Notes to the consolidated financial statements – supplementary information
28. Acquisitions
On 24 August 2007, the acquisition of KeySpan 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 that arose on the acquisition was £2.3bn, however, this is subject to change as the exercise of establishing fair values of the assets and liabilities acquired is not final at this stage. Provisional 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 fair values of the assets and liabilities acquired have been updated from the provisional fair values reported in our half year results for the six months ended 30 September 2007.
Fair values of assets and liabilities remain provisional and are subject to further adjustment within one year of acquisition dates. The principal items outstanding include the fair values of tax liabilities, contingent and unrecorded liabilities and businesses held for sale.
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. Certain acquired activities, comprising the Ravenswood electricity generation station in New York City, KeySpan Communications and KeySpan Engineering Associates operations are disclosed as discontinued operations in the income statement as we plan, and expect, to dispose of these activities.
| IFRS book value at acquisition £m |
Fair value* £m |
|
|---|---|---|
| Other intangible assets | 42 | 135 |
| Property, plant and equipment | 3,152 | 3,282 |
| Financial and other investments – non-current | 129 | 129 |
| Inventories and current intangibles | 505 | 505 |
| Trade and other receivables | 767 | 748 |
| Financial and other investments – current | 33 | 33 |
| Cash and cash equivalents | 260 | 260 |
| Assets of businesses held for sale | 472 | 1,487 |
| Borrowings – current | (545) | (545) |
| Trade and other payables | (713) | (749) |
| Borrowings – non-current | (1,852) | (1,934) |
| Other non-current liabilities | (169) | (169) |
| Deferred tax liabilities | (132) | (591) |
| Pensions and other post-retirement benefit obligations | (440) | (440) |
| Provisions | (649) | (643) |
| Liabilities of businesses held for sale | (73) | (73) |
| Minority interest | (8) | (8) |
| Net assets acquired | 779 | 1,427 |
| Goodwill arising on acquisition | 2,335 | |
| Total consideration | 3,762 |
*Provisional fair value subject to adjustment
The total consideration net of cash acquired (£260m) was £3,502m.
The KeySpan acquired activities contributed revenue of £2,498m to our continuing operations; contributed a profit from continuing operations after taxation of £225m; and reported an adjusted profit (before exceptional items, remeasurements and stranded cost recoveries) from continuing operations after taxation of £174m for the period from 24 August 2007 to 31 March 2008. 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
As required by IFRS 3 Business Combinations, 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 provisional 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 |
|
|---|---|---|
| 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 from continuing operations before exceptional items, remeasurements and stranded cost recoveries | 1,256 | 1,175 |
| Profit for the year from continuing operations | 1,581 | 1,443 |
| Profit for the year | 3,199 | 3,087 |