Note 1 – Adoption of Financial Reporting Standard (FRS) 20
During the year, the Group adopted FRS 20 ‘Share-based Payment’. The adoption of this standard constitutes a change in accounting policy. Therefore, the impact has been reflected as a prior year adjustment in accordance with Financial Reporting Standard 3.
The standard requires that where shares or rights to shares are granted to third parties, including employees, a charge should be recognised in the profit and loss account based on the fair value of the shares at the date the grant of shares or right to shares is made.
For the year ended 31 March 2005, the adoption of FRS 20 has reduced both basic and adjusted operating profit by £16m, reduced basic and adjusted profit for the year by £9m, reduced basic and adjusted earnings per share by 2.9p, and increased net assets employed by £19m.
The effect of the adoption of FRS 20 on prior year comparatives is as follows:
| Year ended 31 March 2004 | Year ended 31 March 2003 | |||||||
|---|---|---|---|---|---|---|---|---|
| As previously reported £m |
Impact of FRS 20 £m |
As restated £m |
As previously reported £m |
Impact of FRS 20 £m |
As restated £m |
|||
| Operating profit | ||||||||
| - Before exceptional items and goodwill amortisation | 2,238 | (25) | 2,213 | 2,185 | (37) | 2,148 | ||
| - After exceptional items and goodwill amortisation | 1,862 | (25) | 1,837 | 1,736 | (40) | 1,696 | ||
| Profit for the year | ||||||||
| - Before exceptional items and goodwill amortisation | 1,064 | (25) | 1,039 | 870 | (37) | 833 | ||
| - After exceptional items and goodwill amortisation | 1,099 | (25) | 1,074 | 391 | (40) | 351 | ||
| Net assets employed | 1,263 | 8 | 1,271 | 1,197 | 8 | 1,205 | ||
| Basic earnings per share (pence) | ||||||||
| - Before exceptional items and goodwill amortisation | 34.7p | (0.8)p | 33.9p | 28.3p | (1.2)p | 27.1p | ||
| - After exceptional items and goodwill amortisation | 35.8p | (0.8)p | 35.0p | 12.7p | (1.3)p | 11.4p | ||
The prior year adjustment recorded in the Group Statement of Total Recognised Gains and Losses reflects the cumulative profit and loss impact of FRS 20 at 31 March 2004 of £140m after deferred tax (£148m before deferred tax). The corresponding entry to the pre-tax FRS 20 charge is recorded through the profit and loss account reserve. Therefore, the impact of restatements for FRS 20 on the profit and loss account reserve at 31 March 2004 represents only the deferred tax credit of £8m.
For National Grid Transco plc (the parent company), the adoption of FRS 20 has increased the carrying value of fixed asset investments and net assets at 31 March 2004 by £50m (2003: £27m). The adoption of FRS 20 has had no impact on the profit and loss account of the parent company.