Notes to the consolidated financial statements - supplementary information

28. Acquisitions

On 24 August 2007 the acquisition of KeySpan Corporation was completed with 100% of the shares acquired for total cash consideration of £3.8bn including acquisition costs of £25m. The provisional amount of goodwill recorded on the acquisition was £2.3bn based on the provisional fair values that were presented in our financial statements for the year ended 31 March 2008. The fair value exercise has now been completed and the provisional fair values reported in our financial statements for the year ended 31 March 2008 have been updated and are reported in the table below. As a result of the fair value adjustments the final goodwill arising on the acquisition was £2.4bn. Goodwill principally relates to the market and regulatory position and retail customer relationships of the acquired operations, the opportunity to make future capital investment, expected synergies and opportunities for further cost improvements in the future, to the assembled workforce and to the potential for future growth.

The majority of the acquired operations relate to gas distribution and electricity distribution and generation activities and so are presented within the Gas Distribution US and Electricity Distribution & Generation US segments.

The Ravenswood merchant electricity generation business in New York City was sold on 26 August 2008 for consideration of $2.9bn, KeySpan Communications was sold on 25 July 2008 for consideration of $35m, and one of our KeySpan engineering companies was sold on 11 July 2008 for consideration of $7m. The assets and liabilities related to these businesses are included in the ‘Assets of businesses held for sale’ category in the table below and the results of these discontinued operations are reported in note 8.

				Provisional fair values (as previously reported) £m	Changes to fair values £m	Final fair value £m
Other intangible assets				135	(1)	134
Property, plant and equipment				3,282	(2)	3,280
Financial and other investments – non-current				129	–	129
Other non-current assets				271	(91)	180
Inventories and current intangibles				505	(17)	488
Trade and other receivables				477	(4)	473
Financial and other investments – current				33	–	33
Cash and cash equivalents				260	–	260
Assets of businesses held for sale				1,487	(2)	1,485
Borrowings – current				(545)	–	(545)
Trade and other payables				(654)	(35)	(689)
Current tax liabilities				(95)	(1)	(96)
Borrowings – non-current				(1,934)	–	(1,934)
Other non-current liabilities				(169)	–	(169)
Deferred tax liabilities				(591)	148	(443)
Pensions and other post-retirement benefit obligations				(440)	–	(440)
Provisions				(643)	(61)	(704)
Liabilities of businesses held for sale				(73)	–	(73)
Minority interest				(8)	–	(8)
Net assets acquired				1,427	(66)	1,361
Goodwill arising on acquisition				2,335	66	2,401
Total consideration				3,762	–	3,762

The total consideration net of cash acquired (£260m) was £3,502m.

As required under IFRS 3 ‘Business Combinations’ the comparative amounts presented within the financial statements have been restated for the finalisation of the fair values. The changes made to the comparative balance sheet represent the movements between the provisional fair values in the consolidated balance sheet at 31 March 2008 and final fair values, together with any associated reclassification adjustments. In addition, the consolidated income statement for the year ended 31 March 2008 has been adjusted to reflect an increase in interest expense of £10m and a decrease in taxation of £4m resulting from the finalisation of the fair values.

For the period from 24 August 2007 to 31 March 2008, the KeySpan acquired activities contributed revenue of £2,498m to our continuing operations; contributed a profit from continuing operations after taxation of £219m; and reported an adjusted profit (before exceptional items, remeasurements and stranded cost recoveries) from continuing operations after taxation of £168m. Exceptional items, remeasurements and stranded cost recoveries included pre-tax costs of £53m relating to restructuring costs and pre-tax gains on remeasurements of £138m.

Pro forma information

The following summary presents the consolidated results as if KeySpan had been acquired on 1 April 2007. The pro forma information includes the results of KeySpan for the year 1 April 2007 to 31 March 2008, adjusted for the estimated effect of accounting policies adopted by National Grid and the impact of fair value accounting adjustments (eg amortisation of intangible assets) together with the recognition of the impact on pro forma net interest expense as a result of the acquisition. All of the pre-tax pro forma adjustments have been taxed (where appropriate) at the rate of tax pertaining to the jurisdiction in which the pro forma adjustment arose. The pro forma information is provided for comparative purposes only and does not necessarily reflect the actual results that would have occurred, nor is it necessarily indicative of future results of operations of the enlarged National Grid.

				2008* Actual £m	2008* Pro forma £m
Continuing operations
Revenue				11,423	12,345
Operating profit before exceptional items, remeasurements and stranded cost recoveries				2,595	2,625
Total operating profit				2,964	2,901
Profit after taxation
Before exceptional items, remeasurements and stranded cost recoveries				1,250	1,165
Exceptional items, remeasurements and stranded cost recoveries				325	268
Profit for the year – continuing operations				1,575	1,433
Attributable to:
Equity shareholders of the parent				1,572	1,430
Minority interests				3	3
Profit for the year – continuing operations				1,575	1,433

				Earnings per share pence	Earnings per share pence
Adjusted earnings – continuing operations				47.8p	44.5p
Earnings – continuing operations				60.3p	54.8p

*

Restated for the finalisation of the fair value exercise on the acquisition of KeySpan Corporation

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