National Grid 2008 Annual Report Download - page 680

BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 28123
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: 153
Description: EXHIBIT 15.1
0/6349.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/349/6*
BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 28123
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: 153 Description: EXHIBIT 15.1
0/6349.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/349/6*
Table of Contents
Annual Report and Accounts 2007/08
161
33. Financial risk continued
(a) Market risk continued
(ii) Cash flow and fair value interest rate risk
Interest rate risk arises from our borrowin
g
s. Borrowin
g
s issued at variable rates expose National Grid to cash flow interest rate
risk. Borrowings issued at fixed-rates expose National Grid to fair value interest rate risk. Our interest rate risk management
policy as further explained on pa
g
e 76 is to minimise the finance costs (bein
g
interest costs and chan
g
es in the market value of
debt). Some of our borrowings issued are index-linked; that is, their cost is linked to changes in the UK retail price index (RPI).
We believe that these borrowings provide a good hedge for regulated UK revenues and our UK regulatory asset values that
are also RPI-linked.
Interest rate risk arising from the financial investments is primarily variable being composed of short dated money funds.
The following table sets out the carrying amount, by contractual maturity, of borrowings that are exposed to interest rate risk
before taking into account interest rate swaps:
*Includes bank overdrafts
2008 2007
£m £m
Fixed interest rate borrowin
g
s
In one
y
ear or less
(
2,620
)
(
619
)
In more than one year, but not more than two years (906) (1,525)
In more than two
y
ears, but not more than three
y
ears
(
642
)
(
569
)
In more than three
y
ears, but not more than four
y
ears
(
1,008
)
(
263
)
In more than four
y
ears, but not more than five
y
ears
(
900
)
(
901
)
In more than five years (5,579) (4,886)
(
11,655
)
(
8,763
)
Floatin
g
interest rate borrowin
g
s
(
includin
g
RPI
)
(
9,348
)
(
6,954
)
Total borrowin
g
s
(
21,003
)
(
15,717
)
During 2008 and 2007, net debt was managed using derivative instruments to hedge interest rate risk as follows:
2008 2007
Fixed- Floatin
g
- Fixed- Floating-
rate rate RPI
(i)
Other
(ii)
Total rate rate RPI
(i)
Other
(ii)
Total
£m £m £m £m £m £m £m £m £m £m
Cash and cash
e
q
uivalents
–
174
–
–
174
–
1,593
–
–
1,593
Financial investments 223 1,835 – 37 2,095 – 1,872 – 226 2,098
Borrowin
g
s*
(
11,655
)
(
4,825
)
(
4,523
)
–
(
21,003
)
(
8,763
)
(
3,307
)
(
3,647
)
–
(
15,717
)
Pre-derivative
p
osition
(
11,432
)
(
2,816
)
(
4,523
)
37
(
18,734
)
(
8,763
)
158
(
3,647
)
226
(
12,026
)
Derivative effect 1,814 (708) (2) (11) 1,093 2,747 (2,501) – (8) 238
Net debt
p
osition
(
9,618
)
(
3,524
)
(
4,525
)
26
(
17,641
)
(
6,016
)
(
2,343
)
(
3,647
)
218
(
11,788
)
(i) Represents financial instruments which are linked to the UK retail price index.
(ii) Represents financial instruments which are not directly affected by interest rate risk, such as investments in equity, foreign exchange forward contracts or other similar financial
instruments.