National Grid 2008 Annual Report Download - page 551

BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 52399
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: 34
Description: EXHIBIT 15.1
0/5230.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/230/5*
BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 52399
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: 34 Description: EXHIBIT 15.1
0/5230.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/230/5*
Table of Contents
42
Performance a
g
ainst our ob
j
ectives continued
National Grid plc
Cash flows
Cash flows from operating activities
Cash generated from continuing operations was £3,265
million in 2007/08, compared with £3,090 million in 2006/07
and £2,973 million in 2005/06. This reflected cash outflows
of continuing operations relating to exceptional items of
£132 million, £86 million and £115 million respectively and
cash inflows from stranded cost recoveries of £278 million,
compared with £288 million and £432 million respectively.
After reflecting cash flows relating to discontinued operations
and tax paid, net cash inflow from operating activities was
£3,165 million, compared with £2,958 million in 2006/07 and
£2,971 million in 2005/06.
This included net corporate tax payments amounting to
£110 million in 2007/08, £313 million in 2006/07 and
£140 million in 2005/06.
Cash flows from investing activities
Cash outflows from investing activities were £3,023 million in
2007/08, compared with an outflow of £4,061 million in
2006/07 and an inflow of £4,052 million in 2005/06. This
reflected £3,502 million spent on acquiring KeySpan in
2007/08 net of cash acquired, compared with £269 million
spent on acquiring businesses in 2006/07 and £nil in
2005/06, partially offset by net sales of financial investments
of £45 million (2006/07: net purchases of £1,725 million,
2005/06: net sales of £25 million). Proceeds from disposals
of businesses in 2007/08 were £3,064 million (2006/07:
£27 million, 2005/06: £5,750 million) and sales of joint
ventures and other investments of £55 million (2006/07:
£19 million, 2005/06: £8 million).
Excluding acquisitions, disposals and financial investments,
cash outflows increased in 2007/08 compared with 2006/07
as a result of purchases of property, plant and equipment
within continuin
g
operations increasin
g
to £2,832 million
during the year (2006/07: £2,185 million, 2005/06: £1,657
million). Investing activities of discontinued operations in the
period resulted in a cash outflow of £14 million in 2007/08
(2006/07: £47 million, 2005/06: £209 million).
Cash flows from financing activities
Net cash outflows from financing activities were
£1,592 million in 2007/08, compared with a £1,278 million
inflow in 2006/07 and a £5,842 million outflow in 2005/06.
This reflected net inflows from borrowings of £1,589 million
(2006/07: £3,045 million, 2005/06: net outflow of
£2,304 million) and £1,498 million of share repurchases
(2006/07: £169 million, 2005/06: £7 million).
In addition, £26 million was incurred in respect of the final
amounts payable under the B share £2 billion return of value
to shareholders (2006/07: £26 million, 2005/06:
£1,957 million).
Payments to providers of finance, in the form of net interest
and dividends, totalled £1,680 million in 2007/08 compared
with £1,588 million in 2006/07 and £1,628 million in 2005/06.
Net interest cash outflows increased from £597 million in
2006/07 to £694 million in 2007/08 (decreased from
£704 million in 2005/06 to £597 million in 2006/07). The
increase in 2007/08 compared with 2006/07 reflected higher
average net debt during the year (primarily as a
consequence of the acquisition of KeySpan); this was
partially offset by the beneficial impact of the weaker US
dollar. The decrease in 2006/07 reflected lower average net
debt durin
g
the year, the weaker US dollar and the beneficial
impact of refinancing debt.
Our return on equity measure allows us to monitor our
performance in generating value from our businesses and
from the investments we make. For 2007/08, our return on
equity is 12.2%, down from 13.5% in 2006/07. The decrease
is primarily driven by lower avera
g
e UK retail price inflation in
2007/08 that reduced the inflation uplift on the regulatory
asset value recognised in our return. In addition, the
reduction reflects the disposal of our UK wireless
communications business in the year which, being a non-
regulated business, produced higher levels of return. This is
partially offset by an improvement in the performance of our
continuing businesses.
The average return on equity over the past three years was
11.8% (2006/07: 12.0% three year average).
Our long-term target range for interest cover is between 3.0
and 3.5. Interest cover for the year ended 31 March 2008
decreased to 3.2 from 3.8 for the year ended 31 March 2007.
In 2006 we committed to return approximately $1.9 billion
cash between calendar years 2006 and 2011 to
shareholders through a share repurchase programme based
on the after-tax cash flows generated from the recovery of
stranded costs in the US. In addition, following the
successful disposal of our UK wireless infrastructure
operations in the UK for £2.5 billion on 3 April 2007, we
announced the return of a further £1.8 billion to
shareholders.
During the year to 31 March 2008 we repurchased £1.5
billion of our shares, which together with the £169 million
repurchased in 2006/07 totals £1.7 billion on share
repurchases.
Returns on our
investments
We aim to generate value from our investments
by improving the operating performance of our
networks, by selecting investments that will
provide the best return or, in the case of
acquisitions, by selecting businesses where we
can obtain synergies for the benefit of our
customers and our shareholders.
Measures we use to monitor the value we generate from our
investments include the returns generated by our regulated
businesses and our consolidated return on equity.
Financial
discipline
In order to deliver sustainable growth we must
be disciplined in the way we manage our
balance sheet. This means that we will return
cash to shareholders to the extent it is not
re
q
uired for our investment ob
j
ectives.
The principal measure we use to monitor financial discipline is interest
cover, being the ratio between the profits we generate and the net
interest cost of servicing our borrowings. We also measure our
progress against our promise to return cash to shareholders.