TIDMNG.
RNS Number : 8507N
National Grid PLC
21 May 2015
21 May 2015
National Grid plc
Results for the year ended 31 March 2015
Steve Holliday, Chief Executive, said: "National Grid delivered
another successful year. Overall, our businesses achieved a strong
operating performance and we developed new strategic growth
opportunities in transmission and interconnection. We invested
around GBP3.5bn in essential infrastructure during another year of
strong network reliability, safety and resilience. Effective
regulation continues to drive efficient investment. In the UK, for
example, savings generated in the first two years of the RIIO price
controls will reduce future customer bills by around GBP200m."
Good operational and strategic progress led by efficiencies and
investment
UK regulated: Ongoing benefit from 2013 restructuring, improved
efficiency and incentive performance
-- RIIO incentive performance contributed 270bp (2013/14: 180bp)
to UK Return on Equity with pre-determined additional allowances
contributing a further 90bp (2013/14: 80bp)
-- Capital investment of GBP1.8bn with regulated asset value up 2% to GBP25.4bn.
US regulated: Profits maintained, supported by additional
revenues from existing rate plans
-- Return on Equity 8.4% (2013: 9.0%) reflecting increased rate base and additional winter costs
-- Record capital investment of $2.4bn; $0.9bn total (7%
underlying) growth in rate base to $17.2bn
-- Completed financial systems upgrade and now preparing for important rate filings in 2015/16
New business activities: Good strategic progress with new
investments approved
-- EUR1.4bn planned investments approved for Norway and Belgium interconnector projects
-- London property joint venture agreed; first site transfer expected during 2015/16
-- Continued progress developing multiple US transmission investment opportunities
Strong overall financial performance maintaining robust
financial position
-- Group Return on Equity 11.8% (2013/14: 11.4%); Value Added(1) of GBP1.7bn or 44.7p per share
-- Adj. operating profit, excl. timing, up 5% to GBP3,927m
(2013/14: GBP3,731m) at constant currency
-- Adj. EPS, excl. timing, up 10% to 59.6p (2013/14: 54.4p)
-- Strong balance sheet and cash flows; sustained financial
metrics consistent with A- credit rating
-- Recommended final dividend of 28.16p/share (2013/14: 27.54p);
full year dividend up 2.0% to 42.87p (2013/14: 42.03p), in line
with inflation and policy
Financial results for continuing operations
Adjusted results(1) Statutory results
Year ended 31 March 2015 2014(1) % change 2015 20141 % change
---------------------------- ------ -------- --------- ------ ------ ---------
Operating profit (GBPm) 3,863 3,664 5 3,780 3,735 1
Profit before tax
(GBPm) 2,876 2,584 11 2,628 2,748 (4)
Earnings per share
(p) 58.1 53.5 9 53.6 65.7 (18)
---------------------------- ------ -------- --------- ------ ------ ---------
Commenting on the outlook for 2015/16, Steve Holliday added: "We
finished the year in a solid position, with a strong cash flow
performance, good growth in our asset base and healthy gearing. We
are on track with our programme of rate filings, operational
efficiencies and enhancements to customer service. At the same
time, we continue to invest in our UK and US businesses, driving
organic growth, which together with strong returns, support our
commitment to a sustainable, growing dividend."
CONTACTS
Investors
+44 (0)7810 831944
John Dawson +44 (0)20 7004 3170 (m)
+44 (0)7752 890787
Andy Mead +44 (0)20 7004 3166 (m)
+44 (0)7771 973447
Victoria Davies +44 (0)20 7004 3171 (m)
+44 (0)7768 294017
Richard Foster +44 (0)20 7004 3169 (m)
+44 (0)7789 878784
Michael Ioanilli +44 (0)20 7004 3006 (m)
George Laskaris +1 718 403 2526 +1 917 375 0989 (m)
Tom Hull +1 917 524 4099 (m)
Media
+44 (0)7774 827710
Chris Mostyn +44 (0)20 7004 3149 (m)
Brunswick
Tom Burns, Mike Smith or Emma
Walsh +44 (0)20 7404 5959
CONFERENCE CALL DETAILS
An analyst presentation will be held at the London Stock
Exchange, 10 Paternoster Square, London EC4M 7LS at 09:00 (BST)
today.
There will be a live webcast of the results presentation
available to view at investors.nationalgrid.com. The presentation
will be available through the same link as a replay this
afternoon.
Live telephone coverage of the analyst presentation at 09:00
UK dial in number +44 (0) 808 109 US dial in number +1 866 966 5335 (US
0700 Toll free)
+1 646 843 4608 (NY
Toll)
Confirmation National Grid
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In addition, John Dawson, Head of Investor Relations, will host
a conference call with Q&A at 14:00 (BST) this afternoon for
those unable to take part in the earlier presentation. Please use
the same dial in details.
Download our app: National Grid has an iPad app for investors.
Visit the App store and search 'National Grid IR'
Twitter: Follow our investor updates @nationalgridIR
National Grid image library available at
www.nationalgridmedia.com
The 2014/15 Annual Report and Accounts (ARA) is expected to be
publicly available on 5 June 2015. You can view or download copies
of the latest ARA and Shareholder Information leaflet from National
Grid's website at www.nationalgrid.com/investors or request a free
printed copy by contacting investor.relations@nationalgrid.com.
STRATEGIC AND OPERATIONAL REVIEW OF THE YEAR
A year of successful delivery for stakeholders in 2014/15
During 2014/15, National Grid delivered a number of important
objectives on behalf of customers and the wider industry. The UK
regulated business successfully implemented the first capacity
auctions and contracts for difference allocation process on behalf
of the UK government. It also completed the tunnelling activities
on the GBP900m London tunnels project and began cable laying on the
c. GBP1bn Western Link HVDC (high voltage direct current) project.
The US regulated business invested at record levels, completed the
final stabilisation upgrade of its financial systems and delivered
its goal of a step improvement in safety performance. At the same
time, collaborative engagement with UK and US regulators,
government and state officials around future energy policy and
network modernisation have kept National Grid at the heart of the
energy debate.
After significant development activity, in some cases spanning
several years, the Group reached final investment decisions on two
new UK interconnectors, agreed a joint venture to unlock value from
its London property portfolio and made progress towards investment
decisions in a number of US transmission opportunities.
At the same time, the business continued to deliver on
programmes to improve operational efficiency and drive good overall
group returns, customer benefits and continued balance sheet
strength. National Grid's achievements during 2014/15 have
positioned the Group well to deliver further success in 2015/16 and
beyond.
The Group's performance during 2014/15 was underpinned by the
sustainable and ethical way that National Grid conducts its
business and relationships with its employees, customers,
communities and other stakeholder groups. National Grid was pleased
that this approach was recognised through the award of Responsible
Business of the Year, 2014, by the UK's Business in the
Community.
Overall during 2014/15, National Grid continued to deliver the
essential operational performance elements that underpin
sustainable financial performance by the Group: safe operations,
strong customer service and reliable networks.
Strong reliability and safety performance demonstrate
effectiveness of targeted programmes
Over the course of the year, National Grid delivered high
standards of network reliability and availability for customers
across its electricity and gas transmission and distribution
infrastructure. This included a challenging period of very high
snowfall in the Northeast US, including record levels in Boston and
Buffalo.
The UK business made a number of process improvements to ensure
that networks were well prepared for the winter. Investment to
increase availability on the French interconnector also contributed
to a strong financial performance in that business. National Grid
also successfully implemented new electricity system balancing
products to address a reduced supply margin. Now trialled, these
services are again expected to be procured for the winter of
2015/16, with supply margins expected to be somewhat tighter than
in winter 2014/15.
Overall performance in the UK benefited from the groundwork laid
by its new operating model. This enabled good early results from
performance excellence initiatives, streamlined processes and
developments in design, planning, contracting and procurement.
These in turn helped to deliver further efficiencies in operations
and, importantly, within the UK regulated businesses' significant
investment programme (GBP1.8bn total investment in 2014/15). The
business remains focused on delivering the lowest sustainable cost
solutions, and the benefits of totex (total operating and capital
expenditure) savings will be shared with consumers. Following the
first two years of the RIIO price controls around GBP200m of the
savings generated by National Grid will contribute to reducing
future electricity and gas bills for consumers.
National Grid's share of totex efficiency savings is also key to
the delivery of appropriate returns for investors and a healthy
balance sheet to finance future investment. In this respect it has
been another strong year.
The US business again achieved good underlying operating
performance throughout the year. This included a second consecutive
period of exceptional winter weather in the Northeast US,
characterised by very heavy snowfall and high gas volumes during
February and March. These challenges clearly demonstrated the
benefit of investments made in new infrastructure and emergency
response, and helped deliver another year of strong network
reliability.
The US business completed the stabilisation upgrade of its
financial systems in the first half of the year. The new systems
are designed to facilitate future regulatory filings in order to
capture the benefit of the increased investments in asset
replacement, network reliability and customer growth. With good
quality information now being made available, the businesses have
started to compile a suitable "test year" of data to support future
filings.
Operations in the US have experienced a number of cost pressures
during 2014/15, including higher costs associated with gas main
leakages and repair activities. These were exacerbated by high
system demand due to the exceptionally cold winters of 2013/14 and
2014/15. The related impact on customers' bills also resulted in
increased levels of bad debts. Despite these pressures,
profitability has remained steady and National Grid believes the
business is well positioned to secure appropriate rate case
outcomes from its future filings.
Group safety performance has again been good with the UK
continuing to achieve world class standards. For 2014/15, the US
business set stretching targets for improved safety performance, to
help achieve similarly high standards. Against this backdrop, and
despite the challenging working conditions caused by the extreme
winter weather, the US business achieved good internal progress,
delivering a 21% improvement in lost time injury frequency rate.
However, further work will continue with various contractors and
suppliers to ensure they consistently meet National Grid's rigorous
standards.
Record year of US investment and new business opportunities
support long-term growth
The Group continues to operate in a positive environment for
future long term growth, led by improvements to environmental,
safety and operational performance of existing assets together with
investment to connect new customers, new generation and
interconnectors.
During the year, National Grid successfully ran both the UK's
Capacity Market Auction for delivery year 2018 and the allocation
of contracts for difference on behalf of the Department of Energy
and Climate Change (DECC). These provided additional clarity on
likely new generation investment in the near future and the results
are consistent with the investment forecasts within the RIIO
Stakeholder documents that National Grid published in September
2014. These featured a range of investment scenarios including a
lower case, where UK investment continues broadly in line with
2013/14 levels in real terms throughout the RIIO-T1 period, and a
higher case, in which new generation investment drives an increase
in transmission spend in the later RIIO-T1 years of up to GBP1bn
per annum.
In aggregate these scenarios would see National Grid's UK
regulated businesses, including both transmission and distribution,
investing between GBP16bn and GBP20bn over the eight year RIIO
period in new capital projects to sustain the essential energy
infrastructure in Great Britain. Overall, UK regulated asset growth
in these scenarios would be 5% to 6% per annum on average.
During 2014/15, National Grid's UK regulated businesses have
invested slightly below the levels expected under these scenarios,
in part driven by delays to the Western Link project which were
highlighted at the time of the half-year results in November 2014.
Combined with a period of lower RPI inflation during 2014/15 this
has resulted in a reduction in the rate of UK regulated asset
growth compared to the Company's medium term expectations. Non-load
related and replacement spend of GBP1.2bn and load related spend of
GBP0.6bn contributed to UK regulated asset value growth of GBP0.5bn
(2%) in the year.
In US regulated operations, the Company again increased
investment activity, delivering a record year of network investment
of nearly $2.4bn. This included accelerated gas main replacement
activities, new gas connections and electricity system
reinforcement. Regulators in the Northeast US are generally
acknowledging the need for, and benefit of, such increased
investment and as a result have been supportive of capital tracker
mechanisms that encourage such investments. These benefits include
bringing low-carbon, affordable energy to existing and new
customers, environmental and safety benefits from increased gas
distribution pipe replacement and increased electricity system
resilience and accessibility for embedded generation.
Increased US investment in 2014/15 contributed to increased
underlying US rate base growth of 7% (excluding working capital
movements) compared to 5% last year on the same basis. This was
slightly above the Group's medium term expectation of underlying US
rate base growth of around 5% per annum and National Grid now
expects core US rate base growth to exceed 5% for the next several
years.
Investment in other activities and joint ventures increased to
GBP213m in 2014/15 compared to GBP184m in 2013/14. National Grid
expects this level of investment to increase significantly over the
next few years. The Group has reached final investment decisions on
two new UK electricity interconnectors and is working towards
decisions on a further two. National Grid has also progressed a
number of opportunities for transmission joint ventures and
interconnector investments in the US, discussed later in the
business sections. In addition, in November 2014 the Group
announced a joint venture with the Berkeley Group designed to
unlock additional value from National Grid's property portfolio.
The structure of the project has the potential to realise a
materially higher value for National Grid than direct land sales.
In addition, it should accelerate the development of the portfolio,
making valuable brownfield sites available for the wider
community.
These developments provide additional short to medium term
growth opportunities and, longer term, the potential for additional
earnings and cash flow to support further growth opportunities.
Consistent strategy designed to deliver added value and cash
returns
The Group's strategy is unchanged. National Grid focuses on
owning and operating gas and electricity transmission and
distribution infrastructure in the UK and the Northeast US. This
strategy is designed to deliver Value Added through attractive
returns to shareholders from a healthy, growing, dividend combined
with sustainable growth in the per share value of equity assets. To
achieve this, the business must deliver efficient operational and
financing performance and maintain an appropriate balance between
debt and equity funding, in part by targeting an asset portfolio
with a suitable mix of cash yield and growth.
National Grid invests in assets that can add value by earning
good returns while managing risk on behalf of shareholders,
customers and other stakeholders. The Group aims to provide high
standards of customer service through the efficient, safe and
reliable operation of its networks. Driving these benefits for
customers enables the continuation and further development of
appropriate regulatory arrangements including a reasonable balance
of remuneration between immediate cash yield and regulated asset
growth that generates future cash returns.
Overall, the Group believes that its current portfolio of
businesses delivers a good mix of cash yield and growth and that
the Group has the financial capacity to fund organic growth and
invest in other related transmission opportunities. These are
expected to begin to deliver additional cash, and support
shareholder returns, from around the start of the next decade.
Underlying performance in the year demonstrates efficiency and
portfolio balance
National Grid measures the overall level of operational and
financing performance using two principal metrics; Return on
Equity, and Value Added. Return on Equity provides a measure of the
efficiency of the Group's operations and Value Added demonstrates
the level of regulated asset growth and yield within shareholder
returns and also the balance of funding between debt and equity.
These two metrics are now incorporated into the long term incentive
arrangements for the management team.
Group Return on Equity improved to 11.8% driven by strong UK
performance and financing
During the year, the UK regulated businesses delivered good
returns of 13.7% in aggregate in the second year of their new price
controls (2013/14: 12.7%), including the assumed 3% long run
average RPI inflation. US Return on Equity (on a higher average
equity ratio than the UK) of 8.4% was down on last year, reflecting
the additional maintenance and bad debt costs highlighted earlier
and the increased level of rate base growth since 2013. Overall,
other activities in the Group delivered a good performance,
including an improved result from the French interconnector and
lower US system costs following the successful upgrade in the first
half of the year. Treasury performance also helped the result,
partly assisted by lower RPI accretions on the Group's index linked
debt. Together with favourable UK legal settlements, these helped
to offset the headwind from lower cost of debt allowances under the
tracker within the new UK price controls. As a result, overall
post-tax Group Return on Equity was 11.8% (2013/14: 11.4%), with
the improved regulated financial performance this year more than
covering the effect of the strong growth in assets in 2013/14.
Value Added of GBP1.7bn, held back by around GBP500m headwind of
lower inflation
The Value Added metric reflects the key components of value
delivery to shareholders of dividend and growth in the value of
National Grid's assets net of the growth in net debt. The per share
measure also reflects the funding of this growth and any dilution
of the equity investment through, for example, scrip dividend
take-up.
Overall Valued Added in the year was GBP1.7bn or 44.7p per
share.
Value Added (GBPm constant 2015 2014 Change % 2013/14
currency)
----------------------------------- ------- ------- -------- ----- --------
UK regulated assets(1) 25,544 25,194 350 1% 986
US regulated assets(2) 13,480 12,546 934 7% 849
Other invested capital 1,562 1,721 (159) (9)% 138
----------------------------------- ------- ------- -------- ----- --------
Total group regulated and other
assets 40,586 39,461 1,125 3% 1,973
Dividend/share repurchase in
the year 1,606 1,059
Movement in Net Debt and Goodwill (1,046) (6%) (899)
Value Added 1,685 2,133
Value Added per Share(3) 44.7p 57.2p
(1) Consists of the regulated asset values 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
(2) US regulated assets increased from $18.7bn to $20.0bn in the
year. These represent rate base plus assets outside of rate base
including working capital
(3) Based on 3,766m weighted average shares for 2014/15
(2013/14: 3,729m)
Value Added in the year was lower than 2013/14, primarily led by
the impact of lower RPI on UK regulated asset growth and the impact
of debt buybacks in the year. This was partly offset by reduced
cash interest payments and lower accretions on index linked
borrowings, reflected in a net debt increase only around GBP150m
higher than in 2013/14. This was despite an increased level of
capital investment and an increased level of cash returned to
shareholders in 2014/15. RPI inflation for March 2015 was 0.9%
compared to 2.5% in March 2014. Removing the impact of debt
buybacks and normalising for National Grid's long run assumption of
3% RPI for both years, Value Added for 2014/15 would have been
around GBP600m higher, in line with the normalised 2013/14
level.
Of the GBP1.7bn Value Added in 2014/15, GBP1,271m was paid to
shareholders as cash dividends and GBP335m as share repurchases
(offsetting the scrip issuance during the year), with GBP0.1bn
retained in the business. This compared with a GBP1bn increase in
net debt (before currency impacts). As a result, despite the lower
UK inflation in the year, the Group was still able to fund asset
growth for the year with a mix of debt and equity and was
comfortably able to maintain a strong balance sheet consistent with
an A-/A3 group credit rating.
Asset growth 3% across the Group, GBP1.1bn in total at constant
currency
During the course of 2014/15 National Grid grew its total
regulated and other assets by GBP1.1bn to over GBP40bn. This
reflected a net increase of GBP350m (2013/14: GBP1.0bn) in UK
regulated assets and a GBP934m increase in the value of US
regulated assets at constant currency. Within the UK business,
asset growth included capitalised efficiencies or "performance RAV"
of an estimated GBP111m in the year.
The effects of lower year-end inflation on the value of the UK
regulated asset growth held back overall growth in Group total
regulated and other assets to 3%. National Grid expects UK
inflation to return to long-run levels closer to 3% per annum by
the end of 2016, contributing to expected higher levels of asset
growth in the medium term.
Investment in assets outside of the principal regulated
activities was GBP213m in the year. This included GBP46m in
Metering and GBP43m in the LNG facility on the Isle of Grain.
National Grid is involved in a number of other strategic investment
opportunities in the UK and US and expects investment and asset
growth in this area to step up considerably over the second half of
this decade.
Credit metrics remain strong enabling effective elimination of
scrip dilution for 2014/15
Group gearing, measured as net debt as a proportion of total
regulated assets, was 62% at 31 March 2015, compared with 61% a
year before (restated at March 2015 FX levels). The Board believes
that gearing remains at a comfortable level for the current credit
rating. Retained cash flow (RCF) / adjusted net debt was 11.2%, or
around 9.9% after deducting share buyback costs; both measures
comfortably above the 9% level currently indicated by Moody's as
consistent with an A3 rating.
On average, National Grid expects to issue GBP2bn to GBP3bn of
long-term debt each year to fund the expansion of the business and
to refinance maturing debt. The current credit ratings of the Group
are an important factor in the businesses' ability to access
funding at attractive rates and in a wide range of currencies and
markets. The Board believes that maintaining these credit ratings,
with the resultant access to liquidity and attractive funding
costs, is a key driver of value for the Group.
In May 2014, the Board decided to take a more active approach
towards managing the dilution arising through the operation of its
scrip dividend programme. The scrip dividend programme is an
efficient means for many investors to reinvest cash dividends in
National Grid shares and can provide balance sheet support during a
period of higher asset growth. However, excess take-up, over and
above that required to make an effective and timely contribution
toward the long-term financing of the Group, is undesirable. Given
the strong underlying performance of the business, current
financial position and medium term expectations, the Group has been
able to repurchase the 37.4m shares issued over the course of the
year under the scrip programme and still retain an appropriately
financed balance sheet.
Dividend increase of 2.0% recommended for 2014/15
National Grid's dividend policy aims to grow the ordinary
dividend 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
28.16p per ordinary share ($2.1866 per American Depositary Share).
If approved, this will bring the full year dividend to 42.87p per
ordinary share, an increase of 2.0% over the 42.03p per ordinary
share in respect of the financial year ending 31 March 2014. This
2.0% rise is in line with the increase in average UK RPI for the
twelve months to 31 March 2015 compared with the average for
2013/14 and as set out in the policy announcement of 28 March
2013.
The decision to grow the dividend at the rate of RPI inflation
this year is consistent with the Board's wish to deliver healthy
dividend growth combined with a considered approach to long term
financing as discussed above.
If approved the final dividend for 2014/15 will be paid on 5
August 2015 to shareholders on the register as at 5 June 2015. A
scrip dividend alternative will again be offered. At the AGM, the
Directors will again be seeking authority to allot and buy-back
shares as is normal practice and the Board expects to continue the
active approach towards managing any impact of a lower than desired
take up or any excess dilution arising through the operation of its
scrip dividend programme.
Board changes
On 23 October 2014, National Grid announced that Tom King,
Executive Director, US, would be standing down from the Board and
leaving the Company on 31 March 2015. Tom has been succeeded by
Dean Seavers who joined the Company in December 2014 and joined the
Board as Executive Director, US with effect from 1 April 2015.
In July 2014, John Pettigrew, who joined the Board in April
2014, became Executive Director, UK and, as previously announced,
Nick Winser, formerly Executive Director, UK, and Maria Richter,
Non-executive Director and Finance Committee chairman, stood down
from the Board. Therese Esperdy was appointed as chairman of the
Finance Committee with effect from 28 July 2014 and as a member of
the Audit Committee on 22 April 2015.
Philip Aiken stepped down from the Board in February 2015.
Following his departure, Paul Golby was appointed as chairman of
the Safety, Environment and Health Committee, as well as a member
of the Audit Committee. Paul remains a member of the Nominations
and Remuneration Committees.
OUTLOOK
The Group has finished the year in a solid position, with a
strong cash flow performance, good growth in asset base and healthy
gearing. National Grid is on track with a programme of rate
filings, operational efficiencies and enhancements to customer
service. At the same time, the Group continues to invest in its UK
and US businesses, driving organic growth, which together with
strong returns, support the commitment to a sustainable, growing
dividend.
FINANCIAL REVIEW
Unless otherwise stated, all financial commentaries in this
release are given on an adjusted basis at actual exchange rates.
For definitions see the definitions and metrics section on pages 36
to 40 of this statement.
Operating profit excluding timing Year ended 31 March
(GBPm) 2015 2014 % change
------------------------------------------- ------ ------ ---------
UK Electricity Transmission 1,326 1,147 16
UK Gas Transmission 455 438 4
UK Gas Distribution 813 875 (7)
US Regulated 1,134 1,115 2
Other activities 199 131 52
Group total operating profit excluding
timing 3,927 3,706 6
------------------------------------------- ------ ------ ---------
Operating profit Year ended 31 March
(GBPm) 2015 2014 % change
--------------------------------- ------ ------ ---------
UK Electricity Transmission 1,237 1,087 14
UK Gas Transmission 437 417 5
UK Gas Distribution 826 904 (9)
US Regulated 1,164 1,125 3
Other activities 199 131 52
Group total operating profit 3,863 3,664 5
--------------------------------- ------ ------ ---------
Other selected financial information Year ended 31 March
(GBPm) 2015 2014 % change
-------------------------------------------------- -------- -------- ---------
Depreciation and amortisation (1,482) (1,416) (5)
Net finance costs (1,033) (1,108) 7
Taxation excluding timing (703) (589) (19)
Taxation (695) (581) (20)
Effective tax rate (%) 24.2% 22.5% n/a
Share of post-tax results of joint
ventures 46 28 64
Minority interest 8 12 (33)
Earnings attributable to equity shareholders
excluding timing 2,245 2,049 10
Earnings per share excluding timing
(p) 59.6 54.4 10
Earnings attributable to equity shareholders 2,189 2,015 9
Earnings per share (p) 58.1 53.5 9
-------------------------------------------------- -------- -------- ---------
Other selected financial information Year ended 31 March
(GBPm) - constant currency 2015 2014 % change
-------------------------------------- -------- -------- ---------
US Regulated operating profit 1,164 1,155 1
Other activities operating profit 199 126 58
Group total operating profit 3,863 3,689 5
Timing adjustment 64 42 52
Operating profit excluding timing 3,927 3,731 5
Depreciation and amortisation (1,482) (1,429) (4)
Net finance costs (1,033) (1,125) 8
-------------------------------------- -------- -------- ---------
Operating profit and controllable costs
Operating profit was GBP3,863m, up GBP199m (up 5%) compared with
last year at actual exchange rates. The year on year movement in
exchange rates had a GBP25m positive impact on operating profit. On
a constant currency basis, operating profit was up GBP174m (up 5%).
This included a negative year on year timing movement of
GBP22m:
Over/(under)-recovery Year ended 31 March Year on year
(GBPm - constant currency) change
----------------------------------- -------------
2015 2014
----------------------------------- ---------- ---------- -------------
Balance at start of period
(restated) 37* 105
In-year over/(under)-recovery (64) (42) (22)
Balance at end of period (27) 63
----------------------------------- ---------- ----------
Operating profit 3,863 3,689 174
Adjust for timing differences 64 42 22
----------------------------------- ---------- ---------- -------------
Operating profit excluding
timing 3,927 3,731 196
----------------------------------- ---------- ---------- -------------
*restated to reflect finalisation of UK timing balances
Operating profit excluding timing increased by GBP196m (up 5%)
on a constant currency basis.
Operating profit from regulated activities increased by GBP123m
on a constant currency basis, excluding the impact of timing. Net
regulated income increased by GBP342m, due to the impact of RPI
indexation and revenue increases in the second year of the RIIO
price controls on UK regulated revenues combined with US revenue
growth from existing rate plans and gas customer growth. Regulated
controllable costs increased by GBP61m while post-retirement costs
increased by GBP2m and bad debts increased by GBP62m. Depreciation
and amortisation increased by GBP70m and other costs, including the
impact of year on year changes in environmental liabilities and the
impact of smaller storms, increased by GBP24m.
The Group's other activities contributed GBP73m more to
operating profit than last year on a constant currency basis,
primarily due to increased revenues in the French Interconnector
business and a reduction in costs relating to the implementation of
new US financial systems and processes.
As above, regulated controllable costs increased by GBP61m on a
constant currency basis compared with last year. This included
around GBP56m of additional costs associated with maintenance, both
in the US, relating to gas mains repair and vegetation management,
and in the UK with additional maintenance expenditure delivering
overall totex benefits by reducing capex requirements. Excluding
these costs, and some offsetting net year on year benefits,
underlying regulated controllable costs increased by around GBP54m,
around 2.7%, reflecting inflationary impacts on salaries and other
costs partly offset by a continued drive for efficiency across
National Grid's businesses.
Interest and taxation
Net finance costs were GBP1,033m, GBP75m lower than 2013/14 at
actual exchange rates and GBP92m lower than 2013/14 at constant
currency.
Continued refinancing of debt at lower prevailing interest rates
and strong treasury management combined with reduced cash balances
and lower accretions on index linked borrowings reduced overall
finance costs. Pension related interest charges also reduced. These
effects were partly offset by GBP62m lower capitalisation of
interest.
The effective interest rate on Treasury managed debt for the
year was 4.3% compared with 4.9% in 2013/14.
Profit before tax and taxation
The Company's share of post tax results of joint ventures and
associates was GBP46m, up GBP18m from 2013/14, following an
increased contribution from the BritNed interconnector.
Profit before tax was up 11% at actual exchange rates to
GBP2,876m. Excluding the impact of timing, profit before tax was up
12% to GBP2,940m.
The tax charge on profits was GBP695m, GBP114m higher than
2013/14 at actual exchange rates, principally reflecting increased
operating profits, lower interest charges and the non-recurrence of
prior year adjustments, partly offset by a reduction in the UK
corporation tax rate. As a result, the reported effective tax rate
increased to 24.2% from 22.5% in the previous year.
Corporation tax paid in the UK in 2014/15 increased by GBP24m to
GBP353m.
Other earnings metrics, EPS, exceptional and statutory
earnings
Earnings attributable to non-controlling interests (minority
interests) were GBP(8)m (2013/14 GBP(12)m), principally
representing the impact of consolidating National Grid's investment
in Clean Line, a US transmission business.
As a result, earnings attributable to equity shareholders were
GBP2,189m, up GBP174m compared with 2013/14. Earnings per share
increased 9% from 53.5p last year (restated for the impact of
shares issued under the scrip dividend programme) to 58.1p.
Excluding the impact of timing, earnings attributable to equity
shareholders were GBP2,245m, up GBP196m compared with 2013/14, and
earnings per share increased by 10% year on year to 59.6p.
Exceptional items and remeasurements decreased statutory
earnings by GBP170m after tax. A detailed breakdown of these items
can be found on page 51. After these items and non-controlling
interests, statutory earnings for continuing operations
attributable to equity shareholders were GBP2,019m.
Statutory basic earnings per share were 53.6p compared with
65.7p (restated) last year. The reduction (compared to the increase
in adjusted EPS) reflected a large exceptional pension credit in
2013/14 related to the discontinuation of the LIPA arrangements, a
large exceptional deferred tax credit in 2013/14 related to a
reduction in UK corporation tax rates and exceptional debt
redemption costs in 2014/15.
Cash flow
Operating cash flow, before exceptional items, remeasurements
and taxation, was GBP5,367m, GBP798m higher than 2013/14,
principally reflecting higher operating profits and working capital
inflows in the US following the cold winter of 2013/14.
Funding and Net Debt
Net debt as at 31 March 2015 increased by GBP2.7bn to GBP23.9bn
(2014: GBP21.2bn). As at 31 March 2014 the Group maintained
approximately $23bn 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
GBP1.7bn.
The remaining increase was the result of GBP4.1bn of cash inflow
before capex and shareholder returns, more than offset by dividends
and share buybacks of GBP1.6bn, capital investment of GBP3.3bn and
other non-cash and fair value movements of GBP0.2bn. This included
GBP133m of accretions on index linked debt, GBP48m lower than
2013/14.
Debt issuance in the year was primarily focused on refinancing
maturing debt. The US holding company, National Grid North America,
issued around GBP1bn equivalent of new capital markets instruments
through its Euro Medium Term Note programme in a variety of
currencies including Australian Dollars, US Dollars and Euros. In
addition Niagara Mohawk issued a dual tranche $900m bond.
In addition to around GBP1bn of long-term debt maturities, the
Group repurchased or retired approximately GBP0.9bn of further
long-term debt, including exercising the repurchase option in its
$1bn 2016 Yankee bond. As a result, the Group was able to reduce
cash and investment balances as at 31 March 2015 to GBP2.7bn
compared to GBP3.9bn at the start of the year, reducing the
associated cost of carry.
In addition, the Group agreed a new, RPI-linked, European
Investment Bank (EIB) loan which is capable of providing a further
GBP1.5bn of attractive debt financing and available to be drawn
over the course of 2015/16. This is the largest ever single loan by
the EIB and is now available to fund capital investment in National
Grid Electricity Transmission.
As a result, the Group considers that it is well funded for
2015/16. Over the next few years, National Grid expects to raise,
on average, around GBP2bn to GBP3bn of new long-term debt every
year to finance growth and refinance maturing debt.
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 16.4% and RCF to adjusted net debt was 11.2%,
(9.9% after deducting share buyback costs associated with
neutralising dilution from 20% scrip dividend uptake in the year).
FFO interest cover was 5.1x compared with 4.1x in 2013/14,
comfortably above National Grid's target of exceeding 3.0x.
During the year, Moody's upgraded the credit ratings of National
Grid's Niagara Mohawk business from A3 to A2, reflecting a more
positive view of the regulatory environment around that business.
Fitch downgraded the senior unsecured rating of KeySpan Energy
Distribution New York ("KEDNY") and KeySpan Energy Distribution
Long Island ("KEDLI") to A- and the rating of KeySpan Corporation
to BBB+. S&P placed the ratings of KEDNY and KEDLI on negative
outlook from their current mid single A ratings. These rating moves
were driven by the expectation of weaker financials in those
businesses until the expected revenue benefit of planned rate
filings is achieved.
Overall net debt as a proportion of total regulated asset base
at 31 March 2015 was 62% compared with 61% at 31 March 2014
(adjusted for actual exchange rates) partly reflecting reduced UK
asset growth resulting from lower RPI inflation and the impact of
debt buybacks.
BUSINESS REVIEW
In addition to IFRS 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 (UK and Regulatory Achieved Base or Allowed
Group) Debt:Equity Return on Equity Return on Equity
Calendar year (US) assumption
-------------
% 2015 2014 2015 2014
----------------------------- ------------- --------- --------- --------- ---------
UK Electricity Transmission 60:40 14.0 12.4 10.2 10.2
UK Gas Transmission 62.5:37.5 14.2 12.8 10.0 10.0
UK Gas Distribution 65:35 12.9 13.0 9.9 9.9
US Regulated avg. 50:50 8.4 9.0 9.7 9.8
Total Group 11.8 11.4
----------------------------- ------------- --------- ---------
Overall Group Return on Equity was 11.8% (prior year 11.4%)
reflecting a strong operational Return on Equity in the UK (14.3%
including the benefit of legal settlements), increased contribution
from other activities and good financing performance partly offset
by lower US returns.
Year ended 31 March Regulated Asset Value Total Regulated Assets
or Rate Base or Invested Capital
(GBPbn, at constant currency) 2015 2014 2015 2014
------------------------------- ----------- ----------- ------------ -----------
UK Electricity Transmission 11.3 10.9 11.4 11.1
UK Gas Transmission 5.6 5.5 5.7 5.7
UK Gas Distribution 8.5 8.5 8.4 8.5
US Regulated 11.6 11.0 13.5 12.6
Other Activities (invested
capital only) 1.6 1.7
------------------------------- ------------ -----------
Total Group 40.6 39.6
------------------------------- ------------ -----------
Total Group regulated and other assets grew 3% at constant
currency, with UK Electricity Transmission RAV and US rate base in
particular up 4% and 5% respectively.
Year ended 31 March Adjusted
Operating profit
(GBPm, at actual exchange rate) 2015 2014
--------------------------------- --------- ---------
UK Electricity Transmission 1,237 1,087
UK Gas Transmission 437 417
UK Gas Distribution 826 904
US Regulated 1,164 1,125
Other Activities 199 131
--------------------------------- --------- ---------
Total Group 3,863 3,664
--------------------------------- --------- ---------
Total Group adjusted operating profits increased by 5% to
GBP3,863m.
REVIEW OF UK ELECTRICITY TRANSMISSION OPERATIONS
Another strong year of reliability and safety performance
UK Electricity Transmission delivered another strong performance
in the second year of the eight year RIIO price controls,
delivering an improved Return on Equity and growing the asset base
while maintaining high standards of reliability and safety.
The business successfully delivered a number of important
projects over the course of the year, including major capital works
and management of the first capacity auctions and contracts for
difference (CfD) allocation process on behalf of DECC.
UK Electricity Transmission has built on major operating model
and process changes in 2013/14 to deliver further improvements in
performance, meeting outputs defined by the RIIO price control
efficiently and effectively. With innovation expected to drive
continued totex efficiency, the business is well positioned to
drive further savings which in turn will continue to deliver value
to customers.
Regulated Returns and Financial Performance reflect improved
efficiency and incentive delivery
Return on Equity 380bp above base levels
Return on Equity for the year, normalised for a long run
inflation rate of 3%, was 14.0% 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
Return on Equity 2014/15 2013/14
--------
Base return (including avg. 3% long run
inflation) 10.2% 10.2%
Totex incentive mechanism 2.1% 0.8%
Other revenue incentives 0.7% 0.7%
--------------------------------------------------- -------- --------
Return including in year incentive performance 13.0% 11.7%
Pre-determined additional allowances 1.0% 0.7%
Operational Return on Equity 14.0% 12.4%
--------------------------------------------------- -------- --------
Operational Return on Equity increased 160 basis points year on
year, primarily as a result of improvements in totex efficiency.
Totex was GBP1.3bn compared with an estimated allowance, adjusted
for outputs and phasing of spend, of GBP1.5bn. The Company's share
of this efficiency saving is expected to be GBP90m. Much of this
saving is reflected in an estimate of increased Performance
RAV.
The improved 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. The RIIO price control framework recognises the
requirement to deliver essential outputs that maintain and enhance
network reliability and asset health. National Grid aims to do this
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
Company over the course of 2014/15.
Responding to the challenging RIIO efficiency and incentive
targets, the business implemented a new UK operating model last
year to encourage innovative engineering solutions and process
efficiencies. 2014/15 was the first full year of benefits from the
new model, which have also contributed to the RIIO incentive
performance.
UK Electricity Transmission maintained a solid level of
performance under other revenue incentive schemes, generating
around 70bp of total return, equivalent to GBP40m of additional
revenue. The last year of the current Balancing Services Incentives
Scheme (BSIS) contributed GBP23m of pre-tax profit. Reliability and
SF(6) leakage performance also delivered positive incentive out
turns and environmental benefits in the year. Performance in
customer and stakeholder incentives was flat overall, compared to
2013/14 with an improved customer incentive performance offset by a
small reduction in stakeholder rewards. The business is working to
identify opportunities for future outperformance in both these
areas. National Grid continues to pursue innovative solutions to
delivering stakeholder needs and, in the year, UK Electricity
Transmission received Network Innovation Competition awards
totalling over GBP12.5m.
Regulated Financial Performance up 16% year on year
The regulated financial performance calculation adjusts reported
operating profit to reflect the impact of the businesses'
regulatory arrangements when presenting financial performance.
Regulated financial performance for UK Electricity Transmission
increased to GBP1,232m from GBP1,066m, up 16%. The year on year
movement reflected higher opening regulated asset value and the
higher achieved operational Return on Equity. There was also a one
off benefit of GBP56m from legal settlements. These were partially
offset by a reduced price control tracker cost of debt
allowance.
Reconciliation of regulated financial 2015
performance to operating profit (GBPm) 2014 % change
Operating profit 1,237 1,087 14
Movement in regulatory "IOUs" (130) (19)
Deferred taxation adjustment 88 53
RAV indexation (avg. 3% long run inflation) 326 301
Regulatory v IFRS Depreciation difference (352) (337)
Fast/Slow money adjustment 34 (2)
Pensions (48) (47)
Performance RAV created 77 30
------------------------------------------------- ------ ------ ---------
Regulated financial performance 1,232 1,066 16
------------------------------------------------- ------ ------ ---------
Regulated Financial Position grown by 3%
In the year, RAV grew by 4% driven by continued investment. This
growth rate was lower than the Company's expectation, mainly driven
by a lower level of inflation (0.9% in the year) and a lower level
of totex expenditure, reflecting delays to the Western Link
project. Net other regulatory assets decreased by GBP130m, partly
reflecting revenue received in the year associated with 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-T1.
2015 2014
---------------------------------------------- ------- -------
Opening Regulated Asset Value (RAV)* 10,854 10,044
---------------------------------------------- ------- -------
Asset additions (aka slow money) (actual) 1,034 1,220
Performance RAV or assets created 77 30
Inflation adjustment (actual RPI) 102 257
Depreciation and amortisation (728) (680)
-------
Closing RAV 11,339 10,871
---------------------------------------------- ------- -------
Opening balance of other regulated assets
and (liabilities)* 197 202
---------------------------------------------- ------- -------
Movement (130) (19)
---------------------------------------------- ------- -------
Closing balance 67 183
---------------------------------------------- ------- -------
Closing Regulated Financial Position 11,406 11,054
---------------------------------------------- ------- -------
*March 2014 opening balances adjusted to correspond with 2013/14
regulatory filings and calculations
Investment activities in 2014/15
Capital investment in UK Electricity Transmission was GBP1,074m,
GBP307m lower than the prior year. The reduction in spend reflected
delays in the manufacture of cable for the Western Link, a reduced
level of overhead line work and the improved totex efficiency
performance. Placing an emphasis on best value engineering reduces
capital spend and customer bills and sustains attractive levels of
asset growth, through the creation of performance RAV.
During the year, the business completed the tunnel network on
the major London Power Tunnels project, with the remainder of
works, including cabling activities, expected to complete ahead of
schedule and under budget. Overall, investment in the year
reflected GBP559m of this non-load related investment. Load related
spend was GBP515m and included new connections of over 400MW of new
wind generation. In addition significant investment has been made
in substations and cables to enable further electrification of the
rail network and support the construction of Crossrail in
London.
Regulatory and other business developments
In advance of winter 2014/15, margins between supply and demand
were expected to tighten, in part as a result of previously
unexpected generation capacity reductions. In consultation with
DECC the Company designed, tendered for and successfully tested two
new balancing services, the Demand Side Balancing Reserve and the
Supply Side Balancing Reserve, providing assurance that they would
be available if called upon. Over the winter, the products were not
utilised due to a combination of stronger than expected plant
availability, mild weather, healthy wind output and consistent
interconnector imports from France and the Netherlands. These new
products are also being procured to support winter 2015/16 when
supply margins are, again, expected to be tighter than in recent
years.
National Grid successfully administered capacity market and CfD
auctions on behalf of DECC during 2014/15. The capacity market
auction procured additional capacity for the first year of delivery
in 2018 and the first CfD auction offered contracts to 27
applicants.
The two year BSIS arrangements expired on 31 March 2015. New
arrangements with a post-sharing cap and floor of +GBP30m/-GBP30m,
are being finalised with Ofgem. The increasing operational
complexity of the system makes efficient system balancing ever more
challenging. Many of these factors are reflected in the new
regulatory models that measure performance under this incentive
and, as such, National Grid believes that the opportunity exists to
continue to deliver good results under the new BSIS incentive
arrangements.
Future activities and outlook
The outlook for UK Electricity Transmission in 2015/16 is
positive in terms of continued delivery of returns and asset
growth. Good opportunities remain 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 improved contract management processes, which leverage
benefits from increased competition and align the incentives of
partners with those of the business.
National Grid expects UK Electricity Transmission capital
investment in 2015/16 to increase slightly from the 2014/15 level
and to deliver real growth in regulated asset value, including the
benefit of efficiencies, of 3% above the rate of inflation in
2015/16.
The results of the recent CfD and capacity auctions remain
consistent with the investment scenarios submitted to Ofgem in
September 2014. These scenarios included UK regulated investment by
National Grid of GBP16bn to GBP20bn over the eight year RIIO price
control. Electricity Transmission investment under these scenarios
would be between GBP9bn and GBP13bn, with RAV growth on average of
between 6% and 8.5% per annum over the RIIO period including a 3%
RPI inflation assumption.
APPENDIX to REVIEW OF UK ELECTRICITY TRANSMISSION OPERATIONS
Revenue and Costs in 2014/15 on an IFRS basis
On an IFRS basis UK Electricity Transmission operating profit
was GBP1,237m, up GBP150m or 14%. Revenues in the year were lower
than the targeted level as milder weather reduced the level of
collected revenue below expectations. This forms part of the timing
adjustments below. Adjusting for timing movements, operating profit
increased by GBP179m including a GBP56m year on year benefit from
legal settlements.
The principal components of the movement in operating profit are
shown below.
Year ended 31 March
(GBPm) 2015 2014 % change
---------------------------------------- ------ ------ ---------
Net revenue 1,933 1,732 12%
Regulated controllable operating costs (283) (269) (5)%
Post-retirement costs (36) (32) (13)%
Other operating costs and provisions (1) (1) -
Depreciation and amortisation (376) (343) (10)%
---------------------------------------- ------ ------ ---------
Operating profit 1,237 1,087 14%
---------------------------------------- ------ ------ ---------
Less: Timing impact (89) (60)
Operating profit excluding timing 1,326 1,147 16%
Excluding the impact of timing, net revenue (net of pass through
costs) increased by GBP230m. This primarily reflected an increase
in the core regulated revenue allowances and also the benefit of
legal settlements.
Regulated controllable operating costs increased by GBP14m;
reflecting additional maintenance expenditure (delivering overall
totex benefits by reducing capex requirements) and business change
costs partly offset by one-off benefits from legal settlements.
Excluding these effects, underlying regulated controllable costs
were flat year on year. Post-retirement costs increased by
GBP4m.
Depreciation and amortisation increased by GBP33m, reflecting
investment driven growth in the asset base.
REVIEW OF UK GAS TRANSMISSION OPERATIONS
Strong operational performance driven by recent investments and
winter preparation
UK Gas Transmission delivered a good year in the second of eight
years under the RIIO price controls, building on the solid results
of 2013/14 to produce an improved Return on Equity. The business
continued to deliver good safety performance, repeating the
exceptionally strong levels of last year in the operations
business, with a second full year of zero lost time injuries
amongst both employees and contractors. There were no exceptionally
cold spells during the winter and there were also fewer threats
from flooding than in 2013/14. However, the system was called upon
to respond to a number of challenges, including supply volatility
from Norwegian gas fields. The key to meeting these challenges is
to maximise system availability, and the business has made good
progress in this respect. In 2014/15 UK Gas Transmission delivered
strong levels of network availability, reflecting the benefit of
recent investments and improvements in planning and maintenance
processes, particularly in relation to the compressor fleet.
Performance reflects continued prior period benefit and strong
incentive delivery
Return on Equity 420bp above base levels
Return on Equity for the year, using a long run inflation rate
of 3%, was 14.2% 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.
Return on Equity 2014/15 2013/14
--------
Base return (including avg. 3% long run
inflation) 10.0% 10.0%
Totex incentive mechanism (0.4)% (0.4)%
Other revenue incentives 2.4% 1.1%
--------------------------------------------------- -------- --------
Return including in year incentive performance 12.0% 10.7%
Pre-determined additional allowances 2.2% 2.1%
Operational Return on Equity 14.2% 12.8%
--------------------------------------------------- -------- --------
The business performed slightly below the targets set by the new
totex incentive mechanism in the second year of RIIO. Operating
costs were around GBP4m higher than allowance reflecting GBP6m of
residual costs associated with the restructuring programme of 2013
and 2014. Totex spend was approximately GBP290m compared with an
estimated allowance, adjusted for outputs and phasing, of around
GBP270m. The Company's share of this difference is expected to be
GBP(9)m.
Underlying totex performance reflects actions, taken in 2013 and
early 2014, to address the cost challenges of the new RIIO price
controls, including organisational restructuring. Throughout
2014/15, the business has continued to focus on delivering
operational efficiencies, in particular in improving the efficiency
of asset health and investment delivery processes. Successful
innovation is expected to be a key contributor in achieving future
cost efficiencies. In the year, UK Gas Transmission was awarded
GBP6m under Ofgem's network innovation competition to pursue
development of a new robotic device that can inspect below-ground
pipework at high pressure installations.
The business delivered a good year of performance within its
revenue incentive schemes framework. In particular, gas permits
performance (a one off incentive) was GBP29m in the year and
constraint management, transportation support services and
shrinkage incentives performance remained at similarly good levels
to those achieved in 2013/14. The positive performance under
stakeholder and customer service incentives reflected increased
efforts by the organisation in recent years to identify and address
the needs of a wide variety of stakeholders. Overall, the UK Gas
Transmission business delivered around 240 basis points of
additional returns through other revenue incentives. On a pre-tax
basis, this equates to an estimated GBP58m of additional revenue
allowance, most of which is due to be recovered in future years
under the RIIO funding mechanisms.
The strong contribution from pre-determined allowances results
mainly from legacy incentives relating to entry and exit capacity
mechanisms. This is expected to decrease significantly next year in
accordance with the profile set out under the RIIO price
control.
Regulated Financial Performance up 17% 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
increased to GBP648m from GBP552m, up 17%. This reflected the
improved achieved operational Return on Equity performance and the
increase in underlying revenues associated with increased regulated
asset value. This was partly offset by lower allowed cost of debt
(2.72% real compared with 2.92% real in 2013/14).
Reconciliation of regulated financial
performance to operating profit (GBPm) 2015 2014 % change
Operating profit 437 417 5
Movement in regulatory "IOUs" (16) (28)
Deferred taxation adjustment 85 12
RAV indexation (3% long run avg.) 166 162
Regulatory v IFRS Depreciation difference (22) (2)
Fast/Slow money adjustment 54 44
Pensions (49) (46)
Performance RAV created (7) (7)
---------------------------------------------- ------- ------- -----------
Regulated financial performance 648 552 17
---------------------------------------------- ------- ------- -----------
Regulated Financial Position broadly unchanged with RPI below
long run expectations
RAV was broadly flat year on year, with continued investment and
lower than expected inflation almost entirely offset by
depreciation. Net other regulatory assets decreased by GBP16m,
mainly reflecting revenue under recoveries and incentive
performance during the year that are deferred for future collection
under regulatory arrangements, more than offset by recovery of
deferred balances relating to historic pensions contributions and
logged up investment spend.
GBPm 2015 2014
---------------------------------------------- ------ ------
Opening Regulated Asset Value (RAV)* 5,529 5,408
---------------------------------------------- ------ ------
Asset additions (aka slow money) (actual) 174 187
Performance RAV or assets created (7) (7)
Inflation adjustment (actual RPI) 50 133
Depreciation and amortisation (194) (174)
Closing RAV 5,552 5,547
---------------------------------------------- ------ ------
Opening balance of other regulated assets
and (liabilities)* 174 208
---------------------------------------------- ------ ------
Movement (16) (28)
---------------------------------------------- ------ ------
Closing balance 158 180
---------------------------------------------- ------ ------
Closing Regulated Financial Position 5,710 5,727
---------------------------------------------- ------ ------
*March 2014 opening balances adjusted to correspond with 2013/14
regulatory filings and calculations
Investment activities in 2014/15 continue to focus around asset
health
UK Gas Transmission invested GBP184m almost entirely reflecting
non-load related spend. This was in line with the level of
investment in 2014/15 and included site security enhancements and
investment in compressor installations including asset replacement
and emission reduction.
The business has accelerated asset health expenditure on
pipeline integrity in particular in the first two years of the RIIO
controls, as these are priority assets in terms of public safety.
Going forward, the business expects to increasingly focus on other
asset health areas, in addition to pipelines, in line with plans to
deliver the overall eight year RIIO targets.
During the year, the business completed final commissioning
activities on the first of four expected new electric drive
compressors which are expected to improve local air quality through
reduced emissions and enable the business to meet the requirements
of the Industrial Emissions Directive.
Regulatory and other business developments
The business has benefited from a stable regulatory environment
during 2014/15. The import capability of the UK remains strong and
the gas supply environment is significantly more diversified than
when much of the network was originally designed. Customers now
have significant flexibility over which sources of gas they choose
to meet demand and the gas transmission network therefore needs to
be able to respond to changing day to day supply and demand
patterns.
Over the course of 2014/15, UK Gas Transmission continued to
engage with stakeholders around the changing requirements on the
gas network. This has enabled the Company to take account of
customer desire for increased flexibility when developing its
proposal to address the impact of the Industrial Emissions
Directive on the gas compressor fleet. The business submitted an
associated funding request to Ofgem in May 2015 and expects the
outcome in the autumn. The level of investment within this
submission would represent a material increase in the investment
programme in UK Gas Transmission compared to current levels.
Future activities and outlook
The business will continue to monitor storage levels alongside
supply and demand expectations over the summer in preparation for
the winter months. An update is expected to form part of the Winter
Outlook in October.
The outlook for UK Gas Transmission in 2015/16 is positive in
terms of continued delivery of good incentive performance and asset
growth. Overall achieved Return on Equity is likely to reduce
somewhat compared to the strong level in 2014/15 as there is no
permit incentive scheme in 2015/16 and pre-determined revenue
allowances are also expected to reduce. The business does not
expect to have the opportunity to deliver significant increases in
totex efficiencies from 2014/15 levels as the absolute level of
spend in the business is expected to remain relatively low. This
reflects, in particular, a lack of demand for new UK Gas
Transmission capacity.
National Grid expects to slightly reduce the level of UK Gas
Transmission capital investment in 2015/16 compared to 2014/15,
reflecting the completion of a number of compressor projects in the
current year. As a result, regulated asset value is expected to
grow broadly in line with the rate of inflation in 2015/16.
APPENDIX to REVIEW OF UK GAS TRANSMISSION OPERATIONS
Revenue and Costs in 2014/15 on an IFRS basis
On an IFRS basis UK Gas Transmission operating profit was
GBP437m, up GBP20m or 5%. This increase was slightly lower than
expectations, mainly driven by timing and closure costs of an LNG
storage facility. Revenues in the year were lower than the targeted
level impacted by the milder winter weather. This forms part of the
timing adjustments below. Adjusting for timing movements, operating
profit increased by GBP17m.
The principal components of the movement in operating profit are
shown below.
(GBPm) Year ended 31 March
2015 2014 % change
---------------------------------------- ------ ------ ---------
Net revenue 780 735 6
Regulated controllable operating costs (125) (117) (7)
Post-retirement costs (18) (18) -
Other operating costs and provisions (28) (11) (155)
Depreciation and amortisation (172) (172) -
---------------------------------------- ------ ------ ---------
Operating profit 437 417 5
---------------------------------------- ------ ------ ---------
Less: Timing impact (18) (21)
Operating profit excluding timing 455 438 4
Net revenue (net of pass through costs) increased by GBP45m.
Excluding timing impacts of GBP3m, net regulated revenue increased
by GBP42m. This included a GBP29m, one-off, increase in permit
income, an GBP8m increase in core regulated allowed revenues (net
of pass through costs and revenues collected on behalf of others)
under the RIIO price control arrangements and GBP5m higher LNG
revenues.
Regulated controllable costs increased by GBP8m. Excluding
business change costs, underlying regulated controllable costs
increased by around GBP5m, up 4%, which partly reflected
inflationary impacts on salaries and other costs.
Depreciation and amortisation remained flat. Other operating
costs increased by GBP17m, mostly reflecting additional costs
relating to the closure of LNG facilities.
REVIEW OF UK GAS DISTRIBUTION OPERATIONS
Good operational, safety and financial progress focussed on
customer needs
UK Gas Distribution continued to deliver strong performance in
its second year of the RIIO price control period. The business has
driven innovation, maintained emergency response standards above
the required levels and successfully implemented procedures to
improve customer connection services.
This year, the UK Gas Distribution business replaced around
1,400km of metallic mains with new polyethylene pipes, delivering
safety and environmental benefits and meeting key regulatory
outputs. Efficiency savings in the delivery of this programme
during 2014/15 will, again, be shared with customers and will
benefit their bills, starting in 2016/17 and continuing beyond
2021. The Company continues to develop and trial innovative
solutions to manage the costs of this programme on behalf of
customers and deliver an increasing level of planned workload over
the remaining RIIO price control period.
Building on the business' good safety record remains a key
priority. Safety initiatives in the year included helping
landowners and construction industry organisations understand how
National Grid protects its gas pipelines and how they can operate
safely around them.
Regulated Returns and Financial Performance reflect good
efficiency and incentive delivery
Return on Equity 300bp above base levels
Return on Equity for the year, using a long run inflation rate
of 3%, was 12.9% 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. This is
in line with the Return on Equity last year.
Return on Equity 2014/15 2013/14
--------
Base return (including avg. 3% long run
inflation) 9.9% 9.9%
Totex incentive mechanism 2.3% 2.8%
Other revenue incentives 0.6% 0.2%
--------------------------------------------------- -------- --------
Return including in year incentive performance 12.8% 12.9%
Pre-determined additional allowances 0.1% 0.1%
Operational Return on Equity 12.9% 13.0%
--------------------------------------------------- -------- --------
UK Gas Distribution again drove significant outperformance
against regulatory cost allowances by delivering savings and
generating additional returns through the totex incentive
mechanism. Much of the totex performance came through efficient
delivery of the mains replacement programme. Most of this is
delivered through the innovative Gas Distribution Strategic
Partnerships (GDSP), contractual partnership arrangements that the
business put in place ready for the start of the RIIO period. These
actions have significantly reduced the unit cost of replacing
metallic mains compared to pre-RIIO levels.
Overall, totex was around GBP890m compared with an estimated
allowance, adjusted for outputs and phasing of spend, of almost
GBP1bn. The Company's share of this efficiency saving is expected
to be around GBP64m, partly reflected in an estimate of increased
regulatory asset value (Performance RAV).
Other revenue incentives, though a smaller part of the return,
more than doubled this year. Leakage, shrinkage and capacity
incentive performance all improved. National Grid continues to
reduce the impacts of its activities on the environment by, for
example, reducing gas leakage from its pipeline network through
active pressure management and the mains replacement programme.
Stakeholder satisfaction measures published during the year showed
a strong improvement with UK Gas Distribution being the best
performing network operator for 2013/14. The business also
delivered improved performance under the customer satisfaction
incentives. Overall the UK Gas Distribution business delivered
around 60bp of additional returns through other revenue incentives
after sharing. On a pre-tax basis, this equates to an estimated
GBP25m of additional revenue allowance.
Regulated Financial Performance down 4%
An explanation of the calculation of regulatory financial
performance 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 Distribution
decreased to GBP819m from GBP855m. This reflected an increase in
underlying revenues associated with increased regulated asset
value, more than offset by lower allowed cost of debt and a
slightly reduced achieved return.
Reconciliation of regulated financial
performance to operating profit (GBPm) 2015 2014 % change
Operating profit 826 904 (9)
Movement in regulatory "IOUs" (28) (59)
Deferred taxation adjustment 60 85
RAV indexation (assuming 3% RPI inflation) 255 252
Regulatory v IFRS Depreciation difference (148) (149)
Fast/Slow money adjustment (182) (197)
Pensions (5) (9)
Performance RAV created 41 28
----------------------------------------------- ------- ------- -----------
Regulated financial performance 819 855 (4)
----------------------------------------------- ------- ------- -----------
Regulated Financial Position steady
Regulated asset value was flat year on year, with investment and
a share of savings delivered in the form of performance RAV offset
by regulatory depreciation. The contribution to growth from RPI
inflation in the year was relatively low, compared to long run
levels. During the year, net other regulatory liabilities increased
by GBP28m, leaving a closing balance of GBP83m to return to
customers in future years. Much of this movement relates to timing
over-recoveries in the current year.
GBPm 2015 2014
---------------------------------------------- ------ ------
Opening Regulated Asset Value (RAV)* 8,495 8,389
---------------------------------------------- ------ ------
Asset additions (aka slow money) (actual) 333 313
Performance RAV or assets created 41 28
Inflation adjustment (actual RPI) 76 205
Depreciation and amortisation (434) (420)
Closing RAV 8,511 8,515
---------------------------------------------- ------ ------
Opening balance of other regulated assets
and (liabilities) * (55) 8
---------------------------------------------- ------ ------
Movement (28) (59)
---------------------------------------------- ------ ------
Closing balance (83) (51)
---------------------------------------------- ------ ------
Closing Regulated Financial Position 8,428 8,464
---------------------------------------------- ------ ------
*March 2014 opening balances adjusted to correspond with 2013/14
regulatory filings and calculations
Investment activities in 2014/15
UK Gas Distribution continues to invest in new approaches to
deliver capital and replacement projects in innovative and lower
cost ways. The business has developed technology that contributed
to a reduction in the volume of excavations and is exploring a
number of alternative "no dig" solutions to achieve further
reductions to volume and duration of excavations in future years.
National Grid will trial a number of these technologies in the
summer of 2015, including Tier One Robotic System (TORS), that will
allow the connection of mains and services with minimal excavations
and Pipe Renewal In-Situ Manufactured (PRISM), a multi-partyproject
translating existing technology used in the water industry to the
gas distribution industry.
Overall capital investment in UK Gas Distribution was GBP498m,
including GBP360m of replacement expenditure (GBP14m higher than
2013/14) and GBP138m of other capex, in line with last year.
Regulatory and other business developments
2014/15 was the second year of the eight year RIIO price control
reflecting a stable regulatory environment for the business. As the
UK's energy mix changes, National Grid continues to develop its
networks to accommodate gas from new sources. This included further
bio-methane connections being made this year, increasing the total
number of connections to 10.
Gas Distribution successfully rolled out an improved customer
connections process across two of its four networks over the course
of the year. This included a reduced number of touch points for
customers to manage, a new web portal and the outsourcing of a
number of elements of the process. The new process has delivered
clear improvements and is now being adopted in the remaining two
networks.
Future activities and outlook
The outlook for UK Gas Distribution in 2015/16 is positive in
terms of continued delivery of returns and steady asset growth. The
business has the opportunity to build on the good totex incentive
performance in the year and to further improve on revenue incentive
performance.
The business remains on track to deliver the RIIO risk reduction
outputs and the annual Health and Safety Executive requirement for
length of main replaced over the course of the eight year RIIO
period.
For the first two years of the price control, UK Gas
Distribution has delivered its primary replacement output, risk
reduction on metallic mains, in line with the eight year RIIO
target. The run rate of the secondary replacement metric, length of
metallic main replaced, is below the eight year average but is in
line with the business' delivery plans. The Company expects to
increase the length of mains replaced each year as the RIIO price
control progresses (and has phased the allocation of totex
allowances accordingly when calculating Return on Equity). At the
same time, the business expects to leverage the benefits of
innovation to drive further totex performance and customer
value.
The business will continue to focus on key success factors.
These include: managing the critical GDSP contracts to achieve the
maximum sustainable benefits available; implementing performance
excellence and improving processes to increase business efficiency
and reduce internal costs; improving safety performance and making
further progress to improve customer satisfaction. UK Gas
Distribution will aim to embed the new connections process and
review and improve the customer experience for planned work.
National Grid expects UK Gas Distribution capital investment and
replacement expenditure to increase slightly in 2015/16 to over
GBP500m and, as a result, to grow regulated asset value in line
with RPI inflation for the year.
APPENDIX to REVIEW OF UK GAS DISTRIBUTION OPERATIONS
Revenue and Costs in 2014/15 on an IFRS basis
On an IFRS basis UK Gas Distribution operating profit was
GBP826m, down GBP78m or 9%. Regulated revenues in the year were
lower due to a change in remuneration of replacement spend under
the regulatory arrangements. Costs increased and depreciation was
higher than last year. Lower pass through costs than expected and
an RPI true up have led to an over recovery of GBP13m in the year.
Adjusting for timing movements, operating profit decreased by
GBP62m.
The principal components of the movement in operating profit are
shown below.
(GBPm) Year ended 31 March
2015 2014 % change
--------------------------------------------------- ------ ------ ---------
Net revenue 1,504 1,531 (2)
Regulated controllable operating costs (353) (331) (7)
Post-retirement costs (36) (40) 10
Other operating costs and provisions/contribution
release (3) 15 (120)
Depreciation and amortisation (286) (271) (6)
--------------------------------------------------- ------ ------ ---------
Operating profit 826 904 (9)
--------------------------------------------------- ------ ------ ---------
Less: Timing impact 13 29
Operating profit excluding timing 813 875 (7)
Net revenue (net of pass through costs) decreased by GBP27m.
Excluding timing impacts of GBP16m, net regulated revenue decreased
by GBP11m.
Regulated controllable costs increased by GBP22m. Excluding
business change costs, underlying regulated controllable costs
increased by around GBP14m, up 4%, partly reflecting inflationary
impacts on salaries and other costs. Post-retirement costs
decreased by GBP4m and the benefit from contribution releases net
of other operating costs decreased by GBP18m reflecting a provision
for additional asset protection costs.
Depreciation and amortisation increased by GBP15m, reflecting
investment driven growth in the asset base.
REVIEW OF US REGULATED OPERATIONS
Solid performance in 2014/15 while investing at record
levels
National Grid's US Regulated operations delivered another solid
year. Revenue increases under several existing rate plans and the
addition of new customers helped, in part, offset the impact of
additional costs associated with prolonged cold weather and several
other one off items. At the same time, record capital investment of
$2.4bn in the year resulted in a 7% increase in the underlying
regulated rate base.
Network performance and reliability were good, delivering
essential services to many customers facing a second year of
prolonged cold weather as well as numerous regional snow storms.
The gas and electricity networks stood up well to the increased
load demands with record gas volumes, heavy snow, with record
snowfall in Massachusetts, and local storm activity. As a result,
the business achieved almost all of its key reliability metrics.
This performance reflected the benefit of infrastructure investment
in recent years as well as local teams' effective storm response.
The business continued to invest in strengthening resilience and
"hardening" of networks which should help future performance.
Regulated returns reflect financial performance and rate base
growth
Return on Equity
Return on Equity for the year was 8.4% representing 87% of the
9.7% overall allowed return used in calculating the original
revenue allowances. This compared to a prior year achieved return
of 9.0%. The following table sets out the detailed returns for each
business and the contribution to the overall year on year
movement.
Regulated Return on Equity Achieved (%) Calendar year Most recent
granted (%)
---------------
US Regulated Entity 2014 Contribution 2013 2012
to overall
US return movement
(bp)
-----------
New York
KEDNY 8.5 (13) 9.5 11.0 9.4
KEDLI 6.5 (25) 8.8 7.2 9.8
NMPC Gas 8.3 (17) 10.3 5.3 9.3
NMPC Electric 9.0 15 8.0 8.7 9.3
--------------------------------------- ----- -------------------- ----- ------- ---------------------
Total New York* 8.2 (40) 8.8 8.5 9.4
Massachusetts
Massachusetts Gas 7.8 (3) 8.5 12.2 9.8
Massachusetts Electric 4.6 (21) 6.4 8.3 10.4
--------------------------------------- ----- -------------------- ----- ------- ---------------------
Total Massachusetts * 6.2 (24) 7.4 10.1 10.1
Rhode Island
Narragansett Gas 11.6 7 9.9 5.1 9.5
Narragansett Electric 9.5 (3) 10.1 6.4 9.5
---------------------------------------- ----- -------------------- ----- ------- -------------------
Total Rhode Island* 10.4 4 10.0 5.9 9.5
FERC
Long Island Generation 10.5 (8) 11.9 13.6 10.0
New England Power 11.6 13 11.7 11.6 10.6
Canadian Interconnector 13.0 (1) 13.0 13.0 13.0
Narragansett Electric Transmission 12.1 (1) 12.0 11.6 10.6
--------------------------------------- ----- -------------------- ----- ------- ---------------------
Total FERC* 11.5 3 11.8 12.2 10.5
Total US* 8.4% (57) 9.0 9.2 9.7
---------------------------------------- ----- -------------------- ----- ------- -------------------
* total return weighted by average rate base
Overall, revenue increases from existing rate plans, including
capex trackers, together with additional income from gas customer
growth were only partly able to offset increased operating costs
and an increase in rate base. Higher investment in the year led to
an increased level of underlying rate base growth (excluding
working capital) which will attract future revenues through allowed
returns and should support future improvements in overall achieved
returns. In the short term, however, this has had a modest adverse
impact on reported returns as some of the growth has been over and
above the scope of existing tracker mechanisms. Overall the growth
in rate base in the year impacted US returns by around 30bp. This
should be largely corrected for once the increased rate base is
reflected in rates through a successful rate filing programme.
Stabilisation of the new financial system was completed in the
first half of 2014/15. As a result, compilation of 'test year' data
for new rate filings started on 1 October 2014. The new test year
data will form the basis of important future rate filings.
As indicated at the time of the Group's half year results, the
gas businesses incurred additional costs associated with mains
repair and emergency leak response as well as higher bad debt,
following the exceptionally prolonged and cold winter in 2013/14,
adding a significant headwind to improving returns in many of our
businesses. In addition, underlying inflationary cost increases had
an adverse impact on this year's returns.
In New York, overall returns reduced by 60bp to 8.2%, reflecting
in large part the costs associated with the winter weather and the
need to file for new rates in KeySpan Energy Distribution New York
(KEDNY) and KeySpan Energy Distribution Long Island (KEDLI).
Returns in Niagara Mohawk Electric (NMPC or NiMo Electric), which
had materially underperformed against its allowed returns over the
previous few years, were 9.0%. This represented over 95% of the
allowed return of 9.3%. The improvement in NiMo Electric largely
reflected the benefit of additional revenue increases under its
three year rate plan, agreed in early 2013. For KEDNY and KEDLI,
the extra costs associated with the winter weather added to the
underlying gap between the current level of operating costs and the
costs allowed under the rate plans agreed in 2008. Mitigation of
this issue can only be completely addressed by new rates and the
Company expects to file for these to ensure new revenues are in
place from the start of 2017. Included in the filings will also be
requests for additional trackers for selected costs, increased
capital allowances and recovery of deferred environmental and other
costs.
In Massachusetts, returns fell by 120bp. Gas activities were
adversely impacted by the winter weather and increased main leak
investigation and repair. Returns in Massachusetts Electric also
reduced, reflecting an increased level of bad debts and also a
continued gap between actual costs and the allowances set in the
2009 rate plans, which again can only be addressed by new rates
which are expected to be in place during 2016.
Combined Rhode Island returns improved by 40bp to 10.4%
reflecting the continued impact of updated rates in 2013 with
additional tracker and true-up mechanisms as well as their
Infrastructure, Safety and Reliability (ISR) programme with
concurrent recovery which is updated on an annual basis. The ISR
programme covers both capital expenditures and some operating
expenses.
Activities regulated by the Federal Energy Regulatory Commission
(FERC) delivered another year of good returns where the impact of
recent investments and associated revenues were partially offset by
the reduction of New England allowed base transmission returns to
10.57% from 11.14%, which came into effect from October 2014.
Financial performance
Overall, US Regulated operating profit was GBP1,164m, GBP39m
higher at actual exchange rates. The year on year movement in
exchange rates had a GBP30m favourable impact on operating profit.
As a result, operating profit was GBP9m higher on a constant
currency basis. Adjusting for year on year timing differences of
GBP20m, operating profit at constant currency for the year
excluding timing was GBP11m (1%) lower than 2013/14.
The principal components of the movement in operating profit are
shown below.
Year ended 31 March
(GBPm, constant currency) 2015 2014 % change
---------------------------------------- -------- -------- ---------
Net revenue 4,078 3,977 3
Regulated controllable operating costs (1,424) (1,407) (1)
Post-retirement costs (76) (74) (3)
Bad debts (119) (57) (109)
Other operating costs and provisions (843) (854) 1
Depreciation and amortisation (452) (430) (5)
---------------------------------------- -------- -------- ---------
Operating profit 1,164 1,155 1
---------------------------------------- -------- -------- ---------
Less: Timing impact 30 10
---------------------------------------- -------- -------- ---------
Operating profit excluding timing 1,134 1,145 (1)
---------------------------------------- -------- -------- ---------
Net regulated revenue (excluding timing) increased by GBP81m,
primarily related to increased revenue allowances from the 2013
NiMo rate plans together with capex trackers, higher FERC
recoveries, new customer growth and some positive volume impacts.
Regulated controllable costs increased by GBP17m. This included
around GBP37m of additional costs associated with additional
maintenance and gas mains repair, more than offset by some one-off
items that resulted in a net, year on year, reduction in costs.
Excluding these effects, underlying regulated controllable costs
increased by around GBP35m, less than 3%, reflecting inflationary
impacts on salaries and other costs partly offset by a continued
drive for efficiency.
Post-retirement costs increased by GBP2m and bad debts increased
by GBP62m partly due to customers' difficulty paying high winter
bills following the extreme winter weather. Depreciation and
amortisation increased by GBP22m and other costs, including the
impact of year on year changes in environmental liabilities and the
impact of smaller storms, decreased by GBP11m.
Regulated Financial Position
Overall, US regulated assets increased by $1.3bn to $20.0bn, up
7%. In dollar terms, rate base increased by 5% compared to a 9%
increase in the previous year. The benefit of increased investment
was somewhat offset by working capital outflows, compared to
inflows in the previous year. Excluding these working capital
effects US rate base grew at an increased rate of 7%, compared to
5% in 2013/14.
US Regulated Assets ($bn as at 31 March)
2015 2014 % change
--------------------------------------- ----- ----- ---------
Rate Base excl. working capital
(w/c) 16.3 15.1 7
Working capital in Rate Base 0.9 1.2 (21)
----- ----- ---------
Total Rate Base 17.2 16.3 5
Reg. assets outside Rate Base excl.
w/c 2.4 2.0 23
Working capital outside Rate Base 0.4 0.4 9
--------------------------------------- ----- ----- ---------
Total regulated assets outside Rate
Base 2.8 2.4 21
---------------------------------------- ----- ----- ---------
Total US Regulated Assets 20.0 18.7 7
---------------------------------------- ----- ----- ---------
GBPbn as at 31 March
---------------------------------------- ----- ----- ---------
2015 2014 % change
---------------------------------------- ----- ----- ---------
Total US regulated assets at actual
currency 13.5 11.2 20
---------------------------------------- ----- ----- ---------
Total US regulated assets at constant
currency 13.5 12.6 7
---------------------------------------- ----- ----- ---------
Increased investment in 2014/15 driven by gas mains
replacement
The US Regulated business invested $2.4bn or GBP1.5bn during
2014/15, GBP250m more than in 2013/14 at constant currency. This
increase was across many areas of the business but mainly related
to increased demand for natural gas, continued focus on higher
mains replacement and mandated programmes, reliability and
reinforcement spend in electric and FERC transmission projects.
The business continues to invest in strengthening system
resilience by assessing vulnerabilities throughout the networks and
targeting investment where it can have the biggest benefits. This
has been of increased importance given the recent varied weather
patterns.
Detailed US Rate Base: Rate Base ($m) as at 31 March
US Regulated Entity 2015 2014 % change
------------------------------------------- ------- ------- -----------
New York
KEDNY 2,387 2,390 -
KEDLI 2,146 2,094 2
NMPC Gas 1,060 1,013 5
NMPC Electric 4,453 4,248 5
--------------------------------------- ------- ------- -----------
Total New York 10,046 9,745 3
Massachusetts
Massachusetts Gas 1,747 1,515 15
Massachusetts Electric 1,905 1,812 5
------- ------- -----------
Total Massachusetts 3,652 3,327 10
Rhode Island
Narragansett Gas 496 466 6
Narragansett Electric 570 567 1
------------------------------------------- ------- ------- -----------
Total Rhode Island 1,066 1,033 3
FERC
Long Island Generation 446 433 3
New England Power 1,380 1,277 8
Canadian Interconnector 16 27 (41)
Narragansett Electric Transmission 607 499 22
------- ------- -----------
Total FERC 2,449 2,236 10
Total US rate base 17,213 16,341 5
------------------------------------------- ------- ------- -----------
Regulatory and other business developments
During 2014/15 the business has continued to strengthen its
customer-led service culture, responding to local, community
focused, needs. In recent months an expansion of the current
jurisdictional model, developed around National Grid's four service
areas, has been implemented to further enhance this localised
service offering.
Regulators and government organisations in the US continue to
prioritise investments in safe and reliable supply of gas and
electricity through mains replacement, localised grid
modernisation, as well as transmission projects.
The New York Public Service Commission (NYPSC) approved recovery
mechanisms (with some concurrent recovery) for additional capital
spend of just over $200m per annum for gas main replacements,
system resilience and customer growth during calendar years 2015
and 2016 for the KEDLI gas distribution business on Long Island. In
addition, on 30 April 2015, the Massachusetts Department of Public
Utilities issued an order associated with National Grid's proposed
Gas System Enhancement Plan for expansion of the leak prone pipe
replacement programme to $175 million in calendar year 2015 with
concurrent recovery similar to the ISR tracker in Rhode Island.
Recently, the NYPSC launched a proceeding to enable new funding
mechanisms, such as surcharges, for utilities to accelerate the
replacement of leak prone pipe. The NYPSC highlighted KEDLI as the
first utility to implement such a surcharge. This funding mechanism
would help mitigate the regulatory lag related to accelerated pipe
replacement and should have a positive benefit to National Grid's
other New York gas utilities in the event that further workload
increases are required.
In electricity distribution, both Massachusetts and New York
regulators are pursuing grid modernisation initiatives that will
include elements such as advanced metering, communications systems,
grid control and distributed resources, aligning well with National
Grid's own Connect 21 programme for network investment. In its
Reforming the Energy Vision (REV) proceeding, the NYPSC issued the
Track 1 order adopting a regulatory policy framework to develop
markets for distributed energy resources. National Grid intends to
file demonstration projects by 1 July 2015 and a wider
implementation plan by December. Track 2 of the REV proceeding,
which will address ratemaking questions, will commence in the
summer. In Massachusetts, the Company will submit its first 10 year
grid modernisation plan on 5 August. The plan will detail
investments to ensure the modernisation and effectiveness of the
network, improving reliability and incorporating distributed
generation and certain smart grid elements.
In New England, in February 2015, the New England independent
system operator (ISO) selected a transmission project jointly
proposed by National Grid and Eversource Energy as the preferred
transmission solution for reliability challenges in the Greater
Boston area. The Company's share of the project is approximately
$200 million, which will be subject to FERC formula rates and
incentives. Construction is expected to start in 2016.
In addition to the leak prone pipe programme, infrastructure
investments in the year included around $125 million further
investment in the New England East-West Solution transmission
project and $35 million to complete the Brooklyn Queens
Interconnect project, the first new interstate pipeline in New York
City in 40 years, addressing long term supply issues. In addition,
the Company continues to pursue FERC regulated gas and electric
projects including the recently announced partnership in Northeast
Access which supports gas pipeline expansion in New England as well
as the Greenline Infrastructure Alliance to build transmission
projects in New England.
National Grid is confident that an improved investment framework
can form part of many of the new rate filings that the business
expects to make over the next few years. Many recent investments in
grid modernisation and gas mains replacement have led the
continuing improvements in service levels and reliability across
National Grid's US service territory, providing strong support for
future discussions and filings.
Future activities and outlook
The 2015/16 outlook for National Grid's US Regulated activities
is one of continued investment and growth. At the same time, the
Company will continue to focus on delivering efficient, local
customer-led services that safely support network reliability. New
rate filings will form the basis for improvement in achieved
returns. In the meantime, National Grid will look to manage costs
proactively and maximise revenue opportunities pending revenue and
cost allowance increases. As a result, the business expects to
deliver a similar level of operating profit in 2015/16 to the level
achieved this year, excluding any impact from timing.
US Regulated capital investment should be broadly unchanged in
2015/16, compared with 2014/15. While there will be lower spend on
transmission projects, continued investment in gas programme's and
electricity distribution infrastructure should provide some
mitigation. As a result, underlying growth in rate base (i.e.
before working capital movements) is expected to be around 6% in
2015/16.
National Grid expects to make full rate filings for the KEDLI
and KEDNY businesses so that new rates can be in effect by the
start of 2017. In Massachusetts, revenue improvements from a full
filing could take effect as early as the middle of 2016. The
filings will be made after relevant consultation with regulators
around the future operating and capex requirements of the business
and the appropriate rate making mechanisms to remunerate these
programmes.
REVIEW OF OTHER ACTIVITIES
Good performance from existing businesses and increased business
development activity
Operating profit by principal activities 2015 2014 % change
(GBPm)
--------------------------------------------- ------ ------ ---------
Metering 160 162 (1)
Grain LNG 72 74 (3)
French Interconnector 103 85 21
Property 28 31 (10)
UK corporate and other activities (43) (37) (16)
Sub-total UK operating profit 320 315 2
US corporate and other activities (121) (184) 34
Total operating profit 199 131 52
Total operating profit - constant currency 199 126 58
--------------------------------------------- ------ ------ ---------
Share of post-tax results of joint ventures
and associates 46 28 64
--------------------------------------------- ------ ------ ---------
Metering profit steady; cash flow remains strong
The Metering business' operating profit decreased slightly by
GBP2m due to lower tariffs and a gradual reduction in its
population of meters, driven in part by the replacement of National
Grid meters by third party smart meters. These reductions were
partially offset by a lower depreciation expense and reduced
operating costs. Capital investment also decreased by GBP7m due to
lower meter work and information system spend primarily resulting
from the decrease in meter population.
This year, the Company implemented new software that allows
remote customer self-service access for some industrial and
commercial services. Customer satisfaction scores for industrial
and commercial and domestic customers remain on track and the
Company continues to work with customers on areas of further
improvement.
Grain LNG profit steady; new services aim to increase
revenues
National Grid's LNG import terminal on the Isle of Grain
delivered a consistent level of performance and generated GBP2m
less operating profit than last year due to a GBP3m environmental
provision. The Company continues to look for additional ways to
generate additional revenues from its investment. This year Grain
LNG launched a new ship cool down service to help ships that have
been out of service re-load full LNG cargos. Next year, the Company
expects to launch a new LNG road tanker facility that will provide
tankered LNG to service off grid customers and as a transportation
fuel. Capital investment in the year was GBP43m (2013/14:
GBP44m).
Increased power price differentials drive 20% increase in French
Interconnector profit
The 2GW capacity French Interconnector delivered another year of
strong performance, increasing operating profit to GBP103m
(2013/14: GBP85m). This primarily reflected a high power price
differential between France and the UK, increasing the revenue
generated from the auctions of interconnector's capacity, and
improved availability following a significant valve replacement
programme. The vast majority of the flows in 2014/15 were from
France to the UK.
Property delivered steady operating profit; joint venture formed
with Berkeley Group
The Property business delivered an operating profit of GBP28m
(2013/14: GBP31m), principally derived from property sales. In
November, the Property business entered into a joint venture with
Berkeley Group to develop a number of its sites in London and the
surrounding area.
National Grid will remediate sites and, once planning consents
and other conditions have been met, will transfer sites into the
joint venture, with Berkeley Group contributing the equivalent
agreed land value as cash to fund the development over time.
At the time of the transfer, National Grid's Property business
would expect to recognise half of any uplift of the transfer price
compared to book value. As sites are developed and sold, National
Grid Property would expect to gradually recognise the other half of
any uplift, with the Group's share of development profits being
reported as joint venture profits. National Grid expects to
transfer its first site into the joint venture in 2015/16 with
development profits expected to begin in 2018/19.
Increased level of business development activity
National Grid is pursuing a series of attractive investment
opportunities in both the UK and Northeast US to provide
environmental benefits and enhance the security of supply for
customers. These opportunities would require investment over the
later part of this decade and would be expected to deliver cash
flow benefits from 2019 onwards.
Final investment decisions made on two new UK
interconnectors
National Grid recently agreed to proceed with two new subsea
electricity interconnectors. The Company expects to invest around
EUR350m in the 1GW Nemo Link between Great Britain and Belgium and
around EUR1bn in the 1.4GW NSN Link between Great Britain and
Norway. National Grid will have a 50% stake in each project and
both will be governed by their own cap and floor regulatory regime.
The Company expects to have completed development of both of these
projects by early next decade. National Grid also progressed plans
for potential new interconnection projects to France and Denmark
and continues to consider an interconnection project to
Iceland.
US partnerships formed to enhance Northeast transmission
infrastructure
National Grid has formed partnerships to develop electricity and
gas transmission infrastructure in the Northeast US. In December,
National Grid announced the formation of the Greenline
Infrastructure Alliance with Anbaric Transmission which will
initially develop a proposal for a 1GW land and sea cable to
transmit renewable energy from Maine and eastern Canada to
Massachusetts.
In February, National Grid joined Eversource Energy and Spectra
Energy as a co-developer (with a 20% equity interest) of the
proposed $3 billion Access Northeast gas pipeline expansion
project. The project is anticipated to save electricity customers
an average of $1 billion annually by reducing fuel supply
constraints for gas-fired electricity generators.
National Grid made further progress with NY Transco, a new joint
venture between affiliates of the publicly listed New York
transmission owners in which National Grid has a circa 30% stake.
In December 2014, NY Transco made a filing with FERC for five
proposed transmission projects to modernise the transmission system
and eliminate capacity bottlenecks, with an expected total cost of
$2bn. On 2 April 2015, FERC approved certain elements of the
filing, including a 50bp Return on Equity adder for joining NYISO
and a project-specific 50bp adder for risks for the largest
project, but rejected the detailed cost allocation proposal. This
may be resolved via a subsequent settlement proceeding.
Other costs down reflecting completion of US system
stabilisation upgrade
Including business development costs, UK and US corporate and
other costs were GBP164m, down GBP62m from 2013/14 at constant
currency primarily due to reduced US financial system
implementation costs. Costs to complete the system stabilisation
upgrade totalled GBP56m, down GBP97m from 2013/14. This reduction
was partially offset by around GBP16m of asset related charges in
the US.
Other selected financial information Year ended 31 March
(GBPm) - constant currency 2015 2014 % change
----------------------------------------- ------ ------ ---------
Operating profit 199 131 52
Depreciation (196) (213) 8
Depreciation (actual exchange rates) (196) (211) 7
----------------------------------------- ------ ------ ---------
Capital investment
(GBPm) - actual currency
---------------------------------------------- ---- ---- -----
Metering 46 53 (13)
Grain LNG 43 44 (2)
French Interconnector 1 5 (80)
Property 2 - n/a
Other UK 16 11 45
Other US 105 67 57
Capital expenditure excluding joint ventures 213 180 18
Investment in joint ventures (JVs) - 4 n/a
Capital investment including investment
in JVs 213 184 16
---------------------------------------------- ---- ---- -----
Joint Ventures
Share of post-tax results by principal activities 2015 2014 % change
(GBPm)
--------------------------------------------------- ----- ----- ---------
BritNed 31 15 107
Millennium 9 7 29
Iroquois 7 6 17
Other (1) - -
Share of post-tax results of joint ventures
and associates 46 28 64
--------------------------------------------------- ----- ----- ---------
Joint ventures in the Group consist principally of interests in
an electricity transmission interconnector and gas pipelines. These
include a 50% interest in the 1GW BritNed electricity
interconnector between the Netherlands and England, a 26% interest
in the Millennium natural gas pipeline in New York State and a 20%
interest in the Iroquois gas pipeline between Long Island and the
Canadian border.
National Grid's share of post-tax results of joint ventures for
the year was GBP46m an increase of GBP18m compared with 2013/14.
This reflected a significant increase in the contribution from the
BritNed Interconnector reflecting increased power price
differentials between the Netherlands and the UK.
TECHNICAL GUIDANCE
National Grid provides technical guidance to aid consistency
across a range of modelling assumptions of a technical, rather than
trading or core valuation, nature. The Company may provide
appropriate updates to this information on a regular basis as part
of its normal reporting. The outlook and technical guidance
contained in this statement should be reviewed, together with the
forward looking statements set out in this release, in the context
of the cautionary statement.
UK regulated operations: Performance measures
Totex outperformance against regulatory target levels in UK Gas
Distribution and UK Electricity Transmission is expected to
continue into 2015/16.
Other incentive performance is expected to reduce somewhat,
reflecting the strong performance in 2014/15, particularly in the
Gas Transmission permit scheme which is not available going
forward.
Contributions to Returns on Equity resulting from performance in
previous price controls are expected to reduce significantly in Gas
Transmission, following the agreed profile determined by the RIIO
regulatory outcome.
Investment in UK regulated operations is expected to continue at
broadly similar levels to 2014/15. Combining investment with the
benefit of totex performance on the RAV, National Grid expects
similar levels of real RAV growth in 2015/16 to the levels in
2014/15.
UK regulated operations: Earnings Items
In November, 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.
The 'MOD adjustments' for UK Electricity Transmission in 2015/16
will reduce net revenues by approximately GBP130m compared to
Ofgem's original base case. This reflects, in part, sharing of an
element of the significant efficiency savings delivered in the
first year of the UK RIIO price controls, with National Grid's
performance providing immediate benefits to customers. The
reduction will be partially offset by other allowed revenue growth.
As a result, excluding the impact of timing and annual incentive
performance (and the benefit of one off legal settlements in
2014/15), net revenues in UK Electricity Transmission in 2015/16
are expected to reduce by approximately GBP50m compared to
2014/15.
On the same basis, the MOD adjustments in UK Gas Transmission
should contribute to net revenues for 2015/16 that are in line with
those in 2014/15. UK Gas Distribution net revenues are expected to
increase by approximately GBP50m including increased revenue
allowances relating to tax costs.
In addition, headline year on year net revenue movements are
expected to be impacted by under and over recoveries of revenue
during 2014/15 and the recovery of some of the timing balances
created in 2013/14. These balances relate to revenue over and under
recoveries, adjustments relating to incentive performance and some
cost true ups resulting from regulatory performance in 2013/14.
UK depreciation is expected to increase, reflecting the impact
of continued high levels of capital investment.
US regulated operations: Performance measures
Overall US Return on Equity is expected to reflect a broadly
flat level of operating profit compared to 2014 and also to be
affected by the 5% rate base growth delivered last year. As a
result US Return on Equity is expected to be around 8% in 2015.
US regulated operations: Earnings measures
US regulated operating profit in 2013/14 was GBP1,134m,
excluding the impact of timing. Increased revenue in 2015/16 from
existing rate plans and tracker mechanisms is expected to be
broadly offset by increased costs and depreciation.
Other activities
Costs associated with US financial system and process
implementation impacted the results for other activities in 2014/15
by GBP56m. These costs are not expected to recur in 2015/16.
Early indications for French Interconnector performance for
2015/16 are that the market remains similar to the favourable
conditions experienced in 2014/15.
Interest and Taxation
Net finance costs for 2015/16 are expected to be broadly
consistent with those in 2014/15.
For the full year 2015/16, the effective tax rate is expected to
be to be around 24%.
Investment, Growth and Net Debt
Overall Group capital expenditure for 2015/16 is expected to be
of a similar order of magnitude as 2014/15.
Cash flow before capex and shareholder returns is expected to
reduce slightly reflecting lower working capital inflows and
increased US pension contributions.
As a result, net debt is expected to increase by around GBP1.5bn
during 2015/16, excluding the effect of any exchange rate impacts
or net scrip dividend dilution.
APPENDIX: 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 55).
'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 51. A reconciliation of business
performance to statutory results is provided in the consolidated
income statement on page 43.
DEFINITIONS
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 average US$ exchange rate for the year ended
31 March 2015, which was $1.58 to GBP1.00. The average rate for the
year ended 31 March 2014, was $1.62 to GBP1.00. Assets and
liabilities as at 31 March 2014 have been retranslated at the
closing rate at 31 March 2015 of $1.48 to GBP1.00. The closing rate
for the balance sheet date 31 March 2014 was $1.67 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.
Major storms
There were no storms categorised as 'Major storms' in 2014/15 or
2013/14. In 2012/13 Major storms were 'Superstorm' Sandy in 2012
and the 'Nemo' snow storm in February 2013.
Other regulatory assets and liabilities
The revenues that National Grid's UK regulated businesses target
to collect in any year are based on the regulator's forecasts for
that year. Under the new 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".
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.
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.
METRIC CALCULATIONS
Regulated financial performance 2014/15 2013/14
(GBPm)
-----------------------------------
UKET UKGT UKGD US REG UKET UKGT UKGD US REG
---------------------------------- ------ ------ ------ ------- ------ ------ ------ -------
Statutory operating profit 1,237 437 826 1,081 1,027 406 780 1,388
Exceptional items/remeasurements - - - 83 60 11 124 (263)
Adjusted operating profit 1,237 437 826 1,164 1,087 417 904 1,125
Depreciation and amortisation 376 172 286 452 343 172 271 419
---------------------------------- ------ ------ ------ ------- ------ ------ ------ -------
EBITDA 1,613 609 1,112 1,616 1,430 589 1,175 1,544
Regulatory treatment
adjustments
Movement in UK regulatory
"IOUs" (130) (16) (28) - (19) (28) (59) -
US timing - - - (30) - - - (10)
Performance RAV created 77 (7) 41 - 30 (7) 28 -
Pensions deficit contributions (48) (49) (5) (92) (47) (46) (9) (120)
3% RAV Indexation 326 166 255 - 301 162 252 -
UK deferred taxation
adjustment 88 85 60 - 53 12 85 -
Regulatory depreciation (728) (194) (434) (452) (680) (174) (420) (419)
Fast/slow money adjustment 34 54 (182) - (2) 44 (197) -
Regulated financial performance 1,232 648 819 1042 1,066 552 855 995
----------------------------------- ------ ------ ------ ------- ------ ------ ------ -------
Group RoE calculation 2015 2014 2013*
(year ended 31 March)
--------------------------------------------- --------- --------- ---------
Regulated financial performance 3,741 3,468 3,696
Operating profit of other activities 199 131 62
Group financial performance 3,940 3,599 3,758
--------------------------------------------- --------- --------- ---------
Share of post-tax results of
joint ventures 46 28 18
Non-controlling interests 8 12 (1)
Adjusted group interest charge (945) (1,055) (1,057)
Group tax charge (695) (581) (665)
Tax on adjustments (14) 73 44
---- --------------------------------------- --------- --------- ---------
Group financial performance after
interest and tax 2,340 2,076 2,097
--------------------------------------------- --------- --------- ---------
Opening rate base/RAV 35,237 33,128 31,424
Opening NBV of non-regulated businesses 1,341 1,185 979
Joint Ventures 358 371 341
Opening Goodwill 4,856 5,028 4,776
--------------------------------------------- --------- --------- ---------
Opening capital employed 41,792 39,712 37,520
Net Debt (21,974) (21,429) (19,597)
--------------------------------------------- --------- --------- ---------
Opening Equity 19,818 18,283 17,923
--------------------------------------------- --------- --------- ---------
Return on Equity 11.8% 11.4% 11.7%
--------------------------------------------- --------- --------- ---------
* Impact of major US storms removed from the calculation as
presented. Including storm costs, 2012/13 Group RoE was 11.2%.
Regulated financial position 2014/15
(GBPm - constant currency)
--------------------------------------------------
UKET UKGT UKGD US REG
------------------------------------------------- ------- ------ ------ -------
Opening RAV/rate base 10,854 5,529 8,495 10,988
In year movement 485 23 16 603
Closing RAV/ratebase 11,339 5,552 8,511 11,591
Opening other regulatory assets and liabilities 197 174 (55) 1,558
In year movement (130) (16) (28) 331
Closing other regulatory assets and liabilities 67 158 (83) 1,889
Closing regulated financial position 11,406 5,710 8,428 13,480
-------------------------------------------------- ------- ------ ------ -------
Total 2014/15 39,024
------------------------------------------------- ----------------------- -------
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 regulated
in one year may be recovered 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 by the multiplied by the appropriate
creation of additional RAV which regulatory capitalisation ratio
is expected to result in future and multiplied by the retained
earnings under regulatory arrangements. company incentive sharing ratio.
Pension adjustment
Cash payments against pension UK: cash payments against the
deficits in the UK are recoverable regulatory proportion of pension
under regulatory contracts. deficits in the UK regulated
In US Regulated operations, business
US GAAP pension charges are US: the difference between IFRS
generally recoverable through and US GAAP pension charges.
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 base
adjusted for inflation.
UK deferred taxation adjustment
Future UK revenues are expected The difference between 1. IFRS
to recover cash taxation cost EBITDA less other regulatory
including the unwinding of deferred adjustments and 2. IFRS EBITDA
taxation balances created in less other regulatory adjustments
the current year. less current taxation (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 classification
of costs incurred is split between of costs as operating costs or
in year revenue allowances and fixed asset additions and the
the creation of additional RAV. regulatory classification.
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 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
(calendar year to 31 December).
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 is the 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 operational return 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.
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
4 June 2015 Ordinary shares go ex-dividend
5 June 2015 Record date for 2014/15 final dividend
11 June 2015 Scrip reference price announced
22 June 2015 Scrip election date for 2014/15 final dividend
21 July 2015 Annual General Meeting, ICC, Birmingham
5 August 2015 2014/15 final dividend paid to qualifying
shareholders
10 November 2015 2015/16 half year results
26 November 2015 Ordinary shares go ex-dividend
27 November 2015 Record date for 2015/16 interim dividend
3 December 2015 Scrip reference price announced
11 December 2015 Scrip election date for 2015/16 interim
dividend
13 January 2016 2015/16 interim dividend paid to qualifying
shareholders
May 2016 2015/16 preliminary results
American Depositary Receipt (ADR) Deposit Agreement
The Company 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 2014/15 final dividend will be charged a fee of
$0.02 per ADR 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 'aims',
'anticipates', 'expects', 'should', 'intends', 'plans', 'believes',
'outlook', 'seeks', 'estimates', 'targets', 'may', 'will',
'continue', 'project' and similar expressions, as well as
statements in the future tense, identify forward-looking
statements. These forward-looking statements are not guarantees of
National Grid's future performance and are subject to assumptions,
risks and uncertainties that could cause actual future results to
differ materially from those expressed in or implied by such
forward-looking statements. Many of these assumptions, risks and
uncertainties relate to factors that are beyond National Grid's
ability to control or estimate precisely, such as changes in laws
or regulations, announcements from and decisions by governmental
bodies or regulators (including the timeliness of consents for
construction projects); the timing of construction and delivery by
third parties of new generation projects requiring connection;
breaches of, or changes in, environmental, climate change and
health and safety laws or regulations, including breaches or other
incidents arising from the potentially harmful nature of its
activities; network failure or interruption, the inability to carry
out critical non network operations and damage to infrastructure,
due to adverse seasonal and 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 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 National Grid's employees or the
breach of laws or regulations by its employees; and the failure to
respond to market developments, including competition from onshore
transmission, and grow the Company's business to deliver its
strategy, as well as incorrect or unforeseen assumptions or
conclusions (including unanticipated costs and liabilities)
relating to business development activity, including assumptions in
connection with joint ventures. For further details regarding these
and other assumptions, risks and uncertainties that may impact
National Grid, please read the Strategic Report section and the
'Risk factors' on pages 167 to 169 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 2014 published on 7 November 2014. 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
2015 2014
Notes GBPm GBPm
----------------------------------------------- ----- -------- --------
Revenue 2(a) 15,201 14,809
Operating costs (11,421) (11,074)
Operating profit
Before exceptional items and remeasurements 2(b) 3,863 3,664
Exceptional items and remeasurements 3 (83) 71
Total operating profit 2(b) 3,780 3,735
Finance income 4 36 36
Finance costs
Before exceptional items and remeasurements 4 (1,069) (1,144)
Exceptional items and remeasurements 3 (165) 93
Total finance costs 4 (1,234) (1,051)
Share of post-tax results of joint ventures
and associates 46 28
Profit before tax
Before exceptional items and remeasurements 2(b) 2,876 2,584
Exceptional items and remeasurements 3 (248) 164
Total profit before tax 2(b) 2,628 2,748
Tax
Before exceptional items and remeasurements 5 (695) (581)
Exceptional items and remeasurements 3 78 297
Total tax 5 (617) (284)
Profit after tax
Before exceptional items and remeasurements 2,181 2,003
Exceptional items and remeasurements 3 (170) 461
Profit for the year 2,011 2,464
------------------------------------------------ ----- -------- --------
Attributable to:
Equity shareholders of the parent 2,019 2,476
Non-controlling interests (8) (12)
2,011 2,464
----------------------------------------------- ----- -------- --------
Earnings per share(1)
Basic 6(a) 53.6p 65.7p
Diluted 6(b) 53.4p 65.4p
1. 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
2015 2014
GBPm GBPm
------------------------------------------------------------- ----- -----
Profit for the year 2,011 2,464
Other comprehensive (loss)/income
Items that will never be reclassified to profit
or loss:
Remeasurements of net retirement benefit obligations (771) 485
Tax on items that will never be reclassified to
profit or loss 299 (172)
--------------------------------------------------------------- ----- -----
Total items that will never be reclassified to
profit or loss (472) 313
--------------------------------------------------------------- ----- -----
Items that may be reclassified subsequently to
profit or loss:
Exchange adjustments 175 (158)
Net (losses)/gains in respect of cash flow hedges (154) 63
Transferred to profit or loss in respect of cash
flow hedges 13 27
Net gains on available-for-sale investments 41 6
Transferred to profit or loss on sale of available-for-sale
investments (8) (14)
Tax on items that may be reclassified subsequently
to profit or loss 11 (2)
--------------------------------------------------------------- ----- -----
Total items that may be reclassified subsequently
to profit or loss 78 (78)
--------------------------------------------------------------- ----- -----
Other comprehensive (loss)/income for the year,
net of tax (394) 235
--------------------------------------------------------------- ----- -----
Total comprehensive income for the year 1,617 2,699
--------------------------------------------------------------- ----- -----
Attributable to:
Equity shareholders of the parent 1,624 2,711
Non-controlling interests (7) (12)
1,617 2,699
------------------------------------------------------------- ----- -----
Consolidated statement of
changes in Share Other Total
equity Share premium Retained equity share-holders' Non-controlling Total
for the years ended 31 March capital account earnings reserves equity interests equity
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- -------- -------- --------- --------- --------------- --------------- -------
At 1 April 2013 433 1,344 13,133 (4,681) 10,229 5 10,234
-
Profit for the year - - 2,476 ( 2,476 (12) 2,464
Total other comprehensive
income/(loss)
for the year - - 313 (78) 235 - 235
------------------------------- -------- -------- --------- --------- --------------- --------------- -------
Total comprehensive
income/(loss)
for the year - - 2,789 (78) 2,711 (12) 2,699
Equity dividends 7 - - (1,059) - (1,059) - (1,059)
Scrip dividend related share
issue(1) 6 (8) - - (2) - (2)
Issue of treasury shares - - 14 - 14 - 14
Purchase of own shares - - (5) - (5) - (5)
Other movements in
non-controlling
interests - - (4) - (4) 15 11
Share-based payment - - 20 - 20 - 20
Tax on share-based payment - - 7 - 7 - 7
------------------------------ -------- -------- --------- --------- --------------- --------------- -------
At 31 March 2014 439 1,336 14,895 (4,759) 11,911 8 11,919
Profit for the year - - 2,019 - 2,019 (8) 2,011
Total other comprehensive
(loss)/income
for the year - - (472) 77 (395) 1 (394)
------------------------------- -------- -------- --------- --------- --------------- --------------- -------
Total comprehensive
income/(loss)
for the year - - 1,547 77 1,624 (7) 1,617
Equity dividends 7 - - (1,271) - (1,271) - (1,271)
Scrip dividend related share
issue(1) 4 (5) - - (1) - (1)
Purchase of treasury shares - - (338) - (338) - (338)
Issue of treasury shares - - 23 - 23 - 23
Purchase of own shares - - (7) - (7) - (7)
Other movements in
non-controlling
interests - - (3) - (3) 11 8
Share-based payment - - 20 - 20 - 20
Tax on share-based payment - - 4 - 4 - 4
------------------------------ -------- -------- --------- --------- --------------- --------------- -------
At 31 March 2015 443 1,331 14,870 (4,682) 11,962 12 11,974
------------------------------ -------- -------- --------- --------- --------------- --------------- -------
1. Included within share premium account are costs associated
with scrip dividends.
Consolidated statement of financial position
as at 31 March
2015 2014
Notes GBPm GBPm
--------------------------------------------- ----- -------- --------
Non-current assets
Goodwill 5,145 4,594
Other intangible assets 802 669
Property, plant and equipment 40,723 37,179
Other non-current assets 80 87
Pension assets 121 174
Financial and other investments 330 284
Investments in joint ventures and associates 318 351
Derivative financial assets 9 1,539 1,557
---------------------------------------------- -----
Total non-current assets 49,058 44,895
---------------------------------------------- ----- -------- --------
Current assets
Inventories and current intangible assets 340 268
Trade and other receivables 2,836 2,855
Financial and other investments 9 2,559 3,599
Derivative financial assets 9 177 413
Cash and cash equivalents 9 119 354
---------------------------------------------- ----- -------- --------
Total current assets 6,031 7,489
---------------------------------------------- ----- -------- --------
Total assets 55,089 52,384
---------------------------------------------- ----- -------- --------
Current liabilities
Borrowings 9 (3,028) (3,511)
Derivative financial liabilities 9 (635) (339)
Trade and other payables (3,292) (3,031)
Current tax liabilities (184) (168)
Provisions (235) (282)
---------------------------------------------- ----- -------- --------
Total current liabilities (7,374) (7,331)
---------------------------------------------- ----- -------- --------
Non-current liabilities
Borrowings 9 (22,882) (22,439)
Derivative financial liabilities 9 (1,764) (824)
Other non-current liabilities (1,919) (1,841)
Deferred tax liabilities (4,297) (4,082)
Pensions and other post-retirement benefit
obligations (3,379) (2,585)
Provisions (1,500) (1,363)
---------------------------------------------- ----- -------- --------
Total non-current liabilities (35,741) (33,134)
---------------------------------------------- ----- -------- --------
Total liabilities (43,115) (40,465)
---------------------------------------------- ----- -------- --------
Net assets 11,974 11,919
---------------------------------------------- ----- -------- --------
Equity
Share capital 443 439
Share premium account 1,331 1,336
Retained earnings 14,870 14,895
Other equity reserves (4,682) (4,759)
---------------------------------------------- ----- -------- --------
Shareholders' equity 11,962 11,911
Non-controlling interests 12 8
---------------------------------------------- ----- -------- --------
Total equity 11,974 11,919
---------------------------------------------- ----- -------- --------
Consolidated cash flow statement
for the years ended 31 March
2015 2014
Notes GBPm GBPm
------------------------------------------------ ----- ------- -------
Cash flows from operating activities
Total operating profit 2(b) 3,780 3,735
Adjustments for:
Exceptional items and remeasurements 3 83 (71)
Depreciation, amortisation and impairment 1,494 1,417
Share-based payment charge 20 20
Changes in working capital 301 (59)
Changes in provisions (41) (150)
Changes in pensions and other post-retirement
benefit obligations (270) (323)
Cash flows relating to exceptional items (17) (150)
Cash generated from operations 5,350 4,419
Tax paid (343) (400)
------------------------------------------------- -----
Net cash inflow from operating activities 5,007 4,019
------------------------------------------------- ----- ------- -------
Cash flows from investing activities
Acquisition of investments - (4)
Purchases of intangible assets (207) (179)
Purchases of property, plant and equipment (3,076) (2,944)
Disposals of property, plant and equipment 9 4
Dividends received from joint ventures 79 38
Interest received 37 35
Net movements in short-term financial
investments 1,157 1,720
------------------------------------------------- ----- ------- -------
Net cash flow used in investing activities (2,001) (1,330)
------------------------------------------------- ----- ------- -------
Cash flows from financing activities
Purchase of treasury shares (338) -
Proceeds from issue of treasury shares 23 14
Purchase of own shares (7) (5)
Proceeds received from loans 1,534 1,134
Repayments of loans (2,839) (2,192)
Net movements in short-term borrowings
and derivatives 623 37
Interest paid (826) (901)
Exceptional finance costs on the redemption
of debt (152) -
Dividends paid to shareholders (1,271) (1,059)
------------------------------------------------- ----- ------- -------
Net cash flow used in financing activities (3,253) (2,972)
------------------------------------------------- ----- ------- -------
Net decrease in cash and cash equivalents 8 (247) (283)
Exchange movements 24 (26)
Net cash and cash equivalents at start
of year 339 648
------------------------------------------------- ----- ------- -------
Net cash and cash equivalents at end of
year(1) 116 339
------------------------------------------------- ----- ------- -------
1. Net of bank overdrafts of GBP3m (2014: GBP15m).
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 2015, which
will be filed with the Registrar of Companies in due course.
Statutory accounts for the year ended 31 March 2014 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 2015 and are consistent with those applied in the
preparation of our accounts for the year ended 31 March 2014.
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 2015. None of the
pronouncements had a material impact on the Company's consolidated
results or assets and liabilities for the year ended 31 March
2015.
-- IFRIC 21 'Levies';
-- Amendments to IAS 32 'Financial Instruments: Presentation' in
respect of offsetting financial assets and liabilities;
-- Amendments to IFRS 10 'Consolidated Financial Statements',
IFRS 12 'Disclosure of Interests in Other Entities' and IAS 27
'Separate Financial Statements' in respect of investment
entities;
-- Amendments to IAS 36 'Impairment of Assets' in respect of
recoverable amount disclosures for non-financial assets; and
-- Amendments to IAS 39 'Financial Instruments: Recognition and
Measurement' in respect of novation of derivatives and continuation
of hedge accounting.
Date of approval
This announcement was approved by the Board of Directors on 20
May 2015.
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 is National Grid's chief operating
decision-making body (as defined by IFRS 8 'Operating segments')
and assesses the performance of operations principally on the basis
of operating profit before exceptional items and remeasurements
(see note 3).
There have been no changes to our reporting structure during the
year ended 31 March 2015.
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.
---------------------------- ----------------------------------------------------
UK Gas Distribution Four of the eight regional networks of Great
Britain's gas distribution system.
---------------------------- ----------------------------------------------------
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: the Great Britain-France electricity
interconnector; UK based gas metering activities; 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
2015 2014
GBPm GBPm
------------------------------ ------ ------
Operating segments:
UK Electricity Transmission 3,754 3,387
UK Gas Transmission 1,022 941
UK Gas Distribution 1,867 1,898
US Regulated 7,986 8,040
Other activities 762 736
Sales between segments (190) (193)
------------------------------- ------ ------
15,201 14,809
------------------------------ ------ ------
Geographical areas
UK 7,191 6,759
US 8,010 8,050
------------------------------- ------ ------
15,201 14,809
------------------------------ ------ ------
2. Segmental analysis continued
(b) Operating profit
Before exceptional After exceptional
items and remeasurements items and remeasurements
--------------------------- ---------------------------
2015 2014 2015 2014
GBPm GBPm GBPm GBPm
------------------------------------- ------------- ------------ ------------- ------------
Operating segments:
UK Electricity Transmission 1,237 1,087 1,237 1,027
UK Gas Transmission 437 417 437 406
UK Gas Distribution 826 904 826 780
US Regulated 1,164 1,125 1,081 1,388
Other activities 199 131 199 134
------------------------------------- ------------- ------------ ------------- ------------
3,863 3,664 3,780 3,735
------------------------------------- ------------- ------------ ------------- ------------
Geographical areas:
UK 2,820 2,723 2,820 2,531
US 1,043 941 960 1,204
------------------------------------- ------------- ------------ ------------- ------------
3,863 3,664 3,780 3,735
------------------------------------- ------------- ------------ ------------- ------------
Reconciliation to profit before tax:
Operating profit 3,863 3,664 3,780 3,735
Finance income 36 36 36 36
Finance costs (1,069) (1,144) (1,234) (1,051)
Share of post-tax results of joint
ventures and associates 46 28 46 28
------------------------------------- ------------- ------------ ------------- ------------
Profit before tax 2,876 2,584 2,628 2,748
------------------------------------- ------------- ------------ ------------- ------------
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.
2015 2014
GBPm GBPm
----------------------------------------------------------- ----- -----
Included within operating profit:
Exceptional items:
Restructuring costs(1) - (136)
Gas holder demolition costs(2) - (79)
LIPA MSA transition(3) - 254
Other(4) - 16
- 55
Remeasurements - commodity contracts(5) (83) 16
(83) 71
----------------------------------------------------------- ----- -----
Included within finance costs:
Exceptional items:
Debt redemption costs(6) (131) -
Remeasurements:
Net (losses)/gains on derivative financial instruments(7) (34) 93
------------------------------------------------------------ ----- -----
(165) 93
----------------------------------------------------------- ----- -----
Total included within profit before tax (248) 164
------------------------------------------------------------ ----- -----
Included within tax:
Exceptional credits/(charges) arising on items not
included in profit before tax:
Deferred tax credit arising on the reduction in the
UK corporation tax rate(8) 6 398
Deferred tax charge arising from an increase in US
state income tax rates(9) - (8)
Tax on exceptional items 28 (57)
Tax on remeasurements(5, 7) 44 (36)
78 297
----------------------------------------------------------- ----- -----
Total exceptional items and remeasurements after tax (170) 461
------------------------------------------------------------ ----- -----
Analysis of total exceptional items and remeasurements after
tax:
Exceptional items after tax (97) 388
Remeasurements after tax (73) 73
Total (170) 461
------------------------------------------------------------ ----- -----
3. Exceptional items and remeasurements continued
1. No exceptional restructuring costs have been incurred in the
year ended 31 March 2015. Restructuring costs for 2014 included:
costs related to the continued restructuring of our UK operations
in preparedness to deliver RIIO, other transformation-related
initiatives in the UK and US and an associated software impairment
for licences that will no longer be used.
2. No further provision (2014: GBP79m) has been made for the
demolition of non-operational gas holders in the UK.
3. For the year ended 31 March 2014, a net gain of GBP254m was
recognised. This included a pension curtailment and settlement
(GBP214m) for employees who transferred to a new employer following
the cessation of the Management Services Agreement (MSA) with the
Long Island Power Authority (LIPA) on 31 December 2013. There was
also a gain of GBP142m following the extinguishment of debt
obligations of GBP98m and a GBP56m cash payment received, in
compensation for the Company forgiving an historical pension
receivable and carrying charges. These gains were offset by
transition costs and other provisions incurred to effect the
transition.
4. During the year ended 31 March 2014, GBP16m was received
following the sale to a third party of a settlement award which
arose as a result of a legal ruling in 2008.
5. Remeasurements - commodity contracts represent mark-to-market
movements on certain physical and nancial 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.
6. Represents costs arising from a liability management
programme. We have reviewed and restructured the Group debt
portfolio following the commencement of the RIIO price controls in
2013 and the slow down in our planned short term UK capital
investment programme as the industry assesses the impact of EMR.
This resulted in a bond repurchase programme with a notional value
of GBP924m.
7. Remeasurements - net (losses)/gains on derivative nancial
instruments comprise (losses)/gains arising on derivative nancial
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 a credit of GBP1m (2014: GBPnil) in
respect of prior years.
8. The Finance Act 2013 enacted reductions in the UK corporation
tax rate from 23% to 21% from 1 April 2014, and from 21% to 20%
from 1 April 2015. These reductions have resulted in decreases to
UK deferred tax liabilities in these periods.
9. The exceptional tax charge in the prior year arose from a net
increase in US state income tax rates. Effective from 1 April 2014,
the state income tax rate for Massachusetts regulated utilities
increased from 6.5% to 8% and, effective from 1 April 2016, the
state income tax rate for New York will decrease from 7.1% to
6.5%.
4. Finance income and costs
2015 2014
GBPm GBPm
-------------------------------------------------- ------- -------
Finance income 36 36
Finance costs
Net interest on pension and other post-retirement
benefit obligations (101) (128)
Interest expense on financial instruments (981) (1,091)
Unwinding of discounts on provisions (73) (73)
Less: interest capitalised(1) 86 148
--------------------------------------------------- ------- -------
Finance costs before exceptional items and
remeasurements (1,069) (1,144)
Exceptional items:
Debt redemption costs (131) -
Remeasurements:
Net (losses)/gains on derivative financial
instruments(2, 3) (34) 93
Exceptional items and remeasurements included
within finance costs (165) 93
--------------------------------------------------- ------- -------
Finance costs (1,234) (1,051)
--------------------------------------------------- ------- -------
Net finance costs (1,198) (1,015)
--------------------------------------------------- ------- -------
1. Interest on funding attributable to assets in the course of
construction in the current year was capitalised at a rate of 3.8%
(2014: 4.5%). In the UK, capitalised interest qualifies for a
current year tax deduction with tax relief claimed of GBP24m (2014:
GBP32m). In the US, capitalised interest is added to the cost of
plant and qualifies for tax depreciation allowances.
2. Includes a net foreign exchange gain on financing activities
of GBP636m (2014: GBP268m) offset by foreign exchange gains and
losses on derivative nancial instruments measured at fair
value.
3. Includes a net gain on instruments designated as fair value
hedges of GBP219m (2014: GBP183m loss) offset by a net loss of
GBP162m (2014: GBP205m gain) arising from fair value adjustments to
the carrying value of debt.
5. Tax
2015 2014
GBPm GBPm
-------------------------------------------------------- ---- -----
Tax before exceptional items and remeasurements 695 581
--------------------------------------------------------- ---- -----
Exceptional tax on items not included in profit before
tax (note 3) (6) (390)
Tax on other exceptional items and remeasurements (72) 93
--------------------------------------------------------- ---- -----
Tax on total exceptional items and remeasurements
(note 3) (78) (297)
--------------------------------------------------------- ---- -----
Total tax charge 617 284
--------------------------------------------------------- ---- -----
Tax as a percentage of profit before tax %%
-------------------------------------------------------- ---- ----
Before exceptional items and remeasurements 24.2 22.5
After exceptional items and remeasurements 23.5 10.3
--------------------------------------------------------- ---- -----
The tax charge for the year can be analysed as follows:
GBPm GBPm
-------------------------------------------------------- ---- -----
Current tax
UK corporation tax at 21% (2014: 23%) 309 355
UK corporation tax adjustment in respect of prior
years (2) (9)
Overseas corporation tax 51 54
Overseas corporation tax adjustment in respect of
prior years (62) (88)
Total current tax 296 312
--------------------------------------------------------- ---- -----
Deferred tax
UK deferred tax 123 (292)
UK deferred tax adjustment in respect of prior years 7 (3)
Overseas deferred tax 138 276
Overseas deferred tax adjustment in respect of prior
years 53 (9)
--------------------------------------------------------- ---- -----
Total deferred tax 321 (28)
--------------------------------------------------------- ---- -----
Total tax charge 617 284
--------------------------------------------------------- ---- -----
Adjustments in respect of prior years include the following
amounts that relate to exceptional items and remeasurements: GBP1m
credit (2014: GBPnil).
6. Earnings per share
Adjusted earnings per share, excluding exceptional items and
remeasurements, are provided to reflect the business performance
subtotals used by the Company. For further details of exceptional
items and remeasurements, see note 3.
(a) Basic earnings per share
Earnings Earnings
Earnings per share Earnings per share
2015 2015 2014 2014
GBPm pence GBPm pence
---------------------------- --------- ---------- --------- ----------
Adjusted earnings 2,189 58.1 2,015 53.5
Exceptional items after tax (97) (2.6) 388 10.3
Remeasurements after tax (73) (1.9) 73 1.9
Earnings 2,019 53.6 2,476 65.7
------------------------------ --------- ---------- --------- ----------
2015 2014
millions millions
---------------------------- --------- ---------- --------- ----------
Weighted average number of
shares - basic(1) 3,766 3,766
------------------------------ --------- ---------- --------- ----------
1. Comparative amounts have been restated to reflect the impact
of additional shares issued as scrip dividends.
(b) Diluted earnings per share
Earnings Earnings
Earnings per share Earnings per share
2015 2015 2014 2014
GBPm pence GBPm pence
---------------------------- ---------- ---------- ---------- ----------
Adjusted earnings 2,189 57.9 2,015 53.2
Exceptional items after tax (97) (2.6) 388 10.3
Remeasurements after tax (73) (1.9) 73 1.9
Earnings 2,019 53.4 2,476 65.4
------------------------------ ---------- ---------- ---------- ----------
2015 2014
millions millions
---------------------------- ---------- ---------- ---------- ----------
Weighted average number of
shares - diluted(1) 3,783 3,785
------------------------------ ---------- ---------- ---------- ----------
1. Comparative amounts have been restated to reflect the impact
of additional shares issued as scrip dividends.
7. Dividends
2015 2014
----------------------------------------- --------------------------------
Cash
Cash dividend dividend Scrip
Pence paid Scrip dividend Pence paid dividend
per share GBPm GBPm per share GBPm GBPm
----------------------------------- ---------- ------------- -------------- ---------- --------- ---------
Interim dividend in respect of
current year 14.71 531 26 14.49 539 -
Final dividend in respect of prior
year 27.54 740 289 26.36 520 444
42.25 1,271 315 40.85 1,059 444
----------------------------------- ---------- ------------- -------------- ---------- --------- ---------
The Directors are proposing a final dividend for the year ended
31 March 2015 of 28.16p per share that will absorb approximately
GBP1,054m of shareholders' equity (assuming all amounts are settled
in cash). It will be paid on 5 August 2015 to shareholders who are
on the register of members at 5 June 2015 and a scrip dividend will
be offered as an alternative, subject to shareholders' approval at
the Annual General Meeting.
8. Reconciliation of net cash flow to movement in net debt
2015 2014
GBPm GBPm
--------------------------------------------------- -------- --------
Decrease in cash and cash equivalents (247) (283)
Decrease in financial investments (1,157) (1,720)
Increase in borrowings and related derivatives 682 1,021
Net interest paid on the components of net debt(1) 925 841
---------------------------------------------------- -------- --------
Change in net debt resulting from cash flows 203 (141)
Changes in fair value of financial assets and
liabilities and exchange movements (1,777) 1,360
Net interest charge on the components of net
debt(1) (1,068) (1,053)
Extinguishment of debt resulting from LIPA MSA
transition (note 3) - 98
Other non-cash movements (83) (25)
---------------------------------------------------- --------
Movement in net debt (net of related derivative
financial instruments) in the year (2,725) 239
Net debt (net of related derivative financial
instruments) at start of year (21,190) (21,429)
---------------------------------------------------- -------- --------
Net debt (net of related derivative financial
instruments) at end of year (23,915) (21,190)
---------------------------------------------------- -------- --------
1. An exceptional expense of GBP131m (2014: GBPnil) is included
in net interest charge on the components of net debt and an
exceptional cash outflow of GBP152m (2014: GBPnil) is included in
net interest paid on the components of net debt.
9. Net debt
2015 2014
GBPm GBPm
-------------------------------------------------- -------- --------
Cash and cash equivalents 119 354
Bank overdrafts (3) (15)
--------------------------------------------------- -------- --------
Net cash and cash equivalents 116 339
Financial investments 2,559 3,599
Borrowings (excluding bank overdrafts) (25,907) (25,935)
Net debt related derivative financial assets 1,716 1,970
Net debt related derivative financial liabilities (2,399) (1,163)
--------------------------------------------------- -------- --------
Net debt (net of related derivative financial
instruments) (23,915) (21,190)
--------------------------------------------------- -------- --------
10. Commitments and contingencies
2015 2014
GBPm GBPm
---------------------------------------------- ----- -----
Future capital expenditure contracted for but
not provided 2,360 2,624
Operating lease commitments 627 630
Energy purchase commitments 4,338 3,537
Guarantees and letters of credit (a) 1,297 1,252
(a) Guarantees and letters of credit
2015 2014
GBPm GBPm
------------------------------------------------------- ----- -----
Guarantee of sublease for US property (expires 2040) 236 232
Guarantees of certain obligations of Grain LNG Import
Terminal (expire up to 2028) 151 155
Guarantee of certain obligations for construction of
HVDC West Coast Link (expected expiry 2016) 555 594
Other guarantees and letters of credit (various expiry
dates) 355 271
-------------------------------------------------------- ----- -----
1,297 1,252
------------------------------------------------------- ----- -----
(b) Litigation and claims
Through the ordinary course of the Group's 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.
11. 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:
2015 2014
---------------------------------- ---- ----
Closing rate applied at year end 1.49 1.67
Average rate applied for the year 1.58 1.62
----------------------------------- ---- ----
12. 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:
2015 2014
GBPm GBPm
-------------------------------------------------------- ---- ----
Sales: Goods and services supplied to a pension
plan and joint ventures 52 15
Purchases: Goods and services received from
joint ventures and associates(1) 120 128
Receivable from a pension plan and joint ventures 4 3
Payable to joint ventures and associates 6 5
Dividends received from joint venture and associates(2) 79 38
--------------------------------------------------------- ---- ----
1. During the year the Company received goods and services from
a number of joint ventures and associates, including Iroquois Gas
Transmission System, L.P. of GBP24m (2014: GBP30m), Millennium
Pipeline Company, LLC of GBP26m (2014: GBP31m) for the
transportation of gas in the US and NGET/SPT Upgrades Limited of
GBP68m (2014: GBP67m) for the construction of a transmission link
in the UK.
2. Dividends were received from BritNed Development Limited of
GBP49m (2014: GBP17m), Iroquois Gas Transmission System, L.P. of
GBP14m (2014: GBP11m) and Millennium Pipeline Company, LLC of
GBP16m (2014: GBP10m).
(1) 'Adjusted results', 'Value Added' and a number of other
terms and performance measures used in this document are not
defined within accounting standards or 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 36 to 40. Prior year EPS has been
adjusted to reflect the additional shares issued as scrip
dividends, refer to note 6 on page 55.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR MMGZKLGNGKZM
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