REG - National Grid PLC - Half year results for period ended 31 Sept 2014 <Origin Href="QuoteRef">NG.L</Origin> - Part 3
10/11/2014 09:35
- Part 3: For the preceding part double click ID:nRSG4128Wb
30 September 2014 31 March 2014
Level 1£m Level 2£m Level 3£m Total£m Level 1£m Level 2£m Level 3£m Total£m
Assets
Available-for-sale investments 2,709 222 - 2,931 2,786 214 - 3,000
Derivative financial instruments - 1,573 15 1,588 - 1,950 20 1,970
Commodity contracts - 51 53 104 - 34 53 87
2,709 1,846 68 4,623 2,786 2,198 73 5,057
Liabilities
Derivative financial instruments - (1,243) (127) (1,370) - (1,043) (120) (1,163)
Commodity contracts - (35) (74) (109) - (12) (111) (123)
- (1,278) (201) (1,479) - (1,055) (231) (1,286)
Total 2,709 568 (133) 3,144 2,786 1,143 (158) 3,771
Financial assets and liabilities in the group's consolidated statement of financial position are either held at fair value
or the carrying value approximates to fair value, with the exception of borrowings, which are held at amortised cost.
The fair value of total borrowings estimated using market values at 30 September 2014 is £28,421 million (31 March 2014:
£28,131 million).
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 swaps and foreign
exchange rates, therefore we classify our vanilla trades as level 2 under the IFRS 7 framework.
8. Fair value measurement continued
Our level 2 commodity contracts 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 7 framework.
Our level 3 derivative financial instruments include cross-currency swaps with an embedded call option, currency swaps
where the currency forward curve is illiquid and inflation-linked swaps where the inflation curve is illiquid. In valuing
these instruments a third party valuation is obtained to support each reported fair value.
Our level 3 commodity contracts relate to the forward sale or purchases of electricity and gas where pricing inputs are
unobservable or illiquid. This includes trade parameters such as load and generation forecasts, optionality and some gas
and electricity forward curves where pricing deviates by more than 5% from the principal market or monthly prices are not
available. These contracts are valued using the Black's variation of the Black-Scholes model or Monte Carlo simulations.
As disclosed in note 3, gains/losses on our recurring level 3 financial instruments are recorded in remeasurements in the
consolidated income statement.
The impacts on a post-tax basis of reasonably possible changes in significant level 3 assumptions are as follows:
10% increase in commodity prices - - 27 15
10% decrease in commodity prices - - (10) (11)
Forecast volume increase1 - - (1) (3)
Forecast volume decrease1 - - 2 4
20 basis point increase in LPI market curve2 (62) (54) - -
20 basis point decrease in LPI market curve2 60 53 - -
20 basis point decrease in LPI market curve2
60
53
-
-
1. Volumes were flexed using maximum and minimum historical averages.
2. A reasonably possible change in assumption of other level 3 derivative financial instruments is unlikely to result
in a material change in fair values.
Movements in the six months to 30 September for financial instruments measured using Level 3 valuation methods are
presented below:
At 1 April (100) (104) (58) (71)
Net (losses) / gains for the period (10) 16 (8) (9)
Purchases - - (3) (11)
Settlements (2) (2) 48 42
Reclassification/transfers out of level 3 - - - 1
At 30 September (112) (90) (21) (48)
At 30 September
(112)
(90)
(21)
(48)
1. Losses of £10m are attributable to derivative financial instruments held at the end of the reporting period.
2. Losses of £10m are attributable to commodity contract financial instruments held at the end of the reporting
period.
9. Reconciliation of net cash flow to movement in net debt
Six months ended 30 September 2014 2013
£m £m
Decrease in cash and cash equivalents (17) (138)
Decrease in financial investments (343) (1,545)
Decrease in borrowings and related derivatives 278 966
Net interest paid on the components of net debt 394 419
Change in net debt resulting from cash flows 312 (298)
Changes in fair value and exchange movements (346) 925
Net interest charge on the components of net debt (471) (564)
Other non-cash movements (49) (8)
Movement in net debt (net of related derivative financial instruments) in the period (554) 55
Net debt (net of related derivative financial instruments) at start of period (21,190) (21,429)
Net debt (net of related derivative financial instruments) at end of period (21,744) (21,374)
10. Net debt
30 September 2014 31 March 2014
£m £m
Cash and cash equivalents 344 354
Bank overdrafts (15) (15)
Net cash and cash equivalents 329 339
Financial investments 3,292 3,599
Borrowings (excluding bank overdrafts) (25,583) (25,935)
(21,962) (21,997)
Net debt related derivative financial assets 1,588 1,970
Net debt related derivative financial liabilities (1,370) (1,163)
Net debt (net of related derivative financial instruments) (21,744) (21,190)
11. Commitments and contingencies
At 30 September 2014 there were commitments for future capital expenditure contracted but not provided for of £2,387
million (31 March 2014: £2,624 million).
We also have other commitments relating primarily to commodity purchase contracts, operating leases and contingencies in
the form of certain guarantees and letters of credit. These commitments and contingencies are described in further detail
on page 132 of the Annual Report and Accounts 2013/14.
Litigation and claims
Through the ordinary course of our operations, we are party to various litigation, claims and investigations. We do not
expect the ultimate resolution of any of these proceedings to have a material adverse effect on our results of operations,
cash flows or financial position.
12. Exchange rates
The consolidated results are affected by the exchange rates used to translate the results of our US operations and US
dollar transactions. The US dollar to pound sterling exchange rates used were:
30 September 2014 2013 Year ended 31 March 2014
Closing rate applied at period end 1.62 1.62 1.67
Average rate applied for the period 1.68 1.55 1.62
13. Related party transactions
Related party transactions in the half year ended 30 September 2014 were the same in nature to those disclosed on page 133
of the Annual Report and Accounts 2013/14. There were no related party transactions in the period that have materially
affected the financial position or performance of the Group.
14. Principal risks and uncertainties
The principal risks and uncertainties which could affect National Grid for the remaining six months of the financial year
are consistent with those disclosed for the year ended 31 March 2014 on pages 23 and 24 and pages 167 to 169 of the Annual
Report and Accounts 2013/14. Our overall risk management process is designed to identify, manage, and mitigate our business
risks, including financial risks.
The principal risks and uncertainties included in the Annual Report and Accounts 2013/14 are as follows:
· Aspects of the work we do could potentially harm employees, contractors, members of the public or the environment.
· We may suffer a major network failure or interruption, or may not be able to carry out critical non-network
operations due to the failure of technology supporting our business-critical processes.
· Changes in law or regulation or decisions by governmental bodies or regulators could materially adversely affect
us.
· Current and future business performance may not meet our expectations or those of our regulators and shareholders.
· Failure to respond to external market developments and execute our strategic ambition may negatively affect our
performance. Conversely, new businesses or activities that we undertake alone or with partners may not deliver target
outcomes and may expose us to additional operational and financial risk.
· Changes in foreign currency rates, interest rates or commodity prices could materially impact earnings or our
financial condition.
· Operating costs may increase faster than revenues.
· We may be required to make significant contributions to fund pension and other post-retirement benefits.
· An inability to access capital markets at commercially acceptable interest rates could affect how we maintain and
grow our businesses.
· Customers and counterparties may not perform their obligations.
· We may fail to attract, develop and retain employees with the competencies, including leadership and business
capabilities, values and behaviours required to deliver our strategy and vision and ensure they are engaged to act in our
best interests.
15. Subsequent events
In November 2014, the Group agreed a new RPI-linked bank loan facility totalling £1.5bn with the European Investment Bank.
In November 2014, the Group announced that it had agreed a joint venture with the Berkeley Group to develop a number of its
sites in London and the surrounding area.
Statement of Directors' Responsibilities
The half year financial information is the responsibility of, and has been approved by, the Directors. The Directors are
responsible for preparing the half year report in accordance with the Disclosure and Transparency Rules (DTR) of the United
Kingdom's Financial Conduct Authority.
The Directors confirm that the financial information has been prepared in accordance with IAS 34 as issued by the
International Accounting Standards Board and as adopted by the European Union, and that the half year report herein
includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8.
The Directors of National Grid plc are as listed in the National Grid plc Annual Report for the year ended 31 March 2014
with the exception of the following changes to the Board:
· John Pettigrew who was appointed as an Executive Director on 1 April 2014;
· Nick Winser who stepped down as an Executive Director on 28 July 2014; and
· Maria Richter who stepped down as a Non-executive Director on 28 July 2014.
By order of the Board
…………………….. ……………………..
Steve Holliday Andrew Bonfield
6 November 2014 6 November 2014
Chief Executive Finance Director
Independent review report to National Grid plc
Report on the condensed consolidated interim financial statements
Our conclusion
We have reviewed the condensed consolidated interim financial statements, defined below, in the half year financial
information of National Grid plc (the "Company") for the six months ended 30 September 2014. Based on our review, nothing
has come to our attention that causes us to believe that the condensed consolidated interim financial statements are not
prepared, in all material respects, in accordance with International Accounting Standard 34 as issued by the IASB and as
adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority
(DTR of the UK FCA). This conclusion is to be read in the context of what we say in the remainder of this report.
What we have reviewed
The condensed consolidated interim financial statements, which are prepared by the Company, comprise:
· the consolidated statement of financial position as at 30 September 2014;
· the consolidated income statement and consolidated statement of comprehensive income for the period then ended;
· the consolidated statement of changes in equity for the period then ended;
· the consolidated cash flow statement for the period then ended; and
· the explanatory notes to the condensed consolidated interim financial statements.
As disclosed in note 1, the financial reporting framework that has been applied in the preparation of the full annual
financial statements of the group is applicable law and International Financial Reporting Standards (IFRSs) as issued by
the IASB and as adopted by the European Union.
The condensed consolidated interim financial statements included in the half year financial information have been prepared
in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as issued by the IASB and as
adopted by the European Union and the DTR of the UK FCA.
What a review of condensed consolidated financial statements involves
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board
for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and other review procedures.
A review is substantially less in scopethan an audit conducted in accordance with International Standards on Auditing (UK
and Ireland) and,consequently, does notenable us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the half year financial information and considered whether it contains any
apparent misstatements or material inconsistencies with the information in the condensed consolidated interim financial
statements.
Responsibilities for the condensed consolidated interim financial statements and the review
Our responsibilities and those of the directors
The half year financial information, including the condensed consolidated interim financial statements, is the
responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half year
financial information in accordance with the DTR of the UK FCA.
Our responsibility is to express to the Company a conclusion on the condensed consolidated interim financial statements in
the half year information based on our review. This report, including the conclusion, has been prepared for and only for
the Company for the purpose of complying with the DTR of the UK FCA and for no other purpose. We do not, in giving this
conclusion, 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.
PricewaterhouseCoopers LLP
Chartered Accountants
6 November 2014, London
The maintenance and integrity of the National Grid plc website is the responsibility of the directors; the work carried out
by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for
any changes that may have occurred to the financial statements since they were initially presented on the website.
Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
1 'Adjusted results' and a number of other terms and performance measures used in this document are not defined within
accounting standards or may be applied differently by other organisations. For clarity, definitions of these terms have
been provided on page 19. Prior year EPS has been adjusted to reflect the additional shares issued as scrip dividends,
refer to note 6 on page 32.
2 The figure shown is gross of a $0.01 per ADS dividend fee.
This information is provided by RNS
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