DocuSign Envelope ID: 374BBC6F-AB44-4DBC-B561-0F669E1E913D

Company Registration Number: 4220381

NGG Finance plc

Annual Report and Financial Statements

For the year ended 31 March 2022

DocuSign Envelope ID: 374BBC6F-AB44-4DBC-B561-0F669E1E913D

NGG Finance plc

Strategic Report

For the year ended 31 March 2022

The Directors present their Strategic Report on NGG Finance plc ('the Company') for the year ended 31 March 2022.

Review of the business

The Company obtains and provides finance to its parent company, National Grid plc, via external borrowings and intercompany balances.

Executive summary

At 31 March 2022, the Company had in issue three fixed rate bonds listed on the London Stock Exchange with notional values of £1,000 million, €750 million and €500 million, see note 10 to the financial statements for further details. The consideration received from these bonds was advanced to its immediate parent company, National Grid plc, on the same terms to that of the securities.

There have been no significant changes in the Company's trading activities during the year as reported in the profit and loss account. The Company pays interest on its external borrowings and receives interest on its intercompany assets and interest income and interest expense also includes the foreign exchange movements on the revaluation of its euro assets and liabilities.

Results, as detailed below, largely reflect its fee from its financing activities and interest receivable on its intercompany loan assets with its immediate parent on activities prior to the issue of the current bonds.

Results

The Company's profit for the year was £3,490,000 (2021: £3,647,000 profit).

Financial position

The financial position of the Company is presented in the balance sheet. Total shareholders' equity at 31 March

2022 was £676,253,000 (2021: £672,763,000) comprising current assets of £2,780,797,000 (2021:

£2,786,714,000) less current liabilities of £54,762,000 (2021: £55,038,000) less long term creditors of

£2,049,782,000 (2021: £2,058,913,000).

Key performance indicators and principal risks and uncertainties

As the Company is part of a larger group, the management of the Company does not involve the use of key performance indicators in measuring the development, performance or the position of the Company and the principal risks and uncertainties are integrated with the principal risks of National Grid plc. For information on the development, performance, risks, uncertainties and position of National Grid plc and its subsidiaries ('National Grid'), and of the key performance indicators used, refer to the Strategic Report included in National Grid plc's Annual Report and Accounts 2021/22, which does not form part of this report.

Financial risk management

The management of the Company and the execution of the Company's strategy are subject to several financial risks. The Directors have identified the need to manage the Company's material financial risks, including liquidity, credit, interest rate cash flow and foreign exchange risks. These risks are monitored through a National Grid Treasury ('Treasury') management function which invests surplus funds, mitigates foreign exchange and interest rate exposure and manages borrowings for National Grid plc and its subsidiaries.

Treasury also seeks to limit third party counterparty risk which arises from the investment of surplus funds and the use of derivative financial instruments. Treasury monitors the exposure that National Grid has with any one counterparty against agreed limits and these limits are monitored regularly and updated for changes in credit ratings.

Each year National Grid reviews the effectiveness of the internal control systems and risk management processes covering all material systems, including financial and compliance controls, to make sure they remain robust. National Grid has specific internal mechanisms to govern the financial reporting process and the preparation of the Annual Report and Financial Statements. National Grid's financial controls guidance sets out the fundamentals of internal control over financial reporting, which are applied across the National Grid group, including NGG Finance plc. National Grid's financial processes include a range of system, transactional and management oversight controls.

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DocuSign Envelope ID: 374BBC6F-AB44-4DBC-B561-0F669E1E913D

NGG Finance plc

Strategic Report (continued)

For the year ended 31 March 2022

Financial risk management (continued)

As NGG Finance plc is a subsidiary undertaking of a parent undertaking subject to Disclosure Guidelines and Transparency Rules 7.1 and 7.2, it has used its immediate parent's finance committee as a suitable alternative body and it is not required to comply with the Financial Conduct Authority's requirements to report on compliance with, and application of, the UK Corporate Governance Code.

Treasury Policy

All funding is approved by the National Grid Finance Committee and the use of derivative financial instruments is controlled by policy guidelines set by the National Grid plc Board. The Treasury function will raise all the funding for the Company and its subsidiary, and manages interest rate and foreign exchange risk

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 of National Grid. As part of its business operations, National Grid is exposed to risks arising from fluctuations in interest rates and exchange rates. National Grid uses derivative financial instruments to manage exposures of this type and as such they are a useful tool in reducing risk. The policy is not to use derivatives for trading purposes.

Liquidity risk

The Company finances its operations through a combination of retained profits, external bonds and intercompany loans. This is to ensure that the Company has sufficient long-term and short-term funds available for current operations and future activities.

Credit risk

The Treasury function seeks to limit counterparty risk by conducting all its banking and dealing activities with a limited number of major international banks, whose status is kept under review. No exposure is considered to exist in respect of intercompany loans as the subsidiaries are solvent and are covered by the National Grid group's liquidity arrangements.

Interest rate cash flow risk

The Company has one intercompany loan which can fluctuate between an asset and liability which exposes it to interest rate cash flow risk. Where the Company has borrowed at fixed rates it has on-lent those amounts to its immediate parent company on the same terms. A further loan agreement entered into prior to the issue of the current external bonds carries a floating interest rate, exposure to interest rate cash flow risk arises which is

charged based upon Sterling Overnight Index Average (SONIA).

LIBOR is being replaced as an interest rate benchmark by alternative reference rates. This impacts contracts including financial liabilities that pay LIBOR-based cash flows, and derivatives that receive or pay LIBOR-based cash flows. The change in benchmark also affects discount rates which will impact the valuations of certain liabilities. The Directors are managing the risk by transitioning LIBOR cash flows to alternative reference rates on affected contracts. The migration project is underway, with all affected contracts where the Company had previously paid or received GBP LIBOR amended in the year to 31 March 2022. The Finance Committee of the National Grid plc Board have delegated to the treasury department the authority to determine which benchmarks are the most appropriate. A combination of LIBOR and the successor benchmarks, primarily GBP SONIA will be used in the portfolio during the migration period.

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DocuSign Envelope ID: 374BBC6F-AB44-4DBC-B561-0F669E1E913D

NGG Finance plc

Strategic Report (continued)

For the year ended 31 March 2022

Financial risk management (continued)

Foreign exchange risk

To the extent that external bonds are entered into in currencies different to that of the functional currency, there is an exposure to movements in exchange rates. This exposure is managed by lending to the immediate parent company in the same currencies. The Company principally has euro denominated external bonds and intercompany loan assets as at the balance sheet date.

Future developments

The Directors do not foresee a change in activities of the Company.

Section 172(1) statement

The Directors of the Company, as those of all UK companies, must act in accordance with section 172 ('s172') of the UK Companies Act 2006. Section 172 requires a Director to consider, where relevant, the following in making their decisions:

  • the likely long term consequences of the decision;
  • the interests of the Company's employees;
  • the need to foster the Company's business;
  • the need to foster relationships with suppliers, customers and others;
  • the impact of the Company's operations on the community and the environment;
  • the desirability of the Company maintaining a reputation for high standards of business conduct; and
  • the need to act fairly between members of the Company

The Directors of National Grid plc (the 'Group Directors') are responsible for overseeing the governance of the National Grid Group (the 'Group') as a whole. The Group operates a single governance framework, and the Group Directors have considered the matters under s172 at Group level. To the extent applicable for understanding the Company's position, the Group summary of s172 considerations is set out on pages 56 to 59 of the National Grid plc Annual Report and Accounts (available at: www.nationalgrid.com/investors).

The Company is a financing company with listed debt. The Company's main purpose is to provide long term finance to National Grid plc, its immediate and ultimate parent company. The Company's key stakeholders are considered to be its shareholders and its investors, banks and any organisations which it conducts financing activities. The Company has no other operational activities, employees or external suppliers or customers.

During the year, the Directors approved a transition of the terms of its existing intercompany loan arrangements from LIBOR to SONIA. This decision was considered in accordance with the Group's strategy, applicable risk policies and in light of the wider aims of the Group. The Board received relevant information from Group management to inform its decisions. All decisions have been taken in accordance with the Group delegations of

authority policy and with due regard to National Grid's aims and governance structure.

The Directors are of the opinion that they have acted fairly and in good faith to promote the success of the Company for the benefit of its members as a whole, with consideration of the applicable matters under s172. The Directors have carried out these duties and have made decisions and undertaken short- and long-term strategies to maintain its financial performance and position. The Directors also continue to recognise the importance of maintaining its high standards of business conduct in line with the Group's Code of Ethical Business Conduct which

applies to all subsidiaries within the Group.

The Strategic Report was approved by the Board of Directors and was signed by order of the Board on its behalf by:

M Barnes

Company Secretary

8 July 2022

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DocuSign Envelope ID: 374BBC6F-AB44-4DBC-B561-0F669E1E913DFinance plc

Directors' Report

For the year ended 31 March 2022

The Directors present their Report and the audited financial statements of the Company for the year ended 31 March 2022.

Future developments

Details of future developments have been included within the Strategic Report on page 3.

Principal risk and uncertainties

Details of principal risks and uncertainties have been included within the Strategic Report on page 1.

Financial risk management

Details of financial risk management have been included within the Strategic Report on page 1.

Dividends

During the year, the Company has paid no interim ordinary dividends during the year (2021: £nil). The Directors do

not recommend the payment of a final dividend (2021: £nil).

Directors

The Directors of the Company during the year and up to the date of signing of the financial statements were:

A J Agg

  • Barbrook K M Dickie S W Grant A M Lewis A K Mead

Directors' indemnity

National Grid has arranged, in accordance with the Companies Act 2006 and the Articles of Association, qualifying third-party indemnities against financial exposure that Directors may incur during their professional duties. Equivalent qualifying third-party indemnities were, and remain, in force for the benefit of those Directors who stood down from the Board in prior financial years for matters arising when they were Directors of the Company. Alongside these indemnities, National Grid places Directors' and Officers' liability insurance cover for each Director.

Going concern

These financial statements have been prepared on a going concern basis, which presumes that the Company has adequate resources to remain in operation, and that the Directors intend it to do so, for at least one year from the date the financial statements are signed. As the Company is part of a larger group it participates in the Group's centralised treasury arrangements and so shares banking arrangements with its subsidiaries. The Company is expected to generate positive cash flows or be in a position to obtain finance via intercompany loans to continue to operate for the foreseeable future.

Disclosure of information to auditors

Having made the requisite enquiries, so far as the Directors in office at the date of the approval of this report are aware, there is no relevant audit information of which the auditors are unaware and each Director has taken all reasonable steps to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information. This confirmation is given in accordance with the provisions of section 418 of the Companies Act 2006.

Auditors

Subject to approval by National Grid plc shareholders at its 2022 Annual General Meeting, Deloitte LLP, will be reappointed as its external auditor for the next financial year. Pursuant to section 487 of the Companies Act 2006, Deloitte LLP will subsequently be deemed to be reappointed as the Company's auditor and will continue in office.

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National Grid plc published this content on 11 July 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 22 July 2022 14:43:00 UTC.