National Grid 2009 Annual Report Download - page 21

03 Summary Operating and Financial Review
19National Grid plc Annual Review 2008/09
Net pension and other post-retirement obligations
At 31 March 2009, we had a net pension and other post-retirement
obligations deficit of £2.8 billion (2008: £0.9 billion), consisting of
plan assets of £15.5 billion (2008: £17.3 billion) offset by plan
liabilities of £18.3 billion (2008: £18.2 billion). The principal movements
in our net pensions obligation during the year arose as a result of
actuarial losses on the value of plan assets reflecting the significant
decline in global share indices. This was partially offset by actuarial
gains on plan liabilities, primarily as a consequence of using higher
discount rates.
In addition to ongoing employer contributions, we have agreed to
make additional deficit contributions to our UK pension schemes
expected to total £149 million in 2009/10, with the remaining deficit
payable over the period up to 2017. In accordance with our funding
policy for US pension and other post-retirement benefit plans, we
expect to contribute approximately £445 million during 2009/10.
Treasury policy
Funding and treasury risk management for National Grid is
carried out by the Treasury function under policies and guidelines
approved by the Board. The Finance Committee of the Board is
responsible for the regular review and monitoring of treasury
activity and for the approval of specific transactions, the authority
for which may be delegated. The primary objective of the Treasury
function is to manage the funding and liquidity requirements of
National Grid. A secondary objective is to manage the associated
financial risks (in the form of interest rate risk and foreign exchange
risk) to within acceptable boundaries. Our policies over the
management of funding and liquidity and the main risks arising
from our financing activities, including the use of financial
derivatives, are agreed and reviewed by the Board and the
Finance Committee. The Treasury function is not operated as
a profit centre. Debt and treasury positions are managed in a
non-speculative manner, such that all transactions in financial
instruments or products are matched to an underlying current
or anticipated business requirement.
Commodity derivatives entered into in respect of gas and
electricity commodities are controlled by policy guidelines
set by the Finance Committee and energy procurement
risk management committee.
Going concern
Having made enquiries, the Directors consider that the
Company and its subsidiary undertakings have adequate
resources to continue in business for the foreseeable future
and that it is therefore appropriate to adopt the going
concern basis in preparing the consolidated and individual
financial statements of the Company.
Discontinued operations
During 2008/09 discontinued operations included the Ravenswood
generation station, which was sold on 26 August 2008, KeySpan
Communications, which was sold on 25 July 2008, and the
KeySpan engineering companies, one of which was sold on
11 July 2008. Subsequent to the year end, two further engineering
companies were sold.
Dividends
The total ordinary dividend for 2008/09 (including the proposed
final dividend of 23.00 pence) amounts to 35.64 pence per
ordinary share, which equates to approximately £867 million.
This represents an increase of 8% over the previous year’s
total ordinary dividend per share of 33.00 pence (£831 million).
The above amounts exclude the £597 million returned in
2008/09 on repurchasing shares (2007/08: £1,516 million).
The proposed final dividend to shareholders for 2008/09 of
23.00 pence per share, amounting to approximately £560 million
(assuming all amounts settled in cash), will be reported in the
financial statements for the year ending 31 March 2010. This year,
we are offering shareholders the option of a scrip dividend (subject
to shareholder approval). Under this scheme, shareholders can opt
to receive the final dividend in new ordinary shares rather than cash.
Dividend policy
Our target is to increase dividends by 8% each year until
31 March 2012.
Cash flow
Cash generated from continuing operations was £3,564 million in
2008/09, compared with £3,265 million in 2007/08. This includes
net cash inflows for continuing operations relating to exceptional
items and stranded cost recoveries of £228 million and £146 million
in 2008/09 and 2007/08 respectively. After reflecting cash flows
relating to discontinued operations and tax paid, net cash inflow
from operating activities was £3,413 million, compared with
£3,165 million in 2007/08.
Cash outflows from investing activities were £1,998 million in
2008/09 compared with an outflow of £3,023 million in 2007/08.
This reflected £73 million spend on the acquisition of subsidiaries
and other investments in 2008/09 (2007/08: £3,528 million spent,
primarily relating to the KeySpan acquisition), purchases of
property, plant and equipment of £3,107 million in 2008/09
(2007/08: £2,832 million), partially offset by net sales of financial
investments of £99 million (2007/08: net sales of £45 million), cash
inflows from discontinued operations of £1,049 million (2007/08:
inflows of £3,050 million), and other cash inflows of £34 million
(2007/08: inflows of £242 million).
Net cash used in financing activities of £877 million in 2008/09
compared with £1,592 million used in 2007/08. This included
£627 million in 2008/09 and £1,498 million outflows in 2007/08 with
respect to share repurchases. It also included £4,892 million raised
from loans received compared with £1,568 million in 2007/08.
Net debt
Net debt increased by £5.1 billion from £17.6 billion at 31 March
2008 to £22.7 billion at 31 March 2009, primarily as a result of the
foreign exchange impact due to the strengthening of the US dollar
and the funding of our capital expenditure programme, partially
offset by cash inflows from operations and disposal proceeds.