29th Jul 2005 07:01
National Grid PLC29 July 2005 National Grid plc (formerly National Grid Transco plc)IFRS conversion statement OVERVIEW With effect from 1 April 2005, National Grid plc (formerly National Grid Transco plc) is required to report itsconsolidated financial statements in accordance with International Financial Reporting Standards (IFRS). The firstresults required to be published under IFRS will cover the six month period ending 30 September 2005, scheduled to bereported in November 2005 and the first full set of financial statements to be published under IFRS will cover the yearending 31 March 2006. This IFRS conversion statement presents the impact of conversion from UK generally accepted accounting principles(UK GAAP) to IFRS on the primary statements and selected notes for the comparative information to be included in thefinancial statements for the year ending 31 March 2006. As permitted by the US Securities and Exchange Commission, onlyone year of IFRS comparatives will be included in the financial statements for the year ending 31 March 2006 and hencethe results for the year ended 31 March 2004 are not presented under IFRS. The IFRS conversion statement does notconstitute a full set of financial statements in compliance with IFRS with all the related disclosures. In the 2004/05 Annual Report and Accounts, unaudited reconciliations between UK GAAP and IFRS for operating profit,profit before tax, profit for the year and earnings were presented as well as a reconciliation of the impact of IFRS onnet assets. This IFRS conversion statement provides additional information on the effect of conversion to IFRS on theincome statement, balance sheet, cash flow statement, statement of recognised income and expense, movements inshareholders' equity, segmental information and information on discontinued operations. The IFRS information in this statement is presented on the basis that it is expected to appear as comparatives in theconsolidated financial statements for the year ending 31 March 2006. The four regional gas distribution networks soldon 1 June 2005 have therefore been presented separately as discontinued operations for the purpose of this statement,even though they did not meet the criteria to qualify as discontinued operations under IFRS as at 31 March 2005. As permitted by International Financial Reporting Standard No. 1 First-time Adoption of IFRS (IFRS 1), the comparativebalance sheet at 31 March 2005 and income statement for the year ended 31 March 2005 have not been restated to reflectthe adoption of International Accounting Standard No. 39 Financial Instruments: Recognition and Measurement (IAS 39) andInternational Accounting Standard No. 32 Financial Instruments: Disclosure and Presentation (IAS 32) on 1 April 2005.Summary disclosures on the impact of IAS 39 and IAS 32 as at 1 April 2005 are included within this statement. Cautionary statement IFRS is subject to interpretation by the International Financial Reporting Interpretations Committee. Further standardsmay be issued that need to be adopted for the year ending 31 March 2006 or subsequently. Also, the number of new andrevised standards within IFRS means that there is not yet a significant established practice from which to drawconclusions on the application and interpretation of IFRS. As a consequence, there is a possibility that thecomparatives included in the financial statements for the year ending 31 March 2006 may differ from the amountspresented in this IFRS conversion statement. The financial information set out in this statement relating to the year ended 31 March 2005 does not constitutestatutory accounts for that period. Full audited accounts of National Grid plc in respect of that financial period inaccordance with UK GAAP (which received an unqualified audit opinion and did not contain a statement under eithersection 237(2) or (3) of the Companies Act 1985) have been delivered to the Registrar of Companies. CONTACT DETAILS InvestorsAlexandra Lewis +44 (0)20 7004 3170 +44 (0)7768 554879(m)David Campbell +44 (0)20 7004 3171 +44 (0)7799 131783(m)Richard Smith +44 (0)20 7004 3172 +44 (0)7747 006321(m)Bob Seega (US) +1 508 389 2598 MediaClive Hawkins +44 (0)20 7004 3147 +44 (0)7836 35173(m) Citigate Dewe Rogerson +44 (0)20 7638 9571Anthony Carlisle +44 (0)7973 611888(m) Contents Page Special purpose audit report on the IFRS conversion statement 1 Group income statement for the year ended 31 March 2005 3 Group balance sheet at 31 March 2005 4 Group statement of recognised income and expense for the year ended 31March 2005 5 Group movements in shareholders' equity for the year ended 31 March 2005 5 Group cash flow statement for the year ended 31 March 2005 6 Note 1 - Basis of preparation 7 Note 2 - IFRS adjustments and reconciliations from UK GAAP to IFRS 7 Note 3 - Segmental analysis 10 Note 4 - Other operating income 14 Note 5 - Operating costs 14 Note 6 - Exceptional items 15 Note 7 - Taxation 16 Note 8 - Earnings per share and profit before taxation 16 Note 9 - Adoption of IAS 39 and IAS 32 and presentation of net debt at 1April 2005 18 Appendix 1 - Provisional accounting policies for the year ending 31 March2006 20 Appendix 2 - Analysis of IFRS adjustments to the income statement 25 Appendix 3 - Analysis of IFRS adjustments to the balance sheet 26 Special purpose audit report of PricewaterhouseCoopers LLP to National Grid plc (formerly National Grid Transco plc("the Company")) on its International Financial Reporting Standards conversion statement We have audited the accompanying Group IFRS balance sheet of National Grid plc and its subsidiaries (the "Group") at31 March 2005, the Group IFRS income statement, Group statement of recognised income and expense, Group movements inshareholders' equity and Group cash flow statement for the year ending 31 March 2005, the related notes 1 to 8, thetransition adjustments relating to the adoption of IAS 39 and IAS 32 set out in note 9 and the Provisional AccountingPolicies set out in Appendix 1 on pages 20 to 24, prepared in accordance with the Basis of preparation (hereinafterreferred to as the "IFRS financial information"). The IFRS financial information has been prepared by the Group as part of its transition to IFRS and to establish thefinancial position and results of operations of the Group to provide the comparative financial information expected tobe included in the first complete set of consolidated IFRS financial statements of the Group for the year ending31 March 2006. Respective responsibilities of Directors and PricewaterhouseCoopers LLP The Directors of the Company are responsible for the preparation of the IFRS financial information which has beenprepared as part of the Group's transition to IFRS. Our responsibilities, as independent auditors, are established inthe United Kingdom by the Auditing Practices Board, our profession's ethical guidance and the terms of our engagement.Under the terms of engagement we are required to report to the Company our opinion as to whether the IFRS financialinformation has been prepared, in all material respects, in accordance with the basis of preparation set out in note 1and the Provisional Accounting Policies set out in Appendix 1 on pages 20 to 24. This report, including the opinion, has been prepared for, and only for, the Company for the purposes of assisting withthe Group's transition to IFRS and for no other purpose. We do not, in giving this opinion, accept or assumeresponsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may comesave where expressly agreed by our prior consent in writing. We read the other information contained in this IFRS conversion statement and consider whether it is consistent with theabove defined IFRS financial information. We consider the implications for our report if we become aware of any apparentmisstatements or material inconsistencies with the above defined IFRS financial information. The other informationcomprises the Overview, Cautionary statement, Appendix 2 and Appendix 3. Basis of audit opinion We conducted our audit in accordance with Auditing Standards issued by the UK Auditing Practices Board. An auditincludes examination, on a test basis, of evidence relevant to the amounts and disclosures in the IFRS financialinformation. It also includes an assessment of the significant estimates and judgements made by the Directors in thepreparation of the IFRS financial information, and of whether the accounting policies are appropriate to the Group'scircumstances and adequately disclosed. We planned and performed our audit so as to obtain all the information andexplanations which we considered necessary in order to provide us with sufficient evidence to give reasonableassurance that the IFRS financial information is free from material misstatement, whether caused by fraud or otherirregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation ofinformation in the IFRS financial information. Emphasis of matter Without qualifying our opinion, we draw your attention to the fact that the Basis of preparation explains that the IFRSfinancial information may require adjustment before its inclusion as comparative information in the Group's firstcomplete set of IFRS financial statements for the year ending 31 March 2006. This is because Standards currently inissue and adopted by the EU are subject to interpretation issued from time to time by the International FinancialReporting Interpretations Committee (IFRIC) and further Standards may be issued by the International AccountingStandards Board (IASB) that the Group may choose to adopt for the year ending 31 March 2006. Additionally, without qualifying our opinion, IFRS is currently being applied in the United Kingdom and in a largenumber of other countries simultaneously for the first time. Furthermore, due to a number of new and revised Standardsincluded within the body of Standards that comprise IFRS, there is not yet a significant body of established practice onwhich to draw in forming opinions regarding interpretation and application. Accordingly, practice is continuing toevolve. At this preliminary stage, therefore, the full financial effect of reporting under IFRS as it will be appliedand reported on in the Group's first IFRS financial statements for the year ending 31 March 2006 may be subject tochange. Moreover, we draw attention to the fact that, under IFRS, only a complete set of financial statements comprising abalance sheet, income statement, statement of changes in equity, and cash flow statement, together with comparativefinancial information and explanatory notes, can provide a fair presentation of the Company's financial position,results of operations and cash flows in accordance with IFRS. Opinion In our opinion, the accompanying IFRS financial information comprising the Group IFRS balance sheet at 31 March 2005,the Group IFRS income statement, Group statement of recognised income and expense, Group movements in shareholders'equity and Group cash flow statement for the year ending 31 March 2005, the related notes 1 to 8, the transitionadjustments relating to the adoption of IAS 39 and IAS 32 set out in note 9, and the Provisional Accounting Policies setout in Appendix 1 on pages 20 to 24 have been prepared, in all material respects, in accordance with the Basis ofpreparation and Provisional Accounting Policies, which describe how IFRS have been applied under IFRS 1, including theassumptions made by the Directors of the Company about the standards and interpretations expected to be effective andthe policies expected to be adopted when the Directors of the Company prepare the first complete set of IFRS financialstatements of the Group for the year ending 31 March 2006. PricewaterhouseCoopers LLPChartered AccountantsLondon28 July 2005 Group income statement for the yearended 31 March 2005 As previously IFRS IFRS IFRS Remeasured measured measurement presentation discontinued under under adjustments adjustments operations UK GAAP (note 2(b)) (note 2(c)) (note 3(f)) IFRS Notes £m £m £m £m £m =========== =========== =========== =========== ===========Group 3(a) 8,521 (37) - (1,102) 7,382revenueOtheroperatingincome 4 - - 70 - 70Operatingcosts 5 (6,676) 700 - 666 (5,310) ----------- ----------- ----------- ----------- -----------Operatingprofit ofGroupundertakings 1,845 663 70 (436) 2,142Share of jointventures'operatingprofit 7 - (7) - - ----------- ----------- ----------- ----------- -----------Operatingprofit- Beforeexceptionalitems andgoodwillamortisation 3(b) 2,212 599 63 (510) 2,364- Exceptionalitems 6 (251) (45) - 74 (222)- Goodwillamortisation (109) 109 - - - ----------- ----------- ----------- ----------- -----------Totaloperatingprofit 3(c) 1,852 663 63 (436) 2,142Non-operatingexceptionalitems 6 83 - (83) - -Net financecosts (783) 69 8 - (706)Share ofpost-taxresults ofjoint ventures - - 3 - 3 ----------- ----------- ----------- ----------- -----------Profit beforetaxation 1,152 732 (9) (436) 1,439Taxation - Excludingexceptionalitems (324) (235) 1 153 (405)- Exceptionalitems 6 79 19 1 (13) 86 ----------- ----------- ----------- ------- -------Total taxation 7 (245) (216) 2 140 (319) ----------- ----------- ----------- ----------- -----------Profit fromcontinuingoperationsaftertaxation- Beforeexceptionalitems andgoodwillamortisation 1,105 433 75 (357) 1,256- Exceptionalitems 6 (89) (26) (82) 61 (136)- Goodwillamortisation (109) 109 - - - ----------- ----------- ----------- ----------- -----------Profit for theyear fromcontinuingoperations 907 516 (7) (296) 1,120Profit for theyear fromdiscontinuedoperations 3(f) - - 8 296 304 ----------- ----------- ----------- ----------- -----------Profit for theyear 907 516 1 - 1,424Loss for theyearattributableto minorityinterests 1 - (1) - - ----------- ----------- ----------- ----------- -----------Profit for theyearattributableto equityshareholders- Continuingoperationsbeforeexceptionalitems 1,106 433 74 (357) 1,256- Discontinuedoperationsbeforeexceptionalitems 3(f) - - (5) 357 352- Exceptionalitems -continuingoperations 6 (89) (26) (82) 61 (136)- Exceptionalitems -discontinuedoperations 6 - - 13 (61) (48)- Goodwillamortisation (109) 109 - - - ----------- ----------- ----------- ----------- -----------Profit for theyearattributableto equityshareholders 908 516 - - 1,424 =========== =========== =========== =========== ===========Earnings pershare- Basic 8 29.5p 16.7p - - 46.2p- Diluted 8 29.3p 16.7p - - 46.0pEarnings pershare fromcontinuingoperations- Basic 8 36.3p- Diluted 8 36.2p =========== =========== =========== =========== =========== An explanation of the nature of the IFRS adjustments is given in note 2 to this statement. An analysis of the IFRSmeasurement and presentation adjustments is included in Appendix 2. An analysis of discontinued operations is shown in note 3(f). Group balancesheet at 31March 2005 As previously IFRS IFRS Remeasured measured measurement presentation under under adjustments adjustments UK GAAP (note 2(b)) (note 2(c)) IFRS Notes £m £m £m £m =========== =========== =========== ===========Non-currentassetsGoodwill 2,003 18 - 2,021Otherintangibleassets - 183 175 358Property,plant andequipment 17,746 5,082 (175) 22,653Investments injoint ventures 17 - - 17Deferred taxassets - 336 - 336Otherreceivables 2,498 (2,402) - 96Available forsaleinvestments 131 - - 131 ----------- ----------- ----------- -----------Totalnon-currentassets 22,395 3,217 - 25,612 ----------- ----------- ----------- -----------Current assetsInventories 101 - - 101Trade andotherreceivables 1,545 (396) - 1,149Financialinvestments 570 - (172) 398Cash and cashequivalents 100 - 172 272 ----------- ----------- ----------- -----------Total currentassets 2,316 (396) - 1,920 ----------- ----------- ----------- -----------Total assets 3(d) 24,711 2,821 - 27,532 ----------- ----------- ----------- -----------CurrentliabilitiesBankoverdrafts (18) - - (18)Borrowings (3,238) (5) - (3,243)Trade andother payables (2,789) 452 - (2,337)Current taxliabilities (103) - - (103)Provisions - - (273) (273) ----------- ----------- ----------- -----------Total currentliabilities (6,148) 447 (273) (5,974) ----------- ----------- ----------- -----------Non-currentliabilitiesBorrowings (10,963) (62) (22) (11,047)Othernon-currentliabilities (1,837) (592) - (2,429)Deferred taxliabilities (3,036) (157) - (3,193)Retirement andotherpost-retirementbenefitobligations (512) (1,770) - (2,282)Provisions (824) 39 273 (512) ----------- ----------- ----------- -----------Totalnon-currentliabilities (17,172) (2,542) 251 (19,463) ----------- ----------- ----------- -----------Totalliabilities 3(d) (23,320) (2,095) (22) (25,437) ----------- ----------- ----------- -----------Net assets 2(a) 1,391 726 (22) 2,095 =========== =========== =========== =========== EquityCalled upshare capital 309 - - 309Share premiumaccount 1,289 - - 1,289Retainedearnings 4,892 659 73 5,624Other reserves (5,131) 67 (73) (5,137) ----------- ----------- ----------- -----------Totalshareholders'equity 1,359 726 - 2,085Minorityinterests 32 - (22) 10 ----------- ----------- ----------- -----------Total equity 1,391 726 (22) 2,095 =========== =========== =========== =========== An explanation of the nature of the IFRS adjustments is given in note 2 to this statement. An analysis of the IFRSmeasurement and presentation adjustments is included in Appendix 3. Group statement of recognised income and expense for the year ended 31 March 2005 As previously IFRS IFRS Remeasured measured measurement presentation under under adjustments adjustments UK GAAP IFRS Notes £m £m £m £m ============ ============ ============ ===========Exchangeadjustments(net of tax) (73) 69 (2) (6)Actuarialgains andlosses (netof 2(b)(v) - 187 - 187tax) ------------ ------------ ------------ -----------Net(expense)/incomerecognised (73) 256 (2) 181directly inequityProfit forthe 2(a) 907 516 1 1,424year ------------ ------------ ------------ -----------Totalrecognisedincome andexpense forthe year 834 772 (1) 1,605 ============ ============ ============ =========== Group movements in shareholders' equity for the year ended 31 March 2005 As previously IFRS IFRS Remeasured measured measurement presentation under under adjustments adjustments UK GAAP IFRS Notes £m £m £m £m ============ ============ ============ ===========At 1 April2004 2(d) 1,271 (149) (38) 1,084Net(expense)/incomerecognised (73) 256 (2) 181directly inequityProfit fortheyearattributableto equity 908 516 - 1,424shareholdersDividends 2(b) (731) 103 - (628) (vii)Redemptionofnon-equityminority 2(c)(i) (18) - 18 -interestIssue ofshare 9 - - 9capitalMovement inshares heldinemployee 5 - - 5sharetrustsEmployeeoptionschemeissues (net 20 - - 20of tax) ------------ ----------- ----------- ----------At 31 March2005 2(a) 1,391 726 (22) 2,095 ============ ============ =========== ========== Group cash flow statement for the year ended 31 March 2005 As previously IFRS IFRS IFRS Remeasured measured measurement presentation discontinued under under adjustments adjustments operations UK GAAP IFRS £m £m £m £m £m =========== =========== =========== =========== ===========Cash flowsfrom operatingactivitiesOperatingprofit 1,845 663 70 (436) 2,142Adjustmentsfor:Exceptionalitems 251 45 - (74) 222Depreciationandamortisation 1,132 (137) - (176) 819Share basedpayment charge 16 - - (4) 12Changes inworkingcapital (106) (26) - 65 (67)Changes inprovisions (35) (88) - 4 (119)Changes inpost-retirementbenefitobligations - 22 - - 22 ----------- ----------- ----------- ----------- -----------Cash flowsbeforeexceptionalitems -continuingoperations 3,103 479 70 (621) 3,031Cash flowsrelating toexceptionalitems (194) - - 74 (120)Cash flowsrelating todiscontinuedoperations - - - 547 547 ----------- ----------- ----------- ----------- -----------Cash generatedfromoperations 2,909 479 70 - 3,458Tax paid -continuingoperations (150) - - 98 (52)Tax paid -discontinuedoperations - - - (98) (98) ----------- ----------- ----------- ----------- -----------Net cashinflow fromoperatingactivities 2,759 479 70 - 3,308 ----------- ----------- ----------- ----------- ----------- Cash flowsfrom investingactivitiesAcquisition ofsubsidiaries,net of cashacquired (1,122) - - - (1,122)Purchase ofinvestments (16) - 16 - -Sale ofinvestments 8 - - - 8Purchases ofintangibleassets - (1) (78) - (79)Purchases ofproperty,plant andequipment (1,354) (474) 78 323 (1,427)Disposals ofproperty,plant andequipment 92 - (70) - 22Net movementsin financialinvestments (54) - (5) - (59)Dividendsreceived fromjoint ventures 5 - - - 5 ----------- ----------- ----------- ----------- -----------Cash flowsused incontinuingoperationsinvestingactivities (2,441) (475) (59) 323 (2,652)Cash flowsrelating todiscontinuedoperations - - - (323) (323) ----------- ----------- ----------- ----------- -----------Net cash usedin investingactivities (2,441) (475) (59) - (2,975) ----------- ----------- ----------- ----------- ----------- Cash flowsfrom financingactivitiesProceeds fromissue of sharecapital 13 - - - 13Increase inborrowings 1,068 - (16) - 1,052Net interestpaid (755) (4) (3) - (762)Dividends paidtoshareholders (628) - - - (628)Dividends paidto minorityinterests (3) - 3 - - ----------- ----------- ----------- ----------- -----------Net cash usedin financingactivities (305) (4) (16) - (325) ----------- ----------- ----------- ----------- -----------Net increase /(decrease) incash and cashequivalents 13 - (5) - 8Exchangemovements (1) - - - (1)Cash and cashequivalents atstart of year 70 - 177 - 247 ----------- ----------- ----------- ----------- -----------Cash and cashequivalents atend of year 82 - 172 - 254 =========== =========== =========== =========== ========== Notes to the IFRS conversion statement 1. Basis of preparation This IFRS conversion statement has been prepared to present the impact of conversion from UK generally acceptedaccounting principles (UK GAAP) to IFRS on the primary statements and selected notes to be included as comparativeinformation in the financial statements for the year ending 31 March 2006. The IFRS conversion statement does notconstitute a full set of statutory financial statements in compliance with the disclosure requirements of IFRS or asdefined in Section 240 of the Companies Act 1985. The IFRS information in this statement is presented on the basis that it is expected to appear as comparatives in theconsolidated financial statements for the year ending 31 March 2006. The four regional gas distribution networks soldon 1 June 2005 have therefore been presented separately within the Group income statement as discontinued operations forthe purpose of this IFRS conversion statement, even though they did not meet the criteria to qualify as discontinuedoperations as at 31 March 2005. The conversion to IFRS has been prepared on the basis of the provisional accounting policies to be adopted by the Groupfor the year ending 31 March 2006 as presented in Appendix 1. The provisional accounting policies and/or thequantified impact of conversion to IFRS could change if new standards, interpretations or accounting guidance were toapply to IFRS in the year ending 31 March 2006. The balance sheet at 31 March 2005 and income statement for the year ended 31 March 2005 have not been restated toreflect the adoption of International Accounting Standard No. 39 Financial Instruments: Recognition and Measurement(IAS 39) and International Accounting Standard No. 32 Financial Instruments: Disclosure and Presentation (IAS 32). Theimpact of the adoption of IAS 39 and IAS 32 at 1 April 2005 is set out in note 9. 2. IFRS adjustments and reconciliations from UK GAAP to IFRS (a) Reconciliation of profit for the year and net assets under UK GAAP to IFRS The following tables show the effect of IFRS measurement and presentation adjustments on profit for the year and netassets measured under UK GAAP as a consequence of applying IFRS measurement principles as compared with UK GAAP: For the year ended 31 March 2005 Notes £m ===========Profit for the year before minority interests under UK 907GAAP IFRS measurement adjustments -----------Replacement expenditure - gross 2(b)(i) 344Replacement expenditure - depreciation 2(b)(i) (108)Derecognition of regulatory assets 2(b)(ii) 151Goodwill amortisation 2(b)(iii) 109Amortisation of intangible assets other than goodwill 2(b)(iv) (4)Pensions and other post-retirement benefits 2(b)(v) 41Deferred taxation 2(b)(vi) (11)Other adjustments 2(b)(viii) (6) ----------- 516IFRS presentation adjustments -----------Non-equity minority interests 2(c)(i) (2)Share of results of joint ventures 2(c)(iii) 3 ----------- 1 -----------Profit for the year under IFRS 1,424Less: profit for the year under IFRS - discontinued 3(f) (304)operations -----------Profit for the year under IFRS - continuing operations 1,120 =========== Amounts shown above are net of any related deferred tax on the underlying IFRS adjustment. Notes to the IFRS conversion statement 2. IFRS adjustments and reconciliations from UK GAAP to IFRS (continued) At 31 March 2005 Notes £m ===========Net assets under UK GAAP 1,391 IFRS measurement adjustments -----------Replacement expenditure 2(b)(i) 3,014Derecognition of regulatory assets 2(b)(ii) (1,613)Goodwill 2(b)(iii) 18Intangible assets other than goodwill 2(b)(iv) 99Pensions and other post-retirement benefits 2(b)(v) (1,149)Deferred taxation 2(b)(vi) (95)Proposed final dividend 2(b)(vii) 469Other adjustments 2(b)(viii) (17) ----------- 726IFRS presentation adjustmentsNon-equity minority interests 2(c)(i) (22) -----------Net assets under IFRS 2,095 =========== Amounts shown above are net of any related deferred tax on the underlying IFRS adjustment. (b) IFRS measurement adjustments The following notes relate to the measurement adjustments included in the income statement and balance sheet. Furtheranalysis is given in Appendices 2 and 3. (i) Replacement expenditure (repex)Repex represents the cost of planned replacement of gas mains and services assets, the vast majority of which relate tothe Group's UK Gas Distribution business. Under UK GAAP, repex is written off to the profit and loss account asincurred. Under IFRS, it is capitalised and depreciated over its useful economic life. The adjustment to net assetsreflects the cumulative capitalisation of this expenditure net of related cumulative depreciation. (ii) Derecognition of regulatory assetsRegulatory assets arise when a US-based public utility, authorised by its regulator, defers to its balance sheet certaincosts or revenues which will be recovered from or passed on to customers through future rate changes. These assets arecurrently recognised in the balance sheet under UK GAAP. Under IFRS, regulatory assets are not permitted to berecognised in the balance sheet. Instead, costs are charged to the income statement when incurred and recoveries fromcustomers are recognised when receivable. (iii) Goodwill and goodwill amortisationIn accordance with IFRS 1, the Group has not restated any business combinations that occurred prior to 31 March 2004 andgoodwill at 1 April 2004, which mainly related to US businesses, has therefore not been adjusted from the amountcalculated under UK GAAP. Goodwill arising on the acquisition of the UK operations of Crown Castle International Corp. during the year ended31 March 2005 has been remeasured under IFRS, resulting in a reduction in goodwill of £90m, principally relating to therecognition of intangible assets partially offset by higher deferred tax liabilities recognised on the acquisition underIFRS. In addition, an adjustment has been recorded in respect of goodwill amortisation of £109m. Under UK GAAP, goodwill isamortised over a period of 20 years, whilst under IFRS goodwill amortisation ceased from 1 April 2004 onwards. IFRSinstead requires that goodwill is reviewed for impairment on an annual basis or when indicators of impairment areidentified. (iv) Intangible assets other than goodwill and related amortisationIn a business combination, IFRS requires fair values to be attributed to intangible assets that are not recognised underUK GAAP together with associated deferred tax balances. A corresponding reduction in goodwill arises as a consequence.The acquisition of the UK operations of Crown Castle International Corp. during the year ended 31 March 2005 resulted inthe recognition under IFRS of certain intangibles, amounting to £188m at the date of acquisition, which are beingamortised on a straight-line basis over periods ranging from 10 to 25 years. Notes to the IFRS conversion statement 2. IFRS adjustments and reconciliations from UK GAAP to IFRS (continued) (v) Pensions and other post-retirement benefits Under UK GAAP, the Group's pensions and other post-retirementbenefits are accounted for under SSAP 24. Under IFRS, these benefits are accounted for under IAS 19, with the Grouprecognising all of its net pension and other post-retirement benefit obligations in the balance sheet at 1 April 2004with a corresponding adjustment to opening reserves. There are also differences in the measurement of the annual pensionexpense under IAS 19 compared with SSAP 24. (vi) Deferred taxationUnder UK GAAP, deferred tax is recognised in respect of timing differences. Under IFRS, deferred tax is recognised inrespect of temporary differences, being the differences between the book recorded value and the tax base of assetsand liabilities. The adoption of IFRS resulted in a reduction in the net deferred tax liability of £179m, principallyreflecting the tax effect of the other IFRS adjustments recorded. (vii) Proposed final dividendUnder UK GAAP, final ordinary dividends are recorded as a liability in the year in respect of which they are proposed bythe Board of Directors for approval by the shareholders. Under IFRS, dividends are not provided until approved. (viii) Other measurement adjustmentsOther differences on transition from UK GAAP to IFRS for the year ended 31 March 2005 are not individually material andrelate to recognition of finance lease obligations and the related finance lease assets, certain intangible assets andthe timing of recognition of provisions. (c) IFRS presentation adjustments The following notes relate to the presentation adjustments included in the income statement and balance sheet. Furtheranalysis is given in Appendices 2 and 3. (i) Non-equity minority interestsIn the income statement, under UK GAAP, dividends paid to non-equity minority interests are included within "Loss forthe year attributable to minority interests". Under IFRS, this amount is included within "Net finance costs". Under UK GAAP, non-equity minority interests are shown separately from shareholders' equity within capital and reserves.Under IFRS this amount is included within liabilities, resulting in lower net assets. (ii) Gains on disposal of property, plant and equipmentUnder UK GAAP, gains and losses on disposal of properties by our property management business are included within exceptional items, even though these are considered to be part of the normal recurring operating activities of theGroup. Under IFRS such gains and losses are included within other operating income. (iii) Share of results of joint venturesUnder UK GAAP, the Group's share of the joint ventures' operating profits, interest and tax are classified within theirrespective profit and loss account captions. IFRS instead requires that, where equity accounting is adopted, thepost-tax share of results from joint ventures is separately disclosed as a single line-item in the income statement. (iv) Profit on disposal of joint ventureUnder UK GAAP, the profit on disposal of a joint venture has been disclosed as a non-operating exceptional item. UnderIFRS, this profit has been disclosed within the single line-item "profit from discontinued operations" in the incomestatement. (v) Cash and cash equivalentsUnder UK GAAP, cash excludes short-term highly liquid investments that are readily convertible to known amounts of cashand subject to an insignificant change in value. Under IFRS, such investments are included within cash and cashequivalents. (vi) SoftwareUnder UK GAAP, software is capitalised together with the related hardware within property, plant and equipment. UnderIFRS, software is classified within intangible assets. (vii) Short term provisionsUnder UK GAAP, provisions are presented on the balance sheet separately from creditors and include both current andnon-current provisions. Under IFRS, the current portion of provisions is included within current liabilities. (viii) Cumulative translation differencesExchange adjustments arising on the retranslation of overseas subsidiaries' net assets on consolidation are recordeddirectly in equity within the reserve for cumulative translation differences. In accordance with IFRS 1 this was set atnil on 1 April 2004. This adjustment reflects the reclassification of UK GAAP translation differences from retainedearnings into the cumulative translation differences reserve during the year ended 31 March 2005. Notes to the IFRS conversion statement 2. IFRS adjustments and reconciliations from UK GAAP to IFRS (continued) (d) Impact of adoption of IFRS on net assets at 1 April 2004 (date of adoption of IFRS) The following is a summary of the IFRS measurement and presentation adjustments as they affected net assets at1 April 2004 (the date of adoption of IFRS), which arise as a consequence of applying IFRS measurement principles ascompared with UK GAAP. At 1 April 2004 Notes £m ===========Net assets under UK GAAP 1,271 IFRS measurement adjustmentsReplacement expenditure 2(b)(i) 2,778Derecognition of regulatory assets 2(b)(ii) (1,817)Pensions and other post-retirement benefits 2(b)(v) (1,382)Deferred taxation 2(b)(vi) (84)Proposed final dividend 2(b)(vii) 366Other 2(b)(viii) (10) (149)IFRS presentation adjustmentsNon-equity minority interests 2(c)(i) (38) -----------Net assets under IFRS 1,084 =========== Amounts shown above are net of any related deferred tax on the underlying IFRS adjustment. 3. Segmental analysis Segmental information is presented in accordance with the management responsibilities and economic characteristics,including consideration of risks and returns, of the Group's business activities. The following table describesthe main activities for each business segment: ------------------ ---------------------------------------UK electricity and High-voltage electricity transmission networks and the gasgas transmission National Transmission System in the UK US electricity High-voltage electricity transmission networks andtransmission management of electricity transmission operations for other utilities in the US UK gas Four of the eight regional networks of Britain's gasdistribution distribution system US electricity and Electricity and gas distribution in New York and electricitygas distribution distribution in New England US stranded cost The recovery of stranded costs from US customers asrecoveries permitted by regulatory agreements Wireless Broadcast and mobile telephony infrastructure in the UK andinfrastructure US------------------ --------------------------------------- Continuing operations - other activities primarily relates to: UK based gas metering activities; our liquefied naturalgas storage activities; the electricity interconnectors business; and Advantica, the energy technology and systemssolutions business. Discontinued operations comprise the operations of the four gas distribution networks that the Group sold on1 June 2005 and the results of Citelec, an Argentinian joint venture sold in August 2004. The Group assesses the performance of its businesses principally on the basis of operating profit before exceptionalitems. The Group's primary reporting format is by business and the secondary reporting format is by geographical area. Segmental results have been affected by relevant IFRS measurement and presentation adjustments described in note 2.The IFRS presentation adjustments also reflect the reallocation of £38m of corporate overheads from segments toother activities. The Group manages its business segments on a global basis. The operations are based in two main geographical areas beingthe UK and the US. There is no intra-group revenue between the UK and US geographical areas. Notes to the IFRS conversion statement 3. Segmental analysis (continued) (a) Group revenue for the yearended 31 March 2005 UK GAAP IFRS IFRS IFRS measurement discontinued adjustments operations £m £m £m £m =========== =========== =========== ===========ContinuingoperationsUK electricityand gastransmission 1,930 - - 1,930US electricitytransmission 283 1 - 284UK gasdistribution 2,215 - (1,102) 1,113US electricityand gasdistribution 3,114 (27) - 3,087US strandedcostrecoveries 420 (11) - 409Wirelessinfrastructure 208 - - 208Otheractivities 844 - - 844Sales betweenbusinesses (493) - - (493) ----------- ----------- ----------- -----------Group 8,521 (37) (1,102) 7,382revenue =========== =========== =========== ===========ContinuingoperationsUK 4,723 - (1,102) 3,621US 3,798 (37) - 3,761 ----------- ----------- ----------- -----------Group 8,521 (37) (1,102) 7,382revenue =========== =========== =========== =========== (b) Group operating profit - before exceptional items and goodwill amortisation for the year ended 31 March 2005 UK GAAP before IFRS IFRS IFRS IFRS exceptionals measurement presentation discontinued before and goodwill adjustments adjustments operations exceptional amortisation items £m £m £m £m £m ============ =========== =========== =========== ===========ContinuingoperationsUK electricityand gastransmission 809 (5) 13 - 817US electricitytransmission 123 (2) 1 - 122UK gasdistribution 570 349 15 (510) 424US electricityand gasdistribution 374 (44) 8 - 338US strandedcostrecoveries 121 306 - - 427Wirelessinfrastructure 46 (8) 4 - 42Otheractivities 162 3 29 - 194Share of jointventures'operatingprofit 7 - (7) - - ----------- ----------- ----------- ----------- -----------Operatingprofit -beforeexceptionalitems 2,212 599 63 (510) 2,364and goodwillamortisation ============ =========== =========== =========== ===========ContinuingoperationsUK 1,583 339 61 (510) 1,473US 623 260 8 - 891Latin America 1 - (1) - -Rest of theWorld 5 - (5) - - ----------- ----------- ----------- ----------- -----------Operatingprofit -beforeexceptionalitems 2,212 599 63 (510) 2,364and goodwillamortisation ============ =========== =========== =========== =========== Notes to the IFRS conversion statement 3. Segmental analysis (continued) (c) Group operating profit - after exceptional items and goodwill amortisation for the year ended 31 March 2005 UK GAAP after IFRS IFRS IFRS IFRS exceptionals measurement presentation discontinued after and goodwill adjustments adjustments operations exceptional amortisation items £m £m £m £m £m ============ =========== =========== =========== ===========ContinuingoperationsUK electricityand gastransmission 807 (5) 13 - 815US electricitytransmission 102 16 1 - 119UK gasdistribution 390 364 15 (436) 333US electricityand gasdistribution 286 (36) 8 - 258US strandedcostrecoveries 121 306 - - 427Wirelessinfrastructure 10 15 4 - 29Otheractivities 129 3 29 - 161Share of jointventures'operatingprofit 7 - (7) - - ----------- ----------- ----------- ----------- -----------Operatingprofit - afterexceptionalitems 1,852 663 63 (436) 2,142and goodwillamortisation ============ =========== =========== =========== ===========ContinuingoperationsUK 1,336 374 61 (436) 1,335US 510 289 8 - 807Latin America 1 - (1) - - Rest of theWorld 5 - (5) - - ------------ ----------- ----------- ----------- -----------Operatingprofit - afterexceptionalitems 1,852 663 63 (436) 2,142and goodwillamortisation ============ =========== =========== =========== =========== (d) Group assets and liabilities at 31 March 2005 Total assets Total liabilities --------------------------------------- --------------------------------------- UK GAAP IFRS IFRS UK GAAP IFRS IFRS adjustments adjustments £m £m £m £m £m £m =========== =========== =========== =========== =========== ===========UK electricityand gasRelated Shares:
National Grid