued operations |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
25 |
|
|
|
0.9 |
|
|
Earnings |
|
|
2,159 |
|
|
|
63.9 |
|
|
|
1,386 |
|
|
|
48.4 |
|
|
|
944 |
|
|
|
32.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
|
|
|
|
2010 |
|
|
|
|
|
|
2009 |
|
|
|
|
|
|
|
millions |
|
|
|
|
|
|
millions |
|
|
|
|
|
|
millions |
|
|
Weighted average number of shares – basic* |
|
|
|
|
|
|
3,378 |
|
|
|
|
|
|
|
2,864 |
|
|
|
|
|
|
|
2,886 |
|
|
|
|
*Comparative EPS data have been restated to reflect the impact of the bonus element of the
rights issue and as a result of the additional shares issued as scrip dividends |
(b) Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings |
|
|
|
|
|
|
Earnings |
|
|
|
|
|
|
Earnings |
|
|
|
Earnings |
|
|
per share |
|
|
Earnings |
|
|
per share |
|
|
Earnings |
|
|
per share |
|
|
|
2011 |
|
|
2011 |
|
|
2010 |
|
|
2010 |
* |
|
2009 |
|
|
2009 |
* |
|
|
£m |
|
|
pence |
|
|
£m |
|
|
pence |
|
|
£m |
|
|
pence |
|
|
Adjusted diluted earnings – continuing operations |
|
|
1,747 |
|
|
|
51.4 |
|
|
|
1,418 |
|
|
|
49.3 |
|
|
|
1,250 |
|
|
|
43.1 |
|
Exceptional items after tax |
|
|
(16 |
) |
|
|
(0.5 |
) |
|
|
(270 |
) |
|
|
(9.4 |
) |
|
|
(247 |
) |
|
|
(8.5 |
) |
Remeasurements after tax |
|
|
219 |
|
|
|
6.5 |
|
|
|
17 |
|
|
|
0.6 |
|
|
|
(340 |
) |
|
|
(11.7 |
) |
Stranded cost recoveries after tax |
|
|
209 |
|
|
|
6.2 |
|
|
|
221 |
|
|
|
7.7 |
|
|
|
256 |
|
|
|
8.8 |
|
|
Diluted earnings – continuing operations |
|
|
2,159 |
|
|
|
63.6 |
|
|
|
1,386 |
|
|
|
48.2 |
|
|
|
919 |
|
|
|
31.7 |
|
|
Diluted earnings – discontinued operations |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
25 |
|
|
|
0.8 |
|
|
Diluted earnings |
|
|
2,159 |
|
|
|
63.6 |
|
|
|
1,386 |
|
|
|
48.2 |
|
|
|
944 |
|
|
|
32.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
|
|
|
|
2010 |
|
|
|
|
|
|
2009 |
|
|
|
|
|
|
|
millions |
|
|
|
|
|
|
millions |
|
|
|
|
|
|
millions |
|
|
Weighted average number of shares – diluted* |
|
|
|
|
|
|
3,397 |
|
|
|
|
|
|
|
2,877 |
|
|
|
|
|
|
|
2,903 |
|
|
|
|
*Comparative EPS data have been restated to reflect the impact of the bonus element of the
rights issue and as a result of the additional shares issued as scrip dividends |
(c) Reconciliation of basic to diluted average number of shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
|
|
|
|
2010 |
|
|
|
|
|
|
2009 |
|
|
|
|
|
|
|
millions |
|
|
|
|
|
|
millions |
|
|
|
|
|
|
millions |
|
|
Weighted average number of ordinary shares – basic |
|
|
|
|
|
|
3,378 |
|
|
|
|
|
|
|
2,864 |
|
|
|
|
|
|
|
2,886 |
|
Effect of dilutive potential ordinary shares – employee share plans |
|
|
|
|
|
|
19 |
|
|
|
|
|
|
|
13 |
|
|
|
|
|
|
|
17 |
|
|
Weighted average number of ordinary shares – diluted |
|
|
|
|
|
|
3,397 |
|
|
|
|
|
|
|
2,877 |
|
|
|
|
|
|
|
2,903 |
|
|
Annual Report and Accounts 2010/11 | National Grid plc 135
Financial Statements
Notes to the consolidated financial statements continued
9. Goodwill
|
|
|
|
|
|
|
Total |
|
|
|
£m |
|
|
Cost at 31 March 2009 |
|
|
5,391 |
|
Exchange adjustments |
|
|
(289 |
) |
|
Cost at 31 March 2010 |
|
|
5,102 |
|
Exchange adjustments |
|
|
(280 |
) |
Impairment of goodwill on businesses reclassified as held for sale (notes 3 and 18) (i) |
|
|
(34 |
) |
Reclassified as held for sale |
|
|
(12 |
) |
|
Cost at 31 March 2011 |
|
|
4,776 |
|
|
Net book value at 31 March 2011 |
|
|
4,776 |
|
|
Net book value at 31 March 2010 |
|
|
5,102 |
|
|
|
|
(i) |
Relates to our gas operations (£30m) and our electricity distribution operations (£4m). |
The amounts disclosed above as at 31 March 2011 include balances relating to our US gas
operations of £2,876m (2010: £3,077m), our New England electricity distribution operations of £819m
(2010: £881m), our operations run by our subsidiary Niagara Mohawk Power Corporation of £849m
(2010: £898m) and our New England transmission operations of £232m (2010: £246m).
Goodwill is reviewed annually for impairment and the recoverability of goodwill at 31 March 2011
has been assessed by comparing the carrying amount of our operations described above (our cash
generating units) with the expected recoverable amount on a value-in-use basis. In each assessment
the value-in-use has been calculated based on four year plan projections that incorporate our best
estimates of future cash flows, customer rates, costs, future prices and growth. Such projections
reflect our current regulatory rate plans taking into account regulatory arrangements to allow for
future rate plan filings and recovery of investment. Our plans have proved to be reliable guides in
the past and the Directors believe the estimates are appropriate.
The future growth rate used to extrapolate projections beyond four years has been reduced to 2.4%.
The growth rate has been determined having regard to data on projected growth in US real gross
domestic product (GDP). Based on our business’s place in the underlying US economy, it is
appropriate for the terminal growth rate to be based upon the overall growth in real GDP and, given
the nature of our operations, to extend over a long period of time. Cash flow projections have been
discounted to reflect the time value of money, using an effective pre-tax discount rate of 10%
(2010: 10%). The discount rate represents the estimated weighted average cost of capital of these
operations.
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.
136 National Grid plc | Annual Report and Accounts 2010/11
10. Other intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition- |
|
|
|
|
|
|
|
|
|
Software |
|
|
related |
|
|
Other |
|
|
Total |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
Non-current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost at 31 March 2009 |
|
|
525 |
|
|
|
129 |
|
|
|
16 |
|
|
|
670 |
|
Exchange adjustments |
|
|
(8 |
) |
|
|
(7 |
) |
|
|
– |
|
|
|
(15 |
) |
Additions |
|
|
103 |
|
|
|
– |
|
|
|
1 |
|
|
|
104 |
|
Reclassifications and disposals (i) |
|
|
4 |
|
|
|
– |
|
|
|
1 |
|
|
|
5 |
|
|
Cost at 31 March 2010 |
|
|
624 |
|
|
|
122 |
|
|
|
18 |
|
|
|
764 |
|
Exchange adjustments |
|
|
(13 |
) |
|
|
(7 |
) |
|
|
– |
|
|
|
(20 |
) |
Additions |
|
|
176 |
|
|
|
– |
|
|
|
– |
|
|
|
176 |
|
Reclassified as held for sale |
|
|
(4 |
) |
|
|
– |
|
|
|
– |
|
|
|
(4 |
) |
Other reclassifications and disposals (i) |
|
|
17 |
|
|
|
– |
|
|
|
(14 |
) |
|
|
3 |
|
|
Cost at 31 March 2011 |
|
|
800 |
|
|
|
115 |
|
|
|
4 |
|
|
|
919 |
|
|
Amortisation at 31 March 2009 |
|
|
(282 |
) |
|
|
(10 |
) |
|
|
(8 |
) |
|
|
(300 |
) |
Exchange adjustments |
|
|
6 |
|
|
|
– |
|
|
|
– |
|
|
|
6 |
|
Amortisation charge for the year |
|
|
(52 |
) |
|
|
(6 |
) |
|
|
(5 |
) |
|
|
(63 |
) |
Impairment charge for the year |
|
|
(7 |
) |
|
|
(11 |
) |
|
|
– |
|
|
|
(18 |
) |
Reclassifications and disposals (i) |
|
|
1 |
|
|
|
– |
|
|
|
(1 |
) |
|
|
– |
|
|
Amortisation at 31 March 2010 |
|
|
(334 |
) |
|
|
(27 |
) |
|
|
(14 |
) |
|
|
(375 |
) |
Exchange adjustments |
|
|
4 |
|
|
|
3 |
|
|
|
– |
|
|
|
7 |
|
Amortisation charge for the year |
|
|
(62 |
) |
|
|
(7 |
) |
|
|
(1 |
) |
|
|
(70 |
) |
Reclassified as held for sale |
|
|
3 |
|
|
|
– |
|
|
|
– |
|
|
|
3 |
|
Other reclassifications and disposals (i) |
|
|
6 |
|
|
|
– |
|
|
|
11 |
|
|
|
17 |
|
|
Amortisation at 31 March 2011 |
|
|
(383 |
) |
|
|
(31 |
) |
|
|
(4 |
) |
|
|
(418 |
) |
|
Net book value at 31 March 2011 |
|
|
417 |
|
|
|
84 |
|
|
|
– |
|
|
|
501 |
|
|
Net book value at 31 March 2010 |
|
|
290 |
|
|
|
95 |
|
|
|
4 |
|
|
|
389 |
|
|
|
|
(i) |
Primarily represents reclassifications between property, plant and equipment, trade and
other receivables and between categories. |
Annual Report and Accounts 2010/11 | National Grid plc 137
Financial Statements
Notes to the consolidated financial statements continued
11. Property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 31 March 2009 |
|
|
1,504 |
|
|
|
37,516 |
|
|
|
2,485 |
|
|
|
889 |
|
|
|
42,394 |
|
Exchange adjustments |
|
|
(54 |
) |
|
|
(765 |
) |
|
|
(19 |
) |
|
|
(2 |
) |
|
|
(840 |
) |
Additions |
|
|
43 |
|
|
|
893 |
|
|
|
2,108 |
|
|
|
104 |
|
|
|
3,148 |
|
Disposals |
|
|
(12 |
) |
|
|
(288 |
) |
|
|
(2 |
) |
|
|
(48 |
) |
|
|
(350 |
) |
Reclassifications (i) |
|
|
91 |
|
|
|
1,874 |
|
|
|
(2,031 |
) |
|
|
83 |
|
|
|
17 |
|
|
Cost at 31 March 2010 |
|
|
1,572 |
|
|
|
39,230 |
|
|
|
2,541 |
|
|
|
1,026 |
|
|
|
44,369 |
|
Exchange adjustments |
|
|
(56 |
) |
|
|
(812 |
) |
|
|
(30 |
) |
|
|
(2 |
) |
|
|
(900 |
) |
Additions |
|
|
123 |
|
|
|
888 |
|
|
|
2,194 |
|
|
|
87 |
|
|
|
3,292 |
|
Disposals |
|
|
(22 |
) |
|
|
(305 |
) |
|
|
– |
|
|
|
(25 |
) |
|
|
(352 |
) |
Reclassified as held for sale |
|
|
(5 |
) |
|
|
(278 |
) |
|
|
(3 |
) |
|
|
(1 |
) |
|
|
(287 |
) |
Reclassifications (i) |
|
|
146 |
|
|
|
2,175 |
|
|
|
(2,285 |
) |
|
|
(33 |
) |
|
|
3 |
|
|
Cost at 31 March 2011 |
|
|
1,758 |
|
|
|
40,898 |
|
|
|
2,417 |
|
|
|
1,052 |
|
|
|
46,125 |
|
|
Depreciation at 31 March 2009 |
|
|
(242 |
) |
|
|
(12,084 |
) |
|
|
– |
|
|
|
(523 |
) |
|
|
(12,849 |
) |
Exchange adjustments |
|
|
4 |
|
|
|
206 |
|
|
|
– |
|
|
|
2 |
|
|
|
212 |
|
Depreciation charge for the year (ii) |
|
|
(30 |
) |
|
|
(1,027 |
) |
|
|
– |
|
|
|
(91 |
) |
|
|
(1,148 |
) |
Impairment charge for the year (iii) |
|
|
(3 |
) |
|
|
(23 |
) |
|
|
(2 |
) |
|
|
(1 |
) |
|
|
(29 |
) |
Disposals |
|
|
10 |
|
|
|
261 |
|
|
|
– |
|
|
|
44 |
|
|
|
315 |
|
Reclassifications (i) |
|
|
(22 |
) |
|
|
43 |
|
|
|
– |
|
|
|
(36 |
) |
|
|
(15 |
) |
|
Depreciation at 31 March 2010 |
|
|
(283 |
) |
|
|
(12,624 |
) |
|
|
(2 |
) |
|
|
(605 |
) |
|
|
(13,514 |
) |
Exchange adjustments |
|
|
7 |
|
|
|
218 |
|
|
|
– |
|
|
|
– |
|
|
|
225 |
|
Depreciation charge for the year (ii) |
|
|
(39 |
) |
|
|
(1,072 |
) |
|
|
– |
|
|
|
(89 |
) |
|
|
(1,200 |
) |
Impairment charge for the year (iv) |
|
|
– |
|
|
|
(20 |
) |
|
|
– |
|
|
|
– |
|
|
|
(20 |
) |
Disposals |
|
|
9 |
|
|
|
228 |
|
|
|
– |
|
|
|
19 |
|
|
|
256 |
|
Reclassified as held for sale |
|
|
5 |
|
|
|
78 |
|
|
|
– |
|
|
|
1 |
|
|
|
84 |
|
Reclassifications (i) |
|
|
(108 |
) |
|
|
92 |
|
|
|
– |
|
|
|
16 |
|
|
|
– |
|
|
Depreciation at 31 March 2011 |
|
|
(409 |
) |
|
|
(13,100 |
) |
|
|
(2 |
) |
|
|
(658 |
) |
|
|
(14,169 |
) |
|
Net book value at 31 March 2011 |
|
|
1,349 |
|
|
|
27,798 |
|
|
|
2,415 |
|
|
|
394 |
|
|
|
31,956 |
|
|
Net book value at 31 March 2010 |
|
|
1,289 |
|
|
|
26,606 |
|
|
|
2,539 |
|
|
|
421 |
|
|
|
30,855 |
|
|
|
|
(i) |
Primarily represents reclassifications between categories, other intangible assets, trade
and other receivables and other payables. |
|
(ii) |
Includes amounts in respect of capitalised depreciation of £18m (2010: £17m). |
|
(iii) |
Relates to write-down of the liquefied natural gas (LNG) storage facilities. |
|
(iv) |
Relates to
write-down of certain of our US generation assets. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
£m |
|
|
£m |
|
|
Information in relation to property, plant and equipment |
|
|
|
|
|
|
|
|
Capitalised interest included within cost |
|
|
1,023 |
|
|
|
903 |
|
Net book value of assets held under finance leases |
|
|
199 |
|
|
|
202 |
|
Additions to assets held under finance leases |
|
|
68 |
|
|
|
13 |
|
Contributions to cost of property, plant and equipment included within: |
|
|
|
|
|
|
|
|
Trade and other payables |
|
|
40 |
|
|
|
39 |
|
Non-current liabilities |
|
|
1,476 |
|
|
|
1,478 |
|
|
138 National Grid plc | Annual Report and Accounts 2010/11
12. Other non-current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
£m |
|
|
£m |
|
|
Commodity contract assets |
|
|
94 |
|
|
|
84 |
|
Other receivables |
|
|
37 |
|
|
|
71 |
|
Prepayments |
|
|
4 |
|
|
|
7 |
|
|
|
|
|
135 |
|
|
|
162 |
|
|
There is no material difference between the fair value and the carrying value of other
non-current assets.
13. Financial and other investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
£m |
|
|
£m |
|
|
Non-current |
|
|
|
|
|
|
|
|
Available-for-sale investments |
|
|
237 |
|
|
|
236 |
|
Investments in joint ventures and associates (note 13a) |
|
|
356 |
|
|
|
250 |
|
|
|
|
|
593 |
|
|
|
486 |
|
|
Current |
|
|
|
|
|
|
|
|
Available-for-sale investments |
|
|
2,776 |
|
|
|
1,285 |
|
Loans and receivables |
|
|
163 |
|
|
|
112 |
|
|
|
|
|
2,939 |
|
|
|
1,397 |
|
|
Total financial and other investments |
|
|
3,532 |
|
|
|
1,883 |
|
|
Financial and other investments include the following: |
|
|
|
|
|
|
|
|
Investments in short-term money funds |
|
|
2,498 |
|
|
|
1,000 |
|
Managed investments in equity and bonds (i) |
|
|
388 |
|
|
|
385 |
|
Investment in joint ventures and associates (note 13a) |
|
|
356 |
|
|
|
250 |
|
Cash surrender value of life insurance policies |
|
|
127 |
|
|
|
126 |
|
Other investments |
|
|
2 |
|
|
|
7 |
|
Restricted cash balances |
|
|
|
|
|
|
|
|
Collateral |
|
|
96 |
|
|
|
58 |
|
Other |
|
|
65 |
|
|
|
57 |
|
|
|
|
|
3,532 |
|
|
|
1,883 |
|
|
|
|
(i) |
Includes £282m of current investments which are held by insurance captives and are
therefore restricted. |
Available-for-sale investments are recorded at fair value. Due to their short maturities the
carrying value of loans and receivables approximates their fair value. The maximum exposure to
credit risk at the reporting date is the fair value of the financial investments. For further
information on our treasury related credit risk, refer to note 32(c). None of the financial
investments are past due or impaired.
(a) Investments in joint ventures and associates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
£m |
|
|
£m |
|
|
Share of net assets at 1 April |
|
|
250 |
|
|
|
168 |
|
Exchange adjustments |
|
|
5 |
|
|
|
(7 |
) |
Additions |
|
|
135 |
|
|
|
86 |
|
Share of retained profit for the year |
|
|
7 |
|
|
|
8 |
|
Dividends received |
|
|
(9 |
) |
|
|
(18 |
) |
Share of other comprehensive income |
|
|
(7 |
) |
|
|
9 |
|
Impairment charge (note 3) |
|
|
(29 |
) |
|
|
– |
|
Other movements |
|
|
4 |
|
|
|
4 |
|
|
Share of net assets at 31 March |
|
|
356 |
|
|
|
250 |
|
|
A list of principal joint ventures and associates is provided in note 36.
Annual Report and Accounts 2010/11 | National Grid plc 139
Financial Statements
Notes to the consolidated financial statements continued
14. Derivative financial instruments
Our use of derivatives may entail a derivative transaction qualifying for one or more hedge
type designations under IAS 39. For further information and a detailed description of our
derivative financial instruments and hedge type designations, refer to note 31. The fair value
amounts by designated hedge type can be analysed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
2010 |
|
|
Assets |
|
|
Liabilities |
|
|
Total |
|
|
Assets |
|
|
Liabilities |
|
|
Total |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
Fair value hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
|
99 |
|
|
|
(9 |
) |
|
|
90 |
|
|
|
128 |
|
|
|
(4 |
) |
|
|
124 |
|
Cross-currency interest rate swaps |
|
|
450 |
|
|
|
(4 |
) |
|
|
446 |
|
|
|
589 |
|
|
|
(20 |
) |
|
|
569 |
|
|
|
|
|
549 |
|
|
|
(13 |
) |
|
|
536 |
|
|
|
717 |
|
|
|
(24 |
) |
|
|
693 |
|
|
Cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
|
6 |
|
|
|
(50 |
) |
|
|
(44 |
) |
|
|
2 |
|
|
|
(112 |
) |
|
|
(110 |
) |
Cross-currency interest rate swaps |
|
|
685 |
|
|
|
(28 |
) |
|
|
657 |
|
|
|
924 |
|
|
|
(16 |
) |
|
|
908 |
|
Foreign exchange forward contracts |
|
|
2 |
|
|
|
(1 |
) |
|
|
1 |
|
|
|
2 |
|
|
|
– |
|
|
|
2 |
|
|
|
|
|
693 |
|
|
|
(79 |
) |
|
|
614 |
|
|
|
928 |
|
|
|
(128 |
) |
|
|
800 |
|
|
Net investment hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross-currency interest rate swaps |
|
|
179 |
|
|
|
(329 |
) |
|
|
(150 |
) |
|
|
135 |
|
|
|
(660 |
) |
|
|
(525 |
) |
Foreign exchange forward contracts |
|
|
26 |
|
|
|
(4 |
) |
|
|
22 |
|
|
|
5 |
|
|
|
(42 |
) |
|
|
(37 |
) |
|
|
|
|
205 |
|
|
|
(333 |
) |
|
|
(128 |
) |
|
|
140 |
|
|
|
(702 |
) |
|
|
(562 |
) |
|
Derivatives not in a formal hedge relationship |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
|
339 |
|
|
|
(258 |
) |
|
|
81 |
|
|
|
200 |
|
|
|
(233 |
) |
|
|
(33 |
) |
Cross-currency interest rate swaps |
|
|
50 |
|
|
|
(4 |
) |
|
|
46 |
|
|
|
58 |
|
|
|
(1 |
) |
|
|
57 |
|
Foreign exchange forward contracts |
|
|
19 |
|
|
|
(4 |
) |
|
|
15 |
|
|
|
3 |
|
|
|
(43 |
) |
|
|
(40 |
) |
Forward rate agreements |
|
|
– |
|
|
|
(20 |
) |
|
|
(20 |
) |
|
|
– |
|
|
|
(47 |
) |
|
|
(47 |
) |
|
|
|
|
408 |
|
|
|
(286 |
) |
|
|
122 |
|
|
|
261 |
|
|
|
(324 |
) |
|
|
(63 |
) |
|
|
|
|
1,855 |
|
|
|
(711 |
) |
|
|
1,144 |
|
|
|
2,046 |
|
|
|
(1,178 |
) |
|
|
868 |
|
|
Hedge positions offset within derivative instruments |
|
|
(117 |
) |
|
|
117 |
|
|
|
– |
|
|
|
(304 |
) |
|
|
304 |
|
|
|
– |
|
|
Total |
|
|
1,738 |
|
|
|
(594 |
) |
|
|
1,144 |
|
|
|
1,742 |
|
|
|
(874 |
) |
|
|
868 |
|
|
The maturity of derivative financial instruments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
2010 |
|
|
Assets |
|
|
Liabilities |
|
|
Total |
|
|
Assets |
|
|
Liabilities |
|
|
Total |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
Less than 1 year |
|
|
468 |
|
|
|
(190 |
) |
|
|
278 |
|
|
|
248 |
|
|
|
(212 |
) |
|
|
36 |
|
|
Current |
|
|
468 |
|
|
|
(190 |
) |
|
|
278 |
|
|
|
248 |
|
|
|
(212 |
) |
|
|
36 |
|
|
In 1 – 2 years |
|
|
129 |
|
|
|
(45 |
) |
|
|
84 |
|
|
|
278 |
|
|
|
(174 |
) |
|
|
104 |
|
In 2 – 3 years |
|
|
167 |
|
|
|
(37 |
) |
|
|
130 |
|
|
|
152 |
|
|
|
(69 |
) |
|
|
83 |
|
In 3 – 4 years |
|
|
96 |
|
|
|
(28 |
) |
|
|
68 |
|
|
|
240 |
|
|
|
(106 |
) |
|
|
134 |
|
In 4 – 5 years |
|
|
66 |
|
|
|
(2 |
) |
|
|
64 |
|
|
|
57 |
|
|
|
(14 |
) |
|
|
43 |
|
More than 5 years |
|
|
812 |
|
|
|
(292 |
) |
|
|
520 |
|
|
|
767 |
|
|
|
(299 |
) |
|
|
468 |
|
|
Non-current |
|
|
1,270 |
|
|
|
(404 |
) |
|
|
866 |
|
|
|
1,494 |
|
|
|
(662 |
) |
|
|
832 |
|
|
|
|
|
1,738 |
|
|
|
(594 |
) |
|
|
1,144 |
|
|
|
1,742 |
|
|
|
(874 |
) |
|
|
868 |
|
|
For each class of derivative the notional contract* amounts are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
£m |
|
|
£m |
|
|
Interest rate swaps |
|
|
(19,217 |
) |
|
|
(13,320 |
) |
Cross-currency interest rate swaps |
|
|
(7,585 |
) |
|
|
(9,528 |
) |
Foreign exchange forward contracts |
|
|
(4,028 |
) |
|
|
(1,989 |
) |
Forward rate agreements |
|
|
(13,752 |
) |
|
|
(10,454 |
) |
Other |
|
|
(314 |
) |
|
|
(314 |
) |
|
Total |
|
|
(44,896 |
) |
|
|
(35,605 |
) |
|
|
|
*The notional contract amounts of derivatives indicate the gross nominal value of
transactions outstanding at the balance sheet date |
140 National Grid plc | Annual Report and Accounts 2010/11
15. Inventories and current intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
£m |
|
|
£m |
|
|
Fuel stocks |
|
|
114 |
|
|
|
198 |
|
Raw materials and consumables |
|
|
152 |
|
|
|
162 |
|
Work in progress |
|
|
12 |
|
|
|
12 |
|
Current intangible assets – emission allowances |
|
|
42 |
|
|
|
35 |
|
|
|
|
|
320 |
|
|
|
407 |
|
|
A provision for obsolescence of £22m has been made against raw materials and consumables as
at 31 March 2011 (2010: £19m).
16. Trade and other receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
£m |
|
|
£m |
|
|
Trade receivables |
|
|
1,163 |
|
|
|
1,296 |
|
Prepayments and accrued income |
|
|
999 |
|
|
|
937 |
|
Commodity contract assets |
|
|
16 |
|
|
|
21 |
|
Other receivables |
|
|
34 |
|
|
|
39 |
|
|
|
|
|
2,212 |
|
|
|
2,293 |
|
|
Trade receivables are non interest-bearing and generally have a 30-90 day term. Due to their
short maturities, the fair value of trade and other receivables approximates their book value.
Commodity contract assets are recorded at fair value. All other receivables are recorded at
amortised cost.
Provision for impairment of receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
£m |
|
|
£m |
|
|
At 1 April |
|
|
311 |
|
|
|
303 |
|
Exchange adjustments |
|
|
(16 |
) |
|
|
(15 |
) |
Charge for the year, net of recoveries |
|
|
112 |
|
|
|
161 |
|
Uncollectible amounts written off against receivables |
|
|
(124 |
) |
|
|
(138 |
) |
|
At 31 March |
|
|
283 |
|
|
|
311 |
|
|
Trade receivables past due but not impaired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
£m |
|
|
£m |
|
|
Up to 3 months past due |
|
|
136 |
|
|
|
111 |
|
3 to 6 months past due |
|
|
34 |
|
|
|
35 |
|
Over 6 months past due |
|
|
74 |
|
|
|
102 |
|
|
|
|
|
244 |
|
|
|
248 |
|
|
For further information on our wholesale and retail credit risk, refer to note 32(c). For
further information on our commodity risk, refer to note 33.
Annual Report and Accounts 2010/11 | National Grid plc 141
Financial Statements
Notes to the consolidated financial statements continued
17. Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
£m |
|
|
£m |
|
|
Cash at bank |
|
|
94 |
|
|
|
136 |
|
Short-term deposits |
|
|
290 |
|
|
|
584 |
|
|
Cash and cash equivalents excluding bank overdrafts |
|
|
384 |
|
|
|
720 |
|
Bank overdrafts |
|
|
(42 |
) |
|
|
(29 |
) |
|
Net cash and cash equivalents |
|
|
342 |
|
|
|
691 |
|
|
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 32(a)(i).
At 31 March 2011, £50m (2010: £59m) of cash and cash equivalents were restricted. This primarily
relates to cash held in insurance captive companies.
18. Businesses classified as held for sale
During the year, our EnergyNorth gas business and Granite State electricity business in New
Hampshire were reclassified as businesses held for sale in the expectation that they will be
disposed of during the year ending 31 March 2012. The following table shows the assets and
liabilities related to businesses held for sale at 31 March 2011. There were no businesses held for
sale at 31 March 2010.
The results of these businesses have not been separately disclosed from those of continuing
operations as they do not constitute a separate major line of business or geographical area of
National Grid’s operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
|
£m |
|
|
Goodwill |
|
|
12 |
|
Other intangible assets |
|
|
1 |
|
Property, plant and equipment |
|
|
203 |
|
Other receivables |
|
|
40 |
|
|
Non-current assets |
|
|
256 |
|
|
Inventories |
|
|
5 |
|
Trade and other receivables |
|
|
29 |
|
|
Current assets |
|
|
34 |
|
|
Assets of businesses held for sale |
|
|
290 |
|
|
|
|
|
|
|
Trade and other payables |
|
|
(17 |
) |
|
Current liabilities |
|
|
(17 |
) |
|
Borrowings |
|
|
(9 |
) |
Other non-current liabilities |
|
|
(6 |
) |
Deferred tax liabilities |
|
|
(29 |
) |
Pensions and other post-retirement benefit obligations |
|
|
(9 |
) |
Provisions |
|
|
(40 |
) |
|
Non-current liabilities |
|
|
(93 |
) |
|
Liabilities of businesses held for sale |
|
|
(110 |
) |
|
142 National Grid plc | Annual Report and Accounts 2010/11
19. Borrowings
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
£m |
|
|
£m |
|
|
Current |
|
|
|
|
|
|
|
|
Bank loans |
|
|
831 |
|
|
|
890 |
|
Bonds |
|
|
1,595 |
|
|
|
1,730 |
|
Commercial paper |
|
|
457 |
|
|
|
121 |
|
Finance leases |
|
|
20 |
|
|
|
29 |
|
Other loans |
|
|
7 |
|
|
|
7 |
|
Bank overdrafts |
|
|
42 |
|
|
|
29 |
|
|
|
|
|
2,952 |
|
|
|
2,806 |
|
|
Non-current |
|
|
|
|
|
|
|
|
Bank loans |
|
|
2,118 |
|
|
|
2,163 |
|
Bonds |
|
|
17,787 |
|
|
|
19,835 |
|
Finance leases |
|
|
182 |
|
|
|
173 |
|
Other loans |
|
|
159 |
|
|
|
147 |
|
|
|
|
|
20,246 |
|
|
|
22,318 |
|
|
Total |
|
|
23,198 |
|
|
|
25,124 |
|
|
Total borrowings are repayable as follows:
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
£m |
|
|
£m |
|
|
In one year or less |
|
|
2,952 |
|
|
|
2,806 |
|
1-2 years |
|
|
1,225 |
|
|
|
2,146 |
|
2-3 years |
|
|
1,610 |
|
|
|
1,356 |
|
3-4 years |
|
|
1,766 |
|
|
|
1,890 |
|
4-5 years |
|
|
424 |
|
|
|
1,862 |
|
In more than 5 years: |
|
|
|
|
|
|
|
|
by instalments |
|
|
77 |
|
|
|
22 |
|
other than by instalments |
|
|
15,144 |
|
|
|
15,042 |
|
|
|
|
|
23,198 |
|
|
|
25,124 |
|
|
The fair value of borrowings at 31 March 2011 was £24,182m (2010: £26,196m). Market values,
where available, have been used to determine fair value. Where market values are not available,
fair values have been calculated by discounting cash flows at prevailing interest rates. The
notional amount outstanding of the debt portfolio at 31 March 2011 was £23,035m (2010: £25,011m).
Charges over property, plant and other assets were provided as collateral over borrowings totalling
£486m at 31 March 2011 (2010: £515m).
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 £551m (2010: £501m) in respect of cash received under collateral agreements.
Finance lease obligations
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
£m |
|
|
£m |
|
|
Gross finance lease liabilities are repayable as follows: |
|
|
|
|
|
|
|
|
Less than 1 year |
|
|
20 |
|
|
|
30 |
|
1-5 years |
|
|
123 |
|
|
|
107 |
|
More than 5 years |
|
|
105 |
|
|
|
135 |
|
|
|
|
|
248 |
|
|
|
272 |
|
|
Less: finance charges allocated to future periods |
|
|
(46 |
) |
|
|
(70 |
) |
|
|
|
|
202 |
|
|
|
202 |
|
|
The present value of finance lease liabilities is as follows: |
|
|
|
|
|
|
|
|
Less than 1 year |
|
|
20 |
|
|
|
29 |
|
1-5 years |
|
|
104 |
|
|
|
86 |
|
More than 5 years |
|
|
78 |
|
|
|
87 |
|
|
|
|
|
202 |
|
|
|
202 |
|
|
For further details of our bonds in issue and borrowing facilities, refer to note 34.
Annual Report and Accounts 2010/11 | National Grid plc 143
Financial Statements
Notes to the consolidated financial statements continued
20. Trade and other payables
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
£m |
|
|
£m |
|
|
Trade payables |
|
|
1,720 |
|
|
|
1,702 |
|
Deferred income |
|
|
261 |
|
|
|
244 |
|
Commodity contract liabilities |
|
|
118 |
|
|
|
184 |
|
Social security and other taxes |
|
|
129 |
|
|
|
132 |
|
Other payables |
|
|
600 |
|
|
|
585 |
|
|
|
|
|
2,828 |
|
|
|
2,847 |
|
|
Due to their short maturities, the fair value of trade and other payables approximates their
book value. Commodity contract liabilities are recorded at fair value. All other trade and other
payables are recorded at amortised cost.
21. Other non-current liabilities
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
£m |
|
|
£m |
|
|
Deferred income |
|
|
1,564 |
|
|
|
1,566 |
|
Commodity contract liabilities |
|
|
101 |
|
|
|
143 |
|
Other payables |
|
|
279 |
|
|
|
265 |
|
|
|
|
|
1,944 |
|
|
|
1,974 |
|
|
Commodity contract liabilities are recorded at fair value. All other non-current liabilities
are recorded at amortised cost. There is no material difference between the fair value and the
carrying value of other non-current liabilities.
144 National Grid plc | Annual Report and Accounts 2010/11
22. Deferred tax assets and liabilities
The following are the major deferred tax assets and liabilities recognised, and the movements
thereon, during the current and prior reporting periods:
Deferred tax (assets)/liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pensions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated |
|
|
Share- |
|
|
post- |
|
|
|
|
|
|
Other net |
|
|
|
|
|
|
tax |
|
|
based |
|
|
retirement |
|
|
Financial |
|
|
temporary |
|
|
|
|
|
|
depreciation |
|
|
payments |
|
|
benefits |
|
|
instruments |
|
|
differences |
|
|
Total |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
Deferred tax assets at 31 March 2009 |
|
|
(2 |
) |
|
|
(13 |
) |
|
|
(1,457 |
) |
|
|
(33 |
) |
|
|
(504 |
) |
|
|
(2,009 |
) |
Deferred tax liabilities at 31 March 2009 |
|
|
4,299 |
|
|
|
– |
|
|
|
69 |
|
|
|
29 |
|
|
|
136 |
|
|
|
4,533 |
|
|
At 1 April 2009 |
|
|
4,297 |
|
|
|
(13 |
) |
|
|
(1,388 |
) |
|
|
(4 |
) |
|
|
(368 |
) |
|
|
2,524 |
|
Exchange adjustments |
|
|
(54 |
) |
|
|
– |
|
|
|
84 |
|
|
|
(3 |
) |
|
|
13 |
|
|
|
40 |
|
Charged/(credited) to income statement |
|
|
1,129 |
|
|
|
1 |
|
|
|
154 |
|
|
|
(42 |
) |
|
|
(314 |
) |
|
|
928 |
|
Credited to equity |
|
|
– |
|
|
|
– |
|
|
|
(175 |
) |
|
|
– |
|
|
|
– |
|
|
|
(175 |
) |
Other |
|
|
(285 |
) |
|
|
– |
|
|
|
180 |
|
|
|
(42 |
) |
|
|
154 |
|
|
|
7 |
|
|
At 31 March 2010 |
|
|
5,087 |
|
|
|
(12 |
) |
|
|
(1,145 |
) |
|
|
(91 |
) |
|
|
(515 |
) |
|
|
3,324 |
|
|
Deferred tax assets at 31 March 2010 |
|
|
(2 |
) |
|
|
(12 |
) |
|
|
(1,235 |
) |
|
|
(103 |
) |
|
|
(657 |
) |
|
|
(2,009 |
) |
Deferred tax liabilities at 31 March 2010 |
|
|
5,089 |
|
|
|
– |
|
|
|
90 |
|
|
|
12 |
|
|
|
142 |
|
|
|
5,333 |
|
|
At 1 April 2010 |
|
|
5,087 |
|
|
|
(12 |
) |
|
|
(1,145 |
) |
|
|
(91 |
) |
|
|
(515 |
) |
|
|
3,324 |
|
Exchange adjustments |
|
|
(122 |
) |
|
|
– |
|
|
|
49 |
|
|
|
4 |
|
|
|
29 |
|
|
|
(40 |
) |
Charged/(credited) to income statement |
|
|
251 |
|
|
|
(2 |
) |
|
|
137 |
|
|
|
32 |
|
|
|
(67 |
) |
|
|
351 |
|
(Credited)/charged to equity |
|
|
– |
|
|
|
(4 |
) |
|
|
181 |
|
|
|
1 |
|
|
|
– |
|
|
|
178 |
|
Reclassified as held for sale |
|
|
(31 |
) |
|
|
– |
|
|
|
5 |
|
|
|
– |
|
|
|
(3 |
) |
|
|
(29 |
) |
Other |
|
|
(1 |
) |
|
|
– |
|
|
|
2 |
|
|
|
– |
|
|
|
(19 |
) |
|
|
(18 |
) |
|
At 31 March 2011 |
|
|
5,184 |
|
|
|
(18 |
) |
|
|
(771 |
) |
|
|
(54 |
) |
|
|
(575 |
) |
|
|
3,766 |
|
|
Deferred tax assets at 31 March 2011 |
|
|
(2 |
) |
|
|
(18 |
) |
|
|
(882 |
) |
|
|
(60 |
) |
|
|
(706 |
) |
|
|
(1,668 |
) |
Deferred tax liabilities at 31 March 2011 |
|
|
5,186 |
|
|
|
– |
|
|
|
111 |
|
|
|
6 |
|
|
|
131 |
|
|
|
5,434 |
|
|
|
|
|
5,184 |
|
|
|
(18 |
) |
|
|
(771 |
) |
|
|
(54 |
) |
|
|
(575 |
) |
|
|
3,766 |
|
|
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 following is an analysis
of the deferred tax balances (after offset) for balance sheet purposes:
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
£m |
|
|
£m |
|
|
Deferred tax liabilities |
|
|
3,766 |
|
|
|
3,324 |
|
Deferred tax assets |
|
|
– |
|
|
|
– |
|
|
|
|
|
3,766 |
|
|
|
3,324 |
|
|
At the balance sheet date there were no material current deferred tax assets or liabilities
(2010: £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:
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
£m |
|
|
£m |
|
|
Capital losses |
|
|
368 |
|
|
|
401 |
|
Non-trade deficits |
|
|
2 |
|
|
|
2 |
|
Trading losses |
|
|
7 |
|
|
|
2 |
|
|
The capital losses and non-trade deficits arise in the UK and 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
arise in the UK and the US and are also available to carry forward indefinitely.
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
balance sheet date is approximately £1,837m (2010: £1,495m). 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.
Annual Report and Accounts 2010/11 | National Grid plc 145
Financial Statements
Notes to the consolidated financial statements continued
23. Pensions and other post-retirement benefits
Substantially all National Grid’s employees are members of either defined benefit or defined
contribution pension plans.
In the UK the principal schemes are the National Grid UK Pension Scheme and the National Grid
section of the Electricity Supply Pension Scheme. In the US we have a number of plans and also
provide healthcare and life insurance benefits to eligible retired US employees. The fair value of
plan assets and present value of defined benefit obligations are updated annually. For further
details of each scheme/plan’s terms and the actuarial assumptions used to value the associated
assets and obligations, see note 30.
Amounts recognised in the income statement and statement of other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pensions |
|
US other post-retirement benefits |
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
Included within payroll costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined contribution scheme costs |
|
|
11 |
|
|
|
7 |
|
|
|
5 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
Defined benefit scheme costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current service cost |
|
|
165 |
|
|
|
112 |
|
|
|
134 |
|
|
|
37 |
|
|
|
26 |
|
|
|
32 |
|
Past service cost |
|
|
28 |
|
|
|
19 |
|
|
|
– |
|
|
|
3 |
|
|
|
6 |
|
|
|
7 |
|
Curtailment gain on redundancies |
|
|
(4 |
) |
|
|
(7 |
) |
|
|
(4 |
) |
|
|
(29 |
) |
|
|
– |
|
|
|
– |
|
Special termination benefits on redundancies |
|
|
6 |
|
|
|
26 |
|
|
|
19 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
Curtailment cost – augmentations |
|
|
2 |
|
|
|
4 |
|
|
|
6 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
US healthcare reform cost |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
9 |
|
|
|
– |
|
|
|
|
|
208 |
|
|
|
161 |
|
|
|
160 |
|
|
|
11 |
|
|
|
41 |
|
|
|
39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on sale of subsidiary undertaking |
|
|
2 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost |
|
|
1,084 |
|
|
|
1,050 |
|
|
|
1,106 |
|
|
|
147 |
|
|
|
143 |
|
|
|
144 |
|
Expected return on plan assets |
|
|
(1,185 |
) |
|
|
(931 |
) |
|
|
(1,163 |
) |
|
|
(71 |
) |
|
|
(50 |
) |
|
|
(73 |
) |
|
|
|
|
(101 |
) |
|
|
119 |
|
|
|
(57 |
) |
|
|
76 |
|
|
|
93 |
|
|
|
71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included within other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial net gain/(loss) during the year |
|
|
483 |
|
|
|
(572 |
) |
|
|
(1,906 |
) |
|
|
88 |
|
|
|
(159 |
) |
|
|
(112 |
) |
Exchange differences |
|
|
38 |
|
|
|
64 |
|
|
|
(141 |
) |
|
|
87 |
|
|
|
76 |
|
|
|
(408 |
) |
|
|
|
|
521 |
|
|
|
(508 |
) |
|
|
(2,047 |
) |
|
|
175 |
|
|
|
(83 |
) |
|
|
(520 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative actuarial loss |
|
|
(673 |
) |
|
|
(1,156 |
) |
|
|
(584 |
) |
|
|
(274 |
) |
|
|
(362 |
) |
|
|
(203 |
) |
|
Amounts recognised in the balance sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pensions |
|
US other post-retirement benefits |
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
Present value of funded obligations |
|
|
(19,255 |
) |
|
|
(19,372 |
) |
|
|
(15,797 |
) |
|
|
(2,458 |
) |
|
|
(2,602 |
) |
|
|
(2,299 |
) |
Fair value of plan assets |
|
|
18,903 |
|
|
|
18,186 |
|
|
|
14,797 |
|
|
|
1,066 |
|
|
|
950 |
|
|
|
722 |
|
|
|
|
|
(352 |
) |
|
|
(1,186 |
) |
|
|
(1,000 |
) |
|
|
(1,392 |
) |
|
|
(1,652 |
) |
|
|
(1,577 |
) |
|
Present value of unfunded obligations |
|
|
(225 |
) |
|
|
(226 |
) |
|
|
(203 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
Other post-employment liabilities |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(62 |
) |
|
|
(62 |
) |
|
|
(74 |
) |
Unrecognised past service cost |
|
|
4 |
|
|
|
– |
|
|
|
– |
|
|
|
9 |
|
|
|
28 |
|
|
|
43 |
|
|
Net liability in the balance sheet |
|
|
(573 |
) |
|
|
(1,412 |
) |
|
|
(1,203 |
) |
|
|
(1,445 |
) |
|
|
(1,686 |
) |
|
|
(1,608 |
) |
|
Liabilities |
|
|
(1,129 |
) |
|
|
(1,412 |
) |
|
|
(1,472 |
) |
|
|
(1,445 |
) |
|
|
(1,686 |
) |
|
|
(1,608 |
) |
Assets |
|
|
556 |
|
|
|
– |
|
|
|
269 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
Net liability |
|
|
(573 |
) |
|
|
(1,412 |
) |
|
|
(1,203 |
) |
|
|
(1,445 |
) |
|
|
(1,686 |
) |
|
|
(1,608 |
) |
|
146 National Grid plc | Annual Report and Accounts 2010/11
23. Pensions and other post-retirement benefits continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pensions |
|
US other post-retirement benefits |
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
Changes in the present value of the defined benefit obligations
(including unfunded obligations) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening defined benefit obligations |
|
|
(19,598 |
) |
|
|
(16,000 |
) |
|
|
(16,391 |
) |
|
|
(2,602 |
) |
|
|
(2,299 |
) |
|
|
(1,784 |
) |
Current service cost |
|
|
(165 |
) |
|
|
(112 |
) |
|
|
(136 |
) |
|
|
(37 |
) |
|
|
(26 |
) |
|
|
(32 |
) |
Interest cost |
|
|
(1,084 |
) |
|
|
(1,050 |
) |
|
|
(1,106 |
) |
|
|
(147 |
) |
|
|
(143 |
) |
|
|
(144 |
) |
Actuarial gains/(losses) |
|
|
185 |
|
|
|
(3,563 |
) |
|
|
1,719 |
|
|
|
28 |
|
|
|
(360 |
) |
|
|
215 |
|
Curtailment gain on redundancies |
|
|
10 |
|
|
|
7 |
|
|
|
4 |
|
|
|
29 |
|
|
|
– |
|
|
|
– |
|
Transfers in/(out) |
|
|
1 |
|
|
|
(3 |
) |
|
|
3 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
Special termination benefits |
|
|
(17 |
) |
|
|
(26 |
) |
|
|
(19 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
Curtailment cost – augmentations |
|
|
(2 |
) |
|
|
(4 |
) |
|
|
(6 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
Plan amendments |
|
|
(28 |
) |
|
|
(19 |
) |
|
|
– |
|
|
|
14 |
|
|
|
9 |
|
|
|
– |
|
Plan amendments – US healthcare reform |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(9 |
) |
|
|
– |
|
Medicare subsidy received |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(5 |
) |
|
|
(10 |
) |
|
|
– |
|
Employee contributions |
|
|
(3 |
) |
|
|
(10 |
) |
|
|
(13 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
Benefits paid |
|
|
985 |
|
|
|
1,008 |
|
|
|
1,003 |
|
|
|
117 |
|
|
|
132 |
|
|
|
116 |
|
Transferred to liabilities of businesses held for sale |
|
|
7 |
|
|
|
– |
|
|
|
– |
|
|
|
2 |
|
|
|
– |
|
|
|
– |
|
Exchange adjustments |
|
|
229 |
|
|
|
174 |
|
|
|
(1,058 |
) |
|
|
143 |
|
|
|
104 |
|
|
|
(670 |
) |
|
Closing defined benefit obligations |
|
|
(19,480 |
) |
|
|
(19,598 |
) |
|
|
(16,000 |
) |
|
|
(2,458 |
) |
|
|
(2,602 |
) |
|
|
(2,299 |
) |
|
Changes in the fair value of plan assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening fair value of plan assets |
|
|
18,186 |
|
|
|
14,797 |
|
|
|
16,536 |
|
|
|
950 |
|
|
|
722 |
|
|
|
737 |
|
Expected return on plan assets |
|
|
1,185 |
|
|
|
931 |
|
|
|
1,163 |
|
|
|
71 |
|
|
|
50 |
|
|
|
73 |
|
Actuarial gains/(losses) |
|
|
298 |
|
|
|
2,991 |
|
|
|
(3,625 |
) |
|
|
60 |
|
|
|
201 |
|
|
|
(327 |
) |
Transfers (out)/in |
|
|
(1 |
) |
|
|
3 |
|
|
|
(3 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
Employer contributions |
|
|
408 |
|
|
|
572 |
|
|
|
799 |
|
|
|
158 |
|
|
|
137 |
|
|
|
93 |
|
Employee contributions |
|
|
3 |
|
|
|
10 |
|
|
|
13 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
Benefits paid |
|
|
(985 |
) |
|
|
(1,008 |
) |
|
|
(1,003 |
) |
|
|
(117 |
) |
|
|
(132 |
) |
|
|
(116 |
) |
Exchange adjustments |
|
|
(191 |
) |
|
|
(110 |
) |
|
|
917 |
|
|
|
(56 |
) |
|
|
(28 |
) |
|
|
262 |
|
|
Closing fair value of plan assets |
|
|
18,903 |
|
|
|
18,186 |
|
|
|
14,797 |
|
|
|
1,066 |
|
|
|
950 |
|
|
|
722 |
|
|
Actual return on plan assets |
|
|
1,483 |
|
|
|
3,922 |
|
|
|
(2,462 |
) |
|
|
131 |
|
|
|
251 |
|
|
|
(254 |
) |
|
Expected contributions to plans in the following year |
|
|
353 |
|
|
|
353 |
|
|
|
552 |
|
|
|
200 |
|
|
|
148 |
|
|
|
123 |
|
|
Annual Report and Accounts 2010/11 | National Grid plc 147
Financial Statements
Notes to the consolidated financial statements continued
24. Provisions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Environ- |
|
|
Decom- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
mental |
|
|
missioning |
|
|
Restructuring |
|
|
Emissions |
|
|
Other |
|
|
provisions |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
At 31 March 2009 |
|
|
1,104 |
|
|
|
108 |
|
|
|
100 |
|
|
|
25 |
|
|
|
362 |
|
|
|
1,699 |
|
Exchange adjustments |
|
|
(46 |
) |
|
|
(9 |
) |
|
|
– |
|
|
|
(1 |
) |
|
|
(12 |
) |
|
|
(68 |
) |
Additions |
|
|
85 |
|
|
|
5 |
|
|
|
36 |
|
|
|
4 |
|
|
|
16 |
|
|
|
146 |
|
Reclassifications* |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
70 |
|
|
|
70 |
|
Unused amounts reversed |
|
|
(4 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
– |
|
|
|
(2 |
) |
|
|
(8 |
) |
Unwinding of discount |
|
|
54 |
|
|
|
2 |
|
|
|
– |
|
|
|
– |
|
|
|
14 |
|
|
|
70 |
|
Utilised |
|
|
(117 |
) |
|
|
(8 |
) |
|
|
(30 |
) |
|
|
(6 |
) |
|
|
(38 |
) |
|
|
(199 |
) |
|
At 31 March 2010 |
|
|
1,076 |
|
|
|
97 |
|
|
|
105 |
|
|
|
22 |
|
|
|
410 |
|
|
|
1,710 |
|
Exchange adjustments |
|
|
(46 |
) |
|
|
(5 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(16 |
) |
|
|
(69 |
) |
Additions |
|
|
167 |
|
|
|
43 |
|
|
|
87 |
|
|
|
9 |
|
|
|
30 |
|
|
|
336 |
|
Unused amounts reversed |
|
|
(12 |
) |
|
|
(7 |
) |
|
|
(39 |
) |
|
|
(6 |
) |
|
|
(6 |
) |
|
|
(70 |
) |
Reclassified as held for sale |
|
|
(39 |
) |
|
|
(1 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(40 |
) |
Unwinding of discount |
|
|
104 |
|
|
|
2 |
|
|
|
– |
|
|
|
– |
|
|
|
22 |
|
|
|
128 |
|
Utilised |
|
|
(100 |
) |
|
|
(9 |
) |
|
|
(24 |
) |
|
|
– |
|
|
|
(48 |
) |
|
|
(181 |
) |
|
At 31 March 2011 |
|
|
1,150 |
|
|
|
120 |
|
|
|
128 |
|
|
|
24 |
|
|
|
392 |
|
|
|
1,814 |
|
|
|
|
*Primarily represents reclassifications from other non-current liabilities |
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
£m |
|
|
£m |
|
|
Current |
|
|
353 |
|
|
|
303 |
|
Non-current |
|
|
1,461 |
|
|
|
1,407 |
|
|
|
|
|
1,814 |
|
|
|
1,710 |
|
|
Environmental provision
The environmental provision represents the estimated restoration and remediation costs
relating to a number of sites owned and managed by subsidiary undertakings, with the exception of
certain US sites that National Grid no longer owns. The environmental provision is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
2010 |
|
|
Discounted |
|
|
Undiscounted |
|
|
Discounted |
|
|
Undiscounted |
|
|
Real |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
discount rate |
|
UK sites (i) |
|
|
339 |
|
|
| 503 |
|
|
|
263 |
|
|
|
377 |
|
|
|
2.0 |
% |
US sites (ii) |
|
|
811 |
|
|
| 923 |
|
|
|
813 |
|
|
|
942 |
|
|
|
3.2 |
% |
|
|
|
|
1,150 |
|
|
| 1,426 |
|
|
|
1,076 |
|
|
|
1,319 |
|
|
|
|
|
|
|
|
(i) |
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 2011 and 2060. 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 materially impact the calculation of the provision. The undiscounted amount is
the undiscounted best estimate of the liability having regard to these uncertainties. |
|
(ii) |
The remediation expenditure in the US is expected to be incurred between 2011 and 2067. 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 recoverable from ratepayers under the terms of various
rate agreements in the US. |
Decommissioning provision
The decommissioning provision primarily represents the net present value of the estimated
expenditure (discounted at a nominal rate of 6%) expected to be incurred until 2037 in respect of
the decommissioning of certain nuclear generating units that National Grid no longer owns. It also
includes £73m (2010: £46m) of expenditure relating to other asset retirement obligations expected
to be incurred until 2064.
148 National Grid plc | Annual Report and Accounts 2010/11
24. Provisions continued
Restructuring provision
At 31 March 2011, £12m of the total restructuring provision (2010: £24m) consisted of
provisions for the disposal of surplus leasehold interests and rates payable on surplus properties.
The remainder of the restructuring provision, related to business reorganisation costs in the UK
and the US, is expected to be paid until 2015.
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 2011 are amounts provided in respect of onerous
lease commitments of £196m (2010: £214m). Other provisions also included £118m (2010: £127m) 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. Other provisions also included £5m (2010: £6m) in respect of the sales of four UK gas
distribution networks relating to property transfer costs and £20m (2010: £13m) in respect of
obligations associated with investments in joint ventures.
25. Share capital
|
|
|
|
|
|
|
|
|
|
|
Allotted, called up |
|
|
|
and fully paid |
|
Ordinary shares |
|
millions |
|
|
£m |
|
|
At 31 March 2009 |
|
|
2,582 |
|
|
|
294 |
|
Issued during the year in lieu of dividends (i) |
|
|
35 |
|
|
|
4 |
|
|
At 31 March 2010 |
|
|
2,617 |
|
|
|
298 |
|
Rights issue |
|
|
990 |
|
|
|
113 |
|
Issued during the year in lieu of dividends (i) |
|
|
41 |
|
|
|
5 |
|
|
At 31 March 2011 |
|
|
3,648 |
|
|
|
416 |
|
|
|
|
(i) |
The issue of shares in lieu of cash 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 1117/43
pence nominal value each and American Depositary Shares. The ordinary and American Depositary
Shares 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, National Grid plc has adopted new Articles
of Association, deleted the objects provisions of its Memorandum of Association and ceased to have
authorised share capital.
Rights issue
On 14 June 2010, the Company raised £3.2bn (net of expenses of £105m) through a rights issue
of 990m new ordinary shares at 335 pence each on the basis of two new ordinary shares for every
five existing ordinary shares. The issue price represented a discount of 44% to the closing
ex-dividend share price on 20 May 2010, the announcement date of the rights issue.
The structure of the rights issue initially gave rise to a merger reserve under section 612 of the
Companies Act 2006, representing the net proceeds of the rights issue less the nominal value of the
new shares issued. Following the receipt of the cash proceeds through the structure, the excess of
the net proceeds over the nominal value of the share capital issued has been transferred from the
merger reserve to retained earnings.
The discount element inherent in the rights issue is treated as a bonus issue of 353m shares.
Earnings per share data have been restated for all comparative periods presented, by adjusting the
weighted average number of shares to include the impact of the bonus shares. For comparability,
dividends per share are also presented after taking account of the bonus element of the rights
issue, in note 7.
Treasury shares
At 31 March 2011, the Company held 140m (2010: 144m) of its own shares. The market value of
these shares as at 31 March 2011 was £833m (2010: £925m).
The maximum number of shares held during the year was 144m ordinary shares (2010: 154m)
representing approximately 3.9% (2010: 5.9%) of the ordinary shares in issue as at 31 March 2011 and
having a nominal value of £16m (2010: £18m). The shares held in treasury were not entitled to
participate in the rights issue.
Annual Report and Accounts 2010/11 | National Grid plc 149
Financial Statements
Notes to the consolidated financial statements continued
26. Other equity reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow |
|
|
Available- |
|
|
Capital |
|
|
|
|
|
|
|
|
|
Translation |
|
|
hedge |
|
|
for-sale |
|
|
redemption |
|
|
Merger |
|
|
Total |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
At 31 March 2008 |
|
|
(73 |
) |
|
|
(42 |
) |
|
|
9 |
|
|
|
19 |
|
|
|
(5,165 |
) |
|
|
(5,252 |
) |
Exchange adjustments |
|
|
457 |
|
|
|
5 |
|
|
|
(3 |
) |
|
|
– |
|
|
|
– |
|
|
|
459 |
|
Net (losses)/gains taken to equity |
|
|
– |
|
|
|
(1 |
) |
|
|
9 |
|
|
|
– |
|
|
|
– |
|
|
|
8 |
|
Transferred to profit or loss |
|
|
– |
|
|
|
(53 |
) |
|
|
(18 |
) |
|
|
– |
|
|
|
– |
|
|
|
(71 |
) |
Deferred tax |
|
|
– |
|
|
|
19 |
|
|
|
7 |
|
|
|
– |
|
|
|
– |
|
|
|
26 |
|
|
At 31 March 2009 |
|
|
384 |
|
|
|
(72 |
) |
|
|
4 |
|
|
|
19 |
|
|
|
(5,165 |
) |
|
|
(4,830 |
) |
Exchange adjustments |
|
|
30 |
|
|
|
3 |
|
|
|
1 |
|
|
|
– |
|
|
|
– |
|
|
|
34 |
|
Net (losses)/gains taken to equity |
|
|
– |
|
|
|
(45 |
) |
|
|
54 |
|
|
|
– |
|
|
|
– |
|
|
|
9 |
|
Transferred to profit or loss |
|
|
– |
|
|
|
3 |
|
|
|
(6 |
) |
|
|
– |
|
|
|
– |
|
|
|
(3 |
) |
Deferred tax |
|
|
– |
|
|
|
9 |
|
|
|
(5 |
) |
|
|
– |
|
|
|
– |
|
|
|
4 |
|
Share of other comprehensive income of joint ventures |
|
|
– |
|
|
|
5 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
5 |
|
|
At 31 March 2010 |
|
|
414 |
|
|
|
(97 |
) |
|
|
48 |
|
|
|
19 |
|
|
|
(5,165 |
) |
|
|
(4,781 |
) |
Exchange adjustments |
|
|
(95 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(95 |
) |
Net gains taken to equity |
|
|
– |
|
|
|
7 |
|
|
|
16 |
|
|
|
– |
|
|
|
– |
|
|
|
23 |
|
Transferred to profit or loss |
|
|
– |
|
|
|
(7 |
) |
|
|
(3 |
) |
|
|
– |
|
|
|
– |
|
|
|
(10 |
) |
Rights issue (i) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
3,101 |
|
|
|
3,101 |
|
Transfer to retained earnings (i) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(3,101 |
) |
|
|
(3,101 |
) |
Deferred tax |
|
|
– |
|
|
|
(2 |
) |
|
|
(1 |
) |
|
|
– |
|
|
|
– |
|
|
|
(3 |
) |
Share of other comprehensive loss of joint ventures |
|
|
– |
|
|
|
(4 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(4 |
) |
|
At 31 March 2011 |
|
|
319 |
|
|
|
(103 |
) |
|
|
60 |
|
|
|
19 |
|
|
|
(5,165 |
) |
|
|
(4,870 |
) |
|
|
|
(i) |
For details of the rights issue and subsequent transfer to retained earnings see note 25. |
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 £11m and the remainder released with the same maturity profile as
borrowings due after more than one year.
150 National Grid plc | Annual Report and Accounts 2010/11
27. Consolidated cash flow statement
(a) Cash flow from operating activities – discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
Operating profit |
|
|
– |
|
|
|
– |
|
|
|
13 |
|
Changes in working capital, provisions and pensions |
|
|
– |
|
|
|
– |
|
|
|
(21 |
) |
|
Cash flow relating to discontinued operations |
|
|
– |
|
|
|
– |
|
|
|
(8 |
) |
|
(b) Cash flow from investing activities – discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
Disposal proceeds (i) |
|
|
– |
|
|
|
– |
|
|
|
1,617 |
|
Tax arising on disposal |
|
|
– |
|
|
|
– |
|
|
|
(564 |
) |
Other investing activities |
|
|
– |
|
|
|
– |
|
|
|
(4 |
) |
|
Cash flow relating to discontinued operations |
|
|
– |
|
|
|
– |
|
|
|
1,049 |
|
|
|
|
(i) |
Disposal proceeds are in respect of the sale of assets and liabilities classified as held for sale. |
(c) Reconciliation of net cash flow to movement in net debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
(Decrease)/increase in cash and cash equivalents |
|
|
(346 |
) |
|
|
(28 |
) |
|
|
538 |
|
Increase/(decrease) in financial investments |
|
|
1,577 |
|
|
|
(805 |
) |
|
|
(99 |
) |
Decrease/(increase) in borrowings and related derivatives |
|
|
1,763 |
|
|
|
499 |
|
|
|
(1,641 |
) |
Net interest paid on the components of net debt |
|
|
1,011 |
|
|
|
999 |
|
|
|
956 |
|
|
Change in net debt resulting from cash flows |
|
|
4,005 |
|
|
|
665 |
|
|
|
(246 |
) |
Changes in fair value of financial assets and liabilities and exchange movements |
|
|
690 |
|
|
|
865 |
|
|
|
(3,625 |
) |
Net interest charge on the components of net debt |
|
|
(1,228 |
) |
|
|
(996 |
) |
|
|
(1,161 |
) |
Reclassified as held for sale |
|
|
9 |
|
|
|
– |
|
|
|
– |
|
Other non-cash movements |
|
|
(68 |
) |
|
|
– |
|
|
|
– |
|
|
Movement in net debt (net of related derivative financial instruments) in the year |
|
|
3,408 |
|
|
|
534 |
|
|
|
(5,032 |
) |
Net debt (net of related derivative financial instruments) at start of year |
|
|
(22,139 |
) |
|
|
(22,673 |
) |
|
|
(17,641 |
) |
|
Net debt (net of related derivative financial instruments) at end of year |
|
|
(18,731 |
) |
|
|
(22,139 |
) |
|
|
(22,673 |
) |
|
(d) Analysis of changes in net debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
|
|
|
|
|
Net cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and cash |
|
|
Bank |
|
|
and cash |
|
|
Financial |
|
|
|
|
|
|
|
|
|
|
|
|
equivalents |
|
|
overdrafts |
|
|
equivalents |
|
|
investments |
|
|
Borrowings |
|
|
Derivatives |
|
|
Total(i) |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
At 31 March 2008 |
|
|
174 |
|
|
|
(10 |
) |
|
|
164 |
|
|
|
2,095 |
|
|
|
(20,993 |
) |
|
|
1,093 |
|
|
|
(17,641 |
) |
Cash flow |
|
|
545 |
|
|
|
(7 |
) |
|
|
538 |
|
|
|
(184 |
) |
|
|
(1,316 |
) |
|
|
716 |
|
|
|
(246 |
) |
Fair value gains and losses and exchange movements |
|
|
18 |
|
|
|
– |
|
|
|
18 |
|
|
|
207 |
|
|
|
(3,222 |
) |
|
|
(628 |
) |
|
|
(3,625 |
) |
Interest charges |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
79 |
|
|
|
(1,245 |
) |
|
|
5 |
|
|
|
(1,161 |
) |
|
At 31 March 2009 |
|
|
737 |
|
|
|
(17 |
) |
|
|
720 |
|
|
|
2,197 |
|
|
|
(26,776 |
) |
|
|
1,186 |
|
|
|
(22,673 |
) |
Cash flow |
|
|
(16 |
) |
|
|
(12 |
) |
|
|
(28 |
) |
|
|
(826 |
) |
|
|
2,079 |
|
|
|
(560 |
) |
|
|
665 |
|
Fair value gains and losses and exchange movements |
|
|
(1 |
) |
|
|
– |
|
|
|
(1 |
) |
|
|
2 |
|
|
|
644 |
|
|
|
220 |
|
|
|
865 |
|
Interest charges |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
24 |
|
|
|
(1,042 |
) |
|
|
22 |
|
|
|
(996 |
) |
|
At 31 March 2010 |
|
|
720 |
|
|
|
(29 |
) |
|
|
691 |
|
|
|
1,397 |
|
|
|
(25,095 |
) |
|
|
868 |
|
|
|
(22,139 |
) |
Cash flow |
|
|
(333 |
) |
|
|
(13 |
) |
|
|
(346 |
) |
|
|
1,551 |
|
|
|
2,933 |
|
|
|
(133 |
) |
|
|
4,005 |
|
Fair value gains and losses and exchange movements |
|
|
(3 |
) |
|
|
– |
|
|
|
(3 |
) |
|
|
(34 |
) |
|
|
402 |
|
|
|
325 |
|
|
|
690 |
|
Interest charges |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
25 |
|
|
|
(1,337 |
) |
|
|
84 |
|
|
|
(1,228 |
) |
Reclassified as held for sale |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
9 |
|
|
|
– |
|
|
|
9 |
|
Other non-cash movements |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(68 |
) |
|
|
– |
|
|
|
(68 |
) |
|
At 31 March 2011 |
|
|
384 |
|
|
|
(42 |
) |
|
|
342 |
|
|
|
2,939 |
|
|
|
(23,156 |
) |
|
|
1,144 |
|
|
|
(18,731 |
) |
|
Balances at 31 March 2011 comprise: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
1,270 |
|
|
|
1,270 |
|
Current assets |
|
|
384 |
|
|
|
– |
|
|
|
384 |
|
|
|
2,939 |
|
|
|
– |
|
|
|
468 |
|
|
|
3,791 |
|
Current liabilities |
|
|
– |
|
|
|
(42 |
) |
|
|
(42 |
) |
|
|
– |
|
|
|
(2,910 |
) |
|
|
(190 |
) |
|
|
(3,142 |
) |
Non-current liabilities |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(20,246 |
) |
|
|
(404 |
) |
|
|
(20,650 |
) |
|
|
|
|
384 |
|
|
|
(42 |
) |
|
|
342 |
|
|
|
2,939 |
|
|
|
(23,156 |
) |
|
|
1,144 |
|
|
|
(18,731 |
) |
|
|
|
(i) |
Includes accrued interest at 31 March 2011 of £162m (2010: £232m). |
Annual Report and Accounts 2010/11 | National Grid plc 151
Financial Statements
Notes to the consolidated financial statements – supplementary information
28. Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
£m |
|
|
£m |
|
|
Future capital expenditure |
|
|
|
|
|
|
|
|
Contracted for but not provided |
|
|
1,614 |
|
|
|
1,738 |
|
|
Operating lease commitments |
|
|
|
|
|
|
|
|
Less than 1 year |
|
|
83 |
|
|
|
91 |
|
In 1-2 years |
|
|
79 |
|
|
|
84 |
|
In 2-3 years |
|
|
93 |
|
|
|
79 |
|
In 3-4 years |
|
|
72 |
|
|
|
96 |
|
In 4-5 years |
|
|
70 |
|
|
|
76 |
|
More than 5 years |
|
|
398 |
|
|
|
500 |
|
|
|
|
|
795 |
|
|
|
926 |
|
|
|
|
|
|
|
|
|
|
|
Energy purchase commitments (i)* |
|
|
|
|
|
|
|
|
Less than 1 year |
|
|
1,081 |
|
|
|
1,195 |
|
In 1-2 years |
|
|
480 |
|
|
|
506 |
|
In 2-3 years |
|
|
328 |
|
|
|
372 |
|
In 3-4 years |
|
|
272 |
|
|
|
304 |
|
In 4-5 years |
|
|
241 |
|
|
|
245 |
|
More than 5 years |
|
|
1,141 |
|
|
|
1,326 |
|
|
|
|
|
3,543 |
|
|
|
3,948 |
|
|
|
|
|
|
|
|
|
|
|
Guarantees and letters of credit |
|
|
|
|
|
|
|
|
Guarantee of sublease for US property (expires 2040) |
|
|
328 |
|
|
|
377 |
|
Letter of credit and guarantee of certain obligations of BritNed Interconnector (expire 2011) |
|
|
36 |
|
|
|
374 |
|
Guarantees of certain obligations of Grain LNG Import Terminal (expire up to 2028) |
|
|
139 |
|
|
|
164 |
|
Other guarantees and letters of credit (various expiry dates) |
|
|
259 |
|
|
|
274 |
|
|
|
|
|
762 |
|
|
|
1,189 |
|
|
|
|
*Comparatives have been restated to present items on a basis consistent with the current year classification |
|
(i) |
Energy commitments relate to contractual commitments to purchase electricity or gas that are
used to satisfy physical delivery requirements to our customers or for energy that we use ourselves
(ie normal purchase, sale or usage) and hence are accounted for as ordinary purchase contracts.
Details of commodity contracts that do not meet the normal purchase, sale or usage criteria, and
hence are accounted for as derivative contracts, are shown in note 33. |
The total of future minimum sublease payments expected to be received under non-cancellable
subleases is £20m (2010: £14m).
Litigation and claims
Metering competition investigation
As previously reported, on 25 February 2008 the Gas and Electricity Markets Authority (GEMA)
announced it had decided we breached Chapter II of the Competition Act 1998 and Article 82 (now
Article 102) of the Treaty of the Functioning of the European Union and fined us £41.6m. Following
appeals, the Competition Appeal Tribunal reduced the fine to £30m and the Court of Appeal further
reduced the fine to £15m. On 22 March 2010, we applied to the Supreme Court for leave to appeal the
Court of Appeal’s judgement. On 28 July 2010, the Supreme Court denied our application and this
ends the legal process. The £15m fine was paid to GEMA on 1 April 2010.
Gas Distribution mains replacement investigation
As previously reported, in October 2008 we informed Ofgem that mains replacement activity carried
out by the UK Gas Distribution business may have been inaccurately reported. Ofgem has now
concluded its investigation and, following the reaching of a settlement between Ofgem and National
Grid Gas plc, on 6 January 2011 Ofgem announced its proposed decision to impose a penalty of £8m
and to find National Grid Gas plc in breach of certain obligations in respect of the reporting of
mains replacement data. Ofgem also stated that the penalty would have been higher had it not been
for the cooperation and corrective action by National Grid Gas plc. On 10 March 2011, following the
end of the period in which representations could be made, Ofgem wrote to National Grid Gas plc to
confirm its decision. On 13 May 2011, we received the Final Penalty Notice and must pay the penalty
by 27 June 2011.
KeySpan class actions
Two putative class actions were commenced against KeySpan and Morgan Stanley, one in a New York
state court and one in the federal court. The claims are based on allegations that the financial
swap transaction between KeySpan and Morgan Stanley dated 18 January 2006 caused customers of
Consolidated Edison, Inc. to overpay for electricity between May 2006 and February 2008. We believe
that both complaints and their allegations are without merit and we have applied to have both
actions dismissed. Our application for dismissal in the federal court was granted on 22 March 2011
but the plaintiffs may still appeal.
152 National Grid plc | Annual Report and Accounts 2010/11
29. Related party transactions
The following material transactions with related parties were in the normal course of
business; amounts receivable from and payable to related parties are due on normal commercial
terms:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
Sales: Services and goods supplied to a pension plan and joint ventures |
|
|
11 |
|
|
|
5 |
|
|
|
4 |
|
Purchases: Services and goods received from joint ventures (i) |
|
|
84 |
|
|
|
73 |
|
|
|
44 |
|
Interest income: Interest receivable on loans with joint ventures |
|
|
2 |
|
|
|
1 |
|
|
|
– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivable from a pension plan and joint ventures |
|
|
2 |
|
|
|
1 |
|
|
|
– |
|
Loan to joint venture (ii) |
|
|
– |
|
|
|
23 |
|
|
|
– |
|
Payable to joint ventures |
|
|
8 |
|
|
|
6 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends received from joint ventures (iii) |
|
|
9 |
|
|
|
18 |
|
|
|
– |
|
|
|
|
(i) |
During the year the Company received services and goods from a number of joint ventures,
including Iroquois Gas Transmission System, L.P. of £40m (2010: £38m) and Millennium Pipeline
Company, LLC of £28m (2010: £26m) for the transportation of gas in the US. |
|
(ii) |
Following a decision in August 2010 to cease investing in Blue-NG Limited (a joint venture),
an impairment charge was recorded against the carrying value of the investment, together with
provision against recovery of loans from National Grid to Blue-NG of £30m (2010: £23m) and
associated interest receivable. For further details see note 3. |
|
(iii) |
Dividends were received from Iroquois Gas Transmission System, L.P. of £9m (2010: £17m). |
Details of investments in principal subsidiary undertakings, joint ventures and associates
are disclosed in note 36 and information relating to pension fund arrangements is disclosed in
notes 23 and 30. For details of Directors’ and key management remuneration, refer to note 2(c) and
the auditable section of the Directors’ Remuneration Report.
30. Actuarial information on pensions and other post-retirement benefits
UK pension schemes
National Grid’s defined benefit pension arrangements are funded with assets held in separate
trustee administered funds. The arrangements are subject to independent actuarial valuations at
least every three years, on the basis of which the qualified actuary certifies the rate of
employers’ contribution, which, together with the specified contributions payable by the employees
and proceeds from the schemes’ assets, are expected to be sufficient to fund the benefits payable
under the schemes. The 2010 valuations are nearing completion but the formal agreement has not yet
been completed with the Trustees. The valuations are on track to be completed by no later than the
end of June 2011. The results of the 2007 valuations are shown below:
|
|
|
|
|
|
|
|
|
|
|
NG UK pension scheme |
|
|
NG section of ESPS |
|
|
Latest full actuarial valuation |
|
31 March 2007 |
|
|
31 March 2007 |
|
Actuary |
|
Towers Watson |
|
|
Hewitt Associates |
|
Market value of scheme assets at latest valuation |
|
|
£12,923m |
|
|
|
£1,345m |
|
Actuarial value of benefits due to members |
|
|
£(13,365)m |
|
|
|
£(1,750)m |
|
Market value as percentage of benefits |
|
|
97% |
|
|
|
77% |
|
Funding deficit |
|
|
£442m |
|
|
|
£405m |
|
Funding deficit (net of tax) |
|
|
£327m |
|
|
|
£300m |
|
|
National Grid UK Pension Scheme
The actuarial valuation showed that, based on long-term financial assumptions, the
contribution rate required to meet future benefit accrual was 32.4% of pensionable earnings (29.4%
employers and 3% employees). The employers also pay an allowance for administration expenses at
3.2% of pensionable earnings, giving a total employer contribution rate of 32.6%. The employer
contribution rate will be reviewed as part of the current valuation, while the administration rate
is reviewed annually. Contributions to the scheme during 2011/12 will be determined as part of the
current valuation negotiations with the Trustees. This scheme ceased to allow new hires to join
from 1 April 2002. A defined contribution arrangement was offered for employees joining from 1
April 2002 onwards.
Annual Report and Accounts 2010/11 | National Grid plc 153
Financial Statements
Notes to the consolidated financial statements continued
30. Actuarial information on pensions and other post-retirement benefits continued
Electricity Supply Pension Scheme
The actuarial valuation showed that, based on long-term financial assumptions, the
contribution rate required to meet future benefit accrual was 26.5% of pensionable earnings (20.5%
employers and 6% employees). These contribution rates will be reviewed as part of the current
valuation. As part of the initial valuation discussions with the Trustees it was agreed that a
deficit payment of £45m (£32m net of tax) would be made in March 2011. Contributions to the scheme
during 2011/12 will be determined as part of the current valuation negotiations with the Trustees.
The Electricity Supply Pension Scheme is a funded scheme which is divided into sections, one of
which is National Grid’s section. National Grid’s section of the scheme ceased to allow new hires
to join from 1 April 2006.
Since 2007, National Grid has also agreed to bring forward payment of the outstanding deficit plus
interest in the event that certain triggers are breached; namely if National Grid Electricity
Transmission plc (NGET) ceases to hold the licence granted under the Electricity Act 1989 or NGET’s
credit rating by two out of three specified agencies falls below certain agreed levels for a period
of 40 days.
US pension plans
National Grid’s defined benefit pension plans in the US provide annuity or lump sum payments
for vested employees who joined before 1 January 2011. Certain categories of new hires from that
date are offered a defined contribution plan. In addition, a matched defined contribution plan is
offered to all eligible employees. The assets of the plans are held in separate trustee
administered funds.
Employees do not contribute to the defined benefit plans. Employer contributions are made in
accordance with the rules set out by the US Internal Revenue Code and can vary according to the
funded status of the plans and the amounts that are tax deductible. At present, there is some
flexibility in the amount that is contributed on an annual basis. In general, the Company’s policy
for funding the US pension plans is to contribute amounts collected in rates. These contributions
are expected to meet the requirements of the Pension Protection Act
of 2006.
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 coverage. In the US, there is no governmental requirement
to pre fund post-retirement health and welfare plans. However, there may be requirements under the
various state regulatory agreements to contribute to these plans. Depending upon the rate
jurisdiction and the plan, the funding level may be equal to: the expense under US GAAP; the amount
collected in rates; the maximum tax deductible contribution; or zero.
Asset allocations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK pensions |
|
US pensions |
|
US other post-retirement benefits |
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
Equities (i) |
|
|
34.5 |
|
|
|
36.8 |
|
|
|
35.2 |
|
|
|
51.5 |
|
|
|
52.8 |
|
|
|
50.4 |
|
|
|
76.5 |
|
|
|
68.6 |
|
|
|
63.7 |
|
Corporate bonds (ii) |
|
|
30.3 |
|
|
|
32.3 |
|
|
|
32.7 |
|
|
|
40.7 |
|
|
|
41.5 |
|
|
|
42.3 |
|
|
|
22.6 |
|
|
|
24.8 |
|
|
|
34.2 |
|
Gilts |
|
|
26.8 |
|
|
|
22.4 |
|
|
|
22.2 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
Property |
|
|
5.9 |
|
|
|
5.9 |
|
|
|
5.4 |
|
|
|
2.0 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
Other |
|
|
2.5 |
|
|
|
2.6 |
|
|
|
4.5 |
|
|
|
5.8 |
|
|
|
5.7 |
|
|
|
7.3 |
|
|
|
0.9 |
|
|
|
6.6 |
|
|
|
2.1 |
|
|
Total |
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
|
(i) |
Included within equities at 31 March 2011 were ordinary shares of National Grid plc with
a value of £12m (2010: £17m; 2009: £17m). |
|
(ii) |
Included within corporate bonds at 31 March 2011 was an investment in a number of bonds issued
by subsidiary undertakings with a value of £39m. |
Target asset allocations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US |
|
|
US |
|
|
|
NGUK PS |
|
|
ESPS |
|
|
pensions |
|
|
OPEBs |
|
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
Equities (i) |
|
|
32 |
|
|
|
49 |
|
|
|
60 |
|
|
|
70 |
|
Bonds, property and other |
|
|
68 |
|
|
|
51 |
|
|
|
40 |
|
|
|
30 |
|
|
Total |
|
|
100 |
|
|
|
100 |
|
|
|
100 |
|
|
|
100 |
|
|
|
|
(i) |
Included within equities are hedge fund and active currency investments. |
154 National Grid plc | Annual Report and Accounts 2010/11
30. Actuarial information on pensions and other post-retirement benefits continued
Actuarial assumptions
For UK schemes, the expected long-term rate of return on assets has been set reflecting the
price inflation expectation, the expected real return on each major asset class and the long-term
asset allocation strategy adopted for each scheme. The expected real
returns on specific asset
classes reflect historical returns, investment yields on the measurement date and general future
return expectations, and have been set after taking advice from the schemes’ actuaries.
For US plans, the estimated rate of return for various passive asset classes is based both on
analysis of historical rates of return and forward looking analysis of risk premiums and yields.
Current market conditions, such as inflation and interest rates, are
evaluated in connection with
the setting of our long-term assumptions. A small premium is added for active management of both
equity and fixed income. The rates of return for each asset class are then weighted in accordance
with the actual asset allocation resulting in a long-term return on asset rate for each plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK pensions |
|
US pensions |
|
US other post-retirement benefits |
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
Discount rate (i) |
|
|
5.5 |
|
|
|
5.6 |
|
|
|
6.8 |
|
|
|
5.9 |
|
|
|
6.1 |
|
|
|
7.3 |
|
|
|
5.9 |
|
|
|
6.1 |
|
|
|
7.3 |
|
Expected return on plan assets |
|
|
6.1 |
|
|
|
6.4 |
|
|
|
6.2 |
|
|
|
7.2 |
|
|
|
7.5 |
|
|
|
7.8 |
|
|
|
7.1 |
|
|
|
7.2 |
|
|
|
7.4 |
|
Rate of increase in salaries (ii) |
|
|
4.4 |
|
|
|
4.7 |
|
|
|
3.8 |
|
|
|
3.5 |
|
|
|
3.5 |
|
|
|
3.5 |
|
|
|
3.5 |
|
|
|
3.5 |
|
|
|
3.5 |
|
Rate of increase in pensions
in payment |
|
|
3.5 |
|
|
|
3.8 |
|
|
|
3.0 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
Rate of increase in pensions
in deferment |
|
|
3.5 |
|
|
|
3.8 |
|
|
|
2.9 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
Rate of increase in RPI
(or equivalent)(iii) |
|
|
3.5 |
|
|
|
3.8 |
|
|
|
2.9 |
|
|
|
2.2 |
|
|
|
2.4 |
|
|
|
2.3 |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
Initial healthcare cost trend rate |
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
8.5 |
|
|
|
8.5 |
|
|
|
9.0 |
|
Ultimate healthcare cost trend rate |
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
5.0 |
|
|
|
5.0 |
|
|
|
5.0 |
|
|
|
|
|
(i) |
|
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
balance sheet date. |
|
(ii) |
|
A promotional scale has also been used where appropriate. |
|
(iii) |
|
In September 2010, the UK Government changed the basis for statutory pension increases from
the Retail Price Index (RPI) to the Consumer Price Index (CPI). The Scheme rules of National Grid’s
two UK pension schemes specifically reference RPI. As a consequence the impact of the Government’s
move to CPI was predominantly limited to National Grid’s Guaranteed Minimum Pensions. The financial
consequence of the change as at 31 March 2011 was an approximate £55m reduction in present value of
the defined benefit obligation. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
UK |
|
|
US |
|
|
UK |
|
|
US |
|
|
|
years |
|
|
years |
|
|
years |
|
|
years |
|
|
Assumed life expectations for a retiree at age 65 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Today |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Males |
|
|
22.4 |
|
|
| 18.8 |
|
|
|
21.0 |
|
|
|
18.8 |
|
Females |
|
|
24.9 |
|
|
| 20.8 |
|
|
|
23.4 |
|
|
|
20.8 |
|
In 20 years |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Males |
|
|
24.7 |
|
|
| 18.8 |
|
|
|
23.4 |
|
|
|
18.8 |
|
Females |
|
|
27.4 |
|
|
| 20.8 |
|
|
|
25.7 |
|
|
|
20.8 |
|
|
Sensitivities to actuarial assumptions
|
|
|
|
Change in pensions |
|
|
Change in annual |
|
|
|
and OPEB liability |
|
|
pension and OPEB cost |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
Sensitivities (all other assumptions held constant) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1% change in discount rate |
|
|
304 |
|
|
|
317 |
|
|
|
7 |
|
|
|
4 |
|
0.5% change in long-term rate of increase in salaries |
|
|
162 |
|
|
|
166 |
|
|
|
8 |
|
|
|
8 |
|
Change of one year to life expectations at age 60 |
|
|
653 |
|
|
|
670 |
|
|
|
7 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
Sensitivities to a 1% change in assumed healthcare cost trend rates |
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
|
|
|
|
|
|
|
|
|
|
Effect on the aggregate of the service costs and interest costs |
|
|
28 |
|
|
|
25 |
|
|
|
29 |
|
Effect on defined benefit obligations |
|
|
330 |
|
|
|
348 |
|
|
|
294 |
|
Decrease |
|
|
|
|
|
|
|
|
|
|
|
|
Effect on the aggregate of the service costs and interest costs |
|
|
(23 |
) |
|
|
(21 |
) |
|
|
(24 |
) |
Effect on defined benefit obligations |
|
|
(282 |
) |
|
|
(298 |
) |
|
|
(254 |
) |
|
Annual Report and Accounts 2010/11 | National Grid plc 155
Financial Statements
Notes to the consolidated financial statements continued
30. Actuarial information on pensions and other post-retirement benefits continued
The history of the present value of obligations, the fair value of plan assets and of experience
adjustments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
Present value of funded and unfunded obligations |
|
|
(21,938 |
) |
|
|
(22,200 |
) |
|
|
(18,299 |
) |
|
|
(18,175 |
) |
|
|
(17,253 |
) |
Fair value of plan assets |
|
|
19,969 |
|
|
|
19,136 |
|
|
|
15,519 |
|
|
|
17,273 |
|
|
|
15,999 |
|
|
|
|
|
(1,969 |
) |
|
|
(3,064 |
) |
|
|
(2,780 |
) |
|
|
(902 |
) |
|
|
(1,254 |
) |
|
Difference between the expected and actual return on plan assets |
|
|
358 |
|
|
|
3,192 |
|
|
|
(3,952 |
) |
|
|
(911 |
) |
|
|
(81 |
) |
Experience gains/(losses) on plan liabilities |
|
|
28 |
|
|
|
509 |
|
|
|
(125 |
) |
|
|
152 |
|
|
|
9 |
|
Actuarial gains/(losses) on plan liabilities |
|
|
213 |
|
|
|
(3,923 |
) |
|
|
1,934 |
|
|
|
1,343 |
|
|
|
446 |
|
|
31. Supplementary information on derivative financial instruments
Derivatives are financial instruments that derive their value from the price of an underlying
item such as interest rates, foreign exchange, credit spreads, commodities or equity or other
indices. Derivatives enable their users to alter exposure to market or credit risks. We use
derivatives to manage both our treasury financing and operational market risks. Operational market
risks are managed using commodity contracts which are detailed in note 33.
Treasury financial instruments
Derivatives are used for hedging purposes in the management of exposure to market risks. This
enables the optimisation of the overall cost of accessing debt capital markets, and mitigates the
market risk which would otherwise arise from the Company assets and
liabilities.
Hedging policies
using derivative financial instruments are further explained in note 32. 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. These 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. If the hedge relationship is terminated, the fair value
adjustment to the hedged item continues to be reported as part of the basis of the item and is
amortised to the income statement as a yield adjustment over the remainder of the life of the
hedged item.
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. Amounts are
transferred from equity and recognised in the income statement as the income or expense is
recognised on the hedged asset or liability.
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.
The gains and losses on ineffective portions of such derivatives are
recognised immediately in remeasurements within the income statement.
When a hedging instrument
expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any
cumulative gain or loss existing in equity at that time remains in equity and is recognised when
the forecast transaction is ultimately recognised in the income statement or on the balance sheet.
When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was
reported in equity is immediately transferred to remeasurements within the income statement.
156 National Grid plc |
Annual Report and Accounts 2010/11
31. Supplementary information on derivative financial instruments continued
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.
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.
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
immediately in remeasurements within the income statement.
32. Financial risk
Our activities expose us to a variety of financial risks: market risk, including foreign
exchange risk, fair value interest rate risk, cash flow interest rate risk and commodity price
risk; credit risk; and liquidity risk. The overall risk management programme focuses on the
unpredictability of financial markets and seeks to minimise potential adverse effects on financial
performance. Derivative financial instruments are used to hedge certain risk exposures.
Risk management related to financing activities is carried out by a central treasury department
under policies approved by the Board of Directors. This department identifies, evaluates and hedges
financial risks in close cooperation with the operating units. The Board 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
as discussed further in our treasury policy, described on pages 71 to 74.
(a) Market risk
(i) Foreign exchange 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.
With respect to near term foreign exchange risk, we use foreign exchange forwards to manage foreign
exchange transaction exposure. Our policy is to hedge a minimum percentage of known contracted
foreign currency flows in order to mitigate foreign currency movements in the intervening period.
Where cash forecasts are less certain, we generally cover a percentage of the foreign currency
flows depending on the level of agreed probability for those future cash flows.
We also manage the foreign exchange exposure to net investments in foreign operations, within a
policy range, by maintaining a percentage of net debt and foreign exchange forwards in the relevant
currency. The primary managed foreign exchange exposure arises from the dollar denominated assets
and liabilities held by the US operations, with a further small euro exposure in respect of a joint
venture investment.
During 2011 and 2010, derivative financial instruments were used to manage foreign currency risk as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
Sterling |
|
|
Euro |
|
|
Dollar |
|
|
Other |
|
|
Total |
|
|
Sterling |
|
|
Euro |
|
|
Dollar |
|
|
Other |
|
|
Total |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
Cash and cash
equivalents |
|
|
319 |
|
|
| 1 |
|
|
| 64 |
|
|
| – |
|
|
| 384 |
|
|
|
428 |
|
|
|
4 |
|
|
|
288 |
|
|
|
– |
|
|
|
720 |
|
Financial investments |
|
|
1,046 |
|
|
| 111 |
|
|
| 1,696 |
|
|
| 86 |
|
|
| 2,939 |
|
|
|
455 |
|
|
|
127 |
|
|
|
736 |
|
|
|
79 |
|
|
|
1,397 |
|
Borrowings (i) |
|
|
(10,565 |
) |
|
| (4,896 |
) |
|
| (7,113 |
) |
|
| (624 |
) |
|
| (23,198 |
) |
|
|
(10,651 |
) |
|
|
(6,361 |
) |
|
|
(7,394 |
) |
|
|
(718 |
) |
|
|
(25,124 |
) |
|
Pre-derivative position |
|
|
(9,200 |
) |
|
| (4,784 |
) |
|
| (5,353 |
) |
|
| (538 |
) |
|
| (19,875 |
) |
|
|
(9,768 |
) |
|
|
(6,230 |
) |
|
|
(6,370 |
) |
|
|
(639 |
) |
|
|
(23,007 |
) |
Derivative effect |
|
|
2,921 |
|
|
| 4,637 |
|
|
| (6,962 |
) |
|
| 548 |
|
|
| 1,144 |
|
|
|
438 |
|
|
|
6,172 |
|
|
|
(6,388 |
) |
|
|
646 |
|
|
|
868 |
|
|
Net debt position |
|
|
(6,279 |
) |
|
| (147 |
) |
|
| (12,315 |
) |
|
| 10 |
|
|
| (18,731 |
) |
|
|
(9,330 |
) |
|
|
(58 |
) |
|
|
(12,758 |
) |
|
|
7 |
|
|
|
(22,139 |
) |
|
|
|
(i) |
Includes bank overdrafts. |
The overall exposure to dollars largely relates to our net investment hedge activities as
described in note 31.
Annual Report and Accounts 2010/11 |
National Grid plc 157
Financial Statements
Notes to the consolidated financial statements continued
32. Financial risk continued
The currency exposure on other financial instruments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
Sterling |
|
|
Euro |
|
|
Dollar |
|
|
Other |
|
|
Total |
|
|
Sterling |
|
|
Euro |
|
|
Dollar |
|
|
Other |
|
|
Total |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
Trade and other
receivables |
|
|
91 |
|
|
| – |
|
|
| 1,122 |
|
|
| – |
|
|
| 1,213 |
|
|
|
128 |
|
|
|
– |
|
|
|
1,228 |
|
|
|
– |
|
|
|
1,356 |
|
Trade and other payables |
|
|
(1,319 |
) |
|
| – |
|
|
| (1,248 |
) |
|
| – |
|
|
| (2,567 |
) |
|
|
(1,221 |
) |
|
|
– |
|
|
|
(1,382 |
) |
|
|
– |
|
|
|
(2,603 |
) |
Other non-current
liabilities |
|
|
(26 |
) |
|
| – |
|
|
| (354 |
) |
|
| – |
|
|
| (380 |
) |
|
|
(15 |
) |
|
|
– |
|
|
|
(393 |
) |
|
|
– |
|
|
|
(408 |
) |
|
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.
(ii) Cash flow and fair value interest rate risk
Interest rate risk arises from our borrowings. Borrowings issued at variable rates expose National
Grid to cash flow interest rate risk. Borrowings issued at fixed rates expose National Grid to fair
value interest rate risk. Our interest rate risk management policy as further explained on page 73
is to minimise the finance costs (being interest costs and changes in the market value of debt)
subject to constraints approved by the Finance Committee. Some of our borrowings are inflation
linked; that is, their cost is linked to changes in the UK retail price index (RPI). We believe
that these borrowings provide a hedge for regulated UK revenues and our UK regulatory asset values
that are also RPI linked.
Interest rate risk arising from our financial investments is primarily variable being composed of
short-dated money funds.
The following table sets out the carrying amount, by contractual maturity, of borrowings that are
exposed to interest rate risk before taking into account interest rate swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
£m |
|
|
£m |
|
|
Fixed interest rate borrowings |
|
|
|
|
|
|
|
|
Less than 1 year |
|
|
(1,313 |
) |
|
|
(1,237 |
) |
In 1-2 years |
|
|
(808 |
) |
|
|
(1,413 |
) |
In 2-3 years |
|
|
(1,467 |
) |
|
|
(956 |
) |
In 3-4 years |
|
|
(1,189 |
) |
|
|
(1,762 |
) |
In 4-5 years |
|
|
(307 |
) |
|
|
(1,265 |
) |
More than 5 years |
|
|
(8,487 |
) |
|
|
(8,791 |
) |
|
|
|
|
(13,571 |
) |
|
|
(15,424 |
) |
Floating interest rate borrowings (including inflation linked) |
|
|
(9,627 |
) |
|
|
(9,700 |
) |
|
Total borrowings |
|
|
(23,198 |
) |
|
|
(25,124 |
) |
|
During 2011 and 2010, net debt was managed using derivative instruments to hedge interest
rate risk as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
Fixed |
|
|
Floating |
|
|
Inflation |
|
|
|
|
|
|
|
|
|
|
Fixed |
|
|
Floating |
|
|
Inflation |
|
|
|
|
|
|
|
|
|
rate |
|
|
rate |
|
|
linked |
(i) |
|
Other |
(ii) |
|
Total |
|
|
rate |
|
|
rate |
|
|
linked |
(i) |
|
Other |
(ii) |
|
Total |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
Cash and cash
equivalents |
|
|
315 |
|
|
| 69 |
|
|
| – |
|
|
| – |
|
|
| 384 |
|
|
|
599 |
|
|
|
121 |
|
|
|
– |
|
|
|
– |
|
|
|
720 |
|
Financial investments |
|
|
759 |
|
|
| 2,053 |
|
|
| – |
|
|
| 127 |
|
|
| 2,939 |
|
|
|
602 |
|
|
|
673 |
|
|
|
– |
|
|
|
122 |
|
|
|
1,397 |
|
Borrowings (iii) |
|
|
(13,571 |
) |
|
| (3,933 |
) |
|
| (5,694 |
) |
|
| – |
|
|
| (23,198 |
) |
|
|
(15,424 |
) |
|
|
(4,604 |
) |
|
|
(5,096 |
) |
|
|
– |
|
|
|
(25,124 |
) |
|
Pre-derivative position |
|
|
(12,497 |
) |
|
| (1,811 |
) |
|
| (5,694 |
) |
|
| 127 |
|
|
| (19,875 |
) |
|
|
(14,223 |
) |
|
|
(3,810 |
) |
|
|
(5,096 |
) |
|
|
122 |
|
|
|
(23,007 |
) |
Derivative effect (iv) |
|
|
295 |
|
|
| 531 |
|
|
| 318 |
|
|
| – |
|
|
| 1,144 |
|
|
|
(1,552 |
) |
|
|
2,292 |
|
|
|
204 |
|
|
|
(76 |
) |
|
|
868 |
|
|
Net debt position |
|
|
(12,202 |
) |
|
| (1,280 |
) |
|
| (5,376 |
) |
|
| 127 |
|
|
| (18,731 |
) |
|
|
(15,775 |
) |
|
|
(1,518 |
) |
|
|
(4,892 |
) |
|
|
46 |
|
|
|
(22,139 |
) |
|
|
|
(i) |
The post-derivative impact represents financial instruments linked to UK RPI. |
|
(ii) |
Represents financial instruments which are not directly affected by interest rate risk, such
as investments in equity or other similar financial instruments. |
|
(iii) |
Includes bank overdrafts. |
|
(iv) |
The impact of 2011/12 (2010: 2010/11) maturing short-dated interest rate derivatives is
included. |
158 National Grid plc |
Annual Report and Accounts 2010/11
32. Financial risk continued
(b) Fair value analysis
The following is an analysis of our financial instruments that are measured at fair value.
They are reported in a tiered hierarchy based on the valuation methodology described on page 74,
and reflecting the significance of market observable inputs. 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
Assets |
|
|
|
|
|
| |
|
|
| |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale investments |
|
|
2,834 |
|
|
| 179 |
|
|
| – |
|
|
| 3,013 |
|
|
|
1,346 |
|
|
|
175 |
|
|
|
– |
|
|
|
1,521 |
|
Derivative financial instruments |
|
|
– |
|
|
| 1,684 |
|
|
| 54 |
|
|
| 1,738 |
|
|
|
– |
|
|
|
1,706 |
|
|
|
36 |
|
|
|
1,742 |
|
|
|
|
|
2,834 |
|
|
| 1,863 |
|
|
| 54 |
|
|
| 4,751 |
|
|
|
1,346 |
|
|
|
1,881 |
|
|
|
36 |
|
|
|
3,263 |
|
|
Liabilities |
|
|
|
|
|
| |
|
|
| |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments |
|
|
– |
|
|
| (594 |
) |
|
| – |
|
|
| (594 |
) |
|
|
– |
|
|
|
(874 |
) |
|
|
– |
|
|
|
(874 |
) |
|
Total |
|
|
2,834 |
|
|
| 1,269 |
|
|
| 54 |
|
|
| 4,157 |
|
|
|
1,346 |
|
|
|
1,007 |
|
|
|
36 |
|
|
|
2,389 |
|
|
|
|
|
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. |
During the year no transfers have been made between the hierarchy levels.
The financial instruments classified as level 3 include cross-currency swaps with an embedded call
option and currency swaps where the currency forward curve is illiquid. Third party valuations are
obtained from more than one source to support the reported fair value. The changes in the value of
our level 3 derivative financial instruments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
Level 3 |
|
|
Level 3 |
|
|
|
valuation |
|
|
valuation |
|
|
|
£m |
|
|
£m |
|
|
At 1 April |
|
|
36 |
|
|
|
10 |
|
Net gains for the year (i) |
|
|
21 |
|
|
|
29 |
|
Settlements |
|
|
(3 |
) |
|
|
(3 |
) |
|
At 31 March |
|
|
54 |
|
|
|
36 |
|
|
|
|
(i) |
Gains of £21m (2010: £29m) are attributable to assets or liabilities held at the end of
the reporting period and have been recognised in finance costs in the income statement. |
A reasonably possible change in assumptions is unlikely to result in a material change in the
fair value of the level 3 instruments.
(c) Credit risk
Credit risk is 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 the Company’s
commercial business activities and is managed on a portfolio basis. Credit risk arises from cash
and cash equivalents, derivative financial instruments and deposits with banks and financial
institutions, as well as credit exposures to wholesale and retail customers, including outstanding
receivables and committed transactions.
Treasury related credit risk
Counterparty risk arises from the investment of surplus funds and from the use of derivative
instruments. As at 31 March 2011, the following limits were in place for investments held with
banks and financial institutions:
|
|
|
|
|
|
|
|
|
|
|
Maximum limit |
|
|
Long-term limit |
|
Rating |
|
£m |
|
|
£m |
|
|
AAA rated G8 sovereign entities |
|
Unlimited |
|
|
Unlimited |
|
Triple ‘A’ vehicles |
|
|
275 |
|
|
|
233 |
|
Triple ‘A’ range institutions (AAA) |
|
|
938 to 1,415 |
|
|
|
472 to 741 |
|
Double ‘A’ range institutions (AA) |
|
|
560 to 705 |
|
|
|
285 to 353 |
|
Single ‘A’ range institutions (A) |
|
|
192 to 275 |
|
|
|
99 to 140 |
|
|
Annual Report and Accounts 2010/11 |
National Grid plc 159
Financial Statements
Notes to the consolidated financial statements continued
32. Financial risk continued
As at 31 March 2010 and 2011, we had a number of exposures to individual counterparties. In
accordance with our treasury policies and exposure management practices, counterparty credit
exposure limits are continually monitored and no individual exposure is considered significant in
the ordinary course of treasury management activity. Management does not expect any significant
losses from non performance by these counterparties.
The counterparty exposure under derivative financial contracts as shown in note 14 was £1,738m
(2010: £1,742m); after netting agreements it was £1,389m (2010: £1,229m). This exposure is further
reduced by collateral received as shown in note 19. Additional information for commodity contract
credit risk is in note 33.
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 lay down the level of
credit relative to the regulatory asset value (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 16.
(d) Liquidity analysis
We determine our liquidity requirements by the use of both short- and long-term cash flow
forecasts. These forecasts are supplemented by a financial headroom analysis which is used to
assess funding adequacy for at least a 12 month period.
The following is an analysis of the contractual undiscounted cash flows payable under financial
liabilities and derivative assets and liabilities as at the balance sheet date:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Less |
|
|
|
|
|
|
|
|
|
|
More |
|
|
| |
|
|
than |
|
|
|
|
|
|
|
|
|
|
than |
|
|
|
|
|
|
1 year |
|
|
1-2 years |
|
|
2-3 years |
|
|
3 years |
|
|
Total |
|
At 31 March 2011 |
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
Non-derivative financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings, excluding finance lease liabilities |
|
|
(2,616 |
) |
|
| (1,188 |
) |
|
| (1,574 |
) |
|
| (17,455 |
) |
|
| (22,833 |
) |
Interest payments on borrowings (i) |
|
|
(828 |
) |
|
| (807 |
) |
|
| (741 |
) |
|
| (9,328 |
) |
|
| (11,704 |
) |
Finance lease liabilities |
|
|
(20 |
) |
|
| (38 |
) |
|
| (33 |
) |
|
| (157 |
) |
|
| (248 |
) |
Other non interest-bearing liabilities |
|
|
(2,320 |
) |
|
| (279 |
) |
|
| – |
|
|
| – |
|
|
| (2,599 |
) |
|
|
|
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
Derivative financial liabilities |
|
|
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
Derivative contracts – receipts |
|
|
1,596 |
|
|
| 407 |
|
|
| 649 |
|
|
| 1,606 |
|
|
| 4,258 |
|
Derivative contracts – payments |
|
|
(1,213 |
) |
|
| (169 |
) |
|
| (345 |
) |
|
| (1,345 |
) |
|
| (3,072 |
) |
Commodity contracts |
|
|
(290 |
) |
|
| (84 |
) |
|
| (40 |
) |
|
| (43 |
) |
|
| (457 |
) |
|
Total at 31 March 2011 |
|
|
(5,691 |
) |
|
| (2,158 |
) |
|
| (2,084 |
) |
|
| (26,722 |
) |
|
| (36,655 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less |
|
|
|
|
|
|
|
|
|
|
More |
|
|
|
|
|
|
than |
|
|
|
|
|
|
|
|
|
|
than |
|
|
|
|
|
|
1 year |
|
|
1-2 years |
|
|
2-3 years |
|
|
3 years |
|
|
Total |
|
At 31 March 2010 |
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
Non-derivative financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings, excluding finance lease liabilities |
|
|
(2,390 |
) |
|
|
(2,100 |
) |
|
|
(1,322 |
) |
|
|
(18,927 |
) |
|
|
(24,739 |
) |
Interest payments on borrowings (i) |
|
|
(915 |
) |
|
|
(874 |
) |
|
|
(845 |
) |
|
|
(9,829 |
) |
|
|
(12,463 |
) |
Finance lease liabilities |
|
|
(30 |
) |
|
|
(53 |
) |
|
|
(20 |
) |
|
|
(169 |
) |
|
|
(272 |
) |
Other non interest-bearing liabilities |
|
|
(2,287 |
) |
|
|
(265 |
) |
|
|
– |
|
|
|
– |
|
|
|
(2,552 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts – receipts |
|
|
1,027 |
|
|
|
1,649 |
|
|
|
171 |
|
|
|
2,235 |
|
|
|
5,082 |
|
Derivative contracts – payments |
|
|
(859 |
) |
|
|
(1,464 |
) |
|
|
(104 |
) |
|
|
(1,874 |
) |
|
|
(4,301 |
) |
Commodity contracts |
|
|
(488 |
) |
|
|
(168 |
) |
|
|
(35 |
) |
|
|
(101 |
) |
|
|
(792 |
) |
|
Total at 31 March 2010 |
|
|
(5,942 |
) |
|
|
(3,275 |
) |
|
|
(2,155 |
) |
|
|
(28,665 |
) |
|
|
(40,037 |
) |
|
|
|
(i) |
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. |
160 National Grid plc |
Annual Report and Accounts 2010/11
32. Financial risk continued
(e) Sensitivity analysis
Financial instruments affected by market risk include borrowings, deposits, derivative
financial instruments and commodity contracts. The following analysis illustrates the sensitivity
to changes in market variables, being UK and US interest rates, the UK retail price index and the
dollar to sterling exchange rate, on our financial instruments.
The analysis also excludes the impact of movements in market variables on the carrying value of
pension and other post-retirement benefit obligations, provisions and on the non-financial assets
and liabilities of overseas subsidiaries.
The sensitivity analysis has been prepared on the basis that the amount of net debt, the ratio of
fixed to floating interest rates of the debt and derivatives portfolio and the proportion of
financial instruments in foreign currencies are all constant and on the basis of the hedge
designations in place at 31 March 2011 and 2010 respectively. As a consequence, this sensitivity
analysis relates to the positions at those dates and is not representative of the years then ended,
as all of these varied.
The following assumptions were made in calculating the sensitivity analysis:
= |
|
the balance sheet sensitivity to interest rates relates only to derivative financial
instruments and available-for-sale investments, as debt and other deposits are carried at
amortised cost and so their carrying value does not change as interest rates move; |
|
= |
|
the sensitivity of accrued interest to movements in interest rates is calculated on
net floating rate exposures on debt, deposits and derivative instruments; |
|
= |
|
changes in the carrying value of derivatives from movements in interest rates
designated as cash flow hedges are assumed to be recorded fully within equity; |
|
= |
|
changes in the carrying value of derivative financial instruments designated as net
investment hedges from movements in interest rates are recorded in the income statement as
they are designated using the spot rather than the forward translation method.
The impact of movements in the dollar to sterling exchange rate are recorded directly in equity; |
|
= |
|
changes in the carrying value of derivative financial instruments not in hedging
relationships only affect the income statement; |
|
= |
|
all other changes in the carrying value of derivative financial instruments designated
as hedges are fully effective with no impact on the income statement; |
|
= |
|
debt with a maturity below one year is floating rate for the accrued interest part of the calculation; |
|
= |
|
the floating leg of any swap or any floating rate debt is treated as not having any
interest rate already set, therefore a change in interest rates affects a full 12 month period
for the accrued interest portion of the sensitivity calculations; and |
|
= |
|
sensitivity to the retail price index does not take into account any changes to
revenue or operating costs that are affected by the retail price index or inflation generally. |
Using the above assumptions, the following table shows the illustrative impact on the income
statement and items that are recognised directly in equity that would result from reasonably
possible movements in the UK retail price index, UK and US interest rates and in the dollar to
sterling exchange rate, after the effects of tax.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
Income |
|
|
Other equity |
|
|
Income |
|
|
Other equity |
|
|
|
statement |
|
|
reserves |
|
|
statement |
|
|
reserves |
|
|
|
+/- £m |
|
|
+/- £m |
|
|
+/- £m |
|
|
+/- £m |
|
|
UK retail price index +/- 0.50% |
|
|
19 |
|
|
| – |
|
|
|
17 |
|
|
|
– |
|
UK interest rates +/- 0.50% |
|
|
38 |
|
|
| 50 |
|
|
|
51 |
|
|
|
71 |
|
US interest rates +/- 0.50% |
|
|
39 |
|
|
| 15 |
|
|
|
52 |
|
|
|
14 |
|
US dollar exchange rate +/- 10% |
|
|
44 |
|
|
| 636 |
|
|
|
68 |
|
|
|
623 |
|
|
The income statement sensitivities impact interest expense and financial instrument
remeasurements.
The other equity reserves impact does not reflect the exchange translation in our US subsidiary net
assets, which it is estimated would change by £800m (2010: £796m) in the opposite direction if the
dollar exchange rate changed by 10%.
Annual Report and Accounts 2010/11 | National Grid plc 161
Financial Statements
Notes to the consolidated financial statements continued
32. Financial risk continued
(f) Capital and 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 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.
The principal measure of our balance sheet efficiency is our interest cover ratio. Interest cover
for the year ended 31 March 2011 decreased to 3.8 from 3.9 for the year ended 31 March 2010. Our
long-term target range for interest cover is between 3.0 and 3.5, which we believe is consistent
with single A range long-term senior unsecured debt credit ratings within our main UK operating
companies, National Grid Electricity Transmission plc and National Grid Gas plc, based on guidance
from the rating agencies. This year’s interest cover was lower than the previous year, reflecting
the return to inflation on our retail price index (RPI) linked debt, impacting our interest
expense, partially offset by strong operating cash flows. Additional information is provided on
page 56.
In addition, we monitor the regulatory asset value (RAV) gearing within each of National Grid
Electricity Transmission plc and the regulated transmission and distribution businesses within
National Grid Gas plc. 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%.
National Grid USA and its public utility subsidiaries, all consolidated subsidiaries of National
Grid, are subject to restrictions on the payment of dividends by administrative order and contract.
Orders by the Federal Energy Regulatory Commission and applicable state regulatory commissions
limit the payment of dividends to cumulative retained earnings, including pre-acquisition retained
earnings. Other orders by federal and state commissions require National Grid USA and its public
utility subsidiaries to maintain a minimum equity to capital ratio of between 30% to 44%, varying
by entity and order or covenant.
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 of the above requirements are
monitored on a regular basis in order to ensure compliance. Additional information is provided on
page 71. The Company has complied with all externally imposed capital requirements to which it is
subject.
33. Commodity risk
We purchase electricity and gas in order to supply our customers in the US and also to meet
our own energy requirements. We also engage in the sale of gas that is produced primarily by our
West Virginia gas fields.
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 financial period.
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 swaps and
futures contracts. These derivative financial instruments are used to manage market price
volatility and are carried at fair value on the balance sheet. The mark-to-market changes in these
contracts are reflected through earnings with the exception of those related to our West Virginia
gas fields that are designated as cash flow hedges when they arise.
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.
The credit policy for commodity transactions is owned and monitored by the energy procurement risk
management committee and establishes controls and procedures to determine, monitor and minimise the
credit risk of counterparties. The valuation of our commodity contracts considers the risk of
credit by utilising the most current
default probabilities and the most current published credit ratings. We also use internal analysis
to guide us in setting credit and risk levels and use contractual arrangements including netting
agreements as applicable.
The counterparty exposure for our commodity derivatives is £110m (2010:
£105m), and after netting agreements it was £73m (2010: £91m).
162 National Grid plc | Annual Report and Accounts 2010/11
33. Commodity risk continued
(a) Fair value analysis
The fair value of our commodity contracts by type can be analysed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
2010 |
|
|
Assets |
|
|
Liabilities |
|
|
Total |
|
|
Assets |
|
|
Liabilities |
|
|
Total |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
Commodity purchase contracts accounted for as derivative contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward purchases of electricity |
|
|
– |
|
|
|
(101 |
) |
|
|
(101 |
) |
|
|
– |
|
|
|
(127 |
) |
|
|
(127 |
) |
Forward purchases/sales of gas |
|
|
42 |
|
|
|
(83 |
) |
|
|
(41 |
) |
|
|
51 |
|
|
|
(101 |
) |
|
|
(50 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments linked to commodity prices |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity swaps |
|
|
4 |
|
|
|
(18 |
) |
|
|
(14 |
) |
|
|
– |
|
|
|
(47 |
) |
|
|
(47 |
) |
Electricity options |
|
|
62 |
|
|
|
– |
|
|
|
62 |
|
|
|
51 |
|
|
|
– |
|
|
|
51 |
|
Gas swaps |
|
|
2 |
|
|
|
(17 |
) |
|
|
(15 |
) |
|
|
3 |
|
|
|
(52 |
) |
|
|
(49 |
) |
|
|
|
|
110 |
|
|
|
(219 |
) |
|
|
(109 |
) |
|
|
105 |
|
|
|
(327 |
) |
|
|
(222 |
) |
|
The fair value classification of our commodity contracts is as follows; a definition of each
level can be found on page 159:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
2010 |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts |
|
|
– |
|
|
|
6 |
|
|
|
104 |
|
|
|
110 |
|
|
|
– |
|
|
|
2 |
|
|
|
103 |
|
|
|
105 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts |
|
|
– |
|
|
|
(36 |
) |
|
|
(183 |
) |
|
|
(219 |
) |
|
|
– |
|
|
|
(100 |
) |
|
|
(227 |
) |
|
|
(327 |
) |
|
Total |
|
|
– |
|
|
|
(30 |
) |
|
|
(79 |
) |
|
|
(109 |
) |
|
|
– |
|
|
|
(98 |
) |
|
|
(124 |
) |
|
|
(222 |
) |
|
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 the value of our level 3 commodity contracts are as follows:
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
£m |
|
|
£m |
|
|
At 1 April 2010 |
|
|
(124 |
) |
|
|
(115 |
) |
Net gains for the year (i) |
|
|
20 |
|
|
|
8 |
|
Purchases |
|
|
(42 |
) |
|
|
(12 |
) |
Sales |
|
|
– |
|
|
|
(1 |
) |
Settlements |
|
|
68 |
|
|
|
– |
|
Reclassification into level 3 |
|
|
– |
|
|
|
(3 |
) |
Reclassification out of level 3 |
|
|
(1 |
) |
|
|
(1 |
) |
|
At 31 March 2011 |
|
|
(79 |
) |
|
|
(124 |
) |
|
|
|
|
(i) |
|
Gains of £14m (2010: £67m loss) are attributable to assets or liabilities held at the end
of the reporting period. |
The transfers into and out of level 3 were driven by changes in the observability of
extrapolated forward curves.
Annual Report and Accounts 2010/11 | National Grid plc 163
Financial Statements
Notes to the consolidated financial statements continued
33. Commodity risk continued
The impacts on a post-tax basis of reasonably possible changes in significant level 3 assumptions
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
Income |
|
|
Income |
|
|
|
statement |
|
|
statement |
|
|
|
£m |
|
|
£m |
|
|
10% increase in commodity prices (i) |
|
|
39 |
|
|
|
46 |
|
10% decrease in commodity prices (i) |
|
|
(36 |
) |
|
|
(39 |
) |
10% increase in commodity volumes |
|
|
(5 |
) |
|
|
(9 |
) |
10% decrease in commodity volumes |
|
|
3 |
|
|
|
9 |
|
Forward curve extrapolation |
|
|
(1 |
) |
|
|
(12 |
) |
|
|
|
|
(i) |
|
Level 3 commodity price sensitivity is included within the sensitivity analysis disclosed
in (d) below. |
The impacts disclosed above were considered on a contract by contract basis with the most
significant unobservable inputs identified.
(b) Maturity analysis
The maturity of commodity contracts measured at fair value can be analysed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
2010 |
|
|
Assets |
|
|
Liabilities |
|
|
Total |
|
|
Assets |
|
|
Liabilities |
|
|
Total |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
Less than one year |
|
|
16 |
|
|
|
(118 |
) |
|
|
(102 |
) |
|
|
21 |
|
|
|
(184 |
) |
|
|
(163 |
) |
|
Current |
|
|
16 |
|
|
|
(118 |
) |
|
|
(102 |
) |
|
|
21 |
|
|
|
(184 |
) |
|
|
(163 |
) |
|
In 1 – 2 years |
|
|
18 |
|
|
|
(26 |
) |
|
|
(8 |
) |
|
|
8 |
|
|
|
(49 |
) |
|
|
(41 |
) |
In 2 – 3 years |
|
|
9 |
|
|
|
(20 |
) |
|
|
(11 |
) |
|
|
11 |
|
|
|
(21 |
) |
|
|
(10 |
) |
In 3 – 4 years |
|
|
8 |
|
|
|
(20 |
) |
|
|
(12 |
) |
|
|
13 |
|
|
|
(19 |
) |
|
|
(6 |
) |
In 4 – 5 years |
|
|
11 |
|
|
|
(18 |
) |
|
|
(7 |
) |
|
|
11 |
|
|
|
(19 |
) |
|
|
(8 |
) |
More than 5 years |
|
|
48 |
|
|
|
(17 |
) |
|
|
31 |
|
|
|
41 |
|
|
|
(35 |
) |
|
|
6 |
|
|
Non-current |
|
|
94 |
|
|
|
(101 |
) |
|
|
(7 |
) |
|
|
84 |
|
|
|
(143 |
) |
|
|
(59 |
) |
|
Total |
|
|
110 |
|
|
|
(219 |
) |
|
|
(109 |
) |
|
|
105 |
|
|
|
(327 |
) |
|
|
(222 |
) |
|
(c) Notional quantities
For each class of commodity contract, our exposure based on the notional quantities is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
Forward purchases of electricity (i) |
|
4,257 GWh |
|
|
3,883 GWh |
|
Forward purchases/sales of gas (ii) |
|
12m Dth |
|
|
171m Dth |
|
Electricity swaps |
|
2,559 GWh |
|
|
3,141 GWh |
|
Electricity options |
|
30,248 GWh |
|
|
30,294 GWh |
|
Gas swaps |
|
27m Dth |
|
|
59m Dth |
|
Gas options |
|
9m Dth |
|
|
|
– |
|
NYMEX gas futures (iii) |
|
18m Dth |
|
|
48m Dth |
|
|
|
|
|
(i) |
|
Forward electricity purchases have terms up to 12 years. The contractual
obligations under these contracts are £240m (2010: £269m). |
|
(ii) |
|
Forward gas purchases have
terms up to 7 years. The contractual obligations under these contracts are £247m (2010:
£434m). |
|
(iii) |
|
NYMEX gas futures have been offset with related margin accounts. |
(d) Sensitivity analysis
A sensitivity analysis has been prepared on the basis that all commodity contracts are constant
from the balance sheet date. Based on this, an illustrative 10% movement in commodity prices would
have the following impacts after the effects of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
2010 |
|
|
Income |
|
|
Other equity |
|
|
Income |
|
|
Other equity |
|
|
|
statement |
|
|
reserves |
|
|
statement |
|
|
reserves |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
10% increase in commodity prices |
|
|
58 |
|
|
|
– |
|
|
|
71 |
|
|
|
(1 |
) |
10% decrease in commodity prices |
|
|
(54 |
) |
|
|
– |
|
|
|
(64 |
) |
|
|
1 |
|
|
The income statement sensitivities would affect commodity remeasurements.
164 National Grid plc | Annual Report and Accounts 2010/11
34. Bonds and facilities
The table below shows our significant bonds in issue, being those with approximately £100m
equivalent original notional value or greater. Unless otherwise indicated, these instruments were
outstanding at both 31 March 2011 and 2010.
|
|
|
|
|
|
|
|
|
Issuer |
|
Original Notional Value |
|
Description of instrument |
|
Due |
|
|
Bonds |
|
|
|
|
|
|
|
|
British Transco Finance Inc. |
|
USD 300m |
|
6.625% Fixed Rate |
|
|
2018 |
|
|
British Transco International Finance BV |
|
USD 1,500m |
|
Zero Coupon Bond |
|
|
2021 |
|
|
Brooklyn Union Gas Company |
|
USD 153m |
|
4.7% GFRB’s Series 1996 |
|
|
2021 |
|
|
|
USD 400m |
|
5.6% Senior Unsecured Note |
|
|
2016 |
|
|
KeySpan Corporation |
|
USD 700m |
|
MTN 7.625% (i) |
|
|
2010 |
|
|
|
USD 250m |
|
MTN 8.00% |
|
|
2030 |
|
|
|
USD 307m |
|
5.803% Notes |
|
|
2035 |
|
|
|
USD 150m |
|
4.65% Notes |
|
|
2013 |
|
|
|
USD 150m |
|
5.875% Notes |
|
|
2033 |
|
|
KeySpan Gas East Corporation |
|
USD 500m |
|
5.819% Fixed Rate (ii) |
|
|
2041 |
|
(National Grid Energy Delivery Long Island) |
|
|
|
|
|
|
|
|
|
Massachusetts Electric Company |
|
USD 800m |
|
5.90% Fixed Rate |
|
|
2039 |
|
|
National Grid Electricity Transmission plc |
|
EUR 600m |
|
6.625% Fixed Rate |
|
|
2014 |
|
|
|
GBP 250m |
|
4.75% Fixed Rate (i) |
|
|
2010 |
|
|
|
GBP 300m |
|
2.983% Guaranteed Retail Price Index Linked |
|
|
2018 |
|
|
|
GBP 220m |
|
3.806% Retail Price Index Linked |
|
|
2020 |
|
|
|
GBP 450m |
|
5.875% Fixed Rate |
|
|
2024 |
|
|
|
GBP 360m |
|
6.5% Fixed Rate |
|
|
2028 |
|
|
|
GBP 200m |
|
1.6449% Retail Price Index Linked |
|
|
2036 |
|
|
|
GBP 150m |
|
1.823% Retail Price Index Linked |
|
|
2056 |
|
|
|
GBP 150m |
|
1.8575% Index Linked |
|
|
2039 |
|
|
|
GBP 379m |
|
7.375% Fixed Rate |
|
|
2031 |
|
|
National Grid Gas plc |
|
GBP 300m |
|
6.0% Fixed Rate |
|
|
2017 |
|
|
|
GBP 275m |
|
8.75% Fixed Rate |
|
|
2025 |
|
|
|
GBP 100m |
|
1.6747% Retail Price Index Linked |
|
|
2036 |
|
|
|
GBP 115m |
|
1.7298% Retail Price Index Linked |
|
|
2046 |
|
|
|
GBP 100m |
|
1.6298% Retail Price Index Linked |
|
|
2048 |
|
|
|
GBP 100m |
|
1.5522% Retail Price Index Linked |
|
|
2048 |
|
|
|
GBP 300m |
|
1.754% Retail Price Index Linked |
|
|
2036 |
|
|
|
GBP 140m |
|
1.7864% Index Linked |
|
|
2037 |
|
|
|
GBP 100m |
|
1.9158% Index Linked |
|
|
2037 |
|
|
|
GBP 100m |
|
1.7762% Index Linked |
|
|
2037 |
|
|
|
GBP 100m |
|
1.7744% Index Linked |
|
|
2039 |
|
|
|
GBP 100m |
|
1.8625% Index Linked |
|
|
2039 |
|
|
|
GBP 484m |
|
6.375% Fixed Rate |
|
|
2020 |
|
|
|
GBP 503m |
|
4.1875% Index Linked |
|
|
2022 |
|
|
|
GBP 503m |
|
7.0% Fixed Rate |
|
|
2024 |
|
|
|
EUR 800m |
|
5.125% Fixed Rate |
|
|
2013 |
|
|
|
EUR 163m |
|
4.36% EUR-HICP Linked |
|
|
2018 |
|
|
|
GBP 457m |
|
6.0% Fixed Rate |
|
|
2038 |
|
|
Annual Report and Accounts 2010/11 | National Grid plc 165
Financial Statements
Notes to the consolidated financial statements continued
34. Bonds and facilities continued
|
|
|
|
|
|
|
|
|
Issuer |
|
Original Notional Value |
|
Description of instrument |
|
Due |
|
|
Bonds continued |
|
|
|
|
|
|
|
|
National Grid plc |
|
CAD 200m |
|
4.98% Fixed Rate |
|
|
2011 |
|
|
|
EUR 1,000m |
|
4.125% Fixed Rate |
|
|
2013 |
|
|
|
EUR 600m |
|
5.0% Fixed Rate |
|
|
2018 |
|
|
|
EUR 500m |
|
4.375% Fixed Rate |
|
|
2020 |
|
|
|
EUR 600m |
|
Floating Rate (i) |
|
|
2010 |
|
|
|
EUR 750m |
|
Floating Rate |
|
|
2012 |
|
|
|
GBP 300m |
|
5.25% Fixed Rate |
|
|
2011 |
|
|
|
GBP 310m |
|
5.5% Fixed Rate |
|
|
2013 |
|
|
|
USD 1,000m |
|
6.3% Fixed Rate |
|
|
2016 |
|
|
|
EUR 578m |
|
6.5% Fixed Rate |
|
|
2014 |
|
|
|
GBP 414m |
|
6.125% Fixed Rate |
|
|
2014 |
|
|
NGG Finance plc |
|
EUR 750m |
|
6.125% Fixed Rate |
|
|
2011 |
|
|
Niagara Mohawk Power Corporation |
|
USD 750m |
|
4.881% Fixed Rate |
|
|
2019 |
|
|
|
USD 500m |
|
3.553% Fixed Rate |
|
|
2014 |
|
|
The Narragansett Electric Company |
|
USD 250m |
|
4.534% Fixed Rate |
|
|
2020 |
|
|
|
USD 300m |
|
5.638% Fixed Rate |
|
|
2040 |
|
|
Bank loans and other loans |
|
|
|
|
|
|
|
|
National Grid plc |
|
USD 200m |
|
Floating Rate (i) |
|
|
2010 |
|
|
|
USD 250m |
|
Floating Rate (i) |
|
|
2014 |
|
|
|
USD 150m |
|
Floating Rate (i) |
|
|
2014 |
|
|
National Grid Grain LNG Limited |
|
GBP 120m |
|
Floating Rate |
|
|
2014 |
|
|
|
GBP 140m |
|
Floating Rate |
|
|
2023 |
|
|
National Grid Electricity Transmission plc |
|
GBP 200m |
|
Floating Rate |
|
|
2012 |
|
|
|
GBP 200m |
|
Floating Rate |
|
|
2017 |
|
|
National Grid Gas plc |
|
GBP 200m |
|
Floating Rate |
|
|
2012 |
|
|
|
GBP 180m |
|
1.88% Retail Price Index Linked |
|
|
2022 |
|
|
|
GBP 190m |
|
2.14% Retail Price Index Linked |
|
|
2022 |
|
|
|
GBP 360m |
|
Retail Price Index Linked (ii) |
|
|
2024 |
|
|
National Grid USA |
|
USD 150m |
|
Floating Rate (i) |
|
|
2011 |
|
|
|
USD 250m |
|
Floating Rate (ii) |
|
|
2014 |
|
|
|
USD 150m |
|
Floating Rate (ii) |
|
|
2014 |
|
|
National Grid Holdings Limited |
|
GBP 250m |
|
4.13840% Fixed Rate |
|
|
2011 |
|
|
|
|
|
(i) |
|
Matured or repurchased during the
year ended 31 March 2011. |
|
(ii) |
|
Issued during the year ended 31 March 2011. |
No significant bonds have been announced to the market or issued subsequent to 31 March 2011,
up to the date of the signing of the accounts.
Borrowing facilities
At 31 March 2011, there were bilateral committed credit facilities of £2,086m (2010: £2,279m), of
which £2,086m (2010: £2,189m) were undrawn. In addition, there were committed credit facilities
from syndicates of banks of £812m at 31 March 2011 (2010: £833m), of which £812m (2010: £833m) were
undrawn. An analysis of the maturity of these undrawn committed facilities is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
£m |
|
|
£m |
|
|
Undrawn committed borrowing facilities expiring: |
|
|
|
|
|
|
|
|
Less than 1 year |
|
|
330 |
|
|
|
1,708 |
|
In 1-2 years |
|
|
899 |
|
|
|
1,314 |
|
In 3-4 years |
|
|
1,140 |
|
|
|
– |
|
In 4-5 years |
|
|
529 |
|
|
|
– |
|
|
|
|
|
2,898 |
|
|
|
3,022 |
|
|
At 31 March 2011 of the unused facilities £2,568m (2010: £2,673m) was held as back up to
commercial paper and similar borrowings, while £330m (2010: £349m) is available as back up to
specific US borrowings.
166 National Grid plc | Annual Report and Accounts 2010/11
35. Share options and reward plans
We operate four principal forms of share option and share reward plans. These plans include an
employee Sharesave scheme, a Performance Share Plan (PSP), the Deferred Share Plan and the
Retention Award Plans. In any ten year period, the maximum number of shares that may be issued
or issuable pursuant to these share plans may not exceed 10% of the issued ordinary share capital.
On 14 June 2010, the Company completed a rights issue as explained in note 25. The number of shares
allocated to employees under the Company’s share plans has been adjusted to reflect the bonus
element of the rights issue. The terms of the Company’s share plans were adjusted such that
participants of the various plans were no better or worse off as a result of the rights issue.
Active share plans
• |
|
Sharesave scheme – share options are offered to employees at 80% of the market price
at the time of the invitation. The share options are exercisable on completion of a three
and/or five year Save As You Earn contract. |
|
• |
|
PSP – awards delivered in National Grid shares (ADSs for US participants) are made to
Executive Directors and senior employees. The criteria are based on the Company’s total
shareholder return (50%) when compared to FTSE 100 and annualised growth of the Company’s EPS
(50%) when compared to the growth in RPI. |
|
• |
|
Deferred Share Plan – 50% of any Annual Performance Plan awarded to the Executive
Directors and a fixed percentage awarded to senior employees is automatically deferred into
National Grid shares (ADSs for US participants) which are held in trust for three years before
release. |
|
• |
|
Retention Award Plans – awards delivered in National Grid shares (ADSs for US
participants) to senior employees and vest in equal tranches over two and four years provided
the employee remains employed by the Company. |
Additional information in respect of active share plans (excluding Sharesave scheme)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
millions |
|
|
millions |
|
|
Awards of ordinary share equivalents at 1 April |
|
|
10.2 |
|
|
|
11.0 |
|
Impact of rights issue |
|
|
1.5 |
|
|
|
– |
|
Awards made |
|
|
5.5 |
|
|
|
4.7 |
|
Lapses/forfeits |
|
|
(1.5 |
) |
|
|
(0.9 |
) |
Awards vested |
|
|
(0.9 |
) |
|
|
(4.6 |
) |
|
Awards of ordinary share equivalents at 31 March |
|
|
14.8 |
|
|
|
10.2 |
|
Conditional awards available for release at 31 March |
|
|
1.4 |
|
|
|
0.1 |
|
|
Non-active share plans
We also have historical plans where awards are still outstanding but no further awards will be
granted. These include the Share Matching Plan, for which 156,000 awards are exercisable as at 31
March 2011 and the Executive Share Option Plan, for which details of movements are provided below.
Share options – Sharesave scheme and Executive Share Option Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sharesave scheme |
|
Executive Share Option Plan |
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
average |
|
|
|
|
|
|
average |
|
|
|
|
|
|
Total |
|
|
|
price |
|
|
|
|
|
|
price |
|
|
|
|
|
|
options |
|
|
|
£ |
|
|
millions |
|
|
£ |
|
|
millions |
|
|
millions |
|
|
At 1 April 2009 |
|
|
4.74 |
|
|
|
20.1 |
|
|
|
4.95 |
|
|
|
1.5 |
|
|
|
21.6 |
|
Granted |
|
|
5.20 |
|
|
|
3.7 |
|
|
|
– |
|
|
|
– |
|
|
|
3.7 |
|
Lapsed – expired |
|
|
5.38 |
|
|
|
(0.9 |
) |
|
|
5.24 |
|
|
|
(0.1 |
) |
|
|
(1.0 |
) |
Exercised |
|
|
3.77 |
|
|
|
(4.5 |
) |
|
|
4.93 |
|
|
|
(0.5 |
) |
|
|
(5.0 |
) |
|
At 31 March 2010 |
|
|
5.05 |
|
|
|
18.4 |
|
|
|
4.92 |
|
|
|
0.9 |
|
|
|
19.3 |
|
Impact of rights issue |
|
|
– |
|
|
|
2.1 |
|
|
|
– |
|
|
|
0.1 |
|
|
|
2.2 |
|
Granted |
|
|
4.45 |
|
|
|
3.9 |
|
|
|
– |
|
|
|
– |
|
|
|
3.9 |
|
Lapsed – expired |
|
|
4.57 |
|
|
|
(1.4 |
) |
|
|
4.61 |
|
|
|
(0.3 |
) |
|
|
(1.7 |
) |
Exercised |
|
|
4.31 |
|
|
|
(3.5 |
) |
|
|
4.37 |
|
|
|
(0.2 |
) |
|
|
(3.7 |
) |
|
At 31 March 2011 |
|
|
4.43 |
|
|
|
19.5 |
|
|
|
4.03 |
|
|
|
0.5 |
|
|
|
20.0 |
|
|
Exercisable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 March 2011 |
|
|
4.83 |
|
|
|
1.2 |
|
|
|
4.03 |
|
|
|
0.4 |
|
|
|
1.6 |
|
|
At 31 March 2010 |
|
|
4.98 |
|
|
|
0.8 |
|
|
|
4.71 |
|
|
|
0.5 |
|
|
|
1.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average share price at exercise date |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 31 March 2011 |
|
|
5.53 |
|
|
|
3.5 |
|
|
|
5.59 |
|
|
|
0.2 |
|
|
|
3.7 |
|
|
Year ended 31 March 2010 |
|
|
5.74 |
|
|
|
4.5 |
|
|
|
6.03 |
|
|
|
0.5 |
|
|
|
5.0 |
|
|
The weighted average remaining contractual life of options in the employee Sharesave scheme
at 31 March 2011 was two years and two months. These options have exercise prices between £3.80 and
£5.73 per ordinary share. The aggregate intrinsic value of all options outstanding and exercisable
at 31 March 2011 amounted to £192m and £3m respectively.
Annual Report and Accounts 2010/11 | National Grid plc 167
Financial Statements
Notes to the consolidated financial statements continued
35. Share options and reward plans continued
Awards under share option and reward plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
|
Share options |
|
|
|
|
|
|
|
|
|
|
|
|
Average share price at date of grant |
|
|
564.5p |
|
|
|
676.0p |
|
|
|
684.0p |
|
Average exercise price |
|
|
445.0p |
|
|
|
520.0p |
|
|
|
488.0p |
|
Average fair value |
|
|
137.0p |
|
|
|
161.1p |
|
|
|
153.7p |
|
Other share plans |
|
|
|
|
|
|
|
|
|
|
|
|
Average share price at date of grant |
|
|
493.3p |
|
|
|
598.2p |
|
|
|
670.1p |
|
Average fair value |
|
|
327.8p |
|
|
|
355.6p |
|
|
|
458.1p |
|
|
Fair value calculation assumptions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
|
Dividend yield (%) |
|
|
4.4-5.0 |
|
|
|
4.4-5.0 |
|
|
|
4.4-5.0 |
|
Volatility (%) |
|
|
22.4-26.1 |
|
|
|
22.4-26.1 |
|
|
|
22.4-26.1 |
|
Risk free investment rate (%) |
|
|
2.5 |
|
|
|
2.5 |
|
|
|
2.5 |
|
Average life (years) |
|
|
4.0 |
|
|
|
4.0 |
|
|
|
4.2 |
|
|
The fair values of awards under the Sharesave scheme have been calculated using the Black-Scholes
European model. The fair value of awards with total shareholder return performance conditions are
calculated using a Monte Carlo Simulation model. Fair values of other awards are calculated as the
share price at grant date, less the present value of dividends not received in the vesting period.
Volatility was derived based on the following, and is assumed to revert from its current implied
level to its long-run mean based on historical volatility under (ii) below:
(i) |
|
implied volatility in traded options over the Company’s shares; |
|
(ii) |
|
historical volatility of the Company’s shares over a term commensurate with the expected life of each option; and |
|
(iii) |
|
implied volatility of comparator companies where options in their shares are traded. |
Additional information in respect of share options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
|
|
Share options exercised |
|
|
|
|
|
|
|
|
|
|
|
|
Cash received on exercise of all share options during the year |
|
|
18 |
|
|
|
18 |
|
|
|
8 |
|
Tax benefits realised from share options exercised during the year |
|
|
3 |
|
|
|
8 |
|
|
|
4 |
|
|
168 National Grid plc | Annual Report and Accounts 2010/11
36. Subsidiary undertakings, joint ventures and associates
Principal subsidiary undertakings
The principal subsidiary undertakings included in the consolidated financial statements at 31 March
2011 are listed below. These undertakings are wholly-owned and, unless otherwise indicated, are
incorporated in England and Wales.
|
|
|
|
|
Principal activity |
|
National Grid Gas plc
|
|
Transmission and distribution of gas |
National Grid Electricity Transmission plc
|
|
Transmission of electricity |
New England Power Company (i)
|
|
Transmission of electricity |
Massachusetts Electric Company (i)
|
|
Distribution of electricity |
The Narragansett Electric Company (i)
|
|
Transmission and distribution of electricity |
Niagara Mohawk Power Corporation (i)
|
|
Transmission of electricity and distribution of electricity and gas |
National Grid Metering Limited
|
|
Metering services |
Utility Metering Services Limited
|
|
Metering services |
National Grid Grain LNG Limited
|
|
LNG importation and storage |
Boston Gas Company (i)
|
|
Distribution of gas |
National Grid Generation LLC (i)
|
|
Generation of electricity |
KeySpan Gas East Corporation (i)
|
|
Distribution of gas |
The Brooklyn Union Gas Company (i)
|
|
Distribution of gas |
NGG Finance plc
|
|
Financing |
National Grid Property Holdings Limited
|
|
Property services |
National Grid Holdings One plc
|
|
Holding company |
Lattice Group plc
|
|
Holding company |
National Grid USA (i)
|
|
Holding company |
Niagara Mohawk Holdings, Inc. (i)
|
|
Holding company |
National Grid Commercial Holdings Limited
|
|
Holding company |
National Grid Holdings Limited
|
|
Holding company |
KeySpan Corporation (i)
|
|
Holding company |
|
|
|
|
(i) |
|
Incorporated in the US. |
Principal joint ventures and associates
The principal joint ventures and associated undertakings included in the financial statements at 31
March 2011 are listed below. These undertakings are incorporated in England and Wales (unless
otherwise indicated).
|
|
|
|
|
|
|
% of ordinary |
|
|
|
|
shares held |
|
Principal activity |
|
BritNed Development Limited
|
|
50
|
|
UK / Netherlands interconnector |
Millennium Pipeline Company, LLC (i)
|
|
26.25
|
|
Transmission of gas |
Iroquois Gas Transmission System, L.P. (i)
|
|
20.4
|
|
Transmission of gas |
|
|
|
|
(i) |
|
Incorporated in the US. |
A full list of all subsidiary and associated undertakings is available from the Company Secretary &
General Counsel of the Company.
Annual Report and Accounts 2010/11 | National Grid plc 169
Financial Statements
Notes to the consolidated financial statements continued
37. National Grid Gas plc and Niagara Mohawk Power Corporation additional disclosures
The following condensed consolidating financial information, comprising income statements, balance
sheets and cash flow statements, is given in respect of National Grid Gas plc (Subsidiary
guarantor), which became joint full and unconditional guarantor on 11 May 2004 with National Grid
plc (Parent guarantor) of the 6.625% Guaranteed Notes due 2018 issued in June 1998 by British
Transco Finance Inc., then known as British Gas Finance Inc. (issuer of notes). Condensed
consolidating financial information is also provided in respect of Niagara Mohawk Power Corporation
as a result of National Grid plc’s guarantee, dated 29 October 2007, of Niagara Mohawk’s 3.6% and
3.9% issued preferred shares. National Grid Gas plc, British Transco Finance Inc., and Niagara
Mohawk Power Corporation are wholly-owned subsidiaries of National Grid plc.
The following financial information for National Grid plc, National Grid Gas plc, British Transco
Finance Inc., and Niagara Mohawk Power Corporation on a condensed consolidating basis is intended
to provide investors with meaningful and comparable financial information and is provided pursuant
to Rule 3-10 of Regulation S-X in lieu of the separate financial statements of each subsidiary
issuer of public debt securities.
This financial information should be read in conjunction with the Company’s financial statements
and footnotes presented in our 2010/11 Annual Report and Accounts.
Summary income statements are presented, on a consolidating basis, for the three years ended 31
March 2011. Summary income statements 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 balance sheets 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 balance sheets
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.
170 National Grid plc | Annual Report and Accounts 2010/11
37. National Grid Gas plc and Niagara Mohawk Power Corporation additional disclosures continued
Summary
income statements for the year ended 31 March 2011 – IFRS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent |
|
|
|
|
|
|
|
|
|
|
Subsidiary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
guarantor |
|
|
Issuer of notes |
|
|
guarantor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Niagara |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mohawk |
|
|
British |
|
|
National |
|
|
|
|
|
|
|
|
|
|
National |
|
|
|
National |
|
|
Power |
|
|
Transco |
|
|
Grid Gas |
|
|
Other |
|
|
Consolidation |
|
|
Grid |
|
|
|
Grid plc |
|
|
Corporation |
|
|
Finance Inc. |
|
|
plc |
|
|
subsidiaries |
|
|
adjustments |
|
|
consolidated |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
Revenue |
|
|
– |
|
|
|
2,606 |
|
|
|
– |
|
|
|
2,739 |
|
|
|
9,174 |
|
|
|
(176 |
) |
|
|
14,343 |
|
Operating costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortisation |
|
|
– |
|
|
|
(133 |
) |
|
|
– |
|
|
|
(455 |
) |
|
|
(664 |
) |
|
|
– |
|
|
|
(1,252 |
) |
Payroll costs |
|
|
– |
|
|
|
(288 |
) |
|
|
– |
|
|
|
(236 |
) |
|
|
(972 |
) |
|
|
– |
|
|
|
(1,496 |
) |
Purchases of electricity |
|
|
– |
|
|
|
(628 |
) |
|
|
– |
|
|
|
– |
|
|
|
(854 |
) |
|
|
– |
|
|
|
(1,482 |
) |
Purchases of gas |
|
|
– |
|
|
|
(244 |
) |
|
|
– |
|
|
|
(141 |
) |
|
|
(1,635 |
) |
|
|
– |
|
|
|
(2,020 |
) |
Rates and property taxes |
|
|
– |
|
|
|
(151 |
) |
|
|
– |
|
|
|
(239 |
) |
|
|
(555 |
) |
|
|
– |
|
|
|
(945 |
) |
Balancing Service Incentive Scheme |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(581 |
) |
|
|
– |
|
|
|
(581 |
) |
Payments to Scottish transmission owners |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(298 |
) |
|
|
– |
|
|
|
(298 |
) |
Other operating costs |
|
|
– |
|
|
|
(375 |
) |
|
|
– |
|
|
|
(489 |
) |
|
|
(1,836 |
) |
|
|
176 |
|
|
|
(2,524 |
) |
|
|
|
– |
|
|
|
(1,819 |
) |
|
|
– |
|
|
|
(1,560 |
) |
|
|
(7,395 |
) |
|
|
176 |
|
|
|
(10,598 |
) |
|
Operating profit |
|
|
– |
|
|
|
787 |
|
|
|
– |
|
|
|
1,179 |
|
|
|
1,779 |
|
|
|
– |
|
|
|
3,745 |
|
Net finance costs |
|
|
(261 |
) |
|
|
(119 |
) |
|
|
– |
|
|
|
(395 |
) |
|
|
(353 |
) |
|
|
– |
|
|
|
(1,128 |
) |
Dividends receivable |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
400 |
|
|
|
(400 |
) |
|
|
– |
|
Interest in equity accounted affiliates |
|
|
2,360 |
|
|
|
– |
|
|
|
– |
|
|
|
7 |
|
|
|
7 |
|
|
|
(2,367 |
) |
|
|
7 |
|
|
Profit before tax |
|
|
2,099 |
|
|
|
668 |
|
|
|
– |
|
|
|
791 |
|
|
|
1,833 |
|
|
|
(2,767 |
) |
|
|
2,624 |
|
Taxation |
|
|
64 |
|
|
|
(236 |
) |
|
|
– |
|
|
|
(97 |
) |
|
|
(192 |
) |
|
|
– |
|
|
|
(461 |
) |
|
Profit for the year from continuing operations |
|
|
2,163 |
|
|
|
432 |
|
|
|
– |
|
|
|
694 |
|
|
|
1,641 |
|
|
|
(2,767 |
) |
|
|
2,163 |
|
Profit for the year from discontinued operations |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
Profit for the year |
|
|
2,163 |
|
|
|
432 |
|
|
|
– |
(i) |
|
|
694 |
|
|
|
1,641 |
|
|
|
(2,767 |
) |
|
|
2,163 |
|
|
Attributable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity shareholders |
|
|
2,159 |
|
|
|
432 |
|
|
|
– |
|
|
|
694 |
|
|
|
1,637 |
|
|
|
(2,763 |
) |
|
|
2,159 |
|
Non-controlling interests |
|
|
4 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
4 |
|
|
|
(4 |
) |
|
|
4 |
|
|
|
|
|
2,163 |
|
|
|
432 |
|
|
|
– |
|
|
|
694 |
|
|
|
1,641 |
|
|
|
(2,767 |
) |
|
|
2,163 |
|
|
|
|
|
(i) |
|
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. |
Annual Report and Accounts 2010/11 | National Grid plc 171
Financial Statements
Notes to the consolidated financial statements continued
37. National Grid Gas plc and Niagara Mohawk Power Corporation additional disclosures continued
Summary
income statements for the year ended 31 March 2010 – IFRS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent |
|
|
|
|
|
|
|
|
|
|
Subsidiary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
guarantor |
|
|
Issuer of notes |
|
|
guarantor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Niagara |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mohawk |
|
|
British |
|
|
National |
|
|
|
|
|
|
|
|
|
|
National |
|
|
|
National |
|
|
Power |
|
|
Transco |
|
|
Grid Gas |
|
|
Other |
|
|
Consolidation |
|
|
Grid |
|
|
|
Grid plc |
|
|
Corporation |
|
|
Finance Inc. |
|
|
plc |
|
|
subsidiaries |
|
|
adjustments |
|
|
consolidated |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
Revenue |
|
|
– |
|
|
|
2,409 |
|
|
|
– |
|
|
|
2,787 |
|
|
|
9,008 |
|
|
|
(197 |
) |
|
|
14,007 |
|
Operating costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortisation |
|
|
– |
|
|
|
(131 |
) |
|
|
– |
|
|
|
(430 |
) |
|
|
(633 |
) |
|
|
– |
|
|
|
(1,194 |
) |
Payroll costs |
|
|
– |
|
|
|
(274 |
) |
|
|
– |
|
|
|
(224 |
) |
|
|
(904 |
) |
|
|
– |
|
|
|
(1,402 |
) |
Purchases of electricity |
|
|
– |
|
|
|
(575 |
) |
|
|
– |
|
|
|
– |
|
|
|
(998 |
) |
|
|
– |
|
|
|
(1,573 |
) |
Purchases of gas |
|
|
– |
|
|
|
(253 |
) |
|
|
– |
|
|
|
(155 |
) |
|
|
(1,834 |
) |
|
|
– |
|
|
|
(2,242 |
) |
Rates and property taxes |
|
|
– |
|
|
|
(126 |
) |
|
|
– |
|
|
|
(248 |
) |
|
|
(533 |
) |
|
|
– |
|
|
|
(907 |
) |
Balancing Service Incentive Scheme |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(691 |
) |
|
|
– |
|
|
|
(691 |
) |
Payments to Scottish transmission owners |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(260 |
) |
|
|
– |
|
|
|
(260 |
) |
Other operating costs |
|
|
4 |
|
|
|
(435 |
) |
|
|
– |
|
|
|
(633 |
) |
|
|
(1,578 |
) |
|
|
197 |
|
|
|
(2,445 |
) |
|
|
|
4 |
|
|
|
(1,794 |
) |
|
|
– |
|
|
|
(1,690 |
) |
|
|
(7,431 |
) |
|
|
197 |
|
|
|
(10,714 |
) |
|
Operating profit |
|
|
4 |
|
|
|
615 |
|
|
|
– |
|
|
|
1,097 |
|
|
|
1,577 |
|
|
|
– |
|
|
|
3,293 |
|
Net finance costs |
|
|
(227 |
) |
|
|
(96 |
) |
|
|
– |
|
|
|
(224 |
) |
|
|
(561 |
) |
|
|
– |
|
|
|
(1,108 |
) |
Dividends receivable |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
300 |
|
|
|
(300 |
) |
|
|
– |
|
Interest in equity accounted affiliates |
|
|
1,558 |
|
|
|
– |
|
|
|
– |
|
|
|
12 |
|
|
|
8 |
|
|
|
(1,570 |
) |
|
|
8 |
|
|
Profit before tax |
|
|
1,335 |
|
|
|
519 |
|
|
|
– |
|
|
|
885 |
|
|
|
1,324 |
|
|
|
(1,870 |
) |
|
|
2,193 |
|
Taxation |
|
|
54 |
|
|
|
(225 |
) |
|
|
– |
|
|
|
(285 |
) |
|
|
(348 |
) |
|
|
– |
|
|
|
(804 |
) |
|
Profit for the year from continuing operations |
|
|
1,389 |
|
|
|
294 |
|
|
|
– |
|
|
|
600 |
|
|
|
976 |
|
|
|
(1,870 |
) |
|
|
1,389 |
|
Profit for the year from discontinued operations |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
Profit for the year |
|
|
1,389 |
|
|
|
294 |
|
|
|
– |
(i) |
|
|
600 |
|
|
|
976 |
|
|
|
(1,870 |
) |
|
|
1,389 |
|
|
Attributable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity shareholders |
|
|
1,386 |
|
|
|
294 |
|
|
|
– |
|
|
|
600 |
|
|
|
973 |
|
|
|
(1,867 |
) |
|
|
1,386 |
|
Non-controlling interests |
|
|
3 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
3 |
|
|
|
(3 |
) |
|
|
3 |
|
|
|
|
|
1,389 |
|
|
|
294 |
|
|
|
– |
|
|
|
600 |
|
|
|
976 |
|
|
|
(1,870 |
) |
|
|
1,389 |
|
|
|
|
|
(i) |
|
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. |
172 National Grid plc | Annual Report and Accounts 2010/11
37. National Grid Gas plc and Niagara Mohawk Power Corporation additional disclosures continued
Summary
income statements for the year ended 31 March 2009 – IFRS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent |
|
|
|
|
|
|
|
|
|
|
Subsidiary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
guarantor |
|
|
Issuer of notes |
|
|
guarantor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Niagara |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mohawk |
|
|
British |
|
|
National |
|
|
|
|
|
|
|
|
|
|
National |
|
|
|
National |
|
|
Power |
|
|
Transco |
|
|
Grid Gas |
|
|
Other |
|
|
Consolidation |
|
|
Grid |
|
|
|
Grid plc |
|
|
Corporation |
|
|
Finance Inc. |
|
|
plc |
|
|
subsidiaries |
|
|
adjustments |
|
|
consolidated |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
Revenue |
|
|
– |
|
|
|
2,708 |
|
|
|
– |
|
|
|
2,632 |
|
|
|
10,585 |
|
|
|
(238 |
) |
|
|
15,687 |
|
Operating costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortisation |
|
|
– |
|
|
|
(135 |
) |
|
|
– |
|
|
|
(413 |
) |
|
|
(579 |
) |
|
|
– |
|
|
|
(1,127 |
) |
Payroll costs |
|
|
– |
|
|
|
(269 |
) |
|
|
– |
|
|
|
(239 |
) |
|
|
(941 |
) |
|
|
– |
|
|
|
(1,449 |
) |
Purchases of electricity |
|
|
– |
|
|
|
(735 |
) |
|
|
– |
|
|
|
– |
|
|
|
(1,492 |
) |
|
|
– |
|
|
|
(2,227 |
) |
Purchases of gas |
|
|
– |
|
|
|
(374 |
) |
|
|
– |
|
|
|
(168 |
) |
|
|
(3,020 |
) |
|
|
– |
|
|
|
(3,562 |
) |
Rates and property taxes |
|
|
– |
|
|
|
(132 |
) |
|
|
– |
|
|
|
(236 |
) |
|
|
(513 |
) |
|
|
– |
|
|
|
(881 |
) |
Balancing Service Incentive Scheme |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(904 |
) |
|
|
– |
|
|
|
(904 |
) |
Payments to Scottish transmission owners |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(243 |
) |
|
|
– |
|
|
|
(243 |
) |
Other operating costs |
|
|
– |
|
|
|
(438 |
) |
|
|
– |
|
|
|
(818 |
) |
|
|
(1,653 |
) |
|
|
238 |
|
|
|
(2,671 |
) |
|
|
|
– |
|
|
|
(2,083 |
) |
|
|
– |
|
|
|
(1,874 |
) |
|
|
(9,345 |
) |
|
|
238 |
|
|
|
(13,064 |
) |
|
Operating profit |
|
|
– |
|
|
|
625 |
|
|
|
– |
|
|
|
758 |
|
|
|
1,240 |
|
|
|
– |
|
|
|
2,623 |
|
Net finance costs |
|
|
(213 |
) |
|
|
(115 |
) |
|
|
– |
|
|
|
(400 |
) |
|
|
(506 |
) |
|
|
– |
|
|
|
(1,234 |
) |
Dividends receivable |
|
|
592 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
300 |
|
|
|
(892 |
) |
|
|
– |
|
Interest in equity accounted affiliates |
|
|
551 |
|
|
|
– |
|
|
|
– |
|
|
|
(3 |
) |
|
|
5 |
|
|
|
(548 |
) |
|
|
5 |
|
|
Profit before tax |
|
|
930 |
|
|
|
510 |
|
|
|
– |
|
|
|
355 |
|
|
|
1,039 |
|
|
|
(1,440 |
) |
|
|
1,394 |
|
Taxation |
|
|
(8 |
) |
|
|
(185 |
) |
|
|
– |
|
|
|
(307 |
) |
|
|
28 |
|
|
|
– |
|
|
|
(472 |
) |
|
Profit for the year from continuing operations |
|
|
922 |
|
|
|
325 |
|
|
|
– |
|
|
|
48 |
|
|
|
1,067 |
|
|
|
(1,440 |
) |
|
|
922 |
|
Profit for the year from discontinued operations |
|
|
25 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
25 |
|
|
|
(25 |
) |
|
|
25 |
|
|
Profit for the year |
|
|
947 |
|
|
|
325 |
|
|
|
– |
(i) |
|
|
48 |
|
|
|
1,092 |
|
|
|
(1,465 |
) |
|
|
947 |
|
|
Attributable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity shareholders |
|
|
944 |
|
|
|
325 |
|
|
|
– |
|
|
|
48 |
|
|
|
1,092 |
|
|
|
(1,465 |
) |
|
|
944 |
|
Non-controlling interests |
|
|
3 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
3 |
|
|
|
|
|
947 |
|
|
|
325 |
|
|
|
– |
|
|
|
48 |
|
|
|
1,092 |
|
|
|
(1,465 |
) |
|
|
947 |
|
|
|
|
|
(i) |
|
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. |
Annual Report and Accounts 2010/11 | National Grid plc 173
Financial Statements
Notes to the consolidated financial statements continued
37. National Grid Gas plc and Niagara Mohawk Power Corporation additional disclosures
continued
Balance sheets as at 31 March 2011 – IFRS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent |
|
|
|
|
|
|
|
|
|
|
Subsidiary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
guarantor |
|
|
Issuer of notes |
|
|
guarantor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Niagara |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mohawk |
|
|
British |
|
|
National |
|
|
|
|
|
|
|
|
|
|
National |
|
|
|
National |
|
|
Power |
|
|
Transco |
|
|
Grid Gas |
|
|
Other |
|
|
Consolidation |
|
|
Grid |
|
|
|
Grid plc |
|
|
Corporation |
|
|
Finance Inc. |
|
|
plc |
|
|
subsidiaries |
|
|
adjustments |
|
|
consolidated |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
Non-current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
– |
|
|
|
697 |
|
|
|
– |
|
|
|
– |
|
|
|
4,079 |
|
|
|
– |
|
|
|
4,776 |
|
Other intangible assets |
|
|
– |
|
|
|
4 |
|
|
|
– |
|
|
|
185 |
|
|
|
312 |
|
|
|
– |
|
|
|
501 |
|
Property, plant and equipment |
|
|
– |
|
|
|
3,876 |
|
|
|
– |
|
|
|
11,290 |
|
|
|
16,790 |
|
|
|
– |
|
|
|
31,956 |
|
Deferred tax assets |
|
|
4 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(4 |
) |
|
|
– |
|
Other non-current assets |
|
|
– |
|
|
|
64 |
|
|
|
– |
|
|
|
10 |
|
|
|
61 |
|
|
|
– |
|
|
|
135 |
|
Amounts owed by subsidiary undertakings |
|
|
311 |
|
|
|
– |
|
|
|
– |
|
|
|
5,611 |
|
|
|
– |
|
|
|
(5,922 |
) |
|
|
– |
|
Pension assets |
|
|
– |
|
|
|
154 |
|
|
|
– |
|
|
|
– |
|
|
|
402 |
|
|
|
– |
|
|
|
556 |
|
Financial and other investments |
|
|
9,504 |
|
|
|
20 |
|
|
|
– |
|
|
|
30 |
|
|
|
9,841 |
|
|
|
(18,802 |
) |
|
|
593 |
|
Derivative financial assets |
|
|
576 |
|
|
|
– |
|
|
|
– |
|
|
|
535 |
|
|
|
159 |
|
|
|
– |
|
|
|
1,270 |
|
|
Total non-current assets |
|
|
10,395 |
|
|
|
4,815 |
|
|
|
– |
|
|
|
17,661 |
|
|
|
31,644 |
|
|
|
(24,728 |
) |
|
|
39,787 |
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories and current intangible assets |
|
|
– |
|
|
|
24 |
|
|
|
– |
|
|
|
40 |
|
|
|
256 |
|
|
|
– |
|
|
|
320 |
|
Trade and other receivables |
|
|
3 |
|
|
|
498 |
|
|
|
– |
|
|
|
217 |
|
|
|
1,494 |
|
|
|
– |
|
|
|
2,212 |
|
Amounts owed by subsidiary undertakings |
|
|
9,985 |
|
|
|
16 |
|
|
|
190 |
|
|
|
107 |
|
|
|
9,552 |
|
|
|
(19,850 |
) |
|
|
– |
|
Financial and other investments |
|
|
1,424 |
|
|
|
12 |
|
|
|
– |
|
|
|
223 |
|
|
|
1,280 |
|
|
|
– |
|
|
|
2,939 |
|
Derivative financial assets |
|
|
244 |
|
|
|
– |
|
|
|
– |
|
|
|
80 |
|
|
|
198 |
|
|
|
(54 |
) |
|
|
468 |
|
Cash and cash equivalents |
|
|
200 |
|
|
|
2 |
|
|
|
– |
|
|
|
83 |
|
|
|
99 |
|
|
|
– |
|
|
|
384 |
|
|
Total current assets |
|
|
11,856 |
|
|
|
552 |
|
|
|
190 |
|
|
|
750 |
|
|
|
12,879 |
|
|
|
(19,904 |
) |
|
|
6,323 |
|
|
Assets of businesses held for sale |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
290 |
|
|
|
– |
|
|
|
290 |
|
|
Total assets |
|
|
22,251 |
|
|
|
5,367 |
|
|
|
190 |
|
|
|
18,411 |
|
|
|
44,813 |
|
|
|
(44,632 |
) |
|
|
46,400 |
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings |
|
|
(1,125 |
) |
|
|
(11 |
) |
|
|
(4 |
) |
|
|
(410 |
) |
|
|
(1,402 |
) |
|
|
– |
|
|
|
(2,952 |
) |
Derivative financial liabilities |
|
|
(194 |
) |
|
|
– |
|
|
|
– |
|
|
|
(22 |
) |
|
|
(28 |
) |
|
|
54 |
|
|
|
(190 |
) |
Trade and other payables |
|
|
(34 |
) |
|
|
(259 |
) |
|
|
– |
|
|
|
(654 |
) |
|
|
(1,881 |
) |
|
|
– |
|
|
|
(2,828 |
) |
Amounts owed to subsidiary undertakings |
|
|
(7,957 |
) |
|
|
(422 |
) |
|
|
– |
|
|
|
(1,171 |
) |
|
|
(10,300 |
) |
|
|
19,850 |
|
|
|
– |
|
Current tax liabilities |
|
|
– |
|
|
|
(222 |
) |
|
|
– |
|
|
|
(23 |
) |
|
|
(258 |
) |
|
|
– |
|
|
|
(503 |
) |
Provisions |
|
|
– |
|
|
|
(22 |
) |
|
|
– |
|
|
|
(79 |
) |
|
|
(252 |
) |
|
|
– |
|
|
|
(353 |
) |
|
Total current liabilities |
|
|
(9,310 |
) |
|
|
(936 |
) |
|
|
(4 |
) |
|
|
(2,359 |
) |
|
|
(14,121 |
) |
|
|
19,904 |
|
|
|
(6,826 |
) |
|
Non-current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings |
|
|
(3,628 |
) |
|
|
(1,293 |
) |
|
|
(186 |
) |
|
|
(6,535 |
) |
|
|
(8,604 |
) |
|
|
– |
|
|
|
(20,246 |
) |
Derivative financial liabilities |
|
|
(253 |
) |
|
|
– |
|
|
|
– |
|
|
|
(85 |
) |
|
|
(66 |
) |
|
|
– |
|
|
|
(404 |
) |
Other non-current liabilities |
|
|
– |
|
|
|
(291 |
) |
|
|
– |
|
|
|
(1,097 |
) |
|
|
(556 |
) |
|
|
– |
|
|
|
(1,944 |
) |
Amounts owed to subsidiary undertakings |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(5,922 |
) |
|
|
5,922 |
|
|
|
– |
|
Deferred tax liabilities |
|
|
– |
|
|
|
(286 |
) |
|
|
– |
|
|
|
(1,873 |
) |
|
|
(1,611 |
) |
|
|
4 |
|
|
|
(3,766 |
) |
Pensions and other post-retirement benefit obligations |
|
|
– |
|
|
|
(967 |
) |
|
|
– |
|
|
|
– |
|
|
|
(1,607 |
) |
|
|
– |
|
|
|
(2,574 |
) |
Provisions |
|
|
– |
|
|
|
(243 |
) |
|
|
– |
|
|
|
(121 |
) |
|
|
(1,097 |
) |
|
|
– |
|
|
|
(1,461 |
) |
|
Total non-current liabilities |
|
|
(3,881 |
) |
|
|
(3,080 |
) |
|
|
(186 |
) |
|
|
(9,711 |
) |
|
|
(19,463 |
) |
|
|
5,926 |
|
|
|
(30,395 |
) |
|
Liabilities of businesses held for sale |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(110 |
) |
|
|
– |
|
|
|
(110 |
) |
|
Total liabilities |
|
|
(13,191 |
) |
|
|
(4,016 |
) |
|
|
(190 |
) |
|
|
(12,070 |
) |
|
|
(33,694 |
) |
|
|
25,830 |
|
|
|
(37,331 |
) |
|
Net assets |
|
|
9,060 |
|
|
|
1,351 |
|
|
|
– |
|
|
|
6,341 |
|
|
|
11,119 |
|
|
|
(18,802 |
) |
|
|
9,069 |
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Called up share capital |
|
|
416 |
|
|
|
116 |
|
|
|
– |
|
|
|
45 |
|
|
|
183 |
|
|
|
(344 |
) |
|
|
416 |
|
Share premium account |
|
|
1,361 |
|
|
|
1,825 |
|
|
|
– |
|
|
|
204 |
|
|
|
7,183 |
|
|
|
(9,212 |
) |
|
|
1,361 |
|
Retained earnings |
|
|
12,153 |
|
|
|
(591 |
) |
|
|
– |
|
|
|
4,796 |
|
|
|
3,962 |
|
|
|
(8,167 |
) |
|
|
12,153 |
|
Other equity reserves |
|
|
(4,870 |
) |
|
|
1 |
|
|
|
– |
|
|
|
1,296 |
|
|
|
(218 |
) |
|
|
(1,079 |
) |
|
|
(4,870 |
) |
|
Shareholders’ equity |
|
|
9,060 |
|
|
|
1,351 |
|
|
|
– |
|
|
|
6,341 |
|
|
|
11,110 |
|
|
|
(18,802 |
) |
|
|
9,060 |
|
Non-controlling interests |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
9 |
|
|
|
– |
|
|
|
9 |
|
|
Total equity |
|
|
9,060 |
|
|
|
1,351 |
|
|
|
– |
|
|
|
6,341 |
|
|
|
11,119 |
|
|
|
(18,802 |
) |
|
|
9,069 |
|
|
174 National Grid plc | Annual Report and Accounts 2010/11
37. National Grid Gas plc and Niagara Mohawk Power Corporation additional disclosures
continued
Balance sheets as at 31 March 2010 – IFRS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent |
|
|
|
|
|
|
|
|
|
|
Subsidiary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
guarantor |
|
|
Issuer of notes |
|
|
guarantor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Niagara |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mohawk |
|
|
British |
|
|
National |
|
|
|
|
|
|
|
|
|
|
National |
|
|
|
National |
|
|
Power |
|
|
Transco |
|
|
Grid Gas |
|
|
Other |
|
|
Consolidation |
|
|
Grid |
|
|
|
Grid plc |
|
|
Corporation |
|
|
Finance Inc. |
|
|
plc |
|
|
subsidiaries |
|
|
adjustments |
|
|
consolidated |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
Non-current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
– |
|
|
|
738 |
|
|
|
– |
|
|
|
– |
|
|
|
4,364 |
|
|
|
– |
|
|
|
5,102 |
|
Other intangible assets |
|
|
– |
|
|
|
3 |
|
|
|
– |
|
|
|
126 |
|
|
|
260 |
|
|
|
– |
|
|
|
389 |
|
Property, plant and equipment |
|
|
– |
|
|
|
3,920 |
|
|
|
– |
|
|
|
10,817 |
|
|
|
16,118 |
|
|
|
– |
|
|
|
30,855 |
|
Deferred tax assets |
|
|
2 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(2 |
) |
|
|
– |
|
Other non-current assets |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
7 |
|
|
|
155 |
|
|
|
– |
|
|
|
162 |
|
Amounts owed by subsidiary undertakings |
|
|
1,700 |
|
|
|
– |
|
|
|
– |
|
|
|
5,611 |
|
|
|
1,127 |
|
|
|
(8,438 |
) |
|
|
– |
|
Pension assets |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
Financial and other investments |
|
|
6,954 |
|
|
|
23 |
|
|
|
– |
|
|
|
25 |
|
|
|
9,731 |
|
|
|
(16,247 |
) |
|
|
486 |
|
Derivative financial assets |
|
|
655 |
|
|
|
51 |
|
|
|
– |
|
|
|
564 |
|
|
|
224 |
|
|
|
– |
|
|
|
1,494 |
|
|
Total non-current assets |
|
|
9,311 |
|
|
|
4,735 |
|
|
|
– |
|
|
|
17,150 |
|
|
|
31,979 |
|
|
|
(24,687 |
) |
|
|
38,488 |
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories and current intangible assets |
|
|
– |
|
|
|
30 |
|
|
|
– |
|
|
|
44 |
|
|
|
333 |
|
|
|
– |
|
|
|
407 |
|
Trade and other receivables |
|
|
6 |
|
|
|
503 |
|
|
|
– |
|
|
|
270 |
|
|
|
1,524 |
|
|
|
(10 |
) |
|
|
2,293 |
|
Amounts owed by subsidiary undertakings |
|
|
8,649 |
|
|
|
– |
|
|
|
202 |
|
|
|
114 |
|
|
|
7,862 |
|
|
|
(16,827 |
) |
|
|
– |
|
Financial and other investments |
|
|
180 |
|
|
|
17 |
|
|
|
– |
|
|
|
307 |
|
|
|
893 |
|
|
|
– |
|
|
|
1,397 |
|
Derivative financial assets |
|
|
218 |
|
|
|
1 |
|
|
|
– |
|
|
|
72 |
|
|
|
43 |
|
|
|
(86 |
) |
|
|
248 |
|
Cash and cash equivalents |
|
|
198 |
|
|
|
2 |
|
|
|
– |
|
|
|
– |
|
|
|
520 |
|
|
|
– |
|
|
|
720 |
|
|
Total current assets |
|
|
9,251 |
|
|
|
553 |
|
|
|
202 |
|
|
|
807 |
|
|
|
11,175 |
|
|
|
(16,923 |
) |
|
|
5,065 |
|
|
Assets of businesses held for sale |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
Total assets |
|
|
18,562 |
|
|
|
5,288 |
|
|
|
202 |
|
|
|
17,957 |
|
|
|
43,154 |
|
|
|
(41,610 |
) |
|
|
43,553 |
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings |
|
|
(1,183 |
) |
|
|
(27 |
) |
|
|
(5 |
) |
|
|
(371 |
) |
|
|
(1,220 |
) |
|
|
– |
|
|
|
(2,806 |
) |
Derivative financial liabilities |
|
|
(174 |
) |
|
|
– |
|
|
|
– |
|
|
|
(30 |
) |
|
|
(94 |
) |
|
|
86 |
|
|
|
(212 |
) |
Trade and other payables |
|
|
(30 |
) |
|
|
(310 |
) |
|
|
– |
|
|
|
(665 |
) |
|
|
(1,842 |
) |
|
|
– |
|
|
|
(2,847 |
) |
Amounts owed to subsidiary undertakings |
|
|
(6,701 |
) |
|
|
(220 |
) |
|
|
– |
|
|
|
(942 |
) |
|
|
(8,964 |
) |
|
|
16,827 |
|
|
|
– |
|
Current tax liabilities |
|
|
– |
|
|
|
(32 |
) |
|
|
– |
|
|
|
– |
|
|
|
(369 |
) |
|
|
10 |
|
|
|
(391 |
) |
Provisions |
|
|
– |
|
|
|
(36 |
) |
|
|
– |
|
|
|
(62 |
) |
|
|
(205 |
) |
|
|
– |
|
|
|
(303 |
) |
|
Total current liabilities |
|
|
(8,088 |
) |
|
|
(625 |
) |
|
|
(5 |
) |
|
|
(2,070 |
) |
|
|
(12,694 |
) |
|
|
16,923 |
|
|
|
(6,559 |
) |
|
Non-current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings |
|
|
(5,307 |
) |
|
|
(1,358 |
) |
|
|
(197 |
) |
|
|
(6,387 |
) |
|
|
(9,069 |
) |
|
|
– |
|
|
|
(22,318 |
) |
Derivative financial liabilities |
|
|
(431 |
) |
|
|
– |
|
|
|
– |
|
|
|
(121 |
) |
|
|
(110 |
) |
|
|
– |
|
|
|
(662 |
) |
Other non-current liabilities |
|
|
– |
|
|
|
(256 |
) |
|
|
– |
|
|
|
(1,100 |
) |
|
|
(618 |
) |
|
|
– |
|
|
|
(1,974 |
) |
Amounts owed to subsidiary undertakings |
|
|
(537 |
) |
|
|
(341 |
) |
|
|
– |
|
|
|
(250 |
) |
|
|
(7,310 |
) |
|
|
8,438 |
|
|
|
– |
|
Deferred tax liabilities |
|
|
– |
|
|
|
(131 |
) |
|
|
– |
|
|
|
(1,890 |
) |
|
|
(1,305 |
) |
|
|
2 |
|
|
|
(3,324 |
) |
Pensions and other post-retirement benefit obligations |
|
|
– |
|
|
|
(1,102 |
) |
|
|
– |
|
|
|
– |
|
|
|
(1,996 |
) |
|
|
– |
|
|
|
(3,098 |
) |
Provisions |
|
|
– |
|
|
|
(215 |
) |
|
|
– |
|
|
|
(108 |
) |
|
|
(1,084 |
) |
|
|
– |
|
|
|
(1,407 |
) |
|
Total non-current liabilities |
|
|
(6,275 |
) |
|
|
(3,403 |
) |
|
|
(197 |
) |
|
|
(9,856 |
) |
|
|
(21,492 |
) |
|
|
8,440 |
|
|
|
(32,783 |
) |
|
Liabilities of businesses held for sale |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
Total liabilities |
|
|
(14,363 |
) |
|
|
(4,028 |
) |
|
|
(202 |
) |
|
|
(11,926 |
) |
|
|
(34,186 |
) |
|
|
25,363 |
|
|
|
(39,342 |
) |
|
Net assets |
|
|
4,199 |
|
|
|
1,260 |
|
|
|
– |
|
|
|
6,031 |
|
|
|
8,968 |
|
|
|
(16,247 |
) |
|
|
4,211 |
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Called up share capital |
|
|
298 |
|
|
|
123 |
|
|
|
– |
|
|
|
45 |
|
|
|
183 |
|
|
|
(351 |
) |
|
|
298 |
|
Share premium account |
|
|
1,366 |
|
|
|
1,942 |
|
|
|
– |
|
|
|
204 |
|
|
|
7,183 |
|
|
|
(9,329 |
) |
|
|
1,366 |
|
Retained earnings |
|
|
7,316 |
|
|
|
(808 |
) |
|
|
– |
|
|
|
4,493 |
|
|
|
1,821 |
|
|
|
(5,506 |
) |
|
|
7,316 |
|
Other equity reserves |
|
|
(4,781 |
) |
|
|
3 |
|
|
|
– |
|
|
|
1,289 |
|
|
|
(231 |
) |
|
|
(1,061 |
) |
|
|
(4,781 |
) |
|
Shareholders’ equity |
|
|
4,199 |
|
|
|
1,260 |
|
|
|
– |
|
|
|
6,031 |
|
|
|
8,956 |
|
|
|
(16,247 |
) |
|
|
4,199 |
|
Non-controlling interests |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
12 |
|
|
|
– |
|
|
|
12 |
|
|
Total equity |
|
|
4,199 |
|
|
|
1,260 |
|
|
|
– |
|
|
|
6,031 |
|
|
|
8,968 |
|
|
|
(16,247 |
) |
|
|
4,211 |
|
|
Annual Report and Accounts 2010/11 | National Grid plc 175
Financial Statements
Notes to the consolidated financial statements continued
37. National Grid Gas plc and Niagara Mohawk Power Corporation additional disclosures
continued
Cash flow statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent |
|
|
|
|
|
|
|
|
|
|
Subsidiary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
guarantor |
|
|
Issuer of notes |
|
|
guarantor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Niagara |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mohawk |
|
|
British |
|
|
National |
|
|
|
|
|
|
|
|
|
|
National |
|
|
|
National |
|
|
Power |
|
|
Transco |
|
|
Grid Gas |
|
|
Other |
|
|
Consolidation |
|
|
Grid |
|
|
|
Grid plc |
|
|
Corporation |
|
|
Finance Inc. |
|
|
plc |
|
|
subsidiaries |
|
|
adjustments |
|
|
consolidated |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
Year ended 31 March 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
55 |
|
|
|
742 |
|
|
|
– |
|
|
|
1,596 |
|
|
|
2,465 |
|
|
|
– |
|
|
|
4,858 |
|
Net cash provided by/(used in) investing activities |
|
|
2,127 |
|
|
|
(377 |
) |
|
|
– |
|
|
|
(909 |
) |
|
|
(1,850 |
) |
|
|
(3,765 |
) |
|
|
(4,774 |
) |
Net cash (used in)/provided by financing activities |
|
|
(2,180 |
) |
|
|
(365 |
) |
|
|
– |
|
|
|
(621 |
) |
|
|
(1,029 |
) |
|
|
3,765 |
|
|
|
(430 |
) |
|
Net increase/(decrease) in cash and cash equivalents
in the year |
|
|
2 |
|
|
|
– |
|
|
|
– |
|
|
|
66 |
|
|
|
(414 |
) |
|
|
– |
|
|
|
(346 |
) |
|
Year ended 31 March 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
– |
|
|
|
527 |
|
|
|
– |
|
|
|
1,449 |
|
|
|
2,540 |
|
|
|
– |
|
|
|
4,516 |
|
Net cash provided by/(used in) investing activities |
|
|
600 |
|
|
|
(307 |
) |
|
|
– |
|
|
|
(367 |
) |
|
|
(1,451 |
) |
|
|
(807 |
) |
|
|
(2,332 |
) |
Net cash (used in)/provided by financing activities |
|
|
(637 |
) |
|
|
(222 |
) |
|
|
– |
|
|
|
(1,088 |
) |
|
|
(1,072 |
) |
|
|
807 |
|
|
|
(2,212 |
) |
|
Net (decrease)/increase in cash and cash equivalents
in the year |
|
|
(37 |
) |
|
|
(2 |
) |
|
|
– |
|
|
|
(6 |
) |
|
|
17 |
|
|
|
– |
|
|
|
(28 |
) |
|
Year ended 31 March 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities –
continuing operations |
|
|
– |
|
|
|
419 |
|
|
|
– |
|
|
|
1,277 |
|
|
|
1,725 |
|
|
|
– |
|
|
|
3,421 |
|
Net cash used in operating activities –
discontinued operations |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(8 |
) |
|
|
– |
|
|
|
(8 |
) |
|
Net cash provided by operating activities |
|
|
– |
|
|
|
419 |
|
|
|
– |
|
|
|
1,277 |
|
|
|
1,717 |
|
|
|
– |
|
|
|
3,413 |
|
|
Net cash (used in)/provided by investing activities –
continuing operations |
|
|
(2,426 |
) |
|
|
(265 |
) |
|
|
– |
|
|
|
(1,569 |
) |
|
|
(4,974 |
) |
|
|
6,187 |
|
|
|
(3,047 |
) |
Net cash (used in)/provided by investing activities –
discontinued operations |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(6 |
) |
|
|
1,055 |
|
|
|
– |
|
|
|
1,049 |
|
|
Net cash (used in)/provided by investing activities |
|
|
(2,426 |
) |
|
|
(265 |
) |
|
|
– |
|
|
|
(1,575 |
) |
|
|
(3,919 |
) |
|
|
6,187 |
|
|
|
(1,998 |
) |
|
Net cash provided by/(used in) financing activities |
|
|
2,663 |
|
|
|
(157 |
) |
|
|
– |
|
|
|
291 |
|
|
|
2,513 |
|
|
|
(6,187 |
) |
|
|
(877 |
) |
|
Net increase/(decrease) in cash and cash equivalents
in the year |
|
|
237 |
|
|
|
(3 |
) |
|
|
– |
|
|
|
(7 |
) |
|
|
311 |
|
|
|
– |
|
|
|
538 |
|
|
Cash dividends were received by National Grid plc from subsidiary undertakings amounting to
£150m during the year ended 31 March 2011 (2010: £504m; 2009: £592m).
176 National Grid plc | Annual Report and Accounts 2010/11
Company accounting policies
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 Company has not presented its own profit and loss
account as permitted by section 408 of the Companies Act 2006.
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.
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.
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. Taxation
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
taxation computations in periods different from those
in which they are included in the financial statements.
Deferred tax assets are recognised to the extent that
it is regarded as more likely than not that they will
be recovered. Deferred tax assets and liabilities are
not discounted.
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
Financial assets, liabilities and equity
instruments are classified according to the substance
of the contractual arrangements entered into. An equity
instrument is any contract that evidences a residual
interest in the assets of the Company after deducting
all of 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.
Loans receivable are carried at amortised cost using the
effective interest rate method less any allowance for
estimated impairments. A provision is established for
impairments when there is objective evidence that the
Company will not be able to collect all amounts due
under the original terms of the loan. Interest income,
together with losses when the loans are impaired are
recognised using the effective interest rate method in
the profit and loss account.
Current asset financial
investments are recognised at fair value plus directly
related incremental transaction costs and are
subsequently carried at fair value on the balance sheet.
Changes in the fair value of investments classified as
available-for-sale are recognised directly in equity,
until the investment is disposed of or is determined to
be impaired. At this time, the cumulative gain or loss
previously recognised in equity is included in net
profit or loss for the period. Investment income on
investments classified as available-for-sale is
recognised in the profit and loss account as it accrues.
Borrowings, which include interest-bearing loans 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 rate method.
Any difference between proceeds and the redemption
value is recognised over the term of the borrowing in
the profit and loss account using the effective
interest rate method.
Derivative financial instruments (‘derivatives’) are
recorded at fair value. Where the fair value of a
derivative is positive, it is carried as a derivative
asset, and where negative as a liability. Assets and
liabilities on different transactions are only netted if
the transactions are with the same counterparty, a legal
right of set off exists and the cash flows are intended
to be settled on a net basis. Gains and losses arising
from changes in fair value are included in the profit
and loss account in the period they arise.
Where derivatives are embedded in other financial
instruments that are closely related to those
instruments, no adjustment is made with respect to such
derivative clauses. Otherwise the
derivative is recorded separately at fair value on the
balance sheet.
The fair values of financial instruments measured at
fair value that are quoted in active markets are based
on bid prices for assets held and offer prices for
issued liabilities. When independent prices are not
available, fair values are determined by using valuation
techniques which are consistent with techniques commonly
used by the relevant market. The techniques use
observable market data.
Annual Report and Accounts 2010/11 | National Grid plc 177
Financial Statements
Company accounting policies continued
F. Hedge accounting
The Company enters into derivatives and
non-derivative financial instruments in order to manage
its interest rate and foreign currency exposures, with a
view to managing these risks associated with
the Company’s underlying business activities and the
financing of those activities. The principal derivatives
used include interest rate swaps, forward rate
agreements, currency swaps, forward foreign currency
contracts and interest rate swaptions.
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 profit and loss account. The Company
uses two hedge accounting methods.
Firstly, changes in the carrying value of financial
instruments that are designated and effective as hedges
of future cash flows (‘cash flow hedges’) are recognised
directly in equity and any ineffective portion is
recognised immediately in the profit and loss account.
Amounts deferred in equity in respect of cash flow
hedges are subsequently recognised in the profit and
loss account in the same period in which the hedged item
affects net profit or loss.
Secondly, changes in the
carrying value of financial instruments that are
designated as hedges of the changes in the fair value of
assets or liabilities (‘fair value hedges’) are
recognised in the profit and loss account. An offsetting
amount is recorded as an adjustment to the carrying
value of hedged items, with a corresponding entry in the
profit and loss account, to the extent that the change
is attributable to the risk being hedged and that the
fair value hedge is effective.
Changes in the fair value of derivatives that do not
qualify for hedge accounting are recognised in the
profit and loss account as they arise.
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 profit and
loss account in the same periods in which the
previously hedged item affects net profit or loss. For
fair value hedges the cumulative adjustment recorded to
its carrying value at the date hedge accounting is
discontinued is amortised to the profit and loss
account using the effective interest rate method.
If a hedged transaction is no longer expected to
occur, the net cumulative gain or loss recognised in
equity is transferred to the profit and loss account
immediately.
G. Parent Company guarantees
The Company has guaranteed the repayment of the
principal and any associated premium and interest on
specific loans due from certain subsidiary
undertakings 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 Company issues equity-settled, share-based
payments to certain employees of subsidiary
undertakings, detailed in the Directors’ Report,
including the Directors’ Remuneration Report and in note
35 to the consolidated financial statements.
Equity-settled, share-based payments are measured at
fair value at the date of grant. The Company has no
employees. Equity-settled, share-based payments that are
made available to employees of the Company’s
subsidiaries are treated as increases in equity over the
vesting period of the award, with a corresponding
increase in the Company’s investments in subsidiaries,
based on an estimate of the number of shares that will
eventually vest. 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.
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.
178 National Grid plc | Annual Report and Accounts 2010/11
Company balance sheet
at 31 March
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
Notes |
|
|
£m |
|
|
£m |
|
|
Fixed assets |
|
|
|
|
|
|
|
|
|
|
|
|
Investments |
|
|
1 |
|
|
|
7,890 |
|
|
|
7,865 |
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
Debtors (amounts falling due within one year) |
|
|
2 |
|
|
|
9,988 |
|
|
|
8,655 |
|
Debtors (amounts falling due after more than one year) |
|
|
2 |
|
|
|
315 |
|
|
|
1,702 |
|
Derivative financial instruments (amounts falling due within one year) |
|
|
4 |
|
|
|
244 |
|
|
|
218 |
|
Derivative financial instruments (amounts falling due after more than one year) |
|
|
4 |
|
|
|
576 |
|
|
|
655 |
|
Current asset investments |
|
|
5 |
|
|
|
1,624 |
|
|
|
377 |
|
Cash at bank |
|
|
|
|
|
|
– |
|
|
|
1 |
|
|
|
|
|
|
|
|
12,747 |
|
|
|
11,608 |
|
Creditors (amounts falling due within one year) |
|
|
3 |
|
|
|
(9,310 |
) |
|
|
(8,088 |
) |
|
Net current assets |
|
|
|
|
|
|
3,437 |
|
|
|
3,520 |
|
|
Total assets less current liabilities |
|
|
|
|
|
|
11,327 |
|
|
|
11,385 |
|
Creditors (amounts falling due after more than one year) |
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings |
|
|
6 |
|
|
|
(3,628 |
) |
|
|
(5,307 |
) |
Derivative financial instruments |
|
|
4 |
|
|
|
(253 |
) |
|
|
(431 |
) |
Amounts owed to subsidiary undertakings |
|
|
|
|
|
|
– |
|
|
|
(537 |
) |
|
|
|
|
|
|
|
(3,881 |
) |
|
|
(6,275 |
) |
|
Net assets |
|
|
|
|
|
|
7,446 |
|
|
|
5,110 |
|
|
Capital and reserves |
|
|
|
|
|
|
|
|
|
|
|
|
Called up share capital |
|
|
7 |
|
|
|
416 |
|
|
|
298 |
|
Share premium account |
|
|
8 |
|
|
|
1,361 |
|
|
|
1,366 |
|
Cash flow hedge reserve |
|
|
8 |
|
|
|
2 |
|
|
|
14 |
|
Other equity reserves |
|
|
8 |
|
|
|
196 |
|
|
|
171 |
|
Profit and loss account |
|
|
8 |
|
|
|
5,471 |
|
|
|
3,261 |
|
|
Total shareholders’ funds |
|
|
9 |
|
|
|
7,446 |
|
|
|
5,110 |
|
|
Commitments and contingencies are shown in note 10 to the Company financial statements on
page 183.
The notes on pages 180 to 183 form part of the individual financial statements of the Company,
which were approved by the Board of Directors on 18 May 2011 and were signed on its behalf by:
Sir John Parker Chairman
Andrew Bonfield Finance Director
Annual Report and Accounts 2010/11 | National Grid plc 179
Financial Statements
Notes to the Company financial statements
1. Fixed asset investments
|
|
|
|
|
|
|
Shares in |
|
|
|
subsidiary |
|
|
|
undertakings |
|
|
|
£m |
|
|
At 31 March 2009 |
|
|
7,840 |
|
Additions |
|
|
25 |
|
|
At 31 March 2010 |
|
|
7,865 |
|
Additions |
|
|
25 |
|
|
At 31 March 2011 |
|
|
7,890 |
|
|
During the year there was a capital contribution which represents the fair value of equity
instruments granted to subsidiaries’ employees arising from equity-settled employee share schemes.
The names of the principal subsidiary undertakings, joint ventures and associates are included in
note 36 in the consolidated financial statements.
The Directors believe that the carrying value of
the investments is supported by their underlying net assets.
2. Debtors
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
£m |
|
|
£m |
|
|
Amounts falling due within one year: |
|
|
|
|
|
|
|
|
Amounts owed by subsidiary undertakings |
|
|
9,985 |
|
|
|
8,649 |
|
Prepayments and accrued income |
|
|
3 |
|
|
|
6 |
|
|
|
|
|
9,988 |
|
|
|
8,655 |
|
|
Amounts falling due after more than one year: |
|
|
|
|
|
|
|
|
Amounts owed by subsidiary undertakings |
|
|
311 |
|
|
|
1,700 |
|
Deferred taxation |
|
|
4 |
|
|
|
2 |
|
|
|
|
|
315 |
|
|
|
1,702 |
|
|
|
|
|
|
|
|
|
Deferred |
|
|
|
taxation |
|
|
|
£m |
|
|
At 31 March 2009 |
|
|
3 |
|
Charged to the profit and loss account |
|
|
(1 |
) |
|
At 31 March 2010 |
|
|
2 |
|
Charged to the profit and loss account |
|
|
(2 |
) |
Credited to equity |
|
|
4 |
|
|
At 31 March 2011 |
|
|
4 |
|
|
3. Creditors (amounts falling due within one year)
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
£m |
|
|
£m |
|
|
Borrowings (note 6) |
|
|
1,125 |
|
|
|
1,183 |
|
Derivative financial instruments (note 4) |
|
|
194 |
|
|
|
174 |
|
Amounts owed to subsidiary undertakings |
|
|
7,957 |
|
|
|
6,701 |
|
Other creditors |
|
|
34 |
|
|
|
30 |
|
|
|
|
|
9,310 |
|
|
|
8,088 |
|
|
180 National Grid plc | Annual Report and Accounts 2010/11
4. Derivative financial instruments
The fair values of derivative financial instruments are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
2010 |
|
|
Assets |
|
|
Liabilities |
|
|
Total |
|
|
Assets |
|
|
Liabilities |
|
|
Total |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
|
|
|
|
|
Amounts falling due within one year |
|
|
244 |
|
|
|
(194 |
) |
|
|
50 |
|
|
|
218 |
|
|
|
(174 |
) |
|
|
44 |
|
Amounts falling due after more than one year |
|
|
576 |
|
|
|
(253 |
) |
|
|
323 |
|
|
|
655 |
|
|
|
(431 |
) |
|
|
224 |
|
|
|
|
|
|
|
|
|
|
820 |
|
|
|
(447 |
) |
|
|
373 |
|
|
|
873 |
|
|
|
(605 |
) |
|
|
268 |
|
|
|
|
|
|
|
For each class of derivative the notional contract* amounts are as follows:
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
£m |
|
|
£m |
|
|
|
|
|
|
|
Interest rate swaps |
|
|
(9,328 |
) |
|
|
(7,337 |
) |
Cross-currency interest rate swaps |
|
|
(4,886 |
) |
|
|
(6,463 |
) |
Foreign exchange forward contracts |
|
|
(9,334 |
) |
|
|
(7,234 |
) |
Forward rate agreements |
|
|
(10,670 |
) |
|
|
(7,784 |
) |
|
|
|
|
|
|
Total |
|
|
(34,218 |
) |
|
|
(28,818 |
) |
|
|
|
|
|
|
*The notional contract amounts of derivatives indicate the gross nominal value of
transactions outstanding at the balance sheet date
5. Current asset investments
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
£m |
|
|
£m |
|
|
|
|
|
|
|
Investments in short-term money funds |
|
|
1,375 |
|
|
|
162 |
|
Short-term deposits |
|
|
200 |
|
|
|
197 |
|
Restricted cash balances – collateral |
|
|
49 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
1,624 |
|
|
|
377 |
|
|
|
|
|
|
|
6. Borrowings
The following table analyses the Company’s total borrowings:
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
£m |
|
|
£m |
|
|
|
|
|
|
|
Amounts falling due within one year: |
|
|
|
|
|
|
|
|
Bank loans |
|
|
172 |
|
|
|
299 |
|
Commercial paper |
|
|
– |
|
|
|
121 |
|
Bonds |
|
|
953 |
|
|
|
763 |
|
|
|
|
|
|
|
|
|
|
1,125 |
|
|
|
1,183 |
|
|
|
|
|
|
|
Amounts falling due after more than one year: |
|
|
|
|
|
|
|
|
Bank loans |
|
|
133 |
|
|
|
398 |
|
Bonds |
|
|
3,495 |
|
|
|
4,909 |
|
|
|
|
|
|
|
|
|
|
3,628 |
|
|
|
5,307 |
|
|
|
|
|
|
|
Total borrowings |
|
|
4,753 |
|
|
|
6,490 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
£m |
|
|
£m |
|
|
|
|
|
|
|
Total borrowings are repayable as follows: |
|
|
|
|
|
|
|
|
Less than 1 year |
|
|
1,125 |
|
|
|
1,183 |
|
In 1-2 years |
|
|
714 |
|
|
|
1,081 |
|
In 2-3 years |
|
|
381 |
|
|
|
900 |
|
In 3-4 years |
|
|
851 |
|
|
|
435 |
|
In 4-5 years |
|
|
48 |
|
|
|
1,180 |
|
More than 5 years, other than by instalments |
|
|
1,634 |
|
|
|
1,711 |
|
|
|
|
|
|
|
|
|
|
4,753 |
|
|
|
6,490 |
|
|
|
|
|
|
|
The notional amount of borrowings outstanding as at 31 March 2011 was £4,608m (2010:
£6,338m). For further information on significant borrowings, refer to note 34 in the consolidated
financial statements.
Annual Report and Accounts 2010/11 | National Grid plc 181
Financial Statements
Notes to the Company financial statements continued
7. Called up share capital
|
|
|
|
|
|
|
|
|
|
|
Allotted, called up |
|
|
and fully paid |
Ordinary shares |
|
millions |
|
|
£m |
|
|
At 31 March 2009 |
|
|
2,582 |
|
|
|
294 |
|
Issued during the year in lieu of dividends (i) |
|
|
35 |
|
|
|
4 |
|
|
At 31 March 2010 |
|
|
2,617 |
|
|
|
298 |
|
Rights issue |
|
|
990 |
|
|
|
113 |
|
Issued during the year in lieu of dividends (i) |
|
|
41 |
|
|
|
5 |
|
|
At 31 March 2011 |
|
|
3,648 |
|
|
|
416 |
|
|
(i) |
|
The issue of shares in lieu of cash 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. |
On 14 June 2010, the Company completed a rights issue. The structure of the rights issue
initially gave rise to a merger reserve (included within other equity reserves below) under section
612 of the Companies Act 2006. Following the receipt of the cash proceeds through the structure,
the excess of the net proceeds over the nominal value of the share capital issued has been
transferred from the merger reserve to the profit and loss account.
For further information on share capital and the rights issue, refer to note 25 in the consolidated
financial statements.
8. Reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share |
|
|
Cash flow |
|
|
|
|
|
|
|
|
|
premium |
|
|
hedge |
|
|
Other equity |
|
|
Profit and |
|
|
|
account |
|
|
reserve |
|
|
reserves |
|
|
loss account |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
At 31 March 2009 |
|
|
1,371 |
|
|
|
12 |
|
|
|
146 |
|
|
|
3,603 |
|
Transferred from equity in respect of cash flow hedges (net of tax) |
|
|
– |
|
|
|
2 |
|
|
|
– |
|
|
|
– |
|
Shares issued in lieu of dividends |
|
|
(5 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
Purchase of own shares |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(7 |
) |
Issue of treasury shares |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
18 |
|
Share awards to employees of subsidiary undertakings |
|
|
– |
|
|
|
– |
|
|
|
25 |
|
|
|
– |
|
Loss for the year |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(353 |
) |
|
At 31 March 2010 |
|
|
1,366 |
|
|
|
14 |
|
|
|
171 |
|
|
|
3,261 |
|
Transferred from equity in respect of cash flow hedges (net of tax) |
|
|
– |
|
|
|
(12 |
) |
|
|
– |
|
|
|
– |
|
Merger reserve created on rights issue |
|
|
– |
|
|
|
– |
|
|
|
3,101 |
|
|
|
– |
|
Transfer to distributable reserves |
|
|
– |
|
|
|
– |
|
|
|
(3,101 |
) |
|
|
3,101 |
|
Shares issued in lieu of dividends |
|
|
(5 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
Purchase of own shares |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(3 |
) |
Issue of treasury shares |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
18 |
|
Share awards to employees of subsidiary undertakings |
|
|
– |
|
|
|
– |
|
|
|
25 |
|
|
|
– |
|
Loss for the year |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(906 |
) |
|
At 31 March 2011 |
|
|
1,361 |
|
|
|
2 |
|
|
|
196 |
|
|
|
5,471 |
|
|
There were no gains and losses, other than losses for the years stated above; therefore no
separate statement of total recognised gains and losses has been presented. At 31 March 2011, £623m
(2010: £1,023m) of the profit and loss account reserve relating to gains on intra-group
transactions was not distributable to shareholders.
182 National Grid plc | Annual Report and Accounts 2010/11
9. Reconciliation of movements in shareholders’ funds
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
£m |
|
|
£m |
|
|
|
|
|
|
|
(Loss)/profit for the year after taxation |
|
|
(48 |
) |
|
|
335 |
|
Dividends (i) |
|
|
(858 |
) |
|
|
(688 |
) |
|
|
|
|
|
|
Loss for the financial year |
|
|
(906 |
) |
|
|
(353 |
) |
Expenses charged to share premium account |
|
|
– |
|
|
|
(1 |
) |
Proceeds of issue of treasury shares |
|
|
18 |
|
|
|
18 |
|
Movement on cash flow hedge reserve (net of tax) |
|
|
(12 |
) |
|
|
2 |
|
Share awards to employees of subsidiary undertakings |
|
|
25 |
|
|
|
25 |
|
Purchase of own shares |
|
|
(3 |
) |
|
|
(7 |
) |
Rights issue |
|
|
3,214 |
|
|
|
– |
|
|
|
|
|
|
|
Net increase/(decrease) in shareholders’ funds |
|
|
2,336 |
|
|
|
(316 |
) |
Opening shareholders’ funds |
|
|
5,110 |
|
|
|
5,426 |
|
|
|
|
|
|
|
Closing shareholders’ funds |
|
|
7,446 |
|
|
|
5,110 |
|
|
|
|
|
|
|
(i) |
|
For further details of dividends paid and payable to shareholders, refer to note 7 in the
consolidated financial statements. |
10. Commitments and contingencies
The Company has guaranteed the repayment of the principal sum, any
associated premium and interest on specific loans due from certain subsidiary undertakings primarily to third parties. At
31 March 2011, the sterling equivalent amounted to £1,874m (2010: £2,141m). The guarantees are for
varying terms from less than one year to open-ended.
Annual Report and Accounts 2010/11 | National Grid plc 183
Useful Information
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.
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 also commonly referred to as 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
bar
A unit of pressure,
approximately equivalent to 14.5 pounds per square inch.
Board
The Board of Directors of
the Company (for more information see pages 8 and 9).
BritNed
BritNed Development Limited.
C
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.
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 balance sheet.
circuit length
See route length.
the Company, National Grid, we, our or us
We use terms ‘the
Company’, ‘National Grid’, ‘we’, ‘our’ or ‘us’ to refer to either National
Grid plc itself or to National Grid plc and its subsidiaries collectively, depending on context.
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.
decoupling
See revenue decoupling.
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 balance sheet and the value for tax
purposes of the same asset or liability.
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.
dollars or $
Except as otherwise noted all references to dollars or $ in this Report are to the US
currency.
E
employee engagement index
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 staff retention, therefore we use employee engagement as a
measure of organisational health in relation to business performance.
equity
In financial statements, the amount of net assets attributable to shareholders.
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 Accounting Standards Board. These apply
to the Company’s individual financial statements on pages 177 to 183, which are prepared in
accordance with UK GAAP.
G
Grain LNG
National Grid Grain LNG Limited.
Great Britain
England, Wales and Scotland.
GW
Gigawatt, being an amount
of power equal to 1 billion watts (109 watts).
GWh
Gigawatt hours, being an amount of energy equivalent to delivering 1 billion watts of power
for a period of one hour.
184 National Grid plc | Annual Report and Accounts 2010/11
H
HSE
Health and Safety Executive, the main safety regulator in the UK.
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.
IFRIC
Guidance provided by the
IFRS Interpretations Committee on how to apply accounting standards.
J
joint venture
A company or other entity
which is controlled jointly with other parties.
K
KeySpan
KeySpan Corporation and its subsidiaries, acquired by National Grid on 24 August 2007.
kV
Kilovolt, being an amount of electric force equal to 1,000 volts.
kWh
Kilowatt hours, being an amount of energy equivalent to delivering 1,000 watts of power for a
period of one hour.
L
Lifetime Allowance
The lifetime allowance is an
overall ceiling on the amount of UK tax privileged pension
savings that any one individual can draw.
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
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
The number of lost time
injuries per 100,000 hours worked in a 12 month period.
M
MW
Megawatts, 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.
mbar
A unit of pressure equal
to 1/1000 bar, or approximately 0.0145 pounds per square inch.
N
National Grid Metering
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, New Hampshire 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.
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.
OnStream
Utility Metering Services Limited, National Grid’s UK unregulated metering business.
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
1117/43 pence.
P
Personal Lifetime Allowance
The lifetime allowance applicable to individuals who registered their pre 6 April 2006 UK
pension benefits for protection.
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.
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.
Annual Report and Accounts 2010/11 | National Grid plc 185
Useful Information
Definitions and glossary of terms continued
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 a future regulatory proceeding. 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 retail price index to allow for
the effects of inflation.
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 will be implemented in the next round of
price controls which will start in April 2013.
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.
S
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 amounts shares are issued for and the nominal value of those shares.
shrinkage
Shrinkage is the difference between the amount of gas entering the system and that which is billed
to consumers, due to either transportation consumption or loss. This difference is mainly made up
of gas leakage from distribution mains and certain activities and equipment which vent gas.
Shrinkage also occurs when gas is stolen or not charged for in error.
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.
subsidiary
A company or other entity that is controlled by National Grid.
T
treasury shares
Shares that have been repurchased but not cancelled.
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.
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
Guidance, issued by the Financial Reporting Council, on how companies should be governed,
applicable to UK listed companies including National Grid. It replaces the Combined Code.
UK GAAP
Generally accepted accounting principles in the UK. These differ from IFRS and from US GAAP.
Uniform Network Code
The legal and contractual framework for the supply and transport of gas in the UK, comprising a
common set of rules for all industry participants which ensure competition can be facilitated on
level terms.
US
The United States of America.
US GAAP
Generally accepted accounting principles in the US. These differ from IFRS and from UK GAAP.
V
vanilla return
Metric used by Ofgem to define the allowed rate of return within the price control reviews for our
UK regulated businesses. Our calculation uses IFRS business performance operating profit adjusted
for various items to reflect the replacement of certain IFRS based accounting treatments with a
regulatory based treatment. Primarily these items are depreciation, capital costs, pensions and
taxation. The adjusted IFRS operating profit is divided by the regulatory asset value inflated to
mid year to generate a percentage rate of return.
186 National Grid plc | Annual Report and Accounts 2010/11
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 2011. It should be read in
conjunction with the consolidated financial statements and related notes, together with the
Operating and Financial Review. The information presented below for the years ended 31 March 2007,
2008, 2009, 2010 and 2011 has been prepared under IFRS issued by the IASB and as adopted by the
European Union.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31 March |
|
|
31 March |
|
|
31 March |
|
|
31 March |
|
|
31 March |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
Summary income statement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue* |
|
|
14,343 |
|
|
|
14,007 |
|
|
|
15,687 |
|
|
|
11,498 |
|
|
|
8,778 |
|
Operating profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before exceptional items, remeasurements and stranded cost recoveries |
|
|
3,600 |
|
|
|
3,121 |
|
|
|
2,915 |
|
|
|
2,595 |
|
|
|
2,031 |
|
Exceptional items, remeasurements and stranded cost recoveries |
|
|
145 |
|
|
|
172 |
|
|
|
(292 |
) |
|
|
369 |
|
|
|
482 |
|
|
|
|
3,745 |
|
|
|
3,293 |
|
|
|
2,623 |
|
|
|
2,964 |
|
|
|
2,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before exceptional items, remeasurements and stranded cost recoveries |
|
|
2,473 |
|
|
|
1,974 |
|
|
|
1,770 |
|
|
|
1,829 |
|
|
|
1,486 |
|
Exceptional items, remeasurements and stranded cost recoveries |
|
|
151 |
|
|
|
219 |
|
|
|
(376 |
) |
|
|
353 |
|
|
|
265 |
|
|
|
|
2,624 |
|
|
|
2,193 |
|
|
|
1,394 |
|
|
|
2,182 |
|
|
|
1,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the year attributable to equity shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before exceptional items, remeasurements and stranded cost recoveries |
|
|
1,747 |
|
|
|
1,418 |
|
|
|
1,259 |
|
|
|
1,275 |
|
|
|
1,146 |
|
Exceptional items, remeasurements and stranded cost recoveries |
|
|
412 |
|
|
|
(32 |
) |
|
|
(315 |
) |
|
|
1,915 |
|
|
|
248 |
|
|
|
|
2,159 |
|
|
|
1,386 |
|
|
|
944 |
|
|
|
3,190 |
|
|
|
1,394 |
|
|
Summary statement of net assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets |
|
|
39,787 |
|
|
|
38,488 |
|
|
|
37,712 |
|
|
|
30,830 |
|
|
|
21,109 |
|
Current assets |
|
|
6,323 |
|
|
|
5,065 |
|
|
|
6,755 |
|
|
|
5,435 |
|
|
|
5,312 |
|
Assets of businesses held for sale |
|
|
290 |
|
|
|
– |
|
|
|
– |
|
|
|
1,506 |
|
|
|
1,968 |
|
Total assets |
|
|
46,400 |
|
|
|
43,553 |
|
|
|
44,467 |
|
|
|
37,771 |
|
|
|
28,389 |
|
Current liabilities |
|
|
(6,826 |
) |
|
|
(6,559 |
) |
|
|
(7,026 |
) |
|
|
(7,146 |
) |
|
|
(3,360 |
) |
Non-current liabilities |
|
|
(30,395 |
) |
|
|
(32,783 |
) |
|
|
(33,457 |
) |
|
|
(25,188 |
) |
|
|
(20,443 |
) |
Liabilities of businesses held for sale |
|
|
(110 |
) |
|
|
– |
|
|
|
– |
|
|
|
(63 |
) |
|
|
(450 |
) |
Total liabilities |
|
|
(37,331 |
) |
|
|
(39,342 |
) |
|
|
(40,483 |
) |
|
|
(32,397 |
) |
|
|
(24,253 |
) |
|
Net assets |
|
|
9,069 |
|
|
|
4,211 |
|
|
|
3,984 |
|
|
|
5,374 |
|
|
|
4,136 |
|
|
Summary cash flow statement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash generated from operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
4,854 |
|
|
|
4,372 |
|
|
|
3,564 |
|
|
|
3,265 |
|
|
|
3,090 |
|
Discontinued operations |
|
|
– |
|
|
|
– |
|
|
|
(8 |
) |
|
|
10 |
|
|
|
181 |
|
|
|
|
|
4,854 |
|
|
|
4,372 |
|
|
|
3,556 |
|
|
|
3,275 |
|
|
|
3,271 |
|
Tax received/(paid) |
|
|
4 |
|
|
|
144 |
|
|
|
(143 |
) |
|
|
(110 |
) |
|
|
(313 |
) |
|
Net cash inflow from operating activities |
|
|
4,858 |
|
|
|
4,516 |
|
|
|
3,413 |
|
|
|
3,165 |
|
|
|
2,958 |
|
Net cash flows used in investing activities |
|
|
(4,774 |
) |
|
|
(2,332 |
) |
|
|
(1,998 |
) |
|
|
(3,023 |
) |
|
|
(4,061 |
) |
Net cash flows (used in)/from financing activities |
|
|
(430 |
) |
|
|
(2,212 |
) |
|
|
(877 |
) |
|
|
(1,592 |
) |
|
|
1,278 |
|
Net (decrease)/increase in cash and cash equivalents |
|
|
(346 |
) |
|
|
(28 |
) |
|
|
538 |
|
|
|
(1,450 |
) |
|
|
175 |
|
|
* Items previously reported separately as ‘other operating income’ have been included within revenue
Annual Report and Accounts 2010/11 | National Grid plc 187
Useful Information
Useful information
Financial calendar
The following dates have been announced or are indicative of future dates:
|
|
|
|
1 June 2011
|
|
Ordinary shares go ex-dividend for 2010/11 |
|
3 June 2011
|
|
Record date for 2010/11 final dividend |
|
8 June 2011
|
|
Scrip reference price announced |
|
20 July 2011
|
|
Scrip election date |
|
|
|
2011 Annual General Meeting and |
25 July 2011
|
|
interim management statement |
|
|
|
2010/11 final dividend paid to qualifying |
17 August 2011
|
|
ordinary shareholders |
|
17 November 2011
|
|
2011/12 half year results |
|
30 November 2011
|
|
Ordinary shares go ex-dividend |
|
2 December 2011
|
|
Record date for 2011/12 interim dividend |
|
|
|
2011/12 interim dividend paid to qualifying |
18 January 2012
|
|
ordinary shareholders |
|
January/February 2012
|
|
Interim management statement |
|
May 2012
|
|
2011/12 preliminary results |
|
Key milestones
Some of the key dates and actions in the history of National Grid are listed below. The full
history goes back much further. For example, the first national gas company in the UK commenced
operations in 1812.
|
|
|
|
1986
|
|
British Gas incorporated as a public limited company |
|
1990
|
|
Electricity transmission network in England and Wales |
|
|
transferred to National Grid on electricity privatisation |
|
1995
|
|
National Grid listed on the London Stock Exchange |
|
1997
|
|
Centrica demerged from British Gas (BG) |
|
1997
|
|
Energis demerged from National Grid |
|
2000
|
|
Lattice Group demerged from BG and listed separately |
|
2000
|
|
New England Electric System and Eastern Utilities Associates
acquired |
|
2002
|
|
Niagara Mohawk Power Corporation merged with National Grid
in US |
|
2002
|
|
National Grid and Lattice Group merged to form National Grid
Transco |
|
2004
|
|
UK wireless infrastructure network acquired from Crown Castle
International Corp |
|
2005
|
|
Four UK regional gas distribution networks sold and National
Grid adopted as our name |
|
2006
|
|
Rhode Island gas distribution network acquired |
|
2007
|
|
UK and US wireless infrastructure operations and the Basslink
electricity interconnector in Australia sold |
|
2007
|
|
KeySpan Corporation acquired |
|
2008
|
|
Ravenswood generation station sold |
|
2010
|
|
Rights issue raised £3.2 billion |
|
Share price
The following graphs represent the movement of National Grid’s share price during 2010/11. A graph
showing the total shareholder return over the last five years is available on page 102.
Capital Gains Tax (CGT)
CGT information relating to National Grid shares can be found on our website under investors or
obtained from Capita Registrars. Share prices on specific dates can also be found on our website
at www.nationalgrid.com.
Website and electronic communication
More information about National Grid, and specifically for shareholders, is available on the
National Grid website at www.nationalgrid.com. We encourage shareholders to receive documents
electronically via the website and suggest registering an email address via
www.nationalgridshareholders.com. Shareholders then receive an email alert when shareholder
documents become available on the website and a link directly to them.
188 National Grid plc | Annual Report and Accounts 2010/11
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Cautionary Statement
This document comprises the Annual Report and Accounts for the year ending 31 March 2011 for
National Grid and its subsidiaries. It contains the Directors’ Report and Financial Statements,
together with the Independent Auditor’s Report thereon, as required by the Companies Act 2006. The
Directors’ Report, comprising pages 10 to 108, has been drawn up in accordance with the
requirements of English law, and liability in respect thereof is also governed by English law. In
particular, the liability of the Directors for these reports is solely to National Grid.
This document also 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’, ‘intends’, ‘plans’, ‘believes’, ‘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 and decisions
by governmental bodies or regulators; breaches of, or changes in, environmental, climate change and
health and safety laws or regulations, including breaches 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, owing to adverse weather conditions or otherwise;
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 restructuring and internal transformation projects; and; customers and counterparties failing to
perform their obligations to us and our arrangements with the Long Island Power Authority not being
renewed. Other factors that could cause actual results to differ materially from those described
in this document include fluctuations in exchange rates, interest rates and commodity price
indices; restrictions in our borrowing and debt arrangements, funding costs and access to
financing; our effective rate of tax; National Grid’s status as a holding company with no revenue
generating operations of its own; inflation; seasonal fluctuations; the future funding requirements
of our pension schemes and other post-retirement benefit schemes; the loss of key personnel or the
ability to attract, train or retain qualified personnel and any disputes arising with our employees
or the breach of laws or regulations by our employees; and incorrect or unforeseen assumptions or
conclusions relating to business development activity.
For a more detailed description of some of these assumptions, risks and uncertainties, together
with any other risk factors, please see our filings with and submissions to the US Securities and
Exchange Commission (the ‘SEC’) (and in particular the ‘Risk factors’ and ‘Operating and Financial
Review’ sections in our most recent Annual Report on Form 20-F). The effects of these factors are
difficult to predict. New factors emerge from time to time and we cannot assess the potential
impact of any such factor on our activities or the extent to which any factor, or combination of
factors, may cause results to differ materially from those contained in any forward-looking
statement. Except as may be required by law or regulation, the Company undertakes no obligation
to update any of its forward-looking statements, which speak only as of the date of this document.
The content of any website references herein do not form part of this document.
For queries about ordinary shares:
Capita Registrars
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0871 402 3344
(from outside UK: +44 20 7098 1198) (textphone: 18001 0870 242 2379)
Lines are open 8.30am to 5.30pm Monday to Friday.
Calls cost 8p per minute plus network extras
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nationalgrid@capitaregistrars.com www.nationalgridshareholders.com
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National Grid Share Register
Capita Registrars, The Registry,
34 Beckenham Road, Beckenham,
Kent BR3 4TU
For queries about American Depositary Shares (ADS or ADR):
The Bank of New York Mellon
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1-800-466-7215
(from outside the US: +1-201-680-6825)
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shrrelations@bnymellon.com
www.bnymellon.com/shareowner
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The Bank of New York Mellon
Shareholders Correspondence
PO Box 358516, Pittsburgh,
PA 15252-8516
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Further information on the share price and
interactive tools can
be found online at
www.nationalgrid.com