National Grid 2008 Annual Report Download - page 679

BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 53517
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: 152
Description: EXHIBIT 15.1
0/5348.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/348/5*
BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 53517
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: 152 Description: EXHIBIT 15.1
0/5348.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/348/5*
Table of Contents
160
Notes to the consolidated financial statements continued
National Grid plc
33. Financial risk
Our activities expose us to a variety of financial risks: market risk (including foreign exchange risk; fair value interest rate
risk; cash flow interest rate risk; commodity risk); credit risk and liquidity risk. The overall risk management programme
focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on financial
performance. Derivative financial instruments are used to hedge certain risk exposures.
Risk management related to financing activities is carried out by a central treasury department under policies approved by
the Board of Directors. This department identifies, evaluates and hedges financial risks in close co-operation with the
operating units. The Board 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, use of derivative financial instruments and non-
derivative financial instruments, and investment of excess liquidity as discussed further in our treasury policy, described on
pages 76 to 78.
(a) Market risk
(i) Foreign exchange risk
National Grid operates internationally and is exposed to foreign exchange risk arising from various currency exposures,
primarily with respect to the US dollar. Forei
g
n exchan
g
e risk arises from future commercial transactions, reco
g
nised assets
and liabilities and investments in foreign operations.
With respect to near term foreign exchange risk, we use foreign exchange forwards to manage foreign exchange
transaction exposure. Our policy is to hedge a minimum percentage of known contracted foreign currency flows in order to
mitigate foreign currency movements in the intervening period. Where cash forecasts are less certain, we generally cover a
percentage of the foreign currency flows depending on the level of agreed probability for those future cash flows.
We also manage the foreign exchange exposure to net investments in foreign operations, within a policy range, by
maintaining a percentage of net debt and foreign exchange forwards in the relevant currency. The primary managed foreign
exchange exposure arises from the US dollar denominated assets and liabilities held by the US operations, and in the prior
year, a small Australian dollar foreign exchange exposure with respect to our discontinued operations in Australia.
During 2008 and 2007, derivative financial instruments were used to manage foreign currency risk as follows:
The overall exposure to US dollars largely relates to our net investment hedge activities as described and shown in note 32
The currency exposure on other financial instruments is as follows:
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 US dollars is due to activities in our US subsidiaries.
We do not have any other significant exposure to currency risk on these amounts.
2008 2007
Sterlin
g
Euro US dollar Other Total Sterling Euro US dollar Other Total
£m £m £m £m £m £m £m £m £m £m
Cash and cash e
q
uivalents 168 6
–
–
174 733 2 858
–
1,593
Financial investments 1,063 92 898 42 2,095 1,663 61 345 29 2,098
Borrowin
g
s*
(
9,111
)
(
5,342
)
(
5,769
)
(
781
)
(
21,003
)
(
8,030
)
(
4,677
)
(
2,443
)
(
567
)
(
15,717
)
Pre-derivative
p
osition
(
7,880
)
(
5,244
)
(
4,871
)
(
739
)
(
18,734
)
(
5,634
)
(
4,614
)
(
1,240
)
(
538
)
(
12,026
)
Derivative effect 1,069 5,301
(
6,016
)
739 1,093
(
1,709
)
4,693
(
2,972
)
226 238
Net debt
p
osition
(
6,811
)
57
(
10,887
)
–
(
17,641
)
(
7,343
)
79
(
4,212
)
(
312
)
(
11,788
)
* Includes bank overdrafts
2008 2007
Sterlin
g
Euro US dollar Other Total Sterling Euro US dollar Other Total
£m £m £m £m £m £m £m £m £m £m
Trade and other
receivables 182
–
1,138
–
1,320 172
–
526
–
698
Trade and other
p
a
y
ables
(
1,290
)
–
(
1,050
)
–
(
2,340
)
(
1,208
)
–
(
563
)
–
(
1,771
)
Other non-current liabilities
(
18
)
–
(
417
)
–
(
435
)
(
11
)
–
(
333
)
–
(
344
)