TIDMNG.
RNS Number : 7052G
National Grid PLC
08 November 2018
London | 8 November 2018:
National Grid, a leading
energy transmission and
distribution company,
today announces its Half
Year results.
Report for the period ended
30 September 2018
Highlights Financial performance
* Maintained strong reliability and safety across all * Underlying operating profit down 6% to GBP1.3bn,
networks primarily from expected return of Gas Transmission
allowances and US tax reform, partially offset by
favourable legal settlements of GBP94m
* Decided to exercise Cadent 39% options; sale
completion in June 2019 providing GBP2bn cash
proceeds * Underlying EPS of 19.7p, up 1.2p, reflecting a lower
tax rate and reduced share count
* Reached major milestone in the US with all
distribution companies under refreshed rates * Statutory EPS (continuing) of 12.7p after exceptional
charges: UK cost efficiency and restructuring
programme GBP127m; Massachusetts Gas workforce
contingency plan GBP97m
* Approved GBP850m investment to proceed with Viking
interconnector
* Interim dividend 16.08p/share, up 3.8% in line with
policy
* Launched UK cost efficiency and restructuring
programme
* Capital investment GBP2.1bn, up 7%
------------------------------------------------------------- ----------------------------------------------------------------
Financial summary
Six months ended 30 September - continuing operations (excluding Cadent)
Statutory results Underlying(1)
======================== =============================== ============================
Unaudited 2018 2017 % change 2018 2017 % change
GBPm GBPm GBPm GBPm
======================== ======== ======== ----------- ======= ======= ==========
Operating profit 1,017 1,274 (20) 1,285 1,368 (6)
========================= ======== ======== ----------- ======= ======= ==========
Profit before tax 522 780 (33) 816 846 (4)
========================= ======== ======== ----------- ======= ======= ==========
Earnings per share 12.7p 17.7p (28) 19.7p 18.5p 6
========================= ======== ======== ----------- ======= ======= ==========
Capital investment 2,130 2,000 7 2,130 2,000 7
========================= ======== ======== ----------- ======= ======= ==========
John Pettigrew
Chief Executive
"We have continued to make strong operational progress in the
first six months whilst maintaining excellent levels of safety and
reliability. Investment in our networks increased to GBP2.1bn,
including further progress on our three major interconnector
projects. In the UK, we are implementing a cost efficiency and
restructuring programme to ensure that we continue to drive
outperformance for customers and shareholders. In the US, we have
completed a full refresh of our rate plans so that all our
distribution businesses are now operating under new rates, a major
milestone which will support our continued growth. We continue to
seek a fair settlement on union negotiations in Massachusetts.
"Strategically, we have made good progress with the decision to
exercise options for the sale of our remaining 39% share in Cadent
and the final investment decision on the Viking interconnector.
Looking forward, National Grid is well positioned for the ongoing
energy transition and we are on track to achieve asset growth at
the top end of our 5-7% range in the medium term."
(1) 'Underlying' represents statutory results excluding
exceptional items, remeasurements, timing and major storm costs.
These and a number of other terms and performance measures used in
this document are not defined within accounting standards and may
be applied differently by other organisations. We have provided
definitions of these terms on page 52 and reconciliations of these
measures on pages 52 to 55. The Group does not believe that these
measures are a substitute for IFRS measures, however the Group does
believe such information is useful in assessing the performance of
the business on a comparable basis
Investor Relations
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Conference call details
An analyst presentation will be held at the London
Stock Exchange, 10 Paternoster Square, London EC4M
7LS at 09:15 (GMT) today. There will be a live webcast
of the results presentation available to view at
investors.nationalgrid.com.
Live telephone coverage of the analyst presentation
at 09:15
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UK dial in numbers +44 (0) 203 037 9315
+44 (0) 800 368 2276 (UK toll free)
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US dial in numbers +1 866 966 5335 (US toll free)
+1 212 999 6659 (New York)
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Password National Grid
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National Grid image library available at www.nationalgrid.com/group/media
You can view or download copies of the latest Annual
Report and Accounts (ARA) and Performance Summary
from National Grid's website at investors.nationalgrid.com
or request a free printed copy by contacting investor.relations@nationalgrid.com
Inside Information in relation to the decision to exercise
Cadent options
This announcement is being disclosed in accordance with the
Market Abuse Regulation (EU596/2014) and has been determined to
contain inside information in line with the definition therein.
Use of Alternative Performance Measures
Throughout this release we use a number of alternative (or
non-IFRS) and regulatory performance measures to provide users with
a clearer picture of the regulated performance of the business.
This is in line with how management monitor and manage the business
day-to-day. Further detail and definitions for all alternative
performance measures are provided on page 52.
OVERVIEW
National Grid has continued to deliver strong operational and
safety performance, with an employee injury frequency rate of under
0.1 - less than one lost time injury per million hours worked.
Capital investment increased by GBP136 million at constant currency
to GBP2,130 million for the first six months of the year. This
reflects significant investment in developing and maintaining gas
and electricity infrastructure that provides critical services for
millions of customers in the UK and US.
Underlying operating profit decreased GBP79 million (or 6%) at
constant currency versus the prior period to GBP1,285 million. This
mainly reflects the expected return of UK Gas Transmission
allowances associated with Avonmouth, the impact of US tax reform,
and lower profits in the US due to storm costs. This was partly
offset by increased revenue from our new US rates, and benefits
from legal settlements.
Six months ended 30 September At actual At constant
Underlying operating profit exchange rates currency
========================= =================
(GBPm) 2018 2017 % change 2017 % change
================================== ====== ====== ========= ====== =========
UK Electricity Transmission 556 540 3 540 3
UK Gas Transmission 91 144 (37) 144 (37)
US Regulated 431 526 (18) 522 (17)
NG Ventures and other activities 207 158 31 158 31
Group total underlying operating
profit 1,285 1,368 (6) 1,364 (6)
=================================== ====== ====== ========= ====== =========
'Underlying results' and a number of other terms and performance
measures are not defined within accounting standards and may be
applied differently by other organisations. For clarity, we have
provided definitions of these terms and, where relevant,
reconciliations on pages 52 to 55.
Headline operating profit decreased by GBP54 million at constant
currency versus the prior period to GBP1,202 million. Headline EPS
was 17.8p compared to 16.6p in the prior period. For reconciliation
between Statutory, Headline and Underlying results please refer to
pages 52 to 55.
Decision to exercise Cadent 39% options
We have decided to exercise the options over our remaining 39%
share in Cadent and the sale is expected to complete at the end of
June 2019, subject to customary regulatory approvals. As previously
announced, the expected proceeds of GBP2 billion will be retained
by the business to reinvest in the strong organic growth we
anticipate in the medium-term. The financial results of Cadent for
this and the prior period have therefore been classified within
discontinued operations.
US Regulated business makes good progress - all distribution
companies now under refreshed rates
We made good regulatory progress in our US Regulated business as
we completed the refresh of rates in our distribution businesses.
Following the agreement of new rates for Rhode Island Gas and
Electric in August and Massachusetts Gas in September, all
distribution companies are now operating under updated rates,
supporting increased levels of investment and strong returns.
Investment drivers in Northeast US are projected to continue to
sustain a high level of asset growth for the US business of over 7%
p.a. over the medium-term.
The lower US operating profit reflects the impact of US tax
reform, and GBP56 million higher costs from a number of storms. The
majority of storm costs are recoverable under existing regulatory
mechanisms. Due to seasonality, US full year profits are weighted
towards the second half. This will be more pronounced than usual
this year due to higher storm costs in the first half, and with new
rates coming into effect in Rhode Island and Massachusetts Gas in
September and October respectively. Overall, the lower tax rate
will represent a small benefit to full-year earnings in
2018/19.
Massachusetts Gas update
We continue to negotiate with two of our gas unions in
Massachusetts over employment terms and conditions. The two unions
represent 1,250 workers from our US workforce of 16,000. Particular
issues include the amount of employee contribution to healthcare
and proposals to bring future employees into a defined contribution
pension scheme, rather than a defined benefit plan. Over the last
few years, we have agreed very similar terms with 16 other unions
and are hopeful that we can reach an agreement with these two
unions.
The negotiations have been ongoing for several months and as no
agreement was reached before the existing contracts expired, we had
to implement contingency workforce plans from the end of June this
year. This includes the employment of fully qualified contractors
and workers, the use of workers from other parts of the business,
increased supervision to ensure safe operation, and the
establishment of temporary work sites. These activities have
ensured that critical work continues safely and that there is
minimal disruption to our customers. As a consequence, we have
incurred additional costs of GBP97 million which have been
classified as exceptional.
Our objective is to reach a fair settlement that allows the
business to deliver vital services at a reasonable cost to
customers, minimise any future cost increases and protect the
agreements already in place with the other unions.
During the work contingency, we have continued to safely provide
the service our customers expect, including the completion of
almost 40,000 individual jobs.
In October, we had a minor incident in Woburn where, as a
precaution, we shut off gas supply to 300 homes before testing the
system and reconnecting the affected homes. No damage was caused.
With this happening on the back of the tragic event in the
Merrimack Valley, which is outside our gas service territory, the
Massachusetts Department of Public Utilities (DPU) requested we
only undertake mandatory and compliance work. We are currently
working to resolve this moratorium, as well as keeping the DPU
informed on the union negotiations.
UK businesses focused on delivering further cost savings under
RIIO-T1
Our UK regulated operations continue to perform well in the
sixth year of the eight year RIIO-T1 price control. Reliability
remains strong while the businesses continue to drive efficiency
and build on the significant total expenditure (totex) savings
achieved for customers.
Organisational review of the UK business
During the first half of this year we commenced a multi-year
programme covering a range of initiatives to drive further
efficiency and lower costs for customers. These initiatives will
continue our drive to become a more agile organisation that is
positioned to be more responsive to customers. The range of
initiatives include a flatter, leaner organisation, further
economies of scale, simplifying our processes and ways of working,
and making more efficient use of IT and back office activities.
To achieve the long-term benefits of these initiatives, we have
provided for costs of GBP127 million in the first half of 2018/19,
which we expect will help us generate opex savings of GBP50 million
in 2019/20 and at least GBP100 million annually from 2020/21. We
continue to expect to deliver outperformance of 200-300 basis
points in each of the remaining years of RIIO-T1.
RIIO-T1 reopeners and Visual Impact Provision funding
Ofgem reached a final decision in September on funding for
certain projects and programmes of work which were subject to
reopeners as we entered RIIO-T1. We submitted four requests to
adjust baseline allowances: additional allowances for data centres
and cyber security; investments in our Gas Transmission compressor
fleet to meet European emissions standards; asset health costs for
the Feeder 9 pipeline replacement under the Humber Estuary; and
funding for a Visual Impact Provision scheme for under-grounding
overhead lines in Dorset.
We were pleased that Ofgem allowed the necessary funding for the
investment in physical and cyber security in both electricity and
gas transmission. However, we were disappointed not to receive
funding for the compressor works, and we are now reviewing our
approach to meeting the required environmental obligations. With
regards to Feeder 9, Ofgem changed its initial decision on the
needs case, awarding us GBP111 million to continue this project. On
the Visual Impact Provision scheme, Ofgem made its final
determination on 2 November awarding us GBP116 million.
RIIO-T2 preparation well underway
We welcome the RIIO Framework Decision document Ofgem published
at the end of July, which provides a solid foundation as we move
into the sector specific consultation phase later this year.
Ofgem confirmed that the key principles of RIIO-T1 will remain,
namely incentives, innovation and output based regulation. Ofgem
also emphasised the importance of RIIO-T2 being a
stakeholder-engagement led process, which we advocated for, and in
which we have experience through our US distribution
businesses.
Whilst we are pleased with some decisions in the framework
document, such as transition to CPIH (Consumer Price Index
including Housing), and withdrawal of the proposal to cap returns,
there remain areas that we will continue to discuss with Ofgem in
the coming months. For example, we believe the cost of equity
remains too low. We aim to achieve a fair return that is reflective
of the level of risk in transmission networks, together with
incentive opportunities to outperform that deliver benefits to
customers and shareholders.
Sector specific consultations start towards the end of this year
and we expect to see a gradual narrowing towards the final
framework with initial proposals expected in mid-2020. Overall, we
believe that RIIO-T2 must deliver a total financial package that
can fund the necessary investment as well as fairly remunerate
shareholders for this investment.
Solid first half for National Grid Ventures (NGV) and other
activities
We continue to make good progress on the three interconnectors
we have under construction, and have approved investment to proceed
with the Viking interconnector to Denmark, subject to the
resolution of a number of minor issues.
The Nemo Link, North Sea Link and IFA2 interconnectors remain on
track, with important milestones over the last six months. North
Sea Link has progressed cable laying, with 260 kilometres buried
under the seabed. Good progress has also continued on IFA2, with
completion of duct works in the cliffs at Chilling on the south
coast. On Nemo Link, energisation and station testing is underway,
and commissioning is expected before the end of March next
year.
Our combined investment in these four interconnector projects
will be over GBP2.1 billion. They are expected to contribute
approximately GBP250 million annual EBITDA when fully operational
by the mid-2020s.
Preliminary planning approval for Fulham property site
In our St. William joint venture, a planning application was
submitted for over 1,800 new homes on the Fulham site during 2018.
In October, the London Borough of Hammersmith and Fulham resolved
to grant planning permission, subject to the agreement of a
satisfactory Section 106 agreement dealing with the provision of
affordable housing and other developer financial contributions.
Over a third of the new homes built will be affordable. Subject to
securing planning permission, site development is scheduled to
start in 2019 and we expect the site will be transferred into the
St. William joint venture during 2018/19.
Corporate centre
Corporate centre and other activities including Property
contributed GBP76 million to operating profit during the half year,
including GBP94 million of benefit from legal settlements to
recover costs associated with a US systems implementation, in line
with the treatment of the original costs.
GROWTH
Balanced portfolio to deliver asset growth and sustainable
dividend
National Grid aims to deliver value to shareholders through
maintaining a portfolio of businesses with strong operational
performance alongside attractive annual asset growth of around 5 to
7% assuming long-run average UK RPI inflation of 3%. The Group aims
to deliver this growth while maintaining an efficient balance sheet
that allows continued funding of its investment programme, and
maintaining the policy of aiming to increase dividend per share by
at least RPI for the foreseeable future.
GBP2.1 billion of capital investment across the Group
We continued to make significant investment in energy
infrastructure in the first six months of the year. Capital
investment across the Group was GBP2,130 million, an increase of
GBP136 million or 7% at constant currency compared to the first
half of 2017/18.
Six months ended 30 September At actual At constant
Group capital investment exchange rates currency
========================= =================
(GBPm) 2018 2017 % change 2017 % change
====================================== ====== ====== ========= ====== =========
UK Electricity Transmission 462 515 (10) 515 (10)
UK Gas Transmission 153 157 (3) 157 (3)
US Regulated 1,177 1,095 7 1,089 8
NG Ventures and other activities* 338 233 45 233 45
Group capital investment 2,130 2,000 7 1,994 7
======================================= ====== ====== ========= ====== =========
* NG Ventures and other activities capital investment includes
equity and financing in joint ventures and associates but excludes
GBP20m and GBP8m equity contribution to St. William property joint
venture for 2018 and 2017, respectively.
Investment in the US Regulated business was GBP1,177 million for
the first six months of this year, an increase of GBP88 million
over the prior period at constant currency. The increase reflects
mandated gas work across New York and Rhode Island, partly offset
by a reduction of around GBP60m in capital expenditure in
Massachusetts Gas during the implementation of the work contingency
plan. The US business continues its significant investment in leak
prone pipe replacement, enabling customer growth and reinforcing
the electricity system to improve the safety and reliability of
networks. This sustained level of investment was a key feature of
the updated regulatory filings in the Rhode Island Electric and Gas
and Massachusetts Gas businesses, and is expected to continue in
future filings, supporting strong levels of rate base growth over
the medium term.
The UK regulated businesses invested GBP615 million in the first
half of 2018/19, with UK Electricity Transmission and UK Gas
Transmission both investing in asset health to meet their
respective Network Output Measures. Investment in our UK
Electricity Transmission business was GBP53 million lower than the
prior period, primarily reflecting lower non-load related
investment.
National Grid Ventures and other activities investment increased
by GBP105 million to GBP338 million in the first half of the year
versus the prior period. Of this increase, GBP64 million reflected
higher capital expenditure on the IFA2 (France) and North Sea Link
(NSL) interconnectors, both of which continue to progress well.
FINANCIAL STRENGTH
Over GBP1 billion of new long-term financing
National Grid's balance sheet remains robust, with strong
investment grade credit ratings from Moody's, Standard & Poor's
and Fitch.
During the first six months of the year, National Grid raised
over GBP1 billion of new long-term debt. All of the funding was for
the US business, with the majority at holding company level. Net
debt increased to GBP25.6 billion in the six months, GBP2.6 billion
higher than at 31 March 2018 (GBP23.0 billion). This increase was
driven by movement in exchange rates (GBP1.4 billion), and
underlying business requirements (GBP1.2 billion).
Interim dividend of 16.08p, increased in line with policy
The Board has approved an interim dividend of 16.08p per
ordinary share ($1.0616 per American Depositary Share). This
represents 35% of the total dividend per share of 45.93p in respect
of the last financial year to 31 March 2018 and is in line with the
Group's dividend policy. The interim dividend is expected to be
paid on 9 January 2019 to shareholders on the register as at 23
November 2018.
The Group's dividend policy is to aim to grow the ordinary
dividend per share at least in line with the rate of UK RPI
inflation each year for the foreseeable future. The 2018/19 interim
dividend of 16.08p represents a 0.59p (3.8%) increase over the
interim dividend for the year ended 31 March 2018 of 15.49p.
The scrip dividend alternative will again be offered in respect
of the 2018/19 interim dividend. As previously announced, we do not
expect to buy back the scrip shares issued during 2018/19 or
2019/20, unless there is sufficient balance sheet capacity.
Board changes
As previously announced, Andrew Bonfield stood down as Finance
Director at the Annual General Meeting on 30 July 2018. Andy Agg,
previously Group Tax and Treasury Director, is currently Interim
CFO.
In May, we also announced that Pierre Dufour would be stepping
down as a Non-executive Director of the Board with effect from the
end of the Annual General Meeting.
In April 2018, we announced the appointment of Amanda Mesler as
a Non-executive Director of the Board with effect from 17 May 2018.
On appointment, Amanda joined the Audit, Finance and Nominations
Committees of National Grid.
OUTLOOK
Following the refresh of our rate case programme, good financial
performance is expected to continue in the US business. The UK
business remains on track to deliver outperformance in the 200-300
bps range, and the contribution from National Grid Ventures and
Other activities is expected to be above prior year.
Looking ahead, National Grid sees strong growth prospects across
the Group. There are a wide range of growth drivers for the US, UK
and NGV businesses, which are expected to deliver high quality
asset growth of at least 7% for the next two years, and at the top
end of our 5-7% range in the medium term.
The business continues to be well positioned with a balanced
portfolio and an efficient balance sheet that underpins asset and
dividend growth.
2018/19 TECHNICAL GUIDANCE
The outlook and technical guidance contained in this statement
should be reviewed, together with the forward-looking statements
set out in this release, in the context of the cautionary
statement. It is prepared on the basis of the Group's continuing
operations, excluding the results of Cadent which have been
classified as a discontinued operation.
UK Electricity Transmission
Net Revenue (excluding timing) is expected to increase by
approximately GBP80 million compared to 2017/18, reflecting
inflationary increases on base revenues and revised system operator
incentives.
Totex outperformance is expected to increase compared with
2017/18, partly reflecting the higher allowances available to us in
the reopener decision as well as improved incentive performance.
Overall Return on Equity outperformance is expected to be above the
200-300 bps range.
UK Gas Transmission
Net Revenue (excluding timing) is expected to decrease, with
approximately GBP160 million of lower revenue allowances compared
to 2017/18, primarily due to the return of revenues relating to the
Avonmouth project through the annual MOD adjustment(2) .
Totex performance is expected to be lower than 2017/18 primarily
reflecting lower allowances from the RIIO-T1 reopener decision.
Incentive performance is also expected to be marginally lower. As a
result Return on Equity is expected to be slightly lower than the
allowed level in 2018/19.
UK Timing
Revenues will be impacted by timing of recoveries including
impacts from prior years. Electricity Transmission is expected to
under-recover by around an additional GBP100 million compared to
2017/18. Gas Transmission timing is expected to under-recover at a
similar level to 2017/18.
US Regulated operations
Net Revenue (excluding timing) is expected to increase by about
GBP80 million, reflecting the full year benefit of new rate case
filings and capex trackers, partially offset by the impact of tax
reform and the adoption of IFRS15. After inflationary impacts on
operating costs and GBP56 million of storm costs, we expect
underlying operating profit to be slightly below the prior year.
The majority of storm costs are recoverable under regulatory
mechanisms. Costs associated with the Massachusetts Gas workforce
contingency plan are classified as an exceptional item and excluded
from the underlying results.
Excluding the impact of the Massachusetts workforce contingency
costs, Return on Equity for overall US Regulated operations is
expected to remain at a similar level to the performance in
2017/18.
US Timing
US in-year timing is heavily influenced by volumetric impacts
and commodity prices, particularly over the last quarter of the
financial year. We expect payments of previously over-recovered
NYSERDA balances to now reduce revenue by approximately $30 million
during 2018/19.
National Grid Ventures and Other activities
Revenue is expected to increase year-on-year, mainly due to the
forecast sale of the Fulham site to St. William in our Property
business, subject to receiving appropriate planning consents.
Profits from the Property business are expected to be almost double
last year's level as a result of this and other sales. Other
activities will also benefit from the GBP94 million of legal
settlements. These benefits will be partially offset by the revenue
impact of fewer domestic meters in the Metering business.
Joint Ventures and Associates
Our share of the profit after tax of joint ventures and
associates (excluding Cadent) is expected to be broadly in line
with the prior year.
Interest and Taxation
Net finance costs in 2018/19 are expected to increase, driven by
higher average net debt and the non-repeat of gains on the disposal
of available for sale investments, partially offset by lower RPI
and the benefit of lower pension interest.
For the full year 2018/19, the underlying effective tax rate,
excluding the share of joint venture and associate post-tax
profits, is expected to reduce to around 21%.
Changes to accounting standards
No material impact on EPS is expected following the adoption of
IFRS9 'Financial Instruments' and IFRS15 'Revenue from Contracts
with Customers' in 2018/19.
Investment, Growth and Net Debt
Overall Group capital investment for 2018/19 is expected to be
at a similar level to the GBP4.3 billion of investment in 2017/18.
In our UK transmission businesses we expect to invest GBP1.2
billion; in our US Regulated business capex is expected to be
slightly below the prior year level of $3.3 billion, in part due to
lower investment in Massachusetts Gas. Investment in our NGV and
Other businesses will increase reflecting investment in
interconnector projects.
Depreciation is expected to increase, reflecting the impact of
continued high levels of capital investment.
Operating cashflow generated from continuing operations is
expected to reduce, including the impact of lower tax allowances in
US revenues.
Net debt is expected to increase (excluding the impact of
foreign exchange) from GBP25.6 billion at the half year, reflecting
ongoing business cash requirements of approximately GBP1.3
billion.
Weighted average number of shares (WAV) is expected to increase
from 3,367 million for the first half of the year to approximately
3,390 million reflecting the impact of scrip shares.
(2) In November 2017, 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.
FINANCIAL REVIEW
Unless otherwise stated, all financial commentary in this
release is given on an underlying basis at actual exchange rates
for continuing operations. The use of these alternative and
regulatory performance (or non-IFRS) measures is intended to
provide users with a clearer picture of the regulated performance
of the business. This is in line with how management monitor and
manage the business day-to-day. For definitions and metrics see
pages 52 to 55 of this statement.
Profits and earnings from continuing operations
Six months ended 30 September
Statutory Underlying
===================== ---------------------
2018 2017 change 2018 2017 change
At actual exchange rates GBPm GBPm % GBPm GBPm %
------------------------------------------------ ----- ----- ------- ----- ----- -------
UK Electricity Transmission 437 542 (19) 556 540 3
UK Gas Transmission 46 126 (63) 91 144 (37)
US Regulated 327 448 (27) 431 526 (18)
NG Ventures and other activities 207 158 31 207 158 31
------------------------------------------------ ----- ----- ------- ----- ----- -------
Total operating profit 1,017 1,274 (20) 1,285 1,368 (6)
Net finance costs (520) (514) (1) (494) (542) 9
Share of post-tax results of JVs and associates 25 20 25 25 20 25
------------------------------------------------ ----- ----- ------- ----- ----- -------
Profit before tax 522 780 (33) 816 846 (4)
Tax (93) (153) 39 (153) (189) 19
------------------------------------------------ ----- ----- ------- ----- ----- -------
Profit after tax 429 627 (32) 663 657 1
------------------------------------------------ ----- ----- ------- ----- ----- -------
EPS 12.7p 17.7p (28) 19.7p 18.5p 6
------------------------------------------------ ----- ----- ------- ----- ----- -------
Definitions
In considering the financial performance of our business and
segments, we use various adjusted profit measures in order to aid
comparability of results year-on-year. The various measures are
explained below and reconciled on pages 52 to 55.
Underlying - This is one of the measures used by management to
assess the performance of the underlying business. This measure
excludes exceptional items, remeasurements, timing and major storm
costs. The impact of major storm costs is adjusted for when the
total impact on the Group's performance in any one year is
sufficiently large.
Constant currency - The underlying profits for prior periods are
also shown on a constant currency basis to show the year-on-year
comparisons excluding any impact of foreign currency movements.
This basis is explained in more detail on page 52.
Operating profit and controllable costs
Statutory operating profit was GBP1,017m, down GBP257m (20%)
compared with the prior period at actual exchange rates.
Underlying operating profit and controllable costs
Underlying operating profit for the first six months was
GBP1,285m, down GBP83m against the same period last year at actual
exchange rates. The year-on-year movement in exchange rates had a
GBP4m adverse impact on underlying operating profit. On a constant
currency basis, underlying operating profit was down GBP79m
(6%).
Six months ended 30 September
Over/(under)-recovery
(GBPm) - constant currency 2018 2017 Change %
=============================================== ====== ====== =========
Balance at start of the period (restated)* 292 403 (28)
In-year (under)/over-recovery (83) (108) 23
================================================ ====== ====== =========
Balance at end of period 209 295 (29)
================================================ ====== ====== =========
Operating profit before exceptional
items and remeasurements 1,202 1,256 (4)
Adjust for timing differences 83 108 (23)
================================================ ====== ====== =========
Underlying operating profit (excluding
timing) 1,285 1,364 (6)
================================================ ====== ====== =========
*restated to reflect finalisation of UK and US timing balances
Underlying operating profit from regulated activities decreased
by GBP128m on a constant currency basis. Net regulated income
decreased by GBP2m, driven by return of Avonmouth revenues in UK
Gas Transmission. Regulated controllable costs increased by GBP18m
while post-retirement costs decreased by GBP11m and US bad debts
increased by GBP2m. Depreciation and amortisation increased by
GBP34m and other costs increased by GBP83m, including increased US
storm costs.
Underlying operating profit from National Grid Ventures and
Other activities increased by GBP49m in the period on a constant
currency basis with GBP94m of benefit from legal settlements partly
offset by lower property profits in the first half of this
year.
Interest
Adjusted net finance costs at GBP494m were GBP48m lower than the
same period in 2017/18 at actual exchange rates, and GBP46m lower
than 2017/18 at constant currency. This partly reflects lower
pension interest costs and higher levels of interest
capitalised.
The effective interest rate on Treasury managed debt for the
period was 4.4% compared with 4.7% in the first six months of
2017/18.
Underlying profit before tax and taxation
The Group's share of post-tax results from joint ventures and
associates was GBP25m, up by GBP5m from the same period in 2017/18,
including a tax credit in respect of our investment in the
partnership with Sunrun.
Underlying profit before tax was down 4% at actual exchange
rates to GBP816m.
Underlying taxation was GBP153m, GBP36m lower than the prior
period, reflecting lower profits and the reduction in the US
federal corporate income tax rate to 21%. The underlying effective
tax rate (excluding JVs and associates' profits) decreased to 19.3%
compared to 22.9% in the previous period.
Other adjusted earnings metrics, EPS, exceptional and statutory
earnings
After deducting earnings attributable to non-controlling
interests of GBP1m, underlying earnings attributable to equity
shareholders were GBP662m, up GBP6m compared with the same period
in 2017/18. Underlying earnings per share increased 6% to 19.7p,
benefiting from the lower share count that has resulted from the
2017/18 share consolidation and buy-back programme as part of the
return of the proceeds from the UK Gas Distribution sale.
Timing reduced earnings by GBP64m in the first half of the year,
reflecting the return of previously over-recovered revenues in the
UK and the US. Exceptional items and remeasurements for continuing
operations decreased statutory earnings by GBP170m after tax. A
detailed breakdown of these items can be found on page 32. After
these items and non-controlling interests, statutory continuing
earnings attributable to equity shareholders were GBP428m and
statutory continuing EPS was 12.7p.
Discontinued operations increased statutory earnings by GBP3m
after tax. This included a negative impact of GBP45m from
exceptional items. A breakdown of these items can be found on pages
34 to 35. Statutory earnings attributable to equity shareholders
including discontinued operations were GBP431m, and statutory basic
earnings per share including discontinued operations was 12.8p
compared with 19.1p for the same period in the prior year. The
decrease compared to the first half of 2017/18 partly reflects
costs related to our UK restructuring programme and the
Massachusetts workforce contingency plan. With effect from 30 June
2018 the investment in Quadgas HoldCo Limited was classified as
held for sale.
Cash flow
Cash generated from continuing operations before taxation was
GBP1,941m, GBP81m lower than 2017/18 reflecting increased levels of
spend on exceptional items.
Funding and net debt
Net debt as at 30 September 2018 was GBP25.6bn, GBP2.6bn higher
than at 31 March 2018 (GBP23.0bn). Movement in exchange rates
accounted for GBP1.4bn of this increase, with underlying business
requirements accounting for GBP1.2bn.
BUSINESS REVIEW
Six months ended 30 September
UK ELECTRICITY TRANSMISSION
Underlying operating profit in UK Electricity Transmission was
GBP556m, up GBP16m for the first six months of the year compared to
the same period in the prior year. Underlying net revenues
increased GBP28m due to higher base revenues. This was partially
offset by a higher depreciation charge.
Capital investment of GBP462m was GBP53m lower than the prior
period. This reflects lower investment following the completion of
several large non-load related projects. Overall investment in the
period reflected GBP336m of non-load related investment whilst load
related investment was GBP126m.
As previously reported, Western Link experienced technical
faults during the commissioning phase. The link is now delivering
up to 2,250MW power transfer capability from Scotland to England
and Wales and we continue to monitor progress.
The business expects to deliver its regulatory outputs for the
year at a cost below the associated regulatory totex allowance.
This reflects continued delivery of efficiencies in the capital
programme and non-load related maintenance activities and
additional allowances from reopener filings.
In July, Ofgem chose a Competition Proxy Model as the regulatory
framework for Hinkley-Seabank. We remain disappointed that Ofgem
believe this is the right model for Hinkley-Seabank as we do not
believe it will benefit consumers in the long term. We expect Ofgem
to introduce changes to our licence by the end of this year, or
early 2019, and we will consider all our options at that stage.
However, we remain committed to delivering Hinkley-Seabank to time
and to quality as per our licence obligations.
On 28 September, Ofgem published its decision to allow GBP65m of
additional allowances for enhanced cyber security costs for the
Electricity System Operator (ESO). The allowances relate to spend
that has been made over the whole of the RIIO-T1 period. We expect
recognition of allowances related to historic spend will benefit
the Return on Equity reported in 2018/19.
On 2 November, Ofgem made their final determination on funding
for the undergrounding of lines in an Area of Outstanding Natural
Beauty in Dorset, awarding us GBP116m.
The separation of the ESO continues to go smoothly. We remain on
track for a legally separate ESO from 1 April 2019.
UK GAS TRANSMISSION
Underlying operating profit in UK Gas Transmission was GBP91m,
down GBP53m for the first six months of the year compared to the
same period in the prior year, with lower underlying net revenues
of GBP56m primarily due to the expected return of allowances
related to Avonmouth that were received in prior years.
Capital investment of GBP153m was GBP4m lower than the prior
period, driven by a small reduction in asset health spend in the
period. We expect capital investment for the full year to be in
line with the prior year.
On 28 September, Ofgem published its decision on a number of
reopener filings made by Gas Transmission. Ofgem approved the needs
case for additional asset health costs of GBP111m to fund the
replacement of the high-pressure gas transmission pipeline under
the Humber Estuary. They also approved additional allowances of
GBP48m for enhanced cyber security costs, however disallowed a
request to retain GBP123m of allowances in relation to the recovery
of costs to upgrade compressors to comply with the Industrial
Emissions Directive (IED). We are now reviewing our approach to
meeting the required environmental obligations.
The UK Gas Transmission business expects to deliver its
regulatory outputs at a level of totex above the associated
regulatory allowance for this year. This includes the impact of
lower allowances for the upgrade of our compressor fleet and our
Humber Estuary (Feeder 9) pipeline replacement project. As a
result, we expect to deliver a Return on Equity slightly lower than
the allowed level in 2018/19. The business continues to focus on
process improvements and innovation to increase efficiency over
time and we expect to deliver close to the allowed level of return
over the remainder of the RIIO-T1 period.
US REGULATED OPERATIONS
Underlying operating profit in the US Regulated business was
GBP431m, down GBP95m for the first six months of the year, at
actual exchange rates. This was driven by the impact of US tax
reform and GBP56m impact from higher storm costs, the majority of
which are recoverable through regulatory mechanisms.
Capital investment was GBP1,177m, GBP82m higher than the prior
period at actual exchange rates. The majority of this investment
relates to leak prone pipe replacement and gas system reinforcement
in the gas businesses, and storm hardening and resilience across
the electric networks. The increase versus the prior period
reflects mandated gas work across New York and Rhode Island, partly
offset by the impact on capital expenditure due to the
Massachusetts Gas workforce contingency plan.
Operating company rate refresh completed
During the first six months, the US Regulated business completed
the refresh of its rate case programme with all distribution
companies now operating under rates following an update process
that began in 2015. A rate case settlement was approved for our
Rhode Island Electric and Gas businesses in August 2018, and a rate
case order was issued for our Massachusetts Gas business in
September 2018. The Rhode Island settlement, which lasts for three
years, provides a 9.3% allowed Return on Equity, with annual capex
of $240m providing further medium term clarity on our US growth
rates. For Massachusetts Gas, the order provides a 9.5% allowed
Return on Equity and annual capex of $413m. Together, these
companies represent 19% of National Grid's US rate base. These new
rates for Rhode Island Electric and Gas came into effect on 1
September 2018 and for Massachusetts Gas on 1 October 2018.
We plan to file a rate case for the Massachusetts Electric
business in November 2018. The company represents over 10% of
National Grid's US rate base. New rates would be expected to come
into effect by 1 October 2019.
US tax reform
As we stated in May, the reduction in the federal tax rate from
35% to 21% will be significantly beneficial to customers. It will
be economically neutral for utilities but will reduce cash flows in
the near term.
We now have clarity on bill reductions for all our operating
companies, including updates for KEDNY, KEDLI and Massachusetts
Electric since May. The return of the $2.2bn deferred tax balance
liability will now be made over an average period of up to 50
years. Rate base growth will increase due to the lower build-up of
deferred taxes in the future. Over time this will be beneficial to
operating profit and cash flow.
These items will collectively flow through the income statement
over the next two years. 2018/19 will see a partial impact on
operating profit of $210m, which is expected to be more than offset
by the full year impact of the lower tax charge, representing a
small benefit to full-year earnings. 2019/20 will have an
additional impact to operating profit of around $110m. No
significant in-year impact is expected on earnings as operating
profit impact is offset by the lower tax rate.
NATIONAL GRID VENTURES AND OTHER ACTIVITIES
Six months ended 30 September Operating profit
(GBPm) 2018 2017
================================ ========= ========
Total National Grid Ventures 131 132
Property 38 53
Corporate and other activities 38 (27)
================================= ========= ========
Total Other 76 26
--------------------------------- --------- --------
Total NG Ventures and other
activities 207 158
================================= ========= ========
Joint ventures and associates Share of post-tax
Six months ended 30 September profit/(loss)
(GBPm) 2018 2017
===================================== ========= =========
Total National Grid Ventures 31 24
St. William (6) (4)
Total joint ventures and associates 25 20
====================================== ========= =========
Six months ended 30 September Capital investment
(GBPm) 2018 2017
================================ ========== =========
Total National Grid Ventures 212 180
Property 11 5
Corporate and other activities 115 48
================================= ========== =========
Total Other 126 53
--------------------------------- ---------- ---------
Total NG Ventures and other
activities 338 233
================================= ========== =========
NATIONAL GRID VENTURES
For the first six months, National Grid Ventures made a GBP162m
contribution to Group profit before tax, consisting of operating
profit and post-tax share of JVs and associates earnings. Capital
investment was GBP212m, up GBP32m versus the prior year.
Nemo Link, IFA2 and North Sea Link interconnector construction
remain on track
We have reached important milestones over the last six months on
our three interconnectors under construction; Nemo Link, IFA2 and
North Sea Link, which remain on track for commissioning in 2018/19,
2020/21 and 2021/22 respectively.
On Nemo Link, energisation and station testing is underway, and
we expect full testing to start in December, and commissioning
before the end of March next year. On IFA2, we completed the
horizontal drilling through the cliffs at Chilling on the south
coast, with ducts installed ready to receive the six AC cables in
the new year. On North Sea Link, we completed the first two cable
laying campaigns, with 260 kilometres buried under the seabed so
far and an additional 130km manufactured and transported to Norway
ready to lay in 2019.
Approved investment decision on the Viking Link
interconnector
We have approved investment to proceed with the Viking Link
interconnector, subject to resolution of a number of minor issues.
The 760km, 1.4GW HVDC interconnector between Bicker Fen in England
and Revsing in Denmark will be a joint venture with Energinet, the
Danish transmission owner, and will be the longest interconnector
in the world. The link represents an GBP850m investment for the
Group and is expected to eventually contribute around GBP100m of
EBITDA annually after planned commissioning in 2023.
OTHER ACTIVITIES
We have decided to exercise the options over our remaining 39%
share in Cadent and the sale is expected to complete at the end of
June 2019, subject to customary regulatory approvals. As a result,
the results of Cadent for this and the prior period have been
classified as discontinued operations and are no longer included
within underlying results.
The Property business delivered an operating profit of GBP38m,
as a result of land sales at Wandsworth, Hornsey and Oxted, the
latter two sites into the St. William joint venture.
Corporate and other activities profits were up GBP65m
principally due to GBP94m of legal settlement benefits in line with
the treatment of the original costs, partly offset by the absence
of a prior year provision release.
Capital investment was up GBP73m to GBP126m, principally driven
by upgrades to our IS systems and investment in gas business
enablement projects in the US.
We have established a venture capital business called National
Grid Partners, based in California. It will make modest investments
to ensure we are at the forefront of technological developments
relevant for our industry. Investments are focused on start-ups and
small companies developing new technologies that will provide clear
benefit to our existing businesses.
APPIX
Unless otherwise stated, all financial commentaries in this
release are given on an underlying basis at actual exchange rates.
Underlying represents statutory results excluding exceptional
items, remeasurements, timing and major storm costs. The underlying
basis is further defined on page 52.
Alternative Performance Measures derived from IFRS
The following are terms or metrics that are reconciled to IFRS
measures and are defined on pages 52 to 55.
Net revenue
Adjusted profit measures
Underlying results
Constant currency
Timing impacts
Capital investment
Net debt - defined in note 11 on page 39.
PROVISIONAL FINANCIAL TIMETABLE
8 November 2018 2018/19 half year results
21 November 2018 ADRs go ex-dividend
22 November 2018 Ordinary shares go ex-dividend
23 November 2018 Record date for 2018/19 interim dividend
29 November 2018 Scrip reference price announced
7 December 2018 (5pm UK time) Scrip Election Date for 2018/19 interim dividend
9 January 2019 2018/19 interim dividend paid to qualifying shareholders
16 May 2019 2018/19 Preliminary Results
30 May 2019 Ordinary shares and ADRs go ex-dividend for 2018/19 final dividend
31 May 2019 Record date for 2018/19 final dividend
6 June 2019 Scrip reference price announced
17 July 2019 (5pm UK time) Scrip Election Date for 2018/19 final dividend
29 July 2019 2019 AGM
14 August 2019 2018/19 final dividend paid to qualifying shareholders
CAUTIONARY STATEMENT
This announcement contains certain statements that are neither
reported financial results nor other historical information. These
statements are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. These
statements include information with respect to National Grid's (the
Company) financial condition, its results of operations and
businesses, strategy, plans and objectives. Words such as 'aims',
'anticipates', 'expects', 'should', 'intends', 'plans', 'believes',
'outlook', 'seeks', 'estimates', 'targets', 'may', 'will',
'continue', 'project' and similar expressions, as well as
statements in the future tense, identify forward-looking
statements. These forward-looking statements are not guarantees of
National Grid's future performance and are subject to assumptions,
risks and uncertainties that could cause actual future results to
differ materially from those expressed in or implied by such
forward-looking statements. Many of these assumptions, risks and
uncertainties relate to factors that are beyond National Grid's
ability to control, predict or estimate precisely, such as changes
in laws or regulations, including any arising as a result of the
United Kingdom's exit from the European Union, announcements from
and decisions by governmental bodies or regulators, including those
relating to the role of the UK electricity system operator; the
timing of construction and delivery by third parties of new
generation projects requiring connection; breaches of, or changes
in, environmental, climate change and health and safety laws or
regulations, including breaches or other incidents arising from the
potentially harmful nature of its activities; network failure or
interruption, the inability to carry out critical non network
operations and damage to infrastructure, due to adverse weather
conditions including the impact of major storms as well as the
results of climate change, due to counterparties being unable to
deliver physical commodities, or due to the failure of or
unauthorised access to or deliberate breaches of National Grid's IT
systems and supporting technology; performance against regulatory
targets and standards and against National Grid's peers with the
aim of delivering stakeholder expectations regarding costs and
efficiency savings, including those related to investment
programmes and internal
transformation, cost efficiency and remediation plans; and
customers and counterparties (including financial institutions)
failing to perform their obligations to the Company. Other factors
that could cause actual results to differ materially from those
described in this announcement include fluctuations in exchange
rates, interest rates and commodity price indices; restrictions and
conditions (including filing requirements) in National Grid's
borrowing and debt arrangements, funding costs and access to
financing; regulatory requirements for the Company to maintain
financial resources in certain parts of its business and
restrictions on some subsidiaries' transactions such as paying
dividends, lending or levying charges; 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; the failure to
respond to market developments, including competition for onshore
transmission, the threats and opportunities presented by emerging
technology, development activities relating to changes in the
energy mix and the integration of distributed energy resources; and
the need to grow the Company's business to deliver its strategy, as
well as incorrect or unforeseen assumptions or conclusions
(including unanticipated costs and liabilities) relating to
business development activity, including assumptions in connection
with the Company's sale of the remaining Cadent stake. 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 193 to 196
of National Grid's most recent Annual Report and Accounts. In
addition, new factors emerge from time to time and National Grid
cannot assess the potential impact of any such factor on its
activities or the extent to which any factor, or combination of
factors, may cause actual future results to differ materially from
those contained in any forward-looking statement. Except as may be
required by law or regulation, the Company undertakes no obligation
to update any of its forward-looking statements, which speak only
as of the date of this announcement.
UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL
STATEMENTS
Consolidated income statement
for the six months ended 30
September
2018
------- ---------------------- -------------------- ------
GBPm Before exceptional Exceptional
Notes items and remeasurements items and remeasurements Total
--------------------------------------- ------- --------------------------- --------------------------- ---------
Continuing operations
Revenue 2(a),3 6,347 - 6,347
Operating costs 4 (5,145) (185) (5,330)
--------------------------------------- ------- ---------------------- -------------------- ---- ------
Operating profit/(loss) 2(b),4 1,202 (185) 1,017
Finance income 5 42 - 42
Finance costs 4,5 (536) (26) (562)
Share of post-tax results of
joint ventures and associates 2(b) 25 - 25
Profit/(loss) before tax 2(b),4 733 (211) 522
Tax 4,7 (134) 41 (93)
--------------------------------------- ------- ---------------------- -------------------- ----- ------
Profit/(loss) after tax from
continuing operations 4 599 (170) 429
Profit/(loss) after tax from
discontinued operations 6 48 (45) 3
--------------------------------------- ------- ---------------------- --- -------------------- ---- ------
Total profit/(loss) for the
period (continuing and discontinued) 647 (215) 432
--------------------------------------- ------- ---------------------- --- -------------------- ---- ------
Attributable to:
Equity shareholders of the
parent 646 (215) 431
Non-controlling interests(1) 1 - 1
--------------------------------------- ------- ---------------------- --- -------------------- ----- ------
Earnings per share (pence)
Basic earnings per share (continuing) 8 12.7
Diluted earnings per share
(continuing) 8 12.6
Basic earnings per share (continuing
and discontinued) 8 12.8
Diluted earnings per share
(continuing and discontinued) 8 12.7
--------------------------------------- ------- --------------------------- --------------------------- ------
2017(2)
------- ---------------------- -------------------- ------
GBPm Before exceptional Exceptional
Notes items and remeasurements items and remeasurements Total
--------------------------------------- ------- --------------------------- --------------------------- ---------
Continuing operations
Revenue 2(a) 6,684 - 6,684
Operating costs 4 (5,425) 15 (5,410)
--------------------------------------- ------- ---------------------- -------------------- ----- ------
Operating profit 2(b),4 1,259 15 1,274
Finance income 5 24 - 24
Finance costs 4,5 (566) 28 (538)
Share of post-tax results of
joint ventures and associates 2(b) 20 - 20
Profit before tax 2(b),4 737 43 780
Tax 4,7 (149) (4) (153)
--------------------------------------- ------- ---------------------- -------------------- ---- ------
Profit after tax from continuing
operations 4 588 39 627
Profit/(loss) after tax from
discontinued operations 6 67 (17) 50
--------------------------------------- ------- ---------------------- --- -------------------- ---- ------
Total profit for the period
(continuing and discontinued) 655 22 677
--------------------------------------- ------- ---------------------- --- -------------------- ----- ------
Attributable to:
Equity shareholders of the
parent 654 22 676
Non-controlling interests(1) 1 - 1
--------------------------------------- ------- ---------------------- --- -------------------- ----- ------
Earnings per share (pence)
Basic earnings per share (continuing) 8 17.7
Diluted earnings per share
(continuing) 8 17.6
Basic earnings per share (continuing
and discontinued) 8 19.1
Diluted earnings per share
(continuing and discontinued) 8 19.0
--------------------------------------- ------- --------------------------- --------------------------- ------
1. The non-controlling interests for the six month periods ended
30 September 2018 and 2017 relate to continuing operations.
2. Comparatives have been re-presented to reflect the
classification of our retained interest in Quadgas HoldCo Limited
as a discontinued operation in the current period (see note 6).
Consolidated statement of comprehensive income
for the six months ended 30 September
2018 2017(1)
GBPm GBPm
------------------------------------------------------------- ------ ---------
Profit after tax from continuing operations 429 627
Other comprehensive income/(loss) from continuing
operations
Items from continuing operations that will never
be reclassified to profit or loss:
Remeasurement gains on pension assets and post-retirement
benefit obligations 606 594
Net gains on investments in equity instruments designated
at fair value through other comprehensive income 8 -
Net gains on financial liability designated at fair
value through profit and loss attributable to changes
in own credit risk 6 -
Net gains in respect of cash flow hedging of capital
expenditure 13 -
Tax on items that will never be reclassified to profit
or loss (142) (106)
Total items from continuing operations that will
never be reclassified to profit or loss 491 488
------------------------------------------------------------- ----- ------
Items from continuing operations that may be reclassified
subsequently to profit or loss:
Exchange adjustments 403 (262)
Net (losses)/gains in respect of cash flow hedges
and cost of hedging (31) 16
Transferred to profit or loss in respect of cash
flow hedges and cost of hedging 27 6
Net gains on available-for-sale investments - 10
Net gains on investments in debt instruments measured
at fair value through other comprehensive income 8 -
Tax on items that may be reclassified subsequently
to profit or loss 1 (3)
Total items from continuing operations that may be
reclassified subsequently to profit or loss 408 (233)
------------------------------------------------------------- ----- ------
Other comprehensive income for the period, net of
tax, from continuing operations 899 255
Other comprehensive income for the period, net of
tax, from discontinued operations(2) 36 64
------------------------------------------------------------- ----- ------
Other comprehensive income for the period, net of
tax 935 319
------------------------------------------------------------- ----- ------
Total comprehensive income for the period from continuing
operations 1,328 882
Total comprehensive income for the period from discontinued
operations 39 114
------------------------------------------------------------- ----- ------
Total comprehensive income for the period 1,367 996
------------------------------------------------------------- ----- ------
Attributable to:
Equity shareholders of the parent 1,365 996
Non-controlling interests(3) 2 -
----------------------------------- ------- ---
1. Comparatives have been re-presented to reflect the
classification of our retained interest in Quadgas HoldCo Limited
as a discontinued operation in the current period (see note 6).
2. The other comprehensive income from discontinued operations
relates to items of other comprehensive income of Cadent
(investment held through Quadgas Holdco Limited), comprising GBP35m
(2017: GBP60m) remeasurement gains on pension assets and
post-retirement benefit obligations, and GBP1m (2017: GBP4m) net
gains in respect of cash flow hedges. Both items are shown net of
tax.
3. The non-controlling interests for the six month periods
ending 30 September 2018 and 30 September 2017 relate to continuing
operations.
Consolidated statement of changes in equity
for the six months ended 30 September
Share Other Total
Share premium Retained equity share-holders' Non-controlling Total
capital account earnings reserves equity interests equity
Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 April 2018
(as previously
reported) 452 1,321 21,599 (4,540) 18,832 16 18,848
Impact of
transition to
IFRS 9 and
IFRS 15 17 - - (268) 72 (196) - (196)
---------------- ----- -------- -------- -------- -------- ---------- --- ----------------- -------
At 1 April 2018
(as restated) 452 1,321 21,331 (4,468) 18,636 16 18,652
Profit for the
period - - 431 - 431 1 432
Other
comprehensive
income
for the period - - 505 429 934 1 935
---------------- ----- -------- -------- -------- -------- ---------- ---- ---------- ----- -------
Total
comprehensive
income
for the period - - 936 429 1,365 2 1,367
Equity
dividends 9 - - (710) - (710) - (710)
Scrip dividend
related share
issue 5 (5) - - - - -
Issue of
treasury
shares - - 16 - 16 - 16
Purchase of own
shares - - (2) - (2) - (2)
Share-based
payment - - 16 - 16 - 16
Cash flow
hedges
transferred
to the
statement of
financial
position, net
of tax - - - (4) (4) - (4)
At 30 September
2018 457 1,316 21,587 (4,043) 19,317 18 19,335
---------------- ----- -------- -------- --------- --------- ---------------- ----------------- ----------
Share Other Total
Share premium Retained equity share-holders' Non-controlling Total
capital account earnings reserves equity interests equity
Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 April 2017 449 1,324 22,582 (3,987) 20,368 16 20,384
Profit for the
period - - 676 - 676 1 677
Other
comprehensive
income/(loss)
for the period - - 548 (228) 320 (1) 319
---------------- ----- -------- ------- -------- -------- ---------- ---- ---------- ---- -------
Total
comprehensive
income/(loss)
for the period - - 1,224 (228) 996 - 996
Equity
dividends 9 - - (4,141) - (4,141) - (4,141)
Scrip dividend
related share
issue 1 (1) - - - - -
Issue of
treasury
shares - - 28 - 28 - 28
Purchase of
treasury
shares - - (413) - (413) - (413)
Purchase of own
shares - - (5) - (5) - (5)
Share-based
payment - - 23 - 23 - 23
At 30 September
2017 450 1,323 19,298 (4,215) 16,856 16 16,872
---------------- ----- -------- ------- -------- -------- ---------- ---- ---------- ----- -------
Consolidated statement of financial position
30 September
2018 31 March 2018
Notes GBPm GBPm
---------------------------------------------- ------ ------------ ---------------
Non-current assets
Goodwill 5,860 5,444
Other intangible assets 2(c) 990 899
Property, plant and equipment 2(c) 42,661 39,853
Other non-current assets 96 115
Pension assets 13 1,754 1,409
Financial and other investments 613 899
Investments in joint ventures and associates 670 2,168
Derivative financial assets 10 1,159 1,319
Total non-current assets 53,803 52,106
---------------------------------------------- ------ ----------- ------------
Current assets
Inventories and current intangible assets 440 341
Trade and other receivables 2,335 2,798
Current tax assets 89 114
Financial and other investments 11,12 1,658 2,694
Derivative financial assets 10 189 405
Cash and cash equivalents 11,12 130 329
Assets held for sale 6 2,121 -
---------------------------------------------- ------ ----------- ------------
Total current assets 6,962 6,681
---------------------------------------------- ------ ----------- ------------
Total assets 60,765 58,787
---------------------------------------------- ------ ----------- ------------
Current liabilities
Borrowings 11,12 (4,134) (4,447)
Derivative financial liabilities 10 (355) (401)
Trade and other payables (3,144) (3,453)
Contract liabilities 17 (26) -
Current tax liabilities (137) (123)
Provisions (379) (273)
Liabilities held for sale 6 (50) -
Total current liabilities (8,225) (8,697)
---------------------------------------------- ------ ----------- ------------
Non-current liabilities
Borrowings 11,12 (23,510) (22,178)
Derivative financial liabilities 10 (780) (660)
Other non-current liabilities (868) (1,317)
Contract liabilities 17 (834) -
Deferred tax liabilities (3,902) (3,636)
Pensions and other post-retirement benefit
obligations 13 (1,424) (1,672)
Provisions (1,887) (1,779)
---------------------------------------------- ------ ----------- ------------
Total non-current liabilities (33,205) (31,242)
---------------------------------------------- ------ ----------- ------------
Total liabilities (41,430) (39,939)
---------------------------------------------- ------ ----------- ------------
Net assets 19,335 18,848
---------------------------------------------- ------ ----------- ------------
Equity
Share capital 457 452
Share premium account 1,316 1,321
Retained earnings 21,587 21,599
Other equity reserves (4,043) (4,540)
---------------------------------------------- ------ ----------- ------------
Total shareholders' equity 19,317 18,832
Non-controlling interests 18 16
---------------------------------------------- ------ ----------- ------------
Total equity 19,335 18,848
---------------------------------------------- ------ ----------- ------------
Consolidated cash flow statement
for the six months ended 30 September 2018 2017(1)
Notes GBPm GBPm
--------------------------------------------------- ------ ------- ---------
Cash flows from operating activities
Operating profit from continuing operations 2(b) 1,017 1,274
Adjustments for:
Exceptional items and remeasurements 4 185 (15)
Depreciation and amortisation 2(c) 791 762
Share-based payment charge 16 23
Changes in working capital 190 153
Changes in provisions (10) (51)
Changes in pensions and other post-retirement
benefit obligations (128) (124)
Cash flows relating to exceptional items (120) -
Cash generated from continuing operations 1,941 2,022
Tax (paid)/received (6) 46
--------------------------------------------------- ------
Net cash flow from operating activities
- continuing operations 1,935 2,068
--------------------------------------------------- ------ ------ ------
Net cash flow used in operating activities
- discontinued operations(2) (47) (126)
--------------------------------------------------- ------ ------ ------
Cash flows from investing activities
Acquisition of investments(3) (19) (1)
Investments in joint ventures and associates (84) (77)
Loans to joint ventures and associates (11) (38)
Purchases of intangible assets (140) (73)
Purchases of property, plant and equipment (1,765) (1,768)
Disposals of property, plant and equipment 10 2
Dividends received from joint ventures
and associates 33 29
Interest received 31 20
Net movements in short-term financial investments 1,157 6,130
--------------------------------------------------- ------ ------ ------
Net cash flow (used in)/from investing
activities - continuing operations (788) 4,224
--------------------------------------------------- ------ ------ ------
Net cash flow from investing activities
- discontinued operations(4) 6 78 15
Cash flows from financing activities
Purchase of own shares (2) (5)
Proceeds from issue of treasury shares 16 28
Purchase of treasury shares - (413)
Proceeds received from loans 1,116 1,091
Repayments of loans (1,575) (1,471)
Net movements in short-term borrowings
and derivatives 208 (1,717)
Interest paid (433) (421)
Dividends paid to shareholders (710) (4,141)
--------------------------------------------------- ------ ------ ------
Net cash flow used in financing activities
- continuing operations (1,380) (7,049)
--------------------------------------------------- ------ ------ ------
Net cash flow used in financing activities
- discontinued operations(5) - (231)
--------------------------------------------------- ------ ------ ------
Net decrease in cash and cash equivalents 12 (202) (1,099)
Exchange movements 3 (1)
Net cash and cash equivalents at start
of period 329 1,139
--------------------------------------------------- ------ ------ ------
Net cash and cash equivalents at end of
period 130 39
--------------------------------------------------- ------ ------ ------
1. Comparatives have been re-presented to reflect the
classification of our retained interest in Quadgas HoldCo Limited
as a discontinued operation in the current period (see note 6).
2. Cash flows used in discontinued operating activities in both
2018 and 2017 related to the disposal of the UK Gas Distribution
business.
3. Acquisition of investments includes Technology and Innovation investments.
4. Cash flows from discontinued investing activities relates to
the receipt of GBP66m (2017: GBPnil) of dividends and GBP12m (2017:
GBP15m) of interest on the shareholder loan from our investment in
Quadgas HoldCo Limited (see note 6).
5. Cash flows used in discontinued financing activities in 2017
related to the liability management programme related to the UK Gas
Distribution business.
Notes to the financial statements
1. Basis of preparation and new accounting standards, interpretations and amendments
The half year financial information covers the six month period
ended 30 September 2018 and has been prepared in accordance with
IAS 34 'Interim Financial Reporting' as issued by the International
Accounting Standards Board (IASB) and as adopted by the European
Union (EU); and the Disclosure and Transparency Rules of the
Financial Conduct Authority. This condensed set of financial
statements comprises the unaudited financial information for the
half years ended 30 September 2018 and 2017, together with the
audited consolidated statement of financial position at 31 March
2018.
The financial information for the year ended 31 March 2018 does
not constitute statutory accounts as defined in Section 434 of the
Companies Act 2006. It should be read in conjunction with the
statutory accounts for the year ended 31 March 2018, which were
prepared in accordance with International Financial Reporting
Standards (IFRS) as issued by the IASB and as adopted by the EU,
and have been filed with the Registrar of Companies. The Deloitte
LLP audit report on these statutory accounts was unqualified, did
not contain an emphasis of matter and did not contain a statement
under Section 498 of the Companies Act 2006.
The half year financial information has been prepared in
accordance with the accounting policies expected to be applicable
for the year ending 31 March 2019. The notes to the financial
statements have been prepared on a continuing basis unless
otherwise stated. The Group has adopted IFRS 9 'Financial
Instruments' and IFRS 15 'Revenue from Contracts with Customers'
for the first time with effect from 1 April 2018. Other than in
this respect, the half year financial statements have been prepared
on a basis consistent with that applied in the preparation of the
financial statements for the year ended 31 March 2018, other than
as outlined below in relation to discontinued operations.
Our consolidated income statement and segmental analysis (see
note 2) separately identify financial results before and after
exceptional items and remeasurements. The Directors believe that
presentation of the results in this way is relevant to an
understanding of the Group's financial performance. Presenting
financial results before exceptional items and remeasurements is
consistent with the way that financial performance is measured by
management and reported to the Board and Executive Committee and
improves the comparability of reported financial performance from
year to year.
Events or transactions which are classified as exceptional items
or remeasurements are defined in the Annual Report and Accounts and
Form 20-F.
We continue to adopt a columnar presentation as we consider it
improves the clarity of the presentation, and is consistent with
the way that financial performance is measured by management and
reported to the Board and Executive Committee, and better enables
users of the financial statements to understand the results. The
inclusion of total profit for the period from continuing operations
before exceptional items and remeasurements forms part of the
incentive target set annually for remunerating certain Executive
Directors and accordingly we believe it is important for users of
the financial statements to understand how this compares to our
results on a statutory basis and period on period.
Areas of judgement and key sources of estimation uncertainty
In preparing this half year financial information, the areas
where judgement has been exercised by management in applying the
Group's accounting policies and the key sources of estimation
uncertainty remain consistent with those applied to the Annual
Report and Accounts for the year ended 31 March 2018.
In applying the Group's exceptional items framework for the half
year, we have considered three key matters. As described further in
note 4, we have concluded that the costs associated with the
Massachusetts Gas work continuation (GBP97m) and the UK cost
efficiency and restructuring programme (GBP127m) should be treated
as exceptional. We also considered whether the GBP94m income from
two legal settlements received in the period should also be
classified as exceptional. However, we concluded it was appropriate
to recognise the income in earnings before exceptional items
(within Other Activities), in line with the treatment of the
original costs.
In addition, in preparing the half year financial information,
we have exercised our judgement in concluding that it is
appropriate to classify our investment in and shareholder loan to
Quadgas HoldCo Limited (Quadgas), along with the related Further
Acquisition Agreement (FAA) and Remaining Acquisition Agreement
(RAA) derivatives, as held for sale and as a discontinued
operation, as detailed in note 6.
1. Basis of preparation and new accounting standards, interpretations and amendments (continued)
Going concern
Having made enquiries and reassessed the principal risks, the
Directors consider that the Company and its subsidiary undertakings
have adequate resources to continue in business for the foreseeable
future, being a period of not less than 12 months from the date of
this report. Accordingly, it is appropriate to adopt the going
concern basis in preparing the half year financial information.
New IFRS accounting standards and interpretations adopted in the
period
The Group has adopted IFRS 9 'Financial Instruments' and IFRS 15
'Revenue from Contracts with Customers' for the first time with
effect from 1 April 2018. Refer to note 17 for details of the
impact and transition adjustments arising on adoption.
There are no other new standards, interpretations and
amendments, issued by the IASB or by the IFRS Interpretations
Committee (IFRIC), that are applicable for the period commencing on
1 April 2018 that have had a material impact on the Group's
results.
New IFRS accounting standards and interpretations not yet
adopted
The Group continues to assess the impact of IFRS 16 'Leases',
which will be implemented on 1 April 2019. The Group enters into a
significant number of operating lease transactions. Under IFRS 16,
our operating leases will be accounted for on the consolidated
statement of financial position as 'right-of-use' assets. This
treatment will increase both our assets and liabilities and
subsequently, will result in an increase in finance costs and
depreciation and a reduction in operating costs.
We continue to assess our revenue, service contracts and power
purchase contracts to determine whether we have the right to use
assets under those contracts and whether they fall within the scope
of IFRS 16. We plan to apply IFRS 16 using the modified
retrospective approach, whereby comparatives will not be restated
on adoption of the new standard but instead a cumulative adjustment
will be reflected in retained earnings. We will provide further
details of the impact that the implementation of IFRS 16 will have
in the Annual Report and Accounts for the year ending 31 March
2019.
There are no new accounting standards and amendments to existing
standards that have been issued, but are not yet effective or have
not yet been endorsed by the EU that were not disclosed in our
Annual Report and Accounts. The Group has not early adopted any
standard, amendment or interpretation that has been issued but is
not yet effective.
2. Segmental analysis
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 profitability of operations principally on the
basis of operating profit before exceptional items and
remeasurements (see note 4). As a matter of course, the Board also
considers profitability by segment, excluding the effect of
timing.
The following table describes the main activities for each
reportable operating segment:
UK Electricity Transmission The high voltage electricity transmission network
in England and Wales and Great Britain system operator.
---------------------------- ---------------------------------------------------------
UK Gas Transmission The high pressure gas transmission network and system
operator in Great Britain.
---------------------------- ---------------------------------------------------------
US Regulated Gas distribution networks, electricity distribution
networks and high voltage electricity transmission
networks in New York and New England and electricity
generation facilities in New York.
---------------------------- ---------------------------------------------------------
National Grid Ventures (NGV) does not meet the thresholds set
out in IFRS 8 to be identified as a separate reportable segment and
therefore its results have not been disaggregated. Other activities
that do not form part of any of the segments in the above table
primarily relate to UK property development together with insurance
and corporate activities in the UK and US and the Group's
investments in Technology and Innovation companies.
Sales between operating segments are priced having regard to the
regulatory and legal requirements to which the businesses are
subject. The analysis of revenue by geographical area is on the
basis of destination. There are no material sales between the UK
and US geographical areas.
The US Regulated segment typically experiences seasonal
fluctuations in revenue and operating profit due to higher delivery
volumes during the second half of the financial year, for example
as a result of extreme weather over the winter. These seasonal
fluctuations have a consequential impact on the working capital
balances (primarily trade debtors and accrued income) in the
consolidated statement of financial position at 30 September 2018
when compared to 31 March 2018. The majority of UK revenues are
governed by the arrangements under RIIO, through which revenue is
primarily based on availability of transmission capacity rather
than usage, and therefore are not subject to the same seasonal
fluctuations as in the US.
(a) Revenue
Six months ended 30 September 2018 2017
GBPm GBPm
---------------------------------------------
Operating segments - continuing operations:
UK Electricity Transmission 1,574 2,076
UK Gas Transmission 353 422
US Regulated 4,053 3,799
NGV and Other(1) 387 407
Sales between segments (20) (20)
--------------------------------------------- ----- -----
Total revenue from continuing operations 6,347 6,684
--------------------------------------------- ----- -----
Geographical areas:
UK 2,272 2,865
US 4,075 3,819
--------------------------------------------- ----- -----
Total revenue from continuing operations 6,347 6,684
--------------------------------------------- ----- -----
1. Included within NGV and Other is GBP294m (2017: GBP294m) of
revenue relating to NGV and GBP44m (2017: GBP59m) of revenue
relating to UK property development.
2. Segmental analysis (continued)
(b) Operating profit
Before exceptional After exceptional
items and remeasurements(1) items and remeasurements(1)
Six months ended 30 September 2018 2017 2018 2017
GBPm GBPm GBPm GBPm
---------------------------------------- --------------- -------------- --------------- ----------------
Operating segments - continuing
operations:
UK Electricity Transmission 531 542 437 542
UK Gas Transmission 79 126 46 126
US Regulated 385 433 327 448
NGV and Other(2, 3) 207 158 207 158
---------------------------------------- --------------- -------------- --------------- --------------
Total operating profit from continuing
operations 1,202 1,259 1,017 1,274
---------------------------------------- --------------- -------------- --------------- --------------
Geographical areas
UK 761 852 634 852
US 441 407 383 422
---------------------------------------- --------------- -------------- --------------- --------------
Total operating profit from continuing
operations 1,202 1,259 1,017 1,274
---------------------------------------- --------------- -------------- --------------- --------------
Below we reconcile total operating profit to profit before tax
from continuing operations. Operating exceptional items and
remeasurements of GBP94m expense (2017: GBPnil) detailed in note 4
are attributable to UK Electricity Transmission; GBP33m expense
(2017: GBPnil) to UK Gas Transmission; and GBP58m expense (2017:
GBP15m income) to US Regulated operations.
Before exceptional After exceptional
items and remeasurements(1) items and remeasurements(1)
Six months ended 30 September 2018 2017 2018 2017
GBPm GBPm GBPm GBPm
------------------------------------------ ----------------- ---------------- ----------------- ----------------
Reconciliation to profit before
tax:
Operating profit - continuing operations 1,202 1,259 1,017 1,274
Share of post-tax results of joint
ventures and associates 25 20 25 20
Finance income 42 24 42 24
Finance costs (536) (566) (562) (538)
------------------------------------------ ------------- ------------ ------------- ------------
Profit before tax from continuing
operations 733 737 522 780
------------------------------------------ ------------- ------------ ------------- ------------
1. Comparatives have been re-presented to reflect the
classification of our retained interest in Quadgas HoldCo Limited
as a discontinued operation in the current period (see note 6).
2. Included within NGV and Other is GBP131m (2017: GBP132m) of
operating profit (both before and after exceptional items and
remeasurements) relating to NGV and GBP38m (2017: GBP53m) of
operating profit (both before and after exceptional items and
remeasurements) relating to UK property development.
3. NGV and Other includes gains of GBP94m (2017: GBPnil) in
relation to cash received in respect of two legal settlements.
2. Segmental analysis (continued)
(c) Other segmental information
Net book value(1) Capital expenditure(2) Depreciation and
amortisation(3)
30 September 31 March 30 September 30 September 30 September 30 September
2018 2018 2018 2017 2018 2017
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- ------------ -------- ----------------- ------------ -------------- --------------
Operating segments:
UK Electricity
Transmission 13,247 13,028 462 515 (242) (226)
UK Gas Transmission 4,345 4,280 153 157 (92) (94)
US Regulated 23,395 20,953 1,177 1,095 (346) (328)
NGV and Other(4, 5) 2,664 2,491 248 125 (111) (114)
--------------------- ------------ -------- ----------------- ------------ ---------- ----------
Total from
continuing
operations 43,651 40,752 2,040 1,892 (791) (762)
--------------------- ------------ -------- ----------------- ------------ ---------- ----------
Geographical areas:
UK 19,094 18,772 782 751 (399) (393)
US 24,557 21,980 1,258 1,141 (392) (369)
------------ -------- ----------------- ------------ ---------- ----------
Total from
continuing
operations 43,651 40,752 2,040 1,892 (791) (762)
--------------------- ------------ -------- ----------------- ------------ ---------- ----------
By asset type:
Property, plant and
equipment 42,661 39,853 1,900 1,820 (710) (689)
Non-current
intangible
assets 990 899 140 72 (81) (73)
--------------------- ------------ -------- ----------------- ------------ ---------- ----------
Total from
continuing
operations 43,651 40,752 2,040 1,892 (791) (762)
--------------------- ------------ -------- ----------------- ------------ ---------- ----------
1. Represents the net book value of property, plant and
equipment and other non-current intangible assets at 30 September
2018 and 31 March 2018 respectively.
2. Represents additions to property, plant and equipment and
other non-current intangibles, in the six months ended 30 September
2018 and 30 September 2017 respectively.
3. Represents the amounts recorded in the consolidated income
statement for the six months ended 30 September 2018 and 30
September 2017 respectively.
4. Included within NGV and Other are assets with a net book
value of GBP1,518m and GBP60m (31 March 2018: GBP1,454m and
GBP52m), capital expenditures of GBP136m and GBP11m (2017: GBP72m
and GBP5m) and depreciation and amortisation of GBP64m and GBP1m
(2017: GBP68m and GBPnil) relating to NGV and UK property
development respectively.
5. Net book value for NGV and Other includes certain software
assets and properties in the US which are outside the US rate base
and operate for the benefit of our US regulated businesses. Costs
associated with owning and operating these assets (principally
depreciation and amortisation) are recharged to the US regulated
business.
3. Revenue
IFRS 15 'Revenue from Contracts with Customers' is effective for
periods from 1 April 2018. As explained further in note 17, the
standard has been applied prospectively and therefore the analysis
below is only provided for the current period. The impact of
adoption on the opening balance sheet and reserves is not material,
with the main change being in relation to customer connection
income.
Under IFRS 15, revenue is recorded as or when the Group
satisfies a performance obligation by transferring a promised good
or service to a customer. A good or service is transferred when the
customer obtains control of that good or service.
The transfer of control of our distribution or transmission
services coincides with the use of our network, as electricity and
gas pass through our network and reach our customers. The Group
principally satisfies its performance obligations over time and the
amount of revenue recorded corresponds to the amounts billed and
accrued for volumes of gas and electricity delivered/transferred
to/from our customers. The revenue recognition policies for the
non-regulated businesses are not impacted by the adoption of IFRS
15.
Note 17 includes the quantification of the impact for the half
year if revenue were still to have been accounted for under IAS
18.
Revenue for the six months UK Electricity UK Gas Transmission NG Ventures
ended 30 September 2018 Transmission GBPm US Regulated and Other Total
GBPm GBPm GBPm GBPm
------------------------------- -------------- ------------------- ------------ ----------- -------
Revenue under IFRS 15
Transmission 1,559 322 315 152 2,348
Distribution - - 3,478 - 3,478
Other(1) - - - 138 138
------------------------------- -------------- ------------------- ------------ ----------- -----
Total IFRS 15 revenue 1,559 322 3,793 290 5,964
------------------------------- -------------- ------------------- ------------ ----------- -----
Other revenue(2)
Generation - - 183 - 183
Other 3 25 77 95 200
------------------------------- -------------- ------------------- ------------ ----------- -----
Total other revenue 3 25 260 95 383
------------------------------- -------------- ------------------- ------------ ----------- -----
Total revenue from continuing
operations 1,562 347 4,053 385 6,347
------------------------------- -------------- ------------------- ------------ ----------- -----
Geographic split of revenue UK Electricity UK Gas Transmission NG Ventures
for the six months ended Transmission GBPm US Regulated and Other Total
30 September 2018 GBPm GBPm GBPm GBPm
------------------------------- -------------- ------------------- ------------ ----------- -------
Revenue under IFRS 15
UK 1,559 322 - 290 2,171
US - - 3,793 - 3,793
Total IFRS 15 revenue 1,559 322 3,793 290 5,964
------------------------------- -------------- ------------------- ------------ ----------- -----
Other revenue
UK 3 25 - 73 101
US(2) - - 260 22 282
------------------------------- -------------- ------------------- ------------ ----------- -----
Total other revenue 3 25 260 95 383
------------------------------- -------------- ------------------- ------------ ----------- -----
Total revenue from continuing
operations 1,562 347 4,053 385 6,347
------------------------------- -------------- ------------------- ------------ ----------- -----
1. Other IFRS 15 revenue relates to revenue generated from metering businesses.
2. Other revenue principally consists of income relating to US
generation contracts where we act as lessor under the leasing
standard (IAS 17).
4. Exceptional items and remeasurements
Exceptional items and remeasurements are items of income and
expenditure that, in the judgement of the Directors, should be
disclosed separately on the basis that they are important to an
understanding of our financial performance and significantly
distort the comparability of financial performance between
periods.
Remeasurements comprise gains or losses recorded in the
consolidated income statement arising from changes in the fair
value of certain financial assets and liabilities categorised as
held at fair value through profit and loss. These include financial
assets that fail the solely payments of principal and interest
test, financial liabilities designated at fair value through profit
and loss excluding gains and losses attributable to changes in the
Company's own credit risk, commodity contracts and derivative
financial instruments used in our financing activities to the
extent that hedge accounting is either not achieved or is not
effective.
Exceptional
Six months ended 30 September 2018 items Remeasurements Total
GBPm GBPm GBPm
----------------------------------------------------- ------------- ---------------- -------
Included within operating profit from
continuing operations
UK cost efficiency and restructuring programme(1) (127) - (127)
Massachusetts Gas work continuation(2) (97) (97)
Net gains on commodity contract derivatives3(i) - 39 39
----------------------------------------------------- --------- ----------- --- ----
(224) 39 (185)
Included within net finance costs (note
5)
Net losses on derivative financial instruments3(ii) - (26) (26)
Net gains on FVTPL financial assets3(iii) - 8 8
Net losses on FVTPL financial liabilities3(iv) - (8) (8)
- (26) (26)
Total included within profit before tax
from continuing operations (224) 13 (211)
Tax 48 (7) 41
----------------------------------------------------- --------- ----------- ----
Total exceptional items and remeasurements
after tax from continuing operations (176) 6 (170)
----------------------------------------------------- --------- ----------- --- ----
Exceptional
Six months ended 30 September 2017 items(4) Remeasurements(4) Total(4)
GBPm GBPm GBPm
---------------------------------------------------- ----------- ------------------- ----------
Included within operating profit from
continuing operations
Net gains on commodity contract derivatives3(i) - 15 15
---------------------------------------------------- ----------- ------------ ----- ------
- 15 15
Included within net finance costs (note
5)
Net gains on derivative financial instruments3(ii) - 28 28
---------------------------------------------------- ----------- ------------ ----- ------
28 28
Total included within profit before tax
from continuing operations - 43 43
Tax - (4) (4)
---------------------------------------------------- ----------- ------------ ---- ------
Total exceptional items and remeasurements
after tax from continuing operations - 39 39
---------------------------------------------------- ----------- ------------ ----- ------
1. UK cost efficiency and restructuring programme: In July 2018,
our UK business consulted on a series of significant restructuring
activities relating to our core UK regulated activities in
anticipation of the upcoming RIIO-T2 price control. During the
period we completed a comprehensive review of the organisational
structure, certain operational activities, and relevant roles and
responsibilities across Electricity Transmission and Gas
Transmission, with changes communicated ahead of 30 September. By
30 September 2018 we had provided over GBP100m associated with
severance costs, with the remainder of the GBP127m exceptional
charge relating to associated support and planning costs. We expect
some further costs will be incurred during the second half of the
year as we complete our transition. On the basis that this item is
material for the half year results and the full year financial
statements, we have treated the costs as exceptional. The cash
outflow for the period was GBP18m.
4. Exceptional items and remeasurements (continued)
2. Massachusetts Gas work continuation: On 25 June 2018,
National Grid implemented a workforce contingency plan across its
Massachusetts Gas business following the expiration of contracts
for the existing workforce. Since then we have employed experienced
contractors alongside supervisors and workers from other areas of
our business to ensure work continues safely. In view of the
significance of this item to the half year results and on the basis
that it will be material to the full year financial statements, we
have treated the incremental direct and associated incidental costs
as exceptional. As at 30 September 2018, the incremental costs
totalled $127m (GBP97m). The total cash outflow related to the work
continuation for the period was $134m (GBP102m).
3. Remeasurements on derivative financial instruments:
i. Net gains/(losses) on commodity contract derivatives
represent mark-to-market movements on certain physical and
financial commodity contract obligations in the US. These contracts
primarily relate to the forward purchase of energy for supply to
customers, or to the economic hedging thereof, that are required to
be measured at fair value and 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.
ii. Net gains/(losses) on derivative financial instruments
comprise gains/(losses) arising on derivative financial instruments
reported in the consolidated income statement in relation to our
debt financing and foreign exchange hedging of the investment funds
held by our insurance captives. These exclude gains and losses for
which hedge accounting has been effective, and have been recognised
directly in other comprehensive income or are offset by adjustments
to the carrying value of debt.
iii. Net gains/(losses) on fair value through profit and loss
(FVTPL) financial assets comprise gains/(losses) on the investment
funds held by our insurance captives and Group money market fund
investments which are categorised as fair value through profit and
loss (see note 17).
iv. Net gains/(losses) on FVTPL financial liabilities comprises
the change in the fair value (excluding changes due to own credit
risk) of a financial liability that has been designated at fair
value through profit and loss on transition to IFRS 9 to reduce a
measurement mismatch (see note 17).
4. Comparatives have been re-presented to reflect the
classification of our retained interest in Quadgas HoldCo Limited
as a discontinued operation in the current period (see note 6).
5. Finance income and costs
Six months ended 30 September 2018 2017
Notes GBPm GBPm
--------------------------------------------- ------ ----- -------
Finance income before exceptional items
and remeasurements
Interest income on financial instruments(1) 42 24
--------------------------------------------- ------ ---- ----
42 24
Finance costs before exceptional items and
remeasurements
Net interest payable on pensions and other
post-retirement benefit obligations (11) (33)
Interest expense on financial instruments (555) (546)
Unwinding of discount on provisions (35) (38)
Other interest (9) (8)
Less: Interest capitalised 74 59
(536) (566)
Net finance costs before exceptional items
and remeasurements (494) (542)
Total exceptional items and remeasurements 4 (26) 28
--------------------------------------------- ------ ---- ----
Net finance costs including exceptional
items and remeasurements from continuing
operations (520) (514)
--------------------------------------------- ------ ---- ----
1. Comparatives have been re-presented to reflect the
classification of GBP15m of interest income in respect of our loan
to Quadgas as a discontinued operation in the current period (see
note 6).
6. Held for sale and discontinued operations - Interests in
Quadgas HoldCo Limited
On 31 March 2017, the Group sold 61% of its UK Gas Distribution
business to Quadgas BidCo Limited (the Consortium) and retained 39%
of the business. At the same time, we and the Consortium also
entered into a Further Acquisition Agreement (FAA) in a put/call
arrangement to sell a further 14% of our investment in the business
between 1 March 2019 and 30 June 2019 (our put, having given at
least six months' notice) or between 1 July 2019 to 31 October 2019
(the Consortium's call, having given six months' notice).
On 1 May 2018, we announced that we had entered into a Remaining
Acquisition Agreement (RAA) with the Consortium for the remaining
25% stake in the business under an agreement similar to the FAA.
The pricing under the RAA is less favourable to the Group, however,
in all other material aspects, the RAA is similar to the FAA, in
particular as regards the windows for the notice to be given and
exercise of the put and call options.
In our 2018 financial statements, the aggregate carrying value
of our investment in Quadgas at 31 March 2018 was GBP2.1bn,
determined with reference to the future proceeds expected to be
received under the FAA and RAA.
We have decided to exercise the options over our remaining 39%
interest in Cadent and the sale is expected to complete at the end
of June 2019, subject to customary regulatory approvals.
Assets and liabilities held for sale
Under IFRS, the reclassification of assets (and any associated
liabilities) as 'held for sale' can only be triggered once the
assets are available for sale in their present condition and the
sale is 'highly probable'. The highly probable criteria is met when
the sale is expected to be completed within a year. We have
therefore classified our interests in Quadgas as 'held for sale'
with effect from 30 June 2018, since we expect to exit our
investment on 30 June 2019. At 31 March 2018, we had no such
expectation of sale completion within a year.
The aggregate carrying value of the assets and liabilities we
will exit was GBP2.1bn at 30 September 2018, reflecting the total
proceeds that remain to be received. No discounting has been
applied on the basis that the period to exercise is now less than a
year. The value allocated to each element of the Quadgas disposal
group at 30 September 2018 is as follows:
-- the shareholder loan receivable is valued at par of GBP0.4bn;
-- the RAA derivative liability(1) is valued at GBP43m, being
GBPnil less any cash proceeds relating to the RAA received to
date;
-- the FAA derivative asset(1) is valued at GBP87m and has been
determined by comparing the pricing mechanism within the FAA
against that in the RAA less cash proceeds relating to the FAA
received to date; and
-- the residual balance of GBP1.6bn has been allocated to the investment in associate.
Treatment as a discontinued operation
We consider that the exercise of our put options is the final
stage of the plan to dispose of our interest in the UK Gas
Distribution business first announced in 2015, and have accordingly
treated the results and cash flows arising from Quadgas as a
discontinued operation in the current period on the basis that the
sale forms part of 'a single coordinated plan' to dispose of UK Gas
Distribution. As a consequence, we have classified the various
elements of income, expense and cash flows within discontinued
operations as set out below, with comparatives also re-presented
accordingly:
Consolidated income statement - discontinued operations:
-- GBP38m of income arising from our post-tax share of the
profits of Quadgas Holdco Limited for the three months to 30 June
2018(2) (2017: GBP52m);
-- GBP12m of shareholder loan interest receivable (and tax
thereon) for the six months to 30 September 2018; (2017:
GBP15m);
-- Impairment charge of GBP43m (treated as a non-deductible
expense for tax purposes), largely offsetting the gains recognised
through other comprehensive income in relation to Quadgas' defined
benefit pensions arrangement, and GBP2m of other costs for the
three months to 30 June 2018 (2017: GBPnil); and
-- Tax charge of GBP2m (2017: GBP3m).
6. Held for sale and discontinued operations - Interests in
Quadgas HoldCo Limited (continued)
Consolidated cash flow statement - discontinued operations:
-- GBP66m of dividends received in the period (2017: GBPnil); and
-- GBP12m of interest received on the shareholder loan (2017: GBP15m).
Consolidated statement of other comprehensive income -
discontinued operations:
-- A gain of GBP35m relating to pensions, net of deferred tax,
for the three month period to 30 June 2018(2) (2017: GBP60m);
and
-- GBP1m of gains in respect of cash flow hedges for the three
month period to 30 June 2018(2) (2017: GBP4m).
1. The RAA and FAA are both level 3 financial instruments. No
sensitivity analysis is provided in respect of the FAA and RAA
derivatives. The price at which we will exit our interest in
Quadgas HoldCo Limited is fixed, and accordingly reflected in the
aggregate carrying value of the disposal group. Any change in the
fair value of these derivatives at 30 September would have been
offset by equal and opposite adjustments to the carrying value of
our equity interest, with nil net impact on profit and loss for the
period.
2. Once the assets are treated as 'held for sale' equity
accounting ceases for our investment in our associate. We therefore
ceased to record our share of profits and share of gains/losses
recorded within other comprehensive income from this date.
7. Tax from continuing operations
The tax charge for the six month period is GBP93m (2017
re-presented: GBP153m), and excluding tax on exceptional items and
remeasurements, is GBP134m (2017 re-presented: GBP149m). The
effective tax rate excluding tax on exceptional items and
remeasurements is 18.3% (2017 re-presented: 20.2%), which includes
our share of post-tax results of joint ventures and associates and
is based on the best estimate of the weighted average annual income
tax rate by jurisdiction expected for the full year. The current
period rate reflects the seasonality of earnings in the US.
For the full year, we expect the Group effective tax rate to be
around 20% excluding tax on exceptional items and remeasurements.
This includes the effect of the reduction in the US corporate tax
rate resulting from the Tax Cuts and Jobs Act (Tax Reform). The
effective tax rate for the year ended 31 March 2018 (re-presented)
was (33.4)%, and 23.4% before exceptional items and
remeasurements.
Further details on Tax Reform are provided on page 119 of the
Annual Report and Accounts. The Finance Act 2016 which was enacted
on 15 September 2016, reduced the main rate of corporation tax in
the UK to 17% with effect from 1 April 2020. UK deferred tax
balances have been calculated at this rate.
8. Earnings per share
Earnings per share, excluding exceptional items and
remeasurements, are provided to reflect the business performance
subtotals used by the Group, as set out in note 1. For further
details of exceptional items and remeasurements, see note 4. The
earnings per share calculations are based on profit after tax
attributable to equity shareholders of the parent company which
excludes non-controlling interests.
(a) Basic earnings per share
2018 2018 2017(1) 2017(1)
Earnings Earnings Earnings Earnings
Six months ended 30 September per share per share
GBPm Pence GBPm Pence
----------------------------------------------- -------- ---------- ---------- ------------
Profit after tax before exceptional items
and remeasurements - continuing 598 17.8 587 16.6
Exceptional items and remeasurements after
tax - continuing (170) (5.1) 39 1.1
----------------------------------------------- ------- --------- ------ ---------
Profit after tax from continuing operations
attributable to the parent 428 12.7 626 17.7
----------------------------------------------- ------- --------- ------ ---------
Profit after tax before exceptional items
and remeasurements - discontinued 48 1.4 67 1.9
Exceptional items and remeasurements after
tax - discontinued (45) (1.3) (17) (0.5)
Profit after tax from discontinued operations
attributable to the parent 3 0.1 50 1.4
----------------------------------------------- ------- --------- ------ ---------
Total profit after tax before exceptional
items and remeasurements 646 19.2 654 18.5
Total exceptional items and remeasurements
after tax (215) (6.4) 22 0.6
Total profit after tax attributable to
the parent 431 12.8 676 19.1
----------------------------------------------- ------- --------- ------ ---------
Millions Millions
----------------------------------------------- -------- ---------- ---------- ------------
Weighted average number of shares - basic(2) 3,367 3,539
----------------------------------------------- -------- --------- ---------- ---------
(b) Diluted earnings per share
2018 2018 2017(1) 2017(1)
Earnings Earnings Earnings Earnings
Six months ended 30 September per share per share
GBPm Pence GBPm Pence
------------------------------------------------ -------- ---------- ---------- ------------
Profit after tax before exceptional items
and remeasurements - continuing 598 17.7 587 16.5
Exceptional items and remeasurements after
tax - continuing (170) (5.1) 39 1.1
------------------------------------------------ ------- --------- ------ ---------
Profit after tax from continuing operations
attributable to the parent 428 12.6 626 17.6
------------------------------------------------ ------- --------- ------ ---------
Profit after tax before exceptional items
and remeasurements - discontinued 48 1.4 67 1.9
Exceptional items and remeasurements after
tax - discontinued (45) (1.3) (17) (0.5)
Profit after tax from discontinued operations
attributable to the parent 3 0.1 50 1.4
------------------------------------------------ ------- --------- ------ ---------
Total profit after tax before exceptional
items and remeasurements 646 19.1 654 18.4
Total exceptional items and remeasurements
after tax (215) (6.4) 22 0.6
------------------------------------------------ ------- --------- ------ ---------
Total profit after tax attributable to
the parent 431 12.7 676 19.0
------------------------------------------------ ------- --------- ------ ---------
Millions Millions
------------------------------------------------ -------- ---------- ---------- ------------
Weighted average number of shares - diluted(2) 3,381 3,554
------------------------------------------------ -------- --------- ---------- ---------
1. Comparatives have been re-presented to reflect the
classification of our retained interest in Quadgas HoldCo Limited
as a discontinued operation in the current period (see note 6).
2. The weighted average number of shares for the six month
period ended 30 September 2017 includes the effect of the share
consolidation, special dividend and share buy-back programme that
took place in the three month period following the sale of the UK
Gas Distribution business on 31 March 2017, as described in the
Annual Report and Accounts.
9. Dividends
Pence Cash dividend Scrip
per paid dividend
share GBPm GBPm
----------------------------------------------- ------ ------------- -----------
Ordinary dividends
Final dividend in respect of the year ended
31 March 2018 30.44 710 319
Special dividend - June 2017 84.375 3,171 -
Final dividend in respect of the year ended
31 March 2017 29.10 970 33
----------------------------------------------- ------ ------------- ---------
The Directors are proposing an interim dividend of 16.08p per
share to be paid in respect of the year ending 31 March 2019. This
would absorb approximately GBP547m of shareholders' equity. An
interim dividend for the year ended 31 March 2018 of 15.49p per
share was paid in January 2018. The cash dividend paid was GBP346m
with an additional GBP176m settled via a scrip issue.
10. Fair value measurement
Assets and liabilities measured at fair value
Certain of the Group's assets and liabilities are measured at
fair value. The following table categorises these assets and
liabilities by the valuation methodology applied in determining
their fair value using the fair value hierarchy described on page
163 of the Annual Report and Accounts.
30 September 2018 31 March 2018
Level Level Level Total Level Level Level Total
1 2 3 GBPm 1 2 3 GBPm
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ------ ------ ----- ------- ----- ------ ----- ---------
Assets
Available-for-sale
investments(1) - - - - 2,406 310 5 2,721
Investments held at
FVTPL 1,194 - 25 1,219 - - - -
Investments held at
FVTOCI 108 338 - 446 - - - -
Investments in associates(2) - - 87 87 - - 79 79
Financing derivatives - 1,246 1 1,247 - 1,544 1 1,545
Commodity contract
derivatives - 18 83 101 - 8 61 69
Further Acquisition
Agreement derivative(3) - - - - - - 110 110
------------------------------ ----- ----- ---- ------ ----- ----- ---- ------
1,302 1,602 196 3,100 2,406 1,862 256 4,524
------------------------------ ----- ----- ---- ------ ----- ----- ---- ------
Liabilities
Financing derivatives - (828) (194) (1,022) - (725) (220) (945)
Commodity contract
derivatives - (33) (80) (113) - (54) (62) (116)
Liabilities held at
fair value (645) - - (645) - - - -
------------------------------ ----- ----- ---- ------ ----- ----- ---- ------
(645) (861) (274) (1,780) - (779) (282) (1,061)
------------------------------ ----- ----- ---- ------ ----- ----- ---- ------
Total 657 741 (78) 1,320 2,406 1,083 (26) 3,463
------------------------------ ----- ----- ---- ------ ----- ----- ---- ------
1. With effect from 1 April 2018 and the adoption of IFRS 9, the
available-for-sale investments have been reclassified to
investments held at fair value through profit and loss (FVTPL) or
investments held at fair value through other comprehensive income
(FVTOCI). See note 17.
2. Our level 3 investments include investments relating to
Sunrun Neptune 2016 LLC accounted for at FVTPL.
3. The Group is party to the Further Acquisition Agreement (FAA)
and Remaining Acquisition Agreement (RAA) which contain put and
call options over 14% and 25% respectively, of the loan and equity
it holds in Cadent (through its investment in Quadgas HoldCo
Limited). The fair value of the FAA was deemed to be GBP110m at 31
March 2018. See note 6 for further details.
The estimated fair value of total borrowings using market values
at 30 September 2018 is GBP30,466m (31 March
2018: GBP30,164m).
Our level 1 financial investments and liabilities held at fair
value are valued using quoted prices from liquid markets.
Our level 2 financial investments held at fair value are valued
using quoted prices for similar instruments in active markets, or
quoted prices for identical or similar instruments in inactive
markets. Alternatively, they are valued using models where all
significant inputs are based directly or indirectly on observable
market data.
10. Fair value measurement (continued)
Our level 2 derivative financial instruments include
cross-currency, interest rate and foreign exchange derivatives. We
value our level 2 derivatives by discounting all future cash flows
by externally sourced market yield curves at the reporting date,
taking into account the credit quality of both parties. These
derivatives can be priced using liquidly traded interest rate
curves and foreign exchange rates, therefore we classify our
vanilla trades as level 2 under the IFRS 13 framework.
Our level 2 commodity derivatives include over-the-counter (OTC)
gas swaps and power swaps as well as forward physical gas deals. We
value our contracts based on market data obtained from the New York
Mercantile Exchange (NYMEX) and the Intercontinental Exchange (ICE)
where monthly prices are available. We discount based on externally
sourced market yield curves at the reporting date, taking into
account the credit quality of both parties and liquidity in the
market. Our commodity contracts can be priced using liquidly traded
swaps, therefore we classify our vanilla trades as level 2 under
the IFRS 13 framework.
Our level 3 derivative financial instruments include
cross-currency swaps, inflation linked swaps and equity options,
all of which are traded on illiquid markets. In valuing these
instruments we use in-house valuation models and obtain external
valuations to support each reported fair value. In addition we also
use internally developed models to value Limited Price Index (LPI)
derivatives where the inflation curve is illiquid. Inputs include
breakeven rates and inflation option premiums which are
increasingly illiquid, towards the long-dated points on the
curve.
Our level 3 commodity contract derivatives primarily consist of
our forward purchases of electricity and gas where pricing inputs
are unobservable, as well as other complex transactions. Complex
transactions can introduce the need for internally developed models
based on reasonable assumptions. Industry standard valuation
techniques such as the Black-Scholes pricing model and Monte Carlo
simulation are used for valuing such instruments. Level 3 is also
applied in cases when optionality is present or where an
extrapolated forward curve is considered unobservable. All
published forward curves are verified to market data; if forward
curves differ from market data by 5% or more they are considered
unobservable.
Our level 3 investment in Sunrun Neptune 2016 LLC is fair valued
by discounting expected cashflows using a weighted average cost of
capital specific to Sunrun Neptune 2016 LLC.
The impacts on a post-tax basis of reasonably possible changes
in significant assumptions used in valuing assets and liabilities
classified within level 3 of the fair value hierarchy are as
follows:
Financing derivatives Commodity contract
within net debt derivatives
(see note 11)
Six months ended 30 September 2018 2017 2018 2017
GBPm GBPm GBPm GBPm
10% increase in commodity prices - - 1 (2)
10% decrease in commodity prices - - (2) 2
+10% market area price change - - (8) (7)
-10% market area price change - - 7 5
+20 basis point increase in Limited
Price Index (LPI) market curve(1) (81) (85) - -
-20 basis point decrease in LPI
market curve(1) 79 82 - -
------------------------------------- --------- --- -------- --------- --- -----
1. A reasonably possible change in assumption of other level 3
derivative financial instruments is unlikely to result in a
material change in fair values.
The impacts disclosed above were considered on a contract by
contract basis with the most significant unobservable inputs
identified.
For our level 3 investments, the sensitivity of the fair value
of our investment in Sunrun Neptune 2016 LLC, using a 50 basis
point increase/decrease in the discount rate would
decrease/increase the fair value by GBP(4) million/GBP4 million
(2017: GBP(4) million/GBP4 million) respectively. The additional
investments categorised as level 3 were acquired in the period on
market terms and sensitivity is considered insignificant at 30
September 2018.
10. Fair value measurement (continued)
The changes in fair value of our level 3 financial assets and
liabilities in the six months to 30 September are presented
below:
Financing derivatives
within net debt Commodity contract
(see note 11) derivatives Other(3)
2018 2017 2018 2017 2018 2017
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------------- -------------- ------------ ------------ ----------- ------ ------
At 1 April (219) (465) (1) (16) 194 46
Net gains/(losses) through the
consolidated income statement
for the period(1, 2) 26 8 (16) (1) 4 (2)
Net gains through other comprehensive
income for the period - - - - 6 -
Transfer to held for sale - - - - (110) -
Purchases - - 6 - 21 35
Settlements - 231 13 26 (2) -
At 30 September (193) (226) 2 9 113 79
--------------------------------------- --------- -------- -------- ------- ----- ---
1. Gains of GBP26m (2017: gains of GBP5m) are attributable to
derivative financial instruments held at the end of the reporting
period.
2. Losses of GBP11m (2017: losses of GBP1m) are attributable to
commodity contract derivative financial instruments held at the end
of the reporting period.
3. Other comprises our investments in Sunrun Neptune 2016 LLC
and Embala and the investments made by the Group Technology and
Innovation function, which are accounted for at fair value through
profit and loss. In addition, the opening balance also includes the
Further Acquisition Agreement and Remaining Acquisition Agreement
derivatives of GBP110m that were recognised at 31 March 2018, and
have been subsequently reclassified to held for sale (see note
6).
4. There were no reclassifications out of level 3 (2017: none).
11. Net debt
Net debt comprises our cash and cash equivalents, borrowings and
any derivatives thereon (financing derivatives). It also includes
current financial investments. Net debt excludes commodity contract
derivatives and the derivatives associated with our interest in
Quadgas (see note 6).
30 September 31 March
2018 2018
GBPm GBPm
----------------------------------------------- ------------ ----------
Cash, cash equivalents and current financial
investments 1,788 3,023
Borrowings and bank overdrafts (27,644) (26,625)
Financing derivatives(1) 225 600
Net debt (net of related derivative financial
instruments) (25,631) (23,002)
----------------------------------------------- ----------- -------
1. Includes GBP76m (2017: GBP67m) in relation to capital
expenditure. The cash flows for these derivatives are included
within investing activities and not financing activities in the
consolidated cash flow statement.
The following table splits out the total derivative balances on
the face of the consolidated statement of financial position by
category:
30 September 2018 31 March 2018
Assets Liabilities Total Assets Liabilities Total
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------- ------- ----------- ----- ------ ----------- -------
Financing derivatives 1,247 (1,022) 225 1,545 (945) 600
Commodity contract derivatives 101 (113) (12) 69 (116) (47)
Further Acquisition Agreement
derivative - - - 110 - 110
-------------------------------- ------- ---------- ---- ------ ---------- ----
Total derivative financial
instruments 1,348 (1,135) 213 1,724 (1,061) 663
-------------------------------- ------- ---------- ---- ------ ---------- ----
12. Analysis of changes in net debt
Cash and Financial Financing
cash equivalents investments Borrowings derivatives Total
GBPm GBPm GBPm GBPm GBPm
------------------------------- ------------------- ------------ ---------- -------------- ----------
At 31 March 2018 329 2,694 (26,625) 600 (23,002)
Impact of transition to IFRS
9 - - (32) - (32)
------------------------------- -------------- --- ----------- --------- ---------- -------
At 1 April 2018 (as restated) 329 2,694 (26,657) 600 (23,034)
Cash flows(1) (202) (1,171) 424 260 (689)
Fair value gains and losses
and exchange movements 3 95 (851) (620) (1,373)
Interest income/(charge)(2) - 16 (540) (15) (539)
Other non-cash movements - 24 (20) - 4
------------------------------- -------------- --- ----------- --------- ---------- -------
30 September 2018 130 1,658 (27,644) 225 (25,631)
------------------------------- -------------- --- ----------- --------- ---------- -------
Cash and Financial Financing
cash equivalents investments Borrowings derivatives Total
GBPm GBPm GBPm GBPm GBPm
----------------------------- ------------------- ------------ ---------- -------------- ----------
At 31 March 2017 1,139 8,741 (28,638) (516) (19,274)
Cash flows (1,099) (6,148) 2,592 144 (4,511)
Fair value gains and losses
and exchange movements (1) (40) 522 789 1,270
Interest income/(charge)(2) - 20 (546) 5 (521)
Other non-cash movements - - (39) - (39)
----------------------------- --------------- ----------- --------- ---------- -------
30 September 2017 39 2,573 (26,109) 422 (23,075)
----------------------------- --------------- ----------- --------- ---------- -------
1. Cash flows excludes GBP17m (2017: GBPnil) interest received
in relation to a litigation settlement, which is included within
interest received within investing activities in the consolidated
cash flow statement.
2. Exceptional income of GBPnil (2017: GBP3m) is included in net
interest charge on the components of net debt and an exceptional
cash inflow of GBPnil (2017: GBP3m) is included in net interest
paid on the components of net debt.
13. Pensions and other post-retirement benefit obligations
30 September
2018 31 March 2018
GBPm GBPm
-------------------------------------------------- ------------ ---------------
Present value of funded obligations (23,601) (23,747)
Fair value of plan assets 24,307 23,858
-------------------------------------------------- ----------- ------------
706 111
Present value of unfunded obligations (318) (307)
Other post-employment liabilities (58) (67)
-------------------------------------------------- ----------- ------------
Net asset/(liability) 330 (263)
-------------------------------------------------- ----------- ------------
Presented in consolidated statement of financial
position:
Liabilities (1,424) (1,672)
Assets 1,754 1,409
-------------------------------------------------- ----------- ------------
Net asset/(liability) 330 (263)
-------------------------------------------------- ----------- ------------
30 September
Key actuarial assumptions 2018 31 March 2018
Discount rate - UK past service 2.85% 2.60%
Discount rate - US 4.25% 4.00%
Rate of increase in RPI - past service 3.25% 3.15%
---------------------------------------- -------- --- --------- ---
The net pensions and other post-retirement benefit obligations
position, as recorded under IAS19, at 30 September 2018 was an
asset of GBP330m compared to a liability of GBP263m at 31 March
2018. The movement of GBP593m primarily reflects changes in
actuarial assumptions resulting in a reduction in liabilities,
asset performance being less than the discount rate, and employer
contributions paid over the accounting period.
13. Pensions and other post-retirement benefit obligations
(continued)
Changes in actuarial assumptions, primarily movements in
discount rates, led to a reduction in liabilities of GBP703m (a
decrease in UK and US liabilities of GBP359m and GBP344m
respectively) which reflected increases in corporate bond yields in
both the UK and US. A loss of GBP135m reflects returns on assets,
primarily in the UK, being less than the discount rate. The net
impact of actuarial gains and losses has been reflected within the
consolidated statement of comprehensive income. Employer
contributions of GBP242m were paid over the accounting period.
The pension surpluses in both the UK in relation to the National
Grid UK Pension Scheme of GBP1,277m (31 March 2018: GBP1,105m) and
the National Grid Electricity Group of the Electricity Supply
Scheme of GBP209m (31 March 2018: GBP73m) and the Niagara Mohawk
Plan in the US of GBP268m (31 March 2018: GBP231m) continue to be
recognised as assets under IFRIC 14 as explained on page 146 of the
Annual Report and Accounts.
The pension surplus at 30 September 2018 attributable to the UK
pension plans do not reflect any accounting consequences that may
be required as a result of guaranteed minimum pension equalisation.
We will be considering the consequences of the recent Lloyds
Banking Group judgement issued by the High Court in the coming
months.
14. Commitments and contingencies
At 30 September 2018, there were commitments for future capital
expenditure contracted but not provided for of GBP1,851m (2017:
GBP2,148m).
We also have other commitments relating primarily to commodity
purchase contracts, operating leases and contingencies in the form
of certain guarantees and letters of credit. Other than the
repayment of the Guaranteed Notes (described in note 18), these
commitments and contingencies are described in further detail on
page 157 of the Annual Report and Accounts.
In October 2018, the High Court handed down a judgement
involving the Lloyds Banking Group's defined benefit pension
schemes, concluding that the schemes should equalise benefits for
men and women in relation to guaranteed minimum pension benefits.
See note 13 above for further details.
Litigation and claims
Through the ordinary course of our operations, we are party to
various litigation, claims and investigations. We do not expect the
ultimate resolution of any of these proceedings to have a material
adverse effect on our results of operations, cash flows or
financial position.
15. Exchange rates
The consolidated results are affected by the exchange rates used
to translate the results of our US operations and US dollar
transactions. The US dollar to pound sterling exchange rates used
were:
Year Ended
31 March
30 September 2018 2017 2018
------------------------------------- ---- ---- ----------
Closing rate applied at period end 1.30 1.34 1.40
Average rate applied for the period 1.31 1.31 1.36
------------------------------------- ---- ---- ----------
16. Related party transactions
Related party transactions in the six months ended 30 September
2018 were substantially the same in nature to those disclosed on
page 158 of the Annual Report and Accounts. We continue to treat
Quadgas as a related party as we still own 39%. There were no
related party transactions in the period that have materially
affected the financial position or performance of the Group.
17. Transition to IFRS 9 and IFRS 15
The Group has adopted IFRS 9 and IFRS 15 prospectively, with
effect from 1 April 2018. The impact of the transition on the
opening consolidated statement of financial position are set out in
the following table:
31 March Transition adjustments 1 April
2018 2018
As previously As restated
Impact of transition reported
IFRS 9 IFRS 15
GBPm GBPm GBPm GBPm
------------------------------------ -------------- ------------- ------------- --------------
Non-current assets
Goodwill 5,444 - - 5,444
Other intangible assets 899 - - 899
Property, plant and equipment 39,853 - - 39,853
Other non-current assets 115 - - 115
Pension assets 1,409 - - 1,409
Financial and other investments 899 - (1) - 899
Investments in joint ventures
and associates 2,168 - - 2,168
Derivative financial assets 1,319 - - 1,319
Total non-current assets 52,106 - - 52,106
------------------------------------- ------------- ------ ----- ------ ----- -----------
Current assets
Inventories and current
intangible assets 341 - - 341
Trade and other receivables 2,798 - (2) (3) 2,795
Current tax assets 114 - 2 116
Financial and other investments 2,694 - (1) - 2,694
Derivative financial assets 405 - - 405
Cash and cash equivalents 329 - - 329
------------------------------------- ------------- ------ ----- ------ ----- -----------
Total current assets 6,681 - (1) 6,680
------------------------------------- ------------- ------ ----- ------ ---- -----------
Total assets 58,787 - (1) 58,786
------------------------------------- ------------- ------ ----- ------ ---- -----------
Current liabilities
Borrowings (4,447) - - (4,447)
Derivative financial liabilities (401) - - (401)
Trade and other payables (3,453) - 27 (7) (3,426)
Contract liabilities - - (21) (7) (21)
Current tax liabilities (123) - - (123)
Provisions (273) - - (273)
Total current liabilities (8,697) - 6 (8,691)
------------------------------------- ------------- ------ ----- ------ ----- -----------
Non-current liabilities
Borrowings (22,178) (32 )(3) - (22,210)
Derivative financial liabilities (660) - - (660)
Other non-current liabilities (1,317) - 530 (7) (787)
Contract liabilities - - (776) (7) (776)
Deferred tax liabilities (3,636) 5 (4) 72 (8) (3,559)
Pensions and other post-retirement
benefit obligations (1,672) - - (1,672)
Provisions (1,779) - - (1,779)
Total non-current liabilities (31,242) (27) (174) (31,443)
------------------------------------- ------------- ------ ---- ------ ---- -----------
Total liabilities (39,939) (27) (168) (40,134)
------------------------------------- ------------- ------ ---- ------ ---- -----------
Net assets 18,848 (27) (169) 18,652
------------------------------------- ------------- ------ ---- ------ ---- -----------
Equity
Share capital 452 - - 452
Share premium account 1,321 - - 1,321
Retained earnings 21,599 (99) (5) (169 )(9) 21,331
Other equity reserves (4,540) 72 (6) - (4,468)
------------------------------------- ------------- ------ ----- ------ ----- -----------
Total shareholders' equity 18,832 (27) (169) 18,636
Non-controlling interests 16 - - 16
------------------------------------- ------------- ------ ----- ------ ----- -----------
Total equity 18,848 (27) (169) 18,652
------------------------------------- ------------- ------ ---- ------ ---- -----------
17. Transition to IFRS 9 and IFRS 15 (continued)
Both standards were applied using the modified retrospective
approach whereby comparative amounts have not been restated but a
cumulative adjustment has been made to retained earnings in the 1
April 2018 opening consolidated statement of financial
position.
IFRS 9: Financial Instruments
IFRS 9 has changed the accounting for the classification and
measurement of financial instruments, impairment of financial
assets, and hedge accounting. A summary of the accounting changes
was provided in the Annual Report and Accounts for the year ended
31 March 2018 and the details are set out below.
Adjustments arising as a result of the transition to IFRS 9:
1. The available-for-sale category has been replaced with
investments held at fair value through profit and loss and
investments held at fair value through other comprehensive income.
The changes to the classification and measurement of financial
assets have not altered the carrying value of any financial assets
held by the Group.
The Group has reclassified its investments based on their
contractual cash flows and the business model they are held under.
The insurance company fund investments and Group investments in
money market funds were reclassified from available-for-sale to
fair value through profit and loss as their contractual cash flows
are not solely payments of principal and interest. Other
investments were reclassified to fair value through other
comprehensive income as they are held both to collect contractual
cash flows and to sell them. The net impact to retained earnings of
the reclassification on transition was an GBP8m gain.
2. The change from the incurred loss impairment model of IAS 39
to the expected loss model in IFRS 9 has not had a material impact
on the Group's credit loss provision. The Group calculates its
impairment provision on trade receivables using a sophisticated
provisions matrix. The inclusion of forward looking information has
not had a significant impact on the matrix as the relevant
short-term future economic conditions affecting our retail
customers are expected to be similar to recent experience.
3. The Group elected to reclassify an existing liability with a
carrying value of GBP570m from amortised cost to fair value through
profit and loss to reduce a measurement mismatch. At transition,
the resultant impacts include an increase in the carrying value of
the liability of GBP32m, a reduction in retained earnings of GBP40m
and the establishment of an own credit reserve (within Other equity
reserves) of GBP7m.
4. Deferred tax is recognised on the adjustments recorded on the
transition to IFRS 9. Reserve impacts are stated net of related
deferred tax.
5. Retained earnings includes the impact from the changes to adjustments 1, 3 and 6.
6. The Group has adopted the hedge accounting requirements of
IFRS 9 which more closely align with the Group's risk management
policies. On transition, it was concluded that all IAS 39 hedge
relationships are qualifying IFRS 9 relationships with the
treatment of the cost of hedging being the main change. The effect
was a reclassification in reserves of a GBP67m gain from retained
earnings and a GBP10m gain from the cash flow hedge reserve, into a
new cost of hedging reserve (within Other equity reserves). In this
reserve, qualifying unrealised gains and losses excluded from
hedging relationships are deferred and released systematically into
profit or loss to match the timing of hedged items.
17. Transition to IFRS 9 and IFRS 15 (continued)
IFRS 15: Revenue from Contracts with Customers
IFRS 15 has primarily changed the accounting for our connection
and diversion revenues in our regulated businesses.
The accounting for revenue under IFRS 15 does not represent a
substantive change from the Group's previous practice under IAS 18
for recognising revenue from sales to customers with the exception
of the following items:
-- Certain pass-through revenues (principally revenues collected
on behalf of the Scottish and Offshore transmission operators) will
be recorded net of operating costs, whereas previously they were
recognised gross of operating costs. Had we not adopted IFRS 15,
our revenues and operating costs for the six months ended 30
September 2018 would have been GBP570m higher, with no impact to
operating profits.
-- Contributions for capital works relating to connections for
our customers are now deferred as contract liabilities on our
consolidated statement of financial position and released over the
life of the connection asset. This is a change for our US Regulated
business and our UK Gas Transmission business, where previously
revenues were recorded once the work was completed. Had we not
adopted IFRS 15, our revenues and operating profit for the six
months ended 30 September 2018 would have been GBP23m higher.
-- In the UK, contributions for capital works relating to
diversions are now recognised as the works are completed. This is a
change for the UK regulated businesses where revenues were
previously deferred over the life of the asset. Had we not adopted
IFRS 15, our revenues and operating profit for the six months ended
30 September 2018 would have been GBP6m lower.
Adjustments arising as a result of the transition to IFRS
15:
7. Deferred income from contributions for capital works have now
been reclassified to contract liabilities. In addition, these
liabilities for capital works relating to connections have
increased as these capital contributions for connections are
cumulatively adjusted for on 1 April 2018 and are now deferred and
released over the life of the connection assets. This is a change
for our US Regulated business and our UK Gas Transmission business
where previously revenues were recorded once the work was
completed.
Partially offsetting the increase in contract liabilities for
connections is the change in accounting treatment for contributions
relating to diversions in our UK businesses. These contributions
are recognised as revenue as the works are completed where
previously revenue was recognised over the life of the asset.
8. Deferred tax is recorded on the incremental amounts recorded
against capital contributions and contract liabilities on the
transition to IFRS 15. Deferred tax balances have been calculated
at the rate substantially enacted at the balance sheet date.
9. The transition adjustment reflects the net of the above.
18. Additional disclosures in respect of guaranteed
securities
On 1 June 2018, the Group repaid the 6.625% Guaranteed Notes due
2018 that were issued in June 1998 by British Transco Finance Inc.,
then known as British Gas Finance Inc. (issuer of notes). As a
result, at 30 September 2018, the only debt issuances (including
preferred shares) that are listed on a US national securities
exchange and are guaranteed by other companies in the Group are
Niagara Mohawk Power Corporation's 3.6% and 3.9% issued preferred
shares, which amount to GBP29m. National Grid plc provided a
guarantee, dated 29 October 2007 for these preferred shares.
National Grid plc's guarantee of Niagara Mohawk Power Corporation's
preferred shares is full and unconditional pursuant to Rule
3-10(i)(8) (i) and (ii) of Regulation S-X. These guarantors commit
to honour any liabilities should the company issuing the debt have
any financial difficulties.
In order to provide debt holders with information on the
financial stability of the companies providing the guarantees, we
are required to disclose individual financial information for these
companies. Summary statements of comprehensive income and summary
cash flow statements are presented, on a consolidated basis, for
the period ended 30 September 2018, with comparatives also provided
on the same basis. Summary statements of comprehensive income and
summary cash flow statements of National Grid plc are presented
under IFRS measurement principles, as modified by the inclusion of
the results of subsidiary undertakings on the basis of equity
accounting principles.
The summary statements of financial position of National Grid
plc include the investments in subsidiaries recorded on the basis
of equity accounting principles for the purposes of presenting
condensed consolidating financial information under IFRS. The
summary statements of financial position present these investments
within non-current financial and other investments.
The consolidation adjustments column includes the necessary
amounts to eliminate the intercompany balances and transactions
between National Grid plc, Niagara Mohawk Power Corporation and
other subsidiaries.
Summary statements of comprehensive income for the six months
ended 30 September 2018:
Parent Issuer
guarantor of Shares
----------- --------------------
Niagra National
National Mohawk Other Consolidation Grid
Grid plc Power Corporation subsidiaries adjustments consolidated
GBPm GBPm GBPm GBPm GBPm
------------------------------ ----------- -------------------- ------------- --------------- ---------------
Continuing operations
Revenue - 1,149 5,198 - 6,347
Operating costs - (958) (4,372) - (5,330)
------------------------------ ---------- --------------- ------------ ----------- ------------
Total operating profit - 191 826 - 1,017
Net finance costs (109) (58) (353) - (520)
Interest in equity accounted
affiliates 517 - (36) (456) 25
------------------------------ ---------- --------------- --- ------------ ----------- ------------
Profit before tax 408 133 437 (456) 522
Tax 22 (33) (82) - (93)
Profit after tax from
continuing
operations 430 100 355 (456) 429
Profit after tax from
discontinued
operations - - 3 - 3
------------------------------ ---------- --------------- --- ------------ ----------- ------------
Total profit for the period
(continuing and
discontinued) 430 100 358 (456) 432
Amounts recognised in other
comprehensive income from
continuing operations(1) 899 79 416 (495) 899
Amounts recognised in other
comprehensive income from
discontinued operations(1) 36 - - - 36
Total comprehensive income
for the year 1,365 179 774 (951) 1,367
------------------------------ ---------- --------------- --- ------------ ----------- ------------
Attributable to:
Equity shareholders 1,365 179 772 (951) 1,365
Non-controlling interests - - 2 - 2
------------------------------ ---------- --------------- --- ------------ ----------- ------------
1,365 179 774 (951) 1,367
------------------------------ ---------- --------------- --- ------------ ----------- ------------
1. Includes other comprehensive income relating to interest in equity accounted affiliates.
18. Additional disclosures in respect of guaranteed securities
(continued)
Summary statements of comprehensive income for the six months
ended 30 September 2017:
Parent Issuer
guarantor of Shares
------------- --------------------
Niagra National
National Mohawk Other Consolidation Grid
Grid plc Power Corporation subsidiaries adjustments consolidated
GBPm GBPm GBPm GBPm GBPm
------------------------------ ------------- -------------------- ------------- ------------- ---------------
Continuing operations
Revenue - 1,153 5,531 - 6,684
Operating costs - (870) (4,540) - (5,410)
------------------------------ --------- --------------- ------------ ------------ ------------
Total operating profit - 283 991 - 1,274
Net finance income/(costs) 81 (52) (543) - (514)
Dividends receivable 150 - - (150) -
Interest in equity accounted
affiliates 461 - 5 (446) 20
------------------------------ --------- --------------- --- ------------ ------------ ------------
Profit before tax 692 231 453 (596) 780
Tax (15) (87) (51) - (153)
------------------------------ --------- --------------- ------------ ------------ ------------
Profit after tax from
continuing
operations 677 144 402 (596) 627
Profit after tax from
discontinued
operations - - 50 - 50
------------------------------ --------- --------------- --- ------------ ------------ ------------
Profit for the year 677 144 452 (596) 677
Amounts recognised in other
comprehensive income from
continuing operations(1) 255 - 517 (517) 255
Amounts recognised in other
comprehensive income from
discontinued operations(1) 64 - - - 64
--------- --------------- --- ------------ ------------ ------------
Total comprehensive income
for the year 996 144 969 (1,113) 996
------------------------------ --------- --------------- --- ------------ ------------ ------------
Attributable to:
Equity shareholders 996 144 969 (1,113) 996
Non-controlling interests - - - - -
--------- --------------- --- ------------ ------------ ------------
996 144 969 (1,113) 996
------------------------------ --------- --------------- --- ------------ ------------ ------------
1. Includes other comprehensive income relating to interest in equity accounted affiliates.
18. Additional disclosures in respect of guaranteed securities (continued)
Summary statements of financial
position as at 30 September Parent Issuer
2018: guarantor of shares
----------- ------------
Niagra
National Mohawk National
Grid Power Other Consolidation Grid
plc Corporation subsidiaries adjustments consolidated
GBPm GBPm GBPm GBPm GBPm
------------------------------------ ----------- ------------ ------------- ------------- ---------------
Non-current assets
Goodwill - 743 5,117 - 5,860
Other intangible assets - 3 987 - 990
Property, plant and equipment - 6,769 35,892 - 42,661
Other non-current assets 9 6 90 (9) 96
Amounts owed by subsidiary
undertakings 352 - 2,109 (2,461) -
Pension assets - 268 1,486 - 1,754
Financial and other investments 22,983 34 3,779 (25,513) 1,283
Derivative financial assets 8 6 1,145 - 1,159
------------------------------------ ---------- ----------- ------------ ------------ ------------
Total non-current assets 23,352 7,829 50,605 (27,983) 53,803
------------------------------------ ---------- ----------- ------------ ------------ ------------
Current assets
Inventories and current intangible
assets - 61 379 - 440
Trade and other receivables - 574 1,761 - 2,335
Current tax assets - - 298 (209) 89
Amounts owed by subsidiary
undertakings 12,710 84 13,949 (26,743) -
Financial and other investments 718 2 938 - 1,658
Derivative financial assets 546 11 99 (467) 189
Cash and cash equivalents 67 3 60 - 130
Assets held for sale - - 2,121 - 2,121
------------------------------------ ---------- ----------- ------------ ------------ ------------
Total current assets 14,041 735 19,605 (27,419) 6,962
------------------------------------ ---------- ----------- ------------ ------------ ------------
Total assets 37,393 8,564 70,210 (55,402) 60,765
------------------------------------ ---------- ----------- ------------ ------------ ------------
Current liabilities
Borrowings (832) (625) (2,677) - (4,134)
Derivative financial liabilities (58) (6) (758) 467 (355)
Trade and other payables (64) (323) (2,757) - (3,144)
Contract liabilities - - (26) - (26)
Amounts owed to subsidiary
undertakings (14,000) (36) (12,707) 26,743 -
Current tax liabilities - (217) (129) 209 (137)
Provisions - (20) (359) - (379)
Liabilities held for sale - - (50) - (50)
------------------------------------ ---------- ----------- ------------ ------------ ------------
Total current liabilities (14,954) (1,227) (19,463) 27,419 (8,225)
------------------------------------ ---------- ----------- ------------ ------------ ------------
Non-current liabilities
Borrowings (782) (1,667) (21,061) - (23,510)
Derivative financial liabilities (232) (6) (542) - (780)
Other non-current liabilities - (472) (396) - (868)
Contract liabilities - - (834) - (834)
Amounts owed to subsidiary
undertakings (2,108) - (353) 2,461 -
Deferred tax liabilities - (694) (3,217) 9 (3,902)
Pensions and other post-retirement
benefit obligations - (757) (667) - (1,424)
Provisions - (280) (1,607) - (1,887)
------------------------------------ ---------- ----------- ------------ ------------ ------------
Total non-current liabilities (3,122) (3,876) (28,677) 2,470 (33,205)
------------------------------------ ---------- ----------- ------------ ------------ ------------
Total liabilities (18,076) (5,103) (48,140) 29,889 (41,430)
------------------------------------ ---------- ----------- ------------ ------------ ------------
Net assets 19,317 3,461 22,070 (25,513) 19,335
Equity
Share capital 457 144 180 (324) 457
Share premium account 1,316 2,362 9,032 (11,394) 1,316
Retained earnings 21,587 954 12,732 (13,686) 21,587
Other equity reserves (4,043) 1 108 (109) (4,043)
------------------------------------ ---------- ----------- ------------ ------------ ------------
Shareholders' equity 19,317 3,461 22,052 (25,513) 19,317
Non-controlling interests - - 18 - 18
------------------------------------ ---------- ----------- ------------ ------------ ------------
Total equity 19,317 3,461 22,070 (25,513) 19,335
------------------------------------ ---------- ----------- ------------ ------------ ------------
18. Additional disclosures in respect of guaranteed securities
(continued)
Summary statements of financial position as at 31 March
2018:
Parent Issuer
guarantor of shares
-----------
Niagra
National Mohawk National
Grid Power Other Consolidation Grid
plc Corporation subsidiaries adjustments consolidated
GBPm GBPm GBPm GBPm GBPm
------------------------------------ ----------- ------------ ------------- ------------- ---------------
Non-current assets
Goodwill - 691 4,753 - 5,444
Other intangible assets - 3 896 - 899
Property, plant and equipment - 6,148 33,705 - 39,853
Other non-current assets - 3 112 - 115
Amounts owed by subsidiary
undertakings 350 - 2,092 (2,442) -
Pension assets - 231 1,178 - 1,409
Financial and other investments 21,708 30 5,221 (23,892) 3,067
Derivative financial assets 18 2 1,299 - 1,319
Total non-current assets 22,076 7,108 49,256 (26,334) 52,106
------------------------------------ ---------- ----------- ------------ ------------ ------------
Current assets
Inventories and current intangible
assets - 36 305 - 341
Trade and other receivables - 515 2,283 - 2,798
Current tax assets - - 307 (193) 114
Amounts owed by subsidiary
undertakings 11,253 130 11,777 (23,160) -
Financial and other investments 939 15 1,740 - 2,694
Derivative financial assets 308 7 46 44 405
Cash and cash equivalents - 4 325 - 329
Total current assets 12,500 707 16,783 (23,309) 6,681
------------------------------------ ---------- ----------- ------------ ------------ ------------
Total assets 34,576 7,815 66,039 (49,643) 58,787
------------------------------------ ---------- ----------- ------------ ------------ ------------
Current liabilities
Borrowings (779) (51) (3,617) - (4,447)
Derivative financial liabilities (187) (36) (134) (44) (401)
Trade and other payables (62) (318) (3,073) - (3,453)
Amounts owed to subsidiary
undertakings (11,810) - (11,350) 23,160 -
Current tax liabilities - (202) (114) 193 (123)
Provisions - (23) (250) - (273)
Total current liabilities (12,838) (630) (18,538) 23,309 (8,697)
------------------------------------ ---------- ----------- ------------ ------------ ------------
Non-current liabilities
Borrowings (773) (2,087) (19,318) - (22,178)
Derivative financial liabilities (41) (18) (601) - (660)
Other non-current liabilities - (281) (1,036) - (1,317)
Amounts owed to subsidiary
undertakings (2,092) - (350) 2,442 -
Deferred tax liabilities - (626) (3,010) - (3,636)
Pensions and other post-retirement
benefit obligations - (765) (907) - (1,672)
Provisions - (248) (1,531) - (1,779)
Total non-current liabilities (2,906) (4,025) (26,753) 2,442 (31,242)
------------------------------------ ---------- ----------- ------------ ------------ ------------
Total liabilities (15,744) (4,655) (45,291) 25,751 (39,939)
------------------------------------ ---------- ----------- ------------ ------------ ------------
Net assets 18,832 3,160 20,748 (23,892) 18,848
------------------------------------ ---------- ----------- ------------ ------------ ------------
Equity
Share capital 452 133 180 (313) 452
Share premium account 1,321 2,194 9,032 (11,226) 1,321
Retained earnings 21,599 830 11,511 (12,341) 21,599
Other equity reserves (4,540) 3 9 (12) (4,540)
------------------------------------ ---------- ----------- ------------ ------------ ------------
Shareholders' equity 18,832 3,160 20,732 (23,892) 18,832
Non-controlling interests - - 16 - 16
Total equity 18,832 3,160 20,748 (23,892) 18,848
------------------------------------ ---------- ----------- ------------ ------------ ------------
18. Additional disclosures in respect of guaranteed securities
(continued)
Summary cash flow statements for the six month periods ended 30
September 2018 and 30 September 2017:
Parent Issuer
guarantor of shares
-----------
Niagra
National Mohawk National
Grid Power Other Consolidation Grid
plc Corporation subsidiaries adjustments consolidated
GBPm GBPm GBPm GBPm GBPm
------------------------------------ ----------- ------------ ------------- ------------- ---------------
Period ended 30 September 2018
Net cash flow from operating
activities - continuing operations 2 236 1,697 - 1,935
Net cash flow used in operating
activities - discontinued
operations - - (47) - (47)
Net cash flow (used in)/from
investing activities - continuing
operations (265) (171) (545) 193 (788)
Net cash flow from investing
activities - discontinued
operations - - 78 - 78
Net cash flow from/(used in)
financing activities - continuing
operations 330 (65) (1,452) (193) (1,380)
Net cash flow from financing
activities - discontinued
operations - - - - -
------------------------------------ ---------- ----------- ------------ ------------ ------------
Net increase/(decrease) in cash
and cash equivalents in the
period 67 - (269) - (202)
------------------------------------ ---------- ----------- ------------ ------------ ------------
Period ended 30 September 2017
Net cash flow from operating
activities - continuing operations 24 328 1,716 - 2,068
Net cash flow used in operating
activities - discontinued
operations - - (126) - (126)
Net cash flow from/(used in)
investing activities - continuing
operations 3,193 155 596 280 4,224
Net cash flow from investing
activities - discontinued
operations - - 15 - 15
Net cash flow (used in)/from
financing activities - continuing
operations (4,303) (482) (1,984) (280) (7,049)
Net cash flow used in financing
activities - discontinued
operations - - (231) - (231)
Net (decrease)/increase in cash
and cash equivalents in the
period (1,086) 1 (14) - (1,099)
------------------------------------ ---------- ----------- ------------ ------------ ------------
Principal risks and uncertainties
When preparing the half year financial information the risks as
reported in the Annual Report and Accounts (principal risks on
pages 19-21 and inherent risks on pages 193-196) were reviewed to
ensure that the disclosures remained appropriate and adequate. No
significant new risks were identified. Below is a summary of our
key risks as at 30 September 2018:
-- Catastrophic asset failure results in a significant safety and/or environmental event;
-- Major cyber security breach of business, operational
technology and/or critical national infrastructure
systems/data;
-- Failure to predict and respond to a significant disruption of
energy that adversely affects our customers and/or the public;
-- Failure to adequately identify, collect, use and keep private
the physical and digital data required to support Company
operations and future growth;
-- Failure to influence future energy policy and secure satisfactory regulatory agreements;
-- Failure to deliver our customer, stakeholder and investor
proposition due to increased political and economic
uncertainty;
-- Failure to adequately anticipate and minimise the adverse
impact from disruptive forces such as technology and innovation on
our business model; and
-- Failure to build sufficient capability and leadership
capacity (including effective succession planning) required to
deliver our vision and strategy.
The risks and uncertainties associated with the United Kingdom
exiting the EU have been considered by the Board. The Board
continues to monitor the potential impact of the referendum result
on the future performance and position of the Group but does not
currently believe there will be a material adverse impact on the
Group's results or financial position in the current financial
year.
Statement of Directors' Responsibilities
The half year financial information is the responsibility of,
and has been approved by, the Directors. The Directors are
responsible for preparing the half year financial information in
accordance with the Disclosure and Transparency Rules (DTR) of the
United Kingdom's Financial Conduct Authority.
The Directors confirm that to the best of their knowledge:
a) the condensed consolidated interim financial statements have
been prepared in accordance with IAS 34 'Interim Financial
Reporting' as issued by the International Accounting Standards
Board and as adopted by the European Union;
b) the half year management report includes a fair review of the
information required by DTR 4.2.7R (indication of important events
during the first six months and description of principal risks and
uncertainties for the remaining six months of the year); and
c) the half year management report includes a fair review of the
information required by DTR 4.2.8R (disclosure of related parties'
transactions and changes therein).
The Directors of National Grid plc are listed in the Annual
Report and Accounts for the year ended 31 March 2018, with the
exception of the changes in the period which are listed on page
7.
By order of the Board
.......................... ..........................
John Pettigrew Sir Peter Gershon
7 November 2018 7 November 2018
Chief Executive Chairman
INDEPENT REVIEW REPORT TO NATIONAL GRID PLC
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 September 2018 which comprises the consolidated
income statement, the consolidated statement of comprehensive
income, the consolidated statement of financial position, the
consolidated statement of changes in equity, the consolidated cash
flow statement and related notes 1 to 18. We have read the other
information contained in the half-yearly financial report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of financial statements.
This report is made solely to the Company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council. Our work has been undertaken so that we might
state to the Company those matters we are required to state to it
in an independent review report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company, for our review
work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the Directors. The Directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the
Group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34 "Interim
Financial Reporting" as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Financial Reporting Council for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
September 2018 is not prepared, in all material respects, in
accordance with International Accounting Standard 34 as adopted by
the European Union and the Disclosure Guidance and Transparency
Rules of the United Kingdom's Financial Conduct Authority.
Deloitte LLP
Statutory Auditor
London, United Kingdom
7 November 2018
Alternative performance measures/non-IFRS reconciliations
Within the Half Year Results Statement, a number of financial
measures are presented. These measures have been categorised as
alternative performance measures (APMs), as per the European
Securities and Markets Authority (ESMA) guidelines and the
Securities and Exchange Commission (SEC) conditions for use of
non-IFRS Financial Measures.
An APM is a financial measure of historical or future financial
performance, financial position, or cash flows, other than a
financial measure defined under IFRS. The Group uses a range of
these measures to provide a better understanding of its underlying
performance. APMs are reconciled to the most directly comparable
IFRS financial measure where practicable.
The Group has defined the following financial measures as APMs
derived from IFRS within the Half Year Results Statement: net
revenue, the various adjusted operating profit, earnings and
earnings per share metrics detailed in the 'adjusted profit
measures' section below and capital investment. For each of these
we present a reconciliation to the most directly comparable IFRS
measure.
Net revenue
'Net revenue' is revenue less pass-through costs, such as system
balancing costs, and gas and electricity commodity costs in the US.
Pass-through costs are fully recoverable from our customers and are
recovered through separate charges that are designed to recover
those costs with no profit. Any over- or under-recovery of these
costs is returned to, or recovered from, our customers.
2018 2017
------------------------------- -------- -------- -----------
Pass- Pass-
Gross through Gross through
Six months ended 30 September revenue costs Net revenue revenue costs Net revenue
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- -------- -------- ----------- -------- -------- -------------
UK Electricity Transmission 1,574 (614) 960 2,076 (1,117) 959
UK Gas Transmission 353 (104) 249 422 (123) 299
US Regulated 4,053 (1,700) 2,353 3,799 (1,505) 2,294
NGV and Other 387 - 387 407 - 407
Sales between segments (20) - (20) (20) - (20)
------------------------------- ------- ------- ---------- ------- ------- ----------
Total 6,347 (2,418) 3,929 6,684 (2,745) 3,939
------------------------------- ------- ------- ---------- ------- ------- ----------
Adjusted profit measures:
In considering the financial performance of our business and
segments, we use various adjusted profit measures in order to aid
comparability of results year on year. The various measures are
presented on page 11 and reconciled below.
Adjusted results, also referred to as Headline results: These
exclude the impact of exceptional items and remeasurements that are
treated as discrete transactions under IFRS and can accordingly be
classified as such. This is a measure used by management that forms
part of the incentive target set annually for remunerating certain
Executive Directors and further details of these items are included
in note 4.
Underlying results: Further adapts our adjusted results to take
account of volumetric and other revenue timing differences arising
due to the in year difference between allowed and collected
revenues, including revenue incentives, as governed by our rate
plans in the US or regulatory price controls in the UK (but
excluding totex-related allowances and adjustments). For the six
months ended 30 September 2018, as highlighted on page 54, our
underlying results exclude GBP64 million under-recovery in respect
of timing differences, as well as storm costs where they are
significant in a period where we expect to recover the bulk of the
costs incurred through regulatory mechanisms in the US.
Constant currency: 'Constant Currency Basis' refers to the
reporting of the actual results against the results for the same
period last year which, in respect of any US dollar currency
denominated activity, have been translated using the weighted
average US dollar exchange rate for the six months ended 30
September 2018, which was $1.31 to GBP1.00. The weighted average
rate for the six months ended 30 September 2017, was $1.31 to
GBP1.00. Assets and liabilities as at 30 September 2018 have been
retranslated at the closing rate at 30 September 2018 of $1.30 to
GBP1.00. The closing rate for the balance sheet date 31 March 2018
was $1.40 to GBP1.00.
Alternative performance measures/non-IFRS reconciliations
(continued)
Reconciliation of Statutory, Adjusted and Underlying Profits and
Earnings - At actual exchange rates - Continuing operations
Six months ended 30 September Statutory Exceptionals Adjusted Timing Major Underlying
2018 and remeasurements Storms
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- --------- --------------------- -------- ------ ------- ------------
UK Electricity Transmission 437 94 531 25 - 556
UK Gas Transmission 46 33 79 12 - 91
US Regulated 327 58 385 46 - 431
NG Ventures and Other 207 - 207 - - 207
Total operating profit 1,017 185 1,202 83 - 1,285
Net finance costs (520) 26 (494) - - (494)
Share of post -tax results
of JVs and associates 25 - 25 - - 25
------------------------------- -------- --------------- ---- ------- ----- ------- ---------
Profit before tax 522 211 733 83 - 816
Tax (93) (41) (134) (19) - (153)
------------------------------- -------- --------------- --- ------- ----- ------- ---------
Profit after tax 429 170 599 64 - 663
------------------------------- -------- --------------- ---- ------- ----- ------- ---------
Six months ended 30 September Statutory Exceptionals Adjusted Timing Major Underlying
2017 and remeasurements Storms
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- --------- --------------------- -------- ------ ------- ------------
UK Electricity Transmission 542 - 542 (2) - 540
UK Gas Transmission 126 - 126 18 - 144
US Regulated 448 (15) 433 93 - 526
NG Ventures and Other 158 - 158 - - 158
Total operating profit 1,274 (15) 1,259 109 - 1,368
Net finance costs (514) (28) (542) - - (542)
Share of post -tax results
of JVs and associates 20 - 20 - - 20
------------------------------- -------- --------------- ---- ------- ----- ------- ---------
Profit before tax 780 (43) 737 109 - 846
Tax (153) 4 (149) (40) - (189)
------------------------------- -------- --------------- ---- ------- ----- ------- ---------
Profit after tax 627 (39) 588 69 - 657
------------------------------- --------------- --- -----
Reconciliation of Adjusted and Underlying Profits - At constant
currency
At constant currency
Adjusted Constant Adjusted Timing Major Underlying
at actual currency Storms
Six months ended 30 September exchange adjustment
2017 rate
GBPm GBPm GBPm GBPm GBPm GBPm
---------- -------------
UK Electricity Transmission 542 - 542 (2) - 540
UK Gas Transmission 126 - 126 18 - 144
US Regulated 433 (3) 430 92 - 522
NGV and Other 158 - 158 - - 158
Total operating profit 1,259 (3) 1,256 108 - 1,364
Net finance costs (542) 2 (540) - - (540)
Share of post -tax results
of JVs and associates 20 - 20 - - 20
--------- -------- --- -------- ----- ------- ---------
Profit before tax 737 (1) 736 108 - 844
--------- --------
Alternative performance measures/non-IFRS reconciliations
(continued)
Earnings per share calculations from continuing operations - At
actual exchange rates
The table below reconciles the profit after tax from continuing
operations per the previous tables back to the earnings per share
from continuing operations for each of the adjusted profit
measures. Earnings per share is only presented for those adjusted
profit measures that are at actual exchange rates, and not for
those at constant currency.
Six months ended 30 September Profit Non-controlling Profit Weighted Earnings
2018 after tax interest after tax average per share
attributable number
to the of shares
parent
GBPm GBPm GBPm Number Pence
---------- ----------------- ------------- ----------
Statutory 429 (1) 428 3,367 12.7
Adjusted (also referred to
as Headline) 599 (1) 598 3,367 17.8
Underlying 663 (1) 662 3,367 19.7
---------- ---------- ---- ------------- ---------- ----------
Six months ended 30 September Profit Non-controlling Profit Weighted Earnings
2017 after tax interest after tax average per share
attributable number
to the of shares
parent
GBPm GBPm GBPm Number Pence
---------- ----------------- ------------- ----------
Statutory 627 (1) 626 3,539 17.7
Adjusted (also referred to
as Headline) 588 (1) 587 3,539 16.6
Underlying 657 (1) 656 3,539 18.5
---------- ---------- ---- ------------- ---------- ----------
Timing impacts
Under the Group's regulatory frameworks, the majority of the
revenues that National Grid is allowed to collect each year are
governed by a regulatory price control or rate plan. If National
Grid collects more than this allowed level of revenue, the balance
must be returned to customers in subsequent years, and if it
collects less than this level of revenue, it may recover the
balance from customers in subsequent years. These variances between
allowed and collected revenues give rise to "over and
under-recoveries". A number of costs in the UK and the US are
pass-through costs (including commodity and energy efficiency costs
in the US), and are fully recoverable from customers. Timing
differences between costs of this type being incurred and their
recovery through revenues are also included in over and
under-recoveries. In the UK, timing differences include an
estimation of the difference between revenues earned under revenue
incentive mechanisms and associated revenues collected. UK timing
balances and movements exclude adjustments associated with changes
to controllable cost (totex) allowances or adjustments under the
totex incentive mechanism. Opening balances of over and
under-recoveries have been restated where appropriate to correspond
with regulatory filings and calculations.
UK Electricity UK Gas Transmission US Regulated(1) Total(2)
Transmission
GBPm GBPm GBPm GBPm
31 March 2018 closing balance (44) 93 246 295
Opening balance adjustments (6) 9 (6) (3)
----
Restated 1 April 2018 opening
balance (50) 102 240 292
Under-recovery (25) (12) (46) (83)
---
30 September 2018 closing balance
to (recover)/return (75) 90 194 209
---- ---
UK Electricity UK Gas Transmission US Regulated(1) Total(2)
Transmission
GBPm GBPm GBPm GBPm
31 March 2017 closing balance (30) 112 323 405
Opening balance adjustments (9) (2) 9 (2)
--- ---
Restated 1 April 2017 opening
balance (39) 110 332 403
Over/(under)-recovery 2 (18) (92) (108)
--- ---
30 September 2017 closing balance
to (recover)/return (37) 92 240 295
---- ---
Year on year timing variance (27) 6 46 25
---- ---
1. US Regulated balances have been restated using the average
rate of 1.31 for the period to 30 September 2018.
2. The closing balances as at 30 September 2017 and 30 September
2018 would have been GBP290m and GBP211m respectively had the
closing exchange rates been used.
Alternative performance measures/non-IFRS reconciliations
(continued)
Capital investment
'Capital investment' or 'investment' refers to additions to
plant, property and equipment and intangible assets, and
contributions to joint ventures and associates, other than the St
William Homes LLP joint venture. We also include the Group's
investments in Technology and Innovation companies during the
period (which are classified for IFRS purposes as non-current
financial assets on the Group consolidated statement of financial
position).
Investments made to our St William Homes LLP arrangement are
excluded based on the nature of this joint venture arrangement. We
typically contribute property assets to the joint venture in
exchange for cash and accordingly do not consider these
transactions to be in the nature of capital investment.
At actual exchange
rates At constant currency
Six months ended 30 September 2018 2017 % change 2018 2017 % change
GBPm GBPm GBPm GBPm
------------------------------ ------ ---------- -------- ------- ----------
UK Electricity Transmission 462 515 (10)% 462 515 (10)%
UK Gas Transmission 153 157 (3)% 153 157 (3)%
US Regulated 1,177 1,095 7% 1,177 1,089 8%
NGV and Other 338 233 45% 338 233 45%
Group capital investment 2,130 2,000 7% 2,130 1,994 7%
Six months ended 30 September 2018 2017 % change
GBPm GBPm
Capital expenditure 2,040 1,892 8%
Equity investment, funding contributions and loans
to joint ventures and associates 76 108 (30)%
Investment in financial assets (Technology and
Innovation) 14 - N/A
Group capital investment 2,130 2,000 7%
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR FKODDBBDBKDK
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November 08, 2018 02:01 ET (07:01 GMT)
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