TIDMNG. TIDM46QK
RNS Number : 2100G
National Grid PLC
18 November 2015
This half year report is available from the Investors section of
the National Grid website (www.nationalgrid.com/investors).
18 November 2015
National Grid Electricity Transmission plc
Half year report for the six months ended 30 September 2015
Solid underlying first half performance
-- Progress towards another year of good performance
-- Continued delivery of capital programme cost savings
Financial results
-- Adjusted operating profit(1) 4% lower at GBP610m
Six months ended Adjusted results(1) Statutory results
30 September
GBPm (unaudited) 2015 2014 % change 2015 2014 % change
----------------------- ------ ------ --------- ------ ------ ---------
Revenue 1,954 1,745 12 1,954 1,745 12
Operating profit 610 635 (4) 610 688 (11)
Profit before tax 548 549 - 553 598 (8)
Capital investment 514 514 - 514 514 -
----------------------- ------ ------ --------- ------ ------ ---------
Outlook
-- On track to deliver another year of asset growth and good returns
STRATEGIC AND OPERATIONAL REVIEW
Investment and growth expectation
Last year, National Grid Electricity Transmission plc (the
Company) set out a range of expected investment by regulated
business of between GBP9bn and GBP13bn over the eight year period
to 2020/21. The Company currently expects the level of spend to be
closer to the lower end of the range as the energy sector in the UK
evolves.
Industry developments in the period included amendments to
financial incentives for some future renewable projects, an
increase in the level of solar generation, which is expected to
reach over 10GW by March 2016, delay to the Hinkley Point nuclear
project and increased notification of closures of existing coal and
gas fired plant before winter 2016/17. This is combined with a much
lower level of new generation connections to the electricity
transmission system than the industry expected at the start of the
decade. In total, the Company expects to connect around 11GW of new
generation over the eight year RIIO-T1 period, less than half the
baseline level anticipated at the start of the period in April
2013.
In the medium to longer term, the Company expects levels of
embedded generation in the UK to increase. This could require an
increased level of investment in the electricity transmission
system to enable greater two-way flow patterns across grid supply
points, and manage the volatility of renewable generation in the
most cost-effective manner for customers. Combined with continued
investment in asset renewal, the Company expects to deliver
long-term asset growth in Electricity Transmission of around 6%
p.a..
Business continues to perform well and make progress with
regulatory arrangements
In the first six months of the year, the Company continued to
drive capital and operating cost efficiencies across its business,
reinforcing the Company's expectation for another year of strong
operational returns.
Investment continues at broadly the same level as last year. The
business maintains its drive for outperformance under its
regulatory arrangements, delivering outputs at lower cost than the
regulatory targets alongside good incentive performance.
Maintained strong safety and reliability for customers
The Company targets world class safety performance, measured as
a lost time injury frequency rate of 0.10 or better (i.e. less than
0.1 lost time injury per 100,000 hours worked in a 12 month period)
and has achieved this target of 0.10 for the last four months. The
business remains focused on maintaining this good level of
performance as it goes into the winter period.
This encouraging safety performance has been achieved throughout
a period of significant network investment activity, and the
business has also maintained a very good level of reliability over
this period.
The Company has implemented further improvements to its winter
preparedness plans, to ensure minimal system constraints over the
higher demand months. This is particularly important as margins
become tighter due to the ongoing closure of existing generation
plants. Reflecting this reduced generation availability, the
Company has purchased additional supplemental balancing reserves,
as it did last winter, to secure supplies for customers, achieving
a considerably reduced unit cost. As a result the Company believes
it has the tools it needs to manage a wide range of supply and
demand scenarios for the coming winter.
Business continues to deliver efficiency savings to create value
under regulatory arrangements
To maximise the benefit of regulatory arrangements, the Company
continues to focus on improving the efficiency and effectiveness of
its operations through innovation and an ongoing performance
improvement agenda. Alongside value for money, customers also need
safe and reliable networks and good customer service, which sets
out the foundation for the critical, non-financial success factors
for the long-term performance of the Company.
Focus on performance excellence drives efficiencies and
significant savings to customers
The business continues to deliver totex efficiencies, in
particular in relation to both load and non-load related spend in
Electricity Transmission. This is being achieved through a focus on
delivering the lowest sustainable cost solutions to delivering
customer outputs. These solutions are the result of a variety of
approaches, including contracting efficiencies, improved design and
project planning and alternative "no-build" solutions to delivering
the benefits of traditional capital and replacement projects. The
business is further expanding the use of the performance excellence
framework to drive further efficiencies.
The RIIO-T1 price controls included provision for a potential
mid-period review. In November 2015, Ofgem commenced a consultation
process on potential issues that may be relevant for triggering
mid-period reviews. Any mid-period reviews are expected to focus on
changes to outputs that can be justified by clear changes in
government policy and new outputs that are needed to meet the needs
of consumers and other network users. The reviews will not re-open
the RIIO-T1 price controls or change the key financial parameters.
As a result the Company expects customers to continue to be able to
benefit from innovation and initiatives throughout the full eight
year RIIO period.
Access to innovative, low cost funding options enabled by a
strong balance sheet
The Company's balance sheet remains strong after another period
of significant investment in new assets. The Company continues to
enjoy strong credit ratings from Moody's, Standard & Poor's and
Fitch.
Added value through low cost debt issuance
The Company has commenced drawing the GBP1.5bn EIB loan that was
signed in November 2014. The drawdowns to date have been in RPI
linked form and are at attractive rates. The Company has also
extended the drawdown deadline by 10 months, allowing extra time to
access this low cost funding.
Board changes
As reported in the National Grid Electricity Transmission plc
Annual Report and Accounts 2014/15, Nick Winser stepped down from
the Board of Directors on 1 July 2015. John Pettigrew assumed the
role of non-independent Chairman of the Board on this date.
On 24 September 2015, Mike Calviou resigned as a director of the
Board and was replaced by Cordi O'Hara on the same date.
Outlook
The Company remains on track to deliver another year of asset
growth and good returns.
REVIEW OF OPERATIONS
Six months ended 30 September Adjusted operating Capital investment
profit
(GBPm) 2015 2014 2015 2014
------------------------------- ---------- --------- ---------- ---------
Electricity Transmission 610 634 514 514
Other activities* - 1 - -
------------------------------- ---------- --------- ---------- ---------
610 635 514 514
------------------------------- ---------- --------- ---------- ---------
*Other activities relate to other commercial operations not
included within the above segment and corporate activities.
Electricity Transmission
Operating profit was GBP24m lower in the first six months of the
year, compared to the first six months of 2014/15, reflecting
decreased regulatory revenue allowances as performance benefits and
output adjustments from 2013/14 are shared with customers under the
RIIO regulatory arrangements. The decrease in statutory operating
profit of GBP78m reflected a non-recurring exceptional GBP53m
benefit relating to legal settlements last year, increased
depreciation and some operating cost increases. Timing increased
operating profit in the period by GBP33m.
Electricity Transmission investment was GBP514m, in line with
last year's level. Around half of the investment was associated
with non-load related activities including for example the London
Power Tunnels.
The Electricity Transmission business expects to deliver its
regulatory outputs for the year for a level of totex below the
associated regulatory allowance. This reflects continued delivery
of efficiencies in the capital programme and non-load related and
maintenance activities in particular. Following a very strong
performance in 2014/15, the business expects to deliver a similarly
strong level of totex incentive performance for the year as a
whole. Totex for the first half of the year was approximately
GBP650m compared to GBP600m in the first half of 2014/15.
(MORE TO FOLLOW) Dow Jones Newswires
November 18, 2015 11:35 ET (16:35 GMT)
At this half way point in the year, the business is performing
well compared to the targets of annual revenue incentive schemes
and expects to deliver a good incentive outturn for the whole year.
The maximum profit available under the balancing services incentive
scheme (BSIS) has increased this year to GBP30m, with the sharing
factor increased to 30% following the reset of the scheme as at
April 2015.
On 30 September 2015 Ofgem published its decision in relation to
additional site security costs. This has set an allowance of
approximately GBP580m over the RIIO period to enhance security at
critical sites of which approximately GBP370m is in the Electricity
Transmission business. Ofgem also reviewed the efficiency of some
historic spend in the last price control period. This review will
result in a reduction in Electricity Transmission's regulatory
asset value of approximately GBP25m. Separately, in the period, the
business identified around GBP500m of potential new projects for
enhancing visual amenity including the replacement of existing
pylons with underground lines.
The Winter Outlook, published on 15 October 2015, indicates that
sufficient generation is expected to be available for the winter of
2015/16 to meet the government targeted security of supply
standard. This includes the benefit of around 130MW (de-rated) of
demand-side balancing reserve (DSBR) and 2.3GW (de-rated) of
supplemental balancing reserve (SBR) procured under a tender
process managed by National Grid, approved by Ofgem and supported
by the Department of Energy and Climate Change (DECC) over the
summer. The total SBR and DSBR mechanisms are expected to provide
additional capacity over the period of peak demand.
Following the announcement of further coal plant closures for
March/April 2016 the outlook for 2016/17 shows further reductions
in underlying supply margin and it is expected that procurement of
DSBR and SBR services will be required for winter 2016/17. The
Electricity Transmission business has further improved its
processes in relation to winter preparation this year. This has
been designed to ensure maximum availability of Transmission assets
throughout what is expected to be the tightest winter for a number
of years in terms of electricity supply margin.
APPENDIX: BASIS OF PRESENTATION AND DEFINITIONS
BASIS OF PRESENTATION
Adjusted and Statutory Results
Unless otherwise stated, all financial commentaries in this
release are given on an adjusted basis.
'Adjusted' results are a key financial performance measure used
by the Company, being the results for continuing operations before
exceptional items and remeasurements. Remeasurements comprise gains
or losses recorded in the income statement arising from changes in
the fair value of derivative financial instruments to the extent
that hedge accounting is not achieved or is not fully effective.
Commentary provided in respect of results after exceptional items
and remeasurements is described as 'statutory'. Further details are
provided in note 3 on page 13. A reconciliation of business
performance to statutory results is provided in the consolidated
income statement on page 7.
DEFINITIONS
Post-retirement costs
Post-retirement costs include the cost of pensions and other
post-employment benefits.
Timing
Under the Company's regulatory frameworks, the majority of the
revenues that the Company is allowed to collect each year are
governed by a regulatory price control. If the Company 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". In
addition, a number of costs are pass-through costs, and are fully
recoverable from customers. Any timing differences between costs of
this type being incurred and their recovery through revenues are
also included in over and under-recoveries. Timing differences also
include an estimation of the difference between revenues earned
under revenue incentive mechanisms and any associated revenues
collected. Timing balances and movements exclude any adjustments
associated with changes to controllable cost (totex) allowances or
adjustments under the totex incentive mechanism.
Identification of these timing differences enables a better
comparison of performance from one period to another. Opening
balances of under and over-recoveries have been restated where
appropriate to correspond with regulatory filings and
calculations.
Totex
Under the RIIO regulatory arrangements the Company is
incentivised to deliver efficiencies against cost targets set by
the regulator. In total, these targets are set in terms of a
regulatory definition of combined total operating and capital
expenditure, also termed "totex". The definition of totex differs
from the total combined regulated controllable operating costs and
regulated capital expenditure as reported in this statement
according to IFRS accounting principles. Key differences are
capitalised interest, capital contributions, exceptional costs,
costs covered by other regulatory arrangements and unregulated
costs.
CAUTIONARY STATEMENT
This announcement contains certain statements that are neither
reported financial results nor other historical information. These
statements are forward-looking statements. These statements include
information with respect to National Grid Electricity Transmission
plc's (the Company's) 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
the Company'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 the Company's
ability to control or estimate precisely, such as changes in laws
or regulations, announcements from and decisions by governmental
bodies or regulators (including the timeliness of consents for
construction projects); 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, 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 the Company's IT
systems and supporting technology; performance against regulatory
targets and standards and against the Company's peers with the aim
of delivering stakeholder expectations regarding costs and
efficiency savings, including those related to investment
programmes and internal transformation 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 the Company'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 transactions such as paying dividends, lending
or levying charges; inflation or deflation; the delayed timing of
recoveries and payments in the Company's regulated business and
whether aspects of its activities are contestable; the funding
requirements and performance of the Company's pension scheme and
other post-employment benefit schemes; the failure to attract,
train or retain employees with the necessary competencies,
including leadership skills, and any significant disputes arising
with the Company's employees or the breach of laws or regulations
by its employees; and the failure to respond to market
developments, including competition for onshore transmission, and
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, including assumptions in connection with
joint ventures. For further details regarding these and other
assumptions, risks and uncertainties that may impact the Company,
please read the Strategic Report section and the 'Risk factors' on
pages 20 to 21 of the Company's most recent Annual Report and
Accounts. In addition, new factors emerge from time to time and the
Company 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.
(MORE TO FOLLOW) Dow Jones Newswires
November 18, 2015 11:35 ET (16:35 GMT)
UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL
STATEMENTS
Consolidated income statement
for the six months ended
30 September 2015 2014
Notes GBPm GBPm
----------------------------------------------- ----- ------- -------
Revenue 2(a) 1,954 1,745
Exceptional other income - 40
Operating costs (1,344) (1,097)
Operating profit
Before exceptional items and remeasurements 2(b) 610 635
Exceptional items and remeasurements 3 - 53
Total operating profit 2(b) 610 688
Finance costs
Before exceptional items and
remeasurements 4 (62) (86)
Exceptional items and remeasurements 3 5 (4)
Total finance costs 4 (57) (90)
Profit before tax
Before exceptional items and remeasurements 2(b) 548 549
Exceptional items and remeasurements 3 5 49
Total profit before tax 2(b) 553 598
Tax
Before exceptional items and remeasurements 5 (112) (117)
Exceptional items and remeasurements 3 (1) (11)
Total tax (113) (128)
Profit after tax
Before exceptional items and remeasurements 436 432
Exceptional items and remeasurements 3 4 38
Profit for the period attributable
to owners of the parent 440 470
------------------------------------------------- ----- ------- -------
Consolidated statement of comprehensive
income
for the six months ended 30 September 2015 2014
GBPm GBPm
---------------------------------------- ------- ----
Profit for the period 440 470
Other comprehensive income:
Items that will never be reclassified
to profit or loss
Remeasurements of net retirement
benefit obligations 81 (20)
Tax on items that will never be
reclassified to profit or loss (16) 4
Total items that will never be
reclassified to profit or loss 65 (16)
----------------------------------------- ------- ----
Items that are or may be reclassified
subsequently to profit or loss
Net losses on cash flow hedges (4) (30)
Transferred to profit or loss
on cash flow hedges 17 3
Tax on items that may be reclassified
subsequently to profit or loss (3) 6
----------------------------------------- ------- ----
Total items that may be reclassified
subsequently to profit or loss 10 (21)
----------------------------------------- ------- ----
Other comprehensive income/(loss)
for the period, net of tax 75 (37)
Total comprehensive income for
the period attributable to owners
of the parent 515 433
----------------------------------------- ------- ----
Consolidated statement of financial position 30 September 31 March
2015 2015
Notes GBPm GBPm
---------------------------------------- ----- ------------ --------
Non-current assets
Intangible assets 182 174
Property, plant and equipment 11,436 11,137
Derivative financial assets 6 347 402
----------------------------------------- ----- ------------
Total non-current assets 11,965 11,713
----------------------------------------- ----- ------------ --------
Current assets
Inventories 30 30
Trade and other receivables 257 269
Financial and other investments 8 494 478
Derivative financial assets 6 51 39
Current tax asset 5 5
Cash and cash equivalents 8 - 3
----------------------------------------- ----- ------------ --------
Total current assets 837 824
----------------------------------------- ----- ------------ --------
Total assets 12,802 12,537
----------------------------------------- ----- ------------ --------
Current liabilities
Borrowings 8 (1,372) (1,611)
Derivative financial liabilities 6 (50) (98)
Trade and other payables (731) (980)
Provisions (14) (15)
----------------------------------------- ----- ------------ --------
Total current liabilities (2,167) (2,704)
----------------------------------------- ----- ------------ --------
Non-current liabilities
Borrowings 8 (5,748) (5,512)
Derivative financial liabilities 6 (692) (625)
Other non-current liabilities (373) (348)
Deferred tax liabilities (844) (791)
Pension benefit obligations (312) (410)
Provisions (79) (77)
----------------------------------------- ----- ------------ --------
Total non-current liabilities (8,048) (7,763)
----------------------------------------- ----- ------------ --------
Total liabilities (10,215) (10,467)
----------------------------------------- ----- ------------ --------
Net assets 2,587 2,070
----------------------------------------- ----- ------------ --------
Equity
Share capital 44 44
Retained earnings 2,622 2,115
Cash flow hedge reserve (79) (89)
Total equity 2,587 2,070
----------------------------------------- ----- ------------ --------
Consolidated statement of changes in equity
Cash
flow
Share Retained hedge Total
capital earnings reserve equity
GBPm GBPm GBPm GBPm
---------------------------------- --------- --------- -------- -------
Changes in equity for the
period:
1 April 2015 44 2,115 (89) 2,070
---------------------------------- --------- --------- -------- -------
Profit for the period - 440 - 440
Total other comprehensive
income for the period - 65 10 75
---------------------------------- --------- --------- -------- -------
Total comprehensive income
for the period - 505 10 515
Share-based payment - 2 - 2
At 30 September 2015 44 2,622 (79) 2,587
---------------------------------- --------- --------- -------- -------
Cash
Called-up flow
share Retained hedge Total
capital earnings reserve equity
GBPm GBPm GBPm GBPm
---------------------------------- --------- --------- -------- -------
Changes in equity for the
period:
1 April 2014 44 1,946 (23) 1,967
---------------------------------- --------- --------- -------- -------
Profit for the period - 470 - 470
Total other comprehensive
loss for the period - (16) (21) (37)
---------------------------------- --------- --------- -------- -------
Total comprehensive income/(loss)
for the period - 454 (21) 433
Share-based payment - 1 - 1
At 30 September 2014 44 2,401 (44) 2,401
---------------------------------- --------- --------- -------- -------
Consolidated cash flow statement
for the six months ended 30
September 2015 2014
Notes GBPm GBPm
--------------------------------------- ----- ----- -----
Cash flows from operating activities
Total operating profit 2(b) 610 688
Adjustments for:
Exceptional items 3 - (53)
Depreciation and amortisation 200 185
Share-based payment charge 2 1
Changes in working capital (148) (64)
(MORE TO FOLLOW) Dow Jones Newswires
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Changes in provisions (4) (11)
Changes in pensions and other
post-employment benefit obligations (25) (30)
Gain on disposal of property,
plant and equipment (1) (4)
Cash flows relating to exceptional
items - 113
Cash flows generated from operations 634 825
Tax paid (59) (54)
----------------------------------------- ----- -----
Net cash inflow from operating
activities 575 771
----------------------------------------- ----- ----- -----
Cash flows from investing activities
Purchases of intangible assets (23) (17)
Purchases of property, plant
and equipment (526) (444)
Disposals of property, plant
and equipment 1 1
Net movements in short-term
financial investments (15) 23
----------------------------------------- ----- ----- -----
Net cash flow used in investing
activities (563) (437)
----------------------------------------- ----- ----- -----
Cash flows from financing activities
Proceeds received from loans 300 -
Repayment of loans (110) -
Net movements in short-term
borrowings and derivatives (123) (238)
Interest paid (84) (92)
Net cash flow used in financing
activities (17) (330)
----------------------------------------- ----- ----- -----
Net (decrease)/increase in cash
and cash equivalents (5) 4
Net cash and cash equivalents
at start of period 3 (6)
----------------------------------------- ----- ----- -----
Net cash and cash equivalents
at end of period1 8 (2) (2)
----------------------------------------- ----- ----- -----
1. Net of bank overdrafts of GBP2m (2014: GBP2m).
Notes
1. Basis of preparation and new accounting standards,
interpretations and amendments
The half year financial information covers the six month period
ended 30 September 2015 and has been prepared under International
Financial Reporting Standards (IFRS) as issued by the International
Accounting Standards Board (IASB), and IFRS as adopted by the
European Union, in accordance with International Accounting
Standard 34 'Interim Financial Reporting' and the Disclosure and
Transparency Rules of the Financial Conduct Authority. The half
year financial information is unaudited but has been reviewed by
the auditors and their report is attached to this document.
The following standards, interpretations and amendments, issued
by the IASB and by the IFRS Interpretations Committee (IFRIC), are
effective for the year ending 31 March 2016. None of the
pronouncements had a material impact on the Company's consolidated
results or assets and liabilities for the six month period ended 30
September 2015.
-- Amendment to IAS 19 'Defined Benefit Plans: Employee Contributions;
-- Annual Improvements to IFRSs 2010-2012 Cycle;
-- Annual Improvements to IFRSs 2011-2013 Cycle.
The half year financial information has been prepared in
accordance with the accounting policies expected to be applicable
for the year ending 31 March 2016 and consistent with those applied
in the preparation of the accounts for the year ended 31 March
2015.
In preparing this half year financial information, the areas of
judgement made by management in applying the Group's accounting
policies and the key sources of estimation uncertainty were the
same as those that applied to the consolidated financial statements
for the year ended 31 March 2015.
The half year financial information 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 2015, which were prepared in accordance
with IFRS as issued by the IASB and as adopted by the European
Union, and have been filed with the Registrar of Companies. The
auditors' report on these statutory accounts was unqualified and
did not contain a statement under Section 498 of the Companies Act
2006.
Having made enquiries and reassessed the principal risks, the
Directors consider that the Company and its subsidiary undertakings
have adequate resources to continue in business for the foreseeable
future, and that it is therefore appropriate to adopt the going
concern basis in preparing the half year financial information.
2. Segmental analysis
The Board of Directors is National Grid Electricity Transmission
plc's chief operating decision making body (as defined by IFRS 8
'Operating segments'). The segmental analysis is based on the
information the Board of Directors uses internally for the purposes
of evaluating the performance of operating segments and determining
resource allocation between segments. The performance of operating
segments is assessed principally on the basis of operating profit
before exceptional items and remeasurements.
The following table describes the main activities for each
operating segment:
Electricity Transmission High voltage electricity transmission
networks in Great Britain.
------------------------- --------------------------------------
Other activities relate to other commercial operations not
included within the above segment and corporate activities. All of
the Group's sales and operations take place within the UK. There
were no sales between segments.
(a) Revenue
Six months ended 30 September 2015 2014
GBPm GBPm
------------------------------ ----- -----
Operating segments
Electricity Transmission 1,953 1,744
Other activities 1 1
1,954 1,745
------------------------------ ----- -----
2. Segmental analysis (continued)
(b) Operating profit
Before exceptional After exceptional
items and remeasurements items and remeasurements
--------------------------- ---------------------------
Six months ended
30 September 2015 2014 2015 2014
GBPm GBPm GBPm GBPm
--------------------------- ------------- ------------ ------------- ------------
Operating segments
Electricity Transmission 610 634 610 687
Other activities - 1 - 1
----------------------------- ------------- ------------ ------------- ------------
610 635 610 688
--------------------------- ------------- ------------ ------------- ------------
Reconciliation
to profit before
tax:
Operating profit 610 635 610 688
Finance costs (62) (86) (57) (90)
Profit before tax 548 549 553 598
----------------------------- ------------- ------------ ------------- ------------
3. Exceptional items and remeasurements
Exceptional items and remeasurements are items of income and
expenditure that, in the judgment of management, 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 gains or losses recorded in the income
statement arising from changes in the fair value of derivative
financial instruments to the extent that hedge accounting is not
achieved or is not effective.
Six months ended 30 September 2015 2014
GBPm GBPm
------------------------------------------- ---- ----
Included within operating profit:
Exceptional items:
Legal settlements(1) - 53
- 53
Included within finance costs:
Remeasurements
Net gains/(losses) on derivative
financial instruments(2) 5 (4)
-------------------------------------------- ---- ----
Total included within profit before
tax 5 49
-------------------------------------------- ---- ----
Included within tax:
Tax on exceptional items - (12)
Tax on remeasurements (1) 1
-------------------------------------------- ---- ----
(1) (11)
------------------------------------------- ---- ----
Total exceptional items and remeasurements
after tax 4 38
-------------------------------------------- ---- ----
Analysis of exceptional items and
remeasurements after tax:
Total exceptional items after tax - 41
Total remeasurements after tax 4 (3)
-------------------------------------------- ---- ----
Total 4 38
-------------------------------------------- ---- ----
(MORE TO FOLLOW) Dow Jones Newswires
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1. During the six months ended 30 September 2014, the Group
received GBP113m for settlement of legal claims relating to
equipment procured in prior years. GBP13m has been credited to
operating costs, GBP40m has been recognised as other income and
GBP60m has been credited to plant and machinery within tangible
fixed assets.
2. Remeasurements - net gains and losses on derivative financial
instruments comprise gains and losses arising on derivative
financial instruments reported in the income statement. These
exclude gains and losses for which hedge accounting has been
effective, which have been recognised directly in other
comprehensive income or which are offset by adjustments to the
carrying value of debt.
4. Finance income and costs
Six months ended 30 September 2015 2014
GBPm GBPm
------------------------------------------ ---- -----
Interest expense on pension obligations (7) (10)
Interest expense on financial liabilities
held at amortised cost (95) (118)
Unwinding of discount on provisions (2) (2)
Other interest (1) (1)
Less: interest capitalised 43 45
------------------------------------------- ---- -----
Finance costs before exceptional
items and remeasurements (62) (86)
Net gains/(losses) on derivative
financial instruments included in
remeasurements 5 (4)
------------------------------------------- ---- -----
Exceptional items and remeasurements
included within finance costs 5 (4)
------------------------------------------- ---- -----
Finance costs (57) (90)
------------------------------------------- ---- -----
Net finance costs (57) (90)
------------------------------------------- ---- -----
5. Tax
The tax charge for the period, excluding tax on exceptional
items and remeasurements is GBP112m (2014: GBP117m). The effective
tax rate of 20.4% (2014: 21.4%) for the period is based on the best
estimate of the annual tax rate expected for the full year,
excluding tax on exceptional items and remeasurements. The
effective tax rate for the year ended 31 March 2015 was 21.3%.
The Finance Act 2013 enacted reductions in the UK corporation
tax rate to 20% from 1 April 2015 (2014: to 21%). Deferred tax
balances are currently reported at the 20% rate. A reduction in the
corporation tax rate to 19% from April 2017 and a further reduction
to 18% from April 2020 was announced in the 2015 Summer Budget.
Although these reductions in the UK corporation tax rate have now
been substantively enacted, they had not been as at the reporting
date and consequently are not reflected in these interim financial
statements. Following the change in rates becoming substantively
enacted the Company will finalise its assessment during the second
half of this year of the estimated impact on deferred tax, based on
the latest projections of when the deferred tax balances will
reverse.
6. Fair value measurement
Carrying values and fair values of certain financial assets and
liabilities
Certain of the Group's financial instruments are measured at
fair value. The following table categorises these financial assets
and liabilities by the valuation methodology applied in determining
their fair value using the fair value hierarchy described on page
72 of the Annual Report and Accounts 2014/15.
30 September 2015 31 March 2015
---------------------- ------------------------------- ------------------------------
Level Level Level Level Level Level
1 2 3 Total 1 2 3 Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------- ------- ------ ------ ------ ------ ------ ------ ------
Assets
Available-for-sale
investments - - - - 34 - - 34
Derivative financial
instruments - 398 - 398 - 427 14 441
- 398 - 398 34 427 14 475
------------------------------ ------ ------ ------ ------ ------ ------ ------
Liabilities
Derivative financial
instruments - (633) (109) (742) - (611) (112) (723)
Total - (235) (109) (344) 34 (184) (98) (248)
---------------------- ------- ------ ------ ------ ------ ------ ------ ------
Financial assets and liabilities in the consolidated statement
of financial position are either held at fair value or the carrying
value if it approximates to fair value, with the exception of
borrowings, which are held at amortised cost.
The estimated fair value of total borrowings using market values
at 30 September 2015 is GBP7,977 million (31 March 2015:
GBP8,354 million).
Level 1: Financial instruments with quoted prices for identical
instruments in active markets.
Level 2: Financial instruments with quoted prices for similar
instruments in active markets or quoted prices for identical or
similar instruments in inactive markets and financial instruments
valued using models where all significant inputs are based directly
or indirectly on observable market data.
Level 3: Financial instruments valued using valuation techniques
where one or more significant inputs are based on unobservable
market data.
Our level 3 derivative financial instruments include
cross-currency swaps with an embedded call option, currency swaps
where the currency forward curve is illiquid and in ation-linked
swaps where the in ation curve is illiquid. In valuing these
instruments a third party valuation is obtained to support each
reported fair value.
As disclosed in note 3, gains/losses on our recurring financial
instruments are recorded in remeasurements in the consolidated
income statement.
The impacts on a post-tax basis of reasonably possible changes
in significant level 3 assumptions for our derivative financial
instruments are as follows:
2015(2) 2014
Six months ended 30 September GBPm GBPm
---------------------------------------------------- --------- ------
+20 basis point change in Limited Price
Inflation (LPI) market curve(1) (48) (62)
* 20 basis point change in LPI market curve(1) 46 60
---------------------------------------------------- --------- ------
1. A reasonably possible change in assumption of other level 3
derivative financial instruments is unlikely to result in a
material change in fair values.
2. Tax rates applied above: Derivative financial instruments 20% (2014: 21%).
Movements in the six months to 30 September for derivative
financial instruments measured using Level 3 valuation methods are
presented below:
2015(3) 2014
GBPm GBPm
At 1 April (98) (53)
Net (losses) / gains
for the period - (9)
Settlements (11) (1)
At 30 September (109) (63)
----------------------- -------- -----
3. Gains of GBP3m (2014: loss of GBP8m) are attributable to
derivative financial instruments held at the end of the reporting
period.
7. Reconciliation of net cash flow to movement in net debt
Six months ended 30 September 2015 2014
GBPm GBPm
-------------------------------------- ------- -------
(Decrease)/increase in cash and cash
equivalents (5) 4
Increase/(decrease) in financial
investments 15 (23)
(Increase)/decrease in borrowings
and related derivatives (67) 238
Net interest paid on the components
of net debt 84 92
--------------------------------------- ------- -------
Change in net debt resulting from
cash flows 27 311
Changes in fair value and exchange
movements 22 (34)
Net interest charge on the components
of net debt (95) (118)
--------------------------------------- ------- -------
Movement in net debt (net of related
derivative financial instruments)
in the period (46) 159
Net debt (net of related derivative
financial instruments) at start of
period (6,924) (6,415)
--------------------------------------- ------- -------
Net debt (net of related derivative
financial instruments) at end of
period (6,970) (6,256)
--------------------------------------- ------- -------
8. Net debt
30 September 31 March
2015 2015
GBPm GBPm
---------------------------------- ------------ --------
Cash and cash equivalents - 3
Bank overdrafts (2) -
----------------------------------- ------------ --------
Net cash and cash equivalents (2) 3
Financial investments 494 478
Borrowings (excluding overdrafts) (7,118) (7,123)
Derivatives (344) (282)
----------------------------------- ------------ --------
Total net debt (6,970) (6,924)
----------------------------------- ------------ --------
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