National Grid 2015 Annual Report Download - page 177

Risk factors
Growth and business development activity
Failure to respond to external market developments and
execute our growth strategy may negatively affect our
performance. Conversely, new businesses or activities that
weundertake alone or with partners may not deliver target
outcomes and may expose us to additional operational and
nancial risk.
Failure to grow our core business sufficiently and have viable
options for new future business over the longer term could
negatively affect the Group’s credibility and reputation and
jeopardise the achievement of intended financial returns.
Business development activities and the delivery of our growth
ambition, including acquisitions, disposals, joint ventures,
partnering and organic investment opportunities (including
organic investments made as a result of changes to the energy
mix), are subject to a wide range of both external uncertainties
(including the availability of potential investment targets and
attractive financing and the impact of competition for onshore
transmission in both the UK and US), and internal uncertainties
(including actual performance of our various existing operating
companies and ourbusiness planning model assumptions and
ability to integrate acquired businesses effectively). As a result,
wemay suffer unanticipated costs and liabilities and other
unanticipated effects.
We may also be liable for the past acts, omissions or liabilities
ofcompanies or businesses we have acquired, which may be
unforeseen or greater than anticipated. In the case of joint
ventures, we may have limited control over operations and our
jointventure partners may have interests that diverge from our own.
The occurrence of any of these events could have a material
adverse impact on our results of operations or financial condition,
and could also impact our ability to enter into other transactions.
Cost escalation
Changes in foreign currency rates, interest rates or
commodityprices could materially impact earnings or our
nancial condition.
We have significant operations in the US and so are subject to the
exchange rate risks normally associated with non UK operations,
including the need to translate US assets and liabilities, and
income and expenses, into sterling, our primary reporting currency.
In addition, our results of operations and net debt position may
beaffected because a significant proportion of our borrowings,
derivative financial instruments and commodity contracts are
affected by changes in interest rates, commodity price indices and
exchange rates, in particular the dollar to sterling exchange rate.
Furthermore, our cash flow may be materially affected as a result
of settling hedging arrangements entered into to manage our
exchange rate, interest rate and commodity price exposure, or
bycash collateral movements relating to derivative market values,
which also depend on the sterling exchange rate into euro and
other currencies.
Our results of operations could be affected by ination
ordeation.
In our regulated UK networks, our allowed revenues are set in real
terms and then adjusted for actual RPI inflation. There is a risk that
inflationary impacts on our costs are higher than RPI inflation and
are not fully compensated by this inflation adjustment to revenues.
There is also a risk that year-on-year RPI inflation is negative with
no corresponding decrease in costs or insufficient decrease to
offset the impact on revenues.
Our income under our rate plans in the US is not typically linked to
inflation. In periods of inflation in the US, our operating costs may
increase by more than our revenues. In both the UK and US such
increased costs may materially adversely affect the results of
ouroperations.
We may be required to make signicant contributions to fund
pension and other post-retirement benets.
We participate in a number of pension schemes that together
cover substantially all our employees. In both the UK and US,
theprincipal schemes are DB schemes where the scheme assets
are held independently of our own financial resources.
In the US, we also have other post-retirement benefit schemes.
Estimates of the amount and timing of future funding for the UK
and US schemes are based on actuarial assumptions and other
factors including: the actual and projected market performance
ofthe scheme assets; future long-term bond yields; average life
expectancies; and relevant legal requirements.
Actual performance of scheme assets may be affected by volatility
in debt and equity markets.
Changes in these assumptions or other factors may require us to
make additional contributions to these pension schemes which,
tothe extent they are not recoverable under our price controls
orstate rate plans, could materially adversely affect the results
ofour operations and financial condition.
Additional Information
NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 175