National Grid 2007 Annual Report Download

Download and view the complete annual report

Please find the complete 2007 National Grid annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 86

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86

Annual Report and Accounts 2006/07
National Grid Electricity Transmission plc

Table of contents

  • Page 1
    Annual Report and Accounts 2006/07 National Grid Electricity Transmission plc

  • Page 2
    National Grid Electricity Transmission Annual Report and Accounts 2006/07 Contents 1 31 34 35 36 41 41 42 43 44 71 74 75 Operating and Financial Review Directors' Report Statement of Directors' Responsibilities Independent Auditors' Report Accounting Policies Consolidated Income Statement ...

  • Page 3
    ... businesses. Key milestones 1990 Electricity transmission network in England and Wales transferred to National Grid Company on electricity privatisation National Grid listed on the London Stock Exchange Merger of National Grid Group and Lattice Group to form National Grid Transco National Grid...

  • Page 4
    ... 31 March 2006. A new price control period commenced on 1 April 2007 and is planned to last until 31 March 2012. Our businesses are covered by safety legislation which is enforced by the Health and Safety Executive (HSE). National Grid Electricity Transmission has securities which are listed on the...

  • Page 5
    ...Grid Electricity Transmission Annual Report and Accounts 2006/07 3 A number of other factors also affect our financial performance, but are less significant than the principal business drivers above, or are mitigated by the way our operations are structured: Volumes Current and future developments...

  • Page 6
    ... values of respect, integrity and ownership. Responsibility Objectives Our primary objective is to grow our business in order to create value for National Grid's shareholders. We can only create value if we achieve operational excellence and continue to improve our financial performance, we invest...

  • Page 7
    National Grid Electricity Transmission Annual Report and Accounts 2006/07 5 In considering the opportunities we have to grow and develop our business, we have identified a number of risks and uncertainties in achieving our objectives. The most significant risk factors we have identified relate to: ...

  • Page 8
    ... Transmission Annual Report and Accounts 2006/07 Financial discipline In order to deliver sustainable growth we must be disciplined in the way we manage our balance sheet. This means that cash will be returned to National Grid's shareholders to the extent that it is not required for our investment...

  • Page 9
    ...; education and skills; and community development. Sharing of best practice across our business and working collaboratively with key partners and stakeholders enables us to maximise how communities benefit from our activities. Historically contaminated land National Grid Electricity Transmission...

  • Page 10
    ...in National Grid Electricity Transmission has become further embedded over time and our experience of this has enabled us to identify a number of key success criteria linked to both the risk management framework and process that, if in place, will help ensure the process continues to remain embedded...

  • Page 11
    ... by a number of factors including changes in law and accounting standards and our overall approach to tax planning, the results of which could increase that rate. Future funding requirements of pension schemes could adversely affect our results of operations. We participate in the Electricity Supply...

  • Page 12
    ... Standards (IFRS), as adopted by the European Union, of replacement expenditure, pension and post retirement benefits, derivative financial instruments and commodity contracts significantly affect the way we report our financial position and results of operations. As a body of practice develops...

  • Page 13
    National Grid Electricity Transmission Annual Report and Accounts 2006/07 11 Key performance indicators We measure the achievement of our objectives through the use of qualitative assessments and through the monitoring of quantitative indicators, termed key performance indicators (KPIs). In line ...

  • Page 14
    12 National Grid Electricity Transmission Annual Report and Accounts 2006/07 2 The sickness absence rate includes absences resulting from both work-related and non-work related illnesses. Our target relates to work-related illnesses, however, we do not have a measure that excludes non work-related ...

  • Page 15
    ... Electricity Transmission participated in National Grid's first combined UK and US safety, health and environment conference involving participants from across National Grid. The conference provided the opportunity to review our Safety and Occupational Health Policy and Vision for Safety and develop...

  • Page 16
    ... management. Action plans have been developed by each of the businesses to address their key priorities for improvement. Greater use is being made of electronic communication channels with the new Chief Executive of National Grid outlining the new strategy for all employees via video and issuing...

  • Page 17
    ...of National Grid. Working groups have been established with senior executive sponsors focusing on recruitment and employee development, employee engagement, communications and measuring the impact of our inclusion and diversity policies. We have also initiated a field force pilot programme in the UK...

  • Page 18
    ... National Grid is a good company for customers to do business with. Human rights A review in 2004 of potential human rights risks highlighted the need to better understand our increasingly international supply chain. To improve control in this area, we have worked with other UK utilities to develop...

  • Page 19
    National Grid Electricity Transmission Annual Report and Accounts 2006/07 17 business performance used by management to monitor financial performance as they are considered to distort the comparability of our reported financial performance from year to year. Measures of business performance are ...

  • Page 20
    18 National Grid Electricity Transmission Annual Report and Accounts 2006/07 Revenue, operating costs and operating profit The movements in the year in revenue, operating costs and operating profit can be summarised as follows: Operating Operating costs profit £m £m Net finance costs Net ...

  • Page 21
    ... ordinary dividends paid or payable by National Grid Electricity Transmission. These dividends do not include any associated UK tax credit in respect of such dividends. In accordance with IFRS, dividends are reported in the financial statements for the year in which they are approved. Discontinued...

  • Page 22
    ... voltage and frequency. As electricity transmission owner, we own and maintain the physical assets, develop the networks to accommodate new connections and disconnections, and manage a programme of asset replacement and investment to ensure the long-term reliability of the networks. As electricity...

  • Page 23
    ...control, funding costs for £350 million of investment will be allocated to our electricity transmission owner activity allowable revenue for the upgrade of the Anglo-Scottish interconnector and associated works (conditional on the satisfactory outcome of key planning consents). At this time, access...

  • Page 24
    ... in 2006/07 relates to the establishment of a shared services function and the implementation of a review of our business processes. Property, plant & equipment Intangible Capital investment 594 12 606 528 2 530 Financial results The results for the UK electricity transmission segment for the...

  • Page 25
    ..., are reported within other activities. They include contracting activities, provision of support services to other National Grid businesses and corporate overheads that are not borne by individual businesses. Discontinued operations About discontinued operations Discontinued businesses comprise...

  • Page 26
    ... of the Board of National Grid plc regularly to demonstrate funding adequacy for at least a 12 month period. We also maintain a minimum level of committed facilities in support of that objective. Credit facilities and unutilised Commercial Paper and Medium Term Note Programmes We have both committed...

  • Page 27
    ...cost is linked to changes in the UK Retail Price Index (RPI). We believe that these bonds provide a good hedge for revenues and our regulatory asset values that are also RPI-linked under our price control formulae. The performance of the Treasury function in interest rate risk management is measured...

  • Page 28
    ... Annual Report and Accounts 2006/07 Counterparty risk management Counterparty risk arises from the investment of surplus funds and from the use of derivative instruments. The Finance Committee of National Grid plc has agreed a policy for managing such risk, which is controlled through credit limits...

  • Page 29
    ... Transmission Annual Report and Accounts 2006/07 27 Retirement arrangements The substantial majority of our employees are members of the National Grid Electricity Group of the Electricity Supply Pension Scheme, (the Scheme). The Scheme is a defined benefit scheme and is closed to new entrants. New...

  • Page 30
    ... is permitted. Financial instruments Use of UK GAAP We have not adopted IFRS and so continue to use or IFRS in UK GAAP in the individual financial statements of individual National Grid Electricity Transmission plc and of its accounts UK subsidiary companies. Choices permitted under IFRS Since...

  • Page 31
    ... sheet are calculated actuarially using a number of assumptions about the future, including inflation, salary increases, length of service and pension and investment returns, together with the use of a discount rate based on corporate bond yields to calculate the present value of the obligation...

  • Page 32
    30 National Grid Electricity Transmission Annual Report and Accounts 2006/07 Tax estimates Our tax charge is based on the profit for the year and tax rates in effect. The determination of appropriate provisions for taxation requires us to take into account anticipated decisions of tax authorities ...

  • Page 33
    National Grid Electricity Transmission Annual Report and Accounts 2006/07 31 Directors' Report Board of Directors Nick Winser (46) Appointed to the Board of the Company in 2003, as Chief Executive, he is also Executive Director of National Grid plc responsible for transmission. He was previously ...

  • Page 34
    ... All interests are in shares in National Grid plc and are held in accordance with the National Grid Performance Share Plan or Deferred Share Plan, details of which are given in the annual report and accounts of that company. Market price at date of award (pence) Beneficial holding at 1 April 2006...

  • Page 35
    ... disabilities in relation to job applications, training, promotion and career development. Every effort is made to find appropriate alternative jobs for those who are unable to continue in their existing job due to disability. Employee involvement The Company, as part of National Grid plc, has well...

  • Page 36
    34 National Grid Electricity Transmission Annual Report and Accounts 2006/07 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, in accordance with ...

  • Page 37
    National Grid Electricity Transmission Annual Report and Accounts 2006/07 35 Independent Auditors' Report to the Members of National Grid Electricity Transmission plc We have audited the consolidated and parent company financial statements (the 'Financial Statements') of National Grid Electricity ...

  • Page 38
    ... National Grid Electricity Transmission'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...

  • Page 39
    ... Grid Electricity Transmission Annual Report and Accounts 2006/07 37 the estimated economic useful lives of the assets to which they relate. Depreciation is not provided on freehold land or assets in the course of construction. Other property, plant and equipment are depreciated on a straight-line...

  • Page 40
    ...the sales value derived from the transmission of electricity and the provision of related services to customers during the year and excludes value added tax and intra-group sales. Revenue includes an assessment of transmission services supplied to customers between the date of the last meter reading...

  • Page 41
    ... at hedged rates instead of closing rates. Exchange gains and losses relating to the hedge of the net investment in overseas subsidiaries were recorded directly in equity. (p) Share-based payments National Grid issues equity-settled share-based payments to certain employees of the Company and its...

  • Page 42
    40 National Grid Electricity Transmission Annual Report and Accounts 2006/07 (q) Business performance, exceptional items and remeasurements Our financial performance is analysed into two components: business performance, which excludes exceptional items and remeasurements; and exceptional items and...

  • Page 43
    ... Grid Electricity Transmission Annual Report and Accounts 2006/07 71 Company Accounting Policies for the year ended 31 March 2007 (a) Basis of preparation of individual financial statements These individual financial statements of the Company have been prepared in accordance with applicable UK...

  • Page 44
    ... relating to past service, are recognised within operating costs. The interest cost on retirement benefit scheme liabilities and the expected return on scheme assets during the period, are recognised in the profit and loss account within net interest. The actuarial value of pension liabilities, net...

  • Page 45
    ... made by the Company to National Grid in respect of share-based payments are recognised as a reduction in equity. (n) Restructuring costs Costs arising from the Company's restructuring programmes primarily relate to redundancy costs. Redundancy costs are charged to the profit and loss account in the...

  • Page 46
    National Grid Electricity Transmission plc Annual Report and Accounts 2006/07 Consolidated Income Statement for the years ended 31 March 2007 Notes 2(a) 3 2(b) 5 2(b) 9 £m 2,018 (1,459) 566 (7) 559 125 (260) (9) (269) 431 (16) 415 10 5, 10 10 (131) 2 (129) 300 (14) 286 11 11 30 16 33 49 335 ...

  • Page 47
    National Grid Electricity Transmission plc Annual Report and Accounts 2006/07 Consolidated Balance Sheet at 31 March Notes Non-current assets Intangible assets Property, plant and equipment Other receivables Derivative financial assets Total non-current assets Current assets Inventories Trade and ...

  • Page 48
    National Grid Electricity Transmission plc Annual Report and Accounts 2006/07 Consolidated Cash Flow Statement for the years ended 31 March Notes Cash flows from operating activities Total operating profit Adjustments for: Depreciation and amortisation Share-based payment charge Changes in working ...

  • Page 49
    National Grid Electricity Transmission plc Annual Report and Accounts 2006/07 Notes to the Accounts 1. Adoption of new accounting standards New IFRS accounting standards and interpretations adopted in 2006/07 During the year ended 31 March 2007 the Company has adopted the following amendments to ...

  • Page 50
    ...reporting format. The following table describes the main activities for each business segment: Electricity transmission High-voltage electricity transmission networks in the UK Other activities relate to contracting activities, the provision of support services and corporate overheads. Discontinued...

  • Page 51
    National Grid Electricity Transmission plc Annual Report and Accounts 2006/07 3. Operating costs Before exceptional items and remeasurements 2007 2006 * £m £m Depreciation of property, plant and equipment Amortisation of intangible assets Payroll costs (note 6 (a)) Other operating charges: Rates ...

  • Page 52
    National Grid Electricity Transmission plc Annual Report and Accounts 2006/07 6. Payroll costs and employees a) Payroll costs 2007 £m 95 11 17 3 4 130 (31) 99 2006 * £m 93 10 14 2 119 (28) 91 Wages and salaries Social security costs Other pension costs Share based payments Severance costs Gross ...

  • Page 53
    National Grid Electricity Transmission plc Annual Report and Accounts 2006/07 8. Retirement benefit obligations Substantially all of the Group's employees are members of the Electricity Supply Pension Scheme which is a defined benefit pension scheme. The Electricity Supply Pension Scheme provides ...

  • Page 54
    National Grid Electricity Transmission plc Annual Report and Accounts 2006/07 8. Retirement benefit obligations (continued) 2007 £m The amounts recognised in the income statement are determined as follows: Current service cost Curtailments/settlement gains on redundancies Special termination ...

  • Page 55
    National Grid Electricity Transmission plc Annual Report and Accounts 2006/07 9. Finance income and costs 2007 £m 84 41 125 (83) (193) (8) (16) 32 (268) (1) (1) (269) (144) 125 (260) (9) (144) Interest income on financial instruments comprises interest income from bank deposits and other financial...

  • Page 56
    National Grid Electricity Transmission plc Annual Report and Accounts 2006/07 10. Taxation Taxation on items charged/(credited) to the income statement United Kingdom Corporation tax at 30% Adjustments in respect of prior years (i) Deferred tax (ii) Taxation Comprising: Taxation - excluding ...

  • Page 57
    National Grid Electricity Transmission plc Annual Report and Accounts 2006/07 11. Discontinued operations On 14 August 2006, the company transferred its Interconnectors business to a fellow subsidiary of National Grid plc. The results of the discontinued operation for the years ended 31 March 2007 ...

  • Page 58
    National Grid Electricity Transmission plc Annual Report and Accounts 2006/07 13. Dividends The following table shows the dividends paid to equity shareholders: 2007 pence (per ordinary share) Ordinary dividends Interim dividend for the year 27.442 120 2006 pence (per ordinary share) 2007 £m ...

  • Page 59
    National Grid Electricity Transmission plc Annual Report and Accounts 2006/07 15. Property, plant and equipment Land and buildings £m Cost at 1 April 2005 Additions Other disposals Reclassifications Cost at 31 March 2006 Additions Disposal of business Other disposals Reclassifications Cost at 31 ...

  • Page 60
    National Grid Electricity Transmission plc Annual Report and Accounts 2006/07 16. Deferred tax assets and liabilities The following are the major deferred tax liabilities and assets recognised, and the movements thereon, during the current and prior reporting periods: Accelerated Employee tax share...

  • Page 61
    National Grid Electricity Transmission plc Annual Report and Accounts 2006/07 18. Derivative financial instruments Derivatives are financial instruments that derive their value from the price of an underlying item such as interest rates, foreign exchange, credit spreads and equity or other indices....

  • Page 62
    ... Grid Electricity Transmission plc Annual Report and Accounts 2006/07 18. Derivative financial instruments (continued) Our use of derivatives may entail a derivative transaction qualifying for one or more hedge type designations under IAS39.The fair value and their notional amounts by designated...

  • Page 63
    National Grid Electricity Transmission plc Annual Report and Accounts 2006/07 19. Financial risk factors Our activities expose us to a variety of financial risks: market risk (including currency risk; fair value interest rate risk; cash flow interest rate risk), credit risk and liquidity risk. The ...

  • Page 64
    ... and committed transactions. Treasury related credit risk Counterparty risk arises from the investment of surplus funds and from the use of derivative instruments. Our limits are managed by National Grid plc, our ultimate parent company. As at 31 March 2007 and 2006, we had a number of exposures to...

  • Page 65
    National Grid Electricity Transmission plc Annual Report and Accounts 2006/07 19. Financial risk factors (continued) (d) Sensitivity analysis Financial instruments affected by market risk include borrowings, deposits and derivative financial instruments. The following analysis, required by IFRS 7, ...

  • Page 66
    National Grid Electricity Transmission plc Annual Report and Accounts 2006/07 20. Inventories Raw materials and consumables Work in progress 2007 £m 14 3 17 2006 £m 14 2 16 21. Trade and other receivables Trade receivables Amounts owed by fellow subsidiaries Other receivables Corporation tax ...

  • Page 67
    National Grid Electricity Transmission plc Annual Report and Accounts 2006/07 23. Cash and cash equivalents 2007 £m 28 437 465 (26) 439 2006 £m 24 24 (16) 8 Cash at bank and in hand Short-term deposits Cash and cash equivalents Bank overdrafts Net cash and cash equivalents The fair value of cash...

  • Page 68
    ...). Market values, where available, have been used to determine fair value. Where market values are not available, fair values have been calculated by discounting cash flows at prevailing interest rates. Borrowings are secured by charges over the assets of National Grid Elecricity Transmission. The...

  • Page 69
    National Grid Electricity Transmission plc Annual Report and Accounts 2006/07 25. Trade and other payables 2007 £m 337 2 384 16 52 65 856 Due to their short maturities, the fair value of trade and other payables approximates to their book value. The carrying amounts of trade and other payables are...

  • Page 70
    National Grid Electricity Transmission plc Annual Report and Accounts 2006/07 28. Share capital Allotted, called up and fully paid number £m 3,218,870 434,060,000 44 437,278,870 44 At 1 April 2005 and 31 March 2006 Movement during the year At 31 March 2007 During the year, all 43,406,000 issued ...

  • Page 71
    National Grid Electricity Transmission plc Annual Report and Accounts 2006/07 29. Share option and award plans (continued) Movements in options to subscribe for ordinary shares under the various option schemes for the two years ended 31 March 2007 are shown below and include those options related ...

  • Page 72
    National Grid Electricity Transmission plc Annual Report and Accounts 2006/07 29. Share option and award plans (continued) Awards under share option plans The average share prices at the date of options being granted during each of the two financial years ended 31 March were as follows: 2007 746.0p...

  • Page 73
    National Grid Electricity Transmission plc Annual Report and Accounts 2006/07 30. Reconciliation of movements in total equity Called-up ordinary share capital £m 44 44 At 31 March 2005 Adoption of IAS 39 At 1 April 2005 Net income recognised directly in equity Profit for the year Share-based ...

  • Page 74
    National Grid Electricity Transmission plc Annual Report and Accounts 2006/07 31. Consolidated cash flow statement a) Cash flow from operating activities - discontinued operations 2007 £m 23 1 9 33 2006 £m 63 5 (62) 6 Operating profit Adjustments for: - Depreciation and amortisation - Changes in...

  • Page 75
    ...the Electricity Supply Pension Scheme are set out in note 8. The Company has been given a guarantee by National Grid Holdings One plc for £20m to £40m in respect of costs to be incurred in relation to the UK Netherlands interconnector planned to be constructed by BritNed Development Limited, which...

  • Page 76
    National Grid Electricity Transmission plc Annual Report and Accounts 2006/07 Company balance sheet at 31 March Notes Fixed assets Tangible assets Derivative financial assets Current assets Stocks Debtors Derivative financial assets (amounts falling due within one year) Current asset investments ...

  • Page 77
    National Grid Electricity Transmission plc Annual Report and Accounts 2006/07 Notes to the Company accounts 1. Adoption of new accounting standards New financial reporting standards (FRS) and Urgent Issues Task Force (UITF) abstracts adopted in 2006/07 During the year the Company has adopted the ...

  • Page 78
    ... to the Gas and Electricity Markets Authority under the Company's Authority under the Company's electricity transmission licence and fees for reports under section 404 of the US Public Company Accounting Reform and Investor Protection Act of 2002 (Sarbanes-Oxley). 3. Payroll costs 2007 £m 95 11...

  • Page 79
    ... Grid Electricity Transmission plc Annual Report and Accounts 2006/07 6. Tangible fixed assets Plant and machinery £m 6,299 5 (335) (25) 480 6,424 2,557 212 (274) 2,495 3,929 3,742 Assets in the course of construction £m 658 598 (1) (1) (507) 747 747 658 Motor vehicles and office equipment...

  • Page 80
    ... Grid Electricity Transmission plc Annual Report and Accounts 2006/07 7. Stocks 2007 £m 14 3 17 2006 £m 14 2 16 Raw materials and consumables Work in progress 8. Debtors 2007 £m Amounts falling due within one year: Trade debtors Amounts owed by group undertakings Other debtors Corporation tax...

  • Page 81
    National Grid Electricity Transmission plc Annual Report and Accounts 2006/07 10. Creditors (amounts falling due within one year) 2007 £m 263 4 337 66 2 382 16 52 1,122 2006 £m 259 9 322 64 17 310 25 23 1,029 Borrowings (note 12) Derivative liabilities Trade creditors and accruals Deferred ...

  • Page 82
    National Grid Electricity Transmission plc Annual Report and Accounts 2006/07 12. Borrowings 2007 £m Amounts falling due within one year: Bank loans and overdrafts Other bonds Amounts owed to group undertakings Amounts falling due after more than one year: Bank loans Other bonds Total borrowings ...

  • Page 83
    National Grid Electricity Transmission plc Annual Report and Accounts 2006/07 13. Provisions for liabilities and charges Deferred taxation Environmental £m £m 820 8 9 4 (4) (27) 806 4 At 31 March 2006 Charged to profit and loss account Charged to equity Utilised Transfers to group undertakings ...

  • Page 84
    National Grid Electricity Transmission plc Annual Report and Accounts 2006/07 14. Net post-retirement liability Substantially all the Company's employees are members of the Electricity Supply Pension Scheme. See note 8 to the consolidated financial statements on page 48. Amendment to FRS 17 '...

  • Page 85
    National Grid Electricity Transmission plc Annual Report and Accounts 2006/07 14. Net post-retirement liability (continued) The amounts recognised in the balance sheet in respect of the Company's section of the Electricity Supply Pension Scheme are as follows: 2007 £m Fair value of plan assets ...

  • Page 86
    ... parent company The Company's ultimate parent company and controlling party is National Grid plc. The immediate parent company is National Grid Holdings Limited. Both companies are incorporated in Great Britain and consolidate the accounts of National Grid Electricity Transmission plc. Copies...