TIDMNG.
RNS Number : 4855F
National Grid PLC
18 May 2017
London | 18 May 2017:
National Grid, a
leading energy transmission
and distribution
company, today announces
its Full Year results.
Report for the year ended
31 March 2017
Operational Highlights Financial Highlights
* Strong performance and significant strategic progress * Total adjusted(1) EPS of 73.0p
* UK regulated efficiency and innovation generated * Total adjusted EPS excluding timing of 66.1p, up 6%
customer savings of GBP460m over 4 years
* Total Group Return on Equity of 11.7% (2016: 12.3%)
* Sale of 61% of UK Gas Distribution business complete,
announced GBP4bn return to shareholders
* Significant total capital investment of GBP4.5bn, u
p
* Rates updated for downstate New York gas and 5% at constant currency
Massachusetts Electric businesses
* Recommended full year dividend of 44.27p
* RIIO mid-period regulatory review completed
* Strong balance sheet maintained
* Further clarity on the UK System Operator role
============================================================ ==========================================================
Financial Summary
Year ended 31 March
Total(2) Continuing
------------------------- ======================================== ====================================
2017 2016 % Change 2017 2016 % Change
============ ========== ============== ========= ========= ==============
Adjusted results1
========================= ==============================================================================
Operating profit
(GBPm) 4,667 4,096 14 3,773 3,214 17
========================== ============ ========== -------------- --------- --------- --------------
Profit before
tax (GBPm) 3,555 3,142 13 2,807 2,417 16
========================== ============ ========== -------------- --------- --------- --------------
Earnings per
share (p) 73.0 63.2 16 56.9 48.0 19
========================== ============ ========== --------- --------- --------------
Statutory results
------------------------- ==============================================================================
Operating profit
(GBPm) 4,102 4,085 - 3,208 3,225 (1)
========================== ============ ========== -------------- --------- --------- --------------
Profit before
tax (GBPm) 2,926 3,032 (3) 2,184 2,329 (6)
========================== ============ ========== -------------- --------- --------- --------------
Earnings per
share (p) 207.1* 68.7 201 48.1 50.4 (5)
========================== ============ ========== -------------- --------- --------- --------------
Capital investment
(GBPm) 4,450 3,946 13 3,862 3,380 14
========================== ============ ========== --------- --------- --------------
*Includes GBP5,321m (141.4p) gain on the disposal
of UK Gas Distribution
----------------------------------------------------------------------------------------------------------
John Pettigrew
Chief Executive
"Last year was an important year for National Grid.
We invested record capex of GBP4.5 billion delivering
a safe and reliable service for customers. Our focus
on efficiency has also generated GBP460 million of
savings for customers in the first half of the 8 year
RIIO framework. We made significant progress in the
year, with the successful completion of the UK Gas
Distribution transaction, a good outcome on the rate
filings in the US and a positive conclusion to important
regulatory reviews in the UK.
National Grid is well positioned for the future with
a rebalanced, higher-growth portfolio, and we are
actively taking steps to evolve the business to meet
the changing needs of our customers."
(1) Unless otherwise stated, all financial commentaries in this release are given on an adjusted
basis for our continuing operations, at actual exchange rates. Prior year EPS has been adjusted
to reflect the additional shares issued as scrip dividends, refer to note 6 on page 59.
'Adjusted results', and a number of other terms and performance measures used in this document
are not defined within accounting standards and may be applied differently by other organisations.
For clarity, we have provided definitions of these terms, descriptions of restatements and,
where relevant, proforma calculations on pages 40-44.(2)
Total includes the results of UK Gas Distribution business (NGGD) and Xoserve Limited and
includes the benefit of GBP96 million to operating profit related to the cessation of depreciation
and amortisation from 8 December 2016, the point at which these businesses were classified
as held for sale.
Contacts
Investor Relations
=========================================================================================
+44 (0)20 +44 (0) 7989
Aarti Singhal 7004 3170 492447
============================================== ========================== =============
+44 (0)20 +44 (0) 7816
David Brining 7004 3166 847918
============================================== ========================== =============
+44 (0)20 +44 (0) 7976
Tom Edwards 7004 3460 962791
============================================== ========================== =============
+1 (929) 324 +1 (781) 405
Mike Ioanilli 4232 5699
============================================== ========================== =============
+44 (0)20 +44 (0) 7768
Richard Foster 7004 3169 294017
============================================== ========================== =============
Media
=========================================================================================
+44 (0)20 +44 (0) 7960
Sean Kemp 7004 3149 012356
============================================== ========================== =============
+44 (0) 1926 +44 (0) 7974
Gemma Stokes 655272 198333
============================================== ========================== =============
Teneo Blue Rubicon
=========================================================================================
+44 (0)20
Charles Armitstead 7420 3199
============================================== ========================== =============
Conference call details
An analyst presentation will be held
at the London Stock Exchange, 10 Paternoster
Row, London EC4M 7LS at 09:15 (BST)
today. There will be a live webcast
of the results presentation available
to view at investors.nationalgrid.com.
A replay will be available soon after
the event ends.
Live telephone coverage of the analyst
presentation at 09:15
========================================================================== =============
UK dial in number +44 (0) 808 109 0700
============================================== =========================================
US dial in number +1 646 843 4608
+1 866 966 5335 (US toll
free)
============================================== =========================================
Password National Grid
============================================== ========================== =============
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The 2017 Annual Report and Accounts
(ARA) is expected to be publicly available
on 6 June 2017. You can view or download
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at investors.nationalgrid.com or request
a free printed copy by contacting investor.relations@nationalgrid.com
2016/17 OVERVIEW
A year of significant progress
Last year we delivered a record level of investment across our
gas and electricity infrastructure providing safe and reliable
services for millions of customers. At the same time, we made
significant progress against our strategic priorities, successfully
rebalancing the portfolio towards higher growth.
We announced the completion of the sale of a 61% equity interest
in our UK Gas Distribution business (NGGD) to a consortium of
long-term infrastructure investors and the return of GBP4 billion
to shareholders. We also announced the potential sale of a further
14% equity interest in NGGD at the option of National Grid or the
consortium on broadly similar terms.
In the US, performance has started to benefit following the
introduction of new rates in three of our utility businesses. In
April 2017, we filed for new rates in our upstate New York gas and
electric businesses (NIMO), representing a further 30% of our rate
base. The US business achieved strong levels of reliability despite
significant storm activity, particularly in New York, reflecting
the increased level of investment designed to strengthen the
network.
Our UK businesses delivered another year of strong operational
performance with strong levels of reliability across all our
networks. We received a final decision on The Office of Gas and
Electricity Markets' (Ofgem) Mid-Period Review (MPR) which
reaffirmed Ofgem's commitment to the clarity and certainty offered
by the eight-year UK regulated price control (RIIO) framework and
volunteered the deferral of GBP480 million of allowances in UK
Electricity Transmission. In the first four years of RIIO,
customers' share of savings is around GBP460 million that will help
to reduce electricity and gas bills over a number of years.
Our UK electricity System Operator continued to perform strongly
and we welcomed the announcement by the Department for Business,
Energy & Industrial Strategy (BEIS) and Ofgem confirming their
joint belief that a more independent System Operator, within
National Grid, can realise benefits for consumers by enabling a
more secure, competitive and flexible system.
National Grid's portfolio of Other activities made a good
contribution in the year compared to a strong prior year. In
addition to progress on projects under construction (Nemo and North
Sea Link), the business also continued to develop new opportunities
for growth including our decision to invest in a second French
interconnector (IFA2), UK smart meters and residential solar assets
in the US.
Finally, we continue to take steps to ensure that National Grid
is evolving to be better equipped for the future. We brought
together a number of our Other activities businesses to create a
new division with its own leadership. It will be called National
Grid Ventures, and will focus on the development of new growth
opportunities and strengthen our commercial and partnership
capabilities for the future.
Group RoE of 11.7%
Group Return on Equity (including NGGD) of 11.7% (2015/16:
12.3%) was down slightly on last year's particularly strong
performance. In the UK, the regulated businesses delivered strong
returns of 13.1%, including an assumption of 3% long-run average
Retail Price Index (RPI) inflation. US Return on Equity of 8.2%
reflected a partial-year impact of new rates in three of our US
businesses. Other activities performance decreased compared to a
strong prior year, reflecting one-off business change costs and the
write off of US business development projects, combined with
expected revenue reductions at our French interconnector (IFA) and
the absence of the prior year Iroquois gain.
Value Added of GBP1.9bn, driven by asset growth
For the year ended 31 March 2017 we have calculated Value Added
to include a full year of performance from NGGD and removed any
impact from the sale of that business.
The strong financial performance in the year is reflected in the
Value Added metric. This metric reflects the key components of
value delivery to shareholders, being the dividend and growth in
the value of National Grid's assets, net of growth in net debt. The
Value Added per share measure also reflects the funding of this
growth and any dilution of the equity investment through, for
example, scrip dividend take up. Value Added in the year was
GBP1.9bn or 51.6p per share, including a full year contribution
from NGGD.
Value Added (GBPm constant 2017 2016 Change % 2015/16
currency)
---------------------------- ------- ------- -------- --- --------
UK regulated assets(1) 26,601 25,927 674 3 515
US regulated assets(2) 17,063 16,218 845 5 214(5)
Other invested capital 2,231 2,001 230 11 363
---------------------------- ------- ------- -------- --- --------
Total group regulated
and other assets 45,895 44,146 1,749 4 1,092
Dividend/share repurchase
in the year 1,652 1,604
Movement in Net Debt
and Goodwill(3) (1,460) (909)
Value Added 1,941 1,787
Value Added per Share(4) 51.6p 47.6p
(1) Consists of the regulated asset values (RAVs) and other
regulatory assets and liabilities of the UK businesses regulated
under the RIIO price controls, i.e. UK Transmission Owner and
System Operator and Gas Distribution assets. Restated for opening
balance adjustments following the completion of the regulatory
reporting pack process in 2016.
(2) US regulated assets increased from $20.3bn to $21.4bn in the
year. These represent rate base plus assets outside of rate base
including working capital.
(3) 2016/17 net debt and goodwill movement excludes the
GBP9,871m reduction in net debt arising on the sale of NGGD.
(4) Based on 3,763m weighted average shares for 2016/17
(2015/16: 3,755m).
(5) Movement in US regulated assets partly reflects the
exclusion of certain pension assets outside of rate base at March
2016 which were included in the March 2015 reported assets.
Value Added was higher than 2015/16, primarily due to higher RPI
inflation on UK regulated assets and higher operational returns on
US regulated assets, partially offset by the impact of higher
inflation on interest costs.
Total Group regulated and other assets increased by 4% which
includes adverse movements in regulated assets outside of RAV and
rate base. Excluding movements in these assets, which principally
comprise UK timing differences and US capital work in progress,
total Group regulated and other assets grew by 5%.
Of the GBP1,941m Value Added in 2016/17, GBP1,463m was paid to
shareholders as cash dividends and GBP189m as share repurchases
(offsetting the scrip issuance during the year), with GBP289m
retained in the business.
OPERATIONAL PERFORMANCE
National Grid delivered strong operational performance for
customers throughout the year with high standards of network
availability and reliability reflecting the benefit of the Group's
disciplined investment in new infrastructure and network
resilience.
During the year, we achieved a combined lost time injury
frequency rate of 0.09 for the Group (i.e. 0.09 lost time injuries
per 100,000 hours worked in a 12 month period). Going forward we
are placing an increased focus on behavioural safety across the
organisation to ensure everyone takes greater accountability.
Safety is embedded in our culture but metrics do not always provide
the full picture. Last year one of our UK employees lost his life
in a tragic incident. We have undertaken a comprehensive
investigation and are implementing a number of changes to reinforce
our strong focus on the safety of our employees, contractors and
the public.
In the US we achieved high levels of reliability despite
significant storm activity, particularly in our upstate New York
region. Over the course of one week in March a wind storm was
followed by snow and freezing rain with services to over 400,000
customers interrupted. National Grid was able to respond swiftly
restoring power to the vast majority of impacted customers within
the first 24 hours.
In the UK our focus remains on delivering totex efficiencies for
the benefit of both our customers and shareholders. During the
first half of RIIO we have made efficiency improvements that will
deliver savings to projects over the remainder of the RIIO period.
These improvements leverage our strong asset management capability.
We are using analytics to better understand the condition of our
assets to predict failure and optimise delivery. We are also
driving cost savings through lean design, productivity improvements
and strategic procurement. In the first four years of RIIO,
customers' share of savings is around GBP460 million. This will
help to reduce electricity and gas bills for customers over a
number of years.
UK Gas Distribution business, majority disposal completed
On 31 March 2017, we announced the completion of the sale of a
61% equity interest in NGGD to a consortium of long-term
infrastructure investors.
The terms of the transaction implied an enterprise value for
NGGD of approximately GBP13.8 billion. In consideration for the
sale of our equity interest we received a payment of approximately
GBP3.6 billion in cash from the consortium and an additional GBP1.8
billion of cash from additional debt financing raised by the
consortium. We will be returning GBP4 billion to shareholders,
subject to the required shareholder approvals.
As announced on 19 April 2017, this will take the form of a
special dividend of approximately GBP3.2 billion (84.375 pence per
existing ordinary share or US$5.4224 per American Depository Share)
alongside a share consolidation. A further GBP0.8 billion will be
returned via a share buyback programme during 2017/18.
We also took the opportunity to share the success of the NGGD
sale with consumers, by committing to setting aside GBP150 million
from the proceeds to help the most vulnerable households with their
energy needs.
In addition, we announced an agreement for the potential sale of
a further 14% interest in NGGD at the option of National Grid or
the consortium. The expected consideration for the further 14%
interest is approximately GBP0.8 billion which is to be paid in
cash and is on broadly similar terms to the sale of the 61%
interest. If the sale of the further 14% interest is completed, the
use of proceeds will be determined at that time.
Regulatory developments
In February 2017, Ofgem finalised its MPR for the RIIO price
control. The outcome was largely unchanged from the minded-to
position announced on 18 August 2016. There were no changes to key
financial parameters, with some adjustments to allowances for
specific outputs.
A joint statement between National Grid, BEIS and Ofgem on the
future of the System Operator role was issued on 12 January 2017.
The statement noted our collective belief that a more independent
electricity System Operator within National Grid can realise
benefits for customers. The final outcome is subject to ongoing
consultation, however interim measures are expected in 2018/19 with
full legal separation of our System Operator in place from April
2019 onwards.
On 28 March 2017, we announced that our UK Electricity
Transmission business had volunteered a deferral of GBP480m of RIIO
allowances. We believe that such a deferral will enable better
alignment of the funding with the likely timing of spend and help
to lower customer bills in the near-term. The need for these
deferred investments and the associated level of funding will form
part of RIIO-T2 discussions.
In the US, we have made good progress on our rate filing
strategy with three of our US businesses now operating under
refreshed distribution rates.
The Massachusetts Department of Public Utilities (DPU) issued a
rate order for Massachusetts Electric (MECO) which serves 1.3
million electricity distribution customers. New distribution rates,
which increased for the first time since 2010, came into effect on
1 October 2016. The new arrangements provide this business with a
revenue increase of $101m, an allowed Return on Equity of 9.9% and
increased annual capital investment allowance of $249m.
We also received the New York Public Service Commission's final
decision to approve the Joint Proposal for a three-year rate plan
settlement for KeySpan Energy Delivery New York (KEDNY) and KeySpan
Energy Delivery Long Island (KEDLI) gas distribution utilities,
with new rates effective from 1 January 2017. The plan includes an
allowed 9.0% Return on Equity for both utilities, a significant
capital programme of $3 billion together with phased revenue
increases across three years to manage the impact on customer
bills.
More recently, we filed a request for new rates in our NIMO
businesses, together representing a further 30% of our US rate
base. The utility serves 1.6 million electricity customers and 0.6
million gas customers in upstate New York. The rate filings propose
an allowed 9.79% Return on Equity for both businesses, together
with a total revenue increase of $407 million and annual capital
investment of $823 million. We expect new rates to be effective
from 1 April 2018.
Other activities
Our existing portfolio of Other activities continued to perform
well against a strong prior year, with an increased contribution
from our Property businesses as a result of further disposals, most
notably the sale of our site at Battersea. Our Grain LNG and
Metering businesses delivered a similar level of performance in the
year and our French interconnector performed in line with
expectations with lower profitability driven by lower power price
differentials. The overall contribution from these businesses was
partially offset by one-off business change costs and the write off
of costs relating to US business development projects. The one-off
business change costs of GBP60 million will ensure we are well
positioned to meet our growth targets efficiently and at the same
time build a stronger foundation for the future and to remain
competitive for the long term.
GROWTH
Balanced portfolio to deliver asset growth and sustainable
dividend
We believe that we can deliver best value to shareholders
through maintaining a portfolio of businesses that delivers an
attractive combination of growth and cash returns. Our focus is on
delivering 5-7% asset growth assuming long-run average UK RPI
inflation of 3%. This level of growth is both attractive and also
consistent with sustaining a strong balance sheet that allows us to
continue to fund our investment programme and maintain the policy
of increasing the dividend per share by at least RPI for the
foreseeable future.
Asset growth of 5.1%, compared to 4.8% last year
During 2016/17 our combined regulated asset base, including
NGGD, and other invested capital grew by GBP2.2 billion or 5.1% on
a constant currency basis, compared to an increase of GBP1.9
billion or 4.8% in the prior year. Excluding our NGGD assets,
growth this year would have been higher at 5.4%.
UK RAV growth increased reflecting continued investment and
higher levels of inflation during the year. Growth in our US rate
base of 5.7% was driven by increased levels of investment offset by
depreciation, deferred tax, timing over recoveries and adverse
working capital movements. Excluding adverse working capital
movements US rate base grew by 6.6% and total growth was 5.3%.
Year ended 31 March Total
Growth %
(constant currency) 2017 2016
-------------------------- ----- -----
UK RAV 4.2 3.1
US Regulated rate base 5.7 6.1
-------------------------- ----- -----
Total RAV and rate base 4.7 4.0
Other invested capital 11.5 23.6
-------------------------- ----- -----
Regulated asset base and
other invested capital 5.1 4.8
-------------------------- ----- -----
GBP4.5bn of capital investment, 5% higher at constant
currency
We continued to make significant investments in energy
infrastructure during the year. Total capital investment across the
Group was GBP4,450 million, an increase of GBP504 million (or 5% at
constant currency), compared to the prior year.
Year ended 31 March
(GBPm) 2017 2016 % change
Re-presented
================================ ====== ============== =========
UK Electricity Transmission 1,027 1,084 (5)
UK Gas Transmission 214 186 15
US Regulated 2,247 1,856 21
Other activities* 374 254 47
Group capital investment
- continuing 3,862 3,380 14
Discontinued operations** 588 566 4
Group capital investment
- total 4,450 3,946 13
================================= ====== ============== =========
* Other activities capital investment includes investment in
joint ventures and associates, excluding GBP10m and GBP63m equity
contribution to St William property joint venture for 2017 and
2016, respectively
** Comprise NGGD and Xoserve businesses which were sold on 31
March 2017
The UK regulated transmission businesses together invested a
total of GBP1,241 million in the year, GBP29 million lower than the
prior year. Investment in our UK Electricity Transmission business
reduced reflecting the completion of phase one of the London Power
Tunnels project and lower expenditure on the Western HVDC Link.
This was partially offset by increased investment in UK Gas
Transmission reflecting higher spend on our Feeder 9 project to
build a pipeline under the Humber Estuary, and greater levels of
asset health activity to maintain a safe and reliable system.
Investment in our US Regulated businesses has been steadily
increasing, with a total of GBP2,247 million invested this year,
GBP104 million higher than 2015/16, at constant currency. Increased
investment is being driven by higher gas distribution investment
comprising a combination of the need to replace ageing
infrastructure, such as leak prone pipe, and customer growth. In
the last year our gas distribution businesses replaced 400 miles of
leak prone pipe as part of our long term investment plan to upgrade
the network. With less than 70% gas penetration across our
territories, there are more than a million households that are
still burning oil or another fuel. We are converting about 25,000
of these customers to gas per year.
Our US electric businesses are also seeing a strong level of
investment driven by the need to replace ageing infrastructure and
modernise the grid. For example, in our recent MECO rate filing
annual capital expenditure was increased 46% to $249m.
Continuing investment in Other activities and Joint Ventures
increased by GBP120 million or 47% to GBP374 million in 2016/17.
Increased investment was driven by further investment in our Nemo
Link and North Sea Link interconnectors. We also approved the 1.0
Gigawatt (GW) IFA2 interconnector in November 2016 and continued to
progress our smart meter pilot. In the US, we have committed to
investing $100 million in a portfolio of residential solar assets
that will be developed by Sunrun during calendar year 2017. We have
also signed a joint marketing agreement to test whether our
customer relationships can help lower the customer acquisition cost
and committed to collaborating on using distributed energy
resources for grid balancing and optimisation.
Capital expenditure in discontinued operations primarily related
to reinforcement and mains replacement in our NGGD businesses and
investments made by Xoserve Limited.
FINANCIAL STRENGTH
Credit metrics remain strong, maintain A- rating
Our overall Group credit rating remains at A-/A3
(S&P/Moody's). Group gearing, measured as net debt as a
proportion of total regulatory value, was 65% at 31 March 2017
(after adjusting for the GBP4 billion return of capital), compared
with 65%, at constant currency, at 31 March 2016 and remains at a
comfortable level for the current credit rating.
Retained cash flow (RCF)/adjusted net debt was 15.8%, or around
14.9% after deducting share buyback costs. Metrics for the current
year are boosted by the lower level of net debt at 31 March 2017,
reflecting the receipt of proceeds from the sale of 61% of NGGD.
After adjusting for the sale of NGGD these measures remain
comfortably above the 9% level currently indicated by Moody's as
consistent with an A3 rating. From 2017/18 onwards RCF/adjusted net
debt will benefit from the dividend income from our ongoing 39%
investment in NGGD.
The scrip dividend programme remains on offer for the final
dividend, The Board believes the scrip is an efficient means to
provide balance sheet support during periods of higher asset
growth.
During 2016/17 we repurchased 20.1 million shares, reducing the
dilution associated with the scrip programme whilst still retaining
an appropriately financed balance sheet.
Dividend increase of 2.1% recommended for 2016/17
Our dividend policy aims to grow the ordinary dividend per share
at least in line with the rate of RPI inflation each year for the
foreseeable future.
The Board has recommended an increase in the final dividend to
29.10p per ordinary share ($1.8924 per American Depositary Share)
which will be paid to shareholders on the register as at 1 June
2017, after the expected share consolidation has completed. If
approved, this will bring the full year dividend to 44.27p per
ordinary share, an increase of 2.1% over the 43.34p per ordinary
share in respect of the financial year ending 31 March 2016. This
2.1% rise is in line with the increase in UK RPI for the twelve
months to 31 March 2017 as set out in the policy announcement of 28
March 2013.
A scrip dividend alternative will again be offered. At the
Annual General Meeting on 31 July 2017, the Directors will again be
seeking authority to allot and buy back shares and the Board
expects to continue the active approach towards managing any excess
dilution arising through the operation of its scrip dividend
programme.
As announced on 19 April 2017, we have declared a special
dividend of approximately GBP3.2 billion (84.375 pence per existing
ordinary share or US$5.4224 per American Depository Share)
alongside a proposed share consolidation as part of the GBP4bn
return of capital arising on the disposal of a 61% equity interest
in NGGD.
Board changes
We announced the appointment of Pierre Dufour as a Non-executive
Director of the Board effective from 16 February 2017 and in April
we announced that Ruth Kelly would be stepping down as
Non-executive Director of the Board with effect from the end of the
Annual General Meeting.
OUTLOOK
Following the agreement of a number of regulatory filings, the
financial performance of the US business is expected to improve,
with 2017/18 benefiting from a full year of new rates in our
downstate New York gas and Massachusetts Electric businesses. In UK
Transmission, totex performance is expected to remain consistent
although incentive performance and legacy allowances are expected
to decline. The overall contribution from Other activities and
National Grid Ventures is expected to be higher.
Continuing capital investment for our continuing business is
expected to increase to over GBP4 billion driven by increased
workload agreed under the new rate agreements in the US, together
with higher asset health investment and new connections in our UK
Transmission businesses and further investment in National Grid
Ventures. Looking further ahead we expect to maintain significant
levels of capital investment over the medium term, reflecting
growing investment in the US and continued high levels of
investment in the UK.
The Board believes that National Grid is in a strong position to
continue to deliver a safe and reliable service to customers, while
sustaining a strong balance sheet, delivering attractive asset
growth and continuing the Group's commitment to the existing
dividend policy for the foreseeable future.
2017/18 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. It is prepared on the basis of the Group's continuing
operations (i.e. after the completion of the sale of our 61% equity
interest in NGGD).
UK Electricity Transmission
Net Revenue (excluding timing) is expected to decrease, with
approximately a GBP70m reduction in revenue allowances compared to
2016/17 reflecting lower allowed base revenue and increased MOD'
adjustments3, partially offset by inflationary increases. MOD
adjustments are expected to remain at least at the same level as
for 2017/18, over the remainder of the RIIO price control.
Balancing Services Incentives Scheme (BSIS) incentives are also
expected to reduce in 2017/18, reflecting the revised incentive
arrangements announced by Ofgem in April.
Totex outperformance is expected to be broadly in line with
2016/17, but incentive performance is expected to decline. Overall
Return on Equity outperformance is expected to be towards the
higher end of the 200 - 300 basis points range.
UK Gas Transmission
Net Revenue (excluding timing) is expected to increase, with
approximately GBP40m of additional revenue allowances compared to
2016/17 due to an increase in base revenues and the impact of
inflation on our revenue allowances.
Totex and incentive performance are both expected to be similar
to the prior year and as expected a number of legacy allowances
will cease. As a result Return on Equity is expected to be around
the allowed level in 2017/18.
UK Timing
Revenues will be impacted by timing of recoveries including
impacts from prior years. Electricity Transmission will continue to
benefit from collection of prior year under-recoveries, although
overall timing recoveries are expected to be significantly (c
GBP100m) lower than in 2016/17. Gas Transmission timing is expected
to be negative in 2017/18 compared to a GBP62m over-recovery in
2016/17.
US Regulated operations
Net Revenue (excluding timing) is expected to increase, with the
full year benefit of new rate case filings and capex trackers.
Inflationary pressure on controllable costs, increased depreciation
and cost of removal expenses and higher property taxes are expected
to be broadly offset by the absence of the capital costs write offs
experienced in 2016/17.
Return on Equity for overall US Regulated operations is expected
to increase, reflecting a full year impact of new rate plans and we
are targeting 90% of the average allowed returns in 2017/18.
US Timing
US in-year timing is heavily influenced by volumetric impacts
and commodity prices, particularly over the last quarter of the
financial year. However, we expect revenues will be impacted by the
reversal of 2016/17 timing over recoveries.
(3) In November 2016, Ofgem ran the financial models that
calculate substantial elements of the revenue allowances for
National Grid's UK regulated businesses. The outcome of these model
runs (known as the 'MOD adjustments') were in line with National
Grid's expectations.
National Grid Ventures and Other activities
National Grid Ventures will comprise our Grain LNG and Metering
businesses in the UK, our existing interconnectors and those that
are under development together with distributed energy
opportunities including our partnership with Sunrun.
Revenue is expected to decrease year-on-year, mainly due to
lower auction revenues at IFA and fewer domestic meters in the
Metering business as the smart metering roll-out gradually gathers
pace. Profits from the Property business are expected to increase
slightly year-on-year.
Other costs are expected to decrease in 2017/18 compared to the
higher costs in 2016/17 associated with one-off business change
programmes and US business development costs.
Joint Ventures and Associates
Our share of the profit after tax of joint ventures and
associates will reflect the inclusion of our ongoing 39% share of
NGGD profit after tax. NGGD operating profits are expected to
decrease compared to 2016/17, reflecting lower base revenues,
increased pass through costs that are subject to delayed recovery,
and a full year depreciation charge in 2017/18. The NGGD interest
charge will include the impact of the additional GBP1.8bn of debt
in the holding company. Our other joint ventures and associates are
expected to deliver a similar performance.
Interest and Taxation
Net finance costs in 2017/18 are expected to increase driven by
higher RPI accretions and higher average net debt across our
continuing operations.
For the full year 2017/18, the effective tax rate, including a
greater level of joint venture and associate post-tax profits, is
expected to remain around 23%.
Investment, Growth and Net Debt
Overall Group capital investment for 2017/18 is expected to
increase to over GBP4 billion with anticipated increases in asset
health spend in UK Electricity Transmission and Gas Transmission.
In the US, investment is expected to increase driven by higher
spend on mains replacement, system reinforcements and customer
growth. Other spend is also expected to increase as we invest more
in interconnector development.
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 slightly, reflecting lower pension deficit
payments.
Net debt is expected to increase from GBP19.3 billion at year
end 2016/17 as a result of the return of capital of GBP4 billion
and ongoing business requirements of approximately GBP2
billion.
Weighted average number of shares are expected to reduce
reflecting the share consolidation and share buyback programme
following the distribution of NGGD net sale proceeds. We expect the
proposed share buyback and consolidation to have the effect of
reducing the number of shares in issue by approximately 400m. This
will have a partial impact on the weighted average number of shares
in 2017/18 with a full impact in fiscal 2018/19.
FINANCIAL REVIEW
Unless otherwise stated, all financial commentary in this
release is given on an adjusted basis at actual exchange rates for
continuing operations. For definitions and metrics see pages 40 to
44 of this statement.
Year ended 31 March
Operating profit
(GBPm) 2017 2016 % change
Re-presented
===================================== ======== ============== =========
UK Electricity Transmission 1,372 1,173 17
UK Gas Transmission 511 486 5
US Regulated 1,713 1,185 45
Other activities 177 370 (52)
Group operating profit -
continuing 3,773 3,214 17
Discontinued operations* 894 882 1
Group operating profit -
total 4,667 4,096 14
====================================== ======== ============== =========
* Comprise our NGGD and Xoserve businesses which were
sold on 31 March 2017
Operating profit excluding
timing
(GBPm) 2017 2016 % change
Re-presented
===================================== ======== ============== =========
UK Electricity Transmission 1,235 1,168 6
UK Gas Transmission 449 419 7
US Regulated 1,514 1,258 20
Other activities 177 370 (52)
Group operating profit excluding
timing - continuing 3,375 3,215 5
Discontinued operations* 916 856 7
Group operating profit excluding
timing - total 4,291 4,071 5
====================================== ======== ============== =========
* Comprise our NGGD and Xoserve businesses which were
sold on 31 March 2017
Other selected financial
information - Continuing
(GBPm) 2017 2016 % change
Re-presented
===================================== ======== ============== =========
Depreciation and amortisation (1,481) (1,311) (13)
Net finance costs (1,029) (856) (20)
Taxation excluding timing (547) (619) 12
Taxation (666) (604) (10)
Share of post-tax results
of joint ventures 63 59 7
Non controlling interest - (1)
Earnings attributable to
equity shareholders excluding
timing 1,862 1,798 4
Earnings per share excluding
timing (p) 49.5 47.6 4
Earnings attributable to
equity shareholders 2,141 1,812 18
Earnings per share (p) 56.9 48.0 19
====================================== ======== ============== =========
Other selected financial
information - Continuing
(GBPm) - constant currency 2017 2016 % change
Re-presented
================================== ======== ============== =========
US Regulated operating profit 1,713 1,369 25
Other activities operating
profit 177 373 (53)
Group operating profit 3,773 3,401 11
Timing adjustment 398 (12)
Operating profit excluding
timing 3,375 3,413 (1)
Depreciation and amortisation (1,481) (1,403) (6)
Net finance costs (1,029) (955) (8)
----------------------------------- -------- -------------- ---------
Other selected financial information for our total business,
including the contribution from NGGD and Xoserve Limited.
Other selected financial
information - Total([2])
(GBPm) 2017 2016 % change
==================================== ======== ======== =========
Depreciation and amortisation (1,698) (1,614) (5)
Net finance costs (1,175) (1,013) (16)
Taxation excluding timing (693) (763) 9
Taxation (808) (753) (7)
Earnings attributable to
equity shareholders excluding
timing 2,487 2,351 6
Earnings per share excluding
timing (p) 66.1 62.3 6
Earnings attributable to
equity shareholders 2,748 2,386 15
Earnings per share (p) 73.0 63.2 16
------------------------------------- -------- -------- ---------
Other selected financial
information - Total(2)
(GBPm) - constant currency 2017 2016 % change
================================== ======== ======== =========
Group operating profit 4,667 4,283 9
Timing adjustment 376 14
Operating profit excluding
timing 4,291 4,269 1
Depreciation and amortisation (1,698) (1,706) -
Net finance costs (1,175) (1,112) (6)
----------------------------------- -------- -------- ---------
Continuing operating profit and controllable costs
Continuing operating profit was GBP3,773m, up GBP559m (17%)
compared with last year at actual exchange rates. The year-on-year
movement in exchange rates had a GBP187m positive impact on
operating profit. On a constant currency basis, operating profit
was up GBP372m (11%). This included a positive year-on-year timing
movement of GBP410m, at constant currency:
Over/(under)-recovery Year ended 31 March Year-on-year
(GBPm - constant currency) change
----------------------------------- -------------
2017 2016
Re-presented
----------------------------------- ------ -------------- -------------
Balance at start of
period (restated) 16* 35
In-year over/(under)-recovery 398 (12) 410
Balance at end of period 414 23
----------------------------------- ------ --------------
Operating profit -
continuing 3,773 3,401 372
Adjust for timing differences (398) 12 (410)
----------------------------------- ------ -------------- -------------
Operating profit excluding
timing 3,375 3,413 (38)
----------------------------------- ------ -------------- -------------
*restated to reflect finalisation of UK and US timing
balances
Continuing operating profit excluding timing decreased by GBP38m
(down 1%) on a constant currency basis.
Continuing operating profit from regulated activities increased
by GBP158m on a constant currency basis, excluding the impact of
timing. Net revenues increased by GBP329m, primarily due to US
revenue growth from a partial-year impact of new rate plans
implemented during 2016/17 and growth in existing rate plans and
gas customer growth. UK net revenues also increased, largely due to
inflationary increases on revenue. Regulated controllable costs
increased by GBP129m, in part driven by the write off of prior year
capital costs, increases in workload, healthcare costs and spend on
gas enablement programmes. Post-retirement costs were GBP3m lower
and bad debts decreased by GBP32m as expected. Depreciation and
amortisation increased by GBP63m and other costs by GBP14m.
Our Other activities contributed GBP196m less to operating
profit than last year, on a constant currency basis, in part due to
one-off business change costs and write offs associated with US
business development projects. This was combined with expected
reductions in IFA revenues due to lower price arbitrage between the
UK and mainland Europe and a one-off prior year benefit of GBP57m,
at constant currency, from a gain on the exchange of National
Grid's share of the Iroquois pipeline joint venture for shares in
Dominion Midstream Partners, LP. The profitability of our Property
business improved as a result of further disposals, most notably
the sale of our site at Battersea. Our Grain LNG and Metering
businesses delivered a similar level of performance in the
year.
Continuing finance costs
Continuing net finance costs were GBP1,029m, GBP173m higher than
2015/16 at actual exchange rates and GBP74m higher than 2015/16 at
constant currency, reflecting underlying growth in average net debt
and higher retail price inflation on our index linked bonds.
The continuing effective interest rate on Treasury managed debt
for the year was 3.9% compared with 3.7% in 2015/16.
Continuing profit before tax and taxation
The Group's share of post-tax results from joint ventures and
associates was GBP63m, up GBP2m from 2015/16 at constant currency,
following an increased contribution from the BritNed interconnector
and Millennium pipeline.
Continuing profit before tax was up 16% at actual exchange rates
to GBP2,807m. Excluding the impact of timing, profit before tax was
broadly in line with the prior year at GBP2,409m.
The tax charge on continuing profits was GBP666m, GBP62m higher
than 2015/16 at actual exchange rates, principally reflecting
increased operating profits due to exchange rate movements and
timing over recoveries. The reported effective tax rate decreased
to 23.7% from 25.0% in the previous year primarily due to UK tax
settlements in the current year.
Total corporation tax paid in the UK in 2016/17 decreased by
GBP78m to GBP207m including payments in relation to NGGD.
Other earnings metrics, EPS, exceptional and statutory
earnings
Earnings attributable to non-controlling interests (minority
interests) were nil (2015/16 GBP1m).
As a result, continuing earnings attributable to equity
shareholders were GBP2,141m, up GBP328m compared with 2015/16.
Earnings per share increased 19% to 56.9p from 48.0p last year
(restated for the impact of shares issued under the scrip dividend
programme).
Excluding the impact of timing, earnings attributable to equity
shareholders were GBP1,862m, up GBP64m compared with 2015/16, and
earnings per share increased by 4% year-on-year to 49.5p.
Exceptional items and remeasurements decreased continuing
operations statutory earnings by GBP331m after tax. A detailed
breakdown of these items can be found on page 56. Discontinued
operations contributed GBP5,985m to earnings attributable to equity
shareholders including the gain on sale of NGGD. A detailed
breakdown can be found on page 61. After these items and
non-controlling interests, statutory earnings attributable to
equity shareholders were GBP7,795m.
Statutory basic earnings per share were 207.1p compared with
68.7p (restated) last year. The increase (compared to the increase
in adjusted EPS) reflected the gain on disposal of our NGGD
business.
Cash flow
Operating cash flow, before exceptional items, remeasurements
and taxation was GBP4,488m, GBP74m lower than 2015/16, principally
reflecting higher pension deficit contributions and lower working
capital inflows.
Funding and Net Debt
Net debt as at 31 March 2017 decreased by GBP6.0bn to GBP19.3bn
(2016: GBP25.3bn).
The decrease in net debt was driven by the completion on 31
March 2017 of the sale of a 61% equity interest in our NGGD
business. The deconsolidation of NGGD debt and receipt of proceeds
reduced net debt by GBP11.3bn, partially offset by around GBP1.4bn
of transaction and exceptional debt restructuring costs and non
cash fair value movements.
As at 31 March 2017 the Group maintained approximately $24.6bn
of its total financial liabilities denominated in US dollars as a
substantial hedge of foreign exchange movements in the value of its
US businesses. As a result, the movements resulting from the
relative strength of the US dollar against the pound compared with
a year ago increased net debt by around GBP2.4bn.
Excluding the impact of exchange movements, non-cash fair value
movements and the NGGD transaction, net debt increased by GBP1.5bn
comprising a net GBP4.4bn inflow from operating, interest and tax
cash flows, offset by dividends and share buybacks of GBP1.7bn and
capital investment of GBP4.2bn.
During the past year, National Grid has raised over GBP1.9bn of
new long-term financing for our continuing operations in the form
of bonds and loans. This included the US operating companies
KeySpan Gas East (also known as KEDLI) and Massachusetts Electric
issuing $700m and $500m respectively of new long-term debt, and the
Group drawing the remaining GBP900m of the GBP1.5bn European
Investment Bank (EIB) loan to fund capital investment in our UK
Electricity Transmission business.
National Grid has also begun to draw down on its $750m of senior
unsecured credit loans with the Swedish and Italian Export Credit
Agencies (ECA). The Group has procured this financing in relation
to its share of investment in the North Sea Link interconnector.
This innovative source of funding provided attractively priced
funding from a new source of liquidity for the Group and is the
largest ever Power Infrastructure ECA financing relating to a UK
project.
National Grid Gas Finance plc (renamed Cadent Gas Finance plc on
2 May 2017), the financing company for the new NGGD business,
issued a record breaking GBP3bn sterling bond across four tranches
in September 2016, as well as a EUR750m euro-bond. This activity
was part of a liability management exercise which also saw higher
cost sterling bonds with a carrying value of GBP2.6bn (and fair
market value of GBP3.9bn) being repurchased across National Grid
Gas plc and National Grid Electricity Transmission plc. In March,
the Group repurchased $531m of debt in British Transco
International Finance B.V. (guaranteed by National Grid Gas plc) to
aid the establishment of an appropriate capital structure in
National Grid Gas plc and across the group following the disposal
of the NGGD business, with an appropriate amount of gross debt at
National Grid Gas plc relative to its remaining gas transmission
business. The pre-tax costs charged to the income statement in
relation to the liability management exercise totalled
GBP1.3bn.
As a result, the Group considers that it is well funded as it
enters 2017/18.
The Group's balance sheet remained strong, supporting further
investment in new assets during the year. Credit rating metrics as
indicators of balance sheet strength remained comfortably above the
levels indicated by credit rating agencies as appropriate for the
current group rating levels. Funds from operations (FFO) to
adjusted net debt was 23.3% and RCF to adjusted net debt was 15.8%,
(14.9% after deducting share buyback costs associated with
neutralising dilution from 11% scrip dividend uptake in the year).
FFO interest cover was 5.0x compared with 5.5x in 2015/16,
comfortably above National Grid's target of exceeding 3.0x. Our
metrics benefited from the low level of net debt at 31 March 2017,
after adjusting for the sale of NGGD our credit metrics were
broadly consistent with the prior year and comfortably above our
targets.
During the year, Moody's, S&P and Fitch maintained their
ratings of National Grid plc on stable outlook.
Overall net debt, adjusted for the NGGD disposal, as a
proportion of total regulatory value at 31 March 2017 was 65%, in
line with the prior year adjusted for constant currency.
BUSINESS REVIEW
In addition to IFRS based profit measures, to aid understanding
of the performance of the regulated businesses, National Grid
calculates a number of additional regulatory performance metrics.
These metrics aim to reflect the impact of performance in the
current year that is expected to impact future regulatory revenue
allowances. This includes the creation of future regulatory revenue
adjustment balances and the impact of current year performance on
the regulated asset base. These metrics also seek to remove the
impacts on current year revenues relating to "catch up" or
"sharing" of elements of prior year performance for example the
sharing of prior year efficiencies with customers.
These metrics include Return on Equity and regulated financial
performance.
Year ended 31 March Regulatory Achieved Base or Allowed
Debt:Equity Return on Return on
assumption Equity Equity
-------------
% 2017 2016 2017 2016
----------------------------- ------------- ------ ----- -------- --------
UK Electricity Transmission 60:40 13.6 13.9 10.2 10.2
UK Gas Transmission 62.5:37.5 10.8 12.5 10.0 10.0
US Regulated avg. 50:50 8.2 8.0* 9.5 9.7
Group 11.7 12.3
----------------------------- ------------- ------ -----
* US return reported on a 2015 calendar year basis for fiscal
2015/16
Overall Group Return on Equity was 11.7% (prior year 12.3%)
reflecting a reduction in the contribution from Other activities
and the expected lower returns in the UK, partially offset by
improved returns in the US, reflecting increased revenues from new
rate plans in Massachusetts Electric, KEDNY and KEDLI.
As at 31 March Regulated Asset Total Regulated
Value or Rate Assets or Invested
Base Capital
and Invested
Capital
(GBPbn, at constant 2017 2016 2017 2016
currency)
----------------------------- -------- -------- ---------- ----------
UK Electricity Transmission 12.5 11.8 12.0 11.7
UK Gas Transmission 5.8 5.6 5.7 5.7
US Regulated 15.4 14.6 17.1 16.2
Other Activities (invested
capital only) 2.2 2.0 2.2 2.0
----------------------------- -------- -------- ---------- ----------
Group - Continuing 35.9 34.0 37.0 35.6
----------------------------- -------- -------- ---------- ----------
Group regulated and other assets grew 4% at constant currency,
including adverse movements in assets outside of rate base, in part
driven by current year timing over recoveries. Excluding assets
outside regulated assets, which principally comprise UK timing
differences and US capital work in progress, total group regulated
and other assets grew by 5%.
Year ended 31 March Adjusted
Operating profit
(GBPm, at actual exchange 2017 2016
rate) Re-presented
----------------------------- ------ --------------
UK Electricity Transmission 1,372 1,173
UK Gas Transmission 511 486
US Regulated 1,713 1,185
Other Activities 177 370
----------------------------- ------ --------------
Group - Continuing 3,773 3,214
----------------------------- ------ --------------
Group adjusted operating profit for continuing operations
increased by 17% to GBP3,773m.
UK ELECTRICITY TRANSMISSION
2016/17 Overview
At the mid-point of its eight year RIIO price control period, UK
Electricity Transmission delivered another solid performance, with
a growing asset base, while maintaining high standards of
reliability and safety. However, last year one of our UK employees
lost his life in a tragic incident. We have undertaken a
comprehensive investigation and are implementing a number of
changes to reinforce our strong focus on the safety of our
employees, contractors and the public.
The business continues to look for innovative ways to deliver
efficiency savings against its totex allowance. An example of this
is phase one of the 400kV Wimbledon sub-station which is expected
to be commissioned later in 2017/18, replacing an existing 275kV
substation on the same site in urban London. We have used a variety
of technological innovations to deliver such a complex project
safely, efficiently and to high standards of quality, on a
constrained site. This includes the procurement of new switchgear
which is smaller and built off site, which enables more efficient
installation and a greater level of quality control. We built the
cost of carbon into the tender process to stimulate innovation. The
project also made use of digital engineering where the entire build
project was computer modelled reducing capital costs and carbon
emissions and improving our ability to manage safety risks
throughout the project. These initiatives helped to reduce the
total cost by 20% for this complex project.
In its role as System Operator, the business balanced the
network to maintain security of supply throughout the year. The
business contracted additional balancing services of 3.5 GW for the
winter period to be available to manage periods of peak demand.
Last year we developed new balancing services as system needs
evolved which led to procurement of 501MW of additional support
from a combination of distributed generation, demand side response
and battery storage. This included provision for end users shifting
demand during the summer months to times of the day when system
usage is lower.
In November 2016, Ofgem confirmed funding for new Network
Innovation Competition projects. We were successful in our bid with
UK Power Networks on the 'Power Potential' project, which is a new
GBP9.5 million market trial relating to voltage control. Also,
National Grid will work with SP Energy Networks on a GBP19.9
million project that will help address some of the current and
future challenges associated with maintaining the stability of
Britain's electricity transmission system as we transition to
low-carbon energy.
Regulated Returns and Financial Performance reflect efficiency
and incentive delivery
Return on Equity 340bps above base levels
Return on Equity for the year, normalised for a long-run
inflation rate of 3%, was 13.6% compared with a regulatory
assumption, used in calculating the original revenue allowance, of
10.2%. The principal components of the difference are shown in the
table below
Year ended 31 March 2017 2016
-----
Base return (including avg.
3% long-run inflation) 10.2 10.2
Totex incentive mechanism 1.9 2.1
Other revenue incentives 0.7 0.8
----------------------------------------- ----- -----
Return including in year incentive
performance 12.8 13.1
Pre-determined additional allowances 0.8 0.8
Return on Equity 13.6 13.9
----------------------------------------- ----- -----
Return on Equity decreased 30bps year-on-year, mainly due to
lower totex allowances. Totex was GBP1.2bn compared with an
estimated allowance, adjusted for outputs and phasing of spend, of
GBP1.4bn. Our share of this efficiency saving is expected to be
GBP87m. Much of this saving is reflected in an estimate of
increased performance RAV.
The consistent totex performance in the year principally
reflects efficiencies and innovative engineering within the capital
investment programme in relation to both load and non-load related
projects. National Grid aims to deliver the essential maintenance
and outputs required by the RIIO framework sustainably and at the
lowest total cash cost in order to deliver best value for consumers
and shareholders. Innovative solutions such as predictive analysis
and new engineering approaches are essential to achieving this and
continued to be a focus for the business over the course of
2016/17.
The business delivered a consistent level of performance under
other revenue incentive schemes during 2016/17, generating around
70bps of total return, equivalent to GBP41m of additional revenue.
The current BSIS contributed GBP28m of pre-tax profit which
included GBP15m of performance related to prior periods.
Stakeholder satisfaction and renewable wind forecasting also
delivered improved performance, offset by reductions in the
customer satisfaction and SF6 incentives. UK Electricity
Transmission is working to identify opportunities for future
outperformance across these areas.
Investment activities in 2016/17
Capital investment in UK Electricity Transmission was GBP1,027m,
GBP57m lower than the prior year. The reduction was in part driven
by lower spending on London Power Tunnels and Western HVDC Link
projects as these projects near completion. These decreases were
partially offset by increasing spend on overhead lines, circuit
breakers and transformers to deliver RIIO outputs.
The business continued to seek improved totex efficiency in its
investment. Placing an emphasis on engineering for best value
reduces capital spend and customer bills and supports attractive
levels of asset growth, through the creation of performance RAV.
Overall, investment in the year reflected GBP632m of non-load
related investment whilst load related spend was GBP395m.
Regulated Financial Performance down 1% year-on-year
The regulated financial performance calculation adjusts reported
operating profit to reflect the impact of the business' regulatory
arrangements when presenting financial performance.
Regulated financial performance for UK Electricity Transmission
decreased to GBP1,184m from GBP1,195m, down 1%. The year-on-year
reduction primarily reflects the lower achieved operational return,
driven by lower totex outperformance.
Reconciliation of regulated 2017
financial performance to operating
profit (GBPm) 2016 % change
Operating profit 1,372 1,173 17
Movement in other regulated
assets and liabilities (288) (147)
Deferred taxation adjustment 62 80
RAV indexation (avg. 3% long-run
inflation) 356 339
Regulatory v IFRS depreciation
difference (379) (368)
Fast/Slow money adjustment 34 92
Pensions (47) (54)
Performance RAV created 74 80
-------------------------------------- ------ -------- ---------
Regulated financial performance 1,184 1,195 (1)
-------------------------------------- ------ -------- ---------
Regulated Financial Position up 2.7%
In the year, RAV grew by 5.0% driven by continued investment and
the impact of inflation, which at 3.1% was in line with our long
run assumption. Net other regulatory liabilities increased by
GBP288m, partly reflecting revenue received in the year associated
with timing over recoveries, customers' share of efficiency
benefits and also relating to RIIO outputs where delivery has
either been deferred to later in the price control period or where
outputs are no longer expected to be required by customers during
RIIO.
2017 2016
-------------------------------------- ------- -------
Opening Regulated Asset Value
(RAV)* 11,871 11,285
-------------------------------------- ------- -------
Asset additions (aka slow money)
(actual) 944 1,042
Performance RAV or assets created 74 80
Inflation adjustment (actual
RPI) 375 181
Depreciation and amortisation (800) (758)
-------
Closing RAV 12,464 11,830
-------------------------------------- ------- -------
Opening balance of other regulated
assets and (liabilities)* (129) 49
-------------------------------------- ------- -------
Movement (288) (147)
-------------------------------------- ------- -------
Closing balance (417) (98)
-------------------------------------- ------- -------
Closing Regulated Financial
Position 12,047 11,732
-------------------------------------- ------- -------
*March 2016 opening balances adjusted to correspond with 2015/16
regulatory filings and calculations
Regulatory and other business developments
Ofgem concluded its mid-period review of the RIIO price control.
The outcome for Electricity Transmission was a reduction to
allowances of GBP38 million for the Transmission Operator and an
additional GBP21 million to fund new tasks the System Operator has
been asked to undertake. The outcome was in line with our
expectations and provides certainty over our core revenues for the
remaining RIIO period.
Through the ongoing reviews of our investment plans, we took the
decision to volunteer a deferral of GBP480 million of RIIO
allowances, at 2009/10 prices. This deferral will enable better
alignment of the allowances with the likely timing of spend and
also help to lower bills in the near-term. The need for these
deferred investments and the associated level of funding will form
part of RIIO-T2 discussions.
We issued a joint statement with BEIS and Ofgem about the
enhanced role and greater separation of the Electricity System
Operator (ESO) function. While the proposals are subject to
consultation, we support the principle of greater separation of the
ESO role within National Grid. We believe it is the most effective
way to balance the interests of consumers with the need to maintain
security of supply in a fair and competitive energy market. We look
forward to working with the regulator and our stakeholders to
deliver the best possible outcome for UK consumers.
Ofgem continues to consult on the introduction of onshore
competition for electricity transmission. National Grid remains
supportive of competition where it is in the interests of consumers
and is working to ensure that the costs, benefits and risks of
competition are properly understood in relation to any proposals on
a case by case basis. In its role as electricity system operator,
National Grid is assisting Ofgem in developing the competitive
regime in the interests of consumers and chairs an Electricity
Networks Association facilitated working group to develop an early
tendering model, as part of its overall contribution to the
process.
Future activities and outlook
UK Electricity Transmission expects to continue to deliver good
returns and asset growth in 2017/18 with opportunities for the
business to deliver healthy outperformance led by the totex
incentive. The business will continue to focus on using process
improvements, efficiency and innovation to deliver the RIIO outputs
at the lowest sustainable cash cost, generating savings for
consumers and shareholders. The business expects to generate
savings from finding new and innovative ways to maintain, repair
and replace its assets.
National Grid expects UK Electricity Transmission capital
investment in 2017/18 to increase compared to the 2016/17 levels,
reflecting increased load and non-load investments to meet RIIO
outputs. The business expects to deliver growth in regulated asset
value, including the benefit of efficiencies, above the rate of
inflation in 2017/18.
The majority of our capital expenditure will be non-load
related, including the replacement of existing assets, system
upgrades and improvements to site safety and visual amenity. The
load related spend, mainly includes the connection of new
generation sources, although the majority of the work related to
the new nuclear connections, in particular Moorside is now expected
to fall into the RIIO-T2 time-frame.
APPIX to UK ELECTRICITY TRANSMISSION
Revenue and Costs in 2016/17 on an IFRS basis
On an IFRS basis UK Electricity Transmission operating profit
was GBP1,372m, up GBP199m or 17%. Net revenues in the year were
higher, largely due to increased timing over recoveries. Adjusting
for timing movements, net revenues increased by GBP67m, consistent
with the increase in operating profit.
The principal components of the movement in operating profit are
shown below.
Revenue and Costs Year ended 31 March
(GBPm) 2017 2016 % change
-------------------------------------- ------ ------ ---------
Net revenue 2,146 1,947 10
Regulated controllable operating
costs (286) (311) 8
Post-retirement costs (43) (40) (8)
Other operating costs and provisions (24) (33) 27
Depreciation and amortisation (421) (390) (8)
-------------------------------------- ------ ------ ---------
Operating profit 1,372 1,173 17
-------------------------------------- ------ ------ ---------
Less: Timing impact 137 5
Operating profit excluding timing 1,235 1,168 6
Net revenue (net of pass through costs) increased by GBP199m.
Excluding timing impacts of GBP132m, net revenue increased by
GBP67m. This primarily reflected inflation driven increases, higher
unlicensed commercial income and higher post-vesting connections
income.
Regulated controllable operating costs decreased by GBP25m,
reflecting the release of an environmental provision, partially
offset by higher headcount and cost inflation. Post-retirement
costs increased by GBP3m and other operating costs and provisions
decreased by GBP9m following asset write downs in the prior
year.
Depreciation and amortisation increased by GBP31m, reflecting
investment driven growth in the asset base.
UK GAS TRANSMISSION
2016/17 Overview
In 2016/17 UK Gas Transmission delivered a solid performance. We
continued to invest in asset health in order to meet Network Output
Measures (NOMs) which was reflected in strong levels of network
availability. Our safety performance was strong, we have halved the
number of recordable injuries in 2016/17 compared to 2015/16
however our lost time injuries increased to three, compared to two
in the prior year.
The business is operating under challenging allowances which
makes it even more important to identify efficiencies. Examples
include at our Feeder 9 project to build a gas transmission
pipeline under the Humber Estuary where we have applied emerging
best practice techniques from comparable projects around the world
to reduce our construction costs. Also, at the Aylesbury compressor
station we have been innovative through the use of catalytic
converters within the exhaust stack to reduce carbon monoxide
emissions to meet new standards more cost effectively. These two
examples are expected to generate over GBP70m of savings.
We have used our regulatory innovation funding to develop ways
to serve our customers more effectively, provide greater value, and
shape the energy systems of the future. Project CLoCC (Customer Low
Cost Connections) is challenging every aspect of the current gas
customer connections process. It aims to reduce the time to connect
from three years to less than one, and reduce the cost from up to
GBP2 million to significantly less than GBP1 million. It will also
make it easier for non-traditional customers to connect to the
National Transmission System.
Performance reflects continued strong incentive delivery and
recovery of additional allowances
Return on Equity 80bps above base levels
Return on Equity for the year, using a long-run inflation rate
of 3%, was 10.8% compared with a regulatory assumption, used in
calculating the original revenue allowance, of 10.0%. The principal
components of the difference are shown in the table below.
Year ended 31 March 2017 2016
-------
Base return (including avg. 3%
long-run inflation) 10.0% 10.0%
Totex incentive mechanism (0.8)% (0.2)%
Other revenue incentives 1.1% 1.2%
----------------------------------------- ------- -------
Return including in year incentive
performance 10.3% 11.0%
Pre-determined additional allowances 0.5% 1.5%
Return on Equity 10.8% 12.5%
----------------------------------------- ------- -------
The business performed below the targets set by the totex
incentive mechanism in the fourth year of RIIO. Totex spend was
GBP351m, compared to an estimated allowance, adjusted for outputs
and phasing of GBP312m. Performance reflected higher asset health
spend and a small reduction in allowances reflecting the outcome of
the MPR. The Company's share of this difference is expected to be
GBP17m.
The business had another good year of incentive performance,
just below the performance levels in 2015/16. Increased efforts to
identify customer and stakeholder needs, were offset by lower
shrinkage performance. Overall, the UK Gas Transmission business
delivered around 110 bps of additional returns through other
revenue incentives. On a pre-tax basis, this equates to an
estimated GBP29m of additional revenue allowance, most of which is
due to be recovered in future years under the RIIO funding
mechanisms.
Contribution from legacy incentives was 50bps, a decrease
year-on-year, as expected and in accordance with the agreed
profile.
Regulated Financial Performance down 7% year-on-year
An explanation of the regulatory financial performance measure
can be found in the section on UK Electricity Transmission and in
the glossary before the notes to this statement.
Regulated financial performance for UK Gas Transmission
decreased to GBP499m from GBP535m, down 7%. The year-on-year
reduction reflected a lower operational return on equity, mainly as
a result of the reduction in legacy allowances.
Year ended
31 March
Reconciliation of regulated
financial performance to operating
profit (GBPm) 2017 2016 % change
Operating profit 511 486 5
Movement in other regulated
assets and liabilities (120) (80)
Deferred taxation adjustment 39 45
RAV indexation (3% long-run
avg.) 168 166
Regulatory v IFRS depreciation
difference (21) (18)
Fast/Slow money adjustment (14) 18
Pensions (53) (77)
Performance RAV created (11) (5)
------------------------------------- ------- ------- -----------
Regulated financial performance 499 535 (7)
------------------------------------- ------- ------- -----------
Regulated Financial Position broadly unchanged
RAV increased 2.8% in the year reflecting the impact of
inflation and continued investment, partially offset by
depreciation and adverse performance RAV. Net other regulatory
assets decreased by GBP120m, mainly reflecting current year revenue
over recoveries associated with lower than expected inflation and
higher volumes.
GBPm 2017 2016
-------------------------------------- ------ ------
Opening Regulated Asset Value
(RAV)* 5,597 5,525
-------------------------------------- ------ ------
Asset additions (aka slow money)
(actual) 201 185
Performance RAV or assets created (11) (5)
Inflation adjustment (actual
RPI) 175 85
Depreciation and amortisation (207) (196)
Closing RAV 5,755 5,594
-------------------------------------- ------ ------
Opening balance of other regulated
assets and (liabilities)* 56 157
-------------------------------------- ------ ------
Movement (120) (80)
-------------------------------------- ------ ------
Closing balance (64) 77
-------------------------------------- ------ ------
Closing Regulated Financial
Position 5,691 5,671
-------------------------------------- ------ ------
*March 2016 opening balances adjusted to correspond with 2015/16
regulatory filings and calculations
Investment activities in 2016/17 focussed on asset health
UK Gas Transmission invested GBP214m during the year, a GBP28m
increase on prior year, which was due to higher asset health spend
and the ramp up of our Feeder 9 project.
Asset health expenditure forms part of an essential and
co-ordinated programme of work throughout the RIIO period. This
programme is designed to enable UK Gas Transmission to maintain a
safe network and continue to meet regulatory output
requirements.
Regulatory and other business developments
During 2016/17, Ofgem finalised its mid period review, the
outcome was largely unchanged from its minded-to position announced
on 18 August 2016. This resulted in a reduction in allowances of
GBP169 million for a pipeline project at Avonmouth, as anticipated
at the start of RIIO.
On 31 March 2017 Ofgem finalised its review of allowances
associated with the high-pressure gas pipeline entry point at
Fleetwood, reducing our allowances by GBP278 million. Allowances
related to Fleetwood were excluded from our calculation of RoE and
RAV in anticipation of this outcome.
We also submitted a new NOMs methodology to Ofgem which we
believe significantly improves our ability to articulate the risks
we are managing and also assists in explaining how the investments
we make ensure these risks are being managed effectively.
Future activities and outlook
UK Gas Transmission expects continued good incentive
performance, offset by higher totex spend compared to our
allowances. As expected some legacy allowances will cease, as a
result Return on Equity is expected to be around the allowed level
in 2017/18.
The business continues to focus on finding and delivering
operational efficiencies, in particular improving the efficiency of
asset health and investment delivery processes. Successful
innovation is expected to be a key contributor in achieving future
cost efficiencies.
Capital investment in UK Gas Transmission in 2017/18 is expected
to increase compared to 2016/17 reflecting the increased asset
health activity and compressor reengineering projects as well as
the continued construction of our Feeder 9 project. As a result,
regulated asset value is expected to grow above the rate of
inflation in 2017/18.
APPIX to UK GAS TRANSMISSION
Revenue and Costs in 2016/17 on an IFRS basis
On an IFRS basis UK Gas Transmission operating profit was
GBP511m, up GBP25m or 5%. Excluding the impact of timing, operating
profit was GBP30m higher reflecting increased net revenues offset
by an increased depreciation charge.
The principal components of the movement in operating profit are
shown below.
Year ended 31 March Revenue and Costs
(GBPm) 2017 2016 % change
-------------------------------------- ------ ------ ---------
Net revenue 857 826 4
Regulated controllable operating
costs (137) (135) (1)
Post-retirement costs (19) (18) (6)
Other operating costs and provisions (4) (9) 56
Depreciation and amortisation (186) (178) (4)
-------------------------------------- ------ ------ ---------
Operating profit 511 486 5
-------------------------------------- ------ ------ ---------
Less: Timing impact 62 67 (7)
Operating profit excluding timing 449 419 7
Net revenue (net of pass through costs) increased by GBP31m.
Excluding adverse timing impacts of GBP5m, net revenue increased by
GBP36m. This primarily relates to an increase in allowed base
revenue and inflation.
Regulated controllable costs increased by GBP2m. This was
primarily driven by higher headcount to support increased asset
heath and data and technology workloads.
Depreciation and amortisation increased by GBP8m and Other
operating costs were GBP5m lower.
US REGULATED OPERATIONS
2016/17 Overview
National Grid's US Regulated business delivered solid
operational performance as it continued to deliver a significant
capital investment programme to reinforce, modernise and grow its
networks. The gas networks maintained their high level of
reliability and the electricity networks stood up well to adverse
weather conditions that included severe storms.
The most significant storm activity occurred during March when
severe wind storms were followed by snow and freezing rain,
impacting services to more than 400,000 customers. National Grid
was able to respond swiftly, restoring power to the vast majority
of impacted customers within the first 24 hours.
The US business continued to focus on safety, this year
expanding safety plans to all managers. This helped drive a 5%
reduction in Occupational Safety & Health Administration
recordable events in 2016/17. Road traffic collisions remained flat
year on year and lost time injury frequency rate increased
slightly. In 2017/18 the key focus will be on hazard elimination
and reducing road traffic collisions as the business strives to
achieve world class performance.
Return on equity in-line with expectations
Beginning in 2016/17 the US regulated business is now reporting
Return on Equity on a fiscal year basis to be consistent across the
Group. Return on Equity for 2016/17 was 8.2%, an increase of 20 bps
compared to calendar year 2015. The increase reflects a
partial-year impact from new rate plans for our Massachusetts
Electric, KEDNY and KEDLI businesses.
On a comparable basis, US Regulated Return on Equity for fiscal
year 2015/16 was 7.6%, 40 basis points below the calendar year 2015
return. The difference was driven by the impact of milder winter
weather in the fourth quarter of 2015/16 on non decoupled
revenues.
Another year of significant capital investment
Capital investment in the Company's US regulated business
increased by approximately $100m to a new high of $2.9bn on an IFRS
basis, or $2.7bn on a US GAAP basis.
Of the $2.7bn, approximately $1.4bn was associated with the gas
distribution networks, primarily on mandated programmes to replace
ageing infrastructure and on adding new customers to the networks.
In total National Grid replaced approximately 400 miles of leak
prone pipe, exceeding our regulatory targets for each operating
company, and added approximately 25,000 new gas customers.
Approximately $800m was invested in the electricity distribution
networks, primarily to improve asset health, system capacity and
performance. Significant investment was also made in response to
customer requests including almost 19,000 distributed generation
connections across the territory. Approximately $400m was invested
in the existing FERC regulated businesses.
Regulated Financial Position
Overall, the US rate base increased by 5.7% (or 6.6% excluding
working capital movements) to $19,297m driven by increased capital
expenditure partially offset by depreciation, timing over
recoveries and deferred tax movements.
US Regulated Assets ($bn as at 31 March)
2017 2016 % change
-------------------------------- ------ ------ ---------
Rate Base excl. working
capital (w/c) 18.6 17.5 7
Working capital in Rate
Base 0.7 0.8 (13)
------ ------ ---------
Total Rate Base 19.3 18.3 6
Reg. assets outside Rate
Base excl. w/c 2.2 2.1 3
Working capital outside
Rate Base (0.1) (0.1) -
-------------------------------- ------ ------ ---------
Total regulated assets outside
Rate Base 2.1 2.0 1
--------------------------------- ------ ------ ---------
Total US Regulated Assets 21.4 20.3 5
--------------------------------- ------ ------ ---------
GBPbn as at 31 March
--------------------------------- ------ ------ ---------
2017 2016 % change
--------------------------------- ------ ------ ---------
Total US regulated assets
at actual currency 17.1 14.1 21
--------------------------------- ------ ------ ---------
Total US regulated assets
at constant currency 17.1 16.2 6
--------------------------------- ------ ------ ---------
Financial performance
Operating profit increased to GBP1,713m, an increase of GBP528m
at actual exchange rates including a GBP184m benefit from the
stronger dollar.
On a constant currency basis, net revenue (excluding timing)
increased by GBP226m to GBP5,321m, due to increased revenue
allowances from the Massachusetts Electric, KEDNY and KEDLI rate
cases, our capex trackers and higher FERC revenues driven by
increased rate base. Regulated controllable costs excluding
pensions increased by GBP152m largely due to the write off of prior
year capital costs and higher spending on new energy programmes
that have not yet received funding.
Post-retirement costs decreased by GBP7m and bad debts decreased
by GBP32m compared to last year. Depreciation and amortisation
increased by GBP24m and other costs increased by GBP28m due to the
impact of storm costs and a higher cost of removal associated with
continued high level of investment.
Adjusting for year-on-year timing differences of GBP283m,
operating profit at constant currency for the year excluding timing
was GBP61m (4%) higher than 2015/16.
The principal components of the movement in operating profit are
shown below.
Revenue and costs Year ended 31 March
(GBPm, constant currency)
--------------------------------------
2017 2016 % change
-------------------------------------- -------- -------- ---------
Net revenue 5,520 5,011 10
Regulated controllable operating
costs (1,830) (1,678) (9)
Post-retirement costs (104) (111) 6
Bad debts (120) (152) 21
Other operating costs and provisions (1,111) (1,083) (3)
Depreciation and amortisation (642) (618) (4)
-------------------------------------- -------- -------- ---------
Operating profit 1,713 1,369 25
-------------------------------------- -------- -------- ---------
Less: Timing impact 199 (84)
-------------------------------------- -------- -------- ---------
Operating profit excluding timing 1,514 1,453 4
-------------------------------------- -------- -------- ---------
Regulatory and other business developments
Utilising a jurisdiction model, National Grid works
collaboratively with regulators and other stakeholders to ensure
the necessary investments are made to construct and maintain safe
and reliable networks, while managing costs to customers. Where
appropriate, National Grid continues to propose further projects
and initiatives to provide benefits to customers through the use of
new technology or by facilitating the transition to a low carbon
economy.
During 2016/17 the business agreed three full rate plan filings
in Massachusetts and New York, the Company's first full rate plans
in over 6 years for Massachusetts Electric and over 10 years for
KEDNY and KEDLI. The filings successfully updated cost recovery and
are enabling an increased level of customer driven investment. The
business also agreed a capital investment petition for Niagara
Mohawk allowing for an increased level of investment with no impact
on customer bills.
In April, National Grid filed a new rate case for its largest
utility, Niagara Mohawk, and an outcome is expected in March 2018
with new rates in effect from April 2018.
Future activities and outlook
The 2017/18 outlook for National Grid's US Regulated activities
remains positive, with an increased level of investment and
increasing returns. We will see the full benefit from the rate
cases agreed during 2016/17 and will continue our rate filing
programme with the NIMO filing followed by filings for
Massachusetts Gas and Narragansett (Rhode Island) Electric and Gas
during 2017 and 2018.
Alongside the ongoing rate case programme, we will continue to
manage costs proactively. As a result, the business is targeting a
Return on Equity at 90% of the average allowed return this
year.
US Regulated capital investment is expected to increase in
2017/18. As a result, growth in rate base excluding working capital
movements is expected to increase in 2017/18.
New York
The New York Jurisdiction consists of KEDNY and KEDLI, gas
distribution companies in downstate New York, and Niagara Mohawk,
an electricity and gas distribution company in upstate New
York.
KEDNY and KEDLI are currently operating under jointly proposed,
three-year rate plans that came into effect on 1 January 2017. The
rate plans provide for the first increase in rates since 2008 which
on a combined basis total more than $500m over three years. The
plans allow a return on equity of 9% with opportunities to earn
performance incentives for outperforming targets in key areas
including leak prone pipe replacement and leak repairs. Customer
bill increases, which are more closely aligned with IFRS revenue
reporting, will be phased in more gradually over the three year
plans.
Importantly, the joint proposal also increased the level of
fully-funded investment to $3bn over the three year plan, allowing
National Grid to replace nearly 600 miles of leak prone pipe over
the period. In order to meet the increased level of investment, the
plan also allows for 380 new positions which have now been
filled.
Return on Equity for 2016/17 increased 110 bps to 8.2% for KEDNY
and by 220 bps to 9.5% for KEDLI, reflecting higher revenues
associated with the joint proposal.
NIMO is currently operating under a rate plan that began in
April 2013 and allowed for revenue increases through March 2016 and
a capital investment petition that allows for $1.3bn of capital
investment over 2016/17 and 2017/18. The petition was funded
through the use of deferred credits to provide incremental US GAAP
revenues to National Grid with no immediate bill impact to
customers.
The NIMO Return on Equity for 2016/17 increased by 40 bps to
8.5% for the electricity business and decreased by 180bps to 6.6%
for the gas business. The NIMO electricity business Return on
Equity benefited from higher net margin from the latest capital
filing. The gas business' return on equity decreased due to higher
operating costs and the non-recurrence of a reserve release for
energy efficiency and sales tax in calendar year 2015.
On 28 April 2017, National Grid filed a full rate case for
Niagara Mohawk Electric and Gas to modernise the electricity and
gas networks to enhance reliability and resilience, to continue to
provide a high level of customer service and assist the most
vulnerable customers and to develop the energy infrastructure and
technologies that support the State of New York's energy vision.
This is a one-year plan; however, National Grid filed two
additional years of data to provide the opportunity for a
multi-year plan that would phase in customer bill increases to
mitigate the impact.
The filing requests revenue increases of $326m and $81m for
electricity and gas, respectively, and an allowed return on equity
of 9.79%. It also includes a proposed capital plan of $652m for
electricity and $171m for gas, based on a combined three-year plan
of $2.7bn. A decision is expected in March 2018 for rates effective
from 1 April 2018.
Return on Equity Achieved (%) Most
recent
granted
(%)
Regulated Entity FY17 CY15 CY14
New York
KEDNY 8.2 7.1 8.5 9.0
KEDLI 9.5 7.3 6.5 9.0
NMPC Gas 6.6 8.4 8.3 9.3
NMPC Electric 8.5 8.1 9.0 9.3
------------------ ----- ----- ----- ---------
Total New York* 8.4 7.7 8.2 9.2
* total return weighted by average rate
base
On a US GAAP basis, capital investment in 2016/17 remained flat
at $1.3bn. Investment is expected to increase in 2017/18 with
current levels of investment funded by the KEDNY/KEDLI joint
proposal and the NMPC capital petition.
Rate Base ($m) as at 31 March
New York Regulated Entity 2017 2016 % change
--------------------------- ------- ------- ---------
KEDNY 2,722 2,525 8
KEDLI 2,256 2,176 4
NMPC Gas 1,052 1,160 (9)
NMPC Electric 4,737 4,621 3
--------------------------- ------- ------- ---------
Total New York 10,767 10,482 3
--------------------------- ------- ------- ---------
National Grid continues to develop and implement projects to
progress New York state's Reforming the Energy Vision (REV)
programme which seeks to help consumers make more informed energy
choices, develop new energy products and services and protect the
environment while creating new jobs and economic opportunity
throughout the state. The initial four electricity projects are
progressing well and this year the Company proposed two additional
electricity projects. The Smart Home Rate project and the
Distributed Generation Interconnection demonstration project are
currently being evaluated by the Public Service Commission.
National Grid has also begun four gas projects agreed to within the
recent KEDNY/KEDLI rate agreement.
Massachusetts
The Massachusetts Jurisdiction consists of the Massachusetts
Electric business (including Nantucket Electric) and the
Massachusetts Gas business (including Boston Gas and Colonial
Gas).
For the first half of 2016/17, Massachusetts Electric was
operating under rates that became effective in 2010, based on a
2008 historic test year. In September 2016, National Grid received
a final rate order for Massachusetts Electric that established new
rates effective from 1 October 2016. As Massachusetts uses historic
test years the rate plan is not for a fixed term but rather resets
rates moving forward. The order increased revenues by $101m and
allows for a 9.9% return on equity. Importantly, the approved plan
also includes an increase in funded annual capital investment of up
to $249m from $170m.
Return on Equity for Massachusetts Electric increased by 90 bps
to 4.3% reflecting increased revenues associated with the rate case
partly offset by increased operating costs. More of Massachusetts
Electric's revenues are earned during the period of higher demand
in the summer months and therefore the company will not see the
full benefit from the rate case until 2017/18.
Massachusetts Gas is currently operating under rates that became
effective in November 2010. In 2015, National Grid agreed a Gas
System Enhancement Plan (GSEP) of up to $219m, allowing the
business to earn a return on an increased level of investment in
leak prone pipe. As part of this plan, National Grid has expanded
its gas workforce, hiring approximately 220 additional gas workers
to deliver the increased level of investment.
Return on Equity for Massachusetts Gas decreased by 70 bps to
7.7% reflecting increased operating costs from inflation. National
Grid plans to file a full rate case for Massachusetts Gas in
2017-2018.
Most
recent
granted
Return on Equity Achieved (%) (%)
---------
Regulated Entity FY17 CY15 CY14
Massachusetts
Massachusetts Gas 7.7 8.4 7.8 9.8
Massachusetts Electric 4.3 3.4 4.6 9.9
7.8
----------------------------- ----- ----- ----- ---------
Total Massachusetts
* 6.0 5.8 6.2 9.8
------------------------------ ----- ----- ----- ---------
* total return weighted by average rate base
On a US GAAP basis, capital investment in the region increased
by $96m to $791m. Investment is expected to increase in 2017/18
with current levels of investment funded by the 2016 Massachusetts
Electric rate case and the 2015 Massachusetts Gas GSEP.
Rate Base ($m) as at 31 March
Massachusetts Regulated 2017 2016 % change
Entity
------------------------- ------ ------ ---------
Massachusetts Gas 2,251 1,945 16
Massachusetts Electric 2,281 2,156 6
------------------------- ------ ------ ---------
Total Massachusetts 4,532 4,101 11
------------------------- ------ ------ ---------
National Grid's Massachusetts business has a number of
initiatives underway to help the state meet its low carbon
objectives. National Grid continues to develop utility-scale solar
generation through multiple phases. This year, the Company
completed Phase 2 of the project which added 16 MW of capacity to
the initial 5 MW. National Grid also received approval for Phase 3,
which will provide a further 14 MW of capacity alongside a 7 MW
storage solution.
In December, National Grid received an interim extension of its
smart grid pilot in Worcester while the Massachusetts DPU
undertakes a full process to decide on a possible two-year
extension of the programme. The pilot allows the company to test
grid modernisation applications on a small scale and allow
customers to benefit from the programme.
This year, National Grid filed a proposal with Massachusetts to
develop 1,200 electric vehicle charging stations, including 80 fast
charging stations, across the state. If approved, the Company would
partner with businesses and organisations to install the stations
on their premises. The Massachusetts DPU does not have a timeframe
for responding to this proposal.
National Grid is still awaiting a decision on its Grid Mod
filing made in 2015. The filing included four proposals to
modernise the electric network ranging from approximately to $200m
to approximately $900m over a five-year period.
Rhode Island
The Rhode Island Jurisdiction consists of a Rhode Island
Electric business and a Rhode Island Gas business that cover the
majority of the state.
Both the gas and electric businesses are recovering base
operating costs under one-year rate plans that became effective in
February 2013, using a 2011 test year. Other costs, including
capital, pension and property taxes, are recovered through annual
trackers. These include gas and electric Infrastructure Safety and
Reliability (ISR) capital trackers that allow National Grid to
agree a level of investment for the coming year and concurrently
recover the full costs associated with investment in year.
Return on Equity decreased to 7.7% for the combined Rhode Island
business, as a results of cost pressures since rates became
effective in 2013. In particular, Rhode Island Electric decreased
to 6.2%, primarily due to inflation, higher storm and employee
benefit costs since rates became effective in 2013. National Grid
expects to file a full rate case for the Rhode Island business in
2017.
Most
recent
granted
Return on Equity Achieved (%) (%)
---------
Regulated Entity FY17 CY15 CY14
Rhode Island
Narragansett Gas 9.4 9.8 11.6 9.5
Narragansett Electric 6.2 10.5 9.5 9.5
-------------------------- ----- ----- ----- ---------
Total Rhode Island* 7.7 10.2 10.4 9.5
-------------------------- ----- ----- ----- ---------
* total return weighted by average rate base
On a US GAAP basis, capital investment remained flat at just
under $200m. Investment is expected to increase in 2017/18 with
current levels of investment funded by the 2016 ISR capital
tracker. The South Street substation in Providence, an estimated
$80m project that is a key part of the city's redevelopment is
underway and progressing well.
Rate Base ($m) as at 31 March
Rhode Island Regulated Entity 2017 2016 % change
------------------------------- ------ ------ ---------
Narragansett Gas 640 577 11
Narragansett Electric 665 657 1
------------------------------- ------ ------ ---------
Total Rhode Island 1,305 1,234 6
------------------------------- ------ ------ ---------
In 2016/17 National Grid's Rhode Island electricity business
undertook a Volt Var Optimization (VVO) pilot, deploying technology
at 7 feeders across the network to improve circuit operational
performance and reduce overall energy consumption in the feeder.
The pilot saw a demand reduction of more than 3% across the
feeders. Based on this success, the programme has been expanded
under the ISR plan. In early 2017, the Governor launched the Power
Sector Transformation initiative to develop a framework that
promotes a nimble grid and enables Rhode Islanders to take full
advantage of new clean energy technologies.
FERC
The FERC Jurisdiction consists of the Long Island Generation
business, the Canadian Interconnector, New England Power, and
Narragansett Electric (Transmission).
Long Island Generation and the Canadian Interconnector are
contracted investments, meaning that they earn revenues from
long-term contracts with customers. The contracts are regulated by
FERC and allow for an agreed return on equity. New England Power
and Narragansett Electric (Transmission) use formula rates that
allow for the businesses to earn returns on incremental investments
almost immediately.
Return on Equity for the FERC Jurisdiction decreased 10 bps to
11.3%, reflecting a lower allowed return on equity following FERC
rate challenges.
FERC previously lowered the base ROE for the New England
transmission owners from 11.14% to 10.57% for the period of October
2011 to December 2012. Following that decision, National Grid
refunded customers where appropriate and reduced the rate at which
customers are charged to reflect this decision. In April 2017, the
US Court of Appeals found the FERC failed to articulate a
satisfactory explanation for its actions and National Grid will
evaluate whether further action is needed. The decision by the US
Court of Appeals will impact three further FERC ROE complaints and
there is no timeframe for resolutions.
Most
recent
granted
Return on Equity Achieved (%) (%)
Regulated Entity FY17 CY15 CY14
FERC
Long Island Generation 12.0 12.5 10.5 9.9
New England Power 11.1 11.0 11.6 10.6
Canadian Interconnector 13.0 13.0 13.0 13.0
Narragansett Electric
Transmission 11.4 11.2 12.1 10.6
------------------------- ----- ----- ----- ---------
Total FERC* 11.3 11.4 11.5 10.5
-------------------------- ----- ----- ----- ---------
* total return weighted by average rate base
Capital Investment in the FERC companies increased slightly to
$382m, including reliability projects, asset modernisation, and the
connection of new customers. This year, New England Power completed
its $45m Tewksbury substation and began construction on the
Merrimack Valley Reliability Project, a competitively tendered
joint initiative with Eversource Energy that will address regional
reliability needs.
Narragansett Electric transmission made history this year with
completion of the sea2shore project which connected the first U.S.
offshore wind farm to the mainland power grid. This project was a
collaborative effort with National Grid's Rhode Island
Jurisdiction.
Rate Base ($m) as at 31 March
FERC Regulated Entity 2017 2016 % change
--------------------------------------- ------ ------ ---------
Long Island Generation 422 420 0
New England Power 1,543 1,405 10
Canadian Interconnector 31 11 182
Narragansett Electric Transmission 697 608 15
--------------------------------------- ------ ------ ---------
Total FERC 2,693 2,444 10
--------------------------------------- ------ ------ ---------
The FERC Jurisdiction continues to look for innovative ways to
maintain asset health and reliability and where possible, share
best practices with the UK Electricity Transmission business. This
year, the FERC Jurisdiction began using LineScout, a robot that has
been used in National Grid's UK business, to perform line
inspections in areas that are difficult to access. This facilitates
condition assessments and improves safety. Additionally, the
business has begun demonstrations using unmanned aerial vehicles to
conduct asset inspections.
The FERC Jurisdiction is also undertaking a programme to deploy
new technology to improve digital communication within its
transmission substations. This will standardise communications
within substations which is expected to improve safety, increase
system availability and reduce operating costs.
OTHER ACTIVITIES
Good performance in the year
Continuing operating profit by 2017 2016 % change
principal activities (GBPm)
-------------------------------------- ------ ----- ---------
Metering 161 162 (1)
Grain LNG 74 72 3
French interconnector 72 123 (41)
Property 65 56 16
UK corporate and other activities (137) (65) (111)
Sub-total UK operating profit 235 348 (32)
US corporate and other activities (58) 22
Total operating profit 177 370 (52)
Total operating profit - constant
currency 177 373 (53)
-------------------------------------- ------ ----- ---------
Share of post-tax results of joint
ventures and associates 63 59 7
-------------------------------------- ------ ----- ---------
Metering profit steady; cash flow remains strong
The Metering business's operating profit decreased slightly by
GBP1m reflecting increased costs of our smart meter pilot, and the
displacement of its legacy meters, this was partially offset by
lower maintenance and operating costs. Capital investment decreased
by GBP4m.
Grain LNG profit steady
National Grid's LNG import terminal on the Isle of Grain
delivered a GBP2m increase in operating profit in 2016/17 due to an
increase in performance in the reloading and road tanker loading
services and reduction in maintenance costs. Capital investment was
lower in the year at GBP6m (2015/16: GBP25m) due to the completion
of a second cryogenic line and the road tanker load facility
(commissioned in November 2015). During 2016/17, Grain LNG
completed its 1000(th) road tanker reload.
IFA profitability in line with expectations
The 2GW IFA delivered performance in line with expectations,
with an operating profit at GBP72m (2015/16: GBP123m). The year on
year decrease primarily reflected an unusually high power price
differential between France and the UK in the first half of
2015/16, increasing the revenue generated from the auctions of the
interconnector's capacity during this period. IFA profitability was
not adversely impacted by the work to repair two pairs of subsea
cables damaged in Storm Angus as the loss was recovered through
insurance and is reflected in the results of our captive insurance
company.
Continued high level of property sales and good progress in St
William JV
The Property business delivered an operating profit of GBP65m
(2015/16: GBP56m), following property sales at Bristol and
Uddington in the second half of the year and the previously
announced Battersea sale in August 2016. Construction has now
commenced on 955 new homes at Battersea. Our estate management, gas
holder dismantling and contaminated land clean-up programmes
continue to reduce operational risk across our portfolio.
A third new interconnector will commence construction later in
2017
Following Board approval for the Belgian (Nemo Link) and
Norwegian (North Sea Link) interconnectors in 2015, significant
progress has been made on both projects.
Nemo Link, developed between National Grid and Elia, the Belgian
transmission system operator, will connect Richborough in the UK
and Herdersbrug in Belgium. The subsea cable will be 130 kilometres
in length and have a capacity of 1 GW. Seabed surveys and
construction work have already taken place on the project, which is
planned to be operational in 2019.
North Sea Link (NSL) will connect Blyth in the UK and Kvilldal
in Norway. Developed between National Grid and the Norwegian
transmission system operator Statnett, NSL will be the longest
subsea cable in the world at 720 kilometres. The 1.0 GW link is
expected to be operational by 2022. Construction started in Norway
in 2016, while work in the UK will begin this year.
The Board also approved the 230 kilometre IFA2 interconnector in
November 2016. Developed with RTE, the 1.0 GW subsea cable will
connect Hampshire in the UK and Normandy in France. The link is
expected to be operational in 2020, with construction starting in
early 2018.
Corporate and other
In total our corporate and other performance decreased by
GBP152m reflecting the write off of US business development
projects, the prior year Iroquois gain of GBP57m and one-off
business change costs of GBP60m to ensure we are well positioned to
meet our growth targets efficiently and at the same time build a
stronger foundation for the future.
Sunrun partnership
In January, the company announced a partnership with Sunrun, a
leading provider of residential solar services. In this
partnership, we have committed $100m in a portfolio of roof-top
solar assets, which will allow us to better understand customer
behaviour and the impact of distributed technologies on the
network.
New transmission and storage opportunities in the US
The evolving energy landscape is creating new opportunities for
transmission and storage opportunities in our US territories.
The connection of low carbon generation is creating the need for
new transmission lines to transport renewable energy to load
centres. In the northeast, this means bringing wind from upstate NY
towards New York City and bringing wind and hydro from Canada into
New England. Projects can be developed in response to a specific
request for proposal from a state or regional transmission
organisation or by independently signing up customers.
National Grid continues to propose potential projects to meet
specific energy needs and currently has a number of projects under
consideration. This year, the Company proposed the Granite State
Power Link, a potential HVDC transmission line that would run from
Quebec, through Vermont and New Hampshire. The project is expected
to bid into the Massachusetts RFP for renewables and if successful,
would be completed in the early 2020s.
As technology evolves there is increasing demand to integrate
large-scale battery solutions into the network. In addition to
National Grid's projects within its regulated distribution
utilities, the Company is pursuing merchant storage projects. On
Long Island, National Grid and NextEra have partnered to develop
two battery storage projects. This solution was selected by the
Long Island Power Authority and pending permitting approval, would
be operational around 2018.
Capital investment - continuing
(GBPm) - actual currency Year ended 31 March
---------------------------------
2017 2016 % change
--------------------------------- ------ ----- ---------
Metering 35 39 (10)
Grain LNG 6 25 (76)
French interconnector 15 5 200
North Sea Link 40 24 67
Property 15 15 -
Other UK 5 8 (38)
Other US 131 85 54
Capital expenditure excluding
joint ventures 247 201 23
Investment in joint ventures
(JVs)* 127 53 140
Capital investment including
investment in JVs 374 254 47
--------------------------------- ------ ----- ---------
*excludes GBP10m (2015/16: GBP63m) equity contribution to St
William property joint venture
Other selected financial information Year ended 31 March
- continuing
(GBPm) - constant currency 2017 2016 % change
-------------------------------------- ------ ------ ---------
Operating profit 177 373 (53)
Depreciation (232) (217) (7)
Depreciation (actual exchange
rates) (232) (208) (12)
-------------------------------------- ------ ------ ---------
JOINT VENTURES AND ASSOCIATES
Share of post-tax results by principal 2017 2016 % change
activities (GBPm)
---------------------------------------- ----- ----- ---------
BritNed 53 50 6
Millennium 15 11 36
Iroquois - 3
Other (5) (5) -
Share of post-tax results of joint
ventures and associates 63 59 7
---------------------------------------- ----- ----- ---------
At the start of the year, joint ventures and associates in the
Group consist principally of interests in electricity transmission
interconnectors and gas pipelines, which included a 50% interest in
the 1GW BritNed electricity interconnector between the Netherlands
and England and a 26% interest in the Millennium natural gas
pipeline in New York.
National Grid's share of post-tax results of joint ventures for
the year was GBP63m, an increase of GBP4m compared with 2015/16.
This reflected an increase in the contribution from the BritNed
interconnector.
REVIEW OF DISCONTINUED OPERATIONS
2016/17 Overview
Discontinued operations principally comprise NGGD (61% of which
was sold on 31 March 2017), as well as certain other assets
(principally property assets and an interest in Xoserve Limited)
that were also disposed of at that date.
The review below has excluded the activity of the property
assets and Xoserve Limited as these are not considered a material
part of the overall performance of discontinued operations.
Performance reflects continued good efficiency and incentive
performance
Return on Equity 410bps above base levels
Return on Equity for the year, using a long-run inflation rate
of 3%, was 14.0% compared with a regulatory assumption, used in
calculating the original revenue allowance, of 9.9%. The principal
components of the difference are shown in the table below.
Year ended 31 March 2017 2016
------
Base return (including avg. 3%
long-run inflation) 9.9% 9.9%
Totex incentive mechanism 2.8% 2.0%
Other revenue incentives 1.2% 1.0%
----------------------------------------- ------ ------
Return including in year incentive
performance 13.9% 12.9%
Pre-determined additional allowances 0.1% 0.1%
Return on Equity 14.0% 13.0%
----------------------------------------- ------ ------
The business performed strongly against the targets set by the
totex incentive mechanism in the fourth year of RIIO. The Gas
Distribution Strategic Partnerships (GDSP) continued to drive this
outperformance through their use of innovative and efficient
delivery of the mains replacement programme. Totex was GBP945m
compared with an estimated allowance, adjusted for outputs and
phasing of spend, of GBP1,076m. Our share of this efficiency saving
is expected to be GBP82m.
The business had another strong year of incentive performance,
driven by the true up of outperformance over the RIIO period to
date as well as improved customer satisfaction incentive scores.
Overall, the UK Gas Distribution business delivered 120 bps of
additional returns through other revenue incentives. On a pre-tax
basis, this equates to an estimated GBP43m of additional revenue
allowance, most of which is due to be recovered in future years
under the RIIO funding mechanisms.
Regulated Financial Position broadly unchanged with RPI below
long-run expectations
RAV increased 3.5% in the year reflecting the impact of
inflation, continued investment and performance RAV, partially
offset by depreciation. Net other regulatory liabilities decreased
by GBP16m, mainly reflecting current year revenue over recoveries
associated with lower than expected inflation.
GBPm 2017 2016
-------------------------------------- ------ ------
Opening Regulated Asset Value
(RAV)* 8,664 8,513
-------------------------------------- ------ ------
Asset additions (aka slow money)
(actual) 408 392
Performance RAV or assets created 47 40
Inflation adjustment (actual
RPI) 273 133
Depreciation and amortisation (413) (402)
Closing RAV 8,979 8,676
-------------------------------------- ------ ------
Opening balance of other regulated
assets and (liabilities)* (132) (89)
-------------------------------------- ------ ------
Movement 16 (35)
-------------------------------------- ------ ------
Closing balance (116) (124)
-------------------------------------- ------ ------
Closing Regulated Financial
Position 8,863 8,552
-------------------------------------- ------ ------
*March 2016 opening balances adjusted to correspond with 2015/16
regulatory filings and calculations
Investment activities in 2016/17 focussed on asset health
UK Gas Distribution invested GBP558m during the year, a GBP9m
increase on the prior year. This included GBP389m of replacement
expenditure (GBP28m lower than the prior year), as the catch up of
work in 2015/16 was not repeated. Other capex was GBP169m, GBP37m
higher than the prior year due to an increase in reinforcement
workload and kit relocations.
APPIX to DISCONTINUED OPERATIONS
Revenue and Costs in 2016/17 on an IFRS basis
On an IFRS basis UK Gas Distribution operating profit was
GBP898m, up GBP20m or 2%. Excluding the impact of timing, operating
profit was GBP68m higher reflecting a decreased depreciation
charge.
The principal components of the movement in operating profit are
shown below.
Year ended 31 March Revenue and Costs
(GBPm) 2017 2016 % change
--------------------------------------------------- ------ ------ ---------
Net revenue 1,532 1,566 (2)
Regulated controllable operating
costs (387) (374) (3)
Post-retirement costs (42) (39) (8)
Other operating costs and provisions/contribution
release 9 23 (61)
Depreciation and amortisation (214) (298) 28
--------------------------------------------------- ------ ------ ---------
Operating profit 898 878 2
--------------------------------------------------- ------ ------ ---------
Less: Timing impact (22) 26 n/a
Operating profit excluding timing 920 852 8
Net revenue (net of pass through costs) decreased by GBP34m.
Excluding timing impacts of GBP48m, net revenue increased by
GBP14m. This primarily relates to inflationary increases, partly
offset by a reduction in base revenues.
Regulated controllable costs increased by GBP13m. This was
primarily driven by workload related headcount increases and
inflation.
Depreciation and amortisation decreased by GBP84m reflecting the
cessation of depreciation for the period 8 December 2016 to 31
March 2017, following the announcement of the sale of the business.
This was partly offset by higher depreciation in the first eight
months of the year due to increased asset commissioning activity.
Other operating credits were GBP14m lower driven by the
non-recurrence of gas holder provision releases in the prior
year.
APPIX: BASIS OF PRESENTATION, DEFINITIONS AND METRIC
CALCULATIONS
BASIS OF PRESENTATION
Adjusted and Statutory Results
Unless otherwise stated, all financial commentaries in this
release are given on an adjusted basis at actual exchange rates.
Prior year earnings per share figures are restated to reflect the
impact of additional shares issued as scrip dividends (refer to
note 6 on page 59).
'Adjusted' results are a key financial performance measure used
by National Grid, 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 commodity contracts and 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 56. A reconciliation of business
performance to statutory results is provided in the consolidated
income statement on page 47.
DEFINITIONS
Annual asset growth
'Annual asset growth' measures the increase in 'total regulatory
value and other investments', defined below.
Capital investment
'Capital investment' or 'investment' refer to additions to
plant, property and equipment and intangible assets, and
contributions to joint ventures, other than the St William joint
venture during the period. St William is excluded based on the
nature of this joint venture arrangement.
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$ currency denominated activity, have been
translated using the weighted average US$ exchange rate for the
year ended 31 March 2017, which was $1.28 to GBP1.00. The weighted
average rate for the year ended 31 March 2016, was $1.47 to
GBP1.00. Assets and liabilities as at 31 March 2016 have been
retranslated at the closing rate at 31 March 2017 of $1.25 to
GBP1.00. The closing rate for the balance sheet date 31 March 2016
was $1.44 to GBP1.00.
Earnings per share
Prior year earnings per share figures are restated to reflect
the impact of additional shares issued as scrip dividends.
Net revenue
'Net revenue' is revenue less pass-through costs, such as
payments to other UK network owners, 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.
Other regulatory assets and liabilities
The revenues that National Grid's UK regulated businesses
targets to collect in any year are based on the regulator's
forecasts for that year. Under the UK price control arrangements,
revenues will be adjusted in future years to take account of actual
levels of collected revenue, costs and outputs delivered when they
differ from those regulatory forecasts. This includes adjustments
designed to share performance efficiencies with customers. National
Grid's estimate of these future revenue adjustments are represented
in the calculation of regulated financial performance and regulated
financial position as "other regulatory assets and liabilities".
These include:
-- Revenues associated with sharing under the totex incentive mechanism
-- Adjustments for changes to customer output requirements on totex allowances
-- True ups for pass through costs, actual RPI and pensions deficit repair costs
-- Differences between allowed/targeted and recovered revenues
-- Differences between revenues collected and earned under other incentive mechanisms
In addition, other regulatory assets and liabilities include
balances relating to "phasing adjustments". Where expenditure
allowances have been awarded in one year but are associated with
expenditure that is now expected to be incurred in a different year
National Grid applies "phasing adjustments" to better match the
allowances to the year of expenditure. In such cases, the revenues
associated with these re-phased allowances are included in other
regulated assets and liabilities and reversed when the associated
expenditure is incurred.
In the US, other regulatory assets and liabilities include
regulatory assets and liabilities which are not included in the
definition of rate base within that jurisdiction, including working
capital where appropriate.
Performance RAV
UK performance efficiencies are in part remunerated by the
creation of additional RAV which is expected to result in future
earnings under regulatory arrangements. This is an addition to RAV
above and beyond that associated with the remuneration of actual
expenditure and is termed "performance RAV".
Regulated asset base
'Regulated asset base' refers to assets included in regulated
asset value and rate base within our UK and US regulated
businesses, respectively.
Timing
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 a 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 in both the UK and the US are
pass-through costs (including substantial commodity and energy
efficiency costs in the US), 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. In the UK, timing differences also
include an estimation of the difference between revenues earned
under revenue incentive mechanisms and any associated revenues
collected. UK 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.
Total regulatory value and other investments
The sum of: the regulatory asset value of the UK regulated
businesses determined under the methodology set out in Ofgem's
Price Control Financial Model; the rate bases applicable to each US
regulated entity calculated according to the methodology used by
each respective utility regulator; the value of assets held by the
Group's other activities; together with investments in joint
ventures and associates. Other activities primarily relate to
non-network businesses and other commercial operations including:
UK gas metering activities; the Great Britain-France
Interconnector; UK property management; and a UK LNG import
terminal.
Totex
Under the UK 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.
Value Added
Value Added is a measure to capture the value created through
investment attributable to equity holders, being the change in
total regulated and non-regulated assets including goodwill (both
at constant currency) plus the cash dividend paid in the year plus
share repurchase costs less the growth in net debt (at constant
currency). This is then presented on an absolute and a per share
basis.
METRIC CALCULATIONS
Regulated financial 2016/17 2015/16
performance (GBPm)
-----------------------------------
UKET UKGT UKGD US UKET UKGT UKGD US
REG REG
---------------------------------- ------ ------ ------ ------ ------ ------ ------ ------
Statutory operating
profit 1,361 507 898 1,278 1,173 486 878 1,196
Exceptional items/remeasurements 11 4 - 435 - - - (11)
Adjusted operating
profit 1,372 511 898 1,713 1,173 486 878 1,185
Depreciation and
amortisation 421 186 214 642 390 178 298 535
---------------------------------- ------ ------ ------ ------ ------ ------ ------ ------
EBITDA 1,793 697 1,112 2,355 1,563 664 1,176 1,720
Regulatory treatment
adjustments
Movement in UK
regulatory "IOUs" (288) (120) 16 - (147) (80) (35) -
US timing - - - (199) - - - 73
Performance RAV
created 74 (11) 47 - 80 (5) 40 -
Pensions deficit
contributions (47) (53) (13) (155) (54) (77) (13) (144)
3% RAV Indexation 356 168 260 - 339 166 255 -
UK deferred taxation
adjustment 62 39 (24) - 80 45 (34) -
Regulatory depreciation (800) (207) (413) (642) (758) (196) (402) (535)
Fast/slow money
adjustment 34 (14) (121) - 92 18 (168) -
Regulated financial
performance 1,184 499 864 1,359 1,195 535 819 1,114
----------------------------------- ------ ------ ------ ------ ------ ------ ------ ------
Group RoE calculation 2017 2016 2015
(year ended 31 March)
--------------------------------------- --------- --------- ---------
Regulated financial performance 3,906 3,663 3,741
Operating profit of other
activities 204 374 199
Group financial performance 4,110 4,037 3,940
--------------------------------------- --------- --------- ---------
Share of post-tax results
of joint ventures 63 59 46
Non-controlling interests 1 (3) 8
Adjusted group interest
charge (1,075) (922) (945)
Group tax charge (808) (753) (695)
Tax on adjustments 166 4 (14)
---- --------------------------------- --------- --------- ---------
Group financial performance
after interest and tax 2,457 2,422 2,340
--------------------------------------- --------- --------- ---------
Opening rate base/RAV 40,435 36,998 35,237
Opening NBV of non-regulated
businesses 1,579 1,213 1,341
Joint Ventures 408 319 358
Opening Goodwill 5,984 5,182 4,856
--------------------------------------- --------- --------- ---------
Opening capital employed 48,406 43,712 41,792
Opening Net Debt (27,346) (24,024) (21,974)
--------------------------------------- --------- --------- ---------
Opening Equity 21,060 19,688 19,818
--------------------------------------- --------- --------- ---------
Return on Equity 11.7% 12.3% 11.8%
--------------------------------------- --------- --------- ---------
Regulated financial position 2016/17
(GBPm - constant currency)
---------------------------------------------------
UKET UKGT UKGD US REG
-------------------------------------------------- ------- ------ ------ -------
Opening RAV/rate base* 11,871 5,597 8,664 14,571
In year movement 593 158 315 827
Closing RAV/rate base 12,464 5,755 8,979 15,398
Opening other regulatory assets and liabilities* (129) 56 (132) 1,647
In year movement (288) (120) (16) 18
Closing other regulatory assets and liabilities (417) (64) (116) 1,665
Closing regulated financial position 12,047 5,691 8,863 17,063
--------------------------------------------------- ------- ------ ------ -------
Total 2016/17 43,664
-------------------------------------------------- ----------------------- -------
*Adjusted to correspond with 2015/16 regulatory filings and
calculations
DESCRIPTION OF METRIC CALCULATIONS
Regulated financial performance
The regulated financial performance calculation provides a
measure of the performance of the regulated operations before the
impacts of interest and taxation. It makes adjustments to reported
operating profit to reflect the impact of the businesses'
regulatory arrangements when presenting financial performance. It
reflects both the value realised on behalf of providers of capital
in the year and also an estimation of net value created, but not
yet realised, that is reasonably expected to be realised or
returned to customers in future periods under the Group's
regulatory arrangements.
The principal adjustments from reported operating profit to
regulated financial performance are:
Adjustment Calculation
US timing & movement
in UK regulatory "IOUs" US: As per US Timing.
Revenue related to performance UK: Movement in other
in one year may be recovered regulated assets and liabilities.
in later years. Revenue
may be recovered in one
year but be required
to be returned to customers
in future years.
Performance RAV
UK performance efficiencies In year totex outperformance
are in part remunerated multiplied by the appropriate
by the creation of additional regulatory capitalisation
RAV which is expected ratio and multiplied by
to result in future earnings the retained company incentive
under regulatory arrangements. sharing ratio.
Pension adjustment
Cash payments against UK: cash payments against
pension deficits in the the regulatory proportion
UK are recoverable under of pension deficits in
regulatory contracts. the UK regulated business.
In US Regulated operations, US: the difference between
US GAAP pension charges IFRS and US GAAP pension
are generally recoverable charges.
through rates. Revenue
recoveries are recognised
under IFRS but payments
are not charged against
IFRS operating profits
in the year.
3% RAV Indexation
Future UK revenues expected UK RAV multiplied by 3%
to be set using an asset (long-run RPI inflation
base adjusted for inflation. assumption).
UK deferred taxation
adjustment The difference between
Future UK revenues are 1. IFRS EBITDA less other
expected to recover cash regulatory adjustments
taxation cost including and 2. IFRS EBITDA less
the unwinding of deferred other regulatory adjustments
taxation balances created less current taxation
in the current year. (adjusted for interest
tax shield) then grossed
up at full UK statutory
tax rate.
Regulatory depreciation
US and UK regulated revenues Regulatory depreciation.
include allowance for
a return of regulatory
capital in accordance
with regulatory assumed
asset lives. This return
does not form part of
regulatory profit.
Fast/slow money adjustment
The regulatory remuneration Difference between IFRS
of costs incurred is classification of costs
split between in year as operating costs or
revenue allowances and fixed asset additions
the creation of additional and the regulatory classification.
RAV. This does not align
with the classification
of costs as operating
costs and fixed asset
additions under IFRS
accounting principles.
Group RoE Calculation
The Group Return on Equity (RoE) calculation provides a measure
of the performance of the whole Group compared with the amounts
invested by the Group in assets attributable to equity
shareholders.
Calculation: Regulatory financial performance, including a
long-run assumption of 3.0% RPI inflation, less adjusted interest
and adjusted taxation divided by equity investment in assets
-- Adjusted interest removes interest on pensions, capitalised interest and release of provisions
-- Adjusted taxation adjusts the Group taxation charge for
differences between IFRS profit before tax and regulated financial
performance less adjusted interest
-- Equity investment in assets is calculated as the total
opening UK regulatory asset value, the total opening US rate base
plus goodwill plus opening net book value of joint ventures and
other activities; minus opening net debt as reported under IFRS
US Regulated Return on Equity (nominal)
US Regulated Return on Equity is a measure of how a business is
performing operationally against the assumptions used by the
regulator.
This US operational return measure is calculated using the
assumption that the businesses are financed in line with the
regulatory adjudicated capital structure.
This is a post-tax US GAAP metric as calculated annually. For
the current (and future) year results, this has been calculated on
a fiscal basis (i.e. year ended 31 March 2017). For the prior year,
this was calculated on a calendar year to 31 December 2015.
Calculation: Regulated net income divided by equity rate
base:
-- Regulated net income calculated as US GAAP operating profit
less interest on the adjudicated debt portion of the rate base
(calculated at the actual rate on long term debt, adjusted where
the proportion of long term debt in the capital structure is
materially different from the assumed regulatory proportion) less
tax at the adjudicated rate
-- Regulated net income is adjusted for earned savings in New
York and Narragansett Electric and for certain material specified
items
-- Equity rate base for the current year is an estimate based on
rate base calculations used in previous rate filings multiplied by
the adjudicated equity portion in the regulatory capital structure.
For the prior year, equity rate base was an average rate base for
the calendar year as reported to the Group's regulators or, where a
reported rate base is not available, an estimate based on rate base
calculations used in previous rate filings multiplied by the
adjudicated equity portion in the regulatory capital structure
UK Regulated Return on Equity (nominal)
UK Regulated Return on Equity is a measure of how a business is
performing operationally against the assumptions used by the
regulator.
These returns are calculated using the assumption that the
businesses are financed in line with the regulatory adjudicated
capital structure, at the cost of debt assumed by the regulator and
that RPI is equal to a long-run assumption of 3.0%.
Calculation: Base allowed Return on Equity plus or minus the
following items
-- Additional allowed revenues/profits earned in the year from
incentive schemes, less associated corporation tax charge;
-- Totex outperformance multiplied by the company sharing factor set by the regulator; and
-- Revenues (net of associated depreciation and base allowed
asset return) allowed in the year associated with incentive
performance earned under previous price controls but not yet fully
recovered, less associated corporation tax charge (excluding
logging up or pensions recovery)
Divided by average equity RAV in line with regulatory assumed
capital structure.
PROVISIONAL FINANCIAL TIMETABLE
18 May 2017 2016/17 full year results
19 May 2017 General meeting
19 May 2017 Record date for 2016/17 special dividend
22 May 2017 Ex-dividend date for 2016/17 for special dividend
31 May 2017 ADRs go ex-dividend for 2016/17 final dividend
1 June 2017 Ordinary shares go ex-dividend for 2016/17 final dividend
2 June 2017 Record date for 2016/17 final dividend
2 June 2017 2016/17 special dividend paid to qualifying shareholders
8 June 2017 Scrip reference price announced
19 June 2017 Scrip election date for 2016/17 final dividend
7 July 2017 Investor stewardship meeting
31 July 2017 Annual General Meeting, ICC, Birmingham
16 August 2017 2016/17 final dividend paid to qualifying shareholders
9 November 2017 2017/18 half year results
22 November 2017 ADRs go ex-dividend for 2017/18 interim dividend
23 November 2017 Ordinary shares go ex-dividend for 2017/18 interim dividend
24 November 2017 Record date for 2017/18 interim dividend
30 November 2017 Scrip reference price announced
8 December 2017 Scrip election date for 2017/18 interim dividend
10 January 2018 2017/18 interim dividend paid to qualifying shareholders
American Depositary Receipt (ADR) Deposit Agreement
National Grid amended the deposit agreement under which the ADRs
representing its ordinary shares are issued to allow a fee of up to
$0.05 per ADR to be charged for any cash distribution made to ADR
holders, including cash dividends. ADR holders who receive cash in
relation to the 2016/17 final dividend and 2016/17 special dividend
will be charged a fee of $0.02 and $0.015 per ADR, respectively, by
the Depositary prior to distribution of the cash dividend.
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
financial condition, its results of operations and businesses,
strategy, plans and objectives. Words such as '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 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 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 National Grid's IT
systems and supporting technology; 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 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; inflation or deflation; 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, train or retain employees with the
necessary competencies, including leadership skills, and any
significant disputes arising with the National Grid'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, the threats and opportunities presented by
emerging technology, development activities relating to changes in
the energy mix and 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, including assumptions in
connection with the Company's sale of a majority interest in its UK
Gas Distribution business and joint ventures. 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 183 to 186 of National Grid's most
recent Annual Report and Accounts, as updated by National Grid's
unaudited half-year financial information for the six months ended
30 September 2016 published on 10 November 2016. 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.
Consolidated income statement
for the years ended 31 March
2016
2017 Re-presented(1)
Notes GBPm GBPm
----------------------------------------------- ----- -------- ----------------
Continuing operations
Revenue 2(a) 15,035 13,212
Operating costs (11,827) (9,987)
Operating profit
Before exceptional items and remeasurements 2(b) 3,773 3,214
Exceptional items and remeasurements 3 (565) 11
Total operating profit 2(b) 3,208 3,225
Finance income 4 53 22
Finance costs
Before exceptional items and remeasurements 4 (1,082) (878)
Exceptional items and remeasurements 3,4 (58) (99)
Total finance costs 4 (1,140) (977)
Share of post-tax results of joint
ventures and associates 63 59
Profit before tax
Before exceptional items and remeasurements 2(b) 2,807 2,417
Exceptional items and remeasurements 3 (623) (88)
Total profit before tax 2(b) 2,184 2,329
Tax
Before exceptional items and remeasurements 5 (666) (604)
Exceptional items and remeasurements 3 292 177
Total tax 5 (374) (427)
Profit after tax from continuing
operations
Before exceptional items and remeasurements 2,141 1,813
Exceptional items and remeasurements 3 (331) 89
Profit after tax from continuing
operations 1,810 1,902
------------------------------------------------ ----- -------- ----------------
Profit after tax from discontinued
operations
Before exceptional items and remeasurements 8 606 576
Exceptional items and remeasurements 8 57 116
Gain on disposal of UK Gas Distribution 8 5,321 -
Profit after tax from discontinued
operations 8 5,984 692
------------------------------------------------ ----- -------- ----------------
Total profit for the year (continuing
and discontinued)
Before exceptional items and remeasurements 2,747 2,389
Exceptional items and remeasurements (274) 205
Gain on disposal of UK Gas Distribution 5,321 -
Total profit for the year 7,794 2,594
------------------------------------------------ ----- -------- ----------------
Attributable to:
Equity shareholders of the parent
From continuing operations 1,810 1,901
From discontinued operations 5,985 690
7,795 2,591
----------------------------------------------- ----- -------- ----------------
Non-controlling interests
From continuing operations - 1
From discontinued operations (1) 2
(1) 3
----------------------------------------------- ----- -------- ----------------
1. Comparative amounts have been re-presented to reflect the
classification of the UK Gas Distribution business as a
discontinued operation. Further information is provided in notes 2
and 8.
Consolidated income statement continued
for the years ended 31 March
2016
2017 Re-presented(1)
Notes GBPm GBPm
----- ---- ----------------
Earnings per share(2)
Basic
From continuing operations 6(a) 48.1p 50.4p
From discontinued operations 6(a) 17.6p 18.3p
Gain on disposal of UK Gas Distribution 6(a) 141.4p -
6(a) 207.1p 68.7p
------------------------------------------- ---- ------ -----
Diluted
From continuing operations 6(b) 47.9p 50.2p
From discontinued operations 6(b) 17.5p 18.2p
Gain on disposal of UK Gas Distribution 6(b) 140.8p -
6(b) 206.2p 68.4p
------------------------------------------- ---- ------ -----
1. Comparative amounts have been re-presented to reflect the
classification of the UK Gas Distribution business as a
discontinued operation. Further information is provided in notes 2
and 8.
2. Comparative amounts have been restated to reflect the impact
of additional shares issued as scrip dividends.
Consolidated statement of comprehensive income
for the years ended 31 March
2016
2017 Re-presented(1)
GBPm GBPm
-------------------------------------------------------------------- ----- -----------------
Profit after tax from continuing operations 1,810 1,902
Other comprehensive income/(loss) from continuing operations
Items from continuing operations that will never be reclassified
to profit or loss:
Remeasurement gains of pension assets and post-retirement
benefit obligations 423 410
Tax on items that will never be reclassified to profit or
loss (277) (95)
-------------------------------------------------------------------- ----- -----------------
Total items from continuing operations that will never be
reclassified to profit or loss 146 315
-------------------------------------------------------------------- ----- -----------------
Items from continuing operations that may be reclassified
subsequently to profit or loss:
Exchange adjustments 346 69
Net gains in respect of cash flow hedges 70 88
Transferred to profit or loss in respect of cash flow hedges (6) 26
Net gains on available-for-sale investments 81 43
Transferred to profit or loss on sale of available-for-sale
investments (25) -
Tax on items that may be reclassified subsequently to profit
or loss (34) (39)
-------------------------------------------------------------------- ----- -----------------
Total items from continuing operations that may be reclassified
subsequently to profit or loss 432 187
-------------------------------------------------------------------- ----- -----------------
Other comprehensive income for the year, net of tax from continuing
operations 578 502
Other comprehensive income for the year, net of tax from
discontinued
operations 8 42 71
-------------------------------------------------------------------- ----- -----------------
Other comprehensive income for the year, net of tax 620 573
-------------------------------------------------------------------- ----- -----------------
Total comprehensive income for the year from continuing operations 2,388 2,404
Total comprehensive income for the year from discontinued
operations 86,026 763
-------------------------------------------------------------------- ----- -----------------
Total comprehensive income for the year 8,414 3,167
-------------------------------------------------------------------- ----- -----------------
Attributable to:
Equity shareholders of the parent
From continuing operations 2,389 2,403
From discontinued operations 6,026 761
-------------------------------------------------------------------- ----- -----------------
8,415 3,164
-------------------------------------------------------------------- ----- -----------------
Non-controlling interests
From continuing operations (1) 1
From discontinued operations - 2
-------------------------------------------------------------------- ----- -----------------
(1) 3
-------------------------------------------------------------------- ----- -----------------
1. Comparative amounts have been re-presented to
reflect the classification of the UK Gas Distribution
business as a discontinued operation. Further information
is provided in notes 2 and 8.
Consolidated statement of changes in equity
for the years ended 31 March
Share Other Total
Share premium Retained equity share-holders' Non-controlling Total
capital account earnings reserves equity interests equity
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- -------- -------- --------- --------- --------------- --------------- -------
At 1 April 2015 443 1,331 14,870 (4,682) 11,962 12 11,974
Profit for the year - - 2,591 - 2,591 3 2,594
Total other comprehensive
income for
the year - - 414 159 573 - 573
----------------------------- -------- -------- --------- --------- --------------- --------------- -------
Total comprehensive income
for
the year - - 3,005 159 3,164 3 3,167
Equity dividends 7 - - (1,337) - (1,337) - (1,337)
Scrip dividend related share
issue(1) 4 (5) - - (1) - (1)
Purchase of treasury shares - - (267) - (267) - (267)
Issue of treasury shares - - 16 - 16 - 16
Purchase of own shares - - (6) - (6) - (6)
Other movements in
non-controlling
interests - - - - - (5) (5)
Share-based payments - - 22 - 22 - 22
Tax on share-based payments - - 2 - 2 - 2
---------------------------- -------- -------- --------- --------- --------------- --------------- -------
At 31 March 2016 447 1,326 16,305 (4,523) 13,555 10 13,565
Profit for the year - - 7,795 - 7,795 (1) 7,794
Total other comprehensive
income for
the year - - 84 536 620 - 620
----------------------------- -------- -------- --------- --------- --------------- --------------- -------
Total comprehensive income
for
the year - - 7,879 536 8,415 (1) 8,414
Equity dividends 7 - - (1,463) - (1,463) - (1,463)
Scrip dividend related share
issue(1) 2 (2) - - - - -
Purchase of treasury shares - - (189) - (189) - (189)
Issue of treasury shares - - 18 - 18 - 18
Purchase of own shares - - (6) - (6) - (6)
Other movements in
non-controlling
interests - - - - - 7 7
Share-based payments - - 35 - 35 - 35
Tax on share-based payments - - 3 - 3 - 3
---------------------------- -------- -------- --------- --------- --------------- --------------- -------
At 31 March 2017 449 1,324 22,582 (3,987) 20,368 16 20,384
---------------------------- -------- -------- --------- --------- --------------- --------------- -------
1. Included within share premium account are costs associated with scrip dividends.
Consolidated statement of financial position
as at 31 March
2017 2016
Notes GBPm GBPm
----------------------------------- ----- -------- --------
Non-current assets
Goodwill 6,096 5,315
Other intangible assets 923 887
Property, plant and equipment 39,825 43,364
Other non-current assets 121 82
Pension assets 603 410
Financial and other investments 1,100 482
Investments in joint ventures and
associates 2,083 397
Derivative financial assets 10 1,515 1,685
------------------------------------ -----
Total non-current assets 52,266 52,622
------------------------------------ ----- -------- --------
Current assets
Inventories and current intangible
assets 403 437
Trade and other receivables 2,782 2,395
Current tax assets 317 77
Financial and other investments 10 8,741 2,998
Derivative financial assets 10 192 278
Cash and cash equivalents 10 1,139 127
------------------------------------ ----- -------- --------
Total current assets 13,574 6,312
------------------------------------ ----- -------- --------
Total assets 65,840 58,934
------------------------------------ ----- -------- --------
Current liabilities
Borrowings 10 (5,496) (3,611)
Derivative financial liabilities 10 (1,054) (337)
Trade and other payables (3,438) (3,285)
Current tax liabilities (107) (252)
Provisions (416) (236)
------------------------------------ ----- -------- --------
Total current liabilities (10,511) (7,721)
------------------------------------ ----- -------- --------
Non-current liabilities
Borrowings 10 (23,142) (24,733)
Derivative financial liabilities 10 (1,169) (1,732)
Other non-current liabilities (1,447) (2,071)
Deferred tax liabilities (4,479) (4,634)
Pensions and other post-retirement
benefit obligations (2,536) (2,995)
Provisions (2,172) (1,483)
------------------------------------ ----- -------- --------
Total non-current liabilities (34,945) (37,648)
------------------------------------ ----- -------- --------
Total liabilities (45,456) (45,369)
------------------------------------ ----- -------- --------
Net assets 20,384 13,565
------------------------------------ ----- -------- --------
Equity
Share capital 449 447
Share premium account 1,324 1,326
Retained earnings 22,582 16,305
Other equity reserves (3,987) (4,523)
------------------------------------ ----- -------- --------
Total shareholders' equity 20,368 13,555
Non-controlling interests 16 10
------------------------------------ ----- -------- --------
Total equity 20,384 13,565
------------------------------------ ----- -------- --------
Consolidated cash flow statement
for the years ended 31 March
2016
2017 Re-presented(1)
Notes GBPm GBPm
--------------------------------------- ----- ------- ---------------
Cash flows from operating activities
Total operating profit from continuing
operations 2(b) 3,208 3,225
Adjustments for:
Exceptional items and remeasurements 3 565 (11)
Depreciation, amortisation and
impairment 1,481 1,311
Share-based payments charge 32 21
Gain on exchange of associate
for available-for-sale investment - (49)
Changes in working capital 151 416
Changes in provisions (181) (58)
Changes in pensions and other
post-retirement benefit obligations (768) (293)
Cash flows relating to exceptional
items (36) (40)
Cash generated from operations 4,452 4,522
Tax paid (132) (230)
---------------------------------------- -----
Net cash inflow from operating
activities - continuing operations 4,320 4,292
---------------------------------------- ----- ------- ---------------
Net cash inflow from operating
activities - discontinued operations 909 1,076
---------------------------------------- ----- ------- ---------------
Cash flows from investing activities
Acquisition of investments (137) (116)
Proceeds from sale of investments
in subsidiaries 5,454 -
Purchases of intangible assets (223) (196)
Purchases of property, plant
and equipment (3,296) (2,855)
Disposals of property, plant
and equipment 18 4
Dividends received from joint
ventures and associates 99 72
Interest received 51 23
Net movements in short-term financial
investments(2) (5,600) (391)
---------------------------------------- ----- ------- ---------------
Net cash flow used in investing
activities - continuing operations (3,634) (3,459)
---------------------------------------- ----- ------- ---------------
Net cash flow used in investing
activities - discontinued operations (680) (577)
---------------------------------------- ----- ------- ---------------
Cash flows from financing activities
Purchase of treasury shares (189) (267)
Proceeds from issue of treasury
shares 18 16
Purchase of own shares (6) (6)
Proceeds received from loans 2,463 2,726
Repayments of loans (1,616) (896)
Net movements in short-term borrowings
and derivatives 90 (730)
Interest paid (839) (711)
Dividends paid to shareholders (1,463) (1,337)
---------------------------------------- ----- ------- ---------------
Net cash flow used in financing
activities - continuing operations (1,542) (1,205)
---------------------------------------- ----- ------- ---------------
Net cash flow from/(used in)
financing activities - discontinued
operations(3) 1,611 (123)
---------------------------------------- ----- ------- ---------------
Net increase in cash and cash
equivalents 9 984 4
Disposal of bank overdraft in
UK Gas Distribution 15 -
Exchange movements 16 4
Net cash and cash equivalents
at start of year 124 116
---------------------------------------- ----- ------- ---------------
Net cash and cash equivalents
at end of year(4) 1,139 124
---------------------------------------- ----- ------- ---------------
1. Comparative amounts have been re-presented to reflect the
classification of the UK Gas Distribution business as a
discontinued operation. Further information is provided in notes 2
and 8.
2. Includes the impact of proceeds from the sale of UK Gas
Distribution being transferred to short term financial investments
on 31 March.
3. Included within net cash flows used in financing activities -
discontinued operations are cash flows relating to the liability
management programme, comprising GBP4.8bn of debt issued and term
debt raised, offset by GBP3.2bn in respect of bond buybacks.
4. Net of bank overdrafts of GBPnil (2016: GBP3m)
Notes
1. Basis of preparation and new accounting standards,
interpretations and amendments
The full year financial information contained in this
announcement, which does not constitute statutory accounts as
defined in Section 434 of the Companies Act 2006, has been derived
from the statutory accounts for the year ended 31 March 2017, which
will be filed with the Registrar of Companies in due course.
Statutory accounts for the year ended 31 March 2016 have been filed
with the Registrar of Companies. The auditors' report on each of
these statutory accounts was unqualified and did not contain a
statement under Section 498 of the Companies Act 2006.
The full year financial information has been prepared in
accordance with the accounting policies applicable for the year
ended 31 March 2017 which are consistent with those applied in the
preparation of our accounts for the year ended 31 March 2016.
The following standards, interpretations and amendments, issued
by the IASB and by the IFRS Interpretations Committee (IFRIC), are
effective for the year ended 31 March 2017. None of the
pronouncements had a material impact on the Company's consolidated
results or assets and liabilities for the year ended 31 March
2017.
-- Annual improvements to IFRSs 2012-2014 Cycle;
-- Amendments to IFRS 11 'Joint Arrangements';
-- Amendments to IAS 1 'Presentation of Financial Statements';
-- Amendments to IAS 16 'Property, Plant and Equipment' and
-- Amendments to IAS 38 'Intangible Assets'.
Date of approval
This announcement was approved by the Board of Directors on 17
May 2017.
2. Segmental analysis
We present revenue and the results of the business analysed by
operating segment, 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
operating segments. The Board of Directors is National Grid's chief
operating decision-making body (as defined by IFRS 8 'Operating
segments') and assesses the earnings performance of operations on
the basis of operating profit before exceptional items and
remeasurements (see note 3).
There has been no change to the way in which our businesses have
reported internally during the year. However, for the purposes of
this note, the reporting structure for the year ended 31 March 2017
has been updated to show the previously reported UK Gas
Distribution segment within discontinued operations together with
the results of our interest in Xoserve Limited, which was
previously included within Other activities. Discontinued
operations are solely within the UK geographical area. National
Grid Ventures formed on 1 April 2017 and the impact of this change
will be reflected in 2017/18. Note 8 includes further information
in respect of discontinued operations.
The following table describes the main activities for each
operating segment:
UK Electricity Transmission High voltage electricity transmission
networks in Great Britain.
---------------------------- ---------------------------------------
UK Gas Transmission The gas transmission network in
Great Britain and UK liquefied
natural gas (LNG) storage activities.
---------------------------- ---------------------------------------
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.
---------------------------- ---------------------------------------
Other activities primarily relate to non-regulated businesses
and other commercial operations not included within the above
segments, including: UK gas metering activities; the Great
Britain-France Interconnector; UK property management; a UK LNG
import terminal; US LNG operations; US unregulated transmission
pipelines; together with corporate activities.
Sales between operating segments are priced considering the
regulatory and legal requirements to which the businesses are
subject. The analysis of revenue by geographical area is on the
basis of destination. There are no material sales between the UK
and US geographical areas.
(a) Revenue
2017 2016(1)
GBPm GBPm
------------------------------------------ ------ -------
Operating segments:
UK Electricity Transmission 4,439 3,977
UK Gas Transmission 1,080 1,047
US Regulated 8,931 7,493
Other activities 713 824
Sales between segments (128) (129)
------------------------------------------- ------ -------
Total from continuing operations 15,035 13,212
Discontinued operations - UK geographical
area (note 8) 1,887 1,903
------------------------------------------- ------ -------
16,922 15,115
------------------------------------------ ------ -------
Split by geographical areas - continuing
operations
UK 6,064 5,619
US 8,971 7,593
------------------------------------------- ------ -------
15,035 13,212
------------------------------------------ ------ -------
1. Comparative amounts have been re-presented to reflect the
classification of the UK Gas Distribution business as a
discontinued operation.
2. Segmental analysis continued
(b) Operating profit
Before exceptional After exceptional
items and remeasurements items and remeasurements
--------------------------- ---------------------------
2017 2016(1) 2017 2016(1)
GBPm GBPm GBPm GBPm
------------------------------------ ------------- ------------ ----------- --------------
Operating segments - continuing
operations:
UK Electricity Transmission 1,372 1,173 1,361 1,173
UK Gas Transmission 511 486 507 486
US Regulated 1,713 1,185 1,278 1,196
Other activities 177 370 62 370
------------------------------------ ------------- ------------ ----------- --------------
Total from continuing operations 3,773 3,214 3,208 3,225
Discontinued operations - UK
geographical area (note 8) 894 882 894 860
------------------------------------ ------------- ------------ ----------- --------------
Xx
4,667 4,096 4,102 4,085
------------------------------------ ------------- ------------ ----------- --------------
Split by geographical areas
- continuing operations
UK 2,118 2,007 1,988 2,007
US 1,655 1,207 1,220 1,218
------------------------------------ ------------- ------------ ----------- --------------
3,773 3,214 3,208 3,225
------------------------------------ ------------- ------------ ----------- --------------
Reconciliation to profit before
tax:
Operating profit from continuing
operations 3,773 3,214 3,208 3,225
Finance income 53 22 53 22
Finance costs (1,082) (878) (1,140) (977)
Share of post-tax results
of joint ventures and associates 63 59 63 59
------------------------------------ ------------- ------------ ----------- --------------
Profit before tax from continuing
operations 2,807 2,417 2,184 2,329
Profit before tax from discontinued
operations (note 8) 748 725 742 703
------------------------------------ ------------- ------------ ----------- --------------
3,555 3,142 2,926 3,032
------------------------------------ ------------- ------------ ----------- --------------
1. Comparative amounts have been re-presented to reflect the
classification of UK Gas Distribution business as a discontinued
operation.
(c) Capital expenditure
Net book value Capital expenditure Depreciation
and amortisation
----------------------- --------------------- -------------------
2017 2016(1) 2017 2016(1) 2017 2016(1)
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- -------------- ------- --------- ---------- ---------- -------
Operating segments
UK Electricity
Transmission 12,515 11,907 1,027 1,084 (421) (390)
UK Gas Transmission 4,165 4,140 214 186 (186) (178)
US Regulated 21,638 17,490 2,247 1,856 (642) (535)
Other activities 2,430 2,291 247 201 (232) (208)
------------------------- -------------- ------- --------- ---------- ---------- -------
Total from continuing
operations 40,748 35,828 3,735 3,327 (1,481) (1,311)
Discontinued operations
- UK geographical
area - 8,423 588 566 (217) (303)
------------------------- -------------- ------- --------- ---------- ---------- -------
40,738 44,251 4,323 3,893 (1,698) (1,614)
------------------------- -------------- ------- --------- ---------- ---------- -------
Split by geographical areas -
continuing operations:
UK 18,102 17,491 1,357 1,386 (753) (715)
US 22,646 18,337 2,378 1,941 (728) (596)
------------------------- -------------- ------- --------- ---------- ---------- -------
40,748 35,828 3,735 3,327 (1,481) (1,311)
------------------------- -------------- ------- --------- ---------- ---------- -------
By asset type
Property, plant
and equipment 39,825 35,074 3,507 3,130 (1,348) (1,207)
Non-current intangible
assets 923 754 228 197 (133) (104)
------------------------- -------------- ------- --------- ---------- ---------- -------
Total from continuing
operations 40,748 35,828 3,735 3,327 (1,481) (1,311)
Discontinued operations
- UK geographical
area - 8,423 588 566 (217) (303)
------------------------- -------------- ------- --------- ---------- ---------- -------
40,748 44,251 4,323 3,893 (1,698) (1,614)
------------------------- -------------- ------- --------- ---------- ---------- -------
1. Comparative amounts have been re-presented to reflect the
classification of the UK Gas Distribution business as a
discontinued operation.
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 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 commodity
contracts and of derivative financial instruments to the extent
that hedge accounting is not achieved or is not effective.
2017 2016(1)
Continuing operations GBPm GBPm
-------------------------------------------------- ----- -------
Included within operating profit:
Exceptional items:
Environmental charges (526) -
Gas holder demolition costs (107) -
--------------------------------------------------- ----- -------
(633) -
Remeasurements:
Commodity contracts 68 11
(565) 11
-------------------------------------------------- ----- -------
Included within finance costs:
Remeasurements:
Net losses on derivative financial instruments (58) (99)
--------------------------------------------------- ----- -------
(58) (99)
-------------------------------------------------- ----- -------
Total included within profit before tax (623) (88)
--------------------------------------------------- ----- -------
Included within tax:
Exceptional credits arising on items
not included in profit before tax:
Deferred tax credit arising on the reduction
in the UK corporation tax rate 94 162
Tax on exceptional items 227 -
Tax on remeasurements (29) 15
292 177
-------------------------------------------------- ----- -------
Total exceptional items and remeasurements
after tax (331) 89
--------------------------------------------------- ----- -------
Analysis of total exceptional items and remeasurements
after tax:
Exceptional items after tax (312) 162
Remeasurements after tax (19) (73)
Total exceptional items and remeasurements
after tax (331) 89
--------------------------------------------------- ----- -------
1. Comparative amounts have been re-presented to reflect the
classification of the UK Gas Distribution business as a
discontinued operation.
Further detail of operating exceptional items specific to
2016/17
In the US, the Group's most significant environmental
liabilities relate to former manufacturing gas plant (MGP)
facilities formerly owned or operated by the Company. The sites are
subject to both state and federal law in the US. Environmental
reserves are re-evaluated at each reporting period. The expenditure
is expected to be largely recoverable from rate payers but under
IFRS, no asset can be recorded for this. During the second half of
2016/17, the Group updated its assessment of the gross remediation
costs at three key sites in New York, resulting in an increase of
GBP481m on an undiscounted basis.
The charge booked reflects the Group's best estimate of future
cash outflow, based on notices received from state and federal
authorities, and plans developed in response, supported by external
consultants where appropriate. In some cases, judgement is also
required regarding the Group's share of the estimated cost,
principally at sites where other parties are also potentially
liable but where no cost sharing agreement exists.
A provision of GBP107m has been made for the demolition of
certain non-operational gas holders in the UK. Following the
disposal of UK Gas Distribution, the land on which the gas holders
are sited was transferred to the Group's UK property division. The
Group's property division maximises our return from our land
portfolio and therefore a constructive obligation exists to
demolish the gas holders.
Also included within the above are charges relating to the
impact of a change in the real discount rate from 2% to 1% on our
provisions.
3. Exceptional items and remeasurements continued
Remeasurements
Commodity contracts represent mark-to-market movements on
certain physical and financial commodity contract obligations in
the US. These contracts primarily relate to the forward purchase of
energy for supply to customers, or to the economic hedging thereof,
that are required to be measured at fair value and that do not
qualify for hedge accounting. Under the existing rate plans in the
US, commodity costs are recoverable from customers although the
timing of recovery may differ from the pattern of costs
incurred.
Net (losses)/gains on derivative financial instruments comprise
(losses)/gains 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. The tax charge in the
year includes GBPnil (2016: GBP1m credit) in respect of prior
years.
Items included within tax
The Finance Act 2016 which was enacted on 15 September 2016
reduced the main rate of UK corporation tax to 17% with effect from
1 April 2020. Deferred tax balances have been calculated at this
rate.
Deferred taxes at the reporting date have been measured using
these enacted tax rates and reflected in these financial
statements, resulting in a deferred tax credit. This credit is
presented as exceptional, reflecting its nature.
4. Finance income and costs
2017 2016(1)
GBPm GBPm
------------------------------------------ ------- -------
Finance income 53 22
Finance costs
Net interest on pension and other
post-retirement benefit obligations (107) (111)
Interest expense on financial instruments (994) (783)
Unwinding of discount on provisions (73) (69)
Other interest (17) (27)
Less: interest capitalised(2) 109 112
------------------------------------------- ------- -------
Finance costs before exceptional
items and remeasurements (1,082) (878)
Remeasurements:
Net losses on derivative financial
instruments(3,4) (58) (99)
Exceptional items and remeasurements
included within finance costs (58) (99)
------------------------------------------- ------- -------
Finance costs (1,140) (977)
------------------------------------------- ------- -------
Net finance costs from continuing
operations (1,087) (955)
------------------------------------------- ------- -------
1. Comparative amounts have been re-presented to reflect the
classification of the UK Gas Distribution business as a
discontinued operation.
2. Interest on funding attributable to assets in the course of
construction in the current year was capitalised at a rate of 3.4%
(2016: 3.3%). In the UK, capitalised interest qualifies for a
current year tax deduction with tax relief claimed of GBP18m (2016:
GBP19m). In the US, capitalised interest is added to the cost of
plant and qualifies for tax depreciation allowances.
3. Includes a net foreign exchange loss on financing activities
of GBP264m (2016: GBP407m) offset by foreign exchange gains and
losses on derivative nancial instruments measured at fair
value.
4. Includes a net loss on instruments designated as fair value
hedges of GBP27m (2016: GBP34m gain) and a net gain of GBP60m
(2016: GBP5m) arising from fair value adjustments to the carrying
value of debt.
5. Tax
Tax charged/(credited) to the income statement - continuing
operations
2017 2016(1)
GBPm GBPm
-------------------------------------------------- ----- -------
Tax before exceptional items and remeasurements 666 604
--------------------------------------------------- ----- -------
Exceptional tax on items not included
in profit before tax (note 3) (94) (162)
Tax on other exceptional items and remeasurements (198) (15)
--------------------------------------------------- ----- -------
Tax on total exceptional items and remeasurements
(note 3) (292) (177)
--------------------------------------------------- ----- -------
Total tax charge from continuing operations 374 427
--------------------------------------------------- ----- -------
Tax as a percentage of profit before
tax %%
-------------------------------------------------- ----- ------
Before exceptional items and remeasurements
- continuing operations 23.7 25.0
After exceptional items and remeasurements
- continuing operations 17.1 18.3
--------------------------------------------------- ----- -------
The tax charge for the year can be analysed
as follows:
GBPm GBPm
-------------------------------------------------- ----- -------
Current tax
UK corporation tax at 20% (2016: 20%) 225 239
UK corporation tax adjustment in respect
of prior years (47) (5)
Overseas corporation tax - 38
Overseas corporation tax adjustment in
respect of prior years 1 (19)
Total current tax from continuing operations 179 253
--------------------------------------------------- ----- -------
Deferred tax
UK deferred tax (9) (80)
UK deferred tax adjustment in respect
of prior years (18) 24
Overseas deferred tax 224 229
Overseas deferred tax adjustment in respect
of prior years (2)1
--------------------------------------------------- ----- ------
Total deferred tax from continuing operations 195 174
--------------------------------------------------- ----- -------
Total tax charge from continuing operations 374 427
--------------------------------------------------- ----- -------
1. Comparative amounts have been re-presented to reflect the
classification of the UK Gas Distribution business as a
discontinued operation.
6. Earnings per share
Adjusted earnings and earnings per share, excluding exceptional
items and remeasurements, are provided to reflect the business
performance subtotals used by the Company. We have included
reconciliations from this additional EPS measure to earnings for
both basic and diluted EPS to provide additional detail for these
items. For further details of exceptional items and remeasurements,
see note 3.
(a) Basic earnings per share
Earnings Earnings
per per
Earnings share Earnings share
2017 2017 2016(1) 2016(1,2)
GBPm pence GBPm pence
---------------------------------------- --------- --------- --------- ----------
Adjusted earnings from continuing
operations 2,141 56.9 1,812 48.0
Exceptional items after tax from
continuing operations (312) (8.3) 162 4.3
Remeasurements after tax from
continuing operations (19) (0.5) (73) (1.9)
Earnings from continuing operations 1,810 48.1 1,901 50.4
---------------------------------------- --------- --------- --------- ----------
Adjusted earnings from discontinued
operations 607 16.1 574 15.2
Exceptional items after tax from
discontinued operations 62 1.6 116 3.1
Remeasurements after tax from
discontinued operations (5) (0.1) - -
Gain on disposal of UK Gas Distribution 5,321 141.4 - -
---------------------------------------- --------- --------- --------- ----------
Earnings from discontinued operations 5,985 159.0 690 18.3
---------------------------------------- --------- --------- --------- ----------
Total adjusted earnings 2,748 73.0 2,386 63.2
Total exceptional items after
tax (250) (6.7) 278 7.4
Total remeasurements after tax (24) (0.6) (73) (1.9)
Gain on disposal of UK Gas Distribution 5,321 141.4 - -
---------------------------------------- --------- --------- --------- ----------
Total earnings 7,795 207.1 2,591 68.7
---------------------------------------- --------- --------- --------- ----------
2017 2016
millions millions
---------------------------------------- --------- --------- --------- ----------
Weighted average number of shares
- basic(1) 3,763 3,774
---------------------------------------- --------- --------- --------- ----------
1. Comparative amounts have been re-presented to reflect the
classification of the UK Gas Distribution business as a
discontinued operation.
2. Comparative amounts have been restated to reflect the impact
of additional shares issued as scrip dividends.
(b) Diluted earnings per share
Earnings Earnings
per per
Earnings share Earnings share
2017 2017 2016(1) 2016(1,2)
GBPm pence GBPm pence
---------------------------------------- --------- --------- --------- ----------
Adjusted earnings from continuing
operations 2,141 56.7 1,812 47.8
Exceptional items after tax from
continuing operations (312) (8.3) 162 4.3
Remeasurements after tax from
continuing operations (19) (0.5) (73) (1.9)
Earnings from continuing operations 1,810 47.9 1,901 50.2
---------------------------------------- --------- --------- --------- ----------
Adjusted earnings from discontinued
operations 607 16.0 574 15.1
Exceptional items after tax from
discontinued operations 62 1.6 116 3.1
Remeasurements after tax from
discontinued operations (5) (0.1) - -
Gain on disposal of UK Gas Distribution 5,321 140.8 - -
---------------------------------------- --------- --------- --------- ----------
Earnings from discontinued operations 5,985 158.3 690 18.2
---------------------------------------- --------- --------- --------- ----------
Total adjusted earnings 2,748 72.7 2,386 63.0
Total exceptional items after
tax (250) (6.7) 278 7.3
Total remeasurements after tax (24) (0.6) (73) (1.9)
Gain on disposal of UK Gas Distribution 5,321 140.8 - -
---------------------------------------- --------- --------- --------- ----------
Total earnings 7,795 206.2 2,591 68.4
---------------------------------------- --------- --------- --------- ----------
2017 2016
millions Millions
---------------------------------------- --------- --------- --------- ----------
Weighted average number of shares
- basic(1) 3,780 3,790
---------------------------------------- --------- --------- --------- ----------
1. Comparative amounts have been re-presented to reflect the
classification of the UK Gas Distribution business as a
discontinued operation.
2. Comparative amounts have been restated to reflect the impact
of additional shares issued as scrip dividends.
7. Dividends
2017 2016
---------------------------- ----------------------------
Cash Cash
Pence dividend Scrip Pence dividend Scrip
per paid dividend per paid dividend
share GBPm GBPm share GBPm GBPm
----------------------------------- ------ --------- --------- ------ --------- ---------
Interim dividend in respect of
current year 15.17 540 32 15.00 532 31
Final dividend in respect of prior
year 28.34 923 151 28.16 805 248
43.51 1,463 183 43.16 1,337 279
----------------------------------- ------ --------- --------- ------ --------- ---------
Following completion of the sale of the majority interest in UK
Gas Distribution, on 19 April 2017 the Directors declared that an
aggregate of approximately GBP3.2bn would be returned to
shareholders through a special dividend of 84.375p per existing
ordinary share ($5.4224 per existing American Depositary Share).
The special dividend is to be paid to those shareholders on the
register of members at 19 May 2017.
The Directors are proposing a final dividend for the year ended
31 March 2017 of 29.10p per share that will absorb approximately
GBP1bn of shareholders' equity (assuming all amounts are settled in
cash). It will be paid on 16 August 2017 to shareholders who are on
the register of members at 2 June 2017 (subject to Shareholders'
approval at the AGM). A scrip dividend will be offered as an
alternative.
8. Discontinued operations and disposal of UK Gas
Distribution
On 8 December 2016 the Group entered into a sale agreement with
a consortium of long term infrastructure investors, to dispose of a
61% equity interest in the UK Gas Distribution business,
principally comprising the Group's equity and debt interests in
National Grid Gas Distribution Limited together with certain other
assets (principally property and a 45% interest in Xoserve
Limited). The Consortium comprises Macquarie Infrastructure and
Real Assets (MIRA), Allianz Capital Partners, Hermes Investment
Management, CIC Capital Corporation, Qatar Investment Authority,
Dalmore Capital and Amber Infrastructure Limited/International
Public Partnerships.
The transaction was contingent on merger clearance from the
European Commission, which was received on 16 March 2017, and the
transaction completed on 31 March 2017. The Group sold its 100%
equity interest in UK Gas Distribution to Quadgas Holdco Limited, a
newly incorporated UK limited company 61% owned by Quadgas
Investments Bidco Limited and 39% by the Group's subsidiary
National Grid Holdings One plc. In exchange, the Group received
cash consideration of GBP3,679m, and has recognised a shareholder
loan of GBP429m and a 39% equity interest in Quadgas Holdco
Limited.
In addition, as part of the disposal process, a newly
incorporated financing subsidiary of Quadgas Holdco Limited raised
GBP1,775m of long term debt, secured against the assets of National
Grid Gas Distribution Limited, and remitted cash received from this
transaction to the Group. This amount has been treated as part of
the net cash proceeds from the transaction totalling GBP5,454m.
The final amount of consideration remains subject to completion
adjustments which may result in a further gain/loss on disposal
within discontinued operations to be reported in 2017/18.
On 31 March 2017, the Group also entered into a Further
Acquisition Agreement (FAA) with the Consortium over a 14% interest
(relating to both our equity and the shareholder loan), which
includes the pricing mechanism, based on the price paid for the
initial 61% interest, and an annualised escalation factor. The FAA
contains put and call options for both the Group and the Consortium
that can be exercised in the period between 1 March 2019 and 31
October 2019.
The UK Gas Distribution business met the criteria to be
classified as held for sale at 8 December 2016, and depreciation
and amortisation (circa GBP25m per month) on tangible and
intangible fixed assets ceased from this date. The disposal of UK
Gas Distribution resulted in a GBP5.3bn gain on disposal.
The business represents a reportable segment and a separate
major line of business and accordingly has been presented as a
discontinued operation in the consolidated income statement,
consolidated statement of comprehensive income and the consolidated
cash flow statement. The segmental analysis in note 2 has also been
re-presented.
With respect to treasury activities, a Group-wide financing
exercise was undertaken in order to: a) ensure that the proportion
of debt to equity financing in National Grid Gas Distribution
Limited was in line with the requirements of its regulatory licence
and the financing structure of the business more generally; and b)
to optimise the mix of debt in the continuing businesses. The
financing exercise involved the buyback of debt and derivatives in
both of the Group's UK regulated subsidiaries (National Grid Gas
plc and National Grid Electricity Transmission plc) as well as the
novation of certain instruments to National Grid Gas Distribution
Limited, and the issue of new debt by National Grid Gas
Distribution Limited whilst under the Group's control prior to the
sale completion. Since all these activities formed part of a single
exercise, which would not have been undertaken in the absence of
the sale, all costs have been allocated to discontinued
operations.
8. Discontinued operations and disposal of UK Gas Distribution
continued
The presentation of the 2016/17 income statement is required to
be split between continuing and discontinued operations and to
re-present results for previous periods in a comparable manner.
Revenues, operating expenses and operating profits: Discontinued
results are closely aligned to the previously disclosed UK Gas
Distribution segment, with the results of Xoserve Limited
re-allocated from within Other activities. Resultant tax amounts
have then been charged in line with these results.
The Group has presented interest costs for the continuing
business on a basis consistent with how it expects to finance the
Group in future periods, to aid comparability in future periods.
Interest costs associated with debt and derivatives which remain in
the Group as at 31 March 2017 have been attributed to the
continuing group in full. Interest cost relating to instruments
bought back in the period since the disposal process started, debt
novated across, and debt and derivatives issued by UK Gas
Distribution as part of the liability management exercise have been
included within discontinued operations. The interest costs in the
comparative periods for discontinued operations only includes
interest that relates to the debt bought back in 2016/17 and the
debt novated into UK Gas Distribution in 2016/17.
Costs included in the gain on disposal total GBP1,837m. These
include GBP1,334m of financing costs (including debt buybacks), the
direct costs to sell UK Gas Distribution ('transaction costs'), and
business restructuring costs. Included within transaction costs is
GBP150m relating to a voluntary distribution to be made for the
benefit of energy consumers from the proceeds of the sale.
Income statement - discontinued operations
for the years ended 31 March 2017 2016
GBPm GBPm
----------------------------------------------- ----- -------
Revenue 1,887 1,903
Operating costs (993) (1,043)
Operating profit
Before exceptional items and remeasurements 894 882
Exceptional items and remeasurements(1) - (22)
Total operating profit from discontinued
operations 894 860
Finance costs
Before exceptional items and remeasurements (146) (157)
Exceptional items and remeasurements(2) (6) -
Total finance costs (152) (157)
Profit before tax from discontinued
operations
Before exceptional items and remeasurements 748 725
Exceptional items and remeasurements (6) (22)
Total profit before tax from discontinued
operations 742 703
Tax from discontinued operations
Before exceptional items and remeasurements (142) (149)
Exceptional items and remeasurements 63 138
Total tax from discontinued operations (79) (11)
Profit after tax from discontinued
operations
Before exceptional items and remeasurements 606 576
Exceptional items and remeasurements 57 116
Profit after tax from discontinued
operations 663 692
Gain on disposal of UK Gas Distribution
after tax 5,321 -
Total profit after tax from discontinued
operations 5,984 692
-------------------------------------------------- ----- -------
1. 2016 includes sale preparation costs of GBP22m in respect of
the disposal of the UK Gas Distribution business. Current year
costs have been included as part of transaction costs in
determining the gain on disposal.
2. 2017 includes losses in respect of remeasurements of derivative financial instruments.
8. Discontinued operations and disposal of UK Gas Distribution
continued
Statement of comprehensive income - discontinued operations
for the years ended 31 March 2017 2016
GBPm GBPm
---------------------------------------------------------------------- ----- ----
Profit after tax from discontinued operations 5,984 692
Other comprehensive income/(loss) from discontinued operations
Items that will never be reclassified to profit or loss:
Remeasurement (losses)/gains of pension assets and post-retirement
benefit obligations (75) 129
Tax on items that will never be reclassified to profit or
loss 13 (30)
----------------------------------------------------------------------- ----- ----
Total items from discontinued operations that will never be
reclassified to profit or loss (62) 99
----------------------------------------------------------------------- ----- ----
Items that may be reclassified subsequently to profit or loss:
Net losses in respect of cash flow hedges (106) (38)
Transferred to profit or loss in respect of cash flow hedges 233 3
Tax on items that may be reclassified subsequently to profit
or loss (23) 7
----------------------------------------------------------------------- ----- ----
Total items from discontinued operations that may be reclassified
subsequently to profit or loss 104 (28)
----------------------------------------------------------------------- ----- ----
Other comprehensive income for the year, net of tax from discontinued
operations 42 71
----------------------------------------------------------------------- ----- ----
Total comprehensive income for the year from discontinued
operations 6,026 763
----------------------------------------------------------------------- ----- ----
Gain on disposal of UK Gas Distribution
2017
GBPm
---------------------------------- -------
Assets
Intangible assets 89
Property, plant and equipment 8,700
Cash and cash equivalents 5
Trade and other receivables 274
Defined benefit pension asset 37
Other assets(1) 83
Total assets 9,188
------------------------------------ -------
Liabilities
Borrowings(1) (5,961)
Trade and other payables (488)
Provisions (94)
Deferred tax liabilities (1,073)
Defined benefit pension liability (3)
Deferred income (915)
Other liabilities (6)
------------------------------------ -------
Total liabilities (8,540)
------------------------------------ -------
Net assets on disposal 648
------------------------------------ -------
Satisfied by:
------------------------------ -------
Cash proceeds 3,679
Loan proceeds 1,775
Shareholder loan 429
Associate at fair value 1,611
-------------------------------- -------
Total consideration 7,494
-------------------------------- -------
Less:
Financing costs (1,334)
Transaction costs (305)
Business restructuring costs (198)
-------------------------------- -------
Pre-tax gain on disposal 5,009
Tax 312
-------------------------------- -------
Post-tax gain on disposal 5,321
-------------------------------- -------
1. Net debt disposal of GBP5,890m principally comprises
GBP5,961m of borrowings net of GBP71m of other financial
assets.
9. Reconciliation of net cash flow to movement in net debt
2017 2016
GBPm GBPm
-------------------------------------- -------- --------
Increase in cash and cash equivalents 984 4
Increase in financial investments 5,675 391
Increase in borrowings and related
derivatives (3,715) (1,100)
Net interest paid on the components
of net debt 1,955 810
--------------------------------------- -------- --------
Change in net debt resulting from
cash flows 4,899 105
Changes in fair value of financial
assets and liabilities and exchange
movements (2,273) (515)
Net interest charge on the components
of net debt(1) (2,401) (913)
Disposal of UK Gas Distribution 5,890 -
Other non-cash movements (64) (87)
--------------------------------------- --------
Movement in net debt (net of related
derivative financial instruments)
in the year 6,051 (1,410)
Net debt (net of related derivative
financial instruments) at start of
year (25,325) (23,915)
--------------------------------------- -------- --------
Net debt (net of related derivative
financial instruments) at end of
year (19,274) (25,325)
--------------------------------------- -------- --------
1. An exceptional charge of GBP1,313m (2016: GBPnil) is included
in net interest charge on the components of net debt and an
exceptional cash outflow of GBP1,052m (2016: GBPnil) is included in
net interest paid on the components of net debt.
10. Net debt
2017 2016
GBPm GBPm
--------------------------------------- -------- --------
Cash and cash equivalents 1,139 127
Bank overdrafts - (3)
---------------------------------------- -------- --------
Net cash and cash equivalents 1,139 124
Financial investments 8,741 2,998
Borrowings (excluding bank overdrafts) (28,638) (28,341)
Net debt related derivative financial
assets 1,707 1,963
Net debt related derivative financial
liabilities (2,223) (2,069)
---------------------------------------- -------- --------
Net debt (net of related derivative
financial instruments) (19,274) (25,325)
---------------------------------------- -------- --------
11. Commitments and contingencies
2017 2016
GBPm GBPm
-------------------------------------- ----- -----
Future capital expenditure contracted
for but not provided 2,571 2,616
Operating lease commitments 619 642
Energy purchase commitments 5,699 4,302
Guarantees and letters of credit
(a) 2,780 2,391
(a) Guarantees and letters of credit
2017 2016
GBPm GBPm
--------------------------------------------------- ----- -----
Guarantee of sublease for US property (expires
2040) 225 219
Guarantees of certain obligations of Grain
LNG Import Terminal (expire up to 2028) 100 113
Guarantees of certain obligations for construction
of HVDC West Coast Link (expected expiry
2017) 281 415
Guarantees of certain obligations of Nemo
Link Limited (various expiry dates) 140 166
Guarantees of certain obligations of National
Grid North Sea Link Limited (various expiry
dates) 1,059 1,038
Guarantees of certain obligations of construction
of IFA2 SAS (expected expiry 2021) 354 -
Guarantees of certain obligations of St
William Homes LLP (various expiry dates) 147 96
Other guarantees and letters of credit
(various expiry dates) 474 344
---------------------------------------------------- ----- -----
2,780 2,391
--------------------------------------------------- ----- -----
(b) Litigation and claims
Through the ordinary course of our operations, we are party to
various litigations, 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.
12. 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:
2017 2016
---------------------------------- ---- ----
Closing rate applied at year end 1.25 1.44
Average rate applied for the year 1.28 1.47
----------------------------------- ---- ----
13. Related party transactions
The following significant transactions with related parties were
in the normal course of business. Amounts receivable from and
payable to related parties are due on normal commercial terms:
2017 2016
GBPm GBPm
------------------------------------------ ---- ----
Sales: Goods and services supplied
to a pension plan 3 3
Sales: Goods and services supplied
to joint ventures(1) 78 9
Sales: Goods and services supplied
associates - 4
Purchases: Goods and services received
from joint ventures(2) 168 183
Purchases: Goods and services received
from associates(2) 169 83
Receivable from joint ventures 64 7
Receivable from associates(3) 457 -
Payable to joint ventures(4) 84 96
Payable to associates 27 7
Dividends received from joint ventures(5) 75 48
Dividends received from associates 24 24
1. During the year the Company sold property sites to joint
venture St William Homes LLP.
2. During the year the Company received goods and services from
a number of US associates, both for the transportation of gas and
for pipeline services in the US. Additionally, goods and services
were received from UK joint ventures for the construction of a
transmission link in the UK.
3. Amounts receivable from associates includes a loan receivable
balance from Quadgas Holdco Limited of GBP434m as a result of the
sale of the UK Gas Distribution business and a loan receivable
balance of GBP61m from Nemo Link Limited.
4. Amounts payable to joint ventures include deposits received
for National Grid property sites from St William Homes LLP.
5. Dividends in respect of joint ventures were received from
BritNed Development Limited.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR DMGMKFNNGNZZ
(END) Dow Jones Newswires
May 18, 2017 02:01 ET (06:01 GMT)
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