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| | | | | Sir Peter Gershon
Committee chairman
| | 
| | | Nominations Committee
| | | Review of the year | | | During the year, succession planning has been the main area of focus for the Committee. The process of building a strong and effective Board requires a good balance of continuity and refreshment and the Committee has borne this in mind in its deliberations.
| | | Appointment of new Chief Executive
As described in my foreword to the Corporate Governance report, during the year we have undertaken a rigorous recruitment process to appoint a successor to Steve Holliday, which resulted in the appointment of John Pettigrew as our new Chief Executive. You can read more about the Chief Executive succession search and appointment process in the ‘Committee in action’ box opposite.
| | | Succession planning | | | The Committee also spent time considering succession planning over the long term, for both Executive and Non-executive Director positions, to make sure we have the right mix of skills and experience for the future. The main focus of these discussions was to take account of the recruitment process for the Chief Executive role and subsequently the appointment of our new Executive Director, UK, following John’s appointment as Chief Executive. Following a thorough and rigorous appointment process, Nicola Shaw was appointed to the role of Executive Director, UK and we will be welcoming Nicola on to the Board from 1 July 2016; see opposite for more details on this search and appointment process.
| | | Diversity | | | Balance and fit with current Board members are important considerations in recruitment to the Board. Therefore part of the selection process for Board appointments is for the Committee to review the existing skills and experience of the Board and to also undertake external benchmarking and a review of potential external candidates. The Board also takes into account the need to make sure there is appropriate diversity, including diversity in thinking styles. Further details on the Company’s approach to diversity are set out overleaf.
| | | Board and Committee membership | | | Following the changes in Board membership, the composition of the committees was also reviewed. As a result of his appointment as Chief Executive, John Pettigrew joined the Finance Committee with effect from 1 April 2016.
| | | Examples of other matters the Committee considered during the year included: | | | ● | | Executive succession planning focusing on the identification, development and readiness of successors to the Executive Committee in particular; and | | | ● | | a review of the Chairman’s performance, led by Mark Williamson, the Senior Independent Director. |
The Committee in action – Chief Executive succession search and appointment process
A formal process was undertaken by the Committee over a three year period in order to find an appropriate successor to Steve Holliday as Chief Executive. Luke Meynell, an external advisor, initially of Russell Reynolds Associates and subsequently of The Zygos Partnership, supported the Committee to make sure there was rigour and challenge to our process which was as follows:
● | | a Chief Executive role profile was prepared and agreed by the Committee; |
● | | the external advisor conducted initial searches and assessed a long list of internal and external candidates against the agreed profile to produce a shortlist of potential candidates; |
● | | shortlisted internal candidates were considered and interviews and assessments were undertaken; |
● | | the Chairman and some of the Non-executive Directors met the potential external candidates; |
● | | following a review of the ratings from all the interviews and assessments the Committee agreed its preferred internal candidate; |
● | | the preferred candidate was benchmarked against external candidates; |
● | | following discussion of the impact of the proposed appointment on the succession plans of the Company, the Committee confirmed its preferred candidate and recommended John Pettigrew for appointment as Chief Executive to the Board; |
● | | the Board approved the appointment as recommended. |
Search and appointment process
Executive Director, UK A formal recruitment process was also undertaken for the replacement of John Pettigrew as Executive Director, UK, as follows.
The Nominations Committee appointed Korn Ferry as the search consultancy. With input from the Committee members a role and person specification was agreed.
Korn Ferry conducted initial searches for potential external candidates, with eight candidates being put forward for the role. Following this, a series of interviews were undertaken by the Chairman and members of the Board and Executive Committee. The Committee considered the outcomes from the interviews and selected two candidates for further consideration.
Final interviews with the two candidates were carried out by Steve Holliday, John Pettigrew, Ruth Kelly, Mark Williamson and members of the Executive Committee. Additionally, the two shortlisted candidates were externally assessed by YSC, a business management consultancy that undertakes executive director profiling assessments.
Following discussion, the Nominations Committee recommended Nicola Shaw as its preferred candidate for appointment to the Board. The Board approved the appointment as recommended and Nicola will join the Board on 1 July 2016.
In addition to providing external search consultancy services to the Company, Korn Ferry also provide HR consultancy services.membership key
Sir Peter Gershon
Chairman
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Chief Executive and Committee chairman Corporate Governance2 Andrew Bonfieldcontinued
Finance Director 3 Badar Khan | | | Board diversity and the Davies Review
At National Grid, we believe that creating an inclusive and diverse culture supports the attraction and retention of talented people, improves effectiveness, delivers superior performance and enhances the success of the Company.
Our Board diversity policy promotes this culture and reaffirms our aspiration to meet and exceed the target of 25% of Board positions being held by women by 2015, as set out by Lord Davies. In October 2015, Lord Davies published his final report on women in the boardroom and recommended a new voluntary target of 33% of board positions to be held by women by 2020. In April 2016, the Nominations Committee discussed progress made against our Board diversity policy and noted the new target.
| | We currently have 27% women on our Board and 22% women on our Executive Committee. The number of women in senior management positions and throughout the organisation is set out on page 45 along with examples of the initiatives to promote and support inclusion and diversity throughout our Company.
In February 2014, the Nominations Committee set out eight measurable objectives to support our Board diversity policy. During the year, the Committee reviewed the Board diversity policy and progress made against the objectives which support the implementation of the policy as set out below.
|
| | | | | | Objectives | | Progress | | 1 | | The Board aspired to exceed the target of 25% of Board positions to be held by women by 2015. | | Objective met. We currently have 27% women on our Board, which will increase to 33% when Nicola Shaw joins in July 2016. Lord Davies recommended in his final report that the target be increased to a voluntary 33% target by 2020. The Board has noted this new target.
| | 2 | | All Board appointments will be made on merit, in the context of the skills and experience that are needed for the Board to be effective.
| | Objective met. The appointment of John Pettigrew as Chief Executive and Nicola Shaw as Executive Director, UK were made on merit.
| | 3 | | We will only engage executive search firms who have signed up to the Voluntary Code of Conduct on Gender Diversity. | | Objective met. Korn Ferry, Russell Reynolds Associates and The Zygos Partnership are signed up to the Voluntary Code of Conduct on Gender Diversity.
| | 4 | | Where appropriate, we will assist with the development and support of initiatives that promote gender and other forms of diversity among our Board, Executive Committee and other senior management.
| | Objective met. See page 44 for further details. | | 5 | | Where appropriate, we will continue to adopt best practice in response to the Davies Review. | | Ongoing – as appropriate. The Nominations Committee reviewed and noted the recommendations of the Lord Davies report published in October 2015 and best practice will be adopted as appropriate and reported on next year.
| | 6 | | We will review our progress against the Board diversity policy annually.
| | Objective met. Ongoing.
| | 7 | | We will report on our progress against the policy and our objectives in the Annual Report and Accounts along with details of initiatives to promote gender and other forms of diversity among our Board, Executive Committee and other senior management.
| | Objective met. Ongoing. | | 8 | | We will continue to make key diversity data, both about the Board and our wider employee population, available in the Annual Report and Accounts.
| | Objective met. Ongoing. | | Progress against the objectives, the policy and the new targets will continue to be reviewed annually and reported in the Annual Report and Accounts.
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| | | | | Executive Committee membership key
1 John Pettigrew
Chief Executive and Committee chairman
2 Andrew BonfieldFinance Director
3 Stephanie HazellGroup Strategy & CorporateDevelopment Director, Corporate Development and National Grid Ventures
4 Alison Kay Group General Counsel & Company Secretary 5 Richard Adduci Chief Information Officer 6 George Mayhew Group Corporate Affairs Director 7 Dean SeaversExecutive Director, US 8 Mike Westcott Group Human Resources Director 9 Steve HollidayNicola Shaw Executive Director, UK Membership as at 1 April 2017 | |  
| | | | | | Management committees To help make sure we allocate time and expertise appropriately, the Company has a number of management committees, which include the Executive Committee, Disclosure Committee, Investment Committee, Group Ethics and Compliance Committee, Global Retirement Plan Committee and Group Security, and ResilienceDisclosure Committee. These committees provide reports, where relevant, to the appointing committee in line with our governance framework on the responsibilities they have been delegated. See page 4936 for management committee reporting lines. Executive Committee Led by the Chief Executive, the Executive Committee oversees the safety, operational and financial performance of the Company. It is responsible for makingday-to-day management and operational decisions it considers necessary to safeguard the interests of the Company and to further the strategy, business objectives and targets established by the Board. It approves expenditure and other financial commitments within its authority levels and discusses, formulates and approves proposals to be considered by the Board. | | There are currently
The nine Committee members, with Steve Holliday remaining a member of the Committee until he leaves the Company in July 2016. As previously announced, Nicola Shaw will become a member of the Committee with effect from 1 July 2016, on joining the Company as Executive Director, UK. The Committee members have a broad range of skills and expertise, which are updated through training and development. Some members also hold externalnon-executive directorships, giving them valuable board experience. The Committee officially met 12 times this year, but the members interact much more regularly. Those members of the Committee who are not Directors regularly attend Board and committee meetings for specific agenda items. This means that knowledge is shared and all members are kept up to date with business activities and developments. Disclosure Committee The role of the Disclosure Committee is to assist the Chief Executive and the Finance Director in fulfilling their responsibility for overseeing the accuracy and timeliness of the disclosures made – whether in connection with our presentations to analysts, financial reporting obligations, or other material stock exchange announcements, including the disclosure of price sensitive information. This year the Committee met to consider the announcements of the full- and half-year results and reported on relevant matters to the Audit Committee. In doing so it spent time considering the Company’s disclosure obligations relatingIt also met in December to consider the announcement of the proposedpreferred bidder for the sale of a majority interest in the UK Gas Distribution business and again at the end of March to review the announcement of the completion of the sale process and the expected impact this would have onoption for the Company’s growth rate.sale of a further 14% equity interest in the business. The Committee also reports the results of its evaluation of the effectiveness of the Company’s disclosure controls to the Audit Committee. The Committee is chaired by the Finance Director and its members are the Group General Counsel & Company Secretary, the GlobalGroup Tax and& Treasury Director, the GlobalGroup Financial Controller, the Director of Investor Relations, the Head of Corporate Audit and the Deputy Group General Counsel, with other attendees as appropriate. | | | The Committeecommittee in action – rate case filings DuringNational Grid Smart (NGS)
Following the decision last year to invest in the NGS business, the Committee reviewed the investment opportunities of the business, and discussed our proposed rate case filingsconsidered a number of matters impacting the opportunities, including the Government’s support for both Massachusetts electricity operations (MECO)the smart meteringroll-out in the UK, the associatedroll-out challenges faced by the industry and our downstate New York gas companies (KEDNY/KEDLI). These filings aimthe alignment of the NGS business to increase our allowed revenue in line with increased operating costs since base rates were reset after the last full rate review for each company (2010 for MECO, 2008 for KEDNY/KEDLI) and also to fund future investment needed to meet our customers’ requirements and improve reliability.wider distributed energy opportunities. A key focusThe Committee challenged the NGS team on the business mobilisation progress, the strength of the Committee discussions was on understandingcustomer pipeline, the impactservice proposition, rental pricing and the operational capability required to make the business a success.
Acknowledging the competitive nature of the requested rate increases on our customers,market, the Committee endorsed a governance framework that would enable NGS to respond quickly to future contracting opportunities, manage the performance of the business, and considering stakeholder perspectives. Following discussion,allow the proposals were approved for filing atCommittee to monitor the October meeting for MECO and at the January meeting for KEDNY/KEDLI.performance of NGS as appropriate. | | | | | |
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Corporate Governancecontinued Statement of compliance with the UK Corporate Governance Code The UK Listing Rules require that listed companies must include in their annual report a statement of whether the Company has complied with all the relevant provisions of the UK Corporate Governance Code (the Code). The Code was published in September 2014 and updated in 2016 to reflect forthcoming legislation on audit committees and auditor appointments, and is available in full at www.frc.org.uk. For the year ended 31 March 2017, the Board considers that it has complied in full with the provisions of the 2014 Code. Our statement of compliance opposite explains the main aspects of the Company’s governance structure to give a greater understanding of how the Company has applied the principles and complied with the provisions in the Code. The Corporate Governance report also explains compliance with the Disclosure Guidance and Transparency Sourcebook. The index on page 53 sets out where to find each of the disclosures required in the Directors’ Report in respect of Listing Rule 9.8.4. | | | | | | | | | | The UK Listing Rules require that listed companies must include in their annual report a statement of whether the Company has complied with all the relevant provisions of the UK Corporate Governance Code. The UK Corporate Governance Code was published in September 2014 (the Code), available in full atwww.frc.org.uk.
For the year ended 31 March 2016, the Board considers that it has complied in full with the provisions of the Code. Our statement of compliance opposite explains the main aspects of the Company’s governance structure to give a greater understanding of how the Company has applied the principles and complied with the provisions in the Code. The main report also explains compliance with the Disclosure Rules and Transparency Rules. The index on page 67 sets out where to find each of the disclosures required in the Directors’ Report in respect of Listing Rule 9.8.4, together with the Board’s sign-off on the report.
| | A. Leadership | | | | | | | | A.1 The role of the Board Our Board is collectively responsible for the effective oversight of the Company and its businesses. It also determines the strategic direction, business plan, objectives, principal risks, viability of the Company and governance structure that will help achieve the long-term success of the Company and deliver sustainable shareholder value. The Board sets the risk appetite and principal risks for the Company and takes the lead in areas such as safeguarding the reputation of the Company and its financial policy, as well as making sure we maintain a sound system of internal control and risk management (see pages 2615 to 29)18). There is a clear schedule of matters reserved for the Board and a schedule of delegation, which were both reviewed and updated in January 2016.2017. The schedule of matters reserved for the Board is available on our website, together with other governance documentation. A.2 A clear division of responsibilities The Board supports the separation of the roles of the Chairman and Chief Executive. The key responsibilities are clearly documented and reviewed when appropriate. The Chairman manages and leads the Board. The Chief Executive is responsible for the executive leadership andday-to-day management of the Company and the Group’s businesses, to ensure the delivery of the strategy agreed by the Board. A.3 Role of the Chairman The Chairman, who was independent on appointment, is responsible for the leadership and management of the Board and its governance. He makes sure the Board is effective in its role by promoting a culture of openness and debate, facilitating the effective contribution of all Directors and helping to maintain constructive relations between Executive andNon-executive Directors. The Chairman sets the Board’s agenda making sure consideration is given to the main challenges and opportunities facing the Company, and adequate time is available to discuss all items, including strategic issues. | | A.4 Role of theNon-executive Directors Our Senior Independent Director acts as a sounding board for the Chairman and serves as an intermediary for the other Directors, as well as shareholders when required.
Independent of management, ourNon-executive Directors bring diverse skills and experience, vital to constructive challenge and debate. Exclusively, they form the Audit, Nominations and Remuneration Committees, and their views are actively sought when developing proposals on strategy. Our Senior Independent Director acts as a sounding board for the Chairman and serves as an intermediary for the other Directors, as well as shareholders when required. Around each of the nine scheduled Board meetings, the Chairman holdsheld meetings with theNon-executive Directors without the Executive Directors present. These meetings were not held around the twoad-hoc Board meetings in September and December to consider the bids in relation to the sale of the UK Gas Distribution business. | | |
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| | | | | | | | | | B. Effectiveness | | | | | | | | B.1 The composition of the Board The Board believes it operates effectively with an appropriate balance of independentNon-executive and Executive Directors who have the right balance of skills, experience, independence and knowledge of the Company. Details of our Board, their individual biographies and Committeecommittee membership are set out on pages 4734 and 48.35. Board and Committeecommittee attendance during the year to 31 March 20162017 is set out on page 52. 37. The independence of theNon-executive Directors is considered at least annually along with their character, judgement, commitment and performance on the Board and relevant committees. The Board took into consideration the Code and indicators of potentialnon-independence, including length of service. The Board considered Paul Golby’s independence separately following the announcement of his appointment as Chairman of Costain Group plc (a major supplier to the Company). The situational conflict was authorised (including putting in place protective measures to ensure the conflict is appropriately managed) and his independence was confirmed.
At year end, all of theNon-executive Directors, with the exception of the Chairman, who’swhose independence is only determined on appointment, have been determined by the Board to be independent. B.2 Appointments to the Board The Nominations Committee, which comprises the Chairman andNon-executive Directors, leads the process for Board appointments and makes recommendations to the Board. The process for the appointment of John Pettigrew as Chief Executive and Nicola Shaw as Executive Director, UK were formal, rigorous and transparent. Further details of each appointment process,processes for Nicola Shaw and Pierre Dufour, succession planning and the role of the Nominations Committee can be found on page 61.47. The Zygos Partnership and Heidrick and Struggles provided external search consultancy services in relation to the above appointments. Neither have any other connection to the Company other than providing these external search consultancy services. B.3 Time commitment Non-executive Directors are advised of the time commitment expected from them on appointment. External commitments, which may impact existing time commitments, must be agreed with the Chairman. Details of external appointments are set out in the biographies on pages 4734 and 48. 35. As part of the evaluation of the Chairman, theNon-executive Directors, with input from the Executive Directors, assessed his ability to fulfillfulfil his role as Chairman, taking into account other significant appointments. | | With the agreement of the Board, Executive Directors gain experience of other companies’ operations, governance frameworks and boardroom dynamics throughnon-executive appointments. The fees for these positions are retained by the individual. For further details about the Directors’ service contracts and letters of appointment, see page 7461 of the Directors’ Remuneration Report. B.4 Development All new Directors are provided with a full induction programme when they are appointed to the Board. Details of Director induction and development can be found on page 51.37. B.5 Information and support The Group General Counsel & Company Secretary makes sure that appropriate and timely information is provided to the Board and its Committeescommittees and is responsible for advising and supporting the Chairman and the Board on all governance matters. All Directors have access to the Group General Counsel & Company Secretary and may take independent professional advice at the Company’s expense in conducting their duties. To support discussion and decision making, Board and committee members receive papers sufficiently in advance of meetings so that they can prepare for and consider agenda items. Additionally, the Chairman holds a short meeting with theNon-executive Directors before each Board meeting to discuss the focus of the upcoming meeting as well as afterwards to share feedback from the meeting. Similarly, the Chief Executive holds a short meeting with the Executive Directors and the Group General Counsel & Company Secretary after each meeting and shares the feedback from these meetings with the Chairman. Last year we engaged external specialists to review our current papers and develop a new reporting framework for the Board and its Committees. This has continued to result in clearer more concise reporting, allowing more time for quality discussions and questions. A clear set of guidelines are in place to assist the Executive Directors and management on the content and presentation of papers to the Board and committees. A further refresh of the Board paper process will commencetook place this year. See page 39 for more details.
| | B.6 Evaluation See pages 5238 and 5339 for more information on our externally facilitated Board evaluation, undertaken by Independent Audit Limited. evaluation. During the year, the Chairman met each Director individually to discuss their contribution, performance over the year and training and development needs. Following these meetings, Sir Peter confirmed to the Nominations Committee that he considered that each Director demonstrated commitment to the role and their performance continued to be effective. At a private meeting of theNon-executive Directors, Mark Williamson, as Senior Independent Director, led a review of the Chairman’s performance. TheNon-executive Directors, with input from the Executive Directors, assessed his ability to fulfil his role as Chairman and considered the arrangements he has in place, given he iswas also chairman of a FTSE 250 company during the year and the Aircraft Carrier Alliance Management Board and a Trustee of The Sutton Trust Board.Trust. They concluded that Sir Peter’s performance continued to be effective. B.7Election/re-election Each Director is subject to election at the first AGM following their appointment, andre-election at each subsequent AGM. Following recommendations from the Nominations Committee the Board considers all Directors continue to be effective, committed to their roles and have sufficient time available to perform their duties. Therefore, in accordance with the Code, Nicola ShawPierre Dufour will seek election and all other Directors (except Ruth Kelly) will seekre-election at the 20162017 AGM as set out in the Notice of Meeting, with the exception of Steve Holliday who is retiring from the Company with effect from 22 July 2016.Meeting. |
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Corporate Governancecontinued Statement of compliance with the UK Corporate Governance Codecontinued | | | | | | C. Accountability | | D. Remuneration | | E. Relations with shareholders | | C.1 Financial and business reporting The requirement for Directors to state that they consider the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable remains a key consideration in the drafting and review process. The coordination and review of the Annual Report and Accounts is conducted in parallel with the formal audit process undertaken by the external auditors and the review by the Board and its committees (of relevant sections). The drafting and assurance process supports the Audit Committee’s and Board’s assessment of the overall fairness, balance and clarity of the Annual Report and Accounts and the statement of Directors’ responsibilities asresponsibilitiesas set out on page 84.74. The independent auditor’sauditors’ report is on pages 8575 to 9282 and the Company’s business model is on pages 14 and 15.page 14. C.2 RiskInternal control and risk management and internal control The Board has carried out a robust assessment of the principal risks facing the Company including those that would threaten the business model, future performance, solvency or liquidity. Further details can be found on pages 2716 and 28.17. The Board also sets the Company’s risk appetite, internal controls and risk management processes. The Board undertakes a review of their effectiveness annually. Further details are set out on pages 26–29.15 to 18. The activities of the Audit Committee, which assists the Board with its responsibilities in relation to risk and assurance, are set out on pages 5440 to 58.44. C.3 Audit Committee and auditors The Audit Committee report on pages 5440 to 5844 sets out details of how the Committee has discharged its duties during the year, matters reviewed by the Committee and how it ensures the auditor’sauditors’ objectivity, effectiveness and continued independence. The Audit Committee report also explains the audit tender process that was undertaken during the year. | | D.1 The level and components of remuneration The Remuneration Committee is responsible for recommending to the Board the remuneration policy for Executive Directors and other members of the Executive Committee and for the Chairman, and for implementing this policy. The aim is to align remuneration policy to Company strategy and key business objectives and make sure it reflects our shareholders’, customers’ and regulators’ interests. The Remuneration Report on pages 6854 to 8171 outlines the activities of the Committee during the year and sets out excerpts of the proposed Directors’ remuneration policy table as approved bywhich will be presented to shareholders for approval at the 20142017 AGM. The new resolution to approve the remuneration policy is set out in the Notice of Meeting for the 2017 AGM. D.2 Procedure For further information on the work of the Remuneration Committee and Directors’ remuneration packages see the Directors’ Remuneration Report on pages 6854 to 81.71. The Committee’s terms of reference are available on our website. | | E.1 Dialogue with shareholders The Board as a whole is responsible for making sure that satisfactory dialogue with shareholders takes place. We believe that effective channels of communication with the Company’s debt and equity institutional investors and individual shareholders are very important. More information about our approach to relations with shareholders can be found on page 51.37. E.2 Constructive use of General Meetings The AGM provides a key opportunity for the Board to communicate with and meet shareholders. Shareholders are able to learn more about the Company through exhibits and can ask questions directly of the Board. Company representatives and our Registrar are also on hand to answer any questions shareholders might have. Our AGM will be held on Monday 2531 July 20162017 at The International Convention Centre in Birmingham and broadcast via our website. The Notice of Meeting for the 20162017 AGM, available on our website, sets out in full the resolutions for consideration by shareholders, together with explanatory notes and further information on the Directors standing for election andre-election. We will also be holding a General Meeting on 19 May 2017 to seek shareholder approval for a proposed share consolidation in connection with the return of cash as a result of the sale of a majority interest in our UK Gas Distribution business. In addition, at the General Meeting, shareholder approval will in addition be sought to renew the annual authority to enable the Company to make market purchases of its own shares, as well as to allot ordinary shares and to disapplypre-emption rights, to cover the period between the date of the General Meeting and the 2017 AGM. |
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Corporate Governance
Index to Directors’ Report and other disclosures
(starting on page indicated)
AGM 6652
Articles of Association 187184
Audit information 8474
Board of Directors 4734
Business model 14
Change of control provisions 193190
Code of Ethics 193190
Conflicts of interest 193190
Contractual and other arrangements 176174
Directors’ indemnity 194
Directors’ share interests 79191
Directors’ service contracts and letters of appointment 7461
Directors’ share interests 68
Diversity 4430
Dividends 055
Events after the reporting period 188185
Financial instruments 126123
Future developments 089
Greenhouse gas emissions 2112
Human Rights 194191
Important events affecting the Company during the year 066
Internal control 2615
Internal control over financial reporting 2918
Listing Rule 9.8.4 R cross reference table 194191
Material interests in shares 189186
People 4430
Political donations and expenditure 194191
Research and development 194191
Risk management 2615
Share capital 189186
National Grid Annual Report and Accounts 2015/162016/17
Index to Directors’ Report and other disclosures
6753
Directors’ Remuneration ReportCorporate Governancecontinued
| | | | | Jonathan Dawson Committee chairman | |   | | | Annual statement from the Remuneration Committee chairman | | | OverviewIntroduction
At the Company’sThree years ago, at our 2014 AGM, in 2015 more than 97% of votes cast were to approve the Remuneration Report for that year. As with last year we are not proposing any changes to the formalshareholders approved a new three-year remuneration policy for National Grid, with 96% of the votes in favour. At our 2015 and so this2016 AGMs shareholders supported our execution of the policy with 97% of the votes in favour each year. This year there is onlywe are seeking your approval of our remuneration policy for a votefurther three years.
| | | We have reviewed the remuneration policy reflecting on the implementationwider environment as well as the strategic review of our business, leading to an evolution of National Grid’s purpose, vision, values and strategy. In this policy.context, we consider that the existing framework will continue to provide executives with an appropriate opportunity to earn remuneration in line with National Grid’s overall performance and strategy.We are therefore proposing that the 2014 policy is renewed without any changes either to the structure, or to the maximum amounts for the APP and LTPP. | | | The key elements of our policyremuneration approach are: | | | ● | | significant weighting towards long-term incentivesthe Long Term Performance Plan (LTPP) versus short-term incentives;the Annual Performance Plan (APP); | | | ● | | the bulk of senior executive remuneration to beis paid in National Grid shares, with all of the Long Term Performance Plan (LTPP)LTPP paid only in shares, and half of the Annual Performance Plan (APP)APP paid in shares; | | | ● | | very high levels of personal shareholding required to be held by senior executives – specifically, 500% ofpre-tax salary for the CEOChief Executive and 400% for other Executive Directors; | | | ● | | a three-year performance period for measuring potential awards under the LTPP, coupled with a holding period of a further two years, irrespective of whether the mandatory personal shareholding target has been attained; and | | | ● | | performance metrics for the LTPP which are RoEReturn on Equity (measuring management’s performance in generating profit from the business) and Value Growth (measuring management’s creation of shareholder value over the longer term performance in creating shareholder value).term); and | | | ● | | malus and clawback provisions applicable to both the APP and LTPP. | | | We believe that our policy ensuresthink that the rewards paidbest way to seniormake sure management and other shareholders share the same interest comes from requiring executives are closely matchedto have a very substantial personal shareholding in National Grid. We want executives to view their remuneration from employment at National Grid as a mix of annual earnings, together with shareholders’ experience. In particular,both the growth of their shareholdings in National Grid and the value of dividends received. As a result, we regard it as very importantconsider that seniorthe remuneration policy currently in place demonstrates close alignment between management and other shareholders, and a proper focus on generating long-term value. |
Review of remuneration policy The Committee held a number of discussions last Autumn to determine whether any material changes to the remuneration policy would be appropriate for the future. Discussions covered recent trends in remuneration strategy adopted by other major UK corporates, an appraisal of developments in other major jurisdictions, data comparing National Grid’s remuneration policy and outturns against peer group companies, and the pay and conditions for employees below Board level. The main questions we considered were: | | | | | | | ● | | Is the current split between short-term and long-term incentive pay appropriate? | | | ● | | Are we incentivising behaviours that support National Grid’s strategy and values? | | | ● | | Are we paying executives see their annual remunerationfairly for performance and is this appropriate in the context of a long-term build-up of their investment in National Grid and that the growth in value of their shareholding and the dividends paid on those shares represent a material personal financial exposure to the success of the Company. As a result we think that the overall remuneration structure illustrates a high level of alignment with shareholders, and promotes an appropriate focus on long-term value within the Company.wider employee population? | | | Performance for the year
| | ● | | APPIs the overall amount paid to senior management aligned with shareholder value creation?
| | | National Grid has had another successful year overall. Record capital investment of £3.9 billion has been undertaken, split equally between the UK and US, and a programme of critical rate case filings has been successfully initiated in the US. As in prior years, the EPS figure used for APP purposes, 62.3 pence, differs slightly from the reported figure of 63.5 pence as it is adjusted for the impact of timing, scrip dividend uptake and exchange rate effects. It has also been reduced to take account of the absence of an increase in the UK corporate tax rate originally included |
The conclusion we reached was that the overall structure which we initiated three years ago remains appropriate for National Grid. We felt that to make any significant changes to the policy – particularly given that the first LTPP awarded under the 2014 policy had yet to vest – was premature for a long-term business. We also felt that the division between short-term and long-term pay gave proper focus and weight to generating long-term returns for shareholders. There is no single approach to executive pay that is definitively ‘right’ for all companies. What we did was to appraise the way National Grid creates value for its shareholders over time, and fulfils its national and societal obligations, recognising also that we are in a competitive market for senior executive talent. Against this backdrop, we believe the Group budget. The overall impactstructure described above remains fair. We are proposing some minor modifications to the metrics (but not the quantum) in respect of these adjustments was a decreaseboth the APP and LTPP for the implementation of 1.2 pence. Similarly, the Group RoE figure usedpolicy in 2017/18. More specifically, for the APP calculation, 12.0%, has been reduced by 0.3 percentage points to take accountwe will sharpen the focus on annual regional performance for the UK and US Executive Directors, with half of the absenceweighting of the increase infinancial performance being on regional RoE and half on regional Value Added. There will be no change to the UK corporate tax rate referred to above. Notwithstanding this,financial performance metrics for either the EPS of 62.3 pence andChief Executive or the Finance Director. The LTPP will then focus solely on long-term Group performance for all Executive Directors with a 50% weighting on Group RoE and a 50% weighting on Group Value Growth. These changes should enhance the visibility for executives between their annual performance and short-term incentive outcome, while reinforcing executives’ collective incentive on sustaining long-term Group performance. No changes are being proposed to the maximum level of 12.0% both met or exceededthe stretch performance levels set by the Committee at the start of the year, benefitting from realised gains achieved from the exchange of National Grid USA’s share in the Iroquois pipeline joint venture and strong results from our Other businesses led by the performance of the French interconnector. In the UK, the regulated businesses delivered good returns of 13.3%. Regulated US RoE was 8.0%, which reflected steady performance though was down on last year due to continued cost pressures as the business awaits outcomes of rate case filings. This figure, however, does not capture the gains achieved from the exchange of National Grid USA’s share in the Iroquois pipeline joint venture referred to above, and therefore has been adjusted by the Committee to reflect half of this gain for US participants in the APP, which the Committee believes properly reflects performance. As a result,awards in respect of the financial measures foreither the APP (representing 70%or the LTPP.
Page 70 provides more detail on the implementation of our policy related to incentive plans for 2017/18. We also looked at pension provisions as part of our policy review, including in relation to other employees of the valueCompany. The annual contribution to a Defined Contribution plan (DC) is 30% of base salary forUK-based Directors and certain other seniorUK-based employees. In the APP)US the Committee made awardscontribution rate is up to Executive13% of base salary plus APP award forUS-based Directors ranging from 75%and certain other seniorUS-based employees. Pension contributions are tiered by managerial grade down to 100%12% of the maximum potential for financial performance. The balance of the award (30% by value) is represented by individual executives’ assessed performance against specific objectives set by the Committee at the start of the year, resulting in awards ranging from 80% to 86% of the maximum potential for individual performance. In aggregate, therefore, Executive Directors’ APP awards fall in the range of 95% to 119% of salary. This compares with last year’s APP awards where the range was 65% to 119% of salary. Because of commercial sensitivity we retrospectively disclose annual targets for the APP, which are set out on page 76. This year, we have sought to enhance our disclosure, including the retrospective disclosure of threshold and stretch performance levels for EPS and Group RoE, which now sits alongside the disclosure of our LTPP threshold and stretch performance levels. Target performance levels for both EPS and Group RoE were higher than for 2014/15; however, the target performance levels for UK RoE and US RoE were reduced, due to the expected returns under the RIIO frameworkbase salary in the UK, and the impact of the timing of rate plan filings in the US. WeUS4-8% of base salary plus APP award (depending on age and years of service). To highlight the flexibility on any pension arrangements for newUK-based Directors, we have decidedmodified the wording in the policy related to maintain the same performance metrics for the 2016/17 APP awards and we will repeat our retrospective disclosure of performance levels in next year’s remuneration report.
LTPP
The LTPP that vested in 2015/16 was that awarded in 2012. Vesting outcomes ranged from 63%UK DC pension contributions to 76% of maximum. Before making its final determination of executives’ annual and long-term awards, the Committee gives careful consideration to a number of important non-financial measures including our safety performance, reliability and levels of customer satisfaction in both the UK and the US, and considers whether a downward adjustment should be made to any executive’s award. This year the Committee concluded that there was no reason to make any adjustment. As our Executive Director, US, Dean Seavers, only joined the Board at the beginning of 2015/16, he has not received any vested LTPP for this year, and will not do so until 2017.
The award made in 2015 is the second award in respect of the LTPP granted under the new remuneration policy in 2014. This is a three-year plan with a maximum award of 350% of salary for the CEO and 300% for the other Executive Directors. Its outcome will only be known‘up to’ 30%.
| | | | | | | 6854 | | National Grid Annual Report and Accounts 2016/17 | | Corporate Governance | | |
| | | Performance for the year APP National Grid had another successful year in 2016/17. At £4.7 billion, this year’s total adjusted operating profit was 14% higher than in 2015/16; earnings per share was 73 pence. During the year the Company made significant capital investment in its networks of some £4.5 billion, split equally between the UK and the US. In addition, a majority interest in the UK Gas Distribution business was sold to a consortium of investors for a price of £13.8 billion. As already announced, we will be returning the majority of the net proceeds to shareholders, and a special dividend of some £3.2 billion is being paid to shareholders on 2 June 2017. Additionally, a further £835 million is being returned to shareholders via share buybacks this year. When assessing the results of the APP for the Executive Directors, one of the performance measures, Earnings per share (EPS), was adjusted down as in other years to adjust for the impact of timing, scrip dividend uptake and currency adjustments. This year we also removed a 2 pence benefit arising from aone-off gain from the cessation of depreciation of the UK Gas Distribution assets since December. No adjustments were made to Group, US or UK RoE outturns. Based on National Grid’s financial performance, and taking account of performance against individual objectives, the APP payments to Executive Directors on the Board at 31 March 2017 would have been between 96% and 104% of salary. However, following the fatal incident in November 2016 at the Company’s electricitysub-station at East Claydon in Buckinghamshire, UK, the Committee considered carefully whether it would be appropriate to exercise its discretion to reduce short-term incentive levels for senior executives. The Committee decided to reduce the overall APP payout by 10% for the four Executive Directors at that time, resulting in APP awards of 86% to 94% of salary. This is in addition to a zero score for individual objectives relating to UK safety, which were applicable to John Pettigrew and Nicola Shaw this year. Similar reductions in APP have been made to other members of the Group Executive Committee, UK Executive Committee, and relevant line management. The Committee considers that this approach to allocating short-term incentive reductions – which is fully supported by senior management – serves to emphasise the collective interest and importance of safety at National Grid. Details of the APP payouts are presented on page 64, including that for Steve Holliday, who was an Executive Director from 1 April until 22 July. He received an APP payment for that time period, amounting to 81% of his prorated salary. Looking ahead to the 2017/18 APP, and following the sale of a majority interest in the UK Gas Distribution business, the UK RoE metric for the 2017/18 APP for the Executive Director, UK will be specific to the wholly-owned regulated businesses in the UK. The Executive Director, UK also has an individual objective to manage the 39% retained interest in the UK Gas Distribution business as a member of its board. LTPP As I reported in my statement last year, our remuneration has been in a transitional phase since the approval of our current remuneration policy in 2014. At that time the APP opportunity was lowered, the LTPP opportunity was increased and the LTPP performance period was simplified. This led to the vesting of the final quarter of the 2013 award made under the previous policy as well as the 2014 award under the current policy in July 2017, with both performance periods ending 31 March 2017. | | 2013 LTPP Three-quarters of the LTPP that was awarded in 2013 (before the present policy came into force) had a vesting date of July 2016 and the remaining quarter is due to vest in July 2017. The performance periods for both portions have ended, and vesting outcomes ranged from 77% to 90%. 2014 LTPP The LTPP that was awarded in 2014 according to the remuneration policy adopted at the 2014 AGM is due to vest in full in July 2017. The performance period has ended and the vesting outcomes ranged from 67% to 91%. This vesting range reflects the Committee’s decision to include, in the Value Growth outcome, a portion of the value added from the sale of a majority interest in the UK Gas Distribution business. The Committee believes this adjustment properly reflects performance during the year and the benefit to shareholders. Reflecting the final year of the transitional phase, the single total figure of remuneration table for 2016/17 discloses both the 2013 and 2014 LTPP awards in full, although no Executive Director received more than one LTPP grant in any year. We have illustrated the impact of the transitional phase graphically on page 65. Next year the disclosure of LTPP awards for 2017/18 will be simpler as the number in the single total figure of remuneration table will incorporate only the amounts for the 2015 LTPP whose performance period will have just ended. Executive Director shareholdings In 2014, we introduced high levels of shareholding requirement for our Executive Directors in order to align them further to shareholders. As at 31 March 2017, Andrew Bonfield exceeded this shareholding requirement. As John Pettigrew, Dean Seavers and Nicola Shaw were appointed to the Board relatively recently, they have not yet met this shareholding requirement and therefore under our rules will not be given permission to sell shares (other than to pay income tax on receipt of the shares or in exceptional circumstances). Annual salary review As I reported last year, when John Pettigrew and Nicola Shaw were appointed to their respective positions, the Committee decided not to award them salaries at our assessment of then current market levels, but instead, and subject to their individual performance, we would gradually phase over time increases to salary in excess of increases awarded to other company employees. This approach is consistent with that used for the wider managerial population, where employees whose salaries are relatively low compared to the market receive significantly larger salary increases than budget when justified by individual performance. The Committee therefore considered John Pettigrew’s and Nicola Shaw’s performance during the year to determine whether performance in their respective roles merited awarding base salary increases above the general level within the Company. In John Pettigrew’s case the Committee concluded that he had made a very strong start in establishing himself as Chief Executive, notably with regard to evolving National Grid’s purpose, vision and strategy; delivering a strong set of Group financial results; establishing National Grid Ventures as a new business; agreeing with BEIS and Ofgem a sound basis for the redefined Electricity System Operator (ESO); achieving an excellent outcome to the 2016/17 employee survey; achieving good rate case outcomes; and securing a very good price for the sale of a majority interest in the UK Gas Distribution business (and associated return of capital to shareholders). |
| | | | | | | | | National Grid Annual Report and Accounts 2015/162016/17 | | At a glance | | 55 |
Corporate Governancecontinued | | | Regarding Nicola Shaw, the Committee considered that she had also made a very strong start in her role as Executive Director, UK, demonstrated in particular by effective leadership both with employees (as evidenced by strong employee survey results) and key external stakeholders; delivering strong results for the UK business; making a major contribution to the redefinition of the ESO; supporting the successful sale of a majority interest in the UK Gas Distribution business; and contributing to a fair outcome from theMid-Period Review with Ofgem for National Grid and its customers. The Committee also took account of pay ratios and National Grid’s investors’ experience and concluded that it was appropriate to award John Pettigrew and Nicola Shaw a salary increase of 9% comprising the UK managerial budgeted increase of 2.6% plus a further 6.4%. Salary increases to Andrew Bonfield and Dean Seavers, whose salaries are closer to market levels, are in line with UK and US managerial budgets, at 2.6% and 2.5%, respectively. We intend to apply the same approach next year, once again subject to individual performance. Disclosure enhancements In its review of the remuneration policy, the Committee took note of evolving best practice regarding detailed disclosure of APP targets. Accordingly, full details of the retrospective threshold, target and stretch performance levels for the financial metrics within the APP in respect of the year ended 31 March 2017 are set out on page 64. These disclosures complement our current threshold, target and stretch performance level disclosures in respect of the LTPP. Committee membership Pierre Dufour joined the Remuneration Committee in February 2017, and Paul Golby stepped down from the Committee in May 2017. | | Conclusion The Committee has given very careful thought to the remuneration structure for senior executives at National Grid. We believe that the arrangements set up three years ago, focussed on mainly share-based incentives, long-term performance and substantial personal shareholdings in National Grid, remain appropriate and fair.We therefore propose to make no changes either to the structure or to the maximum amounts for the APP and LTPP. As I have described above, we propose to make some minor adjustments to some of the metrics and between the split of group and regional performance across the APP and LTPP. We believe these changes will improve alignment and transparency. For the 2016/17 financial year, the Committee believes that it has correctly implemented the approved policy and that it has appropriately and reasonably exercised its discretion as discussed above. Overall the Committee believes that the remuneration earned last year by senior executives continues to reflect their performance, the Company’s performance, and the value generated for National Grid’s shareholders. This year there are two separate remuneration votes – to approve a binding three-year policy, and to approve the remuneration report for 2016/17. On behalf of the Committee I commend this report to you and ask for your support for both resolutions at the AGM. 
Jonathan Dawson Committee chairman |
| | | | | | | | | At a glance | Performance A comparison of the total 2016/17 single figure of remuneration to the maximum remuneration if variable pay had vested in full is set out below for the four Executive Directors in office for the full year. Due to the transition in vesting schedules, both the 2013 and 2014 LTPPs have been included. | | Total remuneration | | 
| | Executive Director | | Maximum if
variable pay vested
in full £’000 | | | 2016/17 single figure
remuneration £’000 | | Andrew Bonfield | | | 7,050 | | | 5,891 | | John Pettigrew | | | 5,143 | | | 4,636 | | Dean Seavers | | | 4,196 | | | 3,165 | | .Nicola Shaw | | | 1,362 | | | 1,254 | | | | | | | | | |
| | | | | | | | 56 | | National Grid Annual Report and Accounts 2016/17 | | Corporate Governance | | |
| | | following the results for the year ending March 2017. I reported last year that, at the end of the first performance year, Group RoE and Value Growth were on target in relation to the parameters set by the Committee, with UK RoE around stretch and US RoE below threshold. For this year the position is broadly comparable in respect of both the 2014 and 2015 LTPP grants. Taking account of performance to date of the 2014 and 2015 LTPP awards, the Committee has decided to make no changes to the performance metrics and targets for the 2016 LTPP award.
Executive Director shareholdings
Two years ago, we introduced high levels of shareholding requirements for our Executive Directors, in order to further align them to our shareholders. At 31 March 2016, both Andrew Bonfield and Steve Holliday have exceeded these shareholding requirements. As John Pettigrew and Dean Seavers were appointed to the Board relatively recently, neither of them has yet met their shareholding requirements and will therefore not be given permission to sell shares until they have done so, other than to pay tax on receipt of the vested shares or in exceptional circumstances.
Changes to the Board
Following the announcement of Steve Holliday’s retirement as CEO, John Pettigrew was promoted to CEO with effect from 1 April 2016. John’s salary has been set at £825,000. His APP opportunity remains at 125% of salary, and his LTPP opportunity has increased to 350% of salary from 2016 onwards. Steve stepped down as CEO on 31 March 2016 but will remain on the Board until 22 July to facilitate a successful transition. In March, we announced that Nicola Shaw will join the Board as our new UK Executive Director on 1 July 2016, succeeding John. Nicola’s salary has been set at £450,000. Her APP opportunity is 125% of salary and her LTPP opportunity is 300% of salary. Nicola will be eligible to receive a 2016 LTPP award. In addition, she will receive a cash payment of up to £485,000 to compensate her for incentive cash awards that were due to vest in June 2016 that she has foregone on leaving her former employer. Subject to their individual performance, the Committee intends to increase each of John’s and Nicola’s salaries towards market level by way of future phased increases from 2017 in excess of those awarded to other Company employees. All of these arrangements are in line with the approved policy on recruitment remuneration and have already been announced.
Annual salary review
Steve Holliday’s and Andrew Bonfield’s annual salaries were increased by approximately 1% in 2015. In line with the US managerial pay budget, Dean Seavers’ annual
| | salary was not increased in 2015. John Pettigrew’s salary was increased by 7% to move his salary closer towards market as Executive Director, UK in 2015. In line with regional managerial pay budgets in 2016, salary increases in 2016 are 2% for Andrew Bonfield and 2.5% for Dean Seavers.
Impact of the expected sale of a majority interest in the UK Gas Distribution business
Ahead of the expected sale of a majority interest in the Gas Distribution business in 2016/17, the Committee is considering the impact on inflight LTPP and APP awards, and will make appropriate adjustments to relevant metrics within both the parameters and the spirit of the remuneration policy following any such sale. We will report this to you in next year’s remuneration report.
Conclusion
As I reported last year, remuneration continues to be in a transitional phase since the APP maximum has been lowered to 125% of salary from 150% while the LTPP represents previous bases of measurements, timescales and policy limits. This transition will continue for a further year when the final element of the 2013 LTPP vests in 2017 and the 2014 LTPP (the first awarded under the current remuneration policy) matures.
As with last year, we are not seeking any changes to the current remuneration policy, which will expire at the 2017 AGM. The Committee has begun to address whether the current policy should be proposed without any material changes or whether some modification may be required to reflect changes in the market and the evolution of the Company. I will report on the outcome of this review next year when we will seek your authority for a new three-year policy mandate.
Regarding the 2015/16 year, the Committee believes that it has correctly implemented the approved policy and that the remuneration earned last year by senior executives properly reflects the performance of the Company and the value generated for shareholders. Accordingly, I commend this remuneration report to you on behalf of the Committee, and ask for your support for the resolution to approve the report at the AGM.
Jonathan Dawson
Committee chairman
|
| | | | | | | | | | At a glance | Performance A comparison of the total 2015/16 single total figure of remuneration to the maximum remuneration if variable pay had vested in full is set out below. | | Total remuneration | | | | | | | | 
| | Executive Director | | Maximum
remuneration
£’000 | | | 2015/16 single figure
remuneration £’000 | | Andrew Bonfield | | | 4,077 | | | 3,228 | | Steve Holliday | | | 6,478 | | | 5,151 | | John Pettigrew | | | 1,815 | | | 1,569 | | Dean Seavers | | | 1,883 | | | 1,684 | | | | | | | | | |
| | | | | | | | | National Grid Annual Report and Accounts 2015/16 | | At a glance | | 69 |
Corporate Governancecontinued
At a glancecontinued
| | | | | | | | Key features of policy | | | | Annual report on remuneration for 2015/162016/17 | |
| | | | | | | | |   | | ● | | Targeted Target broadly at mid-market against FTSE 11-40 for UK Executive Directors and general industry and energy services companies with similar revenue for US Executive Directors | | ●
| | Salary increases of 0–7% for 2015 | | | | | | ● John Pettigrew appointed as CEO from 1 April 2016 on £825,000 | | ● Nicola Shaw appointed as Executive Director, UK from 1 July 2016 on £450,000 ●Salary increases of 2–2.0% and 2.5% for 2016 | | | | | ●
| | Hired Nicola Shaw as new Executive Director, UK on an annual base salary of £450,000 | | | | | ● | | Appointed John Pettigrew as CEO on an annual base salary of £825,000
Andrew Bonfield and Dean Seavers, respectively, for 2016/17 | |  
| | ● | | Maximum opportunity is 125% of salary | | ● | | 70% based on financial metrics (35% EPS, 35% RoE), 30% based on individual objectives | | ● | | 50% paid in cash, 50% paid in shares which must be retained until later of two years and meeting shareholding requirement ● Subject to both clawback and malus | | | | | | | | ● | | 70% based on financial metrics (35% EPS, 35% RoE), 30% based on individual objectives ●Group RoE for CEO and Finance Director; UK RoE for Executive Director, UK; US RoE for Executive Director, US | | | | | | | | ● | | Subject to both clawback and malus | | | | | | | | | ● | | Individual objectives cover:cover safety and compliance;compliance, business growth, operational excellence, customer satisfaction, community engagement, stakeholder engagement, Group strategy, and financial strategy;completion of the partial sale of our UK Gas Distribution business growth; operational excellence; customer experience; employee engagement; capability development; and stakeholder relations | |  
| | ● | | Maximum award level is 350% of salary for CEO and 300% for other Executive Directors ● Vesting subject to long-term performance conditions over a three-year performance period ● Shares must be retained until later of two years from vesting and meeting shareholding requirement ● Subject to both clawback and malus | | ● | | 50% value growth, 50% RoE | | | | | | ● | | 50% Value Growth, 50% RoE ●Group RoE for CEO and Finance Director; even split of Group and UK RoE for Executive Director, UK; even split of Group and US RoE for Executive Director, US | | ● | | Vesting subject to long-term performance conditions. Shares must be retained until later of two years from vesting and meeting shareholding requirement | | | | | | | | | | | | | | ● | | Three-year performance period | | ● | | Subject to both clawback and malus
| | | | | |  
| | ● | | External appointees participate in Defined Contribution (DC)DC plan or cash in lieu of pension;lieu; internal appointees retain current benefits, subject to capping of pensionable pay increases for Defined Benefit (DB)DB plans, | | ● | | UK DB (Steve Holliday, John Pettigrew): maximum of two-thirds final capped pensionable pay or (Steve Holliday) one thirtieth accrual | | | | | | | | | | | ● | | UKcan opt for cash allowance (Andrew Bonfield): 30% of salary | | in lieu ● | | Pensionable pay is salary only in UK and salary and APP in US in alignment with the market● Other benefits as appropriate | | | | | | | | ● | | UK cash allowance (Andrew Bonfield, John Pettigrew and Nicola Shaw): 30% of pensionable pay ●US DC (Dean Seavers): 9% of pensionable pay with additional match of up to 4% | | | | | | | | ● | | Other benefits as appropriate | | ● | | Other benefits include private medical insurance, life assurance, and, for UKUK-based Executive Directors either a fully expensed car or a cash alternative to a car and the use of a car and driver when required | |  
| | ● | | 500% of salary for CEO | | ● | | Steve Holliday and Andrew Bonfield have both met their shareholding requirements | | ● | | 400% of salary for other Executive Directors | | | | | | | | ● | | ● Andrew Bonfield has met the shareholding requirement ●John Pettigrew, and Dean Seavers and Nicola Shaw were appointed to the Board relatively recently, and therefore have not yet met theirthe shareholding requirements requirement | |
| | | | | | | 70 | | National Grid Annual Report and Accounts 2015/162016/17 | | Corporate GovernanceAt a glance | | 57 |
Corporate Governancecontinued Directors’ remuneration policy – approved by shareholders in 2014 Key aspectsThe following tables provide details of the Directors’ remuneration policy along with elements particularly applicablewe intend to the 2015/16 financial year are shown on pages 71–74apply, subject to shareholder approval, for ease of reference only. This policy was approved forthe three years from the date of the 2014 AGM held on 28 July 2014. A shareholder vote2017 AGM. Following approval it will be displayed on the remuneration policy is not required in 2016. Please note that the information shown has been updated to take account of the fact that the policy is now approved and current rather than proposed. A copy of the full remuneration policy is available on the Company website atwww.investors.nationalgrid.com/reports/2013-14.Company’s website.
There may be circumstances from time to time when the Committee will consider it appropriate to apply some judgement and exercise discretion in respect of the approved policy. This ability to apply discretion is highlighted where relevant in the policy, and the use of discretion will always be in the spirit of the approved policy. The Committee will honour any commitments made to Directors before the policy outlined in this report comes into effect. Our peer group The Committee benchmarksreviews its remuneration policy against appropriate peer groups annually to make sure we remain competitive in the relevant markets. The primary focus for reward benchmarkingmarket comparisons is the FTSE 11-4011–40 forUK-based Executive Directors and general industry and energy services companies with similar levels of revenue forUS-based Executive Directors. These peer groups are considered appropriate for a large, complex, international and predominantly regulated business. ApprovedFuture policy table – Executive Directors Salary
| | | | | Salary | | Purpose and link to strategy: to attract, motivate and retain high-calibre individuals, while not overpaying. | | | |
| | | | | | Operation | | Maximum levels | | Performance metrics, weighting
and time period applicable | | Salaries are targeted broadly atmid-market level. | | No prescribed maximum annual increase. | | Not applicable. | They are generally reviewed annually. Salary reviews take into account: ● business and individual contribution; ● the individual’s skills and experience; ● scope of the role, including any changes in responsibility; and ● market data in the relevant comparator group. | | Any increases are generally aligned to salary increases received by other Company employees and to market movement. Increases in excess of this may be made at the Committee’s discretion in circumstances such as a significant change in responsibility;responsibility, progression in the role;role and alignment to market level. | | | |
| | | | | | Benefits | | Purpose and link to strategy: to provide competitive and cost-effective benefits to attract and retain high-calibre individuals. | | |
| | | | | | | | Operation | | Maximum levels | | Performance metrics, weighting
and time period applicable | | Benefits provided include: | | Benefits have no predetermined maximum, as the cost of providing these varies from year to year. Participation in tax-approved tax approvedall-employee share plans is subject to limits set by the relevant tax authorities from time to time. | | Not applicable. | | | | | | | ● | | company car or a cash alternative (UK only); | | | | ● | | use of a car and driver when required; | | | | ● | | private medical insurance; | | | | ● | | life assurance; | | | | ● | | personal accident insurance; | | | | ● | | opportunity to purchase additional benefits under flexible benefits schemes available to all employees; and | | | | ● | | opportunity to participate in the following HM Revenue & CustomsHMRC (UK) or Internal Revenue Service (US) tax-advantaged all-employeetax-advantagedall-employee share plans: | | | | | | Sharesave: UK employees may make monthly contributions from net salary for a period of three or five years. The savings can be used to purchase shares at a discounted price, set at the launch of each plan period. Share Incentive Plan (SIP): UK employees may use gross salary to purchase shares. These shares are placed in trust. Incentive Thrift Plans (401(k) plans): US employees may participate in thesetax-advantaged savings plans. They are DC pension plans in which employees can invest their own and Company contributions. Employee Stock Purchase Plan (ESPP) (423(b) plan): eligible US employees may purchase ADSs on a monthly basis at a discounted price. | | | | | Other benefits may be offered at the discretion of the Committee. | | | | | |
| | | | | | | | 58 | | National Grid Annual Report and Accounts 2015/162016/17 | | Directors’ remuneration policy – approved by shareholders in 2014Corporate Governance | | 71 |
| | | | | Corporate Governancecontinued |
Directors’ remuneration policy – approved by shareholders in 2014continued
| | | Pension | | Purpose and link to strategy: to reward sustained contribution and assist attraction and retention. |
| | | | | | | | | | | | | | | | | | Performance metrics, weighting | | Operation | | | | Maximum levels | | and time period applicable | | Pension for a newan Executive Director will reflect whether they arewere internally promoted or externally appointed. | | | | UK DBDB: a maximum pension on retirement, at age 60, of two thirds final capped pensionable pay or up to one thirtiethsixtieth accrual. On death in service, a lump sum of four times pensionable pay and a two thirds dependant’s pension is provided. UK DCDC: annual contributions of up to 30% of salary. Life assurance provision of four times pensionable salary and a spouse’sdependant’s pension equal to one third of the Director’s salary are provided on death in service. Cash in lieu: annual payments of up to 30% of salary. Life assurance and dependant’s pension in line with UK DC (or UK DB where the Director was previously a member of a UK DB scheme). | | Not applicable. | If internally promoted: | | | | | ● | | retention of existing DB benefits without enhancement, with capping of pensionable pay increases following promotion to the Board; or | | | | | ● | | retention of existing UK DC benefits with discretion to enhance contribution rate to up to 30%; or | | | | | ● | | cash in lieu; or | | | | | ● | | retention of existing US DBDC benefits plus 401(k) plan match, provided through 401(k) plan andnon-qualified plans. | | | | If externally appointed: | | | | | ● | | UK DC benefits or equivalent cash in lieu; or | | | | | ● | | US DC benefits plus 401(k) plan match. | | | | In line with market practice, pensionable pay forUK-based Executive Directors includes salary only and forUS-based Executive Directors it includes salary and APP award. | | | | | | | | US DB: an Executive Supplemental Retirement Plan provides for an unreduced pension benefit at age 62. For retirements at age 62 with 35 years of service, the pension benefit would be approximately two thirds of pensionable pay. Upon death in service, the spouse would receive 50% of the pension benefit (100% if the participant died while an active employee after the age of 55). US DCDC: annual contributions of up to 9% of base salary plus APP with additional 401(k) plan match of up to 4%. | | Not applicable.
| If internally promoted:
| | | | | ● | | retention of existing DB benefits without enhancement, except for capping of pensionable pay increases following promotion to Board; or | | | | | ● | | retention of existing UK DC benefits or equivalent cash in lieu; | | | | | | | or | | | | | ● | | retention of existing US DC benefits plus 401(k) plan match, provided through 401(k) plan and non-qualified plans. | | | | | | | | | | If externally appointed:
| | | | | ● | | UK DC benefits or equivalent cash in lieu; or | | | | | ● | | US DC benefits plus 401(k) plan match. | | | | | Andrew Bonfield, John Pettigrew and Dean Seavers are treated in line with the above policy.
| | | | | | | | | Steve Holliday is provided with final salary pension benefits. For service prior to 1 April 2013, pensionable pay is normally the base salary in the 12 months prior to leaving the Company. For service from 1 April 2013 increases to pensionable pay are capped at the lower of 3% or the increase in inflation. The pension scheme rules allow for indexed prior salaries to be used for all members. He participates in the unfunded scheme in respect of benefits in excess of the Lifetime Allowance.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | In line with market practice, pensionable pay for UK-based Executive Directors includes salary only and for US-based Executive Directors it includes salary and APP award.
| | | | | |
| | | | Annual Performance Plan | | Purpose and link to strategy: to incentivise and reward the achievement of annual financial and strategic business targets and the delivery of annual individual objectives. |
| | | | | | | | | | Performance metrics, weighting | | Operation | | Maximum levels | | and time period applicable | | Performance metrics and targets are agreed at the start of each financial year. Performance metricsyear and are aligned with strategic business priorities. Targets are set with reference to the budget. Awards are paid in June. For APP awards made in 2013/14, 50% of any award was deferred into shares in the Deferred Share Plan (DSP). The DSP has no performance conditions and vests after three years, subject to continued employment. These shares are subject to forfeiture for leavers in certain circumstances.
The DSP was discontinued for APP awards made in respect of years from 2014/15. Instead, 50% of awards are paid in shares, which (after any sales to pay associated income tax) must be retained until the shareholding requirement is met, and in any event for two years after receipt.
Awards are subject to clawback and malus provisions. | | The maximum award is 125% of salary. | | A significant majority of the APP is based on performance against corporate financial measures, with the remainder based on performance against individual objectives. Individual objectives are role-specific. The Committee may use its discretion to set measures that it considers appropriate in each financial year and reduce the amount payable, taking account of significant safety or customer service standard incidents, environmental and governance issues. The payout levels at threshold, target and stretch performance levels are 0%, 50% and 100%, respectively. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | 72 | | National Grid Annual Report and Accounts 2015/162016/17 | | Corporate GovernanceDirectors’ remuneration policy | | 59 |
| | | | | Corporate Governancecontinued |
Directors’ remuneration policycontinued | | | | | Long Term Performance Plan | | Purpose and link to strategy: to drive long-term performance, aligning Executive Director incentives to key strategic objectives and shareholder interests. | |
| | | | | | | | Operation | | Maximum levels | | Performance metrics, weighting and time period applicable | | Awards of shares may be granted each year, with vesting subject to long-term performance conditions. The performance metrics have been chosen as the Committee believes they reflect the creation of long-term value within the business. Targets are set each year with reference to the business plan. Participants may receive ordinary dividend equivalents on vested shares at the discretion of the Committee. Awards are subject to clawback and malus provisions. Notwithstanding the level of award achieved against the performance conditions, the Committee may use its discretion to reduce the amount vesting, and in particular will take account of compliance with the dividend policy. For awards granted from 2014, participantsParticipants must retain vested shares (after any sales to pay tax) until the shareholding requirement is met, and in any event for a further two years after vesting.
| | The maximum award for the CEOChief Executive is 350% of salary and it is 300% of salary for the other Executive Directors. For awards made between 2011 and 2013, the maximum award for the CEO was 225% of salary and 200% for the other Executive Directors.
| | For awards between 20112014 and 20132016, the performance measures and weightings were: | | | | ● | | adjusted EPS (50%) measured over three years; | | | ● | | TSR relative to the FTSE 100 (25%) measured over three years; and | | | ● | | UK or US RoE relative to allowed regulatory returns (25%) measured over four years. | | | From 2014, the performance measures are:
| | | ● | | value growthValue Growth and Group RoE (for the CEOChief Executive and Finance Director); and | | | | ● | | value growth,Value Growth, Group RoE and UK or US RoE (for the UK and US Executive Directors respectively). | | | For awards from 2017, the performance measures are Value Growth and Group RoE for all Executive Directors. | | | | All are measured over a three-year period. The weightings of these measures may vary year to year, but would always remain such that the value growthValue Growth metric would never fall below a 25% weighting and never rise above a 75% weighting. Between 2011 and 2013, 25% of the award vested at threshold and 100% at stretch, with straight-line vesting in between. From 2014, onlyOnly 20% of the award vests at threshold.
|
Approved policy table –Non-executive Directors (NEDs) | | | | Fees for NEDs | | Purpose and link to strategy: to attract NEDs who have a broad range of experience and skills to oversee the implementation of our strategy. | |
| | | | | Operation | | Maximum levels | | Performance metrics, weighting and
time period applicable | | NED fees (excluding those of the Chairman) are set by the Executive Committee in conjunction with the Chairman; the Chairman’s fees are set by the Committee. Fee structure: ● Chairman fee; ● basic fee, which differs forUK- andUS-based NEDs; ● committee membership fee; ● committee chair fee; and ● Senior Independent Director fee. | | There are no maximum fee levels. The benefits provided to the Chairman are not subject to a predetermined maximum cost, as the cost of providing these varies from year to year. | | Not applicable. | Fees are reviewed every year and are benchmarked againsttaking into account those in companies of similar scale and complexity. | | | NEDs do not participate in incentive, pension or pension plans and,benefit plans. However, they are eligible for reimbursement for all company-related travel expenses. In instances where these costs are treated by HMRC as taxable benefits, the Company also meets the associated tax cost to theNon-executive Directors through a PAYE settlement agreement with HMRC. Additionally, the exception of the Chairman, are not eligible to receive benefits. The Chairman is covered by the Company’s private medical and personal accident insurance plans and receives a fully expensed car or cash alternative to a car, withand the use of a car and driver, when required. NEDs who also sit on National Grid subsidiary boards may receive additional fees related to service on those boards. There is no provision for termination payments. NEDs stand forre-election every year. | | | |
| | | | | | | | 60 | | National Grid Annual Report and Accounts 2015/162016/17 | | Directors’ remuneration policy – approved by shareholders in 2014Corporate Governance | | 73 |
Corporate Governancecontinued
Directors’ remuneration policy – approved by shareholders in 2014continued | Shareholding requirement The requirement of Executive Directors to build up and hold a relatively high value of National Grid shares ensures they share a significant level of risk with shareholders and aims to align their interests are aligned.interests. From 2014/15, Executive Directors are required to build up and retain shares in the Company. The level of holding required is 500% of salary for the CEOChief Executive and 400% of salary for the other Executive Directors.
Unless the shareholding requirement is met, Executive Directors will not be permitted to sell shares, other than to pay income tax liabilities on shares just vested or in exceptional circumstances.circumstances approved by the Remuneration Committee. |
Differences in remuneration policy for all employees The remuneration policy for the Executive Directors is designed with regard to the policy for employees across the Company as a whole. However, there are some differences in the structure of remuneration policy for the senior executives. In general, these differences arise from the development of remuneration arrangements that are market competitive for our various employee categories. They also reflect the fact that, in the case of the Executive Directors, a greater emphasis tends to be placed on performance-related pay in the market, in particular long-term performance-related pay. All employees are entitled to base salary, benefits and pension contributions. Many employees are eligible for an APP award based on Company and individual performance. Eligibility and the maximum opportunity available is based on market practice for the employee’s job band. In addition, around 380 senior management employees are awarded LTPPs annually. The Company has a number ofall-employee share plans that provide employees with the opportunity to become, and to think like, a shareholder. These plans include Sharesave and the Share Incentive Plan (SIP) in the UK and the 401(k) and 423(b) plans in the US. Further information is provided on page 58. Consideration of remuneration policy elsewhere in the Company In setting the remuneration policy the Committee considers the remuneration packages offered to employees across the Company. As a point of principle, salaries, benefits, pensions and other elements of remuneration are assessed regularly to ensure they remain competitive in the markets in which we operate. In undertaking such assessment our aim is to be atmid-market level for all job bands, including those subject to union negotiation. As would be expected, we have differences in pay and benefits across the business which reflect individual responsibility and there are elements of remuneration policy which apply to all, for example, flexible benefits and share plans. When considering annual salary increases, the Committee reviews the proposals for salary increases for the employee population generally, as it does for any other changes to remuneration being considered. The Company issues an employee engagement survey each year which includes questions on remuneration. It does not specifically invite employees to comment on the Directors’ remuneration policy but any comments made by employees are noted. Policy on recruitment remuneration Salaries for new Executive Directors appointed to the Board will be set in accordance with the terms of the approved remuneration policy in force at the time of appointment, and in particular will take account of the appointee’s skills and experience as well as the scope and market rate for the role. Where appropriate, salaries may be set below market level initially, with the Committee retaining discretion to award increases in salary in excess of those of the wider workforce and inflation to bring salary to a market level over time, where this is justified by individual and Company performance. Benefits consistent with those offered to other Executive Directors under the approved remuneration policy in force at the time of appointment will be offered, taking account of local market practice. The Committee may also agree that the Company will meet certain costs associated with the recruitment, for example legal fees, and the Committee may agree to meet certain relocation expenses or provide tax equalisation as appropriate. Pensions for new Executive Directors appointed to the Board will be set in accordance with the terms of the approved remuneration policy in force at the time of appointment. Ongoing incentive pay (APP and LTPP) for new Executive Directors will be in accordance with the approved remuneration policy in force at the time of appointment. This means the maximum APP award in any year would be 125% of salary and the maximum LTPP award would be 300% of salary (350% of salary for a new CEO)the Chief Executive). For an externally appointed Executive Director, the Company may offer additional cash or share-based payments that it considers necessary to buy out current entitlements from the former employer that will be lost on recruitment to National Grid. Any such arrangements would reflect the delivery mechanisms, time horizons and levels of conditionality of the remuneration lost. In order to facilitatebuy-out arrangements as described above, existing incentive arrangements will be used to the extent possible, although awards may also be granted outside of these shareholder-approved schemes if necessary and as permitted under the Listing Rules. For an internally appointed Executive Director, any outstanding variable pay element awarded in respect of the prior role will continue on its original terms. Fees for a new Chairman orNon-executive Director will be set in line with the approved policy in force at the time of appointment. PolicyService contracts and policy on payment for loss of office
In line with our policy, all Executive Directors have service contracts which are terminable by either party with 12 months’ notice. The contracts contain provisions for payment in lieu of notice, at the sole and absolute discretion of the Company. Such contractual payments are limited to payment of salary only for the remainder of the notice period. In the UK such payments would be phased on a monthly basis, over a period nonot greater than 12 months, and the Executive Director would be expected to mitigate any losses where employment is taken up during the notice period. In the US, for tax purposes the policy is to make any payment in lieu of | | | | | | | | | National Grid Annual Report and Accounts 2016/17 | | Directors’ remuneration policy | | 61 |
Corporate Governancecontinued Directors’ remuneration policycontinued notice as soon as reasonably practicable, and in any event within two and a half months of the later of 31 December and 31 March immediately following the notice date. In the event of a UK Director being made redundant, statutory compensation would apply and the relevant pension plan rules may result in the early payment of an unreduced pension. On termination of employment, no APP award would generally be payable and any DSP awards would generally lapse.payable. However, the Committee has the discretion to deem an individual to be a ‘good leaver’, in which case an APP award would be payable on the termination date, based on performance during the financial year up to termination, and DSP awards would vest on the termination date.termination. Examples of circumstances in which a Director would be treated as a ‘good leaver’ include redundancy, retirement, illness, injury, disability and death. Any APP award would be prorated and would be subject to performance achieved against the objectives for that year. On termination of employment, outstanding awards under the share plans will be treated in accordance with the relevant plan rules approved by shareholders. Share awards would normally lapse. ‘Good leaver’ provisions apply at the Committee’s discretion and in specified circumstances, including redundancy, retirement, illness, injury, disability and death, where awards will be released to the departing Executive Director or, in the case of death, to their estate. Long-term share plan awards held by ‘good leavers’ may vest subject to performance measured at the normal vesting date and are prorated. Such awards would vest at the same time as for other participants.participants, apart from circumstances in which the award recipient has died, in which case the awards vest as soon as practicable (based on a forecast of performance). The Chairman’s appointment is subject to six months’ notice by either party; for the otherNon-executive Directors, notice is one month. No compensation is payable toNon-executive Directors if they are required to stand down.down or are notre-elected. Copies of Directors’ service contracts and letters of appointment are available for inspection at the Company’s registered office. External appointments The Executive Directors may, with the approval of the Board, accept one external appointment as anon-executive director of another company and retain any fees received for the appointment. Experience as a board member of another company is considered to be valuable personal development, that in turn is of benefit to the Company. Total remuneration opportunity The total remuneration for each of the Executive Directors that could result from the remuneration policy in 2017 under three different performance levels (below threshold, when only fixed pay is receivable, on target and maximum) is shown below. 
| 1. | ‘Fixed pay’ consists of salary, pension andbenefits-in-kind as provided under the remuneration policy. |
| 2. | Salary is that to be paid in 2017/18, taking account of the increases that will be effective from 1 June 2017 shown on page 70. Dean Seavers’ salary has been converted at $1.2949:£1 |
| 3. | Benefits-in-kind and pension are as shown in the Single Total Figure of Remuneration table for 2016/17 on page 63.Benefits-in-kind for John Pettigrew excludeone-off relocation payments made in 2016/17 as a result of his appointment as Chief Executive. |
| 4. | APP calculations are based on 125% of salary for the period 1 April 2017 to 31 March 2018. |
| 5. | LTPP calculations are based on awards with a face value of 350% of 1 June 2017 salary for John Pettigrew and 300% of 1 June 2017 salary for all other Executive Directors. Excludes changes in share price and dividend equivalents. |
| 6. | LTPP and APP payout is 50% foron-target performance and the maximum of 100% is for achieving stretch. |
Statement of consideration of shareholder views The Committee considers all feedback relating to executive remuneration received from shareholders throughout the year. While the committee understands that not all shareholders’ views will be the same, we consult with our larger shareholders when appropriate to understand expectations and views regarding executive remuneration. | | | | | | | 7462 | | National Grid Annual Report and Accounts 2015/162016/17 | | Corporate Governance | | |
Annual report on remuneration Statement of implementation of remuneration policy in 2015/162016/17 Role of Remuneration Committee The Committee is responsible for recommending to the Board the remuneration policy for Executive Directors and the other members of the Executive Committee and for the Chairman, and for implementing this policy. The aim is to align remuneration policy to Company strategy and key business objectives and ensure it reflects our shareholders’, customers’ and regulators’ interests. The members of the Remuneration Committee in 2015/162016/17 were Nora Mead Brownell, Jonathan Dawson (chair), Pierre Dufour (from March), Paul Golby and Mark Williamson. The CommitteeCommittee’s activities during the year | | | | Meeting | | Main areas of discussion | | April | | 2014/15Final approval of 2016 LTPP targets
2015/16 individual objectives scoring for Executive Committee | | | Discussion of 2015/16 objectives for Executive Committee | | | Review of Executive Committee shareholdings | | | and dilution limits Review of Committee termsTerms of referenceReference | | May | | Annual salary review and LTPP proposals for Executive Committee
| | | 2014/152015/16 APP financial outturns and individual performance and confirmation of awards | | | Final approval of 2015/16 objectivesAnnual salary review and LTPP proposals for Executive Committee | | | Final approval of APP targets for 2015/162016/17 financial year | | | ReviewFinal approval of gender and ethnicity pay statistics2016/17 objectives for Executive Committee | | OctoberAugust
| | Approval of remuneration package for incoming CEO and of payments
| | | on retirement for outgoing CEOItems related to new Executive Committee appointment
| | November | | Update on corporate governance and disclosure issues and review of AGM outcomes2017 Remuneration Policy discussion
| | | Directors’ Remuneration Report planning for 2016 | | | Review of competitive benchmarking for secondary comparator groups | | | Review of gender and ethnicity pay statistics disclosure for external website | December | | Update
Review of ISS Pay for Performance peer group 2017 Remuneration Policy discussion Items related to new Executive Committee appointment | | January | | Discussion of impact of sale of majority stake in UK Gas Distribution business on 2015/16 APP and outstanding LTPPsLTPP metrics | | March | | Approval of remuneration package for incoming Executive Director, UK
| | | BenchmarkingMarket data review for Executive Committee remuneration | | | 20162017 Directors’ Remuneration Report – review ofreviewed first draft | | | Discussion of metrics and targets for 2017/18 APP and 2017 LTPP for 2016/17 | | | Review of 2017/18 objectives for Executive Committee for APP 2016/17 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Single total figureTotal Figure of remunerationRemuneration – Executive Directors (audited information) | The following table shows a single total figure in respect of qualifying service for 2015/16,2016/17, together with comparative figures for 2014/15:2015/16: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Salary £’000 | | | Benefits in kind £’000 | | | APP
£’000 | | | LTPP
£’000 | | | Pension
£’000 | | | Other
£’000 | | | Total £’000 | | Salary £’000 | | Benefits in kind £’000 | | APP £’000 | | 2013
LTPP
£’000 | | 2014
LTPP
£’000 | | Total LTPP £’000 | | Pension £’000 | | Other £’000 | | Total £’000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2015/16 | | | 2014/15 | | | 2015/16 | | | 2014/15 | | | 2015/16 | | | 2014/15 | | | 2015/16 | | | 2014/15 | | | 2015/16 | | | 2014/15 | | | 2015/16 | | | 2014/15 | | | 2015/16 | | | 2014/15 | | 2016/17 | | 2015/16 | | 2016/17 | | 2015/16 | | 2016/17 | | 2015/16 | | 2016/17 | | 2016/17 | | 2016/17 | | 2015/16 | | �� | 2016/17 | | 2015/16 | | 2016/17 | | 2015/16 | | 2016/17 | | 2015/16 | | | | | | Andrew Bonfield | | | 736 | | | | 727 | | | | 61 | | | | 58 | | | | 865 | | | | 854 | | | | 1,345 | | | | 1,271 | | | | 221 | | | | 218 | | | | – | | | | – | | | | 3,228 | | | 3,128 | | | 749 | | | 736 | | | | 60 | | | 61 | | | | 684 | | | 865 | | | 1,855 | | | 2,318 | | | | 4,173 | | | 1,383 | | | | 225 | | | 221 | | | | – | | | | – | | | | 5,891 | | | 3,266 | | Steve Holliday | | | 1,033 | | | | 1,021 | | | | 41 | | | | 40 | | | | 1,222 | | | | 1,210 | | | | 2,125 | | | | 2,004 | | | | 730 | | | | 523 | | | | – | | | | – | | | | 5,151 | | | 4,798 | | | 320 | | | 1,033 | | | | 12 | | | 41 | | | | 260 | | | 1,222 | | | 2,490 | | | | – | | | | 2,490 | | | 2,185 | | | | 262 | | | 730 | | | | – | | | | – | | | | 3,344 | | | 5,211 | | John Pettigrew | | | 503 | | | | 475 | | | | 14 | | | | 18 | | | | 503 | | | | 527 | | | | 406 | | | | 396 | | | | 143 | | | | 451 | | | | – | | | | – | | | | 1,569 | | | 1,867 | | | 825 | | | 503 | | | | 497 | | | 14 | | | | 762 | | | 503 | | | 694 | | | 1,610 | | | | 2,304 | | | 425 | | | | 248 | | | 143 | | | | – | | | | – | | | | 4,636 | | | 1,588 | | Dean Seavers | | | 678 | | | | – | | | | 39 | | | | – | | | | 649 | | | | – | | | | – | | | | – | | | | 148 | | | | – | | | | 170 | | | | – | | | | 1,684 | | | – | | | 800 | | | 678 | | | | 25 | | | 39 | | | | 694 | | | 649 | | | | – | | | 1,501 | | | | 1,501 | | | | – | | | | 145 | | | 148 | | | | – | | | 170 | | | | 3,165 | | | 1,684 | | Nicola Shaw | | | | 338 | | | | – | | | | 15 | | | | – | | | | 315 | | | | – | | | | – | | | | – | | | | – | | | | – | | | | 101 | | | | – | | | | 485 | | | | – | | | | 1,254 | | | | – | | | | | | Total | | | 2,950 | | | | 2,223 | | | | 155 | | | | 116 | | | | 3,239 | | | | 2,591 | | | | 3,876 | | | | 3,671 | | | | 1,242 | | | | 1,192 | | | | 170 | | | | – | | | | 11,632 | | | 9,793 | | | 3,032 | | | 2,950 | | | | 609 | | | 155 | | | | 2,715 | | | 3,239 | | | 5,039 | | | 5,429 | | | | 10,468 | | | 3,993 | | | | 981 | | | 1,242 | | | | 485 | | | 170 | | | | 18,290 | | | 11,749 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Notes: Salary:Base salaries were last increased on 1 June 2015.2016. At this time Andrew Bonfield and Steve HollidayDean Seavers received salary increases of approximately 1%,2.0% and 2.5% respectively, in line with the average salary increases given to other managerial employees of the Company in the UK. John Pettigrew was given an increase of 7% to move closer towards market as Executive Director, UK in 2015/16. Dean Seavers joined the Board on 1 April 2015 and was not given a salary increase at 1 June 2015, in line with other managerial employees of the Company in the US.US respectively. Dean Seavers’ base salary has been converted at $1.4744:$1.2767:£1 for 2016/17 ($1.4744:£1 for 2015/16.16). Steve Holliday did not receive a salary increase due to his planned retirement on 22 July 2016, and his salary was only paid to this date. John Pettigrew and Nicola Shaw were newly appointed as Chief Executive and Executive Director, UK respectively. Nicola Shaw’s base salary was paid from her start date of 1 July 2016. APP:Steve Holliday’s APP award is based on his prorated salary for the time on the Board in the 2016/17 financial year before he stepped down on his retirement in July 2016. Following a fatality in the UK that occurred in November 2016, the APP awards have been reduced by 10% for the Executive Directors at that time. Benefits in kind:Benefits in kind include private medical insurance, life assurance and for UKUK-based Executive Directors, either a fully expensed car or a cash alternative to a car and the use of a car and driver when required. For Andrew Bonfield, it also includes the benefits of Sharesave options granted during the year. For Dean Seavers,John Pettigrew, this amount includes a reimbursement for costs relating to his relocation payments.to London on appointment as Chief Executive. Other:For Dean Seavers,Nicola Shaw, Other includes the second $250,000a £485,000 cash payment to compensate her for forfeited bonuses from histhe forfeiture of short-term and long-term incentive cash awards at her former employer.employer which were due to vest in June 2016. LTPP: A portionThree quarters of the 20122013 LTPP award vested in July 2015,2016, and the remainderremaining quarter is due to vest in July 2016.2017. Additionally, the entire 2014 LTPP award is due to vest in July 2017. The above value for 2015/16 is based2016/17 therefore includes all of these amounts, and separate columns have been provided to delineate the two awards. No Executive Director received two LTPP awards in the same year. For amounts vesting on 1 July 2016, the share price (818 pence) on the vestingthat date (1 July 2015) for that portion that vestedof 1,105.5 pence ($74.36 per ADS) has been applied. For amounts due to vest on 1 July 2015, and2017, the average share price over the three months from 1 January 20162017 to 31 March 2016 (958 pence) for that portion due to vest on 1 July 2016.2017 of 962.75 pence ($59.84 per ADS) has been applied. The 2014/152015/16 LTPP amount has been restated to reflect the actual amounts that vested on 1 July 20152016 for RoE, rather than the estimate shown in last year’s Annual Report.annual report. Due to a lowerhigher share price at vesting of 8181,105.5 pence ($64.1774.36 per ADS) versus the estimate of 899958 pence ($70.3369.23 per ADS), the actual value at vesting was £29,358, £46,335,£38,425, £60,700, and £12,441 lower£18,882 higher than the estimate for Andrew Bonfield, Steve Holliday and John Pettigrew respectively. The remaining 25% portion of Steve Holliday’s 2013 LTPP award (with expected vesting of £0.3 million) and the full 2014 LTPP award (with expected vesting of £2.2 million) will not vest until 1 July 2017, approximately one year after he stepped down from the Board. Therefore the vested amounts will be disclosed in the Payments to Past Directors section in next year’s Annual Report and Accounts. Total:The Total remuneration excluding the 2013 LTPP would have been £4.0 million, £0.9 million and £3.9 million for Andrew Bonfield, Steve Holliday and John Pettigrew respectively. As a result, the Total for all Executive Directors would have been £13.3 million. | | | | | | | | | National Grid Annual Report and Accounts 2015/162016/17 | | Annual report on remuneration | | 7563 |
Corporate Governancecontinued Annual report on remunerationcontinued Performance against targets for APP 2015/162016/17 (audited information) APP awards are earned by reference to the financial year and paid in June. Fifty percent50% of awards are paid in shares which (after any sales to pay income tax) must be retained until the shareholding requirement is met, and in any event for two years after receipt. In relation to both the financial measures and individual objectives, threshold, target and stretch performance levels arepre-determined by the Committee and pay out at 0%, 50% and 100% respectively and on a straight-line basis in between threshold and target performance and target and stretch performance. IndividualThe individual objectives of the Executive Directors reflect the primary focus areas within the Company’s overall strategic priorities: | ● | | building on our strong safety performance;safety; |
| ● | | the drive for business growth in the UK and US; |
| ● | | delivery of operational excellence and improvement in overall Company performance and service to customers;customers and communities; |
| ● | | promotion of innovative ideas to work more efficientlythe talent pipeline and effectively;employee engagement; |
| ● | | strengtheningstakeholder engagement, sustainability and the talent pipeline and keeping all our employees fully engaged;environment; and |
| ● | | working with external stakeholders to shape energy policy and embed sustainability into our decision-making to preserve natural resources and focus on environmental issues.successful completion of the sale of a majority of the UK Gas Distribution business. |
The outcomes of APP awards earned in 2015/16, along with detail of individual objectives,2016/17 for the four Executive Directors at 31 March and prior to the 10% reduction (described in the note below), are shown in the figurestables below: | | | | Proportion
of max
opportunity | | Threshold | | Target | | Stretch | | Actual | | Proportion
of max achieved | | | Proportion
of max
opportunity | | Threshold | | Target | | Stretch | | Actual | | Proportion
of max
achieved | | Adjusted EPS (p/share) | | 35% | | | 56.2 | | | 59.2 | | | 62.2 | | | 62.3 | | | 100% | | | 35% | | | 60.0 | | | 62.5 | | | 65.0 | | | 65.1 | | | 100% | | Group RoE (%) | | | | 11.2 | | | 11.6 | | | 12.0 | | | 12.0 | | | 100% | | | | | 11.2 | | | 11.6 | | | 12.0 | | | 11.7 | | | 62.5% | | �� UK RoE (%) | | 35% | | | | | 13.25 | | | | | 13.3 | | | 55% | | | UK RoE | | | | | 2.65 | | | 2.90 | | | 3.15 | | | 3.00 | | | 70% | | (Percentage points above average allowed regulatory return) | | | | 35% | | | | | | | | | | | | US RoE (%) | | | | | | 8.25 | | | | | 8.25 | | | 50% | | | | | 8.0 | | | 8.2 | | | 8.4 | | | 8.2 | | | 50% | | Individual objectives | | 30% | | | | See adjacent table | | | | 80–86% | | | 30% | | | | See adjacent table | | | 78–84% | |
Notes: Overall: Group RoE pertains to the CEOChief Executive and Finance Director, whilstwhile UK RoE and US RoE pertain to the Executive Director, UK and Executive Director, US respectively. RoE in some form comprises 35% of the total maximum APP opportunity. Adjusted EPS: Adjusted EPS actual is reduced by 1.27.9 pence to account for the impact of timing, absence of a budgeted rise in the UK corporate tax rate, and the impact of scrip dividend uptake, currency adjustments and currency adjustments. Group RoE: Group RoE actual is reduced by 30 basis pointscertain actuarial assumptions on pensions, and to account forremove the absencebenefit of a budgeted rise in theceasing to depreciate UK corporate tax rate.
US RoE: US RoE actual is adjusted to capture half of the realised gains achieved from the exchange of National Grid USA’s share in the Iroquois pipeline joint venture.Gas Distribution business assets since December 2016.
| | | | Andrew | | Steve | | John | | Dean | | Andrew | | John | | Dean | | Nicola | | | | Bonfield | | Holliday | | Pettigrew | | Seavers | | Bonfield | | Pettigrew | | Seavers | | Shaw | Safety | | ● | | ● | | ● | | ● | | Group strategy | | | | ● | | | | | | Safety and compliance | | | | | ● | | ● | | ● | Business growth | | | | | ● | | ● | | ● | Capability development | | | ● | | ● | | ● | | ● | Stakeholder relations | | | | | ● | | ● | | ● | Employee engagement | | | ● | | ● | | ● | | ● | Financial strategy | | ● | | | | | | | | ● | | | | | | | Business growth | | ● | | ● | | ● | | ● | | Operational excellence | | ● | | | | ● | | ● | | | | ● | | ● | | ● | Customer experience | | | | | | ● | | ● | | | | | | ● | | ● | Employee engagement | | ● | | ● | | ● | | ● | | Capability development | | ● | | ● | | ● | | ● | | Stakeholder relations | | | | ● | | ● | | ● | | Group strategy | | | ● | | ● | | | | | Completion of sale of majority stake in UK | | | | | | | | | | Gas Distribution | | | ● | | ● | | | | ● | | Proportion of maximum achieved | | 80% | | 82% | | 86% | | 80% | | 81% | | 84% | | 82% | | 78% |
Steve Holliday’s APP award for 2016/17 was based on his prorated salary from 1 April until 22 July and reflected target financial performance and stretch individual performance based on an assessment of his performance against the objective of completing a successful transition between himself and the newly appointed Chief Executive, John Pettigrew. Following the fatal incident at the Company’s electricitysub-station in November at East Claydon, Buckinghamshire, UK, the APP awards for the four Executive Directors on the Board at that time were reduced by 10%. The impact of the reduction is shown in the bar charts below. 2015/162016/17 APP as proportion of base salary
 
2015/16 LTPP performance (audited information)
The LTPP value included in the 2015/16 single total figure relates to vesting of the conditional LTPP award granted in 2012. The 2012 award is determined based on differing performance periods and vesting dates:
● | | performance over the three years ending 31 March 2015 for the EPS measure (50% weighting), which vested on 1 July 2015; |
● | | performance over the three years ending 30 June 2015 for the TSR measure (25% weighting), which vested on 1 July 2015; and |
● | | performance over the four years ending 31 March 2016 for the UK RoE measure and 31 December 2015 for the US RoE measure (25% weighting overall, split by Executive Director as shown overleaf), which will vest on 1 July 2016. |
| | | | | | | 7664 | | National Grid Annual Report and Accounts 2015/162016/17 | | Corporate Governance | | |
�� 2016/17 LTPP performance (audited information) The LTPP value included in the 2016/17 single total figure relates to vesting of the conditional LTPP awards granted in both 2013 and 2014. This arises from the change to the performance periods as part of the policy implemented in 2014. A visual illustration of this transition is presented below. No Executive Director received more than one LTPP grant in any year. 
2013 LTPP The 2013 award is determined based on differing performance periods and vesting dates: | ● | | performance over the three years ending 31 March 2016 for the EPS measure (50% weighting) which vested on 1 July 2016; |
| ● | | performance over the three years ending 30 June 2016 for the TSR measure (25% weighting) which vested on 1 July 2016; and |
| ● | | performance over the four years ending 31 March 2017 for the UK RoE and US RoE measures (25% weighting overall, split by Executive Director as shown below) which will vest on 1 July 2017. |
The performance achieved against the 2013 LTPP award performance targets, including the expected vesting percentage for the RoE measures, was: | | | | | | | | | | Performance measure | | Threshold – 25% vesting | | Maximum – 100% vesting | | Actual/expected vesting | | Actual/expected proportion of maximum achieved | TSR ranking (25% weighting) | | Ranked at median of the comparator group (FTSE 100) | | 7.5 percentage points or more above median | | 2.997.72 percentage points above median
| | 55.0%100.0%
| Adjusted EPS (50% weighting) | | EPS growth exceeds RPI increase by 3 percentage points | | EPS growth exceeds RPI increase by 8 percentage points or more | | Exceeded RPI increase by 6.36.7 percentage points | | 74.4%80.0%
| UK RoE (12.5% weighting for the former CEO and current Finance Director; 25% weighting for the former Executive Director, UK) | | RoE is equal to the average allowed regulatory return | | RoE is 2 percentage points or more above the average allowed regulatory return | | Exceeded average allowed regulatory return by 3.23.1 percentage points | | 100.0% | US RoE (12.5% weighting for the former CEO and current Finance Director; 25% weighting for the former Executive Director, US) | | RoE is 1 percentage point below the average allowed regulatory return | | RoE is 1 percentage point or more above the average allowed regulatory return | | 1.11.3 percentage points below the average allowed regulatory return
| | 0%0.0%
|
The amounts vesting or expected to vest under the 20122013 LTPP during the year and included in the 2015/162016/17 single total figure are shown in the table below. The valuation is based on the following share prices: | ● | | 8181,105.5 pence ($64.1774.36 per ADS) on the vesting date of 1 July 20152016 for the EPS and TSR elements of the award; and |
| ● | | average share price over the three months from 1 January 20162017 to 31 March 20162017 of 958962.75 pence ($69.2359.84 per ADS) for the RoE element of the award. |
| | | | Original number
of share awards
in 2012 LTPP | | | Overall vesting
percentage (including
expected vesting
percentage for RoE
measure) | | Number of awards
vesting (including
expected vesting for RoE
measure) | | | Dividend equivalent shares | | | Total value of awards
vesting (including
expected vesting for RoE
measure) and dividend
equivalent shares (£’000) | | | Original number
of share awards
in 2013 LTPP | | | Overall vesting
percentage (including
expected vesting
percentage for RoE
measure) | | Number of awards
vesting (including
expected vesting for RoE
measure) | | | Dividend
equivalent
shares | | | Total value of awards
vesting (including
expected vesting for RoE
measure) and dividend
equivalent shares £’000 | | Andrew Bonfield | | | 213,095 | | | | 63.45% | | | | 135,203 | | | | 23,787 | | | | 1,345 | | | | 194,798 | | | | 77.49% | | | | 150,959 | | | | 20,583 | | | | 1,855 | | Steve Holliday | | | 336,702 | | | | 63.45% | | | | 213,628 | | | | 37,586 | | | | 2,125 | | | | 230,844 | | | | 86.66% | | | | 200,049 | | | | 25,214 | | | | 2,490 | | John Pettigrew | | | 52,395 | | | | 75.95% | | | | 39,793 | | | | 7,136 | | | | 406 | | | | 63,361 | | | | 90.00% | | | | 57,021 | | | | 8,198 | | | | 694 | | Dean Seavers | | | – | | | | – | | | | – | | | | – | | | | – | | |
For Steve Holliday, all values reflect the TSR and EPS portions of the award (75% of the total) which vested while he was on the Board. The 25% RoE portion which is due to vest in July 2017 will be included in the ‘Payments to Past Directors’ section in next year’s Directors’ Remuneration Report. Dean Seavers and Nicola Shaw were both appointed since the 2013 LTPP was awarded and therefore did not receive any awards under the 2013 LTPP. | | | | | | | | | National Grid Annual Report and Accounts 2016/17 | | Annual report on remuneration | | 65 |
Corporate Governancecontinued Annual report on remunerationcontinued No further awards will be made under this LTPP structure, the 2014 structure described below having been adopted at the 2014 AGM. 2014 LTPP The 2014 award is determined by performance over the three years ending 31 March 2017 of RoE (50% weighting) and Value Growth (50% weighting) which will vest on 1 July 2017. For the UK and US Executive Directors at that time, the RoE component is split equally between Group RoE and UK and US RoE respectively. For the Chief Executive at that time and the Finance Director, the entire RoE component is based on Group RoE. The performance achieved against the 2014 LTPP award performance targets was: | | | | | | | | | | Performance measure | | Threshold – 20% vesting | | Maximum – 100% vesting | | Actual/expected vesting | | Actual/expected proportion of maximum achieved | Group RoE (50% weighting for the former Chief Executive and Finance Director, 25% weighting for the former Executive Director, UK and the Executive Director, US) | | 11.0% | | 12.5% or more | | 11.93% | | 69.8% | UK RoE (25% weighting for the former Executive Director, UK) | | RoE is 1 percentage point above the average allowed regulatory return | | RoE is 3.5 percentage points or more above the average allowed regulatory return | | 3.3 percentage points above the average allowed regulatory return | | 92.5% | US RoE (25% weighting for the Executive Director, US) | | 90% of the average allowed regulatory return | | 105% or more of the average allowed regulatory return | | 85% of the average allowed regulatory return | | 0.0% | Value Growth (50% weighting) | | 10.0% | | 12.0% or more | | 12.0% | | 100.0% |
The Value Growth outturn includes an amount to reflect the value added from the sale of a majority interest in the UK Gas Distribution business. The amounts expected to vest under the 2014 LTPP for the performance period ended on 31 March 2017 and included in the 2016/17 single total figure are shown in the table below. The valuation is based on the average share price over the three months from 1 January 2017 to 31 March 2017 of 962.75 pence ($59.84 per ADS). | | | | | | | | | | | | | | | | | | | | | | | | Original number
of share awards
in 2014 LTPP | | | Overall vesting
percentage | | | Number of awards
vesting | | | Dividend
equivalent
shares | | | Total value of awards
vesting and dividend
equivalent shares
£’000 | | Andrew Bonfield | | | 248,470 | | | | 84.89% | | | | 210,923 | | | | 29,828 | | | | 2,318 | | John Pettigrew | | | 161,720 | | | | 90.58% | | | | 146,482 | | | | 20,715 | | | | 1,610 | | Dean Seavers (ADSs) | | | 40,966 | | | | 67.44% | | | | 27,629 | | | | 4,397 | | | | 1,501 | |
Nicola Shaw was appointed in July 2016 and therefore did not receive any share awards under the 2014 LTPP. Last year’s Directors’ Remuneration Report covering remuneration for 2014/152015/16 included an estimated vesting of the US and UK RoE portions of the 20112012 LTPP award. These awards vested on 1 July 20152016 and the performance achieved against the performance targets was the same as the expected vesting disclosed in the 2014/152015/16 report. As a result of the actual achievement against the performance targets being the same as estimated, the vesting percentage and number of awards vesting are the same as disclosed in the 2014/152015/16 report. However, the actual number of dividend equivalent shares varied as did the total value of awards vesting due to share price changes between the estimate and the actual date of vesting of the RoE portion. Specifically, the actual price on 1 July 20152016 was 8181,105.5 pence ($64.1774.36 per ADS) rather than the estimate of 899958 pence ($70.3369.23 per ADS) disclosed in the 2014/152015/16 report based on the average price from 1 January 20152016 to 31 March 2015.2016. As a result, the actual numbers of dividend equivalent shares granted for the 20112012 LTPP were 22,454, 35,44023,001, 36,343, and 7,2616,749 and the actualtotal values of the awards at vestingthat vested were £29,358, £46,335£1,383,119, £2,185,387 and £12,441 lower than originally estimated£424,568 for Andrew Bonfield, Steve Holliday and John Pettigrew, respectively. Total pension benefits (audited information) The table below provides details of the Executive Directors’ pension benefits. Steve Holliday andAndrew Bonfield, John Pettigrew participate inand Nicola Shaw received a Defined Benefit pension plan, whilst Andrew Bonfield receives cash allowance in lieu of participation in a pension plan, andarrangement. Dean Seavers participatesparticipated in a Defined Contribution arrangement. The UK-based Executive Directorspension arrangements in the US. Steve Holliday participated in a Defined Benefit pension participate inarrangement, under a salary sacrifice arrangement (FPS), underscheme in which the individual’s salary is reduced by an amount equal to the employee pension contribution that would have been paid into the scheme.contribution. An equivalent contribution is paid into the scheme by the employer.employer to the pension arrangement. There are no additional benefits in the event ofon early retirement. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total
contributions
to DC
arrangement
£’000 | | | Cash in lieu of
pension
contributions
£’000 | | | Accrued
DB pension
at 31 March 2016
£’000 pa | | | Increase
in accrued
DB pension
over year
£’000 pa | | | Reduction
in salary
due to FPS £’000 | | | Increase/
(decrease) in
any lump sum £’000 | | | Value of pension benefit
calculated using
BIS methodology £’000 | | | Normal
retirement date | | Andrew Bonfield | | | – | | | | 221 | | | | – | | | | – | | | | – | | | | – | | | | 221 | | | | 17/08/2027 | | Steve Holliday | | | – | | | | – | | | | 591 | | | | 39 | | | | 62 | | | | 2 | | | | 730 | | | | 26/10/2016 | | John Pettigrew | | | – | | | | – | | | | 151 | | | | 7 | | | | 29 | | | | 23 | | | | 143 | | | | 26/10/2031 | | Dean Seavers | | | 148 | | | | – | | | | – | | | | – | | | | – | | | | – | | | | 148 | | | | 30/08/2025 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total
contributions
to DC
arrangement
£’000 | | | Cash in lieu of
pension
contributions
£’000 | | | Accrued DB pension at 31 March 2017 £’000 pa | | | Increase
in accrued
DB pension
over year
£’000 pa | | | Reduction
in salary
due to FPS
£’000 | | | Increase/ (decrease) in any lump sum £’000 | | | Value of pension benefit calculated using BIS methodology £’000 | | | Normal retirement date | | Andrew Bonfield | | | – | | | | 225 | | | | – | | | | – | | | | – | | | | – | | | | 225 | | | | n/a | | Steve Holliday | | | – | | | | – | | | | 606 | | | | 14 | | | | 26 | | | | 1 | | | | 262 | | | | 26/10/2016 | | John Pettigrew | | | – | | | | 248 | | | | – | | | | – | | | | – | | | | – | | | | 248 | | | | 26/10/2031 | | Dean Seavers | | | 145 | | | | – | | | | – | | | | – | | | | – | | | | – | | | | 145 | | | | 30/08/2025 | | Nicola Shaw | | | – | | | | 101 | | | | – | | | | – | | | | – | | | | – | | | | 101 | | | | n/a | |
Notes: Steve Holliday:In addition to the accrued DB pension at 31 March 2016shown above, there iswas an accrued lump sum entitlement of £129,000 as at 31 March 2016.£129,000. The increase to the accumulated lump sum over the year, net of inflation, was £2,000 in the year to 31 March 2016.£647. The increase in accrued DBto the pension over the year, shown above is net of inflation, as UK pensionswas £14,349. The total accrued pension and lump sum was split between two pension arrangements. A transfer payment from one of the pension arrangements was made in July 2016, leaving a remaining pension of £521,709 pa and a lump sum of £6,717. This pension and lump sum entered payment or deferment increase in line with inflation.on the normal retirement date listed above. John Pettigrew: In addition to the accruedJohn Pettigrew opted out of a DB pension atarrangement on 31 March 2016 above, there is an accruedwith a deferred pension and lump sum entitlementpayable from a normal retirement date of £452,000 as at 31 March 2016. The26 October 2031. There was no increase to these benefits over the accumulated lump sum,period, net of inflation, was £23,000 in the year to 31 March 2016. The increase in accrued DB pension over the year shown above is net of inflation, as UK pensions in payment or deferment increase in line with inflation. | | | | | | | | 66 | | National Grid Annual Report and Accounts 2016/17 | | Corporate Governance | | |
Dean Seavers:The average exchange rate for 2015/162016/17 was $1.4744:$1.2767:£1. Through his participation in the 401(k) plan in the US (a DC arrangement) the Company made contributions worth £27,400.£21,197. The Company also made contributions worth £121,049£123,983 to theNon-Qualified Executive Supplemental Retirement Plan which pays the portion of core contributions that cannot be paid under the qualified plan due to IRS limitations. The plan also provides a supplementaltop-up benefit through additional company contributions to yield an overall company contribution of 9% of pensionable pay, including both the qualified andnon-qualified plan benefits. The retirement date shown isreflects the typical retirement age in the US. The 401(k) plan does not have a retirement age. Benefits can be taken without penalty on leaving the Company from age 55 (subject to vesting requirements) or can be rolled over into another qualifying plan. BIS calculation:calculation: In accordance with BIS methodology, the pension benefit for Andrew Bonfield, John Pettigrew, Nicola Shaw and Dean Seavers is calculated as the aggregate of contributions made to a DC arrangementDC-type pension plan and cash in lieu of contributions to aDC-typepension contributions. Also inplan. In accordance with BIS methodology,disclosure regulations, the pension benefit for Steve Holliday and John Pettigrew is calculated as the increase in accrued DBDB-type pension over the year shown above multiplied by 20 plus the increase in the lump sum, shown above, less the reduction in salary due to FPS.salary sacrifice. Each element is calculated separately and rounded to produce the numbers in the table above. | | | | | | | | | National Grid Annual Report and Accounts 2015/16 | | Annual report on remuneration | | 77 |
on the previous page. Corporate Governancecontinued
Annual report on remunerationcontinued
Single total figure of remuneration –Non-executive Directors (audited information) The following table shows a single total figure in respect of qualifying service for 2015/16,2016/17, together with comparative figures for 2014/15:2015/16: | | | | Fees £’000 | | Other emoluments £’000 | | Total £’000 | | | Fees £’000 | | Other emoluments £’000 | | Total £’000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2015/16 | | | 2014/15 | | 2015/16 | | | 2014/15 | | 2015/16 | | | 2014/15 | | | 2016/17 | | | 2015/16 | | 2016/17 | | | 2015/16 | | 2016/17 | | | 2015/16 | | | | | | | Nora Mead Brownell | | | 94 | | | | 91 | | | | – | | | | – | | | | 94 | | | | 91 | | | | 96 | | | | 94 | | | | – | | | | – | | | | 96 | | | | 94 | | Jonathan Dawson | | | 99 | | | | 96 | | | | – | | | | – | | | | 99 | | | | 96 | | | | 102 | | | | 99 | | | | – | | | | – | | | | 102 | | | | 99 | | Pierre Dufour | | | | 11 | | | | – | | | | – | | | | – | | | | 11 | | | | – | | Therese Esperdy | | | 128 | | | | 91 | | | | – | | | | – | | | | 128 | | | | 91 | | | | 133 | | | | 128 | | | | – | | | | – | | | | 133 | | | | 128 | | Sir Peter Gershon | | | 494 | | | | 488 | | | | 15 | | | | 16 | | | | 509 | | | | 504 | | | | 499 | | | | 494 | | | | 68 | | | | 15 | | | | 567 | | | | 509 | | Paul Golby | | | 103 | | | | 81 | | | | – | | | | – | | | | 103 | | | | 81 | | | | 105 | | | | 103 | | | | – | | | | – | | | | 105 | | | | 103 | | Ruth Kelly | | | 82 | | | | 79 | | | | – | | | | – | | | | 82 | | | | 79 | | | | 84 | | | | 82 | | | | – | | | | – | | | | 84 | | | | 82 | | Mark Williamson | | | 121 | | | | 118 | | | | – | | | | – | | | | 121 | | | | 118 | | | | 124 | | | | 121 | | | | – | | | | – | | | | 124 | | | | 121 | | | | | | | Total | | | 1,121 | | | | 1,044 | | | | 15 | | | | 16 | | | | 1,136 | | | | 1,060 | | | | 1,154 | | | | 1,121 | | | | 68 | | | | 15 | | | | 1,222 | | | | 1,136 | | | | | | |
Therese Esperdy: Fees for 2015/162016/17 include £22,917£25,000 in fees for serving on the National Grid USA Board. Sir Peter Gershon: Other emoluments comprise private medical insurance, cash in lieu of a car and the use of a car and driver when required. In accordance with the Company’s expenses policies,Non-executive Directors receive reimbursement for their reasonable expenses for attending Board meetings. In instances where thosethese costs are treated by HMRC as taxable benefits, the Company also meets the associated tax cost to theNon-executive Directors through a PAYE settlement agreement with HMRC. The total emoluments paid to Executive andNon-executive Directors in the year was £13£19.5 million (2014/15: £15(2015/16: £12.8 million)., though this figure includes two years’ worth of LTPPs to the Executive Directors for 2016/17. Excluding the 2013 LTPP, the total emoluments would be £14.5 million. LTPP (conditional award) granted during the financial year (audited information) The face value of the awards is calculated using the volume-averagevolume weighted average share price at the date of grant (25grant. For Andrew Bonfield, John Pettigrew and Dean Seavers this is 28 June 2015) (£8.51472016 at a price of £10.21 per share and $66.9618$69.1825 per ADS).ADS. For Nicola Shaw this is 12 July 2016 at a price of £11.05 per share. | | LTPP | | Basis of award | | | Face value ’000 | | | Proportion vesting at
threshold performance | | | Number of shares | | | Performance
period end date | | | Basis of award | | | Face value ’000 | | | Proportion vesting at
threshold performance | | | Number of shares | | | Performance
period end date | | | | | | | Andrew Bonfield | | | 300% of salary | | | | £2,211 | | | | 20% | | | | 259,668 | | | | June 2018 | | | | 300% of salary | | | | £2,255 | | | | 20% | | | | 220,883 | | | | March 2019 | | Steve Holliday | | | 350% of salary | | | | £3,622 | | | | 20% | | | | 425,440 | | | | June 2018 | | | John Pettigrew | | | 300% of salary | | | | £1,525 | | | | 20% | | | | 179,072 | | | | June 2018 | | | | 350% of salary | | | | £2,888 | | | | 20% | | | | 282,810 | | | | March 2019 | | Dean Seavers | | | 300% of salary | | | | $3,000 | | | | 20% | | | | 44,801 (ADSs) | | | | June 2018 | | | | 300% of salary | | | | $3,075 | | | | 20% | | | | 44,447 (ADSs) | | | | March 2019 | | Nicola Shaw | | | | 300% of salary | | | | £1,350 | | | | 20% | | | | 122,164 | | | | March 2019 | | | | | | |
Performance period end date:The normal vesting date is in June 2019, following the performance period end. Performance conditions for LTPP awards granted during the financial year (audited information) | | | | Weighting | | | Conditional share awards granted – 2015 | | | Weighting | | | Conditional share awards granted – 2016 | | | Performance measure | | Andrew Bonfield | | | Steve Holliday | | | John Pettigrew | | | Dean Seavers | | | Threshold – 20% vesting | | | Maximum – 100% vesting | | | Andrew Bonfield | | | John Pettigrew | | | Dean Seavers | | | Nicola Shaw | | | Threshold – 20% vesting | | | Maximum – 100% vesting | | | | | | | Group RoE | | | 50% | | | | 50% | | | | 25% | | | | 25% | | | | 11.0% | | | | 12.5% or more | | | | 50% | | | | 50% | | | | 25% | | | | 25% | | | | 11.0% | | | | 12.5% or more | | UK RoE | | | | | | | 25% | | | | |
| 1 percentage point
above the average
allowed regulatory return |
| |
| 3.5 percentage points or
more above the average
allowed regulatory return |
| | | | | | | | | 25% | | |
| 1 percentage point
above the average
allowed regulatory return |
| |
| 3.5 percentage points or
more above the average
allowed regulatory return |
| US RoE | | | | | | | | | 25% | | |
| 90% of the average
allowed regulatory return |
| |
| 105% or more of the
average allowed
regulatory return |
| | | | | | | 25% | | | | |
| 90% of the average
allowed regulatory return |
| |
| 105% or more of the
average allowed
regulatory return |
| Value growth | | | 50% | | | | 50% | | | | 50% | | | | 50% | | | | 10.0% | | | | 12.0% or more | | | Value Growth | | | | 50% | | | | 50% | | | | 50% | | | | 50% | | | | 10.0% | | | | 12.0% or more | | | | | | |
Payments for loss of office (audited information) There were no payments madeSteve Holliday stepped down from the Board and retired from the Company on 22 July 2016.
Since his departure was due to retirement, which qualifies as ‘good leaver’ status, he is eligible to receive a prorated number of shares under the outstanding LTPPs. Awards for loss261,506 remain outstanding after the prorating calculation for time served during the respective performance periods. Awards remain subject to performance conditions, measured at the normal performance measurement date. The prorated number of office during 2015/16.shares he is due to receive under the remaining portion of the 2013 LTPP and the full 2014 LTPP on 1 July 2017 will be disclosed in the ‘Payments to past Directors’ section next year, along with those vesting for Nick Winser and Tom King at that time. | | | | | | | | | National Grid Annual Report and Accounts 2016/17 | | Annual report on remuneration | | 67 |
Corporate Governancecontinued Annual report on remunerationcontinued Payments to past Directors (audited information) Nick Winser stepped down from the Board at the 2014 AGM and left the Company on 31 July 2015. Tom King stepped down from the Board and left the Company on 31 March 2015. Both Mr Winser and Mr King held awards over shares and ADSs, respectively, whichthat were pro-ratedprorated according to their departure date. The vesting of all these awards will occur at the normal vesting dates subject to satisfaction of their specified performance conditions at that time. Portions of these awards vested on 1in July 20152016 and pertain to the RoE portion of the 20112012 LTPP and the TSR and EPS portions of the 20122013 LTPP. | | | | Pro-rated number of
share awards in 2011
(RoE portion) and 2012 LTPP | | | Overall vesting percentage | | | Number of awards vesting | | | Dividend equivalent
shares | | | Total value of awards
vesting and dividend
equivalent shares
(£’000) | | | Prorated number of share awards in 2012 (RoE portion) and 2013 (EPS and TSR portion) LTPPs | | | Overall vesting percentage | | | Number of awards vesting | | | Dividend equivalent shares | | | Total value of awards vesting and dividend equivalent shares £’000 | | | | | | | Tom King | | | 44,846 (ADSs) | | | | 56.12% | | | | 25,168 (ADSs) | | | | 4,063 (ADSs) | | | | 1,202 | | | Tom King (ADSs) | | |
| 25,703
|
| |
| 60.81%
|
| |
| 15,629
|
| |
| 2,105
|
| |
| 1,033
|
| Nick Winser | | | 166,305 | | | | 76.37% | | | | 127,000 | | | | 24,035 | | | | 1,235 | | | | 109,293 | | | | 90.50% | | | | 98,914 | | | | 13,760 | | | | 1,246 | | | | | | |
Shareholder dilution 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-year10 year period. Dilution resulting from all incentives, includingall-employee incentives, will not exceed 10% in any 10-year10 year period. The Committee reviews dilution against these limits regularly and under these limits the Company, as at 31 March 2016,2017, had headroom of 4.01%4.08% and 7.98% respectively. | | | | | | | 78 | | National Grid Annual Report and Accounts 2015/16 | | Corporate Governance | | |
Statement of Directors’ shareholdings and share interests (audited information) The Executive Directors are required to build up and hold a shareholding from vested share plan awards. Deferred share plan awards are not taken into account for these purposes until the end of the deferral period. Shares are valued for these purposes at the 31 March 20162017 price, which was 9871,012.51 pence per share ($71.4263.39 per ADS). The following table shows how each Executive Director complies with the shareholding requirement and also the number of shares owned by theNon-executive Directors, including connected persons as (asNon-executive Directors do not have a shareholding requirement.requirement). The shareholding is as at 31 March 20162017 and the salary used to calculate the value of the shareholding is the gross annual salary as at 31 March 2016:2017. Andrew Bonfield has met the shareholding requirement. As John Pettigrew, Dean Seavers and Nicola Shaw were relatively new in post, they have not yet met the requirement, but are expected to do so in 2020, 2020 and 2023 respectively, and will not be allowed to sell shares until this requirement is met.Non-executive Directors do not have a shareholding requirement. The normal vesting dates for the conditional share awards subject to performance conditions are 1 July 2017, 1 July 2017, 1 July 2018, and 1 July 2019 for the LTPP 2013, LTPP 2014, LTPP 2015 and LTPP 2016 respectively. In each of April and May 2017 a further 15 shares were purchased on behalf of John Pettigrew. In April 2017 a further 15 shares were purchased on behalf of Andrew Bonfield and 14 shares in May 2017. The shares were purchased via the Share Incentive Plan (an HMRC approvedall-employee share plan), thereby increasing their beneficial interests. There have been no other changes in Directors’ shareholdings between 1 April 2017 and 17 May 2017. ● | | The normal vesting dates for the conditional share awards subject to performance conditions are 1 July 2016; 1 July 2016 and 1 July 2017; 1 July 2017; and 1 July 2018 for the LTPP 2012, LTPP 2013, LTPP 2014 and LTPP 2015 respectively. |
● | | The normal vesting dates for the conditional share awards subject to continuous employment are 13 June 2016 and 17 June 2017 for the DSP 2013 and DSP 2014 respectively. |
● | | In each of April and May 2016 a further 15 shares were purchased on behalf of Andrew Bonfield, Steve Holliday and John Pettigrew via the Share Incentive Plan (an HMRC approved all-employee share plan), thereby increasing their beneficial interests. There have been no other changes in Directors’ shareholdings between 1 April 2016 and 18 May 2016. |
● | | Both Andrew Bonfield and Steve Holliday have met their shareholding requirement of 400% and 500% of base salary, respectively. As both John Pettigrew and Dean Seavers were relatively new in post, they have not yet met their requirements and will not be allowed to sell shares other than to pay tax on receipt of vested shares or in exceptional circumstances until this requirement is met. |
| | | | | | | | | | | | | | | | | | | | | | | | | | Directors | | Share ownership requirements (multiple of salary) | | | Number of shares
owned outright (including connected persons) | | | Value of shares held as a multiple
of current salary | | | Number of options
granted under the
Sharesave Plan | | | Conditional share awards subject to performance conditions (LTPP 2013, 2014, 2015 and 2016) | | | Conditional share awards subject to continuous employment (DSP 2014) | | | | Executive Directors | | | | | | | | | | | | | | | | | | | | | | | | | Andrew Bonfield | | | 400% | | | | 460,511 | | | | 620% | | | | 3,230 | | | | 777,720 | | | | 47,048 | | John Pettigrew | | | 500% | | | | 253,060 | | | | 311% | | | | 4,286 | | | | 639,442 | | | | 14,350 | | Dean Seavers (ADSs) | | | 400% | | | | 5,905 | | | | 37% | | | | – | | | | 130,214 | | | | – | | Nicola Shaw | | | 400% | | | | – | | | | – | | | | – | | | | 122,164 | | | | – | | Non-executive Directors | | | | | | | | | | | | | | | | | | | | | | | | | Nora Mead Brownell (ADSs) | | | – | | | | 5,000 | | | | n/a | | | | – | | | | – | | | | – | | Jonathan Dawson | | | – | | | | 38,268 | | | | n/a | | | | – | | | | – | | | | – | | Pierre Dufour | | | – | | | | – | | | | n/a | | | | – | | | | – | | | | – | | Therese Esperdy (ADSs) | | | – | | | | 1,646 | | | | n/a | | | | – | | | | – | | | | – | | Sir Peter Gershon | | | – | | | | 87,194 | | | | n/a | | | | – | | | | – | | | | – | | Paul Golby | | | – | | | | 2,500 | | | | n/a | | | | – | | | | – | | | | – | | Ruth Kelly | | | – | | | | 800 | | | | n/a | | | | – | | | | – | | | | – | | Mark Williamson | | | – | | | | 4,726 | | | | n/a | | | | – | | | | – | | | | – | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | Directors | | Share ownership
requirements
(multiple of salary) | | | Number of shares
owned outright
(including connected
persons) | | | Number of shares
held as a multiple
of current salary | | | Number of options
granted under the
Sharesave Plan | | | Conditional share
awards subject to
performance
conditions (LTPP 2012,
2013, 2014 and 2015) | | | Conditional share
awards subject to
continuous
employment (DSP 2013
and 2014) | | | | Executive Directors | | | | | | | | | | | | | | | | | | | | | | | | | Andrew Bonfield | | | 400% | | | | 317,711 | | | | 426% | | | | 6,651 | | | | 756,209 | | | | 92,754 | | Steve Holliday | | | 500% | | | | 1,306,289 | | | | 1,246% | | | | 3,542 | | | | 1,224,546 | | | | 126,771 | | John Pettigrew | | | 400% | | | | 198,749 | | | | 386% | | | | 4,286 | | | | 417,251 | | | | 28,691 | | Dean Seavers (ADSs) | | | 400% | | | | 1,225 | | | | 9% | | | | – | | | | 85,767 | | | | – | | Non-executive Directors | | | | | | | | | | | | | | | | | | | | | | | | | Nora Mead Brownell (ADSs) | | | – | | | | 5,000 | | | | n/a | | | | – | | | | – | | | | – | | Jonathan Dawson | | | – | | | | 36,586 | | | | n/a | | | | – | | | | – | | | | – | | Therese Esperdy (ADSs) | | | – | | | | 1,600 | | | | n/a | | | | – | | | | – | | | | – | | Sir Peter Gershon | | | – | | | | 83,363 | | | | n/a | | | | – | | | | – | | | | – | | Paul Golby | | | – | | | | 2,500 | | | | n/a | | | | – | | | | – | | | | – | | Ruth Kelly | | | – | | | | 800 | | | | n/a | | | | – | | | | – | | | | – | | Mark Williamson | | | – | | | | 4,726 | | | | n/a | | | | – | | | | – | | | | – | | | |
Notes: Overall: Sharesave options are valued using fair values. Andrew Bonfield2014 DSP relates to the Deferred Share Plan under which 50% of APP awards were deferred into shares. This plan was discontinued from the only Director who made2014/15 APP in lieu of 50% payment via shares with a gain on the exercise of share options during the year.two-year holding period. Andrew Bonfield: On 31 March 20162017 Andrew Bonfield held 6,6513,230 options granted under the Sharesave plan.Plan. 2,022 options were granted at a value of 749 pence per share and they can be exercised at 749 pence per share between April 2020 and September 2020. 1,208 options were granted at a value of 745 pence per share and they can be exercised at 745 pence per share between April 2019 and September 2019. On 1 April 2016, he exercised a Sharesavesharesave option over 3,421 shares at the option price of 455 pence per share for expiration in September 2016 at a gain of £18,549. For Andrew Bonfield, the number of conditional share awards subject to performance conditions is as follows: LTPP 2012: 53,273; LTPP 2013: 194,798;48,699; LTPP 2014: 248,470; LTPP 2015: 259,668.259,668; LTPP 2016: 220,883. The number of conditional share awards subject to continuous employment is as follows: DSP 2013: 45,706; DSP 2014: 47,048. Steve Holliday: On 31 March 2016 Steve Holliday held 3,524 options granted under the Sharesave plan. 1,502 options were granted at a value of 599 pence per share, and they can be exercised at 599 pence per share between April 2017 and September 2017. 2,022 options were granted at a value of 749 pence per share and they can be exercised at 749 pence per share between April 2020 and September 2020. For Steve Holliday, the number of conditional share awards subject to performance conditions is as follows: LTPP 2012: 84,175; LTPP 2013: 307,793; LTPP 2014: 407,138; LTPP 2015: 425,440. The number of conditional share awards subject to continuous employment is as follows: DSP 2013: 57,118; DSP 2014: 69,653.
John Pettigrew:On 31 March 20162017 John Pettigrew held 4,286 options granted under the Sharesave plan.Plan. 1,252 options were granted at a value of 599 pence per share and they can be exercised at 599 pence per share between April 2019 and September 2019. 3,034 options were granted at a value of 749 pence per share and they can be exercised at 749 pence per share between April 2020 and September 2020. The number of conditional share awards subject to performance conditions is as follows: LTPP 2012: 13,098; LTPP 2013: 63,361;15,840; LTPP 2014: 161,720; LTPP 2015: 179,072.179,072; LTPP 2016: 282,810. The number of conditional share awards subject to continuous employment is as follows: DSP 2013: 14,341; DSP 2014: 14,350. Dean Seavers:The number of conditional share awards subject to performance conditions is as follows: LTPP 2014: 40,966; LTPP 2015: 44,801.44,801; LTPP 2016: 44,447. Nicola Shaw:The number of conditional share awards subject to performance conditions is as follows: LTPP 2016: 122,164. Dean Seavers, Nora Mead Brownell and Therese Esperdy:Holdings and, for Dean Seavers, awards are shown as ADSs and each ADS represents five ordinary shares. | | | | | | | | 68 | | National Grid Annual Report and Accounts 2016/17 | | Corporate Governance | | |
External appointments and retention of fees The table below details the Executive Directors who served asnon-executive directors in other companies during the year ended 31 March 2016 and were allowed to retain fees for their services:2017: | | | | | | | | | | Company | | Retained fees (£) | | | | Andrew Bonfield | | Kingfisher plc | | | £82,400 | | Nicola Shaw | | Ellevio AB | | | £44,646 (517,000 SEK) | | | |
| | | Relative importance of spend on pay This chart shows the relative importance of spend on pay compared with other costs and disbursements (dividends, tax, net interest and capital expenditure). Given the capital-intensive nature of our business and the scale of our operations, these costs were chosen as the most relevant for comparison purposes. All amounts exclude exceptional items and remeasurements.remeasurements, and amounts relating to the UK Gas Distribution business. | |  
|
| | | | | | | | | National Grid Annual Report and Accounts 2015/16 | | Annual report on remuneration | | 79 |
Corporate Governancecontinued
Annual report on remuneration continued
| | | Performance graph and table This chart shows National Grid plc’s seven-yeareight-year annual total shareholder return (TSR) performance against the FTSE 100 Index since 31 March 2009. The FTSE 100 Index has been chosen because it is the widely recognised performance benchmark for large companies in the UK. The Company’s TSR has outperformed that of the FTSE 100 for the last five years and underpins the pay shown for the CEO in the table below, using current and previously published single total remuneration figures. The TSR level shown at 31 March each year is the average of the closing daily TSR levels for the30-day period up to and including that date. It assumes dividends are reinvested. CEO’s pay in the last seven financial years
Steve Holliday was the CEO throughout this seven-year period.
| | Total shareholder return  
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2009/10 | | | 2010/11 | | | 2011/12 | | | 2012/13 | | | 2013/14 | | | 2014/15 | | | 2015/16 | | | | Total single figure £’000 | | | 3,931 | | | | 3,738 | | | | 3,539 | | | | 3,170 | | | | 4,801 | | | | 4,845 | | | | 5,151 | | APP (proportion of maximum awarded) | | | 95.33% | | | | 81.33% | | | | 68.67% | | | | 55.65% | | | | 77.94% | | | | 94.80% | | | | 94.60% | | PSP/LTPP (proportion of maximum vesting including expected vesting for RoE measure) | | | 100.00% | | | | 65.15% | | | | 49.50% | | | | 25.15% | | | | 76.20% | | | | 55.81% | | | | 63.45% | | | |
Chief Executive’s pay in the last eight financial years Steve Holliday was the Chief Executive throughout the seven-year period from 1 April 2010 to 31 March 2016. John Pettigrew became Chief Executive on 1 April 2016. His outcomes have been shown for the year 2016/17 in two ways, one to reflect the full total single figure of remuneration which includes the vesting outcomes of both the 2013 and 2014 LTPP awards, and the other to reflect the total single figure of remuneration using just the 2014 LTPP award to reflect his annualised total remuneration. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | John | | | | | Steve Holliday | | | Pettigrew | | | | | | | | | | | 2009/10 | | | 2010/11 | | | 2011/12 | | | 2012/13 | | | 2013/14 | | | 2014/15 | | | 2015/16 | | | 2016/17 | | | | Total single figure of remuneration (£’000) | | | 3,931 | | | | 3,738 | | | | 3,539 | | | | 3,170 | | | | 4,801 | | | | 4,845 | | | | 5,151 | | | | 4,636 | | Total single figure of remuneration – including only 2014 LTPP (£’000) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 3,942 | | APP (proportion of maximum awarded) | | | 95.33% | | | | 81.33% | | | | 68.67% | | | | 55.65% | | | | 77.94% | | | | 94.80% | | | | 94.60% | | | | 73.86% | | PSP/LTPP (proportion of maximum vesting including expected vesting | | | 100.00% | | | | 65.15% | | | | 49.50% | | | | 25.15% | | | | 76.20% | | | | 55.81% | | | | 63.45% | | | | 90.41% | | for RoE measure) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total single figure of remuneration: The figure for 2016/17 includes both the 2013 and 2014 LTPP awards due to the transition from a four-year to a three-year period before all portions vest between the 2013 and 2014 LTPP grants, resulting in aone-time overlapping of vesting periods. Total single figure of remuneration – including only 2014 LTPP: The total single figure of remuneration is restated for 2016/17 to include only the 2014 LTPP award in order to capture one year’s worth of remuneration for comparison purposes. PSP/LTPP: This vesting proportion for 2016/17 reflects combined vesting outcomes for the 2013 (90.00%) and 2014 (90.58%) LTPP awards. Percentage change in CEO’sChief Executive’s remuneration The table below shows how the percentage change in the CEO’sChief Executive’s salary, benefits and APP between 2014/152015/16 and 2015/162016/17 compares with the percentage change in the average of each of those components of remuneration fornon-union employees in the UK. employees. The Committee views this group as the most appropriate comparator group, as the CEO is UK-based and this groupit excludes employees represented by trade unions, whose pay and benefits are negotiated with each individual union. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Salary | | | Taxable benefits | | | APP | | | | | | | £’000 | | | £’000 | | | Increase | | | £’000 | | | £’000 | | | Increase | | | £’000 | | | £’000 | | | Increase | | | | | | | | | | | 2015/16 | | | 2014/15 | | | | | | 2015/16 | | | 2014/15 | | | | | | 2015/16 | | | 2014/15 | | | | | | | Steve Holliday | | | | | 1,033 | | | | 1,021 | | | | 1.2% | | | | 41 | | | | 40 | | | | 2.5% | | | | 1,222 | | | | 1,210 | | | | 1.0% | | UK non-union employees (increase per employee) | | | | | | | | | | | | | 1.9% | | | | | | | | | | | | 7.9% | | | | | | | | | | | | (9.1)% | | | |
Note:
The APP for UK non-union employees decreased, which is a reflection of
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Salary | | | Taxable benefits | | | APP | | | | | | | £’000 | | | £’000 | | | Increase | | | £’000 | | | £’000 | | | Increase | | | £’000 | | | £’000 | | | Increase | | | | | | | | | | | 2016/17 | | | 2015/16 | | | | | | 2016/17 | | | 2015/16 | | | | | | 2016/17 | | | 2015/16 | | | | | | | Chief Executive | | | | | 825 | | | | 1,033 | | | | (20)% | | | | 497 | | | | 41 | | | | 1,112% | | | | 762 | | | | 1,222 | | | | (38)% | | Non-union employees (increase per employee) | | | | | | | | | | | | | 3% | | | | | | | | | | | | 1% | | | | | | | | | | | | 6% | | | |
Chief Executive: John Pettigrew succeeded Steve Holliday as Chief Executive on 1 April 2016 and therefore the reduction in payout level for the UK RoE measure which forms a key part of the APP for this population. Statement of implementation of remuneration policytable compares Steve Holliday’s pay from 2015/16 with John Pettigrew’s pay in 2016/17
The remuneration policy adopted at the 2014 AGM will continue to be implemented during17. Taxable benefits for John Pettigrew in 2016/17 as described below. Steve Holliday is retiring in July 2016 and will be stepping down from the Boardinclude aone-time relocation benefit.
Non-union employees: Pay data for US employees has been converted at that time. He will be treated as a ‘good leaver’ in line with our remuneration policy. He is intending to draw from his pension from October 2016.$1.2767:£1 for 2016/17 ($1.4744:£1 for 2015/16). | | | | | | | | | | | | | Salary Salary increases will normally be in line with the increase awarded to other employees in the UK and US, unless there is a change in role or responsibility. In line with the policy on recruitment remuneration, salaries for new directors may be set below market level initially and aligned to market level over time (provided the increase is merited by the individual’s contribution and performance). John Pettigrew’s base salary was increased to £825,000 upon his appointment as CEO. This was some £210,000 below that of Steve Holliday, the retiring CEO. | | | | | | | | From 1 June 2016 | | From 1 June 2015 | | Increase | | | | | Andrew Bonfield | | £751,740 | | £737,000 | | 2.0% | | | | | Steve Holliday | | £1,035,000 | | £1,035,000 | | 0% | | | | | Nicola Shaw from 1 July 2016 | | £450,000 | | – | | n/a | | | | | John Pettigrew from 1 April 2016 | | £825,000 | | £508,250 | | 62.3% | | | | | Dean Seavers | | $1,025,000 | | $1,000,000 | | 2.5% | | | | | | | | | | | | | |
| | | | | | | | | National Grid Annual Report and Accounts 2016/17 | | Annual report on remuneration | | 69 |
Corporate Governancecontinued Annual report on remunerationcontinued Statement of implementation of remuneration policy in 2017/18 The remuneration policy for approval at the 2017 AGM will be implemented during 2017/18 as described below. | | | | | | | | | | | | | Salary Salary increases will normally be in line with the increase awarded to other employees in the UK and US, unless there is a change in role or responsibility. In line with the policy on recruitment remuneration, salaries for new directors may be set below market level initially and aligned to market level over time (provided the increase is merited by the individual’s contribution and performance). | | | | | | | | From 1 June 2017 | | From 1 June 2016 | | Increase | | | | | Andrew Bonfield | | £771,285 | | £751,740 | | 2.6% | | | | | John Pettigrew | | £899,250 | | £825,000 | | 9.0% | | | | | Dean Seavers | | $1,050,625 | | $1,025,000 | | 2.5% | | | | | Nicola Shaw | | £490,500 | | £450,000 | | 9.0% | | | | | | | | | | | | | |
| | | | | | | | | APP measures for 2016/172017/18 The APP targets are considered commercially sensitive and consequently will be disclosed after the end of the financial year in the 2016/172017/18 annual report on remuneration. Steve Holliday will be eligible to receive a prorated portion of the 2016/17 APP. | | | | | | Andrew Bonfield and John Pettigrew | | Weighting | | | | | Adjusted EPS | | 35% | | | | | Group RoE | | 35% | | | | | Individual objectives | | 30% | | | | | Dean Seavers and Nicola Shaw | | Weighting | | | | | UK or US Value Added | | 35% | | | | | UK or US RoE | | 35% | | | | | Individual objectives | | 30% | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | Performance measures for LTPP to be awarded in 2017 | | | | | Andrew Bonfield | | | John Pettigrew | | | Dean Seavers | | | Nicola Shaw | | | Threshold – 20% vesting | | | Maximum – 100% vesting | | Group RoE | | | 50% | | | | 50% | | | | 50% | | | | 50% | | | | 11.0% | | | | 12.5% or more | | Value Growth | | | 50% | | | | 50% | | | | 50% | | | | 50% | | | | 10.0% | | | | 12.0% or more | |
| | | | | | | Fees for NEDs Committee chair fees are in addition to committee membership fees. Therese Esperdy was appointed asNon-executive Director to the National Grid USA Board in 2015 with an annual fee of £25,000 in addition to her current NED fees. | | | | From 1 June 2017 | | From 1 June 2016 | | | | | | £’000 | | £’000 | | Increase | Chairman | | 513 | | 500 | | 2.6% | Senior Independent Director | | 22 | | 22 | | 0% | Board fee(UK-based) | | 66 | | 66 | | 0% | Board fee(US-based) | | 78 | | 78 | | 0% | Committee membership fee | | 10.3 | | 9 | | 14.4% | Chair Audit Committee | | 19.4 | | 19 | | 2.1% | Chair Remuneration Committee | | 19.4 | | 19 | | 2.1% | Chair (other Board committees) | | 12.5 | | 12.5 | | 0% |
| | | | | | | 8070 | | National Grid Annual Report and Accounts 2015/162016/17 | | Corporate Governance | | |
Performance measures for LTPP to be awarded in 2016
Steve Holliday will not receive a 2016 LTPP award. John Pettigrew’s 2016 award will increase to 350% of salary.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Andrew Bonfield | | | John Pettigrew | | | Dean Seavers | | | Nicola Shaw | | | Threshold – 20% vesting | | | Maximum – 100% vesting | | Group RoE | | | 50% | | | | 50% | | | | 25% | | | | 25% | | | | 11.0% | | | | 12.5% or more | | UK RoE | | | – | | | | – | | | | – | | | | 25% | | |
| 1 percentage point
above the average
allowed regulatory return |
| |
| 3.5 percentage points or
more above the average
allowed regulatory return |
| US RoE | | | – | | | | – | | | | 25% | | | | – | | |
| 90% of the average
allowed regulatory return |
| |
| 105% or more of the
average allowed
regulatory return |
| Value growth | | | 50% | | | | 50% | | | | 50% | | | | 50% | | | | 10.0% | | | | 12.0% or more | |
NEDs’ fees
Committee chair fees are in addition to committee membership fees. Therese Esperdy was appointed as a Non-executive Director to the National Grid USA Board on 1 May 2015 with an annual fee of £25,000 in addition to her current NED fees.
| | | | | | | | | | £’000 | | | | | | From 1 June 2016 | | From 1 June 2015 | | Increase | Chairman | | 500 | | 495 | | 1% | Senior Independent Director | | 22 | | 22 | | 0% | Board fee (UK-based) | | 66 | | 64 | | 3% | Board fee (US-based) | | 78 | | 76 | | 3% | Committee membership fee | | 9 | | 9 | | 0% | Chair Audit Committee | | 19 | | 17 | | 12% | Chair Remuneration Committee | | 19 | | 17 | | 12% | Chair (other Board committee) | | 12.5 | | 12.5 | | 0% |
Advisors to the Remuneration Committee The Committee received advice during 2015/162016/17 from independent remuneration consultants New Bridge Street (NBS), a trading name of Aon Hewitt Ltd (part of Aon plc). NBS werewas selected as advisorsour advisor by the Committee from 1 August 2013 following a competitive tendering process. Work undertaken by NBS included updating the Committee on trends in compensation and governance matters, and advising the Committee in connection with benchmarking of the total reward packages for the Executive Directors and other senior employees.employees, and facilitating the development of the proposed 2017 remuneration policy. NBS areis a member of the Remuneration Consultants Group and havehas signed up to that group’s Code of Conduct. The Committee is satisfied that any potential conflicts were appropriately managed. NBS does not provide any other advice or services to the Company. In the year to 31 March 20162017 the Committee paid a total of £77,820£148,313 to NBS, with fees being charged on a time incurred basis. The Committee also received specialist advice from the following organisations: | ● | | Alithos Limited: provision of TSR calculations for the LTPP (£10,4173,125 paid in 2015/16)2016/17); |
| ● | | Linklaters LLP: advice relating to share schemes and to Directors’ service contracts as well as providing other legal advice to the Company (£44,62131,067 paid in 2015/16)2016/17); and |
| ● | | Willis Towers Watson: advice relating to the benchmarkingmarket assessments of the total reward packages for the Executive Committee, andinclusive of the ChairmanExecutive Directors (£58,509107,040 paid in 2015/16)2016/17). |
The Committee reviews the objectivity and independence of the advice it receives from its advisors each year. It is satisfied that they all provided credible and professional advice. The Committee considers the views of the Chairman on the performance and remuneration of the CEO;Chief Executive; and of the CEOChief Executive on the performance and remuneration of the other members of the Executive Committee. The Committee is also supported by the Group General Counsel & Company Secretary who acts as Secretary to the Committee, the Group HR Director, the Group Head of Reward & Performance and the Acting Group Head of Pensions. No other advisors have provided significant services to the Committee in the year. Voting on 2013/14 Directors’ Remuneration Policyremuneration policy at 2014 AGM The voting figures shown refer to votes cast at the 2014 AGM and represent 61.76% of the issued share capital. In addition, shareholders holding 74 million shares abstained. | | | | | | | | | | For | | | Against | Number of votes | | | 2,223,573,203 | | | 85,131,552 | Proportion of votes | | | 96.31% | | | 3.69% |
Voting on 2014/152015/16 Annual Remuneration Report at 20152016 AGM The voting figures shown refer to votes cast at the 20152016 AGM and represent 62.61%60.51% of the issued share capital. In addition, shareholders holding 3062 million shares abstained. | | | | For | | | Against | | For | | | Against | Number of votes | | | 2,240,539,614 | | | 63,053,994 | | | 2,305,471,537 | | | 68,788,657 | Proportion of votes | | | 97.26% | | | 2.74% | | | 97.10% | | | 2.90% |
| The Directors’ Remuneration Report has been approved by the Board and signed on its behalf by: Jonathan Dawson Chairman of the Remuneration Committee 18
17 May 2016 2017 |
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Introduction to the Financial Statements Throughout these financial statements we have provided explanations of the disclosures and why they are important to the understanding of our financial performance and position. In places we have also highlighted ‘Our strategy in action’, drawing out the key elements of our business model (set out in the Strategic Report on pages 14 to 15)page 14), and showing how the disclosures reflect this strategy. | Audit opinions We have two audit opinions on our financial statements, reflecting our listing on both the London Stock Exchange and the New York Stock Exchange. Due to the different reporting requirements for each listing, our auditors are required to confirm compliance with each set of standards in a prescribed format. The audit opinion as required under our UK listing (starting on page 85)75) continues to provide more detail as to how our auditors have planned and conducted their audit, as well as their views on significant matters they have noted and that were discussed by the Audit Committee. Notes Notes to the financial statements provide additional information required by statute, accounting standards or other regulations to assist in a more detailed understanding of the primary financial statements. In many notes we have included an accounting policy that describes how the transactions or balance in that note have been measured, recognised and disclosed. The basis of preparation section (note 1) provides details of accounting policies that apply to transactions and balances in general. There are also additional specific disclosure requirements due to our US listing which are included in the notes. |
| Unaudited commentary We have presented with the financial statements certain analysis as part of the Strategic Report of our Annual Report.Report and Accounts. This approach provides a clearer narrative, a logical flow of information and reduces duplication. We have created a combined financial review, including a commentary on items within the primary statements, on pages 9484 to 101.91. Unless otherwise indicated, all analysis provided in the financial statements is on a statutory IFRS basis. All information in ruled boxes styled in the same manner as this one does not form part of the audited financial statements. This has been further highlighted by including the word ‘unaudited’ at the start of each box header. Unaudited commentary boxes appear on pages 9585 to 87, 89, 91, 97 99, 101, 107 to 98, 108 117, 119to 109, 111, 115 and 131.128. |
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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, the Directors’ Report, including the Remuneration Report and the Strategic Report, in accordance with applicable law and regulations. UK 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 Remuneration Report in accordance with United Kingdom Accounting Standards, comprising Financial Reporting Standard 101 ‘Reduced Disclosure Framework’ (FRS 101), and applicable law – 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 (IASB). 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 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 issued by the IASB and IFRS 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, andRegulation. The Directors are also responsible for ensuring that the Company financial statements and the 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. The Directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Having made the requisite enquiries, so far as the Directors in office at the date of the approval 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. Each of the Directors, whose names and functions are listed on pages 4734 and 48,35, 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 issued by the IASB and IFRS as adopted by the European Union and UK GAAP FRS 101 respectively, give a true and fair view of the assets, liabilities, financial position and profit of the Company on a consolidated and individual basis; |
| ● | | to the best of their knowledge, the Strategic Report contained in the Annual Report and Accounts 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; and |
| ● | | they consider that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s position and performance, business model and strategy. |
Directors’ Report The Directors’ Report, prepared in accordance with the requirements of the Companies Act 2006 and the UK Listing Authority’s Listing Rules, and Disclosure Rules and Transparency Rules, comprising pages 08 to 8108–71 and 174 to 202,172–201, was approved by the Board and signed on its behalf. Strategic Report The Strategic Report, comprising pages 02 to 45,02–31, was approved by the Board and signed on its behalf. By order of the Board Alison Kay Group General Counsel & Company Secretary 1817 May 20162017
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Report of Independent Registered Public Accounting Firm to the Board of Directors and Shareholders of National Grid plc Audit opinion for Form20-F In our opinion, the accompanying consolidated statement of financial position and the related consolidated income statement, consolidated statement of comprehensive income, consolidated cash flow statement and consolidated statement of changes in equity, present fairly, in all material respects, the financial position of National Grid plc and its subsidiaries at 31 March 20162017 and 31 March 2015,2016, and the results of their operations and their cash flows for each of the three years in the period ended 31 March 20162017 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board and in conformity with International Financial Reporting Standards as adopted by the European Union. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of 31 March 2016,2017, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the Additional Information section appearing on page 183180 of the 2016 Annual Report and Accounts. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorisations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. PricewaterhouseCoopers LLP London United Kingdom 1817 May 20162017
| | | | | | | | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | 9383 |
Consolidated income statement for the years ended 31 March | | | | Notes | | | 2016 £m | | 2016 £m | | | 2015 £m | | 2015 £m | | 2014 £m | | 2014 £m | | | | Notes | | |
| 2017
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| 2017
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| 2016
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| 2016
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| 2015
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1 | Continuing operations | | | | | | | | | | | | | | | | Revenue | | | 2(a | ) | | | | | 15,115 | | | | | 15,201 | | | | | 14,809 | | | | 2(a | ) | | | | | 15,035 | | | | | 13,212 | | | | | 13,357 | | Operating costs | | | 3 | | | | (11,030 | ) | | (11,421 | ) | | (11,074 | ) | | | 3 | | | | (11,827 | ) | | (9,987 | ) | | (10,406 | ) | Operating profit | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Before exceptional items and remeasurements | | | 2(b | ) | | | 4,096 | | | | | 3,863 | | | | | 3,664 | | | | | | 2(b | ) | | | 3,773 | | | | | 3,214 | | | | | 3,034 | | | | Exceptional items and remeasurements | | | 4 | | | | (11 | ) | | | | (83 | ) | | | | 71 | | | | | | 4 | | | | (565 | ) | | | | 11 | | | | | (83 | ) | | | | Total operating profit | | | 2(b | ) | | | | | 4,085 | | | | | 3,780 | | | | | 3,735 | | | | 2(b | ) | | | | | 3,208 | | | | | 3,225 | | | | | 2,951 | | | Finance income | | | 5 | | | | | | 22 | | | | | 36 | | | | | 36 | | | | 5 | | | | | | 53 | | | | | 22 | | | | | 36 | | | Finance costs | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Before exceptional items and remeasurements | | | 5 | | | | (1,035 | ) | | | | (1,069 | ) | | | | (1,144 | ) | | | | | 5 | | | | (1,082 | ) | | | | (878 | ) | | | | (908 | ) | | | Exceptional items and remeasurements | | | 4,5 | | | | (99 | ) | | | | (165 | ) | | | | 93 | | | | | | 4,5 | | | | (58 | ) | | | | (99 | ) | | | | (165 | ) | | | | Total finance costs | | | 5 | | | | | | (1,134 | ) | | | | (1,234 | ) | | | | (1,051 | ) | | | 5 | | | | | | (1,140 | ) | | | | (977 | ) | | | | (1,073 | ) | Share of post-tax results of joint ventures and associates | | | 14 | | | | 59 | | | 46 | | | 28 | | | | 15 | | | | 63 | | | 59 | | | 46 | | Profit before tax | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Before exceptional items and remeasurements | | | 2(b | ) | | | 3,142 | | | | | 2,876 | | | | | 2,584 | | | | | | 2(b | ) | | | 2,807 | | | | | 2,417 | | | | | 2,208 | | | | Exceptional items and remeasurements | | | 4 | | | | (110 | ) | | | | (248 | ) | | | | 164 | | | | | | 4 | | | | (623 | ) | | | | (88 | ) | | | | (248 | ) | | | | Total profit before tax | | | 2(b | ) | | | | | 3,032 | | | | | 2,628 | | | | | 2,748 | | | | 2(b | ) | | | | | 2,184 | | | | | 2,329 | | | | | 1,960 | | Tax | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Before exceptional items and remeasurements | | | 6 | | | | (753 | ) | | | | (695 | ) | | | | (581 | ) | | | | | 6 | | | | (666 | ) | | | | (604 | ) | | | | (543 | ) | | | Exceptional items and remeasurements | | | 4,6 | | | | 315 | | | | | 78 | | | | | 297 | | | | | | 4,6 | | | | 292 | | | | | 177 | | | | | 76 | | | | | Total tax | | | 6 | | | | (438 | ) | | (617 | ) | | (284 | ) | | | 6 | | | | (374 | ) | | (427 | ) | | (467 | ) | Profit after tax | | | | | | | | | | | | | | | | Profit after tax from continuing operations | | | | | | | | | | | | | | | | Before exceptional items and remeasurements | | | | | 2,389 | | | | | 2,181 | | | | | 2,003 | | | | | | | | 2,141 | | | | | 1,813 | | | | | 1,665 | | | | Exceptional items and remeasurements | | | 4 | | | | 205 | | | | (170 | ) | | 461 | | | | | 4 | | | | (331 | ) | | | 89 | | | (172 | ) | | Profit for the year | | | | | 2,594 | | | 2,011 | | | 2,464 | | | Profit after tax from continuing operations | | | | | | 1,810 | | | 1,902 | | | 1,493 | | | Profit after tax from discontinued operations | | | | | | | | | | | | | | | | Before exceptional items and remeasurements | | | | 9 | | | | 606 | | | | | 576 | | | | | 516 | | | | Exceptional items and remeasurements | | | | 9 | | | | 57 | | | | | 116 | | | | | 2 | | | | Gain on disposal of UK Gas Distribution after tax | | | | 9 | | | | 5,321 | | | | | – | | | | – | | | Profit after tax from discontinued operations | | | | 9 | | | | 5,984 | | | 692 | | | 518 | | | Total profit for the year (continuing and discontinued) | | | | | | | | | | | | | | | | Before exceptional items and remeasurements | | | | | | 2,747 | | | | | 2,389 | | | | | 2,181 | | | | Exceptional items and remeasurements | | | | | | (274 | ) | | | | 205 | | | | | (170 | ) | | | Gain on disposal of UK Gas Distribution after tax | | | | | | 5,321 | | | | | – | | | | – | | | Total profit for the year | | | | | | 7,794 | | | 2,594 | | | 2,011 | | | Attributable to: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Equity shareholders of the parent | | | | | | | 2,591 | | | | | 2,019 | | | | | 2,476 | | | | | | | | | | | | | | | | From continuing operations | | | | | | 1,810 | | | | | 1,901 | | | | | 1,503 | | | | From discontinued operations | | | | | | 5,985 | | | | 690 | | | 516 | | | | | | | | | | 7,795 | | | 2,591 | | | 2,019 | | Non-controlling interests | | | | | 3 | | | (8 | ) | | (12 | ) | | | | | | | | | | | | | | | From continuing operations | | | | | | – | | | | | 1 | | | | | (10 | ) | | | From discontinued operations | | | | | | (1 | ) | | | 2 | | | 2 | | | | | | | | | 2,594 | | | 2,011 | | | 2,464 | | | | | | (1 | ) | | 3 | | | (8 | ) | Earnings per share1 | | | | | | | | | | | | | | | | Earnings per share2 | | | | | | | | | | | | | | | | Basic | | | 7(a | ) | | | | | 69.0p | | | | | 53.2p | | | | | 65.2p | | | | | | | | | | | | | | | | From continuing operations | | | | 7(a | ) | | | 48.1p | | | | | 50.4p | | | | | 39.4p | | | | From discontinued operations | | | | 7(a | ) | | | 17.6p | | | | | 18.3p | | | | | 13.5p | | | | Gain on disposal of UK Gas Distribution | | | | 7(a | ) | | | 141.4p | | | | | – | | | | – | | | | | | | | 7(a | ) | | | 207.1p | | | 68.7p | | | 52.9p | | Diluted | | | 7(b | ) | | | 68.7p | | | 52.9p | | | 64.9p | | | | | | | | | | | | | | | | From continuing operations | | | | 7(b | ) | | | 47.9p | | | | | 50.2p | | | | | 39.2p | | | | From discontinued operations | | | | 7(b | ) | | | 17.5p | | | | | 18.2p | | | | | 13.5p | | | | Gain on disposal of UK Gas Distribution | | | | 7(b | ) | | | 140.8p | | | | | – | | | | – | | | | | | | | 7(b | ) | | | 206.2p | | | 68.4p | | | 52.7p | |
1. Comparative amounts have beenre-presented to reflect the classification of the UK Gas Distribution business as a discontinued operation. Further information is provided in notes 2 and 9. 2. Comparative amounts have been restated to reflect the impact of additional shares issued as scrip dividends. | | | | | | | 9484 | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | |
Unaudited commentary on the consolidated income statement | The consolidated income statement shows all revenueincome earned and costs incurred inexpenditure for the year, with the difference being the overall profit for the year. As a result of the sale of a 61% controlling interest in UK Gas Distribution, 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’. Further information is included in note 9. The commentary below relates to continuing operations only. |
Revenue Revenue for the year ended 31 March 2016 decreased2017 increased by £86m£1,823 million to £15,115m.£15,035 million. This decreaseincrease was driven by lowerhigher revenues in both our UK and US Regulated business, partly offset by revenue growth across all of our other businesses, in particular UK Electricity Transmission.businesses. US Regulated revenues were £493m lower year on year due to lower commodity costs passed on to customers£1,438 million higheryear-on-year including favourable impact from foreign exchange, increased regulatory revenue allowances and unfavourablefavourable timing of recoveries. This was partly offset by higher increased revenue allowances under the Niagara Mohawk three year rate plan and the benefits of capex trackers and the stronger US dollar. UK Electricity Transmission revenueregulated revenues increased by £223m, mostly reflecting the recovery of higher pass-through costs such as payments to other UK network owners£495 million, including increased regulatory allowances, timing over-recoveries and increased system balancing costs.revenues. Revenue from Other activities decreased, including lower interconnector and metering income. Operating costs Operating costs for the year ended 31 March 20162017 of £11,030m£11,827 million were £391m lower£1,840 million higher than the prior year. This decreaseincrease in costs included a £72m impact£576 million increase in exceptional items and remeasurements, which is discussed below. Excluding exceptional items and remeasurements, operating costs were £319m lower,£1,264 million higher, principally due to lower pass-through costs such as gas and electric commoditythe impact of foreign exchange rates alongside increased balancing services costs in the USUK and additional costs incurred last year in the US to improve data quality and bring regulatory filings up to date, partially offset by higher depreciation as a result of newly commissioned assets and the impact of the stronger US dollar on sterling results.assets. Net finance costs For the year ended 31 March 2016,2017, net finance costs before exceptional items and remeasurements were £20m lower£173 million higher than 2014/152015/16 at £1,013m,£1,029 million, mainly as a result of lower UK RPI inflation, continued focus on management of cash balances and the benefit of last year’s debt repurchases, partially offset by increased borrowings and the impact of the stronger US dollar.dollar, higher UK RPI inflation and increased levels of average net debt in continuing operations. Tax The tax charge on profits before exceptional items and remeasurements was £58m£62 million higher than 2014/15.2015/16. This was mainly a result of increased taxable profits in the year. The effective tax rate for the year was 24.0% (2014/15: 24.2%decreased to 23.7% (2015/16: 25.0%). reflecting settlements relating to prior years partially offset by an increased proportion of profits before tax being generated in the US. Exceptional items and remeasurements Operating costs for the year ended 31 March 20162017 included an £11ma £68 million gain on remeasurementremeasurements of commodity contracts, together with £22m£633 million exceptional costs associated with the Gas Distribution sales process.environmental charges and gas holder decommissioning. In the previous year, operating costs included a net £83m loss£11 million gain on remeasurements.remeasurements of commodity contracts. Finance costs for the year ended 31 March 20162017 included a loss of £99m£58 million on financial remeasurements, relating to net losses on derivative financial instruments. For the previous year ended 31 March 2015,2016, we incurred exceptional debt redemption costs of £131m and a loss of £34m£99 million on financial remeasurements. Exceptional tax for 2015/162016/17 was a credit of £315m£292 million which represents tax credits on the exceptional items and remeasurements above, together with a deferred tax credit on the recalculation of deferred tax liabilities as a result of the reduction in the UK tax rate applicable from 20%April 2020 from 18% to 18%17%. Adjusted earnings and EPS from continuing operations Adjusted earnings and EPS, which exclude exceptional items and remeasurements, are provided to reflect results of the business performance subtotals used by the Company.Group on a ‘business performance’ basis, described further in note 4. The following chart shows the five yearfive-year trend in adjusted profit attributable to equity shareholders of the parent (adjusted earnings) and adjusted earnings per share. See page 196195 for a reconciliation of adjusted basic EPS to EPS. Adjusted earnings and adjusted EPS from continuing operations1  
1. Adjusted earnings and adjusted EPS are attributable to equity shareholders of the parent. The above earnings performance translated into adjusted EPS growth in 2015/162016/17 of 5.9p (10%8.9p (19%). In accordance with IAS 33, all earnings per share and adjusted earnings per share amounts for comparative periods have been restated for shares issued via scrip dividends. Exchange rates Our financial results are reported in sterling. Transactions for our US operations are denominated in dollars, so the related amounts that are reported in sterling depend on the dollar to sterling exchange rate. The table below shows the average and closing exchange rates of sterling to US dollars. | | | | 2015/16 | | | 2014/15 | | | % change | | | 2016/17 | | | 2015/16 | | | % change | | | | | | | Weighted average (income statement) | | | 1.47 | | | | 1.58 | | | | (7)% | | | | 1.28 | | | | 1.47 | | | | (13)% | | Year end (balance sheet) | | | 1.44 | | | | 1.49 | | | | (3)% | | | Year-end (statement of financial position) | | | | 1.25 | | | | 1.44 | | | | (13)% | | | | | | |
The movement in foreign exchange during 2015/162016/17 has resulted in a £560m£1,175 million increase in revenue, a £73m£187 million increase in adjusted operating profit and a £67m£189 million increase in operating profit. | | | | | | | | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | 9585 |
Consolidated statement of comprehensive income for the years ended 31 March | | | | | | | 2016 | | | 2015 | | | 2014 | | | | | | | | | 2016 | | | 2015 | | | | | Notes | | | £m | | | £m | | | £m | | | | | | 2017 | | | Re-presented1 | | | Re-presented1 | | | | | | Notes | | | £m | | | £m | | | £m | | Profit for the year | | | | | 2,594 | | | | 2,011 | | | | 2,464 | | | | | | | | | Other comprehensive income/(loss) | | | | | | | | | | Items that will never be reclassified to profit or loss: | | | | | | | | | | Remeasurements of net retirement benefit obligations | | | 22 | | | | 539 | | | | (771) | | | | 485 | | | Profit after tax from continuing operations | | | | | | 1,810 | | | | 1,902 | | | | 1,493 | | | Other comprehensive income/(loss) from continuing operations | | | | | | | | | | Items from continuing operations that will never be reclassified to profit or loss: | | | | | | | | | | Remeasurement gains/(losses) of pension assets and post-retirement benefit obligations | | | | 23 | | | | 423 | | | | 410 | | | | (758) | | Tax on items that will never be reclassified to profit or loss | | | 6 | | | | (125) | | | | 299 | | | | (172) | | | | 6 | | | | (277) | | | | (95) | | | | 296 | | | | | | | Total items that will never be reclassified to profit or loss | | | | | 414 | | | | (472) | | | | 313 | | | Total items from continuing operations that will never be reclassified to profit or loss | | | | | | 146 | | | | 315 | | | | (462) | | | | | | | Items that may be reclassified subsequently to profit or loss: | | | | | | | | | | Items from continuing operations that may be reclassified subsequently to profit or loss: | | | | | | | | | | Exchange adjustments | | | | | 69 | | | | 175 | | | | (158) | | | | | | 346 | | | | 69 | | | | 175 | | Net gains/(losses) in respect of cash flow hedges | | | | | 50 | | | | (154) | | | | 63 | | | | | | 70 | | | | 88 | | | | (86) | | Transferred to profit or loss in respect of cash flow hedges | | | | | 29 | | | | 13 | | | | 27 | | | | | | (6) | | | | 26 | | | | 11 | | Net gains on available-for-sale investments | | | | | 43 | | | | 41 | | | | 6 | | | | | | 81 | | | | 43 | | | | 41 | | Transferred to profit or loss on sale of available-for-sale investments | | | | | – | | | | (8) | | | | (14) | | | | | | (25) | | | | – | | | | (8) | | Tax on items that may be reclassified subsequently to profit or loss | | | 6 | | | | (32) | | | | 11 | | | | (2) | | | | 6 | | | | (34) | | | | (39) | | | | 3 | | | | | | | Total items that may be reclassified subsequently to profit or loss | | | | | 159 | | | | 78 | | | | (78) | | | Total items from continuing operations that may be reclassified subsequently to profit or loss | | | | | | 432 | | | | 187 | | | | 136 | | | | | | Other comprehensive income/(loss) for the year, net of tax from continuing operations | | | | | | 578 | | | | 502 | | | | (326) | | Other comprehensive income/(loss) for the year, net of tax from discontinued operations | | | | 9 | | | | 42 | | | | 71 | | | | (68) | | | | | | | Other comprehensive income/(loss) for the year, net of tax | | | | | 573 | | | | (394) | | | | 235 | | | | | | 620 | | | | 573 | | | | (394) | | | | | | Total comprehensive income for the year from continuing operations | | | | | | 2,388 | | | | 2,404 | | | | 1,167 | | Total comprehensive income for the year from discontinued operations | | | | 9 | | | | 6,026 | | | | 763 | | | | 450 | | | | | | | Total comprehensive income for the year | | | | | 3,167 | | | | 1,617 | | | | 2,699 | | | | | | 8,414 | | | | 3,167 | | | | 1,617 | | | | | | | Attributable to: | | | | | | | | | | | | | | | | | Equity shareholders of the parent | | | | | 3,164 | | | | 1,624 | | | | 2,711 | | | | | | | | | | Non-controlling interests | | | | | 3 | | | | (7) | | | | (12) | | | From continuing operations | | | | | | 2,389 | | | | 2,403 | | | | 1,176 | | From discontinued operations | | | | | | 6,026 | | | | 761 | | | | 448 | | | | | | | | | | | | 3,167 | | | | 1,617 | | | | 2,699 | | | | | | 8,415 | | | | 3,164 | | | | 1,624 | | | | | | | Non-controlling interests | | | | | | | | | | From continuing operations | | | | | | (1) | | | | 1 | | | | (9) | | From discontinued operations | | | | | | – | | | | 2 | | | | 2 | | | | | | | | | | | | (1) | | | | 3 | | | | (7) | | | | | |
1. Comparative amounts have beenre-presented to reflect the classification of the UK Gas Distribution business as a discontinued operation. Further information is provided in note 2. Unaudited commentary on consolidated statement of comprehensive income | The consolidated statement of comprehensive income records certain items as prescribed by the accounting rules. For us, the majority of the income or expense included here relates to movements in actuarial assumptions on defined benefit pension schemes and the associated tax impact. These items are not part of profit for the year, yet are important to allow the reader to gain a more comprehensive picture of our performance as a whole. |
RemeasurementsRemeasurement gains/(losses) of net retirementpension assets and post-retirement benefit obligations
We had a net gain after tax of £414m (2014/£146 million (2015/16: net gain of £315 million; 2014/15: net loss of £472m)£462 million) on our pension and other post-retirement benefit schemes which is due to changes in key assumptions made in the valuation calculation of pension liabilities and differences between the expected and actual pension asset returns. Exchange adjustments Adjustments are made when we translate the results and net assets of our companies operating outside the UK, as well as debt and derivative transactions designated as a net investment hedge of our foreign currency operations. The net movement for the year resulted in a gain of £69m (2014/£346 million (2015/16: £69 million gain; 2014/15: £175m£175 million gain). Net gains/(losses) in respect of cash flow hedges The value of derivatives held to hedge cash flows is impacted by changes in expected interest rates and exchange rates. The net gain for the year was £50m (2014/£70 million (2015/16: £88 million gain; 2014/15: £154m£86 million loss). | | | | | | | 9686 | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | |
Consolidated statement of changes in equity for the years ended 31 March | | | | Share
capital
£m | | | Share
premium
account
£m | | Retained
earnings
£m | | Other equity
reserves1
£m | | Total
shareholders’
equity £m | | Non-
controlling
interests
£m | | Total
equity
£m | | | Share
capital
£m | | | Share
premium
account
£m | | Retained
earnings
£m | | Other equity
reserves1
£m | | Total
shareholders’
equity £m | | Non-
controlling
interests
£m | | Total
equity £m | | At 1 April 2013 | | | 433 | | | | 1,344 | | | 13,133 | | | (4,681 | ) | | 10,229 | | | 5 | | | 10,234 | | | Profit for the year | | | – | | | | – | | | 2,476 | | | | – | | | 2,476 | | | (12 | ) | | 2,464 | | | Total other comprehensive income/(loss) for the year | | | – | | | | – | | | 313 | | | (78 | ) | | 235 | | | | – | | | 235 | | | Total comprehensive income/(loss) for the year | | | – | | | | – | | | 2,789 | | | (78 | ) | | 2,711 | | | (12 | ) | | 2,699 | | | Equity dividends | | | – | | | | – | | | (1,059 | ) | | | – | | | (1,059 | ) | | | – | | | (1,059 | ) | | Scrip dividend related share issue2 | | | 6 | | | | (8 | ) | | | – | | | | – | | | (2 | ) | | | – | | | (2 | ) | | Issue of treasury shares | | | – | | | | – | | | 14 | | | | – | | | 14 | | | | – | | | 14 | | | Purchase of own shares | | | – | | | | – | | | (5 | ) | | | – | | | (5 | ) | | | – | | | (5 | ) | | Other movements in non-controlling interests | | | – | | | | – | | | (4 | ) | | | – | | | (4 | ) | | 15 | | | 11 | | | Share-based payment | | | – | | | | – | | | 20 | | | | – | | | 20 | | | | – | | | 20 | | | Tax on share-based payment | | | – | | | | – | | | 7 | | | | – | | | 7 | | | | – | | | 7 | | | At 31 March 2014 | | | 439 | | | | 1,336 | | | 14,895 | | | (4,759 | ) | | 11,911 | | | 8 | | | 11,919 | | | Profit for the year | | | – | | | | – | | | 2,019 | | | | – | | | 2,019 | | | (8 | ) | | 2,011 | | | Total other comprehensive (loss)/income for the year | | | – | | | | – | | | (472 | ) | | 77 | | | (395 | ) | | 1 | | | (394 | ) | | At 1 April 2014 | | | | 439 | | | | 1,336 | | | 14,895 | | | (4,759 | ) | | 11,911 | | | 8 | | | 11,919 | | Profit/(loss) for the year | | | | – | | | | – | | | 2,019 | | | | – | | | 2,019 | | | (8 | ) | | 2,011 | | Other comprehensive (loss)/income for the year | | | | – | | | | – | | | (472 | ) | | 77 | | | (395 | ) | | 1 | | | (394 | ) | Total comprehensive income/(loss) for the year | | | – | | | | – | | | 1,547 | | | 77 | | | 1,624 | | | (7 | ) | | 1,617 | | | | – | | | | – | | | 1,547 | | | 77 | | | 1,624 | | | (7 | ) | | 1,617 | | Equity dividends | | | – | | | | – | | | (1,271 | ) | | | – | | | (1,271 | ) | | | – | | | (1,271 | ) | | | – | | | | – | | | (1,271 | ) | | | – | | | (1,271 | ) | | | – | | | (1,271 | ) | Scrip dividend related share issue2 | | | 4 | | | | (5 | ) | | | – | | | | – | | | (1 | ) | | | – | | | (1 | ) | | | 4 | | | | (5 | ) | | | – | | | | – | | | (1 | ) | | | – | | | (1 | ) | Purchase of treasury shares | | | – | | | | – | | | (338 | ) | | | – | | | (338 | ) | | | – | | | (338 | ) | | | – | | | | – | | | (338 | ) | | | – | | | (338 | ) | | | – | | | (338 | ) | Issue of treasury shares | | | – | | | | – | | | 23 | | | | – | | | 23 | | | | – | | | 23 | | | | – | | | | – | | | 23 | | | | – | | | 23 | | | | – | | | 23 | | Purchase of own shares | | | – | | | | – | | | (7 | ) | | | – | | | (7 | ) | | | – | | | (7 | ) | | | – | | | | – | | | (7 | ) | | | – | | | (7 | ) | | | – | | | (7 | ) | Other movements in non-controlling interests | | | – | | | | – | | | (3 | ) | | | – | | | (3 | ) | | 11 | | | 8 | | | | – | | | | – | | | (3 | ) | | | – | | | (3 | ) | | 11 | | | 8 | | Share-based payment | | | – | | | | – | | | 20 | | | | – | | | 20 | | | | – | | | 20 | | | Tax on share-based payment | | | – | | | | – | | | 4 | | | | – | | | 4 | | | | – | | | 4 | | | Share-based payments | | | | – | | | | – | | | 20 | | | | – | | | 20 | | | | – | | | 20 | | Tax on share-based payments | | | | – | | | | – | | | 4 | | | | – | | | 4 | | | | – | | | 4 | | At 31 March 2015 | | | 443 | | | | 1,331 | | | 14,870 | | | (4,682 | ) | | 11,962 | | | 12 | | | 11,974 | | | | 443 | | | | 1,331 | | | 14,870 | | | (4,682 | ) | | 11,962 | | | 12 | | | 11,974 | | Profit for the year | | | – | | | | – | | | 2,591 | | | | – | | | 2,591 | | | 3 | | | 2,594 | | | | – | | | | – | | | 2,591 | | | | – | | | 2,591 | | | 3 | | | 2,594 | | Total other comprehensive income for the year | | | – | | | | – | | | 414 | | | 159 | | | 573 | | | | – | | | 573 | | | Other comprehensive income for the year | | | | – | | | | – | | | 414 | | | 159 | | | 573 | | | | – | | | 573 | | Total comprehensive income for the year | | | – | | | | – | | | 3,005 | | | 159 | | | 3,164 | | | 3 | | | 3,167 | | | | – | | | | – | | | 3,005 | | | 159 | | | 3,164 | | | 3 | | | 3,167 | | Equity dividends | | | – | | | | – | | | (1,337 | ) | | | – | | | (1,337 | ) | | | – | | | (1,337 | ) | | | – | | | | – | | | (1,337 | ) | | | – | | | (1,337 | ) | | | – | | | (1,337 | ) | Scrip dividend related share issue2 | | | 4 | | | | (5 | ) | | | – | | | | – | | | (1 | ) | | | – | | | (1 | ) | | | 4 | | | | (5 | ) | | | – | | | | – | | | (1 | ) | | | – | | | (1 | ) | Purchase of treasury shares | | | – | | | | – | | | (267 | ) | | | – | | | (267 | ) | | | – | | | (267 | ) | | | – | | | | – | | | (267 | ) | | | – | | | (267 | ) | | | – | | | (267 | ) | Issue of treasury shares | | | – | | | | – | | | 16 | | | | – | | | 16 | | | | – | | | 16 | | | | – | | | | – | | | 16 | | | | – | | | 16 | | | | – | | | 16 | | Purchase of own shares | | | – | | | | – | | | (6 | ) | | | – | | | (6 | ) | | | – | | | (6 | ) | | | – | | | | – | | | (6 | ) | | | – | | | (6 | ) | | | – | | | (6 | ) | Other movements in non-controlling interests | | | – | | | | – | | | | – | | | | – | | | | – | | | (5 | ) | | (5 | ) | | | – | | | | – | | | | – | | | | – | | | | – | | | (5 | ) | | (5 | ) | Share-based payment | | | – | | | | – | | | 22 | | | | – | | | 22 | | | | – | | | 22 | | | Tax on share-based payment | | | – | | | | – | | | 2 | | | | – | | | 2 | | | | – | | | 2 | | | Share-based payments | | | | – | | | | – | | | 22 | | | | – | | | 22 | | | | – | | | 22 | | Tax on share-based payments | | | | – | | | | – | | | 2 | | | | – | | | 2 | | | | – | | | 2 | | At 31 March 2016 | | | 447 | | | | 1,326 | | | | 16,305 | | | | (4,523 | ) | | | 13,555 | | | | 10 | | | | 13,565 | | | | 447 | | | | 1,326 | | | 16,305 | | | (4,523 | ) | | 13,555 | | | 10 | | | 13,565 | | Profit/(loss) for the year | | | | – | | | | – | | | 7,795 | | | | – | | | 7,795 | | | (1 | ) | | 7,794 | | Other comprehensive income for the year | | | | – | | | | – | | | 84 | | | 536 | | | 620 | | | | – | | | 620 | | Total comprehensive income/(loss) for the year | | | | – | | | | – | | | 7,879 | | | 536 | | | 8,415 | | | (1 | ) | | 8,414 | | Equity dividends | | | | – | | | | – | | | (1,463 | ) | | | – | | | (1,463 | ) | | | – | | | (1,463 | ) | Scrip dividend related share issue2 | | | | 2 | | | | (2 | ) | | | – | | | | – | | | | – | | | | – | | | | – | | Purchase of treasury shares | | | | – | | | | – | | | (189 | ) | | | – | | | (189 | ) | | | – | | | (189 | ) | Issue of treasury shares | | | | – | | | | – | | | 18 | | | | – | | | 18 | | | | – | | | 18 | | Purchase of own shares | | | | – | | | | – | | | (6 | ) | | | – | | | (6 | ) | | | – | | | (6 | ) | Other movements innon-controlling interests | | | | – | | | | – | | | | – | | | | – | | | | – | | | 7 | | | 7 | | Share-based payments | | | | – | | | | – | | | 35 | | | | – | | | 35 | | | | – | | | 35 | | Tax on share-based payments | | | | – | | | | – | | | 3 | | | | – | | | 3 | | | | – | | | 3 | | At 31 March 2017 | | | | 449 | | | | 1,324 | | | | 22,582 | | | | (3,987 | ) | | | 20,368 | | | | 16 | | | | 20,384 | |
1. For further details of other equity reserves, see note 25.26. 2. Included within share premium account are costs associated with scrip dividends. Unaudited commentary on consolidated statement of changes in equity | The consolidated statement of changes in equity shows additions and reductions to equity. For us, the main items are profit earned and dividends paid in the year. |
Dividends The Directors are proposing a final dividend of 28.34p,29.10 pence per share, bringing the total dividend for the year to 43.34p,44.27 pence per share, a 1.1%2.1% increase on 2014/15. 2015/16. The Directors intend to continue the policy oftarget increasing the annual dividend per share by at least the rate of RPI inflation for the foreseeable future. Special dividend Following completion of the sale of the majority interest in UK Gas Distribution, on 19 April 2017, the Directors approved a special interim dividend of 84.375 pence per existing ordinary share ($5.4224 per existing American Depositary Share). | | | | | | | | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | 9787 |
Consolidated statement of financial position as at 31 March | | | | Notes | | | 2016 £m | | | 2015 £m | | | Notes | | | 2017 £m | | | 2016 £m | | | | | | | Non-current assets | | | | | | | | | | | | | Goodwill | | | 9 | | | | 5,315 | | | | 5,145 | | | | 10 | | | | 6,096 | | | | 5,315 | | Other intangible assets | | | 10 | | | | 887 | | | | 802 | | | | 11 | | | | 923 | | | | 887 | | Property, plant and equipment | | | 11 | | | | 43,364 | | | | 40,723 | | | | 12 | | | | 39,825 | | | | 43,364 | | Other non-current assets | | | 12 | | | | 82 | | | | 80 | | | | 13 | | | | 121 | | | | 82 | | Pension assets | | | 22 | | | | 410 | | | | 121 | | | | 23 | | | | 603 | | | | 410 | | Financial and other investments | | | 13 | | | | 482 | | | | 330 | | | | 14 | | | | 1,100 | | | | 482 | | Investments in joint ventures and associates | | | 14 | | | | 397 | | | | 318 | | | | 15 | | | | 2,083 | | | | 397 | | Derivative financial assets | | | 15 | | | | 1,685 | | | | 1,539 | | | | 16 | | | | 1,515 | | | | 1,685 | | | | �� | | | Total non-current assets | | | | | 52,622 | | | | 49,058 | | | | | | 52,266 | | | | 52,622 | | | | | | | Current assets | | | | | | | | | | | | | Inventories and current intangible assets | | | 16 | | | | 437 | | | | 340 | | | | 17 | | | | 403 | | | | 437 | | Trade and other receivables | | | 17 | | | | 2,472 | | | | 2,836 | | | | 18 | | | | 2,782 | | | | 2,395 | | Current tax assets | | | | | | 317 | | | | 77 | | Financial and other investments | | | 13 | | | | 2,998 | | | | 2,559 | | | | 14 | | | | 8,741 | | | | 2,998 | | Derivative financial assets | | | 15 | | | | 278 | | | | 177 | | | | 16 | | | | 192 | | | | 278 | | Cash and cash equivalents | | | 18 | | | | 127 | | | | 119 | | | | 19 | | | | 1,139 | | | | 127 | | | | | | | Total current assets | | | | | 6,312 | | | | 6,031 | | | | | | 13,574 | | | | 6,312 | | | | | | | Total assets | | | | | 58,934 | | | | 55,089 | | | | | | 65,840 | | | | 58,934 | | | | | | | Current liabilities | | | | | | | | | | | | | Borrowings | | | 19 | | | | (3,611) | | | | (3,028) | | | | 20 | | | | (5,496) | | | | (3,611) | | Derivative financial liabilities | | | 15 | | | | (337) | | | | (635) | | | | 16 | | | | (1,054) | | | | (337) | | Trade and other payables | | | 20 | | | | (3,285) | | | | (3,292) | | | | 21 | | | | (3,438) | | | | (3,285) | | Current tax liabilities | | | | | (252) | | | | (184) | | | | | | (107) | | | | (252) | | Provisions | | | 23 | | | | (236) | | | | (235) | | | | 24 | | | | (416) | | | | (236) | | | | | | | Total current liabilities | | | | | (7,721) | | | | (7,374) | | | | | | (10,511) | | | | (7,721) | | | | | | | Non-current liabilities | | | | | | | | | | | | | Borrowings | | | 19 | | | | (24,733) | | | | (22,882) | | | | 20 | | | | (23,142) | | | | (24,733) | | Derivative financial liabilities | | | 15 | | | | (1,732) | | | | (1,764) | | | | 16 | | | | (1,169) | | | | (1,732) | | Other non-current liabilities | | | 21 | | | | (2,071) | | | | (1,919) | | | | 22 | | | | (1,447) | | | | (2,071) | | Deferred tax liabilities | | | 6 | | | | (4,634) | | | | (4,297) | | | | 6 | | | | (4,479) | | | | (4,634) | | Pensions and other post-retirement benefit obligations | | | 22 | | | | (2,995) | | | | (3,379) | | | | 23 | | | | (2,536) | | | | (2,995) | | Provisions | | | 23 | | | | (1,483) | | | | (1,500) | | | | 24 | | | | (2,172) | | | | (1,483) | | | | | | | Total non-current liabilities | | | | | (37,648) | | | | (35,741) | | | | | | (34,945) | | | | (37,648) | | | | | | | Total liabilities | | | | | (45,369) | | | | (43,115) | | | | | | (45,456) | | | | (45,369) | | | | | | | Net assets | | | | | 13,565 | | | | 11,974 | | | | | | 20,384 | | | | 13,565 | | | | | | | Equity | | | | | | | | | | | | | Share capital | | | 24 | | | | 447 | | | | 443 | | | | 25 | | | | 449 | | | | 447 | | Share premium account | | | | | 1,326 | | | | 1,331 | | | | | | 1,324 | | | | 1,326 | | Retained earnings | | | | | 16,305 | | | | 14,870 | | | | | | 22,582 | | | | 16,305 | | Other equity reserves | | | 25 | | | | (4,523) | | | | (4,682) | | | | 26 | | | | (3,987) | | | | (4,523) | | | | | | | Shareholders’ equity | | | | | 13,555 | | | | 11,962 | | | Total shareholders’ equity | | | | | | 20,368 | | | | 13,555 | | Non-controlling interests | | | | | 10 | | | | 12 | | | | | | 16 | | | | 10 | | | | | | | Total equity | | | | | 13,565 | | | | 11,974 | | | | | | 20,384 | | | | 13,565 | | | | | | |
The consolidated financial statements set out on pages 9484 to 167165 were approved by the Board of Directors on 1817 May 20162017 and were signed on its behalf by: Sir Peter GershonChairman Andrew BonfieldFinance Director National Grid plc Registered number: 4031152 | | | | | | | 9888 | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | |
Unaudited commentary on consolidated statement of financial position | The consolidated statement of financial position shows all of the Group’s assets and liabilities at the year end. As a capital-intensive business, we have significant amounts of physical assets and corresponding borrowings. As at 31 March 2017, the Group’s statement of financial position no longer includes the assets and liabilities of UK Gas Distribution (see note 9). The disposal of these assets and liabilities is referred to as ‘disposals’ in the commentaries below. |
Goodwill and other intangible assets Goodwill and intangibles increased by £255m£817 million to £6,202m£7,019 million as at 31 March 2016.2017. This increase primarily relates to foreign exchange movements of £184m£843 million and software additions of £220m,£234 million, partially offset by software amortisation of £147m.£164 million and disposals of £89 million. Property, plant and equipment Property, plant and equipment increaseddecreased by £2,641m£3,539 million to £43,364m£39,825 million as at 31 March 2016.2017. This was principally due to capital expenditure of £3,673m£4,089 million on the renewal and extension of our regulated networks and foreign exchange movements of £543m,£2,669 million, offset by depreciation of £1,468m£1,535 million in the year.year and disposals of £8,700 million. See page 2422 for further details of our capital expenditure. Investments and othernon-current assets Investments in joint ventures and associates, financial and other investments and othernon-current assets have increased by £233m£2,343 million to £961m.£3,304 million. This is primarily due to our 39% retained interest in UK Gas Distribution of £1,611 million (classified as an associate) and the related shareholder loan of £429 million, an increase in investments in joint ventures of £79m,£137 million, together with an increase in available-for-saleother investments of £152m.£95 million and foreign exchange movements of £115 million, offset by disposals of £44 million. Inventories and current intangible assets, and trade and other receivables and current tax assets Inventories and current intangible assets, and trade and other receivables and current tax assets have decreasedincreased by £267m£593 million to £2,909m£3,502 million as at 31 March 2016.2017. This is primarily due to ana net increase in trade and other receivables of £617 million (including a foreign exchange movement of £252 million) less disposals of £230 million and a £240 million increase in tax receivables. The increase in trade and other receivables reflects the colder winter, higher gas costs and BSIS cost recoveries. This is partly offset by a decrease in inventories and current intangible assets of £97m, more than offset by a net decrease in trade and other receivables of £364m. The £364m decrease consists of a foreign exchange impact of £57m due to the stronger US dollar against sterling offset by a decrease in the underlying balances of £421m, reflecting collection of high 2015 winter billings, coupled with the impact of the recent mild winter.£34 million. Trade and other payables Trade and other payables have decreasedincreased by £7m£153 million to £3,285m,£3,438 million, primarily due to a foreign exchange impact of £48m more than offset by£220 million and movements in the US related to warmercolder weather and energy billing settlements.increased level of accruals offset by disposals of £423 million. Current tax balances Net current tax balances have increasedliability has changed by £51m£385 million to £175m as at 31 March 2016, which includes a £77mnet current tax asset in trade and other receivables (£60m current tax asset in 2014/15).of £210 million. This is primarily due to a number of prior year settlements, reclassification from deferred tax of US net operating losses to offset against US current tax liabilities and cash payments exceeding tax liabilities following the tax payments madeadditional costs incurred in 2015/16 being only partially offset by a smaller current year tax charge.relation to the disposal of the UK Gas Distribution business. Deferred tax balances Deferred tax balances have increaseddecreased by £337m£155 million to £4,634m£4,479 million as at 31 March 2016.2017. This wasis primarily due to the impactdisposal of the £125mUK Gas Distribution business offset by the deferred tax charge on actuarial gains in reserves (£299m tax credit in 2014/15) and foreign exchange movements being offset by the impact of the reduction in the UK statutory tax rate.movements. Provisions and othernon-current liabilities Provisions (both current andnon-current) and othernon-current liabilities increased by £136m£245 million to £3,790m£4,035 million as at 31 March 2016.2017. Total provisions decreasedincreased by £16m£869 million in the year. The underlying movements include additions of £63m,£633 million, primarily relating to an exceptional increase to the provision for the estimated environmental restoration and remediation costs for a number of sites and other provision increases of £33m,£382 million as shown in note 24, together with foreign exchange movements of £42m,£188 million, offset by utilisation of £200m£227 million in relation to all classes of provisions.provisions and disposals of £94 million. Othernon-current liabilities reduced, principally due to £910 million of deferred income within UK Gas Distribution. Net debt Net debt is the aggregate of cash and cash equivalents, current financial and other investments, borrowings, and derivative financial assets and liabilities. See further analysis with the consolidated cash flow statement on page 100.90. Net pension and other post-retirement obligations A summary of the total UK and US assets and liabilities and the overall net IAS 19 (revised) accounting deficit is shown below: | | Net plan liability | | UK £m | | | US £m | | | Total £m | | | UK £m | | | US £m | | | Total £m | | | | | | | As at 1 April 2015 | | | (672) | | | | (2,586) | | | | (3,258) | | | As at 1 April 2016 | | | | (15) | | | | (2,570) | | | | (2,585) | | Exchange movements | | | – | | | | (81) | | | | (81) | | | | – | | | | (345) | | | | (345) | | Current service cost | | | (74) | | | | (147) | | | | (221) | | | | (76) | | | | (156) | | | | (232) | | Net interest cost | | | (18) | | | | (94) | | | | (112) | | | | – | | | | (105) | | | | (105) | | Curtailments and other | | | (24) | | | | (15) | | | | (39) | | | | (18) | | | | (35) | | | | (53) | | Actuarial (losses)/gains | | | | | | | | Disposal of UK Gas Distribution | | | | (34) | | | | – | | | | (34) | | Actuarial gains/(losses) | | | | | | | | – on plan assets | | | (18) | | | | (320) | | | | (338) | | | | 2,890 | | | | 444 | | | | 3,334 | | – on plan liabilities | | | 552 | | | | 325 | | | | 877 | | | | (3,431) | | | | 445 | | | | (2,986) | | Employer contributions | | | 239 | | | | 348 | | | | 587 | | | | 528 | | | | 545 | | | | 1,073 | | | | | | | As at 31 March 2016 | | | (15) | | | | (2,570) | | | | (2,585) | | | As at 31 March 2017 | | | | (156) | | | | (1,777) | | | | (1,933) | | | | | | | Represented by: | | | | | | | | | | | | | Plan assets | | | 19,401 | | | | 7,033 | | | | 26,434 | | | | 15,489 | | | | 8,886 | | | | 24,375 | | Plan liabilities | | | (19,416) | | | | (9,603) | | | | (29,019) | | | | (15,645) | | | | (10,663) | | | | (26,308) | | | | | | | | | | (15) | | | | (2,570) | | | | (2,585) | | | | (156) | | | | (1,777) | | | | (1,933) | | | | | | |
The principal movements in net obligations during the year include net actuarial gains of £539m£348 million and employer contributions of £587m.£1,073 million. Net actuarial gains include actuarial gains on plan liabilities of £877m arising as a consequence of decreases in the nominal discount rate in the US and experience gains reflecting liability experience throughout the year including the impact of pension increases being lower than assumed and some updates to the way a section of plan liabilities is estimated. This is partially offset by actuarial losses of £338m£3,334 million arising on plan assets resulting from actual asset returns being lessgreater than assumed returns which is based upon the discount rate at the start of the year. This is partially offset by actuarial losses on plan liabilities of £2,986 million arising as a consequence of a decrease in the real discount rate giving an actuarial loss of £3,431 million in the UK and an increase in the nominal discount rate resulting in actuarial gains of £445 million in the US. Further information on our pension and other post-retirement obligations can be found in notes 22 and 29note 23 to the consolidated financial statements. Off balance sheet items There were no significant off balance sheet items other than the contractual obligations shown in note 30(b) to the consolidated financial statements, and the commitments and contingencies discussed in note 27.28. Through the ordinary course of our operations, we are party to various litigation, claims and investigations. We do not expect the ultimate resolution of any of these proceedings to have a material adverse effect on our results of operations, cash flows or financial position. | | | | | | | | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | 9989 |
Consolidated cash flow statement for the years ended 31 March | | | | | | | 2016 | | | 2015 | | | 2014 | | | | | | | | | | | | | Notes | | | £m | | | £m | | | £m | | | | Notes | | |
| 2017
£m |
| |
| 2016
Re-presented£m |
1 | |
| 2015
Re-presented £m |
1 | Cash flows from operating activities | | | | | | | | | | | | | | | | | Total operating profit | | | 2(b | ) | | | 4,085 | | | | 3,780 | | | | 3,735 | | | Total operating profit from continuing operations | | | | 2(b) | | | | 3,208 | | | | 3,225 | | | | 2,951 | | Adjustments for: | | | | | | | | | | | | | | | | | Exceptional items and remeasurements | | | 4 | | | | 11 | | | | 83 | | | | (71 | ) | | | 4 | | | | 565 | | | | (11 | ) | | | 83 | | Depreciation, amortisation and impairment | | | | | 1,614 | | | | 1,494 | | | | 1,417 | | | | | | 1,481 | | | | 1,311 | | | | 1,202 | | Share-based payment charge | | | | | 22 | | | | 20 | | | | 20 | | | Share-based payments charge | | | | | | 32 | | | | 21 | | | | 18 | | Gain on exchange of associate for available-for-sale investment | | | | | (49 | ) | | | – | | | | – | | | | | | – | | | | (49 | ) | | | – | | Changes in working capital | | | | | 456 | | | | 301 | | | | (59 | ) | | | | | 151 | | | | 416 | | | | 311 | | Changes in provisions | | | | | (90 | ) | | | (41 | ) | | | (150 | ) | | | | | (181 | ) | | | (58 | ) | | | (41 | ) | Changes in pensions and other post-retirement benefit obligations | | | | | (327 | ) | | | (270 | ) | | | (323 | ) | | | | | (768 | ) | | | (293 | ) | | | (235 | ) | Cash flows relating to exceptional items | | | | | (62 | ) | | | (17 | ) | | | (150 | ) | | | | | (36 | ) | | | (40 | ) | | | (17 | ) | Cash generated from operations | | | | | 5,660 | | | | 5,350 | | | | 4,419 | | | Cash generated from operations – continuing operations | | | | | | 4,452 | | | | 4,522 | | | | 4,272 | | Tax paid | | | | | (292 | ) | | | (343 | ) | | | (400 | ) | | | | | (132 | ) | | | (230 | ) | | | (251 | ) | Net cash inflow from operating activities | | | | | 5,368 | | | | 5,007 | | | | 4,019 | | | Net cash inflows from operating activities – continuing operations | | | | | | 4,320 | | | | 4,292 | | | | 4,021 | | Net cash inflows from operating activities – discontinued operations | | | | | | 909 | | | | 1,076 | | | | 986 | | Cash flows from investing activities | | | | | | | | | | | | | | | | | Acquisition of investments | | | | | (116 | ) | | | – | | | | (4 | ) | | | | | (137 | ) | | | (116 | ) | | | – | | Proceeds from sale of investments in subsidiaries | | | | | | 5,454 | | | | – | | | | – | | Purchases of intangible assets | | | | | (220 | ) | | | (207 | ) | | | (179 | ) | | | | | (223 | ) | | | (196 | ) | | | (171 | ) | Purchases of property, plant and equipment | | | | | (3,408 | ) | | | (3,076 | ) | | | (2,944 | ) | | | | | (3,296 | ) | | | (2,855 | ) | | | (2,578 | ) | Disposals of property, plant and equipment | | | | | 4 | | | | 9 | | | | 4 | | | | | | 18 | | | | 4 | | | | 9 | | Dividends received from joint ventures | | | | | 72 | | | | 79 | | | | 38 | | | Dividends received from joint ventures and associates | | | | | | 99 | | | | 72 | | | | 79 | | Interest received | | | | | 23 | | | | 37 | | | | 35 | | | | | | 51 | | | | 23 | | | | 37 | | Net movements in short-term financial investments | | | | | (391 | ) | | | 1,157 | | | | 1,720 | | | Net cash flow used in investing activities | | | | | (4,036 | ) | | | (2,001 | ) | | | (1,330 | ) | | Net movements in short-term financial investments2 | | | | | | (5,600 | ) | | | (391 | ) | | | 1,157 | | Net cash flow used in investing activities – continuing operations | | | | | | (3,634 | ) | | | (3,459 | ) | | | (1,467 | ) | Net cash flow used in investing activities – discontinued operations | | | | | | (680 | ) | | | (577 | ) | | | (534 | ) | Cash flows from financing activities | | | | | | | | | | | | | | | | | Purchase of treasury shares | | | | | (267 | ) | | | (338 | ) | | | – | | | | | | (189 | ) | | | (267 | ) | | | (338 | ) | Proceeds from issue of treasury shares | | | | | 16 | | | | 23 | | | | 14 | | | | | | 18 | | | | 16 | | | | 23 | | Purchase of own shares | | | | | (6 | ) | | | (7 | ) | | | (5 | ) | | | | | (6 | ) | | | (6 | ) | | | (7 | ) | Proceeds received from loans | | | | | 2,726 | | | | 1,534 | | | | 1,134 | | | | | | 2,463 | | | | 2,726 | | | | 1,534 | | Repayment of loans | | | | | (896 | ) | | | (2,839 | ) | | | (2,192 | ) | | | | | (1,616 | ) | | | (896 | ) | | | (2,839 | ) | Net movements in short-term borrowings and derivatives | | | | | (730 | ) | | | 623 | | | | 37 | | | | | | 90 | | | | (730 | ) | | | 623 | | Interest paid | | | | | (834 | ) | | | (826 | ) | | | (901 | ) | | | | | (839 | ) | | | (711 | ) | | | (700 | ) | Exceptional finance costs on the redemption of debt | | | | | – | | | | (152 | ) | | | – | | | | | | – | | | | – | | | | (152 | ) | Dividends paid to shareholders | | | | | (1,337 | ) | | | (1,271 | ) | | | (1,059 | ) | | | | | (1,463 | ) | | | (1,337 | ) | | | (1,271 | ) | Net cash flow used in financing activities | | | | | (1,328 | ) | | | (3,253 | ) | | | (2,972 | ) | | Net cash flow used in financing activities – continuing operations | | | | | | (1,542 | ) | | | (1,205 | ) | | | (3,127 | ) | Net cash flow from/(used in) financing activities – discontinued operations3 | | | | | | 1,611 | | | | (123 | ) | | | (126 | ) | Net increase/(decrease) in cash and cash equivalents | | | 26(a | ) | | | 4 | | | | (247 | ) | | | (283 | ) | | | 27(a) | | | | 984 | | | | 4 | | | | (247 | ) | Disposal of bank overdraft in UK Gas Distribution | | | | | | 15 | | | | – | | | | – | | Exchange movements | | | | | 4 | | | | 24 | | | | (26 | ) | | | | | 16 | | | | 4 | | | | 24 | | Net cash and cash equivalents at start of year | | | | | 116 | | | | 339 | | | | 648 | | | | | | 124 | | | | 116 | | | | 339 | | Net cash and cash equivalents at end of year1 | | | 18 | | | | 124 | | | | 116 | | | | 339 | | | Net cash and cash equivalents at end of year4 | | | | 19 | | | | 1,139 | | | | 124 | | | | 116 | |
1. Net of bank overdrafts of £3m (2015: £3m; 2014: £15m).
| 1. | Comparative amounts have beenre-presented to reflect the classification of the UK Gas Distribution business as a discontinued operation. Further information is provided in note 2. |
| 2. | Includes the impact of proceeds from the sale of UK Gas Distribution being transferred to short-term financial investments on 31 March 2017. |
| 3. | Included within net cash flows used in financing activities – discontinued operations are cash flows relating to the liability management programme, comprising £4.8 billion of debt issued and term debt raised, offset by £3.2 billion in respect of bond buybacks. |
| 4. | Net of bank overdrafts of £nil (2016: £3 million; 2015: £3 million). |
| | | | | | | 10090 | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | |
Unaudited commentary on the consolidated cash flow statement | The consolidated cash flow statement shows how the cash balance has moved during the year. Cash inflows and outflows are presented to allow users to understand how they relate to theday-to-day operations of the business (Operating activities); the money that has been spent or earned on assets in the year, including acquisitions of physical assets or other businesses and the disposal of UK Gas Distribution (Investing activities); and the cash raised from debt, share issues or share buybacks, restructuring of borrowings for the disposal of UK Gas Distribution and other loan borrowings or repayments (Financing activities). |
Reconciliation of cash flow to net debt | | | | 2016 | | | 2015 | | | 2017 | | | 2016 | | | | | £m | | | £m | | | £m | | | £m | | Cash generated from operations | | | 5,660 | | | 5,350 | | | Net capital expenditure | | | (3,740 | ) | | (3,274 | ) | | Cash generated from continuing operations | | | | 4,452 | | | 4,522 | | Cash generated from discontinued operations | | | | 987 | | | 1,138 | | | | | | | 5,439 | | | 5,660 | | Net capital investment – continuing operations | | | | (3,638 | ) | | (3,163 | ) | Net capital investment – discontinued operations | | | | (605 | ) | | (577 | ) | | | | | | (4,243 | ) | | (3,740 | ) | Business net cash flow | | | 1,920 | | | 2,076 | | | | 1,196 | | | 1,920 | | Net interest paid (including exceptional interest) | | | (811 | ) | | (941 | ) | | Tax paid | | | (292 | ) | | (343 | ) | | Net interest paid – continuing operations | | | | (788 | ) | | (688 | ) | Net interest paid – discontinued operations | | | | (1,167 | ) | | (123 | ) | | | | | | (1,955 | ) | | (811 | ) | Tax paid – continuing operations | | | | (132 | ) | | (230 | ) | Tax paid – discontinued operations | | | | (78 | ) | | (62 | ) | | | | | | (210 | ) | | (292 | ) | Dividends paid | | | (1,337 | ) | | (1,271 | ) | | | (1,463 | ) | | (1,337 | ) | Disposal of UK Gas Distribution | | | | 11,344 | | | | – | | Other cash movements | | | (185 | ) | | (243 | ) | | | (79 | ) | | (185 | ) | Non-cash movements | | | (705 | ) | | (2,003 | ) | | | (2,782 | ) | | (705 | ) | Increase in net debt | | | (1,410 | ) | | (2,725 | ) | | Decrease/(increase) in net debt | | | | 6,051 | | | (1,410 | ) | Opening net debt | | | (23,915 | ) | | (21,190 | ) | | | (25,325 | ) | | (23,915 | ) | Closing net debt | | | (25,325 | ) | | (23,915 | ) | | | (19,274 | ) | | (25,325 | ) |
Cash generated from operations (Total) Cash generated from operations(£m)  
Cash flows from our operations are largely stable when viewed over the longer term. Our electricity and gas transmission and distribution operations in the UK are subject to multi-year rate agreements with regulators. In the UK, we have largely stable cash flows. However, in the US our short-term cash flows are dependent on the price of gas and electricity and the timing of customer payments. The regulatory mechanisms for recovering costs from customers can result in significant cash flow swings from year to year. Changes in volumes in the US, for example as a consequence of abnormally mild or extreme weather can affect revenues, and hence cash flows, particularly in the winter months. For the year ended 31 March 2016,2017, cash flow from continuing operations increaseddecreased by £310m£70 million to £5,660m. Changes£4,452 million. Cash inflows due to changes in working capital improveddecreased by £155m£265 million over the prior year, principally in the US due to the collection of high winter 2015 billings last year. The outflow of £768 million from changes in pensions and lower closing balancesother post-retirement obligations was £475 million higher than 2015/16 due to milder weather.higher levels of contributions into the UK and US schemes.
Net capital expenditureCash flow from discontinued operations decreased by £151 million to £987 million mainly due to £139 million of exceptional transaction costs incurred in relation to the disposal of the UK Gas Distribution business.
Net capital expenditureinvestment Net capital investment for continuing operations in the year of £3,740m£3,638 million was £466m£475 million higher than the prior year. This was a result of higher spend in our US Regulated business and favourable exchange rates of £280 million, partially offset by lower spend in UK regulated businesses.Electricity Transmission. Further details of our capital expenditureinvestment can be seen on page 24.22. Net capital investment for discontinued operations of £605 million was £28 million higher than 2015/16. Net interest paid (including exceptional interest) Net interest paid for continuing operations was £788 million, £100 million higher than 2015/16 primarily due to the impact of exchange rates on our US dollar denominated finance costs. Net interest paid and exceptional finance costs for discontinued operations in 2016/17 were £1,167 million, £1,044 million higher than 2015/16 were £811m, £130m lower than 2014/15 primarily due to prior year£1,052 million of debt redemption cash outflows.buyback costs incurred as part of the Group’s liability management programme in relation to the disposal of the UK Gas Distribution business. Tax paid Tax paid for continuing operations in the year to 31 March 20162017 was £292m, £51m£132 million, £98 million lower than the prior year. This reflectedwas primarily due to lower taxable profits as a result of costs incurred in relation to the reduction indisposal of the UK corporation tax rate from 21% to 20%, partially offset by repayments received in the US in the prior year.Gas Distribution business. Dividends paid Dividends paid in the year ended 31 March 20162017 amounted to £1,337m.£1,463 million. This was £66m£126 million higher than 2014/15,2015/16, reflecting the increase in the final dividend for the year ended 31 March 2015 paid in August 2015,2016, together with a lower average scrip dividendtake-up in the year. Disposal of UK Gas Distribution This reflects the cash proceeds received of £5,454 million and the £5,890 million of net debt deconsolidated on disposal of UK Gas Distribution (see note 27). Other cash movements Other cash flows principally arise from dividends from joint ventures and movements in treasury shares, including the cost of repurchasing shares as part of the sharescrip buyback programme of £189 million (2015/16: £267 million), partly offset by dividends from joint ventures and associates of £99 million, £27 million higher than 2015/16. (£267m, £71m lower than the prior year).
Non-cash movements Thenon-cash movements are predominantly due to the strengthening of the US dollar against sterling, resulting in movements in foreign exchange arising on net debt held in US dollars. In the year, the dollar strengthened from $1.49$1.44 at 31 March 20152016 to $1.44$1.25 at 31 March 2016. 2017. Othernon-cash movements areprimarily arise from changes in fair values of financial assets and liabilities and interest accretions and accruals. Net debt Net debt at 31 March(£m)  
| | | | | | | | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | 10191 |
Notes to the consolidated financial statements – analysis of items in the primary statements 1. Basis of preparation and recent accounting developments | | | Accounting policies describe our approach to recognising and measuring transactions and balances in the year. Accounting policies applicable across the financial statements are shown below. Accounting policies that are specific to a component of the financial statements have been incorporated into the relevant note. This section also shows areas of judgement and key sources of estimation uncertainty in these financial statements. In addition, we summarise new EU endorsed accounting standards, amendments and interpretations and whether these are effective in 20162018 or later years, explaining how significant changes are expected to affect our reported results. | | |
National Grid’s principal activities involve the transmission and distribution of electricity and gas in Great Britain and northeastern US. The Company is a public limited liability company incorporated and domiciled in England and Wales, 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 on 1817 May 2016.2017. These consolidated financial statements have been prepared in accordance with International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) and related interpretations as issued by the IASB and IFRS as adopted by the EU. They are prepared on the basis of all IFRS accounting standards and interpretations that are mandatory for periods ended 31 March 20162017 and in accordance with the Companies Act 2006 applicable to companies reporting under IFRS and Article 4 of the EU IAS Regulation. The 2015 and 2014 comparative financial information has also been prepared on this basis. The consolidated financial statements have been prepared on ana 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 asavailable-for-sale. These consolidated financial statements are presented in pounds sterling, which is also the functional currency of the Company. The financial information relating to prior years has beenre-presented as a result of the disposal of the UK Gas Distribution business, as described in C below. The notes to the financial statements have been prepared on a continuing basis unless otherwise stated. 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 D)E). A. Going concern The Directors considered it appropriate to prepare the financial statements on a going concern basis. The going concern basis presumes that the Group has adequate resources to remain in operation, and that the Directors intend it to do so, for at least one year from the date the financial statements are signed. 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 or associate, less any provision for impairment. A subsidiary is defined as an entity controlled by the Company. Control is achieved where the Company has the power to affect the returns of an entity to which it is exposed or to which it has rights. Losses in excess of the consolidated interest in joint ventures and associates are not recognised, except where the Company or its subsidiaries have made a commitment to make good those losses. Where necessary, adjustments are made to bring the accounting policies used in the individual financial statements of the Company, subsidiaries, joint ventures and associates into line with those used by the Company in its consolidated financial statements under IFRS. Intercompany transactions are eliminated. The results of subsidiaries (other than relating to UK Gas Distribution as described in C below), joint ventures and associates acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Acquisitions are accounted for using the acquisition method, where the purchase price is allocated to the identifiable assets acquired and liabilities assumed on a fair value basis and the remainder recognised as goodwill. C. Disposal of UK Gas Distribution As described further in note 9, 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 Group has the ability to appoint 4 of the 12 directors to the Board of Quadgas HoldCo Limited. In addition, the Group entered into a ‘Further Acquisition Agreement’ over a further 14% interest. Refer to note 9 for further details. The Group classified UK Gas Distribution as held for sale as of 8 December 2016, when it became highly probable that the value of the business to the Group would be recovered through sale rather than continuing ownership. As UK Gas Distribution represents a separate major line of business, the business is classified as a discontinued operation in the consolidated income statement. This has resulted in there-presentation of comparative financial information in the consolidated income statement and the consolidated statement of comprehensive income, as well as earnings per share (EPS) split between continuing and discontinued operations. | | | | | | | 10292 | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | |
1. Basis of preparation and recent accounting developmentscontinued C.D. 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 reporting date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at closing exchange rates.Non-monetary assets are not retranslated unless they are carried at fair value. Gains and losses arising on the retranslation of monetary assets and liabilities are included in the income statement, except where the adoption of hedge accounting requires inclusion in other comprehensive income – note 15.16. 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 US dollars, are translated at exchange rates prevailing at the reporting date. Income and expense items are translated at the average exchange rates for the period where these do not differ materially from rates at the date of the transaction. Exchange differences arising are classified as equity and transferred to the consolidated translation reserve.reserve within other equity reserves – note 26. D.E. Areas of judgement and key sources of estimation uncertainty
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. Information about such judgements and estimations is contained in the notes to the financial statements, and the key areas are summarised below. Areas of judgement that have the most significant effect on the amounts recognised in the financial statements are as follows: | ● | | Concerning the categorisationsale of UK Gas Distribution – note 9: |
| ● | | the date from which the business was classified as held for sale; |
| ● | | the classification of the retained interest in the business, and the fair value attributable to it; |
| ● | | the accounting implications of the Further Acquisition Agreement (FAA) and the embedded put/call options; |
| ● | | the allocation of financing costs between the continuing Group and discontinued operations; and |
| ● | | the identification and classification of costs associated with the disposal. |
| ● | | Categorisation of certain items as exceptional items and the definition of adjusted earnings – notes 4 and 7; |
| ● | | energyEnergy purchase contracts as being for normal purchase, sale or usage – note 27;28; and |
| ● | | the recognitionRecognition of surpluses in respect of defined benefit pension schemes – notes 22 and 29.note 23. |
IFRS provides certain options available within accounting standards. Choices we have made, and continue to make, include the following: | ● | | Presentational formats: we use the nature of expense method for our income statement and aggregate our statement of financial position to net assets and total equity. In the income statement, we present subtotals of total operating profit, profit before tax and profit from continuing operations, together with additional subtotals excluding exceptional items and remeasurements. Exceptional items and remeasurements are presented separately on the face of the income statement. |
| ● | | Customer contributions: contributions received prior to 1 July 2009 towards capital expenditure are recorded as deferred income and amortised in line with the depreciation on the associated asset. |
| ● | | Financial instruments: we normally opt to apply hedge accounting in most circumstances where this is permitted. For net investment hedges, we have chosen to use the spot rate method, rather than the alternative forward rate method. |
Key sources of estimation uncertainty that have significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are as follows: | ● | | review of residual lives, carrying values and impairment charges for other intangible assets and property, plant and equipment – notes 1011 and 11;12; |
| ● | | estimation of liabilities for pensions and other post-retirement benefits – notes 22 and 29;note 23; |
| ● | | valuation of financial instruments and derivatives – notes 1516 and 30; |
● | | revenue recognition and assessment of unbilled revenue – note 2; and |
| ● | | environmental and decommissioning provisions – note 23.24. |
Concerning the sale of UK Gas Distribution, the principal estimate concerns the fair value of the retained interest, which is described further in note 9. In order to illustrate the impact that changes in assumptions could have on our results and financial position, we have included sensitivity analysisanalyses in note 33. New IFRS accounting standards and interpretations adopted in 2015/16 The following standards, interpretations and amendments, issued by the IASB and by the IFRS Interpretations Committee (IFRIC), are effective for the year ended 31 March 2016. None of2017
The Group has adopted the pronouncements has had a material impact on the Company’s consolidated results or assets and liabilities for the year ended 31 March 2016.following amendments to standards: | ● | | AmendmentAnnual improvements to IAS 19 ‘Defined Benefit Plans: Employee Contributions’IFRSs 2012-2014 Cycle; |
| ● | | Amendments to IFRS 11 ‘Joint Arrangements’; |
| ● | | Annual ImprovementsAmendments to IFRSs 2010-2012 Cycle;IAS 1 ‘Presentation of Financial Statements’; |
| ● | | Amendments to IAS 16 ‘Property, Plant and Equipment’; and |
| ● | | Annual ImprovementsAmendments to IFRSs 2011-2013 Cycle.IAS 38 ‘Intangible Assets’. |
The adoption of these amendments has had no material impact on the Group’s results or financial statement disclosures. | | | | | | | | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | 10393 |
Notes to the consolidated financial statements – analysis of items in the primary statements continued 1. Basis of preparation and recent accounting developmentscontinued New IFRS accounting standards and interpretations not yet adopted The CompanyGroup enters into a significant number of transactions that fall within the scope of IFRS 9 ‘Financial Instruments’, IFRS 15 ‘Revenue from Contracts with Customers’ and IFRS 16 ‘Leases’, effective for periods beginning on or after 1 January 2018 and 1 January 2019 respectively, subject to EU endorsement.. We are assessing the likely impact of these standards on the Company’sGroup’s financial statements. i) IFRS 9 ‘Financial Instruments’ IFRS 9 ‘Financial Instruments’ (IFRS 9) is effective for National Grid in the year ending 31 March 2019. The changes to IFRS 9 principally impact the accounting for the classification of financial instruments, impairment of financial instruments and hedge accounting. The key change influences the future assessment of impairments using an ‘expected loss’ method rather than the current ‘incurred loss’ method; this will result in impairments typically being recorded earlier. To date we have not identified any significant changes to the accounting for financial liabilities, the impact on accounting for financial assets and derivatives is anticipated to be limited. We are currently evaluating the impact of the hedge accounting guidance in the new standard. It is possible that changes in requirements will allow the opportunity to apply hedge accounting in a wider range of scenarios. ii) IFRS 15 ‘Revenue from Contracts with Customers’ IFRS 15 ‘Revenue from Contracts with Customers’ was issued by the IASB in May 2014. Subject to EU endorsement, it(IFRS 15) is effective for accounting periods beginning on or after 1 January 2018.National Grid in the year ending 31 March 2019. The new standard provides enhanced detail on the principle of recognisingand a five step revenue recognition approach to reflect the transfer of goods and services to customers at a valuecustomers. The core principle of IFRS 15 is that an entity recognises revenue related to the transfer of promised goods or services when control of the goods or services passes to customers. The amount of revenue recognised should reflect the consideration to which the Companyentity expects to be entitled in exchange for those goods or services. This differs from the principle under the current revenue standard that requires an assessment of when risks and rewards of goods and services are transferred rather than control of those goods or services. Detailed reviews of revenue arrangements in the UK and US are under way and will continue into 2017/18 as we finalise our assessment of the impact of the new standard. Based on work to receive.date we have identified four key areas that require further analysis to determine the impact on the Group: The Group has completed an initial impact assessment
| ● | | whether we act as principal or as agent for revenues collected on behalf of the Scottish and Offshore transmission operators. This is a gross versus net presentational issue that does not have an impact on earnings; |
| ● | | the timing of recognition of customer contributions for connections in the UK and US. In our electricity business in the UK we currently recognise customer contributions over time as we have an ongoing licence condition to maintain that connection over its life. In our gas business in the UK, we recognise customer contributions when the connection is completed (the licence conditions do not require connections to be maintained over the life of the connection and therefore do not have deferred revenue for connections). In the US, revenue for customer contributions is recognised once work on connections is completed. IFRS 15 requires revenue to be recognised as control over the distinct and separable service is transferred to our customers. We are assessing whether this has an impact on the timing of our revenue recognition; |
| ● | | the timing of recognition of revenue in our metering business; and |
| ● | | accounting for certain trade receivables in the US where there is historical evidence of irrecoverability. |
We plan to apply IFRS 15 using the modified retrospective approach, whereby comparatives will not be restated on adoption of the new standard by completingbut instead a surveycumulative adjustment will be reflected in retained earnings. iii) IFRS 16 ‘Leases’ IFRS 16 ‘Leases’ (IFRS 16) is effective for National Grid in the year ending 31 March 2020, subject to EU endorsement. The Group enters into a significant number of all businesses identifyingoperating lease transactions as well as certain power purchase arrangements. Under IFRS 16, our operating leases will be accounted for on the likelybalance sheet as‘right-of-use’ assets. This treatment will increase both our assets and liabilities and subsequently, an increase to finance costs and depreciation and a reduction in rental costs. The outcome of our conclusions will have an impact on how we account for our operating leases and power purchase arrangements. We are also performing an assessment of our revenue and service contracts to determine whether we have the right to use assets under those contracts and whether they fall within the scope of IFRS 15. This was a tailored questionnaire based16. We plan to apply IFRS 16 using the modified retrospective approach, whereby comparatives will not be restated on the known impactsadoption of the new standard on power and utility companies. Whilst no material differences were identified as part of the questionnaire process, further follow-up workbut instead a cumulative adjustment will be required to determinereflected in retained earnings. iv) Other In addition, the impact, if any, on certain revenue items including, but not limited to, variable consideration contracts, take or pay arrangements and performance obligations where multiple goods or services are provided in individual contracts. Otherfollowing new accounting standards and interpretations or amendments thereto whichto existing standards have been issued but are not yet effective or have not yet been endorsed by the EU:
| ● | | Amendments to IAS 12 ‘Income Taxes’; |
| ● | | Amendments to IFRS 2 ‘Share Based Payments’; |
| ● | | Amendments to IAS 7 ‘Statement of Cash Flows’; |
| ● | | Annual Improvements to IFRS Standards 2014-2016 Cycle; |
| ● | | IFRIC 22 ‘Foreign Currency Transactions and Advance Consideration’; |
| ● | | Amendments to IAS 40 ‘Investment Property’. |
Effective dates remain subject to the EU endorsement process. The Group is currently assessing the impact of the above standards, but they are not expected to have a material impact on the Company’s consolidated financial statements.impact. The Group has not early adopted any other standard, amendment or interpretation that was issued but is not yet effective. | | | | | | | | 94 | | National Grid Annual Report and Accounts 2016/17 | | Financial Statements | | |
2. Segmental analysis | | | This note sets out the financial performance for the year split into the different parts of the business (operating segments). We monitor and manage the performance of these operating segments on aday-to-day basis. Our strategy in action We own a portfolio of businesses that range from businesses with high levels of investment and growth (such as UK Electricity Transmission) to cash generative developed assets with minimallower investment requirements (such as National Grid Metering, included within Other activities). We generate the majority of our revenue from our regulated operating segments in the UK and US. We work with our regulators to obtain agreements that balance the risks we face with the opportunity to deliver reasonable returns for our investors. When investing in Other activities we aim to leverage our core capabilities to deliver higher returns for investors. Our regulated businesses earn revenue for the transmission, distribution and generation services they have provided during the year. In any one year, the revenue recognised may differ from that allowed under our regulatory agreements and any such timing differences are adjusted through future prices. Our Other activities earn revenue in line with their contractual terms. | | |
Revenue primarily represents the sales value derived from the generation, transmission and distribution of energy, together with the sales value derived from the provision of other services to customers. It excludes value added (sales) tax and intra-group sales. Revenue includes an assessment of unbilled energy and transportation services supplied to customers between the date of the last meter reading and theyear-end. This is estimated based on historical consumption and weather patterns. Where revenue exceeds the maximum amount permitted by a regulatory agreement, adjustments will be made to future prices to reflect this over-recovery. No liability is recognised, as such an adjustment 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. As part of our regulatory agreements we are entitled to recover certain costs directly from customers (pass through(pass-through costs). These amounts are included in the overall calculation of revenue as stipulated by regulatory agreements and explained further on pages 176174 to 182.179. 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 of Directors is National Grid’s chief operating decision-making body (as defined by IFRS 8 ‘Operating Segments’) and assesses the earnings performance of operations principally on the basis of operating profit before exceptional items and remeasurements (see note 4). There havehas been no changeschange to the way in which our businesses have reported internally during the year. However, for the purposes of this note, the reporting structure for the year ended 31 March 2016. | | | | | | | 104 | | National Grid Annual Report and Accounts 2015/16 | | Financial Statements | | |
2. Segmental analysiscontinued
2017 has been updated to show the UK Gas Distribution segment within discontinued operations together with the results of our interest in Xoserve Limited, which was previously included within Other activities. Discontinued operations are solely within the UK geographical area. National Grid Ventures formed on 1 April 2017 and the impact of this change will be reflected in 2017/18. The following table describes the main activities for each operating segment: | | | | | | UK Electricity Transmission | | High voltage electricity transmission networks in Great Britain. | | | | UK Gas Transmission | | The gas transmission network in Great Britain and UK LNG storage activities. | | | UK Gas Distribution | | Four of the eight regional networks of Great Britain’s gas distribution system. | | | | US Regulated | | Gas distribution networks, electricity distribution networks and high voltage electricity transmission networks in New York and New England and electricity generation facilities in New York. | | |
Other activities primarily relate tonon-regulated businesses and other commercial operations not included within the above segments, including: UK gas metering activities; the Great Britain-France Interconnector; UK property management; a UK LNG import terminal (National Grid Grain LNG Limited);terminal; US LNG operations; US unregulated transmission pipelines; together with corporate activities. Sales between operating segments are priced considering the regulatory and legal requirements to which the businesses are subject. The analysis of revenue by geographical area is on the basis of destination. There are no material sales between the UK and US geographical areas. (a) Revenue | | | | 2016 | | | | 2015 | | | | 2014 | | | | | | | | | Sales | | Sales | | | | | | | Sales | | Sales | | | | | | Sales | | Sales | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | between | | to third | | | | Total | | | between | | to third | | | Total | | | between | | to third | | | 2017 | | | | 2016 Re-presented1 | | | | 2015 Re-presented1 | | | | | sales | | | segments | | parties | | | | sales | | | segments | | parties | | | sales | | | segments | | parties | | | Total sales | | | Sales between segments | | Sales to third parties | | | | Total sales | | | Sales between segments | | Sales to third parties | | | Total sales | | | Sales between segments | | Sales to third parties | | | | | £m | | | £m | | £m | | | | £m | | | £m | | £m | | | £m | | | £m | | £m | | | £m | | | £m | | £m | | | | £m | | | £m | | £m | | | £m | | | £m | | £m | | Operating segments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | UK Electricity Transmission | | | 3,977 | | | | (20 | ) | | | 3,957 | | | | | | 3,754 | | | | (12 | ) | | 3,742 | | | | | | 3,387 | | | | (14 | ) | | 3,373 | | | | 4,439 | | | | (29 | ) | | | 4,410 | | | | | | 3,977 | | | | (20 | ) | | 3,957 | | | | | | 3,754 | | | | (12 | ) | | 3,742 | | UK Gas Transmission | | | 1,047 | | | | (109 | ) | | | 938 | | | | | | 1,022 | | | | (107 | ) | | 915 | | | | | | 941 | | | | (104 | ) | | 837 | | | | 1,080 | | | | (99 | ) | | | 981 | | | | | | 1,047 | | | | (109 | ) | | 938 | | | | | | 1,022 | | | | (107 | ) | | 915 | | UK Gas Distribution | | | 1,918 | | | | (36 | ) | | | 1,882 | | | | | | 1,867 | | | | (43 | ) | | 1,824 | | | | | | 1,898 | | | | (49 | ) | | 1,849 | | | US Regulated | | | 7,493 | | | | – | | | | 7,493 | | | | | | 7,986 | | | | – | | | 7,986 | | | | | | 8,040 | | | | – | | | 8,040 | | | | 8,931 | | | | – | | | | 8,931 | | | | | | 7,493 | | | | – | | | 7,493 | | | | | | 7,986 | | | | – | | | 7,986 | | Other activities | | | 876 | | | | (31 | ) | | | 845 | | | | | | 762 | | | | (28 | ) | | 734 | | | | | | 736 | | | | (26 | ) | | 710 | | | | 713 | | | | – | | | | 713 | | | | | | 824 | | | | – | | | 824 | | | | | | 714 | | | | – | | | 714 | | Total from continuing operations | | | | 15,163 | | | | (128 | ) | | | 15,035 | | | | | | 13,341 | | | | (129 | ) | | 13,212 | | | | | | 13,476 | | | | (119 | ) | | 13,357 | | Discontinued operations – UK geographical area (note 9) | | | | 1,902 | | | | (15 | ) | | | 1,887 | | | | | | 1,949 | | | | (46 | ) | | 1,903 | | | | | | 1,886 | | | | (42 | ) | | 1,844 | | | | | | 15,311 | | | | (196 | ) | | | 15,115 | | | | | | 15,391 | | | | (190 | ) | | 15,201 | | | | | | 15,002 | | | | (193 | ) | | 14,809 | | | | 17,065 | | | | (143 | ) | | | 16,922 | | | | | | 15,290 | | | | (175 | ) | | 15,115 | | | | | | 15,362 | | | | (161 | ) | | 15,201 | | Geographical areas: | | | | | | | | | | | | | | | | | | | | | | | | Split by geographical areas – continuing operations: | | | | | | | | | | | | | | | | | | | | | | | | UK | | | | | | | 7,522 | | | | | | | | | 7,191 | | | | | | | | | 6,759 | | | | | | | | 6,064 | | | | | | | | | 5,619 | | | | | | | | | 5,347 | | US | | | | | | | 7,593 | | | | | | | | | 8,010 | | | | | | | | | 8,050 | | | | | | | | 8,971 | | | | | | | | | 7,593 | | | | | | | | | 8,010 | | | | | | | | | | 15,115 | | | | | | | | | 15,201 | | | | | | | | | 14,809 | | | | | | | | 15,035 | | | | | | | | | 13,212 | | | | | | | | | 13,357 | |
| 1. | Comparative amounts have beenre-presented to reflect the classification of the UK Gas Distribution business as a discontinued operation. |
| | | | | | | | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | 10595 |
Notes to the consolidated financial statements – analysis of items in the primary statements continued 2. Segmental analysiscontinued (b) Operating profit A reconciliation of the operating segments’ measure of profit to total profit before tax is provided below. Further details of the exceptional items and remeasurements are provided in note 4. | | | | | | | | Before exceptional items and remeasurements | | | | After exceptional items and remeasurements | | | | | | | | | | | | | | | 2017 | | | 2016
Re-presented1 | | | 2015
Re-presented1 | | | 2017 | | | 2016
Re-presented1 | | | 2015
Re-presented1 | | | | | | | | | | | | | | | | £m | | | £m | | | £m | | | | £m | | | £m | | | £m | | Operating segments – continuing operations: | | Operating segments – continuing operations: | | | | | | | | | | | | | | | | | | | | UK Electricity Transmission | | | | | | | | | | | | 1,372 | | | 1,173 | | | | 1,237 | | | | | | 1,361 | | | 1,173 | | | | 1,237 | | UK Gas Transmission | | | | | | | | | | | | 511 | | | 486 | | | | 437 | | | | | | 507 | | | 486 | | | | 437 | | US Regulated | | | | | | | | | | | | 1,713 | | | 1,185 | | | | 1,164 | | | | | | 1,278 | | | 1,196 | | | | 1,081 | | Other activities | | | | | | | | | | | 177 | | | 370 | | | | 196 | | | | | 62 | | | 370 | | | | 196 | | Total from continuing operations | | | | | | | | | | | | 3,773 | | | 3,214 | | | | 3,034 | | | | | | 3,208 | | | 3,225 | | | | 2,951 | | Discontinued operations – UK geographical area (note 9) | | Discontinued operations – UK geographical area (note 9) | | | | | | | 894 | | | 882 | | | | 829 | | | | | 894 | | | 860 | | | | 829 | | Segment result | | | | | | | | | | | 4,667 | | | 4,096 | | | | 3,863 | | | | | 4,102 | | | 4,085 | | | | 3,780 | | Split by geographical area – continuing operations: | | Split by geographical area – continuing operations: | | | | | | | | | | | | | | | | | | | | UK | | | | | | | | | | | | 2,118 | | | 2,007 | | | | 1,991 | | | | | | 1,988 | | | 2,007 | | | | 1,991 | | US | | | | | | | | | | | 1,655 | | | 1,207 | | | | 1,043 | | | | | 1,220 | | | 1,218 | | | | 960 | | | | | | | | | | | | | | 3,773 | | | 3,214 | | | | 3,034 | | | | | 3,208 | | | 3,225 | | | | 2,951 | | Reconciliation to profit before tax: | | | | | | | | | | | | | | | | | | | | | | | | Operating profit from continuing operations | | Operating profit from continuing operations | | | | | | | | 3,773 | | | 3,214 | | | | 3,034 | | | | | | 3,208 | | | 3,225 | | | | 2,951 | | Finance income | | | | | | | | | | | | 53 | | | 22 | | | | 36 | | | | | | 53 | | | 22 | | | | 36 | | Finance costs | | | | | | | | | | | | (1,082 | ) | | (878) | | | | (908) | | | | | | (1,140 | ) | | (977) | | | | (1,073) | | Share ofpost-tax results of joint ventures and associates | | Share ofpost-tax results of joint ventures and associates | | | | | | | 63 | | | 59 | | | | 46 | | | | | 63 | | | 59 | | | | 46 | | Profit before tax from continuing operations | | Profit before tax from continuing operations | | | | | | | | 2,807 | | | 2,417 | | | | 2,208 | | | | | | 2,184 | | | 2,329 | | | | 1,960 | | Profit before tax from discontinued operations (note 9) | | Profit before tax from discontinued operations (note 9) | | | | | | | 748 | | | 725 | | | | 668 | | | | | 742 | | | 703 | | | | 668 | | | | | | | | | | | | | | 3,555 | | | 3,142 | | | | 2,876 | | | | | 2,926 | | | 3,032 | | | | 2,628 | | 1. Comparative amounts have beenre-presented to reflect the classification of the UK Gas Distribution business as a discontinued operation. (c) Capital expenditure | | 1. Comparative amounts have beenre-presented to reflect the classification of the UK Gas Distribution business as a discontinued operation. (c) Capital expenditure | | | | | | | | | | | | | | Before exceptional items | | | After exceptional items | | | Net book value of property, plant and equipment and other intangible assets | | | | Capital expenditure | | | | Depreciation and amortisation | | | | | | | | | | | | | | and remeasurements | | | | and remeasurements | | | 2017 | | | 2016 Re-presented1 | | | 2015 Re-presented1 | | | | | 2017 | | | 2016 Re-presented1 | | | 2015 Re-presented1 | | | | 2017 | | | 2016 Re-presented1 | | | 2015 Re-presented1 | | | | | | | | | | | | | | 2016 | | | 2015 | | | 2014 | | | 2016 | | | 2015 | | | 2014 | | | | | | | | | | | | | | | | | | | | | | | | | £m | | | £m | | | £m | | | | £m | | | £m | | | £m | | | £m | | | £m | | | £m | | | | £m | | | £m | | | £m | | | | £m | | | £m | | | £m | | Operating segments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | UK Electricity Transmission | | | | | | | | | | | 1,173 | | | | 1,237 | | | | 1,087 | | | | | | 1,173 | | | | 1,237 | | | | 1,027 | | | | 12,515 | | | | 11,907 | | | | 11,276 | | | | | | 1,027 | | | 1,084 | | | | 1,074 | | | | | | (421 | ) | | (390) | | | | (376) | | UK Gas Transmission | | | | | | | | | | | 486 | | | | 437 | | | | 417 | | | | | | 486 | | | | 437 | | | | 406 | | | | 4,165 | | | | 4,140 | | | | 4,132 | | | | | | 214 | | | 186 | | | | 184 | | | | | | (186 | ) | | (178) | | | | (172) | | UK Gas Distribution | | | | | | | | | | | 878 | | | | 826 | | | | 904 | | | | | | 878 | | | | 826 | | | | 780 | | | US Regulated | | | | | | | | | | | 1,185 | | | | 1,164 | | | | 1,125 | | | | | | 1,196 | | | | 1,081 | | | | 1,388 | | | | 21,638 | | | | 17,490 | | | | 15,664 | | | | | | 2,247 | | | 1,856 | | | | 1,501 | | | | | | (642 | ) | | (535) | | | | (452) | | Other activities | | | | | | | | | | | 374 | | | | 199 | | | | 131 | | | | | | 352 | | | | 199 | | | | 134 | | | | 2,430 | | | | 2,291 | | | | 2,290 | | | | | 247 | | | 201 | | | | 199 | | | | | (232 | ) | | (208) | | | | (190) | | Total from continuing operations | | | | 40,748 | | | | 35,828 | | | | 33,362 | | | | | | 3,735 | | | 3,327 | | | | 2,958 | | | | | | (1,481 | ) | | (1,311) | | | | (1,190) | | Discontinued operations | | | | | | | | | | | | | | | | | | | | | | | | – UK geographical area | | | | – | | | | 8,423 | | | | 8,163 | | | | | 588 | | | 566 | | | | 512 | | | | | (217 | ) | | (303) | | | | (292) | | | | | | | | | | | | | | 4,096 | | | | 3,863 | | | | 3,664 | | | | | | 4,085 | | | | 3,780 | | | | 3,735 | | | | 40,748 | | | | 44,251 | | | | 41,525 | | | | | 4,323 | | | 3,893 | | | | 3,470 | | | | | (1,698 | ) | | (1,614) | | | | (1,482) | | Geographical areas: | | | | | | | | | | | | | | | | | | | | | | | | Split by geographical area | | | | | | | | | | | | | | | | | | | | | | | | – continuing operations: | | | | | | | | | | | | | | | | | | | | | | | | UK | | | | | | | | | | | 2,889 | | | | 2,820 | | | | 2,723 | | | | | | 2,867 | | | | 2,820 | | | | 2,531 | | | | 18,102 | | | | 17,491 | | | | 16,910 | | | | | | 1,357 | | | 1,386 | | | | 1,352 | | | | | | (753 | ) | | (715) | | | | (691) | | US | | | | | | | | | | | 1,207 | | | | 1,043 | | | | 941 | | | | | | 1,218 | | | | 960 | | | | 1,204 | | | | 22,646 | | | | 18,337 | | | | 16,452 | | | | | 2,378 | | | 1,941 | | | | 1,606 | | | | | (728 | ) | | (596) | | | | (499) | | | | | | | | | | | | | | 4,096 | | | | 3,863 | | | | 3,664 | | | | | | 4,085 | | | | 3,780 | | | | 3,735 | | | | 40,748 | | | | 35,828 | | | | 33,362 | | | | | 3,735 | | | 3,327 | | | | 2,958 | | | | | (1,481 | ) | | (1,311) | | | | (1,190) | | Reconciliation to profit before tax: | | | | | | | | | | | | | | | | | | | | | | | | Operating profit | | | | | | | | | | | 4,096 | | | | 3,863 | | | | 3,664 | | | | | | 4,085 | | | | 3,780 | | | | 3,735 | | | Finance income | | | | | | | | | | | 22 | | | | 36 | | | | 36 | | | | | | 22 | | | | 36 | | | | 36 | | | Finance costs | | | | | | | | | | | (1,035 | ) | | | (1,069 | ) | | | (1,144 | ) | | | | | (1,134 | ) | | | (1,234 | ) | | | (1,051 | ) | | Share of post-tax results of joint ventures and associates | | | | | | | | | | | 59 | | | | 46 | | | | 28 | | | | | | 59 | | | | 46 | | | | 28 | | | Profit before tax | | | | | | | | | | | 3,142 | | | | 2,876 | | | | 2,584 | | | | | | 3,032 | | | | 2,628 | | | | 2,748 | | | (c) Capital expenditure | | | | | | Net book value of property, | | | | | | | | | | | | | | | | | | | | | | | | plant and equipment and other | | | | | | | | | | | | | | | | | | | | | | | | intangible assets | | | | Capital expenditure | | | | Depreciation and amortisation | | | | | | 2016 | | | 2015 | | | 2014 | | | 2016 | | | 2015 | | | 2014 | | | 2016 | | | 2015 | | | 2014 | | | | | | £m | | | £m | | | £m | | | | £m | | | £m | | | £m | | | | £m | | | £m | | | £m | | | Operating segments: | | | | | | | | | | | | | | | | | | | | | | | | UK Electricity Transmission | | | 11,907 | | | | 11,276 | | | | 10,635 | | | | | | 1,084 | | | | 1,074 | | | | 1,381 | | | | | | (390 | ) | | | (376 | ) | | | (343 | ) | | UK Gas Transmission | | | 4,140 | | | | 4,132 | | | | 4,120 | | | | | | 186 | | | | 184 | | | | 181 | | | | | | (178 | ) | | | (172 | ) | | | (172 | ) | | UK Gas Distribution | | | 8,378 | | | | 8,130 | | | | 7,921 | | | | | | 549 | | | | 498 | | | | 480 | | | | | | (298 | ) | | | (286 | ) | | | (271 | ) | | US Regulated | | | 17,490 | | | | 15,664 | | | | 12,948 | | | | | | 1,856 | | | | 1,501 | | | | 1,219 | | | | | | (535 | ) | | | (452 | ) | | | (419 | ) | | Other activities | | | 2,336 | | | | 2,323 | | | | 2,224 | | | | | | 218 | | | | 213 | | | | 180 | | | | | | (213 | ) | | | (196 | ) | | | (211 | ) | | | | | | 44,251 | | | | 41,525 | | | | 37,848 | | | | | | 3,893 | | | | 3,470 | | | | 3,441 | | | | | | (1,614 | ) | | | (1,482 | ) | | | (1,416 | ) | | Geographical areas: | | | | | | | | | | | | | | | | | | | | | | | | UK | | | 25,914 | | | | 25,073 | | | | 24,285 | | | | | | 1,952 | | | | 1,864 | | | | 2,155 | | | | | | (1,018 | ) | | | (983 | ) | | | (938 | ) | | US | | | 18,337 | | | | 16,452 | | | | 13,563 | | | | | | 1,941 | | | | 1,606 | | | | 1,286 | | | | | | (596 | ) | | | (499 | ) | | | (478 | ) | | | | | | 44,251 | | | | 41,525 | | | | 37,848 | | | | | | 3,893 | | | | 3,470 | | | | 3,441 | | | | | | (1,614 | ) | | | (1,482 | ) | | | (1,416 | ) | | By asset type: | | | | | | | | | | | | | | | | | | | | | | | | Asset type: | | | | | | | | | | | | | | | | | | | | | | | | Property, plant and equipment | | | 43,364 | | | | 40,723 | | | | 37,179 | | | | | | 3,673 | | | | 3,263 | | | | 3,262 | | | | | | (1,467 | ) | | | (1,361 | ) | | | (1,289 | ) | | | 39,825 | | | | 35,074 | | | | 32,713 | | | | | | 3,507 | | | 3,130 | | | | 2,786 | | | | | | (1,348 | ) | | (1,207) | | | | (1,115) | | Non-current intangible assets | | | 887 | | | | 802 | | | | 669 | | | | | | 220 | | | | 207 | | | | 179 | | | | | | (147 | ) | | | (121 | ) | | | (127 | ) | | | 923 | | | | 754 | | | | 649 | | | | | 228 | | | 197 | | | | 172 | | | | | (133 | ) | | (104) | | | | (75) | | Total from continuing operations | | | | 40,748 | | | | 35,828 | | | | 33,362 | | | | | | 3,735 | | | 3,327 | | | | 2,958 | | | | | | (1,481 | ) | | (1,311) | | | | (1,190) | | Discontinued operations | | | | – | | | | 8,423 | | | | 8,163 | | | | | 588 | | | 566 | | | | 512 | | | | | (217 | ) | | (303) | | | | (292) | | | | | | 44,251 | | | | 41,525 | | | | 37,848 | | | | | | 3,893 | | | | 3,470 | | | | 3,441 | | | | | | (1,614 | ) | | | (1,482 | ) | | | (1,416 | ) | | | 40,748 | | | | 44,251 | | | | 41,525 | | | | | 4,323 | | | 3,893 | | | | 3,470 | | | | | (1,698 | ) | | (1,614) | | | | (1,482) | |
| 1. | Comparative amounts have beenre-presented to reflect the classification of the UK Gas Distribution business as a discontinued operation. |
Totalnon-current assets other than financial instruments and pension assets located in the UK and US were £26,261m£20,045 million and £23,784m£29,003 million respectively as at 31 March 20162017 (31 March 2016: UK £26,261 million, US £23,784 million; 31 March 2015: UK £25,278m,£25,278 million, US £21,790m; 31 March 2014: UK £24,531m, US £18,349m)£21,790 million). | | | | | | | 10696 | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | |
Unaudited commentary on the results of our principal operations by segment – continuing operations As a business, we have three measures of operating profit (from continuing operations) that are used on a regular basis and disclosed in this Annual Report. The disposal of UK Gas Distribution is analysed separately in note 9. Statutory operating profit: This is operating profit as calculated under International Financial Reporting Standards (IFRS). Statutory operating profit by segment is shown in note 2 on page 106.96. Adjusted operating profit:Adjusted operating profit (business performance) excludes items that if included could distort understanding of our performance for the year and the comparability between periods. Further details of items that are excluded in adjusted operating profit are shown in note 4 on page 111.101. Regulated financial performance:This is particularly relevant for our UK operations and is a measure of operating profit that reflects the impact of the businesses’ regulatory arrangements when presenting financial performance. Reconciliations between statutory and adjusted operating profit can be found on page 196.194. Reconciliations between adjusted operating profit and regulated financial performance for UK Electricity Transmission UK Gas Transmission and UK Gas DistributionTransmission can be found on page 108.98. Commentary on segmental adjusted operating profit results – continuing operations | | | We have summarised the results of our principal operating segments here by segment to provide direct reference to the results as disclosed in note 2. This analysis has been prepared based on adjusted operating profit (operating profit before exceptional items and remeasurements) as set out in note 2(b). | | |
UK Electricity Transmission For the year ended 31 March 2016,2017, revenue in the UK Electricity Transmission segment increased by £223m£462 million to £3,977m,£4,439 million and adjusted operating profit decreasedincreased by £64m£199 million to £1,173m.£1,372 million. The revenue growth of £223m was£462 million principally due toreflected the recovery of higher pass-through costs such as payments to other UK network owners and system balancing costs, increased regulated revenue allowances and under-recoveriesthe impact of allowed revenues in the prior year. This was partly offset by reductions in allowed revenues this year and a legal settlement received in 2014/15 that did not repeat this year.higher volumes. Net revenue (afterafter deducting pass-through costs)costs was £14m£199 million higher. Regulated controllable costs were £28m higher due to inflation and salary growth, together with legal cost recoveries in the prior year, higher tower maintenance costs and transformation costs associated with our System Operator business.£25 million lower reflecting reduced environmental costs. Depreciation and amortisation was £14m£31 million higher, reflecting the continued capital investment programme. Other costs were £36m higher£6 million lower than prior year due to additionalincluding lower asset impairments this year and lower scrap and disposal proceeds.costs. Capital investment remained around the same level asexpenditure decreased by £57 million compared with last year at £1,084m.to £1,027 million. UK Gas Transmission Revenue in the UK Gas Transmission segment increased by £25m in 2015/16£33 million to £1,047m£1,080 million and adjusted operating profit increased by £49m£25 million to £486m.£511 million. RevenueAfter deducting pass-through costs, net revenue was £25m£31 million higher principally due to over-recoveries of allowed revenuesthan prior year, including increased regulated revenue allowances in the year.year and higher volumes than expected, partly offset by lower LNG storage revenues following a site closure. Regulated controllable costs were £10m£2 million higher than last year, mainly as a resultwith lower LNG storage costs offset by costs resulting from an increase in the number of inflation,employees to support higher gas system service chargeslevels of asset health investment. Depreciation and organisational change costs. Depreciationamortisation costs were £6m£8 million higher, due toreflecting ongoing investment (investment in the year was £186m, similar to last year).investment. Other operating costs were £19m£4 million lower than last year, mostly reflecting additional costs in 2014/15 relating to the closure of LNG facilities.
UK Gas Distributionyear.
UK Gas Distribution revenue increased by £51m in the year to £1,918m, and adjusted operating profit increased by £52m to £878m.
Revenue was £51m higher, principally reflecting increased regulatory allowances. In part, these allowances wereCapital expenditure increased to compensate for expected increases in taxation costs reflecting a change to the tax treatment of replacement expenditure. Regulated controllable costs were £21m£214 million, £28 million higher due to inflation, recruitment, property costs and higher charges from our strategic partners to cover connections and winter resourcing. Depreciation and amortisation was £12m higher reflecting the continued mains replacement programme (investment in the year was £51m higher at £549m). Pass-through costs charged to customers were £11m lower this year, and other costs were £23m lower than prior year, which included provisions for additional asset protection costs.last year.
US Regulated Revenue in our US Regulated businesses was £493m lower at £7,493m, whilebusiness increased by £1,438 million to £8,931 million and adjusted operating profit increased by £21m£528 million to £1,185m.£1,713 million. The stronger US dollar increased revenue and operating profit in the year by £81m.£1,160 million and £184 million respectively. Excluding the impact of foreign exchange rate movements, revenue decreasedincreased by £1,051m, principally as a result of lower commodity costs passed on to customers and unfavourable timing of recoveries year over year, partly offset by higher£278 million. Increased revenue allowances under the Niagara Mohawk three yearnew rate plan andcases, the benefit of capex trackers. The reduction in revenue was mostlytrackers and over-recovery of allowed revenues due to cold weather were partly offset by a £1,027m reduction inlower commodity cost recoveries. Overall pass-through costs incurredreduced by £231 million (excluding the impact of foreign exchange). resulting in an increase in net regulated revenue of £509 million at constant currency. Regulated controllable costs reducedincreased by £71m£152 million at constant currency, partly as a result of lower gas leakincreased information systems costs, write-offs of prior years’ capital costs and compliance work this yearhigher costs of health care and additional costs incurred last year to improve data quality and bring regulatory filings up to date.other benefits. These were partly offset by a £32 million decrease in bad debt costs. Depreciation and amortisation costs were £51mwas £24 million higher this year at constant currency as a result of ongoing investment in our networks. PensionOther operating costs were £15m£21 million higher at constant currency, due to changes in actuarial discount rates, while otherreflecting increased operating costs were £41m higher at constant currency including higher assettaxes and cost of removal costs.of existing assets. Our capital investment programme continuesexpenditure in the US continued to increase with a further £1,856m invested£2,247 million of expenditure in the year, £391 million more than in 2015/16, including spend on gas mains16. At constant currency, this represented a £104 million increase in investment driven by higher investment in new and replacement gas customer growth and electric system reinforcement.mains. Other activities Revenue in Other activities increaseddecreased by £114m£111 million to £876m in the year ended 31 March 2016. Adjusted£713 million and adjusted operating profit was £175m higher at £374m.decreased by £193 million to £177 million. In the US, adjusted operating profit was £143m£80 million lower (including £3 million of foreign exchange benefit) partly reflecting higher reflecting lower spend on upgrades to our finance systems which completed last year.US project development costs. In addition, we benefited from2015/16 included a £49m£49 million gain on disposal of our investment in the Iroquois pipeline, and the deconsolidation of our investment in Clean Line.pipeline. In the UK, adjusted operating profit was £32m higher as a result of strong£113 million lower including lower auction revenues atfrom the French interconnectorInterconnector and higher property sales.increased business change costs. Capital investmentexpenditure in our Other activities was at a similar level to£46 million higher than last year at £218m.£247 million. | | | | | | | | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | 10797 |
Notes to the consolidated financial statements – analysis of items in the primary statements continued Unaudited commentary on the results of our principal operations by segment – continuing operationscontinued Commentary on UK regulated financial performance | The regulated financial performance calculation provides a measure of the performance of the regulated operations before the impacts of interest and taxation. It adjusts reported operating profit under IFRS to reflect the impact of the businesses’ regulatory arrangements when presenting financial performance. |
Adjustments in calculating regulatory financial performance The principal adjustments from reported operating profit to UK regulated financial performance are: Movement in regulatory ‘IOUs’:Revenue related to performance in one year may be recovered in later years. Revenue may be recovered in one year but may be required to be returned to customers in future years. IFRS recognises these revenues when they flow through invoices to customers and not in the period to which they relate. Performance RAV:UK performance efficiencies are in part remunerated by the creation of additional RAV which is expected to result in future earnings under regulatory arrangements. Pension adjustment: Cash payments against pension deficits in the UK are recoverable under regulatory contracts. 3% RAV indexation: Future UK revenue allowances are expected to be set using an asset base adjusted for inflation. These will be billed in future periods and recognised under IFRS at that time. A 3% RPI inflation assumption is used, reflecting thelong-run expectation. Deferred taxation adjustment: Future UK revenues are expected to recover cash taxation costs, including the unwinding of deferred taxation balances created in the current year. Regulatory depreciation:UK regulated revenues include an allowance for a return of regulatory capital in accordance with regulatory assumed asset lives. This return does not form part of regulatory profit. Fast/slow money adjustment:The regulatory remuneration of costs incurred is split between in yearin-year revenue allowances and the creation of additional RAV. This does not align with the classification of costs as operating costs and fixed asset additions under IFRS accounting principles. UK Electricity Transmission Regulated financial performance for UK Electricity Transmission decreased by 1% to £1,195m£1,184 million from £1,232m, down 3%. The slight year-on-year decrease is£1,195 million, principally a result of a one-off legal settlement of £56m included in last year’s results. Electricity Transmission underlying performance andreflecting the lower achieved operational return, on equity were broadly similar this year.driven by lower totex outperformance. | | | | | | | | | | | | | | Reconciliation of regulated financial | | 2016 | | | 2015 | | | % | | | performance to operating profit | | £m | | | £m | | | change | | Reported operating profit | | | 1,173 | | | | 1,237 | | | | (5 | ) | Movement in regulatory ‘IOUs’ | | | (147 | ) | | | (130 | ) | | | | | Deferred taxation adjustment | | | 80 | | | | 88 | | | | | | RAV indexation (average 3% long-run inflation) | | | 339 | | | | 326 | | | | | | Regulatory vs IFRS depreciation difference | | | (368 | ) | | | (352 | ) | | | | | Fast/slow money adjustment | | | 92 | | | | 34 | | | | | | Pensions | | | (54 | ) | | | (48 | ) | | | | | Performance RAV created | | | 80 | | | | 77 | | | | | | Regulated financial performance | | | 1,195 | | | | 1,232 | | | | (3 | ) | UK Gas Transmission Regulated financial performance for UK Gas Transmission decreased to £535m from £648m, down 17%. This reflected a lower operational return on equity, mainly as a result of the expiration of the gas permit incentive scheme. | | | Reconciliation of regulated financial | | 2016 | | | 2015 | | | % | | | performance to operating profit | | £m | | | £m | | | change | | Reported operating profit | | | 486 | | | | 437 | | | | 11 | | Movement in regulatory ‘IOUs’ | | | (80 | ) | | | (16 | ) | | | | | Deferred taxation adjustment | | | 45 | | | | 85 | | | | | | RAV indexation (average 3% long-run inflation) | | | 166 | | | | 166 | | | | | | Regulatory vs IFRS depreciation difference | | | (18 | ) | | | (22 | ) | | | | | Fast/slow money adjustment | | | 18 | | | | 54 | | | | | | Pensions | | | (77 | ) | | | (49 | ) | | | | | Performance RAV created | | | (5 | ) | | | (7 | ) | | | | | Regulated financial performance | | | 535 | | | | 648 | | | | (17 | ) | UK Gas Distribution Regulated financial performance for UK Gas Distribution was unchanged at £819m. This reflects similar achieved operational return on equity year-on-year, with the benefit of a higher asset base being offset by lower allowed cost of debt. | | | Reconciliation of regulated financial | | 2016 | | | 2015 | | | % | | | performance to operating profit | | £m | | | £m | | | change | | Reported operating profit | | | 878 | | | | 826 | | | | 6 | | Movement in regulatory ‘IOUs’ | | | (35 | ) | | | (28 | ) | | | | | Deferred taxation adjustment | | | (34 | ) | | | 60 | | | | | | RAV indexation (average 3% long-run inflation) | | | 255 | | | | 255 | | | | | | Regulatory vs IFRS depreciation difference | | | (104 | ) | | | (148 | ) | | | | | Fast/slow money adjustment | | | (168 | ) | | | (182 | ) | | | | | Pensions | | | (13 | ) | | | (5 | ) | | | | | Performance RAV created | | | 40 | | | | 41 | | | | | | Regulated financial performance | | | 819 | | | | 819 | | | | – | |
| | | | | | | | | | | | | | Reconciliation of regulated financial | | 2017 | | | 2016 | | | % | | | performance to operating profit | | £m | | | £m | | | change | | Reported operating profit | | | 1,372 | | | | 1,173 | | | | 17 | | Movement in regulatory ‘IOUs’ | | | (288 | ) | | | (147 | ) | | | | | Deferred taxation adjustment | | | 62 | | | | 80 | | | | | | RAV indexation (average 3%long-run inflation) | | | 356 | | | | 339 | | | | | | Regulatory vs IFRS depreciation difference | | | (379 | ) | | | (368 | ) | | | | | Fast/slow money adjustment | | | 34 | | | | 92 | | | | | | Pensions | | | (47 | ) | | | (54 | ) | | | | | Performance RAV created | | | 74 | | | | 80 | | | | | | Regulated financial performance | | | 1,184 | | | | 1,195 | | | | (1 | ) | UK Gas Transmission Regulated financial performance for UK Gas Transmission decreased to £499 million from £535 million, down 7%. This reflected a lower operational return on equity, mainly as a result of the reduction in legacy incentives income. | | | Reconciliation of regulated financial | | 2017 | | | 2016 | | | % | | | performance to operating profit | | £m | | | £m | | | change | | Reported operating profit | | | 511 | | | | 486 | | | | 5 | | Movement in regulatory ‘IOUs’ | | | (120 | ) | | | (80 | ) | | | | | Deferred taxation adjustment | | | 39 | | | | 45 | | | | | | RAV indexation (average 3%long-run inflation) | | | 168 | | | | 166 | | | | | | Regulatory vs IFRS depreciation difference | | | (21 | ) | | | (18 | ) | | | | | Fast/slow money adjustment | | | (14 | ) | | | 18 | | | | | | Pensions | | | (53 | ) | | | (77 | ) | | | | | Performance RAV created | | | (11 | ) | | | (5 | ) | | | | | Regulated financial performance | | | 499 | | | | 535 | | | | (7 | ) |
| | | | | | | 10898 | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | |
3. Operating costs | Below we have presented separately certain items included in our operating costs.costs from continuing operations. These include a breakdown of payroll costs (including disclosure of amounts paid to key management personnel) and fees paid to our auditors. |
Rentals under operating leases are charged to the income statement on a straight-line basis over the term of the relevant lease. | | | | Before exceptional items | | | Exceptional items | | | | | | | | | | Before exceptional items and remeasurements | | | | Exceptional items and remeasurements | | | | Total | | | | | and remeasurements | | | | and remeasurements | | | | Total | | | | | | 2016 | | | 2015 | | | | | | 2016 | | | 2015 | | | | | | 2016 | | | 2015 | | | | | 2016 | | | 2015 | | | 2014 | | | 2016 | | 2015 | | | 2014 | | | 2016 | | 2015 | | 2014 | | | 2017 | | | Re-presented1 | | | Re-presented1 | | | 2017 | | | Re-presented1 | | | Re-presented1 | | | 2017 | | | Re-presented1 | | | Re-presented1 | | | | | £m | | | £m | | | £m | | | £m | | £m | | | £m | | | £m | | £m | | £m | | | £m | | | £m | | | £m | | | | £m | | | £m | | | £m | | | | £m | | | £m | | | £m | | Depreciation and amortisation | | | 1,614 | | | | 1,482 | | | | 1,416 | | | | | | – | | | | – | | | | – | | | | | | 1,614 | | | 1,482 | | | 1,416 | | | | 1,481 | | | | 1,311 | | | | 1,190 | | | | | | – | | | | – | | | | – | | | | | | 1,481 | | | 1,311 | | | | 1,190 | | Payroll costs | | | 1,506 | | | | 1,459 | | | | 1,373 | | | | | | – | | | | – | | | | (155 | ) | | | | | 1,506 | | | 1,459 | | | 1,218 | | | | 1,578 | | | | 1,337 | | | | 1,292 | | | | | | – | | | | – | | | | – | | | | | | 1,578 | | | 1,337 | | | | 1,292 | | Purchases of electricity | | | 1,304 | | | | 1,615 | | | | 1,513 | | | | | | 8 | | | 70 | | | | (49 | ) | | | | | 1,312 | | | 1,685 | | | 1,464 | | | | 1,143 | | | | 1,304 | | | | 1,615 | | | | | | 46 | | | | 8 | | | | 70 | | | | | | 1,189 | | | 1,312 | | | | 1,685 | | Purchases of gas | | | 1,003 | | | | 1,403 | | | | 1,722 | | | | | | (19 | ) | | 13 | | | | 33 | | | | | | 984 | | | 1,416 | | | 1,755 | | | | 1,241 | | | | 986 | | | | 1,379 | | | | | | 22 | | | | (19) | | | | 13 | | | | | | 1,263 | | | 967 | | | | 1,392 | | Rates and property taxes | | | 1,050 | | | | 1,004 | | | | 963 | | | | | | – | | | | – | | | | – | | | | | | 1,050 | | | 1,004 | | | 963 | | | | 1,042 | | | | 899 | | | | 856 | | | | | | – | | | | – | | | | – | | | | | | 1,042 | | | 899 | | | | 856 | | Balancing Services Incentive Scheme | | | 907 | | | | 874 | | | | 872 | | | | | | – | | | | – | | | | – | | | | | | 907 | | | 874 | | | 872 | | | | 1,120 | | | | 907 | | | | 874 | | | | | | – | | | | – | | | | – | | | | | | 1,120 | | | 907 | | | | 874 | | Payments to other UK network owners | | | 971 | | | | 801 | | | | 630 | | | | | | – | | | | – | | | | – | | | | | | 971 | | | 801 | | | 630 | | | | 1,008 | | | | 971 | | | | 801 | | | | | | – | | | | – | | | | – | | | | | | 1,008 | | | 971 | | | | 801 | | Other | | | 2,664 | | | | 2,700 | | | | 2,656 | | | | | | 22 | | | | – | | | | 100 | | | | | | 2,686 | | | 2,700 | | | 2,756 | | | | 2,649 | | | | 2,283 | | | | 2,316 | | | | | | 497 | | | | – | | | | – | | | | | | 3,146 | | | 2,283 | | | | 2,316 | | | | | | 11,019 | | | | 11,338 | | | | 11,145 | | | | | | 11 | | | 83 | | | | (71 | ) | | | | | 11,030 | | | 11,421 | | | 11,074 | | | | 11,262 | | | | 9,998 | | | | 10,323 | | | | | | 565 | | | | (11) | | | | 83 | | | | | | 11,827 | | | 9,987 | | | | 10,406 | | Operating costs include: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Inventory consumed | | | | | | | | | | | | | | | | | | | 303 | | | 365 | | | 422 | | | | | | | | | | | | | | | | | | | | 296 | | | 274 | | | | 339 | | Operating leases | | | | | | | | | | | | | | | | | | | 99 | | | 98 | | | 115 | | | | | | | | | | | | | | | | | | | | 98 | | | 91 | | | | 89 | | Research and development expenditure | | | | | | | | | | | | | | | | | | | 29 | | | 23 | | | 12 | | | | | | | | | | | | | | | | | | | | 14 | | | 19 | | | | 16 | | (a) Payroll costs | | | | | | | | | | | | | | | | | | | | | | | | 1. Comparative amounts have beenre-presented to reflect the classification of the UK Gas Distribution business as a discontinued operation. (a) Payroll costs | | 1. Comparative amounts have beenre-presented to reflect the classification of the UK Gas Distribution business as a discontinued operation. (a) Payroll costs | | | | | | | | | | | | | | | | | | | | | | 2016 | | | 2015 | | 20141 | | | | | | | | | | | | | | | | | | | | | | | | 2016 | | | 2015 | | | | | | | | | | | | | | | | | | | | | | | £m | | | £m | | £m | | | | | | | | | | | | | | | | | | | | | 2017 | | | Re-presented1 | | | Re-presented1 | | Wages and salaries1 | | | | | | | | | | | | | | | | | | | 1,720 | | | 1,598 | | | 1,377 | | | | | | | | | | | | | | | | | | | | | | | | | | £m | | | £m | | | £m | | Wages and salaries2 | | | | | | | | | | | | | | | | | | | | 1,852 | | | 1,553 | | | | 1,436 | | Social security costs | | | | | | | | | | | | | | | | | | | 137 | | | 129 | | | 126 | | | | | | | | | | | | | | | | | | | | 145 | | | 120 | | | | 112 | | Other pension costs (note 22) | | | | | | | | | | | | | | | | | | | 238 | | | 224 | | | 229 | | | Share-based payment | | | | | | | | | | | | | | | | | | | 22 | | | 20 | | | 20 | | | Other pension costs (note 23) | | | | | | | | | | | | | | | | | | | | 209 | | | 201 | | | | 190 | | Share-based payments | | | | | | | | | | | | | | | | | | | | 32 | | | 21 | | | | 18 | | Severance costs (excluding pension costs) | | | | | | | | | | | | | | | | | | | 5 | | | 4 | | | 30 | | Severance costs (excluding pension costs) | | | | | | | | | | | | | | | | 5 | | | 4 | | | | 3 | | | | | | | | | | | | | | | | | | | | | 2,122 | | | 1,975 | | | 1,782 | | | | | | | | | | | | | | | | | | | | 2,243 | | | 1,899 | | | | 1,759 | | Less: payroll costs capitalised | | | | | | | | | | | | | | | | | | | (616 | ) | | (516 | ) | | (564 | ) | | | | | | | | | | | | | | | | | | | (665 | ) | | (562) | | | | (467) | | | | | | | | | | | | | | | | | | | | | | 1,506 | | | 1,459 | | | 1,218 | | | 1. Included within wages and salaries are US other post-retirement benefit costs of £52m (2015: £39m; 2014: £44m) and a curtailment gain on LIPA MSA transaction of £nil (2015: £nil; 2014: £198m). For further information refer to note 22. (b) Number of employees | | | Total payroll costs | | | | | | | | | | | | | | | | | | | | 1,578 | | | 1,337 | | | | 1,292 | | 1. Comparative amounts have beenre-presented to reflect the classification of the UK Gas Distribution business as a discontinued operation. 2. Included within wages and salaries are US other post-retirement benefit costs of £53 million (2016: £52 million; 2015: £39 million). For further information refer to note 23. (b) Number of employees | | 1. Comparative amounts have beenre-presented to reflect the classification of the UK Gas Distribution business as a discontinued operation. 2. Included within wages and salaries are US other post-retirement benefit costs of £53 million (2016: £52 million; 2015: £39 million). For further information refer to note 23. (b) Number of employees | | | | | | | | | | | | | | | | Monthly | | | | | | Monthly | | | | Monthly | | | | | | | | | | | | | | | Monthly | | | 31 March | | | Monthly | | 31 March | | | Monthly | | | | | | | | | | | | | | 31 March | | average | | | 31 March | | | average | | 31 March | | average | | | | | | | | | | | | 31 March | | | average | | | 2016 | | | average 2016 | | 2015 | | | average 2015 | | | | | | | | | | | | | | 2016 | | 2016 | | | 2015 | | | 2015 | | 2014 | | 2014 | | | | | | | | | | | | | 2017 | | | 2017 | | | Re-presented1 | | | Re-presented1 | | Re-presented1 | | | Re-presented1 | | UK | | | | | | | | | | | 10,238 | | | | 10,035 | | | | 9,701 | | | | | | 9,670 | | | 9,693 | | | 9,641 | | | | | | | | | | | | 6,265 | | | | 6,291 | | | | 6,224 | | | | | | 6,067 | | | 5,882 | | | | 5,830 | | US | | | | | | | | | | | 14,830 | | | | 14,775 | | | | 14,573 | | | | | | 14,434 | | | 14,216 | | | 15,094 | | | | | | | | | | | | 15,867 | | | | 15,752 | | | | 14,830 | | | | | | 14,775 | | | 14,573 | | | | 14,434 | | | | | | | | | | | | | | 25,068 | | | | 24,810 | | | | 24,274 | | | | | | 24,104 | | | 23,909 | | | 24,735 | | | Total number of employees | | | | | | | | | | | | 22,132 | | | | 22,043 | | | | 21,054 | | | | | | 20,842 | | | 20,455 | | | | 20,264 | |
| 1. | Comparative amounts have beenre-presented to reflect the classification of the UK Gas Distribution business as a discontinued operation. |
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 2016,2017, there were 2,232 (2015: 2,131; 2014: 2,044)1,858 (2016: 1,865; 2015: 1,766) employees in other operations, excluding shared services. | | | | | | | | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | 10999 |
Notes to the consolidated financial statements – analysis of items in the primary statements continued 3. Operating costscontinued (c) Key management compensation | | | | 2016 | | | 2015 | | | 2014 | | | 2017 | | | 2016 | | | 2015 | | | | | £m | | | £m | | | £m | | | £m | | | £m | | | £m | | Short-term employee benefits | | | 9 | | | | 10 | | | | 9 | | | | 8 | | | | 9 | | | | 10 | | Post-employment benefits | | | 1 | | | | 9 | | | | 1 | | | | 1 | | | | 1 | | | | 9 | | Share-based payment | | | 4 | | | | 4 | | | | 5 | | | | | | | 14 | | | | 23 | | | | 15 | | | Key management compensation relates to the Board, including the Executive Directors and Non-executive Directors for the years presented. (d) Directors’ emoluments Details of Executive Directors’ emoluments are contained in the audited part of the Remuneration Report on page 75 and those of Non-executive Directors on page 78. (e) Auditors’ remuneration Auditors’ remuneration is presented below in accordance with the requirements of the Companies Act 2006 and the principal accountant fees and services disclosure requirements of Item 16C of Form 20-F: | | | Share-based payments | | | | 6 | | | | 4 | | | | 4 | | Total key management compensation | | | | 15 | | | | 14 | | | | 23 | | Key management compensation relates to the Board, including the Executive Directors andNon-executive Directors for the years presented. (d) Directors’ emoluments Details of Executive Directors’ emoluments are contained in the audited part of the Remuneration Report on page 63 and those ofNon-executive Directors on page 67. (e) Auditors’ remuneration Auditors’ remuneration is presented below in accordance with the requirements of the Companies Act 2006 and the principal accountant fees and services disclosure requirements of Item 16C of Form20-F: | | Key management compensation relates to the Board, including the Executive Directors andNon-executive Directors for the years presented. (d) Directors’ emoluments Details of Executive Directors’ emoluments are contained in the audited part of the Remuneration Report on page 63 and those ofNon-executive Directors on page 67. (e) Auditors’ remuneration Auditors’ remuneration is presented below in accordance with the requirements of the Companies Act 2006 and the principal accountant fees and services disclosure requirements of Item 16C of Form20-F: | | | | | 2016 | | | 2015 | | | 2014 | | | 2017 | | | 2016 | | | 2015 | | | | | £m | | | £m | | | £m | | | £m | | | £m | | | £m | | Audit fees1 payable to the parent Company’s auditors and their associates in respect of: | | | | | | | | Audit of the parent Company’s individual and consolidated financial statements | | | 1.3 | | | | 1.3 | | | | 0.9 | | | Audit fees payable to the parent Company’s auditors and their associates in respect of: | | | | | | | | Audit of the parent Company’s individual and consolidated financial statements1 | | | | 1.5 | | | | 1.3 | | | | 1.3 | | The auditing of accounts of any associate of the Company | | | 9.2 | | | | 8.1 | | | | 9.2 | | | | 13.7 | | | | 9.2 | | | | 8.1 | | Other services supplied2 | | | 3.6 | | | | 3.3 | | | | 3.2 | | | | 4.6 | | | | 3.6 | | | | 3.3 | | | | | | 14.1 | | | | 12.7 | | | | 13.3 | | | | 19.8 | | | | 14.1 | | | | 12.7 | | Total other services3 | | | | | | | | | | | | | Tax fees4: | | | | | | | | | | | | | Tax compliance services | | | 0.5 | | | | 0.4 | | | | 0.5 | | | | 0.4 | | | | 0.5 | | | | 0.4 | | Tax advisory services | | | – | | | | 0.1 | | | | 0.3 | | | | 0.1 | | | | – | | | | 0.1 | | All other fees5: | | | | | | | | Other assurance services | | | 4.3 | | | | 0.1 | | | | 0.1 | | | Services relating to corporate finance transactions not covered above | | | 1.6 | | | | – | | | | – | | | Other non-audit services not covered above | | | 2.5 | | | | 0.3 | | | | 0.8 | | | All other fees: | | | | | | | | Other assurance services5 | | | | 4.6 | | | | 4.3 | | | | 0.1 | | Services relating to corporate finance transactions not covered above6 | | | | 5.9 | | | | 1.6 | | | | – | | Othernon-audit services not covered above7 | | | | 6.3 | | | | 2.5 | | | | 0.3 | | | | | | 8.9 | | | | 0.9 | | | | 1.7 | | | | 17.3 | | | | 8.9 | | | | 0.9 | | Total auditors’ remuneration | | | 23.0 | | | | 13.6 | | | | 15.0 | | | | 37.1 | | | | 23.0 | | | | 13.6 | |
| 1. | Audit fees in each year represent fees for the audit of the Company’s financial statements and regulatory reporting for the years ended 31 March 2017, 2016 2015 and 2014,2015, and the review of interim |
| financial statements for the six month periods ended 30 September 2016, 2015 2014 and 20132014 respectively. |
| 2. | Other services supplied represent fees payable for services in relation to other statutory filings or engagements that are required to be carried out by the auditors. In particular, this includes fees for |
| reports under section 404 of the US Public Company Accounting Reform and Investor Protection Act of 2002 (Sarbanes-Oxley) and audit reports on regulatory returns. |
| 3. | There were no audit related fees as described in Item 16C(b) of Form20-F. |
| 4. | Tax fees include amounts charged for tax compliance tax advice and tax planning.advice. |
| 5. | All other fees includePrincipally amounts incurredrelating to assurance services provided in respectrelation to the sale of the potential disposal of a majority stake in theUK Gas Distribution business (vendor due diligence and separation support), as well as data assurance work in respect of financial information included in US rate filings allfilings. |
| 6. | Vendor due diligence and other transaction services in relation to the sale of which have been subjectUK Gas Distribution. |
| 7. | Fees for othernon-audit services – principally assisting the Company with separation activities in relation to approval by the Audit Committee. Total other fees for the year ended 31 March 2016 were £8.4m (2015: £0.4m; 2014: £0.9m).sale of UK Gas Distribution. |
PwC has contracted with Ofgem to assess the UK gas industry’s readiness for the introduction of new settlement processes and systems. Fees for these services are paid by Xoserve Limited, a subsidiary of National Grid (until 31 March 2017), on behalf of the industry, under instruction from Ofgem. As PwC has no contract with or duty of care to Xoserve Limited, these amounts are not included above. In addition, fees of £0.1m£0.4 million were incurred in 20162017 in relation to the audits of the pension schemes of the Company (2015: £0.2m; 2014: £0.1m)(2016: £0.1 million; 2015: £0.2 million). SubjectThe Audit Committee considers and makes recommendations to the Company’s Articles of Association andBoard, to be put to shareholders for approval at each AGM, in relation to the Companies Act 2006, the Audit Committee is solely and directly responsible for the approval of the appointment, reappointment, compensationre-appointment, removal and oversight of the Company’s independent auditors. ItThe Board of Directors, in accordance with a resolution approved at the 2016 AGM, is our policy thatauthorised to agree the auditors’ remuneration. The Audit Committee must approveconsiders and approves the audit fees on behalf of the Board in advance all non-audit workaccordance with the Competition and Market Authority Audit Order 2014. The Board of Directors will seek to renew this authority at the 2017 AGM. Details of our policies and procedures in excess of £50,000relation tonon-audit services to be performedprovided by the independent auditors to ensure that the service will not compromise auditor independence. The Audit Committee has delegated the approval in advance for all non-audit work below this level, up to a maximum of 5%are set out within page 44 of the total audit fee, to the Finance Director. Corporate Governance Report.
Certain services are prohibited from being performed by the external auditors under Sarbanes-Oxley. All ofthe Sarbanes-Oxley Act. Of the above services, none were pre-approved pursuant to this policy.prohibited. | | | | | | | 110100 | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | |
4. Exceptional items and remeasurements | | | To monitor our financial performance, we use a profit measure that excludes certain income and expenses. We call that measure ‘business performance’ or ‘adjusted profit’. We exclude items from business performance because, if included, these items could distort understanding of our performance for the year and the comparability between periods. This note analyses these items, which are included in our results for the year but are excluded from business performance. | | |
Our financial performance is analysed into two components: business performance, which excludes exceptional items and remeasurements; and exceptional items and remeasurements. 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 are presented on the face of the income statement or in the notes to the financial statements. Management utilises an exceptional items framework that has been discussed and approved by the Group Audit Committee. This follows a three-step process which considers the nature of the event, the financial materiality involved and any particular facts and circumstances. In considering the nature of the event, management focuses on whether the event is within the Group’s control and how frequently such an event typically occurs. In determining the facts and circumstances management considers factors such as ensuring consistent treatment between favourable and unfavourable transactions, precedent for similar items, number of periods over which costs will be spread or gains earned and the commercial context for the particular transaction. 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 ofnon-current assets, significant changes in environmental or decommissioning provisions, integration of acquired businesses, gains or losses on disposals of businesses or investments and significant 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 a 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. These fair values increase or decrease because of changes in commodity and financial indices and prices over which we have no control. | | | | | | | | | | | | | | | | 2016 | | | 2015 | | | 2014 | | | | | £m | | | £m | | | £m | | Included within operating profit | | | | | | | | | | | | | Exceptional items: | | | | | | | | | | | | | Transaction costs | | | (22 | ) | | | – | | | | – | | Restructuring costs | | | – | | | | – | | | | (136 | ) | Gas holder demolition costs | | | – | | | | – | | | | (79 | ) | LIPA MSA transition | | | – | | | | – | | | | 254 | | Other | | | – | | | | – | | | | 16 | | | | | (22 | ) | | | – | | | | 55 | | Remeasurements – commodity contracts | | | 11 | | | | (83 | ) | | | 16 | | | | | | (11 | ) | | | (83 | ) | | | 71 | | Included within finance costs | | | | | | | | | | | | | Exceptional items: | | | | | | | | | | | | | Debt redemption costs | | | – | | | | (131 | ) | | | – | | Remeasurements – net (losses)/gains on derivative financial instruments | | | (99 | ) | | | (34 | ) | | | 93 | | | | | | (99 | ) | | | (165 | ) | | | 93 | | Total included within profit before tax | | | (110 | ) | | | (248 | ) | | | 164 | | Included within tax | | | | | | | | | | | | | Exceptional credits/(charges) arising on items not included in profit before tax: | | | | | | | | | | | | | Deferred tax credit arising on the reduction in the UK corporation tax rate | | | 296 | | | | 6 | | | | 398 | | Deferred tax charge arising from an increase in US state income tax rates | | | – | | | | – | | | | (8 | ) | Tax on exceptional items | | | 4 | | | | 28 | | | | (57 | ) | Tax on remeasurements | | | 15 | | | | 44 | | | | (36 | ) | | | | | 315 | | | | 78 | | | | 297 | | Total exceptional items and remeasurements after tax | | | 205 | | | | (170 | ) | | | 461 | | Analysis of total exceptional items and remeasurements after tax | | | | | | | | | | | | | Exceptional items after tax | | | 278 | | | | (97 | ) | | | 388 | | Remeasurements after tax | | | (73 | ) | | | (73 | ) | | | 73 | | Total exceptional items and remeasurements after tax | | | 205 | | | | (170 | ) | | | 461 | |
Further detail of operating exceptionalExceptional items specific to 2015/16and remeasurements from continuing operations
In November 2015, the Group announced that it was considering disposing of a majority stake in its UK Gas Distribution business. In the year ended 31 March 2016, sale preparation costs of £22m were recognised in respect of this potential transaction. These costs have been treated as exceptional, achieving a consistent presentation with the expected treatment of the transaction on completion.
| | | | | | | | | | | | | | | | | | | 2016 | | | 2015 | | | | | 2017 | | | Re-presented1 | | | Re-presented1 | | | | | £m | | | £m | | | £m | | Included within operating profit | | | | | | | | | | | | | Exceptional items: | | | | | | | | | | | | | Environmental charges | | | (526 | ) | | | – | | | | – | | Gas holder demolition costs | | | (107 | ) | | | – | | | | – | | | | | (633 | ) | | | – | | | | – | | Remeasurements – commodity contracts | | | 68 | | | | 11 | | | | (83) | | | | | | (565 | ) | | | 11 | | | | (83) | | Included within finance costs | | | | | | | | | | | | | Exceptional items: | | | | | | | | | | | | | Debt redemption costs | | | – | | | | – | | | | (131) | | Remeasurements – net losses on derivative financial instruments | | | (58 | ) | | | (99) | | | | (34) | | | | | | (58 | ) | | | (99) | | | | (165) | | Total included within profit before tax | | | (623 | ) | | | (88) | | | | (248) | | Included within tax | | | | | | | | | | | | | Exceptional credits arising on items not included in profit before tax: | | | | | | | | | | | | | Deferred tax credit arising on the reduction in the UK corporation tax rate | | | 94 | | | | 162 | | | | 4 | | Tax on exceptional items | | | 227 | | | | – | | | | 28 | | Tax on remeasurements | | | (29 | ) | | | 15 | | | | 44 | | | | | | 292 | | | | 177 | | | | 76 | | Total exceptional items and remeasurements after tax | | | (331 | ) | | | 89 | | | | (172) | | Analysis of total exceptional items and remeasurements after tax | | | | | | | | | | | | | Exceptional items after tax | | | (312 | ) | | | 162 | | | | (99) | | Remeasurements after tax | | | (19 | ) | | | (73) | | | | (73) | | Total exceptional items and remeasurements after tax | | | (331 | ) | | | 89 | | | | (172) | |
Further detail of operating exceptional items in respect of previous years
Debt redemption costs in the year ending 31 March 2015 represents costs arising from a liability management programme. We reviewed and restructured the Group debt portfolio following the commencement of the RIIO price controls in 2013 and the slow down in our planned UK capital investment programme as the industry assessed the impact of Electricity Market Reform.
£16m was received in year ending 31 March 2014 following the sale to a third party of a settlement award which arose as a result of a legal ruling in 2008. The business to which this item related had previously been treated as discontinued.
| 1. | Comparative amounts have beenre-presented to reflect the classification of the UK Gas Distribution business as a discontinued operation. |
| | | | | | | | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | 111101 |
Notes to the consolidated financial statements – analysis of items in the primary statements continued 4. Exceptional items and remeasurementscontinued Further detail of operating exceptional items specific to 2016/17 In the US, the Group’s most significant environmental liabilities relate to former manufacturing gas plant (MGP) facilities formerly owned or operated by the Company. The sites are subject to both state and federal law in the US. Environmental reserves arere-evaluated at each reporting period. The expenditure is expected to be largely recoverable from rate payers but under IFRS, no asset can be recorded for this. During the second half of 2016/17, the Group updated its assessment of the gross remediation costs at three key sites in New York, resulting in an increase of £481 million on an undiscounted basis. The charge booked reflects the Group’s best estimate of future cash outflow, based on notices received from state and federal authorities, and plans developed in response, supported by external consultants where appropriate. In some cases, judgement is also required regarding the Group’s share of the estimated cost, principally at sites where other parties are also potentially liable but where no cost sharing agreement exists. A provision of £107 million has been made for the demolition of certainnon-operational gas holders in the UK. Following the disposal of UK Gas Distribution, the land on which the gas holders are sited was transferred to the Group’s UK property division. The Group’s property division maximises our return from our land portfolio and therefore a constructive obligation exists to demolish the gas holders. Also included within the above are charges relating to the impact of a change in the real discount rate from 2% to 1% on our provisions. Remeasurements Commodity contracts representmark-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. Net (losses)/losses or gains on derivative financial instruments comprise (losses)/losses or gains arising on derivative financial instruments reported in the income statement. These exclude gains and losses for which hedge accounting has been effective, which have been recognised directly in other comprehensive income or which are offset by adjustments to the carrying value of debt. The tax charge in the year includes a credit of £1m (2015: £1m credit; 2014: £nil) in respect of prior years. Items included within tax The Finance No. 2 Bill 2015 included a reduction inAct 2016 which was enacted on 15 September 2016 reduced the main rate of UK corporation tax rate from 20% to 19% for the year beginning 1 April 2017,17% with a further reduction from 19% to 18% for the year beginning 1 April 2020. The Finance Act 2013 enacted reductions in the UK corporation tax rate from 23% to 21%effect from 1 April 2014,2020. Deferred tax balances have been calculated at this rate.
Deferred taxes at the reporting date have been measured using these enacted tax rates and from 21% to 20% from 1 April 2015. Other UK tax legislation also reduced the UK corporation tax ratereflected in prior periods (2013: from 24% to 23%). These reductions have resultedthese financial statements, resulting in decreases to UKa deferred tax liabilities in these periods.credit. This credit is presented as exceptional, reflecting its nature.
| | | | | | | | 102 | | National Grid Annual Report and Accounts 2016/17 | | Financial Statements | | |
5. Finance income and costs | This note details the interest income generated by our financial assets and interest expense incurred on our financial liabilities. It also includes the expected return on our pensions and other post-retirement assets, which is offset by the interest payable on pensions and other post-retirement obligations and presented on a net basis. In reporting business performance, we adjust net financing costs to exclude any net gains or losses on derivative financial instruments included in remeasurements. In addition, the prior yearsignificant debt redemption costs have beenare typically treated as exceptional (see note(note 4). |
| | | | | | | | | | | | 2016 | | | 2015 | | | | | 2016 | | | 2015 | | | 2014 | | | 2017 | | | Re-presented1 | | | Re-presented1 | | | | | £m | | | £m | | | £m | | | £m | | | £m | | | £m | | Finance income | | | | | | | | | | | | | Interest income on financial instruments: | | | | | | | | | | | | | Bank deposits and other financial assets | | | 22 | | | | 28 | | | | 22 | | | | 28 | | | | 22 | | | | 28 | | Gains on disposal of available-for-sale investments | | | – | | | | 8 | | | | 14 | | | | 25 | | | | – | | | | 8 | | | | | | 22 | | | | 36 | | | | 36 | | | | 53 | | | | 22 | | | | 36 | | Finance costs | | | | | | | | | | | | | Net interest on pensions and other post-retirement benefit obligations | | | (112 | ) | | | (101 | ) | | | (128 | ) | | | (107 | ) | | | (111) | | | | (98) | | Interest expense on financial liabilities held at amortised cost: | | | | | | | | | | | | | Bank loans and overdrafts | | | (38 | ) | | | (45 | ) | | | (61 | ) | | | (59 | ) | | | (28) | | | | (35) | | Other borrowings | | | (940 | ) | | | (984 | ) | | | (1,106 | ) | | | (927 | ) | | | (792) | | | | (836) | | Derivatives | | | 43 | | | | 56 | | | | 79 | | | | (8 | ) | | | 37 | | | | 51 | | Unwinding of discount on provisions | | | (73 | ) | | | (73 | ) | | | (73 | ) | | | (73 | ) | | | (69) | | | | (67) | | Other interest | | | (27 | ) | | | (8 | ) | | | (3 | ) | | | (17 | ) | | | (27) | | | | (7) | | Less: interest capitalised1 | | | 112 | | | | 86 | | | | 148 | | | Less: interest capitalised2 | | | | 109 | | | | 112 | | | | 84 | | | | | | (1,035 | ) | | | (1,069 | ) | | | (1,144 | ) | | | (1,082 | ) | | | (878) | | | | (908) | | Exceptional items | | | | | | | | | | | | | Debt redemption costs | | | – | | | | (131 | ) | | | – | | | | – | | | | – | | | | (131) | | Remeasurements | | | | | | | | | | | | | Net gains/(losses) on derivative financial instruments included in remeasurements2: | | | | | | | | Net gains/(losses) on derivative financial instruments included in remeasurements3: | | | | | | | | Ineffectiveness on derivatives designated as: | | | | | | | | | | | | | Fair value hedges3 | | | 39 | | | | 36 | | | | 22 | | | Fair value hedges4 | | | | 33 | | | | 39 | | | | 36 | | Cash flow hedges | | | (15 | ) | | | (13 | ) | | | 4 | | | | (12 | ) | | | (15) | | | | (13) | | Net investment hedges | | | – | | | | 2 | | | | 38 | | | | – | | | | – | | | | 2 | | Net investment hedges – undesignated forward rate risk | | | (34 | ) | | | 33 | | | | (7 | ) | | | 60 | | | | (34) | | | | 33 | | Derivatives not designated as hedges or ineligible for hedge accounting | | | (89 | ) | | | (92 | ) | | | 36 | | | | (139 | ) | | | (89) | | | | (92) | | | | | | (99 | ) | | | (165 | ) | | | 93 | | | | (58 | ) | | | (99) | | | | (165) | | | | | | (1,134 | ) | | | (1,234 | ) | | | (1,051 | ) | | | (1,140 | ) | | | (977) | | | | (1,073) | | | | | | | | | | | | | | | Net finance costs | | | (1,112 | ) | | | (1,198 | ) | | | (1,015 | ) | | Net finance costs from continuing operations | | | | (1,087 | ) | | | (955) | | | | (1,037) | |
| 1. | Comparative amounts have beenre-presented to reflect the classification of the UK Gas Distribution business as a discontinued operation. |
| 2. | Interest on funding attributable to assets in the course of construction in the current year was capitalised at a rate of 3.4% (2016: 3.3% (2015: 3.8%; 2014: 4.5%2015: 3.8%). In the UK, capitalised interest qualifies for a |
| current year tax deduction with tax relief claimed of £19m (2015: £24m; 2014: £32m)£18 million (2016: £19 million; 2015: £24 million). In the US, capitalised interest is added to the cost of plant and qualifies for tax depreciation |
2.3. | Includes a net foreign exchange loss on financing activities of £407m (2015: £636m gain; 2014: £268m£264 million (2016: £407 million loss; 2015: £636 million gain) offset by foreign exchange gains and losses on derivative financial |
| instruments measured at fair value. |
3.4. | Includes a net gainloss on instruments designated as fair value hedges of £34m (2015: £219m£27 million (2016: £34 million gain; 2014: £183m loss)2015: £219 million gain) and a net gain of £5m (2015: £162m loss; 2014: £205m gain)£60 million (2016: £5 million gain; |
| 2015: £162 million loss) arising from fair value adjustments to the carrying value of debt. |
| | | | | | | 112 | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | 103 |
Notes to the consolidated financial statements – analysis of items in the primary statements continued 6. Tax | | | Tax is payable in the territories where we operate, mainly the UK and the US. This note gives further details of the total tax charge and tax liabilities, including current and deferred tax. The current tax charge is the tax payable on this year’s taxable profits. Deferred tax is an accounting adjustment to provide for tax that is expected to arise in the future due to differences in the accounting and tax bases of profit. | | |
The tax charge for the period is recognised in the income statement, the statement of comprehensive income or directly in equity, according to the accounting treatment of the related transaction. The tax charge comprises both current and deferred tax. Current tax assets and liabilities are measured at the amounts expected to be recovered from or paid to the tax authorities. The tax rates and tax laws used to compute the amounts are those that have been enacted or substantively enacted by the reporting date. The calculation of the Group’s total tax charge involves a degree of estimation and judgement, and management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred tax is provided for using the balance sheet liability method and is recognised on temporary differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised on all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. However, deferred tax assets and liabilities are not recognised if the temporary differences arise from the initial recognition of goodwill or from the initial recognition of other assets and liabilities in a transaction (other than a business combination) that affects neither the accounting nor the taxable profit or loss. Deferred tax liabilities are recognised on taxable temporary differences arising on investments in subsidiaries and jointly controlled entities except where the Company is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised, based on the tax rates and tax laws that have been enacted or substantively enacted by the reporting date. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the deferred tax asset to be recovered. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same tax authority and the Company and its subsidiaries intend to settle their current tax assets and liabilities on a net basis. Tax charged/(credited) to the income statement – continuing operations | | | | 2016 | | | 2015 | | | 2014 | | | | | | 2016 | | | 2015 | | | | | £m | | | £m | | | £m | | | 2017
£m | | | Re-presented1
£m | | | Re-presented1
£m | | Tax before exceptional items and remeasurements | | | 753 | | | | 695 | | | | 581 | | | | 666 | | | | 604 | | | | 543 | | Exceptional tax on items not included in profit before tax (note 4) | | | (296 | ) | | | (6 | ) | | | (390 | ) | | | (94 | ) | | | (162) | | | | (4) | | Tax on other exceptional items and remeasurements | | | (19 | ) | | | (72 | ) | | | 93 | | | | (198 | ) | | | (15) | | | | (72) | | Tax on total exceptional items and remeasurements (note 4) | | | (315 | ) | | | (78 | ) | | | (297 | ) | | | (292 | ) | | | (177) | | | | (76) | | Total tax charge | | | 438 | | | | 617 | | | | 284 | | | Tax as a percentage of profit before tax | | | | | | | | | | | 2016 | | | 2015 | | | 2014 | | | | | | % | | | % | | | % | | | Before exceptional items and remeasurements | | | 24.0 | | | | 24.2 | | | | 22.5 | | | After exceptional items and remeasurements | | | 14.4 | | | | 23.5 | | | | 10.3 | | | Total tax charge from continuing operations | | | | 374 | | | | 427 | | | | 467 | |
| 1. | Comparative amounts have beenre-presented to reflect the classification of the UK Gas Distribution business as a discontinued operation. |
Tax as a percentage of profit before tax | | | | | | | | | | | | | | | | | | | 2016 | | | 2015 | | | | | 2017
% | | | Re-presented1
% | | | Re-presented1
% | | Before exceptional items and remeasurements – continuing operations | | | 23.7 | | | | 25.0 | | | | 24.6 | | After exceptional items and remeasurements – continuing operations | | | 17.1 | | | | 18.3 | | | | 23.8 | |
| 1. | Comparative amounts have beenre-presented to reflect the classification of the UK Gas Distribution business as a discontinued operation. |
| | | | | | | | 104 | | National Grid Annual Report and Accounts 2015/16 | | Financial Statements | | 113 |
Notes to the consolidated financial statements
– analysis of items in the primary statements continued
6. Taxcontinued
The tax charge for the year can be analysed as follows:
| | | | | | | | | | | | | | | | 2016 | | | 2015 | | | 2014 | | | | | £m | | | £m | | | £m | | Current tax | | | | | | | | | | | | | UK corporation tax at 20% (2015: 21%; 2014: 23%) | | | 322 | | | | 309 | | | | 355 | | UK corporation tax adjustment in respect of prior years | | | (7 | ) | | | (2 | ) | | | (9 | ) | | | | | 315 | | | | 307 | | | | 346 | | Overseas corporation tax | | | 38 | | | | 51 | | | | 54 | | Overseas corporation tax adjustment in respect of prior years | | | (19 | ) | | | (62 | ) | | | (88 | ) | | | | | 19 | | | | (11 | ) | | | (34 | ) | Total current tax | | | 334 | | | | 296 | | | | 312 | | Deferred tax | | | | | | | | | | | | | UK deferred tax | | | (152 | ) | | | 123 | | | | (292 | ) | UK deferred tax adjustment in respect of prior years | | | 26 | | | | 7 | | | | (3 | ) | | | | | (126 | ) | | | 130 | | | | (295 | ) | Overseas deferred tax | | | 229 | | | | 138 | | | | 276 | | Overseas deferred tax adjustment in respect of prior years | | | 1 | | | | 53 | | | | (9 | ) | | | | | 230 | | | | 191 | | | | 267 | | Total deferred tax | | | 104 | | | | 321 | | | | (28 | ) | | | | | | | | | | | | | | | Total tax charge | | | 438 | | | | 617 | | | | 284 | | Tax (credited)/charged to other comprehensive income and equity | | | | | 2016 | | | 2015 | | | 2014 | | | | | £m | | | £m | | | £m | | Current tax | | | | | | | | | | | | | Share-based payment | | | (2 | ) | | | (7 | ) | | | (3 | ) | Available-for-sale investments | | | 5 | | | | 5 | | | | (5 | ) | Deferred tax | | | | | | | | | | | | | Available-for-sale investments | | | 12 | | | | 2 | | | | 2 | | Cash flow hedges | | | 15 | | | | (18 | ) | | | 5 | | Share-based payment | | | – | | | | 3 | | | | (4 | ) | Remeasurements of net retirement benefit obligations | | | 125 | | | | (299 | ) | | | 172 | | | | | | 155 | | | | (314 | ) | | | 167 | | Total tax recognised in the statement of comprehensive income | | | 157 | | | | (310 | ) | | | 174 | | Total tax relating to share-based payment recognised directly in equity | | | (2 | ) | | | (4 | ) | | | (7 | ) | | | | | 155 | | | | (314 | ) | | | 167 | |
| | | | | | | 114 | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | |
6. Taxcontinued The tax charge for the year after exceptional items and remeasurements is lower (2015: higher; 2014: lower) than the standard rate of corporation tax in the UK of 20% (2015: 21%; 2014: 23%):can be analysed as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Before | | | After | | | Before | | | After | | | Before | | | After | | | | | exceptional | | | exceptional | | | exceptional | | | exceptional | | | exceptional | | | exceptional | | | | | items and | | | items and | | | items and | | | items and | | | items and | | | items and | | | | | remeasurements | | | remeasurements | | | remeasurements | | | remeasurements | | | remeasurements | | | remeasurements | | | | | 2016 | | | 2016 | | | 2015 | | | 2015 | | | 2014 | | | 2014 | | | | | £m | | | £m | | | £m | | | £m | | | £m | | | £m | | Profit before tax | | | | | | | | | | | | | | | | | | | | | | | | | Before exceptional items and remeasurements | | | 3,142 | | | | 3,142 | | | | 2,876 | | | | 2,876 | | | | 2,584 | | | | 2,584 | | Exceptional items and remeasurements | | | – | | | | (110 | ) | | | – | | | | (248 | ) | | | – | | | | 164 | | Profit before tax | | | 3,142 | | | | 3,032 | | | | 2,876 | | | | 2,628 | | | | 2,584 | | | | 2,748 | | Profit before tax multiplied by UK corporation tax rate of 20% (2015: 21%; 2014: 23%) | | | 628 | | | | 606 | | | | 604 | | | | 552 | | | | 594 | | | | 632 | | Effect of: | | | | | | | | | | | | | | | | | | | | | | | | | Adjustments in respect of prior years | | | 2 | | | | 1 | | | | (3 | ) | | | (4 | ) | | | (109 | ) | | | (109 | ) | Expenses not deductible for tax purposes | | | 29 | | | | 118 | | | | 31 | | | | 327 | | | | 32 | | | | 284 | | Non-taxable income | | | (26 | ) | | | (113 | ) | | | (20 | ) | | | (320 | ) | | | (24 | ) | | | (268 | ) | Adjustment in respect of foreign tax rates | | | 124 | | | | 129 | | | | 91 | | | | 77 | | | | 98 | | | | 138 | | Impact of share-based payment | | | (1 | ) | | | (1 | ) | | | (1 | ) | | | (1 | ) | | | (3 | ) | | | (3 | ) | Deferred tax impact of change in UK and US tax rates | | | – | | | | (296 | ) | | | – | | | | (6 | ) | | | – | | | | (390 | ) | Other | | | (3 | ) | | | (6 | ) | | | (7 | ) | | | (8 | ) | | | (7 | ) | | | – | | Total tax charge | | | 753 | | | | 438 | | | | 695 | | | | 617 | | | | 581 | | | | 284 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | % | | | | % | | | | % | | | | % | | | | % | | | | % | | Effective tax rate | | | 24.0 | | | | 14.4 | | | | 24.2 | | | | 23.5 | | | | 22.5 | | | | 10.3 | |
| | | | | | | | | | | | | | | | | | | 2016 | | | 2015 | | | | | 2017
£m | | | Re-presented1
£m | | | Re-presented1
£m | | Current tax | | | | | | | | | | | | | UK corporation tax at 20% (2016: 20%; 2015: 21%) | | | 225 | | | | 239 | | | | 218 | | UK corporation tax adjustment in respect of prior years | | | (47 | ) | | | (5) | | | | (7) | | | | | | 178 | | | | 234 | | | | 211 | | Overseas corporation tax | | | – | | | | 38 | | | | 51 | | Overseas corporation tax adjustment in respect of prior years | | | 1 | | | | (19) | | | | (62) | | | | | | 1 | | | | 19 | | | | (11) | | Total current tax from continuing operations | | | 179 | | | | 253 | | | | 200 | | Deferred tax | | | | | | | | | | | | | UK deferred tax | | | (9 | ) | | | (80) | | | | 69 | | UK deferred tax adjustment in respect of prior years | | | (18 | ) | | | 24 | | | | 7 | | | | | | (27 | ) | | | (56) | | | | 76 | | Overseas deferred tax | | | 224 | | | | 229 | | | | 138 | | Overseas deferred tax adjustment in respect of prior years | | | (2 | ) | | | 1 | | | | 53 | | | | | | 222 | | | | 230 | | | | 191 | | Total deferred tax from continuing operations | | | 195 | | | | 174 | | | | 267 | | | | | | | | | | | | | | | | Total tax charge from continuing operations | | | 374 | | | | 427 | | | | 467 | |
Factors that may affect future tax charges
| 1. | Comparative amounts have beenre-presented to reflect the classification of the UK Gas Distribution business as a discontinued operation. |
Tax charged/(credited) to other comprehensive income and equity The Finance Act 2015 (No.2) (the Act) was enacted on 18 November 2015. The Act reduced the main rate of UK corporation tax to 19% with effect from 1 April 2017 and 18% from 1 April 2020 and deferred tax balances have been calculated at 18%.
| | | | | | | | | | | | | | | | | | | 2016 | | | 2015 | | | | | 2017
£m | | | Re-presented1
£m | | | Re-presented1
£m | | Current tax | | | | | | | | | | | | | Share-based payments | | | (4 | ) | | | (1) | | | | (6) | | Available-for-sale investments | | | 6 | | | | 5 | | | | 5 | | Deferred tax | | | | | | | | | | | | | Available-for-sale investments | | | 8 | | | | 12 | | | | 2 | | Cash flow hedges | | | 20 | | | | 22 | | | | (10) | | Share-based payments | | | 1 | | | | – | | | | 1 | | Remeasurements of net retirement benefit obligations | | | 277 | | | | 95 | | | | (296) | | | | | | 308 | | | | 133 | | | | (304) | | Total tax recognised in the statement of comprehensive income from continuing operations | | | 311 | | | | 134 | | | | (299) | | Total tax recognised in the statement of comprehensive income from discontinued operations | | | 10 | | | | 23 | | | | (11) | | Total tax relating to share-based payments recognised directly in equity from continuing operations | | | (3 | ) | | | (1) | | | | (5) | | Total tax relating to share-based payments recognised directly in equity from discontinued operations | | | – | | | | (1) | | | | 1 | | | | | | 318 | | | | 155 | | | | (314) | |
The Budget in March this year announced a further reduction in the corporate tax rate to 17% from 1 April 2020, from the previously enacted 18%. This has not been substantively enacted at the reporting date. As the change to 17% had not been substantively enacted at the reporting date its effects are not included in these financial statements. The overall effect of that change, if it had applied to the deferred tax balances at the reporting date, would be to reduce the deferred tax liability by an additional £139m and reduce the tax expense for the period by £139m.
There continued to be significant international focus on tax reform during 2015/16, including the OECD’s Base Erosion and Profit Shifting (BEPS) project to address mismatches in international rules and European Commission initiatives. We will continue to monitor developments and assess the potential impact for National Grid of these and any further initiatives.
| 1. | Comparative amounts have beenre-presented to reflect the classification of the UK Gas Distribution business as a discontinued operation. |
| | | | | | | | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | 115105 |
Notes to the consolidated financial statements – analysis of items in the primary statements continued 6. Tax continued The tax charge for the year after exceptional items and remeasurements, for the continuing business, is lower (2016: lower; 2015: higher) than the standard rate of corporation tax in the UK of 20% (2016: 20%; 2015: 21%): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Before | | | After | | | Before | | | After | | | | | Before | | | After | | | exceptional | | | exceptional | | | exceptional | | | exceptional | | | | | exceptional | | | exceptional | | | items and | | | items and | | | items and | | | items and | | | | | items and | | | items and | | | remeasurements | | | remeasurements | | | remeasurements | | | remeasurements | | | | | remeasurements | | | remeasurements | | | 2016 | | | 2016 | | | 2015 | | | 2015 | | | | | 2017 | | | 2017 | | | Re-presented1 | | | Re-presented1 | | | Re-presented1 | | | Re-presented1 | | | | | £m | | | £m | | | £m | | | £m | | | £m | | | £m | | Profit before tax from continuing operations | | | | | | | | | | | | | | | | | | | | | | | | | Before exceptional items and remeasurements | | | 2,807 | | | | 2,807 | | | | 2,417 | | | | 2,417 | | | | 2,208 | | | | 2,208 | | Exceptional items and remeasurements | | | – | | | | (623 | ) | | | – | | | | (88) | | | | – | | | | (248) | | Profit before tax from continuing operations | | | 2,807 | | | | 2,184 | | | | 2,417 | | | | 2,329 | | | | 2,208 | | | | 1,960 | | Profit before tax from continuing operations multiplied by UK corporation tax rate of 20% (2016: 20%; 2015: 21%) | | | 561 | | | | 437 | | | | 483 | | | | 465 | | | | 464 | | | | 412 | | Effect of: | | | | | | | | | | | | | | | | | | | | | | | | | Adjustments in respect of prior years2 | | | (67 | ) | | | (67 | ) | | | 2 | | | | 1 | | | | (8) | | | | (9) | | Expenses not deductible for tax purposes3 | | | 35 | | | | 442 | | | | 25 | | | | 114 | | | | 26 | | | | 322 | | Non-taxable income3 | | | (24 | ) | | | (425 | ) | | | (25) | | | | (112) | | | | (20) | | | | (320) | | Adjustment in respect of foreign tax rates | | | 180 | | | | 104 | | | | 124 | | | | 129 | | | | 91 | | | | 77 | | Impact of share-based payments | | | 1 | | | | 1 | | | | (1) | | | | (1) | | | | (4) | | | | (4) | | Deferred tax impact of change in UK and US tax rates | | | – | | | | (94 | ) | | | – | | | | (162) | | | | – | | | | (4) | | Other4 | | | (20 | ) | | | (24 | ) | | | (4) | | | | (7) | | | | (6) | | | | (7) | | Total tax charge from continuing operations | | | 666 | | | | 374 | | | | 604 | | | | 427 | | | | 543 | | | | 467 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Re-presented1 | | | | Re-presented1 | | | | Re-presented1 | | | | Re-presented1 | | | | | | % | | | | % | | | | % | | | | % | | | | % | | | | % | | Effective tax rate – continuing operations | | | 23.7 | | | | 17.1 | | | | 25.0 | | | | 18.3 | | | | 24.6 | | | | 23.8 | |
| 1. | Comparative amounts have beenre-presented to reflect the classification of the UK Gas Distribution business as a discontinued operation. |
| 2. | Prior year adjustment is primarily due to agreement of prior period tax returns. |
| 3. | The post exceptional adjustments primarily represent the impact of the Group’s net investment hedging following significant currency fluctuations in the dollar. |
| 4. | Other primarily comprises of the benefit due to enhanced deduction available for land remediation expenditure and the presentation of the tax on joint ventures and associates. |
Factors that may affect future tax charges The Finance Act 2016 which was enacted on 15 September 2016 reduced the main rate of UK corporation tax to 17% with effect from 1 April 2020. Deferred tax balances have been calculated at this rate. Continuing focus on tax reform during 2016/17, specifically the Organisation for EconomicCo-operation and Development’s (OECD’s) Base Erosion and Profit Shifting (BEPS) project to address mismatches in international rules resulted in draft legislation on areas such as interest deductibility being issued during the year. We will continue to monitor developments and assess the potential impact for National Grid of these and any further initiatives. While the UK remains part of the EU, the evolution of the application of EU tax competition regulations continues to create uncertainty over tax legislation and at this stage it is not possible to quantify any potential impact on the financial statements. As the Group’s presence is mainly in the UK and US, we do not envisage a significant impact on the Group following the UK government’s decision to invoke Article 50 to leave the EU. In the US, there is a possibility of ‘Tax Reform’ which, if enacted, will likely include substantial changes to the federal taxation system. The changes under consideration include a significant reduction in the statutory corporate tax rate, deductibility of capital expenditures and elimination of many established business tax deductions. The Company continues to monitor various legislative proposals and developments impacting corporate taxation. | | | | | | | | 106 | | National Grid Annual Report and Accounts 2016/17 | | Financial Statements | | |
6. Taxcontinued Tax included within the statement of financial position The following are the major deferred tax assets and liabilities recognised, and the movements thereon, during the current and prior reporting periods: | | | | | | | | Pensions | | | | | | | | | | | | | Pensions | | | | | | | | | | | | | | | and other | | | | | | | | | | | | | and other | | | | | | | | | | | Accelerated | | Share- | | post- | | | | Other net | | | | | Accelerated | | Share- | | post- | | | | Other net | | | | | | | tax | | based | | retirement | | Financial | | temporary | | | | | tax | | based | | retirement | | Financial | | temporary | | | | | | | depreciation | | payment | | benefits | | instruments | | differences | | Total | | | depreciation | | payments | | benefits | | instruments | | differences | | Total | | | | | £m | | £m | | £m | | £m | | £m | | £m | | | £m | | £m | | £m | | £m | | £m | | £m | | Deferred tax (assets)/liabilities | | | | | | | | | | | | | | | | | | | | | | | | | Deferred tax assets at 31 March 2014 | | | (1 | ) | | (22 | ) | | (960 | ) | | (13 | ) | | (796 | ) | | (1,792 | ) | | Deferred tax liabilities at 31 March 2014 | | | 5,650 | | | | – | | | 143 | | | 6 | | | 75 | | | 5,874 | | | At 1 April 2014 | | | 5,649 | | | (22 | ) | | (817 | ) | | (7 | ) | | (721 | ) | | 4,082 | | | Exchange adjustments | | | 408 | | | | – | | | (99 | ) | | (2 | ) | | (104 | ) | | 203 | | | Charged/(credited) to income statement | | | 599 | | | 1 | | | 38 | | | (34 | ) | | (280 | ) | | 324 | | | Charged/(credited) to other comprehensive income and equity | | | – | | | 3 | | | (299 | ) | | (16 | ) | | | – | | | (312 | ) | | At 31 March 2015 | | | 6,656 | | | (18 | ) | | (1,177 | ) | | (59 | ) | | (1,105 | ) | | 4,297 | | | Deferred tax assets at 31 March 2015 | | | (1 | ) | | (18 | ) | | (1,337 | ) | | (64 | ) | | (1,186 | ) | | (2,606 | ) | | | (1 | ) | | (18 | ) | | (1,337 | ) | | (64 | ) | | (1,186 | ) | | (2,606 | ) | Deferred tax liabilities at 31 March 2015 | | | 6,657 | | | | – | | | 160 | | | 5 | | | 81 | | | 6,903 | | | | 6,657 | | | | – | | | 160 | | | 5 | | | 81 | | | 6,903 | | At 1 April 2015 | | | 6,656 | | | (18 | ) | | (1,177 | ) | | (59 | ) | | (1,105 | ) | | 4,297 | | | | 6,656 | | | (18 | ) | | (1,177 | ) | | (59 | ) | | (1,105 | ) | | 4,297 | | Exchange adjustments and other | | | 141 | | | 1 | | | (33 | ) | | (1 | ) | | (30 | ) | | 78 | | | Exchange adjustments | | | | 141 | | | 1 | | | (33 | ) | | (1 | ) | | (30 | ) | | 78 | | Charged/(credited) to income statement | | | 266 | | | 3 | | | 47 | | | (6 | ) | | (203 | ) | | 107 | | | | 266 | | | 3 | | | 47 | | | (6 | ) | | (203 | ) | | 107 | | Charged to other comprehensive income and equity | | | – | | | | – | | | 125 | | | 13 | | | 14 | | | 152 | | | | – | | | | – | | | 125 | | | 13 | | | 14 | | | 152 | | At 31 March 2016 | | | 7,063 | | | | (14 | ) | | | (1,038 | ) | | | (53 | ) | | | (1,324 | ) | | | 4,634 | | | | 7,063 | | | (14 | ) | | (1,038 | ) | | (53 | ) | | (1,324 | ) | | 4,634 | | Deferred tax assets at 31 March 2016 | | | (1 | ) | | (14 | ) | | (1,201 | ) | | (66 | ) | | (1,408 | ) | | (2,690 | ) | | | (1 | ) | | (14 | ) | | (1,201 | ) | | (66 | ) | | (1,408 | ) | | (2,690 | ) | Deferred tax liabilities at 31 March 2016 | | | 7,064 | | | | – | | | 163 | | | 13 | | | 84 | | | 7,324 | | | | 7,064 | | | | – | | | 163 | | | 13 | | | 84 | | | 7,324 | | At 1 April 2016 | | | | 7,063 | | | (14 | ) | | (1,038 | ) | | (53 | ) | | (1,324 | ) | | 4,634 | | Exchange adjustments and other1 | | | | 681 | | | 1 | | | (144 | ) | | (7 | ) | | (50 | ) | | 481 | | Charged/(credited) to income statement | | | | 402 | | | | – | | | 177 | | | 23 | | | (481 | ) | | 121 | | Charged to other comprehensive income and equity | | | | – | | | 1 | | | 264 | | | 46 | | | 5 | | | 316 | | Disposal of UK Gas Distribution | | | | (1,072 | ) | | | – | | | (6 | ) | | | – | | | 5 | | | (1,073 | ) | At 31 March 2017 | | | | 7,074 | | | | (12 | ) | | | (747 | ) | | | 9 | | | | (1,845 | ) | | | 4,479 | | Deferred tax assets at 31 March 2017 | | | | (1,093 | ) | | (12 | ) | | (1,036 | ) | | (10 | ) | | (1,943 | ) | | (4,094 | ) | Deferred tax liabilities at 31 March 2017 | | | | 8,167 | | | | – | | | 289 | | | 19 | | | 98 | | | 8,573 | | | | | | 7,063 | | | (14 | ) | | (1,038 | ) | | (53 | ) | | (1,324 | ) | | 4,634 | | | | 7,074 | | | (12 | ) | | (747 | ) | | 9 | | | (1,845 | ) | | 4,479 | |
| 1. | Exchange adjustments and other comprises of foreign exchange arising on translation of the US dollar deferred tax balances together with a reclassification of £143 million being the opening deferred tax balance in respect of US net operating losses to offset against US current tax liabilities. |
Deferred tax assets and liabilities are only offset where there is a legally enforceable right of offset and there is an intention to settle the balances net. The deferred tax balances (after offset) for statement of financial position purposes consist solely of deferred tax liabilities of £4,634m (2015: £4,297m)£4,479 million (2016: £4,634 million). Deferred tax asset of £667m (2015: £461m)£798 million (2016: £667 million) has been recognised in respect of net operating losses. Deferred tax assets in respect of capital losses, trading losses andnon-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: | | | | | | | | | | 2016 | | | | | 2016 | | | 2015 | | | 2017 | | | Re-presented1 | | | | | £m | | | £m | | | £m | | | £m | | Capital losses | | | 232 | | | | 250 | | | | 362 | | | | 232 | | Non-trade deficits | | | 5 | | | | 1 | | | | 4 | | | | 5 | | Trading losses | | | – | | | | 4 | | | | 9 | | | | – | |
| 1. | Comparative amounts have beenre-presented to reflect the classification of the UK Gas Distribution business as a discontinued operation. |
The capital losses andnon-trade deficits that arise in the UK are available to carry forward indefinitely. However, the capital losses can only be offset against specific types of future capital gains andnon-trade deficits against specific futurenon-trade profits. The trading losses arising in the US havecan be carried forward for up to a 20 year carry forward time limit.years. The aggregate amount of temporary differences associated with the unremitted earnings of overseas subsidiaries, and joint ventures and associates for which deferred tax liabilities have not been recognised at the reporting date is approximately £502m (2015: £773m)£1,101 million (2016: £502 million). No liability is recognised in respect of the differences because the Company and its subsidiaries are in a position to control the timing of the reversal of the temporary differences and it is probable that such differences will not reverse in the foreseeable future. In addition, as a result of UK tax legislation, which largely exempts overseas dividends received, the temporary differences are unlikely to lead to additional tax. | | | | | | | 116 | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | 107 |
Notes to the consolidated financial statements – analysis of items in the primary statements continued Unaudited commentary on tax Tax strategy National Grid manages its tax affairs in a proactive and responsible way in order to comply with all relevant legislation and minimise reputational risk. As a regulated public utility we are very conscious of the need to manage our tax affairs responsibly in the eyes of our stakeholders. We have a good working relationship with all relevant tax authorities and actively engage with them in order to ensure that they are fully aware of our view of the tax implications of our business initiatives. Management responsibility and oversight for our tax strategy, which is approved by the Finance Committee, rests with the Finance Director and the Group Tax and Treasury Director who monitor our tax activities and report to the Finance Committee. Total UK tax contribution (continuing and discontinued operations combined) This year we have again disclosed additional information in respect of our total UK tax contribution for consistency and to aid transparency in an area in which there remains significant public interest. As was the case in prior years, the total amount of taxes we pay and collect in the UK year on yearyear-on-year is significantly more than just the corporation tax which we pay on our UK profits. Within the total, we again include other taxes paid such as business rates and taxes on employment together with employee taxes and other indirect taxes. The most significant amounts making up the 2016/17 total tax contribution are shown in the charts below: For 2015/162016/17 our total tax contribution to the UK Exchequer was £1.6bn (2014/15: £1.5bn)£1.5 billion (2015/16: £1.6 billion). Taxes borne in 2015/162016/17 were £703m, an 8%£644 million, a decrease of 8.4% on taxes borne in 2014/152015/16 of £761m and£703 million primarily due to lower corporation tax payments in the current year. The main reasonsreason for this are the impact of the reduction in the UK corporation tax rate, andis the impact of our debt redemption costs during the year ended 31 March 2015,2017, which reduced corporation tax instalment payments due for that year but were settled by instalment payments made in the year ended 31 March 2016. However, ouryear. Our taxes collected were £899m, an increase£887 million, a reduction of 21%1.3% on 2014/152015/16 of £742m, and this was primarily due£899 million. We anticipate our total tax contribution to fall next year following the introductionsale of the VAT Domestic Reverse ChargeUK Gas Distribution business on gas and electricity trading (introduced in July 2014) being in force for the full year, rather than for six months in 2014/15.31 March 2017. Our 2014/152015/16 total tax contribution of £1.5bn£1.6 billion resulted in National Grid being the 13th15th highest contributor of UK taxes based on the results of the Hundred Group’s 20152016 Total Tax Contribution Survey, a position commensurate with the size of our business and capitalisation relative to other contributors to the Survey. In 20142015, we were also in 13th position. In 20152016 we ranked 7th9th in respect of taxes borne.borne; in 2015, we were in 7th position. National Grid’s contribution to the UK economy is again broader than just the taxes it pays over to and collects on behalf of HMRC. The Hundred Group’s 20152016 Total Tax Contribution Survey ranks National Grid in 5th3rd place in respect of UK capital expenditure on fixed assets. For instance,assets, up from 5th place in 2015. National Grid’s economic contribution also supports a significant number of UK jobs in our supply chain. The most significant amounts making up the 2015/16UK total tax contribution were as follows:2016/17 (continuing and discontinued operations combined)
| | | | | | | | 108 | | National Grid Annual Report and Accounts 2016/17 | | Financial Statements | | |
Unaudited commentary on taxcontinued Tax transparency The UK tax charge for the year disclosed in the financial statements in accordance with accounting standards and the UK corporation tax paid during the year will differ. For transparency we have included a reconciliation below of the tax charge per the income statement to the UK corporation tax paid in 2015/16.2016/17. The tax charge for the Group from continuing operations as reported in the income statement is £438m (2014/15: £617m)£374 million (2015/16: £427 million1). The UK tax charge is £189m (2014/15: £437m)£151 million (2015/16: £178 million1) and UK corporation tax paid was £285m (2014/15: £353m)£129 million (2015/16: £223 million1), with the principal differences between these two measures as follows: | | | | Year ended 31 March | | | Year ended 31 March | | | Reconciliation of UK total tax charge | | 2016 | | | 2015 | | | | to UK corporation tax paid | | £m | | | £m | | | Total UK tax charge (current tax £315m (2015: £307m) and deferred tax credit £126m (2015: charge £130m)) | | | 189 | | | 437 | | | Adjustment for non-cash deferred tax credit/(charge) | | | 126 | | | (130 | ) | | | | | | | | | 2016 | | Reconciliation on continuing operations of UK total tax charge to UK corporation tax paid | | | 2017
£m | | | Re-presented1
£m | | Total UK tax charge (current tax £178m (2016: £234m1) and deferred tax credit £27m (2016: credit £56m1)) | | | | 151 | | | 178 | | Adjustment fornon-cash deferred tax credit | | | | 27 | | | 56 | | Adjustments for current tax credit in respect of prior years | | | 7 | | | 2 | | | | 47 | | | 5 | | UK current tax charge | | | 322 | | | 309 | | | | 225 | | | 239 | | UK corporation tax instalment payments not payable until the following year | | | (164 | ) | | (127 | ) | | | (216 | ) | | (95) | | UK corporation tax instalment payments in respect of prior years paid in current year | | | 127 | | | 171 | | | | 120 | | | 79 | | UK corporation tax paid | | | 285 | | | 353 | | | | 129 | | | 223 | |
| 1. | Comparative amounts have beenre-presented to reflect the classification of the UK Gas Distribution business as a discontinued operation. |
Tax losses We have total unrecognised deferred tax assets in respect of losses of £237m (2014/15: £255m)£375 million (2015/16: £237 million) of which £232m (2014/15: £250m)£362 million (2015/16: £232 million) are capital losses in the UK as set out above.on page 107. These losses arose as a result of the disposal of certain businesses or assets and may be available to offset against future capital gains in the UK. Development of future tax policy We believe that the continued development of a coherent and transparent tax policy in the UK is critical to help drive growth in the economy. We continue to contribute to research into the structure of business tax and its economic impact by contributing to the funding of the Oxford University Centre for Business Tax at the Saïd Business School. We are a member of a number of industry groups which participate in the development of future tax policy, including the Hundred Group, which represents the views of Finance Directors of FTSE 100 companies and several other large UK companies. Our Finance Director is Chairman of its Tax Committee.the Hundred Group. This helps to ensure that we are engaged at the earliest opportunity on tax issues which affect our business. In the current year we have reviewed and responded to a number of HMRC consultations, the subject matter of which directly impacts taxes borne or collected by our business, with the aim of openly contributing to the debate and development of UK tax legislation. We undertake similar activities in the US, where the Company is an active member in the Edison Electric Institute, the American Gas Association and the Organization for International Investment. UK total tax contribution 2015/16
| | | | | | | | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | 117109 |
Notes to the consolidated financial statements – analysis of items in the primary statements continued 7. Earnings per share (EPS) | EPS is the amount ofpost-tax profit attributable to each ordinary share. Basic EPS is calculated on profit for the year attributable to equity shareholders divided by the weighted average number of shares in issue during the year. Diluted EPS shows what the impact would be if all outstanding share options were exercised and treated as ordinary shares at year end. The weighted average number of shares is increased by additional shares issued as scrip dividends and reduced by shares repurchased by the Company during the year. |
Adjusted earnings and EPS, which exclude exceptional items and remeasurements, are provided to reflect the business performance subtotals used by the Company. We have included reconciliations from this additional EPS measure to earnings for both basic and diluted EPS to provide additional detail for these items. For further details of exceptional items and remeasurements, see note 4. (a) Basic earnings per share | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Earnings | | | | | | Earnings | | | | | | | | Earnings | | | | | | per share | | | | | | per share | | | | | Earnings | | | per share | | | Earnings | | | 2015 | | | Earnings | | | 2014 | | | | | 2016 | | | 2016 | | | 2015 | | | (restated)1 | | | 2014 | | | (restated)1 | | | | | £m | | | pence | | | £m | | | pence | | | £m | | | pence | | Adjusted earnings | | | 2,386 | | | | 63.5 | | | | 2,189 | | | | 57.6 | | | | 2,015 | | | | 53.1 | | Exceptional items after tax | | | 278 | | | | 7.4 | | | | (97 | ) | | | (2.6) | | | | 388 | | | | 10.2 | | Remeasurements after tax | | | (73 | ) | | | (1.9 | ) | | | (73 | ) | | | (1.8) | | | | 73 | | | | 1.9 | | Earnings | | | 2,591 | | | | 69.0 | | | | 2,019 | | | | 53.2 | | | | 2,476 | | | | 65.2 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2016 | | | | | | 2015 | | | | | | 2014 | | | | | | | | millions | | | | | | millions | | | | | | millions | | Weighted average number of shares – basic1 | | | | | | | 3,755 | | | | | | | | 3,798 | | | | | | | | 3,798 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Earnings | | | | | | Earnings | | | | | | | | Earnings | | | | | | per share | | | | | | per share | | | | | Earnings | | | per share | | | Earnings | | | 2016 | | | Earnings | | | 2015 | | | | | 2017 | | | 2017 | | | 20161 | | | (restated)1,2 | | | 20151 | | | (restated)1,2 | | | | | £m | | | pence | | | £m | | | pence | | | £m | | | pence | | Adjusted earnings from continuing operations | | | 2,141 | | | | 56.9 | | | | 1,812 | | | | 48.0 | | | | 1,675 | | | | 43.9 | | Exceptional items after tax from continuing operations | | | (312 | ) | | | (8.3 | ) | | | 162 | | | | 4.3 | | | | (99) | | | | (2.6) | | Remeasurements after tax from continuing operations | | | (19 | ) | | | (0.5 | ) | | | (73) | | | | (1.9) | | | | (73) | | | | (1.9) | | Earnings from continuing operations | | | 1,810 | | | | 48.1 | | | | 1,901 | | | | 50.4 | | | | 1,503 | | | | 39.4 | | Adjusted earnings from discontinued operations | | | 607 | | | | 16.1 | | | | 574 | | | | 15.2 | | | | 514 | | | | 13.4 | | Exceptional items after tax from discontinued operations | | | 62 | | | | 1.6 | | | | 116 | | | | 3.1 | | | | 2 | | | | 0.1 | | Remeasurements after tax from discontinued operations | | | (5 | ) | | | (0.1 | ) | | | – | | | | – | | | | – | | | | – | | Gain on disposal of UK Gas Distribution | | | 5,321 | | | | 141.4 | | | | – | | | | – | | | | – | | | | – | | Earnings from discontinued operations | | | 5,985 | | | | 159.0 | | | | 690 | | | | 18.3 | | | | 516 | | | | 13.5 | | Total adjusted earnings | | | 2,748 | | | | 73.0 | | | | 2,386 | | | | 63.2 | | | | 2,189 | | | | 57.3 | | Total exceptional items after tax | | | (250 | ) | | | (6.7 | ) | | | 278 | | | | 7.4 | | | | (97) | | | | (2.5) | | Total remeasurements after tax | | | (24 | ) | | | (0.6 | ) | | | (73) | | | | (1.9) | | | | (73) | | | | (1.9) | | Gain on disposal of UK Gas Distribution | | | 5,321 | | | | 141.4 | | | | – | | | | – | | | | – | | | | – | | Total earnings | | | 7,795 | | | | 207.1 | | | | 2,591 | | | | 68.7 | | | | 2,019 | | | | 52.9 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2017 | | | | | | 2016 | | | | | | 2015 | | | | | | | | millions | | | | | | millions | | | | | | millions | | Weighted average number of shares – basic2 | | | | | | | 3,763 | | | | | | | | 3,774 | | | | | | | | 3,817 | |
1. Comparative amounts have beenre-presented to reflect the classification of the UK Gas Distribution business as a discontinued operation. 2. Comparative amounts have been restated to reflect the impact of additional shares issued as scrip dividends. (b) Diluted earnings per share | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Earnings | | | | | | Earnings | | | | | | | | Earnings | | | | | | per share | | | | | | per share | | | | | Earnings | | | per share | | | Earnings | | | 2015 | | | Earnings | | | 2014 | | | | | 2016 | | | 2016 | | | 2015 | | | (restated)1 | | | 2014 | | | (restated)1 | | | | | £m | | | pence | | | £m | | | pence | | | £m | | | pence | | Adjusted earnings | | | 2,386 | | | | 63.3 | | | | 2,189 | | | | 57.4 | | | | 2,015 | | | | 52.8 | | Exceptional items after tax | | | 278 | | | | 7.3 | | | | (97 | ) | | | (2.6) | | | | 388 | | | | 10.2 | | Remeasurements after tax | | | (73 | ) | | | (1.9 | ) | | | (73 | ) | | | (1.9) | | | | 73 | | | | 1.9 | | Earnings | | | 2,591 | | | | 68.7 | | | | 2,019 | | | | 52.9 | | | | 2,476 | | | | 64.9 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2016 | | | | | | 2015 | | | | | | 2014 | | | | | | | | millions | | | | | | millions | | | | | | millions | | Weighted average number of shares – diluted1 | | | | | | | 3,771 | | | | | | | | 3,815 | | | | | | | | 3,817 | | 1. Comparative amounts have been restated to reflect the impact of additional shares issued as scrip dividends. (c) Reconciliation of basic to diluted average number of shares | | | | | | | | | | | | | | 2015 | | | | | | 2014 | | | | | | | | 2016 | | | | | | (restated)1 | | | | | | (restated)1 | | | | | | | | millions | | | | | | millions | | | | | | millions | | Weighted average number of ordinary shares – basic | | | | | | | 3,755 | | | | | | | | 3,798 | | | | | | | | 3,798 | | Effect of dilutive potential ordinary shares – employee share plans | | | | | | | 16 | | | | | | | | 17 | | | | | | | | 19 | | Weighted average number of ordinary shares – diluted | | | | | | | 3,771 | | | | | | | | 3,815 | | | | | | | | 3,817 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Earnings | | | | | | Earnings | | | | | | | | Earnings | | | | | | per share | | | | | | per share | | | | | Earnings | | | per share | | | Earnings | | | 2016 | | | Earnings | | | 2015 | | | | | 2017 | | | 2017 | | | 20161 | | | (restated)1,2 | | | 20151 | | | (restated)1,2 | | | | | £m | | | pence | | | £m | | | pence | | | £m | | | pence | | Adjusted earnings from continuing operations | | | 2,141 | | | | 56.7 | | | | 1,812 | | | | 47.8 | | | | 1,675 | | | | 43.7 | | Exceptional items after tax from continuing operations | | | (312 | ) | | | (8.3 | ) | | | 162 | | | | 4.3 | | | | (99) | | | | (2.6) | | Remeasurements after tax from continuing operations | | | (19 | ) | | | (0.5 | ) | | | (73) | | | | (1.9) | | | | (73) | | | | (1.9) | | Earnings from continuing operations | | | 1,810 | | | | 47.9 | | | | 1,901 | | | | 50.2 | | | | 1,503 | | | | 39.2 | | Adjusted earnings from discontinued operations | | | 607 | | | | 16.0 | | | | 574 | | | | 15.1 | | | | 514 | | | | 13.4 | | Exceptional items after tax from discontinued operations | | | 62 | | | | 1.6 | | | | 116 | | | | 3.1 | | | | 2 | | | | 0.1 | | Remeasurements after tax from discontinued operations | | | (5 | ) | | | (0.1 | ) | | | – | | | | – | | | | – | | | | – | | Gain on disposal of UK Gas Distribution | | | 5,321 | | | | 140.8 | | | | – | | | | – | | | | – | | | | – | | Earnings from discontinued operations | | | 5,985 | | | | 158.3 | | | | 690 | | | | 18.2 | | | | 516 | | | | 13.5 | | Total adjusted earnings | | | 2,748 | | | | 72.7 | | | | 2,386 | | | | 63.0 | | | | 2,189 | | | | 57.1 | | Total exceptional items after tax | | | (250 | ) | | | (6.7 | ) | | | 278 | | | | 7.3 | | | | (97) | | | | (2.5) | | Total remeasurements after tax | | | (24 | ) | | | (0.6 | ) | | | (73) | | | | (1.9) | | | | (73) | | | | (1.9) | | Gain on disposal of UK Gas Distribution | | | 5,321 | | | | 140.8 | | | | – | | | | – | | | | – | | | | – | | Total earnings | | | 7,795 | | | | 206.2 | | | | 2,591 | | | | 68.4 | | | | 2,019 | | | | 52.7 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2017 | | | | | | 2016 | | | | | | 2015 | | | | | | | | millions | | | | | | millions | | | | | | millions | | Weighted average number of shares – diluted2 | | | | | | | 3,780 | | | | | | | | 3,790 | | | | | | | | 3,834 | | 1. Comparative amounts have beenre-presented to reflect the classification of the UK Gas Distribution business as a discontinued operation. 2. Comparative amounts have been restated to reflect the impact of additional shares issued as scrip dividends. (c) Reconciliation of basic to diluted average number of shares | | | | | | | | | | | | | | 2016 | | | | | | 2015 | | | | | | | | 2017 | | | | | | (restated)1 | | | | | | (restated)1 | | | | | | | | millions | | | | | | millions | | | | | | millions | | Weighted average number of ordinary shares – basic | | | | | | | 3,763 | | | | | | | | 3,774 | | | | | | | | 3,817 | | Effect of dilutive potential ordinary shares – employee share plans | | | | | | | 17 | | | | | | | | 16 | | | | | | | | 17 | | Weighted average number of ordinary shares – diluted | | | | | | | 3,780 | | | | | | | | 3,790 | | | | | | | | 3,834 | |
1. Comparative amounts have been restated to reflect the impact of additional shares issued as scrip dividends. | | | | | | | 118110 | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | |
8. Dividends | Dividends represent the return of profits to shareholders. Dividends are paid as an amount per ordinary share held. We retain part of the profits generated in the year to meet future growth plans and pay out the remainder in accordance with our dividend policy. |
Interim dividends are recognised when they become payable to the Company’s shareholders. Final dividends are recognised when they are approved by shareholders. | | | | 2016 | | | | 2015 | | | | 2014 | | | 2017 | | | | 2016 | | | | 2015 | | | | | | | | Cash | | | | | | | | | | Cash | | | | | | | | | Cash | | | | | | | | | Cash | | | | | | | | | | Cash | | | | | | | | | Cash | | | | | | | | | | | dividend | | | Scrip | | | | | | | dividend | | | Scrip | | | | | | dividend | | | Scrip | | | | | | dividend | | | Scrip | | | | | | | dividend | | | Scrip | | | | | | dividend | | | Scrip | | | | | Pence | | | paid | | | dividend | | | | Pence | | | paid | | | dividend | | | Pence | | | paid | | | dividend | | | Pence | | | paid | | | dividend | | | | Pence | | | paid | | | dividend | | | Pence | | | paid | | | dividend | | | | | per share | | | £m | | | £m | | | | per share | | | £m | | | £m | | | per share | | | £m | | | £m | | | per share | | | £m | | | £m | | | | per share | | | £m | | | £m | | | per share | | | £m | | | £m | | Interim dividend in respect of the current year | | | 15.00 | | | | 532 | | | | 31 | | | | | | 14.71 | | | | 531 | | | | 26 | | | | | | 14.49 | | | | 539 | | | | – | | | | 15.17 | | | | 540 | | | | 32 | | | | | | 15.00 | | | | 532 | | | | 31 | | | | | | 14.71 | | | | 531 | | | | 26 | | Final dividend in respect of the prior year | | | 28.16 | | | | 805 | | | | 248 | | | | | | 27.54 | | | | 740 | | | | 289 | | | | | | 26.36 | | | | 520 | | | | 444 | | | | 28.34 | | | | 923 | | | | 151 | | | | | | 28.16 | | | | 805 | | | | 248 | | | | | | 27.54 | | | | 740 | | | | 289 | | | | | | 43.16 | | | | 1,337 | | | | 279 | | | | | | 42.25 | | | | 1,271 | | | | 315 | | | | | | 40.85 | | | | 1,059 | | | | 444 | | | | 43.51 | | | | 1,463 | | | | 183 | | | | | | 43.16 | | | | 1,337 | | | | 279 | | | | | | 42.25 | | | | 1,271 | | | | 315 | |
Following completion of the sale of the majority interest in UK Gas Distribution, on 19 April 2017, the Directors declared that an aggregate of approximately £3.2 billion would be returned to shareholders through a special dividend of 84.375p per existing ordinary share ($5.4224 per existing American Depositary Share). The special dividend is to be paid to those shareholders on the register of members at 19 May 2017. The Directors are proposing a final dividend for the year ended 31 March 20162017 of 28.34p29.10p per share that will absorb approximately £1,059m£1 billion of shareholders’ equity (assuming all amounts are settled in cash). It will be paid on 1016 August 20162017 to shareholders who are on the register of members at 32 June 20162017 (subject to Shareholders’ approval at the AGM). A scrip dividend will be offered as an alternative. | | | Unaudited commentary on dividends Following the announcement of our dividend policy in March 2013, the Board remains confident that National Grid is able to support a dividend per share growing at least in line with RPI inflation for the foreseeable future, while continuing to invest as required in our regulated assets. | | With the exception of the 2013/14 interim dividend paid in January 2014, a scrip option has been offered for all interim and final dividends in the last five years.
In August 2014 we began a share buyback programme that will allow us to offer the scrip dividend option for both the full-year and interim dividend. The buyback programme is designed to balance shareholders’ appetite for the scrip dividend option with our desire to operate an efficient balance sheet with appropriate leverage. | | Dividend cover
Ratio of earnings cover over cash dividend paid and scrip dividend
|
| | | | | | | | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | 119111 |
Notes to the consolidated financial statements – analysis of items in the primary statements continued 9. Discontinued operations | As a result of the sale of a 61% controlling interest in UK Gas Distribution, 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 gain recognised by the Group on sale is analysed in the detail of the note below. All costs associated with the transaction, including those associated with separation and setting up UK Gas Distribution are shown as a deduction from the proceeds received. |
Our results and cash flows of significant assets or businesses sold during the year are shown separately from our continuing operations. Assets and businesses are classified as held for sale when their carrying amounts are recovered through sale rather than through continuing use. It only meets the held for sale condition when the assets are ready for immediate sale in their present condition, management is committed to the sale and it is highly probable that the sale will complete within one year. Depreciation ceases on assets and businesses when they are classified as held for sale and the assets and businesses are impaired if the proceeds less sale costs fall short of the carrying value. Disposal of UK Gas Distribution On 8 December 2016 the Group entered into a sale agreement with a consortium of long term infrastructure investors, to dispose of a 61% equity interest in the UK Gas Distribution business, principally comprising the Group’s equity and debt interests in National Grid Gas Distribution Limited together with certain other assets (principally property and a 45% interest in Xoserve Limited). The Consortium comprises Macquarie Infrastructure and Real Assets (MIRA), Allianz Capital Partners, Hermes Investment Management, CIC Capital Corporation, Qatar Investment Authority, Dalmore Capital and Amber Infrastructure Limited/International Public Partnerships. The transaction was contingent on merger clearance from the European Commission, which was received on 16 March 2017, and the transaction completed on 31 March 2017. The Group sold its 100% equity interest in UK Gas Distribution to Quadgas HoldCo Limited, a newly incorporated UK limited company 61% owned by Quadgas Investments Bidco Limited and 39% by the Group’s subsidiary National Grid Holdings One plc. In exchange, the Group received cash consideration of £3,679 million and has recognised a shareholder loan receivable of £429 million and a 39% equity interest in Quadgas HoldCo Limited. In addition, as part of the disposal process, a newly incorporated financing subsidiary of Quadgas HoldCo Limited raised £1,775 million of long term debt, secured against the shares in National Grid Gas Distribution Limited, and remitted cash received from this transaction to the Group. This amount has been treated as part of the net cash proceeds from the transaction totalling £5,454 million. The final amount of consideration remains subject to completion adjustments which may result in a further gain/loss on disposal within discontinued operations to be reported in 2017/18. On 31 March 2017, the Group also entered into a Further Acquisition Agreement (FAA) with the Consortium over a 14% interest (relating to both our equity and the shareholder loan interests), which includes the pricing mechanism, based on the price paid for the initial 61% interest, and an annualised escalation factor. The FAA contains put and call options for both the Group and the Consortium that can be exercised in the period between 1 March 2019 and 31 October 2019. The FAA is a derivative, and the assumptions which will be used to determine fair value are specific to the contract and not readily observable in active markets. Accordingly, it is classified under IFRS 7 ‘Financial Instruments: Disclosures’ as a level 3 financial instrument. As the FAA was entered into on an arm’s length basis at the balance sheet date its fair value is nil because the exercise price reflects fair value on 31 March 2017. At future reporting dates, this derivative financial instrument may either be in an asset or a liability position, depending principally on business performance against the Consortium’s expectations and movements in interest rates that could impact the annualised escalation factor. The UK Gas Distribution business met the criteria to be classified as held for sale at 8 December 2016, and depreciation and amortisation (circa £25 million per month) on tangible and intangible fixed assets ceased from this date. The disposal of UK Gas Distribution resulted in a £5.3 billion gain on disposal. The business represents a reportable segment and a separate major line of business and accordingly has been presented as a discontinued operation in the consolidated income statement, consolidated statement of comprehensive income and the consolidated cash flow statement. The segmental analysis in note 2 has also beenre-presented. In anticipation of the disposal, a process to separate the business from the other UK operations was undertaken. This involved separation activities in relation to finance, pensions, human resources, IT, treasury and operational management. These processes took place in the year leading up to the sale announcement and physical separation of the businesses occurred in early 2017. The UK Gas Distribution business was hived out from National Grid Gas plc into a newly incorporated statutory entity on 1 October 2016. With respect to treasury activities, a Group-wide financing exercise was undertaken in order to: a) ensure that the proportion of debt to equity financing in National Grid Gas Distribution Limited was in line with the requirements of its regulatory licence and the financing structure of the business more generally; and b) to optimise the mix of debt in the continuing businesses. The financing exercise involved the buyback of debt and derivatives in both of the Group’s UK regulated subsidiaries (National Grid Gas plc and National Grid Electricity Transmission plc) as well as the novation of certain instruments to National Grid Gas Distribution Limited, and the issue of new debt by National Grid Gas Distribution Limited whilst under the Group’s control prior to the sale completion. Since all these activities formed part of a single exercise, which would not have been undertaken in the absence of the sale, all costs have been allocated to discontinued operations. | | | | | | | | 112 | | National Grid Annual Report and Accounts 2016/17 | | Financial Statements | | |
9. Discontinued operationscontinued The presentation of the 2016/17 income statement is required to be split between continuing and discontinued operations and tore-present results for previous periods in a comparable manner: | ● | | Revenues, operating expenses and operating profits: Discontinued results are closely aligned to the previously disclosed UK Gas Distribution segment, with the results of Xoserve Limitedre-allocated from within Other activities. |
| ● | | Interest costs: Since UK Gas Distribution was not independently financed prior to its sale it is necessary to allocate the Group’s overall financing cost between continuing and discontinued operations. In doing so, the Group has presented the results of the continuing business on a basis consistent with how it expects to finance the Group in future periods, to aid comparability in future periods. Interest costs associated with debt and derivatives which remain in the Group as at 31 March 2017 have been attributed to the continuing Group in full. Interest cost relating to instruments bought back in the period since the disposal process started, debt novated across, and debt and derivatives issued by UK Gas Distribution as part of the financing exercise have been included within discontinued operations. The interest costs in the comparative periods for discontinued operations only includes interest that relates to the debt bought back in 2016/17 and the debt novated into UK Gas Distribution in 2016/17. |
| ● | | Tax: Tax follows the amount of revenues, operating costs and interest allocated to discontinued operations. Tax on exceptional items and remeasurements includes an allocation of tax credits arising from the change in tax rates. |
Income statement – discontinued operations for the years ended 31 March | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2017 | | | 2017 | | | 2016 | | | 2016 | | | 2015 | | | 2015 | | | | | £m | | | £m | | | £m | | | £m | | | £m | | | £m | | Revenue | | | | | | | 1,887 | | | | | | | | 1,903 | | | | | | | | 1,844 | | Operating costs | | | | | | | (993) | | | | | | | | (1,043) | | | | | | | | (1,015) | | Operating profit | | | | | | | | | | | | | | | | | | | | | | | | | Before exceptional items and remeasurements | | | 894 | | | | | | | | 882 | | | | | | | | 829 | | | | | | Exceptional items and remeasurements1 | | | – | | | | | | | | (22) | | | | | | | | – | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total operating profit from discontinued operations | | | | | | | 894 | | | | | | | | 860 | | | | | | | | 829 | | | | | | | | | Finance costs | | | | | | | | | | | | | | | | | | | | | | | | | Before exceptional items and remeasurements | | | (146) | | | | | | | | (157) | | | | | | | | (161) | | | | | | Exceptional items and remeasurements2 | | | (6) | | | | | | | | – | | | | | | | | – | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total finance costs | | | | | | | (152) | | | | | | | | (157) | | | | | | | | (161) | | Profit before tax from discontinued operations | | | | | | | | | | | | | | | | | | | | | | | | | Before exceptional items and remeasurements | | | 748 | | | | | | | | 725 | | | | | | | | 668 | | | | | | Exceptional items and remeasurements | | | (6) | | | | | | | | (22) | | | | | | | | – | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total profit before tax from discontinued operations | | | | | | | 742 | | | | | | | | 703 | | | | | | | | 668 | | Tax from discontinued operations | | | | | | | | | | | | | | | | | | | | | | | | | Before exceptional items and remeasurements | | | (142) | | | | | | | | (149) | | | | | | | | (152) | | | | | | Exceptional items and remeasurements | | | 63 | | | | | | | | 138 | | | | | | | | 2 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total tax from discontinued operations | | | | | | | (79) | | | | | | | | (11) | | | | | | | | (150) | | Profit after tax from discontinued operations | | | | | | | | | | | | | | | | | | | | | | | | | Before exceptional items and remeasurements | | | 606 | | | | | | | | 576 | | | | | | | | 516 | | | | | | Exceptional items and remeasurements | | | 57 | | | | | | | | 116 | | | | | | | | 2 | | | | | | Profit after tax from discontinued operations | | | | | | | 663 | | | | | | | | 692 | | | | | | | | 518 | | Gain on disposal of UK Gas Distribution | | | 5,009 | | | | | | | | – | | | | | | | | – | | | | | | Tax on gain on disposal of UK Gas Distribution | | | 312 | | | | | | | | – | | | | | | | | – | | | | | | Gain on disposal of UK Gas Distribution after tax | | | | | | | 5,321 | | | | | | | | – | | | | | | | | – | | Total profit after tax from discontinued operations | | | | | | | 5,984 | | | | | | | | 692 | | | | | | | | 518 | |
| 1. | 2016 includes sale preparation costs of £22 million in respect of the disposal of the UK Gas Distribution business. Current year costs have been included as part of transaction costs in determining the gain on disposal. |
| 2. | 2017 includes losses in respect of remeasurements of derivative financial instruments. |
| | | | | | | | | National Grid Annual Report and Accounts 2016/17 | | Financial Statements | | 113 |
Notes to the consolidated financial statements – analysis of items in the primary statements continued 9. Discontinued operationscontinued Statement of comprehensive income – discontinued operations for the years ended 31 March | | | | | | | | | | | | | | | | | | | | | | | 2017 | | | 2016 | | | 2015 | | | | | Notes | | | £m | | | £m | | | £m | | Profit after tax from discontinued operations | | | | | | | 5,984 | | | | 692 | | | | 518 | | | | | | | Other comprehensive (loss)/income | | | | | | | | | | | | | | | | | Items that will never be reclassified to profit or loss: | | | | | | | | | | | | | | | | | Remeasurement (losses)/gains of pension assets and post-retirement benefit obligations | | | 23 | | | | (75) | | | | 129 | | | | (13) | | Tax on items that will never be reclassified to profit or loss | | | 6 | | | | 13 | | | | (30) | | | | 3 | | Total items from discontinued operations that will never be reclassified to profit or loss | | | | | | | (62) | | | | 99 | | | | (10) | | Items that may be reclassified subsequently to profit or loss: | | | | | | | | | | | | | | | | | Net losses in respect of cash flow hedges | | | | | | | (106) | | | | (38) | | | | (68) | | Transferred to profit or loss in respect of cash flow hedges | | | | | | | 233 | | | | 3 | | | | 2 | | Tax on items that may be reclassified subsequently to profit or loss | | | 6 | | | | (23) | | | | 7 | | | | 8 | | Total items from discontinued operations that may be reclassified subsequently to profit or loss | | | | | | | 104 | | | | (28) | | | | (58) | | Other comprehensive income/(loss) for the year, net of tax from discontinued operations | | | | | | | 42 | | | | 71 | | | | (68) | | Total comprehensive income for the year from discontinued operations | | | | | | | 6,026 | | | | 763 | | | | 450 | |
Details of the cash flows relating to discontinued operations are set out on page 90. Gain on disposal of UK Gas Distribution | | | | | | | 2017 | | | | £m | | Assets | | | | | Intangible assets | | | 89 | | Property, plant and equipment | | | 8,700 | | Cash and cash equivalents | | | 5 | | Trade and other receivables | | | 274 | | Defined benefit pension asset | | | 37 | | Other assets1 | | | 83 | | Total assets | | | 9,188 | | Liabilities | | | | | Borrowings1 | | | (5,961) | | Trade and other payables | | | (488) | | Provisions | | | (94) | | Deferred tax liabilities | | | (1,073) | | Defined benefit pension liability | | | (3) | | Deferred income | | | (915) | | Other liabilities | | | (6) | | Total liabilities | | | (8,540) | | Net assets on disposal | | | 648 | | | | Satisfied by: | | | | | Cash proceeds | | | 3,679 | | Loan proceeds | | | 1,775 | | Shareholder loan (note 14) | | | 429 | | Associate at fair value2 | | | 1,611 | | Total consideration | | | 7,494 | | Less: | | | | | Financing costs | | | (1,334) | | Transaction costs | | | (305) | | Business restructuring costs | | | (198) | | Pre-tax gain on disposal | | | 5,009 | | Tax | | | 312 | | Post-tax gain on disposal | | | 5,321 | |
| 1. | Net debt disposal of £5,890 million principally comprises £5,961 million of borrowings net of £71 million of other financial assets. |
| 2. | Details of the basis on which the fair value of the retained interest in the business has been determined are in note 15. |
| | | | | | | | 114 | | National Grid Annual Report and Accounts 2016/17 | | Financial Statements | | |
9. Discontinued operationscontinued Costs included in the gain on disposal total £1,837 million. These include the direct costs of selling UK Gas Distribution (‘transaction costs’), the costs for activities undertaken to prepare and structure the disposal (‘businessset-up costs’) and business restructuring costs: | ● | | £1,334 million of these costs relate to the financing exercise undertaken to ensure an appropriate amount of debt was placed in UK Gas Distribution. This includes the costs associated with buybacks of debt from the continuing Group, losses on loans novated at fair value from the continuing Group to UK Gas Distribution as well as losses from closing out derivatives previously designated as cash flow hedges. |
| ● | | On 8 December 2016, we announced that a voluntary distribution of £150 million would be made for the benefit of energy consumers on the successful sale of UK Gas Distribution. This is a constructive obligation that was triggered on sale of UK Gas Distribution and is included within transaction costs. |
| ● | | Transaction costs also include professional services fees for the various accounting, legal and consulting work associated with the activities to prepare and structure the disposal of UK Gas Distribution. |
| ● | | Business restructuring costs principally includes severance costs and costs associated with onerous contracts as a result of the disposal of UK Gas Distribution. |
The gain on sale is subject to the substantial shareholder exemption. A tax credit on the gain on disposal arises principally from costs associated with the financing exercise. Unaudited commentary on the results of discontinued operations Discontinued operations Discontinued operations comprise primarily the UK Gas Distribution and Xoserve businesses. Adjusted operating profit for discontinued operations increased by £12 million to £894 million. Operating profit from Xoserve decreased by £8 million, reflecting system implementation costs. In UK Gas Distribution, adjusted operating profit was £20 million higher. Revenue was £36 million lower. This primarily reflects thenon-recurrence of last year’s revenue over-recovery compared to allowance. Pass-through costs were £2 million lower and regulated controllable costs were £13 million higher including costs resulting from an increase in the number of employees. Depreciation and amortisation costs were £84 million lower reflecting the cessation of depreciation from 8 December 2016, being the point at which the business was determined to be held for sale. Other costs were £17 million higher this year. UK Gas Distribution Regulated financial performance for UK Gas Distribution increased to £864 million from £819 million, up 5%. This reflects an increase in achieved operational return on equityyear-on-year, driven by improved totex performance. | | | | | | | | | | | | | Reconciliation of regulated financial performance to operating profit | | 2017
£m | | | 2016
£m | | | % change | | Reported operating profit | | | 898 | | | | 878 | | | | 2 | | Movement in regulatory ‘IOUs’ | | | 16 | | | | (35 | ) | | | | | Deferred taxation adjustment | | | (24 | ) | | | (34 | ) | | | | | RAV indexation (average 3%long-run inflation) | | | 260 | | | | 255 | | | | | | Regulatory vs IFRS depreciation difference | | | (199 | ) | | | (104 | ) | | | | | Fast/slow money adjustment | | | (121 | ) | | | (168 | ) | | | | | Pensions | | | (13 | ) | | | (13 | ) | | | | | Performance RAV created | | | 47 | | | | 40 | | | | | | Regulated financial performance | | | 864 | | | | 819 | | | | 5 | |
| | | | | | | | | National Grid Annual Report and Accounts 2016/17 | | Financial Statements | | 115 |
Notes to the consolidated financial statements – analysis of items in the primary statements continued 10. Goodwill | Goodwill represents the excess of what we paid to acquire businesses over the fair value of their net assets at the acquisition date. We assess whether goodwill is recoverable each year by performing an impairment review. |
Goodwill is recognised as an asset and is not amortised, but is tested for impairment annually or more frequently if events or changes in circumstances indicate a potential impairment. Any impairment is recognised immediately in the income statement and is not subsequently reversed. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing exchange rate. Impairment Goodwill is allocated to cash-generating units and this allocation is made to those cash-generating units that are expected to benefit from the business combination in which the goodwill arose. Impairments of goodwill are calculated as the difference between the carrying value of the goodwill and the estimated recoverable amount of the cash-generating unit to which that goodwill has been allocated. Recoverable amount is defined as the higher of fair value less costs to sell and estimatedvalue-in-use at the date the impairment review is undertaken. Value-in-use represents the present value of expected future cash flows, discounted using apre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. Impairments are recognised in the income statement and are disclosed separately. | | | | | | | | | | Total
£m | | | | Net book value at 1 April 2014 | | | 4,594 | | Impairment
| | | (12) | | Exchange adjustments
| | | 563 | | | | Net book value at 31 March 2015
| | | 5,145 | | Exchange adjustments | | | 170 | | | | Net book value at 31 March 2016 | | | 5,315 | | Exchange adjustments | | | 781 | | | | Net book value at 31 March 2017 | | | 6,096 | | | |
The cost of goodwill at 31 March 20162017 was £5,327m (2015: £5,157m)£6,112 million (2016: £5,327 million) with an accumulated impairment charge of £12m (2015: £12m)£16 million (2016: £12 million). The amounts disclosed above as at 31 March 20162017 include balances relating to the following cash-generating units: New York £3,061m (2015: £2,964m)£3,512 million (2016: £3,061 million); Massachusetts £1,145m (2015: £1,108m)£1,313 million (2016: £1,145 million); Rhode Island £426m (2015: £412m)£488 million (2016: £426 million); and Federal £683m (2015: £661m)£783 million (2016: £683 million). Goodwill is reviewed annually for impairment and the recoverability of goodwill has been assessed by comparing the carrying amount of our operations described above (our cash-generating units) with the expected recoverable amount on avalue-in-use basis. In each assessment, thevalue-in-use has been calculated based on five yearfive-year plan projections that incorporate our best estimates of future cash flows, customer rates, costs (including changes in commodity prices), 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 economic growth rate used to extrapolate projections beyond five years has been lowered tomaintained at 2% (2015: 2.25%(2016: 2%). The growth rate has been determined having regard to data on projected growth in US real gross domestic product (GDP). Based on our business’ 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, usinga pre-tax discount rate of 9% (2016: 8% (2015: 9%). 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. As part of their review in 2014/15, the Directors specifically reviewed the carrying value of goodwill associated with Clean Line Energy Partners LLC. This review resulted in a full impairment being recorded of £12m.
| | | | | | | 120116 | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | |
10.11. Other intangible assets
| Other intangible assets include software which is written down (amortised) over the length of period we expect to receive a benefit from the asset. |
Identifiable intangible assets are recorded at cost less accumulated amortisation and any provision for impairment. Other intangible assets are tested for impairment only if there is an indication that the carrying value of the assets may have been impaired. Impairments of assets are calculated as the difference between the carrying value of the asset and the recoverable amount, if lower. Where such an asset does not generate cash flows that are independent from other assets, the recoverable amount of the cash-generating unit to which that asset belongs is estimated. Impairments are recognised in the income statement and are disclosed separately. Any assets which suffered impairment in a previous period are reviewed for possible reversal of the impairment at each reporting date. Internally generated intangible assets, such as software, are recognised only if: an asset is created that can be identified; it is probable that the asset created will generate future economic benefits; and the development cost of the asset can be measured reliably. Where no internally generated intangible asset can be recognised, development expenditure is recorded as an expense in the period in which it is incurred. Other intangible assets are amortised on a straight-line basis over their estimated useful economic lives. Amortisation periods for categories of intangible assets are: | | | | | | | | Years | | | | | Software | | 3 to 10 | | | | | | | | | Software
£m | | | | Cost at 1 April 2014 | | | 1,222 | | Exchange adjustments
| | | 59 | | Additions
| | | 207 | | Reclassifications1
| | | 16 | | | | Cost at 31 March 2015
| | | 1,504 | | Exchange adjustments | | | 22 | | Additions | | | 220 | | Disposals | | | (3) | | Reclassifications1 | | | 1 | | | | Cost at 31 March 2016 | | | 1,744 | | | | Accumulated amortisation at 1 April 2014
| | | (553) | | Exchange adjustments | | | (20)105 | | Amortisation charge for the yearAdditions
| | | (121)234 | | Disposals | | | (43) | | Disposal of UK Gas Distribution | | | (304) | | Reclassifications1 | | | (8)(4) | | | | Cost at 31 March 2017 | | | 1,732 | | | | Accumulated amortisation at 31 March1 April 2015 | | | (702) | | Exchange adjustments | | | (8) | | Amortisation charge for the year | | | (147) | | Reclassifications1 | | | – | | | | Accumulated amortisation at 31 March 2016 | | | (857) | | Exchange adjustments | | | (43) | | Amortisation charge for the year | | | (164) | | Reclassifications1 | | | – | | Accumulated amortisation of disposals | | | 40 | | Disposal of UK Gas Distribution | | | 215 | | | | Accumulated amortisation at 31 March 2017 | | | (809) | | | | Net book value at 31 March 2017 | | | 923 | | | | Net book value at 31 March 2016 | | | 887 | | | | Net book value at 31 March 2015
| | | 802 | | | |
1. Reclassifications includes amounts transferred (to)/from property, plant and equipment (see note 11) and12), reclasses between cost and accumulated amortisation of £nil (2015: £6m)(2016: £nil). | | | | | | | | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | 121117 |
Notes to the consolidated financial statements – analysis of items in the primary statements continued 11.12. Property, plant and equipment
| The following note shows the physical assets controlled by us. The cost of these assets primarily represents the amount initially paid for them. A depreciation expense is charged to the income statement to reflect annual wear and tear and the reduced value of the asset over time. Depreciation is calculated by estimating the number of years we expect the asset to be used (useful economic life) and charging the cost of the asset to the income statement equally over this period. Our strategy in action We operate an energy networks business and therefore have a significant physical asset base. We continue to invest in our networks to maintain reliability, create new customer connections and ensure our networks are flexible and resilient. Our business plan envisages these additional investments will be funded through a mixture of cash generated from operations and the issue of new debt. |
Property, plant and equipment is recorded at cost, less accumulated depreciation and any impairment losses. Cost includes the purchase price of the asset, any 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, 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, consideration is given to any contractual arrangements and operational requirements relating to particular assets. The assessments of estimated useful economic lives and residual values of assets are performed annually. 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: | | | | | | | | 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 | | | 15 to 21 | | Gas plant – meters | | | 10 to 33 | | Motor vehicles and office equipment | | | up to 10 | | | |
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within operating profit in the income statement. Items within property, plant and equipment are tested for impairment only if there is some indication that the carrying value of the assets may have been impaired. Impairments of assets are calculated as the difference between the carrying value of the asset and the recoverable amount, if lower. Where such an asset does not generate cash flows that are independent from other assets, the recoverable amount of the cash-generating unit to which that asset belongs is estimated. Material impairmentsImpairments are recognised in the income statement and if material are disclosed separately.
Any assets which suffered impairment in a previous period are reviewed for possible reversal of the impairment at each reporting date. | | | | | | | 122118 | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | |
11.12. Property, plant and equipmentcontinued
| | | | Land and
buildings
£m | | Plant and
machinery
£m | | Assets in the
course of
construction
£m | | Motor
vehicles
and office
equipment
£m | | Total £m | | | Land and
buildings
£m | | Plant and
machinery
£m | | Assets in the
course of
construction £m | | Motor vehicles
and office
equipment
£m | | Total £m | | | | | | | Cost at 1 April 2014 | | | 2,248 | | | 46,425 | | | 4,024 | | | 853 | | | 53,550 | | | Exchange adjustments | | | 132 | | | 2,019 | | | 82 | | | 47 | | | 2,280 | | | Additions | | | 55 | | | 544 | | | 2,514 | | | 150 | | | 3,263 | | | Disposals | | | (30 | ) | | (334 | ) | | (1 | ) | | (74 | ) | | (439) | | | Reclassifications1 | | | 105 | | | 1,981 | | | (2,104 | ) | | 8 | | | (10) | | | | | | Cost at 31 March 2015 | | | 2,510 | | | 50,635 | | | 4,515 | | | 984 | | | 58,644 | | | Cost at 1 April 2015 | | | | 2,510 | | | 50,635 | | | 4,515 | | | 984 | | | 58,644 | | Exchange adjustments | | | 41 | | | 669 | | | 20 | | | 23 | | | 753 | | | | 41 | | | 669 | | | 20 | | | 23 | | | 753 | | Additions | | | 60 | | | 801 | | | 2,686 | | | 126 | | | 3,673 | | | | 60 | | | 801 | | | 2,686 | | | 126 | | | 3,673 | | Disposals | | | (26 | ) | | (393 | ) | | (78 | ) | | (62 | ) | | (559) | | | | (26 | ) | | (393 | ) | | (78 | ) | | (62 | ) | | (559) | | Reclassifications1 | | | 173 | | | 3,060 | | | (3,269 | ) | | 100 | | | 64 | | | | 173 | | | 3,060 | | | (3,269 | ) | | 100 | | | 64 | | | | | | | Cost at 31 March 2016 | | | 2,758 | | | 54,772 | | | 3,874 | | | 1,171 | | | 62,575 | | | | 2,758 | | | 54,772 | | | 3,874 | | | 1,171 | | | 62,575 | | | | | Accumulated depreciation at 1 April 2014 | | | (436 | ) | | (15,350 | ) | | | – | | | (585 | ) | | (16,371) | | | Exchange adjustments | | | (15 | ) | | (533 | ) | | | – | | | (29 | ) | | (577) | | | | 196 | | | 3,157 | | | 93 | | | 76 | | | 3,522 | | Depreciation charge for the year2 | | | (82 | ) | | (1,138 | ) | | | – | | | (143 | ) | | (1,363) | | | Disposals | | | 7 | | | 307 | | | | – | | | 74 | | | 388 | | | Additions | | | | 55 | | | 822 | | | 3,080 | | | 132 | | | 4,089 | | Disposals2 | | | | (22 | ) | | (572 | ) | | (70 | ) | | (204 | ) | | (868) | | Disposal of UK Gas Distribution | | | | (112 | ) | | (11,861 | ) | | (88 | ) | | (300 | ) | | (12,361) | | Reclassifications1 | | | (4 | ) | | 1 | | | | – | | | 5 | | | 2 | | | | 104 | | | 2,913 | | | (2,938 | ) | | (41 | ) | | 38 | | | | | | | Accumulated depreciation at 31 March 2015 | | | (530 | ) | | (16,713 | ) | | | – | | | (678 | ) | | (17,921) | | | Cost at 31 March 2017 | | | | 2,979 | | | 49,231 | | | 3,951 | | | 834 | | | 56,995 | | | | | | Accumulated depreciation at 1 April 2015 | | | | (530 | ) | | (16,713 | ) | | | – | | | (678 | ) | | (17,921) | | Exchange adjustments | | | (32 | ) | | (168 | ) | | | – | | | (10 | ) | | (210) | | | | (32 | ) | | (168 | ) | | | – | | | (10 | ) | | (210) | | Depreciation charge for the year2 | | | (79 | ) | | (1,273 | ) | | | – | | | (116 | ) | | (1,468) | | | Depreciation charge for the year3 | | | | (79 | ) | | (1,273 | ) | | | – | | | (116 | ) | | (1,468) | | Disposals | | | 6 | | | 386 | | | | – | | | 61 | | | 453 | | | | 6 | | | 386 | | | | – | | | 61 | | | 453 | | Reclassifications1 | | | (5 | ) | | (60 | ) | | | – | | | | – | | | (65) | | | | (5 | ) | | (60 | ) | | | – | | | | – | | | (65) | | | | | | | Accumulated depreciation at 31 March 2016 | | | (640 | ) | | (17,828 | ) | | | – | | | (743 | ) | | (19,211) | | | | (640 | ) | | (17,828 | ) | | | – | | | (743 | ) | | (19,211) | | Exchange adjustments | | | | (29 | ) | | (780 | ) | | | – | | | (44 | ) | | (853) | | Depreciation charge for the year3 | | | | (84 | ) | | (1,338 | ) | | | – | | | (113 | ) | | (1,535) | | Disposals2 | | | | 42 | | | 545 | | | | – | | | 203 | | | 790 | | Disposal of UK Gas Distribution | | | | 29 | | | 3,425 | | | | – | | | 207 | | | 3,661 | | Reclassifications1 | | | | (2 | ) | | (20 | ) | | | – | | | | – | | | (22) | | | | | | Accumulated depreciation at 31 March 2017 | | | | (684 | ) | | (15,996 | ) | | | – | | | (490 | ) | | (17,170) | | | | | | Net book value at 31 March 2017 | | | | 2,295 | | | | 33,235 | | | | 3,951 | | | | 344 | | | | 39,825 | | | | | | | Net book value at 31 March 2016 | | | 2,118 | | | | 36,944 | | | | 3,874 | | | | 428 | | | | 43,364 | | | | 2,118 | | | 36,944 | | | 3,874 | | | 428 | | | 43,364 | | | | | | | Net book value at 31 March 2015 | | | 1,980 | | | 33,922 | | | 4,515 | | | 306 | | | 40,723 | | | | | |
1. Represents amounts transferred between categories, (to)/from other intangible assets (see note 10)11), reclasses from inventories and reclasses between cost and accumulated depreciation of £64m (2015: £nil)£21 million (2016: £64 million). 2. Includes the reversal of assets with cost of £107 million and accumulated depreciation of £107 million disposed in previous years that remain in use in the Group. 3. Includes amounts in respect of capitalised depreciation of £1m (2015: £2m)£1 million (2016: £1 million). | | | | 2016 £m | | | 2015
£m | | | 2017 £m | | | 2016 £m | | | | | | | Information in relation to property, plant and equipment | | | | | | | | | Capitalised interest included within cost | | | 1,622 | | | | 1,506 | | | | 1,749 | | | | 1,622 | | Net book value of assets held under finance leases (all relating to motor vehicles and office equipment) | | | 226 | | | | 184 | | | | 289 | | | | 226 | | Additions to assets held under finance leases (all relating to motor vehicles and office equipment) | | | 87 | | | | 61 | | | | 98 | | | | 87 | | Contributions to cost of property, plant and equipment included within: | | | | | | | | | Trade and other payables | | | 47 | | | | 47 | | | | 89 | | | | 47 | | Non-current liabilities | | | 1,649 | | | | 1,569 | | | | 839 | | | | 1,649 | | | | | | |
12.13. Othernon-current assets
| Othernon-current assets include assets that do not fall into any othernon-current asset category (such as goodwill or property, plant and equipment) and the benefit to be received from the asset is not due to be received until after 31 March 2017.2018. |
| | | | 2016 £m | | | 2015 £m | | | 2017
£m | | | 2016
£m | | | | | | | Commodity contract assets | | | 10 | | | | 29 | | | | 52 | | | | 10 | | Other receivables | | | 37 | | | | 39 | | | | 45 | | | | 37 | | Prepayments | | | 35 | | | | 12 | | | Prepayments and accrued income | | | | 24 | | | | 35 | | | | | | | | | | 82 | | | | 80 | | | | 121 | | | | 82 | | | | | | |
| | | | | | | | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | 123119 |
Notes to the consolidated financial statements – analysis of items in the primary statements continued 13.14. Financial and other investments
| Financial and other investments include twothree main categories. Assets classified asavailable-for-sale typically represent investments in short-term money funds and quoted investments in equities or bonds of other companies. The second category comprises long-term loans to our associates and joint ventures. The third category is other loans and receivables which includes bank deposits with a maturity of greater than three months, and cash balances that cannot be readily used in operations, principally collateral pledged for certain borrowings. |
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 arenon-derivatives that are either designated in this category or not classified in any other categories. Available-for-sale financial investments are recognised at fair value plus directly related incremental transaction costs, and are subsequently carried at fair value in the statement of financial position. Changes in the fair value ofavailable-for-sale investments are recognised directly in other comprehensive income, 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. Investment income is recognised using the effective interest method and taken through interest income in the income statement. Loans receivable and other receivables are initially recognised at fair value and subsequently held 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. Subsequent to initial recognition, the fair values of financial assets measured at fair value that are quoted in active markets are based on bid prices. When independent prices are not available, fair values are determined by using valuation techniques that are consistent with techniques commonly used by the relevant market. The techniques use observable market data. | | | | 2016 £m | | | 2015 £m | | | 2017
£m | | | 2016
£m | | | | | | | Non-current | | | | | | | | | Available-for-sale investments | | | 482 | | | | 330 | | | | 605 | | | | 482 | | Loans to associates and joint ventures1 | | | | 495 | | | | – | | | | | | | | | | 1,100 | | | | 482 | | | | | | | Current | | | | | | | | | Available-for-sale investments | | | 1,951 | | | | 1,232 | | | | 7,432 | | | | 1,951 | | Loans and receivables | | | 1,047 | | | | 1,327 | | | Other loans and receivables | | | | 1,309 | | | | 1,047 | | | | | | | | | | 2,998 | | | �� | 2,559 | | | | 8,741 | | | | 2,998 | | | | | | | | | | 3,480 | | | | 2,889 | | | | 9,841 | | | | 3,480 | | | | | | | Financial and other investments include the following: | | | | | | | | | Investments in short-term money funds1 | | | 1,516 | | | | 618 | | | Managed investments in equity and bonds2 | | | 615 | | | | 785 | | | Investments in short-term money funds2 | | | | 6,899 | | | | 1,516 | | Managed investments in equity and bonds3 | | | | 939 | | | | 615 | | Cash surrender value of life insurance policies | | | 160 | | | | 158 | | | | 202 | | | | 160 | | Other investments | | | – | | | | 2 | | | Other loans and receivables | | | | 495 | | | | – | | Restricted balances: | | | | | | | | | Collateral3 | | | 999 | | | | 1,199 | | | Collateral4 | | | | 1,262 | | | | 999 | | Other | | | 190 | | | | 127 | | | | 44 | | | | 190 | | | | | | | | | | 3,480 | | | | 2,889 | | | | 9,841 | | | | 3,480 | | | | | | |
1. Comprises £434 million relating to shareholder loans to Quadgas HoldCo Limited, and amounts loaned to joint ventures. 1. | Includes £8m (2015: £34m) held by insurance captives and therefore restricted. |
2. | All £615m (2015: £644m) is restricted and relates to investments held by insurance captives of £434m (2015: £382m), US non-qualified plan investments of £181m (2015: £170m) and assets held within security accounts with charges in favour of the UK pension scheme Trustees of £nil (2015: £92m). |
3. | Refers to collateral placed with counterparties with whom we have entered into a credit support annex to the ISDA (International Swaps and Derivatives Association) Master Agreement. |
2. Includes £14 million (2016: £8 million) held by insurance captives and therefore restricted. 3. Includes restricted amounts of £434 million (2016: £434 million) held by insurance captives and £225 million (2016: £181 million) relating to USnon-qualified plan investments. 4. Refers to collateral placed with counterparties with whom we have entered into a credit support annex to the ISDA (International Swaps and Derivatives Association) Master Agreement. Available-for-sale investments are recorded at fair value. Due to their short maturities theThe carrying value of loans and receivables approximatesis approximate to their fair value.value, due to short-dated maturities or transactions entered into on 31 March 2017 at market terms. The maximum exposure to credit risk at the reporting date is the fair value of the financial investments. For further information on our credit risk, refer to note 30(a). None of the financial investments are past due or impaired. | Unaudited commentary on financial and other investments Currentavailable-for-sale investments at 31 March 2017 were £5,481 million higher than at 31 March 2016, primarily reflecting the proceeds received on 31 March 2017 relating to the sale of the UK Gas Distribution business. |
| | | | | | | 124120 | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | |
14.15. Investments in joint ventures and associates
| Investments in joint ventures and associates represent businesses we do not control, but instead exercise joint control or significant influence. |
A joint venture is an arrangement established to engage in economic activity, which the Company jointly controls with other parties and has rights to the net assets of the arrangement. An associate is an entity which is neither a subsidiary nor a joint venture, but over which the Company has significant influence. | | | | | | | 2017 | | | 2016 | | | | | 2016
£m | | | 2015
£m | | |
| Associates
£m |
| |
| Joint
ventures
£m |
| |
| Total
£m |
| |
| Associates
£m |
| |
| Joint
ventures
£m |
| |
| Total
£m |
| | | | | | Share of net assets at 1 April | | | 318 | | | 351 | | | | 84 | | | | 313 | | | | 397 | | | | 128 | | | 190 | | | 318 | | Exchange adjustments | | | 21 | | | (11) | | | | 16 | | | | 19 | | | | 35 | | | | 4 | | | 17 | | | 21 | | Additions | | | 116 | | | | – | | | | 74 | | | | 63 | | | | 137 | | | | 9 | | | 107 | | | 116 | | Acquisition of stake in Quadgas HoldCo Limited | | | | 1,611 | | | | – | | | | 1,611 | | | | – | | | | – | | | | – | | Disposals | | | (52 | ) | | | – | | | | – | | | | – | | | | – | | | | (52 | ) | | | – | | | (52) | | Share of post-tax results for the year | | | 59 | | | 46 | | | | 15 | | | | 48 | | | | 63 | | | | 13 | | | 46 | | | 59 | | Dividends received | | | (72 | ) | | (79) | | | | (24 | ) | | | (75 | ) | | | (99) | | | | (24 | ) | | (48 | ) | | (72) | | Other movements | | | 7 | | | 11 | | | | – | | | | (61 | ) | | | (61) | | | | 6 | | | 1 | | | 7 | | | | | | | Share of net assets at 31 March | | | 397 | | | 318 | | | | 1,776 | | | | 307 | | | | 2,083 | | | | 84 | | | 313 | | | 397 | | | | | | |
A list of joint ventures and associates including the name and proportion of ownership and principal activity is provided in note 32. Further information on the Group’s acquisition of a minority stake in Quadgas HoldCo Limited is provided in note 9 and overleaf. On 10 January 2017 the Group announced it had entered into an arrangement with San Francisco-based Sunrun Neptune Investor 2016 LLC, a leading US provider of residential solar energy systems to provide investment capital. In the period to 31 March 2017, the Group invested £41 million alongside Sunrun into a newly incorporated partnership vehicle. The investment is classified as an associate as the Group has significant influence over the activities of the partnership vehicle. The joint ventures and associates have no significant contingent liabilities to which the Group is exposed, and the Group has no significant contingent liabilities in relation to its interest in the joint ventures and associates. The Group has capital commitments of £305m£235 million (2016: £305 million) in relation to joint ventures. Outstanding balances with joint ventures and associates are shown in note 28.29. The Group’s onlyAt 31 March 2017, the Group had one material joint venture, or associate is in respect of its 50% equity stake in BritNed Development Limited, and one material associate in respect of its 39% equity stake in Quadgas HoldCo Limited.
BritNed Development Limited (joint venture) BritNed Development Limited is a joint venture with transmission system operator TenneT and operates the subsea electricity link between Great Britain and the Netherlands, commissioned in 2011. BritNed Development Limited has a reporting period end of 31 December with monthly management reporting information provided to National Grid. Summarised financial information of this joint venture, as at 31 March, together with the carrying amount of the investment in the consolidated financial statements is as follows: | | | | | | | | | | | | 2016 £m | | | 2015 £m | | | | Statement of financial position – BritNed Development Limited | | | | | | | | | Non-current assets | | | 376 | | | | 355 | | Cash and cash equivalents | | | 77 | | | | 46 | | All other current assets | | | 3 | | | | 2 | | Non-current liabilities | | | (8 | ) | | | (10) | | Current liabilities | | | (30 | ) | | | (14) | | | | Equity | | | 418 | | | | 379 | | | | | | | Carrying amount of the Group’s investment (National Grid ownership 50%) | | | 209 | | | | 189 | | | | | | | | | | 2016
£m | | | 2015
£m | | | | Income statement – BritNed Development Limited | | | | | | | | | Revenue | | | 198 | | | | 162 | | Depreciation and amortisation | | | (11 | ) | | | (12) | | Other costs | | | (56 | ) | | | (66) | | | | Operating profit | | | 131 | | | | 84 | | | | Finance income and expense | | | – | | | | – | | Income tax expense | | | (32 | ) | | | (21) | | | | Profit for the year | | | 99 | | | | 63 | | | | | | | Group’s share in profit (National Grid ownership 50%) | | | 50 | | | | 32 | | | |
| | | | | | | | | | | | 2017 £m | | | 2016 £m | | | | Statement of financial position – BritNed Development Limited | | | | | | | | | Non-current assets | | | 392 | | | | 376 | | Cash and cash equivalents | | | 45 | | | | 77 | | All other current assets | | | 1 | | | | 3 | | Non-current liabilities | | | (10 | ) | | | (8) | | Current liabilities | | | (20 | ) | | | (30) | | | | Equity | | | 408 | | | | 418 | | | | | | | Carrying amount of the Group’s investment (National Grid ownership 50%) | | | 204 | | | | 209 | | | |
| | | | | | | | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | 125121 |
Notes to the consolidated financial statements – analysis of items in the primary statements continued 15. Investments in joint ventures and associatescontinued | | | | | | | | | | | | 2017
£m | | | 2016
£m | | | | Income statement – BritNed Development Limited | | | | | | | | | Revenue | | | 399 | | | | 198 | | Depreciation and amortisation | | | (13 | ) | | | (11) | | Other costs | | | (257 | ) | | | (56) | | | | Operating profit | | | 129 | | | | 131 | | | | Income tax expense | | | (23 | ) | | | (32) | | | | Profit for the year | | | 106 | | | | 99 | | | | | | | Group’s share in profit (National Grid ownership 50%) | | | 53 | | | | 50 | | | |
Quadgas HoldCo Limited (associate) As set out in note 9, on disposal of the Group’s interest in the UK Gas Distribution business, the Group retains an equity interest in UK Gas Distribution through its parent, Quadgas HoldCo Limited and a shareholder loan asset of £0.4 billion (see note 14). The Group has the power to appoint 4 of the 12 members of the board of Quadgas HoldCo Limited, which confers significant influence, but not joint control. In general, the key strategic, operational and financial decisions can be effected by a simple majority of votes. However, in certain limited circumstances, certain decisions require the consent of both parties. While these circumstances are not expected to occur regularly, given the rights conferred, and in view of the Group’s equity stake, the investment has been accounted for as an equity investment in an associate. The Group is required to recognise its 39% interest in Quadgas HoldCo Limited initially at fair value, being the market price of the investment as at 31 March 2017. As described in note 9, a Further Acquisition Agreement (FAA) was signed concerning a 14% interest in Quadgas HoldCo Limited structured as a put/call option. National Grid can deliver a sell notice to sell the shares in Quadgas HoldCo Limited with at least six months’ notice, for closing between 1 March 2019 and 30 June 2019. The Consortium can deliver, a purchase notice to acquire the shares in Quadgas HoldCo Limited from 1 July 2019 to 31 October 2019. Since the FAA contains derivative features in the form of put/call options, it is required to be accounted for at fair value through profit and loss. On the basis that no premium was paid or received for entering into this arrangement, and further that, for the reasons set out in note 9, the arrangement was on market terms at 31 March 2017, the fair value of the contract is considered to be zero at year end. Quadgas HoldCo Limited is an unlisted entity, and so no quoted price exists. The fair value has been determined with reference to the equity value of the business implicit in the sale transaction, adjusted to reflect a deduction for the estimated premium paid for control by the Consortium. In assigning value to the retained interests, the Group has valued 14% of its 39% interest based on the price implied by the FAA. The deduction for control premium has been applied to the residual 25% interest. The Group is required to complete a purchase price allocation exercise for its interest in Quadgas HoldCo Limited. However, this is not required to be finalised until 31 March 2018. In view of the limited time elapsed since 31 March 2017, amounts disclosed below remain provisional. Summarised financial information of this associate (reflecting provisional fair values) together with the carrying amount of the investment in the consolidated financial statements is as follows: | | | | | | | 2017 £m | | | | Statement of financial position – Quadgas HoldCo Limited | | | | | Non-current assets | | | 15,559 | | All other current assets | | | 299 | | Non-current liabilities | | | (10,408) | | Current liabilities | | | (519) | | | | Equity | | | 4,931 | | | | Proportion of the Group’s ownership interest in associate | | | 1,923 | | Discount fornon-controlling interest | | | (312) | | | | Carrying amount of the Group’s interest in associate (National Grid ownership 39%) | | | 1,611 | | | |
The sale of the previously owned subsidiary and subsequent acquisition of 39% equity interest occurred (note 9) on 31 March 2017. As such, no profit or loss impact noted for the current financial year outside of the amounts disclosed as discontinued operations. | | | | | | | | 122 | | National Grid Annual Report and Accounts 2016/17 | | Financial Statements | | |
15.16. Derivative financial instruments
| Derivatives are financial instruments that derive their value from the price of an underlying item such as interest rates, foreign exchange rates, credit spreads, commodities, equity or other indices. In accordance with Board approved policies, derivatives are transacted to manage our exposure to fluctuations in interest rate and foreign exchange rate on borrowings and other contractual cash flows. Specifically, we use derivatives to manage these risks from our financing portfolio to optimise the overall cost of accessing the debt capital markets. These derivatives are analysed below. We also use derivatives to manage our operational market risks from commodities. The commodity derivative contracts are detailed in note 30(e). |
Derivative financial instruments are initially recognised at fair value and subsequently remeasured at fair value at each reporting date. Changes in fair values are recorded in the period they arise, in either the income statement or other comprehensive income depending on the applicable accounting standards. Where the fair value of a derivative is positive it is carried as a derivative asset, and where negative as a derivative liability. We calculate fair value of the financial derivatives by discounting all future cash flows using the market yield curve at the reporting date. The market yield curve for each currency is obtained from external sources for interest and foreign exchange rates. In the absence of sufficient market data, fair values would be based on the quoted market price of similar derivatives. Analysis of these derivatives and the various methods used to calculate their respective fair values is detailed below and in note 30. For each class of derivative instrument type the total fair value amounts are as follows: | | | | 2016 | | | 2015 | | | 2017 | | | 2016 | | | |
| Assets
£m |
| |
| Liabilities
£m |
| |
| Total
£m |
| |
| Assets
£m |
| |
| Liabilities
£m |
| |
| Total
£m |
| |
| Assets
£m |
| |
| Liabilities
£m |
| |
| Total
£m |
| |
| Assets
£m |
| |
| Liabilities
£m |
| |
| Total
£m |
| | | | | | Interest rate swaps | | | 1,095 | | | | (908 | ) | | | 187 | | | | 1,153 | | | | (978 | ) | | 175 | | | | 849 | | | | (657 | ) | | | 192 | | | | 1,095 | | | | (908 | ) | | 187 | | Cross-currency interest rate swaps | | | 690 | | | | (589 | ) | | | 101 | | | | 544 | | | | (746 | ) | | (202) | | | | 676 | | | | (909 | ) | | | (233) | | | | 690 | | | | (589 | ) | | 101 | | Foreign exchange forward contracts | | | 159 | | | | (135 | ) | | | 24 | | | | 18 | | | | (294 | ) | | (276) | | | | 160 | | | | (113 | ) | | | 47 | | | | 159 | | | | (135 | ) | | 24 | | Inflation linked swaps | | | 1 | | | | (420 | ) | | | (419) | | | | 1 | | | | (381 | ) | | (380) | | | | 7 | | | | (529 | ) | | | (522) | | | | 1 | | | | (420 | ) | | (419) | | Equity options | | | 18 | | | | (17 | ) | | | 1 | | | | – | | | | – | | | | – | | | | 15 | | | | (15 | ) | | | – | | | | 18 | | | | (17 | ) | | 1 | | | | | | | | | | 1,963 | | | | (2,069 | ) | | | (106) | | | | 1,716 | | | | (2,399 | ) | | (683) | | | | 1,707 | | | | (2,223 | ) | | | (516) | | | | 1,963 | | | | (2,069 | ) | | (106) | | | | | | | The maturity profile of derivative financial instruments is as follows: | | | | | | 2016 | | | 2015 | | | | | | Assets £m | | | Liabilities £m | | Total
£m | | | Assets £m | | | Liabilities £m | | Total
£m | | | | | | Current | | | | | | | | | | | | | | Less than 1 year | | | 278 | | | | (337 | ) | | | (59) | | | | 177 | | | | (635 | ) | | (458) | | | | | | | | | 278 | | | | (337 | ) | | | (59) | | | | 177 | | | | (635 | ) | | (458) | | | | | | Non-current | | | | | | | | | | | | | | In 1 to 2 years | | | 31 | | | | (213 | ) | | | (182) | | | | 15 | | | | (97 | ) | | (82) | | | In 2 to 3 years | | | 159 | | | | (221 | ) | | | (62) | | | | 37 | | | | (252 | ) | | (215) | | | In 3 to 4 years | | | 139 | | | | (159 | ) | | | (20) | | | | 136 | | | | (238 | ) | | (102) | | | In 4 to 5 years | | | 32 | | | | (155 | ) | | | (123) | | | | 125 | | | | (235 | ) | | (110) | | | More than 5 years | | | 1,324 | | | | (984 | ) | | | 340 | | | | 1,226 | | | | (942 | ) | | 284 | | | | | | | | | 1,685 | | | | (1,732 | ) | | | (47) | | | | 1,539 | | | | (1,764 | ) | | (225) | | | | | | | | | 1,963 | | | | (2,069 | ) | | | (106) | | | | 1,716 | | | | (2,399 | ) | | (683) | | | | | | For each class of derivative the notional contract1 amounts are as follows: | | | | | | | | | | | | | | | | | 2016 £m | | | 2015 £m | | | | | | Interest rate swaps | | | | | | | | | | | (10,552 | ) | | (11,125) | | | Cross-currency interest rate swaps | | | | | | | | | | | (8,316 | ) | | (8,103) | | | Foreign exchange forward contracts | | | | | | | | | | | (6,903 | ) | | (6,579) | | | Inflation linked swaps | | | | | | | | | | | (1,394 | ) | | (1,361) | | | Equity options | | | | | | | | | | | (800 | ) | | | – | | | | | | | | | | | | | | | | | (27,965 | ) | | (27,168) | | | | | |
The maturity profile of derivative financial instruments is as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2017 | | | 2016 | | | |
| Assets
£m |
| |
| Liabilities
£m |
| |
| Total
£m |
| |
| Assets
£m |
| |
| Liabilities
£m |
| |
| Total
£m |
| | | Current | | | | | | | | | | | | | | | | | | | | | | | | | Less than 1 year | | | 192 | | | | (1,054 | ) | | | (862) | | | | 278 | | | | (337 | ) | | | (59) | | | | | | | 192 | | | | (1,054 | ) | | | (862) | | | | 278 | | | | (337 | ) | | | (59) | | | | Non-current | | | | | | | | | | | | | | | | | | | | | | | | | In 1 to 2 years | | | 199 | | | | (305 | ) | | | (106) | | | | 31 | | | | (213 | ) | | | (182) | | In 2 to 3 years | | | 122 | | | | (160 | ) | | | (38) | | | | 159 | | | | (221 | ) | | | (62) | | In 3 to 4 years | | | 39 | | | | (83 | ) | | | (44) | | | | 139 | | | | (159 | ) | | | (20) | | In 4 to 5 years | | | 419 | | | | (36 | ) | | | 383 | | | | 32 | | | | (155 | ) | | | (123) | | More than 5 years | | | 736 | | | | (585 | ) | | | 151 | | | | 1,324 | | | | (984 | ) | | | 340 | | | | | | | 1,515 | | | | (1,169 | ) | | | 346 | | | | 1,685 | | | | (1,732 | ) | | | (47) | | | | | | | 1,707 | | | | (2,223 | ) | | | (516) | | | | 1,963 | | | | (2,069 | ) | | | (106) | | | | For each class of derivative the notional contract1 amounts are as follows: | | | | | | | | | | | | | | | | | 2017 £m | | | 2016 £m | | | | Interest rate swaps | | | | | | | | | | | | | | | | | | | (9,469 | ) | | | (10,552) | | Cross-currency interest rate swaps | | | | | | | | | | | | | | | | | | | (8,631 | ) | | | (8,316) | | Foreign exchange forward contracts | | | | | | | | | | | | | | | | | | | (8,253 | ) | | | (6,903) | | Inflation linked swaps | | | | | | | | | | | | | | | | | | | (1,423 | ) | | | (1,394) | | Equity options | | | | | | | | | | | | | | | | | | | (1,490 | ) | | | (800) | | | | | | | | | | | | | | | | | | | | | | | (29,266 | ) | | | (27,965) | | | |
1. The notional contract amounts of derivatives indicate the gross nominal value of transactions outstanding at the reporting date. | | | | | | | | | National Grid Annual Report and Accounts 2016/17 | | Financial Statements | | 123 |
Notes to the consolidated financial statements – analysis of items in the primary statements continued 16. Derivative financial instrumentscontinued Where possible, derivatives held as hedging instruments are formally designated as hedges as defined in IAS 39. Derivatives may qualify as hedges for accounting purposes if they are fair value hedges, cash flow hedges or net investment hedges. Our use of derivatives may entail a derivative transaction qualifying for one or more hedge type designations under IAS 39. Hedge accounting allows derivatives to be designated as a hedge of anothernon-derivative financial instrument, to mitigate the impact of potential volatility in the income statement of changes in the fair value of the derivative instruments. To qualify for hedge accounting, documentation is prepared specifying the hedging strategy, the component transactions and methodology used for effectiveness measurement. National Grid uses three hedge accounting methods, which are described as follows: | | | | | | | 126 | | National Grid Annual Report and Accounts 2015/16 | | Financial Statements | | |
15. Derivative financial instrumentscontinued
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 offixed-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 recognisedoffset 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. | | | | | | | | | | | | 2016
£m | | | 2015
£m | | | | Cross-currency interest rate/interest rate swaps | | | 482 | | | | 379 | | | |
| | | | | | | | | | | | 2017
£m | | | 2016
£m | | | | Cross-currency interest rate/interest rate swaps | | | 548 | | | | 482 | | | |
Cash flow hedges Exposure arises from the variability in future interest and currency cash flows on assets and liabilities which bear interest at variable rates or are in a foreign currency. Interest rate and cross-currency swaps are maintained, and designated as cash flow hedges, where they qualify, to manage this exposure. Fair value changes on designated cash flow hedges are initially recognised directly in the cash flow hedge reserve, as gains or losses recognised in equity, and any ineffective portion is recognised immediately in the income statement. Amounts are transferred from equity and recognised in the income statement as the income or expense is recognised on the hedged item. Forward foreign currency contracts are used to hedge anticipated and committed future currency cash flows. Where these contracts qualify for hedge accounting they are designated as cash flow hedges. On recognition of the underlying transaction in the financial statements, the associated hedge gains and losses, deferred in equity, are transferred and included with the recognition of the underlying transaction. When a forecast transaction is no longer expected to occur, the cumulative gain or loss previously reported in equity is transferred to the income statement. Where anon-financial asset or anon-financial liability results from a forecast transaction or firm commitment being hedged, the amounts deferred in equity are included in the initial measurement of thatnon-monetary asset or liability. | | | | 2016
£m | | | 2015
£m | | | 2017
£m | | | 2016
£m | | | | | | | Cross-currency interest rate/interest rate swaps | | | (46 | ) | | | (453) | | | | (180 | ) | | | (46) | | Foreign exchange forward contracts | | | 47 | | | | (34) | | | | 69 | | | | 47 | | Inflation linked swaps | | | (151 | ) | | | (109) | | | | – | | | | (151) | | | | | | | | | | (150 | ) | | | (596) | | | | (111 | ) | | | (150) | | | | | | |
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 innon-sterling denominated subsidiaries. Where these contracts qualify for hedge accounting they are designated as net investment hedges. | | | | 2016
£m | | | 2015
£m | | | 2017
£m | | | 2016
£m | | | | | | | Cross-currency interest rate swaps | | | (199 | ) | | | (72) | | | | (544 | ) | | | (199) | | Foreign exchange forward contracts | | | (100 | ) | | | (218) | | | | (56 | ) | | | (100) | | | | | | | | | | (299 | ) | | | (290) | | | | (600 | ) | | | (299) | | | | | | |
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 thenon-sterling denominated subsidiaries, with any ineffective portion recognised immediately in the income statement. | | | | | | | | 124 | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | 127 |
Notes to the consolidated financial statements
– analysis of items in the primary statements continued
15.16. Derivative financial instrumentscontinued
Derivatives not in a formal hedge relationship Our policy is not to use derivatives for trading purposes. However, due to the complex nature of hedge accounting under IAS 39 some derivatives may not qualify for hedge accounting, or are specifically not designated as a hedge where natural offset is more appropriate. Changes in the fair value of any derivative instruments that do not qualify for hedge accounting are recognised in remeasurements within the income statement. | | | | 2016
£m | | | 2015
£m | | | 2017
£m | | | 2016
£m | | | | | | | Cross-currency interest rate/interest rate swaps | | | 51 | | | 119 | | | | 135 | | | 51 | | Foreign exchange forward contracts | | | 77 | | | (24) | | | | 34 | | | 77 | | Inflation linked swaps | | | (268 | ) | | (271) | | | | (522 | ) | | (268) | | Equity options | | | 1 | | | | – | | | | – | | | 1 | | | | | | | | | | (139 | ) | | (176) | | | | (353 | ) | | (139) | | | | | | |
Discontinuation of hedge accounting Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, exercised or no longer qualifies for hedge accounting. At that time, any cumulative gains or losses relating to cash flow hedges recognised in equity are initially retained in equity and subsequently recognised in the income statement in the same periods in which the previously hedged item affects profit or loss.loss, unless the hedged item is no longer expected to occur and then the amounts would be recognised immediately. Amounts deferred in equity with respect to net investment hedges are subsequently recognised in the income statement in the event of the disposal of the overseas operations concerned. For fair value hedges, the cumulative adjustment recorded to the carrying value of the hedged item at the date hedge accounting is discontinued is amortised to the income statement using the effective interest method. Embedded derivatives No adjustment is made with respect to derivative clauses embedded in financial instruments or other contracts that are defined as closely related to those instruments or contracts. Consequently these embedded derivatives are not accounted for separately from the debt instrument. Where there are embedded derivatives in host contracts not closely related, the embedded derivative is separately accounted for as a derivative financial instrument. 16.17. Inventories and current intangible assets
| Inventories represent assets that we intend to use in order to generate revenue in the short term, either by selling the asset itself (for example fuel stocks) or by using it to fulfil a service to a customer or to maintain our network (consumables). |
Inventories are stated at the lower of weighted average cost and net realisable value. Where applicable, cost comprises direct materials and direct labour costs as well as those overheads that have been incurred in bringing the inventories to their present location and condition. 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. | | | | 2016
£m | | | 2015
£m | | | 2017
£m | | | 2016
£m | | | | | | | Fuel stocks | | | 120 | | | | 112 | | | | 101 | | | | 120 | | Raw materials and consumables | | | 203 | | | | 152 | | | | 191 | | | | 203 | | Work in progress | | | 13 | | | | 13 | | | | 8 | | | | 13 | | Current intangible assets – emission allowances | | | 101 | | | | 63 | | | | 103 | | | | 101 | | | | | | | | | | 437 | | | | 340 | | | | 403 | | | | 437 | | | | | | |
There is a provision for obsolescence of £28m£26 million against inventories as at 31 March 2016 (2015: £28m)2017 (2016: £28 million). | | | | | | | 128 | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | 125 |
Notes to the consolidated financial statements – analysis of items in the primary statements continued 17.18. Trade and other receivables
| Trade and other receivables are amounts which are due from our customers for services (and commodities in the US) we have provided. Other receivables also include prepayments made by us, for example, property lease rentals paid in advance. |
Trade and other receivables are initially recognised at fair value and other than in respect of commodity contract assets, subsequently measured at amortised cost, less any appropriate allowances for estimated irrecoverable amounts. Commodity contract assets are recorded at fair value. A provision is established for irrecoverable amounts when there is objective evidence that amounts due under the original payment terms will not be collected. | | | | 2016 £m | | | 2015 £m | | | 2017 £m | | | 2016 £m | | | | | | | Trade receivables | | | 1,276 | | | | 1,568 | | | | 1,591 | | | | 1,276 | | Accrued income | | | 796 | | | | 852 | | | | 811 | | | | 796 | | Prepayments | | | 212 | | | | 229 | | | | 228 | | | | 212 | | Commodity contract assets | | | 22 | | | | 35 | | | | 54 | | | | 22 | | Current tax assets | | | 77 | | | | 60 | | | Other receivables | | | 89 | | | | 92 | | | | 98 | | | | 89 | | | | | | | | | | 2,472 | | | | 2,836 | | | | 2,782 | | | | 2,395 | | | | | | |
Trade receivables are non interest-bearing and generally have a 30 to 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 | | | | 2016
£m | | | 2015
£m | | | 2016
£m | | | 2015
£m | | | | | | | At 1 April | | | 294 | | | 249 | | | | 349 | | | 294 | | Exchange adjustments | | | 11 | | | 31 | | | | 51 | | | 11 | | Charge for the year, net of recoveries | | | 158 | | | 126 | | | | 147 | | | 158 | | Uncollectible amounts written off against receivables | | | (114 | ) | | (112) | | | | (121 | ) | | (114) | | Disposal of UK Gas Distribution | | | | (2 | ) | | | – | | | | | | | At 31 March | | | 349 | | | 294 | | | | 424 | | | 349 | | | | | | |
Trade receivables past due but not impaired | | | | 2016
£m | | | 2015
£m | | | 2017
£m | | | 2016
£m | | | | | | | Up to 3 months past due | | | 214 | | | | 299 | | | | 238 | | | | 214 | | 3 to 6 months past due | | | 48 | | | | 60 | | | | 67 | | | | 48 | | Over 6 months past due | | | 142 | | | | 156 | | | | 143 | | | | 142 | | | | | | | | | | 404 | | | | 515 | | | | 448 | | | | 404 | | | | | | |
For further information on our wholesale and retail credit risk, refer to note 30(a). For further information on our commodity risk, refer to note 30(e). | | | | | | | | 126 | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | 129 |
Notes to the consolidated financial statements
– analysis of items in the primary statements continued
18.19. Cash and cash equivalents
| Cash and cash equivalents include cash balances, together with short-term investments with an original maturity of less than three months that are readily convertible to cash. |
Net cash and cash equivalents reflected in the cash flow statement are net of bank overdrafts, which are reported in borrowings. The carrying amounts of cash and cash equivalents and bank overdrafts approximate their fair values. Cash at bank earns interest at floating rates based on daily bank deposit rates. Short-term deposits are made for periods varying between one day and three months, depending on the immediate cash requirements, and earn interest at the respective short-term deposit rates. Net cash and cash equivalents held in currencies other than sterling have been converted into sterling atyear-end exchange rates. For further information on currency exposures, refer to note 30(d). | | | | 2016
£m | | | 2015
£m | | | 2017 £m | | | 2016
£m | | | | | | | Cash at bank | | | 126 | | | 109 | | | | 199 | | | | 126 | | Short-term deposits | | | 1 | | | 10 | | | | 940 | | | | 1 | | | | | | | Cash and cash equivalents excluding bank overdrafts | | | 127 | | | 119 | | | | 1,139 | | | | 127 | | Bank overdrafts | | | (3 | ) | | (3) | | | | – | | | | (3) | | | | | | | Net cash and cash equivalents | | | 124 | | | 116 | | | | 1,139 | | | | 124 | | | | | | |
At 31 March 2016, £2m (2015: £1m)2017, £2 million (2016: £2 million) of cash and cash equivalents were restricted. This primarily relates to cash held in captive insurance companies. £940 million (2016: £1 million) comprises short-term money fund deposits. 19.20. Borrowings
| We borrow money primarily in the form of bonds and bank loans. These are for a fixed term and may have fixed or floating interest rates or are linked to RPI. As indicated in note 15,16, we use derivatives to manage risks associated with interest rates and foreign exchange. Our strategy in action Our price controls and rate plans require us to fund our networks within a certain ratio of debt to equity and, as a result, we have issued a significant amount of debt. As we continue to invest in our networks, the value of debt is expected to increase over time. To maintain a strong balance sheet and to allow us to access capital markets at commercially acceptable interest rates, we balance the amount of debt we issue with the value of our assets, and take account of certain other metrics used by credit rating agencies. |
Borrowings, which include interest-bearing and inflation linked debt and overdrafts, are recorded at their initial fair value which normally reflects the proceeds received, net of direct issue costs less any repayments. Subsequently these are stated at amortised cost, using the effective interest method. Any difference between the proceeds after direct issue costs and the redemption value is recognised over the term of the borrowing in the income statement using the effective interest method. | | | | 2016
£m | | | 2015 £m | | | 2017 £m | | | 2016 £m | | | | | | | Current | | | | | | | | | Bank loans | | | 1,179 | | | | 561 | | | | 1,339 | | | | 1,179 | | Bonds | | | 1,282 | | | | 1,068 | | | | 2,209 | | | | 1,282 | | Commercial paper | | | 1,092 | | | | 1,349 | | | | 1,881 | | | | 1,092 | | Finance leases | | | 53 | | | | 44 | | | | 66 | | | | 53 | | Other loans | | | 2 | | | | 3 | | | | 1 | | | | 2 | | Bank overdrafts | | | 3 | | | | 3 | | | | – | | | | 3 | | | | | | | | | | 3,611 | | | | 3,028 | | | | 5,496 | | | | 3,611 | | | | | | | Non-current | | | | | | | | | Bank loans | | | 1,816 | | | | 1,417 | | | | 2,343 | | | | 1,816 | | Bonds | | | 22,556 | | | | 21,156 | | | | 20,368 | | | | 22,556 | | Finance leases | | | 190 | | | | 159 | | | | 242 | | | | 190 | | Other loans | | | 171 | | | | 150 | | | | 189 | | | | 171 | | | | | | | | | | 24,733 | | | | 22,882 | | | | 23,142 | | | | 24,733 | | | | | | | Total borrowings | | | 28,344 | | | | 25,910 | | | | 28,638 | | | | 28,344 | | | | | | |
| | | | | | | 130 | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | 127 |
Notes to the consolidated financial statements – analysis of items in the primary statements continued 19.20. Borrowingscontinued
Total borrowings are repayable as follows: | | | | 2016 £m | | | 2015 £m | | | 2017 £m | | | 2016 £m | | | | | | | Less than 1 year | | | 3,611 | | | | 3,028 | | | | 5,496 | | | | 3,611 | | In 1 to 2 years | | | 1,835 | | | | 873 | | | | 1,941 | | | | 1,835 | | In 2 to 3 years | | | 1,816 | | | | 1,601 | | | | 1,821 | | | | 1,816 | | In 3 to 4 years | | | 1,775 | | | | 1,437 | | | | 2,453 | | | | 1,775 | | In 4 to 5 years | | | 2,276 | | | | 1,709 | | | | 1,921 | | | | 2,276 | | More than 5 years: | | | | | | | | | by instalments | | | 742 | | | | 154 | | | | 1,043 | | | | 742 | | other than by instalments | | | 16,289 | | | | 17,108 | | | | 13,963 | | | | 16,289 | | | | | | | | | | 28,344 | | | | 25,910 | | | | 28,638 | | | | 28,344 | | | | | | |
The fair value of borrowings at 31 March 20162017 was £31,463m (2015: £30,103m)£32,239 million (2016: £31,463 million). Where market values were available, fair value of borrowings (Level 1) was £13,283m (2015: £14,583m)£12,547 million (2016: £13,283 million). Where market values were not available, fair value of borrowings (Level 2) was £18,180m (2015: £15,520m)£19,692 million (2016: £18,180 million), calculated by discounting cash flows at prevailing interest rates. The notional amount outstanding of the debt portfolio at 31 March 20162017 was £27,836m (2015: £25,419m)£28,310 million (2016: £27,836 million). The assets of the Colonial Gas Company and the Niagara Mohawk Power Corporation and certain gas distribution assets of the Narragansett Electric Company are subject to liens and other charges and are provided as collateral over borrowings totalling £385m£440 million at 31 March 2016 (2015: £424m)2017 (2016: £385 million). 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 currentmark-to-market valuation of the trades between the parties exceeds an agreed threshold. Included in current bank loans is £610m (2015: £540m)£709 million (2016: £610 million) in respect of cash received under collateral agreements. For further details of our borrowing facilities, refer to note 31. For further details of our bonds in issue, please refer to the debt investor section of our website. Assets held under finance leases are recognised at their fair value or, if lower, the present value of the minimum lease payments on inception. The corresponding liability is recognised as a finance lease obligation within borrowings. Rental payments are apportioned between finance costs and reduction in the finance lease obligation, so as to achieve a constant rate of interest. Assets held under finance leases are depreciated over the shorter of their useful life and the lease term. Finance lease obligations | | | | 2016 £m | | | 2015 £m | | | 2017 £m | | | 2016 £m | | | | | | | Gross finance lease liabilities are repayable as follows: | | | | | | | | | Less than 1 year | | | 53 | | | 44 | | | | 66 | | | 53 | | 1 to 5 years | | | 156 | | | 125 | | | | 213 | | | 156 | | More than 5 years | | | 75 | | | 72 | | | | 89 | | | 75 | | | | | | | | | | 284 | | | 241 | | | | 368 | | | 284 | | Less: finance charges allocated to future periods | | | (41 | ) | | (38) | | | | (60 | ) | | (41) | | | | | | | | | | 243 | | | 203 | | | | 308 | | | 243 | | | | | | | The present value of finance lease liabilities is as follows: | | | | | | | | | Less than 1 year | | | 53 | | | 44 | | | | 66 | | | 53 | | 1 to 5 years | | | 137 | | | 110 | | | | 174 | | | 137 | | More than 5 years | | | 53 | | | 49 | | | | 68 | | | 53 | | | | | | | | | | 243 | | | 203 | | | | 308 | | | 243 | | | | | | |
| Unaudited commentary on borrowings As at 31 March 2016,2017, total borrowings of £28,344m (2015: £25,910m)£28,638 million (2016: £28,344 million) including bonds, bank loans, commercial paper, collateral, finance leases and other debt had increased by £2,434m.£294 million. We expect to repay £3,611m£5,496 million of our total borrowings in the next 12 months including commercial paper, collateral and interest, and to fund this repayment through the capital and money markets.markets and surplus cash. The average long-term debt maturity of the portfolio is 1211 years (2015: 13(2016: 12 years). Further information on our bonds can be found in the debt investor section of our website. |
| | | | | | | | 128 | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | 131 |
Notes to the consolidated financial statements
– analysis of items in the primary statements continued
20.21. Trade and other payables
| Trade and other payables include amounts owed to suppliers, tax authorities and other parties which are due to be settled within 12 months. The total also includes deferred income, which represents monies received from customers but for which we have not yet delivered the associated service. These amounts are recognised as revenue when the service is provided. |
Trade payables are initially recognised at fair value and subsequently measured at amortised cost. | | | | 2016 £m | | | 2015
£m | | | 2017 £m | | | 2016 £m | | | | | | | Trade payables | | | 2,038 | | | | 2,050 | | | | 2,135 | | | | 2,038 | | Deferred income | | | 275 | | | | 236 | | | | 298 | | | | 275 | | Commodity contract liabilities | | | 96 | | | | 116 | | | | 93 | | | | 96 | | Social security and other taxes | | | 159 | | | | 196 | | | | 136 | | | | 159 | | Other payables | | | 717 | | | | 694 | | | | 776 | | | | 717 | | | | | | | | | | 3,285 | | | | 3,292 | | | | 3,438 | | | | 3,285 | | | | | | |
Due to their short maturities, the fair value of trade payables approximates their book value. Commodity contract liabilities are recorded at fair value. All other trade and other payables are recorded at amortised cost. 21.22. Othernon-current liabilities
| Othernon-current liabilities include deferred income which will not be recognised as income until after 31 March 2017.2018. It also includes payables that are not due until after that date. |
Commodity contract liabilities are recorded at fair value. All othernon-current liabilities are recorded at amortised cost. | | | | 2016 £m | | | 2015 £m | | | 2017 £m | | | 2016 £m | | | | | | | Deferred income | | | 1,802 | | | | 1,648 | | | | 1,032 | | | | 1,802 | | Commodity contract liabilities | | | 39 | | | | 55 | | | | 77 | | | | 39 | | Other payables | | | 230 | | | | 216 | | | | 338 | | | | 230 | | | | | | | | | | 2,071 | | | | 1,919 | | | | 1,447 | | | | 2,071 | | | | | | |
There is no material difference between the fair value and the carrying value of othernon-current liabilities. 22.23. Pensions and other post-retirement benefits
| Substantially all our employees are members of either DB (defined benefit) or DC (defined contribution) pension plans. The principal UK plans are the National Grid UK Pension Scheme, the National Grid Electricity Group of the Electricity Supply Pension Scheme and the National Grid YouPlan. 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 associated plan assets and present value of DB obligations are updated annually in accordance with IAS 19 (revised). For further details and the actuarial assumptions used to value the obligations, see note 29. We separately present our UK and US pension plans to show geographical split. Below we provide a more detailed analysis of the amounts recorded in the primary financial statements.statements and the actuarial assumptions used to value the obligations. When deciding on these assumptions we take independent actuarial advice. Comparatively small changes in the assumptions applied may have a significant effect on the overall deficit or surplus of a DB pension plan. |
For DC pension plans, National Grid pays contributions into separate funds on behalf of the employee and has no further obligations to employees. The risks associated with this type of plan are assumed by the member. For DB pension plans, members receive benefits on retirement, the value of which is dependent on factors such as salary and length of pensionable service. National Grid underwrites both financial and demographic risks associated with this type of plan. The cost of providing benefits in a DB plan is determined using the projected unit method, with actuarial valuations being carried out at each reporting date by a qualified actuary. This valuation method is an accrued benefits valuation method that makes allowance for projected earnings. | | | | | | | 132 | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | 129 |
Notes to the consolidated financial statements – analysis of items in the primary statements continued 22.23. Pensions and other post-retirement benefitscontinued
National Grid’s obligation in respect of DB pension plans is calculated separately for each plan by projecting the estimated amount of future benefit payments that employees have earned for their pensionable service in the current and prior periods. These future benefit payments are discounted to determine the present value of the liabilities and the fair value of plan assets and any unrecognised past service cost is then deducted. The discount rate used is the yield at the valuation date on high-quality corporate bonds. National Grid takes advice from independent actuaries relating to the appropriateness of any key assumptions applied which include life expectancy of members, expected salary and pension increases, and inflation. It should be noted that comparativelyComparatively small changes in the assumptions used may have a significant effect on the amounts recognised in the income statement and the statement of other comprehensive income and the net liability recognised in the statement of financial position. Remeasurements of net retirement obligations are recognised in full in the period in which they occur in the statement of other comprehensive income. Risks The DB pension obligations and other post-retirement benefit liabilities are exposed to the primary risks outlined below. Liabilities are calculated using discount rates set with reference to yields on high-quality corporate bonds prevailing in the US and UK debt markets and will fluctuate as yields change. Plan funds are invested in a variety of asset classes, principally: equities, government securities, corporate bonds and property. Consequently, actual returns will differ from the underlying discount rate adopted and therefore have an impact on the net balance sheet liability. Changes in inflation will affect both current and future pension payments and are partially mitigated through investment in inflation matching assets and hedging instruments. Longevity is also a key driver of liabilities and changes in expected mortality will have a direct impact on liabilities. The liabilities are, in aggregate, relatively mature which serves to mitigate this risk to some extent. Each plan’s investment strategy seeks to balance the level of investment return sought with the aim of reducing volatility and risk. In undertaking this approach reference is made both to the maturity of the liabilities and the funding level of that plan. A number of further strategies are employed to manage underlying risks, including liability matching asset strategies, diversification of asset portfolios, interest rate hedging and management of foreign exchange exposure. Amounts recognised in the statement of financial position
| | | | | | | | | | | | | | | | 2016 £m | | | 2015 £m | | | 2014 £m | | | | Present value of funded obligations | | | (28,648 | ) | | | (29,292 | ) | | | (25,346) | | Fair value of plan assets | | | 26,434 | | | | 26,408 | | | | 23,258 | | | | | | | (2,214 | ) | | | (2,884 | ) | | | (2,088) | | Present value of unfunded obligations | | | (304 | ) | | | (300 | ) | | | (248) | | Other post-employment liabilities | | | (67 | ) | | | (74 | ) | | | (75) | | | | Net defined benefit liability | | | (2,585 | ) | | | (3,258 | ) | | | (2,411) | | | | Represented by: | | | | | | | | | | | | | Liabilities | | | (2,995 | ) | | | (3,379 | ) | | | (2,585) | | Assets | | | 410 | | | | 121 | | | | 174 | | | | | | | (2,585 | ) | | | (3,258 | ) | | | (2,411) | | | |
The geographical split of pensions and other post-retirement benefits is as shown below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | UK pensions | | | US pensions | | | US other post-retirement benefits | | | | | 2016 £m | | | 2015 £m | | | 2014 £m | | | 2016 £m | | | 2015 £m | | | 2014 £m | | | 2016 £m | | | 2015 £m | | | 2014 £m | | | | Present value of funded obligations1 | | | (19,341 | ) | | | (20,053 | ) | | | (18,100) | | | | (5,916 | ) | | | (5,827 | ) | | | (4,566) | | | | (3,391 | ) | | | (3,412 | ) | | | (2,680) | | Fair value of plan assets | | | 19,401 | | | | 19,453 | | | | 17,409 | | | | 5,136 | | | | 5,052 | | | | 4,229 | | | | 1,897 | | | | 1,903 | | | | 1,620 | | | | | | | 60 | | | | (600 | ) | | | (691) | | | | (780 | ) | | | (775 | ) | | | (337) | | | | (1,494 | ) | | | (1,509 | ) | | | (1,060) | | Present value of unfunded obligations | | | (75 | ) | | | (72 | ) | | | (62) | | | | (229 | ) | | | (228 | ) | | | (186) | | | | – | | | | – | | | | – | | Other post-employment liabilities | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | | (67 | ) | | | (74 | ) | | | (75) | | | | Net defined benefit liability | | | (15 | ) | | | (672 | ) | | | (753) | | | | (1,009 | ) | | | (1,003 | ) | | | (523) | | | | (1,561 | ) | | | (1,583 | ) | | | (1,135) | | | | Represented by: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Liabilities | | | (300 | ) | | | (672 | ) | | | (753) | | | | (1,134 | ) | | | (1,124 | ) | | | (697) | | | | (1,561 | ) | | | (1,583 | ) | | | (1,135) | | Assets | | | 285 | | | | – | | | | – | | | | 125 | | | | 121 | | | | 174 | | | | – | | | | – | | | | – | | | | | | | (15 | ) | | | (672 | ) | | | (753) | | | | (1,009 | ) | | | (1,003 | ) | | | (523) | | | | (1,561 | ) | | | (1,583 | ) | | | (1,135) | | | |
1. | Present value of funded obligations split approximately as follows: |
| ● | UK pensions at 31 March 2016: 12% active members (2015: 12%; 2014: 12%); 18% deferred members (2015: 18%; 2014: 19%); 70% pensioner members (2015: 70%; 2014: 69%) |
| ● | US pensions at 31 March 2016: 39% active members (2015: 38%; 2014: 38%); 9% deferred members (2015: 9%; 2014: 9%); 52% pensioner members (2015: 53%; 2014: 53%) |
| ● | US other post-retirement benefits at 31 March 2016: 41% active members (2015: 38%; 2014: 44%); 0% deferred members (2015: 0%; 2014: 0%); 59% pensioner members (2015: 62%; 2014: 56%) |
These figures reflect legal and actuarial advice that we have taken regarding recognition of surplus under IFRIC 14.
| | | | | | | | | National Grid Annual Report and Accounts 2015/16 | | Financial Statements | | 133 |
Notes to the consolidated financial statements
– analysis of items in the primary statements continued
22. Pensions and other post-retirement benefitscontinued
Amounts recognised in the income statement and statement of other comprehensive income
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2016 £m | | | 2015 £m | | | 2014
£m | | | | Included within operating costs | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Administration costs | | | | | | | | | | | | | | | | | | | | | | | | | | | 16 | | | | 14 | | | | 12 | | | | Included within payroll costs | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Defined contribution scheme costs | | | | | | | | | | | | | | | | | | | | | | | | | | | 56 | | | | 48 | | | | 40 | | Defined benefit scheme costs: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Current service cost | | | | | | | | | | | | | | | | | | | | | | | | | | | 221 | | | | 186 | | | | 225 | | Past service costs – augmentations | | | | | | | | | | | | | | | | | | | | | | | | | | | 3 | | | | 7 | | | | 15 | | Past service (credit)/cost – redundancies | | | | | | | | | | | | | | | | | | | | | | | | | | | (1 | ) | | | 1 | | | | (19) | | Past service cost/(credit) – plan amendments | | | | | | | | | | | | | | | | | | | | | | | | | | | – | | | | 1 | | | | (11) | | Special termination benefit cost – redundancies | | | | | | | | | | | | | | | | | | | | | | | | | | | 11 | | | | 20 | | | | 39 | | LIPA MSA transition | | | | | | | | | | | | | | | | | | | | | | | | | | | – | | | | – | | | | (214) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 290 | | | | 263 | | | | 75 | | | | Included within finance income and costs | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net interest cost | | | | | | | | | | | | | | | | | | | | | | | | | | | 112 | | | | 101 | | | | 128 | | | | Included within exceptional items and remeasurements | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Administration costs | | | | | | | | | | | | | | | | | | | | | | | | | | | 2 | | | | – | | | | – | | | | Total included in income statement | | | | | | | | | | | | | | | | | | | | | | | | | | | 420 | | | | 378 | | | | 215 | | | | Remeasurements of net retirement benefit obligations | | | | | | | | | | | | | | | | | | | | | | | | | | | 539 | | | | (771 | ) | | | 485 | | Exchange adjustments | | | | | | | | | | | | | | | | | | | | | | | | | | | (81 | ) | | | (236 | ) | | | 186 | | | | Total included in the statement of other comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | 458 | | | | (1,007 | ) | | | 671 | | | | The geographical split of pensions and other post-retirement benefits is as shown below: | | | | | UK pensions | | | US pensions | | | US other post-retirement benefits | | | | | 2016
£m | | | 2015 £m | | | 2014
£m | | | 2016
£m | | | 2015 £m | | | 2014
£m | | | 2016
£m | | | 2015
£m | | | 2014
£m | | | | Included within operating costs | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Administration costs | | | 9 | | | | 6 | | | | 6 | | | | 6 | | | | 7 | | | | 5 | | | | 1 | | | | 1 | | | | 1 | | | | Included within payroll costs | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Defined contribution scheme costs | | | 31 | | | | 26 | | | | 19 | | | | 25 | | | | 22 | | | | 21 | | | | – | | | | – | | | | – | | Defined benefit scheme costs: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Current service cost | | | 74 | | | | 70 | | | | 96 | | | | 95 | | | | 77 | | | | 85 | | | | 52 | | | | 39 | | | | 44 | | Past service costs – augmentations | | | 3 | | | | 7 | | | | 15 | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | Past service (credit)/cost – redundancies | | | (1 | ) | | | 1 | | | | (19) | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | Past service (credit)/cost – plan amendments | | | – | | | | – | | | | (11) | | | | – | | | | 1 | | | | – | | | | – | | | | – | | | | – | | Special termination benefit cost – redundancies | | | 11 | | | | 20 | | | | 39 | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | LIPA MSA transition | | | – | | | | – | | | | – | | | | – | | | | – | | | | (16) | | | | – | | | | – | | | | (198) | | | | | | | 118 | | | | 124 | | | | 139 | | | | 120 | | | | 100 | | | | 90 | | | | 52 | | | | 39 | | | | (154) | | | | Included within finance income and costs | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net interest cost | | | 18 | | | | 27 | | | | 47 | | | | 36 | | | | 25 | | | | 27 | | | | 58 | | | | 49 | | | | 54 | | | | Included within exceptional items and remeasurements | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Administration costs | | | 2 | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | | Total included in income statement | | | 147 | | | | 157 | | | | 192 | | | | 162 | | | | 132 | | | | 122 | | | | 111 | | | | 89 | | | | (99) | | | | Remeasurements of net retirement benefit obligations | | | 534 | | | | (46 | ) | | | 354 | | | | (67 | ) | | | (408 | ) | | | 81 | | | | 72 | | | | (317 | ) | | | 50 | | Exchange adjustments | | | – | | | | – | | | | – | | | | (33 | ) | | | (88 | ) | | | 60 | | | | (48 | ) | | | (148 | ) | | | 126 | | | | Total included in the statement of other comprehensive income | | | 534 | | | | (46 | ) | | | 354 | | | | (100 | ) | | | (496 | ) | | | 141 | | | | 24 | | | | (465 | ) | | | 176 | | | |
| | | | | | | 134 | | National Grid Annual Report and Accounts 2015/16 | | Financial Statements | | |
22. Pensions and other post-retirement benefitscontinued
Reconciliation of the net defined benefit liability
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2016 £m | | | 2015 £m | | | 2014 £m | | | | Opening net defined benefit liability | | | | | | | | | | | | | | | | | | | | | | | | | | | (3,258 | ) | | | (2,411 | ) | | | (3,497) | | Cost recognised in the income statement | | | | | | | | | | | | | | | | | | | | | | | | | | | (364 | ) | | | (330 | ) | | | (175) | | Remeasurement effects recognised in the statement of other comprehensive income | | | | | | | | | | | | | | | | 458 | | | | (1,007 | ) | | | 671 | | Employer contributions | | | | | | | | | | | | | | | | | | | | | | | | | | | 587 | | | | 508 | | | | 596 | | Other movements | | | | | | | | | | | | | | | | | | | | | | | | | | | (8 | ) | | | (18 | ) | | | (6) | | | | Closing net defined benefit liability | | | | | | | | | | | | | | | | | | | | | | | | | | | (2,585 | ) | | | (3,258 | ) | | | (2,411) | | | | The geographical split of pensions and other post-retirement benefits is as shown below: | | | | | UK pensions | | | US pensions | | | US other post-retirement benefits | | | | | 2016 £m | | | 2015
£m | | | 2014 £m | | | 2016 £m | | | 2015 £m | | | 2014
£m | | | 2016 £m | | | 2015 £m | | | 2014 £m | | | | Opening net defined benefit liability | | | (672 | ) | | | (753 | ) | | | (1,169) | | | | (1,003 | ) | | | (523 | ) | | | (740) | | | | (1,583 | ) | | | (1,135 | ) | | | (1,588) | | (Cost)/credit recognised in the income statement | | | (116 | ) | | | (131 | ) | | | (173) | | | | (137 | ) | | | (110 | ) | | | (101) | | | | (111 | ) | | | (89 | ) | | | 99 | | Remeasurement effects recognised in the statement of other comprehensive income | | | 534 | | | | (46 | ) | | | 354 | | | | (100 | ) | | | (496 | ) | | | 141 | | | | 24 | | | | (465 | ) | | | 176 | | Employer contributions | | | 239 | | | | 258 | | | | 235 | | | | 231 | | | | 126 | | | | 174 | | | | 117 | | | | 124 | | | | 187 | | Other movements | | | – | | | | – | | | | – | | | | – | | | | – | | | | 3 | | | | (8 | ) | | | (18 | ) | | | (9) | | | | Closing net defined benefit liability | | | (15 | ) | | | (672 | ) | | | (753) | | | | (1,009 | ) | | | (1,003 | ) | | | (523) | | | | (1,561 | ) | | | (1,583 | ) | | | (1,135) | | | |
| | | | | | | | | National Grid Annual Report and Accounts 2015/16 | | Financial Statements | | 135 |
Notes to the consolidated financial statements
– analysis of items in the primary statements continued
22. Pensions and other post-retirement benefitscontinued
Changes in the present value of defined benefit obligations (including unfunded obligations)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2016 £m | | | 2015 £m | | | 2014 £m | | | | Opening defined benefit obligations | | | | | | | | | | | | | | | | | | | | | | | | | | | (29,592 | ) | | | (25,594 | ) | | | (26,696) | | Current service cost | | | | | | | | | | | | | | | | | | | | | | | | | | | (221 | ) | | | (186 | ) | | | (225) | | Interest cost | | | | | | | | | | | | | | | | | | | | | | | | | | | (1,026 | ) | | | (1,127 | ) | | | (1,124) | | Actuarial gains – experience | | | | | | | | | | | | | | | | | | | | | | | | | | | 659 | | | | 163 | | | | 41 | | Actuarial losses – demographic assumptions | | | | | | | | | | | | | | | | | | | | | | | | | | | – | | | | (342 | ) | | | (283) | | Actuarial gains/(losses) – financial assumptions | | | | | | | | | | | | | | | | | | | | | | | | | | | 218 | | | | (2,746 | ) | | | 542 | | Past service credit/(cost) – redundancies | | | | | | | | | | | | | | | | | | | | | | | | | | | 1 | | | | (1 | ) | | | 154 | | Special termination benefit cost – redundancies | | | | | | | | | | | | | | | | | | | | | | | | | | | (11 | ) | | | (20 | ) | | | (39) | | Past service cost – augmentations | | | | | | | | | | | | | | | | | | | | | | | | | | | (3 | ) | | | (7 | ) | | | (15) | | Past service (cost)/credit – plan amendments | | | | | | | | | | | | | | | | | | | | | | | | | | | – | | | | (1 | ) | | | 30 | | Medicare subsidy received | | | | | | | | | | | | | | | | | | | | | | | | | | | (15 | ) | | | (19 | ) | | | (17) | | Liabilities extinguished on settlements | | | | | | | | | | | | | | | | | | | | | | | | | | | – | | | | – | | | | 60 | | Employee contributions | | | | | | | | | | | | | | | | | | | | | | | | | | | (2 | ) | | | (2 | ) | | | (2) | | Benefits paid | | | | | | | | | | | | | | | | | | | | | | | | | | | 1,348 | | | | 1,268 | | | | 1,257 | | Exchange adjustments | | | | | | | | | | | | | | | | | | | | | | | | | | | (308 | ) | | | (978 | ) | | | 723 | | | | Closing defined benefit obligations | | | | | | | | | | | | | | | | | | | | | | | | | | | (28,952 | ) | | | (29,592 | ) | | | (25,594) | | | | The geographical split of pensions and other post-retirement benefits is as shown below: | | | | | UK pensions | | | US pensions | | | US other post-retirement benefits | | | | | 2016 £m | | | 2015 £m | | | 2014 £m | | | 2016 £m | | | 2015 £m | | | 2014 £m | | | 2016 £m | | | 2015 £m | | | 2014 £m | | | | Opening defined benefit obligations | | | (20,125 | ) | | | (18,162 | ) | | | (18,561) | | | | (6,055 | ) | | | (4,752 | ) | | | (5,115) | | | | (3,412 | ) | | | (2,680 | ) | | | (3,020) | | Current service cost | | | (74 | ) | | | (70 | ) | | | (96) | | | | (95 | ) | | | (77 | ) | | | (85) | | | | (52 | ) | | | (39 | ) | | | (44) | | Interest cost | | | (649 | ) | | | (762 | ) | | | (780) | | | | (242 | ) | | | (235 | ) | | | (221) | | | | (135 | ) | | | (130 | ) | | | (123) | | Actuarial gains/(losses) – experience | | | 552 | | | | 100 | | | | 16 | | | | 15 | | | | (22 | ) | | | (22) | | | | 92 | | | | 85 | | | | 47 | | Actuarial losses – demographic assumptions | | | – | | | | (95 | ) | | | – | | | | – | | | | (125 | ) | | | (129) | | | | – | | | | (122 | ) | | | (154) | | Actuarial (losses)/gains – financial assumptions | | | – | | | | (1,980 | ) | | | 436 | | | | 120 | | | | (486 | ) | | | 57 | | | | 98 | | | | (280 | ) | | | 49 | | Past service credit/(cost) – redundancies | | | 1 | | | | (1 | ) | | | 19 | | | | – | | | | – | | | | 16 | | | | – | | | | – | | | | 119 | | Special termination benefit cost – redundancies | | | (11 | ) | | | (20 | ) | | | (39) | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | Past service cost – augmentations | | | (3 | ) | | | (7 | ) | | | (15) | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | Past service credit/(cost) – plan amendments | | | – | | | | – | | | | 11 | | | | – | | | | (1 | ) | | | – | | | | – | | | | – | | | | 19 | | Medicare subsidy received | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | | (15 | ) | | | (19 | ) | | | (17) | | Liabilities extinguished on settlements | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | | 60 | | Employee contributions | | | (2 | ) | | | (2 | ) | | | (2) | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | Benefits paid | | | 895 | | | | 874 | | | | 849 | | | | 310 | | | | 269 | | | | 291 | | | | 143 | | | | 125 | | | | 117 | | Exchange adjustments | | | – | | | | – | | | | – | | | | (198 | ) | | | (626 | ) | | | 456 | | | | (110 | ) | | | (352 | ) | | | 267 | | | | Closing defined benefit obligations | | | (19 ,416 | ) | | | (20,125 | ) | | | (18,162) | | | | (6,145 | ) | | | (6,055 | ) | | | (4,752) | | | | (3,391 | ) | | | (3,412 | ) | | | (2,680) | | | |
| | | | | | | 136 | | National Grid Annual Report and Accounts 2015/16 | | Financial Statements | | |
22. Pensions and other post-retirement benefitscontinued
Changes in the fair value of plan assets
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2016 £m | | | 2015 £m | | | 2014 £m | | | | Opening fair value of plan assets | | | | | | | | | | | | | | | | | | | | | | | | | | | 26,408 | | | | 23,258 | | | | 23,285 | | Interest income | | | | | | | | | | | | | | | | | | | | | | | | | | | 914 | | | | 1,026 | | | | 996 | | Return on assets (less)/greater than assumed | | | | | | | | | | | | | | | | | | | | | | | | | | | (338 | ) | | | 2,154 | | | | 185 | | Administration costs | | | | | | | | | | | | | | | | | | | | | | | | | | | (18 | ) | | | (14 | ) | | | (12) | | Employer contributions | | | | | | | | | | | | | | | | | | | | | | | | | | | 587 | | | | 508 | | | | 596 | | Employee contributions | | | | | | | | | | | | | | | | | | | | | | | | | | | 2 | | | | 2 | | | | 2 | | Benefits paid | | | | | | | | | | | | | | | | | | | | | | | | | | | (1,348 | ) | | | (1,268 | ) | | | (1,257) | | Exchange adjustments | | | | | | | | | | | | | | | | | | | | | | | | | | | 227 | | | | 742 | | | | (537) | | | | Closing fair value of plan assets | | | | | | | | | | | | | | | | | | | | | | | | | | | 26,434 | | | | 26,408 | | | | 23,258 | | | | Actual return on plan assets | | | | | | | | | | | | | | | | | | | | | | | | | | | 576 | | | | 3,180 | | | | 1,181 | | | | Expected contributions to plans in the following year | | | | | | | | | | | | | | | | | | | | | | | | | | | 686 | | | | 533 | | | | 409 | | | | The geographical split of pensions and other post-retirement benefits is as shown below: | | | | | UK pensions | | | US pensions | | | US other post-retirement benefits | | | | | 2016 £m | | | 2015 £m | | | 2014 £m | | | 2016 £m | | | 2015 £m | | | 2014 £m | | | 2016 £m | | | 2015 £m | | | 2014 £m | | | | Opening fair value of plan assets | | | 19,453 | | | | 17,409 | | | | 17,392 | | | | 5,052 | | | | 4,229 | | | | 4,378 | | | | 1,903 | | | | 1,620 | | | | 1,515 | | Interest income | | | 631 | | | | 735 | | | | 733 | | | | 206 | | | | 210 | | | | 194 | | | | 77 | | | | 81 | | | | 69 | | Return on assets (less)/greater than assumed | | | (18 | ) | | | 1,929 | | | | (98) | | | | (202 | ) | | | 225 | | | | 175 | | | | (118 | ) | | | – | | | | 108 | | Administration costs | | | (11 | ) | | | (6 | ) | | | (6) | | | | (6 | ) | | | (7 | ) | | | (5) | | | | (1 | ) | | | (1 | ) | | | (1) | | Employer contributions | | | 239 | | | | 258 | | | | 235 | | | | 231 | | | | 126 | | | | 174 | | | | 117 | | | | 124 | | | | 187 | | Employee contributions | | | 2 | | | | 2 | | | | 2 | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | Benefits paid | | | (895 | ) | | | (874 | ) | | | (849) | | | | (310 | ) | | | (269 | ) | | | (291) | | | | (143 | ) | | | (125 | ) | | | (117) | | Exchange adjustments | | | – | | | | – | | | | – | | | | 165 | | | | 538 | | | | (396) | | | | 62 | | | | 204 | | | | (141) | | | | Closing fair value of plan assets | | | 19,401 | | | | 19,453 | | | | 17,409 | | | | 5,136 | | | | 5,052 | | | | 4,229 | | | | 1,897 | | | | 1,903 | | | | 1,620 | | | | Actual return on plan assets | | | 613 | | | | 2,664 | | | | 635 | | | | 4 | | | | 435 | | | | 369 | | | | (41 | ) | | | 81 | | | | 177 | | | | Expected contributions to plans in the following year | | | 228 | | | | 225 | | | | 182 | | | | 220 | | | | 204 | | | | 118 | | | | 238 | | | | 104 | | | | 109 | | | |
| | | | | | | | | National Grid Annual Report and Accounts 2015/16 | | Financial Statements | | 137 |
Notes to the consolidated financial statements
– analysis of items in the primary statements continued
23. Provisions
| We make provisions when an obligation exists, resulting from a past event and it is probable that cash will be paid to settle it, but the exact amount of cash required can only be estimated.
The main estimates relate to environmental remediation and decommissioning costs for various sites we own or have owned and other provisions, including restructuring plans and lease contracts we have entered into that are now loss making. The evaluation of the likelihood of the contingent events has required best judgement by management regarding the probability of exposure to potential loss. Should circumstances change following unforeseeable developments, the likelihood could alter.
Our strategy in action
We are committed to the protection and enhancement of the environment. However, we have acquired, owned and operated a number of businesses which have, during the course of their operations, created an environmental impact. Therefore we have a provision that reflects the expected cost to remediate these sites. Current operations will seldom result in new sites with significant expected costs being added to the provision.
|
Provisions are recognised where a legal or constructive obligation exists at the reporting date, as a result of a past event, where the amount of the obligation can be reliably estimated and where the outflow of economic benefit is probable.
Provision is made for decommissioning and environmental costs, based on future estimated expenditures, discounted to present values. An initial estimate of decommissioning and environmental costs attributable to property, plant and equipment is recorded as part of the original cost of the related property, plant and equipment.
Changes in the provision arising from revised estimates or discount rates or changes in the expected timing of expenditures that relate to property, plant and equipment are recorded as adjustments to their carrying value and depreciated prospectively over their remaining estimated useful economic lives; otherwise such changes are recognised in the income statement.
The unwinding of the discount is included within the income statement as a financing charge.
| | | | | | | | | | | | | | | | | | | | | | | | | | Environmental
£m | | | Decommissioning
£m | | Restructuring
£m | | | Emissions
£m | | | Other £m | | | Total
provisions
£m | | | | At 1 April 2014 | | | 1,072 | | | 144 | | | 79 | | | | 14 | | | | 336 | | | | 1,645 | | Exchange adjustments | | | 95 | | | 8 | | | – | | | | 2 | | | | 28 | | | | 133 | | Additions | | | 25 | | | 7 | | | 9 | | | | 7 | | | | 57 | | | | 105 | | Unused amounts reversed | | | (5 | ) | | – | | | (2 | ) | | | – | | | | (5 | ) | | | (12) | | Unwinding of discount | | | 57 | | | 3 | | | 1 | | | | – | | | | 12 | | | | 73 | | Utilised | | | (80 | ) | | (25) | | | (48 | ) | | | – | | | | (56 | ) | | | (209) | | | | At 31 March 2015 | | | 1,164 | | | 137 | | | 39 | | | | 23 | | | | 372 | | | | 1,735 | | Exchange adjustments | | | 29 | | | 3 | | | – | | | | 1 | | | | 9 | | | | 42 | | Additions | | | 30 | | | 22 | | | 10 | | | | 1 | | | | 33 | | | | 96 | | Unused amounts reversed | | | (15 | ) | | (8) | | | (1 | ) | | | – | | | | (3 | ) | | | (27) | | Unwinding of discount | | | 58 | | | 4 | | | 1 | | | | – | | | | 10 | | | | 73 | | Utilised | | | (97 | ) | | (17) | | | (19 | ) | | | (7 | ) | | | (60 | ) | | | (200) | | | | At 31 March 2016 | | | 1,169 | | | 141 | | | 30 | | | | 18 | | | | 361 | | | | 1,719 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2016 £m | | | 2015 £m | | | | Current | | | | | | | | | | | | | | | | | 236 | | | | 235 | | Non-current | | | | | | | | | | | | | | | | | 1,483 | | | | 1,500 | | | | | | | | | | | | | | | | | | | | | 1,719 | | | | 1,735 | | | |
| | | | | | | 138 | | National Grid Annual Report and Accounts 2015/16 | | Financial Statements | | |
23. Provisionscontinued
Environmental provision
The environmental provision represents the estimated restoration and remediation costs relating to a number of sites owned and managed by subsidiary undertakings, together with certain US sites that National Grid no longer owns. The environmental provision is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | 2016 | | | 2015 | | | | | Discounted
£m | | | Undiscounted
£m | | | Real
discount
rate | | | Discounted
£m | | | Undiscounted
£m | | | Real
discount
rate | | | | UK sites | | | 280 | | | | 348 | | | | 2% | | | | 286 | | | | 367 | | | | 2% | | US sites | | | 889 | | | | 1,031 | | | | 2% | | | | 878 | | | | 999 | | | | 2% | | | | | | | 1,169 | | | | 1,379 | | | | | | | | 1,164 | | | | 1,366 | | | | | | | |
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 2016 and 2060. A number of estimation uncertainties affect the calculation of the provision, including the impact of regulation, accuracy of the site surveys, unexpected contaminants, transportation costs, the impact of alternative technologies and changes in the discount rate. This provision incorporates our best estimate of the financial effect of these uncertainties, but future changes in any of the assumptions could materially impact the calculation of the provision. The undiscounted amount is the undiscounted best estimate of the liability having regard to these uncertainties.
The remediation expenditure in the US is expected to be incurred between 2016 and 2071. The uncertainties regarding the calculation of this provision are similar to those considered in respect of UK sites. This expenditure is expected to be largely recoverable from ratepayers under the terms of various rate agreements in the US.
Decommissioning provision
The decommissioning provision represents £66m (2015: £51m) of expenditure relating to asset retirement obligations estimated to be incurred until 2095, and £37m (2015: £64m) of expenditure relating to the demolition of gas holders estimated to be incurred until 2020. It also includes the net present value of the estimated expenditure (discounted at a real rate of 2%) expected to be incurred until 2033 in respect of the decommissioning of certain US nuclear generating units that National Grid no longer owns.
Restructuring provision
The restructuring provision principally relates to business reorganisation costs in the UK and is expected to be incurred until 2023.
Emissions provision
The provision for emission costs is expected to be settled using emission allowances granted.
Other provisions
Included within other provisions at 31 March 2016 are amounts provided in respect of onerous lease commitments and rates payable on surplus properties of £100m (2015: £117m) with expenditure expected to be incurred until 2039.
Other provisions also include £190m (2015: £182m) 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 include £13m (2015: £13m) in respect of obligations associated with investments in joint ventures.
| | | | | | | | | National Grid Annual Report and Accounts 2015/16 | | Financial Statements | | 139 |
Notes to the consolidated financial statements
– analysis of items in the primary statements continued
24. Share capital
| Ordinary share capital represents the total number of shares issued which are publicly traded. We also disclose the number of treasury shares the Company holds, which are shares that the Company has bought itself, predominantly to satisfy the scrip dividend programme and employee share option plan liabilities.
|
Share capital is accounted for as an equity instrument. An equity instrument is any contract that includes a residual interest in the consolidated assets of the Company after deducting all its liabilities and is recorded at the proceeds received, net of direct issue costs, with an amount equal to the nominal amount of the shares issued included in the share capital account and the balance recorded in the share premium account.
| | | | | | | | | | | | Allotted, called up
and fully paid | | | | | million | | | £m | | | | At 1 April 2014 | | | 3,854 | | | | 439 | | Issued during the year in lieu of dividends1 | | | 38 | | | | 4 | | | | At 31 March 2015 | | | 3,892 | | | | 443 | | Issued during the year in lieu of dividends1 | | | 32 | | | | 4 | | | | At 31 March 2016 | | | 3,924 | | | | 447 | | | |
1. | The issue of shares under the scrip dividend programme is considered to be a bonus issue under the terms of the Companies Act 2006 and the nominal value of the shares is charged to the share premium account. |
The share capital of the Company consists of ordinary shares of 11 17⁄43 pence nominal value each including ADSs. The ordinary shares and ADSs allow holders to receive dividends and vote at general meetings 43 of the Company. The Company holds treasury shares but may not exercise any rights over these shares including the entitlement to vote or receive dividends. There are no restrictions on the transfer or sale of ordinary shares.
In line with the provisions of the Companies Act 2006, the Company has amended its Articles of Association and ceased to have authorised share capital.
Treasury shares
At 31 March 2016, the Company held 179m (2015: 153m) of its own shares. The market value of these shares as at 31 March 2016 was £1,767m (2015: £1,323m).
The Company made the following transactions in respect of its own shares during the year ended 31 March 2016:
1. | During the year, the Company, as part of management of the dilutive effect of share issuances under the scrip dividend programme, repurchased 31m (2015: 37m) ordinary shares for aggregate consideration of £267m (2015: £338m), including transaction costs. |
The shares repurchased have a nominal value of £4m (2015: £4m) and represented approximately 1% (2015: 1%) of the ordinary shares in issue as at 31 March 2016.
2. | During the year, 2m (2015: 3m) treasury shares were gifted to National Grid Employee Share Trusts and 3m (2015: 5m) treasury shares were re-issued in relation to employee share schemes, in total representing approximately 0.1% (2015: 0.2%) of the ordinary shares in issue as at 31 March 2016. The nominal value of these shares was £1m (2015: £1m) and the total proceeds received were £16m (2015: £23m). |
3. | During the year the Company made payments totalling £6m (2015: £7m) to National Grid Employee Share Trusts, outside of its share repurchase programme, to enable the trustees to make purchases of National Grid plc shares in order to satisfy the requirements of employee share option and reward plans. |
The maximum number of shares held during the year was 179m ordinary shares (2015: 153m) representing approximately 4.6% (2015: 3.9%) of the ordinary shares in issue as at 31 March 2016 and having a nominal value of £20m (2015: £17m).
| | | | | | | 140 | | National Grid Annual Report and Accounts 2015/16 | | Financial Statements | | |
25. Other equity reserves
| Other equity reserves are different categories of equity as required by accounting standards and represent the impact of a number of our historical transactions.
|
Other equity reserves comprise the translation reserve (see accounting policy C in note 1), cash flow hedge reserve (see note 15), available-for-sale reserve (see note 13), the capital redemption reserve and the merger reserve. The merger reserve arose as a result of the application of merger accounting principles under the then prevailing UK GAAP, which under IFRS 1 was retained for mergers that occurred prior to the IFRS transition date. Under merger accounting principles, the difference between the carrying amount of the capital structure of the acquiring vehicle and that of the acquired business was treated as a merger difference and included within reserves.
As the amounts included in other equity reserves are not attributable to any of the other classes of equity presented, they have been disclosed as a separate classification of equity.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Translation
£m | | | Cash flow
hedge
£m | | | Available-
for-sale
£m | | | Capital
redemption
£m | | | Merger
£m | | | Total
£m | | At 1 April 2013 | | | 463 | | | | (71 | ) | | | 73 | | | | 19 | | | | (5,165 | ) | | | (4,681 | ) | Exchange adjustments | | | (158 | ) | | | – | | | | – | | | | – | | | | – | | | | (158 | ) | Net gains taken to equity | | | – | | | | 63 | | | | 6 | | | | – | | | | – | | | | 69 | | Transferred to/(from) profit or loss | | | – | | | | 27 | | | | (14 | ) | | | – | | | | – | | | | 13 | | Tax | | | – | | | | (5 | ) | | | 3 | | | | – | | | | – | | | | (2 | ) | At 31 March 2014 | | | 305 | | | | 14 | | | | 68 | | | | 19 | | | | (5,165 | ) | | | (4,759 | ) | Exchange adjustments | | | 174 | | | | – | | | | – | | | | – | | | | – | | | | 174 | | Net (losses)/gains taken to equity | | | – | | | | (154 | ) | | | 41 | | | | – | | | | – | | | | (113 | ) | Transferred to/(from) profit or loss | | | – | | | | 13 | | | | (8 | ) | | | – | | | | – | | | | 5 | | Tax | | | – | | | | 18 | | | | (7 | ) | | | – | | | | – | | | | 11 | | At 31 March 2015 | | | 479 | | | | (109 | ) | | | 94 | | | | 19 | | | | (5,165 | ) | | | (4,682 | ) | Exchange adjustments | | | 69 | | | | – | | | | – | | | | – | | | | – | | | | 69 | | Net gains taken to equity | | | – | | | | 50 | | | | 43 | | | | – | | | | – | | | | 93 | | Transferred to profit or loss | | | – | | | | 29 | | | | – | | | | – | | | | – | | | | 29 | | Tax | | | – | | | | (15 | ) | | | (17 | ) | | | – | | | | – | | | | (32 | ) | At 31 March 2016 | | | 548 | | | | (45 | ) | | | 120 | | | | 19 | | | | (5,165 | ) | | | (4,523 | ) |
The merger reserve represents the difference between the carrying value of subsidiary undertaking investments and their respective capital structures following the Lattice demerger from BG Group plc and the 1999 Lattice refinancing.
The cash flow hedge reserve 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 £21m (pre-tax) and the remainder released with the same maturity profile as borrowings due after more than one year.
| | | | | | | | | National Grid Annual Report and Accounts 2015/16 | | Financial Statements | | 141 |
Notes to the consolidated financial statements
– analysis of items in the primary statements continued
26. Net debt
| Net debt represents the amount of borrowings and overdrafts less cash, financial investments and related derivatives.
|
Funding and liquidity risk management is carried out by the treasury function under policies and guidelines approved by the Finance Committee of the Board. The Finance Committee is responsible for the regular review and monitoring of treasury activity and for the approval of specific transactions, the authority for which fall outside the delegation of authority to management.
The primary objective of the treasury function is to manage our funding and liquidity requirements. A secondary objective is to manage the associated financial risks, in the form of interest rate risk and foreign exchange risk, to within pre-authorised parameters. Details of the main risks arising from our financing and commodity hedging activities can be found in the risk factors discussion starting on page 183 and in note 30 to the consolidated financial statements on pages 149 to 155.
Investment of surplus funds, usually in short-term fixed deposits or placements with money market funds that invest in highly liquid instruments of high credit quality, is subject to our counterparty risk management policy.
The movement in cash and cash equivalents is reconciled to movements in net debt.
(a) Reconciliation of net cash flow to movement in net debt
| | | | | | | | | | | | | | | | 2016 £m | | | 2015 £m | | | 2014 £m | | Increase/(decrease) in cash and cash equivalents | | | 4 | | | | (247 | ) | | | (283 | ) | Increase/(decrease) in financial investments | | | 391 | | | | (1,157 | ) | | | (1,720 | ) | (Increase)/decrease in borrowings and related derivatives | | | (1,100 | ) | | | 682 | | | | 1,021 | | Net interest paid on the components of net debt1 | | | 810 | | | | 925 | | | | 841 | | Change in debt resulting from cash flows | | | 105 | | | | 203 | | | | (141 | ) | Changes in fair value of financial assets and liabilities and exchange movements | | | (515 | ) | | | (1,777 | ) | | | 1,360 | | Net interest charge on the components of net debt1 | | | (913 | ) | | | (1,068 | ) | | | (1,053 | ) | Extinguishment of debt resulting from LIPA MSA transition (note 4) | | | – | | | | – | | | | 98 | | Other non-cash movements | | | (87 | ) | | | (83 | ) | | | (25 | ) | Movement in net debt (net of related derivative financial instruments) in the year | | | (1,410 | ) | | | (2,725 | ) | | | 239 | | Net debt (net of related derivative financial instruments) at start of year | | | (23,915 | ) | | | (21,190 | ) | | | (21,429 | ) | Net debt (net of related derivative financial instruments) at end of year | | | (25,325 | ) | | | (23,915 | ) | | | (21,190 | ) | Composition of net debt Net debt is made up as follows: | | | | | | | | | | | | | | | | 2016 £m | | | 2015 £m | | | 2014 £m | | Cash, cash equivalents and financial investments | | | 3,125 | | | | 2,678 | | | | 3,953 | | Borrowings and bank overdrafts | | | (28,344 | ) | | | (25,910 | ) | | | (25,950 | ) | Derivatives | | | (106 | ) | | | (683 | ) | | | 807 | | | | | | (25,325 | ) | | | (23,915 | ) | | | (21,190 | ) |
1. | An exceptional charge of £nil (2015: £131m; 2014: £nil) is included in net interest charge on the components of net debt and an exceptional cash outflow of £nil (2015: £152m; 2014: £nil) is included in net interest paid on the components of net debt. |
| | | | | | | 142 | | National Grid Annual Report and Accounts 2015/16 | | Financial Statements | | |
26. Net debtcontinued
(b) Analysis of changes in net debt
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash
and cash
equivalents
£m |
| |
| Bank
overdrafts
£m |
| |
| Net cash
and cash
equivalents
£m |
| |
| Financial
investments
£m |
| |
| Borrowings
£m |
| |
| Derivatives
£m |
| |
| Total
£m | 1
| At 1 April 2013 | | | 671 | | | | (23 | ) | | | 648 | | | | 5,431 | | | | (28,072 | ) | | | 564 | | | | (21,429 | ) | Cash flow | | | (291 | ) | | | 8 | | | | (283 | ) | | | (1,755 | ) | | | 2,009 | | | | (112 | ) | | | (141 | ) | Fair value gains and losses and exchange movements | | | (26 | ) | | | – | | | | (26 | ) | | | (113 | ) | | | 1,223 | | | | 276 | | | | 1,360 | | Interest income/(charges) | | | – | | | | – | | | | – | | | | 36 | | | | (1,168 | ) | | | 79 | | | | (1,053 | ) | Extinguishment of debt resulting from LIPA MSA transition (note 4) | | | – | | | | – | | | | – | | | | – | | | | 98 | | | | – | | | | 98 | | Other non-cash movements | | | – | | | | – | | | | – | | | | – | | | | (25 | ) | | | – | | | | (25 | ) | At 31 March 2014 | | | 354 | | | | (15 | ) | | | 339 | | | | 3,599 | | | | (25,935 | ) | | | 807 | | | | (21,190 | ) | Cash flow | | | (259 | ) | | | 12 | | | | (247 | ) | | | (1,194 | ) | | | 1,721 | | | | (77 | ) | | | 203 | | Fair value gains and losses and exchange movements | | | 24 | | | | – | | | | 24 | | | | 118 | | | | (451 | ) | | | (1,468 | ) | | | (1,777 | ) | Interest income/(charges)2 | | | – | | | | – | | | | – | | | | 36 | | | | (1,160 | ) | | | 56 | | | | (1,068 | ) | Other non-cash movements | | | – | | | | – | | | | – | | | | – | | | | (82 | ) | | | (1 | ) | | | (83 | ) | At 31 March 2015 | | | 119 | | | | (3 | ) | | | 116 | | | | 2,559 | | | | (25,907 | ) | | | (683 | ) | | | (23,915 | ) | Cash flow | | | 4 | | | | – | | | | 4 | | | | 368 | | | | (631 | ) | | | 364 | | | | 105 | | Fair value gains and losses and exchange movements | | | 4 | | | | – | | | | 4 | | | | 49 | | | | (739 | ) | | | 171 | | | | (515 | ) | Interest income/(charges)2 | | | – | | | | – | | | | – | | | | 22 | | | | (978 | ) | | | 43 | | | | (913 | ) | Other non-cash movements | | | – | | | | – | | | | – | | | | – | | | | (86 | ) | | | (1 | ) | | | (87 | ) | At 31 March 2016 | | | 127 | | | | (3 | ) | | | 124 | | | | 2,998 | | | | (28,341 | ) | | | (106 | ) | | | (25,325 | ) | Balances at 31 March 2016 comprise: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Non-current assets | | | – | | | | – | | | | – | | | | – | | | | – | | | | 1,685 | | | | 1,685 | | Current assets | | | 127 | | | | – | | | | 127 | | | | 2,998 | | | | – | | | | 278 | | | | 3,403 | | Current liabilities | | | – | | | | (3 | ) | | | (3 | ) | | | – | | | | (3,608 | ) | | | (337 | ) | | | (3,948 | ) | Non-current liabilities | | | – | | | | – | | | | – | | | | – | | | | (24,733 | ) | | | (1,732 | ) | | | (26,465 | ) | | | | | 127 | | | | (3 | ) | | | 124 | | | | 2,998 | | | | (28,341 | ) | | | (106 | ) | | | (25,325 | ) |
1. | Includes accrued interest at 31 March 2016 of £243m (2015: £230m; 2014: £239m). |
2. | An exceptional expense of £nil (2015: £131m; 2014: £nil) is included in net interest charge on the components of net debt and an exceptional cash outflow of £nil (2015: £152m; 2014: £nil) is included in net interest paid on the components of net debt. |
| | | | | | | | | National Grid Annual Report and Accounts 2015/16 | | Financial Statements | | 143 |
Notes to the consolidated financial statements
– supplementary information
This section includes information that is important to enable a full understanding of our financial position, particularly areas of potential risk that could affect us in the future.
We also include specific disclosures for British Transco Finance Inc., Niagara Mohawk Power Corporation and National Grid Gas plc in accordance with various rules including Rule 3-10 of Regulation S-X (a US SEC requirement), as they have issued public debt securities which have been guaranteed by National Grid plc and one of its subsidiary companies, National Grid Gas plc. Additional disclosures have also been included in respect of the two guarantor companies. These disclosures are in lieu of publishing separate financial statements for these companies. See note 34 for further information.
27. Commitments and contingencies
| Commitments are those amounts that we are contractually required to pay in the future as long as the other party meets its obligations. These commitments primarily relate to operating lease rentals, energy purchase agreements and contracts for the repurchase of network assets which, in many cases, extend over a long period of time. We also disclose any contingencies, which include guarantees that companies have given, where we pledge assets against current obligations that will remain for a specific period.
|
| | | | | | | | | | | | 2016 £m | | | 2015 £m | | Future capital expenditure | | | | | | | | | Contracted for but not provided | | | 2,616 | | | | 2,360 | | Operating lease commitments | | | | | | | | | Less than 1 year | | | 92 | | | | 87 | | In 1 to 2 years | | | 86 | | | | 81 | | In 2 to 3 years | | | 72 | | | | 74 | | In 3 to 4 years | | | 54 | | | | 63 | | In 4 to 5 years | | | 52 | | | | 45 | | More than 5 years | | | 286 | | | | 277 | | | | | | 642 | | | | 627 | | Energy purchase commitments1 | | | | | | | | | Less than 1 year | | | 1,096 | | | | 1,199 | | In 1 to 2 years | | | 598 | | | | 601 | | In 2 to 3 years | | | 454 | | | | 458 | | In 3 to 4 years | | | 362 | | | | 360 | | In 4 to 5 years | | | 315 | | | | 305 | | More than 5 years | | | 1,477 | | | | 1,415 | | | | | | 4,302 | | | | 4,338 | | Guarantees and letters of credit | | | | | | | | | Guarantee of sublease for US property (expires 2040) | | | 219 | | | | 236 | | Guarantees of certain obligations of Grain LNG Import Terminal (expire up to 2028) | | | 113 | | | | 151 | | Guarantees of certain obligations for construction of HVDC West Coast Link (expected expiry 2016) | | | 415 | | | | 555 | | Guarantees of certain obligations of Nemo Link Limited (various expiry dates) | | | 166 | | | | – | | Guarantees of certain obligations of National Grid North Sea Link Limited (various expiry dates) | | | 1,038 | | | | – | | Other guarantees and letters of credit (various expiry dates) | | | 440 | | | | 355 | | | | | | 2,391 | | | | 1,297 | |
1. | Energy purchase 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 (i.e. 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 30(e). |
The total of future minimum sublease payments expected to be received under non-cancellable subleases is £21m (2015: £26m).
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.
| | | | | | | 144 | | National Grid Annual Report and Accounts 2015/16 | | Financial Statements | | |
28. Related party transactions
| Related parties include joint ventures, associates, investments and key management personnel.
|
The following significant 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:
| | | | | | | | | | | | | | | | 2016
£m | | | 2015
£m | | | 2014
£m | | Sales: Goods and services supplied to a pension plan and joint ventures | | | 16 | | | | 52 | | | | 15 | | Purchases: Goods and services received from joint ventures and associates1 | | | 266 | | | | 120 | | | | 128 | | | | | | Receivable from a pension plan and joint ventures | | | 7 | | | | 4 | | | | 3 | | Payable to joint ventures and associates2 | | | 103 | | | | 6 | | | | 5 | | | | | | Dividends received from joint ventures and associates3 | | | 72 | | | | 79 | | | | 38 | |
1. | During the year the Company received goods and services from a number of joint ventures and associates, including Iroquois Gas Transmission System, L.P. of £8m (2015: £24m; 2014: £30m), Millennium Pipeline Company, LLC of £29m (2015: £26m; 2014: £31m) for the transportation of gas in the US; Algonquin Gas Transmission LLC of £43m (2015: £nil; 2014: £nil) for pipeline services in the US; and NGET/SPT Upgrades Limited of £167m (2015: £68m; 2014: £67m) for the construction of a transmission link in the UK. |
2. | Included in amounts payable to joint ventures and associates is £87m (2015: £nil; 2014: £nil) in respect of deposits received for National Grid property sites from St William Homes LLP. |
3. | Dividends were received from BritNed Development Limited of £48m (2015: £49m; 2014: £17m), Iroquois Gas Transmission System, L.P. of £7m (2015: £14m; 2014: £11m) and Millennium Pipeline Company, LLC of £17m (2015: £16m; 2014: £10m). |
Details of investments in principal subsidiary undertakings, joint ventures and associates are disclosed in note 32 and information relating to pension fund arrangements is disclosed in notes 22 and 29. For details of Directors’ and key management remuneration, refer to the audited section of the Remuneration Report and note 3(c).
29. Actuarial information on pensions and other post-retirement benefits
| Further details of the DB pension plans terms and the actuarial assumptions used to value the obligations are set out in this note.
When deciding on these assumptions we take independent actuarial advice. Comparatively small changes in the assumptions applied may have a significant effect on the overall deficit or surplus of a DB pension plan.
|
UK pension plans National Grid’s defined benefitDB pension arrangements are funded with assets held in separate trustee administered funds. The arrangements are managed by trustee companies with boards consisting of company and member appointed directors. The directors are required to manage the arrangements in accordance with local regulations and the arrangements’ governing documents, acting on behalf of their beneficiaries. The arrangements are subject to independent actuarial funding valuations at least every three years and following consultation and agreement with us, the qualified actuary certifies the employers’ contribution, which, together with the specified contributions payable by the employees and proceeds from the plans’ assets, are expected to be sufficient to fund the benefits payable. The last full actuarial valuations were carried out as at 31 March 2013. The 2016 valuation processes have commenced. The results of the 2013most recent actuarial valuations are shown below: | | | | | NG UKPS | 1 | | | NGEG of ESPS | 2 | | | NG UKPS1 | | | | NGEG of ESPS2 | | Latest full actuarial valuation | | | 31 March 2013 | | | | 31 March 2013 | | | | 30 September 20153 | | | | 31 March 2016 | | Actuary | | | Willis Towers Watson | | | | Aon Hewitt | | | | Willis Towers Watson | | | | Aon Hewitt | | Market value of plan assets at latest valuation | | | £15,569m | | | | £1,900m | | | | £16,551m | | | | £2,553m | | Actuarial value of benefits due to members | | | £17,332m | | | | £2,708m | | | | £18,176m | | | | £3,053m | | Market value as percentage of benefits | | | 90% | | | | 70% | | | | 91% | | | | 84% | | Funding deficit | | | £1,763m | | | | £808m | | | | £1,625m | | | | £500m | | Funding deficit (net of tax) | | | £1,446m | | | | £663m | | | | £1,349m | | | | £415m | |
| 1. | National Grid UK Pension SchemeScheme. |
| 2. | National Grid Electricity Group of the Electricity Supply Pension SchemeScheme. |
From April 2014 an annual cap was placed on future increases to the salary used to calculate pensions at the lower of 3% or the annual increase in RPI. This capped salary applied to all pensionable service from 1 April 2013 onwards. During the year ended 31 March 2014 these changes resulted in a past service credit of £11m to the income statement (see note 22) and a change to the salary increase assumption which affects how our DB liabilities as at 31 March have been calculated. These changes are to ensure our schemes remain affordable and sustainable over the coming years.
| 3. | NG UKPS valuation at 30 September 2015 occurred prior to sectionalisation and so the figures above represent the entire scheme (including what is now Section C). |
| | | | | | | | 130 | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | 145 |
Notes to the consolidated financial statements
– supplementary information continued
29. Actuarial information on pensions23. Pensions and other post-retirement benefitscontinued
National Grid UK Pension Scheme Following the actuarial valuation at 31 March 2013, deficit contributions were paid to the National Grid UK Pension Scheme of £99 million in 2014/15, £100 million in 2015/16 and £101 million in 2016/17. The 2013last full actuarial funding valuation showed that, basedfor the National Grid UK Pension Scheme was carried out at 30 September 2015. Based on long-term financial assumptions, the contribution rate requiredagreed to meet future benefit accrual was 36% of pensionable earnings (currently 33% by employers and 3% by employees; from 1 April 2016 this will be 31% by employers and 5% by employees). In addition, National Grid makes payments to the scheme to cover administration costs and the Pension Protection Fund levy. FollowingWith effect from 1 January 2017, sectionalisation of the 2013National Grid UK Pension Scheme was carried out in anticipation of the disposal of UK Gas Distribution. The National Grid UK Pension Scheme was split into three sections, each of which are legally and actuarially separate. Section A and Section B are supported by companies within the National Grid Group and Section C is supported by Cadent Gas Limited (previously National Grid Gas Distribution Limited). The disposal of UK Gas Distribution completed on 31 March 2017 and the figures shown in these financial statements cover all three sections for amounts recognised in the income statement and the statement of other comprehensive income. At the reporting date the fair value of plan assets of £6,993 million and fair value of plan obligations of £6,957 million, as calculated on an IAS 19 basis, had been transferred as they form part of the net assets of UK Gas Distribution sold in the gain on sale calculation in note 9. The first actuarial valuation for Section A and Section B will be carried out at 31 March 2017 and these valuation processes have commenced.
Section A National Grid and the Trustees have agreed on a recovery plan which would see the funding deficit repaid by 31 March 2027. Under the schedule of contributions, under which payments of £60m£212 million were made in 2013/14, £99m in 2014/15 and £100m in 2015/16, and will thereafter rise in line2016/17 after sectionalisation with RPI until 2026/27. As part of the 2013 agreement,effect from 1 January 2017. National Grid has established a security arrangement with a charge in favour of the Trustees. This amount may change over time or following changes to National Grid plc’s credit rating. At 31 March 20162017 the value of this was required to be £427m.£315 million. This was provided via £427m£227 million in letters of credit.credit with the remainder in surety bonds. The assets held as security will be paid to the schemeSection A in the event that National Grid Gas plc (NGG)or National Grid UK Limited is subject to an insolvency event, is given notice of less than 12 months that Ofgem intends to revoke its licence under the Gas Act 1986, orif National Grid fails to make the required contributions in relation to the scheme.Section A, or if National Grid’s credit rating by two out of three specified agencies falls below certain agreed levels for a period of 40 days. The assets held as security will be released back to National Grid if the scheme moves into surplus. In addition, National Grid will make a payment of £200m£72 million (increased in line with RPI) into Section A if National Grid plc’s credit rating by two out of three specified agencies falls below certain agreed levels for a period of 40 days.
Section B National Grid and the Trustees have agreed on a schedule of contributions, under which payments of £30 million plus an adjustment for RPI willbe made in 2017/18 and will thereafter rise in line with RPI. National Grid has established a security arrangement with a charge in favour of the Trustees. This amount may change over time or following changes to National Grid Gas plc’s credit rating. At 31 March 2017 the value of this was required to be £192 million. This was provided via £200 million in letters of credit. The assets held as security will be paid to Section B in the event that National Grid Gas plc (NGG) is subject to an insolvency event, if NGG is given notice of less than 12 months that Ofgem intends to revoke its licence under the Gas Act 1986, if National Grid fails to make the required contributions in relation to Section B, if NGG’s credit rating by two out of three specified agencies falls below certain agreed levels for a period of 40 days, or if NGG grants any charges over its assets other than where agreed with the Trustees. The assets held as security will be released back to National Grid if the scheme moves into surplus. In addition, National Grid will make a payment of £65 million (increased in line with RPI) into Section B if NGG’s credit rating by two out of three specified agencies falls below certain agreed levels for a period of 40 days. ThisThe scheme ceased to allow new hires to join from 1 April 2002. A DC section of the scheme was offered for employees joining after this date, which has since been replaced by The National Grid YouPlan (YouPlan) (see below).
National Grid Electricity Group of the Electricity Supply Pension Scheme The 2013last full actuarial funding valuation for the NGEG was carried out at 31 March 2016. This showed that, based on long-term financial assumptions, the contribution rate required to meet future benefit accrual was 33.4%40.7% of pensionable earnings (currently 27.5%an average of 33.7% by employers and an average of 5.9% by employees; from 1 April 2016 this will be an average of 26.5% by employers and an average of 6.9%7% by employees). The next actuarial valuation is required with an effective date no later than 31 March 2019. Following the 20132016 valuation, National Grid and the Trustees agreed on a recovery plan that would see the funding deficit repaid by 31 March 2027. Under the schedule of contributions, a paymentpayments of £80m was£48 million were made in 2013/14, £46m in 2014/152016/17, and £47m in 2015/16, and will thereafter rise in line with RPI until 2026/27. As part of the 2013 agreement, National Grid has established security arrangements with a charge in favour of the Trustees. At 31 March 20162017 the value of this was required to be £150m.£212 million. This was provided via £150m£212 million in a letterletters of credit. The assets held as security will be paid to the scheme in the event that National Grid Electricity Transmission plc (NGET) is subject to an insolvency event, if NGET fails to make the required contributions in relation to the scheme, or if NGET ceases to hold a licence granted under the Electricity Act 1989. The assets held as security will be released back to National Grid if the scheme moves into surplus. National Grid has also agreed to make a payment in respect of the deficit up to a maximum of £500m£500 million should certain triggers be breached; namely if 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. The scheme closed to new members from 1 April 2006. The National Grid YouPlan The YouPlan is a DC scheme that was launched in 2013 and under the rules of the plan, National Grid double matches contributions to YouPlan up to a maximum of 6% of employee salary. YouPlan is the qualifying scheme used for automatic enrolment and new hires are enrolled into YouPlan. | | | | | | | | | National Grid Annual Report and Accounts 2016/17 | | Financial Statements | | 131 |
Notes to the consolidated financial statements – analysis of items in the primary statements continued 23. Pensions and other post-retirement benefitscontinued US pension plans National Grid sponsors numerousnon-contributory DB pension plans. The DB plans provide retirement benefits to vested union employees, as well as vestednon-union employees hired before 1 January 2011. Benefits under these plans generally reflect age, years of service and compensation and are paid in the form of an annuity or lump sum. An independent actuary performs valuations annually. The Company funds the DB plans by contributing no less than the minimum amount required, but no more than the maximum tax deductible amount allowed under US Internal Revenue Service regulations. The range of contributions based upondetermined under these regulations can vary significantly baseddepending upon the funded status of the plans. 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 the amounts collected in rates and capitalised in the rate base during the year, to the extent that the funding is no less than the minimum amount required. The assets of the plans are held in trusts and administered by fiduciary committees comprised of appointed employees of the Company. National Grid also has severalmultiple DC pension plans, primarily comprised of employee savings and Company matching contributions.Non-union employees hired after 1 January 2011, as well as new hires in 10 groupsthe majority of represented union employees, receive a core contribution into the DC plan, irrespective of the employee’s contribution into the plan. US retiree healthcare and life insurance plans National Grid provides healthcare and life insurance benefits to eligible retired US employees. Eligibility is based on certain age and length of service requirements and in most cases retirees contribute to the cost of their healthcare coverage. In the US, there is no governmental requirement topre-fund post-retirement healthhealthcare and welfarelife insurance plans. However, in general, the Company’s policy for funding the US retiree healthcare and life insurance plans is to contribute amounts collected in rates and capitalised in the rate base during the year. Amounts recognised in the statement of financial position | | | | | | | | | | | | | | | | 2017 £m | | | 2016 £m | | | 2015 £m | | | | Present value of funded obligations1 | | | (25,890 | ) | | | (28,648 | ) | | | (29,292) | | Fair value of plan assets | | | 24,375 | | | | 26,434 | | | | 26,408 | | | | | | | (1,515 | ) | | | (2,214 | ) | | | (2,884) | | Present value of unfunded obligations | | | (340 | ) | | | (304 | ) | | | (300) | | Other post-employment liabilities | | | (78 | ) | | | (67 | ) | | | (74) | | | | Net defined benefit liability | | | (1,933 | ) | | | (2,585 | ) | | | (3,258) | | | | Represented by: | | | | | | | | | | | | | Liabilities | | | (2,536 | ) | | | (2,995 | ) | | | (3,379) | | Assets | | | 603 | | | | 410 | | | | 121 | | | | | | | (1,933 | ) | | | (2,585 | ) | | | (3,258) | | | |
The geographical split of pensions and other post-retirement benefits is as shown below: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | UK pensions | | | US pensions | | | US other post-retirement benefits | | | | | 2017 £m | | | 2016 £m | | | 2015 £m | | | 2017 £m | | | 2016 £m | | | 2015 £m | | | 2017 £m | | | 2016 £m | | | 2015 £m | | | | Present value of funded obligations1 | | | (15,565 | ) | | | (19,341 | ) | | | (20,053) | | | | (6,790 | ) | | | (5,916 | ) | | | (5,827) | | | | (3,535 | ) | | | (3,391 | ) | | | (3,412) | | Fair value of plan assets | | | 15,489 | | | | 19,401 | | | | 19,453 | | | | 6,322 | | | | 5,136 | | | | 5,052 | | | | 2,564 | | | | 1,897 | | | | 1,903 | | | | | | | (76 | ) | | | 60 | | | | (600) | | | | (468 | ) | | | (780 | ) | | | (775) | | | | (971 | ) | | | (1,494 | ) | | | (1,509) | | Present value of unfunded obligations | | | (80 | ) | | | (75 | ) | | | (72) | | | | (260 | ) | | | (229 | ) | | | (228) | | | | – | | | | – | | | | – | | Other post-employment liabilities | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | | (78 | ) | | | (67 | ) | | | (74) | | | | Net defined benefit liability | | | (156 | ) | | | (15 | ) | | | (672) | | | | (728 | ) | | | (1,009 | ) | | | (1,003) | | | | (1,049 | ) | | | (1,561 | ) | | | (1,583) | | | | Represented by: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Liabilities | | | (536 | ) | | | (300 | ) | | | (672) | | | | (951 | ) | | | (1,134 | ) | | | (1,124) | | | | (1,049 | ) | | | (1,561 | ) | | | (1,583) | | Assets | | | 380 | | | | 285 | | | | – | | | | 223 | | | | 125 | | | | 121 | | | | – | | | | – | | | | – | | | | | | | (156 | ) | | | (15 | ) | | | (672) | | | | (728 | ) | | | (1,009 | ) | | | (1,003) | | | | (1,049 | ) | | | (1,561 | ) | | | (1,583) | | | |
| 1. | Present value of funded obligations split approximately as follows: |
| ● | UK pensions at 31 March 2017: 12% active members (2016: 12%; 2015: 12%); 19% deferred members (2016: 18%; 2015: 18%); 69% pensioner members (2016: 70%; 2015: 70%) |
| ● | US pensions at 31 March 2017: 38% active members (2016: 39%; 2015: 38%); 9% deferred members (2016: 9%; 2015: 9%); 53% pensioner members (2016: 52%; 2015: 53%) |
| ● | US other post-retirement benefits at 31 March 2017: 39% active members (2016: 41%; 2015: 38%); 0% deferred members (2016: 0%; 2015: 0%); 61% pensioner members (2016: 59%; 2015: 62%) |
These figures reflect legal and actuarial advice that we have taken regarding recognition of surpluses under IFRIC 14 in both the UK and US. | | | | | | | 146132 | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | |
29. Actuarial information on pensions23. Pensions and other post-retirement benefitscontinued
Amounts recognised in the income statement and statement of other comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2017 £m | | | 2016 £m | | | 2015 £m | | | | Included within operating costs | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Administration costs | | | | | | | | | | | | | | | | | | | | | | | | | | | 16 | | | | 16 | | | | 14 | | | | Included within payroll costs | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Defined contribution scheme costs | | | | | | | | | | | | | | | | | | | | | | | | | | | 69 | | | | 56 | | | | 48 | | Defined benefit scheme costs: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Current service cost | | | | | | | | | | | | | | | | | | | | | | | | | | | 232 | | | | 221 | | | | 186 | | Past service cost – augmentations | | | | | | | | | | | | | | | | | | | | | | | | | | | 1 | | | | 3 | | | | 7 | | Past service (credit)/cost – redundancies | | | | | | | | | | | | | | | | | | | | | | | | | | | (1 | ) | | | (1 | ) | | | 1 | | Past service cost – plan amendments | | | | | | | | | | | | | | | | | | | | | | | | | | | – | | | | – | | | | 1 | | Special termination benefit cost – redundancies | | | | | | | | | | | | | | | | | | | | | | | | | | | 7 | | | | 11 | | | | 20 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 308 | | | | 290 | | | | 263 | | | | Included within finance income and costs | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net interest cost | | | | | | | | | | | | | | | | | | | | | | | | | | | 105 | | | | 112 | | | | 101 | | | | Included within gain on disposal of discontinued operations | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Administration costs | | | | | | | | | | | | | | | | | | | | | | | | | | | 5 | | | | 2 | | | | – | | Disposal of UK Gas Distribution | | | | | | | | | | | | | | | | | | | | | | | | | | | 34 | | | | – | | | | – | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 39 | | | | 2 | | | | – | | | | Total included in income statement1 | | | | | | | | | | | | | | | | | | | | | | | | | | | 468 | | | | 420 | | | | 378 | | | | Remeasurement gains/(losses) of pension assets and post-retirement benefit obligations | | | | | | | | | | | | | | | | | | | | | | | | | | | 348 | | | | 539 | | | | (771) | | Exchange adjustments | | | | | | | | | | | | | | | | | | | | | | | | | | | (345 | ) | | | (81 | ) | | | (236) | | | | Total included in the statement of other comprehensive income2 | | | | | | | | | | | | | | | | | | | | | | | | | | | 3 | | | | 458 | | | | (1,007) | | | | 1. Amounts recognised in the income statement include operating costs of £1 million (2016: £1 million; 2015: £1 million); payroll costs of £46 million (2016: £37 million; 2015: £34 million); and net interest income of £2 million (2016: £1 million cost; 2015: £3 million cost) presented within profit from discontinued operations. These amounts all relate to UK pensions. 2. Amounts recognised in the statement of other comprehensive income include remeasurements of pension assets and post-retirement benefit obligations of £75 million loss (2016: £129 million gain; 2015: £13 million loss) presented within discontinued operations. These amounts all relate to UK pensions. The geographical split of pensions and other post-retirement benefits is as shown below: | | | | | UK pensions | | | US pensions | | | US other post-retirement benefits | | | | | 2017
£m | | | 2016
£m | | | 2015
£m | | | 2017
£m | | | 2016
£m | | | 2015
£m | | | 2017
£m | | | 2016 £m | | | 2015 £m | | | | Included within operating costs | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Administration costs | | | 6 | | | | 9 | | | | 6 | | | | 9 | | | | 6 | | | | 7 | | | | 1 | | | | 1 | | | | 1 | | | | Included within payroll costs | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Defined contribution scheme costs | | | 37 | | | | 31 | | | | 26 | | | | 32 | | | | 25 | | | | 22 | | | | – | | | | – | | | | – | | Defined benefit scheme costs: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Current service cost | | | 76 | | | | 74 | | | | 70 | | | | 103 | | | | 95 | | | | 77 | | | | 53 | | | | 52 | | | | 39 | | Past service cost – augmentations | | | 1 | | | | 3 | | | | 7 | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | Past service (credit)/cost – redundancies | | | (1 | ) | | | (1 | ) | | | 1 | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | Past service cost – plan amendments | | | – | | | | – | | | | – | | | | – | | | | – | | | | 1 | | | | – | | | | – | | | | – | | Special termination benefit cost – redundancies | | | 7 | | | | 11 | | | | 20 | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | | | | | 120 | | | | 118 | | | | 124 | | | | 135 | | | | 120 | | | | 100 | | | | 53 | | | | 52 | | | | 39 | | | | Included within finance income and costs | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net interest cost | | | – | | | | 18 | | | | 27 | | | | 43 | | | | 36 | | | | 25 | | | | 62 | | | | 58 | | | | 49 | | | | Included within gain on disposal of discontinued operations | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Administration costs | | | 5 | | | | 2 | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | Disposal of UK Gas Distribution | | | 34 | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | | | | | 39 | | | | 2 | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | | Total included in income statement | | | 165 | | | | 147 | | | | 157 | | | | 187 | | | | 162 | | | | 132 | | | | 116 | | | | 111 | | | | 89 | | | | Remeasurement (losses)/gains of pension assets and post-retirement benefit obligations | | | (541 | ) | | | 534 | | | | (46) | | | | 319 | | | | (67 | ) | | | (408) | | | | 570 | | | | 72 | | | | (317) | | Exchange adjustments | | | – | | | | – | | | | – | | | | (140 | ) | | | (33 | ) | | | (88) | | | | (205 | ) | | | (48 | ) | | | (148) | | | | Total included in the statement of other comprehensive income | | | (541 | ) | | | 534 | | | | (46) | | | | 179 | | | | (100 | ) | | | (496) | | | | 365 | | | | 24 | | | | (465) | | | |
| | | | | | | | | National Grid Annual Report and Accounts 2016/17 | | Financial Statements | | 133 |
Notes to the consolidated financial statements – analysis of items in the primary statements continued 23. Pensions and other post-retirement benefitscontinued Reconciliation of the net defined benefit liability | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2017 £m | | | 2016 £m | | | 2015 £m | | | | Opening net defined benefit liability | | | | | | | | | | | | | | | | | | | | | | | | | | | (2,585 | ) | | | (3,258 | ) | | | (2,411) | | Cost recognised in the income statement | | | | | | | | | | | | | | | | | | | | | | | | | | | (399 | ) | | | (364 | ) | | | (330) | | Remeasurement and foreign exchange effects recognised in the statement of other comprehensive income | | | | | | | | 3 | | | | 458 | | | | (1,007) | | Employer contributions | | | | | | | | | | | | | | | | | | | | | | | | | | | 1,073 | | | | 587 | | | | 508 | | Other movements | | | | | | | | | | | | | | | | | | | | | | | | | | | (25 | ) | | | (8 | ) | | | (18) | | | | Closing net defined benefit liability | | | | | | | | | | | | | | | | | | | | | | | | | | | (1,933 | ) | | | (2,585 | ) | | | (3,258) | | | | The geographical split of pensions and other post-retirement benefits is as shown below: | | | | | UK pensions | | | US pensions | | | US other post-retirement benefits | | | | | 2017 £m | | | 2016 £m | | | 2015 £m | | | 2017 £m | | | 2016 £m | | | 2015 £m | | | 2017 £m | | | 2016 £m | | | 2015 £m | | | | Opening net defined benefit liability | | | (15 | ) | | | (672 | ) | | | (753) | | | | (1,009 | ) | | | (1,003 | ) | | | (523) | | | | (1,561 | ) | | | (1,583 | ) | | | (1,135) | | Cost recognised in the income statement | | | (128 | ) | | | (116 | ) | | | (131) | | | | (155 | ) | | | (137 | ) | | | (110) | | | | (116 | ) | | | (111 | ) | | | (89) | | Remeasurement and foreign exchange effects recognised in the statement of other comprehensive income | | | (541 | ) | | | 534 | | | | (46) | | | | 179 | | | | (100 | ) | | | (496) | | | | 365 | | | | 24 | | | | (465) | | Employer contributions | | | 528 | | | | 239 | | | | 258 | | | | 257 | | | | 231 | | | | 126 | | | | 288 | | | | 117 | | | | 124 | | Other movements | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | | (25 | ) | | | (8 | ) | | | (18) | | | | Closing net defined benefit liability | | | (156 | ) | | | (15 | ) | | | (672) | | | | (728 | ) | | | (1,009 | ) | | | (1,003) | | | | (1,049 | ) | | | (1,561 | ) | | | (1,583) | | | | Changes in the present value of defined benefit obligations (including unfunded obligations) | | | | | | | | | | | | | | | | | | | | | | | 2017 £m | | | 2016 £m | | | 2015 £m | | | | Opening defined benefit obligations | | | | | | | | | | | | | | | | | | | | | | | | | | | (28,952 | ) | | | (29,592 | ) | | | (25,594) | | Current service cost | | | | | | | | | | | | | | | | | | | | | | | | | | | (232 | ) | | | (221 | ) | | | (186) | | Interest cost | | | | | | | | | | | | | | | | | | | | | | | | | | | (1,057 | ) | | | (1,026 | ) | | | (1,127) | | Actuarial gains – experience | | | | | | | | | | | | | | | | | | | | | | | | | | | 166 | | | | 659 | | | | 163 | | Actuarial gains/(losses) – demographic assumptions | | | | | | | | | | | | | | | | | | | | | | | | | | | 225 | | | | – | | | | (342) | | Actuarial (losses)/gains – financial assumptions | | | | | | | | | | | | | | | | | | | | | | | | | | | (3,377 | ) | | | 218 | | | | (2,746) | | Past service credit/(cost) – redundancies | | | | | | | | | | | | | | | | | | | | | | | | | | | 1 | | | | 1 | | | | (1) | | Special termination benefit cost – redundancies | | | | | | | | | | | | | | | | | | | | | | | | | | | (7 | ) | | | (11 | ) | | | (20) | | Past service cost – augmentations | | | | | | | | | | | | | | | | | | | | | | | | | | | (1 | ) | | | (3 | ) | | | (7) | | Past service cost – plan amendments | | | | | | | | | | | | | | | | | | | | | | | | | | | – | | | | – | | | | (1) | | Medicare subsidy received | | | | | | | | | | | | | | | | | | | | | | | | | | | (14 | ) | | | (15 | ) | | | (19) | | Obligations transferred on disposal of UK Gas Distribution | | | | | | | | | | | | | | | | | | | | 6,970 | | | | – | | | | – | | Employee contributions | | | | | | | | | | | | | | | | | | | | | | | | | | | (1 | ) | | | (2 | ) | | | (2) | | Benefits paid | | | | | | | | | | | | | | | | | | | | | | | | | | | 1,443 | | | | 1,348 | | | | 1,268 | | Exchange adjustments | | | | | | | | | | | | | | | | | | | | | | | | | | | (1,394 | ) | | | (308 | ) | | | (978) | | | | Closing defined benefit obligations | | | | | | | | | | | | | | | | | | | | | | | | | | | (26,230 | ) | | | (28,952 | ) | | | (29,592) | | | | The geographical split of pensions and other post-retirement benefits is as shown below: | | | | | UK pensions | | | US pensions | | | US other post-retirement benefits | | | | | 2017 £m | | | 2016 £m | | | 2015 £m | | | 2017 £m | | | 2016 £m | | | 2015 £m | | | 2017 £m | | | 2016 £m | | | 2015 £m | | | | Opening defined benefit obligations | | | (19,416 | ) | | | (20,125 | ) | | | (18,162) | | | | (6,145 | ) | | | (6,055 | ) | | | (4,752) | | | | (3,391 | ) | | | (3,412 | ) | | | (2,680) | | Current service cost | | | (76 | ) | | | (74 | ) | | | (70) | | | | (103 | ) | | | (95 | ) | | | (77) | | | | (53 | ) | | | (52 | ) | | | (39) | | Interest cost | | | (615 | ) | | | (649 | ) | | | (762) | | | | (285 | ) | | | (242 | ) | | | (235) | | | | (157 | ) | | | (135 | ) | | | (130) | | Actuarial gains/(losses) – experience | | | 106 | | | | 552 | | | | 100 | | | | (2 | ) | | | 15 | | | | (22) | | | | 62 | | | | 92 | | | | 85 | | Actuarial gains/(losses) – demographic assumptions | | | 214 | | | | – | | | | (95) | | | | 2 | | | | – | | | | (125) | | | | 9 | | | | – | | | | (122) | | Actuarial (losses)/gains – financial assumptions | | | (3,751 | ) | | | – | | | | (1,980) | | | | 37 | | | | 120 | | | | (486) | | | | 337 | | | | 98 | | | | (280) | | Past service credit/(cost) – redundancies | | | 1 | | | | 1 | | | | (1) | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | Special termination benefit cost – redundancies | | | (7 | ) | | | (11 | ) | | | (20) | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | Past service cost – augmentations | | | (1 | ) | | | (3 | ) | | | (7) | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | Past service cost – plan amendments | | | – | | | | – | | | | – | | | | – | | | | – | | | | (1) | | | | – | | | | – | | | | – | | Medicare subsidy received | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | | (14 | ) | | | (15 | ) | | | (19) | | Obligations transferred on disposal of UK Gas Distribution | | | 6,970 | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | Employee contributions | | | (1 | ) | | | (2 | ) | | | (2) | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | Benefits paid | | | 931 | | | | 895 | | | | 874 | | | | 349 | | | | 310 | | | | 269 | | | | 163 | | | | 143 | | | | 125 | | Exchange adjustments | | | – | | | | – | | | | – | | | | (903 | ) | | | (198 | ) | | | (626) | | | | (491 | ) | | | (110 | ) | | | (352) | | | | Closing defined benefit obligations | | | (15,645 | ) | | | (19,416 | ) | | | (20,125) | | | | (7,050 | ) | | | (6,145 | ) | | | (6,055) | | | | (3,535 | ) | | | (3,391 | ) | | | (3,412) | | | |
| | | | | | | | 134 | | National Grid Annual Report and Accounts 2016/17 | | Financial Statements | | |
23. Pensions and other post-retirement benefitscontinued Changes in the fair value of plan assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2017 £m | | | 2016 £m | | | 2015 £m | | | | Opening fair value of plan assets | | | | | | | | | | | | | | | | | | | | | | | | | | | 26,434 | | | | 26,408 | | | | 23,258 | | Interest income | | | | | | | | | | | | | | | | | | | | | | | | | | | 952 | | | | 914 | | | | 1,026 | | Return on assets greater/(less) than assumed | | | | | | | | | | | | | | | | | | | | | | | | | | | 3,334 | | | | (338 | ) | | | 2,154 | | Administration costs | | | | | | | | | | | | | | | | | | | | | | | | | | | (21 | ) | | | (18 | ) | | | (14) | | Employer contributions | | | | | | | | | | | | | | | | | | | | | | | | | | | 1,073 | | | | 587 | | | | 508 | | Employee contributions | | | | | | | | | | | | | | | | | | | | | | | | | | | 1 | | | | 2 | | | | 2 | | Benefits paid | | | | | | | | | | | | | | | | | | | | | | | | | | | (1,443 | ) | | | (1,348 | ) | | | (1,268) | | Exchange adjustments | | | | | | | | | | | | | | | | | | | | | | | | | | | 1,049 | | | | 227 | | | | 742 | | Assets transferred on disposal of UK Gas Distribution | | | | | | | | | | | | | | | | | | | | | | | | | | | (7,004 | ) | | | – | | | | – | | | | Closing fair value of plan assets | | | | | | | | | | | | | | | | | | | | | | | | | | | 24,375 | | | | 26,434 | | | | 26,408 | | | | Actual return on plan assets | | | | | | | | | | | | | | | | | | | | | | | | | | | 4,286 | | | | 576 | | | | 3,180 | | | | Expected contributions to plans in the following year | | | | | | | | | | | | | | | | | | | | | | | | | | | 491 | | | | 686 | | | | 533 | | | | The geographical split of pensions and other post-retirement benefits is as shown below: | | | | | UK pensions | | | US pensions | | | US other post-retirement benefits | | | | | 2017 £m | | | 2016 £m | | | 2015 £m | | | 2017 £m | | | 2016 £m | | | 2015 £m | | | 2017 £m | | | 2016 £m | | | 2015 £m | | | | Opening fair value of plan assets | | | 19,401 | | | | 19,453 | | | | 17,409 | | | | 5,136 | | | | 5,052 | | | | 4,229 | | | | 1,897 | | | | 1,903 | | | | 1,620 | | Interest income | | | 615 | | | | 631 | | | | 735 | | | | 242 | | | | 206 | | | | 210 | | | | 95 | | | | 77 | | | | 81 | | Return on assets greater/(less) than assumed | | | 2,890 | | | | (18 | ) | | | 1,929 | | | | 282 | | | | (202 | ) | | | 225 | | | | 162 | | | | (118 | ) | | | – | | Administration costs | | | (11 | ) | | | (11 | ) | | | (6) | | | | (9 | ) | | | (6 | ) | | | (7) | | | | (1 | ) | | | (1 | ) | | | (1) | | Employer contributions | | | 528 | | | | 239 | | | | 258 | | | | 257 | | | | 231 | | | | 126 | | | | 288 | | | | 117 | | | | 124 | | Employee contributions | | | 1 | | | | 2 | | | | 2 | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | Benefits paid | | | (931 | ) | | | (895 | ) | | | (874) | | | | (349 | ) | | | (310 | ) | | | (269) | | | | (163 | ) | | | (143 | ) | | | (125) | | Exchange adjustments | | | – | | | | – | | | | – | | | | 763 | | | | 165 | | | | 538 | | | | 286 | | | | 62 | | | | 204 | | Assets transferred on disposal of UK Gas Distribution | | | (7,004 | ) | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | | Closing fair value of plan assets | | | 15,489 | | | | 19,401 | | | | 19,453 | | | | 6,322 | | | | 5,136 | | | | 5,052 | | | | 2,564 | | | | 1,897 | | | | 1,903 | | | | Actual return on plan assets | | | 3,505 | | | | 613 | | | | 2,664 | | | | 524 | | | | 4 | | | | 435 | | | | 257 | | | | (41 | ) | | | 81 | | | | Expected contributions to plans in the following year | | | 128 | | | | 228 | | | | 225 | | | | 229 | | | | 220 | | | | 204 | | | | 134 | | | | 238 | | | | 104 | | | |
| | | | | | | | | National Grid Annual Report and Accounts 2016/17 | | Financial Statements | | 135 |
Notes to the consolidated financial statements – analysis of items in the primary statements continued 23. Pensions and other post-retirement benefitscontinued Asset allocations Within the asset allocations below there is significant diversification across regions, asset managers, currencies and bond categories. UK pensions | | | | 2016 | | | | | 2015 | | | | | 2014 | | 2017 | | | | | | 2016 | | | | | | 2015 | | | | Quoted
£m | | | Unquoted
£m | | | Total
£m | | | Quoted
£m | | | Unquoted
£m | | | Total
£m | | | Quoted
£m | | | Unquoted
£m | | Total
£m | | Quoted
£m | | | Unquoted
£m | | | Total
£m | | | | | | Quoted
£m | | | Unquoted
£m | | | Total
£m | | | | | | Quoted
£m | | | Unquoted
£m | | | Total
£m | Equities1 | | | 3,272 | | | | 962 | | | | 4,234 | | | | | | 3,848 | | | | 761 | | | | 4,609 | | | | | | 4,045 | | | | 620 | | | 4,665 | | | 2,624 | | | | 596 | | | | 3,220 | | | | | | 3,272 | | | | 962 | | | | 4,234 | | | | | | 3,848 | | | | 761 | | | 4,609 | Corporate bonds2 | | | 5,601 | | | | – | | | | 5,601 | | | | | | 6,494 | | | | – | | | | 6,494 | | | | | | 5,706 | | | | – | | | 5,706 | | | 3,526 | | | | – | | | | 3,526 | | | | | | 5,601 | | | | – | | | | 5,601 | | | | | | 6,494 | | | | – | | | 6,494 | Government securities | | | 6,059 | | | | – | | | | 6,059 | | | | | | 4,637 | | | | – | | | | 4,637 | | | | | | 4,161 | | | | – | | | 4,161 | | | 5,406 | | | | – | | | | 5,406 | | | | | | 6,059 | | | | – | | | | 6,059 | | | | | | 4,637 | | | | – | | | 4,637 | Property | | | 90 | | | | 1,081 | | | | 1,171 | | | | | | 86 | | | | 1,082 | | | | 1,168 | | | | | | 33 | | | | 1,057 | | | 1,090 | | | 90 | | | | 708 | | | | 798 | | | | | | 90 | | | | 1,081 | | | | 1,171 | | | | | | 86 | | | | 1,082 | | | 1,168 | Diversified alternatives3 | | | 159 | | | | 505 | | | | 664 | | | | | | – | | | | 716 | | | | 716 | | | | | | – | | | | 793 | | | 793 | | | 250 | | | | 628 | | | | 878 | | | | | | 159 | | | | 505 | | | | 664 | | | | | | – | | | | 716 | | | 716 | Liability matching assets4 | | | 1,020 | | | | – | | | | 1,020 | | | | | | 878 | | | | – | | | | 878 | | | | | | 598 | | | | – | | | 598 | | | 1,162 | | | | – | | | | 1,162 | | | | | | 1,020 | | | | – | | | | 1,020 | | | | | | 878 | | | | – | | | 878 | Other5 | | | 649 | | | | 3 | | | | 652 | | | | | | 936 | | | | 15 | | | | 951 | | | | | | 433 | | | | (37 | ) | | 396 | | | 63 | | | | 436 | | | | 499 | | | | | | 649 | | | | 3 | | | | 652 | | | | | | 936 | | | | 15 | | | 951 | | | | | 16,850 | | | | 2,551 | | | | 19,401 | | | | | | 16,879 | | | | 2,574 | | | | 19,453 | | | | | | 14,976 | | | | 2,433 | | | 17,409 | | | 13,121 | | | | 2,368 | | | | 15,489 | | | | | | 16,850 | | | | 2,551 | | | | 19,401 | | | | | | 16,879 | | | | 2,574 | | | 19,453 | 1. Included within equities at 31 March 2016 were ordinary shares of National Grid plc with a value of £7m (2015: £14m; 2014: £15m). 2. Included within corporate bonds at 31 March 2016 was an investment in a number of bonds issued by subsidiary undertakings with a value of £70m (2015: £80m; 2014: £72m). 3. Includes return seeking non-conventional asset classes. 4. Includes liability-driven investment vehicles. 5. Includes cash and cash type instruments. US pensions | | | | | 2016 | | | | | 2015 | | | | | 2014 | | | | | Quoted
£m | | | Unquoted
£m | | | Total
£m | | | Quoted
£m | | | Unquoted
£m | | | Total
£m | | | Quoted
£m | | | Unquoted
£m | | Total
£m | | Equities1 | | | 625 | | | | 1,508 | | | | 2,133 | | | | | | 617 | | | | 1,455 | | | | 2,072 | | | | | | 508 | | | | 1,225 | | | 1,733 | | Corporate bonds1 | | | 954 | | | | 483 | | | | 1,437 | | | | | | 969 | | | | 473 | | | | 1,442 | | | | | | 823 | | | | 336 | | | 1,159 | | Government securities1 | | | 711 | | | | – | | | | 711 | | | | | | 727 | | | | – | | | | 727 | | | | | | 632 | | | | 28 | | | 660 | | Property | | | – | | | | 276 | | | | 276 | | | | | | – | | | | 249 | | | | 249 | | | | | | – | | | | 189 | | | 189 | | Diversified alternatives1,2 | | | 163 | | | | 334 | | | | 497 | | | | | | 164 | | | | 334 | | | | 498 | | | | | | 139 | | | | 295 | | | 434 | | Other | | | – | | | | 82 | | | | 82 | | | | | | – | | | | 64 | | | | 64 | | | | | | – | | | | 54 | | | 54 | | | | | | 2,453 | | | | 2,683 | | | | 5,136 | | | | | | 2,477 | | | | 2,575 | | | | 5,052 | | | | | | 2,102 | | | | 2,127 | | | 4,229 | | 1. Comparatives have been represented on a basis consistent with the current year presentation. 2. Includes return seeking non-conventional asset classes. US other post-retirement benefits | | | | | 2016 | | | | | 2015 | | | | | 2014 | | | | | Quoted
£m | | | Unquoted
£m | | | Total
£m | | | Quoted
£m | | | Unquoted
£m | | | Total
£m | | | Quoted
£m | | | Unquoted
£m | | Total
£m | | Equities1 | | | 281 | | | | 853 | | | | 1,134 | | | | | | 289 | | | | 872 | | | | 1,161 | | | | | | 245 | | | | 823 | | | 1,068 | | Corporate bonds | | | 37 | | | | 1 | | | | 38 | | | | | | 34 | | | | – | | | | 34 | | | | | | 2 | | | | 10 | | | 12 | | Government securities | | | 390 | | | | – | | | | 390 | | | | | | 382 | | | | – | | | | 382 | | | | | | 357 | | | | 1 | | | 358 | | Diversified alternatives1,2 | | | 122 | | | | 104 | | | | 226 | | | | | | 114 | | | | 100 | | | | 214 | | | | | | 102 | | | | 80 | | | 182 | | Other | | | – | | | | 109 | | | | 109 | | | | | | – | | | | 112 | | | | 112 | | | | | | – | | | | – | | | – | | | | | | 830 | | | | 1,067 | | | | 1,897 | | | | | | 819 | | | | 1,084 | | | | 1,903 | | | | | | 706 | | | | 914 | | | 1,620 | | 1. Comparatives have been represented on a basis consistent with the current year presentation. 2. Includes return seeking non-conventional asset classes. | |
| 1. | Included within equities at 31 March 2017 were ordinary shares of National Grid plc with a value of £2 million (2016: £7 million; 2015: £14 million). |
| 2. | Included within corporate bonds at 31 March 2017 was an investment in a number of bonds issued by subsidiary undertakings with a value of £nil (2016: £70 million; 2015: £80 million). |
| 3. | Includes return seekingnon-conventional asset classes. |
| 4. | Includes liability-driven investment vehicles. |
| 5. | Includes cash and cash type instruments. |
US pensions | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2017 | | | | | | 2016 | | | | | | 2015 | | | | Quoted
£m | | | Unquoted
£m | | | Total
£m | | | | | | Quoted
£m | | | Unquoted
£m | | | Total
£m | | | | | | Quoted
£m | | | Unquoted
£m | | | Total
£m | Equities | | | 698 | | | | 1,915 | | | | 2,613 | | | | | | | | 625 | | | | 1,508 | | | | 2,133 | | | | | | | | 617 | | | | 1,455 | | | 2,072 | Corporate bonds | | | 1,130 | | | | 537 | | | | 1,667 | | | | | | | | 954 | | | | 483 | | | | 1,437 | | | | | | | | 969 | | | | 473 | | | 1,442 | Government securities | | | 872 | | | | 71 | | | | 943 | | | | | | | | 711 | | | | – | | | | 711 | | | | | | | | 727 | | | | – | | | 727 | Property | | | – | | | | 335 | | | | 335 | | | | | | | | – | | | | 276 | | | | 276 | | | | | | | | – | | | | 249 | | | 249 | Diversified alternatives1 | | | 209 | | | | 433 | | | | 642 | | | | | | | | 163 | | | | 334 | | | | 497 | | | | | | | | 164 | | | | 334 | | | 498 | Other | | | 31 | | | | 91 | | | | 122 | | | | | | | | – | | | | 82 | | | | 82 | | | | | | | | – | | | | 64 | | | 64 | | | | | 2,940 | | | | 3,382 | | | | 6,322 | | | | | | | | 2,453 | | | | 2,683 | | | | 5,136 | | | | | | | | 2,477 | | | | 2,575 | | | 5,052 |
| 1. | Includes return seekingnon-conventional asset classes. |
US other post-retirement benefits | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2017 | | | | | | 2016 | | | | | | 2015 | | | | Quoted
£m | | | Unquoted
£m | | | Total
£m | | | | | | Quoted
£m | | | Unquoted
£m | | | Total
£m | | | | | | Quoted
£m | | | Unquoted
£m | | | Total
£m | Equities | | | 405 | | | | 1,162 | | | | 1,567 | | | | | | | | 281 | | | | 853 | | | | 1,134 | | | | | | | | 289 | | | | 872 | | | 1,161 | Corporate bonds | | | 19 | | | | – | | | | 19 | | | | | | | | 37 | | | | 1 | | | | 38 | | | | | | | | 34 | | | | – | | | 34 | Government securities | | | 520 | | | | 1 | | | | 521 | | | | | | | | 390 | | | | – | | | | 390 | | | | | | | | 382 | | | | – | | | 382 | Diversified alternatives1 | | | 166 | | | | 149 | | | | 315 | | | | | | | | 122 | | | | 104 | | | | 226 | | | | | | | | 114 | | | | 100 | | | 214 | Other | | | – | | | | 142 | | | | 142 | | | | | | | | – | | | | 109 | | | | 109 | | | | | | | | – | | | | 112 | | | 112 | | | | | 1,110 | | | | 1,454 | | | | 2,564 | | | | | | | | 830 | | | | 1,067 | | | | 1,897 | | | | | | | | 819 | | | | 1,084 | | | 1,903 |
| 1. | Includes return seekingnon-conventional asset classes. |
| | | | | | | | 136 | | National Grid Annual Report and Accounts 2016/17 | | Financial Statements | | |
23. Pensions and other post-retirement benefitscontinued Target asset allocations Each plan’s investment strategy is formulated specifically in order to manage risk, through investment in diversified asset classes, including the use of liability matching assets and where appropriate through the employment of interest rate and inflation hedging instruments. The target asset allocation of the plans as at 31 March 20162017 is as follows: | | | | | | | | | | | | | | | | UK pensions
% | | | US pensions
% | | | US other
post-retirement
benefits % | | Equities | | | 21 | | | | 40 | | | | 65 | | Other | | | 79 | | | | 60 | | | | 35 | | | | | | 100 | | | | 100 | | | | 100 | |
| | | | | | | | | National Grid Annual Report and Accounts 2015/16 | | Financial Statements | | 147 |
Notes to the consolidated financial statements
– supplementary information continued
29. Actuarial information on pensions and other post-retirement benefitscontinued
| | | | | | | | | | | | | | | | UK pensions
% | | | US pensions % | | | US other post-retirement benefits % | | Equities | | | 22 | | | | 40 | | | | 65 | | Other | | | 78 | | | | 60 | | | | 35 | | | | | | 100 | | | | 100 | | | | 100 | |
Actuarial assumptions The Company has applied the following financial assumptions in assessing DB liabilities. | | | | UK pensions | | | | US pensions | | | | US other post-retirement benefits | | | UK pensions | | | | | | US pensions | | | | | | US other post-retirement benefits | | | | | 2016 % | | | 2015 % | | | 2014 % | | | | 2016 % | | | 2015 % | | | 2014 % | | | | 2016 % | | | 2015 % | | | 2014 % | | | 2017 % | | | 2016 % | | | 2015 % | | | | | 2017 % | | | 2016 % | | | 2015 % | | | | | 2017 % | | | 2016 % | | | 2015 % | | Discount rate1 | | | 3.3 | | | | 3.3 | | | | 4.3 | | | | | | 4.3 | | | | 4.1 | | | | 4.8 | | | | | | 4.3 | | | | 4.1 | | | | 4.8 | | | | 2.4 | | | | 3.3 | | | | 3.3 | | | | | | 4.3 | | | | 4.3 | | | | 4.1 | | | | | | 4.3 | | | | 4.3 | | | | 4.1 | | Rate of increase in salaries2 | | | 3.2 | | | | 3.2 | | | | 3.6 | | | | | | 3.5 | | | | 3.5 | | | | 3.5 | | | | | | 3.5 | | | | 3.5 | | | | 3.5 | | | | 3.5 | | | | 3.2 | | | | 3.2 | | | | | | 3.5 | | | | 3.5 | | | | 3.5 | | | | | | 3.5 | | | | 3.5 | | | | 3.5 | | Rate of increase in RPI3 | | | 2.9 | | | | 2.9 | | | | 3.3 | | | | | | n/a | | | | n/a | | | | n/a | | | | | | n/a | | | | n/a | | | | n/a | | | | 3.2 | | | | 2.9 | | | | 2.9 | | | | | | n/a | | | | n/a | | | | n/a | | | | | | n/a | | | | n/a | | | | n/a | | Initial healthcare cost trend rate | | | n/a | | | | n/a | | | | n/a | | | | | | n/a | | | | n/a | | | | n/a | | | | | | 7.5 | | | | 8.0 | | | | 8.0 | | | | n/a | | | | n/a | | | | n/a | | | | | | n/a | | | | n/a | | | | n/a | | | | | | 7.0 | | | | 7.5 | | | | 8.0 | | Ultimate healthcare cost trend rate | | | n/a | | | | n/a | | | | n/a | | | | | n/a | | | | n/a | | | | n/a | | | | | 4.5 | | | | 5.0 | | | | 5.0 | | | | n/a | | | | n/a | | | | n/a | | | | | n/a | | | | n/a | | | | n/a | | | | | 4.5 | | | | 4.5 | | | | 5.0 | |
| 1. | The discount rates for pension liabilities have been determined by reference to appropriate yields on high-quality corporate bonds prevailing in the UK and US debt markets at the reporting date. |
| 2. | A promotional scale has also been used where appropriate. The UK assumption stated is that relating to service prior to 1 April 2014. The UK assumption for the rate of increase in salaries for service after this date is 2.1% (2015:2.2% (2016: 2.1%). |
| 3. | This is the key assumption that determines assumed increases in pensions in payment and deferment in the UK only. The assumptions for the UK were 2.9% (2015:3.2% (2016: 2.9%; 2014: 3.3%2015: 2.9%) for increases in pensions in payment and 2.9% (2015:3.2% (2016: 2.9%; 2014: 3.3%2015: 2.9%) for increases in pensions in deferment. |
For sensitivity analysis see note 33. | | | | 2016 | | | | 2015 | | | | 2014 | | | 2017 | | | | | | 2016 | | | | | | 2015 | | | | | UK
years | | | US
years | | | | UK
years | | | US
years | | | UK
years | | | US
years | | | UK
years | | | US
years | | | | | | UK
years | | | US
years | | | | | UK
years | | | US
years | | Assumed life expectations for a retiree age 65 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Today: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Males | | | 22.8 | | | | 21.8 | | | | | | 22.7 | | | | 21.7 | | | | | | 22.9 | | | | 20.6 | | | | 22.9 | | | | 21.9 | | | | | | 22.8 | | | | 21.8 | | | | | | 22.7 | | | | 21.7 | | Females | | | 25.2 | | | | 24.0 | | | | | | 25.1 | | | | 23.9 | | | | | | 25.4 | | | | 22.9 | | | | 24.7 | | | | 24.1 | | | | | | 25.2 | | | | 24.0 | | | | | | 25.1 | | | | 23.9 | | In 20 years: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Males | | | 25.1 | | | | 23.5 | | | | | | 24.9 | | | | 23.4 | | | | | | 25.2 | | | | 22.8 | | | | 25.1 | | | | 23.6 | | | | | | 25.1 | | | | 23.5 | | | | | | 24.9 | | | | 23.4 | | Females | | | 27.6 | | | | 25.6 | | | | | 27.4 | | | | 25.6 | | | | | 27.8 | | | | 24.7 | | | | 27.1 | | | | 25.7 | | | | | 27.6 | | | | 25.6 | | | | | 27.4 | | | | 25.6 | |
Maturity profile of DB obligations The weighted average duration of the DB obligation for each category of scheme is 16 years for UK pension schemes; 13 years for US pension schemes and 1715 years for US other post-retirement benefits. | | | | | | | 148 | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | 137 |
Notes to the consolidated financial statements – analysis of items in the primary statements continued 24. Provisions | We make provisions when an obligation exists, resulting from a past event and it is probable that cash will be paid to settle it, but the exact amount of cash required can only be estimated. The main estimates relate to environmental remediation and decommissioning costs for various sites we own or have owned and other provisions, including restructuring plans and lease contracts we have entered into that are now loss making. The evaluation of the likelihood of the contingent events has required best judgement by management regarding the probability of exposure to potential loss. Should circumstances change following unforeseeable developments, the likelihood could alter. Our strategy in action We are committed to the protection and enhancement of the environment. However, we have acquired, owned and operated a number of businesses which have, during the course of their operations, created an environmental impact. Therefore we have a provision that reflects the expected cost to remediate these sites. Current operations will seldom result in new sites with significant expected costs being added to the provision. |
Provisions are recognised where a legal or constructive obligation exists at the reporting date, as a result of a past event, where the amount of the obligation can be reliably estimated and where the outflow of economic benefit is probable. Provision is made for decommissioning and environmental costs, based on future estimated expenditures, discounted to present values. An initial estimate of decommissioning and environmental costs attributable to property, plant and equipment is recorded as part of the original cost of the related property, plant and equipment. Changes in the provision arising from revised estimates or discount rates or changes in the expected timing of expenditures that relate to property, plant and equipment are recorded as adjustments to their carrying value and depreciated prospectively over their remaining estimated useful economic lives; otherwise such changes are recognised in the income statement. The unwinding of the discount is included within the income statement as a financing charge. | | | | | | | | | | | | | | | | | | | | | | | | | | Environmental £m | | | Decommissioning £m | | Restructuring £m | | | Emissions £m | | | Other £m | | | Total provisions £m | | | | At 1 April 2015 | | | 1,164 | | | 137 | | | 39 | | | | 23 | | | | 372 | | | | 1,735 | | Exchange adjustments | | | 29 | | | 3 | | | – | | | | 1 | | | | 9 | | | | 42 | | Additions | | | 30 | | | 22 | | | 10 | | | | 1 | | | | 33 | | | | 96 | | Unused amounts reversed | | | (15 | ) | | (8) | | | (1 | ) | | | – | | | | (3 | ) | | | (27) | | Unwinding of discount | | | 58 | | | 4 | | | 1 | | | | – | | | | 10 | | | | 73 | | Utilised | | | (97 | ) | | (17) | | | (19 | ) | | | (7 | ) | | | (60 | ) | | | (200) | | | | At 31 March 2016 | | | 1,169 | | | 141 | | | 30 | | | | 18 | | | | 361 | | | | 1,719 | | Exchange adjustments | | | 137 | | | 13 | | | – | | | | 2 | | | | 36 | | | | 188 | | Additions | | | 572 | | | 107 | | | 16 | | | | 12 | | | | 308 | | | | 1,015 | | Unused amounts reversed | | | (75 | ) | | – | | | (5 | ) | | | – | | | | (6 | ) | | | (86) | | Unwinding of discount | | | 60 | | | – | | | 1 | | | | – | | | | 12 | | | | 73 | | Utilised | | | (110 | ) | | (19) | | | (25 | ) | | | – | | | | (73 | ) | | | (227) | | Disposal of UK Gas Distribution | | | (32 | ) | | (21) | | | – | | | | – | | | | (41 | ) | | | (94) | | | | At 31 March 2017 | | | 1,721 | | | 221 | | | 17 | | | | 32 | | | | 597 | | | | 2,588 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2017 £m | | | 2016 £m | | | | Current | | | | | | | | | | | | | | | | | 416 | | | | 236 | | Non-current | | | | | | | | | | | | | | | | | 2,172 | | | | 1,483 | | | | | | | | | | | | | | | | | | | | | 2,588 | | | | 1,719 | | | |
| | | | | | | | 138 | | National Grid Annual Report and Accounts 2016/17 | | Financial Statements | | |
24. Provisionscontinued Environmental provision The environmental provision represents the estimated restoration and remediation costs relating to a number of sites owned and managed by subsidiary undertakings, together with certain US sites that National Grid no longer owns. The environmental provision is as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2017 | | | 2016 | | | | | Discounted £m | | | Undiscounted £m | | | Real discount rate | | | Discounted £m | | | Undiscounted £m | | | Real discount rate | | | | UK sites | | | 242 | | | | 270 | | | | 1% | | | | 280 | | | | 348 | | | | 2% | | US sites | | | 1,479 | | | | 1,619 | | | | 1% | | | | 889 | | | | 1,031 | | | | 2% | | | | | | | 1,721 | | | | 1,889 | | | | | | | | 1,169 | | | | 1,379 | | | | | | | |
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 2017 and 2077. A number of estimation uncertainties affect the calculation of the provision, including the impact of regulation, accuracy of the site surveys, unexpected contaminants, transportation costs, the impact of alternative technologies and changes in the real discount rate. This provision incorporates our best estimate of the financial effect of these uncertainties, but future changes in any of the assumptions could materially impact the calculation of the provision. The undiscounted amount is the undiscounted best estimate of the liability having regard to these uncertainties. The remediation expenditure in the US is expected to be incurred between 2017 and 2071. The increase in the US provision principally relates to the reduction in real discount rate and expected expenditure in relation to three industrial sites located on or near waterways in New York that are subject to both state and federal law in the US. Refer to note 4 for further details. The uncertainties regarding the calculation of this provision are similar to those considered in respect of UK sites. This expenditure is expected to be largely recoverable from ratepayers under the terms of various rate agreements in the US. Decommissioning provision The decommissioning provision represents £78 million (2016: £66 million) of expenditure relating to asset retirement obligations estimated to be incurred until 2095, and £107 million (2016: £nil) of expenditure relating to the demolition of gas holders estimated to be incurred until 2026. It also includes the net present value of the estimated expenditure (discounted at a real rate of 1%) expected to be incurred until 2033 in respect of the decommissioning of certain US nuclear generating units that National Grid no longer owns. Apre-existing decommissioning provision formed part of the net assets sold as part of the UK Gas Distribution transaction. Restructuring provision The restructuring provision principally relates to business reorganisation costs in the UK and is expected to be incurred until 2023. Other provisions Included within other provisions at 31 March 2017 are the following amounts in respect of the disposal of UK Gas Distribution: | ● | £150 million voluntary distribution to be made for the benefit of energy customers on the successful sale of UK Gas Distribution. |
| We anticipate this expenditure being incurred over three years; and |
| ● | £143 million in respect of business set up costs and business restructuring costs (as disclosed in note 9). We expect the majority of this provision to be utilised within one year. |
Other provisions also include: | ● | Amounts provided in respect of onerous lease commitments and rates payable on surplus properties of £84 million (2016: £100 million) with expenditure expected to be incurred until 2039; |
| ● | £166 million (2016: £190 million) 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; and |
| ● | £13 million (2016: £13 million) in respect of obligations associated with investments in joint ventures and associates. |
| | | | | | | | | National Grid Annual Report and Accounts 2016/17 | | Financial Statements | | 139 |
Notes to the consolidated financial statements – analysis of items in the primary statements continued 25. Share capital | Ordinary share capital represents the total number of shares issued which are publicly traded. We also disclose the number of treasury shares the Company holds, which are shares that the Company has bought itself, predominantly to actively manage share issuances under the scrip dividend scheme and to satisfy employee share option plan liabilities. |
Share capital is accounted for as an equity instrument. An equity instrument is any contract that includes a residual interest in the consolidated assets of the Company after deducting all its liabilities and is recorded at the proceeds received, net of direct issue costs, with an amount equal to the nominal amount of the shares issued included in the share capital account and the balance recorded in the share premium account. | | | | | | | | | | | | Allotted, called up
and fully paid | | | | | million | | | £m | | | | At 1 April 2015 | | | 3,892 | | | | 443 | | Issued during the year in lieu of dividends1 | | | 32 | | | | 4 | | | | At 31 March 2016 | | | 3,924 | | | | 447 | | Issued during the year in lieu of dividends1 | | | 19 | | | | 2 | | | | At 31 March 2017 | | | 3,943 | | | | 449 | | | |
| 1. | The issue of shares under the scrip dividend scheme is considered to be a bonus issue under the terms of the Companies Act 2006 and the nominal value of the shares is charged to the share premium account. |
The share capital of the Company consists of ordinary shares of 11 17⁄43 pence nominal value each including ADSs. The ordinary shares and ADSs allow holders to receive dividends and vote at general meetings of the Company. The Company holds treasury shares but may not exercise any rights over these shares including the entitlement to vote or receive dividends. There are no restrictions on the transfer or sale of ordinary shares. On 19 April 2017, the Company announced that its Board had approved a special interim dividend of 84.375 pence per existing ordinary share ($5.4224 per existing ADS) following completion of the sale of the majority interest in UK Gas Distribution. In order to maintain the comparability of the Company’s share price before and after the special dividend, the Company plans to undertake a share consolidation. The share consolidation will replace every 12 existing ordinary shares with 11 new ordinary shares. The Company has published a notice of general meeting and explanatory circular to shareholders regarding the share consolidation and related resolutions which will be subject to shareholder approval at the General Meeting of the Company being held on 19 May 2017. In line with the provisions of the Companies Act 2006, the Company has amended its Articles of Association and ceased to have authorised share capital. Treasury shares At 31 March 2017, the Company held 193 million (2016: 179 million) of its own shares. The market value of these shares as at 31 March 2017 was £1,958 million (2016: £1,767 million). The Company made the following transactions in respect of its own shares during the year ended 31 March 2017: | 1. | During the year, the Company, as part of management of the dilutive effect of share issuances under the scrip dividend scheme, repurchased 20 million (2016: 31 million) ordinary shares for aggregate consideration of £189 million (2016: £267 million), including transaction costs. The shares repurchased have a nominal value of £2 million (2016: £4 million) and represented approximately 1% (2016: 1%) of the ordinary shares in issue as at 31 March 2017. |
| 2. | During the year, 3 million (2016: 2 million) treasury shares were gifted to National Grid Employee Share Trusts and 3 million (2016: 3 million) treasury shares werere-issued in relation to employee share schemes, in total representing approximately 0.2% (2016: 0.1%) of the ordinary shares in issue as at 31 March 2017. The nominal value of these shares was £1 million (2016: £1 million) and the total proceeds received were £18 million (2016: £16 million). |
| 3. | During the year the Company made payments totalling £6 million (2016: £6 million) to National Grid Employee Share Trusts, outside of its share repurchase programme, to enable the trustees to make purchases of National Grid plc shares in order to satisfy the requirements of employee share option and reward plans. |
The maximum number of shares held during the year was 194 million ordinary shares (2016: 179 million) representing approximately 4.9% (2016: 4.6%) of the ordinary shares in issue as at 31 March 2017 and having a nominal value of £22 million (2016: £20 million). | | | | | | | | 140 | | National Grid Annual Report and Accounts 2016/17 | | Financial Statements | | |
26. Other equity reserves | Other equity reserves are different categories of equity as required by accounting standards and represent the impact of a number of our historical transactions. |
Other equity reserves comprise the translation reserve (see accounting policy D in note 1), cash flow hedge reserve (see note 16),available-for-sale reserve (see note 14), the capital redemption reserve and the merger reserve. The merger reserve arose as a result of the application of merger accounting principles under the then prevailing UK GAAP, which under IFRS 1 was retained for mergers that occurred prior to the IFRS transition date. Under merger accounting principles, the difference between the carrying amount of the capital structure of the acquiring vehicle and that of the acquired business was treated as a merger difference and included within reserves. As the amounts included in other equity reserves are not attributable to any of the other classes of equity presented, they have been disclosed as a separate classification of equity. | | | | | | | | | | | | | | | | | | | | | | | | | | | | Translation
£m | | | Cash flow
hedge
£m | | | Available-
for-sale
£m | | | Capital
redemption
£m | | | Merger
£m | | | Total
£m | | At 1 April 2014 | | | 305 | | | | 14 | | | | 68 | | | | 19 | | | | (5,165 | ) | | | (4,759 | ) | Exchange adjustments | | | 174 | | | | – | | | | – | | | | – | | | | – | | | | 174 | | Net (losses)/gains taken to equity | | | – | | | | (154 | ) | | | 41 | | | | – | | | | – | | | | (113 | ) | Transferred to/(from) profit or loss | | | – | | | | 13 | | | | (8 | ) | | | – | | | | – | | | | 5 | | Tax | | | – | | | | 18 | | | | (7 | ) | | | – | | | | – | | | | 11 | | At 31 March 2015 | | | 479 | | | | (109 | ) | | | 94 | | | | 19 | | | | (5,165 | ) | | | (4,682 | ) | Exchange adjustments | | | 69 | | | | – | | | | – | | | | – | | | | – | | | | 69 | | Net gains taken to equity | | | – | | | | 50 | | | | 43 | | | | – | | | | – | | | | 93 | | Transferred to profit or loss | | | – | | | | 29 | | | | – | | | | – | | | | – | | | | 29 | | Tax | | | – | | | | (15 | ) | | | (17 | ) | | | – | | | | – | | | | (32 | ) | At 31 March 2016 | | | 548 | | | | (45 | ) | | | 120 | | | | 19 | | | | (5,165 | ) | | | (4,523 | ) | Exchange adjustments | | | 346 | | | | – | | | | – | | | | – | | | | – | | | | 346 | | Net (losses)/gains taken to equity | | | – | | | | (36 | ) | | | 81 | | | | – | | | | – | | | | 45 | | Transferred to/(from) profit or loss | | | – | | | | 227 | | | | (25 | ) | | | – | | | | – | | | | 202 | | Tax | | | – | | | | (43 | ) | | | (14 | ) | | | – | | | | – | | | | (57 | ) | At 31 March 2017 | | | 894 | | | | 103 | | | | 162 | | | | 19 | | | | (5,165 | ) | | | (3,987 | ) |
The merger reserve represents the difference between the carrying value of subsidiary undertaking investments and their respective capital structures following the Lattice demerger from BG Group plc and the 1999 Lattice refinancing. The cash flow hedge reserve will be transferred to the income statement until the committed future cash flows from borrowings and capital projects (as described in note 16) are paid. The amount due to be released from reserves to the income statement next year is a gain of £22 million(pre-tax). The remainder will be released based on the maturity profile of borrowings due after more than one year and on the stage of completion of existing capital projects. | | | | | | | | | National Grid Annual Report and Accounts 2016/17 | | Financial Statements | | 141 |
Notes to the consolidated financial statements – analysis of items in the primary statements continued 27. Net debt | Net debt represents the amount of borrowings and overdrafts less cash, financial investments and related derivatives. |
Funding and liquidity risk management is carried out by the treasury function under policies and guidelines approved by the Finance Committee of the Board. The Finance Committee is responsible for the regular review and monitoring of treasury activity and for the approval of specific transactions, the authority for which fall outside the delegation of authority to management. The primary objective of the treasury function is to manage our funding and liquidity requirements. A secondary objective is to manage the associated financial risks, in the form of interest rate risk and foreign exchange risk, to withinpre-authorised parameters. Details of the main risks arising from our financing and commodity hedging activities can be found in the risk factors discussion starting on page 180 and in note 30 to the consolidated financial statements on pages 145 to 152. Investment of surplus funds, usually in short-term fixed deposits or placements with money market funds that invest in highly liquid instruments of high credit quality, is subject to our counterparty risk management policy. The movement in cash and cash equivalents is reconciled to movements in net debt. (a) Reconciliation of net cash flow to movement in net debt | | | | | | | | | | | | | | | | 2017 £m | | | 2016 £m | | | 2015 £m | | Increase/(decrease) in cash and cash equivalents | | | 984 | | | | 4 | | | | (247 | ) | Increase/(decrease) in financial investments | | | 5,675 | | | | 391 | | | | (1,157 | ) | (Increase)/decrease in borrowings and related derivatives | | | (3,715 | ) | | | (1,100 | ) | | | 682 | | Net interest paid on the components of net debt1 | | | 1,955 | | | | 810 | | | | 925 | | Change in debt resulting from cash flows | | | 4,899 | | | | 105 | | | | 203 | | Changes in fair value of financial assets and liabilities and exchange movements | | | (2,273 | ) | | | (515 | ) | | | (1,777 | ) | Net interest charge on the components of net debt1 | | | (2,401 | ) | | | (913 | ) | | | (1,068 | ) | Disposal of UK Gas Distribution | | | 5,890 | | | | – | | | | – | | Othernon-cash movements | | | (64 | ) | | | (87 | ) | | | (83 | ) | Movement in net debt (net of related derivative financial instruments) in the year | | | 6,051 | | | | (1,410 | ) | | | (2,725 | ) | Net debt (net of related derivative financial instruments) at start of year | | | (25,325 | ) | | | (23,915 | ) | | | (21,190 | ) | Net debt (net of related derivative financial instruments) at end of year | | | (19,274 | ) | | | (25,325 | ) | | | (23,915 | ) | Composition of net debt Net debt is made up as follows: | | | | | | | | | | | | | | | | 2017 £m | | | 2016 £m | | | 2015 £m | | Cash, cash equivalents and financial investments | | | 9,880 | | | | 3,125 | | | | 2,678 | | Borrowings and bank overdrafts | | | (28,638 | ) | | | (28,344 | ) | | | (25,910 | ) | Derivatives | | | (516 | ) | | | (106 | ) | | | (683 | ) | | | | | (19,274 | ) | | | (25,325 | ) | | | (23,915 | ) |
| 1. | An exceptional charge of £1,313 million (2016: £nil; 2015: £131 million) is included in net interest charge on the components of net debt and an exceptional cash outflow of £1,052 million (2016: £nil; 2015: £152 million) is included in net interest paid on the components of net debt. |
| | | | | | | | 142 | | National Grid Annual Report and Accounts 2016/17 | | Financial Statements | | |
27. Net debtcontinued (b) Analysis of changes in net debt | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash
and cash
equivalents
£m |
| |
| Bank
overdrafts
£m |
| |
| Net cash
and cash
equivalents
£m |
| |
| Financial
investments
£m |
| |
| Borrowings
£m |
| |
| Derivatives
£m |
| |
| Total
£m | 1
| At 1 April 2014 | | | 354 | | | | (15 | ) | | | 339 | | | | 3,599 | | | | (25,935 | ) | | | 807 | | | | (21,190 | ) | Cash flow | | | (259 | ) | | | 12 | | | | (247 | ) | | | (1,194 | ) | | | 1,721 | | | | (77 | ) | | | 203 | | Fair value gains and losses and exchange movements | | | 24 | | | | – | | | | 24 | | | | 118 | | | | (451 | ) | | | (1,468 | ) | | | (1,777 | ) | Interest income/(charges) | | | – | | | | – | | | | – | | | | 36 | | | | (1,160 | ) | | | 56 | | | | (1,068 | ) | Othernon-cash movements | | | – | | | | – | | | | – | | | | – | | | | (82 | ) | | | (1 | ) | | | (83 | ) | At 31 March 2015 | | | 119 | | | | (3 | ) | | | 116 | | | | 2,559 | | | | (25,907 | ) | | | (683 | ) | | | (23,915 | ) | Cash flow | | | 4 | | | | – | | | | 4 | | | | 368 | | | | (631 | ) | | | 364 | | | | 105 | | Fair value gains and losses and exchange movements | | | 4 | | | | – | | | | 4 | | | | 49 | | | | (739 | ) | | | 171 | | | | (515 | ) | Interest income/(charges)2 | | | – | | | | – | | | | – | | | | 22 | | | | (978 | ) | | | 43 | | | | (913 | ) | Othernon-cash movements | | | – | | | | – | | | | – | | | | – | | | | (86 | ) | | | (1 | ) | | | (87 | ) | At 31 March 2016 | | | 127 | | | | (3 | ) | | | 124 | | | | 2,998 | | | | (28,341 | ) | | | (106 | ) | | | (25,325 | ) | Cash flow | | | 1,001 | | | | (17 | ) | | | 984 | | | | 5,624 | | | | (2,196 | ) | | | 487 | | | | 4,899 | | Fair value gains and losses and exchange movements | | | 16 | | | | – | | | | 16 | | | | 141 | | | | (1,527 | ) | | | (903 | ) | | | (2,273 | ) | Interest income/(charges)2 | | | – | | | | – | | | | – | | | | 53 | | | | (2,221 | ) | | | (233 | ) | | | (2,401 | ) | Othernon-cash movements | | | – | | | | – | | | | – | | | | – | | | | (294 | ) | | | 230 | | | | (64 | ) | Disposal | | | (5 | ) | | | 20 | | | | 15 | | | | (75 | ) | | | 5,941 | | | | 9 | | | | 5,890 | | At 31 March 2017 | | | 1,139 | | | | – | | | | 1,139 | | | | 8,741 | | | | (28,638 | ) | | | (516 | ) | | | (19,274 | ) | Balances at 31 March 2017 comprise: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Non-current assets | | | – | | | | – | | | | – | | | | – | | | | – | | | | 1,515 | | | | 1,515 | | Current assets | | | 1,139 | | | | – | | | | 1,139 | | | | 8,741 | | | | – | | | | 192 | | | | 10,072 | | Current liabilities | | | – | | | | – | | | | – | | | | – | | | | (5,496 | ) | | | (1,054 | ) | | | (6,550 | ) | Non-current liabilities | | | – | | | | – | | | | – | | | | – | | | | (23,142 | ) | | | (1,169 | ) | | | (24,311 | ) | | | | | 1,139 | | | | – | | | | 1,139 | | | | 8,741 | | | | (28,638 | ) | | | (516 | ) | | | (19,274 | ) |
| 1. | Includes accrued interest at 31 March 2017 of £210 million (2016: £243 million; 2015: £230 million). |
| 2. | An exceptional expense of £1,313 million (2016: £nil; 2015: £131 million) is included in net interest charge on the components of net debt and an exceptional cash outflow of £1,052 million (2016: £nil; 2015: £152 million) is included in net interest paid on the components of net debt. |
| | | | | | | | | National Grid Annual Report and Accounts 2016/17 | | Financial Statements | | 143 |
Notes to the consolidated financial statements – supplementary information This section includes information that is important to enable a full understanding of our financial position, particularly areas of potential uncertainty that could affect us in the future. We also include specific disclosures for British Transco Finance Inc., Niagara Mohawk Power Corporation and National Grid Gas plc in accordance with various rules including Rule3-10 of RegulationS-X (a US SEC requirement), as they have issued public debt securities which have been guaranteed by National Grid plc and one of its subsidiary companies, National Grid Gas plc. Additional disclosures have also been included in respect of the two guarantor companies. These disclosures are in lieu of publishing separate financial statements for these companies. See note 34 for further information. 28. Commitments and contingencies | Commitments are those amounts that we are contractually required to pay in the future as long as the other party meets its obligations. These commitments primarily relate to operating lease rentals, energy purchase agreements and contracts for the repurchase of network assets which, in many cases, extend over a long period of time. We also disclose any contingencies, which include guarantees that companies have given, where we pledge assets against current obligations that will remain for a specific period. |
| | | | | | | | | | | | 2017 £m | | | 2016 £m | | Future capital expenditure | | | | | | | | | Contracted for but not provided | | | 2,571 | | | | 2,616 | | Operating lease commitments | | | | | | | | | Less than 1 year | | | 95 | | | | 92 | | In 1 to 2 years | | | 82 | | | | 86 | | In 2 to 3 years | | | 58 | | | | 72 | | In 3 to 4 years | | | 56 | | | | 54 | | In 4 to 5 years | | | 54 | | | | 52 | | More than 5 years | | | 274 | | | | 286 | | | | | | 619 | | | | 642 | | Energy purchase commitments1 | | | | | | | | | Less than 1 year | | | 1,325 | | | | 1,096 | | In 1 to 2 years | | | 744 | | | | 598 | | In 2 to 3 years | | | 587 | | | | 454 | | In 3 to 4 years | | | 507 | | | | 362 | | In 4 to 5 years | | | 436 | | | | 315 | | More than 5 years | | | 2,100 | | | | 1,477 | | | | | | 5,699 | | | | 4,302 | | Guarantees and letters of credit | | | | | | | | | Guarantee of sublease for US property (expires 2040) | | | 225 | | | | 219 | | Guarantees of certain obligations of Grain LNG Import Terminal (expire up to 2028) | | | 100 | | | | 113 | | Guarantees of certain obligations for construction of HVDC West Coast Link (expected expiry 2017) | | | 281 | | | | 415 | | Guarantees of certain obligations of Nemo Link Limited (various expiry dates) | | | 140 | | | | 166 | | Guarantees of certain obligations of National Grid North Sea Link Limited (various expiry dates) | | | 1,059 | | | | 1,038 | | Guarantees of certain obligations of St William Homes LLP (various expiry dates) | | | 147 | | | | 96 | | Guarantees of certain obligations for construction of IFA 2 SAS (expected expiry 2021) | | | 354 | | | | – | | Other guarantees and letters of credit (various expiry dates) | | | 474 | | | | 344 | | | | | | 2,780 | | | | 2,391 | |
| 1. | Energy purchase 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 (i.e. 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 30(e). |
The total of future minimum sublease payments expected to be received undernon-cancellable subleases is £15 million (2016: £21 million). 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. | | | | | | | | 144 | | National Grid Annual Report and Accounts 2016/17 | | Financial Statements | | |
29. Related party transactions | Related parties include joint ventures, associates, investments and key management personnel. |
The following significant 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: | | | | | | | | | | | | | | | | 2017
£m | | | 2016
£m | | | 2015
£m | | Sales: Goods and services supplied to a pension plan | | | 3 | | | | 3 | | | | 3 | | Sales: Goods and services supplied to joint ventures1 | | | 78 | | | | 9 | | | | 9 | | Sales: Goods and services supplied to associates | | | – | | | | 4 | | | | 40 | | Purchases: Goods and services received from joint ventures2 | | | 168 | | | | 183 | | | | 68 | | Purchases: Goods and services received from associates2 | | | 169 | | | | 83 | | | | 52 | | | | | | Receivable from joint ventures3 | | | 64 | | | | 7 | | | | 4 | | Receivable from associates3 | | | 457 | | | | – | | | | – | | Payable to joint ventures4 | | | 84 | | | | 96 | | | | 2 | | Payable to associates | | | 27 | | | | 7 | | | | 4 | | | | | | Dividends received from joint ventures5 | | | 75 | | | | 48 | | | | 49 | | Dividends received from associates | | | 24 | | | | 24 | | | | 30 | |
| 1. | During the year the Company sold property sites to joint venture St William Homes LLP. |
| 2. | During the year the Company received goods and services from a number of US associates, both for the transportation of gas and for pipeline services in the US. Additionally, goods and services were received from UK joint ventures for the construction of a transmission link in the UK. |
| 3. | Amounts receivable from associates includes a loan receivable balance from Quadgas HoldCo Limited of £434 million as a result of the sale of the UK Gas Distribution business (see note 9 for additional information) and a loan receivable balance of £61 million from Nemo Link Limited. |
| 4. | Amounts payable to joint ventures include deposits received for National Grid property sites from St William Homes LLP. |
| 5. | Dividends in respect of joint ventures were received from BritNed Development Limited. |
Details of investments in principal subsidiary undertakings, joint ventures and associates are disclosed in note 32 and information relating to pension fund arrangements is disclosed in note 23. For details of Directors’ and key management remuneration, refer to the audited section of the Remuneration Report and note 3(c). Information regarding the disposal of UK Gas Distribution is included in note 9. 30. Financial risk management | Our activities expose us to a variety of financial risks including currency risk, interest rate risk, commodity price risk, credit risk, capital risk and liquidity risk. Our risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential volatility of financial performance from these risks. We use financial instruments, including derivative financial instruments, to manage risks of this type. This note describes our approach to managing risk, including an analysis of assets and liabilities by currency type and an analysis of interest rate category for our net debt. We are required by accounting standards to also include a number of specific disclosures (such as a maturity analysis of contractual undiscounted cash flows) and have included these requirements below. |
Risk management related to financing activities is carried out by a central treasury department under policies approved by the Finance Committee of the Board. The objective of the treasury department is to manage funding and liquidity requirements, including managing associated financial risks, to within acceptable boundaries. The Finance Committee provides written principles for overall risk management, as well as written policies covering specific areas such as foreign exchange risk, interest rate risk, credit risk, liquidity risk, use of derivative financial instruments andnon-derivative financial instruments, and investment of excess liquidity. We have exposure to the following risks, which are described in more detail below: | | | | | | | | | National Grid Annual Report and Accounts 2016/17 | | Financial Statements | | 145 |
Notes to the consolidated financial statements – supplementary information continued 30. Financial risk managementcontinued (a) Credit risk We are exposed to the risk of loss resulting from counterparties’ default on their commitments including failure to pay or make a delivery on a contract. This risk is inherent in our commercial business activities. We are exposed to credit risk on our cash and cash equivalents, derivative financial instruments, deposits with banks and financial institutions, as well as credit exposures to wholesale and retail customers, including outstanding receivables and committed transactions. Treasury credit risk Counterparty risk arises from the investment of surplus funds and from the use of derivative financial instruments. As at 31 March 2016,2017, the following limits were in place for investments held with banks and financial institutions: | | | | Maximum limit
£m | | | Long-term limit
£m | | | Maximum limit
£m | | | Long-term limit
£m | | Triple ‘A’ G8 sovereign entities (AAA) | | | Unlimited | | | | Unlimited | | | | Unlimited | | | | Unlimited | | Triple ‘A’ vehicles (AAA) | | | 322 | | | | 273 | | | | 326 | | | | 277 | | Triple ‘A’ range institutions and non G8 sovereign entities (AAA) | | | 1,099 to 1,658 | | | | 553 to 867 | | | | 1,113 to 1,680 | | | | 560 to 878 | | Double ‘A+’ G8 sovereign entities (AA+) | | | 1,658 | | | | 867 | | | | 1,680 | | | | 878 | | Double ‘A’ range institutions (AA) | | | 656 to 826 | | | | 334 to 413 | | | | 665 to 837 | | | | 338 to 418 | | Single ‘A’ range institutions (A) | | | 226 to 322 | | | | 115 to 165 | | | | 229 to 326 | | | | 116 to 167 | |
As at 31 March 20152016 and 2016,2017, we had a number of exposures to individual counterparties. In accordance with our treasury policies, counterparty credit exposure utilisations are monitored daily against the counterparty credit limits. Counterparty credit ratings and market conditions are reviewed continually with limits being revised and utilisation adjusted, if appropriate. Management does not expect any significant losses from non performance by these counterparties. Commodity credit risk The credit policy forUS-based commodity transactions is owned and monitored by the Energy Procurement Risk ManagementFinance Committee under authority delegated byto the Board, and Executive Committee, andwhich establishes controls and procedures to determine, monitor and minimise the credit risk ofexposure to counterparties. Authority to administer the policy has been delegated to the Energy Procurement Risk Management Committee by the Board and the Executive Committee. Wholesale and retail credit risk Our principal commercial exposure in the UK is governed by the credit rules within the regulated codes: Uniform Network Code and Connection and Use of System Code. These set out the level of credit relative to the RAV for each credit rating. In the US, we are required to supply electricity and gas under state regulations. Our credit policies and practices are designed to limit credit exposure by collecting security deposits prior to providing utility services, or after utility service has commenced if certain applicable regulatory requirements are met. Collection activities are managed on a daily basis. Sales to retail customers are usually settled in cash, cheques, electronic bank payments or by using major credit cards. We are committed to measuring, monitoring, minimising and recording counterparty credit risk in our wholesale business. The utilisation of credit limits is regularly monitored and collateral is collected against these accounts when necessary. Management does not expect any significant losses of receivables that have not been provided for as shown in note 17.18. | | | | | | | | 146 | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | 149 |
Notes to the consolidated financial statements
– supplementary information continued
30. Financial risk managementcontinued a)(a) Credit riskcontinued
Offsetting financial assets and liabilities The following tables set out our financial assets and liabilities which are subject to offset and to enforceable master netting arrangements or similar agreements. The tables show the amounts which are offset and reported net in the statement of financial position. Amounts which cannot be offset under IFRS, but which could be settled net under terms of master netting agreements if certain conditions arise, and with collateral received or pledged, are shown to present National Grid’s net exposure. Financial assets and liabilities on different transactions are only reported net if the transactions are with the same counterparty, a legal right of offset exists and the cash flows are intended to be settled on a net basis. Amounts which do not meet the criteria for offsetting on the statement of financial position but could be settled net in certain circumstances principally relate to derivative transactions under ISDA agreements where each party has the option to settle amounts on a net basis in the event of default of the other party. Commodity contracts that have not been offset on the balance sheet may be settled net in certain circumstances under ISDA or NAESB (North American Energy Standards Board) agreements. National Grid has similar arrangements in relation to bank account balances and bank overdrafts; and trade payables and trade receivables which are subject to general terms and conditions. However, these balances are immaterial. | | | | | | | | | | | Related amounts
available to be offset but
not offset in statement
of financial position | | | | | At 31 March 2017 | | |
| Gross
carrying
amounts
£m |
| |
| Gross
amounts
offset£m |
1 | |
| Net amount
presented in
statement
of financial
position
£m |
| |
| Financial
instruments
£m |
| |
| Cash
collateral
received/
pledged
£m |
| |
| Net amount
£m |
| Assets | | | | | | | | | | | | | | Derivative financial instruments | | | | 1,707 | | | | – | | | | 1,707 | | | | (718 | ) | | | (692 | ) | | | 297 | | Commodity contracts | | | | 106 | | | | – | | | | 106 | | | | (25 | ) | | | – | | | | 81 | | | | | | | 1,813 | | | | – | | | | 1,813 | | | | (743 | ) | | | (692 | ) | | | 378 | | Liabilities | | | | | | | | | | | | | | Derivative financial instruments | | | | (2,223 | ) | | | – | | | | (2,223 | ) | | | 718 | | | | 1,230 | | | | (275 | ) | Commodity contracts | | | | (170 | ) | | | – | | | | (170 | ) | | | 25 | | | | 18 | | | | (127 | ) | | | | | | (2,393 | ) | | | – | | | | (2,393 | ) | | | 743 | | | | 1,248 | | | | (402 | ) | | | | | | | | | | | | | | | | | | | | | (580 | ) | | | – | | | | (580 | ) | | | – | | | | 556 | | | | (24 | ) | | | | | | | | | | Related amounts
available to be offset but
not offset in statement
of financial position | | | | | | | | | | | Related amounts
available to be offset but
not offset in statement of financial position | | | | | At 31 March 2016 | |
| Gross
carrying
amounts
£m |
| |
| Gross
amounts
offset£m |
1 | |
| Net amount
presented in
statement
of financial
position
£m |
| |
| Financial
instruments
£m |
| |
| Cash
collateral
received/
pledged
£m |
| |
| Net amount
£m |
| |
| Gross
carrying
amounts
£m |
| |
| Gross
amounts
offset£m |
1 | |
| Net amount
presented in
statement of
financial
position
£m |
| |
| Financial
instruments
£m |
| |
| Cash
collateral
received/
pledged
£m |
| |
| Net amount
£m |
| Assets | | | | | | | | | | | | | | | | | | | | | | | | | Derivative financial instruments | | | 1,963 | | | | – | | | | 1,963 | | | | (997 | ) | | | (597 | ) | | | 369 | | | | 1,963 | | | | – | | | 1,963 | | | (997 | ) | | (597 | ) | | 369 | | Commodity contracts | | | 33 | | | | (1 | ) | | | 32 | | | | (4 | ) | | | – | | | | 28 | | | | 33 | | | (1 | ) | | 32 | | | (4 | ) | | | – | | | 28 | | | | | | 1,996 | | | | (1 | ) | | | 1,995 | | | | (1,001 | ) | | | (597 | ) | | | 397 | | | | 1,996 | | | (1 | ) | | 1,995 | | | (1,001 | ) | | (597 | ) | | 397 | | Liabilities | | | | | | | | | | | | | | | | | | | | | | | | | Derivative financial instruments | | | (2,069 | ) | | | – | | | | (2,069 | ) | | | 997 | | | | 932 | | | | (140 | ) | | | (2,069 | ) | | | – | | | (2,069 | ) | | 997 | | | 932 | | | (140 | ) | Commodity contracts | | | (145 | ) | | | 10 | | | | (135 | ) | | | 4 | | | | 20 | | | | (111 | ) | | | (145 | ) | | 10 | | | (135 | ) | | 4 | | | 20 | | | (111 | ) | | | | | (2,214 | ) | | | 10 | | | | (2,204 | ) | | | 1,001 | | | | 952 | | | | (251 | ) | | | (2,214 | ) | | 10 | | | (2,204 | ) | | 1,001 | | | 952 | | | (251 | ) | | | | | | | | | | (218 | ) | | | 9 | | | | (209 | ) | | | – | | | | 355 | | | | 146 | | | | (218 | ) | | 9 | | | (209 | ) | | | – | | | 355 | | | 146 | | | | | | | | | | | Related amounts available to be offset but
not offset in statement
of financial position | | | | | | At 31 March 2015 | |
| Gross
carrying
amounts
£m |
| |
| Gross
amounts
offset£m |
1 | |
| Net amount
presented in
statement of
financial
position
£m |
| |
| Financial
instruments
£m |
| |
| Cash
collateral
received/
pledged
£m |
| |
| Net amount
£m |
| | Assets | | | | | | | | | | | | | | Derivative financial instruments | | | 1,716 | | | | – | | | 1,716 | | | (839 | ) | | (527 | ) | | 350 | | | Commodity contracts | | | 64 | | | | – | | | 64 | | | (11 | ) | | | – | | | 53 | | | | | | | 1,780 | | | | – | | | 1,780 | | | (850 | ) | | (527 | ) | | 403 | | | Liabilities | | | | | | | | | | | | | | Derivative financial instruments | | | (2,399 | ) | | | – | | | (2,399 | ) | | 839 | | | 1,125 | | | (435 | ) | | Commodity contracts | | | (182 | ) | | 11 | | | (171 | ) | | 11 | | | | – | | | (160 | ) | | | | | | (2,581 | ) | | 11 | | | (2,570 | ) | | 850 | | | 1,125 | | | (595 | ) | | | | | | | | | | (801 | ) | | 11 | | | (790 | ) | | | – | | | 598 | | | (192 | ) | |
| 1. | The gross financial assets and liabilities offset in the statement of financial position primarily relate to commodity contracts. Offsets relate to margin payments for NYMEX gas futures which are traded on a recognised exchange. |
| | | | | | | 150 | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | 147 |
Notes to the consolidated financial statements – supplementary information continued 30. Financial risk managementcontinued (b) Liquidity risk Our policy is to determine our liquidity requirements by the use of both short-term and long-term cash flow forecasts. These forecasts are supplemented by a financial headroom analysis which is used to assess funding requirements for at least a 24 month period and maintain adequate liquidity for a continuous 12 month period. We believe our contractual obligations, including those shown in commitments and contingencies in note 2728 can be met from existing cash and investments, operating cash flows and other financings that we reasonably expect to be able to secure in the future, together with the use of committed facilities if required. Our debt agreements and banking facilities contain covenants, including those relating to the periodic and timely provision of financial information by the issuing entity and financial covenants such as restrictions on the level of subsidiary indebtedness. Failure to comply with these covenants, or to obtain waivers of those requirements, could in some cases trigger a right, at the lender’s discretion, to require repayment of some of our debt and may restrict our ability to draw upon our facilities or access the capital markets. The following is an analysis of the contractual undiscounted cash flows payable under financial liabilities and derivative assets and liabilities as at the reporting date: | | At 31 March 2017 | | | Less than
1 year £m | | | 1 to 2
years
£m | | | 2 to 3
years
£m | | | More than
3 years
£m | | | Total £m | | Non-derivative financial liabilities | | | | | | | | | | | | Borrowings, excluding finance lease liabilities | | | | (5,142 | ) | | | (1,864 | ) | | | (1,750 | ) | | | (19,245 | ) | | | (28,001 | ) | Interest payments on borrowings1 | | | | (767 | ) | | | (707 | ) | | | (670 | ) | | | (12,975 | ) | | | (15,119 | ) | Finance lease liabilities | | | | (66 | ) | | | (58 | ) | | | (61 | ) | | | (183 | ) | | | (368 | ) | Othernon-interest bearing liabilities | | | | (2,989 | ) | | | (260 | ) | | | – | | | | – | | | | (3,249 | ) | | Derivative financial liabilities | | | | | | | | | | | | Derivative contracts – receipts | | | | 571 | | | | 961 | | | | 572 | | | | 234 | | | | 2,338 | | Derivative contracts – payments | | | | (1,551 | ) | | | (959 | ) | | | (304 | ) | | | (610 | ) | | | (3,424 | ) | Commodity contracts | | | | (15 | ) | | | (18 | ) | | | (8 | ) | | | – | | | | (41 | ) | | | | | | (9,959 | ) | | | (2,905 | ) | | | (2,221 | ) | | | (32,779 | ) | | | (47,864 | ) | | | At 31 March 2016 | | Less than 1 year £m | | | 1 to 2 years £m | | | 2 to 3 years £m | | | More than 3 years £m | | | Total £m | | | Less than
1 year £m | | | 1 to 2
years
£m | | | 2 to 3
years
£m | | | More than
3 years
£m | | | Total £m | | Non-derivative financial liabilities | | | | | | | | | | | | | | | | | | | | | Borrowings, excluding finance lease liabilities | | | (3,225 | ) | | | (1,777 | ) | | | (1,760 | ) | | | (20,831 | ) | | | (27,593 | ) | | | (3,225 | ) | | | (1,777 | ) | | | (1,760 | ) | | | (20,831 | ) | | | (27,593 | ) | Interest payments on borrowings1 | | | (839 | ) | | | (806 | ) | | | (746 | ) | | | (13,549 | ) | | | (15,940 | ) | | | (839 | ) | | | (806 | ) | | | (746 | ) | | | (13,549 | ) | | | (15,940 | ) | Finance lease liabilities | | | (53 | ) | | | (58 | ) | | | (43 | ) | | | (130 | ) | | | (284 | ) | | | (53 | ) | | | (58 | ) | | | (43 | ) | | | (130 | ) | | | (284 | ) | Other non-interest bearing liabilities | | | (2,755 | ) | | | (230 | ) | | | – | | | | – | | | | (2,985 | ) | | | (2,755 | ) | | | (230 | ) | | | – | | | | – | | | | (2,985 | ) | | Derivative financial liabilities | | | | | | | | | | | | | | | | | | | | | Derivative contracts – receipts | | | 314 | | | | 487 | | | | 846 | | | | 811 | | | | 2,458 | | | | 314 | | | | 487 | | | | 846 | | | | 811 | | | | 2,458 | | Derivative contracts – payments | | | (389 | ) | | | (964 | ) | | | (855 | ) | | | (914 | ) | | | (3,122 | ) | | | (389 | ) | | | (964 | ) | | | (855 | ) | | | (914 | ) | | | (3,122 | ) | Commodity contracts | | | (104 | ) | | | (32 | ) | | | (9 | ) | | | 1 | | | | (144 | ) | | | (104 | ) | | | (32 | ) | | | (9 | ) | | | 1 | | | | (144 | ) | | | | | (7,051 | ) | | | (3,380 | ) | | | (2,567 | ) | | | (34,612 | ) | | | (47,610 | ) | | | (7,051 | ) | | | (3,380 | ) | | | (2,567 | ) | | | (34,612 | ) | | | (47,610 | ) | | | At 31 March 2015 | | Less than
1 year £m | | | 1 to 2
years £m | | | 2 to 3
years £m | | | More than 3 years £m | | | Total £m | | | Non-derivative financial liabilities | | | | | | | | | | | | Borrowings, excluding finance lease liabilities | | | (2,289 | ) | | | (1,179 | ) | | | (1,513 | ) | | | (20,235 | ) | | | (25,216 | ) | | Interest payments on borrowings1 | | | (790 | ) | | | (790 | ) | | | (766 | ) | | | (13,587 | ) | | | (15,933 | ) | | Finance lease liabilities | | | (44 | ) | | | (41 | ) | | | (32 | ) | | | (86 | ) | | | (203 | ) | | Other non-interest bearing liabilities | | | (2,744 | ) | | | (216 | ) | | | – | | | | – | | | | (2,960 | ) | | | Derivative financial liabilities | | | | | | | | | | | | Derivative contracts – receipts | | | 602 | | | | 244 | | | | 411 | | | | 1,194 | | | | 2,451 | | | Derivative contracts – payments | | | (935 | ) | | | (318 | ) | | | (952 | ) | | | (1,631 | ) | | | (3,836 | ) | | Commodity contracts | | | (116 | ) | | | (43 | ) | | | (21 | ) | | | – | | | | (180 | ) | | | | | | (6,316 | ) | | | (2,343 | ) | | | (2,873 | ) | | | (34,345 | ) | | | (45,877 | ) | |
| 1. | The interest on borrowings is calculated based on borrowings held at 31 March without taking account of future issues. Floating rate interest is estimated using a forward interest rate curve as at 31 March. Payments are included on the basis of the earliest date on which the Company can be required to settle. |
(c) Interest rate risk National Grid’s interest rate risk arises from our long-term borrowings. Borrowings issued at variable rates expose National Grid to cash flow interest rate risk, partially offset by cash held at variable rates. Borrowings issued at fixed rates expose National Grid to fair value interest rate risk. Our interest rate risk management policy is to seek to minimise total financing costs (being interest costs and changes in the market value of debt) subject to constraints. We do this by using fixed and floating rate debt and derivative financial instruments including interest rate swaps, swaptions and forward rate agreements. We hold some borrowings on issue that are inflation linked. We believe that these provide a partial economic offset to the inflation risk associated with our UK inflation linked revenues. The table in note 1920 sets out the carrying amount, by contractual maturity, of borrowings that are exposed to interest rate risk before taking into account interest rate swaps. | | | | | | | | 148 | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | 151 |
Notes to the consolidated financial statements
– supplementary information continued
30. Financial risk managementcontinued (c) Interest rate riskcontinued During 20162017 and 2015,2016, net debt was managed using derivative instruments to hedge interest rate risk as follows: | | | | 2016 | | | | 2015 | | 2017 | | | | 2016 | | | |
| Fixed rate
£m |
| |
| Floating
rate
£m |
| |
| Inflation
linked
£m |
| |
| Other
£m | 1
| |
| Total
£m |
| |
| Fixed rate
£m |
| |
| Floating
rate
£m |
| |
| Inflation
linked
£m |
| |
| Other
£m | 1
| | Total £m | |
| Fixed rate
£m |
| |
| Floating
rate
£m |
| |
| Inflation
linked
£m |
| |
| Other
£m | 1
| |
| Total
£m |
| |
| Fixed rate
£m |
| |
| Floating
rate
£m |
| |
| Inflation
linked
£m |
| |
| Other
£m | 1
| | Total £m | Cash and cash equivalents | | | 1 | | | | 126 | | | | – | | | | – | | | | 127 | | | | | 1 | | | 118 | | | | – | | | | – | | | 119 | | | 940 | | | | 199 | | | | – | | | | – | | | | 1,139 | | | | | 1 | | | 126 | | | | – | | | | – | | | 127 | Financial investments | | | 54 | | | | 2,939 | | | | – | | | | 5 | | | | 2,998 | | | | | 281 | | | 2,273 | | | | – | | | 5 | | | 2,559 | | | 44 | | | | 8,691 | | | | – | | | | 6 | | | | 8,741 | | | | | 54 | | | 2,939 | | | | – | | | 5 | | | 2,998 | Borrowings2 | | | (17,706 | ) | | | (3,008 | ) | | | (7,629 | ) | | | (1 | ) | | | (28,344 | ) | | (16,229 | ) | | (2,746 | ) | | (6,933 | ) | | (2 | ) | | (25,910) | | | (17,681 | ) | | | (3,917 | ) | | | (7,040 | ) | | | – | | | | (28,638 | ) | | (17,706 | ) | | (3,008 | ) | | (7,629 | ) | | (1 | ) | | (28,344) | Pre-derivative position | | | (17,651 | ) | | | 57 | | | | (7,629 | ) | | | 4 | | | | (25,219 | ) | | | | (15,947 | ) | | (355 | ) | | (6,933 | ) | | 3 | | | (23,232) | | | (16,697 | ) | | | 4,973 | | | | (7,040 | ) | | | 6 | | | | (18,758 | ) | | | | (17,651 | ) | | 57 | | | (7,629 | ) | | 4 | | | (25,219) | Derivative effect3 | | | 1,788 | | | | (2,481 | ) | | | 587 | | | | – | | | | (106 | ) | | 1,593 | | | (2,294 | ) | | 18 | | | | – | | | (683) | | | 1,424 | | | | (1,785 | ) | | | (155 | ) | | | – | | | | (516 | ) | | 1,788 | | | (2,481 | ) | | 587 | | | | – | | | (106) | Net debt position | | | (15,863 | ) | | | (2,424 | ) | | | (7,042 | ) | | | 4 | | | | (25,325 | ) | | (14,354 | ) | | (2,649 | ) | | (6,915 | ) | | 3 | | | (23,915) | | | (15,273 | ) | | | 3,188 | | | | (7,195 | ) | | | 6 | | | | (19,274 | ) | | (15,863 | ) | | (2,424 | ) | | (7,042 | ) | | 4 | | | (25,325) | | 1. Represents financial instruments which are not directly affected by interest rate risk, such as investments in equity or other similar financial instruments. 2. Includes bank overdrafts. 3. The impact of 2016/17 (2015: 2015/16) maturing short-dated interest rate derivatives is included. (d) Currency risk National Grid operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the dollar. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities, and investments in foreign operations. Our policy for managing foreign exchange transaction risk is to hedge contractually committed foreign currency cash flows over a prescribed minimum size. Where foreign currency cash flow forecasts are less certain, our policy is to hedge a proportion of such cash flows based on the probability of those cash flows occurring. Instruments used to manage foreign exchange transaction risk include foreign exchange forward contracts and foreign exchange swaps. Our policy for managing foreign exchange translation risk relating to our net investment in foreign operations is to maintain a percentage of net debt and foreign exchange forwards so as to provide an economic offset. The primary managed foreign exchange exposure arises from the dollar denominated assets and liabilities held by our US operations, with a further small euro exposure in respect of a joint venture investment. During 2016 and 2015, derivative financial instruments were used to manage foreign currency risk as follows: | | 1. Represents financial instruments which are not directly affected by interest rate risk, such as investments in equity or other similar financial instruments. 2. Includes bank overdrafts. 3. The impact of 2017/18 (2016: 2016/17) maturing short-dated interest rate derivatives is included. (d) Currency risk National Grid operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the dollar. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities, and investments in foreign operations. Our policy for managing foreign exchange transaction risk is to hedge contractually committed foreign currency cash flows over a prescribed minimum size. Where foreign currency cash flow forecasts are less certain, our policy is to hedge a proportion of such cash flows based on the probability of those cash flows occurring. Instruments used to manage foreign exchange transaction risk include foreign exchange forward contracts and foreign exchange swaps. Our policy for managing foreign exchange translation risk relating to our net investment in foreign operations is to maintain a percentage of net debt and foreign exchange forwards so as to provide an economic offset. The primary managed foreign exchange exposure arises from the dollar denominated assets and liabilities held by our US operations, with a further small euro exposure in respect of a joint venture investment. During 2017 and 2016, derivative financial instruments were used to manage foreign currency risk as follows: | | 1. Represents financial instruments which are not directly affected by interest rate risk, such as investments in equity or other similar financial instruments. 2. Includes bank overdrafts. 3. The impact of 2017/18 (2016: 2016/17) maturing short-dated interest rate derivatives is included. (d) Currency risk National Grid operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the dollar. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities, and investments in foreign operations. Our policy for managing foreign exchange transaction risk is to hedge contractually committed foreign currency cash flows over a prescribed minimum size. Where foreign currency cash flow forecasts are less certain, our policy is to hedge a proportion of such cash flows based on the probability of those cash flows occurring. Instruments used to manage foreign exchange transaction risk include foreign exchange forward contracts and foreign exchange swaps. Our policy for managing foreign exchange translation risk relating to our net investment in foreign operations is to maintain a percentage of net debt and foreign exchange forwards so as to provide an economic offset. The primary managed foreign exchange exposure arises from the dollar denominated assets and liabilities held by our US operations, with a further small euro exposure in respect of a joint venture investment. During 2017 and 2016, derivative financial instruments were used to manage foreign currency risk as follows: | | | | 2016 | | | | 2015 | | 2017 | | | | 2016 | | | | Sterling
£m | | Euro
£m | | Dollar
£m | | Other
£m | | Total
£m | | | | | Sterling
£m | | Euro
£m | | Dollar
£m | | Other
£m | | Total £m | | Sterling
£m | | Euro
£m | | Dollar
£m | | Other
£m | | Total
£m | | | | | Sterling
£m | | Euro
£m | | Dollar
£m | | Other
£m | | Total £m | Cash and cash equivalents | | | 3 | | | | 1 | | | | 123 | | | | – | | | | 127 | | | | | 12 | | | | – | | | 107 | | | | – | | | 119 | | | 1,110 | | | | – | | | | 29 | | | | – | | | | 1,139 | | | | | 3 | | | 1 | | | 123 | | | | – | | | 127 | Financial investments | | | 1,201 | | | | 105 | | | | 1,622 | | | | 70 | | | | 2,998 | | | | | 1,227 | | | 90 | | | 1,181 | | | 61 | | | 2,559 | | | 6,824 | | | | 98 | | | | 1,753 | | | | 66 | | | | 8,741 | | | | | 1,201 | | | 105 | | | 1,622 | | | 70 | | | 2,998 | Borrowings1 | | | (13,131 | ) | | | (5,061 | ) | | | (8,806 | ) | | | (1,346 | ) | | | (28,344 | ) | | (11,791 | ) | | (5,099 | ) | | (7,604 | ) | | (1,416 | ) | | (25,910) | | | (11,099 | ) | | | (5,373 | ) | | | (10,729 | ) | | | (1,437 | ) | | | (28,638 | ) | | (13,131 | ) | | (5,061 | ) | | (8,806 | ) | | (1,346 | ) | | (28,344) | Pre-derivative position | | | (11,927 | ) | | | (4,955 | ) | | | (7,061 | ) | | | (1,276 | ) | | | (25,219 | ) | | | | (10,552 | ) | | (5,009 | ) | | (6,316 | ) | | (1,355 | ) | | (23,232) | | | (3,165 | ) | | | (5,275 | ) | | | (8,947 | ) | | | (1,371 | ) | | | (18,758 | ) | | | | (11,927 | ) | | (4,955 | ) | | (7,061 | ) | | (1,276 | ) | | (25,219) | Derivative effect | | | 2,374 | | | | 4,971 | | | | (8,989 | ) | | | 1,538 | | | | (106 | ) | | 1,608 | | | 5,203 | | | (8,858 | ) | | 1,364 | | | (683) | | | 2,310 | | | | 6,241 | | | | (10,708 | ) | | | 1,641 | | | | (516 | ) | | 2,374 | | | 4,971 | | | (8,989 | ) | | 1,538 | | | (106) | Net debt position | | | (9,553 | ) | | | 16 | | | | (16,050 | ) | | | 262 | | | | (25,325 | ) | | (8,944 | ) | | 194 | | | (15,174 | ) | | 9 | | | (23,915) | | | (855 | ) | | | 966 | | | | (19,655 | ) | | | 270 | | | | (19,274 | ) | | (9,553 | ) | | 16 | | | (16,050 | ) | | 262 | | | (25,325) | | 1. Includes bank overdrafts. The overall exposure to dollars largely relates to our net investment hedge activities as described in note 15. The currency exposure on other financial instruments is as follows: | | 1. Includes bank overdrafts. The exposure to dollars largely relates to our net investment hedge activities; exposure to euros largely relates to hedges for our futurenon-sterling capital expenditure as described in note 16. The currency exposure on other financial instruments is as follows: | | 1. Includes bank overdrafts. The exposure to dollars largely relates to our net investment hedge activities; exposure to euros largely relates to hedges for our futurenon-sterling capital expenditure as described in note 16. The currency exposure on other financial instruments is as follows: | | | | 2016 | | | | 2015 | | 2017 | | | | 2016 | | | | Sterling
£m | | Euro
£m | | Dollar
£m | | Other
£m | | Total
£m | | | | | Sterling
£m | | Euro
£m | | Dollar
£m | | Other
£m | | Total £m | | Sterling
£m | | Euro
£m | | Dollar
£m | | Other
£m | | Total
£m | | | | | Sterling
£m | | Euro
£m | | Dollar
£m | | Other
£m | | Total £m | Trade and other receivables | | | 220 | | | | 8 | | | | 1,236 | | | | – | | | | 1,464 | | | | | 200 | | | | – | | | 1,495 | | | | – | | | 1,695 | | | 83 | | | | – | | | | 1,660 | | | | – | | | | 1,743 | | | | | 220 | | | 8 | | | 1,236 | | | | – | | | 1,464 | Trade and other payables | | | (1,380 | ) | | | – | | | | (1,471 | ) | | | – | | | | (2,851 | ) | | | | (1,403 | ) | | | – | | | (1,457 | ) | | | – | | | (2,860) | | | (1,209 | ) | | | – | | | | (1,795 | ) | | | – | | | | (3,004 | ) | | | | (1,380 | ) | | | – | | | (1,471 | ) | | | – | | | (2,851) | Other non-current assets | | | (17 | ) | | | – | | | | (252 | ) | | | – | | | | (269 | ) | | (19 | ) | | | – | | | (252 | ) | | | – | | | (271) | | | (100 | ) | | | – | | | | (315 | ) | | | – | | | | (415 | ) | | (17 | ) | | | – | | | (252 | ) | | | – | | | (269) |
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. | | | | | | | 152 | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | 149 |
Notes to the consolidated financial statements – supplementary information continued 30. Financial risk managementcontinued (e) Commodity risk We purchase electricity and gas to supply our customers in the US and to meet our own energy needs. Substantially all our costs of purchasing electricity and gas for supply to customers are recoverable at an amount equal to cost. The timing of recovery of these costs can vary between financial periods leading to an under- or over-recovery within any particular year that can lead to large fluctuations in the income statement. We follow approved policies to manage price and supply risks for our commodity activities. Our energy procurement risk management policy and delegations of authority govern our US commodity trading activities for energy transactions. The purpose of this policy is to ensure we transact withinpre-defined risk parameters and only in the physical and financial markets where we or our customers have a physical market requirement. In addition, state regulators require National Grid to manage commodity risk and cost volatility prudently through diversified pricing strategies. In some jurisdictions we are required to file a plan outlining our strategy to be approved by regulators. In certain cases we might receive guidance with regard to specific hedging limits. Energy purchase contracts for the forward purchase of electricity or gas that are used to satisfy physical delivery requirements to customers or for energy that the Company uses itself meet the normal purchase, sale or usage exemption of IAS 39. They are, therefore, not recognised in the financial statements.statements until they are realised. Disclosure of commitments under such contracts is made in note 27.28. We enter into forward contracts for the purchase of commodities, some of which do not meet the own use exemption for accounting purposes and hence are accounted for as derivatives. We also enter into derivative financial instruments linked to commodity prices, including index-linked futures, swaps and options contracts. These derivative financial instruments are used to manage market price volatility and are carried at fair value on the statement of financial position, with themark-to-market changes reflected through earnings. The fair value of our commodity contracts by type can be analysed as follows: | | | | 2016 | | | | 2015 | | | 2017 | | | | 2016 | | | | | Assets £m | | | Liabilities £m | | Total £m | | | | Assets £m | | | Liabilities £m | | Total £m | | | Assets
£m | | | Liabilities
£m | | Total
£m | | | | Assets
£m | | | Liabilities
£m | | Total
£m | | Commodity purchase contracts accounted for as derivative contracts | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Forward purchases of electricity | | | – | | | | (26 | ) | | | (26 | ) | | | | | – | | | | (42 | ) | | (42 | ) | | | – | | | | (10 | ) | | | (10 | ) | | | | | – | | | | (26 | ) | | (26 | ) | Forward purchases of gas | | | 25 | | | | (27 | ) | | | (2 | ) | | | | | 42 | | | | (42 | ) | | | – | | | | 82 | | | | (97 | ) | | | (15 | ) | | | | | 25 | | | | (27 | ) | | (2 | ) | | Derivative financial instruments linked to commodity prices | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Electricity capacity | | | 2 | | | | – | | | | 2 | | | | | | – | | | | – | | | | – | | | | 2 | | | | – | | | | 2 | | | | | | 2 | | | | – | | | 2 | | Electricity swaps | | | 2 | | | | (69 | ) | | | (67 | ) | | | | | 21 | | | | (59 | ) | | (38 | ) | | | 11 | | | | (61 | ) | | | (50 | ) | | | | | 2 | | | | (69 | ) | | (67 | ) | Electricity options | | | – | | | | (1 | ) | | | (1 | ) | | | | | – | | | | (1 | ) | | (1 | ) | | | – | | | | – | | | | – | | | | | | – | | | | (1 | ) | | (1 | ) | Gas swaps | | | 3 | | | | (12 | ) | | | (9 | ) | | | | 1 | | | | (27 | ) | | (26 | ) | | | 11 | | | | (2 | ) | | | 9 | | | | | 3 | | | | (12 | ) | | (9 | ) | | | | | 32 | | | | (135 | ) | | | (103 | ) | | | | 64 | | | | (171 | ) | | (107 | ) | | | 106 | | | | (170 | ) | | | (64 | ) | | | | 32 | | | | (135 | ) | | (103 | ) | | The maturity profile of commodity contracts is as follows: | The maturity profile of commodity contracts is as follows: | | The maturity profile of commodity contracts is as follows: | | | | | 2016 | | | | 2015 | | | 2017 | | | | 2016 | | | | | Assets
£m | | | Liabilities
£m | | Total
£m | | | | Assets £m | | | Liabilities
£m | | Total
£m | | | Assets
£m | | | Liabilities
£m | | Total
£m | | | | Assets
£m | | | Liabilities
£m | | Total
£m | | Current | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Less than one year | | | 22 | | | | (96 | ) | | | (74 | ) | | | | 35 | | | | (116 | ) | | (81 | ) | | | 54 | | | | (93 | ) | | | (39 | ) | | | | 22 | | | | (96 | ) | | (74 | ) | | | | | 22 | | | | (96 | ) | | | (74 | ) | | | | 35 | | | | (116 | ) | | (81 | ) | | | 54 | | | | (93 | ) | | | (39 | ) | | | | 22 | | | | (96 | ) | | (74 | ) | Non-current | | | | | | | | | | | | | | | | | | | | | | | | | | | | | In 1 to 2 years | | | 8 | | | | (30 | ) | | | (22 | ) | | | | | 25 | | | | (37 | ) | | (12 | ) | | | 8 | | | | (36 | ) | | | (28 | ) | | | | | 8 | | | | (30 | ) | | (22 | ) | In 2 to 3 years | | | 1 | | | | (9 | ) | | | (8 | ) | | | | | 2 | | | | (18 | ) | | (16 | ) | | | 7 | | | | (9 | ) | | | (2 | ) | | | | | 1 | | | | (9 | ) | | (8 | ) | In 3 to 4 years | | | – | | | | – | | | | – | | | | | | 1 | | | | – | | | 1 | | | | 6 | | | | (7 | ) | | | (1 | ) | | | | | – | | | | – | | | | – | | In 4 to 5 years | | | – | | | | – | | | | – | | | | | | 1 | | | | – | | | 1 | | | | 6 | | | | (5 | ) | | | 1 | | | | | | – | | | | – | | | | – | | More than 5 years | | | 1 | | | | – | | | | 1 | | | | | – | | | | – | | | | – | | | | 25 | | | | (20 | ) | | | 5 | | | | | 1 | | | | – | | | 1 | | | | | | 10 | | | | (39 | ) | | | (29 | ) | | | | 29 | | | | (55 | ) | | (26 | ) | | | 52 | | | | (77 | ) | | | (25 | ) | | | | 10 | | | | (39 | ) | | (29 | ) | | | | | 32 | | | | (135 | ) | | | (103 | ) | | | | 64 | | | | (171 | ) | | (107 | ) | | | 106 | | | | (170 | ) | | | (64 | ) | | | | 32 | | | | (135 | ) | | (103 | ) |
For each class of commodity contract, our exposure based on the notional quantities is as follows: | | | | 2016 | | | 2015 | | | 2017 | | | 2016 | | Forward purchases of electricity1 | | | 481 GWh | | | | 984 GWh | | | | 159 GWh | | | | 481 GWh | | Forward purchases/sales of gas2 | | | 44m Dth | | | | 55m Dth | | | | 54m Dth | | | | 44m Dth | | Electricity swaps | | | 11,786 GWh | | | | 10,779 GWh | | | | 12,776 GWh | | | | 11,786 GWh | | Electricity options | | | 22,375 GWh | | | | 25,157 GWh | | | | 17,793 GWh | | | | 22,375 GWh | | Electricity capacity | | | 1 kWm | | | | – | | | | 1 kWm | | | | 1 kWm | | Gas swaps | | | 76m Dth | | | | 65m Dth | | | | 83m Dth | | | | 76m Dth | | Gas options | | | 16m Dth | | | | 4m Dth | | | | 9m Dth | | | | 16m Dth | | NYMEX gas futures3 | | | 14m Dth | | | | 20m Dth | | | | 3m Dth | | | | 14m Dth | |
1. Forward electricity purchases have terms up to threesix years. The contractual obligations under these contracts are £40m (2015: £77m)£15 million (2016: £40 million). 2. Forward gas purchases have terms up to fivefour years. The contractual obligations under these contracts are £20m (2015: £26m)£131 million (2016: £20 million). 3. NYMEX gas futures have been offset with related margin accounts (see note 30(a)). | | | | | | | | 150 | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | 153 |
Notes to the consolidated financial statements
– supplementary information continued
30. Financial risk managementcontinued (f) Capital risk management The capital structure of the Group consists of shareholders’ equity, as disclosed in the consolidated statement of changes in equity, and net debt (note 26)27). National Grid’s objectives when managing capital are: to safeguard our ability to continue as a going concern; to remain within regulatory constraints of our regulated operating companies; and to maintain an efficient mix of debt and equity funding thus achieving an optimal capital structure and cost of capital. We regularly review and manage the capital structure as appropriate in order to achieve these objectives. Maintaining appropriate credit ratings for our regulated companies is an important aspect of our capital risk management strategy and balance sheet efficiency. As noted on page 25,22, we monitor our balance sheet efficiency using several metrics including our retained cash flow/net debt and interest cover. Interest cover for the year ended 31 March 20162017 was 5.5 (2015: 5.1)5.0 (2016: 5.5). Our long-term target range for interest cover is greater than 3.0, which we believe is consistent with single A range long-term senior unsecured debt credit ratings within our main UK operating companies, NGET and NGG, based on guidance from the rating agencies. In addition, we monitor the RAV gearing within each of NGET and the regulated transmission and distribution businesses within NGG. This is calculated as net debt expressed as a percentage of RAV, and indicates the level of debt employed to fund our UK regulated businesses. It is compared with the level of RAV gearing indicated by Ofgem as being appropriate for these businesses, at around 60 to 65%. The majority of our regulated operating companies in the US and the UK (and one intermediate UK holding company), are subject to certain restrictions on the payment of dividends by administrative order, contract and/or licence. The types of restrictions that a company may have that would prevent a dividend being declared or paid unless they are met include: | ● | | dividends must be approved in advance by the relevant US state regulatory commission; |
| ● | | the subsidiary must have at least two recognised rating agency credit ratings of at least investment grade; |
| ● | | dividends must be limited to cumulative retained earnings, includingpre-acquisition retained earnings; |
| ● | | National Grid plc must maintain an investment grade credit rating and if that rating is the lowest investment grade bond rating it cannot have a negative watch/review for downgrade notice by a credit rating agency; |
| ● | | the subsidiary must not carry on any activities other than those permitted by the licences; |
| ● | | the subsidiary must not create any cross-default obligations or give or receive any intra-group cross-subsidies; and |
| ● | | the percentage of equity compared with total capital of the subsidiary must remain above certain levels. |
There is a further restriction relating only to the Narragansett Electric Company, which is required to maintain its consolidated net worth above certain levels. These restrictions are subject to alteration in the US as and when a new rate case or rate plan is agreed with the relevant regulatory bodies for each operating company and in the UK through the normal licence review process. As most of our business is regulated, at 31 March 20162017 the majority of our net assets are subject to some of the restrictions noted above. These restrictions are not considered to be significantly onerous, nor do we currently expect they will prevent the planned payment of dividends in future in line with our dividend policy. Some of our regulatory and bank loan agreements additionally impose lower limits for the long-term credit ratings that certain companies within the Group must hold. All the above requirements are monitored on a regular basis in order to ensure compliance. The Company has complied with all externally imposed capital requirements to which it is subject. (g) Fair value analysis The financial instruments included onIncluded in the statement of financial position are financial instruments which have been measured at fair value. These fair values can be categorised into hierarchy levels that are representative of the inputs used in measuring the fair value. The best evidence of fair value is a quoted price in an actively traded market. In the event that the market for a financial instrument is not active, a valuation technique is used.
| | | | 2016 | | | | 2015 | | | 2017 | | | | 2016 | | | | | Level 1
£m | | | Level 2
£m | | Level 3
£m | | Total
£m | | | | Level 1
£m | | | Level 2
£m | | Level 3
£m | | Total
£m | | | 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 | | | 2,040 | | | | 393 | | | | – | | | | 2,433 | | | | | | 1,315 | | | | 247 | | | | – | | | 1,562 | | | Investments –available-for-sale | | | | 7,717 | | | | 315 | | | | 5 | | | | 8,037 | | | | | | 2,040 | | | | 393 | | | | – | | | 2,433 | | Investments – joint ventures and associates | | | | – | | | | – | | | | 41 | | | | 41 | | | | | | – | | | | – | | | | – | | | | – | | Derivative financial instruments | | | – | | | | 1,945 | | | | 18 | | | | 1,963 | | | | | | – | | | | 1,702 | | | 14 | | | 1,716 | | | | – | | | | 1,692 | | | | 15 | | | | 1,707 | | | | | | – | | | | 1,945 | | | 18 | | | 1,963 | | Commodity contracts | | | – | | | | 5 | | | | 27 | | | | 32 | | | | | | – | | | | 22 | | | 42 | | | 64 | | | | – | | | | 22 | | | | 84 | | | | 106 | | | | | | – | | | | 5 | | | 27 | | | 32 | | | | | | 2,040 | | | | 2,343 | | | | 45 | | | | 4,428 | | | | | | 1,315 | | | | 1,971 | | | 56 | | | 3,342 | | | | 7,717 | | | | 2,029 | | | | 145 | | | | 9,891 | | | | | | 2,040 | | | | 2,343 | | | 45 | | | 4,428 | | Liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Derivative financial instruments | | | – | | | | (1,855 | ) | | | (214 | ) | | | (2,069 | ) | | | | | – | | | | (2,219 | ) | | (180 | ) | | (2,399 | ) | | | – | | | | (1,743 | ) | | | (480 | ) | | | (2,223 | ) | | | | | – | | | | (1,855 | ) | | (214 | ) | | (2,069 | ) | Commodity contracts | | | – | | | | (81 | ) | | | (54 | ) | | | (135 | ) | | | | | – | | | | (87 | ) | | (84 | ) | | (171 | ) | | | – | | | | (70 | ) | | | (100 | ) | | | (170 | ) | | | | | – | | | | (81 | ) | | (54 | ) | | (135 | ) | | | | | – | | | | (1,936 | ) | | | (268 | ) | | | (2,204 | ) | | | | | – | | | | (2,306 | ) | | (264 | ) | | (2,570 | ) | | | – | | | | (1,813 | ) | | | (580 | ) | | | (2,393 | ) | | | | | – | | | | (1,936 | ) | | (268 | ) | | (2,204 | ) | | | | | 2,040 | | | | 407 | | | | (223 | ) | | | 2,224 | | | | | | 1,315 | | | | (335 | ) | | (208 | ) | | 772 | | | | 7,717 | | | | 216 | | | | (435 | ) | | | 7,498 | | | | | | 2,040 | | | | 407 | | | (223 | ) | | 2,224 | |
| | | | 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. |
| | | | | | | 154 | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | 151 |
Notes to the consolidated financial statements – supplementary information continued 30. Financial risk managementcontinued (g) Fair value analysiscontinued 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 a third-partyan external valuation is obtained to support each reported fair value. We have reclassified sterling RPI swaps from level 2 into level 3 due to the long-dated and increased illiquid nature of these instruments, which has been driven by the lack of market participants for trades with this particular risk profile. 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. During the year to 31 March 2017, the Group made level 3 investments worth £46 million, consisting of a £41 million joint venture arrangement with Sunrun Neptune Investor 2016 LLC, accounted at fair value (note 15), and £5 million Series B preferred stocks in Enbala Holdings, Inc., accounted asavailable-for-sale. The Group is also party to the Further Acquisition Agreement which contains put/call options over 14% of the loan and equity it holds in Quadgas HoldCo Limited. The fair value of the options is considered to be zero at year end (notes 9 and 15). The changes in value of our level 3 derivative financial instruments are as follows: | | | | Derivative financial
instruments | | | | Commodity contracts | | | | Total | | | Derivative financial
instruments | | | | Commodity
contracts | | | | Investments | | | | Total | | | | |
| 2016
£m |
| |
| 2015
£m |
| | |
| 2016
£m |
| |
| 2015
£m |
| | |
| 2016
£m |
| |
| 2015
£m |
| |
| 2017
£m |
| |
| 2016
£m |
| | |
| 2017
£m |
| |
| 2016
£m |
| | |
| 2017
£m |
| |
| 2016
£m |
| | |
| 2017
£m |
| |
| 2016
£m |
| At 1 April | | | (166 | ) | | (100 | ) | | | | | (42 | ) | | (58 | ) | | | | | (208 | ) | | (158 | ) | | | (196 | ) | | (166 | ) | | | | | (27 | ) | | (42 | ) | | | | | – | | | | – | | | | | | (223 | ) | | (208 | ) | Net gains/(losses) for the year1,2 | | | (20 | ) | | (63 | ) | | | | | (27 | ) | | (53 | ) | | | | | (47 | ) | | (116 | ) | | Net losses for the year1,2 | | | | (35 | ) | | (20 | ) | | | | | (2 | ) | | (27 | ) | | | | | – | | | | – | | | | | | (37 | ) | | (47 | ) | Purchases3 | | | 1 | | | | – | | | | | | 13 | | | 38 | | | | | | 14 | | | 38 | | | | – | | | 1 | | | | | | 15 | | | 13 | | | | | | 46 | | | | – | | | | | | 61 | | | 14 | | Settlements | | | (11 | ) | | (3 | ) | | | | | 29 | | | 28 | | | | | | 18 | | | 25 | | | | – | | | (11 | ) | | | | | (2 | ) | | 29 | | | | | | – | | | | – | | | | | | (2 | ) | | 18 | | Reclassification/transfers out of level 3 | | | – | | | | – | | | | | – | | | 3 | | | | | – | | | 3 | | | Reclassification into level 34 | | | | (234 | ) | | | – | | | | | – | | | | – | | | | | – | | | | – | | | | | (234 | ) | | | – | | At 31 March | | | (196 | ) | | (166 | ) | | | | (27 | ) | | (42 | ) | | | | (223 | ) | | (208 | ) | | | (465 | ) | | (196 | ) | | | | (16 | ) | | (27 | ) | | | | 46 | | | | – | | | | | (435 | ) | | (223 | ) |
1. Loss of £17m (2015: £63m£35 million (2016: £17 million loss) is attributable to derivative financial instruments held at the end of the reporting period and has been recognised in finance costs in the income statement. 2. Loss of £28m (2015: £48m£21 million (2016: £28 million loss) is attributable to commodity contract financial instruments held at the end of the reporting period. 3. Purchases in the year relaterelating to equity options.investments consist of £41 million in joint ventures and associates (Sunrun Neptune Investor 2016 LLC) and £5 million attributable to anavailable-for-sale investment in Enbala Holdings, Inc. 4. Sterling RPI swaps reclassified from level 2 into level 3. The impacts on apost-tax basis of reasonably possible changes in significant level 3 assumptions are as follows: | | | | Derivative financial
instruments | | | | Commodity contracts | | | Derivative financial
instruments | | | | Commodity contracts | | | | Investments | | | | | 2016 Income statement
£m | | | 2015 Income statement
£m | | | | 2016
Income
statement
£m | | | 2015
Income
statement
£m | | | 2017
Income
statement
£m | | | 2016
Income
statement
£m | | | | 2017
Income
statement
£m | | | 2016
Income
statement
£m | | | | 2017
Income
statement
£m | | | 2016
Income
statement
£m | | 10% increase in commodity prices1 | | | – | | | | – | | | | | | 4 | | | 4 | | | | – | | | | – | | | | | | 1 | | | 4 | | | | | | – | | | | – | | 10% decrease in commodity prices1 | | | – | | | | – | | | | | | – | | | (3 | ) | | | – | | | | – | | | | | | – | | | | – | | | | | | – | | | | – | | Volume forecast uplift2 | | | – | | | | – | | | | | | (1 | ) | | (2 | ) | | | – | | | | – | | | | | | (1 | ) | | (1 | ) | | | | | – | | | | – | | Volume forecast reduction2 | | | – | | | | – | | | | | | 1 | | | 2 | | | | – | | | | – | | | | | | 1 | | | 1 | | | | | | – | | | | – | | +10% market area price change | | | – | | | | – | | | | | | (2 | ) | | (4 | ) | | | – | | | | – | | | | | | (13 | ) | | (2 | ) | | | | | – | | | | – | | –10% market area price change | | | – | | | | – | | | | | | 2 | | | 4 | | | | – | | | | – | | | | | | 9 | | | 2 | | | | | | – | | | | – | | +20 basis point change in Limited Price Inflation (LPI) market curve3 | | | (83 | ) | | (77 | ) | | | | | – | | | | – | | | +20 basis points change in Limited Price Inflation (LPI) market curve3 | | | | (93 | ) | | (83 | ) | | | | | – | | | | – | | | | | | – | | | | – | | –20 basis points change in LPI market curve3 | | | 80 | | | 75 | | | | | – | | | | – | | | | 88 | | | 80 | | | | | | – | | | | – | | | | | | – | | | | – | | +50 basis points change in interest rates4 | | | | – | | | | – | | | | | | – | | | | – | | | | | | 8 | | | | – | | –50 basis points change in interest rates4 | | | | – | | | | – | | | | | – | | | | – | | | | | (8 | ) | | | – | |
1. Level 3 commodity price sensitivity is included within the sensitivity analysis disclosed in note 33. 2. Volumes were flexed using maximum and minimum historical averages, or by >10% where historical averages were not available. 3. A reasonably possible change in assumption of other level 3 derivative financial instruments is unlikely to result in a material change in fair values. 4. The risk free rate and cost of debt were flexed in assessing the cost of carry for the Further Acquisition Agreement valuation sensitivity. The impacts disclosed above were considered on a contract by contract basis with the most significant unobservable inputs identified. The level 3 investments were acquired in a recent period on market terms and sensitivity is considered insignificant at 31 March 2017. | | | | | | | | 152 | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | 155 |
Notes to the consolidated financial statements
– supplementary information continued
31. Borrowing facilities | To support our long-term liquidity requirements and provide backup to commercial paper and other borrowings, we agree loan facilities with financial institutions over and above the value of borrowings that may be required. These facilities have never been drawn, and our undrawn amounts are listed below. |
At 31 March 2016,2017, we had bilateral committed credit facilities of £2,808m (2015: £2,094m)£4,938 million (2016: £2,808 million). In addition, we had committed credit facilities from syndicates of banks of £295m£338 million at 31 March 2016 (2015: £884m)2017 (2016: £295 million). All committed credit facilities were undrawn in 20162017 and 2015.2016. An analysis of the maturity of these undrawn committed facilities is shown below: | | | | 2016 £m | | | 2015 £m | | | 2017 £m | | | 2016 £m | | Undrawn committed borrowing facilities expiring: | | | | | | | | | Less than 1 year | | | – | | | | 572 | | | | – | | | | – | | In 1 to 2 years | | | – | | | | – | | | | 1,115 | | | | – | | In 2 to 3 years | | | 1,115 | | | | 874 | | | | 2,388 | | | | 1,115 | | In 3 to 4 years | | | 295 | | | | 1,220 | | | | – | | | | 295 | | In 4 to 5 years | | | – | | | | 312 | | | | 1,773 | | | | – | | More than 5 years | | | 1,693 | | | | – | | | | – | | | | 1,693 | | | | | | 3,103 | | | | 2,978 | | | | 5,276 | | | | 3,103 | |
Of the unused facilities at 31 March 2016, £2,808m (2015: £2,666m)2017, £4,938 million (2016: £2,808 million) was held as backup to commercial paper and similar borrowings, while £295m (2015: £312m)£338 million (2016: £295 million) is available as backup to specific US borrowings. In addition to the above, the Group has a bank loan agreementExport Credit Agreements (ECAs) totalling £1,500m with the European Investment Bank (EIB),£600 million, of which £900m is currently undrawn, and an Export Credit Agreement (ECA) totalling £162m, which£562 million is undrawn. Further information on our bonds can be found on the debt investor section of our website. | | | | | | | 156 | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | 153 |
Notes to the consolidated financial statements – supplementary information continued 32. Subsidiary undertakings, joint ventures and associates | While we present consolidated results in these financial statements as if we were one company, our legal structure is such that there are a number of different operating and holding companies that contribute to the overall result. This structure has evolved through acquisitions as well as regulatory requirements to have certain activities within separate legal entities. |
Subsidiary undertakings A list of the Group’s subsidiaries as at 31 March 20162017 is given below. The entire share capital of subsidiaries is held within the Group except where the Group’s ownership percentages are shown. These percentages give the Group’s ultimate interest and therefore allow for the situation where subsidiaries are owned by partly-owned intermediate subsidiaries. Where subsidiaries have different classes of shares, this is largely for historical reasons and the effective percentage holdings given represent both the Group’s voting rights and equity holding. Shares in National Grid (US) Holdings Limited, National Grid Holdings One plc and NGG Finance plc are held directly by National Grid plc. All other holdings in subsidiaries are owned by other subsidiaries ofwithin the National Grid plc Group. All subsidiaries are consolidated in the Group’s financial statements. Principal Group companies are identified inbold. These companies are incorporated and principally operate in the countries under which they are shown. Incorporated in England and Wales Registered office: 1–3 Strand, London WC2N 5EH, UK (unless stated otherwise in footnotes). | | | Incorporated in England and Wales | | National Grid Property (High Wycombe) Limited* | Beegas Nominees Limited | | National Grid Property Holdings Limited | Birch Sites Limited | | National Grid Property Limited* | Carbon Sentinel Limited | | National Grid Property (Northfleet) Limited** | Droylsden Metering Services Limited Gridcom Limited | | National Grid Property (Taunton) Limited* | Icelink Interconnector Limited | | National Grid Seven Limited* | KeySpan (U.K.)** | | National Grid Seventeen Limited | Landranch Limited | | National Grid Smart Limited | Lattice Group Employee Benefit Trust Limited | | National Grid Ten | Lattice Group plc | | National Grid Thirty Eight Limited | Lattice Group Trustees Limited Natgrid Limited NatGrid One Limited NatgridTW1 Limited National Grid Belgium Limited National Grid Blue Power Limited National Grid Carbon Limited National Grid Commercial Holdings Limited National Grid Distributed Energy Limited National Grid Electricity Group Trustee Limited National Grid Electricity Transmission plc National Grid Energy Metering Limited National Grid Four Limited National Grid Fourteen Limited National Grid Gas Holdings Limited National Grid Gas plc National Grid Grain LNG Limited National Grid Holdings Limited National Grid Holdings One plc National Grid IFA 2 Limited National Grid Interconnector Holdings Limited National Grid Interconnectors Limited National Grid International Limited National Grid Metering Limited National Grid North Sea Link Limited National Grid Offshore Limited (previously Cadent Services Limited)* National Grid Property Holdings Limited | | National Grid Property (Northfleet) Limited1** National Grid Seventeen Limited National Grid Smart Limited National Grid Ten National Grid Thirty Five Limited | Natgrid Finance Holdings Limited* | | National Grid Thirty Four Limited | Natgrid Finance Limited* | | National Grid Thirty Limited | Natgrid Limited | | National Grid Thirty Seven Limited | NatGrid One Limited | | (previously Cadent Gas Limited)* National Grid Thirty Six Limited | NatgridTW1 Limited | | (previously Cadent Finance Limited)* National Grid Twelve Limited National Grid Twenty Eight Limited National Grid Twenty-Five Limited National Grid Twenty Seven Limited National Grid Twenty Three Limited* | | Limited National Grid UK Limited National Grid UK Pension Services Limited National Grid (US) Holdings Limited | | National Grid Twelve Limited | National Grid (US) Investments 2 Limited | | National Grid Twenty Eight Limited | National Grid (US) Investments 4 Limited | | National Grid Twenty Four Limited* | National Grid (US) Partner 1 Limited | | National Grid Twenty SevenVentures Limited | National Grid Belgium Limited | | National Grid Twenty Three Limited | National Grid Blue Power Limited | | National Grid Twenty-Five Limited | National Grid Carbon Limited | | National Grid UK Limited | National Grid Commercial Holdings Limited | | National Grid UK Pension Services Limited | National Grid Eight* | | National Grid Viking Link Limited | National Grid Eighteen Limited* | | National Grid William Limited | National Grid Electricity Group Trustee Limited | | NG Luxembourg Holdings Limited* | National Grid Electricity Transmission plc | | NG Nominees Limited | National Grid Energy Metering Limited | | NGC Employee Shares Trustee Limited | National Grid Five Limited* | | NGG Finance plc | National Grid Four Limited | | NGG Telecoms Holdings Limited* | National Grid Fourteen Limited | | NGG Telecoms Limited* | National Grid Gas Finance (No 1) plc | | Ngrid Intellectual Property Limited | National Grid Gas Holdings Limited | | NGT Telecom No. 1 Limited | National Grid Gas plc | | NGT Two Limited | National Grid Grain LNG Limited | | Port Greenwich Limited | National Grid Holdings Limited | | Stargas Nominees Limited | National Grid Holdings One plc | | Supergrid Electricity Limited | National Grid IFA 2 Limited | | Supergrid Energy Transmission Limited | National Grid Interconnector Holdings Limited | | Supergrid Limited | National Grid Interconnectors Limited | | Telecom International Holdings Limited* | National Grid International Limited | | Thamesport Interchange Limited | National Grid Land and Properties Limited* | | The National Grid Group Quest Trustee Company Limited | National Grid Metering Limited | | The National Grid YouPlan Trustee Limited | National Grid Nine Limited* | | Transco Limited | National Grid North Sea Link Limited | | Xoserve Limited (56.5%) | National Grid Offshore Limited | | | | | |
| 1. | Registered office: 15 Canada Square, London E14 5GL, UK |
*Dissolved 14 April 2016 ** | Change of name effective from 2 May 2017 |
| | | | | | | | 154 | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | 157 |
Notes to the consolidated financial statements
– supplementary information continued
32. Subsidiary undertakings, joint ventures and associatescontinued Incorporated in the US Registered office: Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington, DE 19808, New Castle County, USA (unless stated otherwise in footnotes). Boston Gas Company (including Essex Gas Company)1 British Transco Capital Inc. British Transco Finance, Inc. Broken Bridge Corp.2 Colonial Gas Company1 EUA Energy Investment Corporation1 GridAmerica Holdings Inc. Grid NY LLC3 KeySpan CI Midstream Limited KeySpan Corporation3 KeySpan Energy Corporation3 KeySpan Energy Services Inc. KeySpan Gas East Corporation3 KeySpan International Corporation KeySpan MHK, Inc. KeySpan Midstream Inc. KeySpan Plumbing Solutions, Inc.3 KSI Contracting, LLC KSI Electrical, LLC KSI Mechanical, LLC Land Management & Development, Inc.3 Landwest, Inc.3 Massachusetts Electric Company1 Metro Energy, L.L.C.LLC3 Metrowest Realty LLC Mystic Steamship Corporation Nantucket Electric Company1 National Grid Algonquin LLC National Grid Connect Inc.1 National Grid Development Holdings Corp. National Grid Electric Services, LLC3 National Grid Energy Management, LLC National Grid Energy Services LLC National Grid Energy Trading Services LLC3 National Grid Engineering & Survey Inc.3 National Grid Generation LLC3 National Grid Generation Ventures LLC3 National Grid Glenwood Energy Center, LLC National Grid Green Homes Inc.3 National Grid IGTS Corp.3 National Grid Insurance USA Ltd3 Incorporated in Australia National Grid Australia Pty Limited Registered office: Level 7, 330 Collins Street, Melbourne VIC 3000, Australia Incorporated in Canada Keyspan Energy Development Co. Registered office: 1959 Upper Water St, Ste 800, Halifax NS, Canada B3J 2X2 Incorporated in the Cayman Islands Registered office: c/o KPMG, PO Box 493, 2nd Floor, Century Yard, Cricket Square, Grand CaymanKY1-1106, Cayman Islands (unless stated otherwise in footnotes). British Transco Finance (No 1) Limited* British Transco Finance (No 2) Limited* Incorporated in the Isle of Man Registered office: Third Floor, St George’s Court, Upper Church Street, Douglas, IM1 1EE, Isle of Man, UK (unless stated otherwise in footnotes). Lattice Telecom Finance (No 1) Limited5* National Grid Insurance Company (Isle of Man) Limited NGT Holding Company (Isle of Man) Limited National Grid Islander East Pipeline LLC National Grid LNG GP LLC National Grid LNG LLC National Grid LNG LP LLC National Grid Millennium LLC National Grid NE Holdings 2 LLC1 National Grid North America Inc. National Grid North East Ventures Inc. National Grid Port Jefferson Energy Center LLC National Grid Services Inc. National Grid Technologies Inc.3 National Grid Transmission Services Corporation National Grid US LLC1
National Grid US 6 LLC National Grid US LLC National Grid USA National Grid USA Service Company, Inc.1 Nees Energy, Inc.1 New England Electric Transmission Corporation2 New England Energy Incorporated1 New England Hydro Finance Company, Inc. (53.704%)1 New England Hydro-Transmission Corporation (53.704%)2 New England Hydro-Transmission Electric Company Inc. (53.704%)1 New England Power Company1 Newport America Corporation4 NGNE LLC Niagara Mohawk Energy, Inc. Niagara Mohawk Holdings, Inc.3 Niagara Mohawk Power Corporation3 NM Properties, Inc.3 North East Transmission Co., Inc. Opinac North America, Inc. Philadelphia Coke Co., Inc. Port of the Islands North, LLC3 The Brooklyn Union Gas Company3 The Narragansett Electric Company4 Transgas, Inc.1 Upper Hudson Development Inc.3 Valley Appliance and Merchandising Company4 Vermont Green Line Devco, LLC (90%) Wayfinder Group, Inc. Incorporated in Australia
National Grid Australia Pty Limited
Incorporated in Canada
Keyspan Energy Development Co.
Incorporated in the Cayman Islands
British Transco Finance (No 1) Limited**
British Transco Finance (No 2) Limited**
Keyspan C.I. II Ltd**
Keyspan C.I. Ltd**
NGT Five Limited**
NGT Four Limited**
Incorporated in Chile
Inversiones ABC Limitada (98.84%)
SCC Uno S.A.
Incorporated in the Isle of Man
Lattice Telecom Finance (No 1) Limited**
National Grid (IOM) UK Ltd**
National Grid Insurance Company (Isle of Man) Limited
NGT Holding Company (Isle of Man) Limited1
Incorporated in Jersey Registered office: 44 Esplanade, St Helier, Jersey JE4 9WG, UK (unless stated otherwise in footnotes). National Grid Jersey Investments Limited NG Jersey Limited Incorporated in the Netherlands British Transco International Finance B.V. Registered office: Westblaak 89, 3012 KG Rotterdam, P.O. Box 21153, 3001 AD, Rotterdam, Netherlands National Grid Holdings B.V. Registered office: Prins Bernhardplein 200, Amsterdam, 1097 JB, Netherlands Incorporated in the Republic of Ireland National Grid (Ireland) 1** National Grid (Ireland) 2**
National Grid Insurance Company (Ireland) Designated Activity Company
*Dissolved 14 April 2016 **In liquidation Registered office: Third Floor, The Metropolitan Building, James Joyce Street, Dublin 1, Ireland
| 1. | Registered office: Corporation Service Company, 84 State Street, Boston MA 02109, Suffolk County, USA |
| 2. | Registered office: Corporation Service Company, 10 Ferry Street, Suite 313, Concord NH 03301, Merrimack County, USA |
| 3. | Registered office: Corporation Service Company, 80 State Street, Albany NY 12207-2543, Albany County, USA |
| 4. | Registered office: Corporation Service Company, 222 Jefferson Boulevard, Suite 200, Warwick RI 02888, Kent County, USA |
| 5. | Registered office: Heritage Court, 41 Athol Street, Douglas, IM99 1HN, Isle of Man, UK |
| | | | | | | 158 | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | 155 |
Notes to the consolidated financial statements – supplementary information continued 32. Subsidiary undertakings, joint ventures and associatescontinued Joint ventures
A list of the Group’s joint ventures as at 31 March 2016
| | | | | Joint ventures A list of the Group’s joint ventures as at 31 March 2017 is given below. All joint ventures are included in the Group’s financial statements using the equity method of accounting. Principal joint ventures are identified inbold. | | | Incorporated in England and Wales | | Registered office: 1–3 Strand, London WC2N 5EH, UK (unless stated otherwise in footnotes). BritNed Development Limited (50%)* Joint Radio Company Limited (50%)1** Nemo Link Limited (50%) NGET/SPT Upgrades Limited (50%)† St William Homes LLP (50%)2 Incorporated in the US | BritNed Development Limited(50%) | | Registered office: Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington, DE 19808, New Castle County, USA (unless stated otherwise in footnotes). Clean Energy Generation, LLC (50%) | Joint Radio Company LimitedEast Hampton Energy Storage Center, LLC (50%) | | Island Park Energy Center, LLC (50%) | Nemo Link Limited (50%) | | Islander East Pipeline Company, L.L.C.LLC (50%) | NGET/SPT Upgrades Limited (50%) | | LI Energy Storage System, LLC (50%) | St William Homes LLP (50%) | | LI Solar Generation, LLC (50%) |
Associates
A list of the Group’s associates as at 31 March 2016 is given below. All associates are included in the Group’s financial statements using the equity method of accounting.
Montauk Energy Storage Center, LLC (50%) Swan Lake North Holdings LLC (50%) Incorporated in France IFA2 SAS (50%) Registered office: 1 Terrasse Bellini, Tour Initiale, TSA 41000 – 9291, Paris La Defense, CEDEX, France | | | Associates A list of the Group’s associates as at 31 March 2017 is given below. All associates are included in the Group’s financial statements using the equity method of accounting. Principal associates are identified inbold. Incorporated in England and Wales Quadgas HoldCo Limited (39%) Registered office: Ashbrook Court, Prologis Park, Central Boulevard, Coventry CV7 8PE, UK Incorporated in the US | | IncorporatedRegistered office: Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington, DE 19808, New Castle County, USA (unless stated otherwise in Belgium | | footnotes). Algonquin Gas Transmission, LLC (20%) | | Coreso SA (20%) | | 3 Clean Line Energy Partners LLC (32%) | | | Connecticut Yankee Atomic Power Company (19.5%) | | | | 4 Direct Global Power, Inc. (26%) | | | Energis plc (33.06%) | | | | 5 Energy Impact Fund LP (33%) | | | | 6 Maine Yankee Atomic Power Company (24%) | | | | 7 Millennium Pipeline Company, LLC (26.25%) | | | New York Transco LLC (28.3%) | | | | 5 Nysearch RMLD, LLC (22.63%) | | | Sunrun Neptune Investor 2016 LLC8*** Yankee Atomic Electric Company (34.5%)9 Incorporated in Belgium Coreso SA (16.67%) Registered office: Avenue de Cortenbergh 71, 1000 Brussels, Belgium | | Other investments A list of the Group’s other investments as at 31 March 2017 is given below. Incorporated in England and Wales Energis PLC (33.06%)‡ Registered office: 1 More London Place, London SE1 2AF, UK |
| 1. | Registered office: Dean Bradley House, 52 Horseferry Road, London SW1P 2AF, UK |
| 2. | Registered office: Berkeley House, 19 Portsmouth Road, Cobham, Surrey, KT11 1JG, UK |
| 3. | Registered office: Corporation Trust Company, 1209 Orange, Wilmington DE 19808, New Castle County, USA |
| 4. | Registered office: Robert K. Darden, Main Street, Salisbury CT 06068, USA |
| 5. | Registered office: Corporation Service Company, 80 State Street, Albany NY 12207-2543, Albany County, USA |
| 6. | Registered office: Harvard Business Services, Inc., 16192 Coastal Highway, Lewes DE 19958, Sussex County, USA |
| 7. | Registered office: R. Scott Mahoney, 83 Edison Drive, Augusta ME 04336, USA |
| 8. | Registered office: 595 Market Street, 29th Floor, San Francisco, CA 94105, USA |
| 9. | Registered office: Corporation Service Company, 84 State Street, Boston MA 02109, Suffolk County, USA |
| * | National Grid Interconnector Holdings Limited owns 284,500,000€0.20 C Ordinary shares and one £1.00 Ordinary A share |
| ** | National Grid Gas plc owns all £1.00 A Ordinary shares |
| *** | National Grid Green Homes Inc owns 1,000 Class A Membership Interests |
| † | National Grid Electricity Transmission plc owns 50 £1.00 A Ordinary shares |
Our interests and activities are held or operated through the subsidiaries, joint arrangements or associates as disclosed above. These interests and activities (and their branches) are established in – and subject to the laws and regulations of – these jurisdictions. | | | | | | | | 156 | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | 159 |
Notes to the consolidated financial statements
– supplementary information continued
33. Sensitivities on areas of estimation and uncertainty | In order to give a clearer picture of the impact on our results or financial position of potential changes in significant estimates and assumptions, the following sensitivities are presented. These sensitivities are hypothetical, as they are based on assumptions and conditions prevailing at the year end, and should be used with caution. The effects provided are not necessarily indicative of the actual effects that would be experienced because our actual exposures are constantly changing. |
The sensitivities in the tables below show the potential impact in the income statement (and consequential impact on net assets) for a range of different variables each of which have been considered in isolation (i.e. with all other variables remaining constant). There are a number of these sensitivities which are mutually exclusive and therefore if one were to happen, another would not, meaning a total showing how sensitive our results are to these external factors is not meaningful. We are further required to show additional sensitivity analysis for changes in interest and exchange rates and these are shown separately in the subsequent table due to the additional assumptions that are made in order to produce meaningful sensitivity disclosures. The sensitivities included in the tables below all have an equal and opposite effect if the sensitivity increases or decreases by the same amount unless otherwise stated. For example, a 10% increase in unbilled revenue at 31 March 20162017 would result in an increase in the income statement of £58m£58 million and a 10% decrease in unbilled revenue would have the equal but opposite effect. | | | | 2016 | | | | 2015 | | | 2017 | | | | 2016 | | | | | Income
statement
£m | | | Net
assets
£m | | | | | Income
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£m | | One year average change in useful economic lives (pre-tax): | | | | | | | | | | | | | | | | | | | | | Depreciation charge on property, plant and equipment | | | 79 | | | | 79 | | | | | 69 | | | | 69 | | | | 70 | | | | 70 | | | | | 79 | | | | 79 | | Amortisation charge on intangible assets | | | 20 | | | | 20 | | | | | 26 | | | | 26 | | | | 18 | | | | 18 | | | | | 20 | | | | 20 | | | Estimated future cash flows in respect of provisions, change of 10% (pre-tax) | | | 172 | | | | 172 | | | | | 174 | | | | 174 | | | | 259 | | | | 259 | | | | | 172 | | | | 172 | | | Assets and liabilities carried at fair value change of 10% (pre-tax): | | | | | | | | | | | | | | | | | | | | | Derivative financial instruments1 | | | (11) | | | | (11 | ) | | | | 68 | | | | 68 | | | | (52) | | | | (52) | | | | | (11) | | | | (11) | | Commodity contract liabilities | | | (10) | | | | (10 | ) | | | | 11 | | | | 11 | | | | (6) | | | | (6) | | | | | (10) | | | | (10) | | | Pensions and other post-retirement benefits2 (pre-tax): | | | | | | | | | | | | | | | | | | | | | UK discount rate change of 0.5%3 | | | 11 | | | | 1,482 | | | | | 9 | | | | 1,575 | | | | 9 | | | | 1,305 | | | | | 11 | | | | 1,482 | | US discount rate change of 0.5%3 | | | 16 | | | | 640 | | | | | 12 | | | | 670 | | | | 17 | | | | 669 | | | | | 16 | | | | 640 | | UK RPI rate change of 0.5%4 | | | 9 | | | | 1,268 | | | | | 9 | | | | 1,349 | | | | 8 | | | | 1,114 | | | | | 9 | | | | 1,268 | | UK long-term rate of increase in salaries change of 0.5%5 | | | 2 | | | | 87 | | | | | 1 | | | | 93 | | | | 2 | | | | 80 | | | | | 2 | | | | 87 | | US long-term rate of increase in salaries change of 0.5% | | | 3 | | | | 45 | | | | | 2 | | | | 42 | | | | 3 | | | | 51 | | | | | 3 | | | | 45 | | UK change of one year to life expectancy at age 65 | | | 2 | | | | 703 | | | | | 1 | | | | 620 | | | | 2 | | | | 673 | | | | | 2 | | | | 703 | | US change of one year to life expectancy at age 65 | | | 3 | | | | 295 | | | | | 3 | | | | 352 | | | | 4 | | | | 365 | | | | | 3 | | | | 295 | | Assumed US healthcare cost trend rates change of 1% | | | 35 | | | | 514 | | | | | 28 | | | | 465 | | | | 37 | | | | 510 | | | | | 35 | | | | 514 | | | Unbilled revenue at 31 March change of 10% (post-tax) | | | 58 | | | | 58 | | | | | 60 | | | | 60 | | | | 58 | | | | 58 | | | | | 58 | | | | 58 | | No hedge accounting for our derivative financial instruments (post-tax) | | | (123) | | | | 36 | | | | | (611) | | | | 316 | | | | (862) | | | | 158 | | | | | (123) | | | | 36 | | | Commodity risk6 (post-tax): | | | | | | | | | | | | | | | | | | | | | 10% increase in commodity prices | | | 22 | | | | 22 | | | | | 26 | | | | 26 | | | | 28 | | | | 28 | | | | | 22 | | | | 22 | | 10% decrease in commodity prices | | | (22) | | | | (22 | ) | | | | (24) | | | | (24 | ) | | | (29) | | | | (29) | | | | | (22) | | | | (22) | |
| 1. | The effect of a 10% change in fair value assumes no hedge accounting. |
| 2. | The changes shown are a change in the annual pension or other post-retirement benefit service charge and change in the defined benefit obligations. |
| 3. | A change in the discount rate is likely to occur as a result of changes in bond yields and as such would be expected to be offset to a significant degree by a change in the value of the bond assets held by the plans. |
| 4. | The projected impact resulting from a change in RPI reflects the underlying effect on pensions in payment, pensions in deferment and resultant increases in salary assumptions. |
| 5. | This change has been applied to both the pre 1 April 2014 and post 1 April 2014 rate of increase in salary assumption. |
| 6. | Represents potential impact on fair values of commodity contracts only. |
| | | | | | | | | | | | | | | | | | | | | | 2016 | | | | | 2015 | | | | | Income
statement
£m | | | Other
equity
reserves
£m | | | | | Income
statement
£m | | | Other
equity
reserves
£m | | Financial risk (post-tax): | | | | | | | | | | | | | | | | | | | UK RPI change of 0.5%1 | | | 31 | | | | – | | | | | | 27 | | | | – | | UK interest rates change of 0.5% | | | 76 | | | | 85 | | | | | | 92 | | | | 101 | | US interest rates change of 0.5% | | | 66 | | | | 17 | | | | | | 77 | | | | 11 | | US dollar exchange rate change of 10%2 | | | 57 | | | | 553 | | | | | | 62 | | | | 607 | |
| | | | | | | | | National Grid Annual Report and Accounts 2016/17 | | Financial Statements | | 157 |
Notes to the consolidated financial statements – supplementary information continued 33. Sensitivities on areas of estimation and uncertaintycontinued | | | | | | | | | | | | | | | | | | | | | | 2017 | | | | | 2016 | | | | | Income
statement
£m | | | Other
equity
reserves
£m | | | | | Income
statement
£m | | | Other
equity
reserves
£m | | Financial risk(post-tax): | | | | | | | | | | | | | | | | | | | UK RPI change of 0.5%1 | | | 28 | | | | – | | | | | | 31 | | | | – | | UK interest rates change of 0.5% | | | 64 | | | | 35 | | | | | | 76 | | | | 85 | | US interest rates change of 0.5% | | | 61 | | | | 22 | | | | | | 66 | | | | 17 | | US dollar exchange rate change of 10%2 | | | 46 | | | | 604 | | | | | | 57 | | | | 553 | |
| 1. | Excludes sensitivities to LPI curve. Further details on sensitivities are provided in note 30(g). |
| 2. | The other equity reserves impact does not reflect the exchange translation in our US subsidiaries’ net assets. It is estimated this would change by £788m (2015: £771m)£988 million (2016: £788 million) in the opposite direction if the dollar exchange rate changed by 10%. |
| | | | | | | 160 | | National Grid Annual Report and Accounts 2015/16 | | Financial Statements | | |
33. Sensitivities on areas of estimation and uncertaintycontinued
Pensions and other post-retirement benefits assumptions Sensitivities have been prepared to show how the DB obligations and annual service costs could potentially be impacted by changes in the relevant actuarial assumption that were reasonably possible as at 31 March 2016.2017. In preparing sensitivities the potential impact has been calculated by applying the change to each assumption in isolation and assuming all other assumptions remain unchanged. This is with the exception of RPI in the UK where the corresponding change to increases to pensions in payment, increases to pensions in deferment and increases in salary is recognised. Financial instruments assumptions Our financial instruments are sensitive to changes in market variables, being UK and US interest rates, the UK RPI and the dollar to sterling exchange rate. The changes in market variables impact the valuation of our borrowings, deposits, derivative financial instruments and commodity contracts. The analysis illustrates the sensitivity of our financial instruments to the changes in market variables. The following main assumptions were made in calculating the sensitivity analysis:analysis for continuing operations: | ● | | 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 20162017 and 20152016 respectively; |
| ● | | the statement of financial position sensitivity to interest rates relates only to derivative financial instruments andavailable-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 of designated cash flow hedges are assumed to be recorded fully within equity; and |
| ● | | 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. |
| | | | | | | | 158 | | National Grid Annual Report and Accounts 2016/17 | | Financial Statements | | |
34. Additional disclosures in respect of guaranteed securities | We have three debt issuances (including preferred shares) that are listed on a US national securities exchange and are guaranteed by other companies in the Group. These guarantors commit to honour any liabilities should the company issuing the debt have any financial difficulties. In order to provide debt holders with information on the financial stability of the companies providing the guarantees, we are required to disclose individual financial information for these companies. We have chosen to include this information in the Group financial statements rather than submitting separate stand-alone financial statements. |
The following condensed consolidating financial information, comprising statements of comprehensive income, statements of financial position 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 100% owned and National Grid plc’s guarantee of Niagara Mohawk Power Corporation’s preferred shares is full and unconditional pursuant to Rule3-10(i)(8) (i) and (ii) of RegulationS-X. The guarantees of National Grid Gas plc and National Grid plc are joint and several. 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 various rules including Rule3-10 of RegulationS-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 other disclosuredisclosures in these financial statements. Summary statements of comprehensive income are presented, on a consolidated basis, for the three years ended 31 March 2016.2017. Summary statements of comprehensive income of National Grid plc and National Grid Gas plc are presented under IFRS measurement principles, as modified by the inclusion of the results of subsidiary undertakings on the basis of equity accounting principles. The summary statements of financial position of National Grid plc and National Grid Gas plc include the investments in subsidiaries recorded on the basis of equity accounting principles for the purposes of presenting condensed consolidating financial information under IFRS. The summary statements of financial position present these investments withinnon-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. | | | | | | | | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | 161159 |
Notes to the consolidated financial statements – supplementary information continued 34. Additional disclosures in respect of guaranteed securitiescontinued Summary statements of comprehensive income for the year ended 31 March 20162017 – IFRS | | | | Parent
guarantor | | | | Issuer of notes | | | | Subsidiary
guarantor | | | | | | | | | | | | | Parent
guarantor | | | | Issuer of notes | | | | Subsidiary
guarantor | | | | | | | | | | | | | | | | National Grid plc £m | | | Niagara Mohawk Power Corporation £m | | | British Transco Finance Inc. £m | | | National Grid Gas plc £m | | | Other subsidiaries £m | | | Consolidation adjustments £m | | | National Grid consolidated £m | | | National Grid plc £m | | | Niagara
Mohawk
Power
Corporation
£m | | | British
Transco
Finance Inc.
£m | | | National
Grid Gas
plc £m | | | Other
subsidiaries
£m | | | Consolidation
adjustments
£m | | | National Grid
consolidated
£m | | Continuing operations | | | | | | | | | | | | | | | | | | | | | | | | | | | | Revenue | | | – | | | | | | 2,027 | | | | | | – | | | | | | 3,165 | | | | | | 10,104 | | | | | | (181 | ) | | | | | 15,115 | | | | – | | | | | | 2,388 | | | | | | – | | | | | | 1,376 | | | | | | 11,435 | | | | | | (164 | ) | | | | | 15,035 | | Operating costs: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Depreciation and amortisation | | | – | | | | | | (162 | ) | | | | | – | | | | | | (553 | ) | | | | | (899 | ) | | | | | – | | | | | | (1,614 | ) | | | – | | | | | | (193 | ) | | | | | – | | | | | | (256 | ) | | | | | (1,032 | ) | | | | | – | | | | | | (1,481 | ) | Payroll costs | | | – | | | | | | (260 | ) | | | | | – | | | | | | (269 | ) | | | | | (977 | ) | | | | | – | | | | | | (1,506 | ) | | | – | | | | | | (326 | ) | | | | | – | | | | | | (114 | ) | | | | | (1,138 | ) | | | | | – | | | | | | (1,578 | ) | Purchases of electricity | | | – | | | | | | (484 | ) | | | | | – | | | | | | – | | | | | | (828 | ) | | | | | – | | | | | | (1,312 | ) | | | – | | | | | | (511 | ) | | | | | – | | | | | | – | | | | | | (678 | ) | | | | | – | | | | | | (1,189 | ) | Purchases of gas | | | – | | | | | | (86 | ) | | | | | – | | | | | | (92 | ) | | | | | (806 | ) | | | | | – | | | | | | (984 | ) | | | – | | | | | | (140 | ) | | | | | – | | | | | | (67 | ) | | | | | (1,056 | ) | | | | | – | | | | | | (1,263 | ) | Rates and property tax | | | – | | | | | | (155 | ) | | | | | – | | | | | | (252 | ) | | | | | (643 | ) | | | | | – | | | | | | (1,050 | ) | | | – | | | | | | (188 | ) | | | | | – | | | | | | (101 | ) | | | | | (753 | ) | | | | | – | | | | | | (1,042 | ) | Balancing Service Incentive Scheme | | | – | | | | | | – | | | | | | – | | | | | | – | | | | | | (907 | ) | | | | | – | | | | | | (907 | ) | | | – | | | | | | – | | | | | | – | | | | | | – | | | | | | (1,120 | ) | | | | | – | | | | | | (1,120 | ) | Payments to other UK network owners | | | – | | | | | | – | | | | | | – | | | | | | – | | | | | | (971 | ) | | | | | – | | | | | | (971 | ) | | | – | | | | | | – | | | | | | – | | | | | | – | | | | | | (1,008 | ) | | | | | – | | | | | | (1,008 | ) | Other operating costs | | | – | | | | | | (433 | ) | | | | | – | | | | | | (605 | ) | | | | | (1,829 | ) | | | | | 181 | | | | | | (2,686 | ) | | | – | | | | | | (435 | ) | | | | | – | | | | | | (394 | ) | | | | | (2,481 | ) | | | | | 164 | | | | | | (3,146 | ) | | | | | – | | | | | (1,580 | ) | | | | – | | | | | (1,771 | ) | | | | (7,860 | ) | | | | 181 | | | | | (11,030 | ) | | | – | | | | | | (1,793 | ) | | | | | – | | | | | | (932 | ) | | | | | (9,266 | ) | | | | | 164 | | | | | | (11,827 | ) | Total operating profit | | | – | | | | | | 447 | | | | | | – | | | | | | 1,394 | | | | | | 2,244 | | | | | | – | | | | | | 4,085 | | | | – | | | | | | 595 | | | | | | – | | | | | | 444 | | | | | | 2,169 | | | | | | – | | | | | | 3,208 | | Net finance income/(costs) | | | 701 | | | | | | (87 | ) | | | | | – | | | | | | (242 | ) | | | | | (1,484 | ) | | | | | – | | | | | | (1,112 | ) | | | 8,177 | | | | | | (101 | ) | | | | | – | | | | | | (253 | ) | | | | | (8,910 | ) | | | | | – | | | | | | (1,087 | ) | Dividends receivable | | | – | | | | | | – | | | | | | – | | | | | | – | | | | | | 620 | | | | | | (620 | ) | | | | | – | | | | – | | | | | | – | | | | | | – | | | | | | – | | | | | | 8,100 | | | | | | (8,100 | ) | | | | | – | | Interest in equity accounted affiliates | | | 1,843 | | | | | – | | | | | – | | | | | 33 | | | | | 59 | | | | | (1,876 | ) | | | | 59 | | | | (401 | ) | | | | | – | | | | | | – | | | | | | – | | | | | | 63 | | | | | | 401 | | | | | | 63 | | Profit before tax | | | 2,544 | | | | | | 360 | | | | | | – | | | | | | 1,185 | | | | | | 1,439 | | | | | | (2,496 | ) | | | | | 3,032 | | | | 7,776 | | | | | | 494 | | | | | | – | | | | | | 191 | | | | | | 1,422 | | | | | | (7,699 | ) | | | | | 2,184 | | Tax | | | 47 | | | | | (141 | ) | | | | – | | | | | (80 | ) | | | | (264 | ) | | | | – | | | | | (438 | ) | | | 19 | | | | | | (181 | ) | | | | | – | | | | | | 16 | | | | | | (228 | ) | | | | | – | | | | | | (374 | ) | Profit after tax from discontinued operations | | | | – | | | | | | – | | | | | | – | | | | | | 4,633 | | | | | | 1,351 | | | | | | – | | | | | | 5,984 | | Profit for the year | | | 2,591 | | | | | | 219 | | | | | | – | 1 | | | | | 1,105 | | | | | | 1,175 | | | | | | (2,496 | ) | | | | | 2,594 | | | | 7,795 | | | | | | 313 | | | | | | – | 1 | | | | | 4,840 | | | | | | 2,545 | | | | | | (7,699 | ) | | | | | 7,794 | | Amounts recognised in other comprehensive income2 | | | 573 | | | | | (1 | ) | | | | – | | | | | (5 | ) | | | | 509 | | | | | (503 | ) | | | | 573 | | | Amounts recognised in other comprehensive income from continuing operations2 | | | | 578 | | | | | | – | | | | | | – | | | | | | 114 | | | | | | 177 | | | | | | (291 | ) | | | | | 578 | | Amounts recognised in other comprehensive income from discontinued operations2 | | | | 42 | | | | | | – | | | | | | – | | | | | | 51 | | | | | | (62 | ) | | | | | 11 | | | | | | 42 | | Total comprehensive income for the year | | | 3,164 | | | | | 218 | | | | | – | | | | | 1,100 | | | | | 1,684 | | | | | (2,999 | ) | | | | 3,167 | | | | 8,415 | | | | | | 313 | | | | | | – | | | | | | 5,005 | | | | | | 2,660 | | | | | | (7,979 | ) | | | | | 8,414 | | Attributable to: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Equity shareholders | | | 3,164 | | | | | | 218 | | | | | | – | | | | | | 1,100 | | | | | | 1,681 | | | | | | (2,999 | ) | | | | | 3,164 | | | | 8,415 | | | | | | 313 | | | | | | – | | | | | | 5,005 | | | | | | 2,661 | | | | | | (7,979 | ) | | | | | 8,415 | | Non-controlling interests | | | – | | | | | – | | | | | – | | | | | – | | | | | 3 | | | | | – | | | | | 3 | | | | – | | | | | | – | | | | | | – | | | | | | – | | | | | | (1 | ) | | | | | – | | | | | | (1 | ) | | | | | 3,164 | | | | | 218 | | | | | – | | | | | 1,100 | | | | | 1,684 | | | | | (2,999 | ) | | | | 3,167 | | | | 8,415 | | | | | | 313 | | | | | | – | | | | | | 5,005 | | | | | | 2,660 | | | | | | (7,979 | ) | | | | | 8,414 | |
1. Profit for the year for British Transco Finance Inc. is £nil as interest payable to external bond holders is offset by interest receivable on loans to National Grid Gas plc. 2. Includes other comprehensive income relating to interest in equity accounted affiliates. | | | | | | | 162160 | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | |
34. Additional disclosures in respect of guaranteed securitiescontinued Summary statements of comprehensive income for the year ended 31 March 20152016 – IFRS | | | | Parent
guarantor | | | | Issuer of notes | | | | Subsidiary
guarantor | | | | | | | | | | | | | Parent
guarantor | | | | | | Issuer of notes | | | | Subsidiary
guarantor | | | | | | | | | | | | | | | | National Grid plc £m | | | Niagara
Mohawk
Power
Corporation
£m | | | British
Transco
Finance Inc.
£m | | | National
Grid Gas plc £m | | | Other
subsidiaries
£m | | | Consolidation
adjustments
£m | | | National
Grid
consolidated
£m | | | National Grid plc £m | | | | | Niagara
Mohawk
Power
Corporation
£m | | | British
Transco
Finance Inc.
£m | | | National Grid Gas plc Re-presented1 £m | | | Other subsidiaries Re-presented1 £m | | | Consolidation adjustments1 £m | | | National
Grid
consolidated
£m | | Continuing operations | | | | | | | | | | | | | | | | | | | | | | | | | | | | Revenue | | | – | | | | | | 2,109 | | | | | | – | | | | | | 3,136 | | | | | | 10,125 | | | | | | (169 | ) | | | | | 15,201 | | | | – | | | | | | 2,027 | | | | | | – | | | | | | 1,244 | | | | | | 10,069 | | | | | | (128) | | | | | | 13,212 | | Operating costs: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Depreciation and amortisation | | | – | | | | | | (146 | ) | | | | | – | | | | | | (540 | ) | | | | | (796 | ) | | | | | – | | | | | | (1,482 | ) | | | – | | | | | | (162 | ) | | | | | – | | | | | | (255) | | | | | | (894) | | | | | | – | | | | | | (1,311 | ) | Payroll costs | | | – | | | | | | (256 | ) | | | | | – | | | | | | (253 | ) | | | | | (950 | ) | | | | | – | | | | | | (1,459 | ) | | | – | | | | | | (260 | ) | | | | | – | | | | | | (115) | | | | | | (962) | | | | | | – | | | | | | (1,337 | ) | Purchases of electricity | | | – | | | | | | (604 | ) | | | | | – | | | | | | – | | | | | | (1,081 | ) | | | | | – | | | | | | (1,685 | ) | | | – | | | | | | (484 | ) | | | | | – | | | | | | – | | | | | | (828) | | | | | | – | | | | | | (1,312 | ) | Purchases of gas | | | – | | | | | | (147 | ) | | | | | – | | | | | | (98 | ) | | | | | (1,171 | ) | | | | | – | | | | | | (1,416 | ) | | | – | | | | | | (86 | ) | | | | | – | | | | | | (75) | | | | | | (806) | | | | | | – | | | | | | (967 | ) | Rates and property tax | | | – | | | | | | (146 | ) | | | | | – | | | | | | (247 | ) | | | | | (611 | ) | | | | | – | | | | | | (1,004 | ) | | | – | | | | | | (155 | ) | | | | | – | | | | | | (101) | | | | | | (643) | | | | | | – | | | | | | (899 | ) | Balancing Service Incentive Scheme | | | – | | | | | | – | | | | | | – | | | | | | – | | | | | | (874 | ) | | | | | – | | | | | | (874 | ) | | | – | | | | | | – | | | | | | – | | | | | | – | | | | | | (907) | | | | | | – | | | | | | (907 | ) | Payments to other UK network owners | | | – | | | | | | – | | | | | | – | | | | | | – | | | | | | (801 | ) | | | | | – | | | | | | (801 | ) | | | – | | | | | | – | | | | | | – | | | | | | – | | | | | | (971) | | | | | | – | | | | | | (971 | ) | Other operating costs | | | – | | | | | | (501 | ) | | | | | – | | | | | | (655 | ) | | | | | (1,713 | ) | | | | | 169 | | | | | | (2,700 | ) | | | – | | | | | | (433 | ) | | | | | – | | | | | | (173) | | | | | | (1,805) | | | | | | 128 | | | | | | (2,283 | ) | | | | | – | | | | | (1,800 | ) | | | | – | | | | | (1,793 | ) | | | | (7,997 | ) | | | | 169 | | | | | (11,421 | ) | | | – | | | | | (1,580 | ) | | | | – | | | | | (719) | | | | | (7,816) | | | | | 128 | | | | | (9,987 | ) | Total operating profit | | | – | | | | | | 309 | | | | | | – | | | | | | 1,343 | | | | | | 2,128 | | | | | | – | | | | | | 3,780 | | | | – | | | | | | 447 | | | | | | – | | | | | | 525 | | | | | | 2,253 | | | | | | – | | | | | | 3,225 | | Net finance costs | | | (223 | ) | | | | | (76 | ) | | | | | – | | | | | | (352 | ) | | | | | (547 | ) | | | | | – | | | | | | (1,198 | ) | | Net finance income/(costs) | | | | 701 | | | | | | (87 | ) | | | | | – | | | | | | (132) | | | | | | (1,437) | | | | | | – | | | | | | (955 | ) | Dividends receivable | | | – | | | | | | – | | | | | | – | | | | | | – | | | | | | 700 | | | | | | (700 | ) | | | | | – | | | | – | | | | | | – | | | | | | – | | | | | | – | | | | | | 620 | | | | | | (620) | | | | | | – | | Interest in equity accounted affiliates | | | 2,192 | | | | | – | | | | | – | | | | | 8 | | | | | 46 | | | | | (2,200 | ) | | | | 46 | | | | 1,843 | | | | | – | | | | | – | | | | | 33 | | | | | 59 | | | | | (1,876) | | | | | 59 | | Profit before tax | | | 1,969 | | | | | | 233 | | | | | | – | | | | | | 999 | | | | | | 2,327 | | | | | | (2,900 | ) | | | | | 2,628 | | | | 2,544 | | | | | | 360 | | | | | | – | | | | | | 426 | | | | | | 1,495 | | | | | | (2,496) | | | | | | 2,329 | | Tax | | | 50 | | | | | (98 | ) | | | | – | | | | | (230 | ) | | | | (339 | ) | | | | – | | | | | (617 | ) | | | 47 | | | | | | (141 | ) | | | | | – | | | | | | (56) | | | | | | (277) | | | | | | – | | | | | | (427 | ) | Profit after tax from discontinued operations | | | | – | | | | | – | | | | | – | | | | | 735 | | | | | (43) | | | | | – | | | | | 692 | | Profit for the year | | | 2,019 | | | | | | 135 | | | | | | – | 1 | | | | | 769 | | | | | | 1,988 | | | | | | (2,900 | ) | | | | | 2,011 | | | | 2,591 | | | | | | 219 | | | | | | – | 2 | | | | | 1,105 | | | | | | 1,175 | | | | | | (2,496) | | | | | | 2,594 | | Amounts recognised in other comprehensive income2 | | | (395 | ) | | | | 1 | | | | | – | | | | | 22 | | | | | (588 | ) | | | | 566 | | | | | (394 | ) | | Amounts recognised in other comprehensive income from continuing operations3 | | | | 502 | | | | | | (1 | ) | | | | | – | | | | | | 8 | | | | | | 426 | | | | | | (433) | | | | | | 502 | | Amounts recognised in other comprehensive income from discontinued operations3 | | | | 71 | | | | | – | | | | | – | | | | | (13) | | | | | 153 | | | | | (140) | | | | | 71 | | Total comprehensive income for the year | | | 1,624 | | | | | 136 | | | | | – | | | | | 791 | | | | | 1,400 | | | | | (2,334 | ) | | | | 1,617 | | | | 3,164 | | | | | 218 | | | | | – | | | | | 1,100 | | | | | 1,754 | | | | | (3,069) | | | | | 3,167 | | Attributable to: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Equity shareholders | | | 1,624 | | | | | | 136 | | | | | | – | | | | | | 791 | | | | | | 1,407 | | | | | | (2,334 | ) | | | | | 1,624 | | | | 3,164 | | | | | | 218 | | | | | | – | | | | | | 1,100 | | | | | | 1,751 | | | | | | (3,069) | | | | | | 3,164 | | Non-controlling interests | | | – | | | | | – | | | | | – | | | | | – | | | | | (7 | ) | | | | – | | | | | (7 | ) | | | – | | | | | – | | | | | – | | | | | – | | | | | 3 | | | | | – | | | | | 3 | | | | | | 1,624 | | | | | 136 | | | | | – | | | | | 791 | | | | | 1,400 | | | | | (2,334 | ) | | | | 1,617 | | | | 3,164 | | | | | 218 | | | | | – | | | | | 1,100 | | | | | 1,754 | | | | | (3,069) | | | | | 3,167 | |
1. Amounts have beenre-presented to reflect the classification of the UK Gas Distribution business as a discontinued operation. 2. Profit for the year for British Transco Finance Inc. is £nil as interest payable to external bond holders is offset by interest receivable on loans to National Grid Gas plc. 2.3. Includes other comprehensive income relating to interest in equity accounted affiliates.
| | | | | | | | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | 163161 |
Notes to the consolidated financial statements – supplementary information continued 34. Additional disclosures in respect of guaranteed securitiescontinued Summary statements of comprehensive income for the year ended 31 March 20142015 – IFRS | | | | Parent
guarantor | | | | Issuer of notes | | | | Subsidiary
guarantor | | | | | | | | | | | | | Parent
guarantor | | | | Issuer of notes | | | | Subsidiary
guarantor | | | | | | | | | | | | | | | | National Grid plc £m | | | Niagara
Mohawk
Power
Corporation
£m | | | British
Transco
Finance Inc.
£m | | | National
Grid Gas plc £m | | | Other
subsidiaries
£m | | | Consolidation
adjustments
£m | | | National
Grid
consolidated
£m | | | National Grid plc £m | | | Niagara
Mohawk
Power
Corporation
£m | | | British
Transco
Finance Inc.
£m | | | National Grid Gas plc Re-presented1 £m | | | Other subsidiaries Re-presented1 £m | | | Consolidation adjustments1 £m | | | National Grid
consolidated
£m | | Continuing operations | | | | | | | | | | | | | | | | | | | | | | | | | | | | Revenue | | | 4 | | | | | | 2,185 | | | | | | – | | | | | | 3,141 | | | | | | 9,653 | | | | | | (174 | ) | | | | | 14,809 | | | | – | | | | | | 2,109 | | | | | | – | | | | | | 1,270 | | | | | | 10,097 | | | | | | (119) | | | | | | 13,357 | | Operating costs: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Depreciation and amortisation | | | – | | | | | | (127 | ) | | | | | – | | | | | | (529 | ) | | | | | (760 | ) | | | | | – | | | | | | (1,416 | ) | | | – | | | | | | (146 | ) | | | | | – | | | | | | (254) | | | | | | (790) | | | | | | – | | | | | | (1,190 | ) | Payroll costs | | | – | | | | | | (278 | ) | | | | | – | | | | | | (251 | ) | | | | | (689 | ) | | | | | – | | | | | | (1,218 | ) | | | – | | | | | | (256 | ) | | | | | – | | | | | | (101) | | | | | | (935) | | | | | | – | | | | | | (1,292 | ) | Purchases of electricity | | | – | | | | | | (647 | ) | | | | | – | | | | | | – | | | | | | (817 | ) | | | | | – | | | | | | (1,464 | ) | | | – | | | | | | (604 | ) | | | | | – | | | | | | – | | | | | | (1,081) | | | | | | – | | | | | | (1,685 | ) | Purchases of gas | | | – | | | | | | (194 | ) | | | | | – | | | | | | (112 | ) | | | | | (1,449 | ) | | | | | – | | | | | | (1,755 | ) | | | – | | | | | | (147 | ) | | | | | – | | | | | | (74) | | | | | | (1,171) | | | | | | – | | | | | | (1,392 | ) | Rates and property tax | | | – | | | | | | (137 | ) | | | | | – | | | | | | (241 | ) | | | | | (585 | ) | | | | | – | | | | | | (963 | ) | | | – | | | | | | (146 | ) | | | | | – | | | | | | (99) | | | | | | (611) | | | | | | – | | | | | | (856 | ) | Balancing Service Incentive Scheme | | | – | | | | | | – | | | | | | – | | | | | | – | | | | | | (872 | ) | | | | | – | | | | | | (872 | ) | | | – | | | | | | – | | | | | | – | | | | | | – | | | | | | (874) | | | | | | – | | | | | | (874 | ) | Payments to other UK network owners | | | – | | | | | | – | | | | | | – | | | | | | – | | | | | | (630 | ) | | | | | – | | | | | | (630 | ) | | | – | | | | | | – | | | | | | – | | | | | | – | | | | | | (801) | | | | | | – | | | | | | (801 | ) | Other operating costs | | | 15 | | | | | | (440 | ) | | | | | – | | | | | | (661 | ) | | | | | (1,844 | ) | | | | | 174 | | | | | | (2,756 | ) | | | – | | | | | | (501 | ) | | | | | – | | | | | | (254) | | | | | | (1,680) | | | | | | 119 | | | | | | (2,316 | ) | | | | | 15 | | | | | (1,823 | ) | | | | – | | | | | (1,794 | ) | | | | (7,646 | ) | | | | 174 | | | | | (11,074 | ) | | | – | | | | | | (1,800 | ) | | | | | – | | | | | | (782) | | | | | | (7,943) | | | | | | 119 | | | | | | (10,406 | ) | Total operating profit | | | 19 | | | | | | 362 | | | | | | – | | | | | | 1,347 | | | | | | 2,007 | | | | | | – | | | | | | 3,735 | | | | – | �� | | | | | 309 | | | | | | – | | | | | | 488 | | | | | | 2,154 | | | | | | – | | | | | | 2,951 | | Net finance costs | | | (128 | ) | | | | | (85 | ) | | | | | – | | | | | | (285 | ) | | | | | (517 | ) | | | | | – | | | | | | (1,015 | ) | | | (223 | ) | | | | | (76 | ) | | | | | – | | | | | | (246) | | | | | | (492) | | | | | | – | | | | | | (1,037 | ) | Dividends receivable | | | – | | | | | | – | | | | | | – | | | | | | – | | | | | | 600 | | | | | | (600 | ) | | | | | – | | | | – | | | | | | – | | | | | | – | | | | | | – | | | | | | 700 | | | | | | (700) | | | | | | – | | Interest in equity accounted affiliates | | | 2,550 | | | | | – | | | | | – | | | | | 11 | | | | | 28 | | | | | (2,561 | ) | | | | 28 | | | | 2,192 | | | | | | – | | | | | | – | | | | | | 8 | | | | | | 46 | | | | | | (2,200) | | | | | | 46 | | Profit before tax | | | 2,441 | | | | | | 277 | | | | | | – | | | | | | 1,073 | | | | | | 2,118 | | | | | | (3,161 | ) | | | | | 2,748 | | | | 1,969 | | | | | | 233 | | | | | | – | | | | | | 250 | | | | | | 2,408 | | | | | | (2,900) | | | | | | 1,960 | | Tax | | | 35 | | | | | (97 | ) | | | | – | | | | | 3 | | | | | (225 | ) | | | | – | | | | | (284 | ) | | | 50 | | | | | | (98 | ) | | | | | – | | | | | | (65) | | | | | | (354) | | | | | | – | | | | | | (467 | ) | Profit after tax from discontinued operations | | | | – | | | | | | – | | | | | | – | | | | | | 584 | | | | | | (66) | | | | | | – | | | | | | 518 | | Profit for the year | | | 2,476 | | | | | | 180 | | | | | | – | 1 | | | | | 1,076 | | | | | | 1,893 | | | | | | (3,161 | ) | | | | | 2,464 | | | | 2,019 | | | | | | 135 | | | | | | – | 2 | | | | | 769 | | | | | | 1,988 | | | | | | (2,900) | | | | | | 2,011 | | Amounts recognised in other comprehensive income2 | | | 235 | | | | | (8 | ) | | | | – | | | | | 9 | | | | | 383 | | | | | (384 | ) | | | | 235 | | | Amounts recognised in other comprehensive income from continuing operations3 | | | | (327 | ) | | | | | 1 | | | | | | – | | | | | | (4) | | | | | | (497) | | | | | | 501 | | | | | | (326 | ) | Amounts recognised in other comprehensive income from discontinued operations3 | | | | (68 | ) | | | | | – | | | | | | – | | | | | | 26 | | | | | | 81 | | | | | | (107) | | | | | | (68 | ) | Total comprehensive income for the year | | | 2,711 | | | | | 172 | | | | | – | | | | | 1,085 | | | | | 2,276 | | | | | (3,545 | ) | | | | 2,699 | | | | 1,624 | | | | | | 136 | | | | | | – | | | | | | 791 | | | | | | 1,572 | | | | | | (2,506) | | | | | | 1,617 | | Attributable to: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Equity shareholders | | | 2,711 | | | | | | 172 | | | | | | – | | | | | | 1,085 | | | | | | 2,288 | | | | | | (3,545 | ) | | | | | 2,711 | | | | 1,624 | | | | | | 136 | | | | | | – | | | | | | 791 | | | | | | 1,579 | | | | | | (2,506 | ) | | | | | 1,624 | | Non-controlling interests | | | – | | | | | – | | | | | – | | | | | – | | | | | (12 | ) | | | | – | | | | | (12 | ) | | | – | | | | | | – | | | | | | – | | | | | | – | | | | | | (7 | ) | | | | | – | | | | | | (7 | ) | | | | | 2,711 | | | | | 172 | | | | | – | | | | | 1,085 | | | | | 2,276 | | | | | (3,545 | ) | | | | 2,699 | | | | 1,624 | | | | | | 136 | | | | | | – | | | | | | 791 | | | | | | 1,572 | | | | | | (2,506 | ) | | | | | 1,617 | |
1. Amounts have beenre-presented to reflect the classification of the UK Gas Distribution business as a discontinued operation. 2. Profit for the year for British Transco Finance Inc. is £nil as interest payable to external bond holders is offset by interest receivable on loans to National Grid Gas plc. 2.3. Includes other comprehensive income relating to interest in equity accounted affiliates.
| | | | | | | 164162 | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | |
34. Additional disclosures in respect of guaranteed securitiescontinued Statements of financial position as at 31 March 20162017 – IFRS | | | | Parent
guarantor | | | | Issuer of notes | | | | Subsidiary
guarantor | | | | | | | | | | | | | Parent
guarantor | | | | Issuer of notes | | | | Subsidiary
guarantor | | | | | | | | | | | | | | | | National Grid plc £m | | | Niagara
Mohawk
Power
Corporation
£m | | | British
Transco
Finance Inc. £m | | | National
Grid Gas plc £m | | | Other
subsidiaries
£m | | | Consolidation
adjustments
£m | | | National
Grid
consolidated
£m | | | National Grid plc £m | | | Niagara
Mohawk
Power
Corporation
£m | | | British
Transco
Finance Inc.
£m | | | National
Grid Gas plc £m | | | Other
subsidiaries
£m | | | Consolidation
adjustments £m | | | National Grid
consolidated
£m | | Non-current assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Goodwill | | | – | | | | | | 664 | | | | | | – | | | | | | – | | | | | | 4,651 | | | | | | – | | | | | | 5,315 | | | | – | | | | | | 763 | | | | | | – | | | | | | – | | | | | | 5,333 | | | | | | – | | | | | | 6,096 | | Other intangible assets | | | – | | | | | | – | | | | | | – | | | | | | 239 | | | | | | 648 | | | | | | – | | | | | | 887 | | | | – | | | | | | – | | | | | | – | | | | | | 125 | | | | | | 798 | | | | | | – | | | | | | 923 | | Property, plant and equipment | | | – | | | | | | 5,466 | | | | | | – | | | | | | 12,628 | | | | | | 25,270 | | | | | | – | | | | | | 43,364 | | | | – | | | | | | 6,553 | | | | | | – | | | | | | 4,358 | | | | | | 28,914 | | | | | | – | | | | | | 39,825 | | Other non-current assets | | | – | | | | | | 7 | | | | | | – | | | | | | 41 | | | | | | 34 | | | | | | – | | | | | | 82 | | | | – | | | | | | 7 | | | | | | – | | | | | | 9 | | | | | | 105 | | | | | | – | | | | | | 121 | | Amounts owed by subsidiary undertakings | | | 318 | | | | | | – | | | | | | 209 | | | | | | 5,609 | | | | | | 2,630 | | | | | | (8,766 | ) | | | | | – | | | | 342 | | | | | | – | | | | | | 239 | | | | | | 3,426 | | | | | | 2,576 | | | | | | (6,583 | ) | | | | | – | | Pension assets | | | – | | | | | | 125 | | | | | | – | | | | | | – | | | | | | 285 | | | | | | – | | | | | | 410 | | | | – | | | | | | 223 | | | | | | – | | | | | | 45 | | | | | | 335 | | | | | | – | | | | | | 603 | | Financial and other investments | | | 17,428 | | | | | | 26 | | | | | | – | | | | | | 86 | | | | | | 10,131 | | | | | | (26,792 | ) | | | | | 879 | | | | 17,689 | | | | | | 31 | | | | | | – | | | | | | 95 | | | | | | 12,429 | | | | | | (27,061 | ) | | | | | 3,183 | | Derivative financial assets | | | 157 | | | | | – | | | | | – | | | | | 1,014 | | | | | 514 | | | | | – | | | | | 1,685 | | | | 149 | | | | | – | | | | | – | | | | | 813 | | | | | 553 | | | | | – | | | | | 1,515 | | Total non-current assets | | | 17,903 | | | | | 6,288 | | | | | 209 | | | | | 19,617 | | | | | 44,163 | | | | | (35,558 | ) | | | | 52,622 | | | | 18,180 | | | | | 7,577 | | | | | 239 | | | | | 8,871 | | | | | 51,043 | | | | | (33,644 | ) | | | | 52,266 | | Current assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Inventories and current intangible assets | | | – | | | | | | 42 | | | | | | – | | | | | | 26 | | | | | | 369 | | | | | | – | | | | | | 437 | | | | – | | | | | | 38 | | | | | | – | | | | | | 20 | | | | | | 345 | | | | | | – | | | | | | 403 | | Trade and other receivables | | | 1 | | | | | | 413 | | | | | | – | | | | | | 432 | | | | | | 1,626 | | | | | | – | | | | | | 2,472 | | | | – | | | | | | 507 | | | | | | – | | | | | | 360 | | | | | | 2,232 | | | | | | – | | | | | | 3,099 | | Amounts owed by subsidiary undertakings | | | 11,516 | | | | | | 300 | | | | | | 6 | | | | | | 57 | | | | | | 12,785 | | | | | | (24,664 | ) | | | | | – | | | | 12,734 | | | | | | 505 | | | | | | 6 | | | | | | 1,965 | | | | | | 12,083 | | | | | | (27,293 | ) | | | | | – | | Financial and other investments | | | 1,244 | | | | | | 28 | | | | | | – | | | | | | 116 | | | | | | 1,610 | | | | | | – | | | | | | 2,998 | | | | 5,471 | | | | | | 29 | | | | | | – | | | | | | 1,835 | | | | | | 1,406 | | | | | | – | | | | | | 8,741 | | Derivative financial assets | | | 279 | | | | | | – | | | | | | – | | | | | | 66 | | | | | | 131 | | | | | | (198 | ) | | | | | 278 | | | | 202 | | | | | | – | | | | | | – | | | | | | 51 | | | | | | 133 | | | | | | (194 | ) | | | | | 192 | | Cash and cash equivalents | | | 1 | | | | | 4 | | | | | – | | | | | – | | | | | 126 | | | | | (4 | ) | | | | 127 | | | | 1,090 | | | | | 4 | | | | | – | | | | | (9 | ) | | | | 54 | | | | | – | | | | | 1,139 | | Total current assets | | | 13,041 | | | | | 787 | | | | | 6 | | | | | 697 | | | | | 16,647 | | | | | (24,866 | ) | | | | 6,312 | | | | 19,497 | | | | | 1,083 | | | | | 6 | | | | | 4,222 | | | | | 16,253 | | | | | (27,487 | ) | | | | 13,574 | | Total assets | | | 30,944 | | | | | 7,075 | | | | | 215 | | | | | 20,314 | | | | | 60,810 | | | | | (60,424 | ) | | | | 58,934 | | | | 37,677 | | | | | 8,660 | | | | | 245 | | | | | 13,093 | | | | | 67,296 | | | | | (61,131 | ) | | | | 65,840 | | Current liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Borrowings | | | (933 | ) | | | | | (47 | ) | | | | | (5 | ) | | | | | (602 | ) | | | | | (2,028 | ) | | | | | 4 | | | | | | (3,611 | ) | | | (1,120 | ) | | | | | (55 | ) | | | | | (5 | ) | | | | | (833 | ) | | | | | (3,483 | ) | | | | | – | | | | | | (5,496 | ) | Derivative financial liabilities | | | (239 | ) | | | | | – | | | | | | – | | | | | | (39 | ) | | | | | (257 | ) | | | | | 198 | | | | | | (337 | ) | | | (533 | ) | | | | | – | | | | | | – | | | | | | (185 | ) | | | | | (530 | ) | | | | | 194 | | | | | | (1,054 | ) | Trade and other payables | | | (43 | ) | | | | | (248 | ) | | | | | – | | | | | | (661 | ) | | | | | (2,333 | ) | | | | | – | | | | | | (3,285 | ) | | | (46 | ) | | | | | (353 | ) | | | | | – | | | | | | (342 | ) | | | | | (2,697 | ) | | | | | – | | | | | | (3,438 | ) | Amounts owed to subsidiary undertakings | | | (12,633 | ) | | | | | – | | | | | | – | | | | | | (1,518 | ) | | | | | (10,513 | ) | | | | | 24,664 | | | | | | – | | | | (12,012 | ) | | | | | – | | | | | | – | | | | | | (2,151 | ) | | | | | (13,130 | ) | | | | | 27,293 | | | | | | – | | Current tax liabilities | | | (3 | ) | | | | | (61 | ) | | | | | – | | | | | | (34 | ) | | | | | (154 | ) | | | | | – | | | | | | (252 | ) | | | (3 | ) | | | | | (156 | ) | | | | | – | | | | | | (9 | ) | | | | | 61 | | | | | | – | | | | | | (107 | ) | Provisions | | | – | | | | | – | | | | | – | | | | | (55 | ) | | | | (181 | ) | | | | – | | | | | (236 | ) | | | – | | | | | – | | | | | – | | | | | (184 | ) | | | | (232 | ) | | | | – | | | | | (416 | ) | Total current liabilities | | | (13,851 | ) | | | | (356 | ) | | | | (5 | ) | | | | (2,909 | ) | | | | (15,466 | ) | | | | 24,866 | | | | | (7,721 | ) | | | (13,714 | ) | | | | (564 | ) | | | | (5 | ) | | | | (3,704 | ) | | | | (20,011 | ) | | | | 27,487 | | | | | (10,511 | ) | Non-current liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Borrowings | | | (1,194 | ) | | | | | (2,043 | ) | | | | | (209 | ) | | | | | (6,078 | ) | | | | | (15,209 | ) | | | | | – | | | | | | (24,733 | ) | | | (1,262 | ) | | | | | (2,345 | ) | | | | | (239 | ) | | | | | (3,879 | ) | | | | | (15,417 | ) | | | | | – | | | | | | (23,142 | ) | Derivative financial liabilities | | | (358 | ) | | | | | – | | | | | | – | | | | | | (527 | ) | | | | | (847 | ) | | | | | – | | | | | | (1,732 | ) | | | (272 | ) | | | | | – | | | | | | – | | | | | | (234 | ) | | | | | (663 | ) | | | | | – | | | | | | (1,169 | ) | Other non-current liabilities | | | – | | | | | | (297 | ) | | | | | – | | | | | | (1,031 | ) | | | | | (743 | ) | | | | | – | | | | | | (2,071 | ) | | | – | | | | | | (350 | ) | | | | | – | | | | | | (204 | ) | | | | | (893 | ) | | | | | – | | | | | | (1,447 | ) | Amounts owed to subsidiary undertakings | | | (1,982 | ) | | | | | – | | | | | | – | | | | | | (1,174 | ) | | | | | (5,610 | ) | | | | | 8,766 | | | | | | – | | | | (2,058 | ) | | | | | – | | | | | | – | | | | | | (756 | ) | | | | | (3,769 | ) | | | | | 6,583 | | | | | | – | | Deferred tax liabilities | | | (4 | ) | | | | | (939 | ) | | | | | – | | | | | | (1,548 | ) | | | | | (2,143 | ) | | | | | – | | | | | | (4,634 | ) | | | (3 | ) | | | | | (1,178 | ) | | | | | – | | | | | | (369 | ) | | | | | (2,929 | ) | | | | | – | | | | | | (4,479 | ) | Pensions and other post-retirement benefit obligations | | | – | | | | | | (761 | ) | | | | | – | | | | | | – | | | | | | (2,234 | ) | | | | | – | | | | | | (2,995 | ) | | | – | | | | | | (889 | ) | | | | | – | | | | | | – | | | | | | (1,647 | ) | | | | | – | | | | | | (2,536 | ) | Provisions | | | – | | | | | (250 | ) | | | | – | | | | | (126 | ) | | | | (1,107 | ) | | | | – | | | | | (1,483 | ) | | | – | | | | | (298 | ) | | | | – | | | | | (104 | ) | | | | (1,770 | ) | | | | – | | | | | (2,172 | ) | Total non-current liabilities | | | (3,538 | ) | | | | (4,290 | ) | | | | (209 | ) | | | | (10,484 | ) | | | | (27,893 | ) | | | | 8,766 | | | | | (37,648 | ) | | | (3,595 | ) | | | | (5,060 | ) | | | | (239 | ) | | | | (5,546 | ) | | | | (27,088 | ) | | | | 6,583 | | | | | (34,945 | ) | Total liabilities | | | (17,389 | ) | | | | (4,646 | ) | | | | (214 | ) | | | | (13,393 | ) | | | | (43,359 | ) | | | | 33,632 | | | | | (45,369 | ) | | | (17,309 | ) | | | | (5,624 | ) | | | | (244 | ) | | | | (9,250 | ) | | | | (47,099 | ) | | | | 34,070 | | | | | (45,456 | ) | Net assets | | | 13,555 | | | | | 2,429 | | | | | 1 | | | | | 6,921 | | | | | 17,451 | | | | | (26,792 | ) | | | | 13,565 | | | | 20,368 | | | | | 3,036 | | | | | 1 | | | | | 3,843 | | | | | 20,197 | | | | | (27,061 | ) | | | | 20,384 | | Equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Share capital | | | 447 | | | | | | 130 | | | | | | – | | | | | | 45 | | | | | | 182 | | | | | | (357 | ) | | | | | 447 | | | | 449 | | | | | | 149 | | | | | | – | | | | | | 45 | | | | | | 182 | | | | | | (376 | ) | | | | | 449 | | Share premium account | | | 1,326 | | | | | | 2,119 | | | | | | – | | | | | | 204 | | | | | | 8,033 | | | | | | (10,356 | ) | | | | | 1,326 | | | | 1,324 | | | | | | 2,431 | | | | | | – | | | | | | 204 | | | | | | 8,033 | | | | | | (10,668 | ) | | | | | 1,324 | | Retained earnings | | | 16,305 | | | | | | 180 | | | | | | 1 | | | | | | 5,400 | | | | | | 9,316 | | | | | | (14,897 | ) | | | | | 16,305 | | | | 22,582 | | | | | | 456 | | | | | | 1 | | | | | | 2,268 | | | | | | 11,914 | | | | | | (14,639 | ) | | | | | 22,582 | | Other equity reserves | | | (4,523 | ) | | | | – | | | | | – | | | | | 1,272 | | | | | (90 | ) | | | | (1,182 | ) | | | | (4,523 | ) | | | (3,987 | ) | | | | – | | | | | – | | | | | 1,326 | | | | | 52 | | | | | (1,378 | ) | | | | (3,987 | ) | Shareholders’ equity | | | 13,555 | | | | | | 2,429 | | | | | | 1 | | | | | | 6,921 | | | | | | 17,441 | | | | | | (26,792 | ) | | | | | 13,555 | | | | 20,368 | | | | | | 3,036 | | | | | | 1 | | | | | | 3,843 | | | | | | 20,181 | | | | | | (27,061 | ) | | | | | 20,368 | | | Non-controlling interests | | | – | | | | | – | | | | | – | | | | | – | | | | | 10 | | | | | – | | | | | 10 | | | | – | | | | | – | | | | | – | | | | | – | | | | | 16 | | | | | – | | | | | 16 | | Total equity | | | 13,555 | | | | | 2,429 | | | | | 1 | | | | | 6,921 | | | | | 17,451 | | | | | (26,792 | ) | | | | 13,565 | | | | 20,368 | | | | | 3,036 | | | | | 1 | | | | | 3,843 | | | | | 20,197 | | | | | (27,061 | ) | | | | 20,384 | |
| | | | | | | | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | 165163 |
Notes to the consolidated financial statements – supplementary information continued 34. Additional disclosures in respect of guaranteed securitiescontinued Statements of financial position as at 31 March 20152016 – IFRS | | | | Parent
guarantor | | | | Issuer of notes | | | | Subsidiary
guarantor | | | | | | | | | | | | | Parent
guarantor | | | | Issuer of notes | | | | Subsidiary
guarantor | | | | | | | | | | | | | | | National Grid plc £m | | | Niagara
Mohawk
Power
Corporation
£m | | | British
Transco
Finance Inc.
£m | | | National
Grid Gas plc £m | | | Other
subsidiaries
£m | | | Consolidation
adjustments
£m | | | National
Grid
consolidated
£m | | | National
Grid plc £m | | | Niagara
Mohawk
Power
Corporation
£m | | | British
Transco
Finance Inc.
£m | | | National
Grid Gas plc £m | | | Other
subsidiaries
£m | | | Consolidation
adjustments
£m | | | National
Grid
consolidated
£m | | Non-current assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Goodwill | | | – | | | | | | 653 | | | | | | – | | | | | | – | | | | | | 4,492 | | | | | | – | | | | | | 5,145 | | | | – | | | | | | 664 | | | | | | – | | | | | | – | | | | | | 4,651 | | | | | | – | | | | | | 5,315 | | Other intangible assets | | | – | | | | | | – | | | | | | – | | | | | | 232 | | | | | | 570 | | | | | | – | | | | | | 802 | | | | – | | | | | | – | | | | | | – | | | | | | 239 | | | | | | 648 | | | | | | – | | | | | | 887 | | Property, plant and equipment | | | – | | | | | | 5,025 | | | | | | – | | | | | | 12,428 | | | | | | 23,270 | | | | | | – | | | | | | 40,723 | | | | – | | | | | | 5,466 | | | | | | – | | | | | | 12,628 | | | | | | 25,270 | | | | | | – | | | | | | 43,364 | | Other non-current assets | | | – | | | | | | 11 | | | | | | – | | | | | | 18 | | | | | | 51 | | | | | | – | | | | | | 80 | | | | – | | | | | | 7 | | | | | | – | | | | | | 41 | | | | | | 34 | | | | | | – | | | | | | 82 | | Amounts owed by subsidiary undertakings | | | 341 | | | | | | – | | | | | | 202 | | | | | | 5,609 | | | | | | 3,017 | | | | | | (9,169 | ) | | | | | – | | | | 318 | | | | | | – | | | | | | 209 | | | | | | 5,609 | | | | | | 2,630 | | | | | | (8,766 | ) | | | | | – | | Pension assets | | | – | | | | | | 121 | | | | | | – | | | | | | – | | | | | | – | | | | | | – | | | | | | 121 | | | | – | | | | | | 125 | | | | | | – | | | | | | – | | | | | | 285 | | | | | | – | | | | | | 410 | | Financial and other investments | | | 14,988 | | | | | | 26 | | | | | | – | | | | | | 56 | | | | | | 9,905 | | | | | | (24,327 | ) | | | | | 648 | | | | 17,428 | | | | | | 26 | | | | | | – | | | | | | 86 | | | | | | 10,131 | | | | | | (26,792 | ) | | | | | 879 | | Derivative financial assets | | | 148 | | | | | – | | | | | – | | | | | 988 | | | | | 403 | | | | | – | | | | | 1,539 | | | | 157 | | | | | | – | | | | | | – | | | | | | 1,014 | | | | | | 514 | | | | | | – | | | | | | 1,685 | | Total non-current assets | | | 15,477 | | | | | 5,836 | | | | | 202 | | | | | 19,331 | | | | | 41,708 | | | | | (33,496 | ) | | | | 49,058 | | | | 17,903 | | | | | | 6,288 | | | | | | 209 | | | | | | 19,617 | | | | | | 44,163 | | | | | | (35,558 | ) | | | | | 52,622 | | Current assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Inventories and current intangible assets | | | – | | | | | | 40 | | | | | | – | | | | | | 26 | | | | | | 274 | | | | | | – | | | | | | 340 | | | | – | | | | | | 42 | | | | | | – | | | | | | 26 | | | | | | 369 | | | | | | – | | | | | | 437 | | Trade and other receivables | | | 2 | | | | | | 502 | | | | | | – | | | | | | 417 | | | | | | 1,915 | | | | | | – | | | | | | 2,836 | | | | 1 | | | | | | 413 | | | | | | – | | | | | | 432 | | | | | | 1,626 | | | | | | – | | | | | | 2,472 | | Amounts owed by subsidiary undertakings | | | 11,484 | | | | | | 254 | | | | | | 5 | | | | | | 298 | | | | | | 13,052 | | | | | | (25,093 | ) | | | | | – | | | | 11,516 | | | | | | 300 | | | | | | 6 | | | | | | 57 | | | | | | 12,785 | | | | | | (24,664 | ) | | | | | – | | Financial and other investments | | | 740 | | | | | | 9 | | | | | | – | | | | | | 363 | | | | | | 1,447 | | | | | | – | | | | | | 2,559 | | | | 1,244 | | | | | | 28 | | | | | | – | | | | | | 116 | | | | | | 1,610 | | | | | | – | | | | | | 2,998 | | Derivative financial assets | | | 281 | | | | | | – | | | | | | – | | | | | | 70 | | | | | | 88 | | | | | | (262 | ) | | | | | 177 | | | | 279 | | | | | | – | | | | | | – | | | | | | 66 | | | | | | 131 | | | | | | (198 | ) | | | | | 278 | | Cash and cash equivalents | | | 10 | | | | | 11 | | | | | – | | | | | 4 | | | | | 104 | | | | | (10 | ) | | | | 119 | | | | 1 | | | | | | 4 | | | | | | – | | | | | | – | | | | | | 126 | | | | | | (4 | ) | | | | | 127 | | Total current assets | | | 12,517 | | | | | 816 | | | | | 5 | | | | | 1,178 | | | | | 16,880 | | | | | (25,365 | ) | | | | 6,031 | | | | 13,041 | | | | | | 787 | | | | | | 6 | | | | | | 697 | | | | | | 16,647 | | | | | | (24,866 | ) | | | | | 6,312 | | Total assets | | | 27,994 | | | | | 6,652 | | | | | 207 | | | | | 20,509 | | | | | 58,588 | | | | | (58,861 | ) | | | | 55,089 | | | | 30,944 | | | | | | 7,075 | | | | | | 215 | | | | | | 20,314 | | | | | | 60,810 | | | | | | (60,424 | ) | | | | | 58,934 | | Current liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Borrowings | | | (1,068 | ) | | | | | (44 | ) | | | | | (5 | ) | | | | | (521 | ) | | | | | (1,400 | ) | | | | | 10 | | | | | | (3,028 | ) | | | (933 | ) | | | | | (47 | ) | | | | | (5 | ) | | | | | (602 | ) | | | | | (2,028 | ) | | | | | 4 | | | | | | (3,611 | ) | Derivative financial liabilities | | | (289 | ) | | | | | – | | | | | | – | | | | | | (133 | ) | | | | | (475 | ) | | | | | 262 | | | | | | (635 | ) | | | (239 | ) | | | | | – | | | | | | – | | | | | | (39 | ) | | | | | (257 | ) | | | | | 198 | | | | | | (337 | ) | Trade and other payables | | | (39 | ) | | | | | (267 | ) | | | | | – | | | | | | (877 | ) | | | | | (2,109 | ) | | | | | – | | | | | | (3,292 | ) | | | (43 | ) | | | | | (248 | ) | | | | | – | | | | | | (661 | ) | | | | | (2,333 | ) | | | | | – | | | | | | (3,285 | ) | Amounts owed to subsidiary undertakings | | | (11,208 | ) | | | | | – | | | | | | – | | | | | | (1,973 | ) | | | | | (11,912 | ) | | | | | 25,093 | | | | | | – | | | | (12,633 | ) | | | | | – | | | | | | – | | | | | | (1,518 | ) | | | | | (10,513 | ) | | | | | 24,664 | | | | | | – | | Current tax liabilities | | | (3 | ) | | | | | (61 | ) | | | | | – | | | | | | (34 | ) | | | | | (86 | ) | | | | | – | | | | | | (184 | ) | | | (3 | ) | | | | | (61 | ) | | | | | – | | | | | | (34 | ) | | | | | (154 | ) | | | | | – | | | | | | (252 | ) | Provisions | | | – | | | | | – | | | | | – | | | | | (39 | ) | | | | (196 | ) | | | | – | | | | | (235 | ) | | | – | | | | | | – | | | | | | – | | | | | | (55 | ) | | | | | (181 | ) | | | | | – | | | | | | (236 | ) | Total current liabilities | | | (12,607 | ) | | | | (372 | ) | | | | (5 | ) | | | | (3,577 | ) | | | | (16,178 | ) | | | | 25,365 | | | | | (7,374 | ) | | | (13,851 | ) | | | | | (356 | ) | | | | | (5 | ) | | | | | (2,909 | ) | | | | | (15,466 | ) | | | | | 24,866 | | | | | | (7,721 | ) | Non-current liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Borrowings | | | (1,117 | ) | | | | | (2,021 | ) | | | | | (202 | ) | | | | | (6,056 | ) | | | | | (13,486 | ) | | | | | – | | | | | | (22,882 | ) | | | (1,194 | ) | | | | | (2,043 | ) | | | | | (209 | ) | | | | | (6,078 | ) | | | | | (15,209 | ) | | | | | – | | | | | | (24,733 | ) | Derivative financial liabilities | | | (411 | ) | | | | | – | | | | | | – | | | | | | (481 | ) | | | | | (872 | ) | | | | | – | | | | | | (1,764 | ) | | | (358 | ) | | | | | – | | | | | | – | | | | | | (527 | ) | | | | | (847 | ) | | | | | – | | | | | | (1,732 | ) | Other non-current liabilities | | | – | | | | | | (287 | ) | | | | | – | | | | | | (1,038 | ) | | | | | (594 | ) | | | | | – | | | | | | (1,919 | ) | | | – | | | | | | (297 | ) | | | | | – | | | | | | (1,031 | ) | | | | | (743 | ) | | | | | – | | | | | | (2,071 | ) | Amounts owed to subsidiary undertakings | | | (1,894 | ) | | | | | – | | | | | | – | | | | | | (1,123 | ) | | | | | (6,152 | ) | | | | | 9,169 | | | | | | – | | | | (1,982 | ) | | | | | – | | | | | | – | | | | | | (1,174 | ) | | | | | (5,610 | ) | | | | | 8,766 | | | | | | – | | Deferred tax liabilities | | | (3 | ) | | | | | (782 | ) | | | | | – | | | | | | (1,655 | ) | | | | | (1,857 | ) | | | | | – | | | | | | (4,297 | ) | | | (4 | ) | | | | | (939 | ) | | | | | – | | | | | | (1,548 | ) | | | | | (2,143 | ) | | | | | – | | | | | | (4,634 | ) | Pensions and other post-retirement benefit obligations | | | – | | | | | | (801 | ) | | | | | – | | | | | | – | | | | | | (2,578 | ) | | | | | – | | | | | | (3,379 | ) | | | – | | | | | | (761 | ) | | | | | – | | | | | | – | | | | | | (2,234 | ) | | | | | – | | | | | | (2,995 | ) | Provisions | | | – | | | | | (267 | ) | | | | – | | | | | (168 | ) | | | | (1,065 | ) | | | | – | | | | | (1,500 | ) | | | – | | | | | | (250 | ) | | | | | – | | | | | | (126 | ) | | | | | (1,107 | ) | | | | | – | | | | | | (1,483 | ) | Total non-current liabilities | | | (3,425 | ) | | | | (4,158 | ) | | | | (202 | ) | | | | (10,521 | ) | | | | (26,604 | ) | | | | 9,169 | | | | | (35,741 | ) | | | (3,538 | ) | | | | | (4,290 | ) | | | | | (209 | ) | | | | | (10,484 | ) | | | | | (27,893 | ) | | | | | 8,766 | | | | | | (37,648 | ) | Total liabilities | | | (16,032 | ) | | | | (4,530 | ) | | | | (207 | ) | | | | (14,098 | ) | | | | (42,782 | ) | | | | 34,534 | | | | | (43,115 | ) | | | (17,389 | ) | | | | | (4,646 | ) | | | | | (214 | ) | | | | | (13,393 | ) | | | | | (43,359 | ) | | | | | 33,632 | | | | | | (45,369 | ) | Net assets | | | 11,962 | | | | | 2,122 | | | | | – | | | | | 6,411 | | | | | 15,806 | | | | | (24,327 | ) | | | | 11,974 | | | | 13,555 | | | | | | 2,429 | | | | | | 1 | | | | | | 6,921 | | | | | | 17,451 | | | | | | (26,792 | ) | | | | | 13,565 | | Equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Share capital | | | 443 | | | | | | 126 | | | | | | – | | | | | | 45 | | | | | | 182 | | | | | | (353 | ) | | | | | 443 | | | | 447 | | | | | | 130 | | | | | | – | | | | | | 45 | | | | | | 182 | | | | | | (357 | ) | | | | | 447 | | Share premium account | | | 1,331 | | | | | | 2,039 | | | | | | – | | | | | | 204 | | | | | | 8,033 | | | | | | (10,276 | ) | | | | | 1,331 | | | | 1,326 | | | | | | 2,119 | | | | | | – | | | | | | 204 | | | | | | 8,033 | | | | | | (10,356 | ) | | | | | 1,326 | | Retained earnings | | | 14,870 | | | | | | (43 | ) | | | | | – | | | | | | 4,885 | | | | | | 7,761 | | | | | | (12,603 | ) | | | | | 14,870 | | | | 16,305 | | | | | | 180 | | | | | | 1 | | | | | | 5,400 | | | | | | 9,316 | | | | | | (14,897 | ) | | | | | 16,305 | | Other equity reserves | | | (4,682 | ) | | | | – | | | | | – | | | | | 1,277 | | | | | (182 | ) | | | | (1,095 | ) | | | | (4,682 | ) | | | (4,523 | ) | | | | | – | | | | | | – | | | | | | 1,272 | | | | | | (90 | ) | | | | | (1,182 | ) | | | | | (4,523 | ) | Shareholders’ equity | | | 11,962 | | | | | | 2,122 | | | | | | – | | | | | | 6,411 | | | | | | 15,794 | | | | | | (24,327 | ) | | | | | 11,962 | | | | 13,555 | | | | | | 2,429 | | | | | | 1 | | | | | | 6,921 | | | | | | 17,441 | | | | | | (26,792 | ) | | | | | 13,555 | | | Non-controlling interests | | | – | | | | | – | | | | | – | | | | | – | | | | | 12 | | | | | – | | | | | 12 | | | | – | | | | | | – | | | | | | – | | | | | | – | | | | | | 10 | | | | | | – | | | | | | 10 | | Total equity | | | 11,962 | | | | | 2,122 | | | | | – | | | | | 6,411 | | | | | 15,806 | | | | | (24,327 | ) | | | | 11,974 | | | | 13,555 | | | | | | 2,429 | | | | | | 1 | | | | | | 6,921 | | | | | | 17,451 | | | | | | (26,792 | ) | | | | | 13,565 | |
| | | | | | | 166164 | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | |
34. Additional disclosures in respect of guaranteed securitiescontinued Cash flow statements | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Parent
guarantor | | | | | Issuer of notes | | | | | Subsidiary
guarantor | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | National Grid plc £m | | | | | Niagara
Mohawk
Power
Corporation
£m | | | | | British
Transco
Finance Inc.
£m | | | | | National
Grid Gas plc £m | | | | | Other
subsidiaries
£m | | | | | Consolidation adjustments
£m | | | | | National
Grid
consolidated
£m | | Year ended 31 March 2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net cash flow from operating activities | | | 57 | | | | | | 580 | | | | | | – | | | | | | 1,743 | | | | | | 2,988 | | | | | | – | | | | | | 5,368 | | Net cash flow from/(used in) investing activities | | | 502 | | | | | | (440 | ) | | | | | 13 | | | | | | (506 | ) | | | | | (1,736 | ) | | | | | (1,869 | ) | | | | | (4,036 | ) | Net cash flow (used in)/from financing activities | | | (555 | ) | | | | | (148 | ) | | | | | (13 | ) | | | | | (1,248 | ) | | | | | (1,233 | ) | | | | | 1,869 | | | | | | (1,328 | ) | Net increase/(decrease) in cash and cash equivalents in the year | | | 4 | | | | | | (8 | ) | | | | | – | | | | | | (11 | ) | | | | | 19 | | | | | | – | | | | | | 4 | | Year ended 31 March 2015 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net cash flow from operating activities | | | 38 | | | | | | 531 | | | | | | – | | | | | | 1,575 | | | | | | 2,863 | | | | | | – | | | | | | 5,007 | | Net cash flow from/(used in) investing activities | | | 2,103 | | | | | | (393 | ) | | | | | – | | | | | | (603 | ) | | | | | (1,051 | ) | | | | | (2,057 | ) | | | | | (2,001 | ) | Net cash flow (used in)/from financing activities | | | (2,169 | ) | | | | | (145 | ) | | | | | – | | | | | | (959 | ) | | | | | (2,037 | ) | | | | | 2,057 | | | | | | (3,253 | ) | Net (decrease)/increase in cash and cash equivalents in the year | | | (28 | ) | | | | | (7 | ) | | | | | – | | | | | | 13 | | | | | | (225 | ) | | | | | – | | | | | | (247 | ) | Year ended 31 March 2014 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net cash flow from operating activities | | | 52 | | | | | | 581 | | | | | | – | | | | | | 1,717 | | | | | | 1,669 | | | | | | – | | | | | | 4,019 | | Net cash flow from/(used in) investing activities | | | 1,358 | | | | | | (555 | ) | | | | | – | | | | | | (91 | ) | | | | | (993 | ) | | | | | (1,049 | ) | | | | | (1,330 | ) | Net cash flow (used in)/from financing activities | | | (1,724 | ) | | | | | (18 | ) | | | | | – | | | | | | (1,632 | ) | | | | | (647 | ) | | | | | 1,049 | | | | | | (2,972 | ) | Net (decrease)/increase in cash and cash equivalents in the year | | | (314 | ) | | | | | 8 | | | | | | – | | | | | | (6 | ) | | | | | 29 | | | | | | – | | | | | | (283 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Parent
guarantor | | | | | Issuer of notes | | | | | Subsidiary
guarantor | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | National
Grid plc £m | | | | | Niagara
Mohawk
Power
Corporation
£m | | | | | British
Transco
Finance Inc.
£m | | | | | National
Grid Gas plc £m | | | | | Other
subsidiaries
£m | | | | | Consolidation
adjustments
£m | | | | | National Grid
consolidated
£m | | Year ended 31 March 2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net cash flow from operating activities – continuing operations | | | 53 | | | | | | 757 | | | | | | – | | | | | | 918 | | | | | | 2,592 | | | | | | – | | | | | | 4,320 | | Net cash flow from operating activities – discontinued operations | | | – | | | | | | – | | | | | | – | | | | | | 450 | | | | | | 459 | | | | | | – | | | | | | 909 | | Net cash flow from/(used in) investing activities – continuing operations | | | 4,181 | | | | | | (469 | ) | | | | | 15 | | | | | | 215 | | | | | | (1,118 | ) | | | | | (6,458 | ) | | | | | (3,634 | ) | Net cash flow from/(used in) investing activities – discontinued operations | | | – | | | | | | – | | | | | | – | | | | | | 5,618 | | | | | | (6,298 | ) | | | | | – | | | | | | (680 | ) | Net cash flow (used in)/from financing activities – continuing operations | | | (3,146 | ) | | | | | (288 | ) | | | | | (15 | ) | | | | | (8,322 | ) | | | | | 3,771 | | | | | | 6,458 | | | | | | (1,542 | ) | Net cash flow (used in)/from financing activities – discontinued operations | | | – | | | | | | – | | | | | | – | | | | | | 1,120 | | | | | | 491 | | | | | | – | | | | | | 1,611 | | Net increase/(decrease) in cash and cash equivalents in the year | | | 1,088 | | | | | | – | | | | | | – | | | | | | (1 | ) | | | | | (103 | ) | | | | | – | | | | | | 984 | | Year ended 31 March 2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net cash flow from operating activities – continuing operations | | | 57 | | | | | | 580 | | | | | | – | | | | | | 599 | | | | | | 3,056 | | | | | | – | | | | | | 4,292 | | Net cash flow from operating activities – discontinued operations | | | – | | | | | | – | | | | | | – | | | | | | 1,144 | | | | | | (68 | ) | | | | | – | | | | | | 1,076 | | Net cash flow from/(used in) investing activities – continuing operations | | | 502 | | | | | | (440 | ) | | | | | 13 | | | | | | 56 | | | | | | (1,721 | ) | | | | | (1,869 | ) | | | | | (3,459 | ) | Net cash flow from/(used in) investing activities – discontinued operations | | | – | | | | | | – | | | | | | – | | | | | | (562 | ) | | | | | (15 | ) | | | | | – | | | | | | (577 | ) | Net cash flow (used in)/from financing activities – continuing operations | | | (555 | ) | | | | | (148 | ) | | | | | (13 | ) | | | | | (1,185 | ) | | | | | (1,173 | ) | | | | | 1,869 | | | | | | (1,205 | ) | Net cash flow (used in)/from financing activities – discontinued operations | | | – | | | | | | – | | | | | | – | | | | | | (63 | ) | | | | | (60 | ) | | | | | – | | | | | | (123 | ) | Net increase/(decrease) in cash and cash equivalents in the year | | | 4 | | | | | | (8 | ) | | | | | – | | | | | | (11 | ) | | | | | 19 | | | | | | – | | | | | | 4 | | Year ended 31 March 2015 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net cash flow from operating activities – continuing operations | | | 38 | | | | | | 531 | | | | | | – | | | | | | 489 | | | | | | 2,963 | | | | | | – | | | | | | 4,021 | | Net cash flow from operating activities – discontinued operations | | | – | | | | | | – | | | | | | – | | | | | | 1,086 | | | | | | (100 | ) | | | | | – | | | | | | 986 | | Net cash flow from/(used in) investing activities – continuing operations | | | 2,103 | | | | | | (393 | ) | | | | | – | | | | | | (130 | ) | | | | | (990 | ) | | | | | (2,057 | ) | | | | | (1,467 | ) | Net cash flow from/(used in) investing activities – discontinued operations | | | – | | | | | | – | | | | | | – | | | | | | (473 | ) | | | | | (61 | ) | | | | | – | | | | | | (534 | ) | Net cash flow (used in)/from financing activities – continuing operations | | | (2,169 | ) | | | | | (145 | ) | | | | | – | | | | | | (889 | ) | | | | | (1,981 | ) | | | | | 2,057 | | | | | | (3,127 | ) | Net cash flow (used in)/from financing activities – discontinued operations | | | – | | | | | | – | | | | | | – | | | | | | (70 | ) | | | | | (56 | ) | | | | | – | | | | | | (126 | ) | Net (decrease)/increase in cash and cash equivalents in the year | | | (28 | ) | | | | | (7 | ) | | | | | – | | | | | | 13 | | | | | | (225 | ) | | | | | – | | | | | | (247 | ) |
Cash dividends were received by National Grid plc from subsidiary undertakings amounting to £930m£6,006 million during the year ended 31 March 2016 (2015: £1,355m; 2014: £1,050m)2017 (2016: £930 million; 2015: £1,355 million). Maturity analysis of parent Company borrowings | | | | 2016 £m | | | 2015 £m | | | 2017 £m | | | 2016
£m | | Total borrowings are repayable as follows: | | | | | | | | | | | | | Less than 1 year | | | 933 | | | | | | 1,068 | | | | 1,120 | | | | | | 933 | | In 1 to 2 years | | | – | | | | | | – | | | | 515 | | | | | | – | | In 2 to 3 years | | | 482 | | | | | | – | | | | 425 | | | | | | 482 | | In 3 to 4 years | | | 395 | | | | | | 443 | | | | – | | | | | | 395 | | In 4 to 5 years | | | – | | | | | | 360 | | | | 322 | | | | | | – | | More than 5 years | | | 317 | | | | | | 314 | | | | – | | | | | | 317 | | | | | | 2,127 | | | | | | 2,185 | | | | 2,382 | | | | | | 2,127 | |
| | | | | | | | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | 167165 |
Company accounting policies | We are required to include the stand-alone balance sheet of our ultimate parent Company, National Grid plc, under the Companies Act 2006. This is because the publicly traded shares are actually those of National Grid plc (the Company) and the following disclosures provide additional information to shareholders. |
A. Basis of preparation National Grid plc is the parent company of the National Grid Group which is engaged in the transmission and distribution of electricity and gas in Great Britain and northeastern US. The Company is a public limited liability company, limited by shares. The Company is incorporated and domiciled in England, with its registered office at 1–3 Strand, London, WC2N 5EH. The financial statements of National Grid plc for the year ended 31 March 20162017 were approved by the Board of Directors on 1817 May 2016.2017. The Company meets the definition of a qualifying entity under Financial Reporting Standard 100 (FRS 100) issued by the Financial Reporting Council. Accordingly these individual financial statements of the Company werehave been prepared in accordance with Financial Reporting Standard 101 ‘Reduced Disclosure Framework’ (FRS 101). In preparing these financial statements the Company applies the recognition and measurement requirements of International Financial Reporting Standards (IFRS) as adopted by the EU, but makes amendments where necessary in order to comply with the provisions of the Companies Act 2006 and sets out below where advantage of the FRS 101 disclosure exemptions has been taken. These individual financial statements for the year ended 31 March 2016 are the first prepared in accordance with FRS 101. Accordingly the date of transition is 1 April 2014. The 2015 comparative financial information has also been prepared on this basis. There were no material measurement or recognition adjustments on the adoption of FRS 101.
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 2016 comparative financial information has also been prepared on this basis.
These individual financial statements have been prepared on a going concern basis, which presumes that the Company has adequate resources to remain in operation, and that the Directors intend it to do so, for at least one year from the date the financial statements are signed. As the Company is part of a larger group it participates in the Group’s centralised treasury arrangements and so shares banking arrangements with its subsidiaries. The Company is expected to continue to generate positive cash flows or be in a position to obtain finance via intercompany loans to continue to operate for the foreseeable future. The Directors are not aware of any material uncertainties related to events or conditions that may cast significant doubt upon the Company’s ability to continue as a going concern. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements. The Company has not presented its own income statementprofit and loss account or statement of comprehensive income as permitted by section 408 of the Companies Act 2006. The following exemptions from the requirements of IFRS have been applied in the preparation of these financial statements of the Company in accordance with FRS 101: | ● | | a cash flow statement and related notes; |
| ● | | disclosures in respect of transactions with wholly owned subsidiaries; |
| ● | | disclosures in respect of capital management; |
● | | the presentation of a third balance sheet (being the opening balance sheet of the Company at the date of application of FRS 101); and |
| ● | | the effects of new but not yet effective IFRSs. |
As the consolidated financial statements of National Grid plc, which are available from the registered office, include the equivalent disclosures, the Company has also taken the exemptions under FRS 101 in respect of certain disclosures required by IFRS 13 ‘Fair value measurement’ and the disclosures required by IFRS 7 ‘Financial instruments: disclosures’Disclosures’. The Company intends to apply the above exemptions in the financial statements for the year ending 31 March 2017.2018. There are no critical areas of judgement that are considered to have a significant effect on the amounts recognised in the financial statements. 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 the valuation of financial instruments and derivatives. The balance sheet has been prepared in accordance with the Company’s accounting policies approved by the Board and described below: 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 itsvalue-in-use. C. Tax 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 temporary 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 temporary differences reverse based on tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date. 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 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. | | | | | | | 168166 | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | |
D. Foreign currencies Transactions in currencies other than the functional currency of the Company are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at closing exchange rates. Gains and losses arising on retranslation of monetary assets and liabilities are included in the profit and loss account. E. Financial instruments The Company’s accounting policies are the same as the Group’s accounting policies under IFRS, namely IAS 32 ‘Financial Instruments: Presentation’, IAS 39 ‘Financial Instruments: Recognition and Measurement’ and IFRS 7 ‘Financial Instruments: Disclosures’. The Company applies these policies only in respect of the financial instruments that it has, namely investments, derivative financial instruments, debtors, cash at bank and in hand, borrowings and creditors. The policies are set out in notes 13, 15, 17,14, 16, 18, 19, 20 and 2021 to the consolidated financial statements. The Company is taking the exemption for financial instruments disclosures, because IFRS 7 disclosures are given in notes 30 and 33 to the consolidated financial statements. F. Hedge accounting The Company applies the same accounting policy as the Group in respect of fair value hedges and cash flow hedges. This policy is set out in note 1516 to the consolidated financial statements. G. Parent Company guarantees The Company has guaranteed the repayment of the principal sum, any associated premium and interest on specific loans due by certain subsidiary undertakings primarily to third parties. In the event of default or non performance by the subsidiary, the Company recognises such guarantees as insurance contracts, at fair value with a corresponding increase in the carrying value of the investment. H. Share awards to employees of subsidiary undertakings The issuance by the Company to employees of its subsidiaries of a grant over the Company’s options represents additional capital contributions by the Company to its subsidiaries. An additional investment in subsidiaries results in a corresponding increase in shareholders’ equity. The additional capital contribution is based on the fair value of the option at the date of grant, allocated over the underlying grant’s vesting period. Where payments are subsequently received from subsidiaries, these are accounted for as a return of a capital contribution and credited against the Company’s investments in subsidiaries. The Company has no employees. I. Dividends Interim dividends are recognised when they are paid to the Company’s shareholders. Final dividends are recognised when they are approved by shareholders. J. Directors’ remuneration Full details of Directors’ remuneration are disclosed on pages 6854 to 81.71. | | | | | | | | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | 169167 |
Company balance sheet as at 31 March | | | | | | | 2016 | | 2015 | | | | | 2017 | | | 2016 | | | | | Notes | | | £m | | £m | | Notes | | | £m | | | £m | | | | | | Fixed assets | | | | | | | | | | | | | Investments | | | 1 | | | 8,845 | | 8,823 | | | 1 | | | | 8,880 | | | | 8,845 | | | | | | | Current assets | | | | | | | | | | | | | Debtors (amounts falling due within one year) | | | 2 | | | 11,796 | | 11,767 | | | 2 | | | | 12,936 | | | | 11,796 | | Debtors (amounts falling due after more than one year) | | | 2 | | | 475 | | 489 | | | 2 | | | | 491 | | | | 475 | | Investments | | | 5 | | | 1,244 | | 750 | | | 5 | | | | 5,471 | | | | 1,244 | | Cash at bank and in hand | | | | 1 | | – | | | | | 1,090 | | | | 1 | | | | | | Total current assets | | | | 13,516 | | 13,006 | | | | | 19,988 | | | | 13,516 | | | Creditors (amounts falling due within one year) | | | 3 | | | (13,851) | | (12,607) | | | 3 | | | | (13,714) | | | | (13,851) | | | | | | Net current (liabilities)/assets | | | | (335) | | 399 | | Net current assets/(liabilities) | | | | | | 6,274 | | | | (335) | | | | | | Total assets less current liabilities | | | | 8,510 | | 9,222 | | | | | 15,154 | | | | 8,510 | | | Creditors (amounts falling due after more than one year) | | | 3 | | | (3,538) | | (3,425) | | | 3 | | | | (3,595) | | | | (3,538) | | | | | | Net assets | | | | 4,972 | | 5,797 | | | | | 11,559 | | | | 4,972 | | | | | | | Equity | | | | | | | | | | | | | Share capital | | | 7 | | | 447 | | 443 | | | 7 | | | | 449 | | | | 447 | | Share premium account | | | | 1,326 | | 1,331 | | | | | 1,324 | | | | 1,326 | | Cash flow hedge reserve | | | | 17 | | 17 | | | | | 11 | | | | 17 | | Available-for-sale reserve | | | | – | | – | | Other equity reserves | | | | 302 | | 280 | | | | | 337 | | | | 302 | | Profit and loss account | | | 8 | | | 2,880 | | 3,726 | | | 8 | | | | 9,438 | | | | 2,880 | | | | | | Total shareholders’ equity | | | | 4,972 | | 5,797 | | | | | 11,559 | | | | 4,972 | | | | | |
The notes on pages 172 and 173 form part ofCompany’s profit after tax for the individualyear was £8,197 million (2015/16: £748 million). The financial statements of the Company whichon pages 168 to 171 were approved by the Board of Directors on 1817 May 20162017 and were signed on its behalf by: Sir Peter Gershon Chairman Andrew Bonfield Finance Director National Grid plc Registered number: 4031152 | | | | | | | 170168 | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | |
Company statement of changes in equity for the years ended 31 March | | | | Share capital £m | | | Share premium account £m | | | Cash flow hedge reserve £m | | | Available- for-sale reserve £m | | | Other equity reserves £m | | | Profit and loss account £m | | | Total equity £m | | | Share
capital
£m | | | Share
premium
account
£m | | | Cash flow
hedge
reserve £m | | | Other
equity
reserves
£m | | | Profit
and loss
account £m | | | Total
shareholders’
equity £m | | | | | | | At 1 April 2014 | | | 439 | | | | 1,336 | | | | 20 | | | | 1 | | | | 260 | | | | 4,138 | | | | 6,194 | | | At 1 April 2015 | | | | 443 | | | | 1,331 | | | | 17 | | | | 280 | | | | 3,726 | | | | 5,797 | | Profit for the year | | | – | | | | – | | | | – | | | | – | | | | – | | | | 1,181 | | | | 1,181 | | | | – | | | | – | | | | – | | | | – | | | | 748 | | | | 748 | | Other equity movements | | | | | | | | | | | | | | Scrip dividend related share issue1 | | | | 4 | | | | (5) | | | | – | | | | – | | | | – | | | | (1) | | Purchase of treasury shares | | | | – | | | | – | | | | – | | | | – | | | | (267) | | | | (267) | | Issue of treasury shares | | | | – | | | | – | | | | – | | | | – | | | | 16 | | | | 16 | | Purchase of own shares | | | | – | | | | – | | | | – | | | | – | | | | (6) | | | | (6) | | Share awards to employees of subsidiary undertakings | | | | – | | | | – | | | | – | | | | 22 | | | | – | | | | 22 | | Dividends paid to equity shareholders | | | | – | | | | | | – | | | | – | | | | (1,337) | | | | (1,337) | | | | | | | Other comprehensive income/(loss) | | | | | | | | | | | | | | | | At 31 March 2016 | | | | 447 | | | | 1,326 | | | | 17 | | | | 302 | | | | 2,880 | | | | 4,972 | | Profit for the year | | | | – | | | | – | | | | – | | | | – | | | | 8,197 | | | | 8,197 | | Other comprehensive loss for the year | | | | | | | | | | | | | | Transferred from equity in respect of cash flow hedges (net of tax) | | | – | | | | – | | | | (3) | | | | – | | | | – | | | | – | | | | (3) | | | | – | | | | – | | | | (6) | | | | – | | | | – | | | | (6) | | Net losses taken to income statement | | | – | | | | – | | | | – | | | | (1) | | | | – | | | | – | | | | (1) | | | | | | | Total comprehensive (loss)/income for the year | | | | – | | | | – | | | | (6) | | | | – | | | | 8,197 | | | | 8,191 | | | | | | | Other equity movements | | | | | | | | | | | | | | | | | | | | | | | | | | | Scrip dividend related share issue1 | | | 4 | | | | (5) | | | | – | | | | – | | | | – | | | | – | | | | (1) | | | | 2 | | | | (2) | | | | – | | | | – | | | | – | | | | – | | Purchase of treasury shares | | | – | | | | – | | | | – | | | | – | | | | – | | | | (338) | | | | (338) | | | | – | | | | – | | | | – | | | | – | | | | (189) | | | | (189) | | Issue of treasury shares | | | – | | | | – | | | | – | | | | – | | | | – | | | | 23 | | | | 23 | | | | – | | | | – | | | | – | | | | – | | | | 18 | | | | 18 | | Purchase of own shares | | | – | | | | – | | | | – | | | | – | | | | – | | | | (7) | | | | (7) | | | | – | | | | – | | | | – | | | | – | | | | (5) | | | | (5) | | Share awards to employees of subsidiary undertakings | | | – | | | | – | | | | – | | | | – | | | | 20 | | | | – | | | | 20 | | | | – | | | | – | | | | – | | | | 35 | | | | – | | | | 35 | | Dividends paid to equity shareholders | | | – | | | | – | | | | – | | | | – | | | | – | | | | (1,271) | | | | (1,271) | | | | – | | | | – | | | | – | | | | – | | | | (1,463) | | | | (1,463) | | | | | | | At 31 March 2015 | | | 443 | | | | 1,331 | | | | 17 | | | | – | | | | 280 | | | | 3,726 | | | | 5,797 | | | Profit for the year | | | – | | | | – | | | | – | | | | – | | | | – | | | | 748 | | | | 748 | | | At 31 March 2017 | | | | 449 | | | | 1,324 | | | | 11 | | | | 337 | | | | 9,438 | | | | 11,559 | | | | | | | Other equity movements | | | | | | | | | | | | | | | | Scrip dividend related share issue1 | | | 4 | | | | (5) | | | | – | | | | – | | | | – | | | | – | | | | (1) | | | Purchase of treasury shares | | | – | | | | – | | | | – | | | | – | | | | – | | | | (267) | | | | (267) | | | Issue of treasury shares | | | – | | | | – | | | | – | | | | – | | | | – | | | | 16 | | | | 16 | | | Purchase of own shares | | | – | | | | – | | | | – | | | | – | | | | – | | | | (6) | | | | (6) | | | Share awards to employees of subsidiary undertakings | | | – | | | | – | | | | – | | | | – | | | | 22 | | | | – | | | | 22 | | | Dividends paid to equity shareholders | | | – | | | | – | | | | – | | | | – | | | | – | | | | (1,337) | | | | (1,337) | | | | | | At 31 March 2016 | | | 447 | | | | 1,326 | | | | 17 | | | | – | | | | 302 | | | | 2,880 | | | | 4,972 | | | | | |
1. Included within share premium account are costs associated with scrip dividends. | | | | | | | | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | 171169 |
Notes to the Company financial statements 1. Fixed asset investments | | | | | | Shares in
subsidiary
undertakings
£m
| | At 1 April 2014 | | 8,803 | Additions
| | 20 | | At 31 March 2015
| | 8,823 | Additions | | 22 | | At 31 March 2016 | | 8,845 | Additions | | 35 | | At 31 March 2017 | | 8,880 | |
During the year there was a capital contribution of £22m (2015: £20m)£35 million (2016: £22 million) which represents the fair value of equity instruments granted to subsidiaries’ employees arising from equity-settled employee share schemes. The Company’s direct subsidiary undertakings as at 31 March 2017 were as follows: | ● | | National Grid Holdings One plc |
| ● | | National Grid (US) Holdings Limited |
The names of theindirect subsidiary undertakings, joint ventures and associates are included in note 32 to the consolidated financial statements. The Directors believe that the carrying value of the investments is supported by the fair value of their underlying net assets. 2. Debtors | | | | 2016 £m | | 2015 £m | | 2017 £m | | | 2016 £m | | | | | | Amounts falling due within one year | | | | | | | | | Derivative financial instruments (note 4) | | 279 | | 281 | | | 202 | | | | 279 | | Amounts owed by subsidiary undertakings | | 11,516 | | 11,484 | | | 12,734 | | | | 11,516 | | Prepayments and accrued income | | 1 | | 2 | | | – | | | | 1 | | | | | | | | 11,796 | | 11,767 | | | 12,936 | | | | 11,796 | | | | | | Amounts falling due after more than one year | | | | | | | | | Derivative financial instruments (note 4) | | 157 | | 148 | | | 149 | | | | 157 | | Amounts owed by subsidiary undertakings | | 318 | | 341 | | | 342 | | | | 318 | | | | | | | | 475 | | 489 | | | 491 | | | | 475 | | | | | |
The carrying values stated above are considered to represent the fair values of the assets. 3. Creditors | | | | 2016 £m | | 2015 £m | | 2017 £m | | | 2016 £m | | | | Amounts falling due within one year | | | | | | | | | Borrowings (note 6) | | 933 | | 1,068 | | | 1,120 | | | 933 | Derivative financial instruments (note 4) | | 239 | | 289 | | | 533 | | | 239 | Amounts owed to subsidiary undertakings | | 12,633 | | 11,208 | | | 12,012 | | | 12,633 | Corporation tax payable | | 3 | | 3 | | | 3 | | | 3 | Other creditors | | 43 | | 39 | | | 46 | | | 43 | | | | | | 13,851 | | 12,607 | | | 13,714 | | | 13,851 | | | | Amounts falling due after more than one year | | | | | | | | | Borrowings (note 6) | | 1,194 | | 1,117 | | | 1,262 | | | 1,194 | Derivative financial instruments (note 4) | | 358 | | 411 | | | 272 | | | 358 | Amounts owed to subsidiary undertakings1 | | 1,982 | | 1,894 | | | 2,058 | | | 1,982 | Deferred tax | | 4 | | 3 | | | 3 | | | 4 | | | | | | 3,538 | | 3,425 | | | 3,595 | | | 3,538 | | | |
1. All amounts owed to subsidiary undertakings in 20152017 and 2016 are repayable after five years. The carrying values stated above are considered to represent the fair values of the liabilities. A reconciliation of the movement in deferred tax in the year is shown below: | | | | | | Deferred
tax
£m | | At 1 April 2014 | | 3 | Charged to the profit and loss account
| | 1 | Credited to equity
| | (1) | | At 31 March 2015
| | 3 | Charged to the profit and loss account | | 1 | | At 31 March 2016 | | 4 | Credited to equity | | (1) | | At 31 March 2017 | | 3 | |
| | | | | | | 172170 | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | |
4. Derivative financial instruments The fair values of derivative financial instruments are: | | | | | | 2016 | | | | | | 2015 | | | | | 2017 | | | | | | 2016 | | | | | Assets £m | | Liabilities £m | | Total £m | | | | Assets
£m | | Liabilities £m | | Total £m | | Assets
£m | | Liabilities
£m | | Total £m | | | | Assets
£m | | Liabilities
£m | | Total £m | Amounts falling due within one year | | 279 | | (239) | | 40 | | | | 281 | | (289) | | (8) | | 202 | | (533) | | (331) | | | | 279 | | (239) | | 40 | Amounts falling due after more than one year | | 157 | | (358) | | (201) | | 148 | | (411) | | (263) | | 149 | | (272) | | (123) | | 157 | | (358) | | (201) | | | | 436 | | (597) | | (161) | | 429 | | (700) | | (271) | | 351 | | (805) | | (454) | | 436 | | (597) | | (161) |
For each class of derivative the notional contract1 amounts are as follows: | | | | 2016 £m | | 2015 £m | | 2017 £m | | 2016 £m | | | | Interest rate swaps | | (2,442) | | (2,499) | | (2,801) | | (2,442) | Cross-currency interest rate swaps | | (3,537) | | (3,529) | | (3,995) | | (3,537) | Foreign exchange forward contracts | | (14,361) | | (13,708) | | (17,134) | | (14,361) | | | | | | (20,340) | | (19,736) | | (23,930) | | (20,340) | | | |
1. The notional contract amounts of derivatives indicate the gross nominal value of transactions outstanding at the balance sheet date. 5. Investments The following table sets out the Company’s current asset investments: | | | | 2016 £m | | 2015 £m | | 2017 £m | | 2016 £m | | | | Investments in short-term money funds | | 1,007 | | 217 | | 4,981 | | 1,007 | Short-term deposits | | – | | 252 | | Managed investments in bonds | | | 100 | | – | Restricted balances – collateral | | 237 | | 281 | | 390 | | 237 | | | | | | 1,244 | | 750 | | 5,471 | | 1,244 | | | |
6. Borrowings The following table analyses the Company’s total borrowings: | | | | 2016 £m | | 2015 £m | | 2017 £m | | 2016 £m | | | | Amounts falling due within one year | | | | | | | | | Bank overdrafts | | – | | 13 | | 1 | | – | Bank loans | | 28 | | 28 | | – | | 28 | Bonds | | 21 | | 70 | | 22 | | 21 | Commercial paper | | 884 | | 957 | | 1,097 | | 884 | | | | | | 933 | | 1,068 | | 1,120 | | 933 | | | | Amounts falling due after more than one year | | | | | | | | | Bonds | | 1,194 | | 1,117 | | 1,262 | | 1,194 | | | | | | 2,127 | | 2,185 | | 2,382 | | 2,127 | | | |
The maturity of total borrowings is disclosed in note 34 to the consolidated financial statements. There are no differences in the maturities as calculated under IFRS or FRS 101 ‘Reduced Disclosure Framework’. The notional amount of borrowings outstanding as at 31 March 20162017 was £2,101m (2015: £2,157m)£2,357 million (2016: £2,101 million). Further information on significant borrowings can be found on the debt investors section of our website. 7. Share capital Thecalled-up share capital amounting to £447m (2015: £443m)£449 million (2016: £447 million) consists of 3,924,038,086 (2015: 3,891,691,900)3,942,983,447 (2016: 3,924,038,086) ordinary shares. For further information on share capital, refer to note 2425 to the consolidated financial statements. 8. Shareholders’ equity and reserves At 31 March 20162017 the profit and loss account reserve stood at £2,880m (2015: £3,726m)£9,438 million (2016: £2,880 million) of which £86m (2015: £86m)£86 million (2016: £86 million) related to gains on intra-group transactions which was not distributable to shareholders. The company had no employees in either the current or prior year and accordingly bore no employee costs. For further details of dividends paid and payable to shareholders, refer to note 8 to the consolidated financial statements. 9. Parent Company guarantees The Company has guaranteed the repayment of the principal sum, any associated premium and interest on specific loans due by certain subsidiary undertakings primarily to third parties. At 31 March 2016,2017, the sterling equivalent amounted to £2,674m (2015: £2,593m)£2,404 million (2016: £2,674 million). The guarantees are for varying terms from less than one year to open-ended. In addition, as part of the sectionalisation of the National Grid UK Pension Scheme, a guarantee of £1��billion has been provided to Section A. This payment is contingent on insolvency or on failure to pay pensions obligations to Section A and can be claimed against National Grid plc, National Grid Holdings One plc or Lattice Group Limited (up to £1 billion in total). 10. Audit fees The audit fee in respect of the parent Company was £28,380 (2015: £27,553)£29,230 (2016: £28,380). Fees payable to PricewaterhouseCoopers LLP fornon-audit services to the Company are not required to be disclosed as they are included within note 3 to the consolidated financial statements. | | | | | | | | | National Grid Annual Report and Accounts 2015/162016/17 | | Financial Statements | | 173171 |
Additional Information contents | | | | | | | The business in detail Key milestones Some of the key dates and actions in the corporate history of National Grid are listed below. The full history goes back much further. | | | 1986 | | British Gas (BG) privatisation | | | | | | 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 BG | | | | | | | | Energis demerged from National Grid | | | | | | 2000 | | Lattice Group demerged from BG and listed separately | | | | | | | | New England Electric System and Eastern Utilities
Associates acquired | | | | | | 2002 | | Niagara Mohawk Power Corporation merged
with National Grid in US | | | | | | | | 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 | | | | | | | | KeySpan Corporation acquired | | | | | | 2008 | | Ravenswood generation station sold | | | | | | 2010 | | Rights issue raised £3.2 billion | | | | | | 2012 | | New Hampshire electricity and gas distribution
businesses sold | | | | | | 2016 | | National Grid separated the UK Gas Distribution business | | | | | | 2017 | | National Grid sold a 61% equity interest in its UK Gas
Distribution business |
| | | | | | | 174172 | | National Grid Annual Report and Accounts 2015/162016/17 | | Additional Information | | |
 
| | | | | | | | | National Grid Annual Report and Accounts 2015/162016/17 | | The business in detail | | 175173 |
The business in detailcontinued UK Regulation Our licences are established under the Gas Act 1986 and Electricity Act 1989, as amended (the Acts). They require us to develop, maintain and operate economic and efficient networks and to facilitate competition in the supply of gas and electricity in Great Britain (GB). They also give us statutory powers. These include the right to bury our pipes or cables under public highways and the ability to use compulsory powers to purchase land so we can conduct our business. Our networks are regulated by Ofgem, which has established price control mechanisms that set the amount of revenue our regulated businesses can earn. Price control regulation is designed to make sure our interests, as a monopoly, are balanced with those of our customers. Ofgem allows us to charge reasonable, but not excessive, prices. This gives us a future level of revenue that is sufficient to meet our statutory duties and licence obligations, and makesmake a reasonable return on our investment. The price control includes a number of mechanisms designed to help achieve its objectives. These include financial incentives that encourage us to: | ● | | efficiently deliver by investment and maintenance the network outputs that customers and stakeholders require, including reliable supplies, new connections and infrastructure capacity; |
| ● | | innovate in order to continuously improve the services we give our customers, stakeholders and communities; and |
| ● | | efficiently balance the transmission networks to support the wholesale markets. |
OurAs announced on 31 March 2017, a majority interest in the UK Gas Distribution business was sold to a consortium of investors. The Consortium comprises Macquarie Infrastructure and Real Assets, Allianz Capital Partners, Hermes Investment Management, CIC Capital Corporation, Qatar Investment Authority, Dalmore Capital and Amber Infrastructure Limited/International Public Partnerships. National Grid has retained a 39% equity interest in the new separate Gas Distribution business and will account for the interest as an equity investment in an associate going forward.
The UK Electricity Transmission (UK ET), UK Gas Transmission (UK GT) and UK Gas Distribution (UK GD)† businesses operate under eight separate price controls in the UK. These comprise two for our UK ET operations, one covering our role as transmission owner (TO) and the other for our role as system operator (SO); two for our UK GT operations, again one as TO and one as SO; and one for each of our four regional gas distribution networks. While each of the eight price controls may have differing terms, they are based on a consistent regulatory framework. There is no impact on the price controls following the sale of a majority interest of the UK Gas Distribution business. The eight price controls, as mentioned above, remain in force. National Grid will carry on operating within four of the price controls (National Grid Electricity Transmission plc and National Grid Gas plc), and the UK Gas Distribution business has responsibility for operating within the price controls relating to its four gas distribution networks. In addition to the eight price controls, there is also a tariff cap price control applied to certain elements of domestic metering and daily meter reading activities carried out by National Grid Metering. Interconnectors derive their revenues from sales of capacity to users who wish to move power between market areas with different prices. These sales revenues are called congestion revenues because market price differences result from the congestion on the finite interconnector capacity, which limits full price convergence. European legislation governs how congestion revenues may be used and how interconnection capacity is allocated. It requires all interconnection capacity to be allocated to the market through auctions. There areis a range of different regulatory models available for interconnector projects. These involve various levels of regulatory intervention ranging from fully merchant (the project is fully reliant on sales of interconnector capacity) to cap and floor (where sales revenues above the cap are returned to transmission system users and revenues below the floor are topped up by transmission system users, thus reducing the overall project risk). The cap and floor regime is now the regulated route for interconnector investment in GB, which sits alongside the exemption route (whereby project developers apply for exemptions from aspects of European legislation). RIIO price controls On 1 April 2013, Ofgem introduced a newOur regulatory framework is called RIIO (revenue = incentives + innovation + outputs), with the first price control agreed under the new framework lasting and lasts for eight years. The building blocks of the RIIO price control are broadly similar to the historical price controls used in the UK. However, there are some significant differences in the mechanics of the calculations.
How is revenue calculated? Under RIIO the outputs we deliver are clearly articulated and are integrally linked to the calculation of our allowed revenue. These outputs have been determined through an extensive consultation process, which has given stakeholders a greater opportunity to influence the decisions. There are six output categories: Safety:ensuring the provision of a safe energy network. Reliability (and availability):promoting networks capable of delivering long-term reliability, as well as minimising the number and duration of interruptions experienced over the price control period, and ensuring adaptation to climate change. Environmental impact:encouraging companies to play their role in achieving broader environmental objectives – specifically, facilitating the reduction of carbon emissions – as well as minimising their own carbon footprint. Customer and stakeholder satisfaction:maintaining high levels of customer satisfaction and stakeholder engagement, and improving service levels. Customer connections:encouraging networks to connect customers quickly and efficiently. Social obligations (UK GD only):extending the gas network to communities that are fuel poor where it is efficient to do so, and introducing measures to address carbon monoxide poisoning incidents.poisoning. Within each of these output categories are a number of primary and secondary deliverables, reflecting what our stakeholders want us to deliver over the comingremaining price control period. The nature and number of these deliverables varies according to the output category, with some being linked directly to our allowed revenue, some linked to legislation, and others having only a reputational impact. Ofgem, using information we have submitted, along with independent assessments, determines the efficient level of expected costs necessary to deliver them. Under RIIO this is known as totex, which is a component of total allowable expenditure, and is the sum of what was defined in previous price controls as operating expenditure (opex), capital expenditure (capex) and, in UK GD price controls, mains replacement expenditure (repex). A number of assumptions are necessary in setting these outputs, such as certain prices or the volumes of work that will be needed. Consequently, there are a number of uncertainty mechanisms within the RIIO framework that can result in adjustments to totex if actual prices or volumes differ from the assumptions. These mechanisms protect us and our customers from windfall gains and losses. Where we under- or over-spend the allowed totex for reasons that are not covered by uncertainty mechanisms, there is a sharing factor. This means the under- or over-spend is shared between us and customers through an adjustment to allowed revenues in future years. This sharing factor provides an incentive for us to provide the outputs efficiently, as we are able to keep a portion of savings we make, with the remainder benefiting our customers. † This was a National Grid business until 31 March 2017. | | | | | | | | 174 | | National Grid Annual Report and Accounts 2016/17 | | Additional Information | | |
This sharing factor is one of the ways that RIIO has given innovation more prominence. Innovation includes traditional areas such as new technologies, as well as the broader challenge of finding new ways of working to deliver outputs more efficiently. This broader challenge has an impact on everyone in our business. | | | | | | | 176 | | National Grid Annual Report and Accounts 2015/16 | | Additional Information | | |
Allowed revenue to fund totex costs areis split between fast and slow money – a concept under RIIO, based on a specified percentage that is fixed for the duration of the price control (except for UK GD’s repex which changes on a linear scale across the price control). Fast money represents the amount of totex we are able to recover in the next available year. Slow money is added to our RAV – effectively the regulatory IOU. For more details on the sharing factors under RIIO, please see the table below. In addition to fast money, in each year we are allowed to recover a portion of the RAV (regulatory depreciation) and a return on the outstanding RAV balance. The asset life for regulatory depreciation in electricity transmission spans 45 years across the RIIO period. This is also the case for the asset life depreciation for UK GD. We are also allowed to collect additional revenues related to non-controllable costs and incentives. The incentive mechanisms can increase or decrease our allowed revenue and result from our performance against various measures related to our outputs. RIIO has incentive mechanisms that encourage us to align our objectives with those of our customers and other stakeholders. For example, performance against our customer satisfaction targets can have a positive or negative effect of up to 1% of allowed annual revenues. Most of our incentives affect our revenues two years after the year of performance. The RIIO controls for both our transmission and gas distribution businesses were introduced on 1 April 2013 and the first price control period lasts for eight years. During the eight year period of the price control our regulator included a provision for a potential mid-period review, with scope driven by:
| ● | | changes to outputs that can be justified by clear changes in government policy; and |
| ● | | the introduction of new outputs that are needed to meet the needs of consumers and other network users. |
In November 2015, Ofgem launched a consultationThe mid-period review focused on a potentialRIIO-T1three specific areas, all of which relate to National Grid’s transmission outputs (both gas and GD1 mid-period review.electricity).
Under the RIIO controls, we are required to deliver agreed outputs for consumers and are funded to cover the costs of delivering these. The eight year price control includes a number of uncertainty mechanisms to take account of the fact that some outputs and funding cannot be set with certainty at the start of the period. One of these uncertainty mechanisms is the review of outputs. In May 2016, Ofgem decided to launch a mid-period review focusing on the transmission outputs. RIIO regulatory building blocks  
Allowed returns The cost of capital allowed under RIIO is as follows: | | | | Transmission | | Gas Distribution | | Transmission | | Gas Distribution2 | | | | Gas | | Electricity | | | Gas | | Electricity | | | | | Cost of equity (post-tax real) | | 6.8% | | 7.0% | | 6.7% | | 6.8% | | 7.0% | | 6.7% | | | | Cost of debt (pre-tax real) | | iBoxx 10-year simple trailing average index | | iBoxx 10-year simple trailing average index | | | (2.55% for 2015/16) | | (2.38% for 2016/17) | | | | Notional gearing | | 62.5% | | 60.0% | | 65.0% | | 62.5% | | 60.0% | | 65.0% | | | | Vanilla WACC1 | | 4.14% | | 4.33% | | 4.01% | | 4.03% | | 4.22% | | 3.89% | | | |
1. Vanilla WACC = cost of debt x gearing + cost of equity x (1-gearing). 2. This was a National Grid business until 31 March 2017. The sharing factor means that any over- and under-spend is shared between the businesses and consumers. The shared figures displayed in the table below are the sharing factors that apply to UK ET, UK GT and UK GD. For more information on RIIO, including incentive mechanisms, please see the relevant investor fact sheets on the Investor Relations section of our website. Sharing factors under RIIO are as follows: | | | | Gas Transmission | | Electricity Transmission | | Gas Distribution | | Gas Transmission | | Electricity Transmission | | Gas Distribution4 | | | | Transmission
Operator | | System
Operator | | Transmission
Operator | | System
Operator | | North West | | East of England | | West Midlands | | London | | Transmission
Operator | | System
Operator | | Transmission
Operator | | System
Operator | | North West | | East of England | | West Midlands | | London | | | | | | | | | | | | | | Repex: | | | | | | | | | | | | | | | | Repex: | | | | | | | | | | | | | | | | | Stepped decline from 50% in 2013/14 to 0% in 2020/21 | | | | | | | | | | Stepped decline from 50% in 2013/14 to 0% in 2020/21 | | | Baseline3 35.6% | | | | | | | | in seven equal instalments of 7.14% per annum | | Baseline3 35.6% | | | | | | | | in seven equal instalments of 7.14% per annum | | | | | | | | | | | | | | | | | | | | | | Fast1 | | Uncertainty 10% | | 62.60% | | 15.00% | | 72.10% | | 73.90% | | 73.37% | | 75.05% | | 76.53% | | Uncertainty 10% | | 62.60% | | 15.00% | | 72.10% | | 73.90% | | 73.37% | | 75.05% | | 76.53% | | | | | | | | | | | | | | Repex: | | | | | | | | | | | | | | | | Repex: | | | | | | | | | | | | | | | | | Stepped increase from 50% in 2013/14 to 100% in 2020/21 | | | | | | | | | | Stepped increase from 50% in 2013/14 to 100% in 2020/21 | | | Baseline3 64.4% | | | | | | | | in seven equal instalments of 7.14% per annum | | Baseline3 64.4% | | | | | | | | in seven equal instalments of 7.14% per annum | | | | | | | | | | | | | | | | | | | | | | Slow2 | | Uncertainty 90% | | 37.40% | | 85.00% | | 27.90% | | 26.10% | | 26.63% | | 24.95% | | 23.47% | | Uncertainty 90% | | 37.40% | | 85.00% | | 27.90% | | 26.10% | | 26.63% | | 24.95% | | 23.47% | | | | Sharing | | 44.36% | | 46.89% | | 63.04% | | 44.36% | | 46.89% | | 63.04% | | | |
| 1. | Fast money allows network companies to recover a percentage of total expenditure within a one yearone-year period. |
| 2. | Slow money is where costs are added to RAV and, therefore, revenues are recovered slowly (e.g. over 20 years) from both current and future consumers. |
| 3. | The baseline is the expenditure that is funded through ex-ante allowances, whereas the uncertainty adjusts the allowed expenditure automatically where the level outputs delivered differ from the baseline level, or if triggered by an event. |
| 4. | This was a National Grid business until 31 March 2017. |
| | | | | | | | | National Grid Annual Report and Accounts 2015/162016/17 | | The business in detail | | 177175 |
The business in detailcontinued US Regulation Regulators In the US, public utilities’ retail transactions are regulated by state utility commissions. The commissions serve as economic regulators, 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. They also serve the public interest by making sure utilities provide safe and reliable service at just and reasonable prices. The commissions establish service standards and approve public utility mergers and acquisitions. Utilities are regulated at the federal level (FERC) for wholesale transactions, such as interstate transmission and wholesale electricity sales, including rates for these services. FERC also regulates public utility holding companies and centralised service companies, including those of our US businesses. Regulatory process The US regulatory regime is premised on allowing the utility the opportunity to recover its cost of service and earn a reasonable return on its investments as determined by the commission. Utilities submit formal rate filings (‘rate cases’) to the relevant state regulator when additional revenues are necessary to provide safe, reliable service to customers. Utilities can be compelled to file a rate case due to complaints filed with the commission or at the commission’s own discretion. The rate case is typically litigated with parties representing customercustomers and other interests. In the states in which we operate, it can take nine to thirteen months for the commission to render a final decision. The utility is required to prove that the requested rate change is prudent and reasonable, and the requested rate plan can span multiple years. Unlike the state processes, the federal regulator has no specified timeline for adjudicating a rate case, but typically makes a final decision retroactive when the case is completed. Gas and electricity rates are established from a revenue requirement, or cost of service, equal to the utility’s total cost of providing distribution or delivery service to its customers, as approved by the commission in the rate case. This revenue requirement includes operating expenses, depreciation, taxes and a fair and reasonable return on shareholder capital invested in certain components of the utility’s regulated asset base, typically referred to as its rate base. The final revenue requirement and rates for service are 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 and may include forecasted capital investments and operating costs. US regulatory revenue requirement  
Our rate plans Each operating company has a set of rates for service. We have three electric distribution operations (upstate New York, Massachusetts and Rhode Island) and six gas distribution networks (upstate New York, New York City, Long Island, Massachusetts (two) and Rhode Island). Our operating companies have revenue decoupling mechanisms that de-link the companies’ revenues from the quantity of energy delivered and billed to customers. These mechanisms remove the natural disincentive utility companies have for promoting and encouraging customer participation in energy efficiency programmes that lower energy end use and thus distribution volumes. Our rate plans are designed to a specific allowed RoE, by reference to an allowed operating expense level and rate base. Some rate plans include earnings sharing mechanisms that allow us to retain a proportion of the earnings above our allowed RoE, achieved 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. One measure used to monitor the performance of our regulated businesses is a comparison of achieved RoE to allowed RoE. However, this measure cannot be used in isolation, as there are a number of factors that may prevent us from achieving the allowed RoE. These factors include financial market conditions, regulatory lag and decisions by the regulator preventing cost recovery in rates from customers. We work to increase achieved RoE through: productivity improvements; positive performance against incentives or earned savings mechanisms such as energy efficiency programmes, where available; and filing a new rate case when achieved returns are lower than the Company could reasonably expect to attain through a new rate case. Features of our rate plans We bill 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 charges covering our delivery service. With the exception of residential gas customers in Rhode Island, our customers are allowed to select an unregulated competitive supplier for the supplycommodity component of electricity and gas utility services. A substantial proportion of our costs, in particular electricity and gas commodity purchases, are pass-through costs, meaning they are fully recoverable from our customers. These pass-through costs are recovered through separate charges to customers that are designed to recover those costs with no profit. Rates are adjusted from time to time to make sure that any over- or under-recovery of these costs is returned to, or recovered from, our customers. Our FERC-regulated transmission companies use formula rates (instead of rate cases) to set rates annually to recover their cost of service. Through the use of annual true-ups, formula rates recover our actual costs incurred and the allowed RoE based on the actual transmission rate base each year. The Company must make annual formula rate filings documenting the revenue requirement, which customers can review and challenge. Revenue for our wholesale transmission businesses in New England and New York is collected from wholesale transmission customers, who are typically other utilities and include our own New England electricity distribution businesses. With the exception of upstate New York, which continues to combine retail transmission and distribution rates to 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. | | | | | | | 178 | | National Grid Annual Report and Accounts 2015/16 | | Additional Information | | |
Our Long Island generation plants sell capacity to LIPA under15-year and25-year power supply agreements, and within wholesale tariffs approved by FERC. Through the use of cost based formula rates, these long-term contracts provide a similar economic effect to cost of service rate regulation. US regulatory filings The objectives of our rate case filings are to make sure we have the right cost of service, with the ability to earn a fair and reasonable rate of return while providing safe, reliable and economical service to our customers. In order to achieve these objectives and to reduce regulatory lag, we | | | | | | | | 176 | | National Grid Annual Report and Accounts 2016/17 | | Additional Information | | |
have been requesting structural changes, such as revenue decoupling mechanisms, capital trackers, commodity-related bad debt true-ups and pension and other post-employment benefit true-ups, separately from base rates. These terms are explained below the table on page 182.179. Below, we summarise significant developments in rate filings and the regulatory environment during the year. We completedFollowing the final stabilisation upgrade to our new financial systems in July 2014. Withand the availability of 12 months of historical ‘test year’ data available from the stabilisedthose financial systems, we commencedconcluded a newfirst round of full rate case filings startingin fiscal year 2017, with the filinga final rate case decision for Massachusetts Electric in November 2015,September 2016, and followed by the filingsapproval of three-year rate plans for KEDNY and KEDLI in JanuaryDecember 2016. We expect to make a number of additional such filings over the next two to three years to update the capital investment allowances and rate bases across many of our businesses.other businesses, including for upstate New York, Rhode Island and the Massachusetts gas companies in 2017– 2018. These filings are expected to capture the benefit of recent increased investments in asset replacement and network reliability, and reflect long-term growth in costs, including property tax and healthcare costs. Along with a clear focus on productivity, the filings are key to improving achieved returns in the Company’s US distribution activities. Moreover, as part of current regulatory initiatives, we filed a proposal for investments in grid modernisation in Massachusetts and anticipate a similar proposal for innovative technology deployments and service offerings as part of the Reforming the Energy Vision (REV) effort in New York in 2016.
Massachusetts Massachusetts electric rate case On 6Subsequent to the Company’s November 2015 we filed a one-year rate plan for our Massachusetts electric business to take effect from 1 October 2016, which was updated on 29 April 2016. The updatedgeneral rate case filing, requestson 30 September 2016, MADPU issued a final order approving an annualised netoverall increase in distribution revenue of approximately $137$101 million based upon an authorised return on equity of 9.9% and an authorised equity ratio of 50.70%. The order also allows for amortisation and recovery over five years of the $40.6 million of protected customer accounts receivable outstanding for more than 360 days. Storm recovery allowed in base rates increased from $4.3 million to $10.5 million. The filing includes a request toorder allows for an increase in annual capital investment subject to the capital investment recovery mechanism from $170 million to $285$249 million and the inclusion of property taxes related to include property tax recovery onthese incremental capital placedadditions.
Boston and Colonial rate cases The Company plans to file a rate case for Boston Gas and Colonial Gas with MADPU in service.2017 with new rates expected to come into effect in 2018. The filing also requests an increase in annual baseMassachusetts Gas rate fundingcase, the first rate case for Boston Gas and Colonial Gas since 2010, will update the gas companies’ allowed revenues to more closely reflect their cost of service and bring their earned RoEs closer to the storm fund mechanism from $4.3 million to $14 million, and a 14-month extension of the incremental funding to address the storm fund’s deficit, created by weather events occurring through February 2015. The filing is based on an RoE of 10.5% and a capital structure of 52% equity and 48% debt.allowed RoE. Capital investmentGas system enhancement programmes
On the gas side, on 30 October 2015, we filed the second plan in a20-year programme to replace ageing gas infrastructure by receiving concurrent cost recovery for eligible capital investments. On 29 April 2016,5 May 2017, MADPU approved our proposal to place an additional $28.9recovery of approximately $50.6 million, into rates effective from 1 May 2016, related to $219$241 million of anticipated investments in 20162017 under this accelerated pipe replacement plan. The Company filedprogram, through rates effective May 2016 through April 2018. However, due to the reconciliationapplication of the 2015 investments on 29 April 2016. Additionally,GSEP revenue cap, we are required to defer from recovery an additional $5.5 million of the Company continues2017 revenue requirement until such time that we have room under the GSEP revenue cap to recover costs associated with its pre-existing leak prone pipe replacement programme outside of base rates untilthe deferred amount or in the next rate case includingthat covers the submittalperiod of a proposal to begin recovery of an additional $4.1 million of incremental revenue requirement effective from 1 November 2016. Storm fund recovery
The Massachusetts electricity business collects $4.3 million annually in base rates to credit towards a storm fund devoted to fund major storm response and restoration efforts. The severity and frequency of storms in Massachusetts between February 2010 and February 2016 resulted in approximately $252 million of incremental storm-related costs as at 31 March 2016.
MADPU allowed us to begin collecting $40 million annually for three years beginning on 4 May 2013, and an additional $7.6 million from 1 July 2014, towards the replenishment of the storm fund. This annual recovery was further extended through 4 August 2016. Ultimate recovery of the storm costs is subject to a prudency review by MADPU of the underlying costs. The Company expects an order on the prudency of $213 million of storm-related costs from the February 2010 through March 2013 storm events by August 2016. As explained above, in the Massachusetts electric rate case, we proposed to collect the deficit created by storm events through February 2015, subject to a prudency review, and increase the annual base rate funding of the storm fund. Recoverable costs associated with storm events after February 2015 are deferred for future recovery and subject to future prudency review.investment.
Grid modernisation and smart energy solutions In response to a 2014 regulatory requirement, the Company filed a Massachusetts electricity grid modernisation plan on 19 August 2015 that proposed multiple investment options that would further MADPU’s goals of reducing the effect of outages, optimising demand, integrating distributed resources, and improving workforce and asset management. The Company presented a range of investment options for MADPU to consider, with investment levels over five years ranging from $225$238.6 million to $831$792.9 million. MADPU established criteria that, if met, would allow the capital costs from the plan to be recovered through a separate capital recovery mechanism. MADPU initiated its review of the Company’s plan in April 2016 and hearings are scheduled for May 2017. The Company also has been operating a Smart Energy Solutions Pilot with approximately 15,000 customers in Worcester, Massachusetts, since 1 January 2015. The Pilot has allowed the Company to deploy, test and learn from technologies similar to those proposed in the grid modernisation plan, including smart meters, demand response, an integrated communication system, and advanced distribution automation. The Pilot was scheduled to end on 31 December 2016, but the Company has received preliminary approval to continue operating the Pilot, and has proposed to continue the Pilot until 31 December 2018. This proposal is under review by MADPU. Omnibus energy and solar legislation In April 2016, Massachusetts solar legislation increased the amount of solar generation that a distribution company can own from 25 MWs to 35 MWs, subject to receipt of MADPU prior approval by 31 December 2016 and provided projects are constructed prior to 31 December 2017. MADPU approved the Company’s proposal to own an additional 14 MWs on 30 December 2016. The solar legislation also increased the cap on net metered solar installations and allows electricity distribution companies to submit proposals for a monthly minimum reliability contribution to be included on electric bills for accounts that receive net metering credits subject to MADPU review and approval. The purpose of the monthly minimum reliability contribution is to ensure that customers contribute to the fixed costs of ensuring the reliability, proper maintenance and safety of the electric distribution system. In August 2016, Massachusetts omnibus energy legislation, among other new policies, allowed for state mandated energy storage deployment targets (to be adopted by 1 July 2017) and established requirements for electricity distribution companies to jointly and competitively solicit long-term contracting proposals for clean energy generation equal to approximately 9,450,000 MWh per year by 31 December 2022 and proposals for offshore wind projects equal to approximately 1,600 MW of aggregate nameplate capacity by 30 June 2027. The first solicitations must be no later than 1 April 2017 and 30 June 2017, respectively, and any contracts must be approved by MADPU. Electricity distributors are entitled to cost recovery of payments under the contracts and may seek approval for annual remuneration equal to as much as 2.75% of the annual payments made under those contracts. The Act also directs MADPU to open an investigation to establish specific criteria to identify Grade 3 gas leaks on the gas distribution system that have a significant environmental impact, to establish a plan to have gas companies repair these leaks and to provide for recovery of leak repair expenses as part of the gas system enhancement programmes. New York Upstate New York 2015 petition to use deferred credits2017 Rate Filing to fund capital expenditures
WithOn 28 April 2017, the three-yearCompany filed a one-year rate plan (but submitted two additional years of data to facilitate a multi-year settlement) for Niagara Mohawk’sour upstate New York electricity and gas businesses, expiring on 31 March 2016, in December 2015, we filed a petition with NYPSC to use up to $124 million and $27 million of deferred credits associated with itsincrease electricity and gas operations,delivery revenue by $326 million and $81 million, respectively, to fund incremental capital expenditures for those businesses in 2017 and 2018 above the capital allowances in the expiring12 months ending 31 March 2019 (fiscal year 2019). Additionally, the Company included a proposal to amortise a portion of its deferred liabilities to offset the Company’s need for rate plan.relief. The filing is based on an RoE of 9.79% for the one-year rate filing, and includes annual reconciliation mechanisms for certain non-controllable costs.
The filing, which is expected to take 11 months to review and to conclude in March 2018, includes investments of $652 million and $171 million of core investment in the electricity and gas businesses, respectively, in fiscal year 2019 to modernise our infrastructure and improve safety and reliability of our networks. New York rate cases often led to multi-year rate plan settlements, which the Company expects an orderwill pursue through negotiations in May or June 2016.this case. Reforming the Energy Vision (REV) In April 2014, NYPSC instituted the REV proceeding, which envisions a new role for utilities as distributed system platform (DSP) providers who create markets for distributed energy resources (DER) and more fully integrate DER in distribution system operations and planning. The REV proceeding’s objectives include: enhanced customer energy choices and control; improved electricity system efficiency, reliability, and resiliency; and cleaner, more diverse electricity generation. NYPSC is expected to issueissued an order inon 19 May 2016 to address rate-makingaddressing ratemaking and utility revenue model policy framework issues under REV, including ratemaking reform, earnings opportunities for outcome-based shareholder incentive(platform service revenues and earning adjustment mechanisms or EAMs), competitive market-based earnings, changescustomer data access, non-wires alternative solutions to displace traditional capital investment, standby service tariff enhancements, opt-in rate design DER compensation(time-of-use rates, Smart Home rate pilots), enhancements to large customer demand charges, scorecard metrics, and the rate-making process.mass market rate design. The Company’s first five-year distributed system implementation plan is expected to be filed in June 2016 and will identify incremental investments in utility infrastructure necessary for implementation of the DSP role and greater DER integration. initial Distributed | | | | | | | | | National Grid Annual Report and Accounts 2015/162016/17 | | The business in detail | | 179177 |
The business in detailcontinued KEDLISystem Implementation Plan (DSIP) was filed with NYPSC on 30 June 2016 and identified incremental investments in utility infrastructure necessary for developing DSP capabilities, market enablement and operations, advanced metering functionality, grid modernisation, and cyber security and privacy measures within the first five years. The DSIP is required to be updated and filed with NYPSC every two years. The Company rate plan filed in April 2017 incorporated investments related to advanced metering infrastructure (AMI), grid modernisation, cyber security, and new electricity and gas investmentproducts and services. This rate plan also includes a proposal of outcome-based EAM to target energy and system efficiency, carbon reductions, and customer engagement.
In June 2014, KEDLI petitioned Clean Energy Standard (CES)
NYPSC for approvalissued an order on 1 August 2016 adopting a CES, consistent with the State Energy Plan, that 50% of New York’s electricity is to be generated by renewable sources by 2030 as part of a deferral mechanism relatedstrategy to a proposedreduce greenhouse gas infrastructure investment programme.emissions by 40% by 2030. In December 2014, NYPSC approved two gas investment plans for 2015particular, the CES established: obligations on load serving entities (LSEs) to financially support new renewable generation resources to serve their retail customers through Renewable Energy Credits (RECs) and 2016, one for leak-prone pipe capital expenditures (capped at $211.7 million in total)to financially support existing at-risk nuclear generators through the purchase of zero emissions credits (ZECs). The first REC and one for gas service expansion expenditures (capped at $202.7 million in total). NYPSC approved a surcharge toZEC compliance years under the CES begin recovery of the deferred leak-prone pipeline investment costs, allowing for the recovery up to a total of $23.4 million through a surcharge effective from1 January 2017 and 1 April 2015 until the end of 2016. KEDLI received approval to establish a new deferral accounting mechanism for the balance of the approved costs not covered by the surcharge.
KEDNY gas investment plan and site investigation
and remediation (SIR) surcharge
In October 2015, NYPSC approved KEDNY’s petition to extend its capital investment recovery mechanism and reconciliation period for two more years through 2016 and to use a deferred credit balance from underspending in 2013 and 2014 to offset the revenue requirement associated with over $870 million of total capital investment in 2015 and 2016 (compared with a total capital allowance of roughly $614 million for 2013 and 2014). Also in October 2015, NYPSC approved KEDNY’s petition to increase its current SIR surcharge by $37.5 million annually, effective from 1 November 2015, to offset its SIR deferral balances.2017, respectively.
KEDNY and KEDLI rate cases On 29 January 2016, KEDNY and KEDLI filed base rate cases with NYPSC. On 16 December 2016, NYPSC to increase their delivery revenues by $245 million and $142 million, respectively, with new rates expected to come into effectin early 2017. The cases include capital investmentissued an order adopting the terms of approximately $610 milliona Joint Proposal, establishing a three-year rate plan negotiated for KEDNY and $340KEDLI (calendar years 2017–2019). KEDNY’s revenues under the Joint Proposal will increase by $272 million in 2017. For 2018 and 2019, incremental revenue increases will be $41 million and $49 million, respectively. KEDLI’s revenues under the Joint Proposal will increase by $112 million in 2017. For 2018 and 2019, incremental revenue increases will be $20 million and $27 million, respectively. The revenue increases are based on a RoE of 9.0% and a 48% equity ratio. In addition to the revenue increases, the rate plans include funding for KEDLI for 2017. The rate case filings380 new positions and maintain tracker and true-up mechanisms for property taxes, commodity-related bad debt, and pension/OPEBs, and seek to establish reconciling mechanisms for city/state construction-related costs and SIRSite Investigation Remediation (SIR) recovery surcharge/tracker mechanisms. KEDNYmechanisms, a gas safety and KEDLI filed one year cases, but submitted two additional yearsreliability surcharge to recover the costs of data to facilitate a multi-year settlement. The filings are based on a RoE of 9.94% (plus 50 basis points for a stay-out premium for a multi-year rate plan)incremental leak-prone pipe replacement and a 48% equity ratio.
Operations staffing audit
In January 2014, NYPSC initiated an operational audit to review internal staffing levelsleak repairs, and use of contractors for the core utility functions of the investor owned utilities in New York, including Niagara Mohawk, KEDNY and KEDLI. The focus of the audit is on electricity and gas operations and network strategy functions, and includes a review of staffing levels, resource planning, work management, overtime levels, contractor use and succession planning. The final report is expected to be issued in July 2016.incentive opportunities.
Rhode Island Rhode Island electricity and gas infrastructure, safety and reliability (ISR) plans State law provides our Rhode Island gaselectricity and electricitygas operating divisions with rate mechanisms that allow for the recovery of capital investment, including a return, and certain expenses outside base rate proceedings through the submission of annual electricity and gas ISR plans. RIPUC approved the fiscal year 20172018 gas and electric ISR plans on 2517 February 2016.2017 and 9 March 2017, respectively. The electricityelectric ISR plan encompasses an $83.4a $100.6 million spending programme for capital investment, $9.6 million for cost of removal, and $10$10.5 million for operating and maintenance expenses for vegetation management and inspection and maintenance. The gas ISR plan encompasses $86.05$101.8 million for capital investment and incremental operation and maintenance expenseexpense. Rhode Island combined gas and electricity rate case The Company anticipates filing a combined Rhode Island electricity and gas rate case in late 2017/early 2018, with new rates effective in 2018. The rate case provides an opportunity to recalibrate base rates to reflect changes in costs since the last rate case which was effective in February 2013. Rhode Island regulation also allows for the hiringproforma and training of additional personnelnormalising adjustments to support increasestest year data that include forecasts for costs expected in leak-prone pipe replacement.a future rate year. Changing distribution system and modernisation of rates On 3Numerous grid modernisation efforts are on-going in Rhode Island, including Docket 4600, Systems Integration Rhode Island (SIRI) and the Power Sector Transformation Initiative. In March 2016, RIPUC opened Docket 4600 to explore and understand the changing distribution system and related rate-setting processes through a docketstakeholder process. National Grid has been a participant in the Docket 4600 stakeholder process which will conclude in Spring 2017 with a set of recommendations. In December 2016, the National Governors Association selected Rhode Island as one of four states to investigateparticipate in a 16-month collaborative effort with state agencies and key stakeholders, including the modernisation of rates in lightCompany, to develop a state action plan for modernising the electric power sector and integrating clean energy. This effort, referred to as the Power Sector Transformation Initiative, builds off of the changing electric distribution system, including the costsSIRI collaborative effort that began in 2014 and benefits of distributed energy resources.resulted in a vision document released in January 2016.
FERC Complaints on New England transmission allowed RoE In September 2011, December 2012, and July 2014, and April 2016, a series of four complaints were filed with FERC against certain transmission owners, including our New England electricity transmission business, to lower the base RoE, fromwhich FERC had authorised at 11.14% prior to the first complaint. FERC approved rate of 11.14%. In a series ofissued orders addressingresolving only the first complaint, with the last order in March 2015, FERC setlowering the prospective base RoE atto 10.57%, effective October 2014. FERC also found that the total, or maximum, RoE for our New England transmission business, including various RoE incentive adders authorised by FERC, cannot exceed 11.74%. In April and May 2015 aA number of parties, including the Company, appealed FERC’s ordersorder on the first complaint to US federal court. A US federalOn 14 April 2017, the court decision on these appealsvacated FERC’s order and remanded the first complaint back to FERC, requiring FERC to reconsider the methodology it adopted in its order. It is expected no earlier than late 2016. On 22 March 2016, atoo early to determine when or how FERC administrative law judge issued a decision with non-binding preliminary findings inwill decide the second and third complaint cases, setting the prospective basefour pending RoE at 10.9%, with a maximum RoE of 12.19%. A FERC order acting on these preliminary findings is not expected until the end of 2016 or early 2017.
On 29 April 2016, a fourth complaint was filedcomplaints against the New England electricity transmission businesses seeking to reduce their base RoE and maximum RoE to 8.61% and 11.24% respectively. Resolution by FERC of this latest complaint may take two years or longer.
New York Transco
In late 2014, the four New York investor-owned utilities, including Niagara Mohawk Power Corporation, formed New York Transco, LLC, a new high voltage electricity transmission development companyCompany in New York State, and filed on behalf of New York Transco an application with FERC to establish the financial terms for a portfolio of five new transmission projects with a combined estimated total cost of over $1.7 billion.
A number of entities intervened in the docket and challenged various aspectslight of the application. In April 2015, FERC approved certain elements of our filing (including some rate incentives), rejected others, and set the remainder for hearing and settlement. In November 2015, New York Transco reached a negotiated settlement on formula rate issues for the first three transmission projects under construction with an estimated cost of approximately $230 million.court’s decision.
The settlement included an RoE of 10% inclusive of 0.50% incentives. FERC approved the settlement without modification on 17 March 2016. National Grid’s ownership interest in New York Transco is 28%.
| | | | | | | 180 | | National Grid Annual Report and Accounts 2015/16 | | Additional Information | | |
National Grid LNG LLC On 1 April 2016, the Company filed an application seeking FERC approval of a planned $180 million liquefaction facility at the Providence, Rhode Island, LNG plant, withplant. We are currently awaiting a FERC decision expected by November 2016.order on our application. The expectedtarget in-service date is December 2018. Rates for the new liquefaction service will be cost-based formula rates charged to customers who opt to take the liquefaction service. New England gas and electricity interdependency New England’s gas and electricity systems have become increasingly interdependent as the region’s reliance on gas-fired electricity generation has grown without commensurate pipeline infrastructure expansion, driving significant increases in the region’s wholesale and retail electricity costs and electricity reliability concerns. To address this challenge, New England’s governors are pursuing strategic infrastructure investments focused on expanding the region’s energy portfolio. Working with state representativesIn January and our peer utilities,June 2016, our Massachusetts and Rhode Island electricity distribution companies issued a multi-state solicitation for proposals for clean energy and associated transmission infrastructure to increase the ability to deliver low-carbon energy. Proposals were submitted on 28 January 2016, including a proposal comprised of the Vermont Green Line being developed by Anbaric and National Grid paired with renewable energy generation.
A multi-year effort in coordination with representatives from several states, other regionalelectric utilities, interstate gas pipelines, state regulators and FERC led to a filing in January 2016 in Massachusetts by our electricity distribution companies for approval of precedent agreements to enter into gas interstate pipeline and storage capacityrespectively, filed long-term contracts with the Access Northeast gas pipeline project sponsored by Spectra Energy.for state regulatory approvals. The Company also plans to make ahas an equity stake in the pipeline. The Company subsequently withdrew its Massachusetts filing in Rhode Island in midafter an August 2016 seekingMassachusetts Supreme Judicial Court decision that prohibited MADPU from approving such contracts, and on 13 January 2017, the Company withdrew its application before RIPUC for approval of a similar contract on behalf of Narragansett Electric Company.
With these contracts, our electricity distribution companies will secure incremental pipeline capacity to release to electricity generators that will both improve electricity reliability and lower electricity costs for customers. National Grid is a co-developer, with a 20% stake, of the Access Northeast project.
Formula rate transparency 206 proceeding
On 28 December 2015, FERC initiated a proceeding against National Grid and other New England transmission owners under Section 206 of the Federal Power Act. FERC found that the tariff governing electricity transmission service in New England lacks adequate transparency and challenge procedures with regard to the formula rates through which the Company recovers its costs and that the formula rates appear to lack sufficient detail regarding certain costs recovered. The parties are currently involved in settlement negotiations to develop formula rate protocols and to address FERC’s concerns about specific elements of the formula rate.
FERC financial audit of National Grid USA and affiliates
On 24 November 2015, FERC commenced a financial audit of National Grid USA, including its service companies and other affiliates, which covers the period from 1 January 2013 to the present. The audit will evaluate compliance with the FERC’s accounting, record keeping and reporting requirements as well as interactions among the service companies and affiliated operating companies. Based on past audits, we expect the audit to last about 18 months.
FERC Order 1000
Issued in 2011, Order 1000 was FERC’s major policy order intended to foster regional and inter-regional transmission planning, address transmission needs driven by public policy requirements and increase competition in the electricity transmission industry. Policies to comply with Order 1000 have been in effect in New York and New England since January 2014 and May 2015 respectively. The competitive transmission planning processes instituted under Order 1000 have opened National Grid’s service territory to competition from non-incumbent transmission developers and also created opportunities for National Grid to compete for transmission projects outside of the Company’s current geographic footprint.
In the first applications of the Order 1000 planning and competitive solicitation processes in New York or New England, NYPSC has identified two transmission needs in New York driven by public policy goals. The first, in western New York, is intended to relieve congestion and to maximise hydropower and Ontario imports. In December 2015, National Grid submitted two competitive transmission proposals for projects to address the need in western New York. In addition, NYPSC identified a transmission need to allow greater flow of power from upstate to downstate New York. Competitive proposals to meet this transmission need were solicited in February 2016. National Grid submitted a competitive transmission proposal in April 2016, with project selection expected in 2016.pipeline.
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The business in detailcontinued
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 a utility to reconcile commodity-related bad debt to either actual commodity-related bad debt or to a specified commodity-related bad debt write-off percentage. For electricity utilities, this mechanism also includes working capital. ¯◇Pension/OPEB true-up
A mechanism that reconciles the actual non-capitalised costs of pension and OPEB and the actual amount recovered in base rates. The difference may be amortised and recovered over a period or deferred for a future rate case. |
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Internal control and risk factors Disclosure controls Working with management, including the Chief Executive and Finance Director, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as at 31 March 2016.2017. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives. However, the effectiveness of any system of disclosure controls and procedures has limitations, including the possibility of human error and the circumvention or overriding of the controls and procedures. Even effective disclosure controls and procedures provide only reasonable assurance of achieving their objectives. Based on the evaluation, the Chief Executive and Finance Director concluded that the disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed in the reports that we file and submit under the Exchange Act is recorded, processed, summarised and reported as and when required and that such information is accumulated and communicated to our management, including the Chief Executive and Finance Director, as appropriate, to allow timely decisions regarding disclosure. Internal control over financial reporting Our management, including the Chief Executive and Finance Director, has carried out an evaluation of our internal control over financial reporting pursuant to the Disclosure RulesGuidance and Transparency Rules sourcebook and Section 404 of the Sarbanes-Oxley Act 2002. As required by Section 404, management is responsible for establishing and maintaining an adequate system of internal control over financial reporting (as defined in Rules 13a–15(f) and 15d–15(f) under the Exchange Act). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management evaluation of the effectiveness of the Company’s internal control over financial reporting was based on the revised Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was effective as at 31 March 2016.2017. PricewaterhouseCoopers LLP, which has audited our consolidated financial statements for the year ended 31 March 2016,2017, has also audited the effectiveness of our internal control over financial reporting. Their attestation report can be found on page 93.83. During the year, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect it. Risk factors Management of our risks is an important part of our internal control environment, as we describe on pages 2615 to 29.18. In addition to the principal risks listed we face a number of inherent risks 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. 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 inside back cover. An overview of the key inherent risks we face is provided below. Risk factors | | | | Potentially harmful activities | | | Aspects of the work we do could potentially harm employees, contractors, members of the public or the environment. Potentially hazardous activities that arise in connection with our business include the generation, transmission and distribution of electricity and the storage, transmission and distribution of gas. Electricity and gas utilities also typically use and generate 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. A significant safety or environmental incident, or the failure of our safety processes or of our occupational health plans, as well as the breach of our regulatory or contractual obligations or our climate change targets, could materially adversely affect our results of operations and our reputation. WeSafety is a fundamental priority for us and we commit significant resources and expenditure to process safety and to monitoring personal safety, occupational health and environmental performance, and to meeting our obligations under negotiated settlements.
| | We are subject to laws and regulations in the UK and US governing health and safety matters to protect the public and our employees and contractors, who could potentially be harmed by these activities as well as 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 properties, including those inherited from predecessor bodies, whether currently 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 to enable reduction in energy use by our customers. If more onerous requirements are imposed or our ability to recover these costs under regulatory frameworks changes, this could have a material adverse impact on our business, reputation, results of operations and financial position. |
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Internal control and risk factorscontinued
| | | | | | | | | | Infrastructure and IT systems | | | | | | | | We may suffer a major network failure or interruption, or may not be able to carry out critical operations due to the failure of infrastructure, data or technology or a lack of supply. Operational performance could be materially adversely affected by a failure to maintain the health of our assets or networks, inadequate forecasting of demand, inadequate record keeping or control of data or failure of information systems and supporting technology. This in turn could cause us to fail to meet agreed standards of service, incentive and reliability targets, or be in breach of a licence, approval, regulatory requirement or contractual obligation. Even incidents that do not amount to a breach could result in adverse regulatory and financial consequences, as well as harming our reputation. Where demand for electricity or gas exceeds supply and our balancing mechanisms are not able to mitigate this fully, a lack of supply to consumers may damage our reputation. In addition to these risks, we may be affected by other potential events that are largely outside our control, such as the impact of weather (including as a result of climate change and major storms), unlawful or unintentional acts of third parties, insufficient or unreliable supply or force majeure. | | | | | | Weather conditions can affect financial performance and severe weather that causes outages or damages infrastructure together with our actual or perceived response could materially adversely affect operational and potentially business performance and our reputation. Malicious attack, sabotage or other intentional acts, including breaches of our cyber security, may also damage our assets (which include critical national infrastructure) or otherwise significantly affect corporate activities and, as a consequence, have a material adverse impact on our reputation, business, results of operations and financial condition. Unauthorised access to, or deliberate breaches of, our IT systems may also lead to manipulation of our proprietary business data or customer information. Unauthorised access to private customer information may make us liable for a violation of data privacy regulations. Even where we establish business continuity controls and security against threats against our systems, these may not be sufficient. | | Law and regulation | | | | | | | | Changes in law or regulation or decisions by governmental bodies or regulators could materially adversely affect us. Most of our businesses are utilities or networks subject to regulation by governments and other authorities. Changes in law or regulation or regulatory policy and precedent, (including any changes arising as a result of the UK’s exit from the European Union), including decisions of governmental bodies or regulators, in the countries or states in which we operate could materially adversely affect us. If we fail to engage in the energy policy debate, we may not be able to influence future energy policy and deliver our strategy. Decisions or rulings concerning, for example: | | | | | | technologies, whether aspects of our activities are contestable, 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. Following the introduction of EMR, there has been an increased focus (from some of our stakeholders) on the potential conflicting duties of our transmission and system operator roles, which may damage our reputation.
The remediation plans in place or being implemented to address control weaknesses in our US business may not operate as expected, as a result of which we may be unable to provide timely regulatory reporting, which may include the provision of financial statements. This could result in the imposition of regulatory fines, penalties and other sanctions, which could impact our operations, our reputation and our relationship with our regulators and other stakeholders. For further information see pages 176174 to 182,179, which explain our regulatory environment in detail. | (i) | | whether licences, approvals or agreements to operate or supply are granted, amended or renewed, whether consents for construction projects are granted in a timely manner or whether there has been any breach of the terms of a licence, approval or regulatory requirement; and | | | | | | (ii) | | timely recovery of incurred expenditure or obligations, the ability to pass through commodity costs, a decoupling of energy usage and revenue, and other decisions relating to the impact of general economic conditions on us, our markets and customers, implications of climate change and of advancing energy | | | | | | | Business performance | | | | | | | | Current and future business performance may not meet our expectations or those of our regulators and shareholders. Earnings maintenance and growth from our regulated gas and electricity businesses will be affected by our ability to meet or exceed efficiency targets and service quality standards set by, or agreed with, our regulators. | | | | | | If we do not meet these targets and standards, or if we do not implement the transformation projects we are carrying out as envisaged, including to our US enterprise resource planning systems and controls over financial reporting, or are not able to deliver our RIIO operating model and the US rate plans strategy successfully, 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 and we may be in breach of regulatory or contractual obligations. | |
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| | | | | Additional Information
Internal control and risk factorscontinued |
| | | | | | Growth and business development activity | | | | | | Failure to respond to external market developments and execute our growth strategy 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. Failure to grow our core business sufficiently and have viable options for new future business over the longer term or failure to respond to the threats and opportunities presented by emerging technology (including for the purposes of adapting our networks to meet the challenges of increasing distributed energy resources) could negatively affect the Group’s credibility and reputation and jeopardise the achievement of intended financial returns. Our business development activities and the delivery of our growth ambition, include acquisitions, disposals, joint ventures, partnering and organic investment opportunities such as development activities relating to changes to the energy mix and the integration of distributed energy resources and other advanced technologies. These are subject to a wide range of both external uncertainties (including the availability | | | | availability of potential investment targets and attractive financing and the impact of competition for onshore transmission in both the UK and US) and internal uncertainties (including actual performance of our existing operating companies and our business planning model assumptions and ability to integrate acquired businesses effectively). As a result, we may suffer unanticipated costs and liabilities 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. In the case of joint ventures, we may have limited control over operations and our joint venture partners may have interests that diverge from our own. The occurrence of any of these events could have a material adverse impact on our results of operations or financial condition, and could also impact our ability to enter into other transactions. | | Cost escalation | | | | | | Changes in foreign currency rates, interest rates or commodity prices could materially impact earnings or our financial condition. We have significant operations in the US and so are subject to the exchange rate risks normally associated with non UK operations, including the need to translate US assets and liabilities, and income and expenses, into sterling, our primary reporting currency. In addition, our results of operations and net debt position may be affected because a significant proportion of our borrowings, derivative financial instruments and commodity contracts are affected by | | | | affected by changes in interest rates, commodity price indices and exchange rates, in particular the dollar to sterling exchange rate.
Furthermore, our cash flow may be materially affected as a result of settling hedging arrangements entered into to manage our exchange rate, interest rate and commodity price exposure, or by cash collateral movements relating to derivative market values, which also depend on the sterling exchange rate into euro and other currencies. | | Our results of operations could be affected by inflation or deflation.
In our regulated UK networks, our allowed revenues are set in real terms and then adjusted for actual RPI inflation. There is a risk that inflationary impacts on our costs are higher than RPI inflation and are not fully compensated by this inflation adjustment to revenues. There is also a risk that year-on-year RPI inflation is negative with no corresponding decrease in costs or insufficient decrease to offset the impact on revenues.
| | | | Our income under our rate plans in the US is not typically linked to inflation. In periods of inflation in the US, our operating costs may increase by more than our revenues. In both the UK and US such increased costs may materially adversely affect the results of our operations.
| | We may be required to make significant contributions to fund pension and other post-retirement benefits. We participate in a number of pension schemes that together cover substantially all our employees. In both the UK and US, the principal schemes are DB schemes where the scheme assets are held independently of our own financial resources. In the US, we also have other post-retirement benefit schemes. Estimates of the amount and timing of future funding for the UK and US schemes are based on actuarial assumptions and other factors, including: the actual and projected market performance of the scheme assets; future long-term bond yields; average life expectancies; and relevant legal requirements. | | | | Actual performance of scheme assets may be affected by volatility in debt and equity markets. Changes in these assumptions or other factors may require us to make additional contributions to these pension schemes which, to the extent they are not recoverable under our price controls or state rate plans, could materially adversely affect the results of our operations and financial condition. | |
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Internal control and risk factorscontinued
| | | | | | Financing and liquidity | | | | | | An inability to access capital markets at commercially acceptable interest rates could affect how we maintain and grow our businesses. Our businesses are financed through cash generated from our ongoing operations, bank lending facilities and the capital markets, particularly the long-term debt capital markets. Some of the debt we issue is rated by credit rating agencies and changes to these ratings may affect both our borrowing capacity and borrowing costs. In addition, restrictions imposed by regulators may also limit how we service the financial requirements of our current businesses or the financing of newly acquired or developing businesses. Financial markets can be subject to periods of volatility and shortages of liquidity.liquidity, for example as a result of unexpected political or economic events. If we were unable to access the capital markets or other sources of finance at competitive rates for a prolonged period, our cost of financing may increase, the discretionary and uncommitted elements of our proposed capital investment programme may need to be reconsidered and the manner in which we implement our strategy may need to be reassessed. Such events could have a material adverse impact on our business, results of operations and prospects. Some of our regulatory agreements impose lower limits for the long-term senior unsecured debt credit ratings that certain companies within the Group must hold or the amount of equity within their capital structures. | | | | One of the principal limits requires National Grid plc to hold an investment grade long-term senior unsecured debt credit rating. In addition, some of our regulatory arrangements impose restrictions on the way we can operate. These include regulatory requirements for us to maintain adequate financial resources within certain parts of our operating businesses and may restrict the ability of National Grid plc and some of our subsidiaries to engage in certain transactions, including paying dividends, lending cash and levying charges. The inability to meet such requirements or the occurrence of any such restrictions may have a material adverse impact on our business and financial condition. The remediation plans in place or being implemented to address control weaknesses in our US business may not operate as expected, as a result of which we may be unable to provide accurate financial information to our debt investors in a timely manner. Our debt agreements and banking facilities contain covenants, including those relating to the periodic and timely provision of financial information by the issuing entity and financial covenants, such as restrictions on the level of subsidiary indebtedness. Failure to comply with these covenants, or to obtain waivers of those requirements, could in some cases trigger a right, at the lender’s discretion, to require repayment of some of our debt and may restrict our ability to draw upon our facilities or access the capital markets. | | Customers and counterparties | | | | | | Customers and counterparties may not perform their obligations. Our operations are exposed to the risk that customers, suppliers, banks and other financial institutions and others with whom we do business will not satisfy their obligations, which could materially adversely affect our financial position. This risk is significant where our subsidiaries have concentrations of receivables from gas and electricity utilities and their affiliates, such as from our previous LIPA managed services agreement (MSA) and current PSEG-LI transition services agreement, as well as industrial customers and other purchasers, and may also arise where customers are unable to pay us as a result of increasing commodity prices or adverse economic conditions. | | | | To the extent that counterparties are contracted with for physical commodities (gas and electricity) and they experience events that impact their own ability to deliver, we may suffer supply interruption as described in Infrastructure and IT systems on page 184.181. There is also a risk to us where we invest excess cash or enter into derivatives and other financial contracts with banks or other financial institutions. Banks who provide us with credit facilities may also fail to perform under those contracts. | | Employees and others | | | | | | We may fail to attract, develop and retain employees with the competencies, including leadership and business capabilities, values and behaviours required to deliver our strategy and vision and ensure they are engaged to act in our best interests. Our ability to implement our strategy depends on the capabilities and performance of our employees and leadership at all levels of the business. Our ability to implement our strategy and vision may be negatively affected by the loss of key personnel or an inability to attract, integrate, engage and retain appropriately qualified personnel, or if significant disputes arise with our employees. | | | | As a result, 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 may breach our internal controls or internal governance framework or may contravene applicable laws and regulations. This could have an impact on the results of our operations, our reputation and our relationship with our regulators and other stakeholders. | |
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Shareholder information Articles of Association The following description is a summary of the material terms of our Articles and applicable English law. It is a summary only and is qualified in its entirety by reference to the Articles. Summary The Articles set out the Company’s internal regulations. Copies are available on our website and upon request. Amendments to the Articles have to be approved by at least 75% of those voting at a general meeting of the Company. Subject to company law and the Articles, the Directors may exercise all the powers of the Company. They may delegate authorities to committees andday-to-day management and decision-making to individual Executive Directors. The committee structure is set out on page 49.36. General The Company is incorporated under the name National Grid plc and is registered in England and Wales with registered number 04031152.4031152. Under the Companies Act 2006, the Company’s objects are unrestricted. Directors Under the Articles, a Director must disclose any personal interest in a matter and may not vote in respect of that matter, subject to certain limited exceptions. As permitted under the Companies Act 2006, the Articles allow non conflicted Directors of the Company to authorise a conflict or potential conflict for a particular matter. In doing so, the non conflicted Directors must act in a way they consider, in good faith, will be most likely to promote the success of the Company for the benefit of the shareholders as a whole. The Directors (other than a Director acting in an executive capacity) are paid fees for their services. In total, these fees must not exceed £2,000,000 aper year or any higher sum decided by an ordinary resolution at a general meeting of shareholders. In addition, special pay may be awarded to a Director who acts in an executive capacity, serves on a committee, performs services which the Directors consider to extend beyond the ordinary duties of a Director,director, devotes special attention to the business of National Grid, or goes or lives abroad on the Company’s behalf. Directors may also receive reimbursement for expenses properly incurred, and may be awarded pensions and other benefits. The compensation awarded to the Executive Directors is determined by the Remuneration Committee. Further details of Directors’ remuneration are set out in the Directors’ Remuneration Report (see page 68pages 54 to 81)71). The Directors may exercise all the powers of National Grid to borrow money. However, the aggregate principal amount of all the Group’s borrowings outstanding at any time must not exceed £35 billion or any other amount approved by shareholders by an ordinary resolution at a general meeting. Directors can be appointed or removed by the Board or shareholders inat a general meeting. Directors must stand for election at the first AGM following their appointment to the Board. Each Director must retire at least every three years, although they will be eligible forre-election. In accordance with best practice introduced by the UK Corporate Governance Code, all Directors wishing to continue in office currently offer themselves forre-election annually. No person is disqualified from being a Director or is required to vacate that office by reason of attaining a maximum age. A Director is not required to hold shares in National Grid in order to qualify as a Director. Rights, preferences and restrictions (i) Dividend rights National Grid may not pay any dividend otherwise than out of profits available for distribution under the Companies Act 2006 and other applicable provisions of English law. In addition, as a public company, National Grid may only make a distribution if, at the time of the distribution, the amount of its net assets is not less than the aggregate of its called up share capital and undistributable reserves (as defined in the Companies Act 2006) and to the extent that the distribution does not reduce the amount of those assets to less than that aggregate. Ordinary shareholders and ADS holders receive dividends. Subject to these points, shareholders may, by ordinary resolution, declare dividends in accordance with the respective rights of the shareholders, but not exceeding the amount recommended by the Board. The Board may pay interim dividends if it considers that National Grid’s financial position justifies the payment. Any dividend or interest unclaimed for 12 years from the date when it was declared or became due for payment will be forfeited and revert to National Grid. (ii) Voting rights Subject to any rights or restrictions attached to any shares and to any other provisions of the Articles, at any general meeting on a show of hands, every shareholder who is present in person will have one vote and on a poll, every shareholder will have one vote for every share they hold. On a show of hands or poll, shareholders may cast votes either personally or by proxy. A proxy need not be a shareholder. Under the Articles, all substantive resolutions at a general meeting must be decided on a poll. Ordinary shareholders and ADS holders can vote at general meetings. (iii) Liquidation rights In a winding up, a liquidator may (in each case with the sanction of a special resolution passed by the shareholders and any other sanction required under English law): (a) divide among the shareholders the whole or any part of National Grid’s assets (whether the assets are of the same kind or not); the liquidator may, for this purpose, value any assets and determine how the division should be carried out as between shareholders or different classes of shareholders, or (b) transfer any part of the assets to trustees on trust for the benefit of the shareholders as the liquidator determines. In neither case will a shareholder be compelled to accept assets upon which there is a liability. (iv) Restrictions There are no restrictions on the transfer or sale of ordinary shares. Some of the Company’s employee share plans, details of which are contained in the Directors’ Remuneration Report, include restrictions on the transfer of shares while the shares are subject to the plan. Where, under an employee share plan operated by the Company, participants are the beneficial owners of the shares but not the registered owner, the voting rights may be exercised by the registered owner at the direction of the participant. Treasury shares do not attract a vote or dividends. Variation of rights Subject to applicable provisions of English law, the rights attached to any class of shares of National Grid may be varied or cancelled. This must be with the written consent of the holders of three quarters in nominal value of the issued shares of that class, or with the sanction of a special resolution passed at a separate meeting of the holders of the shares of that class. | | | | | | | | 184 | | National Grid Annual Report and Accounts 2015/162016/17 | | Shareholder informationAdditional Information | | 187 |
Shareholder informationcontinued
General meetings AGMs must be convened each year within six months of the Company’s accounting reference date upon 21 clear days’ advance written notice. Under the Articles, any other general meeting may be convened provided at least 14 clear days’ written notice is given, subject to annual approval of shareholders. In certain limited circumstances, the Company can convene a general meeting by shorter notice. The notice must specify, among other things, the nature of the business to be transacted, the place, the date and the time of the meeting. Rights of non residents There are no restrictions under the Articles that would limit the rights of persons not resident in the UK to vote in relation to ordinary shares. Disclosure of interests Under the Companies Act 2006, National Grid may, by written notice, require a person whom it has reasonable cause to believe to be or to have been, in the last three years, interested in its shares to provide additional information relating to that interest. Under the Articles, failure to provide such information may result in a shareholder losing their rights to attend, vote or exercise any other right in relation to shareholders’ meetings. Under the UK Disclosure RulesGuidance and Transparency Rules sourcebook, there is also an obligation on a person who acquires or ceases to have a notifiable interest in shares in National Grid to notify the Company of that fact. The disclosure threshold is 3% and disclosure is required each time the person’s direct and indirect holdings reach, exceed or fall below each 1% threshold thereafter. The UK City Code on Takeovers and Mergers imposes strict disclosure requirements with regard to dealings in the securities of an offeror or offeree company, and also on their respective associates, during the course of an offer period. Other regulators in the UK, US and elsewhere may have, or assert, notification or approval rights over acquisitions or transfers of shares. Depositary payments to the Company The Depositary reimburses the Company for certain expenses it incurs in relation to the ADS programme. The Depositary also pays the standardout-of-pocket maintenance costs for the ADSs, which consist of the expenses for the mailing of annual and interim financial reports, printing and distributing dividend cheques, electronic filing of US federal tax information, mailing required tax forms, stationery, postage, facsimile and telephone calls. It also reimburses the Company for certain investor relationship programmes or special investor relations promotional activities. There are limits on the amount of expenses for which the Depositary will reimburse the Company, but the amount of reimbursement is not necessarily tied to the amount of fees the Depositary collects from investors. For the period 1 April 201519 May 2016 to 1817 May 2016,2017, the Company received a total of $1,948,523.97$2,126,791.80 in reimbursements from the Depositary consisting of $1,277,966.88$1,420,248.93 and $670,557.09$706,542.87 received in October 2015November 2016 and February 2016March 2017 respectively. Fees that are charged on cash dividends will be apportioned between the Depositary and the Company, see below. Any questions from ADS holders should be directed to The Bank of New York Mellon at the contact details on page 207. Description of securities other than equity securities: depositary fees and charges The Bank of New York Mellon, as the Depositary, collects fees, by deducting those fees from the amounts distributed or by selling a portion of distributable property, for: | ● | | delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them; and |
| ● | | making distributions to investors (including, it is expected, cash dividends). |
The Depositary may generally refuse to provide fee attracting services until its fees for those services are paid. | | | | Persons depositing or | | | | withdrawing shares must pay: | | For | | | $5.00 per 100 ADSs (or portion of 100 ADSs) | | Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property; cancellation of ADSs for the purpose of withdrawal, including if the Deposit Agreement terminates; and distribution of securities distributed to holders of deposited securities that are distributed by the Depositary to ADS holders. | | | Registration or transfer fees | | Transfer and registration of shares on our share register to or from the name of the Depositary or its agent when they deposit or withdraw shares. | | | Expenses of the Depositary | | Cable, telex and facsimile transmissions (when expressly provided in the Deposit Agreement); and converting foreign currency to dollars. | | | Taxes and other governmental charges the Depositary or the Custodian has to pay on any ADS or share underlying an ADS, for example, stock transfer taxes, stamp duty or withholding taxes | | As necessary. | |
The Company’s Deposit Agreement under which the ADSs are issued allows a fee of up to $0.05 per ADS to be charged for any cash distribution made to ADS holders, including cash dividends. ADS holders who receive cash in relation to the 2015/162016/17 final dividend will be charged a fee of $0.02 per ADS by the Depositary prior to distribution of the cash dividend. Documents on display National Grid is subject to the filing requirements of the Exchange Act, as amended. In accordance with these requirements, we file reports and other information with the SEC. These materials, including this document, may be inspected during normal business hours at our registered office 1–3 Strand, London WC2N 5EH or at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. For further information about the Public Reference Room, please call the SEC at1-800-SEC-0330. Some of our filings are also available on the SEC’s website at www.sec.gov. Events after the reporting period There have been no material events affecting the Company since the year end. Exchange controls There are currently no UK laws, decrees or regulations that restrict the export or import of capital, including, but not limited to, foreign exchange control restrictions, or that affect the remittance of dividends, interest or other payments to non UK resident holders of ordinary shares except as otherwise set out in Taxation on page 190187 and except in respect of the governments of and/or certain citizens, residents or bodies of certain countries (described in applicable Bank of England Notices or European Union Council Regulations in force as at the date of this document). | | | | | | | 188 | | National Grid Annual Report and Accounts 2015/162016/17 | | Additional InformationShareholder information | | 185 |
| | | | | Additional Information
Shareholder informationcontinued |
Exchange rates The following table shows the history of the exchange rates of one pound sterling to US dollars for the periods indicated. | | | | | | | | | | | | Dollar equivalent of £1 sterling | | | | | High | | | Low | | | | April 2016 | | | 1.4650 | | | | 1.4086 | | March 2016 | | | 1.4514 | | | | 1.3925 | | February 2016 | | | 1.4592 | | | | 1.3862 | | January 2016 | | | 1.4689 | | | | 1.4135 | | December 2015 | | | 1.5211 | | | | 1.4795 | | | | | | | | | | Average1 | | | | 2015/16 | | | | | | | 1.51 | | 2014/15 | | | | | | | 1.61 | | 2013/14 | | | | | | | 1.60 | | 2012/13 | | | | | | | 1.57 | | 2011/12 | | | | | | | 1.60 | | | |
| | | | | | | | | | | | Dollar equivalent of £1 sterling | | | | | High | | | Low | | | | April 2017 | | | 1.2938 | | | | 1.2392 | | March 2017 | | | 1.2570 | | | | 1.2150 | | February 2017 | | | 1.2647 | | | | 1.2429 | | January 2017 | | | 1.2605 | | | | 1.2065 | | December 2016 | | | 1.2712 | | | | 1.2226 | | | | | | | | | | Average1 | | | | 2016/17 | | | | | | | 1.31 | | 2015/16 | | | | | | | 1.51 | | 2014/15 | | | | | | | 1.61 | | 2013/14 | | | | | | | 1.60 | | 2012/13 | | | | | | | 1.57 | | | |
| 1. | The average for each period is calculated by using the average of the exchange rates on the last day of each month during the period. See weighted average exchange rate on page 95.85. |
Material interests in shares As at 31 March 2016,2017, National Grid had been notified of the following holdings in voting rights of 3% or more in the issued share capital of the Company: | | | | Number of ordinary shares | | | % of voting rights1 | | | Number of ordinary shares | | | % of voting rights1 | | | | | | | Black Rock, Inc. | | | 220,432,122 | | | | 5.88 | | | | 226,594,591 | | | | 6.01 | | The Capital Group Companies, Inc. | | | | 145,094,617 | | | | 3.88 | | Competrol International Investments Limited | | | 149,414,285 | | | | 3.98 | | | | 137,164,285 | | | | 3.65 | | The Capital Group Companies, Inc. | | | 145,094,617 | | | | 3.88 | | | | | | | |
| 1. | This number is calculated in relation to the issued share capital at the time the holding was disclosed. |
As at 1817 May 2016,2017, no further notifications have been received. The rights attached to ordinary shares are detailed on page 187.184. All ordinary shares and all major shareholders have the same voting rights. The Company is not, to the best of its knowledge, directly or indirectly controlled. Share capital TheAs at 17 May 2017, the share capital of the Company consists of ordinary shares of 11 17⁄43 pence nominal value each and ADRs,ADSs, which represent five ordinary shares each. Subject to shareholder approval of the proposed share consolidation, at the General Meeting of the Company to be held on 19 May 2017, the nominal value of the Company’s ordinary shares will be 12 204⁄473 pence with effect from 22 May 2017.
Authority to purchase shares Shareholder approval was given at the 20152016 AGM to purchase up to 10% of the Company’s share capital (being 374,138,605374,682,662 ordinary shares). The Directors intend to seek shareholder approval to renew this authority at this year’sthe 2017 AGM. In addition, the authority to purchase shares from the 2016 AGM is proposed for renewal at a General Meeting of the Company to be held on 19 May 2017 to cover the period between the date of the General Meeting and the 2017 AGM. The renewed authority is required due to the change to the nominal value of the ordinary shares that would result from the share consolidation proposed at the same General Meeting. In some circumstances, the Company may find it advantageous to have the authority to purchase its own shares in the market, where the Directors believe this would be in the interests of shareholders generally. The Directors believe that it is an important part of the financial management of the Company to have the flexibility to repurchase issued shares in order to manage its capital base, including actively managing share issuances from the operation of the scrip dividend scheme. It is expected that repurchases to manage share issuances under the scrip dividend scheme will not exceed 2.5% of the issued share capital (excluding treasury shares) per annum. As explained in the Notice of General Meeting issued on 19 April 2017, it is intended that part of the proceeds from the sale of a majority interest in the Company’s UK Gas Distribution business will be returned to shareholders by way of purchase of the Company’s shares. Subject to shareholder approval at the General Meeting to be held on 19 May 2017 and the 2017 AGM, the Company and the Directors therefore intend to use this authority in this context to return approximately £835 million to shareholders by way ofon-market purchases of the Company’s ordinary shares. When purchasing shares, the Company has, and will continue to, take into account market conditions prevailing at the time, other investment and financing opportunities and the overall financial position of the Company. During the year the Company purchased ordinary shares in the capital of the Company as part of the management of the dilutive effect of share issuances under the scrip dividend scheme. | | | | Number of shares | | | Total nominal value | | | Percentage of called up share capital1 | | | Number of shares | | | Total nominal value | | | Percentage
of called up
share capital1 | | | | | | | Shares held in Treasury purchased in prior years | | | 152,945,477 | | | | £17,428,670.63 | | | | 3.90 % | | | | 179,045,081 | | | | £20,402,811.56 | | | | 4.54 % | | Shares purchased and held in Treasury during the year2,3 | | | 31,690,010 | | | | £3,611,187.19 | | | | 0.81 % | | | | 19,602,361 | | | | £2,233,757.42 | | | | 0.50 % | | Shares transferred from Treasury during the year (to employees under employee share plans)2 | | | 5,090,406 | | | | £580,069.52 | | | | 0.13 % | | | Maximum number of shares held in Treasury during the year2 | | | 179,065,924 | | | | £20,405,186.69 | | | | 4.56 % | | | Shares transferred from Treasury during the year (to employees under employee share plans) | | | | 6,027,564 | | | | £686,861.94 | | | | 0.15 % | | Maximum number of shares held in Treasury during the year | | | | 193,515,250 | | | | £22,051,737.79 | | | | 4.91 % | | | | | | |
1. Called up share capital of 3,924,038,0863,942,983,436 ordinary shares as at the date of this Report.report. 2. From 29 June 20157 April 2016 to 31 March 2016.14 February 2017. 3. Shares purchased for a total cost of £267,109,568.£188,922,589. During the period from 1 April 2016 to 7 April 2016
| | | | | | | | | | | | | | | | | | | | Total
number of
shares
purchased | | | Average
price paid
per share
(£) | | | Of which,
number of
shares
purchased
as part of
publicly
announced
plans | | | Maximum
value that
may yet be
purchased as
part of
publicly
announced
plans (£m) | | | | April1 (7 April 2016) | | | 657,000 | | | | 9.978 | | | | 657,000 | | | | – | | May | | | – | | | | – | | | | – | | | | – | | June | | | – | | | | – | | | | – | | | | – | | July | | | – | | | | – | | | | – | | | | – | | August | | | – | | | | – | | | | – | | | | – | | September | | | – | | | | – | | | | – | | | | – | | October | | | – | | | | – | | | | – | | | | – | | November2 | | | | | | | | | | | | | | | | | (25–30 Nov 2016) | | | 1,250,000 | | | | 9.146 | | | | 1,250,000 | | | | – | | December2 | | | | | | | | | | | | | | | | | (5–22 Dec 2016) | | | 8,200,000 | | | | 9.139 | | | | 8,200,000 | | | | – | | January2 | | | | | | | | | | | | | | | | | (4–27 Jan 2017) | | | 5,997,044 | | | | 9.330 | | | | 5,997,044 | | | | – | | February3 | | | | | | | | | | | | | | | | | (6–14 Feb 2017) | | | 3,498,317 | | | | 9.526 | | | | 3,498,317 | | | | – | | March | | | – | | | | – | | | | – | | | | – | | | | Total | | | 19,602,361 | | | | 9.295 | | | | 19,602,361 | | | | – | | | |
Shares were purchased as part of publicly announced plans, as detailed below, which have expired and under which the Company purchased 657,000 ordinary sharesdoes not intend to make further purchases: | 1. | Announced: 23 February 2016 and Expired: 14 April 2016 (Authority for no. of shares: 3,357,000 of which 657,000 during the financial year ended 31 March 2017). |
| 2. | Announced: 24 November 2016 and Expired: 21 January 2017 (Authority for no. shares: 15,447,044 ordinary shares). |
| 3. | Announced: 6 February 2017 and Expired: 14 February 2017 (Authority for no. shares: 3,498,317 ordinary shares). |
No purchases were made in the capitalUnited States or in respect of the Company.Company’s ADSs. As at the date of this Report,report, the Company held 177,211,465188,996,970 ordinary shares as treasury shares, representing 4.52%4.79% of the Company’s called up share capital. | | | | | | | | 186 | | National Grid Annual Report and Accounts 2015/162016/17 | | Shareholder informationAdditional Information | | 189 |
Shareholder informationcontinued
Authority to allot shares Shareholder approval was given at the 20152016 AGM to allot shares of up to one third of the Company’s share capital. The Directors are seeking this same level of authority this year. The Directors consider that the Company will have sufficient flexibility with this level of authority to respond to market developments. This authority is in line with investor guidelines. The Directors currently have no intention of issuing new shares, or of granting rights to subscribe for or convert any security into shares, except in relation to, or in connection with, the operation and management of the Company’s scrip dividend scheme and the exercise of options under the Company’s share plans. No issue of shares will be made which would effectively alter control of the Company without the sanction of shareholders in general meeting. The Company expects to actively manage the dilutive effect of share issuance arising from the operation of the scrip dividend scheme. In some circumstances, additional shares may be allotted to the market for this purpose under the authority provided by this resolution. Under these unlikely circumstances, it is expected that the associated allotment of new shares (or rights to subscribe for or convert any security into shares) will not exceed 1% of the issued share capital (excluding treasury shares) per year. Dividend waivers The trustees of the National Grid Employees Share Trust, which are independent of the Company, waived the right to dividends paid during the year, and have agreed to waive the right to future dividends, in relation to the ordinary shares and American Depositary Receipts (ADR)ADSs held by the trust. Under the Company’s ADRADS programme, the right to dividends in relation to the ordinary shares underlying the ADRsADSs was waived during the year by the ADR Depositary, under an arrangement whereby the Company pays the monies to satisfy any dividends separately to the Depositary for distribution to ADRADS holders entitled to the dividend. This arrangement is expected to continue for future dividends. Share price National Grid ordinary shares are listed on the London Stock Exchange under the symbol NG and the ADSs are listed on the New York Stock Exchange under the symbol NGG.  
Price history The following table shows the highest and lowest intraday market prices for our ordinary shares and ADSs for the periods indicated:indicated. | | | | Ordinary share
(pence) | | | ADS
($) | | | Ordinary share
(pence) | | | ADS
($) | | | | | High | | | Low | | | High | | | Low | | | High | | | Low | | | High | | | Low | | | | | | | 2016/17 | | | | 1,148.00 | | | | 888.90 | | | | 74.97 | | | | 56.50 | | | | | | 2015/16 | | | 998.20 | | | | 806.40 | | | | 72.53 | | | | 63.75 | | | | 998.20 | | | | 806.40 | | | | 72.53 | | | | 63.75 | | | | | 2014/15 | | | 965.00 | | | | 806.22 | | | | 77.21 | | | | 62.25 | | | | 965.00 | | | | 806.22 | | | | 77.21 | | | | 62.25 | | 2013/14 | | | 849.50 | | | | 711.00 | | | | 70.07 | | | | 55.16 | | | | 849.50 | | | | 711.00 | | | | 70.07 | | | | 55.16 | | 2012/13 | | | 770.00 | | | | 627.00 | | | | 58.33 | | | | 49.55 | | | | 770.00 | | | | 627.00 | | | | 58.33 | | | | 49.55 | | 2011/12 | | | 660.50 | | | | 545.50 | | | | 52.18 | | | | 45.80 | | | 2016/17 Q4 | | | | 1,022.50 | | | | 906.80 | | | | 64.22 | | | | 56.54 | | Q3 | | | | 1,114.50 | | | | 888.90 | | | | 71.43 | | | | 56.50 | | Q2 | | | | 1,148.00 | | | | 1,035.50 | | | | 74.97 | | | | 69.05 | | Q1 | | | | 1,096.00 | | | | 945.00 | | | | 74.67 | | | | 66.52 | | 2015/16 Q4 | | | 998.20 | | | | 906.10 | | | | 72.47 | | | | 64.76 | | | | 998.20 | | | | 906.10 | | | | 72.47 | | | | 64.76 | | Q3 | | | 968.57 | | | | 890.60 | | | | 72.53 | | | | 67.31 | | | | 968.57 | | | | 890.60 | | | | 72.53 | | | | 67.31 | | Q2 | | | 918.90 | | | | 806.40 | | | | 69.71 | | | | 63.75 | | | | 918.90 | | | | 806.40 | | | | 69.71 | | | | 63.75 | | Q1 | | | 940.90 | | | | 817.20 | | | | 72.14 | | | | 64.37 | | | | 940.90 | | | | 817.20 | | | | 72.14 | | | | 64.37 | | 2014/15 Q4 | | | 954.00 | | | | 842.60 | | | | 72.41 | | | | 62.25 | | | Q3 | | | 965.00 | | | | 853.78 | | | | 75.08 | | | | 67.01 | | | Q2 | | | 916.00 | | | | 835.76 | | | | 77.21 | | | | 70.37 | | | Q1 | | | 897.92 | | | | 806.22 | | | | 75.09 | | | | 67.62 | | | April 2016 | | | 1,011.50 | | | | 950.20 | | | | 73.10 | | | | 68.83 | | | March 2016 | | | 998.20 | | | | 932.00 | | | | 72.47 | | | | 66.56 | | | February 2016 | | | 992.50 | | | | 925.55 | | | | 72.36 | | | | 67.20 | | | January 2016 | | | 985.80 | | | | 906.10 | | | | 70.86 | | | | 64.76 | | | December 2015 | | | 968.57 | | | | 892.93 | | | | 71.05 | | | | 67.62 | | | April 2017 | | | | 1,042.00 | | | | 985.10 | | | | 65.33 | | | | 62.85 | | March 2017 | | | | 1,022.50 | | | | 909.31 | | | | 64.22 | | | | 59.24 | | February 2017 | | | | 983.40 | | | | 906.80 | | | | 61.22 | | | | 57.65 | | January 2017 | | | | 969.30 | | | | 912.30 | | | | 59.54 | | | | 56.54 | | December 2016 | | | | 960.00 | | | | 888.90 | | | | 59.40 | | | | 56.50 | | | | | | |
Shareholder analysis The following table includes a brief analysis of shareholder numbers and shareholdings as at 31 March 2016.2017. | Size of shareholding | | Number of
shareholders | | | % of
shareholders | | | Number of shares | | | % of shares | | | Number of
shareholders | | | % of
shareholders | | | Number
of shares | | | % of
shares | | | | | | | 1–50 | | | 164,955 | | | | 17.79 | | | | 4,739,232 | | | | 0.12 | | | | 159,963 | | | | 18.0110 | | | | 4,561,644 | | | | 0.1157 | | 51–100 | | | 248,832 | | | | 26.84 | | | | 17,628,238 | | | | 0.45 | | | | 236,033 | | | | 26.5760 | | | | 16,694,761 | | | | 0.4234 | | 101–500 | | | 400,098 | | | | 43.15 | | | | 84,389,639 | | | | 2.15 | | | | 386,407 | | | | 43.5073 | | | | 81,585,725 | | | | 2.0691 | | 501–1,000 | | | 56,663 | | | | 6.11 | | | | 39,596,174 | | | | 1.01 | | | | 53,761 | | | | 6.0532 | | | | 37,453,393 | | | | 0.9499 | | 1,001–10,000 | | | 53,455 | | | | 5.76 | | | | 132,042,157 | | | | 3.37 | | | | 48,874 | | | | 5.5029 | | | | 121,025,841 | | | | 3.0694 | | 10,001–50,000 | | | 2,120 | | | | 0.23 | | | | 38,087,028 | | | | 0.97 | | | | 2,018 | | | | 0.2272 | | | | 35,655,682 | | | | 0.9043 | | 50,001–100,000 | | | 205 | | | | 0.02 | | | | 14,532,280 | | | | 0.37 | | | | 222 | | | | 0.0250 | | | | 16,330,876 | | | | 0.4142 | | 100,001–500,000 | | | 464 | | | | 0.05 | | | | 113,514,429 | | | | 2.89 | | | | 418 | | | | 0.0471 | | | | 102,792,008 | | | | 2.607 | | 500,001–1,000,000 | | | 140 | | | | 0.02 | | | | 101,923,402 | | | | 2.60 | | | | 125 | | | | 0.0141 | | | | 86,652,292 | | | | 2.1976 | | 1,000,001+ | | | 314 | | | | 0.03 | | | | 3,377,585,507 | | | | 86.07 | | | | 321 | | | | 0.0361 | | | | 3,440,231,225 | | | | 87.2494 | | | | | | | Total | | | 927,246 | | | | 100.00 | | | | 3,924,038,086 | | | | 100.00 | | | | 888,142 | | | | 100 | | | | 3,942,983,447 | | | | 100 | | | | | | |
Taxation The discussion in this section provides information about certain US federal income tax and UK tax consequences for US Holders (defined below) of owning ADSs and ordinary shares. A US Holder is beneficial owner of ADSs or ordinary shares that: | ● | | is for US federal income tax purposes (i) an individual citizen or resident of the United States, (ii) a corporation created or organised under the laws of the United States, any State thereof, (iii) an estate the income of which is subject to US federal income tax without regard to its source or (iv) a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more US persons have the authority to control all substantial decisions of the trust, or the trust has elected to be treated as a domestic trust for US federal income tax purposes; |
| ● | | is not resident or ordinarily resident in the UK for UK tax purposes; and |
| ● | | does not hold ADSs or ordinary shares in connection with the conduct of a business or the performance of services in the UK or otherwise in connection with a branch, agency or permanent establishment in the UK. |
| | | | | | | 190 | | National Grid Annual Report and Accounts 2015/162016/17 | | Additional InformationShareholder information | | 187 |
| | | | | Additional Information
Shareholder informationcontinued |
This discussion is not a comprehensive description of all the US federal income tax and UK tax considerations that may be relevant to any particular investor (including consequences under the US alternative minimum tax or net investment income tax) and does not address state, local, or other tax laws. National Grid has assumed that shareholders, including US Holders, are familiar with the tax rules applicable to investments in securities generally and with any special rules to which they may be subject. This discussion deals only with US Holders who hold ADSs or ordinary shares as capital assets. It does not address the tax treatment of investors who are subject to special rules, such as: | ● | | financial institutions; |
| ● | | dealers in securities or currencies; |
| ● | | investors who electmark-to-market treatment; |
| ● | | entities treated as partnerships or other pass-through entities and their partners; |
| ● | | individual retirement accounts and othertax-deferred accounts; |
| ● | | tax-exempt organisations; |
| ● | | investors who own (directly or indirectly) 10% or more of our voting stock; |
| ● | | investors who hold ADSs or ordinary shares as a position in a straddle, hedging transaction or conversion transaction; |
| ● | | persons that have ceased to be US citizens or lawful permanent residents of the US; and |
●��� | | investors whose functional currency is not the US dollar. |
The statements regarding US and UK tax laws and administrative practices set forth below are based on laws, treaties, judicial decisions and regulatory interpretations in effect on the date of this document. These laws and practices are subject to change without notice, potentially with retroactive effect. In addition, the statements set forth below are based on the representations of the Depositary and assume that each party to the Deposit Agreement will perform its obligations thereunder in accordance with its terms. US Holders of ADSs generally will be treated as the owners of the ordinary shares represented by those ADSs for US federal income tax purposes. For the purposes of the Tax Convention, the Estate Tax Convention and UK tax considerations, this discussion assumes that a US Holder of ADSs will be treated as the owner of the ordinary shares represented by those ADSs. HMRC has stated that it will continue to apply its long-standing practice of treating a holder of ADSs as holding the beneficial interest in the ordinary shares represented by the ADSs; however, we note that this is an area of some uncertainty and may be subject to change. US Holders should consult their own advisors regarding the tax consequences of buying, owning and disposing of ADSs or ordinary shares in light of their particular circumstances, including the effect of any state, local, or other tax laws. Taxation of dividends The UK does not currently impose a withholding tax on dividends paid to US Holders. Cash distributions paid out of our current or accumulated earnings and profits (as determined for US federal income tax purposes) generally will be taxable to a US Holder as dividend income. Distributions in excess of current and accumulated earnings and profits will be treated as a non-taxable return of capital to the extent of a US Holder’s basis in its ADSs or ordinary shares, as applicable, and thereafter as a capital gain. However, we do not maintain calculations of our earnings and profits in accordance with US federal income tax principles. US Holders should therefore assume that any cash distribution paid by us with respect to ADSs or ordinary shares will be reported as dividend income.
Dividends While dividend income received fromnon-US corporations is generally taxable to anon-corporate US Holder as ordinary income for US federal income tax purposes, dividend income received by anon-corporate US Holders with respect to ADSs or ordinary sharesHolder from us generally will generally be taxable at the reduced ratesame favourable rates applicable to long-term capital gains provided (i) either (a) we are eligible for the benefits of the Tax Convention or (b) ADSs or ordinary shares are treated as ‘readily tradable’ on an established securities market in the United States and (ii) we are not, for our taxable year during which the dividend is paid or the prior year, a passive foreign investment company for US federal income tax purposes (a PFIC), and certain other requirements are met. We (1) expect that our shares will be treated as ‘readily tradable’ on an established securities market in the United States as a result of the trading of ADSs on the New York Stock Exchange and (2) believe we are eligible for the benefits of the Tax Convention.
Based on our audited financial statements and the nature of our business activities, we believe that we were not treated as a PFIC for US federal income tax purposes with respect to our taxable year ending 31 March 2016.2017. In addition, based on our current expectations regarding the value and nature of our assets, the sources and nature of our income, and the nature of our business activities, we do not anticipate becoming a PFIC in the foreseeable future. Dividends received by corporate US Holders with respect to ADSs or ordinary shares will not be eligible for the dividends received deduction generally allowed to corporations. Taxation of capital gains US Holders will not be subject to UK taxation on any capital gain realised on the sale or other disposition of ADSs or ordinary shares. Provided that we are not a PFIC for any taxable year during which a US Holder holds their ADSs or ordinary shares, upon a sale or other disposition of ADSs or ordinary shares, a US Holder generally will recognise capital gain or loss equal to the difference between the US dollar value of the amount realised on the sale or other disposition and the US Holder’s adjusted tax basis in the ADSs or ordinary shares. Such capital gain or loss generally will be long-term capital gain or loss if the ADSs or ordinary shares were held for more than one year. Fornon-corporate US Holders, long-term capital gain is generally taxed at a lower rate than ordinary income. A US Holder’s ability to deduct capital losses is subject to significant limitations. | | | | | | | | 188 | | National Grid Annual Report and Accounts 2015/162016/17 | | Shareholder informationAdditional Information | | 191 |
UK stamp duty and stamp duty reserve tax (SDRT) Transfers of ordinary shares – SDRT at the rate of 0.5% of the amount or value of the consideration will generally be payable on any agreement to transfer ordinary shares that is not completed using a duly stamped instrument of transfer (such as a stock transfer form). Where an instrument of transfer is executed and duly stamped before the expiry of the six year period beginning with the date on which the agreement is made, the SDRT liability will be cancelled. If a claim is made within the specified period, any SDRT which has been paid will be refunded. SDRT is due whether or not the agreement or transfer is made or carried out in the UK and whether or not any party to that agreement or transfer is a UK resident. Purchases of ordinary shares completed using a stock transfer form will generally result in a UK stamp duty liability at the rate of 0.5% (rounded up to the nearest £5) of the amount or value of the consideration. Paperless transfers under the CREST paperless settlement system will generally be liable to SDRT at the rate of 0.5%, and not stamp duty. SDRT is generally the liability of the purchaser and UK stamp duty is usually paid by the purchaser or transferee. Transfers of ADSs – No UK stamp duty will be payable on the acquisition or transfer of existing ADSs or beneficial ownership of ADSs, provided that any instrument of transfer or written agreement to transfer is executed outside the UK and remains at all times outside the UK. An agreement for the transfer of ADSs in the form of ADRs will not result in a SDRT liability. A charge to stamp duty or SDRT may arise on the transfer of ordinary shares to the Depositary or The Bank of New York Mellon as agent of the Depositary (the Custodian). The rate of stamp duty or SDRT will generally be 1.5% of the value of the consideration or, in some circumstances, the value of the ordinary shares concerned. However, there is no 1.5% SDRT charge on the issue of ordinary shares (or, where it is integral to the raising of new capital, the transfer of ordinary shares) to the Depositary or the Custodian. The Depositary will generally be liable for the stamp duty or SDRT. Under the terms of the Deposit Agreement, the Depositary will charge any tax payable by the Depositary or the Custodian (or their nominees) on the deposit of ordinary shares to the party to whom the ADSs are delivered against such deposits. If the stamp duty is not a multiple of £5, the duty will be rounded up to the nearest multiple of £5. US information reporting and backup withholding tax Dividend payments made to US Holders and proceeds paid from the sale, exchange, redemption or disposal of ADSs or ordinary shares to US Holders may be subject to information reporting to the US Internal Revenue Service (IRS). Such payments may be subject to backup withholding taxes if the US Holder fails to provide an accurate taxpayer identification number or certification of exempt status or fails to comply with applicable certification requirements. US Holders should consult their tax advisors about these rules and any other reporting obligations that may apply to the ownership or disposition of ADSs or ordinary shares, including reporting requirements related to the holding of certain foreign financial assets. UK inheritance tax An individual who is domiciled in the US for the purposes of the Estate Tax Convention and who is not a UK national for the purposes of the Estate Tax Convention will generally not be subject to UK inheritance tax in respect of (i) the ADSs or ordinary shares on the individual’s death or (ii) a gift of the ADSs or ordinary shares during the individual’s lifetime. This is not the case where the ADSs or ordinary shares are part of the business property of the individual’s permanent establishment in the UK or relate to a fixed base in the UK of an individual who performs independent personal services. Special rules apply to ADSs or ordinary shares held in trust. In the exceptional case where the ADSs or shares are subject both to UK inheritance tax and to US federal gift or estate tax, the Estate Tax Convention generally provides for the tax paid in the UK to be credited against tax paid in the US. Capital gains tax (CGT) for UK resident shareholders You can find CGT information relating to National Grid shares for UK resident shareholders on our website under: Investors, Shareholder centre, More information and help. Share prices on specific dates are also available on our website. | | | | | | | 192 | | National Grid Annual Report and Accounts 2015/162016/17 | | Additional InformationShareholder information | | 189 |
Other disclosures All-employee share plans The Company has a number ofall-employee share plans as described below, which operated during the year. These allowUK- orUS-based employees to participate in either HMRC (UK) or IRS (US) approved plans and to become shareholders in National Grid. Sharesave Employees resident in the UK are eligible to participate in the Sharesave plan. Under this plan, participants may contribute between £5 and £500 in total each month, for a fixed period of three years, five years or both. Contributions are taken from net salary. SIP Employees resident in the UK are eligible to participate in the SIP. Contributions up to £150 are deducted from participants’ gross salary and used to purchase ordinary shares in National Grid each month. The shares are placed in trust. US Incentive Thrift Plans Employees of National Grid’s US companies are eligible to participate in the Thrift Plans, which aretax-advantaged savings plans (commonly referred to as 401(k) plans). They are DC pension plans that give participants the opportunity to invest up to applicable federal salary limits. The federal limits for calendar year 20152016 are: forpre-tax contributions, a maximum of 50% of salary limited to $18,000 for those under the age of 50 and $24,000 for those age 50 and above; forpost-tax contributions, up to 15% of salary. The total amount of employee contributions (pre-tax(pre-tax andpost-tax) may not exceed 50% of compensation, and are further subject to the combined federal annual contribution limit of $53,000. For calendar year 2016,2017, participants may invest up to the applicable federal salary limits: forpre-tax contributions, a maximum of 50% of salary limited to $18,000 for those under the age of 50 and $24,000 for those age 50 and above; forpost-tax contributions, up to 15% of salary. The total amount of employee contributions (pre-tax(pre-tax andpost-tax) may not exceed 50% of compensation, and are further subject to the combined federal annual contribution limit of $53,000.$54,000. ESPP Employees of National Grid’s US companies are eligible to participate in the ESPP (commonly referred to as a 423(b) plan). Eligible employees have the opportunity to purchase ADSs on a monthly basis at a 15% discounted price. Under the plan, employees may contribute up to 20% of base pay each year, up to a maximum annual contribution of $18,888 to purchase ADSs in National Grid. 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 2016,2017, the Company had undrawn borrowing facilities of £1.7£3.7 billion available to it with a number of banks and a further £1.4£2.1 billion of drawn bank loans which, on a change of control of the Company following a takeover bid, may alter or terminate. All of 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. In the event of a change of control of the Company, a number of governmental and regulatory consents or approvals are likely to be required, arising from laws or regulations of the UK, US or the EU. Such consents or approvals may also be required for acquisitions of equity securities that do not amount to a change of control. 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. 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 (where any amendments or waivers will also be posted) under: About us, Corporate governance, Code of Ethics. There were no amendments to, or waivers of, our Code of Ethics during the year. Conflicts of interest In accordance with the Companies Act 2006, the Board has a policy and procedure in place for the disclosure and authorisation (if appropriate) of actual and potential conflicts of interest. The Board continues to monitor and note possible conflicts of interest that each Director may have. The Directors are regularly reminded of their continuing obligations in relation to conflicts, and are required annually to review and confirm their external interests. During the year ended 31 March 2016,2017, no actual or potential conflicts of interest were identified, which required approval by the Board. However, theThe Board was advisedhas also considered and noted a number of two situations in relation to which potential conflictsno actual conflict of interest could arise, and authorised those potential conflicts in accordance with its powers as set out in the Articles.was identified. Corporate governance practices: differences from New York Stock Exchange (NYSE) listing standards The Company is listed on the NYSE and is therefore required to disclose differences in its corporate governance practices adopted as a UK listed company, compared with those of a US company. The corporate governance practices of the Company are primarily based on the requirements of the Code but substantially conform to those required of US companies listed on the NYSE. The following is a summary of the significant ways in which the Company’s corporate governance practices differ from those followed by US companies under Section 303A Corporate Governance Standards of the NYSE. | ● | | The NYSE rules and the Code apply different tests for the independence of Board members. |
| ● | | The NYSE rules require a separate nominating/corporate governance committee composed entirely of independent Directors. There is no requirement for a separate corporate governance committee in the UK. Under the Company’s corporate governance policies, 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. |
| ● | | The NYSE rules require listed companies to adopt and disclose corporate governance guidelines. While the Company reports compliance with the Code in each Annual Report and Accounts, the UK requirements do not require the Company to adopt and disclose separate corporate governance guidelines. |
| ● | | The NYSE rules require a separate audit committee composed of at least three independent members. While the Company’s Audit Committee exceeds the NYSE’s minimum independent Non-executiveNon- executive Director membership requirements, it should be noted that the quorum for a meeting of the Audit Committee, of two independentNon-executive Directors, is less than the minimum membership requirements under the NYSE rules. |
| ● | | The NYSE rules require a compensation committee composed entirely of independent Directors, and prescribe criteria to evaluate the independence of the committee’s members and its ability to engage external compensation advisors. While the Code prescribes different independence criteria, theNon-executive Directors on the Remuneration Committee have each been deemed independent by the Board under the NYSE rules. Although the evaluation criteria for appointment of external advisors differ under the Code, the Remuneration Committee is solely responsible for appointment, retention and termination of such advisors. |
| | | | | | | | 190 | | National Grid Annual Report and Accounts 2015/162016/17 | | Other disclosuresAdditional Information | | 193 |
Other disclosurescontinued
Directors’ indemnity The Company has arranged, in accordance with the Companies Act 2006 and the Articles, qualifying third-party indemnities against financial exposure that Directors may incur in the course of their professional duties. Equivalent qualifying third-party indemnities were, and remain, in force for the benefit of those Directorsdirectors who stood down from the Board in prior financial years for matters arising when they were Directorsdirectors of the Company. Alongside these indemnities, the Company places Directors’ and Officers’ liability insurance cover for each Director.director. Employees We negotiate with recognised unions. It is our policy to maintain well developed communications and consultation programmes and there have been no material disruptions to our operations from labour disputes during the past five years. National Grid believes that it can conduct its relationships with trade unions and employees in a satisfactory manner. Human Rights Respect for human rights is incorporated into our employment practices and our values, which include respecting others and valuing diversity. ‘Always Doing the Right Thing’ isare integral to our guide to ethical business conduct guide – the way in which we conduct ourselves allows us to build trust with the people we work with. We earn this trust by doing things in the right way, building our reputation as an ethical company that our stakeholders want to do business with, and that our employees want to work for. Although we do not have specific policies relating to human rights, slavery andor human trafficking, our procurement policies integrate sustainability into the way we do business throughout our supply chain, so that we create value, preserve natural resources and respect the interests of the communities we serve and from which we procure goods and services. Through our Global Supplier Code of Conduct (GSCoC), we expect our suppliers to keep to all laws relating to their business, as well as adhere to the principles of the United Nations Global Compact, the Ethical Trading Initiative Base Code, and the UK Modern Slavery Act 2015. In 2015 the GSCoC was further updated to includeand for our UK suppliers, the requirements of the Living Wage Foundation. To read more on the Company’s commitment to the Living Wage please see page 45. Listing Rule 9.8.4 R cross reference table Information required to be disclosed by LR 9.8.4 R (starting on page indicated): | | | | Interest capitalised | | Page 112103 | | Publication of unaudited financial information | | Not applicable | | Details of long-term incentive schemes | | Not applicable | | Waiver of emoluments by a director | | Not applicable | | Waiver of future emoluments by a director | | Not applicable | | Nonpre-emptive issues of equity for cash | | Not applicable | | Item (7) in relation to major subsidiary undertakings | | Not applicable | | Parent participation in a placing by a listed subsidiary | | Not applicable | | Contracts of significance | | Not applicable | | Provision of services by a controlling shareholder | | Not applicable | | Shareholder waivers of dividends | | Page 190187 | | Shareholder waivers of future dividends | | Page 190187 | | Agreements with controlling shareholders | | Not applicable |
Material contracts EachOn 8 December 2016, we agreed to sell a 61% equity interest in our UK Gas Distribution business to the Consortium pursuant to the terms of an acquisition agreement of that date. The sale of the 61% interest completed on 31 March 2017. National Grid and the Consortium have also entered into an agreement for the potential future sale and purchase of an additional 14% equity interest in the UK Gas Distribution business.
In addition, each of our Executive Directors has a service agreementService Agreement and eachNon-executive Director has a letterLetter of appointment. NoAppointment. Apart from these, no contract (other than contracts entered into in the ordinary course of business) has been entered into by National Gridthe Group within the two years immediately preceding the date of this Reportreport which is, or may be material; or which contains any provision under which any member of National Gridthe Group has any obligation or entitlement which is material to National Gridthe Group at the date of this Report.report. Political donations and expenditure At this year’s AGM the Directors will again seek authority from shareholders, on a precautionary basis, for the Company and its subsidiaries to make donations to registered political parties and other political organisations and/or incur political expenditure in the European Union (EU), in each case in amounts not exceeding £125,000 in aggregate. The definitions of these terms in the Companies Act 2006 are very wide and as a result this can cover bodies such as those concerned with policy review, law reform and the representation of the business community. It could include special interest groups, such as those involved with the environment, which the Company and its subsidiaries might wish to support, even though these activities are not designed to support or influence support for a particular party. The Companies Act 2006 states thatall-party parliamentary groups are not political organisations for these purposes, meaning the authority to be sought from shareholders is not relevant to interactions with such groups. The Company has no intention of changing its current practice of not making political donations or incurring political expenditure within the ordinary meaning of those words. This authority is therefore being sought to ensure that none of the Company’s activities inadvertently infringe these rules. National Grid made no donations in the EU during the year, including donations as defined for the purposes of the Political Parties, Elections and Referendums Act 2000. National Grid USA and its affiliated New York and federal political action committees (each, a PAC) made political donations in the US totalling $67,550$71,410 (£45,952)55,933) during the year. National Grid USA’s affiliated New York PAC was funded partly by contributions from National Grid USA and certain of its subsidiaries and partly by voluntary employee contributions. National Grid USA’s affiliated federal PAC was funded wholly by voluntary employee contributions. Property, plant and equipment This information can be found under the heading note 1112 property, plant and equipment on pages 122118 and 123,119, note 1920 Borrowings on pages 130127 and 131, Strategic Report pages 10 to 13,128 and where we operate on page 175 and principal operations on pages 31 to 43.173. Research and development Expenditure onInvestment in research and development during the year for the Group, including discontinued operations, was £27 million (2015/16: £29 million (2014/million; 2014/15: £23 million; 2013/14: £12 million). InnovationThroughout 2016/17, innovation funding throughout 2015/16 has sustained investment across all three of our UK Regulated business areas: UK ET, UK GT and UK GD. Through collaborationWe have continued to challenge the way we work, collaborating across the industry we have continuedin search of new technologies and techniques in our drive to deliver benefits for our stakeholders, challenging the way we work and seeking new technologies to deliver these benefits.stakeholders. Due to the way in which we work with a large number of partners on new ideas, our disclosed research and development expenditure is lower than the overall contribution we make to the industry. We only disclose directly incurred expenditure, and not those amounts our partners incur working on projects with us.contribute to joint or collaborative projects.
The UK ET innovation investment continues to aim to advance our strategic ambitions to reduce the cost of providing a secure, reliable and sustainable electricity transmission system. Progress has been made on the design of our new 400kV research centre at Deeside. We have successfully installed a 400kV transformer with synthetic ester, an insulating fluid that presents a significantly lower fire risk thanand pressurised the mineral oil normally used; and we’ve started work towards live trials of a new insulating gas that could be an effective alternative to SF6.(Green Gas for Grid g3), a potential replacement for SF6 for new transmission assets, on two gas insulated busbar sections at our substation in Sellindge. The equipment passed its High Voltage test on site and was energised in April 2017. | | | | | | | 194 | | National Grid Annual Report and Accounts 2015/16 | | Additional Information | | |
Research has also progressed onour understanding of and ability to predict and manage the impact of increased levels of distributed and renewable generation on the system. UK ET has also secured £12 Our control room and forecasting team have already been able to use the initial output from our solar PV monitoring and forecasting work, to help with balancing the system at times of high levels of solar generation. NGET’s Transmission & Distribution Interface 2.0 project is an £8 million ofOfgem Network Innovation Competition funding supportaward announced on Wednesday 30 November 2016. This is a new regional power market trial that will improve interaction between National Grid’s System Operator (SO), UK Power Networks’ role as regional electricity distributor and renewable energy generators connected to the distribution system. | | | | | | | | | National Grid Annual Report and Accounts 2016/17 | | Other disclosures | | 191 |
Other disclosurescontinued The market will help renewable energy generators to offer their services to National Grid’s System Operator via a UK Power Networks’ Distribution System Operator (DSO) platform. This approach will also provide additional services to UK Power Networks. Improving communication, coordination and developing new commercial frameworks will maximise network capacity by better managing system constraints, giving National Grid’s System Operator access to previously unexploited power. It will also introduce new revenue streams for our £14renewable energy generators. If successful, the regional power market model could be introduced to 59 other sites and potentially save up to £412 million investmentfor UK consumers by 2050. We are also working in an innovation facility in northeast Wales. The UK GTpartnership with Scottish Power Electricity Networks on their £16 million Phoenix NIC project which aims to demonstrate how hybrid synchronous compensation could overcome technical limitations that currently limit the proportion of power generation from renewable sources and interconnectors that the Great Britain electricity system can handle. Our innovation portfolio has continued to grow,develop throughout 2016/17, with a keycontinued focus on new techniques for safety and risk reduction through projects exploringsuch as 3D laser scanning for more accurate pipeline condition assessment and removable composite transition pieces to access pipelines more easily. Other projects have explored new techniques for valve sealant lines and improved techniques for compressor emissions monitoring.
Demonstration of the value delivered to conduct internal pipe inspectionour customers has been a key priority in 2016/17 and improve asset integrity, alongside thosecontinues to provide enhanced gas forecasting and the development of new smart asset maintenance techniques. In addition, UK GT won £4.8 million funding for Project ‘CLoCC’ (customer low-cost connections), which seeks to minimise the time and cost of connections to the national gas transmission system.be going forward into 2017/18. Innovation in UK GD continuescontinued to grow with a diversified portfolio focusingfocus on six value areas which reflect both the RIIO outputs and the UK GD ambition.outputs. We continuecontinued to develop and refine robotic and pipe-lining technologies to reduce the impact of our pipe replacement activities on our customers and the environment. Our focus has shifted towards implementingIn addition, we have made a new tool available for our engineers to help find underground pipes more quickly. We also explored how virtual reality technology can improve the output of these innovations into the business and demonstrating the value of our innovation projects to our customers.way we train engineers. Research, Development & Demonstration (RD&D) work in the US has focused on the advancement of products, processes, systems and work methods that may be new to National Grid. This is accomplished by working with internal departments to identify where strategic RD&D investment is needed and is likely to prove beneficial to National Grid. To achieve these goals, we work in collaboration with technical organisations, academia and vendors in the energy sector that align with our goals and objectives. This collaboration has also helped inform our strategic direction in response to jurisdictional requests for modernisation (Grid Modernization in Massachusetts and ‘Reforming the Energy Vision’ in New York). In the year, we invested and participated in several significant pilot projects with the intent of obtaining operational knowledge and experience of technology driventechnology-driven system impacts. For example, weBelow are pre-approved to construct up to 20 MW of photovoltaic (PV) facilities in Massachusetts as parta few examples of our ‘Solar Phase II’ programme. These PV sites are designed with advanced grid interactive control features, beyond what typical PV facilities are required to provide.RD&D projects: Operating and analysing the performance of these grid interactive controls will help prepare and future proof our system to enable a high penetration of the Distributed Energy Resources on the distribution system. We are also supporting several Department of Energy projects under the SunShot programme, aimed to further integration and proliferation of solar PV. As part of its ongoing Worcester Smart Energy Solutions pilot in Massachusetts, the Company is continuing to examine its learnings from the customer and grid technology as deployed. Lastly, the Company is also deploying Volt VAR Optimization and Conservation Voltage Reduction technology on several distribution circuits in Rhode Island, examining the impact of intelligent centralised distribution asset control.
| ● | | We arepre-approved to construct up to 20 MW of photovoltaic (PV) facilities in Massachusetts as part of our ‘Solar Phase II’ programme. These PV sites are designed with advanced grid interactive control features, beyond what typical PV facilities are required to provide. Operating and analysing the performance of these grid interactive controls will help prepare and futureproof our system to enable a high penetration of the Distributed Energy Resources on the distribution system. We are alsopre-approved to construct up to 14 MW of photovoltaic (PV) facilities in conjunction with 7 MW of battery storage in Massachusetts as part of our ‘Solar Phase III’ programme. The intent of this project is to demonstrate the value of energy storage in the system peak load shaving, solar ramp rate control and mitigation of power quality issues. |
| ● | | We are engaged with Electric Power Research Institute (EPRI) on a number of programmes such as Distributed Energy Resources integration, energy storage and system planning. In February 2017, National Grid received two EPRI Technology Transfer awards for the RD&D work on Smart Inverters and distributed energy resources hosting capacity. |
| ● | | We are progressing four New York REV pilot projects, which are |
| ● | | 1) Fruit Belt Neighbourhood Solar, 2) Community Resilience, |
| ● | | 3) Demand Reduction, and 4) Distribution System Platform to test new technologies and business models in which distributed energy resources are integrated for grid operations. |
| ● | | We support several Department of Energy projects under the SunShot programme, aimed to further the integration and proliferation of solar PV. |
| ● | | Lessons learned from thetwo-year Worcester Smart Energy Solutions pilot in Massachusetts and the Volt VAR Optimization and Conservation Voltage Reduction pilot in Rhode Island have helped shape larger scale grid modernisation proposals in each of our jurisdictions. |
| ● | | We demonstrated electric robot and UAS (unmanned aircraft systems) technologies in our service area, and are working to integrate these technologies into our operations. |
| ● | | We are preparing to demonstrate online monitoring technology at transmission substations in our New England service area in order to move towards enhanced condition-based asset management. |
| ● | | We are building equipment test and training labs in order to support our initial upgrades of transmission substations across our service area to the IEC 61850 communications standard. |
US expenditure for gas research, development and deployment of new technologies during 2015/16 was $2.6 million. This is largely funded through a special Regulatory Order and customer surcharge mechanism in New York State. Primary investments were in the areas of robotic inspection toolsenhancements to improve overall customer safety; methane detection equipment is being deployed and enhancementstested both as mobile solutions to identify leakage in the field and in residential buildings. After completing extensive bench testing, we are continuing a pilot study in the use of existing and new technology for methane sensors within residential properties and working with standards organisations to enhance safety through the development of revised standards and specifications for improved detection levels and proper placement and use of detectors. We are evaluating best practices in automaticshut-off valves, excess flow valves and developing an integrated system to provide storm hardening (flood condition detection) with a methane detector in low pressure areas. To further advance the safe operation of our systems, ongoing improvements for condition assessments of the most difficult to inspect pipelines are being enhanced through robotic inspection platforms with focus on crack detection sensors, Electromagnetic Acoustic Transducer, and developing tools to assess smaller diameter unpiggable steel pipelines. In addition, new tools and techniques are being developed to increase safety of the workforce, safely stop off mains and services with less excavation, improve welding practices and advance the inspection of polyethylene pipe construction, joint quality and the tracking and traceability of materials used in the construction of our transmission and distribution assets. To further advance the safe operation of our systemsassets and to improve overall customer safety, methane detection equipment is being deployedmove toward more electronically and tested both as mobile solutions to identify leakage in thegeospatially based records of field operations and in residential buildings. After completing extensive bench testing, we are implementing a pilot study in the use of existing and new technology for methane sensors within residential properties.construction.
Unresolved SEC staff comments There are no unresolved SEC staff comments required to be reported. | | | | | | | | 192 | | National Grid Annual Report and Accounts 2015/162016/17 | | Other disclosuresAdditional Information | | 195 |
Other unaudited financial information Reconciliations of adjusted profit measures
UseWithin the annual report a number of financial measures are presented. These measures have been categorised as either alternative performance measures (APMs), as per the European Securities and Markets Authority (ESMA) guidelines, or as other financial information.
An alternative performance measure is a financial measure of historic or future financial performance, financial position, or cash flows, other than a financial measure defined under IFRS. The Group uses a range of these metrics to provide a better understanding of the underlying performance of the Group. Where appropriate, reconciliations of alternative performance measures to IFRS measures and/or definitions are provided. The Group has defined the following financial measures as APMs: net revenue (reconciliations below), adjusted operating profit including and excluding timing (reconciliations below), adjusted earnings per share including and excluding timing (reconciliations below), net debt (included in note 27), capital investment (reconciliation below) and value added (reconciliation and definition on page 21). Adjusted profit and earnings metrics this year relate to both the continuing business and the Group as a whole i.e. including discontinued operations. Other financial information presented includes additionalnon-IFRS reconciliations and are identified as follows: funds from operations (FFO) (reconciliation below), FFO/interest cover (reconciliation below) and retained cash flow (RCF)/adjusted net debt (reconciliation below). Other financial information also includes regulatory measures: Group, UK and US regulatory return on equity (RoE) (reconciliation below), regulatory asset based growth (reconciliation below), regulatory gearing (description on page 151) and annual asset growth (reconciliation below). Alternative performance measures (APMs) Net revenue ‘Net revenue’ is revenue less pass-through costs, such as payments to other UK network owners, system balancing costs, and gas and electricity commodity costs in the US. Pass-through costs are fully recoverable from our customers and are recovered through separate charges that are designed to recover those costs with no profit. Any over- or under-recovery of these costs is returned to, or recovered from, our customers. | | | | | | | | | | | | | | | | | | | | | | | | | | | | 31 March 2017 | | | 31 March 2016Re-presented1 | | | | | Total
sales | | | Pass
through
costs | | | Net
revenue | | | Total
sales | | | Pass
through
costs | | | Net
revenue | | UK Electricity Transmission | | | 4,439 | | | | (2,293 | ) | | | 2,146 | | | | 3,977 | | | | (2,030 | ) | | | 1,947 | | UK Gas Transmission | | | 1,080 | | | | (223 | ) | | | 857 | | | | 1,047 | | | | (221 | ) | | | 826 | | US Regulated | | | 8,931 | | | | (3,411 | ) | | | 5,520 | | | | 7,493 | | | | (3,154 | ) | | | 4,339 | | Other activities | | | 713 | | | | – | | | | 713 | | | | 824 | | | | – | | | | 824 | | Discontinued operations | | | 1,902 | | | | (350 | ) | | | 1,552 | | | | 1,949 | | | | (352 | ) | | | 1,597 | | Total | | | 17,065 | | | | (6,277 | ) | | | 10,788 | | | | 15,290 | | | | (5,757 | ) | | | 9,533 | |
| 1. | Comparative amounts have beenre-presented to reflect the classification of the UK Gas Distribution business as a discontinued operation. |
Adjusted profit measures In considering the financial performance of our businesses and segments, we analyse each of our primary financial measures of operating profit, profit before tax, profit for the year attributable to equity shareholders and EPS into two components. The first of these components is referred to as an adjusted profit measure, also known as a business performance measure. This is the principal measure used by management to assess the performance of the underlying business. Adjusted results exclude exceptional items and remeasurements. These items are reported collectively as the second component of the financial measures. Note 4 on page 111101 explains in detail the items which are excluded from our adjusted profit measures. Adjusted profit measures have limitations in their usefulness compared with the comparable total profit measures as they exclude important elements of our financial performance. However, we believe that by presenting our financial performance in two components it is easier to read and interpret financial performance between periods, as adjusted profit measures are more comparable having removed the distorting effect of the excluded items. Those items are more clearly understood if separately identified and analysed. The presentation of these two components of financial performance is additional to, and not a substitute for, the comparable total profit measures presented. Management uses adjusted profit measures as the basis for monitoring financial performance and in communicating financial performance to investors in external presentations and announcements of financial results. Internal financial reports, budgets and forecasts are primarily prepared on the basis of adjusted profit measures, although planned exceptional items, such as significant restructurings, are also reflected in budgets and forecasts. We separately monitor and disclose the excluded items as a component of our overall financial performance. | | | | | | | | | National Grid Annual Report and Accounts 2016/17 | | Other unaudited financial information | | 193 |
Other unaudited financial informationcontinued Continuing, discontinued and total Group profits and earnings The analysis below combines information from elsewhere in the Annual Report (primarily note 9) to reflect key metrics for the Group as if UK Gas Distribution was consolidated throughout the year. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Including timing | | | | | Year ended 31 March | | | | | 2017 | | | 2016 | | | 2015 | | | | | Continuing
operations | | | Discontinued
operations | | | Total | | | Continuing
operations | | | Discontinued
operations | | | Total | | | Continuing
operations | | | Discontinued
operations | | | Total | | Revenue | | | 15,035 | | | | 1,887 | | | | 16,922 | | | | 13,212 | | | | 1,903 | | | | 15,115 | | | | 13,357 | | | | 1,844 | | | | 15,201 | | Operating costs | | | (11,262) | | | | (993) | | | | (12,255) | | | | (9,998) | | | | (1,021) | | | | (11,019) | | | | (10,323) | | | | (1,015) | | | | (11,338) | | Adjusted operating profit | | | 3,773 | | | | 894 | | | | 4,667 | | | | 3,214 | | | | 882 | | | | 4,096 | | | | 3,034 | | | | 829 | | | | 3,863 | | Exceptional items and remeasurements | | | (565) | | | | – | | | | (565) | | | | 11 | | | | (22) | | | | (11) | | | | (83) | | | | – | | | | (83) | | Statutory operating profit | | | 3,208 | | | | 894 | | | | 4,102 | | | | 3,225 | | | | 860 | | | | 4,085 | | | | 2,951 | | | | 829 | | | | 3,780 | | Net finance costs (before exceptionals) | | | (1,029) | | | | (146) | | | | (1,175) | | | | (856) | | | | (157) | | | | (1,013) | | | | (872) | | | | (161) | | | | (1,033) | | Finance exceptionals and remeasurements | | | (58) | | | | (6) | | | | (64) | | | | (99) | | | | – | | | | (99) | | | | (165) | | | | – | | | | (165) | | Total net finance costs | | | (1,087) | | | | (152) | | | | (1,239) | | | | (955) | | | | (157) | | | | (1,112) | | | | (1,037) | | | | (161) | | | | (1,198) | | Share of result of joint ventures and associates | | | 63 | | | | – | | | | 63 | | | | 59 | | | | – | | | | 59 | | | | 46 | | | | – | | | | 46 | | Profit before tax | | | 2,184 | | | | 742 | | | | 2,926 | | | | 2,329 | | | | 703 | | | | 3,032 | | | | 1,960 | | | | 668 | | | | 2,628 | | Tax | | | (374) | | | | (79) | | | | (453) | | | | (427) | | | | (11) | | | | (438) | | | | (467) | | | | (150) | | | | (617) | | Profit after tax before gain on disposal | | | 1,810 | | | | 663 | | | | 2,473 | | | | 1,902 | | | | 692 | | | | 2,594 | | | | 1,493 | | | | 518 | | | | 2,011 | | Gain on disposal of UK Gas Distribution | | | – | | | | 5,321 | | | | 5,321 | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | Profit after tax including gain on disposal | | | 1,810 | | | | 5,984 | | | | 7,794 | | | | 1,902 | | | | 692 | | | | 2,594 | | | | 1,493 | | | | 518 | | | | 2,011 | |
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 and remeasurements. Reconciliation of adjusted operating profit to statutory operating profit is included within note 2. Reconciliation of adjusted operating profit excluding timing differences to total operating profit Adjusted operating profit excluding timing differences is discussed on page 20. | | | | | | | | | | | | | | | | Year ended 31 March | | | | | 2017 | | | 2016 | | | 2015 | | | | | £m | | | £m | | | £m | | Adjusted operating profit excluding timing differences | | | 4,291 | | | | 4,071 | | | | 3,927 | | Timing differences from continuing operations | | | 398 | | | | (1) | | | | (77) | | Timing differences from discontinued operations | | | (22) | | | | 26 | | | | 13 | | Adjusted operating profit | | | 4,667 | | | | 4,096 | | | | 3,863 | | Exceptional items and remeasurements | | | (565) | | | | (11) | | | | (83) | | Total operating profit | | | 4,102 | | | | 4,085 | | | | 3,780 | |
| | | | | | | | | | | | | | Year ended 31 March | | | | 2016 | | | 2015 | | | 2014 | | | | £m | | | £m | | | £m | Adjusted operating profit | | | 4,096 | | | | 3,863 | | | 3,664 | Exceptional items | | | (22) | | | | – | | | 55 | Remeasurements – commodity contracts | | | 11 | | | | (83 | ) | | 16 | Total operating profit | | | 4,085 | | | | 3,780 | | | 3,735 |
Reconciliation of adjusted operating profit to adjusted earnings and earnings Adjusted earnings is presented in note 7 to the consolidated financial statements on page 118.110. | | | | | | | | | | Year ended 31 March | | | | 2016 | | 2015 | | 2014 | | | | £m | | £m | | £m | Adjusted operating profit | | 4,096 | | 3,863 | | 3,664 | Adjusted net finance costs | | (1,013) | | (1,033) | | (1,108) | Share of post-tax results of joint ventures and associates | | 59 | | 46 | | 28 | Adjusted profit before tax | | 3,142 | | 2,876 | | 2,584 | Adjusted tax | | (753) | | (695) | | (581) | Adjusted profit after tax | | 2,389 | | 2,181 | | 2,003 | Attributable to non-controlling interests | | (3) | | 8 | | 12 | Adjusted earnings | | 2,386 | | 2,189 | | 2,015 | Exceptional items after tax | | 278 | | (97) | | 388 | Remeasurements after tax | | (73) | | (73) | | 73 | Earnings | | 2,591 | | 2,019 | | 2,476 |
Reconciliation of adjusted EPS to EPS
Adjusted EPS is presented in note 7 to the consolidated financial statements.
| | | | | | | | | | Year ended 31 March | | | | 2016 | | 20151 | | 20141 | | | | pence | | pence | | pence | Adjusted EPS | | 63.5 | | 57.6 | | 53.1 | Exceptional items after tax | | 7.4 | | (2.6) | | 10.2 | Remeasurements after tax | | (1.9) | | (1.8) | | 1.9 | EPS | | 69.0 | | 53.2 | | 65.2 |
1. | Comparative information has been restated to reflect the additional shares issued as scrip dividends. |
Reconciliation of adjusted operating profit excluding timing differences to total operating profit
Adjusted operating profit excluding timing differences is discussed on page 25. There were no major storms in 2014, 2015, or 2016.
| | | | | | | | | | Year ended 31 March | | | | 2016 | | 2015 | | 2014 | | | | £m | | £m | | £m | Adjusted operating profit excluding timing differences | | 4,071 | | 3,927 | | 3,706 | Timing differences | | 25 | | (64) | | (42) | Adjusted operating profit | | 4,096 | | 3,863 | | 3,664 | Exceptional items and remeasurements | | (11) | | (83) | | 71 | Total operating profit | | 4,085 | | 3,780 | | 3,735 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Including timing | | | Excluding timing | | | | | Year ended 31 March | | | Year ended 31 March | | | | | 2017 | | | 20161 | | | 20151 | | | 2017 | | | 20161 | | | 20151 | | | Continuing operations | | £m | | | £m | | | £m | | | £m | | | £m | | | £m | | Adjusted operating profit | | | 3,773 | | | | 3,214 | | | | 3,034 | | | | 3,375 | | | | 3,215 | | | | 3,111 | | Adjusted net finance costs | | | (1,029) | | | | (856) | | | | (872) | | | | (1,029) | | | | (856) | | | | (872) | | Share ofpost-tax results of joint ventures and associates | | | 63 | | | | 59 | | | | 46 | | | | 63 | | | | 59 | | | | 46 | | Adjusted profit before tax | | | 2,807 | | | | 2,417 | | | | 2,208 | | | | 2,409 | | | | 2,418 | | | | 2,285 | | Adjusted tax | | | (666) | | | | (604) | | | | (543) | | | | (547) | | | | (619) | | | | (553) | | Adjusted profit after tax | | | 2,141 | | | | 1,813 | | | | 1,665 | | | | 1,862 | | | | 1,799 | | | | 1,732 | | Attributable tonon-controlling interests | | | – | | | | (1) | | | | 10 | | | | – | | | | (1) | | | | 10 | | Adjusted earnings from continuing operations | | | 2,141 | | | | 1,812 | | | | 1,675 | | | | 1,862 | | | | 1,798 | | | | 1,742 | | Exceptional items after tax | | | (312) | | | | 162 | | | | (99) | | | | (312) | | | | 162 | | | | (99) | | Remeasurements after tax | | | (19) | | | | (73) | | | | (73) | | | | (19) | | | | (73) | | | | (73) | | Earnings from continuing operations | | | 1,810 | | | | 1,901 | | | | 1,503 | | | | 1,531 | | | | 1,887 | | | | 1,570 | | Discontinued operations | | | | | | | | | | | | | | | | | | | | | | | | | Adjusted operating profit | | | 894 | | | | 882 | | | | 829 | | | | 916 | | | | 856 | | | | 816 | | Adjusted net finance costs | | | (146) | | | | (157) | | | | (161) | | | | (146) | | | | (157) | | | | (161) | | Adjusted profit before tax | | | 748 | | | | 725 | | | | 668 | | | | 770 | | | | 699 | | | | 655 | | Adjusted tax | | | (142) | | | | (149) | | | | (152) | | | | (146) | | | | (144) | | | | (150) | | Adjusted profit after tax | | | 606 | | | | 576 | | | | 516 | | | | 624 | | | | 555 | | | | 505 | | Attributable tonon-controlling interests | | | 1 | | | | (2) | | | | (2) | | | | 1 | | | | (2) | | | | (2) | | Adjusted earnings from discontinued operations | | | 607 | | | | 574 | | | | 514 | | | | 625 | | | | 553 | | | | 503 | | Exceptional items after tax from discontinued operations | | | 62 | | | | 116 | | | | 2 | | | | 62 | | | | 116 | | | | 2 | | Remeasurements after tax from discontinued operations | | | (5) | | | | – | | | | – | | | | (5) | | | | – | | | | – | | Gain on disposal of UK Gas Distribution after tax | | | 5,321 | | | | – | | | | – | | | | 5,321 | | | | – | | | | – | | Earnings from discontinued operations | | | 5,985 | | | | 690 | | | | 516 | | | | 6,003 | | | | 669 | | | | 505 | |
| | | | | | | 196194 | | National Grid Annual Report and Accounts 2015/16 2016/17 | | Additional Information | | |
Reconciliation of adjusted operating profit to adjusted earnings and earningscontinued | | | | | | | | | | | | | | | | Including timing | | Excluding timing | | | | Year ended 31 March | | Year ended 31 March | | | | 2017 | | 20161 | | 20151 | | 2017 | | 20161 | | 20151 | | | | £m | | £m | | £m | | £m | | £m | | £m | Continuing and discontinued operations | | | | | | | | | | | | | Adjusted operating profit | | 4,667 | | 4,096 | | 3,863 | | 4,291 | | 4,071 | | 3,927 | Adjusted net finance costs | | (1,175) | | (1,013) | | (1,033) | | (1,175) | | (1,013) | | (1,033) | Share ofpost-tax results of joint ventures and associates | | 63 | | 59 | | 46 | | 63 | | 59 | | 46 | Adjusted profit before tax | | 3,555 | | 3,142 | | 2,876 | | 3,179 | | 3,117 | | 2,940 | Adjusted tax | | (808) | | (753) | | (695) | | (693) | | (763) | | (703) | Adjusted profit after tax | | 2,747 | | 2,389 | | 2,181 | | 2,486 | | 2,354 | | 2,237 | Attributable tonon-controlling interests | | 1 | | (3) | | 8 | | 1 | | (3) | | 8 | Total adjusted earnings | | 2,748 | | 2,386 | | 2,189 | | 2,487 | | 2,351 | | 2,245 | Total exceptional items after tax | | (250) | | 278 | | (97) | | (250) | | 278 | | (97) | Total remeasurements after tax | | (24) | | (73) | | (73) | | (24) | | (73) | | (73) | Gain on disposal of UK Gas Distribution after tax | | 5,321 | | – | | – | | 5,321 | | – | | – | Total earnings | | 7,795 | | 2,591 | | 2,019 | | 7,534 | | 2,556 | | 2,075 |
| 1. | Comparative amounts have beenre-presented to reflect the classification of the UK Gas Distribution business as a discontinued operation. |
Reconciliation of adjusted EPS to statutory EPS (including and excluding timing) Adjusted EPS is presented in note 7 to the consolidated financial statements. | | | | | | | | | | | | | | | | Including timing | | Excluding timing | | | | Year ended 31 March | | Year ended 31 March | | | | 2017 | | 20161 | | 20151 | | 2017 | | 20161 | | 20151 | | | | pence | | pence | | pence | | pence | | pence | | pence | Adjusted EPS from continuing operations | | 56.9 | | 48.0 | | 43.9 | | 49.5 | | 47.6 | | 45.6 | Exceptional items after tax from continuing operations | | (8.3) | | 4.3 | | (2.6) | | (8.3) | | 4.3 | | (2.6) | Remeasurements after tax from continuing operations | | (0.5) | | (1.9) | | (1.9) | | (0.5) | | (1.9) | | (1.9) | EPS from continuing operations | | 48.1 | | 50.4 | | 39.4 | | 40.7 | | 50.0 | | 41.1 | Adjusted EPS from discontinued operations | | 16.1 | | 15.2 | | 13.4 | | 16.6 | | 14.7 | | 13.1 | Exceptional items after tax from discontinued operations | | 1.6 | | 3.1 | | 0.1 | | 1.6 | | 3.1 | | 0.1 | Remeasurements after tax from discontinued operations | | (0.1) | | – | | – | | (0.1) | | – | | – | Gain on disposal of UK Gas Distribution after tax | | 141.4 | | – | | – | | 141.4 | | – | | – | EPS from discontinued operations | | 159.0 | | 18.3 | | 13.5 | | 159.5 | | 17.8 | | 13.2 | Total adjusted EPS | | 73.0 | | 63.2 | | 57.3 | | 66.1 | | 62.3 | | 58.7 | Total exceptional items after tax | | (6.7) | | 7.4 | | (2.5) | | (6.7) | | 7.4 | | (2.5) | Total remeasurements after tax | | (0.6) | | (1.9) | | (1.9) | | (0.6) | | (1.9) | | (1.9) | Gain on disposal of UK Gas Distribution after tax | | 141.4 | | – | | – | | 141.4 | | – | | – | Total EPS | | 207.1 | | 68.7 | | 52.9 | | 200.2 | | 67.8 | | 54.3 |
| 1. | Comparative information has been restated to reflect the classification of the UK Gas Distribution business as a discontinued operation and the additional shares issued as scrip dividends. |
Capital investment ‘Capital investment’ or ‘investment’ refer to additions to plant, property and equipment and intangible assets, and contributions to joint ventures and associates, other than the St William Property Limited joint venture during the period. St William Property Limited is excluded based on the nature of this joint venture arrangement. | | | | | | | | | | | | | | | | For the year ended 31 March | | | £m | | 2017 | | | 2016 | | | % change | | UK Electricity Transmission | | | 1,027 | | | | 1,084 | | | | (5 | %) | UK Gas Transmission | | | 214 | | | | 186 | | | | 15 | % | US Regulated | | | 2,247 | | | | 1,856 | | | | 21 | % | Other activities1 | | | 374 | | | | 254 | | | | 47 | % | Discontinued operations | | | 588 | | | | 566 | | | | 4 | % | Group capital investment | | | 4,450 | | | | 3,946 | | | | 13 | % |
| 1. | Other activities capital investment includes investment in joint ventures, excluding equity contributions to St William Property Limited joint venture. |
| | | | | | | | | | | | | | | | For the year ended 31 March | | | £m | | 2017 | | | 2016 | | | % change | | Capital expenditure | | | 3,735 | | | | 3,327 | | | | 12 | % | Additions within discontinued operations | | | 588 | | | | 566 | | | | 4 | % | Equity and funding contributions to joint ventures and associates | | | 127 | | | | 53 | | | | 140 | % | Group capital investment | | | 4,450 | | | | 3,946 | | | | 13 | % |
| | | | | | | | | National Grid Annual Report and Accounts 2016/17 | | Other unaudited financial information | | 195 |
Other unaudited financial informationcontinued Other financial information Funds from operations and interest cover Funds from operations (FFO) is the cash flows generated by the operations of the Group. Credit rating metrics including FFO are used as indicators of balance sheet strength. | | | | | | | | | | | | | | For the years ended 31 March (£m) | | 2017 | | | 20161 | | | 20151 | | Interest expense (P&L) | | | 1,082 | | | | 1,035 | | | | 1,069 | | Hybrid interest reclassified as dividend | | | (51 | ) | | | (49 | ) | | | (55 | ) | Capitalised interest | | | 109 | | | | 112 | | | | 86 | | Pensions interest adjustment | | | (60 | ) | | | (60 | ) | | | (48 | ) | Interest on decommissioning liabilities adjustment | | | 1 | | | | 1 | | | | 1 | | Interest on lease rentals adjustment | | | 18 | | | | 17 | | | | 32 | | Unwinding of discount on provisions | | | (73 | ) | | | (73 | ) | | | (73 | ) | Interest paid (discontinued operations) | | | 146 | | | | – | | | | – | | Adjusted interest expense | | | 1,172 | | | | 983 | | | | 1,012 | | Net cash inflow from operating activities | | | 4,320 | | | | 5,368 | | | | 5,007 | | Interest income on financial instruments | | | 51 | | | | 23 | | | | 37 | | Interest paid on financial instruments | | | (839 | ) | | | (834 | ) | | | (826 | ) | Dividends received | | | 99 | | | | 72 | | | | 79 | | Working capital adjustment | | | (151 | ) | | | (456 | ) | | | (301 | ) | Excess employer pension contributions | | | 606 | | | | 301 | | | | 237 | | Hybrid interest reclassified as dividend | | | 51 | | | | 49 | | | | 55 | | Lease rentals | | | 86 | | | | 77 | | | | 65 | | Difference in net interest expense in income statement to cash flow | | | (170 | ) | | | (129 | ) | | | (156 | ) | Difference in current tax in income statement to cash flow | | | (47 | ) | | | (42 | ) | | | 47 | | Current tax related to prior periods | | | (46 | ) | | | (26 | ) | | | (64 | ) | Cash flow from discontinued operations | | | 909 | | | | – | | | | – | | Interest paid (discontinued operations) | | | (146 | ) | | | – | | | | – | | Adjusted funds from operations (FFO) | | | 4,723 | | | | 4,403 | | | | 4,180 | | Interest cover (adjusted funds from operations + adjusted interest expense/adjusted interest expense) | | | 5.0x | | | | 5.5x | | | | 5.1x | |
| 1. | Numbers for 2016 and 2015 reflect the calculations for the total group as based on the published accounts for the respective years and have not been restated. |
Retained cash flow (RCF)/adjusted net debt | | | | | | | | | | | | | | For the years ended 31 March (£m) | | 2017 | | | 2016 | | | 2015 | | Adjusted funds from operations (FFO) | | | 4,723 | | | | 4,403 | | | | 4,180 | | Hybrid interest reclassified as dividend | | | (51 | ) | | | (49 | ) | | | (55 | ) | Dividends paid to shareholders | | | (1,463 | ) | | | (1,337 | ) | | | (1,271 | ) | RCF (headline) | | | 3,209 | | | | 3,017 | | | | 2,854 | | Purchase of treasury shares | | | (189 | ) | | | (267 | ) | | | (338 | ) | RCF (net of share buybacks) | | | 3,020 | | | | 2,750 | | | | 2,516 | | Bank overdrafts | | | – | | | | 3 | | | | 3 | | Borrowings | | | 28,638 | | | | 28,341 | | | | 25,907 | | Less: | | | | | | | | | | | | | 50% hybrid debt | | | (1,033 | ) | | | (995 | ) | | | (948 | ) | Cash and cash equivalents | | | (1,139 | ) | | | (127 | ) | | | (119 | ) | Restricted cash | | | 2 | | | | 2 | | | | 1 | | Available-for-sale investments | | | (7,432 | ) | | | (1,951 | ) | | | (1,232 | ) | Underfunded pension obligations | | | 1,487 | | | | 1,434 | | | | 1,675 | | Operating leases adjustment | | | 526 | | | | 544 | | | | 588 | | Derivative asset removed from debt | | | 52 | | | | (183 | ) | | | (89 | ) | Currency swaps | | | 72 | | | | 55 | | | | 453 | | Nuclear decommissioning liabilities reclassified as debt | | | 36 | | | | 38 | | | | 22 | | Collateral – cash received under collateral agreements | | | (709 | ) | | | (610 | ) | | | (540 | ) | Accrued interest removed from short term debt | | | (210 | ) | | | (243 | ) | | | (230 | ) | Adjusted net debt (includes pension deficit) | | | 20,290 | | | | 26,308 | | | | 25,491 | | FFO/adjusted net debt | | | 23.3% | | | | 16.7% | | | | 16.4% | | RCF (headline)/adjusted net debt | | | 15.8% | | | | 11.5% | | | | 11.2% | | RCF (net of share buybacks)/adjusted net debt | | | 14.9% | | | | 10.5% | | | | 9.9% | |
| | | | | | | | 196 | | National Grid Annual Report and Accounts 2016/17 | | Additional Information | | |
Group return on equity (RoE) The Group RoE calculation provides a measure of the performance of the whole Group compared with the amounts invested by the Group in assets attributable to equity shareholders. Calculation: Regulatory financial performance including along-run assumption of 3.0% RPI inflation, less adjusted interest and adjusted taxation divided by equity investment in assets. | ● | | Adjusted interest removes interest on pensions, capitalised interest and release of provisions. |
| ● | | Adjusted taxation adjusts the Group taxation charge for differences between IFRS profit before tax and regulated financial performance less adjusted interest. |
| ● | | Equity investment in assets is calculated as the total opening UK regulatory asset value, the total opening US rate base plus goodwill plus opening net book value of Other activities and our share of joint ventures and associates; minus opening net debt as reported under IFRS restated to the weighted average £/$ exchange rate for the year. |
| | | | | | | | | | | | | Group RoE calculation For the year ended 31 March £m | | 2017 | | | 2016 | | | 2015 | | Regulated financial performance | | | 3,906 | | | | 3,663 | | | | 3,741 | | Operating profit of other activities | | | 204 | | | | 374 | | | | 199 | | Group financial performance | | | 4,110 | | | | 4,037 | | | | 3,940 | | Share ofpost-tax results of joint ventures & associates | | | 63 | | | | 59 | | | | 46 | | Non-controlling interests | | | 1 | | | | (3 | ) | | | 8 | | Adjusted Group interest charge | | | (1,075 | ) | | | (922 | ) | | | (945 | ) | Group tax charge | | | (808 | ) | | | (753 | ) | | | (695 | ) | Tax on adjustments | | | 166 | | | | 4 | | | | (14 | ) | Group financial performance after interest and tax | | | 2,457 | | | | 2,422 | | | | 2,340 | | Opening rate base/RAV | | | 40,435 | | | | 36,998 | | | | 35,237 | | Opening NBV ofnon-regulated businesses | | | 1,579 | | | | 1,213 | | | | 1,341 | | Joint ventures & associates | | | 408 | | | | 319 | | | | 358 | | Opening goodwill | | | 5,984 | | | | 5,182 | | | | 4,856 | | Opening capital employed | | | 48,406 | | | | 43,712 | | | | 41,792 | | Opening net debt | | | (27,346 | ) | | | (24,024 | ) | | | (21,974 | ) | Opening equity | | | 21,060 | | | | 19,688 | | | | 19,818 | | Return on Equity | | | 11.7% | | | | 12.3% | | | | 11.8% | |
UK regulated return on equity (RoE) UK RoEs are measures of how the businesses are performing operationally against the assumptions used by the regulator. These returns are calculated using the assumption that the businesses are financed in line with the regulatory adjudicated capital structure, at the cost of debt assumed by the regulator and that RPI inflation is equal to along-run assumption of 3.0%. Calculation: Base allowed RoE plus or minus the following items: | ● | | Additional allowed revenues/profits earned in the year from incentive schemes, less associated corporation tax charge; |
| ● | | Totex outperformance multiplied by the company sharing factor set by the regulator; and |
| ● | | Revenues (net of associated depreciation and base allowed asset return) allowed in the year associated with incentive performance earned under previous price controls but not yet fully recovered, less associated corporation tax charge (excluding logging up or pensions recovery). |
Divided by average equity RAV in line with regulatory assumed capital structure. US regulated return on equity (RoE) US regulated RoE is a measure of how a business is performing operationally against the assumptions used by the regulator. This US operational return measure is calculated using the assumption that the businesses are financed in line with the regulatory adjudicated capital structure. This is apost-tax US GAAP metric calculated annually. Calculation: Regulated net income divided by equity rate base. | ● | | Regulated net income calculated as US GAAP operating profit less interest on the adjudicated debt portion of the rate base (calculated at the actual rate on long term debt, adjusted where the proportion of long term debt in the capital structure is materially different from the assumed regulatory proportion) less tax at the adjudicated rate. |
| ● | | Regulated net income is adjusted for earned savings as appropriate and for certain material specified items. |
| ● | | Equity rate base is the average rate base for the relevant year as reported to the Group’s regulators (or where a reported rate base is not available, an estimate based on rate base calculations used in previous rate filings) multiplied by the adjudicated equity portion in the regulatory capital structure. |
| | | | | | | | | | | | | | | | | | | | | | Year ended 31 March | | Regulatory
Debt:Equity
assumption | | | Achieved Return on equity | | | Base or Allowed Return on Equity | | | | | | | | % | | | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | UK Electricity Transmission | | | 60/40 | | | | 13.6% | | | | 13.9% | | | | 10.2% | | | | 10.2% | | UK Gas Transmission | | | 62.5/37.5 | | | | 10.8% | | | | 12.5% | | | | 10.0% | | | | 10.0% | | US Regulated1 | | | Avg. 50/50 | | | | 8.2% | | | | 8.0% | | | | 9.5% | | | | 9.7% | |
| 1. | Comparative information for US Regulated segment was calculated for the 2015 calendar year. |
Regulated asset base | | | | | | | | | | | | | | | | | | As at 31 March | | Regulated asset value
or rate base | | | Total regulated assets | | | | | | | | (£bn, at constant currency) | | 2017 | | | 2016 | | | 2017 | | | 2016 | | UK Electricity Transmission | | | 12.5 | | | | 11.8 | | | | 12.0 | | | | 11.7 | | UK Gas Transmission | | | 5.8 | | | | 5.6 | | | | 5.7 | | | | 5.7 | | US Regulated | | | 15.4 | | | | 14.6 | | | | 17.1 | | | | 16.2 | | Total Group excluding UK Gas Distribution | | | 33.7 | | | | 32.0 | | | | 34.8 | | | | 33.6 | | UK Gas Distribution | | | 8.9 | | | | 8.7 | | | | 8.9 | | | | 8.6 | | Total Group | | | 42.6 | | | | 40.7 | | | | 43.7 | | | | 42.2 | |
US rate base and total regulated assets for 31 March 2016 have been restated in the table above at constant currency. At actual currency the values were £12.7 billion and £14.1 billion respectively. Invested capital at 31 March 2017 for Other activities was £2.2 billion (31 March 2016: £2.0 billion at constant currency). Regulated asset base growth has been disclosed on page 13. | | | | | | | | | National Grid Annual Report and Accounts 2016/17 | | Other unaudited financial information | | 197 |
Commentary on consolidated financial statements for the year ended 31 March 20152016 | In compliance with SEC rules, we present a summarised analysis of movements in the income statement, an analysis of movements in adjusted operating profit (for the continuing group) by operating segment and a summarised analysis of movements in the statement of financial position for the year ended 31 March 2015.2016. This should be read in conjunction with the 31 March 20162017 unaudited commentary included on pages 95, 99, 10785, 89, 97 and 108. 98. |
Analysis of the income statement for the years ended 31 March 20152016 and 31 March 20142015 Revenue Revenue for the year ended 31 March 2016 decreased by £145 million to £13,212 million. This decrease was driven by lower revenues in our US Regulated business, partly offset by revenue growth across all of our other businesses, in particular UK Electricity Transmission. US Regulated revenues were £493 million lower year on year due to lower commodity costs passed on to customers and unfavourable timing of recoveries. This was partly offset by higher increased revenue allowances under the Niagara Mohawk three year rate plan and the benefits of capex trackers and the stronger US dollar. UK Electricity Transmission revenue increased by £223 million, mostly reflecting the recovery of higher pass-through costs such as payments to other UK network owners and system balancing costs. Revenue for the year ended 31 March 2015 increased by £392£416 million to £15,201£13,357 million. This increase was driven by higher revenues in our UK ET business, reflecting increases in allowed Transmission Owner revenues, and higher core allowances and pass-through costs in UK GT. Revenues in our UK GD business were slightly lower as a result of changes in allowed revenues for replacement expenditure (repex). Our US Regulated business revenues were also lower, as a result of the end of the LIPA MSA lastin the prior year, partially offset by revenue increases from existing rate plans, including capex trackers, together with additional income from gas customer growth and the impact of the strengthening US dollar. RevenueOperating costs
Operating costs for the year ended 31 March 2014 increased by £4502016 of £9,987 million were £419 million lower than the prior year. This decrease in costs included a £94 million impact in exceptional items and remeasurements, which is discussed below. Excluding exceptional items and remeasurements, operating costs were £325 million lower, principally due to £14,809 million. This increase was driven by higher revenues in our UK ET and UK GD businesses, principally as a result of the new RIIO regulatory arrangements. Revenue in our US Regulated business was also higher, reflecting higherlower pass-through costs such as gas and electricityelectric commodity costs in the US and additional costs incurred the year before in the US to improve data quality and bring regulatory filings up to date, partially offset by the endhigher depreciation as a result of Niagara Mohawk deferral revenue recoveries at March 2013newly commissioned assets and the impact of the weaker dollar. Operating costsstronger US dollar on sterling results.
Operating costs for the year ended 31 March 2015 of £11,421£10,406 million were £347£358 million higher than the prior year. This increase in costs included a £154£199 million year on year impact of changes in exceptional items and remeasurements, which is discussed below. Excluding exceptional items and remeasurements, operating costs were £193£159 million higher, principally due to: increases in controllable costs, including the impact of inflation and additional costs incurred in the US to improve data quality and bring regulatory filings up to date; higher US bad debt costs following lastthe previous year’s exceptionally cold winter; and higher depreciation and amortisation as a result of continued investment programmes. These cost increases were partly offset by a reduction in spend on US financial systems implementation and stabilisation upgrades, with the project completing in the first half of thisthe year. Exceptional operating items and remeasurements Operating profitcosts for the year ended 31 March 2016 included an £11 million gain on remeasurement of commodity contracts. Operating costs for the year ended 31 March 2015 included an £83 million loss (2013/14: £16 million gain) on remeasurement of commodity contracts. The year ended 31 March 2014 also included a net £55£100 million gain on exceptional items, including a net gain on the LIPA MSA transition in the US of £254 million;million and restructuring costs of £136£91 million, primarily in the UK as we reorganised certain parts of our business to deliver under the new RIIO price controls;controls, and a £79 million provision for the demolition of UK gas holders that arewere no longer required. OperatingNet finance costs for
For the year ended 31 March 2014 of £11,0742016, net finance costs before exceptional items and remeasurements were £16 million were £464lower than 2014/15 at £856 million, higher than the prior year. This increase in costs was predominantly due to increases in pass-through costs in our UK and US regulated business, together with higher depreciation and amortisationmainly as a result of lower UK RPI inflation, continued investmentfocus on management of cash balances and increases in our controllable costs.the benefit of the prior year’s debt repurchases, partially offset by increased borrowings and the impact of the stronger US dollar. Net finance costs
For the year ended 31 March 2015, net finance costs before exceptional items and remeasurements were £75£66 million lower than 2013/14 at £1,033£872 million, mainly as a result of lower average gross debt through the year, lower RPI in the UK and refinancing debt at lower rates. ForExceptional finance costs for the year ended 31 March 2014,2016 included a loss of £99 million on financial remeasurements, relating to net finance costs before exceptional items and remeasurements were £16 million lower than 2012/13 at £1,108 million, mainly due to the impact of the weaker dollar.
Finance costs for thelosses on derivative financial instruments. The year ended 31 March 2015 included exceptional debt redemption costs of £131 million and a loss of £34 million on financial remeasurements (2013/14: gain of £93 million), relating to net losses on derivative financial instruments. The year ended 31 March 2014 included a gain of £93 million on financial remeasurements.
Tax The tax charge on profits before exceptional items and remeasurements for the year ended 31 March 2016 was £61 million higher than 2014/15. This was mainly a result of increased taxable profits in the year. The effective tax rate for the year was 25.0% (2014/15: 24.6%). The tax charge on profit before exceptional items and remeasurements for the year ended 31 March 2015 was £114£126 million higher than 2013/14. This was mainly due to higher profits before tax and the non recurrence ofone-off items that benefited the prior year. The 2013/14Exceptional tax chargefor 2015/16 was a credit of £177 million which represents tax credits on profit beforethe exceptional items and remeasurements was £38 million lower than 2012/13 at £581 million. This was mainly due toabove, together with a 1% decreasedeferred tax credit on the recalculation of deferred tax liabilities as a result of the reduction in the UK statutory corporation tax rate in the year and a change in the UK/US profit mix where higher UK profits were taxed at the lower UK tax rate. Our tax charge was also affected by changes in tax provisions in respect of prior years.from 20% to 18%.
Exceptional tax for 2014/15 of £78£76 million primarily represents tax credits on the exceptional items and remeasurements described above. Exceptional tax for 2013/14 included an exceptional deferred tax credit of £398 million arising from a reduction in the UK corporation tax rate from 23% to 21% applicable from 1 April 2014 and a further reduction to 20% from 1 April 2015.
Adjusted earnings and EPS As a result of the variances described above, adjusted earnings for the year ended 31 March 20152016 were £2,189£1,812 million. For the year ended 31 March 2014,2015, adjusted earnings were £2,015£1,675 million. The above earnings performance translated into adjusted EPS growth in 2014/152015/16 of 4.5p (8%4.1 pence (9%) and 2.7p (5%5.5 pence (14%) in 2013/14.2014/15. In accordance with IAS 33, all EPS and adjusted EPS amounts for comparative periods have been restated for shares issued via scrip dividends and the bonus element of the 2010 rights issue. | | | | | | | | | National Grid Annual Report and Accounts 2015/16 | | Other unaudited financial information | | 197 |
Other unaudited financial informationcontinued
Analysis of the adjusted operating profit by segment for the year ended 31 March 20152016 UK Electricity Transmission For the year ended 31 March 2015,2016, revenue in the UK ETElectricity Transmission segment was £367increased by £223 million higher at £3,754to £3,977 million, and adjusted operating profit increaseddecreased by £150£64 million to £1,237£1,173 million. Net regulated income after The revenue growth of £223 million was principally due to the recovery of higher pass-through costs was £230 million higher, principally reflecting increases in allowed Transmission Owner revenues this yearsuch as payments to other UK network owners and a £43 million benefit relating to legal settlements. This was partially offset bysystem balancing costs, and under-recoveries of allowed revenue in the year of £89 million compared with under-recoveries of £60 millionrevenues in the prior year. This was partly offset by reductions in allowed revenues in 2015/16 and a legal settlement received in 2014/15 that did not repeat in 2015/16. Net revenue (after deducting pass-through costs) was £14 million higher. Regulated controllable costs were £14£28 million higher due to inflation organisational changeand salary growth, together with legal cost recoveries in the prior year, higher tower maintenance costs and additional tower maintenance costs.transformation costs associated with our System Operator role. Depreciation and amortisation was £33£14 million higher reflecting the continued capital investment programme (investment in the year was £1,074 million).programme. Other costs were £4£36 million higher than prior year.year due to additional asset impairments this year and lower scrap and disposal proceeds.
UK Gas Transmission Revenue in the UK GTGas Transmission segment increased by £81£25 million in 2014/152015/16 to £1,022£1,047 million and adjusted operating profit increased by £20£49 million to £437£486 million. Net regulated income after pass-through costs Revenue was £42£25 million higher, principally due to earned gas permit and constraints management incentives. In addition, under-recoveriesover-recoveries of allowed revenuerevenues in the year of £18 million were £3 million favourable to last year’s under-recoveries of £21 million. Partially offsetting the revenue gains, regulatedyear. Regulated controllable costs were £8£10 million higher than the previous year, mainly as a result of additionalinflation, higher gas system operatorservice charges and organisational change costs. Depreciation costs relatingwere £6 million higher due to EU work and some organisation change costs.ongoing investment. Other operating costs were also £17£19 million higher, including a £13 million provision for decommissioninglower than the Avonmouth LNG plant. Capital investment remained around the same level as lastprevious year, at £184 million.
UK Gas Distribution
UK GD revenue decreased by £31 millionmostly reflecting additional costs in 2014/15 relating to £1,867 million, and adjusted operating profit decreased by £78 million to £826 million.
Net regulated income after pass-through costs was £11 million lower, reflecting changes in allowed revenues for replacement expenditure (repex). Timing differences reduced net revenues by a further £16 million, with £13 million over-recoveries in 2014/15, compared with a £29 million over-recovery in the prior year. Regulated controllable costs were £22 million higher primarily due to inflation and some organisation change costs. Depreciation and amortisation was £15 million higher reflecting the continued capital investment programme (investment in the year was £498 million). Other costs were £14 million higher, reflecting a provision for additional asset protection costs.closure of LNG facilities.
US Regulated Revenue in our US Regulated businessbusinesses was £54£493 million lower in 2014/15 at £7,986£7,493 million, while adjusted operating profit increased by £39£21 million to £1,164 million. The stronger dollar increased operating profit in the year by £30 million. Excluding the impact of foreign exchange, net regulated income increased by £81 million, reflecting increased revenue from existing rate plans, including capex trackers, together with additional income from gas customer growth, partially offset by the impact of the end of LIPA management services activities (MSA) in December 2013. In addition, over-recoveries of allowed revenues in the year of £30 million were £20 million favourable to last year’s over-recoveries of £10 million. Regulated controllable costs increased by £17 million excluding the impact of foreign exchange, as a result of increased gas leak and compliance work and additional costs incurred to improve data quality and bring regulatory filings up to date, partly offset by the cessation of costs associated with the LIPA MSA activities. Bad debt costs were £62 million higher excluding the impact of foreign exchange, following last year’s exceptionally cold winter.
There were no major storms affecting our operations in the years ended 31 March 2014 and 2015.
Our capital investment programme continued in the US, with a further £1,501 million invested in 2014/15, including gas leak reduction programmes and electricity capacity and reinforcement work.
Other activities
Revenue in Other activities increased by £26 million to £762 million in the year ended 31 March 2015. Adjusted operating profit was £68 million higher at £199 million.
Operating profit in the French interconnector was £18 million higher as a result of strong auction revenues this year. In the US, corporate and other activities losses were £63 million lower, mainly as a result of our finance system upgrade completing in the first half of this year. Capital investment in our Other activities was £33 million higher at £213 million.
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£1,185 million. The stronger US dollar increased operating profit in the year by £81 million. Excluding the impact of foreign exchange rate movements, revenue decreased by £1,051 million, principally as a result of lower commodity costs passed on to customers and unfavourable timing of recoveries year over year, partly offset by higher revenue allowances under the Niagara Mohawk three year rate plan and the benefit of capex trackers. The reduction in revenue was mostly offset by a £1,027 million reduction in pass-through costs incurred (excluding the impact of foreign exchange). Regulated controllable costs reduced by £71 million at constant currency, partly as a result of lower gas leak and compliance work this year and additional costs incurred last year to improve data quality and bring regulatory filings up to date. Depreciation and amortisation costs were £51 million higher this year at constant currency as a result of ongoing investment in our networks. Pension costs were £15 million higher at constant currency due to changes in actuarial discount rates, while other operating costs were £41 million higher at constant currency including higher asset removal costs. Other activities Revenue in Other activities increased by £110 million to £824 million in the year ended 31 March 2016. Adjusted operating profit was £174 million higher at £370 million. In the US, adjusted operating profit was £143 million higher, reflecting lower spend on upgrades to our finance systems which completed last year. In addition, we benefited from a £49 million gain on disposal of our investment in the Iroquois pipeline, and the deconsolidation of our investment in Clean Line. In the UK, adjusted operating profit was £31 million higher as a result of strong auction revenues at the French interconnector and higher property sales. Analysis of the statement of financial position for the year ended 31 March 20152016 The consolidated statement of financial position shows all of the Group’s assets and liabilities at the year end. As a capital-intensive business, we have significant amounts of physical assets and corresponding borrowings. Goodwill and other intangible assets Goodwill and intangibles increased by £684£255 million to £5,947£6,202 million as at 31 March 2015.2016. This increase primarily relates to foreign exchange movements of £602£184 million and software additions of £207£220 million, partially offset by software amortisation of £121£147 million. Property, plant and equipment Property, plant and equipment increased by £3,544£2,641 million to £40,723£43,364 million as at 31 March 2015.2016. This was principally due to capital expenditure of £3,263£3,673 million on the renewal and extension of our regulated networks and foreign exchange movements of £1,703£543 million, offset by depreciation of £1,361£1,467 million in the year. See page 22 for further details of our capital expenditure. Investments and othernon-current assets Investments in joint ventures and associates, financial and other investments and othernon-current assets have increased by £6 million to £728£233 millionto £961 million. This wasis primarily due to a decreasean increase in investments in joint ventures of £33 million, which includes dividends received of £79 million, partially offset by our share of post-tax results for the year of £46 million, more than offset bytogether with an increase inavailable-for-sale investments of £46£152 million. Inventories and current intangible assets, and trade and other receivables Inventories and current intangible assets, and trade and other receivables increasedhave decreased by £53£284 million to £3,176£2,832 million as at 31 March 2015.2016. This wasis due to an increase in inventories and current intangible assets of £72£97 million, more than offset by a net decrease in trade and other receivables of £19£381 million. The £19£381 million decrease consists of an increase ina foreign exchange impact of £211£57 million due to the stronger US dollar against sterling andoffset by a decrease in the underlying balances of £229£421 million, reflecting collection of large prior year balances, including LIPA MSA and Superstorm Sandy re-insurance receivables.high 2015 winter billings, coupled with the impact of the recent mild winter. Trade and other payables Trade and other payables increasedhave decreased by £261£7 million to £3,292£3,285 million, primarily due to a foreign exchange impact of £48 million more than offset by movements of £161 millionin the US related to warmer weather and an increase in VAT liability following a change in regulations on wholesale gas and electricity trading.energy billing settlements. Current tax balances CurrentNet current tax balances decreasedhave increased by £33£51 million to £124£175 million as at 31 March 2015.2016, which includes a £77 million current tax asset (£60 million current tax asset in 2014/15 included in trade and other receivables). This wasis primarily due to the tax payments made in 2014/152015/16 being only partially offset by a smaller current year tax charge.
Deferred tax balances Deferred tax balances have increased by £215£337 million to £4,297£4,634 million as at 31 March 2015.2016. This was primarily due to the impact of the £299£125 million deferred tax creditcharge on actuarial losses (a £172gains in reserves (£299 million tax chargecredit in 2013/14)2014/15) and foreign exchange movements being offset by the impact of the reduction in the UK statutory tax rate, foreign exchange movements of £203 million and the reduction in prior year charges.rate. Provisions and othernon-current liabilities Provisions (both current andnon-current) and othernon-current liabilities increased by £168£136 million to £3,654£3,790 million as at 31 March 2015. 2016. Total provisions increaseddecreased by £90£16 million in the year. The underlying movements include additions of £105£63 million, primarily relating to an increase to the provision for the estimated environmental restoration and remediation costs for a number of sites and other provision increases of £57£33 million, together with foreign exchange movements of £133£42 million, offset by utilisation of £209£200 million in relation to all classes of provisions. Net debt Net debt is the aggregate of cash and cash equivalents, current financial and other investments, borrowings, and derivative financial assets and liabilities. See further analysis with the consolidated cash flow statement on page 90. Net pension and other post-retirement obligations A summary of the total UK and US assets and liabilities and the overall net IAS 19 (revised) accounting deficit is shown below: | | Net plan liability | | UK £m | | US £m | | Total £m | | | UK £m | | US £m | | Total £m | | As at 1 April 2014 | | | (753 | ) | | (1,658 | ) | | (2,411 | ) | | As at 1 April 2015 | | | | (672 | ) | | (2,586 | ) | | (3,258 | ) | Exchange movements | | | – | | | (236 | ) | | (236 | ) | | | – | | | (81 | ) | | (81 | ) | Current service cost | | | (70 | ) | | (116 | ) | | (186 | ) | | | (74 | ) | | (147 | ) | | (221 | ) | Net interest cost | | | (27 | ) | | (74 | ) | | (101 | ) | | | (18 | ) | | (94 | ) | | (112 | ) | Curtailments and other | | | (34 | ) | | (27 | ) | | (61 | ) | | | (24 | ) | | (15 | ) | | (39 | ) | Actuarial gains/(losses) | | | | | | | | Actuarial (losses)/gains | | | | | | | | – on plan assets | | | 1,929 | | | 225 | | | 2,154 | | | | (18 | ) | | (320 | ) | | (338 | ) | – on plan liabilities | | | (1,975 | ) | | (950 | ) | | (2,925 | ) | | | 552 | | | 325 | | | 877 | | Employer contributions | | | 258 | | | 250 | | | 508 | | | | 239 | | | 348 | | | 587 | | As at 31 March 2015 | | | (672 | ) | | | (2,586 | ) | | | (3,258 | ) | | As at 31 March 2016 | | | | (15 | ) | | | (2,570 | ) | | | (2,585 | ) | Represented by: | | | | | | | | | | | | | Plan assets | | | 19,453 | | | 6,955 | | | 26,408 | | | | 19,401 | | | 7,033 | | | 26,434 | | Plan liabilities | | | (20,125 | ) | | (9,541 | ) | | (29,666 | ) | | | (19,416 | ) | | (9,603 | ) | | (29,019 | ) | | | | | (672 | ) | | | (2,586 | ) | | | (3,258 | ) | | | (15 | ) | | | (2,570 | ) | | | (2,585 | ) |
The principal movements in net obligations during the year includedinclude net actuarial lossesgains of £771£539 million and employer contributions of £508£587 million. Net actuarial losses includedgains include actuarial lossesgains on plan liabilities of £2,746£877 million arising as a consequence of increasesdecreases in the UK real discount rate and the nominal discount rate in the US.US and experience gains reflecting liability experience throughout the year including the impact of pension increases being lower than assumed and some updates to the way a section of plan liabilities is estimated. This wasis partially offset by actuarial gainslosses of £2,154£338 million arising on plan assets.assets resulting from actual asset returns being less than assumed returns which is based upon the discount rate at the start of the year. Further information on our pension and other post-retirement obligations can be found in note 23 to the consolidated financial statements. Off balance sheet items There were no significant off balance sheet items other than the contractual obligations shown in note 30(b) to the consolidated financial statements, and the commitments and contingencies discussed in note 27.28. Through the ordinary course of our operations, we are party to various litigation, claims and investigations. We do not expect the ultimate resolution of any of these proceedings to have a material adverse effect on our results of operations, cash flows or financial position. | | | | | | | | | National Grid Annual Report and Accounts 2015/162016/17 | | Other unauditedCommentary on consolidated financial informationstatements | | 199 |
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 2016.2017. It should be read in conjunction with the consolidated financial statements and related notes, together with the Strategic Report. The information presented below for the years ended 31 March 2012, 2013, 2014, 2015, 2016 and 20162017 has been prepared under IFRS issued by the IASB and as adopted by the EU1. | | | | 2016 | | | 2015 | | 2014 | | | 20131 | | | 20121 | | | 2017 | | | 20161 | | 20151 | | 20141 | | | 20131,2 | | Summary income statement £m | | | | | | | | | | | | Summary income statement (£m) | | | | | | | | | | | | Continuing operations | | | | | | | | | | | | Revenue | | | 15,115 | | | | 15,201 | | | 14,809 | | | | 14,359 | | | | 13,832 | | | | 15,035 | | | | 13,212 | | | 13,357 | | | 12,941 | | | | 12,673 | | Operating profit | | | | | | | | | | | | | | | | | | | | | Before exceptional items, remeasurements and stranded cost recoveries | | | 4,096 | | | | 3,863 | | | 3,664 | | | | 3,639 | | | | 3,491 | | | | 3,773 | | | | 3,214 | | | 3,034 | | | 2,777 | | | | 2,866 | | Exceptional items, remeasurements and stranded cost recoveries | | | (11) | | | | (83 | ) | | 71 | | | | 110 | | | | 44 | | | | (565) | | | | 11 | | | (83 | ) | | 116 | | | | 141 | | | | | 4,085 | | | | 3,780 | | | 3,735 | | | | 3,749 | | | | 3,535 | | | Profit before tax | | | | | | | | | | | | | | | | | | | | | Before exceptional items, remeasurements and stranded cost recoveries | | | 3,142 | | | | 2,876 | | | 2,584 | | | | 2,533 | | | | 2,408 | | | | 2,807 | | | | 2,417 | | | 2,208 | | | 1,867 | | | | 1,922 | | Exceptional items, remeasurements and stranded cost recoveries | | | (110) | | | | (248 | ) | | 164 | | | | 178 | | | | (26 | ) | | | (623) | | | | (88 | ) | | (248 | ) | | 209 | | | | 209 | | | | | 3,032 | | | | 2,628 | | | 2,748 | | | | 2,711 | | | | 2,382 | | | Profit after tax from continuing operations | | | | | | | | | | | | Before exceptional items, remeasurements and stranded cost recoveries | | | | 2,141 | | | | 1,813 | | | 1,665 | | | 1,450 | | | | 1,452 | | Exceptional items, remeasurements and stranded cost recoveries | | | | (331) | | | | 89 | | | (172 | ) | | 324 | | | | 208 | | | Profit for the year | | | 2,594 | | | | 2,011 | | | 2,464 | | | | 2,154 | | | | 1,919 | | | Profit after tax from discontinued operations | | | | | | | | | | | | Before exceptional items, remeasurements and stranded cost recoveries | | | | 606 | | | | 576 | | | 516 | | | 553 | | | | 462 | | Exceptional items, remeasurements and stranded cost recoveries | | | | 57 | | | | 116 | | | 2 | | | 137 | | | | 32 | | Gain/(loss) on disposal of UK Gas Distribution after tax | | | | 5,321 | | | | – | | | | – | | | | – | | | | – | | | Total profit for the year | | | | 7,794 | | | | 2,594 | | | 2,011 | | | 2,464 | | | | 2,154 | | | Profit for the year attributable to equity shareholders | | | | | | | | | | | | | | | | | | | | | Before exceptional items, remeasurements and stranded cost recoveries | | | 2,386 | | | | 2,189 | | | 2,015 | | | | 1,913 | | | | 1,709 | | | | 2,748 | | | | 2,386 | | | 2,189 | | | 2,015 | | | | 1,913 | | Exceptional items, remeasurements and stranded cost recoveries | | | 205 | | | | (170 | ) | | 461 | | | | 240 | | | | 208 | | | | (274) | | | | 205 | | | (170 | ) | | 461 | | | | 240 | | Gain on disposal of UK Gas Distribution after tax | | | | 5,321 | | | | – | | | | – | | | | – | | | | – | | Total | | | | 7,795 | | | | 2,591 | | | | 2,019 | | | | 2,476 | | | | 2,153 | | Earnings per share | | | | | | | | | | | | Basic – continuing operations (pence)3 | | | | 48.1 | | | | 50.4 | | | 39.4 | | | 46.9 | | | | 43.5 | | Diluted – continuing operations (pence)3 | | | | 47.9 | | | | 50.2 | | | 39.2 | | | 46.6 | | | | 43.2 | | Basic – discontinued operations (pence)3 | | | | 159.0 | | | | 18.3 | | | 13.5 | | | 18.0 | | | | 13.0 | | Diluted – discontinued operations (pence)3 | | | | 158.3 | | | | 18.2 | | | 13.5 | | | 17.9 | | | | 13.0 | | Basic – total (pence)3 | | | | 207.1 | | | | 68.7 | | | 52.9 | | | 64.9 | | | | 56.5 | | Diluted – total (pence)3 | | | | 206.2 | | | | 68.4 | | | 52.7 | | | 64.5 | | | | 56.2 | | | | | | 2,591 | | | | 2,019 | | | 2,476 | | | | 2,153 | | | | 1,917 | | | Earnings per share | | | | | | | | | | | | Basic – continuing operations (pence)2 | | | 69.0 | | | | 53.2 | | | 65.2 | | | | 56.7 | | | | 50.6 | | | Diluted – continuing operations (pence)2 | | | 68.7 | | | | 52.9 | | | 64.9 | | | | 56.5 | | | | 50.4 | | | Basic (pence)2 | | | 69.0 | | | | 53.2 | | | 65.2 | | | | 56.7 | | | | 50.6 | | | Diluted (pence)2 | | | 68.7 | | | | 52.9 | | | 64.9 | | | | 56.5 | | | | 50.4 | | | | Number of shares – basic (millions)3 | | | 3,755 | | | | 3,798 | | | 3,798 | | | | 3,794 | | | | 3,788 | | | Number of shares – diluted (millions)3 | | | 3,771 | | | | 3,815 | | | 3,817 | | | | 3,813 | | | | 3,807 | | | Number of shares – basic (millions)4 | | | | 3,763 | | | | 3,774 | | | 3,817 | | | 3,817 | | | | 3,813 | | Number of shares – diluted (millions)4 | | | | 3,780 | | | | 3,790 | | | 3,834 | | | 3,836 | | | | 3,832 | | Dividends per ordinary share | | | | | | | | | | | | | | | | | | | | | Paid during the year (pence) | | | 43.16 | | | | 42.25 | | | 40.85 | | | | 39.84 | | | | 37.40 | | | | 43.51 | | | | 43.16 | | | 42.25 | | | 40.85 | | | | 39.84 | | Approved or proposed during the year (pence) | | | 43.34 | | | | 42.87 | | | 42.03 | | | | 40.85 | | | | 39.28 | | | Approved or proposed during the year (pence)5 | | | | 128.65 | | | | 43.34 | | | 42.87 | | | 42.03 | | | | 40.85 | | Paid during the year ($) | | | 0.664 | | | | 0.697 | | | 0.636 | | | | 0.633 | | | | 0.599 | | | | 0.555 | | | | 0.664 | | | 0.697 | | | 0.636 | | | | 0.633 | | Approved or proposed during the year ($) | | | 0.635 | | | | 0.672 | | | 0.696 | | | | 0.632 | | | | 0.623 | | | | 1.642 | | | | 0.635 | | | 0.672 | | | 0.696 | | | | 0.632 | |
| 1. | Items previously reported for 2013–2016 have been represented to reflect UK Gas Distribution being presented as a discontinued operation in the current year. | |
| 2. | For the years ended 31 March 2015, 31 March 2016 and 31 March 2016,2017, there have been no significant changes in accounting standards, interpretations or policies that have a material financial impact on the selected financial data. For the year ended 31 March 2014, the adoption of IAS 19 (revised) ‘Employee benefits’ resulted in a significant change in pensions and employee benefits accounting. The numbers included in the selected financial data above for the years 31 March 2012 and 2013 were restated to show the impact of IAS 19 (revised). | |
2.3. | Items previously reported for 2012 – 20152013–2016 have been restated to reflect the impact of the bonus element of the rights issue and the additional shares issued as scrip dividends. | |
3.4. | Number of shares previously reported for 2012 – 20152013–2016 have been restated to reflect the impact of the additional shares issued as scrip dividends. | |
| 5. | Following the disposal of UK Gas Distribution, 2017 includes a special interim dividend of 84.375 pence per share that will be paid on 2 June 2017. | |
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| | | | | | | | | | | | | | | | | | | | | | | | 2016 | | | 2015 | | | 2014 | | | 20131 | | | 20121 | | Summary statement of net assets | | | | | | | | | | | | | | | | | | | | | Non-current assets | | | 52,622 | | | | 49,058 | | | | 44,895 | | | | 45,129 | | | | 41,684 | | Current assets | | | 6,312 | | | | 6,031 | | | | 7,489 | | | | 9,576 | | | | 5,387 | | Assets of businesses held for sale | | | – | | | | – | | | | – | | | | – | | | | 264 | | Total assets | | | 58,934 | | | | 55,089 | | | | 52,384 | | | | 54,705 | | | | 47,335 | | Current liabilities | | | (7,721 | ) | | | (7,374 | ) | | | (7,331 | ) | | | (7,445 | ) | | | (6,004 | ) | Non-current liabilities | | | (37,648 | ) | | | (35,741 | ) | | | (33,134 | ) | | | (37,026 | ) | | | (32,001 | ) | Liabilities of businesses held for sale | | | – | | | | – | | | | – | | | | – | | | | (87 | ) | Total liabilities | | | (45,369 | ) | | | (43,115 | ) | | | (40,465 | ) | | | (44,471 | ) | | | (38,092 | ) | Net assets | | | 13,565 | | | | 11,974 | | | | 11,919 | | | | 10,234 | | | | 9,243 | | Shareholders’ equity | | | 13,555 | | | | 11,962 | | | | 11,911 | | | | 10,229 | | | | 9,236 | | | | | | | | Summary cash flow statement | | | | | | | | | | | | | | | | | | | | | Cash generated from continuing operations | | | 5,660 | | | | 5,350 | | | | 4,419 | | | | 4,037 | | | | 4,487 | | Tax paid | | | (292 | ) | | | (343 | ) | | | (400 | ) | | | (287 | ) | | | (259 | ) | Net cash inflow from operating activities | | | 5,368 | | | | 5,007 | | | | 4,019 | | | | 3,750 | | | | 4,228 | | Net cash flows used in investing activities | | | (4,036 | ) | | | (2,001 | ) | | | (1,330 | ) | | | (6,130 | ) | | | (2,371 | ) | Net cash flows (used in)/from financing activities | | | (1,328 | ) | | | (3,253 | ) | | | (2,972 | ) | | | 2,715 | | | | (1,900 | ) | Net increase/(decrease) in cash and cash equivalents | | | 4 | | | | (247 | ) | | | (283 | ) | | | 335 | | | | (43 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 20131 | | Summary statement of net assets | | | | | | | | | | | | | | | | | | | | | Non-current assets | | | 52,266 | | | | 52,622 | | | | 49,058 | | | | 44,895 | | | | 45,129 | | Current assets | | | 13,574 | | | | 6,312 | | | | 6,031 | | | | 7,489 | | | | 9,576 | | Total assets | | | 65,840 | | | | 58,934 | | | | 55,089 | | | | 52,384 | | | | 54,705 | | Current liabilities | | | (10,511 | ) | | | (7,721 | ) | | | (7,374 | ) | | | (7,331 | ) | | | (7,445 | ) | Non-current liabilities | | | (34,945 | ) | | | (37,648 | ) | | | (35,741 | ) | | | (33,134 | ) | | | (37,026 | ) | Total liabilities | | | (45,456 | ) | | | (45,369 | ) | | | (43,115 | ) | | | (40,465 | ) | | | (44,471 | ) | Net assets | | | 20,384 | | | | 13,565 | | | | 11,974 | | | | 11,919 | | | | 10,234 | | Total shareholders’ equity | | | 20,368 | | | | 13,555 | | | | 11,962 | | | | 11,911 | | | | 10,229 | |
| 1. | For the years ended 31 March 20152017, 31 March 2016 and 31 March 2016,2015, there have been no significant changes in accounting standards, interpretations or policies that have a material financial impact on the selected financial data. For the year ended 31 March 2014, the adoption of IAS 19 (revised) ‘Employee benefits’ resulted in a significant change in pensions and employee benefits accounting. The numbers included in the selected financial data above for the yearsyear to 31 March 2012 and 2013 were restated to show the impact of IAS 19 (revised). |
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Further information regarding financial KPIs and other performance measures
As part of our financial review on pages 22–25, various financial KPIs and performance measures are identified. Further details as to how these are calculated are provided below.
Group return on equity
The Group RoE calculation provides a measure of the performance of the whole Group compared with the amounts invested by the Group in assets attributable to equity shareholders.
Calculation: Regulatory financial performance including a long-run assumption of 3.0% RPI inflation, less adjusted interest and adjusted taxation divided by equity investment in assets.
● | | Adjusted interest removes interest on pensions, capitalised interest and release of provisions. |
● | | Adjusted taxation adjusts the Group taxation charge for differences between IFRS profit before tax and regulated financial performance less adjusted interest. |
● | | Equity investment in assets is calculated as the total opening UK regulatory asset value, the total opening US rate base plus goodwill plus opening net book value of Other activities and our share of joint ventures and associates; minus opening net debt as reported under IFRS. |
UK regulated return on equity
UK operational return is a measure of how a business is performing operationally against the assumptions used by the regulator. These returns are calculated using the assumption that the businesses are financed in line with the regulatory adjudicated capital structure, at the cost of debt assumed by the regulator and that RPI inflation is equal to a long-run assumption of 3.0%.
Calculation: Base allowed RoE plus or minus the following items:
● | | Additional allowed revenues/profits earned in the year from incentive schemes, less associated corporation tax charge; |
● | | Totex outperformance multiplied by the company sharing factor set by the regulator; and |
● | | Revenues (net of associated depreciation and base allowed asset return) allowed in the year associated with incentive performance earned under previous price controls but not yet fully recovered, less associated corporation tax charge (excluding logging up or pensions recovery). |
Divided by average equity RAV in line with regulatory assumed capital structure.
US regulated return on equity
US regulated RoE is a measure of how a business is performing operationally against the assumptions used by the regulator. This US operational return measure is calculated using the assumption that the businesses are financed in line with the regulatory adjudicated capital structure. This is a post-tax US GAAP metric as calculated annually (calendar year to 31 December).
Calculation: Regulated net income divided by equity rate base.
● | | Regulated net income calculated as US GAAP operating profit less interest on the adjudicated debt portion of the rate base (calculated at the actual rate on long term debt, adjusted where the proportion of long term debt in the capital structure is materially different from the assumed regulatory proportion) less tax at the adjudicated rate. |
● | | Regulated net income is adjusted for earned savings as appropriate and for certain material specified items. |
● | | Equity rate base is the average rate base for the calendar year as reported to the Group’s regulators or, where a reported rate base is not available, an estimate based on rate base calculations used in previous rate filings multiplied by the adjudicated equity portion in the regulatory capital structure. |
| | | | | | | 202 | | National Grid Annual Report and Accounts 2015/16 | | Additional 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 evidenced by American Depositary Receipts or ADRs. Annual asset growth ‘Annual asset growth’ measures the increase in ‘total regulatory value and other investments’ defined below. 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 BEIS The Department for Business, Energy and Industrial Strategy, being the UK Government department responsible for business, industrial strategy, and science and innovation with energy and climate change policy, which was formed in July 2016 merging the functions of the former Department of Energy and Climate Change and Department for Business, Innovation and Skills (BIS). Board The Board of Directors of the Company (for more information see pages 4734 and 48)35). bps Basis point (bps) is a unit that is equal to 1/100th of 1% and is typically used to denote the movement in a percentage based metric such as interest rates or RoE. A 0.1% change in a percentage represents 10 basis points. BritNed BritNed Development Limited. C called up share capital Shares (common stock) that have been issued and have been fully paid for. Capital investment ‘Capital investment’ or ‘investment’ refer to additions to plant, property and equipment and intangible assets, and equity contributions to joint ventures, other than the St William joint venture during the period. St William is excluded based on the nature of this joint venture arrangement. carrying value The amount at which an asset or a liability is recorded in the Group’s statement of financial position and the Company’s balance sheet. the Company, the Group, National Grid, we, our or us We use the terms ‘the Company’, ‘the Group’, ‘National Grid’, ‘we’, ‘our’ or ‘us’ to refer to either National Grid plc itself or to National Grid plc and/or all or certain of its subsidiaries, depending on context. Connect21
The Company’s US strategy to build and operate a better energy distribution network for the 21st century digital economy, helping to move to a decarbonised future.
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. Consortium The consortium which purchased a 61% equity interest in the UK Gas Distribution business on 31 March 2017, comprising Macquarie Infrastructure and Real Assets, Allianz Capital Partners, Hermes Investment Management, CIC Capital Corporation, Qatar Investment Authority, Dalmore Capital and Amber Infrastructure Limited/International Public Partnerships. Constant currency ‘Constant currency basis’ refers to the reporting of the actual results against the results for the same period last year which, in respect of any US$ currency denominated activity, have been translated using the average US$ exchange rate for the year ended 31 March 2017, which was $1.28 to £1.00. The average rate for the year ended 31 March 2016, was $1.47 to £1.00. Assets and liabilities as at 31 March 2016 have been retranslated at the closing rate at 31 March 2017 of $1.25 to £1.00. The closing rate for the balance sheet date 31 March 2016 was $1.44 to £1.00. contingent liabilities Possible obligations or potential liabilities arising from past events for which no provision has been recorded, but for which disclosure in the financial statements is made. D Dth Decatherm, being an amount of energy equal to 1 million British thermal units (BTUs), equivalent to approximately 293 kWh. DB Defined benefit, relating to our UK or US (as the context requires) final salary pension schemes. DC Defined contribution, relating to our UK or US (as the context requires) pension schemes to which National Grid, as an employer, pays contributions based on a percentage of employees’ salaries. DECC
The Department of Energy & Climate Change, the UK Government ministry responsible for energy and climate change.
deferred tax For most assets and liabilities, deferred tax is the amount of tax that will be payable or receivable in respect of that asset or liability in future tax returns as a result of a difference between the carrying value for accounting purposes in the statement of financial position or balance sheet and the value for tax purposes of the same asset or liability. delivery body
Under the Energy Act 2013, and secondary legislation which came into force in August 2014, National Grid’s electricity system operator function became the EMR Delivery Body. In this role National Grid provides independent evidence and analysis to the UK Government to inform its decisions on the key rules and parameters to achieve the Government’s policy objectives under EMR. National Grid also administers the capacity mechanism, including running the annual capacity auctions, manages the allocation of contracts for difference to low carbon generators and reports to the Government annually on performance against the Government’s delivery plan.
demand side response (DSR)
Arrangements between the Company and certain customers, through which those customers agree to increase or reduce demand in response to a signal where the Company requires it.
derivative A financial instrument or other contract where the value is linked to an underlying index, such as exchange rates, interest rates or commodity prices. In most cases, contracts for the sale or purchase of commodities that are used to supply customers or for our own needs are excluded from this definition. Deposit Agreement Deposit Agreement means the agreement entered into between National Grid Transco plc (now National Grid plc), the Depositary and the registered holders of ADRs, pursuant to which ADSs have been issued, dated as of 21 November 1995 and amended and restated as of 1 August 2005, and any related agreement. | | | | | | | | 202 | | National Grid Annual Report and Accounts 2016/17 | | Additional Information | | |
Depositary Depositary means The Bank of New York Mellon acting as depositary. Directors/ExecutiveDirectors/Non-executive Directors The Directors/Executive Directors andNon-executive Directors of the Company whose names are set out on pages 4734 and 4835 of this document. dollars or $ Except as otherwise noted all references to dollars or $ in this Annual Report and Accounts relate to the US currency. | | | | | | | | | National Grid Annual Report and Accounts 2015/16 | | Definitions and glossary of terms | | 203 |
Definitions and glossary of termscontinued
E earnings per share (EPS) Profit for the year attributable to equity shareholders of the parent allocated to each ordinary share. Electricity Market Reform (EMR) An energy policy initiative, introduced by the Energy Act 2013, designed to provide greater financial certainty to investors in both low carbon and conventional generation in order to meet environmental targets and maintain security of supply, and to do so at the lowest cost to consumers. Electricity System Operator (ESO) The party responsible for the long-term strategy, planning and real time operation (balancing supply and demand) of the electricity system in Great Britain. employee engagement A key performance indicator, based on the percentage of favourable responses to certain indicator questions repeated in each employee survey, which provides a measure of how employees think, feel and act in relation to National Grid. Research shows that a highly engaged workforce leads to increased productivity and employee retention, therefore we use employee engagement as a measure of organisational health in relation to business performance. Estate Tax Convention The Estate Tax Convention is the convention between the US and the UK for the avoidance of double taxation with respect to estate and gift taxes. EU The European Union, being the economic and political union of 28 member states located in Europe. Exchange Act The US Securities Exchange Act 1934, as amended. F FERC The US Federal Energy Regulatory Commission. finance lease A lease where the asset is treated as if it was owned for the period of the lease and the obligation to pay future rentals is treated as if they were borrowings. Also known as a capital lease. financial year For National Grid this is an accounting year ending on 31 March. Also known as a fiscal year. FRS A UK Financial Reporting Standard as issued by the UK Financial Reporting Council (FRC). These apply to the Company’s individual financial statements on pages 168166 to 173,171, which are prepared in accordance with FRS 101. G Grain LNG National Grid Grain LNG Limited. Great Britain England, Wales and Scotland. Group return on equity (Group RoE) The Group return on equity calculation provides a measure of the performance of the whole Group compared with the amounts invested by the Group in assets attributable to equity shareholders. The Group return on equity measure is calculated using the Group capital employed in accordance with the definition used in the RoCE measures, adjusted for Group net debt and goodwill. GW Gigawatt, being an amount of power equal to 1 billion watts (109 watts). GWh Gigawatt hours, being an amount of energy equivalent to delivering 1 billion watts of power for a period of one hour. H HMRC HM Revenue & Customs. The UK tax authority. HVDC High voltage, direct current electric power transmission which uses direct current for the bulk transmission of electrical power, in contrast with the more common alternating current systems. I IAS or IFRS An International Accounting Standard or International Financial Reporting Standard, as issued by the International Accounting Standards Board (IASB). IFRS is also used as the term to describe international generally accepted accounting principles as a whole. individual financial statements Financial statements of a company on its own, not including its subsidiaries or joint ventures.ventures and associates. J joint venture A company or other entity which is controlled jointly with other parties. K KEDLI KeySpan Gas East Corporation. KEDNY The Brooklyn Union Gas Company. kV Kilovolt, being an amount of electric force equal to 1,000 volts. kW Kilowatt, being an amount of power equal to 1,000 watts. kWm Kilowatt-month,Kilowatt month, being an amount of energy equivalientequivalent to delivering 1kW of power for a period of one month.
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Definitions and glossary of termscontinued L LIPA The Long Island Power Authority. LNG Liquefied natural gas, being natural gas that has been condensed into a liquid form, typically at temperatures at or below-161°C (-258°C(-258°F). lost time injury (LTI) An incident arising out of National Grid’s operations which leads to an injury where the employee or contractor normally has time off the following day or shift following the incident. It relates to one specific (acute) identifiable incident which arises as a result of National Grid’s premises, plant or activities, which was reported to the supervisor at the time and was subject to appropriate investigation. lost time injury frequency rate (IFR) The number of lost time injuries per 100,000 hours worked in a 12 month period. M MADPU The Massachusetts Department of Public Utilities. MSA The managed services agreement, under which the Company maintained and operated the electricity transmission and distribution system on Long Island owned by LIPA, which was transitioned to a third party with effect from 31 December 2013. MW Megawatt, being an amount of power equal to 1 million watts. | | | | | | | 204 | | National Grid Annual Report and Accounts 2015/16 | | Additional Information | | |
N National Grid Metering (NGM) National Grid Metering Limited, National Grid’s UK regulated metering business. Net revenue ‘Net revenue’ is revenue less pass-through costs, such as payments to other UK network owners, system balancing costs, and gas and electricity commodity costs in the US. Pass-through costs are fully recoverable from our customers and are recovered through separate charges that are designed to recover those costs with no profit. Any over- or under-recovery of these costs is returned to, or recovered from, our customers. New England The term refers to a region within the northeastern US that includes the states of Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont. National Grid’s New England operations are primarily in the states of Massachusetts and Rhode Island. northeastern US The northeastern region of the US, comprising the states of Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island and Vermont. NTS The gas National Transmission System in Great Britain. NYPSC The New York Public Service Commission. O Ofgem The UK Office of Gas and Electricity Markets, part of the UK Gas and Electricity Markets Authority (GEMA), which regulates the energy markets in the UK. OPEB Other post-employment benefits. ordinary shares Voting shares entitling the holder to part ownership of a company. Also known as common stock. National Grid’s ordinary shares have a nominal value of 11 17⁄1117/43 pence. Subject to shareholder approval of the proposed share consolidation at the General Meeting of the Company to be held on 19 May 2017, the nominal value of National Grid’s ordinary shares will be 12204/473 with effect from 22 May 2017. P price control The mechanism by which Ofgem sets restrictions on the amounts of revenue we are allowed to collect from customers in our UK businesses. The allowed revenues are intended to cover efficiently incurred operational expenditure, capital expenditure and financing costs, including a return on equity invested. PSA
The 15-year power supply agreement with LIPA which came into effect on 28 May 2013, under which the Company supplies electricity to communities and businesses across Long Island.
R rate base The base investment on which the utility is authorised to earn a cash return. It includes the original cost of facilities, minus depreciation, an allowance for working capital and other accounts. rate plan The term given to the mechanism by which a US utility regulator sets terms and conditions for utility service including, in particular, tariffs and rate schedules. The term can mean a multi-year plan that is approved for a specified period, or an order approving tariffs and rate schedules that remain in effect until changed as a result of future regulatory proceedings. Such proceedings can be commenced through a filing by the utility or on the regulator’s own initiative. regulated controllable operating costs Total operating costs under IFRS less depreciation and certain regulatory costs where, under our regulatory agreements, mechanisms are in place to recover such costs in current or future periods. regulatory asset value (RAV) The value ascribed by Ofgem to the capital employed in the relevant licensed business. It is an estimate of the initial market value of the regulated asset base at privatisation, plus subsequent allowed additions at historical cost, less the deduction of annual regulatory depreciation. Deductions are also made to reflect the value realised from the disposal of certain assets that formed part of the regulatory asset base. It is also indexed to the RPI to allow for the effects of inflation. return on capital employed (RoCE) The return on capital employed metric is designed to give an alternative comparison between the UK and US businesses showing the overall return on capital provided by both debt and equity. The calculation reflects regulatory treatments of costs. | | | | | | | | 204 | | National Grid Annual Report and Accounts 2016/17 | | Additional Information | | |
return on equity (RoE) A performance metric measuring returns from the investment of shareholders’ funds. It is a financial ratio of a measure of earnings divided by an equity base. revenue decoupling Revenue decoupling is the term given to the elimination of the dependency of a utility’s revenue on the volume of gas or electricity transported. The purpose of decoupling is to eliminate the disincentive a utility otherwise has to encourage energy efficiency programmes. RIIO The revised regulatory framework issued by Ofgem which was implemented in the eight-year price controls which started on 1 April 2013. RIPUC The Rhode Island Public Utilities Commission. RPI The UK retail price index as published by the Office for National Statistics. S Scope 1 greenhouse gas emissions Scope 1 emissions are direct greenhouse gas emissions that occur from sources that are owned or controlled by the Company, for example, emissions from combustion in owned or controlled boilers, furnaces, vehicles, etc. Scope 2 greenhouse gas emissions Scope 2 emissions are greenhouse gas emissions from the generation of purchased electricity consumed by the Company. Purchased electricity is defined as electricity, heat, steam or cooling that is purchased or otherwise brought into the organisational boundary of the Company. Scope 2 emissions physically occur at the facility where electricity is generated. Scope 3 greenhouse gas emissions Scope 3 emissions are indirect greenhouse gas emissions as a consequence of the operations of the Company, but are not owned or controlled by the Company, such as emissions from third-party logistics providers, waste management suppliers, travel suppliers, employee commuting, and combustion of sold gas by customers. | | | | | | | | | National Grid Annual Report and Accounts 2015/16 | | Definitions and glossary of terms | | 205 |
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. SEH Committee
The Safety, Environment and Health Committee of the Board whose role is explained on page 60.
SF6 Sulphur hexafluoride, an inorganic, colourless, odourless andnon-flammable greenhouse gas. SF6 is used in the electrical industry as a gaseous dielectric medium for high voltage circuit breakers, switchgear and other electrical equipment. The Kyoto protocol estimated that the global warming potential over 100 years of SF6 is 23,900 times more potent than that of CO2. share premium The difference between the amount shares are issued for and the nominal value of those shares. standard cubic metre
A quantity of gas which at 15°C and atmospheric pressure (1.013 bar) occupies the volume of 1m3.
stranded cost recoveries The recovery of historical generation-related costs in the US, related to generation assets that are no longer owned by us. STEM Science, technology, engineering and mathematics; the Company is currently looking to recruit people with skills in these subjects. subsidiary A company or other entity that is controlled by National Grid. swaption A swaption gives the buyer, in exchange for an option premium, the right, but not the obligation, to enter into an interest rate swap at some specified date in the future. The terms of the swap are specified on the trade date of the swaption. T taxes borne Those taxes that represent a cost to the Company and which are reflected in our results. taxes collected Those taxes that are generated by our operations but which do not affect our results; we generate the commercial activity giving rise to these taxes and then collect and administer them on behalf of HMRC. Tax Convention Tax Convention means the income tax convention between the US and the UK. tonne A unit of mass equal to 1,000 kilogrammes, equivalent to approximately 2,205 pounds. tonnes carbon dioxide equivalent (CO2e) A measure of greenhouse gas emissions in terms of the equivalent amount of carbon dioxide. Total regulatory value and other investments The sum of: the regulatory asset value of the UK regulated businesses determined under the methodology set out in Ofgem’s Price Control Financial Model; the rate bases applicable to each US regulated entity calculated according to the methodology used by each respective utility regulator; the value of assets held by the Group’s other activities; together with investments in joint ventures and associates. Other activities primarily relate tonon-network businesses and other commercial operations including: UK gas metering activities; the Great Britain-France Interconnector; UK property management; and a UK LNG import terminal. Totex Total expenditure, comprising capital and operating expenditure. treasury shares Shares that have been repurchased but not cancelled. These shares can then be allotted to meet obligations under the Company’s employee share schemes. TWh Terawatt hours, being an amount of energy equivalent to delivering 1 billion watts of power for a period of 1,000 hours. | | | | | | | | | National Grid Annual Report and Accounts 2016/17 | | Definitions and glossary of terms | | 205 |
Definitions and glossary of terms continued U UK The United Kingdom, comprising England, Wales, Scotland and Northern Ireland. UK Corporate Governance Code (the Code) Updated guidance,Guidance, issued by the Financial Reporting Council in September 2014 (as updated in 2016 to reflect forthcoming legislation on audit committees and auditor appointments), on how companies should be governed, applicable to UK listed companies, including National Grid.
UK GAAP Generally accepted accounting principles in the UK. These differ from IFRS and from US GAAP. UK regulated return on equity (UK RoE) UK regulated return on equity is a measure of how a business is performing operationally against the assumptions used by Ofgem. These returns are calculated using the assumption that the businesses are financed in line with the regulatory adjudicated capital structure, at the assumed cost of debt and that UK taxation paid is at the level assumed by Ofgem. US The United States of America, its territories and possessions, any state of the United States and the District of Columbia. US GAAP Generally accepted accounting principles in the US. These differ from IFRS and from UK GAAP. US regulated return on equity (US RoE) US regulated return on equity is a measure of how a business is performing operationally against the assumptions used by the relevant regulator. This US operational return measure is calculated using the assumption that the businesses are financed in line with the regulatory adjudicated capital structure. This is apost-tax US GAAP metric asand is calculated annually (onannually. For 2016/17, it is calculated on a fiscal year basis. For 2015/16 and prior years, it is calculated on a calendar year to 31 December).basis. US state regulators (state utility commissions) In the US, public utilities’ retail transactions are regulated by state utility commissions, including the New York Public Service Commission (NYPSC), the Massachusetts Department of Public Utilities (MADPU) and the Rhode Island Public Utilities Commission (RIPUC). V value addedValue Added
Value addedAdded is a measure to capture the value created through investment attributable to equity holders, being the change in total regulated andnon-regulated assets including goodwill (both at constant currency) plus the cash dividend paid in the year plus share repurchase costs less the growth in net debt (at constant currency). This is then presented on an absolute and a per share basis. value growthValue Growth
Value growthGrowth is the growth in the value of our regulated andnon-regulated assets including goodwill plus dividend plus share repurchase costs less net debt, as a percentage. | | | | | | | | 206 | | National Grid Annual Report and Accounts 2015/162016/17 | | Additional Information | | |
| | | | | Additional Informationinformation |
Want more information or help? | | | | | | | | | Capita Asset Services For queries aboutordinary shares: | | The Bank of New York Mellon For queries aboutAmerican Depositary Shares: | | Further information about National Grid including share price and interactive tools can be found on our website: |  
| | 0371 402 3344 Calls are charged at the standard geographic rate and will vary by provider. Calls outside the UK will be charged at the applicable international rate. Lines are open 8.30am to 5.30pm, Monday to Friday excluding public holidays. If calling from outside the UK: +44 (0)371 402 3344 Visit the National Grid share portal www.nationalgridshareholders.com Email: nationalgrid@capita.co.uk National Grid Share Register Capita Asset Services The Registry 34 Beckenham Road Beckenham, Kent BR3 4TU | |
| | 1-800-466-7215 If calling from outside the US: +1-201-680-6825 www.mybnymdr.com Email: shrrelations@ cpushareownerservices.com The Bank of New York Mellon Depository Receipts PO Box 30170 College Station, Texas 77842-3170 | | www.nationalgrid.com Beware of share fraud Fraudsters use persuasive and high-pressure tactics to lure investors into scams. Shareholders are advised to be wary of any unsolicited advice or offers, whether over the telephone, through the post or by email. If you receive any such unsolicited communication please check the company or person contacting you is properly authorised by the Financial Conduct Authority (FCA) before getting involved. You can check at www.fca.org.uk/consumers/protect-yourself and can report calls from unauthorised firms to the FCA by calling 0800 111 6768. |
Financial calendar The following dates have been announced or are indicative: | | | 231 May 2017 | | ADRs goex-dividend for 2016/17 final dividend | 1 June 20162017 | | Ordinary shares goex-dividend for 2015/162016/17 final dividend | 32 June 20162017 | | Record date for 2015/162016/17 final dividend | 98 June 20162017 | | Scrip reference price announced | 2019 June 20162017 | | Scrip election date | 2531 July 20162017 | | 20162017 AGM | 1016 August 20162017 | | 2015/162016/17 final dividend paid to qualifying shareholders | 109 November 20162017 | | 2016/17 half year2017/18 half-year results | 2422 November 20162017 | | ADRs goex-dividend for 2017/18 interim dividend | | 23 November 2017 | | Ordinary shares goex-dividend for 2017/18 interim dividend | 2524 November 20162017 | | Record date for 2016/172017/18 interim dividend | 1110 January 20172018 | | 2016/172017/18 interim dividend paid to qualifying shareholders | May 20172018 | | 2016/172017/18 preliminary results |
Dividends The Directors are recommending a final dividend of 28.3429.10 pence per ordinary share ($2.04451.8924 per ADS) to be paid on 1016 August 20162017 to shareholders on the register as at 32 June 2016.2017. Further details in respect of dividend payments can be found on page 24.22. If you live outside the UK, you may be able to request that your dividend payments be converted into your local currency. Under the Deposit Agreement, a fee of up to $0.05 per ADS can be charged for any cash distribution made to ADS holders, including cash dividends. ADS holders who receive cash in relation to the 2015/162016/17 final dividend will be charged a fee of $0.02 per ADS by the Depositary prior to the distribution of the cash dividend. Have your dividends paid directly into your bank or building society account: | ● | | Your dividend reaches your account on the payment day |
| ● | | It is more secure – cheques do sometimes get lost in the post |
| ● | | No more trips to the bank |
Elect to receive your dividends as additional shares: | ● | | Join our scrip dividend scheme |
| ● | | No stamp duty or commission to pay |
Electronic communications To receive an email notifying you as soon as new shareholder information is available to view online, including your electronic tax voucher, sign up for electronic communications. Simply go to the National Grid share portalwww.nationalgridshareholders.com and once you have registered, click on the ‘manage your account’ link and follow the on screen instructions to change your communication preference. Manage your shareholding online via the National Grid share portal:
● | | Have your dividends paid direct to your bank account instead of receiving cheques |
● | | Choose to receive your dividends in shares, via our scrip dividend scheme |
● | | Get copies of your dividend confirmations and view your dividend payment history |
● | | Update your address details |
Registered office National Grid plc was incorporated on 11 July 2000. The Company is registered in England and Wales No. 4031152, with its registered office at 1–3 Strand, London WC2N 5EH. Share dealing Capita Share Dealing Services offer our European Economic Area resident shareholders a range of quick and easy share dealing services by post, online or telephone from 10pby telephone. Internet Dealing Commission – 0.4% of the trade value (minimum £16.20, maximum £62.20) until 30 June 2017. 0.50% of the trade (minimum £19.00, maximum £76.50) after 30 June 2017. Postal Dealing Commission– 10 pence per share (plus stamp duty as applicable).(maximum £10) when selling 1–150 shares, flat fee of £15 when selling 151 shares or more. No commission will be chargeable for shareholders holding up to 50 shares until 30 June 2017. Telephone Dealing at live prices is available online or by telephone, different fees apply.Commission – 0.75% of the trade (minimum £24.50, maximum £114.50). Visitwww.capitadeal.com/nationalgrid or call Capita Share Dealing free on 0800 022 3374 for details and terms and conditions. This is not a recommendation to take any action. High street banks may also offer share dealing services. If you have any doubt as to what action you should take, please contact an authorised financial advisor. ShareGift: If you only have a small number of shares which would cost more for you to sell than they are worth, you may wish to consider donating them to the charity. ShareGift. ShareGift is a registered charity (no.(No. 1052686) which specialises in accepting such shares as donations. For more information visit www.sharegift.org.uk or contact Capita Asset Services. Individual Savings Accounts (ISAs): Corporate ISAs for National Grid shares are available from Stocktrade. For more information, call Stocktrade on 0131 240 0443, email isa@stocktrade.co.uk or write to Stocktrade, 7th floor, Atria One, 144 Morrison Street, Edinburgh EH3 8BR.8EX. | | | | | | | | | National Grid Annual Report and Accounts 2015/162016/17 | | Want more information or help? | | 207 |
Cautionary statement This document comprises the Annual Report and Accounts for the year ending 31 March 20162017 for National Grid and its subsidiaries. It contains the Directors’ Report and Financial Statements, together with the independent auditors’ report thereon, as required by the Companies Act 2006. The Directors’ Report, comprising pages 088 to 8171 and 174172 to 202,201 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 contains certain statements that are neither reported financial results nor other historical information. These statements are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include information with respect to our financial condition, our results of operations and businesses, strategy, plans and objectives. Words such as ‘anticipates’, ‘expects’, ‘should’, ‘intends’, ‘plans’, ‘believes’, ‘outlook’, ‘seeks’, ‘estimates’, ‘targets’, ‘may’, ‘will’, ‘continue’, ‘project’ and similar expressions, as well as statements in the future tense, identify forward-looking statements. These forward-looking statements are not guarantees of our future performance and are subject to assumptions, risks and uncertainties that could cause actual future results to differ materially from those expressed in or implied by such forward-looking statements. Many of these assumptions, risks and uncertainties relate to factors that are beyond our ability to control or estimate precisely, such as changes in laws or regulations, including any arising as a result of the United Kingdom’s exit from the European Union; announcements from and decisions by governmental bodies or regulators, (includingincluding proposals relating to the timelinessrole of consents for construction projects);the electricity system operator; the timing of construction and delivery by third parties of new generation projects requiring connection; breaches of, or changes in, environmental, climate change and health and safety laws or regulations, including breaches or other incidents arising from the potentially harmful nature of our activities; network failure or interruption, the inability to carry out critical non network operations and damage to infrastructure, due to adverse weather conditions including the impact of major storms as well as the results of climate change, due to counterparties being unable to deliver physical commodities, or due to the failure of or unauthorised access to or deliberate breaches of our IT systems and supporting technology; performance against regulatory targets and standards and against our peers with the aim of delivering stakeholder expectations regarding costs and efficiency savings, including those related to investment programmes and internal transformation and remediation plans; and customers and counterparties (including financial institutions) failing to perform their obligations to the Company. 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 and conditions (including filing requirements) in our borrowing and debt arrangements, funding costs and access to financing; regulatory requirements for us to maintain financial resources in certain parts of our business and restrictions on some subsidiaries’ transactions such as paying dividends, lending or levying charges; inflation or deflation; the delayed timing of recoveries and payments in our regulated businesses and whether aspects of our activities are contestable; the funding requirements and performance of our pension schemes and other post-retirement benefit schemes; the failure to attract, train ordevelop and retain employees with the necessary competencies, including leadership skills,and business capabilities, and any significant disputes arising with our employees or the breach of laws or regulations by our employees; the failure to respond to market developments, including competition for onshore transmission, the threats and opportunities presented by emerging technology, development activities relating to changes to the energy mix and the integration of distributed energy resources and the need to grow our business to deliver our strategy, as well as incorrect or unforeseen assumptions or conclusions (including unanticipated costs and liabilities) relating to business development activity, including assumptions in connection with the Company’s sale of a majority interest in its UK Gas Distribution business and joint ventures. For further details regarding these and other assumptions, risks and uncertainties that may affect National Grid, please read the Strategic Report and the Risk factors on pages 183180 to 186183 of this document. In addition, 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 actual future 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 contents of any website references in this document do not form part of this document. | | | | | | | | 208 | | National Grid Annual Report and Accounts 2015/162016/17 | | Additional Information | | |
National Grid plc | 
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Further Information Exchange Rates The following table sets forth the history of the exchange rates of one pound sterling to US dollars for the periods indicated and as at the latest practicable date, 31 June 2015.2017. | | | | | | | | High | | Low | June 2016* | | 1.4517 | | 1.4414 | May 2016 | | 1.4714 | | 1.4351 |
| | | | | | | | High | | Low | June 2017* | | 1.2903 | | 1.2903 | May 2017 | | 1.3026 | | 1.2791 |
| | * | For the period to 31 June 2016.2017. |
Share ownership At 31 June 2016,2017, the latest practicable date, none of the directors had an individual beneficial interest amounting to greater than 1% of the Company’s shares. Material interests in shares The following summarizes the significant changes in the percentage ownership held by our major shareholders during the past three years: Capital Group Companies,Black Rock, Inc. has held 10.02%5.21% of our outstanding share capital as at 125 June 2012Their shareholding2014, and 5 June 2015, which holdings increased to 10.91%5.88% as at 31 March 2016 and decreased to 3.92% as at 3 June 2016. As noted on page 186 of the 2016/2017 Annual Report and Accounts, we have been notified that Black Rock, Inc. held 6.01% of our outstanding share capital as at 31 March 2013, 11.02%2017, and such holdings increased as at 5 April 2013,31 May 2017 to 6.28% which percentage remains unchanged as at 1 June 2017.
Capital Group Companies, Inc. held 11.03% of our outstanding share capital as at 31 March 2014, and then suchwhich holdings decreased to 4.981% as at 31 March 2015 and then to 3.881%3.88% as at 20 April 2015.31 March 2016. As noted on page 189186 of the 2015/20162016/2017 Annual Report and Accounts, we have been notified that Capital Group Companies, Inc. held 3.88% of our outstanding share capital as at 31 March 20152017, and such holdings remainsremain unchanged as at 31 June 2016. Black Rock, Inc. has held 5.21% of our outstanding share capital as at 5 June 2014 and 5 June 2015. As noted on page 189 of the 2015/2016 Annual Report and Accounts, we have been notified that Black Rock, Inc. held 5.88% of our outstanding share capital as at 31 March 2016 and such holdings decreased as at 26 May 2016 to 3.92% which percentage remains unchanged as at 3 June 20162017.
Since 31 March 2016,2017, we have not been notified of any other subsequent significant change in the percentage of shares held by the shareholders, listed on page 189186 of the 2015/20162016/2017 Annual Report and Accounts Material interest in American Depositary Shares As at 31 June 2016,2017, we had 14,85713,482 registered holders of our American Depositary Shares (ADSs) representing ownership of 10.9%10.95% of our issued and outstanding share capital, excluding ordinary shares held in treasury. As at 31 June 2016,2017, based on information available to us, we believe that approximately 10.9%10.97% of our issued and outstanding share capital (whether in the form of shares or ADSs), excluding shares held in treasury, was held beneficially in the United States. Price history The following table sets forth the highest and lowest intraday market prices for our ordinary shares and ADSs for the periods indicated. | | | | | | | | | | | | Ordinary Share
(Pence) | | ADS ($) | | | | High | | Low | | High | | Low | June 2016* | | 1011.50 | | 959.60 | | 72.14 | | 70.09 | May 2016 | | 1015.50 | | 953.01 | | 74.67 | | 71.48 |
| | | | | | | | | | | | Ordinary Share
(Pence) | | ADS ($) | | | | High | | Low | | High | | Low | June 2017* | | 1,069.50 | | 1,049.50 | | 68.35 | | 67.90 | May 2017 | | 1,174.40 | | 1,049.50 | | 75.24 | | 68.40 |
| | * | For the period to 31 June 2016,2017, the latest practicable date. |
Subsequent Events NONE APPLICABLEOn 19 May 2017, the Company held a General Meeting to seek the shareholder approval for a proposed share consolidation, on an 11 for 12 basis, in connection with the return of cash as a result of the sale of a majority interest in our UK Gas Distribution business. This and all related resolutions were approved by shareholders at the General Meeting. The consolidation was effective on 22 May 2017. Additionally, in connection with the sale of a majority interest in our UK Gas Distribution business, a special dividend of 84.375 pence per share ($5.4224 per American Depositary Share) was paid on 2 June 2017.
Exhibits Pursuant to the rules and regulations of the SEC, National Grid has filed certain agreements as exhibits to this Annual Report on Form 20-F. These agreements may contain representations and warranties by the parties to them. These representations and warranties have been made solely for the benefit of the other party or parties to such agreement and (i) may be intended not as statements of fact, but rather as a way of allocating the risk to one of the parties to such agreements if those statements turn out to be inaccurate, (ii) may have been qualified by disclosures that were made to such other party or parties and that either have been
reflected in the company’s filings or are not required to be disclosed in those filings, (iii) may apply materiality standards different from what may be viewed as material to investors and (iv) were made only as of the date of such agreements or such other date or dates as may be specified in such agreements. In accordance with the instructions to Item 2(b)(i) of the Instructions to Exhibits to the Form 20-F, National Grid agrees to furnish to the SEC, upon request, a copy of any instrument relating to long-term debt that does not exceed 10 percent of the total assets of National Grid and its subsidiaries on a consolidated basis.
| | | | | | | | | | | | | | Description | | | | | | | | | | 1.1 | | | | Articles of Association of National Grid plc adopted by Special Resolution passed on 30 July 2012. | | | | Incorporated by reference | | | | | | 2(a) | | | | Amended and restated Deposit Agreement dated as of 23 May 2013 among National Grid plc and The Bank of New York Mellon, as Depository, and all Owners and Holders from time to time of American Depositary Shares issued thereunder. (Exhibit 1 to National Grid plc Form F-6 dated 15 May 2013 File No. 333-178045) | | | | Incorporated by reference | | | | | | 2(b).1 | | | | Amended and Restated Trust Deed dated 26 July 2010 among National Grid plc, National Grid Electricity Transmission plc and the Law Debenture Trust Corporation p.l.c. relating to a €15,000,000,000 Euro Medium Term Note Programme. (Exhibit 2(b).1 to National Grid plc Form 20-F dated 13 June 2011 File No. 1-14958) | | | | Incorporated by reference | | | | | | 2(b).2 | | | | Amended and Restated Trust Deed dated 18 February 2011 among National Grid Gas plc, National Grid Gas Finance (no 1) plc and the Law Debenture Trust Corporation p.l.c. relating to a €10,000,000,000 Euro Medium Term Note Programme. (Exhibit 2(b).2 to National Grid plc Form 20-F dated 13 June 2011 File No. 1-14958) | | | | Incorporated by reference | | | | | | 2(b).3 | | | | Amended and Restated Trust Deed dated 22 February 2012 among National Grid Gas plc, National Grid Gas Finance (No 1) plc and the Law Debenture Trust Corporation p.l.c. relating to a €10,000,000,000 Euro Medium Term Note Programme.(Exhibit (Exhibit 2(b).3 to National Grid plc Form 20-F dated 12 June 2012 File No. 1-14958) | | | | Incorporated by reference | | | | | | 2(b).4 | | | | Amended and Restated Trust Deed dated 2 August 2011 among National Grid plc, National Grid Electricity Transmission plc and the Law Debenture Trust Corporation p.l.c. relating to a €15,000,000,000 Euro Medium Term Note Programme. (Exhibit 2(b).5 to National Grid plc Form 20-F dated 12 June 2012 File No. 1-14958) | | | | Incorporated by reference | | | | | | 2(b).5 | | | | Amended and Restated Trust Deed dated 27 March 2013 among National Grid Gas plc, National Grid Gas Finance (No 1) plc and the Law Debenture Trust Corporation p.l.c. relating to a €10,000,000,000 Euro Medium Term Note Programme. (Exhibit 2(b).5 to National Grid plc Form 20-F dated 6 June 2013 File No. 1-14958) | | | | Incorporated by reference | | | | | | 2(b).6 | | | | Amended and Restated Trust Deed dated 10 September 2012 among National Grid plc, National Grid Electricity Transmission plc and the Law Debenture Trust Corporation p.l.c. relating to a €15,000,000,000 Euro Medium Term Note Programme. (Exhibit 2(b).6 to National Grid plc Form 20-F dated 6 June 2013 File No. 1-14958) | | | | Incorporated by reference | | | | | | 2(b).7 | | | | Amended and Restated Trust Deed dated 12 September 2013 among National Grid plc, National Grid Electricity Transmission plc and the Law Debenture Trust Corporation p.l.c. relating to National Grid plc and National Grid Electricity Transmission plc €15,000,000,000 Euro Medium Term Note Programme. (Exhibit 2(b).7 to National Grid plc Form 20-F dated 5 June 2014 File No. 1-14958) | | | | Incorporated by reference | | | | | | 2(b).8 | | | | Amended and Restated Trust Deed dated 20 December 2013 among National Grid USA, National Grid North America Inc. and the Law Debenture Trust Corporation p.l.c. relating to National Grid USA €4,000,000,000 Euro Medium Term Note Programme. (Exhibit 2(b).8 to National Grid plc Form 20-F dated 5 June 2014 File No. 1-14958) | | | | Incorporated by reference | | | | | | 2(b).9 | | | | Amended and Restated Trust Deed dated 12 September 2014 among National Grid plc, National Grid Electricity Transmission plc and the Law Debenture Trust Corporation p.l.c. relating to National Grid plc and National Grid Electricity Transmission plc €15,000,000,000 Euro Medium Term Note Programme. (Exhibit 2(b).9 to National Grid plc Form 20-F dated 5 June 2014 File No. 1-14958) | | | | Incorporated by reference | | | | | | 2(b).10 | | | | Amended and Restated Trust Deed dated 18 December 2014 among National Grid USA, National Grid North America Inc. and the Law Debenture Trust Corporation p.l.c. relating to National Grid USA €4,000,000,000 Euro Medium Term Note Programme. (Exhibit 2(b).10 to National Grid plc Form 20-F dated 5 June 2014 File No. 1-14958) | | | | Incorporated by reference | | | | | | 2(b).11 | | | | Amended and Restated Trust Deed dated 18 July 2014 among National Grid Gas plc, National Grid Gas Finance (No 1) plc and the Law Debenture Trust Corporation p.l.c. relating to a €10,000,000,000 Euro Medium Term Note Programme. (Exhibit 2(b).11 to National Grid plc Form 20-F dated 5 June 2014 File No. 1-14958) | | | | Incorporated by reference | | | | | | 2(b).12 | | | | Amended and Restated Trust Deed dated 14 August 2015 among National Grid Gas plc, National Grid Gas Finance (No 1) plc and the Law Debenture Trust Corporation p.l.c. | | | | Incorporated by reference |
| | | | | | | | | | | | | relating to a €10,000,000,000 Euro Medium Term Note Programme. (Exhibit 2(b).12 to National Grid plc Form 20-F dated 5 June 2014 File No. 1-14958) | | | | Filed herewith | | | | | | 2(b).13 | | | | Amended and Restated Trust Deed dated 21 September 2015 among National Grid plc, National Grid Electricity Transmission plc and the Law Debenture Trust Corporation p.l.c. relating to National Grid plc and National Grid Electricity Transmission plc €15,000,000,000 Euro Medium Term Note Programme. (Exhibit 2(b).13 to National Grid plc Form 20-F dated 5 June 2014 File No. 1-14958) | | | | Filed herewith
|
| | | | | | | | | | | | | €15,000,000,000 Euro Medium Term Note Programme.
| | | | Incorporated by reference | | | | | | 2(b).14 | | | | Amended and Restated Trust Deed dated 9 December 2015 among National Grid USA, National Grid North America Inc. and the Law Debenture Trust Corporation p.l.c. relating to National Grid USA €4,000,000,000 Euro Medium Term Note Programme. | | | | Filed herewith | | | | | | 4(c).1
| | | | Service Agreement among The (Exhibit 2(b).14 to National Grid plc and Steven Holliday dated 1 April 2006. (Exhibit 4.(c).3 to National Grid Transco Form 20-F dated 195 June 20072014 File No. 1-14958)
| | | | Incorporated by reference | | | | | | 4(b).1 | | | | Acquisition Agreement between National Grid Holdings One plc and Quadgas Investments BidCo Limited and Quadgas HoldCo Limited and Quadgas PledgeCo Limited and Quadgas MidCo Limited relating to the subscription of shares in GasD HoldCo and the acquisition of GasD OpCo and GasD PropCo, dated 8 December 2016, as amended and restated on 30 March 2017. Confidential treatment has been requested. Confidential material has been redacted and separately filed with the SEC. | | | | Filed herewith | | | | | | 4(b).2 | | | | Further Acquisition Agreement between National Grid Holdings One plc and Quadgas Investments Bidco Limited relating to the acquisition of shares in GasD HoldCo, dated 31 March 2017. Confidential treatment has been requested. Confidential material has been redacted and separately filed with the SEC. | | | | Filed herewith | | | | | | 4(c).2.1 | | | | Service Agreement among The National Grid plc and Andrew Bonfield dated 1 November 2010. (Exhibit 4(c).20 to National Grid plc Form 20-F dated 13 June 2011 File No 1-14958) | | | | Incorporated by reference | | | | | | 4(c).3.2 | | | | Service Agreement among National Grid Electricity Transmission plc and John Mark Pettigrew dated 2 November 2014.(Exhibit (Exhibit 4(c).5 to National Grid plc Form 20-F dated 5 June 2014 File No. 1-14958) | | | | Incorporated by reference | | | | | | 4(c).4.3 | | | | Amendment to Service Agreement .(ExhibitAgreement. (Exhibit 4(c).5 to National Grid plc Form 20-F dated 5 June 2014 File No. 1-14958) among National Grid Electricity Transmission plc and John Mark Pettigrew dated 2 November 2015 | | | | Incorporated by reference | | | | | | 4(c).4 | | | | Service Agreement among National Grid Electricity Transmission plc and Nicola Shaw dated 23 March 2016. | | | | Filed herewith | | | | | | 4(c).5 | | | | Letter of Appointment—Sir Peter Gershon. (Exhibit 4(c).10 to National Grid plc Form 20-F dated 12 June 2012 File No. 1-14958) | | | | Incorporated by reference | | | | | | 4(c).6 | | | | Letter of Appointment—Paul Golby. (Exhibit 4(c).11 to National Grid plc Form 20-F dated 12 June 2012 File No. 1-14958) | | | | Incorporated by reference | | | | | | 4(c).7 | | | | Letter of Appointment—Ruth Kelly. (Exhibit 4(c).14 to National Grid plc Form 20-F dated 12 June 2012 File No. 1-14958) | | | | Incorporated by reference | | | | | | 4(c).8 | | | | Letter of Appointment—Nora Mead Brownell. (Exhibit 4(c).13 to National Grid plc Form 20-F dated 6 June 2013 File No. 1-14958) | | | | Incorporated by reference | | | | | | 4(c).9 | | | | Letter of Appointment—Mark Williamson. (Exhibit 4(c).14 to National Grid plc Form 20-F dated 6 June 2013 File No. 1-14958) | | | | Incorporated by reference | | | | | | 4(c).10 | | | | Letter of Appointment—Jonathan Dawson. (Exhibit 4(c).15 to National Grid plc Form 20-F dated 6 June 2013 File No. 1-14958) | | | | Incorporated by reference | | | | | | 4(c).11 | | | | Letter of Appointment—Therese Esperdy....(ExhibitEsperdy. (Exhibit 4(c).14 to National Grid plc Form 20-F dated 5 June 2014 File No. 1-14958) | | | | Incorporated by reference | | | | | | 4(c).12 | | | | Letter of Appointment—Pierre Dufour | | | | Filed herewith | | | | | | 4(c).13 | | | | Employment Agreement among National Grid plc, National Grid USA and Dean Seavers dated 22 October 2014. | | | | Incorporated by reference | | | | | | 4(c).13.14 | | | | National Grid plc Deferred Share Plan. (Exhibit 4.2 to National Grid plc S-8 dated 28 | | | | Incorporated by reference |
| | | | | | | | | | | | | July 2011 File No. 333-175852) | | | | Incorporated by reference | | | | | | 4(c).14.15 | | | | National Grid Executive Share Option Plan 2002. (Exhibit 4 (c) to National Grid Group Form 20-F dated 21 June 2002 File No. 1-14958) | | | | Incorporated by reference | | | | | | 4(c).15.16 | | | | National Grid Group Share Matching Plan 2002. (Exhibit 4 (c) to National Grid Group Form 20-F dated 21 June 2002 File No. 1-14958) | | | | Incorporated by reference | | | | | | 4(c).16.17 | | | | National Grid Transco Performance Share Plan 2002 (as approved 23 July 2002 by a resolution of the shareholders of National Grid Group plc, adopted 17 October 2002 by a resolution of the Board of National Grid Group plc, amended 26 June 2003 by the Share Schemes Sub-Committee of National Grid Transco plc, and amended 5 May 2004 by the Share Schemes Sub-Committee of National Grid Transco plc). (Exhibit 4.19 to National Grid Transco Form 20-F dated 16 June 2004 File No. 1-14958) | | | | Incorporated by reference | | | | | | 4(c).17.19 | | | | National Grid Executive Share Option Scheme. (Exhibit 4D to National Grid Group S-8 dated 26 July 2001 File No. 333-65968) | | | | Incorporated by reference | | | | | | 4(c).18.20 | | | | Lattice Group Short Term Incentive Scheme (approved by a resolution of the shareholders of BG Group plc effective 23 October 2000; approved by a resolution of the Board of National Grid Transco plc on 30 April 2004; amended by resolutions of the Board of Lattice Group plc effective on 21 October 2002 and 13 May 2004). | | | | Incorporated by reference
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| | | | | | | | | | | | | | | | | | (Exhibit (Exhibit 4.23 to National Grid Transco Form 20-F dated 16 June 2004 File No. 1-14958)
| | | | Incorporated by reference | | | | | | 4(c).19.21 | | | | National Grid USA Companies’ Defined Contribution Supplemental Executive Retirement Plan. (Exhibit 4.2 to National Grid plc S-8 dated 23 October 2012 File No. 14958) | | | | Incorporated by reference | | | | | | 8 | | | | List of subsidiaries—The list of the Company’s significant subsidiaries as of 31 March 20162017 is incorporated by reference to “Financial Statements—Notes to the consolidated financial statements—32. Subsidiary undertakings, joint venture and associates — Principal subsidiaryassociates—Subsidiary undertakings” on page 157pages 154-156 included in the Annual Report on Form 20-F for the financial year ended 31 March 2016.2017. This list excludes subsidiaries that do not, in aggregate, constitute a “significant subsidiary” as defined in Rule 1-02(w) of Regulation S-X as at 31 March 2015.2017. | | | | Incorporated by reference | | | | | | 12.1 | | | | Certification of John Pettigrew pursuant to Rule 13a-14(a) of the Exchange Act. | | | | Filed herewith | | | | | | 12.2 | | | | Certification of Andrew Bonfield pursuant to Rule 13a-14(a) of the Exchange Act. | | | | Filed herewith | | | | | | 13.1 | | | | Certifications of John Pettigrew and Andrew Bonfield furnished pursuant to Rule 13a-14(b) of the Exchange Act (such certifications are not deemed filed for purpose of Section18 of the Exchange Act and not incorporated by reference in any filing under the Securities Act). | | | | Filed herewith | | | | | | 15 | | | | Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm to National Grid plc. | | | | Filed herewith |
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorised the undersigned to sign this annual report on its behalf. | | | | | | | | | NATIONAL GRID PLC | | | | | | | By: | | /s/Andrew Bonfield | | | | | | | Andrew Bonfield | | | | | | | Finance Director | | |
London, England 76 June 20162017
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