REG - National Grid PLC - Half Year Results 2017/18 <Origin Href="QuoteRef">NG.L</Origin> - Part 3
09/11/2017 07:08
- Part 3: For the preceding part double click ID:nRSI9912Vb
Net cash flow from/(used in) investing activities - continuing operations 4,239 (1,753)
Net cash flow used in investing activities - discontinued operations3 - (307)
Cash flows from financing activities
Purchase of own shares (5) (6)
Proceeds from issue of treasury shares 28 17
Purchase of treasury shares (413) (12)
Proceeds received from loans 1,091 1,226
Repayments of loans (1,471) (921)
Net movements in short-term borrowings and derivatives (1,717) 264
Interest paid (421) (389)
Dividends paid to shareholders (4,141) (923)
Net cash flow used in financing activities - continuing operations (7,049) (744)
Net cash flow (used in)/from financing activities - discontinued operations4 (231) 740
Net (decrease)/increase in cash and cash equivalents 10 (1,099) 24
Exchange movements (1) 14
Net cash and cash equivalents at start of period 1,139 124
Net cash and cash equivalents at end of period5 39 162
1. Comparatives have been re-presented to reflect the classification of the UK Gas Distribution business as a
discontinued operation (see note 5).
2. Cash (used in)/from discontinued operating activities relates to the disposal of the UK Gas Distribution business
(see note 5).
3. Cash used in discontinued investing activities relates to capital expenditure in the UK Gas Distribution business
(see note 5).
4. Cash (used in)/from discontinued financing activities relates to the settlement of RPI swaps (2016: net proceeds
from debt issuances and debt buybacks) in the UK Gas Distribution business (see note 5).
5. Net of bank overdrafts of £nil (2016: £nil).
Notes
1. Basis of preparation and new accounting standards, interpretations and amendments
The half year financial information covers the six month period ended 30 September 2017 and has been prepared under IAS 34
'Interim Financial Reporting' as issued by the International Accounting Standards Board (IASB) and as adopted by the
European Union (EU); and the Disclosure and Transparency Rules of the Financial Conduct Authority. The half year financial
information is unaudited but has been reviewed by Deloitte LLP and their report is attached to this document. This
condensed set of financial statements comprises the unaudited financial information for the half years ended 30 September
2017 and 2016, together with the audited balance sheet at 31 March 2017.
The financial information for the year ended 31 March 2017 does not constitute statutory accounts as defined in Section 434
of the Companies Act 2006. It should be read in conjunction with the statutory accounts for the year ended 31 March 2017,
which were prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the IASB and as
adopted by the EU, and have been filed with the Registrar of Companies. The PricewaterhouseCoopers LLP report on these
statutory accounts was unqualified, did not contain an emphasis of matter and did not contain a statement under Section 498
of the Companies Act 2006.
The half year financial information has been prepared in accordance with the accounting policies expected to be applicable
for the year ending 31 March 2018. The financial information relating to prior periods has been re-presented as a result of
the disposal of the UK Gas Distribution business, as described below. The notes to the financial statements have been
prepared on a continuing basis unless otherwise stated. Other than in this respect, the half year financial statements have
been prepared on a basis consistent with that applied in the preparation of the accounts for the year ended 31 March 2017.
Our income statement and segmental analysis separately identify financial results before and after exceptional items and
remeasurements. The Directors believe that presentation of the results in this way is relevant to an understanding of the
Group's financial performance. Presenting financial results before exceptional items and remeasurements is consistent with
the way that financial performance is measured by management and reported to the Board and Executive Committee and improves
the comparability of reported financial performance from year to year.
Events or transactions which are classified as exceptional items or remeasurements are defined in the Company's Annual
Report and Accounts and Form 20-F.
Further, this half year we have adopted a columnar presentation as we consider it improves the clarity of the presentation,
and is consistent with the way that financial performance is measured by management and reported to the Board and Executive
Committee, and better enables users of the financial statements to understand the results. The inclusion of total profit
for the period from continuing operations before exceptional items and remeasurements forms part of the incentive target
set annually for remunerating certain Executive Directors and accordingly we believe it is important for users of the
financial statements to understand how this compares to our results on a statutory basis and period on period.
Areas of judgement and key sources of estimation uncertainty
In preparing this half year financial information, the areas where judgement has been exercised by management in applying
the Group's accounting policies and the key sources of estimation uncertainty remain unchanged from those that applied to
the Annual Report and Accounts for the year ended 31 March 2017 other than in relation to the allocation of financing costs
between the continuing Group and discontinued operations, which is only relevant to the comparative amounts, and the
uncertainty concerning the date from which the UK Gas Distribution business was classified as held for sale, which is not
relevant to the current year or comparative amounts.
Discontinued operations - UK Gas Distribution
On 8 December 2016, the Group entered into a sale and purchase agreement to dispose of a 61% controlling stake in the UK
Gas Distribution business. The disposal completed on 31 March 2017 and the Group has retained a 39% interest in the
business. As a result, all assets and liabilities of UK Gas Distribution were deemed to be disposed and a 39% interest
reacquired. The 39% retained interest is classified as an associate on the basis that the Group retains significant
influence over the business through its retained stake. The purchase price allocation remains provisional and will be
updated in the 2017/18 Annual Report and Accounts together with adjustments arising from the finalisation of completion
accounts. The net impact reflected in the income statement for the period is £11m, which is the additional amortisation
(after tax) booked as a result of the fair value uplift of assets and liabilities identified from the provisional purchase
price allocation exercise.
In addition, on 31 March 2017, the Group also entered into a 'Further Acquisition Agreement' over a further 14% interest
(see note 9).
As UK Gas Distribution represented a separate major line of business, the business was classified as a discontinued
operation in the consolidated income statement for the year ended 31 March 2017 and further detail is available in our
Annual Report and Accounts. This has resulted in the re-presentation of comparative financial information in the
consolidated income statement, consolidated statement of comprehensive income and consolidated cash flow statement in this
half year financial information, as well as presenting earnings per share for continuing operations separately.
Following the disposal, UK Gas Distribution is no longer an operating segment.
Going concern
Having made enquiries and reassessed the principal risks, the Directors consider that the Company and its subsidiary
undertakings have adequate resources to continue in business for the foreseeable future, being a period of not less than 12
months from the date of this report. Accordingly, it is appropriate to adopt the going concern basis in preparing the half
year financial information.
New IFRS accounting standards and interpretations not yet adopted
There are no new standards, interpretations and amendments, issued by the IASB or by the IFRS Interpretations Committee
(IFRIC), that have had a material impact on the Group's results.
1. Basis of preparation and new accounting standards, interpretations and amendments (continued)
In addition to those disclosed in our Annual Report and Accounts, the following new accounting standards and amendments to
existing standards have been issued, but are not yet effective or have not yet been endorsed by the EU:
- IFRIC 23 'Uncertainty over income tax treatments'
- IFRS 17 'Insurance contracts'
The Group is currently assessing the impact of the above standards. The Group has not early adopted any other standard,
amendment or interpretation that has been issued but is not yet effective.
The Group continues to assess the impact of IFRS 9, 15 and 16 and is in the process of finalising accounting policies for
IFRS 9 and 15, which will be implemented on 1 April 2018, with IFRS 16 following a year later. An update on the impact of
these was provided on page 194 of the Annual Report and Accounts.
2. Segmental analysis
We present revenue and the results of the business analysed by operating segment, 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 is National Grid's chief operating decision-making body (as defined by
IFRS 8 'Operating Segments') and assesses the profitability of operations principally on the basis of operating profit
before exceptional items and remeasurements (see note 3). As a matter of course, the Board also considers profitability by
segment, excluding the effect of timing (see page 44).
The following table describes the main activities for each reportable operating segment:
UK Electricity Transmission High voltage electricity transmission networks in Great Britain.
UK Gas Transmission The gas transmission network and liquefied natural gas (LNG) storage activities in Great Britain.
US Regulated Gas distribution networks, electricity distribution networks and high voltage electricity transmission networks in New York and New England and electricity generation facilities in New York.
NG Ventures was formed on 1 April 2017 and brought together our businesses that are adjacent to our core regulated
operations to create a new division with its own leadership. NG Ventures is led by a member of the Group Executive and its
results are reported separately to the Board of Directors. This operating segment represents our key strategic growth area
outside of our regulated core in competitive markets across the US and the UK. The business comprises all commercial
operations in metering, LNG at Grain and electricity interconnectors, with a focus on investment and future activities in
emerging growth areas. On an annualised basis NG Ventures does not meet the thresholds set out in IFRS 8 to be identified
as a separate reportable segment and therefore its results have not been disaggregated.
Other activities that do not form part of any of the segments in the above table primarily relate to UK property management
together with insurance and corporate activities in the UK and US.
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.
The US Regulated segment typically experiences seasonal fluctuations in revenue and operating profit due to higher delivery
volumes during the second half of the financial year, for example as a result of extreme weather over the winter. These
seasonal fluctuations have a consequential impact on the working capital balances (primarily trade debtors and accrued
income) in the consolidated statement of financial position at 30 September 2017 when compared to 31 March 2017. The
majority of UK revenues are governed by the arrangements under RIIO, through which revenue is recognised based on
availability of transmission capacity rather than usage, and therefore are not subject to the same seasonal fluctuations as
in the US.
(a) Revenue
Six months ended 30 September 2017 20161
£m £m
Operating segments
UK Electricity Transmission 2,076 2,129
UK Gas Transmission 422 422
US Regulated 3,799 3,431
NG Ventures and Other2 407 356
Sales between segments (20) (58)
Total from continuing operations 6,684 6,280
Geographical areas
UK 2,865 2,828
US 3,819 3,452
6,684 6,280
1. Comparatives have been re-presented to reflect the classification of the UK Gas Distribution business as a
discontinued operation (see note 5).
2. Included within NG Ventures and Other is £294m (2016: £302m) of revenue relating to NG Ventures.
2. Segmental analysis (continued)
(b) Operating profit from continuing operations
Before exceptional items and remeasurements After exceptional items and remeasurements
Six months ended 30 September 2017 20161 2017 20161
£m £m £m £m
Operating segments - continuing operations
UK Electricity Transmission 542 697 542 697
UK Gas Transmission 126 159 126 159
US Regulated 433 435 448 464
NG Ventures and Other2 158 152 158 152
Total operating profit 1,259 1,443 1,274 1,472
Geographical areas
UK 852 1,020 852 1,020
US 407 423 422 452
1,259 1,443 1,274 1,472
Below we reconcile total operating profit to profit before tax from continuing operations. We have shown the share of post-tax results of joint ventures and associates disaggregated between those held within NG Ventures and Other, our retained 39% interest in the UK Gas Distribution business ('Cadent'3). All operating exceptional items and remeasurements (2017: £15m credit, 2016: £29m credit) detailed in note
3 are attributable to the US Regulated segment.
Reconciliation to profit before tax from continuing operations
Operating profit 1,259 1,443 1,274 1,472
Share of post-tax results of joint ventures and associates
Cadent3 55 - 52 -
NG Ventures and Other 20 31 20 31
Finance income 39 39 39 39
Finance costs (566) (483) (538) (577)
Profit before tax from continuing operations 807 1,030 847 965
1. Comparatives have been re-presented to reflect the classification of the UK Gas Distribution business as a
discontinued operation (see note 5).
2. Included within NG Ventures and Other is £132m (2016: £139m) of operating profit (both before and after exceptional
items and remeasurements) relating to NG Ventures.
3. Investment held through Quadgas Holdco Limited.
(c) Other segmental information
Net book value2 Capital expenditure3 Depreciation and amortisation4
30 September 2017 31 March 2017 30 September 2017 30 September 20161 30 September 2017 30 September 20161
£m £m £m £m £m £m
Operating segments
UK Electricity Transmission 12,806 12,515 515 586 (226) (213)
UK Gas Transmission 4,228 4,165 157 116 (94) (88)
US Regulated 20,472 21,638 1,095 1,039 (328) (295)
NG Ventures and Other5 2,872 2,430 125 84 (114) (111)
Total from continuing operations 40,378 40,748 1,892 1,825 (762) (707)
Geographical areas
UK 18,450 18,102 751 752 (393) (374)
US 21,928 22,646 1,141 1,073 (369) (333)
40,378 40,748 1,892 1,825 (762) (707)
By asset type
Property, plant and equipment 39,485 39,825 1,820 1,744 (689) (647)
Non-current intangible assets 893 923 72 81 (73) (60)
40,378 40,748 1,892 1,825 (762) (707)
1. Comparative capital expenditure and depreciation and amortisation have been re-presented to reflect the
classification of the UK Gas Distribution business as a discontinued operation (see note 5).
2. Represents the net book value of property, plant and equipment and other intangible assets at 30 September 2017 and
31 March 2017 respectively.
3. Represents additions to property, plant and equipment and non-current intangibles, in the six months ended 30
September 2017 and 30 September 2016 respectively, but excludes additional investments in and loans to joint ventures and
associates.
4. Represents the amounts recorded in the income statement for the six months ended 30 September 2017 and 30 September
2016 respectively.
5. Included within NG Ventures and Other are assets with a net book value of £1,790m (31 March 2017: £1,432m), capital
expenditures of £72m (2016: £44m) and depreciation and amortisation of £68m (2016: £71m) relating to NG Ventures.
3. Exceptional items and remeasurements
Exceptional items and remeasurements are items of income and expenditure that, in the judgment of the Directors, should be
disclosed separately on the basis that they are important to an understanding of our financial performance and
significantly distort the comparability of financial performance between periods. 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.
Six months ended 30 September 2017 20161
£m £m
Included within operating profit from continuing operations
Remeasurements - commodity contracts2(i) 15 29
15 29
Included within share of post-tax results of joint ventures and associates
Remeasurements - Cadent3 (3) -
Included within finance costs
Remeasurements - net gains/(losses) on derivative financial instruments2(ii) 28 (94)
Total included within profit before tax from continuing operations 40 (65)
Included within tax Exceptional item - deferred tax credit arising on the reduction in the UK corporation tax rate4 - 90
Tax on remeasurements (4) 6
(4) 96
Total exceptional items and remeasurements after tax from continuing operations 36 31
Analysis of exceptional items and remeasurements after tax
Exceptional items after tax - 90
Remeasurements after tax 36 (59)
Total 36 31
1. Comparatives have been re-presented to reflect the classification of the UK Gas Distribution business as a
discontinued operation (see note 5).
2. Remeasurements on derivative financial instruments:
i. 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.
ii. 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.
3. Remeasurements comprise mark to market losses (net of tax) arising from certain swaps entered into by Cadent
(investment held through Quadgas Holdco Limited) that have not been designated in hedge relationships.
4. A reduction in the UK corporation tax rate to 17% from 1 April 2020 was enacted in the prior period, resulting in a
deferred tax credit (see note 6). This credit is presented as exceptional, reflecting its nature.
4. Finance income and costs
Six months ended 30 September 2017 20161
£m £m
Interest income on financial instruments2 39 39
Finance income 39 39
Net interest on pensions and other post-retirement benefit obligations (33) (49)
Interest expense on financial instruments (546) (445)
Unwinding of discount on provisions (38) (36)
Other interest (8) (7)
Less: interest capitalised 59 54
Finance costs before exceptional items and remeasurements (566) (483)
Remeasurements:
Net gains/(losses) on derivative financial instruments 28 (94)
Exceptional items and remeasurements included within finance costs 28 (94)
Finance costs (538) (577)
Net finance costs (499) (538)
1. Comparatives have been re-presented to reflect the classification of UK Gas Distribution as a discontinued operation
(see note 5).
2. Included within interest income on financial instruments is £nil (2016: £28m) in respect of realised gains on
available-for-sale investments, and £15m (2016: £nil) in respect of our loan to Cadent (see note 15).
5. Discontinued operations
As a result of the sale of a 61% controlling interest in UK Gas Distribution on 31 March 2017, we are required to report
our earnings for the Group excluding UK Gas Distribution ('continuing operations') separately from the results of that
business, which we report within 'discontinued operations'.
The basis under which the discontinued operations are recognised by the Group is set out on pages 112 and 113 of the Annual
Report and Accounts.
There are no trading results or other comprehensive income for discontinued operations for the six months ended 30
September 2017, given the date of sale of the business.
· Income statement: the amounts recognised arise from post year end movements in provisions and accruals. The impact
is £17m of operating losses, primarily due to transaction costs which are disallowable for tax purposes. The resulting
loss before and after tax is £14m.
· Cash flow statement: there was a cash outflow from operating activities of £126m principally relating to payments of
professional fees in respect of the disposal of the UK Gas Distribution business and a £231m outflow from financing
activities in relation to the settlement of the RPI swaps.
The half year results for previous periods have been re-presented in a comparable manner:
· Income statement: discontinued operations generated £318m of operating profit in the six months ended 30 September
2016, including £90m of exceptional transaction costs. £80m of interest expense and £715m of exceptional debt redemption
costs were offset by tax credits on exceptionals of £159m; this resulted in a loss before tax of £480m and after tax of
£327m.
· Statement of comprehensive income: £258m other comprehensive loss, net of tax, was recognised, primarily in relation
to actuarial losses on the UK Gas Distribution net retirement benefit obligations.
· Cash flow statement: in the six months ended 30 September 2016, cash inflows from discontinued operating activities
of £350m relate principally to operating profit for the UK Gas Distribution business of £318m, adjusted for non-cash items;
cash used in discontinued investing activities relates to capital expenditure in the UK Gas Distribution business; and the
net cash generated from financing discontinued operations reflects the impact of new debt issued and debt bought back by
the UK Gas Distribution business as part of the Group's liquidity management programme in preparation for sale completion.
6. Tax
The tax charge for the six month period, excluding tax on exceptional items and remeasurements, is £152m (2016 represented:
£228m). The effective tax rate of 18.8% (2016: 22.1%) for the period is based on the best estimate of the weighted average
annual income tax rate by jurisdiction expected for the full year. The current period rate reflects the seasonality of
earnings in the US. For the full year we expect the Group effective tax rate to be around 25%, excluding tax on exceptional
items and remeasurements. The effective tax rate for the year ended 31 March 2017 was 23.7%.
The Finance (No.2) Act 2015 enacted reductions in the UK corporation tax rate from 20% to 19% with effect from 1 April 2017
and 18% with effect from 1 April 2020. A further reduction to 17% with effect from 1 April 2020 was enacted in the Finance
Act 2016. Deferred taxes at the reporting date have been measured using these enacted tax rates and reflected in these
financial statements.
7. Earnings per share
Earnings per share, excluding exceptional items and remeasurements, are provided to reflect the business performance
subtotals used by the Group, as set out in note 1. For further details of exceptional items and remeasurements, see note
3.
The earnings per share calculations are based on profit after tax attributable to equity shareholders of the parent company
which excludes non-controlling interests.
Following the sale of the UK Gas Distribution business on 31 March 2017, National Grid plc returned £3,171m of proceeds to
shareholders through a special dividend, paid on 2 June 2017. In order to maintain the comparability of the Company's
share price before and after the special dividend, this was preceded by a share consolidation undertaken on 22 May 2017,
replacing every 12 existing ordinary shares with 11 new ordinary shares.The weighted average number of ordinary shares
outstanding for the period includes the effect of the special dividend from the date it was paid.
A further £835m of proceeds are being returned through a share buy-back programme which commenced on 2 June 2017 (see note
13). Purchased shares are held as treasury shares.
(a) Basic earnings per share
Six months ended 30 September 2017 2017 2016 2016
Earnings Earnings Earnings1 Earnings
per share per share1
£m Pence £m Pence
Profit after tax before exceptional items and remeasurements - continuing 654 18.5 802 21.3
Exceptional items after tax - - 90 2.4
Remeasurements after tax 36 1.0 (59) (1.6)
Profit after tax from continuing operations attributable to the parent 690 19.5 833 22.1
Profit after tax before exceptional items and remeasurements - discontinued - - 260 6.9
Exceptional items after tax (14) (0.4) (588) (15.6)
Remeasurements after tax - - (1) -
Loss after tax from discontinued operations attributable to the parent (14) (0.4) (329) (8.7)
Total profit after tax before exceptional items and remeasurements 654 18.5 1,062 28.2
Total exceptional items after tax (14) (0.4) (498) (13.2)
Total remeasurements after tax 36 1.0 (60) (1.6)
Total profit after tax attributable to the parent 676 19.1 504 13.4
Millions Millions
Weighted average number of shares - basic2 3,539 3,763
1. Comparatives have been re-presented to reflect the classification of UK Gas Distribution as a discontinued operation
(see note 5).
2. The 30 September 2017 figure includes the effect of the share consolidation, special dividend and share buy-back
programme.
(b) Diluted earnings per share
Six months ended 30 September 2017 2017 2016 2016
Earnings Earnings Earnings1 Earnings
per share per share1
£m Pence £m Pence
Profit after tax before exceptional items and remeasurements - continuing 654 18.4 802 21.2
Exceptional items after tax - - 90 2.4
Remeasurements after tax 36 1.0 (59) (1.6)
Profit after tax from continuing operations attributable to the parent 690 19.4 833 22.0
Loss after tax before exceptional items and remeasurements - discontinued - - 260 6.9
Exceptional items after tax (14) (0.4) (588) (15.6)
Remeasurements after tax - - (1) -
Loss after tax from discontinued operations attributable to the parent (14) (0.4) (329) (8.7)
Total profit after tax before exceptional items and remeasurements 654 18.4 1,062 28.1
Total exceptional items after tax (14) (0.4) (498) (13.2)
Total remeasurements after tax 36 1.0 (60) (1.6)
Total profit after tax attributable to the parent 676 19.0 504 13.3
Millions Millions
Weighted average number of shares - diluted2 3,554 3,780
1. Comparatives have been re-presented to reflect the classification of UK Gas Distribution as a discontinued operation
(see note 5).
2. The EPS as at 30 September 2017 includes the effect of the share consolidation, special dividend and share buy-back
programme.
8. Dividends
Pence per share Cash dividend paid £m Scrip dividend£m
Ordinary dividends
Special dividend - 2 June 2017 84.375 3,171 -
Final - year ended 31 March 2017 29.10 970 33
Final - year ended 31 March 2016 28.34 923 151
The Directors are proposing an interim dividend of 15.49p per share to be paid in respect of the year ending 31 March 2018.
This would absorb approximately £530m of shareholders' equity. An interim dividend for the year ended 31 March 2017 of
15.17p per share was paid in January 2017. The cash dividend paid was £540m with an additional £32m settled via scrip
issues.
Following completion of the sale of the majority interest in UK Gas Distribution, the Company paid a special dividend on 2
June 2017 of 84.375 pence per existing ordinary share ($5.4224 per existing ADS). This returned £3,171m to shareholders
(see note 7).
9. Fair value measurement
Assets and liabilities measured at fair value
Certain of the Group's assets and liabilities are measured at fair value. The following table categorises these assets and
liabilities by the valuation methodology applied in determining their fair value using the fair value hierarchy described
on page 151 of the Annual Report and Accounts.
30 September 2017 31 March 2017
Level 1£m Level 2£m Level 3£m Total£m Level 1£m Level 2£m Level 3£m Total£m
Assets
Available-for-sale investments 2,195 310 5 2,510 7,717 315 5 8,037
Investments in associates - - 74 74 - - 41 41
Derivative financial instruments - 1,845 6 1,851 - 1,692 15 1,707
Commodity derivatives - 5 65 70 - 22 84 106
2,195 2,160 150 4,505 7,717 2,029 145 9,891
Liabilities
Derivative financial instruments - (1,197) (232) (1,429) - (1,743) (480) (2,223)
Commodity derivatives - (62) (56) (118) - (70) (100) (170)
- (1,259) (288) (1,547) - (1,813) (580) (2,393)
Total 2,195 901 (138) 2,958 7,717 216 (435) 7,498
The estimated fair value of total borrowings using market values at 30 September 2017 is £29,725m (31 March 2017:
£32,239m).
Our level 1 available-for-sale investments are valued using quoted prices from liquid markets.
Our level 2 available-for-sale investments are valued using quoted prices for similar instruments in active markets, or
quoted prices for identical or similar instruments in inactive markets. Alternatively, they are valued using models where
all significant inputs are based directly or indirectly on observable market data.
Our level 2 derivative financial instruments include cross-currency, interest rate and foreign exchange derivatives. We
value our level 2 derivatives by discounting all future cash flows by externally sourced market yield curves at the
reporting date, taking into account the credit quality of both parties. These derivatives can be priced using liquidly
traded interest rate curves and foreign exchange rates, therefore we classify our vanilla trades as level 2 under the IFRS
13 framework.
Our level 2 commodity derivatives include over-the-counter (OTC) gas swaps and power swaps as well as forward physical gas
deals. We value our contracts based on market data obtained from the New York Mercantile Exchange (NYMEX) and the
Intercontinental Exchange (ICE) where monthly prices are available. We discount based on externally sourced market yield
curves at the reporting date, taking into account the credit quality of both parties and liquidity in the market. Our
commodity contracts can be priced using liquidly traded swaps, therefore we classify our vanilla trades as level 2 under
the IFRS 13 framework.
Our level 3 derivative financial instruments include cross-currency swaps, inflation linked swaps and equity options, all
of which are traded
on illiquid markets. In valuing these instruments an external valuation is obtained to support each reported fair value. In
addition we also use internally developed models to value Limited Price Index (LPI) derivatives where the inflation curve
is illiquid. Inputs include breakeven rates and inflation option premiums which are increasingly illiquid, towards the
long-dated points on the curve.
Our level 3 commodity contracts primarily consist of our
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