National Grid 2015 Annual Report Download - page 121

15. Derivative financial instruments continued
The maturity profile of derivative financial instruments is as follows:
2015 2014
Assets
£m
Liabilities
£m
Total
£m
Assets
£m
Liabilities
£m
Total
£m
Current
Less than 1 year 177 (635) (458) 413 (339) 74
177 (635) (458) 413 (339) 74
Non-current
In 1 to 2 years 15 (97) (82) 54 (26) 28
In 2 to 3 years 37 (252) (215) 73 (57) 16
In 3 to 4 years 136 (238) (102) 71 (103) (32)
In 4 to 5 years 125 (235) (110) 244 (128) 116
More than 5 years 1,226 (942) 284 1,115 (510) 605
1,539 (1,764) (225) 1,557 (824) 733
1,716 (2,399) (683) 1,970 (1,163) 807
For each class of derivative the notional contract1 amounts are as follows:
2015
£m
2014
£m
Interest rate swaps (11,125) (15,406)
Cross-currency interest rate swaps (8,103) (8,614)
Foreign exchange forward contracts (6,579) (4,698)
Inflation linked swaps (1,361) (1,391)
(27,168) (30,109)
1. The notional contract amounts of derivatives indicate the gross nominal value of transactions outstanding at the reporting date.
Where possible, derivatives held as hedging instruments are formally designated as hedges as defined in IAS 39. Derivatives may qualify
as hedges for accounting purposes if they are fair value hedges, cash flow hedges or net investment hedges. Our use of derivatives may
entail a derivative transaction qualifying for one or more hedge type designations under IAS 39.
Hedge accounting allows derivatives to be designated as a hedge of another non-derivative financial instrument, to mitigate the impact
ofpotential volatility in the income statement of changes in the fair value of the derivative instruments. To qualify for hedge accounting,
documentation is prepared specifying the hedging strategy, the component transactions and methodology used for effectiveness
measurement. National Grid uses three hedge accounting methods, which are described as follows:
Fair value hedges
Fair value hedges principally consist of interest rate and cross-currency swaps that are used to protect against changes in the fair value
offixed-rate, long-term financial instruments due to movements in market interest rates. For qualifying fair value hedges, all changes in
thefair value of the derivative and changes in the fair value of the item in relation to the risk being hedged are recognised in the income
statement to the extent the fair value hedge is effective. Adjustments made to the carrying amount of the hedged item for fair value
hedgeswill be amortised over the remaining life, in line with the hedged item.
2015
£m
2014
£m
Cross-currency interest rate/interest rate swaps 379 367
Cash flow hedges
Exposure arises from the variability in future interest and currency cash flows on assets and liabilities which bear interest at variable rates
or are in a foreign currency. Interest rate and cross-currency swaps are maintained, and designated as cash flow hedges, where they
qualify, to manage this exposure. Fair value changes on designated cash flow hedges are initially recognised directly in the cash flow
hedge reserve, as gains or losses recognised in equity and any ineffective portion is recognised immediately in the income statement.
Amounts are transferred from equity and recognised in the income statement as the income or expense is recognised on the hedged item.
Forward foreign currency contracts are used to hedge anticipated and committed future currency cash flows. Where these contracts
qualify for hedge accounting they are designated as cash flow hedges. On recognition of the underlying transaction in the financial
statements, the associated hedge gains and losses, deferred in equity, are transferred and included with the recognition of the
underlyingtransaction.
Financial Statements
NATIONAL GRID ANNUAL REPORT AND ACCOUNTS 2014/15 119