National Grid 2008 Annual Report Download - page 548

BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 9524
Name: NATIONAL GRID
Date: 17-JUN-2008 03:10:51.35Operator: BNY99999TPhone: [phone]Site: BOWNE OF NEW YORK
Y59930.SUB, DocName: EX-15.1, Doc: 16, Page: 31
Description: EXHIBIT 15.1
0/6227.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/227/6*
BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 9524
Name: NATIONAL GRID
Date: 17-JUN-2008 03:10:51.35Operator: BNY99999TPhone: [phone]Site: BOWNE OF NEW YORK
Y59930.SUB, DocName: EX-15.1, Doc: 16, Page: 31 Description: EXHIBIT 15.1
0/6227.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/227/6*
Table of Contents
Annual Report and Accounts 2007/08
39
There was a £151 million increase in operating
remeasurement gains to £232 million in 2007/08 compared
to £81 million in 2006/07. The gains relate to changes in the
value of commodity contracts in the US carried in the
balance sheet at fair value, primarily arisin
g
from movements
in energy prices.
Stranded cost recoveries relate to the recovery of historical
generation-related costs in the US that are no longer owned
following divesture of generation assets. Such costs can be
recovered from customers as permitted by regulatory
agreements. Stranded cost recoveries revenue and costs
were £382 million and £3 million respectively (2006/07:
£426 million and £3 million, 2005/06: £517 million and
£28 million).
As a consequence of the increase in adjusted operating
profit of £564 million, the net movement in operating
exceptional items and remeasurements of £69 million and
decrease in operating profit from stranded cost recoveries of
£44 million, total operating profit increased by £451 million in
2007/08 to £2,964 million compared to £2,513 million in
2006/07.
2006/07 compared to 2005/06
Changes in revenue and other operating income, operating
costs and operating profit for 2006/07 compared with
2005/06 can be summarised as follows:
Revenue and other operating income excluding stranded
cost recoveries was £79 million lower than in 2005/06,
reflecting a £250 million decrease as a result of exchange
movements on US operations and a £171 million increase in
operating revenues on a constant currency basis. Operating
costs excluding exceptional items, remeasurements and
stranded cost recoveries decreased by £142 million,
reflecting a £219 million decrease as a result of exchange
movements on US operations and a £77 million increase in
operating costs on a constant currency basis.
Significant movements in operating revenues and costs
relate to higher allowed revenues in Transmission in the UK,
reduced volumes in Gas Distribution in the UK as a result of
warmer weather, revenues and costs from the acquired
g
as
distribution network in Rhode Island, hi
g
her commodity costs
in Electricity Distribution in the US passed through to
customers and lower
Revenue
and other
operating Operating Operating
income costs profit
£m £m £m
2005/06 results 8,948
(
6,574
)
2,374
Add back exceptional items and
remeasurements – 83 83
Deduct stranded cost recoveries
(
517
)
28
(
489
)
2005/06 ad
j
usted results 8,431
(
6,463
)
1,968
Exchange on US operations (250) 219 (31)
2005/06 constant currenc
y
results 8,181
(
6,244
)
1,937
Transmission UK 112
(
10
)
102
Transmission US (21) 10 (11)
Gas Distribution UK
(
27
)
(
47
)
(
74
)
Gas Distribution US 103
(
76
)
27
Electricit
y
Distribution & Generation US 65 2 67
Other activities (137) 120 (17)
Sales between businesses 76
(
76
)
–
2006/07 adjusted results 8,352 (6,321) 2,031
2006/07 exceptional items and
remeasurements
–
59 59
2006/07 stranded cost recoveries 426
(
3
)
423
2006/07 results 8,778
(
6,265
)
2,513
connections revenues and costs in other activities relating to
the regional gas distribution networks sold in 2005/06. There
was an increase of £3 million in other operating income,
which primarily relates to
g
ains on the sales of property by
our property management business in the UK. As a
consequence, adjusted operating profit in 2006/07 was
£63 million higher than 2005/06, comprising a £31 million
decrease as a result of exchange on US operations and an
increase of £94 million from operations on a constant
currency basis.
Net operating exceptional charges of £22 million in 2006/07
related to restructuring costs incurred in the UK and US,
includin
g
the establishment of a UK shared services function,
the business process review undertaken in Transmission
and the integration of the acquired Rhode Island gas
distribution network into our Gas Distribution business.
Operating remeasurement gains of £81 million (2005/06:
losses of £49 million) relate to changes in the value of
commodity contracts in the US carried in the balance sheet
at fair value, arising from movements in energy prices.
Stranded cost recoveries revenue and operating profit in
2006/07 of £426 million (2005/06: £517 million) and
£423 million (2005/06: £489 million) respectively related to
the recovery of historical generation-related costs in the US
that are no longer owned following divesture of generation
assets. Such costs can be recovered from customers as
permitted by regulatory agreements.
As a consequence of the increase in adjusted operating
profit of £63 million and the movement in operating
exceptional items and remeasurements of £142 million and
decrease in operating profit from stranded cost recoveries of
£66 million total operating profit rose by £139 million from
£2,374 million in 2005/06 to £2,513 million in 2006/07.
Net finance costs
Net interest excluding exceptional items and
remeasurements was £760 million in 2007/08 compared to
£547 million in 2006/07. The increase was a consequence of
higher average debt balances following the KeySpan
acquisition.
Net interest excluding exceptional finance costs and
remeasurements in 2006/07 decreased by £55 million
compared with 2005/06, primarily as a consequence of lower
average debt balances, a reduction in the interest charge
related to pensions and the weaker US dollar in 2006/07.
Exceptional finance costs and remeasurements
There were no exceptional finance costs in 2007/08. This
compares with exceptional finance costs of £45 million in
2006/07 and £49 million in 2005/06 primarily relating to the
early repayment of debt.
Financial remeasurements relate to net losses on derivative
financial instruments of £7 million (2006/07: £153 million,
2005/06: gains of £6 million) and the financial element of
commodity contract revaluations, totalling £9 million
(2006/07: £19 million, 2005/06: £14 million). Net losses on
derivative financial instruments in 2007/08 includes
£3 million (2006/07: £126 million, 2005/06: £nil) arising from
a difference in the tax treatment of certain derivative
instruments that offset on a post-tax basis.