TIDMNG.
RNS Number : 3502T
National Grid PLC
14 November 2019
London | 14 November
2019:
National Grid, a leading
energy transmission and
distribution company,
today announces its Half
Year results.
Report for the period ended
30 September 2019
Highlights Financial performance
* Announcing today a new target to achieve net zero for * Underlying operating profit up 1% to GBP1.3bn due to
own emissions by 2050 increase in US Regulated profits (statutory operating
profit down 1% to GBP1.0bn reflecting adverse timing)
* Regulatory progress in US and UK:
* Underlying EPS up 2% to 20.0p, due to a US tax
settlement relating to prior periods
o Multi-year agreement for Massachusetts
Electric
o Draft RIIO-2 business plans submitted * Statutory EPS of 11.3p, down 11% reflecting adverse
o Welcomed Ofgem's "minded-to" position mark to market remeasurements
on Hinkley-Seabank to move away
from Competition Proxy Model
* Cost efficiency programme on track: GBP50m in the UK * Capital investment GBP2.7bn up 28% driven by increase
and $30m in the US in 2019/20 in US capital spend and GBP0.2bn Geronimo acquisition
* Construction of three interconnectors on target * Interim dividend 16.57p/share, in line with policy
* Completed US Geronimo acquisition
* Received GBP2bn proceeds for sale of final Cadent
stake
----------------------------------------------------------------- -----------------------------------------------------------------------
Financial summary
Six months ended 30 September - continuing operations
Statutory results Underlying([1])
========================== ========================= =========================
Unaudited 2019 2018 % change 2019 2018 % change
========================== ====== ====== --------- ====== ====== =========
Operating profit (GBPm) 1,003 1,017 (1) 1,301 1,285 1
=========================== ====== ====== --------- ====== ====== =========
Profit before tax (GBPm) 404 522 (23) 785 816 (4)
=========================== ====== ====== --------- ====== ====== =========
Earnings per share (p) 11.3 12.7 (11) 20.0 19.7 2
=========================== ====== ====== --------- ====== ====== =========
Capital investment(2)
(GBPm) 2,722 2,130 28 2,722 2,130 28
=========================== ====== ====== --------- ====== ====== =========
John Pettigrew
Chief Executive
"In the first half of this year we have delivered solid
financial performance and continued to deliver strong organic
growth at the top end of the 5 to 7% range. We also made good
progress on our strategic priorities, including agreeing a
multi-year, forward rate case in Massachusetts Electric, submitting
our draft business plans for RIIO-2 in the UK and completed our
acquisition of Geronimo. In the second half, we are progressing our
priorities across the Group including addressing the gas supply
constraint in downstate New York.
Today's announcement that we are increasing the Group's own
emissions reduction target from 80% to net zero by 2050 underlines
our commitment to lead the industry towards a cleaner energy
future. This objective will be supported by work in other areas,
such as offering further energy efficiency programmes for our US
customers, proposals for renewable natural gas and hydrogen
blending programmes."
Contacts
Investor Relations
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+44 (0)20 7004 +44 (0) 7989 492
Aarti Singhal 3170 447
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+44 (0)20 7004 +44 (0) 7814 355
Nick Ashworth 3166 590
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+44 (0)20 7004 +44 (0) 7899 928
Jon Clay 3460 247
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+44 (0)20 7004 +44 (0) 7970 778
James Flanagan 3129 952
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Media
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+44 (0) 7583 102
Molly Neal - 727
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+44 (0)1926 655 +44 (0) 7974 198
Gemma Stokes 272 333
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Teneo
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Charles Armitstead +44 (0)7703 330 -
269
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Conference call details
An analyst presentation will be held at the London Stock Exchange,
10 Paternoster Square, London EC4M 7LS at 09:15 (GMT) today. There
will be a live webcast of the results presentation available to view
at investors.nationalgrid.com.
Live telephone coverage of the analyst presentation at 09:15
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UK dial in numbers +44 (0) 203 003 2666
+44 (0) 808 109 0700 (UK toll free)
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US dial in numbers +1 866 966 5335 (US toll free)
+1 212 999 6659 (New York)
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Password National Grid
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National Grid image library available at www.nationalgrid.com/group/media
You can view or download copies of the latest Annual Report and Accounts
(ARA) and Performance Summary from National Grid's website at investors.nationalgrid.com
or request a free printed copy by contacting investor.relations@nationalgrid.com
Use of Alternative Performance Measures
Throughout this release, we use a number of alternative (or
non-IFRS) and regulatory performance measures to provide users with
a clearer picture of the regulated performance of the business.
This is in line with how management monitor and manage the business
day-to-day. Further detail and definitions for all alternative
performance measures are provided on page 48.
OVERVIEW
National Grid has reported solid financial performance for the
first six months of the year, underpinned by good operational
progress in both the UK and US.
We have continued to focus on safety campaigns to reduce injury
rates with a Group overall injury frequency rate of 0.12.
Tragically one of our US employees lost his life earlier this year
whilst carrying out road-side maintenance. We are conducting a
comprehensive review and will learn lessons from this. Safety is
paramount and we will always focus on improving ways to ensure our
employees, our contractors and the public are safe.
Capital investment (including the Geronimo acquisition)
increased by GBP592 million at actual exchange rates to GBP2,722
million. This reflects significant investment in developing and
maintaining gas and electricity infrastructure that provides
critical services for millions of customers in the UK and US.
National Grid is fully committed to its role in tackling climate
change and has a critical position to help accelerate towards a
cleaner future. Whilst not all of the regions in which we operate
have committed to a net zero future, we want to take a leading role
in ensuring a cleaner energy future everywhere we operate,
alongside maintaining energy security at the lowest possible cost
for consumers. To this end, we are taking multiple actions across
the business to support our new target of achieving net zero by
2050 for our own emissions. Today, in line with our commitment to
our role in tackling climate change, we have published a Green
Financing Framework which will support sustainable financing across
the Group. Alongside these internal actions, we will also increase
our influence to support the overall industry wide transition to a
low carbon future.
Solid financial performance
Underlying operating profit at actual exchange rates increased
GBP16 million (1%) versus the prior period to GBP1,301 million.
This mainly reflects the impact of new US rate case revenues, lower
storm costs partially offset by the non-recurrence of GBP94 million
favourable legal settlements in 2018.
Six months ended 30 September At actual At constant
Underlying operating profit exchange rates currency
------------------------- -----------------
(GBP million) 2019 2018 % change 2018 % change
================================== ====== ====== ========= ====== =========
UK Electricity Transmission 583 556 5 556 5
UK Gas Transmission 66 91 (27) 91 (27)
US Regulated 525 431 22 452 16
NG Ventures and other activities 127 207 (39) 209 (39)
=================================== ====== ====== ========= ====== =========
Total underlying operating
profit 1,301 1,285 1 1,308 (1)
=================================== ====== ====== ========= ====== =========
'Underlying results' and a number of other terms and performance
measures are not defined within accounting standards and may be
applied differently by other organisations. For clarity, we have
provided definitions of these terms and, where relevant,
reconciliations on pages 48 to 51.
US business continues to efficiently deliver growth
We continue to make progress on regulatory rate filings. We
successfully completed the rate filing for Massachusetts Electric
with new rates in effect on 1 October. We have invested GBP1.6
billion in our US networks, a step-up from GBP1.2 billion in the
first six months of last year. Around 80% of this capital
investment is driven by the need to maintain the safety and
reliability of our networks, with our significant gas pipeline
replacement programme continuing to progress alongside the ongoing
modernisation of our electric networks. This growing investment has
been supported by new rate plans across our US distribution
businesses, and the resultant increasing scale of our US operations
is evident in the first half results.
Addressing the gas constraints in downstate New York
In downstate New York, we continue to work with all parties to
find solutions to the gas supply constraints faced by the region. A
decade ago National Grid identified the need for incremental gas
supplies to serve load growth in the region. Since then, we have
been executing a long-term and comprehensive supply plan and
delivering on a number of upgrades and new projects.
A pipeline being developed by Williams Companies Inc., called
Northeast Supply Enhancement Project, (otherwise known as the
"NESE" pipeline), is the final piece of this series of projects. In
May this year, following further delays to permits for this
project, we took the difficult decision to stop processing
applications for new or expanded gas service in our service
territories. This was to ensure the safety and integrity of the
system and to enable us to continue to serve our existing 1.8
million customers in New York City and Long Island.
Following an order issued by the New York Public Service
Commission (PSC) requiring us to connect approximately 1,100
customer accounts, we have implemented an innovative plan to expand
demand response and energy efficiency programmes, alongside
sourcing incremental compressed natural gas. This will enable us to
safely connect these customer accounts.
We recognise the hardship the moratorium has caused and we
continue to work hard with all parties to find a long term
solution. We also recognise the importance of re-establishing a
trusting relationship with all our key stakeholders. We are
confident that we will be able to address satisfactorily the issues
raised by the Governor of New York in his recent letter to National
Grid.
Focused on delivering US regulatory priorities
We now have all our distribution companies under refreshed
rates, and this is enabling the strong organic growth that we are
seeing in the US. Safety, reliability and modernisation of our
networks represents around 80% of the future investment in our gas
and electric businesses. And in the second half we will continue to
focus on progressing the KEDNY/KEDLI rate filing alongside Grid
modernisation, Electric Vehicle and Advanced Meter Infrastructure
plans across our jurisdictions.
With the KEDNY and KEDLI rate case, we provided data to support
a four-year settlement with a proposed base Return on Equity of
9.65%. We also requested annual capex allowances of $1.5 billion,
the majority of which is going towards improving the safety and
reliability of networks.
The next stage in the process is for hearings to be held later
this winter although, for now, settlement discussions for this rate
case are on hold. This means we may need to progress with the
alternative route, that is to litigate the case, which would result
in a one year settlement. Litigated rate cases are a common feature
in US regulatory settlements; for example, all our Massachusetts
rate cases are litigated.
UK businesses focused on efficient delivery
Operationally both our UK electricity and gas transmission
businesses have continued to deliver good levels of performance and
our capital investment programme has continued as expected. A
particular highlight has been the completion of the tunnelling for
Feeder 9 under the Humber estuary, a critical reinforcement of the
gas network. We will shortly award contracts for our London Power
Tunnels 2 project, a 33km, GBP1 billion link from Wimbledon to
Crayford which will provide significant resilience across south
London when completed in 2028.
In September, we published the technical report into the loss of
power event on 9 August and we continue to work closely with Ofgem
and BEIS on their investigations. Whilst we believe that both the
electricity system operator and transmission network operated as
expected and in accordance with our licence obligations, we do not
underestimate the disruption and inconvenience this caused. The
report provides a comprehensive assessment of communication
processes and protocols in particular during the first hour of the
event, as well as a review of critical infrastructure to mitigate
risk of inadvertent disconnection. The report also goes on to look
at areas where we believe a wider review of policy may be
appropriate.
Our cost efficiency programme has continued on track. This has
been driven by efficiencies across both Electricity and Gas
Transmission and a range of initiatives to become a more agile
organisation, including better IT infrastructure and the
simplification and standardisation of back office processes.
Overall, we remain on course to achieve GBP50 million of opex
savings in 2019/20 and GBP100 million in 2020/21 as part of
delivering RoE outperformance of 200-300 basis points.
In October, we welcomed Ofgem's "minded-to" position on the
Hinkley-Seabank connection to use the existing strategic wider
works mechanism for this vital project. We will continue to work
with Ofgem to support our view of the efficient costs we believe
are needed to complete this project. The project remains on target
to be ready for connection in 2025.
Helpful stakeholder feedback for RIIO-2 draft business plans
Ofgem has continued to progress its consultation on the
framework for the RIIO-2 price control and published its RIIO-2
sector specific consultation decision in May. Achieving the right
regulatory framework is also critical to ensure the continued rapid
decarbonisation of the UK energy system and to ensure that ongoing
investment in innovation to benefit consumers in the long term is
encouraged.
In July and October, we submitted drafts of our RIIO-2 business
plans for Electricity Transmission, Gas Transmission and the
Electricity System Operator (ESO) to our independent User Groups
and Ofgem's RIIO-2 Challenge Group. These were initial plans to
invite feedback from a range of stakeholders on the possible
investments that could be made in the five years commencing April
2021. The feedback on these plans has been helpful and we are in
the process of refining them before submitting the final versions
to Ofgem on 9 December 2019.
As communicated previously, we have provided feedback on three
key areas of the financial package: the level of allowed equity
return; the outperformance wedge; and the approach to
incentivisation. Correcting for the errors in the calculations that
we see and taking a balanced approach to risk, our evidence points
to a real CPI return on equity (RoE) for RIIO-2 of 6.5%.
We expect Ofgem to publish its draft determinations in the
summer of 2020, ahead of final determinations in December 2020. We
will continue to work constructively with Ofgem to seek a framework
for RIIO-2 that puts consumers at the centre of the price control,
while enabling the energy networks of the future and allowing a
fair return for shareholders.
Further growth for NG Ventures and other activities
We continue to make good progress on the three interconnector
projects under development in the period. For IFA2, the large
majority of the cabling has been laid over the summer and good
progress is being made on the converter stations. For North Sea
Link, we have successfully laid over 650km of cable as planned and
the project remains on track for completion by 2021/22.
On the Viking Link to Denmark, we have awarded contracts and
pre-construction work is underway. In total, including the
investment already made in Nemo Link, we are investing around GBP2
billion in new interconnectors that we expect to bring cleaner
sources of energy to the UK and create value for our shareholders.
The new interconnector links are expected to contribute
approximately GBP250 million annual EBITDA when fully operational
by the mid-2020s.
In July 2019, National Grid completed the acquisition of
Geronimo, a leading developer of wind and solar generation based in
Minneapolis in the US. National Grid also entered into a
partnership with Washington State Investment Board to own 379MW of
solar and wind generation projects developed by Geronimo, which
have long-term power purchase agreements in place. These
investments represent another step in National Grid's commitment to
decarbonisation, bringing an exciting pipeline of solar and wind
generation projects to the Group.
We are also pleased to report the first profits from our St
William property joint venture following the sale of homes at
Rickmansworth and Prince of Wales Drive in the first six months of
the year.
Board changes
On 5 November we announced that, for personal reasons, Dean
Seavers, US Executive Director, would step down with immediate
effect from his position as a member of the Board and as President
of the US business. Dean has agreed to stay with the business until
31 December 2019 in order to ensure a smooth leadership transition
and handover.
The Board has initiated a thorough process to identify a
permanent successor for Dean which will include both internal and
external candidates.
GROWTH
Balanced portfolio to deliver asset growth and sustainable
dividend
National Grid aims to deliver value to shareholders through
maintaining a portfolio of businesses with strong operational
performance alongside attractive annual asset growth of around 5 to
7% assuming long-run average UK RPI inflation of 3%. The Group aims
to deliver this growth while maintaining an efficient balance sheet
that allows continued funding of its investment programme, and
maintaining the policy of aiming to increase dividend per share by
at least RPI for the foreseeable future.
GBP2.7 billion of capital investment across the Group
We continued to make significant investment in energy
infrastructure in the first six months of the year. Capital
investment across the Group was GBP2,722 million, an increase of
GBP592 million (28%) compared to the first half of 2018/19,
including GBP209 million for the Geronimo acquisition.
Six months ended 30 September At actual At constant
Group capital investment exchange rates currency
------------------------- -----------------
(GBP million) 2019 2018 % change 2018 % change
====================================== ====== ====== ========= ====== =========
UK Electricity Transmission 471 462 2 462 2
UK Gas Transmission 167 153 9 153 9
US Regulated 1,588 1,177 35 1,236 28
NG Ventures and other activities* 496 338 47 346 43
======================================= ====== ====== ========= ====== =========
Group capital investment 2,722 2,130 28 2,197 24
======================================= ====== ====== ========= ====== =========
* NG Ventures and other activities capital investment includes
equity and financing in joint ventures and associates, investment
in National Grid Partners and the Geronimo acquisition but excludes
GBP15 million and GBP20 million equity contributions to the St
William property joint venture for 2019 and 2018, respectively.
Investment in the US Regulated business was GBP1,588 million for
the first six months of this year, an increase of GBP411 million
over the prior period at actual currency. This was driven by
significant investment in gas pipeline replacement, and reinforcing
the electricity system to improve the safety and reliability of our
networks. This increasing level of investment is a key feature of
the regulatory filings we have made in KEDNY and KEDLI, and is
expected to continue in future filings, supporting strong levels of
rate base growth over the medium term.
The UK regulated businesses invested GBP638 million, with UK
Electricity Transmission and UK Gas Transmission both investing in
asset health to meet their respective Network Output Measures.
Investment in NG Ventures during the period was GBP220 million
higher than prior year principally reflecting the total investment
in Geronimo and investments in NSL and IFA2 (GBP42 million and
GBP22 million higher respectively). These were offset by lower
investments in the Millennium pipeline joint venture and Nemo
interconnector spend.
OUTLOOK
For 2019/20, we continue to expect to deliver good financial
performance in our US business following the agreement of a number
of regulatory filings. As expected, the UK business remains on
track to deliver
continued outperformance. The contribution from NG Ventures and
other activities is expected to reduce this year, reflecting the
non-recurrence of proceeds from the Fulham property sale and the
favourable legal settlements in 2018/19.
Looking ahead, National Grid expects to deliver asset growth of
around 7% in the near term with annual capital investment of around
GBP5 billion. We will continue to contribute to the important
regulatory and political debate in the UK and the US recognising
the continued focus on customer affordability, decarbonisation and
safety across our networks. With an efficient balance sheet that
underpins asset and dividend growth, the Group is well positioned
to create value for shareholders.
2019/20 TECHNICAL GUIDANCE
The outlook and technical guidance contained in this statement
should be reviewed, together with the forward-looking statements
set out in this release, in the context of the cautionary
statement.
UK Electricity Transmission
Operating Profit (excluding timing) for the second half of the
year is expected to be slightly higher than the first half.
Totex outperformance is expected to increase slightly and
Incentive and Other performance is expected to be slightly down
compared to last year. Overall Return on Equity outperformance is
expected to be slightly above the 200-300 bps range.
UK Gas Transmission
Net Revenue (excluding timing) is expected to increase by
approximately GBP30 million compared to 2018/19, reflecting the
return of Avonmouth revenues in the prior year. Underlying
operating profit in UK Gas Transmission will also benefit from
lower costs reflecting its share of the expected GBP50 million of
costs savings from the UK cost efficiency programme.
Totex performance is expected to improve compared to 2018/19 and
Incentive and Other performance is expected to be broadly in line
with last year. As a result, Return on Equity is expected to be
around the allowed level in 2019/20.
UK Timing
Revenues will be impacted by timing of recoveries including
impacts from prior years. Electricity Transmission is expected to
over-recover by around GBP70 million. Gas Transmission is expected
to under-recover at a lower level than 2018/19.
US Regulated operations
Net Revenue (excluding timing) is expected to increase by around
GBP200 million, reflecting revenue increases from rate filings and
capex trackers, partially offset by a further impact of tax reform.
Costs are expected to be broadly in line with last year, reflecting
non-recurring costs in 2018/19, and the benefit of efficiency
savings, offsetting the projected combined impact of inflation on
the cost base and increased depreciation resulting from the capital
programme.
Return on Equity for overall US Regulated operations is expected
to increase to at least 95% of the allowed return, reflecting the
completion of the refresh of distribution rates with a first full
year of new rates in Rhode Island and Massachusetts Gas.
NG Ventures and Other activities
Revenue is expected to decrease year-on-year, mainly due to a
reduction in property sales. Last year's legal settlements of GBP94
million are not expected to be repeated in 2019/20.
Joint Ventures and Associates
Our share of the profit after tax of joint ventures and
associates is expected to benefit from a first full year of
revenues from the Nemo Link and the first profits from the St
William property joint venture.
Investment, Growth and Net Debt
Overall Group capital investment for 2019/20 is expected to
increase to around GBP5 billion. In our UK transmission businesses,
we expect to invest around GBP1.3 billion; in our US Regulated
business, capex is expected to be similar to the 2018/19 level of
$3.5 billion. Investment in our NG Ventures and Other businesses is
expected to increase significantly reflecting increased investment
in our IFA2, NSL and Viking interconnector projects and the
completion of the Geronimo acquisition.
Depreciation is expected to increase, reflecting the impact of
continued high levels of capital investment.
Operating cashflow generated from continuing operations is
expected to increase compared to FY19, with lower cash outflows
related to exceptional items than last year.
Net debt is expected to increase (excluding the impact of
foreign exchange) by a further GBP1 billion in the second half of
the year.
Weighted average number of shares is expected to increase from
3,386 million last year to approximately 3,460 million in 2019/20
reflecting in particular the additional shares from the August
scrip dividend.
Interest and Tax
Net finance costs in the second half of the year are expected to
increase slightly compared to the first half at constant
currency.
For the full year 2019/20, the underlying effective tax rate,
excluding the share of joint venture and associate post-tax
profits, is expected to be around 20%, reflecting the favourable
tax settlement.
Changes to accounting standards
No material impact on EPS is expected following the adoption of
IFRS 16 'Leases'. Net debt and property, plant and equipment
increased at the start of the year by GBP0.5 billion as a result of
IFRS 16.
FINANCIAL REVIEW
In managing the business, we focus on various non-IFRS measures
which provide meaningful comparisons of performance between years,
monitor the strength of the Group's balance sheet as well as
profitability, and reflect the Group's regulatory economic
arrangements. Such alternative and regulatory performance measures
are supplementary to, and should not be regarded as a substitute
for, IFRS measures which we refer to as statutory results. We
explain the basis of these measures and, where practicable,
reconcile these to statutory results in 'Alternative performance
measures/non-IFRS reconciliations' on pages 48 to 51. The Group
does not believe that these measures are a substitute for IFRS
measures, however, the Group does believe such information is
useful in assessing the performance of the business on a comparable
basis.
Also, we distinguish between adjusted results, which exclude
exceptional items and remeasurements, and underlying results, which
further take account of: (i) volumetric and other revenue timing
differences arising from our regulatory contracts and (ii) major
storm costs which are recoverable in future periods, neither of
which give rise to economic gains or losses.
Performance for the six months ended 30 September
Financial summary for continuing operations
(GBP million) 2019 2018 % change
--------------------------------------- ------ ------ ---------
Statutory results
Operating profit 1,003 1,017 (1)
Profit after tax 388 429 (10)
Earnings per share (pence) 11.3 12.7 (11)
Interim dividend per share (pence) 16.57 16.08 3
Alternative performance measures:
Adjusted operating profit 1,088 1,202 (9)
Adjusted profit after tax 531 599 (11)
Adjusted earnings per share (pence) 15.5 17.8 (13)
Underlying operating profit 1,301 1,285 1
Underlying profit after tax 686 663 3
Underlying earnings per share (pence) 20.0 19.7 2
Underlying operating profit, at
constant currency 1,301 1,308 (1)
Underlying profit before tax, at
constant currency 785 821 (4)
Capital investment 2,722 2,130 28
Statutory operating profit was GBP14 million (1%) lower than in
the first six months of last year. There were no exceptional items
in the current year compared to GBP224 million last year, although
this was partially offset by higher commodity remeasurement net
losses. UK Electricity Transmission net revenues also increased
compared to the prior period. These benefits were offset by reduced
US regulated net revenues due to timing of commodity cost
recoveries and the non-recurrence of legal settlements.
Statutory profit after tax was down 10% against the comparative
period, reflecting higher interest charges including mark-to-market
financial remeasurements losses this year partly offset by a lower
tax charge.
Adjusted operating profit (excluding exceptional items and
remeasurements) was down 9% and adjusted profit after tax was down
11%, principally reflecting adverse timing movements.
Underlying operating profit of GBP1,301 million was up GBP16
million (1%) against the comparative period. Although the
comparative period included GBP94 million of legal settlement
income, this was more than offset by higher underlying US profits
driven by increased underlying net revenues, and lower storm costs
in the first half of this year.
Reconciliation of different measures of profitability and
earnings
The table below reconciles our statutory profit measures for
continuing operations, at actual exchange rates, to adjusted and
underlying versions.
Reconciliation of profit and earnings from continuing operations
Six months ended 30 September
Operating profit Profit after Earnings per
tax share (pence)
(GBP million) 2019 2018 2019 2018 2019 2018
----------------------------- -------- -------- ------ ------ ------- -------
Statutory results 1,003 1,017 388 429 11.3 12.7
Exceptional items - 224 - 176 - 5.1
Remeasurements 85 (39) 143 (6) 4.2 -
----------------------------- -------- -------- ------ ------ ------- -------
Adjusted results 1,088 1,202 531 599 15.5 17.8
Timing 213 83 155 64 4.5 1.9
Major storm costs - - - - - -
----------------------------- -------- -------- ------ ------ ------- -------
Underlying results 1,301 1,285 686 663 20.0 19.7
The following tables set out the income statement on adjusted
and underlying bases.
Segmental income statement
Six months ended 30 September
Adjusted operating profit Underlying operating
profit
2019 2018 % change 2019 2018 % change
(GBP million)
---------------------------- ------- ------- ----------- ------ ------ --------
UK Electricity Transmission 625 531 18 583 556 5
UK Gas Transmission 62 79 (22) 66 91 (27)
US Regulated 274 385 (29) 525 431 22
NG Ventures and Other
activities 127 207 (39) 127 207 (39)
---------------------------- ------- ------- ----------- ------ ------ --------
Total operating profit 1,088 1,202 (9) 1,301 1,285 1
Net finance costs (553) (494) 12 (553) (494) 12
Share of post-tax
results of JVs and
associates 37 25 48 37 25 48
---------------------------- ------- ------- ----------- ------ ------ --------
Profit before tax 572 733 (22) 785 816 (4)
Tax (41) (134) (69) (99) (153) (35)
---------------------------- ------- ------- ----------- ------ ------ --------
Profit after tax 531 599 (11) 686 663 3
---------------------------- ------- ------- ----------- ------ ------ --------
EPS (pence) 15.5 17.8 (13) 20.0 19.7 2
UK Electricity Transmission adjusted operating profit increased
compared to the same period in 2018/19 primarily driven by a swing
in timing recoveries.
UK Gas Transmission adjusted operating profit decreased year on
year, primarily as a result of lower net revenues, reflecting
pricing effects which have affected the phasing of revenues between
the first half and second half of the year.
US Regulated adjusted operating profit was lower than the same
period last year, as a result of GBP205 million adverse year on
year timing movements.
Operating profit in NG Ventures and Other activities reduced by
GBP80 million (39%) compared to the same period last year primarily
driven by the non-recurrence of GBP94 million legal settlements
received in 2018/19.
Further analysis of the movements in underlying operating profit
is provided in the Business Review.
Financing costs and tax
Net finance costs
Adjusted net finance costs were GBP59 million higher than the
prior period. This was primarily due to higher average net debt as
we fund the asset growth in our businesses. Finance costs also
increased due to buy-back costs on the early redemption of a
EUR1.25 billion hybrid bond and higher charges related to IFRS 16
(Leases). These were partly offset by lower interest on RPI-linked
debt. The effective interest rate on treasury managed debt was
4.4%, in line with the rate for the first six months of
2018/19.
Joint ventures and associates
The Group's share of net profits from joint ventures and
associates increased by GBP12 million to GBP37 million, primarily
as a result of gains generated from sales by the St William
property joint venture.
Tax
The effective tax rate at the half year is affected by both
seasonality in our US business and the impact of timing
under/over-recoveries. The headline effective tax rate (excluding
JV profits) was 7.7% (prior year 18.9%). The underlying effective
tax rate (excluding JV profits) was 13.2% (prior year 19.3%). The
effective tax rates for this year have benefitted from a GBP48
million tax settlement in the US relating to prior periods.
Discontinued operations
In November 2018, we announced our decision to exercise our put
option over our entire 39% interest in Quadgas, the holding company
for the Cadent gas networks. The sale completed in June 2019 and we
received proceeds of approximately GBP2 billion. As described
further in note 6, we have treated all items of income and expense
relating to Quadgas, amounting to GBP6 million, within discontinued
operations.
Net debt
National Grid's balance sheet remains robust, with strong
investment grade credit ratings from Moody's, Standard & Poor's
and Fitch.
During the first six months of the year, net debt increased to
GBP27.8 billion, GBP1.3 billion higher than at 31 March 2019. This
increase was driven by an additional GBP0.5 billion of lease
liabilities being recognised upon transition to IFRS 16, exchange
movements on opening net debt of approximately GBP1.0 billion and
underlying business cash requirements, partially offset by the GBP2
billion receipt of Cadent proceeds.
National Grid raised over GBP2.4 billion of new long-term
financing in the first half of the year. This includes the
refinancing of a EUR1.25 billion hybrid bond in September, a new
$500 million bond in Boston Gas and GBP950 million of new financing
for National Grid Electricity Transmission.
Interim Dividend
The Board has approved an interim dividend of 16.57p per
ordinary share ($1.0673 per American Depositary Share). This
represents 35% of the total dividend per share of 47.34p in respect
of the last financial year to 31 March 2019 and is in line with the
Group's dividend policy. The interim dividend is expected to be
paid on 15 January 2020 to shareholders on the register as at 29
November 2019.
The Group's dividend policy is to aim to grow the ordinary
dividend per share at least in line with the rate of UK RPI
inflation each year for the foreseeable future.
The scrip dividend alternative will again be offered in respect
of the 2019/20 interim dividend. As previously announced, we do not
expect to buy back the scrip shares issued during 2019/20 or
2020/21.
BUSINESS REVIEW
Six months ended 30 September
UK ELECTRICITY TRANSMISSION
Underlying operating profit for the UK Electricity Transmission
business was GBP583 million, up GBP27 million compared with last
half-year, primarily reflecting inflationary increases on base
revenues, partially offset by true-up of prior year ESO
incentives.
We invested GBP471 million on the reinforcement of our networks
and new connections. This was GBP9 million higher than last
half-year and included higher spend on Hinkley-Seabank, partly
offset by reduced capitalised interest in relation to Western Link,
and completion of non-load related projects.
The business expects to deliver its regulatory outputs for the
year at a cost below the associated regulatory totex allowance.
This reflects continued delivery of efficiencies in the capital
programme and non-load related maintenance activities.
For the full year, totex outperformance is expected to increase
slightly and Incentive and Other performance is expected to be
slightly down on last year. Overall, Return on Equity
outperformance is expected to be slightly above the 200-300 basis
points range.
Following almost 10 years of development and construction
activities and over GBP1.2 billion investment by Western Link (a
joint venture between National Grid and ScottishPower), we are
pleased the final stages of commissioning have commenced, and when
complete, we will formally take full ownership of our share of the
Link from the contractor.
As set out on page 5, we will submit our final Electricity
Transmission RIIO-2 business plan to Ofgem in December 2019.
UK GAS TRANSMISSION
Underlying operating profit for UK Gas Transmission was GBP66
million. This was GBP25 million lower compared to the prior period,
driven by lower underlying net revenues resulting from reduced
capacity price charges on the gas network. In September 2018, as
part of the return of Avonmouth allowances, we set a lower annual
charge for exit capacity to avoid an over-recovery in revenues, and
this charge continued through into the first half of 2019/20.
Gas Transmission capital investment was GBP167 million, GBP14
million higher than prior year. This primarily reflects increased
compressor expenditure, partly offset by reduced spend on the
Feeder 9 Humber estuary pipeline project.
As set out on page 5, we will submit our final Gas Transmission
RIIO-2 business plan to Ofgem in December 2019.
Full year totex performance is expected to be higher than
2018/19 and Incentive and Other performance is expected to be
broadly in line with last year. As a result, RoE is expected to be
around the allowed level in 2019/20.
US REGULATED OPERATIONS
In our US regulated businesses, underlying operating profit was
GBP525 million, GBP94 million higher than prior year. This reflects
higher revenues from new rate cases and lower storm costs, partly
offset by higher depreciation.
Capital investment was GBP1,588 million, GBP411 million higher
than the prior period at actual exchange rates. The increase versus
the prior period reflects higher pipe replacement activity in
downstate New York, greater reliability project spends such as the
Metropolitan Reliability Infrastructure project, and lower prior
year spend in Massachusetts due to the labour dispute.
Our cost efficiency initiative is progressing well, and we
continue to streamline operations, simplify our supply chain, and
rationalise our property portfolio. We expect to deliver $30
million of efficiency savings this year, and $50 million from
2020/21 onwards, in the context of a fast-growing business and
asset base.
Overall, we expect returns to increase to at least 95% of the
allowed RoE for 2019/20, reflecting the completion of the refresh
of distribution rates with a first full year contribution from new
rates in our Rhode Island and Massachusetts Gas businesses.
On 30 October 2019, the Rhode Island Division for Public
Utilities and Carriers (DPUC) published an initial report into the
gas supply event on Aquidneck Island in January 2019. Since the
event we have worked with the DPUC, to help to determine the root
causes of the interruption. We are pleased that the report reflects
National Grid's commitment to safety and our exemplary emergency
response, and we agree with many of the issues raised, some of
which we have already addressed. We believe the report findings
confirm our concerns regarding operations of the Algonquin
transmission system.
Operating company rate cases
During the period, we agreed a new rate plan for our
Massachusetts Electric business with new rates effective on 1
October. This five-year rate plan provides a 9.6% allowed RoE, on
an equity ratio of 53.5%, and an initial annual revenue increase of
$42 million. The order includes a new Performance Based Rate
Mechanism (PBRM) that will fund both capital and operational
expenditure across the duration of the rate plan, ensuring
inflation is factored into the cost base.
In downstate New York, we filed for new rates for KEDNY and
KEDLI in April 2019. We provided data to support a four-year
settlement, with a proposed base RoE of 9.65%, and the potential
for additional upside incentives. We requested an annual capex
allowance of $1.5 billion, the majority of which relates to
improving the safety and reliability of our networks. We also
requested revenue increases of $196 million and $61 million for
KEDNY and KEDLI respectively.
Our filing included additional innovative rate design elements,
such as performance-based rates and incentives as well as new
earnings adjustment mechanisms. We also filed proposals to help
facilitate New York's move towards clean energy, including:
-- Future of Heat proposals, with renewable gas programmes and a Green Gas Tariff;
-- increased energy efficiency programs; and
-- pilots for power to gas and hydrogen blending.
We also included a geothermal demonstration pilot for 900
customers and continue to push for grid modernisation across all
our networks.
In late August, the PSC provided their first responses to this
filing. This included an RoE of 8.2% and proposed a number of other
adjustments.
NG VENTURES AND OTHER ACTIVITIES
Six months ended 30 September Operating profit Capital investment
(GBP million) 2019 2018 2019 2018
-------------------------------- --------- -------- ---------- ---------
Total NG Ventures 128 131 432 212
Property 46 38 (1) 11
Corporate and other activities (47) 38 65 115
--------------------------------- --------- -------- ---------- ---------
Total Other (1) 76 64 126
--------------------------------- --------- -------- ---------- ---------
Total NG Ventures and Other
activities 127 207 496 338
--------------------------------- --------- -------- ---------- ---------
Joint ventures and associates Share of post-tax
Six months ended 30 September profit/(loss)
(GBP million) 2019 2018
------------------------------------- --------- ---------
Total NG Ventures 25 31
Other 1 -
St William 11 (6)
------------------------------------------- --------- ---------
Total joint ventures and associates 37 25
------------------------------------------- --------- ---------
NG VENTURES
For the first six months, NG Ventures made a GBP153 million
contribution to Group profit before tax, consisting of operating
profit and post-tax share of JVs and associates earnings. Capital
investment was GBP432 million, up GBP220 million versus the prior
year.
Strong progress on interconnectors
The IFA2 interconnector to France remains on track for
commissioning in 2020/21. Converters at both ends are substantially
complete with initial HV equipment being delivered and 150km of the
200km offshore cable section has been completed.
The North Sea Link interconnector to Norway remains on track for
commissioning in 2021/22, with over 650km of cable now laid as
planned.
On the Viking Link interconnector to Denmark, contracts were
awarded in August 2019 for the converter stations and cable
manufacture. All planning consents have been granted for the UK
cable route and construction is expected to start in mid 2020 with
completion of the works expected by end of 2023.
In total, we are investing around GBP2 billion in these three
new interconnectors and Nemo (which entered service in January
2019), that we expect will contribute around GBP250 million of
EBITDA by the mid-2020s creating value for our shareholders as well
as bringing cleaner sources of energy to the UK.
Acquisition of Geronimo complete
As announced in July, we successfully completed the acquisition
of Geronimo, a leading US onshore wind and solar developer.
National Grid has also entered into a joint venture agreement with
Washington State Investment Board. The total cost of the
acquisition was GBP209 million, including GBP90 million for a 51%
interest in the joint venture which included 379 megawatts of solar
and wind generation projects.
OTHER ACTIVITIES
In June, we completed the sale of the final tranche of our
remaining 39% stake in the holding company of Cadent Gas receiving
further cash proceeds of GBP2 billion.
The Property business delivered an operating profit of GBP46
million, up GBP8 million versus the prior period. This increase
reflects the timing of completion of site sales, with the largest
site sold in the period being in Poplar, East London. Corporate and
other activities profits were down GBP77 million principally due to
the non-recurrence of the GBP94 million legal settlement received
last year.
Capital investment was down by GBP62 million to GBP64 million
compared to last year, principally driven by lower IT
expenditure.
APPIX
Unless otherwise stated, all financial commentaries in this
release are given on an underlying basis at actual exchange rates.
Underlying represents statutory results excluding exceptional
items, remeasurements, timing and major storm costs. The underlying
basis is further defined on page 47.
Alternative Performance Measures derived from IFRS
The following are terms or metrics that are reconciled to IFRS
measures and are defined on pages 47 to 50:
Net revenue
Adjusted profit measures
Underlying results
Constant currency
Timing impacts
Capital investment
Net debt - defined in note 12 on page 38.
PROVISIONAL FINANCIAL TIMETABLE
27 November 2019 ADRs go ex-dividend
28 November 2019 Ordinary shares go ex-dividend
29 November 2019 Record date for 2019/20 interim dividend
5 December 2019 Scrip reference price announced
16 December 2019 (5pm UK time) Scrip Election Date for 2019/20 interim dividend
15 January 2020 2019/20 interim dividend paid to qualifying shareholders
21 May 2020 2019/20 Preliminary Results
4 June 2020 Ordinary shares and ADRs go ex-dividend for 2019/20 final dividend
5 June 2020 Record date for 2019/20 final dividend
11 June 2020 Scrip reference price announced
22 July 2020 (5pm UK time) Scrip Election Date for 2019/20 final dividend
27 July 2020 2020 AGM
19 August 2020 2019/20 final dividend paid to qualifying shareholders
CAUTIONARY STATEMENT
This announcement contains certain statements that are neither
reported financial results nor other historical information. These
statements are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. These
statements include information with respect to National Grid's (the
Company) financial condition, its results of operations and
businesses, strategy, plans and objectives. Words such as 'aims',
'anticipates', 'expects', 'should', 'intends', 'plans', 'believes',
'outlook', 'seeks', 'estimates', 'targets', 'may', 'will',
'continue', 'project' and similar expressions, as well as
statements in the future tense, identify forward-looking
statements. These forward-looking statements are not guarantees of
National Grid's future performance and are subject to assumptions,
risks and uncertainties that could cause actual future results to
differ materially from those expressed in or implied by such
forward-looking statements. Many of these assumptions, risks and
uncertainties relate to factors that are beyond National Grid's
ability to control, predict or estimate precisely, such as changes
in laws or regulations, including any arising as a result of the
United Kingdom's exit from the European Union, announcements from
and decisions by governmental bodies or regulators, including
proposals relating to the RIIO-2 price controls as well as
increased political and economic uncertainty; the timing of
construction and delivery by third parties of new generation
projects requiring connection; breaches of, or changes in,
environmental, climate change and health and safety laws or
regulations, including breaches or other incidents arising from the
potentially harmful nature of its activities; network failure or
interruption, the inability to carry out critical non network
operations and damage to infrastructure, due to adverse weather
conditions including the impact of major storms as well as the
results of climate change, due to counterparties being unable to
deliver physical commodities, or due to the failure of or
unauthorised access to or deliberate breaches of National Grid's IT
systems and supporting technology; failure to adequately forecast
and respond to disruptions in energy supply; performance against
regulatory targets and standards and against National Grid's peers
with the aim of delivering stakeholder expectations regarding costs
and efficiency savings, including those related to investment
programmes and internal transformation, cost efficiency and
remediation plans; and customers and counterparties (including
financial institutions) failing to perform their obligations to the
Company. Other factors that could cause actual results to differ
materially from those described in this announcement include
fluctuations in exchange rates, interest rates and commodity price
indices; restrictions and conditions (including filing
requirements) in National Grid's borrowing and debt arrangements,
funding costs and access to financing; regulatory requirements for
the Company to maintain financial resources in certain parts of its
business and restrictions on some subsidiaries' transactions such
as paying dividends, lending or levying charges; the delayed timing
of recoveries and payments in National Grid's regulated businesses
and whether aspects of its activities are contestable; the funding
requirements and performance of National Grid's pension schemes and
other post-retirement benefit schemes; the failure to attract,
develop and retain employees with the necessary competencies,
including leadership skills, and any significant disputes arising
with National Grid's employees or the breach of laws or regulations
by its employees; the failure to respond to market developments,
including competition for onshore transmission, the threats and
opportunities presented by emerging technology, the failure by the
Company to respond to, or meet its own commitments as a leader in
relation to, climate change development activities relating to
energy transition, including the integration of distributed energy
resources; and the need to grow the Company's business to deliver
its strategy, as well as incorrect or unforeseen assumptions or
conclusions (including unanticipated costs and liabilities)
relating to business development activity. For further details
regarding these and other assumptions, risks and uncertainties that
may impact National Grid, please read the Strategic Report section
and the 'Risk factors' on pages 212 to 215 of National Grid's most
recent Annual Report and Accounts. In addition, new factors emerge
from time to time and National Grid cannot assess the potential
impact of any such factor on its activities or the extent to which
any factor, or combination of factors, may cause actual future
results to differ materially from those contained in any
forward-looking statement. Except as may be required by law or
regulation, the Company undertakes no obligation to update any of
its forward-looking statements, which speak only as of the date of
this announcement.
UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL
STATEMENTS
Consolidated income statement
for the six months ended 30
September
2019
------- ---------------- ------------ ------
GBPm Before exceptional Exceptional
items and items and
Notes remeasurements remeasurements Total
--------------------------------------- ------- -------------------- ----------------- ---------
Continuing operations
Revenue 2(a),3 6,289 - 6,289
Operating costs 4 (5,201) (85) (5,286)
--------------------------------------- ------- ---------------- ------------ ------
Operating profit/(loss) 2(b),4 1,088 (85) 1,003
Finance income 4,5 31 7 38
Finance costs 4,5 (584) (90) (674)
Share of post-tax results of
joint ventures and associates 2(b) 37 - 37
Profit/(loss) before tax 2(b),4 572 (168) 404
Tax 4,7 (41) 25 (16)
--------------------------------------- ------- ---------------- ------------ --- ------
Profit/(loss) after tax from
continuing operations 4 531 (143) 388
Profit after tax from discontinued
operations 6 5 1 6
--------------------------------------- ------- ---------------- ------------ --- ------
Total profit/(loss) for the
period (continuing and discontinued) 536 (142) 394
--------------------------------------- ------- ---------------- ------------ ------
Attributable to:
Equity shareholders of the
parent 535 (142) 393
Non-controlling interests(1) 1 - 1
--------------------------------------- ------- ---------------- ------------ --- ------
Earnings per share (pence)
Basic earnings per share (continuing) 8 11.3
Diluted earnings per share
(continuing) 8 11.2
Basic earnings per share (continuing
and discontinued) 8 11.5
Diluted earnings per share
(continuing and discontinued) 8 11.4
--------------------------------------- ------- -------------------- ----------------- ------
2018
------- ---------------- ------------ ------
GBPm Before exceptional Exceptional
items and items and
Notes remeasurements remeasurements Total
--------------------------------------- ------- -------------------- ----------------- ---------
Continuing operations
Revenue 2(a),3 6,347 - 6,347
Operating costs 4 (5,145) (185) (5,330)
--------------------------------------- ------- ---------------- ------------ ------
Operating profit/(loss) 2(b),4 1,202 (185) 1,017
Finance income 4,5 42 - 42
Finance costs 4,5 (536) (26) (562)
Share of post-tax results of
joint ventures and associates 2(b) 25 - 25
Profit/(loss) before tax 2(b),4 733 (211) 522
Tax 4,7 (134) 41 (93)
--------------------------------------- ------- ---------------- ------------ --- ------
Profit/(loss) after tax from
continuing operations 4 599 (170) 429
Profit/(loss) after tax from
discontinued operations 6 48 (45) 3
--------------------------------------- ------- ---------------- ------------ ------
Total profit/(loss) for the
period (continuing and discontinued) 647 (215) 432
--------------------------------------- ------- ---------------- ------------ ------
Attributable to:
Equity shareholders of the
parent 646 (215) 431
Non-controlling interests(1) 1 - 1
--------------------------------------- ------- ---------------- ------------ --- ------
Earnings per share (pence)
Basic earnings per share (continuing) 8 12.7
Diluted earnings per share
(continuing) 8 12.6
Basic earnings per share (continuing
and discontinued) 8 12.8
Diluted earnings per share
(continuing and discontinued) 8 12.7
--------------------------------------- ------- -------------------- ----------------- ------
1. The non-controlling interests for the six month periods ended
30 September 2019 and 2018 relate to continuing operations.
Consolidated statement of comprehensive income
for the six months ended 30 September
2019 2018
Notes GBPm GBPm
------------------------------------------------------- ----- ----- --------
Profit after tax from continuing operations 388 429
Other comprehensive (loss)/income from continuing
operations
Items from continuing operations that will
never be reclassified to profit or loss:
Remeasurement (losses)/gains on pension assets
and post-retirement benefit obligations 14 (995) 606
Net gains on investments in equity instruments
designated at fair value through other comprehensive
income 6 8
Net (losses)/gains on financial liability designated
at fair value through profit and loss attributable
to changes in own credit risk (1) 6
Net gains in respect of cash flow hedging of
capital expenditure 5 13
Tax on items that will never be reclassified
to profit or loss 235 (142)
Total items from continuing operations that
will never be reclassified to profit or loss (750) 491
------------------------------------------------------- ----- ---- -----
Items from continuing operations that may be
reclassified subsequently to profit or loss:
Exchange adjustments 579 403
Net losses in respect of cash flow hedges and
cost of hedging (74) (31)
Transferred to profit or loss in respect of
cash flow hedges and cost of hedging 11 27
Net gains on investments in debt instruments
measured at fair value through other comprehensive
income 7 8
Share of other comprehensive income of associates,
net of tax (5) -
Tax on items that may be reclassified subsequently
to profit or loss 20 1
Total items from continuing operations that
may be reclassified subsequently to profit
or loss 538 408
------------------------------------------------------- ----- ---- -----
Other comprehensive (loss)/income for the period,
net of tax, from continuing operations (212) 899
Other comprehensive income for the period,
net of tax, from discontinued operations(1) 6 6 36
------------------------------------------------------- ----- ---- -----
Other comprehensive (loss)/income for the period,
net of tax (206) 935
------------------------------------------------------- ----- ---- -----
Total comprehensive income for the period from
continuing operations 176 1,328
Total comprehensive income for the period from
discontinued operations 6 12 39
------------------------------------------------------- ----- ---- -----
Total comprehensive income for the period 188 1,367
------------------------------------------------------- ----- ---- -----
Attributable to:
Equity shareholders of the parent 186 1,365
Non-controlling interests(2) 2 2
------------------------------------ ----- -----
1. The other comprehensive income from discontinued operations
relates to items of other comprehensive income of Cadent
(investment held through Quadgas Holdco Limited). Refer to note 6
for further details.
2. The non-controlling interests for the six month periods ended
30 September 2019 and 30 September 2018 relate to continuing
operations.
Consolidated statement of changes in equity
for the six months ended 30 September
Share Other Total
Share premium Retained equity share-holders' Non-controlling Total
capital account earnings reserves equity interests equity
Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 April 2019 458 1,314 21,814 (4,237) 19,349 20 19,369
Profit for the
period - - 393 - 393 1 394
Other
comprehensive
(loss)/income
for the period - - (752) 545 (207) 1 (206)
---------------- ----- -------- ------- -------- -------- ------------ --------------- -------
Total
comprehensive
(loss)/income
for the period - - (359) 545 186 2 188
Equity
dividends 9 - - (557) - (557) - (557)
Scrip dividend
related share
issue 8 (8) - - - - -
Issue of
treasury
shares - - 15 - 15 - 15
Purchase of own
shares - - (2) - (2) - (2)
Share-based
payment - - 15 - 15 - 15
Cash flow
hedges
transferred
to the
statement of
financial
position, net
of tax - - - (12) (12) - (12)
At 30 September
2019 466 1,306 20,926 (3,704) 18,994 22 19,016
---------------- ----- -------- ------- -------- -------- ------------ --------------- -------
Share Other Total
Share premium Retained equity share-holders' Non-controlling Total
capital account earnings reserves equity interests equity
Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 April 2018
(as previously
reported) 452 1,321 21,599 (4,540) 18,832 16 18,848
Impact of
transition to
IFRS 9 and
IFRS 15 - - (268) 72 (196) - (196)
---------------- ----- -------- -------- -------- -------- ------------ --------------- -------
At 1 April 2018
(as restated) 452 1,321 21,331 (4,468) 18,636 16 18,652
Profit for the
period - - 431 - 431 1 432
Other
comprehensive
income
for the period - - 505 429 934 1 935
---------------- ----- -------- -------- -------- -------- ------------ --------------- -------
Total
comprehensive
income
for the period - - 936 429 1,365 2 1,367
Equity
dividends 9 - - (710) - (710) - (710)
Scrip dividend
related share
issue 5 (5) - - - - -
Issue of
treasury
shares - - 16 - 16 - 16
Purchase of own
shares - - (2) - (2) - (2)
Share-based
payment - - 16 - 16 - 16
Cash flow
hedges
transferred
to the
statement of
financial
position, net
of tax - - - (4) (4) - (4)
---------------- ----- -------- ------- -------- -------- ------------ --------------- -------
At 30 September
2018 457 1,316 21,587 (4,043) 19,317 18 19,335
---------------- ----- -------- ------- -------- -------- ------------ --------------- -------
Consolidated statement of financial position
30 September
2019 31 March 2019
Notes GBPm GBPm
---------------------------------------------- -------- ------------ ---------------
Non-current assets
Goodwill 6,299 5,869
Other intangible assets 2(c) 1,201 1,084
Property, plant and equipment 2(c),10 47,427 43,913
Other non-current assets 361 264
Pension assets 14 1,450 1,567
Financial and other investments 566 667
Investments in joint ventures and associates 971 608
Derivative financial assets 11 1,300 1,045
Total non-current assets 59,575 55,017
---------------------------------------------- -------- ----------- ------------
Current assets
Inventories and current intangible assets 467 370
Trade and other receivables 2,407 3,153
Current tax assets 113 126
Financial and other investments 12,13 3,406 1,981
Derivative financial assets 11 101 108
Cash and cash equivalents 12,13 213 252
Assets held for sale 6 - 1,956
---------------------------------------------- -------- ----------- ------------
Total current assets 6,707 7,946
---------------------------------------------- -------- ----------- ------------
Total assets 66,282 62,963
---------------------------------------------- -------- ----------- ------------
Current liabilities
Borrowings 12,13 (5,023) (4,472)
Derivative financial liabilities 11 (597) (350)
Trade and other payables (3,472) (3,769)
Contract liabilities (59) (61)
Current tax liabilities (74) (161)
Provisions (313) (316)
Total current liabilities (9,538) (9,129)
---------------------------------------------- -------- ----------- ------------
Non-current liabilities
Borrowings 12,13 (26,247) (24,258)
Derivative financial liabilities 11 (1,070) (833)
Other non-current liabilities (940) (808)
Contract liabilities (1,027) (933)
Deferred tax liabilities (3,832) (3,965)
Pensions and other post-retirement benefit
obligations 14 (2,648) (1,785)
Provisions (1,964) (1,883)
---------------------------------------------- -------- ----------- ------------
Total non-current liabilities (37,728) (34,465)
---------------------------------------------- -------- ----------- ------------
Total liabilities (47,266) (43,594)
---------------------------------------------- -------- ----------- ------------
Net assets 19,016 19,369
---------------------------------------------- -------- ----------- ------------
Equity
Share capital 466 458
Share premium account 1,306 1,314
Retained earnings 20,926 21,814
Other equity reserves (3,704) (4,237)
---------------------------------------------- -------- ----------- ------------
Total shareholders' equity 18,994 19,349
Non-controlling interests 22 20
---------------------------------------------- -------- ----------- ------------
Total equity 19,016 19,369
---------------------------------------------- -------- ----------- ------------
Consolidated cash flow statement
for the six months ended 30 September 2019 2018
Notes GBPm GBPm
--------------------------------------------------- ------ ------- ---------
Cash flows from operating activities
Operating profit from continuing operations 2(b) 1,003 1,017
Adjustments for:
Exceptional items and remeasurements 4 85 185
Depreciation and amortisation 2(c) 833 791
Share-based payment charge 15 16
Changes in working capital 370 190
Changes in provisions (60) (10)
Changes in pensions and other post-retirement
benefit obligations (113) (128)
Cash flows relating to exceptional items (28) (120)
Cash generated from continuing operations 2,105 1,941
Tax paid (123) (6)
--------------------------------------------------- ------
Net cash flow from operating activities
- continuing operations 1,982 1,935
--------------------------------------------------- ------ ------ ------
Net cash flow used in operating activities
- discontinued operations 6 (32) (47)
--------------------------------------------------- ------ ------ ------
Cash flows from investing activities
Acquisition of investments (27) (19)
Acquisition of Geronimo and Emerald 19 (137) -
Disposal of interests in Quadgas HoldCo
Limited 6 1,965 -
Investments in joint ventures and associates (49) (84)
Loans to joint ventures and associates - (11)
Purchases of intangible assets (118) (140)
Purchases of property, plant and equipment (2,133) (1,765)
Disposals of property, plant and equipment 19 10
Dividends received from joint ventures
and associates 27 33
Interest received 19 31
Net movements in short-term financial investments (1,377) 1,157
--------------------------------------------------- ------ ------ ------
Net cash flow used in investing activities
- continuing operations (1,811) (788)
--------------------------------------------------- ------ ------ ------
Net cash flow from investing activities
- discontinued operations 6 6 78
Cash flows from financing activities
Purchase of own shares (2) (2)
Proceeds from issue of treasury shares 15 16
Proceeds received from loans 2,465 1,116
Repayments of loans (1,887) (1,575)
Net movements in short-term borrowings
and derivatives 261 208
Interest paid (487) (433)
Dividends paid to shareholders 9 (557) (710)
--------------------------------------------------- ------ ------ ------
Net cash flow used in financing activities
- continuing operations (192) (1,380)
--------------------------------------------------- ------ ------ ------
Net decrease in cash and cash equivalents 13 (47) (202)
Exchange movements 8 3
Net cash and cash equivalents at start
of period 13 252 329
--------------------------------------------------- ------ ------
Net cash and cash equivalents at end of
period 13 213 130
--------------------------------------------------- ------ ------ ------
Notes to the financial statements
1. Basis of preparation and new accounting standards,
interpretations and amendments
The half year financial information covers the six month period
ended 30 September 2019 and has been prepared in accordance with
IAS 34 'Interim Financial Reporting' as issued by the International
Accounting Standards Board (IASB) and as adopted by the European
Union (EU); and the Disclosure and Transparency Rules of the
Financial Conduct Authority. This condensed set of financial
statements comprises the unaudited financial information for the
half years ended 30 September 2019 and 2018, together with the
audited consolidated statement of financial position as at 31 March
2019.
The financial information for the year ended 31 March 2019 does
not constitute statutory accounts as defined in Section 434 of the
Companies Act 2006. It should be read in conjunction with the
statutory accounts for the year ended 31 March 2019, which were
prepared in accordance with International Financial Reporting
Standards (IFRS) as issued by the IASB and as adopted by the EU,
and have been filed with the Registrar of Companies. The Deloitte
LLP audit report on those statutory accounts was unqualified, did
not contain an emphasis of matter and did not contain a statement
under Section 498 of the Companies Act 2006.
The half year financial information has been prepared in
accordance with the accounting policies expected to be applicable
for the year ending 31 March 2020. The notes to the financial
statements have been prepared on a continuing basis unless
otherwise stated. The Group has adopted IFRS 16 'Leases' for the
first time with effect from 1 April 2019. Other than in this
respect, the half year financial statements have been prepared on a
basis consistent with that applied in the preparation of the
financial statements for the year ended 31 March 2019.
Our consolidated income statement and segmental analysis (see
note 2) separately identify financial results before and after
exceptional items and remeasurements. The Directors believe that
presentation of the results in this way is relevant to an
understanding of the Group's financial performance. Presenting
financial results before exceptional items and remeasurements is
consistent with the way that financial performance is measured by
management and reported to the Board and Executive Committee and
improves the comparability of reported financial performance from
year to year. The profit for the period from continuing operations
before exceptional items and remeasurements forms part of the
incentive target set annually for remunerating certain Executive
Directors and accordingly we believe it is important for users of
the financial statements to understand how this compares to our
results on a statutory basis and period on period. Events or
transactions which are classified as exceptional items or
remeasurements are defined in the Annual Report and Accounts and
Form 20-F.
Areas of judgement and key sources of estimation uncertainty
In preparing this half year financial information, we have
considered the areas where judgement has been exercised by
management in applying the Group's accounting policies and the key
sources of estimation uncertainty as compared to those applied in
the preparation of the Annual Report and Accounts for the year
ended 31 March 2019:
-- Categorisation of certain items as exceptional items or
remeasurements: at the 2019 year end, we applied the Group's
exceptional items framework to four key items within continuing
operations. For the half year, we have concluded that there are no
exceptional items within continuing operations. We continue to
treat certain items as remeasurements as disclosed in note 4.
-- Classification of Quadgas as held for sale and as a
discontinued operation: at the 2019 year end, we concluded this
interest should be classified as held for sale and as a
discontinued operation. Following the completion of the sale of
these interests in the period, no significant judgements remain for
the half year.
-- The key sources of estimation uncertainty are consistent with
those for the year ended 31 March 2019:
the valuation of liabilities for pensions and other
post-retirement benefits; and
the cash flows applied in determining environmental
provisions.
Going concern
Having made enquiries and reassessed the principal risks, the
Directors consider that the Group has adequate resources to
continue in business for the foreseeable future, being a period of
not less than 12 months from the date of this report. Accordingly,
it is appropriate to adopt the going concern basis in preparing the
half year financial information.
1. Basis of preparation and new accounting standards,
interpretations and amendments (continued)
New IFRS accounting standards, interpretations and amendments
adopted in the period
The Group has adopted IFRS 16 'Leases' for the first time with
effect from 1 April 2019. Refer to note 18 for details of the
impact and transition adjustments arising on adoption. There are no
other new standards, interpretations and amendments, issued by the
IASB or by the IFRS Interpretations Committee (IFRIC), that are
applicable for the period commencing on 1 April 2019 that have had
a material impact on the Group's results.
New IFRS accounting standards, interpretations and amendments
not yet adopted
There are no new accounting standards, interpretations and
amendments to existing standards that have been issued, but are not
yet effective or have not yet been endorsed by the EU that were not
disclosed in our Annual Report and Accounts. The Group has not
early adopted any standard, amendment or interpretation that has
been issued but is not yet effective.
2. Segmental analysis
Revenue and the results of the business are analysed by
operating segment, based on the information the Board of Directors
uses internally for the purposes of evaluating the performance of
each operating segment and determining resource allocation between
them. The Board is National Grid's chief operating decision maker
(as defined by IFRS 8 'Operating Segments') and assesses the
profitability of operations principally on the basis of operating
profit before exceptional items and remeasurements (see note 4). As
a matter of course, the Board also considers profitability by
segment, excluding the effect of timing. However, the measure of
profit disclosed in this note is operating profit before
exceptional items and remeasurements as this is the measure that is
most consistent with the IFRS results reported within these
financial statements.
The results of our three principal businesses are reported to
the Board of Directors and are accordingly treated as reportable
operating segments. All other operating segments are reported to
the Board of Directors on an aggregated basis. The following table
describes the main activities for each reportable operating
segment:
UK Electricity The high-voltage electricity transmission networks in
Transmission England and Wales and independent Great Britain system
operator.
-------------------- ----------------------------------------------------------------
UK Gas Transmission The high-pressure gas transmission networks in Great
Britain and system operator in Great Britain.
-------------------- ----------------------------------------------------------------
US Regulated Gas distribution networks, electricity distribution networks
and high-voltage electricity transmission networks in
New York and New England and electricity generation facilities
in New York.
-------------------- ----------------------------------------------------------------
The NG Ventures operating segment represents our key strategic
growth area outside our regulated core business in competitive
markets across the UK and the US. The business comprises all
commercial operations in metering, LNG at the Isle of Grain in the
UK, electricity interconnectors and our new investment in Geronimo
Energy LLC (Geronimo), with a focus on investment and future
activities in emerging growth areas. NG Ventures does not currently
meet the thresholds set out in IFRS 8 to be identified as a
separate reportable segment and therefore its results are not
required to be separately presented. However, certain additional
disclosure is included in the footnotes below.
Although the National Grid Electricity System Operator was
legally separated on 1 April 2019, its results are still presented
to the Board of Directors as part of the UK Electricity
Transmission segment, and therefore no change has been made to our
reportable operating segments.
Other activities that do not form part of any of the segments in
the above table or NG Ventures primarily relate to our UK property
business together with insurance and corporate activities in the UK
and US and the Group's investments in technology and innovation
companies through National Grid Partners.
The US Regulated segment typically experiences seasonal
fluctuations in revenue and operating profit due to higher delivery
volumes during the second half of the financial year, for example
as a result of extreme weather over the winter. These seasonal
fluctuations have a consequential impact on the working capital
balances (primarily trade debtors and accrued income) in the
consolidated statement of financial position at 30 September 2019
when compared to 31 March 2019. The majority of UK revenues are
governed by the arrangements under RIIO, through which revenue is
primarily based on availability of transmission capacity rather
than usage, and therefore are not subject to the same seasonal
fluctuations as in the US.
2. Segmental analysis (continued)
(a) Revenue
Six months ended 30 September 2019 2018
Sales Sales Sales Sales
Total between to third Total between to third
sales segments(1) parties sales segments(1) parties
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------------
Operating segments - continuing
operations:
UK Electricity Transmission 1,708 (7) 1,701 1,574 (12) 1,562
UK Gas Transmission 345 (6) 339 353 (6) 347
US Regulated 3,876 - 3,876 4,053 - 4,053
NG Ventures and Other(2) 376 (3) 373 387 (2) 385
---------------------------------------- ------ --------- --------- ------ --------- ---------
Total revenue from continuing
operations 6,305 (16) 6,289 6,367 (20) 6,347
---------------------------------------- ------ --------- --------- ------ --------- ---------
Geographical areas:
UK 2,395 2,272
US 3,894 4,075
---------------------------------------- ------ -------------- --------- ------ -------------- ---------
Total revenue from continuing
operations 6,289 6,347
---------------------------------------- ------ -------------- --------- ------ -------------- ---------
1. Sales between operating segments are priced having regard to
the regulatory and legal requirements to which the businesses are
subject. The analysis of revenue by geographical area is on the
basis of destination.
2. Included within NG Ventures and Other is GBP291 million
(2018: GBP294 million) of revenue relating to NG Ventures.
(b) Operating profit
Before exceptional After exceptional
items and remeasurements items and remeasurements
Six months ended 30 September 2019 2018 2019 2018
GBPm GBPm GBPm GBPm
---------------------------------------- ------------- ------------- ------------- ---------------
Operating segments - continuing
operations:
UK Electricity Transmission 625 531 625 437
UK Gas Transmission 62 79 62 46
US Regulated 274 385 189 327
NG Ventures and Other(1,2) 127 207 127 207
------------- ------------- ------------- -------------
Total operating profit from continuing
operations 1,088 1,202 1,003 1,017
---------------------------------------- ------------- ------------- ------------- -------------
Geographical areas
UK 829 761 829 634
US 259 441 174 383
---------------------------------------- ------------- ------------- ------------- -------------
Total operating profit from continuing
operations 1,088 1,202 1,003 1,017
---------------------------------------- ------------- ------------- ------------- -------------
Below we reconcile total operating profit to profit before tax
from continuing operations. Operating exceptional items and
remeasurements of GBPnil (2018: GBP94 million expense) detailed in
note 4 are attributable to UK Electricity Transmission; GBPnil
(2018: GBP33 million expense) to UK Gas Transmission; and GBP85
million expense (2018: GBP58 million expense) to US Regulated
operations.
Before exceptional After exceptional
items and remeasurements items and remeasurements
Six months ended 30 September 2019 2018 2019 2018
GBPm GBPm GBPm GBPm
------------------------------------------ ---------------- -------------- ---------------- --------------
Reconciliation to profit before
tax:
Operating profit - continuing operations 1,088 1,202 1,003 1,017
Share of post-tax results of joint
ventures and associates 37 25 37 25
Finance income 31 42 38 42
Finance costs (584) (536) (674) (562)
------------------------------------------ ----------- ---------- ----------- ----------
Profit before tax from continuing
operations 572 733 404 522
------------------------------------------ ----------- --- ---------- ----------- --- ----------
1. Included within NG Ventures and Other is GBP128 million
(2018: GBP131 million) of operating profit (both before and after
exceptional items and remeasurements) relating to NG Ventures.
2. For the period ended 30 September 2018, NG Ventures and Other
included gains of GBP94 million in relation to two legal
settlements.
2. Segmental analysis (continued)
(c) Other segmental information
Net book value(1) Capital expenditure(2) Depreciation and
amortisation(3)
30 September 31 March 30 September 30 September 30 September 30 September
2019 2019 2019 2018 2019 2018
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- ------------ -------- ----------------- ------------ -------------- --------------
Operating segments:
UK Electricity
Transmission 13,543 13,288 471 462 (245) (242)
UK Gas Transmission 4,511 4,412 167 153 (85) (92)
US Regulated 27,329 24,542 1,588 1,177 (383) (346)
NG Ventures and
Other(4,5) 3,245 2,755 235 248 (120) (111)
------------ -------- ----------------- ------------ ---------- ----------
Total from
continuing
operations 48,628 44,997 2,461 2,040 (833) (791)
--------------------- ------------ -------- ----------------- ------------ ---------- ----------
Geographical areas:
UK 19,904 19,343 832 782 (402) (399)
US 28,724 25,654 1,629 1,258 (431) (392)
------------ -------- ----------------- ------------ ---------- ----------
Total from
continuing
operations 48,628 44,997 2,461 2,040 (833) (791)
--------------------- ------------ -------- ----------------- ------------ ---------- ----------
By asset type:
Property, plant and
equipment 47,427 43,913 2,299 1,900 (746) (710)
Non-current
intangible
assets 1,201 1,084 162 140 (87) (81)
--------------------- ------------ -------- ----------------- ------------ ---------- ----------
Total from
continuing
operations 48,628 44,997 2,461 2,040 (833) (791)
--------------------- ------------ -------- ----------------- ------------ ---------- ----------
1. Represents the net book value of property, plant and
equipment and other non-current intangible assets at 30 September
2019 and 31 March 2019 respectively.
2. Represents additions to property, plant and equipment and
other non-current intangible assets, in the six months ended 30
September 2019 and 30 September 2018 respectively.
3. Represents the amounts recorded in the consolidated income
statement for the six months ended 30 September 2019 and 30
September 2018 respectively.
4. Included within NG Ventures and Other are assets with a net
book value of GBP1,799 million (31 March 2019: GBP1,635 million),
capital expenditure of GBP193 million (2018: GBP136 million) and
depreciation and amortisation of GBP62 million (2018: GBP64
million) relating to NG Ventures.
5. Net book value for NG Ventures and Other includes certain
software assets and properties in the US which are outside the US
rate base and operate for the benefit of our US regulated
businesses. Costs associated with owning and operating these assets
(principally depreciation and amortisation) of GBP47 million (2018:
GBP42 million) and an income of GBP25 million (2018: GBP21 million)
are charged to the US regulated business.
3. Revenue
Under IFRS 15 'Revenue from Contracts with Customers', revenue
is recorded as or when the Group satisfies a performance obligation
by transferring a promised good or service to a customer. A good or
service is transferred when the customer obtains control of that
good or service.
The transfer of control of our distribution or transmission
services coincides with the use of our network, as electricity and
gas pass through our network and reach our customers. The Group
principally satisfies its performance obligations over time and the
amount of revenue recorded corresponds to the amounts billed and
accrued for volumes of gas and electricity delivered/transferred
to/from our customers.
Revenue for the six months UK Electricity UK Gas Transmission NG Ventures
ended 30 September 2019 Transmission GBPm US Regulated and Other Total
GBPm GBPm GBPm GBPm
------------------------------- -------------- ------------------- ------------ ----------- -------
Revenue under IFRS 15:
Transmission 1,653 313 199 151 2,316
Distribution - - 3,430 2 3,432
Other(1) 42 10 6 140 198
------------------------------- -------------- ------------------- ------------ ----------- -----
Total IFRS 15 revenue 1,695 323 3,635 293 5,946
------------------------------- -------------- ------------------- ------------ ----------- -----
Other revenue:
Generation - - 196 - 196
Other(2) 6 16 45 80 147
------------------------------- -------------- ------------------- ------------ ----------- -----
Total other revenue 6 16 241 80 343
------------------------------- -------------- ------------------- ------------ ----------- -----
Total revenue from continuing
operations 1,701 339 3,876 373 6,289
------------------------------- -------------- ------------------- ------------ ----------- -----
Geographic split of revenue UK Electricity UK Gas Transmission NG Ventures
for the six months ended Transmission GBPm US Regulated and Other Total
30 September 2019 GBPm GBPm GBPm GBPm
------------------------------- -------------- ------------------- ------------ ----------- -------
Revenue under IFRS 15:
UK 1,695 323 - 284 2,302
US - - 3,635 9 3,644
Total IFRS 15 revenue 1,695 323 3,635 293 5,946
------------------------------- -------------- ------------------- ------------ ----------- -----
Other revenue:
UK 6 16 - 70 92
US - - 241 10 251
------------------------------- -------------- ------------------- ------------ ----------- -----
Total other revenue 6 16 241 80 343
------------------------------- -------------- ------------------- ------------ ----------- -----
Total revenue from continuing
operations 1,701 339 3,876 373 6,289
------------------------------- -------------- ------------------- ------------ ----------- -----
1. Within NG Ventures and Other, other IFRS 15 revenue
principally relates to revenue generated from our metering
businesses.
2. Other revenue, recognised in accordance with accounting
standards other than IFRS 15, includes property sales by our UK
commercial property business and rental income.
3. Revenue (continued)
Revenue for the six months UK Electricity UK Gas Transmission NG Ventures
ended 30 September 2018 Transmission GBPm US Regulated and Other Total
GBPm GBPm GBPm GBPm
------------------------------- -------------- ------------------- ------------ ----------- -------
Revenue under IFRS 15:
Transmission 1,559 322 315 152 2,348
Distribution - - 3,478 - 3,478
Other(1) - - - 138 138
------------------------------- -------------- ------------------- ------------ ----------- -----
Total IFRS 15 revenue 1,559 322 3,793 290 5,964
------------------------------- -------------- ------------------- ------------ ----------- -----
Other revenue:
Generation - - 183 - 183
Other(2) 3 25 77 95 200
------------------------------- -------------- ------------------- ------------ ----------- -----
Total other revenue 3 25 260 95 383
------------------------------- -------------- ------------------- ------------ ----------- -----
Total revenue from continuing
operations 1,562 347 4,053 385 6,347
------------------------------- -------------- ------------------- ------------ ----------- -----
Geographic split of revenue UK Electricity UK Gas Transmission NG Ventures
for the six months ended Transmission GBPm US Regulated and Other Total
30 September 2018 GBPm GBPm GBPm GBPm
------------------------------- -------------- ------------------- ------------ ----------- -------
Revenue under IFRS 15:
UK 1,559 322 - 290 2,171
US - - 3,793 - 3,793
Total IFRS 15 revenue 1,559 322 3,793 290 5,964
------------------------------- -------------- ------------------- ------------ ----------- -----
Other revenue:
UK 3 25 - 73 101
US - - 260 22 282
------------------------------- -------------- ------------------- ------------ ----------- -----
Total other revenue 3 25 260 95 383
------------------------------- -------------- ------------------- ------------ ----------- -----
Total revenue from continuing
operations 1,562 347 4,053 385 6,347
------------------------------- -------------- ------------------- ------------ ----------- -----
1. Other IFRS 15 revenue principally relates to revenue generated from our metering businesses.
2. Other revenue, recognised in accordance with accounting
standards other than IFRS 15, includes property sales by our UK
commercial property business and rental income.
4. Exceptional items and remeasurements
Exceptional items and remeasurements are items of income and
expenditure that, in the judgement of the Directors, should be
disclosed separately on the basis that they are important to an
understanding of our financial performance and may significantly
distort the comparability of financial performance between
periods.
Remeasurements comprise unrealised gains or losses recorded in
the consolidated income statement arising from changes in the fair
value of certain financial assets and liabilities categorised as
held at fair value through profit and loss (FVTPL). These assets
and liabilities include commodity contracts and derivative
financial instruments to the extent that hedge accounting is either
not achieved or is not effective. We have also classified the
unrealised gains or losses reported in profit and loss on certain
additional assets and liabilities now treated at FVTPL within
remeasurements. These relate to the financial assets (which fail
the "solely payments of principal and interest test" under IFRS 9),
the money market fund investments used by Group Treasury for cash
management purposes and certain financial liabilities which we
elected to designate at FVTPL. In all cases, these fair values
increase or decrease because of changes in foreign exchange,
commodity or other financial indices over which we have no
control.
Exceptional
Six months ended 30 September 2019 items Remeasurements Total
GBPm GBPm GBPm
-------------------------------------------------- ----------- ---------------- -------
Included within operating profit from
continuing operations:
Net losses on commodity contract derivatives - (85) (85)
-------------------------------------------------- ----------- ------------ ----
- (85) (85)
Included within net finance costs (note
5):
Net losses on derivative financial instruments - (41) (41)
Net gains on FVTPL financial assets - 7 7
Net losses on FVTPL financial liabilities - (49) (49)
- (83) (83)
Total included within profit before tax
from continuing operations - (168) (168)
Tax - 25 25
-------------------------------------------------- ----------- ------------ ----
Total exceptional items and remeasurements
after tax from continuing operations - (143) (143)
-------------------------------------------------- ----------- ------------ ----
Exceptional
Six months ended 30 September 2018 items Remeasurements Total
GBPm GBPm GBPm
-------------------------------------------------- ------------- ---------------- -------
Included within operating profit from
continuing operations
UK cost efficiency and restructuring programme (127) - (127)
Massachusetts Gas work continuation (97) - (97)
Net gains on commodity contract derivatives - 39 39
-------------------------------------------------- --------- ----------- --- ----
(224) 39 (185)
Included within net finance costs (note
5)
Net losses on derivative financial instruments - (26) (26)
Net gains on FVTPL financial assets - 8 8
Net losses on FVTPL financial liabilities - (8) (8)
-------------------------------------------------- --------- ----------- ----
- (26) (26)
Total included within profit before tax
from continuing operations (224) 13 (211)
Tax 48 (7) 41
-------------------------------------------------- --------- ----------- ----
Total exceptional items and remeasurements
after tax from continuing operations (176) 6 (170)
-------------------------------------------------- --------- ----------- --- ----
For the six months ended 30 September 2018, there were two
exceptional items, for which further details are provided in the
Annual Report and Accounts for the year ended 31 March 2019:
UK cost efficiency and restructuring programme: We incurred
GBP127 million of costs in association with the restructuring
activities relating to our core UK regulated activities.
Massachusetts Gas work continuation: We incurred $127 million
(GBP97 million) of costs as a result of the workforce contingency
plan that was implemented across the Massachusetts Gas business
following the expiration of contracts for the existing
workforce.
5. Finance income and costs
Six months ended 30 September 2019 2018
Notes GBPm GBPm
-------------------------------------------- ------ ----- -------
Finance income before exceptional items
and remeasurements
Interest income on financial instruments 31 42
-------------------------------------------- ------ ---- ----
31 42
Finance costs before exceptional items and
remeasurements
Net interest payable on pensions and other
post-retirement benefit obligations (13) (11)
Interest expense on financial instruments (599) (555)
Unwinding of discount on provisions (40) (35)
Other interest 6 (9)
Less: Interest capitalised 62 74
(584) (536)
Net finance costs before exceptional items
and remeasurements (553) (494)
Total exceptional items and remeasurements 4 (83) (26)
-------------------------------------------- ------ ---- ----
Net finance costs including exceptional
items and remeasurements from continuing
operations (636) (520)
-------------------------------------------- ------ ---- ----
6. Held for sale and discontinued operations - Interests in
Quadgas HoldCo Limited
At the end of June 2019, the Group sold its remaining 39%
interest in Cadent (held through its holding in Quadgas HoldCo
Limited (Quadgas)). This interest had been classified as held for
sale from 30 June 2018 until the date of disposal, as detailed in
note 10 of the Annual Report and Accounts for the year ended 31
March 2019.
The aggregate carrying value of the assets and liabilities
within the Quadgas disposal group at the disposal date was GBP1,956
million, which was comprised of a shareholder loan receivable of
GBP352 million, a FAA derivative asset of GBP110 million and a
GBP1,494 million investment in associate. The total sales proceeds
were GBP1,965 million. After taking account of GBP8 million of
expenses relating to the transaction, the gain on disposal was GBP1
million.
Discontinued operations
We have treated the results and cash flows arising from Quadgas
as a discontinued operation in the current period and prior period,
as detailed in note 10 of the Annual Report and Accounts for the
year ended 31 March 2019. As a consequence, we have classified the
various elements of income, expense and cash flows within
discontinued operations as set out below:
Within the consolidated income statement - discontinued
operations, we have recognised a net gain of GBP6 million,
comprising GBP6 million of shareholder loan interest income and the
tax charge thereon of GBP1 million, plus the GBP1 million gain on
disposal (2018: GBPnil) noted above.
In the comparative period, we disclosed a profit of GBP3
million, comprising:
GBP12 million of shareholder loan interest income and the tax
charge thereon of GBP2 million;
GBP38 million of income arising from our post-tax share of the
profits of Quadgas;
An impairment charge of GBP43 million; and
GBP2 million of other costs.
Within the consolidated cash flow statement - discontinued
operations, we have recognised GBP32 million of operating cash
outflows in respect of provisions and accruals (2018: GBP47
million). Within investing activities we have recognised GBP6
million of interest receivable on the shareholder loan (2018: GBP12
million). In 2018, we also recognised GBP66 million of dividends
received within investing activities, however no dividends were
received in the current period.
Within the consolidated statement of other comprehensive income
- discontinued operations, we have recognised a GBP6 million gain
in relation to certain cash flow hedges. In the comparative period
we recognised a gain of GBP36 million, principally relating to
actuarial gains and losses on the Cadent pension scheme (net of
deferred tax), which were reflected prior to the investment being
classified as held for sale.
7. Tax from continuing operations
The tax charge for the six month period is GBP16 million (2018:
GBP93 million), and excluding tax on exceptional items and
remeasurements, is GBP41 million (2018: GBP134 million). It is
based on management's estimate of the weighted average effective
tax rate by jurisdiction expected for the full year. The effective
tax rate excluding tax on exceptional items and remeasurements is
7.2% (2018: 18.3%), which includes our share of post-tax results of
joint ventures and associates.
The reduction in the half year effective tax rates (before and
after exceptional items and remeasurements) is driven by the
seasonality of earnings in the US Group, reflected through lower
operating profits (including the impact of adverse timing) as well
as tax credits arising from higher interest charges period on
period, and the closure of an audit in the current period.
For the full year, we expect the headline Group effective tax
rate to be around 19% excluding tax on exceptional items and
remeasurements. The effective tax rate for the year ended 31 March
2019 was 19.6% before exceptional items and remeasurements and
18.4% after exceptional items and remeasurements.
The main rate of corporation tax in the UK will be reduced to
17% with effect from 1 April 2020. UK deferred tax balances have
been calculated at this rate.
8. Earnings per share
Earnings per share (EPS), excluding exceptional items and
remeasurements, are provided to reflect the business performance
subtotals used by the Group, as set out in note 1. The earnings per
share calculations are based on profit after tax attributable to
equity shareholders of the parent company which excludes
non-controlling interests.
(a) Basic earnings per share
2019 2019 2018 2018
Six months ended 30 September Earnings EPS Earnings EPS
GBPm Pence GBPm Pence
----------------------------------------------- -------- -------- -------- ----------
Profit after tax before exceptional items
and remeasurements - continuing 530 15.5 598 17.8
Exceptional items and remeasurements after
tax - continuing (143) (4.2) (170) (5.1)
----------------------------------------------- ------- ------- ------- -------
Profit after tax from continuing operations
attributable to the parent 387 11.3 428 12.7
----------------------------------------------- ------- ------- ------- -------
Profit after tax before exceptional items
and remeasurements - discontinued 5 0.2 48 1.4
Exceptional items and remeasurements after
tax - discontinued 1 - (45) (1.3)
Profit after tax from discontinued operations
attributable to the parent 6 0.2 3 0.1
----------------------------------------------- ------- ------- ------- -------
Total profit after tax before exceptional
items and remeasurements 535 15.7 646 19.2
Total exceptional items and remeasurements
after tax (142) (4.2) (215) (6.4)
Total profit after tax attributable to
the parent 393 11.5 431 12.8
----------------------------------------------- ------- ------- ------- -------
Millions Millions
----------------------------------------------- -------- -------- -------- ----------
Weighted average number of shares - basic 3,430 3,367
----------------------------------------------- -------- ------- -------- -------
(b) Diluted earnings per share
2019 2019 2018 2018
Six months ended 30 September Earnings EPS Earnings EPS
GBPm Pence GBPm Pence
----------------------------------------------- -------- -------- -------- ----------
Profit after tax before exceptional items
and remeasurements - continuing 530 15.4 598 17.7
Exceptional items and remeasurements after
tax - continuing (143) (4.2) (170) (5.1)
----------------------------------------------- ------- ------- ------- -------
Profit after tax from continuing operations
attributable to the parent 387 11.2 428 12.6
----------------------------------------------- ------- ------- ------- -------
Profit after tax before exceptional items
and remeasurements - discontinued 5 0.2 48 1.4
Exceptional items and remeasurements after
tax - discontinued 1 - (45) (1.3)
Profit after tax from discontinued operations
attributable to the parent 6 0.2 3 0.1
----------------------------------------------- ------- ------- ------- -------
Total profit after tax before exceptional
items and remeasurements 535 15.6 646 19.1
Total exceptional items and remeasurements
after tax (142) (4.2) (215) (6.4)
----------------------------------------------- ------- ------- ------- -------
Total profit after tax attributable to
the parent 393 11.4 431 12.7
----------------------------------------------- ------- ------- ------- -------
Millions Millions
----------------------------------------------- -------- -------- -------- ----------
Weighted average number of shares - diluted 3,446 3,381
----------------------------------------------- -------- ------- -------- -------
9. Dividends
Pence Cash dividend Scrip
per paid dividend
share GBPm GBPm
----------------------------------------------- ------ ------------- -----------
Ordinary dividends
Final dividend in respect of the year ended
31 March 2019 31.26 557 517
Final dividend in respect of the year ended
31 March 2018 30.44 710 319
----------------------------------------------- ------ ------------- ---------
The Directors are proposing an interim dividend of 16.57 pence
per share to be paid in respect of the year ending 31 March 2020.
This would absorb approximately GBP577m of shareholders'
equity.
An interim dividend for the year ended 31 March 2019 of 16.08
pence per share was paid in January 2019. The cash dividend paid
was GBP450m with an additional GBP94m settled via a scrip
issue.
10. Property plant and equipment
Assets
in the Motor vehicles
Land and Plant and course and office
buildings machinery of construction equipment Total
GBPm GBPm GBPm GBPm GBPm
------------------------------------- ---------- ---------- ------------------ ---------------- ----------
Cost
Cost at 1 April 2019 (as previously
reported) 3,338 54,383 4,425 930 63,076
Impact of transition to IFRS
16 (note 18) 381 67 - 20 468
------------------------------------- --------- --------- -------------- ------------ -------
Cost at 1 April 2019 (as restated) 3,719 54,450 4,425 950 63,544
Exchange adjustments 118 1,755 76 40 1,989
Additions 9 142 2,108 39 2,298
Disposals (28) (323) - (15) (366)
Reclassifications 46 1,644 (1,701) 13 2
------------------------------------- --------- --------- -------------- ------------ -------
Cost at 30 September 2019 3,864 57,668 4,908 1,027 67,467
------------------------------------- --------- --------- -------------- ------------ -------
Accumulated depreciation
Accumulated depreciation at
1 April 2019 (778) (17,794) - (591) (19,163)
Exchange adjustments (18) (436) - (24) (478)
Depreciation charge for the
period (48) (639) - (56) (743)
Disposals 15 314 - 14 343
Reclassifications 1 (1) - 1 1
------------------------------------- --------- --------- -------------- ------------ -------
Accumulated depreciation at
30 September 2019 (828) (18,556) - (656) (20,040)
------------------------------------- --------- --------- -------------- ------------ -------
Net book value at 30 September
2019 3,036 39,112 4,908 371 47,427
------------------------------------- --------- --------- -------------- ------------ -------
10. Property plant and equipment (continued)
Assets
in the Motor vehicles
Land and Plant and course and office
buildings machinery of construction equipment Total
GBPm GBPm GBPm GBPm GBPm
-------------------------------- ---------- ---------- ------------------ ---------------- ----------
Cost
Cost at 1 April 2018 2,930 49,374 4,273 857 57,434
Exchange adjustments 112 1,960 69 46 2,187
Additions 35 193 1,637 35 1,900
Disposals (5) (195) 14 (29) (215)
Reclassifications 111 1,073 (1,222) 2 (36)
-------------------------------- --------- --------- -------------- ------------ -------
Cost at 30 September 2018 3,183 52,405 4,771 911 61,270
-------------------------------- --------- --------- -------------- ------------ -------
Accumulated depreciation
Accumulated depreciation at
1 April 2018 (674) (16,398) - (509) (17,581)
Exchange adjustments (19) (491) - (25) (535)
Depreciation charge for the
period (35) (626) - (49) (710)
Disposals 3 184 - 29 216
Reclassifications (1) 2 - - 1
-------------------------------- --------- --------- -------------- ------------ -------
Accumulated depreciation at
30 September 2018 (726) (17,329) - (554) (18,609)
-------------------------------- --------- --------- -------------- ------------ -------
Net book value at 30 September
2018 2,457 35,076 4,771 357 42,661
-------------------------------- --------- --------- -------------- ------------ -------
11. Fair value measurement
Assets and liabilities measured at fair value
Certain of the Group's assets and liabilities are measured at
fair value. The following table categorises these assets and
liabilities by the valuation methodology applied in determining
their fair value using the fair value hierarchy described on page
170 of the Annual Report and Accounts for the year ended 31 March
2019.
30 September 2019 31 March 2019
Level Level Level Total Level Level Level Total
1 2 3 GBPm 1 2 3 GBPm
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ------ ------- ----- ------- ------ ------ ----- ---------
Assets
Investments held at
FVTPL 2,477 - 82 2,559 1,311 - 62 1,373
Investments held at
FVTOCI 101 382 - 483 93 343 - 436
Investments in associates(1) - - 98 98 - - 90 90
Financing derivatives - 1,336 1 1,337 - 1,050 2 1,052
Commodity contract
derivatives - 9 55 64 - 33 68 101
------------------------------
2,578 1,727 236 4,541 1,404 1,426 222 3,052
------------------------------ ----- ------ ---- ------ ----- ----- ---- ------
Liabilities
Financing derivatives - (1,260) (259) (1,519) - (868) (216) (1,084)
Commodity contract
derivatives - (102) (46) (148) - (32) (67) (99)
Liabilities held at
fair value (728) - - (728) (667) - - (667)
Contingent consideration(2) - - (70) (70) - - - -
------------------------------ ----- ------ ---- ------ ----- ----- ---- ------
(728) (1,362) (375) (2,465) (667) (900) (283) (1,850)
------------------------------ ----- ------ ---- ------ ----- ----- ---- ------
Total 1,850 365 (139) 2,076 737 526 (61) 1,202
------------------------------ ----- ------ ---- ------ ----- ----- ---- ------
1. Our level 3 investments in associates include investments
relating to Sunrun Neptune 2016 LLC accounted for at FVTPL.
2. Contingent consideration relates to the acquisition of Geronimo (see note 19).
The estimated fair value of total borrowings using market values
at 30 September 2019 is GBP36,385 million (31 March 2019: GBP32,252
million).
Our level 1 financial investments and liabilities held at fair
value are valued using quoted prices from liquid markets.
11. Fair value measurement (continued)
Our level 2 financial investments held at fair value are valued
using quoted prices for similar instruments in active markets, or
quoted prices for identical or similar instruments in inactive
markets. Alternatively, they are valued using models where all
significant inputs are based directly or indirectly on observable
market data.
Our level 2 derivative financial instruments include
cross-currency, interest rate and foreign exchange derivatives. We
value these derivatives by discounting all future cash flows by
externally sourced market yield curves at the reporting date,
taking into account the credit quality of both parties. These
derivatives can be priced using liquidly traded interest rate
curves and foreign exchange rates, and therefore we classify our
vanilla trades as level 2 under the IFRS 13 framework.
Our level 2 commodity derivatives include over-the-counter gas
swaps and power swaps as well as forward physical gas deals. We
value our contracts based on market data obtained from the New York
Mercantile Exchange and the Intercontinental Exchange where monthly
prices are available. We discount based on externally sourced
market yield curves at the reporting date, taking into account the
credit quality of both parties and liquidity in the market. Our
commodity contracts can be priced using liquidly traded swaps, and
therefore we classify our vanilla trades as level 2 under the IFRS
13 framework.
Our level 3 derivative financial instruments include
cross-currency swaps, inflation-linked swaps and equity options,
where the market is illiquid. In valuing these instruments we use
in-house valuation models and obtain external valuations to support
each reported fair value.
Our level 3 commodity contract derivatives primarily consist of
our forward purchases of electricity and gas where pricing inputs
are unobservable, as well as other complex transactions. Complex
transactions can introduce the need for internally developed models
based on reasonable assumptions. Industry standard valuation
techniques such as the Black-Scholes pricing model and Monte Carlo
simulation are used for valuing such instruments. Level 3 is also
applied in cases when optionality is present or where an
extrapolated forward curve is considered unobservable. We consider
forward curves to be unobservable if observed market transactions
differ from the curve by more than 5%.
Our level 3 investments include equity instruments accounted for
at fair value through profit and loss. These equity holdings are
part of our corporate venture capital portfolio held by National
Grid Partners and comprise a series of small unquoted investments
where prices or valuation inputs are unobservable. These
investments are either recently acquired or there have been recent
funding rounds with third parties and therefore the valuation is
based on the latest transaction price.
Our level 3 investments in associates include our investment in
Sunrun Neptune 2016 LLC, which is accounted for at fair value. The
investment is fair valued by discounting expected cash flows using
a weighted average cost of capital specific to Sunrun Neptune 2016
LLC.
The impacts on a post-tax basis of reasonably possible changes
in significant assumptions used in valuing assets and liabilities
classified within level 3 of the fair value hierarchy are as
follows:
Financing derivatives Commodity contract
within net debt derivatives
(see note 12)
Six months ended 30 September 2019 2018 2019 2018
GBPm GBPm GBPm GBPm
10% increase in commodity prices - - (1) 1
10% decrease in commodity prices - - 1 (2)
+10% market area price change - - (7) (8)
-10% market area price change - - 7 7
+20 basis point increase in Limited
Price Index (LPI) market curve(1) (105) (81) - -
-20 basis point decrease in LPI
market curve(1) 99 79 - -
------------------------------------- ---------- --- ------- --------- --- -----
1. A reasonably possible change in assumptions for other level 3
assets and liabilities is unlikely to result in a material change
in fair values.
The impacts disclosed above were considered on a contract by
contract basis with the most significant unobservable inputs
identified.
11. Fair value measurement (continued)
The changes in fair value of our level 3 financial assets and
liabilities in the six months to 30 September are presented
below:
Financing derivatives
within net debt Commodity contract
(see note 12) derivatives Other(1)
2019 2018 2019 2018 2019 2018
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------------- -------------- ------------ ------------ ----------- ---- -------
At 1 April (214) (219) 1 (1) 152 194
Net (losses)/gains through the
consolidated income statement
for the period (2, 3, 4) (45) 26 (4) (16) 15 4
Net gains through other comprehensive
income for the period - - - - - 6
Transfer to held for sale(5) - - - - - (110)
Purchases(6) - - (5) 6 16 21
Acquisition of Geronimo - - - - (70) -
Settlements 1 - 17 13 (3) (2)
At 30 September(7) (258) (193) 9 2 110 113
--------------------------------------- --------- -------- -------- ------- --- ----
1. Other comprises our investments in Sunrun Neptune 2016 LLC,
Enbala and the investments made by National Grid Partners, which
are accounted for at fair value through profit and loss as well as
the contingent consideration arising from the acquisition of
Geronimo (see note 19).
2. Losses of GBP45 million (2018: gains of GBP26 million) are
attributable to derivative financial instruments held at the end of
the reporting period.
3. Losses of GBP10 million (2018: losses of GBP11 million) are
attributable to commodity contract derivative financial instruments
held at the end of the reporting period.
4. Other includes GBP4 million (2018: GBPnil) of fair value
movements for National Grid Partners.
5. Relates to the classification on 30 June 2018 of the FAA derivative asset as held for sale.
6. Purchases includes GBP14 million (2018: GBP15 million) of
additional investments made by National Grid Partners.
7. There were no reclassifications in or out of level 3 (2018: none).
12. Net debt
Net debt is comprised as follows:
30 September 31 March
2019 2019
GBPm GBPm
----------------------------------------------- ------------ ----------
Cash, cash equivalents and current financial
investments 3,619 2,233
Borrowings and bank overdrafts (31,270) (28,730)
Financing derivatives(1) (182) (32)
Net debt (net of related derivative financial
instruments) (27,833) (26,529)
----------------------------------------------- ----------- -------
1. Includes GBP31 million (31 March 2019: GBP32 million) in
relation to the hedging of capital expenditure. The cash flows for
these derivatives are included within investing activities and not
financing activities in the consolidated cash flow statement.
The following table splits out the total derivative balances on
the face of the consolidated statement of financial position by
category:
30 September 2019 31 March 2019
Assets Liabilities Total Assets Liabilities Total
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------- ------ ----------- ----- ------ ----------- -------
Financing derivatives 1,337 (1,519) (182) 1,052 (1,084) (32)
Commodity contract derivatives 64 (148) (84) 101 (99) 2
Total derivative financial
instruments 1,401 (1,667) (266) 1,153 (1,183) (30)
-------------------------------- ------ ---------- ---- ------ ---------- ----
13. Analysis of changes in net debt
Cash and Financial Financing
cash equivalents investments Borrowings(1) derivatives Total
GBPm GBPm GBPm GBPm GBPm
------------------------------- ------------------- ------------ ------------- -------------- ----------
At 31 March 2019 252 1,981 (28,730) (32) (26,529)
Impact of transition to IFRS
16 (note 18) - - (474) - (474)
------------------------------- ------------- ---- ------------ ------------ ---------- -------
At 1 April 2019 (as restated) 252 1,981 (29,204) (32) (27,003)
Cash flows (47) 1,358 (462) 109 958
Fair value gains and losses
and exchange movements 8 46 (979) (226) (1,151)
Interest income/(charge) - 21 (566) (33) (578)
Acquisition of Geronimo (note
19) - - (13) - (13)
Other non-cash movements - - (46) - (46)
------------------------------- ------------- ---- ------------ ------------ ---------- -------
30 September 2019 213 3,406 (31,270) (182) (27,833)
------------------------------- ------------- ---- ------------ ------------ ---------- -------
Cash and Financial Financing
cash equivalents investments Borrowings derivatives Total
GBPm GBPm GBPm GBPm GBPm
------------------------------- ------------------- ------------ ---------- -------------- ----------
At 31 March 2018 329 2,694 (26,625) 600 (23,002)
Impact of transition to IFRS
9 - - (32) - (32)
------------------------------- -------------- --- ----------- --------- ---------- -------
At 1 April 2018 (as restated) 329 2,694 (26,657) 600 (23,034)
Cash flows(2) (202) (1,171) 424 260 (689)
Fair value gains and losses
and exchange movements 3 95 (851) (620) (1,373)
Interest income/(charge) - 16 (540) (15) (539)
Other non-cash movements - 24 (20) - 4
------------------------------- -------------- --- ----------- --------- ---------- -------
30 September 2018 130 1,658 (27,644) 225 (25,631)
------------------------------- -------------- --- ----------- --------- ---------- -------
1. Included within borrowings are finance leases amounting to
GBP742 million (31 March 2019: GBP270 million). The 2019 amount
includes the IFRS 16 transition adjustment of GBP474 million that
was not included at 31 March 2019 (see note 18).
2. In 2018, cash flows excludes GBP17 million interest received
in relation to a litigation settlement, which is included within
interest received within investing activities in the consolidated
cash flow statement.
In the cash flow statement, cash flows from financing activities
relating to financing liabilities (proceeds and repayments of
loans, net movement in short term borrowings and derivatives and
interest paid) includes cash outflow on non-debt related items of
GBP1 million (2018: GBP3 million) and excludes derivative cash
inflows in relation to derivatives hedging capital expenditure of
GBP2 million (2018: nil).
14. Pensions and other post-retirement benefit obligations
30 September
2019 31 March 2019
GBPm GBPm
-------------------------------------------------- ------------ ---------------
Present value of funded obligations (27,271) (24,609)
Fair value of plan assets 26,519 24,793
-------------------------------------------------- ----------- ------------
(752) 184
Present value of unfunded obligations (369) (330)
Other post-employment liabilities (77) (72)
-------------------------------------------------- ----------- ------------
Net liability (1,198) (218)
-------------------------------------------------- ----------- ------------
Presented in consolidated statement of financial
position:
Liabilities (2,648) (1,785)
Assets 1,450 1,567
-------------------------------------------------- ----------- ------------
Net liability (1,198) (218)
-------------------------------------------------- ----------- ------------
30 September
Key actuarial assumptions 2019 31 March 2019
Discount rate - UK past service 1.80% 2.40%
Discount rate - US 3.25% 3.95%
Rate of increase in RPI - past service 3.10% 3.25%
---------------------------------------- -------- --- --------- ---
The net pensions and other post-retirement benefit obligations
position, as recorded under IAS 19, at 30 September 2019 was a
liability of GBP1,198 million (31 March 2019: GBP218 million). The
movement of GBP980 million primarily reflects changes in actuarial
assumptions resulting in an increase in liabilities, partially
offset by asset performance being more than the discount rate, and
employer contributions paid over the accounting period.
Changes in actuarial assumptions, primarily movements in
discount rates, led to an increase in liabilities of GBP2,211
million (an increase in UK and US liabilities of GBP1,057 million
and GBP1,154 million respectively) which reflected decreases in
corporate bond yields in both the UK and US. A gain of GBP1,222
million reflects returns on assets during the period both in the UK
and the US, being more than the discount rate at the start of the
year. Included within this gain is a loss of GBP0.5 billion
associated with the buy-in transaction described further below. The
net impact of actuarial gains and losses has been reflected within
the consolidated statement of comprehensive income. Employer
contributions of GBP237 million were paid over the accounting
period.
The pension surpluses in both the UK in relation to the National
Grid UK Pension Scheme of GBP980 million (31 March 2019: GBP1,184
million) and the National Grid Electricity Group of the Electricity
Supply Scheme of GBP191 million (31 March 2019: GBP123 million) and
the Niagara Mohawk Plan in the US of GBP279 million (31 March 2019:
GBP260 million) continue to be recognised as assets under IFRIC 14
as explained on page 148 of the Annual Report and Accounts for the
year ended 31 March 2019.
During the period, the Trustees of the National Grid UK Pension
Scheme entered into a buy-in arrangement, in respect of some
pensioner and dependant members of Section A. This was implemented
in order to manage various risks, including longevity risk. The
transaction was funded by existing assets of the Section A scheme,
through exchanging GBP2.8 billion of gilts for the buy-in policy,
which is held by the Trustees. This resulted in an actuarial loss
of GBP0.5 billion, representing the difference between the price
paid for the buy-in, and the IAS 19 value of the liabilities
covered by the buy-in. The actuarial loss is recorded within the
consolidated statement of other comprehensive income, and a
resulting increase to the net pension liability.
15. Commitments and contingencies
At 30 September 2019, there were commitments for future capital
expenditure contracted but not provided for of GBP2,643 million
(2018: GBP1,851 million).
We also have other commitments relating primarily to commodity
purchase contracts and contingencies in the form of certain
guarantees and letters of credit. These commitments and
contingencies are described in further detail on page 161 of the
Annual Report and Accounts for the year ended 31 March 2019.
Litigation and claims
Through the ordinary course of our operations, we are party to
various litigation, claims and investigations. We do not expect the
ultimate resolution of any of these proceedings to have a material
adverse effect on our results of operations, cash flows or
financial position.
16. Exchange rates
The consolidated results are affected by the exchange rates used
to translate the results of our US operations and US dollar
transactions. The US dollar to pound sterling exchange rates used
were:
Year ended
31 March
30 September 2019 2018 2019
------------------------------------- ---- ---- ----------
Closing rate applied at period end 1.23 1.30 1.30
Average rate applied for the period 1.25 1.31 1.31
------------------------------------- ---- ---- ----------
17. Related party transactions
Related party transactions in the six months ended 30 September
2019 were substantially the same in nature to those disclosed on
page 162 of the Annual Report and Accounts for the year ended 31
March 2019, with the exception of Quadgas ceasing to be a related
party following the disposal of our 39% stake in June 2019 (see
note 6). There were no other related party transactions in the
period that have materially affected the financial position or
performance of the Group.
18. Transition to IFRS 16
The Group has adopted IFRS 16 'Leases', with effect from 1 April
2019. IFRS 16 introduces a single lease accounting model for
lessees (rather than the current distinction between operating and
finance leases). A contract is, or contains, a lease, if it
provides the right to control the use of an identified asset for a
specific period of time in exchange for consideration. The new
standard results in our operating leases being accounted for in the
consolidated statement of financial position as 'right-of-use'
assets with corresponding lease liabilities also recognised. It
therefore increases both our assets and liabilities (including net
debt). It also changes the timing and presentation in the
consolidated income statement as it results in an increase in
finance costs and depreciation largely offset by a reduction in the
previously straight-line operating costs.
Transition options
We have applied IFRS 16 using the modified retrospective
approach. Comparatives have not been restated on adoption. Instead,
on the opening balance sheet date, right-of-use assets (net of
accrued rent or rent free periods, and reported within property,
plant and equipment), additional lease liabilities (reported within
borrowings) and any associated deferred tax have been recognised,
with no adjustment to retained earnings. For short-term leases
(lease term of 12 months or less) and leases of low-value assets
(such as computers), the Group continues to recognise a lease
expense on a straight-line basis as permitted by IFRS 16.
We elected to apply the practical expedient to grandfather our
previous assessments of whether contracts were previously accounted
for as a lease, as permitted by the standard, instead of
reassessing all significant contracts as at the date of initial
application to determine whether they met the IFRS 16 definition of
a lease.
We have elected to apply the practical expedient on transition,
which permits right-of-use assets to be measured at an amount equal
to the lease liability on adoption of the standard (adjusted for
any prepaid or accrued lease expenses).
18. Transition to IFRS 16 (continued)
Impact of transition
At 1 April 2019, the Group disclosed non-cancellable operating
lease commitments of GBP0.3 billion, of which the majority were in
the US. A further GBP0.4 billion of lease liabilities were
recognised on transition due to the requirement in IFRS 16 to
recognise lease liabilities for the term that we are reasonably
certain to exercise lease extension or lease termination options
for, rather than only for the period of the minimum contractual
term that was used in determining our lease liability commitments.
This was partially offset by the GBP0.2 billion impact of
discounting our lease liabilities at the incremental borrowing rate
for each lease. There were some immaterial short term and low value
leases, which will be recognised on a straight-line basis as an
expense in the consolidated income statement over the remaining
lease term.
As a result, the Group has recognised additional right-of-use
assets of GBP0.5 billion and lease liabilities (which are included
within net debt) of GBP0.5 billion at 1 April 2019. No additional
net deferred tax has arisen. The transition adjustment is in
addition to the GBP270 million of finance leases already recognised
on the consolidated statement of financial position under IAS 17.
There will be no impact on net assets as shown in the table below,
which shows the impacted balances from the Group consolidated
statement of financial position.
31 March
2019 IFRS 16 1 April
As previously transition 2019
reported adjustments As restated
Impact of transition GBPm GBPm GBPm
-------------------------------------- ---------------- -------------- ------------
Property, plant and equipment
Land and buildings 2,560 381 2,941
Plant and machinery 36,589 67 36,656
Assets in the course of construction 4,425 - 4,425
Motor vehicles and office equipment 339 20 359
Total property, plant and equipment 43,913 468 44,381
-------------------------------------- ------------ ---------- -----------
Lease liabilities
Current (65) (48) (113)
Non-current (205) (426) (631)
Total lease liabilities (270) (474) (744)
Other liabilities
Trade and other payables (3,769) 3 (3,766)
Other non-current liabilities (808) 3 (805)
Net assets 19,369 - 19,369
Equity
Total equity 19,369 - 19,369
-------------------------------------- ------------ ---------- -----------
The impact of IFRS 16 on profit before tax and profit after tax
as a result of adopting the new standard is not material. However,
it has resulted in an increase in operating profit due to the
operating costs now being replaced with depreciation and interest
charges.
The impact on the cash flow statement has also not been
material, although there has been an increase in operating cash
flows and decrease in financing cash flows, because repayment of
the principal portion of the lease liabilities is now classified as
cash flows from financing activities rather than operating cash
flows.
18. Transition to IFRS 16 (continued)
Ongoing accounting policy
With effect from 1 April 2019, new lease arrangements entered
into are recognised as a right-of-use asset and a corresponding
liability at the date at which the leased asset is available for
use by the Group. The right-of-use asset and associated lease
liability arising from a lease are initially measured at the
present value of the lease payments expected over the lease term.
The discount rate applied is the rate implicit in the lease or if
that is not available, then the incremental rate of borrowing for a
similar term.
The lease term takes account of exercising any extension options
that are at our option if we are reasonably certain to exercise the
option and any lease termination options unless we are reasonably
certain not to exercise the option.
Each lease payment is allocated between the liability and
finance cost. The finance cost is charged to the income statement
over the lease period using the effective interest rate method. The
right-of-use asset is depreciated over the shorter of the asset's
useful life and the lease term on a straight-line basis. For
short-term leases (lease term of 12 months or less) and leases of
low-value assets (such as computers), the Group continues to
recognise a lease expense on a straight-line basis.
19. Acquisition of Geronimo Energy LLC and Emerald Energy
Venture LLC
On 11 July 2019, NG Ventures acquired 100% of the share capital
of Geronimo and 51% of Emerald Energy Venture LLC (Emerald), which
is jointly controlled by National Grid and Washington State
Investment Board. Geronimo is a leading developer of wind and solar
generation based in Minneapolis in the US, and the acquisition is a
significant step in National Grid's commitment to the
decarbonisation agenda, towards developing and growing a
large-scale renewable generation business in the US and delivering
sustainable, reliable and efficient energy. This is National Grid's
first ownership stake in wind generation and an expansion of our
activities in solar generation. Whilst Geronimo develops the
assets, Emerald has a right of first refusal to buy, build and
operate those assets.
The total consideration has been provisionally determined as
GBP209 million, satisfied by a combination of cash and contingent
consideration. The contingent consideration has been recorded
within other non-current liabilities. The fair value of contingent
consideration recognised is determined as the present value of our
best estimate of the value that we will be required to pay, taking
into consideration management's estimates of the volume of
successful development activity by Geronimo over the relevant
period.
19. Acquisition of Geronimo Energy LLC and Emerald Energy
Venture LLC (continued)
The provisional fair values of the assets and liabilities
recognised from both the acquisition of the subsidiary, Geronimo,
and the joint venture, Emerald, are set out below. The purchase
price allocation process will be finalised at the year end and
therefore the figures disclosed are provisional.
GBPm
------------------------------------------- ------
Intangible assets 5
Property, plant and equipment 1
Investment in joint venture - Emerald 90
Cash 2
Other identifiable assets and liabilities 30
Total identifiable assets 128
Goodwill 81
Total consideration transferred: 209
Satisfied by:
Contingent consideration - Geronimo 70
Cash consideration - Geronimo 49
Cash consideration - Emerald 90
------------------------------------------- ----
209
------------------------------------------- ----
The goodwill arising from the acquisition comprises the value
associated with the potential future projects that will be
developed by Geronimo as well as the expertise of the management
team that have been acquired, neither of which qualify for
recognition as tangible or intangible assets. At the acquisition
date, there were no material contingent liabilities.
Subsequent to the acquisition date, we made an additional
capital contribution of GBP22 million into Emerald.
Total acquisition-related costs of GBP2.4 million have been
recognised within operating costs within the consolidated income
statement, of which GBP0.4 million was recognised in the period
ended 30 September 2019.
Geronimo earns revenue from selling its development-stage assets
to Emerald and other third parties. Emerald generates revenue from
the assets it purchases from Geronimo once they are operational and
has no other business. Neither entity has generated significant
revenues or profits for the period between the acquisition date and
the reporting date. Even if the acquisition had completed on 1
April 2019, there would have been no significant revenues or
profits.
20. Post balance sheet event
On 12 November 2019 the Company received a letter from the
Governor of New York giving 14 days' notice of his intention to
have New York State move to revoke National Grid's certificate to
operate its downstate gas franchise. The Company will respond
substantively within the time period specified and is confident
that it can address satisfactorily all of the points raised in the
Governor's letter. This matter relates to the Group's KEDNY and
KEDLI gas distribution businesses which as at 31 March 2019 had a
combined regulated rate base of $6.3 billion, approximately 12% of
the Group's total asset base.
Principal risks and uncertainties
When preparing the half year financial information the risks as
reported in the Annual Report and Accounts for the year ended 31
March 2019 (principal risks on pages 20-22 and inherent risks on
pages 212-215) were reviewed to ensure that the disclosures
remained appropriate and adequate. The half-year review of the
principal risks included the addition of a new risk to our risk
profile, namely the addition of a climate change risk category.
Further detail on the threats, opportunities, controls and
mitigations for this risk will be reported in the Annual Report and
Accounts for the year ended 31 March 2020 and considered as part of
the viability testing process. Below is a summary of our key risks
as at 30 September 2019:
Operational risks:
-- Catastrophic asset failure results in a significant safety and/or environmental event;
-- Major cyber security breach of business, operational
technology and/or critical national infrastructure
systems/data;
-- Failure to predict and respond to a significant disruption of
energy that adversely affects our customers and/or the public;
and
-- Failure to adequately identify, collect, use and keep private
the physical and digital data required to support Company
operations and future growth.
Strategic and regulatory risks:
-- Failure to influence future energy policy and secure satisfactory regulatory agreements;
-- Failure to deliver our customer, stakeholder and investor
proposition due to increased political and economic uncertainty;
and
-- Failure to adequately anticipate and minimise the adverse
impact from disruptive forces such as technology and innovation on
our business model.
People risks:
-- Failure to build sufficient capability and leadership
capacity (including effective succession planning) required to
deliver our vision and strategy.
Climate change risks:
-- Failure to respond/insufficient preparedness to climate change; and
-- Failure to meet our commitments as a climate change leader,
particularly in relation to the energy transition.
The risks and uncertainties associated with the United Kingdom
exiting the EU have been considered by the Board. Our Brexit
working group considered the related issues and consequences and
have kept our planning under review as plans have been revised.
In anticipation of the original 29 March 2019 deadline, we
accelerated procurement of certain key items for capital delivery
and operations in case of delays at ports. Since then we have
continued to review the supply chain, and have received assurances
from our key suppliers that they anticipate being able to support
our operations, in the event of the UK leaving the EU without an
agreement in place.
We have also conducted a number of test exercises and
contingency planning preparedness for our interconnectors, and
these are continually under review as the situation develops
between the UK and the EU.
In the context of the Group financial statements, however, these
actions did not have a material impact.
Statement of Directors' Responsibilities
The half year financial information is the responsibility of,
and has been approved by, the Directors. The Directors are
responsible for preparing the half year financial information in
accordance with the Disclosure and Transparency Rules (DTR) of the
United Kingdom's Financial Conduct Authority.
The Directors confirm that to the best of their knowledge:
a) the condensed consolidated interim financial statements have
been prepared in accordance with IAS 34 'Interim Financial
Reporting' as issued by the International Accounting Standards
Board and as adopted by the European Union;
b) the half year management report includes a fair review of the
information required by DTR 4.2.7R (indication of important events
during the first six months and description of principal risks and
uncertainties for the remaining six months of the year); and
c) the half year management report includes a fair review of the
information required by DTR 4.2.8R (disclosure of related parties'
transactions and changes therein).
The Directors of National Grid plc are listed in the Annual
Report and Accounts for the year ended 31 March 2019, with the
exception of the changes in the period which are listed on page
6.
By order of the Board
.......................... ..........................
John Pettigrew Andy Agg
13 November 2019 13 November 2019
Chief Executive Chief Financial Officer
INDEPENT REVIEW REPORT TO NATIONAL GRID PLC
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 September 2019 which comprises the consolidated
income statement, the consolidated statement of comprehensive
income, the consolidated statement of financial position, the
consolidated statement of changes in equity, the consolidated cash
flow statement and related notes 1 to 20. We have read the other
information contained in the half-yearly financial report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of financial statements.
This report is made solely to the Company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council. Our work has been undertaken so that we might
state to the Company those matters we are required to state to it
in an independent review report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company, for our review
work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the Directors. The Directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the
Group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34 'Interim
Financial Reporting' as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Financial Reporting Council for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
September 2019 is not prepared, in all material respects, in
accordance with International Accounting Standard 34 as adopted by
the European Union and the Disclosure Guidance and Transparency
Rules of the United Kingdom's Financial Conduct Authority.
Deloitte LLP
Statutory Auditor
London, United Kingdom
13 November 2019
Alternative performance measures/non-IFRS reconciliations
Within the Half Year Results Statement, a number of financial
measures are presented. Some of these measures have been
categorised as alternative performance measures (APMs), as per the
European Securities and Markets Authority (ESMA) guidelines and the
Securities and Exchange Commission (SEC) conditions for use of
non-IFRS Financial Measures.
An APM is a financial measure of historical or future financial
performance, financial position, or cash flows, other than a
financial measure defined under IFRS. The Group uses a range of
these measures to provide a better understanding of its underlying
performance. APMs are reconciled to the most directly comparable
IFRS financial measure where practicable.
The Group has defined the following financial measures as APMs
derived from IFRS within the Half Year Results Statement: net
revenue, the various adjusted operating profit, earnings and
earnings per share metrics detailed in the 'adjusted profit
measures' section below and capital investment. For each of these
we present a reconciliation to the most directly comparable IFRS
measure.
Net revenue
'Net revenue' is revenue less pass-through costs, such as system
balancing costs, and gas and electricity commodity costs in the US.
Pass-through costs are fully recoverable from our customers and are
recovered through separate charges that are designed to recover
those costs with no profit. Any over- or under-recovery of these
costs is returned to, or recovered from, our customers.
2019 2018
------------------------------- -------- -------- -----------
Pass-
Gross through Gross Pass-through
Six months ended 30 September revenue costs Net revenue revenue costs Net revenue
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- -------- -------- ----------- -------- ------------ -------------
UK Electricity Transmission 1,708 (662) 1,046 1,574 (614) 960
UK Gas Transmission 345 (105) 240 353 (104) 249
US Regulated 3,876 (1,511) 2,365 4,053 (1,700) 2,353
NG Ventures and Other 376 - 376 387 - 387
Sales between segments (16) - (16) (20) - (20)
------------------------------- ------- ------- ---------- ------- ----------- ----------
Total 6,289 (2,278) 4,011 6,347 (2,418) 3,929
------------------------------- ------- ------- ---------- ------- ----------- ----------
Adjusted profit measures:
In considering the financial performance of our business and
segments, we use various adjusted profit measures in order to aid
comparability of results year-on-year. The various measures are
presented on page 11 and reconciled below.
Adjusted results, also referred to as Headline results: These
exclude the impact of exceptional items and remeasurements that are
treated as discrete transactions under IFRS and can accordingly be
classified as such. This is a measure used by management that forms
part of the incentive target set annually for remunerating certain
Executive Directors and further details of these items are included
in note 4.
Underlying results: Further adapts our adjusted results to take
account of volumetric and other revenue timing differences arising
due to the in-year difference between allowed and collected
revenues, including revenue incentives, as governed by our rate
plans in the US or regulatory price controls in the UK (but
excluding totex-related allowances and adjustments). As defined on
page 27 of the Annual Report and Accounts for the year ended 31
March 2019, major storm costs are costs (net of certain
deductibles) that are recoverable under our US rate plans but
expensed as incurred under IFRS. Where the total incurred cost
(after deductibles) exceeds $100 million in any given year we also
exclude the net amount from underlying earnings.
Constant currency: 'Constant Currency Basis' refers to the
reporting of the actual results against the results for the same
period last year which, in respect of any US dollar
currency-denominated activity, have been translated using the
weighted average US dollar exchange rate for the six months ended
30 September 2019, which was $1.25 to GBP1.00. The weighted average
rate for the six months ended 30 September 2018, was $1.31 to
GBP1.00. Assets and liabilities as at 30 September 2019 have been
retranslated at the closing rate at 30 September 2019 of $1.23 to
GBP1.00. The closing rate for the balance sheet date 31 March 2019
was $1.30 to GBP1.00.
Alternative performance measures/non-IFRS reconciliations
(continued)
Reconciliation of Statutory, Adjusted and Underlying Profits and
Earnings - At actual exchange rates - Continuing operations
Major
Six months ended 30 September Exceptionals storm
2019 Statutory and remeasurements Adjusted Timing costs Underlying
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- --------- --------------------- -------- ------ ------ ------------
UK Electricity Transmission 625 - 625 (42) - 583
UK Gas Transmission 62 - 62 4 - 66
US Regulated 189 85 274 251 - 525
NG Ventures and Other 127 - 127 - - 127
Total operating profit 1,003 85 1,088 213 - 1,301
Net finance costs (636) 83 (553) - - (553)
Share of post -tax results
of JVs and associates 37 - 37 - - 37
------------------------------- -------- --------------- ---- ------- ----- ------ ---------
Profit before tax 404 168 572 213 - 785
Tax (16) (25) (41) (58) - (99)
------------------------------- -------- --------------- --- ------- ----- ------ ---------
Profit after tax 388 143 531 155 - 686
------------------------------- -------- --------------- ---- ------- ----- ------ ---------
Major
Six months ended 30 September Exceptionals storm
2018 Statutory and remeasurements Adjusted Timing costs Underlying
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- --------- --------------------- -------- ------ ------ ------------
UK Electricity Transmission 437 94 531 25 - 556
UK Gas Transmission 46 33 79 12 - 91
US Regulated 327 58 385 46 - 431
NG Ventures and Other 207 - 207 - - 207
Total operating profit 1,017 185 1,202 83 - 1,285
Net finance costs (520) 26 (494) - - (494)
Share of post -tax results
of JVs and associates 25 - 25 - - 25
------------------------------- -------- --------------- ---- ------- ----- ------ ---------
Profit before tax 522 211 733 83 - 816
Tax (93) (41) (134) (19) - (153)
------------------------------- -------- --------------- --- ------- ----- ------ ---------
Profit after tax 429 170 599 64 - 663
------------------------------- -------- --------------- ---- ------- ----- ------ ---------
Reconciliation of Adjusted and Underlying Profits - At constant
currency
At constant currency
Adjusted
at actual Constant
Six months ended 30 September exchange currency Major
2018 rate adjustment Adjusted Timing Storms Underlying
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- ---------- ------------- ------------- ------ ------- ------------
UK Electricity Transmission 531 - 531 25 - 556
UK Gas Transmission 79 - 79 12 - 91
US Regulated 385 19 404 48 - 452
NG Ventures and Other 207 2 209 - - 209
Total operating profit 1,202 21 1,223 85 - 1,308
Net finance costs (494) (18) (512) - - (512)
Share of post -tax results
of JVs and associates 25 - 25 - - 25
------------------------------- --------- --------- --------- ------ ------- ---------
Profit before tax 733 3 736 85 - 821
------------------------------- --------- --------- --------- ------ ------- ---------
Alternative performance measures/non-IFRS reconciliations
(continued)
Earnings per share calculations from continuing operations - At
actual exchange rates
The table below reconciles the profit after tax from continuing
operations per the previous tables back to the earnings per share
from continuing operations for each of the adjusted profit
measures. Earnings per share is only presented for those adjusted
profit measures that are at actual exchange rates, and not for
those at constant currency.
Profit
after tax Weighted
attributable average
Six months ended 30 September Profit Non-controlling to the number Earnings
2019 after tax interest parent of shares per share
GBPm GBPm GBPm Number Pence
------------------------------- ---------- ----------------- ------------- ---------- ------------
Statutory 388 (1) 387 3,430 11.3
Adjusted (also referred to
as Headline) 531 (1) 530 3,430 15.5
Underlying 686 (1) 685 3,430 20.0
------------------------------- ---------- ---------- ---- ------------- ---------- ----------
Profit
after tax Weighted
attributable average
Six months ended 30 September Profit Non-controlling to the number Earnings
2018 after tax interest parent of shares per share
GBPm GBPm GBPm Number Pence
------------------------------- ---------- ----------------- ------------- ---------- ------------
Statutory 429 (1) 428 3,367 12.7
Adjusted (also referred to
as Headline) 599 (1) 598 3,367 17.8
Underlying 663 (1) 662 3,367 19.7
------------------------------- ---------- ---------- ---- ------------- ---------- ----------
Timing impacts
Under the Group's regulatory frameworks, the majority of the
revenues that National Grid is allowed to collect each year are
governed by a regulatory price control or rate plan. If National
Grid collects more than this allowed level of revenue, the balance
must be returned to customers in subsequent years, and if it
collects less than this level of revenue, it may recover the
balance from customers in subsequent years. These variances between
allowed and collected revenues give rise to "over and
under-recoveries". A number of costs in the UK and the US are
pass-through costs (including commodity and energy efficiency costs
in the US), and are fully recoverable from customers. Timing
differences between costs of this type being incurred and their
recovery through revenues are also included in over and
under-recoveries. In the UK, timing differences include an
estimation of the difference between revenues earned under revenue
incentive mechanisms and associated revenues collected. UK timing
balances and movements exclude adjustments associated with changes
to controllable cost (totex) allowances or adjustments under the
totex incentive mechanism. Opening balances of over and
under-recoveries have been restated where appropriate to correspond
with regulatory filings and calculations.
UK Electricity UK Gas Transmission US Regulated(1) Total(2)
Transmission
GBPm GBPm GBPm GBPm
----------------------------------- ---------------- --------------------- ----------------- ----------
31 March 2019 closing balance (118) 59 484 425
Opening balance adjustments - - - -
----------------------------------- ------------ --------------- ---- ------------ --- -------
Restated 1 April 2019 opening
balance (118) 59 484 425
Over/(under)-recovery 42 (4) (251) (213)
----------------------------------- ------------ --------------- --- ------------ -------
30 September 2019 closing balance
to (recover)/return (76) 55 233 212
----------------------------------- ------------ --------------- ---- ------------ --- -------
UK Electricity UK Gas Transmission US Regulated(1) Total(2)
Transmission
GBPm GBPm GBPm GBPm
----------------------------------- ---------------- --------------------- ----------------- ----------
31 March 2018 closing balance (44) 93 257 306
Opening balance adjustments (6) 9 (6) (3)
----------------------------------- ------------ --------------- ---- ------------ -------
Restated 1 April 2018 opening
balance (50) 102 251 303
Under-recovery (25) (12) (48) (85)
----------------------------------- ------------ --------------- --- ------------ -------
30 September 2018 closing balance
to (recover)/return (75) 90 203 218
----------------------------------- ------------ --------------- ---- ------------ --- -------
1. US Regulated balances have been restated using the average
rate of 1.25 for the period to 30 September 2019.
2. The closing balances as at 30 September 2018 and 30 September
2019 would have been GBP209 million and GBP217 million respectively
had the closing exchange rates been used.
Alternative performance measures/non-IFRS reconciliations
(continued)
Capital investment
'Capital investment' or 'investment' refers to additions to
plant, property and equipment and intangible assets, and
contributions to joint ventures and associates, other than the St
William Homes LLP joint venture. In addition, we include the total
consideration paid for the acquisition of businesses. We also
include the Group's investments by National Grid Partners during
the period (which are classified for IFRS purposes as non-current
financial assets on the Group consolidated statement of financial
position).
Investments made to our St William Homes LLP arrangement are
excluded based on the nature of this joint venture arrangement. We
typically contribute property assets to the joint venture in
exchange for cash and accordingly do not consider these
transactions to be in the nature of capital investment.
At actual exchange
rates At constant currency
Six months ended 30 September 2019 2018 % change 2019 2018 % change
GBPm GBPm GBPm GBPm
------------------------------- ------- ------- ---------- -------- ------- ----------
UK Electricity Transmission 471 462 2% 471 462 2%
UK Gas Transmission 167 153 9% 167 153 9%
US Regulated 1,588 1,177 35% 1,503 1,236 22%
NG Ventures and Other 235 248 (5)% 320 252 27%
Group capital expenditure 2,461 2,040 21% 2,461 2,103 17%
------------------------------- ------- ------- ----- -------- ------- ---- ---
Six months ended 30 September - at actual exchange
rates 2019 2018 % change
GBPm GBPm
---------------------------------------------------- ----- ----- ----------
Capital expenditure 2,461 2,040 21%
Equity investment, funding contributions and loans
to joint ventures and associates 30 76 (61)%
Total consideration paid for the acquisition of
Geronimo and Emerald (note 19) 209 - N/A
Investment in financial assets (National Grid
Partners) 22 14 57%
-----
Group capital investment 2,722 2,130 28%
---------------------------------------------------- ----- ----- -----
Six months ended 30 September - at constant currency 2019 2018 % change
GBPm GBPm
------------------------------------------------------ ----- ----- ----------
Capital expenditure 2,461 2,103 17%
Equity investment, funding contributions and loans
to joint ventures and associates 30 79 (62)%
Total consideration paid for the acquisition of
Geronimo and Emerald (note 19) 209 - N/A
Investment in financial assets (National Grid
Partners) 22 15 47%
-----
Group capital investment 2,722 2,197 24%
------------------------------------------------------ ----- ----- -----
[1] 'Underlying' represents statutory results excluding
exceptional items, remeasurements, timing and major storm costs.
Further detail and definitions for all alternative performance
measures are provided on page 48.
2 Includes additions to PP&E, intangibles, contributions to
JV and associates (excluding St William), investment in National
Grid Partners and total consideration for the Geronimo
acquisition.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR LFFSFLALVLIA
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