National Grid 2008 Annual Report Download - page 683

BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 6703
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: 156
Description: EXHIBIT 15.1
0/4352.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/352/4*
BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 6703
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: 156 Description: EXHIBIT 15.1
0/4352.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/352/4*
Table of Contents
164
Notes to the consolidated financial statements continued
National Grid plc
33. Financial risk continued
(d) Sensitivity analysis
Financial instruments affected by market risk include borrowings, deposits, derivative financial instruments and commodity
contracts. The following analysis, required by IFRS 7, is intended to illustrate the sensitivity to changes in market variables,
being UK and US interest rates, the UK retail price index and the US dollar to sterling exchange rate on our financial
instruments.
The analysis also excludes the impact of movements in market variables on the carrying value of pension and other post-
retirement obligations, provisions and on the non-financial assets and liabilities of overseas subsidiaries.
The sensitivity analysis has been prepared on the basis that the amount of net debt, the ratio of fixed to floatin
g
interest rates of
the debt and derivatives portfolio and the proportion of financial instruments in foreign currencies are all constant and on the
basis of the hed
g
e desi
g
nations in place at 31 March 2008 and 31 March 2007, respectively. As a consequence, this sensitivity
analysis relates to the positions at those dates and is not representative of the years then ended, as all of these varied.
The following assumptions were made in calculating the sensitivity analysis:
Using the above assumptions, the following table shows the illustrative impact on the income statement and items that are
recognised directly in equity that would result from reasonably possible movements in the UK retail price index, UK and US
interest rates and in the US dollar to sterling exchange rate, after the effects of tax.
The income statement sensitivities impact interest expense and financial instrument remeasurements.
The other equity reserves impact does not reflect the exchange translation in our US subsidiary investments which it is
estimated would change by £718m (2007: £380m) in the opposite direction if the US dollar exchange rate changed by 10%.
(e) Capital and risk management
National Grid’s objectives when managing capital are to safeguard our ability to continue as a going concern, to remain within
regulatory constraints and to operate an efficient balance sheet thus achieving an optimal capital structure and cost of capital.
In order to maintain or adjust the capital structure, we may return excess capital to shareholders, issue new shares or sell
assets to reduce debt.
The principal measure of our balance sheet efficiency is our interest cover ratio. Interest cover for the year ended 31
March 2008 decreased to 3.2 from 3.8 for the year ended 31 March 2007. Our long-term target range for interest cover is
between 3.0 and 3.5.
the balance sheet sensitivity to interest rates relates only to derivative financial instruments and available-for-sale
investments, as debt and other deposits are carried at amortised cost and so their carrying value does not change as
interest rates move;
the sensitivity of accrued interest to movements in interest rates is calculated on net floating rate exposures on debt,
deposits and derivative instruments;
changes in the carrying value of derivatives from movements in interest rates designated as cash flow hedges are assumed
to be recorded fully within equity;
changes in the carrying value of derivative financial instruments designated as net investment hedges from movements in
interest rates are recorded in the income statement as they are designated using the spot rather than the forward translation
method. The impact of movements in the US dollar to sterling exchange rate are recorded directly in equity;
changes in the carrying value of derivative financial instruments not in hedging relationships only affect the income
statement;
all other changes in the carrying value of derivative financial instruments designated as hedges are fully effective with no
impact on the income statement;
debt with a maturity below one year is floating rate for the accrued interest part of the calculation;
the floating leg of any swap or any floating-rate debt is treated as not having any interest rate already set, therefore a
change in interest rates affects a full 12 month period for the accrued interest portion of the sensitivity calculations; and
sensitivity to the retail price index does not take into account any changes to revenue or operating costs that are affected by
the retail price index or inflation generally.
2008 2007
Income Other equit
y
Income Other equity
statement reserves statement reserves
-
/
+ £m -
/
+ £m -/+ £m -/+ £m
UK retail
p
rice index +/- 0.50% 16
–
13
–
UK interest rates +/- 0.50% 46 57 35 43
US interest rates +/- 0.50% 31 7 26 8
US dollar exchan
g
e rate +
/
- 10% 18 590 36 194