TIDMNG. TIDM82HZ
RNS Number : 2097G
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 Gas 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
Portfolio development
-- Commencing a process for the potential sale of a majority stake in Gas Distribution
Financial results
Six months ended Adjusted results(1) Statutory results
30 September
GBPm (unaudited) 2015 2014 % change 2015 2014 % change
----------------------- ------ ------ --------- ------ ------ ---------
Revenue 1,477 1,402 5 1,477 1,402 5
Operating profit 580 633 (8) 580 548 6
Profit before tax 465 492 (5) 465 399 17
Capital investment 404 340 19 404 340 19
----------------------- ------ ------ --------- ------ ------ ---------
Outlook
-- On track to deliver another year of good returns
STRATEGIC AND OPERATIONAL REVIEW
Proposed majority sale of Gas Distribution business
On 10 November 2015, National Grid plc (the ultimate parent
company of National Grid Gas plc) announced the proposed sale of a
majority stake in the UK Gas Distribution Business. The National
Grid plc Board expects to return substantially all of the net
proceeds to shareholders. In light of this announcement, National
Grid plc is commencing a process for this potential sale. The
process is likely to be completed in early 2017.
Market developments
The UK's gas market and sources of gas are changing. Domestic
demand has fallen over the last five years and a significant
increase is not expected in future years. The UK continental shelf
(UKCS) now makes up less than half our total gas supply, with the
remainder coming from Norway, continental Europe, or further afield
via shipped imports of Liquefied Natural Gas (LNG).
Overall, supply capacity now exceeds peak demand by more than
25%, giving National Grid Gas plc's (the Company's) customers
significant flexibility over which sources of gas they choose to
meet demand. Newer sources of supply, such as LNG importation
terminals and storage sites, can respond to demand more quickly
than traditional UKCS supplies. The Company's network therefore
needs to be able to respond to changing day-to-day supply and
demand patterns.
UK reliance on imported gas supplies will vary depending on the
level of gas supply from the UKCS and the development of indigenous
gas sources. The Company is therefore working closely with its
customers and stakeholders to meet these operational challenges.
The Company is focused on continuing to develop its network and
services to meet their needs safely, reliably and efficiently.
Businesses continue to perform well
In the first six months of the year, the Company continued to
drive capital and operating cost efficiencies across its network
business, reinforcing the Company's expectation for another year of
strong UK operational returns.
The business maintains its drive for outperformance under its
regulatory arrangements, delivering outputs at lower cost than the
regulatory targets alongside good incentive performance.
Specifically, performance against our leakage and capacity
incentives has continued to be strong and our focus over the
forthcoming periods will continue to improve our customer
performance. During the period we have completed a benchmarking
exercise in order to help deliver better performance against the
RIIO outputs and allowances.
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 three out of 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.
Businesses continue to deliver efficiency savings to create
value under regulatory arrangements
To maximise the benefit of the Company's 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 businesses continue to deliver totex efficiencies, in
particular in relation to the mains replacement programme in Gas
Distribution. 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 other alternative 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 and RIIO-GD1 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 will 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 or RIIO-GD1 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.
Board changes
As reported in the National Grid Gas 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. Following the
resignation of Emma Fitzgerald on 30 April 2015 as a director of
the Company, Chris Train was appointed as a Director on 1 July
2015.
On 24 September 2015, Mike Calviou resigned as a Director of the
Board and was replaced by Cordi O'Hara on the same date. On 25
September 2015, Neil Pullen resigned as a Director of the Board and
was replaced by Pauline Walsh on the same date.
REVIEW OF OPERATIONS
Six months ended 30 September Adjusted Capital
operating investment
profit
(GBPm) 2015 2014* 2015 2014
------------------------------- ----- ------ ------ ------
Gas Transmission 73 25 91 85
Gas Distribution 417 421 286 226
Other activities 90 89 27 29
------------------------------- ----- ------ ------ ------
580 535 404 340
------------------------------- ----- ------ ------ ------
* The 2014 adjusted operating profit above has been presented on
a basis consistent with the current year classification, to include
exceptional pension deficit charges of GBP98m, as noted on page
15.
Gas Transmission
Gas Transmission operating profit increased by GBP48m in the
first six months of the year, compared to the first six months of
2014/15, reflecting lower prior year revenues which were phased
more than usual towards the second half of the year. This increase
was partly offset by higher controllable costs and increased
depreciation. Timing increased operating profit in the period by
GBP51m.
As last year, capital investment was almost entirely driven by
non-load related investment including compressor replacement. As
part of this work, the business commissioned two new electric drive
compressors at St Fergus in the period. The business also continued
its excellent safety record, with the Operations and Asset
Management team working for over two years without a lost time
injury (LTI) and the specialist pipeline maintenance centre having
passed 1,000 days LTI free.
The Gas Transmission business expects to deliver its regulatory
outputs for the year for a level of totex broadly in line with the
associated regulatory allowance. As a result, the business does not
expect totex incentive performance to significantly affect achieved
returns for the year as a whole. Totex for the first half of the
year was approximately GBP150m compared to GBP130m in the first
half of 2014/15.
At this half way point in the year the business expects to
deliver a good outturn for the year under annual revenue incentive
schemes as a whole, although below the exceptionally high level
delivered in 2014/15 due to the expiry of the gas permit incentive
scheme. During the period, Ofgem published final stakeholder scores
for 2014/15, confirming that Gas Transmission had increased its
score for the second year of RIIO, earning additional incentive
revenues.
(MORE TO FOLLOW) Dow Jones Newswires
November 18, 2015 11:29 ET (16:29 GMT)
The business continues to work with Ofgem to determine
appropriate levels of workload and investment over the remainder of
the RIIO-T1 period associated with compressor emissions and
reliability.
The Winter Outlook, published on 15 October 2015, indicates that
sufficient gas supply and gas in storage is expected to be
available for the winter of 2015/16 to meet the demands of a 1 in
20 winter. The Gas Transmission business has further improved its
processes in relation to winter preparation this year in order to
ensure maximum availability of its assets during the highest demand
periods of the year.
Gas Distribution
Operating profit in the first six months decreased by GBP4m
compared to the first six months of 2014/15. Increased regulatory
revenue, principally due to increased allowances relating to the
tax treatment of replacement expenditure, was offset by increased
depreciation and increases in operating costs. Timing reduced
operating profit in the period by GBP5m.
Investment was principally driven by GBP224m of replacement
expenditure compared to GBP170m in the first half of 2014/15. This
reflected an increased level of workload, in line with the
business' target to replace a required length of main over the
course of the RIIO-GD1 period. Totex for the first half of the year
was approximately GBP480m compared to GBP410m in the first half of
2014/15.
Gas Distribution is focused on improving key regulatory
performance metrics across its networks over the course of 2015/16.
The business is working closely with the partners of its Gas
Distribution Strategic Partnerships, Balfour Beatty and tRIIO,
ensuring that sharing of best practice and innovation continues to
deliver benefits, and the required workload increases for this year
and next year are resourced most effectively in order to drive
maximum benefit from the contractual arrangements and continued
savings for customers.
The Gas Distribution business is also continuing its initiatives
to deliver improved levels of customer service scores for 2015/16,
in particular in planned interruptions and customer connection
activities.
Other activities
Other activities include National Grid Metering and Xoserve.
National Grid Metering continues to provide installation and
maintenance services to energy suppliers in the regulated market in
Great Britain, maintaining around 13.7 million domestic, industrial
and commercial meters. National Grid Metering has witnessed a
marginal decrease in operating profit largely resulting from
reduced domestic meter populations affecting rental income.
Domestic meter populations are expected to continue to fall as the
smart meter roll-out across the UK continues.
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 15. A reconciliation of business
performance to statutory results is provided in the consolidated
income statement on page 8.
DEFINITIONS
Post-employment costs
Post-employment 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 Gas 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, 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 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 22 to 23 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
(MORE TO FOLLOW) Dow Jones Newswires
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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 2015 2014
Notes GBPm GBPm
----------------------------------------------- ----- ----- -----
Revenue 2(a) 1,477 1,402
Operating costs (897) (854)
Operating profit
Before exceptional items and remeasurements 2(b) 580 633
Exceptional items and remeasurements 3 - (85)
Total operating profit 2(b) 580 548
Finance income 4 1 2
Finance costs
Before exceptional items and
remeasurements 4 (116) (143)
Exceptional items and remeasurements 3 - (8)
Total finance costs 4 (116) (151)
Profit before tax
Before exceptional items and remeasurements 2(b) 465 492
Exceptional items and remeasurements 3 - (93)
Total profit before tax 2(b) 465 399
Tax
Before exceptional items and remeasurements 5 (100) (109)
Exceptional items and remeasurements 3 - 22
Total tax (100) (87)
Profit after tax
Before exceptional items and remeasurements 365 383
Exceptional items and remeasurements 3 - (71)
Profit for the period 365 312
------------------------------------------------- ----- ----- -----
Attributable to:
Equity shareholders of the
parent 362 311
Non-controlling interests 3 1
365 312
----------------------------------------------- ----- ----- -----
Consolidated statement of comprehensive
income
for the six months ended 30 September 2015 2014
GBPm GBPm
---------------------------------------- ---- ----
Profit for the period 365 312
Other comprehensive income/(loss):
Items that are or may be reclassified
subsequently to profit or loss
Net (losses)/gains taken to equity
in respect of cash flow hedges (5) (7)
Transferred to profit or loss
on cash flow hedges/recycling 6 5
----------------------------------------- ---- ----
Total items that may be reclassified
subsequently to profit or loss 1 (2)
----------------------------------------- ---- ----
Other comprehensive income/(loss)
for the period, net of tax 1 (2)
Total comprehensive income for
the period 366 310
----------------------------------------- ---- ----
Total comprehensive income attributable
to:
Equity shareholders of the parent 363 309
Non-controlling interests 3 1
----------------------------------------- ---- ----
366 310
---------------------------------------- ---- ----
Consolidated statement of financial 30 September 31 March
position 2015 2015
Notes GBPm GBPm
------------------------------------------ ----- ------------ --------
Non-current assets
Intangible assets 257 250
Property, plant and equipment 12,552 12,440
Other non-current assets 5,610 5,610
Derivative financial assets 6 859 988
------------------------------------------- ----- ------------
Total non-current assets 19,278 19,288
------------------------------------------- ----- ------------ --------
Current assets
Inventories and current intangible assets 29 26
Trade and other receivables 392 485
Financial and other investments 8 175 384
Derivative financial assets 6 64 70
Cash and cash equivalents 8 - 1
------------------------------------------- ----- ------------ --------
Total current assets 660 966
------------------------------------------- ----- ------------ --------
Total assets 19,938 20,254
------------------------------------------- ----- ------------ --------
Current liabilities
Borrowings 8 (1,620) (2,191)
Derivative financial liabilities 6 (51) (133)
Trade and other payables (918) (911)
Current tax liabilities (34) (34)
Provisions (48) (39)
------------------------------------------- ----- ------------ --------
Total current liabilities (2,671) (3,308)
------------------------------------------- ----- ------------ --------
Non-current liabilities
Borrowings 8 (7,158) (7,158)
Derivative financial liabilities 6 (467) (481)
Other non-current liabilities (1,048) (1,047)
Deferred tax liabilities (1,642) (1,654)
Provisions (145) (171)
------------------------------------------- ----- ------------ --------
Total non-current liabilities (10,460) (10,511)
------------------------------------------- ----- ------------ --------
Total liabilities (13,131) (13,819)
------------------------------------------- ----- ------------ --------
Net assets 6,807 6,435
------------------------------------------- ----- ------------ --------
Equity
Share capital 45 45
Share premium account 204 204
Retained earnings 5,277 4,908
Cash flow hedge reserve (55) (56)
Other equity reserves 1,332 1,332
------------------------------------------- ----- ------------ --------
Shareholders' equity 6,803 6,433
Non-controlling interests 4 2
------------------------------------------- ----- ------------ --------
Total equity 6,807 6,435
------------------------------------------- ----- ------------ --------
Consolidated statement of changes in equity
Cash
Share flow Total
Share premium Retained hedge Other share-holders' Non-controlling Total
capital account earnings reserves reserves equity interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------ -------- -------- --------- --------- --------- --------------- --------------- -------
Changes in equity
for the period:
At 1 April 2015 45 204 4,908 (56) 1,332 6,433 2 6,435
Profit for the
period - - 362 - - 362 3 365
Total other
comprehensive
income for the
period - - - 1 - 1 - 1
------------------ -------- -------- --------- --------- --------- --------------- --------------- -------
Total
comprehensive
income for the
period - - 362 1 - 363 3 366
Other movements
in
non-controlling
interests - - 3 - - 3 (1) 2
Share-based
payment - - 4 - - 4 - 4
-
At 30 September
2015 45 204 5,277 (55) 1,332 6,803 4 6,807
------------------ -------- -------- --------- --------- --------- --------------- --------------- -------
Cash
Share flow Total
Share premium Retained hedge Other share-holders' Non-controlling Total
capital account earnings reserves reserves equity interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
(MORE TO FOLLOW) Dow Jones Newswires
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------------------ -------- -------- --------- --------- --------- --------------- --------------- -------
Changes in equity
for the period:
At 1 April 2014 45 204 4,812 (34) 1,332 6,359 - 6,359
Profit for the
period - - 311 - - 311 1 312
Total other
comprehensive
loss for the
period - - - (2) - (2) - (2)
------------------ -------- -------- --------- --------- --------- --------------- --------------- -------
Total
comprehensive
income/(loss) for
the period - - 311 (2) - 309 1 310
Other movements
in
non-controlling
interests - - - - - - (1) (1)
Share-based
payment - - 4 - - 4 - 4
Tax on share-based
payment - - (2) - - (2) - (2)
At 30 September
2014 45 204 5,125 (36) 1,332 6,670 - 6,670
------------------ -------- -------- --------- --------- --------- --------------- --------------- -------
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) 580 548
Adjustments for:
Exceptional items 3 - 85
Depreciation, amortisation and
impairment 279 267
Share-based payment charge 4 4
Changes in working capital 55 (31)
Changes in provisions (20) (31)
Loss on disposal of property,
plant and equipment 5 4
Cash generated from operations 903 846
Tax paid (67) (95)
--------------------------------------- ----- -----
Net cash inflow from operating
activities 836 751
--------------------------------------- ----- ----- -----
Cash flows from investing activities
Purchases of intangible assets (36) (36)
Purchases of property, plant
and equipment (361) (268)
Disposals of property, plant
and equipment - 11
Interest received 1 2
Net movements in short-term
financial investments 207 (189)
--------------------------------------- ----- ----- -----
Net cash flow used in investing
activities (189) (480)
--------------------------------------- ----- ----- -----
Cash flows from financing activities
Repayment of loans - (39)
Net movements in short-term
borrowings and derivatives (582) (163)
Interest paid (72) (72)
Net cash flow used in financing
activities (654) (274)
--------------------------------------- ----- ----- -----
Net decrease in cash and cash
equivalents (7) (3)
Net cash and cash equivalents
at start of period 1 (9)
--------------------------------------- ----- ----- -----
Net cash and cash equivalents
at end of period1 8 (6) (12)
--------------------------------------- ----- ----- -----
1. Net of bank overdrafts of GBP6m (2014: GBP12m).
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 National Grid Gas
plc'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, 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 Gas 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:
Gas Transmission The gas transmission network in
Great Britain and UK LNG storage
activities.
----------------- -------------------------------------
Gas Distribution Four of the eight regional networks
of Great Britain's gas distribution
system.
----------------- -------------------------------------
Other activities relate to the gas metering business which
provides regulated gas metering activities in the UK, the Xoserve
business which provides transportation transaction services on
behalf of all the major gas network transportation companies,
including ourselves, together with corporate activities.
Sales between operating segments are priced having regard to the
regulatory and legal requirements to which the businesses are
subject. Our segments are unchanged from those reported in the
financial statements for the year ended 31 March 2015. All of the
Company's sales and operations take place within the UK.
(a) Revenue
Six months ended 30 September 2015 2015 2015 2014 2014 2014
Sales Sales Sales Sales
Total between to third Total between to third
sales segments parties sales segments parties
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ------ --------- --------- ------ --------- ---------
Operating segments
Gas Transmission 435 (58) 377 375 (49) 326
Gas Distribution 952 (14) 938 929 (20) 909
Other activities 184 (22) 162 182 (15) 167
1,571 (94) 1,477 1,486 (84) 1,402
------------------------------ ------ --------- --------- ------ --------- ---------
(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
Gas Transmission 73 110 73 25
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Gas Distribution 417 434 417 434
Other activities 90 89 90 89
---------------------- ------------- ------------ ------------- ------------
580 633 580 548
-------------------- ------------- ------------ ------------- ------------
Reconciliation to
profit before tax:
Operating profit 580 633 580 548
Finance income 1 2 1 2
Finance costs (116) (143) (116) (151)
Profit before tax 465 492 465 399
---------------------- ------------- ------------ ------------- ------------
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:
Sale of surplus land to National
Grid Property - 13
Pension deficit charges(1) - (98)
- (85)
------------------------------------------- ---- ----
Included within finance costs:
Remeasurements
Net losses on derivative financial
instruments(2) - (8)
-------------------------------------------- ---- ----
Total included within profit before
tax - (93)
-------------------------------------------- ---- ----
Included within tax:
Exceptional credit arising on items
not included in profit before tax:
Tax on exceptional items - 20
Tax on remeasurements - 2
-------------------------------------------- ---- ----
- 22
------------------------------------------- ---- ----
Total exceptional items and remeasurements
after tax - (71)
-------------------------------------------- ---- ------
Analysis of exceptional items and
remeasurements after tax:
Total exceptional items after tax - (65)
Total remeasurements after tax - (6)
-------------------------------------------- ---- ----
Total - (71)
-------------------------------------------- ---- ----
1. Pension deficit charges in 2014 arose from recovery plan
contributions in the National Grid UK Pension Scheme. In the
National Grid Gas plc Annual Report and Accounts 2014/15 these
charges were presented as exceptional items. For the six months
ended
30 September 2015 these recurring charges are no longer
presented as exceptional.
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 income on financial instruments 1 2
------------------------------------------- ----- -----
Finance income 1 2
------------------------------------------- ----- -----
Interest expense on financial liabilities
held at amortised cost (114) (151)
Unwinding of discount on provisions (3) (1)
Other interest (1) -
Less: interest capitalised 2 9
------------------------------------------- ----- -----
Finance costs before exceptional
items and remeasurements (116) (143)
Net losses on derivative financial
instruments included in remeasurements - (8)
------------------------------------------- ----- -----
Exceptional items and remeasurements
included within finance costs - (8)
------------------------------------------- ----- -----
Finance costs (116) (151)
------------------------------------------- ----- -----
Net finance costs (115) (149)
------------------------------------------- ----- -----
5. Tax
The tax charge for the period, excluding tax on exceptional
items and remeasurements is GBP100m (2014: GBP109m). The effective
tax rate of 21.5% (2014: 22.2%) for the period is based on the best
estimate of the annual income 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 24.0%.
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 Company'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 1 Level Level Total Level Level Level Total
GBPm 2 3 GBPm 1 2 3 GBPm
GBPm GBPm GBPm GBPm GBPm
---------------------- --------- ------ ------ ------ ------ ------ ------ ------
Assets
Available-for-sale
investments - - - - 194 - - 194
Derivative financial
instruments - 923 - 923 - 1,058 - 1,058
- 923 - 923 194 1,058 - 1,252
-------------------------------- ------ ------ ------ ------ ------ ------ ------
Liabilities
Derivative financial
instruments - (452) (66) (518) - (546) (68) (614)
Total - 471 (66) 405 194 512 (68) 638
---------------------- --------- ------ ------ ------ ------ ------ ------ ------
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 GBP9,791m (31 March 2015: GBP10,978m).
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 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(2)
Six months ended 30 September GBPm GBPm
---------------------------------------------------- ------- -------
+20 basis point change in Limited Price
Inflation (LPI) market curve(1) (29) (24)
* 20 basis point change in LPI market curve(1) 28 23
---------------------------------------------------- ------- -------
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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 (68) (46)
Net gains/(losses) for the period 3 (2)
Settlements (1) (1)
At 30 September (66) (49)
---------------------------------- ------- -----
3. Gains of GBP3m (2014: loss of GBP2m) 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 in cash and cash equivalents (7) (3)
(Decrease)/increase in financial
investments (207) 189
Decrease in borrowings and related
derivatives 582 202
Net interest paid on the components
of net debt 71 70
--------------------------------------- ------- -------
Change in net debt resulting from
cash flows 439 458
Changes in fair value and exchange
movements (4) (7)
Net interest charge on the components
of net debt (113) (149)
--------------------------------------- ------- -------
Movement in net debt (net of related
derivative financial instruments)
in the period 322 302
Net debt (net of related derivative
financial instruments) at start of
period (8,520) (8,440)
--------------------------------------- ------- -------
Net debt (net of related derivative
financial instruments) at end of
period (8,198) (8,138)
--------------------------------------- ------- -------
8. Net debt
30 September 31 March
2015 2015
GBPm GBPm
--------------------------------------- ------------ --------
Cash and cash equivalents - 1
Bank overdrafts (6) -
---------------------------------------- ------------ --------
Net cash and cash equivalents (6) 1
Financial investments 175 384
Borrowings (excluding bank overdrafts) (8,772) (9,349)
Derivatives 405 444
---------------------------------------- ------------ --------
Total net debt (8,198) (8,520)
---------------------------------------- ------------ --------
9. Commitments and contingencies
At 30 September 2015 there were commitments for future capital
expenditure contracted but not provided for of GBP316 million (31
March 2015: GBP446 million).
We also have other commitments relating primarily to energy
purchase commitments, operating leases and contingencies in the
form of certain guarantees and letters of credit. These commitments
and contingencies are described in further detail on page 64 of the
Annual Report and Accounts 2014/15.
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.
10. Related party transactions
Related party transactions in the six months ended 30 September
2015 were the same in nature to those disclosed on page 65 of the
Annual Report and Accounts 2014/15. There were no related party
transactions in the period that have materially affected the
financial position or performance of the Group.
11. Principal risks and uncertainties
The principal risks and uncertainties which could affect
National Grid Gas plc for the remaining six months of the financial
year are consistent with those disclosed for the year ended 31
March 2015 on pages 22 and 23 of the National Grid Gas plc Annual
Report and Accounts 2014/15. Our overall risk management process is
designed to identify, manage, and mitigate our business risks,
including financial risks.
The principal risks and uncertainties included in the National
Grid Gas plc Annual Report and Accounts 2014/15 are as follows:
-- Aspects of the work we do could potentially harm employees,
contractors, members of the public or the environment.
-- We may suffer a major network failure or interruption, or may
not be able to carry out critical operations due to the failure of
infrastructure, data, technology or a lack of supply.
-- Changes in law or regulation or decisions by governmental
bodies or regulators could materially adversely affect us.
-- Current and future business performance may not meet our
expectations or those of our regulators and stakeholders.
-- Changes in interest rates could materially impact earnings or our financial condition.
-- Our results of operations could be affected by inflation or deflation.
-- We may be required to make significant contributions to fund
pension and other post-retirement benefits.
-- An inability to access capital markets at commercially
acceptable interest rates could affect how we maintain and grow our
businesses.
-- Customers and counterparties may not perform their obligations.
12. National Grid Gas plc to adopt FRS 102 in company financial
statements
National Grid Gas plc (the Company) prepares its annual company
financial statements in accordance with UK GAAP. The Financial
Reporting Council, which is responsible for UK accounting
standards, has withdrawn the previous accounting standards and
issued new financial reporting standards. Under the new financial
reporting standards, the Company may choose to adopt either FRS 101
or FRS 102 to prepare its company financial statements for the year
ending 31 March 2016. The Company intends to adopt FRS 102.
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 report in accordance with
the Disclosure and Transparency Rules (DTR) of the United Kingdom's
Financial Conduct Authority.
The Directors confirm that the financial information has been
prepared in accordance with IAS 34 as issued by the International
Accounting Standards Board and as adopted by the European Union,
and that the half year report herein includes a fair review of the
information required by DTR 4.2.7.
The Directors of National Grid Gas plc are as listed in the
National Grid Gas plc Annual Report and Accounts for the year ended
31 March 2015 with the exception of the following changes to the
Board:
-- Nick Winser resigned 1 July 2015
-- Emma Fitzgerald resigned 30 April 2015
-- Chris Train appointed 1 July 2015
-- Mike Calviou resigned 24 September 2015
-- Cordi O'Hara appointed 24 September 2015
-- Neil Pullen resigned 25 September 2015
-- Pauline Walsh appointed 25 September 2015
By order of the Board
.......................... ..........................
John Pettigrew Andy Agg
17 November 2015 17 November 2015
Chairman Chief Financial Officer
Independent review report to National Grid Gas plc
Report on the condensed consolidated interim financial
statements
Our conclusion
We have reviewed National Grid Gas plc's consolidated interim
financial statements (the "interim financial statements") in the
half year financial information of National Grid Gas plc for the 6
month period ended 30 September 2015. Based on our review, nothing
has come to our attention that causes us to believe that the
interim financial statements are not prepared, in all material
respects, in accordance with International Accounting Standard 34,
'Interim Financial Reporting', as adopted by the European Union and
the Disclosure Rules and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
This conclusion is to be read in the context of what we say in
the remainder of this report.
What we have reviewed
The interim financial statements comprise:
-- the consolidated statement of financial position as at 30
September 2015;
-- the consolidated interim income statement and consolidated
statement of comprehensive income for the period then ended;
-- the consolidated interim statement of cash flows for the
period then ended;
-- the consolidated interim statement of changes in equity for
the period then ended; and
-- the explanatory notes to the interim financial
statements.
The interim financial statements included in the half year
financial information have been prepared in accordance with
International Accounting Standard 34, 'Interim Financial
Reporting', as adopted by the European Union and the Disclosure
Rules and Transparency Rules of the United Kingdom's Financial
Conduct Authority.
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