TIDMNG.
RNS Number : 6702Y
National Grid PLC
19 May 2016
London, 19th May 2016: National Grid, a leading energy
transmission and distribution company, today announces its Full
Year results.
RESULTS FOR THE YEARED 31 MARCH 2016
HIGHLIGHTS
Strong performance, with a significant level of investment
-- Adjusted operating profit of GBP4.1bn, up 6%
-- Adjusted earnings per share of 63.5p, up 10%
-- Group Return on Equity of 12.3% (2015: 11.8%)
-- Total investment of GBP3.9bn, up from GBP3.5bn, driving regulated asset base growth of 4%
-- Solid UK performance, generating savings of over GBP330m for
customers in the first 3 years of RIIO
-- Good progress with significant rate filings in New York and Massachusetts
-- Strong year in Other activities led by interconnector and property performance
-- Value Added of GBP1.8bn or 47.6p per share
-- Recommended full year dividend up 1.1% to 43.34p (2015: 42.87p)
FINANCIAL SUMMARY
Adjusted results(1) Statutory results
Year ended 31 2016 2015(1) % change 2016 2015(1) % change
March
--------------------- ------ -------- --------- ------ -------- ---------
Operating profit
(GBPm) 4,096 3,863 6 4,085 3,780 8
Profit before
tax (GBPm) 3,142 2,876 9 3,032 2,628 15
Earnings per
share (p) 63.5 57.6 10 69.0 53.2 30
--------------------- ------ -------- --------- ------ -------- ---------
JOHN PETTIGREW, CHIEF EXECUTIVE:
"Today's strong financial and operational results reflect the
focus and commitment of Steve Holliday's leadership over the last
nine years, and I am delighted to be the CEO of a business that is
in such good shape. In 2015/16, alongside the strong performance,
we also made good progress with important rate filings in the US,
and the start of a process to sell a majority interest in the UK
Gas Distribution business, which is expected to complete in early
2017. The needs of our customers remain at the centre of our
business, demonstrated by the significant investment in critical
infrastructure in the UK and the US, and over GBP330 million of
savings generated for customers in the UK in the last three
years.
We are well positioned to deliver asset growth in 2016/17 and
beyond. We will continue to enhance efficiency across the Group to
deliver an outstanding and affordable service to our customers. At
the same time, National Grid will continue to adapt to the new
trends in the energy sector, to ensure we keep delivering value for
shareholders."
CONTACTS
Investor Relations
+44 (0)20 7004 +44 (0) 7989
Aarti Singhal 3170 492447
+44 (0)20 7004 +44 (0) 7816
David Brining 3166 847918
+44 (0)20 7004 +44 (0) 7789
Mike Ioanilli 3006 878764
+44 (0)20 7004 +44 (0) 7768
Richard Foster 3169 294017
Media
+44 (0)20 7004 +44 (0) 7960
Sean Kemp 3149 012356
+44 (0) 1926 +44 (0) 7974
Gemma Stokes 655272 198333
Brunswick
Tom Burns,
Mike Smith +44 (0)20 7404
or Simon Maine 5959
CONFERENCE CALL DETAILS
An analyst presentation will be held at the London Stock
Exchange, 10 Paternoster Square, London EC4M 7LS at 09:15 (BST)
today. There will be a live webcast of the results presentation
available to view at investors.nationalgrid.com.
Live telephone coverage of the analyst presentation at 09:15
UK dial in
number +44 (0) 808 109 0700
US dial in +1 866 966 5335 (US +1 646 843 4608
number Toll free) (NY Toll)
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The 2015/16 Annual Report and Accounts (ARA) is expected to be
publicly available on 7 June 2016. You can view or download copies
of the latest ARA and Shareholder Information leaflet from National
Grid's website at www.nationalgrid.com/investors or request a free
printed copy by contacting investor.relations@nationalgrid.com.
2015/16 OVERVIEW
A strong year
During 2015/16, National Grid delivered a significant level of
investment in its gas and electricity infrastructure providing
important services for millions of customers in the UK and US. At
the same time, the Group has continued to deliver strong
operational performance supported by excellent levels of safety and
reliability.
National Grid's UK regulated businesses delivered another year
of solid operational performance with strong reliability
demonstrated by its gas and electricity networks. The businesses
have driven further efficiency and innovation to improve
performance and deliver savings for customers. In the first three
years of the UK regulated price control (RIIO), customers' share of
savings is over GBP330 million and will help to reduce electricity
and gas bills for customers over a number of years.
Operationally, the US business has delivered returns in line
with expectations. Three major rate cases were filed, with new
rates expected to come into effect in late 2016 and early 2017.
During the year, the Company stepped up its capital investment in
the US, mainly in the area of leak prone pipe replacement to
improve the overall safety and security of supply for
customers.
National Grid's portfolio of Other businesses had a strong year
led by the performance of the French Interconnector.
Balanced portfolio to deliver asset growth and sustainable
dividend
National Grid believes that it can deliver best value to
shareholders through maintaining a portfolio of businesses with
strong operational performance alongside annual asset growth of
around 5-7% assuming long-run average UK RPI inflation of 3%. This
level of growth is both attractive and also consistent with
sustaining a strong balance sheet and generating the cash required
to fund the dividend policy, growing the dividend per share at
least in line with RPI each year for the foreseeable future.
Process for the sale of a majority stake in UK Gas Distribution,
on track
In November 2015, National Grid announced the potential sale of
a majority stake in the UK Gas Distribution business. As this
business is fully integrated with the other UK businesses, it needs
to be separated. Since November, the business has made good
progress on the activity needed to create a standalone business
that can operate efficiently, while maintaining its primary role as
a provider of safe and reliable networks. The necessary
consultations are underway with internal and external stakeholders
to enable a smooth separation process.
The Board believes that following a sale, the Group's portfolio
of businesses will deliver higher growth, while maintaining the
strong balance sheet that allows the Group to continue to fund its
investment programme and maintain the policy of increasing dividend
per share by at least RPI for the foreseeable future. Following
completion of any sale, the Board expects to return substantially
all of the net proceeds to shareholders.
Group Return on Equity of 12.3%, enhanced by higher profits in
its Other activities
Financial performance in the year was strong supporting an
overall increase in post-tax Group Return on Equity to 12.3%
(2014/15: 11.8%). In the UK, the regulated businesses delivered
good returns of 13.3%, including an assumption of 3% long-run
average RPI inflation. US Return on Equity of 8.0% was down 40bps
on last year, due to some entities operating under old rate plans
and a high level of rate base growth, a portion of which is not
reflected in current rate plans. Other activities in the Group
delivered a strong performance, driven by improved results from the
French Interconnector, Property and a gain on the exchange of
National Grid's interest in the Iroquois pipeline. Treasury
performance also helped the overall improvement, partly assisted by
lower RPI accretions on the Group's index linked debt.
Value Added of GBP1.8bn, despite low RPI
The strong performance in the year is reflected in the Value
Added metric. This metric reflects the key components of value
delivery to shareholders, being the dividend and growth in the
value of National Grid's assets, net of growth in net debt. The
Value Added per share measure also reflects the funding of this
growth and any dilution of the equity investment through, for
example, scrip dividend take up. Valued Added in the year was
GBP1.8bn or 47.6p per share.
Value Added (GBPm constant 2016 2015 Change % 2014/15
currency)
---------------------------- ------- ------- ------- ----- --------
UK regulated assets(1) 25,955 25,440 515 2 350
US regulated assets(2) 14,139 13,925 214(4) 2(4) 934
Other invested capital 1,903 1,540 363 24 (159)
---------------------------- ------- ------- ------- ----- --------
Total group regulated
and other assets 41,997 40,905 1,092 3 1,125
Dividend/share repurchase
in the year 1,604 1,606
Movement in Net Debt
and Goodwill (909) (1,046)
Value Added 1,787 1,685
Value Added per Share(3) 47.6p 44.7p
(1) Consists of the regulated asset values and other regulatory
assets and liabilities of the UK businesses regulated under the
RIIO price controls, i.e. UK Transmission Owner and System Operator
and Gas Distribution assets. Restated for opening balance
adjustments following regulatory reporting pack process in
2015.
(2) US regulated assets increased from $20.0bn to $20.3bn in the
year. These represent rate base plus assets outside of rate base
including working capital
(3) Based on 3,755m weighted average shares for 2015/16
(2014/15: 3,766m)
(4) Movement in US regulated assets partly reflects the
exclusion of certain pension assets outside of rate base at March
2016 which were included in the March 2015 reported assets
Value Added was higher than 2014/15, primarily led by the impact
of higher RPI on UK regulated asset growth in the year. Whilst RPI
increased to 1.6% at March 2016, this remains below National Grid's
long-run expectation of 3%.
Of the GBP1,787m Value Added in 2015/16, GBP1,337m was paid to
shareholders as cash dividends and GBP267m as share repurchases
(offsetting the scrip issuance during the year), with GBP183m
retained in the business.
OPERATIONAL PERFORMANCE
Strong performance highlighting the drive for improvement
National Grid delivered solid operational performance for its
customers throughout the year with high standards of network
availability and reliability reflecting the benefit of the Group's
disciplined investment in new infrastructure and resilience.
World-class safety performance can be measured as a lost time
injury frequency rate of 0.10 or better (i.e. less than 0.1 lost
time injuries per 100,000 hours worked in a 12 month period), and
2015/16 has been one of the best years for safety performance with
improvements in all key measures. Group safety performance has been
world-class supported by a significant year-on-year improvement in
the US business.
In the UK, the Electricity Transmission business commissioned
its first high voltage substation constructed in London for 20
years and achieved the highest ever innovation award (GBP12m) to
convert an existing substation at Deeside into an offgrid 400kV
development substation. UK Gas Transmission recently awarded
contracts for Feeder 9, a GBP180m project, to construct a tunnel
and pipeline under the Humber Estuary. The UK Gas Distribution
business had a good year, replacing around 1,899km of pipeline, up
24% on the prior year.
The UK regulated operations remain focused on providing the
lowest sustainable cost solutions, through efficiency and
innovation, with the benefits of totex (total operating and capital
expenditure) savings being shared with customers.
On 12 May 2016, Ofgem announced a Mid-Period Review. As
expected, the scope of this review is narrow with no changes to key
financial parameters. National Grid welcomes Ofgem's continued
commitment to the clarity and certainty offered by the eight year
RIIO framework. Ofgem will run a consultation process this summer,
with any changes to be implemented in April next year.
In addition, the Company has been working with DECC and Ofgem to
consider how to evolve the current System Operator model, to make
it more independent, whilst remaining cost effective. In doing so,
it is vital that there is no disruption to the pivotal role
National Grid plays as System Operator in balancing the
network.
The US business performed in line with expectations. Storm
restoration and record gas send-out demonstrated the resiliency and
the reliability of both the gas and electric networks. With
continued focus on gas leaks, the business enhanced its processes
for managing gas leaks and increased the number of miles of leak
prone pipe replaced in the year to 396 miles.
In the US, National Grid filed three major rate cases and
requested a rate extension in the Niagara Mohawk business last
year. Massachusetts Electric filed its rate case in November 2015
with requested revenue increases of $143m. A decision is expected
in September 2016 and new rates are expected to come into effect in
October 2016.
The KEDNY and KEDLI businesses filed in January 2016, the first
rate case filing in these entities since 2006, and requested
increases in revenue of $245m and $142m respectively. A final
decision is due in December 2016. In December 2015 the US business
also filed a capex petition for Niagara Mohawk electricity and gas,
which seeks to provide funding for $1.4bn of capex across fiscal
years 2016/17 and 2017/18. The extension filing proposes to use
deferral balances so that customer rates do not increase and the
extension is expected to be effective from April 2016.
As the energy industry continues to evolve, National Grid
doubled its connection of distributed generation in both New York
and Massachusetts compared with last year, while connection trebled
in Rhode Island.
During the year, the Group exchanged its stake in the Iroquois
pipeline for shares in Dominion Midstream Partners, LP,
contributing to a strong year.
The Group's growing portfolio of Other activities delivered a
strong year. In particular, the interconnectors performed well,
benefiting from increased auction revenues. Construction of the
interconnectors to Belgium and Norway has commenced. During 2015/16
Grain LNG commissioned an LNG road tanker facility which provides
LNG to off-grid customers and heavy goods vehicle operators. In
addition, the business completed its first UK LNG ship reload,
becoming the only facility in the UK to offer small scale ship
reloading facilities at its importation terminal on the Isle of
Grain.
The Property business continued its programme of environmental
improvement works across its portfolio of land. This resulted in 25
gas holders being dismantled during the year, bringing the total
number dismantled in the past three years to 54. The property
business also exchanged contracts on the sale of the first seven
sites to St William Homes, its joint venture with Berkeley Group
plc. These seven sites provide almost 40 acres of brownfield land
to be regenerated, with up to 3,500 new homes to be developed
around London and the South East of England.
GROWTH
4% Regulated Asset Base Growth, up from 3% in prior year
During 2015/16 National Grid's total capital investment was
GBP3.9bn. The Group's combined RAV and rate base grew 4%, compared
to 3% last year, reflecting the step up in investment in the US.
The Group's total regulated asset base increased GBP1.5bn to
GBP38.8bn at the end of 2015/16. This growth reflected a net
increase of GBP777m or 3% in UK RAV and a GBP729m or 6% increase in
the value of US rate base, at constant currency. The US rate base
reflects a movement in working capital; excluding this, the
increase in US rate base would have been 7.5%. Within the UK
business, asset growth included capitalised efficiencies or
"performance RAV" of an estimated GBP115m in the year.
The effects of low inflation in the year held back the value of
the UK RAV growth to 3% (2015: 2%). Over the medium-term, National
Grid expects UK inflation to return to long-run levels closer to 3%
per annum, contributing to expected higher levels of asset
growth.
GBP3.9bn of capital investment, balanced across the UK and
US
At GBP1.8bn, National Grid's UK regulated businesses, including
transmission and distribution, continued to invest at significant
levels. This total investment across non-load spend of GBP1.2bn
together with load related spend of GBP0.6bn contributed to growth
in UK regulated asset value in the year.
As indicated at the half year, National Grid expects to invest
around GBP16bn in the UK in the eight year RIIO period. During the
year, the UK Electricity Transmission business has been in
consultation with Ofgem on the introduction of onshore competition.
This new competition principally relates to large projects with a
capital spend above GBP100m, that meet certain criteria (still to
be agreed by the UK regulator). Within UK Electricity
Transmission's capital investment plan two projects are potentially
contestable. These relate to the possible connection of new nuclear
generation for Hinkley Point and Moorside, which together represent
around GBP1bn of planned capex in the RIIO-T1 period. National Grid
is supportive of the work that Ofgem is undertaking to explore the
introduction of onshore competition but believes that competition
should only be taken forward where it is in the best interests of
customers.
The US regulated business continues to increase levels of
investment, with investment of nearly GBP1.9bn ($2.7bn),
approximately GBP250m higher than last year (at constant currency).
This increase was driven by accelerated gas mains replacement
activities, new gas connections, electricity system reinforcement,
solar in Massachusetts and FERC activities.
Last year saw the completion of the New England East-West
Solution (NEEWS) project, one of the Company's largest FERC
transmission projects. The NEEWS project, with a total investment
of $725m has been completed ahead of schedule and under budget.
National Grid also completed the $70m Brooklyn Queens Interconnect,
the first new gas supply delivery point in decades to the region
and started the $100m Queens Reliability Project to modernise part
of the Queens' natural gas system. In addition, construction was
started on a $115m project to connect the first offshore windfarm
in Block Island to Rhode Island.
National Grid continues to make strategic investments in Other
activities and joint ventures across the UK and US. In addition, to
the two new interconnectors under construction, the Group is at
advanced stages of developing further interconnector opportunities,
with a second French interconnector (IFA2) and a link to Denmark
(Viking). It is expected that IFA2 will progress to a final
investment decision in late 2016 whilst the decision on Viking is
expected to follow in early 2018. Investment in the St William
joint venture, with Berkeley Group plc, continues as the business
exchanges contracts on sites in London and south east England which
are to be developed into new homes.
FINANCIAL STRENGTH
Credit metrics remain strong, maintain A- rating
National Grid's overall Group credit rating remains healthy at
A-/A3 (S&P/Moody's). Group gearing, measured as net debt as a
proportion of total regulatory value, was 62% at 31 March 2016,
compared with 63%, at constant currency, in the previous year. The
Board believes that gearing remains at a comfortable level for the
current credit rating.
Retained cash flow (RCF)/adjusted net debt was 11.5%, or around
10.5% after deducting share buyback costs; with both of these
measures comfortably above the 9% level currently indicated by
Moody's as consistent with an A3 rating.
The Board of National Grid decided, in May 2014, to take a more
active approach towards managing the dilution arising through the
operation of its scrip dividend programme. The scrip dividend
programme is an efficient means for many investors to reinvest cash
dividends in National Grid shares and can provide balance sheet
support during a period of higher asset growth. However, excess
take up, over and above that required to make an effective and
timely contribution toward the long-term financing of the Group, is
undesirable.
During 2015/16 the Group repurchased just over 31 million shares
issued under the scrip programme whilst still retaining an
appropriately financed balance sheet.
Dividend increase of 1.1% recommended for 2015/16
National Grid's dividend policy aims to grow the ordinary
dividend per share at least in line with the rate of RPI inflation
each year for the foreseeable future.
The Board has recommended an increase in the final dividend to
28.34p per ordinary share ($2.0445 per American Depositary Share).
If approved, this will bring the full year dividend to 43.34p per
ordinary share, an increase of 1.1% over the 42.87p per ordinary
share in respect of the financial year ending 31 March 2015. This
1.1% rise is in line with the increase in average UK RPI for the
twelve months to 31 March 2016 and as set out in the policy
announcement of 28 March 2013.
The decision to grow the dividend per share at the rate of RPI
inflation this year is consistent with the Board's focus to deliver
sustainable dividend growth.
If approved, the final dividend for 2015/16 will be paid on 10
August 2016 to shareholders on the register as at 3 June 2016. A
scrip dividend alternative will again be offered. At the AGM, the
Directors will again be seeking authority to allot and buy back
shares and the Board expects to continue the active approach
towards managing any impact of a lower than desired take up or any
excess dilution arising through the operation of its scrip dividend
programme.
Board changes
On 3 November 2015, National Grid announced that John Pettigrew
would replace Steve Holliday as Chief Executive Officer of the
Company. Steve stood down from this position on 31 March 2016 and
will cease to be a Director of National Grid on 22 July 2016.
In March 2016, the Group announced that Nicola Shaw would join
the Board of National Grid as Executive Director, UK from 1 July
2016.
As previously announced, Dean Seavers, Executive Director, US
joined the Board on 1 April 2015.
OUTLOOK
In the UK, National Grid expects to maintain performance broadly
at the level seen last year. In the US, returns are expected to be
maintained, ahead of rate revisions in Massachusetts and New York,
which are expected to come into effect in late 2016 and early 2017.
National Grid does not expect to repeat the level of performance
seen in Other activities in 2015/16. Overall Group performance is
expected to remain in line with the Group's expectations.
Capital investment is expected to be at a similar level to
2015/16, driven by gas distribution in the US and continued asset
health investments in the UK, together with further investment in
electricity interconnector activities.
The process for the sale of a majority interest in the UK Gas
Distribution business is on track with separation activities
ongoing and the Group expect to complete a sale in early 2017.
The Board believes that National Grid is in a strong position to
continue to deliver a safe and reliable service to customers, while
sustaining its level of investment in growth and continuing the
Group's commitment to the dividend policy for the foreseeable
future.
2016/17 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.
UK Electricity Transmission
Net Revenue (excluding timing) is expected to increase, with
approximately GBP60m of additional allowances compared to 2015/16
reflecting allowed base revenue and inflationary increases being
partly offset by 'MOD' adjustments(2) .
Totex outperformance against regulatory targets and incentive
performance are expected to reduce slightly in 2016/17, as a result
Return on Equity is expected to be slightly lower than 2015/16.
UK Gas Transmission
Net Revenue (excluding timing) is expected to increase, with
approximately GBP50m of additional allowances compared to 2015/16
reflecting an allowed base revenue increase, a small 'MOD' increase
for data centre allowances and inflationary impacts.
Totex and incentive performance is expected to be slightly lower
against prior year, as the business increases spend on asset health
projects to deliver regulatory output requirements. Incentives are
expected to be lower year-on-year as legacy incentives reduce. As a
result, Return on Equity is expected to be lower compared with the
achieved return in 2015/16.
UK Gas Distribution
Net Revenue is expected to be broadly flat year-on-year, with
RPI increases offset by the reduction in 'fast money' allowances
(repex treatment transition from fast to slow 'pot') in base
revenues.
Totex outperformance against regulatory targets is expected to
improve in 2016/17 with incentive performance expected to be
sustained year-on-year. As a result, achieved Return on Equity is
expected to increase slightly.
UK Timing
Headline net revenues will be impacted by timing of recoveries
from prior years. Both Electricity and Gas Transmission will
benefit from collection of under-recoveries created in 2014/15
whilst gas Distribution is expected to pay back over-recoveries
from 2014/15.
US regulated operations
Revenue is expected to increase in 2016/17, largely from capex
trackers and new rate case fillings. Bad debt expenses are expected
to decrease. These benefits are expected to be broadly offset by
inflationary pressure on controllable costs, increased depreciation
and cost of removal expenses (reflecting significant capex
investment) and higher property taxes.
Return on Equity for overall US regulated operations is expected
to be maintained in 2016/17.
Other activities
Revenue is expected to fall next year, mainly due to lower
auction revenues in the French Interconnector and lower numbers of
meters in the domestic Metering business as the smart metering
roll-out gathers pace. The value of Property sales is expected to
be similar year-on-year.
Earnings before interest and tax, the gain of GBP49m on exchange
of National Grid's interest in the Iroquois Pipeline for shares in
Dominion Midstream Partners, LP is not expected to recur in
2016/17.
Interest and Taxation
Net finance costs for the Group in 2016/17 are expected to be
marginally higher than those in 2015/16 with higher RPI accretions
and higher gross borrowings partially offset by the continued
refinancing of debt at low prevailing interest rates.
For the full year 2016/17, the effective tax rate is expected to
be to be around 24%.
Investment, Growth and Net Debt
Overall Group total investment for 2016/17 is expected to be at
similar levels to 2015/16. Expected UK increases in non-load spend
being partially offset by lower expected spend on Western HVDC Link
and London Power Tunnels as the projects near completion. In the US
Regulated operations, investment is expected to increase primarily
driven by expenditure on LNG liquefaction, and higher spend on
mains replacement, system reinforcements and customer growth.
Depreciation is expected to increase, reflecting the impact of
continued high levels of capital investment.
Cash flow before capex and shareholder returns is expected to
decrease slightly reflecting the large working capital inflows in
2015/16, particularly in the US.
As a result, net debt is expected to increase by around GBP1.5bn
during 2016/17, excluding the effect of any exchange rate movements
or the potential benefit of scrip dividend take up.
FINANCIAL REVIEW
Unless otherwise stated, all financial commentaries in this
release are given on an adjusted basis at actual exchange rates.
For definitions see the definitions and metrics section on pages 38
to 42 of this statement.
Operating profit excluding Year ended 31 March
timing
(GBPm) 2016 2015 % change
--------------------------------- ------ ------ ---------
UK Electricity Transmission 1,168 1,326 (12)
UK Gas Transmission 419 455 (8)
UK Gas Distribution 852 813 5
US Regulated 1,258 1,134 11
Other activities 374 199 88
Group total operating profit
excluding timing 4,071 3,927 4
--------------------------------- ------ ------ ---------
Operating profit Year ended 31 March
(GBPm) 2016 2015 % change
--------------------------------- ------ ------ ---------
UK Electricity Transmission 1,173 1,237 (5)
UK Gas Transmission 486 437 11
UK Gas Distribution 878 826 6
US Regulated 1,185 1,164 2
Other activities 374 199 88
Group total operating profit 4,096 3,863 6
--------------------------------- ------ ------ ---------
Other selected financial Year ended 31 March
information
(GBPm) 2016 2015 % change
------------------------------------ -------- -------- ---------
Depreciation and amortisation (1,614) (1,482) (9)
Net finance costs (1,013) (1,033) 2
Taxation excluding timing (763) (703) (9)
Taxation (753) (695) (8)
Effective tax rate (%) 24.0% 24.2%
Share of post-tax results
of joint ventures 59 46 28
Non controlling interest (3) 8 (138)
Earnings attributable to
equity shareholders excluding
timing 2,351 2,245 5
Earnings per share excluding
timing (p) 62.6 59.1 6
Earnings attributable to
equity shareholders 2,386 2,189 9
Earnings per share (p) 63.5 57.6 10
------------------------------------ -------- -------- ---------
Other selected financial Year ended 31 March
information
(GBPm) - constant currency 2016 2015 % change
---------------------------------- -------- -------- ---------
US Regulated operating profit 1,185 1,245 (5)
Other activities operating
profit 374 191 96
Group total operating profit 4,096 3,936 4
Timing adjustment 25 (62) 140
Operating profit excluding
timing 4,071 3,998 2
Depreciation and amortisation (1,614) (1,517) (6)
Net finance costs (1,013) (1,077) 6
---------------------------------- -------- -------- ---------
Operating profit and controllable costs
Operating profit was GBP4,096m, up GBP233m (up 6%) compared with
last year at actual exchange rates. The year-on-year movement in
exchange rates had a GBP73m positive impact on operating profit. On
a constant currency basis, operating profit was up GBP160m (up 4%).
This included a positive year-on-year timing movement of
GBP87m:
Over/(under)-recovery Year ended 31 Year-on-year
(GBPm - constant currency) March change
----------------------------------- -------------
2016 2015
----------------------------------- ------- ------- -------------
Balance at start of
period (restated) 23* 44
In-year over/(under)-recovery 25 (62) 87
Balance at end of period 48 (18)
----------------------------------- ------- -------
Operating profit 4,096 3,936 160
Adjust for timing differences (25) 62 (87)
----------------------------------- ------- ------- -------------
Operating profit excluding
timing 4,071 3,998 73
----------------------------------- ------- ------- -------------
*restated to reflect finalisation of UK and US timing
balances
Operating profit excluding timing increased by GBP73m (up 2%) on
a constant currency basis.
Operating profit from regulated activities decreased by GBP110m
on a constant currency basis, excluding the impact of timing. Net
regulated income increased by GBP11m, due to US revenue growth from
existing rate plans and gas customer growth, partially offset by
decreases in the third year of the RIIO price controls on UK
regulated revenues. Regulated controllable costs decreased by
GBP12m while post-retirement costs increased by GBP22m and bad
debts increased by GBP5m. Depreciation and amortisation increased
by GBP83m and other costs by GBP23m.
The Group's Other activities contributed GBP183m more to
operating profit than last year on a constant currency basis, led
by increased revenues in the French Interconnector business due to
higher price arbitrage between the UK and mainland Europe and a
GBP49m benefit from a gain on the exchange of National Grid's share
of the Iroquois pipeline joint venture for shares in Dominion
Midstream Partners, LP. Other activities also benefited from the
non-recurrence of US financial systems implementation costs in
2014/15.
Interest and taxation
Net finance costs were GBP1,013m, GBP20m lower than 2014/15 at
actual exchange rates and GBP64m lower than 2014/15 at constant
currency, benefiting from continued refinancing of debt at lower
prevailing interest rates, strong treasury management and lower
accretions on index linked borrowings.
The effective interest rate on Treasury managed debt for the
year was 3.8% compared with 4.3% in 2014/15.
Profit before tax and taxation
The Company's share of post-tax results from joint ventures and
associates was GBP59m, up GBP12m from 2014/15 at constant currency,
following an increased contribution from the BritNed
interconnector.
Profit before tax was up 9% at actual exchange rates to
GBP3,142m. Excluding the impact of timing, profit before tax was up
6% to GBP3,117m.
The tax charge on profits was GBP753m, GBP58m higher than
2014/15 at actual exchange rates, principally reflecting increased
operating profits and lower interest charges, partly offset by a
reduction in the UK corporation tax rate. The reported effective
tax rate decreased to 24.0% from 24.2% in the previous year
primarily due to a fall in the UK corporation tax rate offset by a
change in the profit mix.
Corporation tax paid in the UK in 2015/16 decreased by GBP68m to
GBP285m.
Other earnings metrics, EPS, exceptional and statutory
earnings
Earnings attributable to non-controlling interests (minority
interests) were GBP3m (2014/15 GBP(8)m), principally representing
the impact of consolidating National Grid's investment in Clean
Line, a US transmission business in 2014/15.
As a result, earnings attributable to equity shareholders were
GBP2,386m, up GBP197m compared with 2014/15. Earnings per share
increased 10% from 57.6p last year (restated for the impact of
shares issued under the scrip dividend programme) to 63.5p.
Excluding the impact of timing, earnings attributable to equity
shareholders were GBP2,351m, up GBP106m compared with 2014/15, and
earnings per share increased by 6% year-on-year to 62.6p.
Exceptional items and remeasurements increased statutory
earnings by GBP205m after tax. A detailed breakdown of these items
can be found on page 53. After these items and non-controlling
interests, statutory earnings attributable to equity shareholders
were GBP2,591m.
Statutory basic earnings per share were 69.0p compared with
53.2p (restated) last year. The increase (compared to the increase
in adjusted EPS) reflected a large exceptional deferred tax credit
in the year related to a reduction in UK corporation tax rates and
2014/15 included exceptional debt redemption costs.
Cash flow
Operating cash flow, before exceptional items, remeasurements
and taxation was GBP5,722m, GBP355m higher than 2014/15,
principally reflecting higher operating profits.
Funding and Net Debt
Net debt as at 31 March 2016 increased by GBP1.4bn to GBP25.3bn
(2015: GBP23.9bn).
As at 31 March 2016 the Group maintained approximately $23.1bn
of its total financial liabilities denominated in US dollars as a
substantial hedge of foreign exchange movements in the value of its
US businesses. As a result, the movements resulting from the
relative strength of the US dollar against the pound compared with
a year ago increased net debt by around GBP0.5bn.
The remaining increase was the result of GBP4.6bn of cash inflow
before capex and shareholder returns, more than offset by dividends
and share buybacks of GBP1.6bn, capital investment of GBP3.7bn and
other non-cash and fair value movements of GBP0.2bn. This included
GBP91m of accretions on index linked and zero coupon debt.
During the year National Grid raised around GBP1.8bn of new
capital markets financing through nine new bond issuances,
including a GBP400m non-dilutive, cash settled convertible bond
issued in September. The Group purchased call options to offset the
embedded option within the bond. This innovative source of funding
provided attractively priced funding from a new source of liquidity
for the Group.
The Group also continued with its drawing of the GBP1.5bn
RPI-linked, European Investment Bank (EIB) loan to fund capital
investment in its UK Electricity Transmission business.
The US holding company, National Grid North America, continued
to access the capital market during the year through its Euro
Medium Term Note programme in a variety of currencies, while the US
operating company, The Brooklyn Union Gas Company (also known as
KEDNY) issued a dual tranche $1bn bond in March.
As a result, the Group considers that it is well funded as it
enters 2016/17.
The Group's balance sheet remained strong, supporting further
investment in new assets during the year. Credit rating metrics as
indicators of balance sheet strength remained comfortably above the
levels indicated by credit rating agencies as appropriate for the
current group rating levels. Funds from operations (FFO) to
adjusted net debt was 16.7% and RCF to adjusted net debt was 11.5%,
(10.5% after deducting share buyback costs associated with
neutralising dilution from 17% scrip dividend uptake in the year).
FFO interest cover was 5.5x compared with 5.1x in 2014/15,
comfortably above National Grid's target of exceeding 3.0x.
During the year, Moody's and Fitch maintained their ratings of
the National Grid Group on stable outlook. S&P downgraded The
Brooklyn Union Gas Company and KeySpan Gas East Corporation (also
known as KEDLI) from A to A- to be in line with the ratings of the
majority of other regulated operating companies in the Group. These
rating moves were driven by the expectation of weaker cash flow
metrics in those businesses until the expected benefit of new rates
from the planned rate filings is achieved.
Overall net debt as a proportion of total regulatory value at 31
March 2016 was 62% down from 63% at 31 March 2015 (adjusted for
constant currency).
BUSINESS REVIEW
In addition to IFRS profit measures, to aid understanding of the
performance of the regulated businesses, National Grid calculates a
number of additional regulatory performance metrics. These metrics
aim to reflect the impact of performance in the current year that
is expected to impact future regulatory revenue allowances. This
includes the creation of future regulatory revenue adjustment
balances and the impact of current year performance on the
regulated asset base. These metrics also seek to remove the impacts
on current year revenues relating to "catch up" or "sharing" of
elements of prior year performance for example the sharing of prior
year efficiencies with customers.
These metrics include Return on Equity and regulated financial
performance.
Year ended 31 March Regulatory Achieved Base or Allowed
(UK and Group) Debt:Equity Return on Return on
Calendar year (US) assumption Equity Equity
-------------
% 2016 2015 2016 2015
----------------------------- ------------- ------ ----- -------- --------
UK Electricity Transmission 60:40 13.9 14.0 10.2 10.2
UK Gas Transmission 62.5:37.5 12.5 14.2 10.0 10.0
UK Gas Distribution 65:35 13.0 12.9 9.9 9.9
US Regulated avg. 50:50 8.0 8.4 9.7 9.7
Total Group 12.3 11.8
----------------------------- ------------- ------ -----
Overall Group Return on Equity was 12.3% (prior year 11.8%)
reflecting a substantial increase in the contribution from Other
activities and good financing performance partly offset by the
expected lower returns in the UK and US.
As at 31 March Regulated Asset Total Regulated
Value or Rate Assets or Invested
Base Capital
(GBPbn, at constant 2016 2015 2016 2015
currency)
----------------------------- -------- -------- ---------- ----------
UK Electricity Transmission 11.8 11.3 11.7 11.4
UK Gas Transmission 5.6 5.6 5.7 5.7
UK Gas Distribution 8.7 8.5 8.6 8.4
US Regulated 12.7 12.0 14.1 13.9
Other Activities (invested
capital only) 1.9 1.5
----------------------------- ---------- ----------
Total Group 42.0 40.9
----------------------------- ---------- ----------
Total Group regulated and other assets grew 3% at constant
currency, with UK Electricity Transmission RAV and US rate base in
particular up 4% and 6% respectively.
Year ended 31 March Adjusted
Operating
profit
(GBPm, at actual exchange 2016 2015
rate)
----------------------------- ------ ------
UK Electricity Transmission 1,173 1,237
UK Gas Transmission 486 437
UK Gas Distribution 878 826
US Regulated 1,185 1,164
Other Activities 374 199
----------------------------- ------ ------
Total Group 4,096 3,863
----------------------------- ------ ------
Total Group adjusted operating profits increased by 6% to
GBP4,096m.
REVIEW OF UK ELECTRICITY TRANSMISSION OPERATIONS
2015/16 Overview
In the third year of its eight year RIIO price control period,
UK Electricity Transmission delivered another solid performance,
with a growing asset base, while maintaining high standards of
reliability and safety.
The business successfully delivered a number of important
projects over the course of the year reaching major milestones with
the completion of two key circuits on the London Power Tunnels
project and the commissioning of Kensal Green substation, the first
high voltage electricity transmission substation constructed in
London for 20 years.
UK Electricity Transmission continues to look for innovative
ways to reduce costs to customers. Last year, the business piloted
a new approach to circuit breakers aimed at halving the time and
cost of replacement over the RIIO T1 period. In addition, the
business has invested in new technology to explore further cost
reduction in overhead line and transformer replacement programmes.
This approach will support UK Electricity Transmission in meeting
outputs defined by the RIIO price control efficiently and
effectively.
In its role as System Operator (SO), the business balanced the
network to maintain security of supply throughout the year. The
business contracted additional balancing services of 2.4 GW for the
winter period to be available to manage periods of peak demand.
This included 133 MW from demand side response (DSR) arrangements,
including businesses who signed up for reducing demand at peak
periods if called on. In the year, UK Electricity Transmission
launched the Power Responsive programme to support growth in
DSR.
Regulated Returns and Financial Performance reflect efficiency
and incentive delivery
Return on Equity 370bps above base levels
Return on Equity for the year, normalised for a long-run
inflation rate of 3%, was 13.9% compared with a regulatory
assumption, used in calculating the original revenue allowance, of
10.2%. The principal components of the difference are shown in the
table below
Return on Equity 2015/16 2014/15
--------
Base return (including avg.
3% long-run inflation) 10.2 10.2
Totex incentive mechanism 2.1 2.1
Other revenue incentives 0.8 0.7
----------------------------------------- -------- --------
Return including in year incentive
performance 13.1 13.0
Pre-determined additional allowances 0.8 1.0
Operational Return on Equity 13.9 14.0
----------------------------------------- -------- --------
Operational Return on Equity decreased 10bps year-on-year,
primarily as a result of a reduction in additional allowances.
Totex was GBP1.3bn compared with an estimated allowance, adjusted
for outputs and phasing of spend, of GBP1.5bn. The Company's share
of this efficiency saving is expected to be GBP92m. Much of this
saving is reflected in an estimate of increased Performance
RAV.
The consistent totex performance in the year principally
reflects efficiencies and innovative engineering within the capital
investment programme in relation to both load and non-load related
projects. National Grid aims to deliver the essential maintenance
and outputs required by the RIIO framework sustainably and at the
lowest total cash cost in order to deliver best value for consumers
and shareholders. Innovative solutions such as predictive analysis
and new engineering approaches are essential to achieving this and
continued to be a focus for the Company over the course of
2015/16.
UK Electricity Transmission continues to respond to the
challenging RIIO efficiency and incentive targets by encouraging
innovative engineering solutions and process efficiencies. This was
highlighted by the GBP12m innovation award that the business
received for converting Deeside into an off grid substation. The
business delivered an improved level of performance under other
revenue incentive schemes during 2015/16, generating around 80bps
of total return, equivalent to GBP42m of additional revenue. The
current Balancing Services Incentives Scheme (BSIS) contributed
GBP27m of pre-tax profit, an increase of GBP4m from 2014/15.
Stakeholder engagement and satisfaction, and energy not supplied
incentives also delivered positive incentive out-turns, offset by
reductions in the customer, environmental and renewable incentives.
UK Electricity Transmission is working to identify opportunities
for future outperformance across these areas.
Investment activities in 2015/16
Capital investment in UK Electricity Transmission was GBP1,084m,
GBP10m higher than the prior year. The Western HVDC Link project
saw accelerated spend following cable manufacture delays in
2014/15, this was partly offset by a reduction in London Power
Tunnel spend which neared completion.
The business continued to seek improved totex efficiency in its
investment. Placing an emphasis on engineering for best value
reduces capital spend and customer bills and sustains attractive
levels of asset growth, through the creation of performance RAV.
Overall, investment in the year reflected GBP547m of non-load
related investment whilst load related spend was GBP537m.
Regulated Financial Performance down 3% year-on-year
The regulated financial performance calculation adjusts reported
operating profit to reflect the impact of the businesses'
regulatory arrangements when presenting financial performance.
Regulated financial performance for UK Electricity Transmission
decreased to GBP1,195m from GBP1,232m, down 3%. The year-on-year
reduction reflected a one off benefit in the prior year of GBP56m
from legal settlements, partially offset by underlying RAV
growth.
Reconciliation of regulated 2016
financial performance to operating
profit (GBPm) 2015 % change
Operating profit 1,173 1,237 (5%)
Movement in regulatory "IOUs" (147) (130)
Deferred taxation adjustment 80 88
RAV indexation (avg. 3% long-run
inflation) 339 326
Regulatory v IFRS depreciation
difference (368) (352)
Fast/Slow money adjustment 92 34
Pensions (54) (48)
Performance RAV created 80 77
-------------------------------------- -------- ------ ---------
Regulated financial performance 1,195 1,232 (3%)
-------------------------------------- -------- ------ ---------
Regulated Financial Position up 3%
In the year, RAV grew by 4.8% driven by continued investment.
This growth rate was lower than the Company's expectation, mainly
driven by a continued lower level of inflation (1.6% for the year).
Net other regulatory assets decreased by GBP147m, partly reflecting
revenue received in the year associated with customers' share of
efficiency benefits and also relating to RIIO outputs where
delivery has either been deferred to later in the price control
period or where outputs are no longer expected to be required by
customers during RIIO-T1.
2016 2015
-------------------------------------- ------- -------
Opening Regulated Asset Value
(RAV)* 11,285 10,854
-------------------------------------- ------- -------
Asset additions (aka slow money)
(actual) 1,042 1,034
Performance RAV or assets created 80 77
Inflation adjustment (actual
RPI) 181 102
Depreciation and amortisation (758) (728)
-------
Closing RAV 11,830 11,339
-------------------------------------- ------- -------
Opening balance of other regulated
assets and (liabilities)* 49 197
-------------------------------------- ------- -------
Movement (147) (130)
-------------------------------------- ------- -------
Closing balance (98) 67
-------------------------------------- ------- -------
Closing Regulated Financial
Position 11,732 11,406
-------------------------------------- ------- -------
*March 2016 opening balances adjusted to correspond with 2014/15
regulatory filings and calculations
Regulatory and other business developments
During 2015/16, UK Electricity Transmission responded to Ofgem's
open consultation on the potential RIIO-T1 Mid-Period Review and on
12 May 2016 Ofgem announced its intent for a Mid-Period Review. As
expected, the scope of this review is narrow with no changes to key
financial parameters. Ofgem will run a consultation process this
summer, with any changes to be implemented in April next year.
The business also responded to Ofgem's consultation on extending
competition in onshore electricity transmission in the UK.
In addition, the Company has been working with DECC and Ofgem to
consider how to evolve the current System Operator model, to make
it more independent, whilst remaining cost effective. In doing so,
it is vital that there is no disruption to the pivotal role
National Grid plays as System Operator in balancing the
network.
In advance of winter 2015/16, margins between supply and demand
were expected to be tighter than in recent years, due to further
generation capacity reductions. In consultation with DECC the
System Operator tendered for balancing services, the Demand Side
Balancing Reserve and the Supplemental Balancing Reserve, providing
assurance that additional capacity would be available if called
upon.
Future activities and outlook
UK Electricity Transmission expects to continue to deliver good
returns and asset growth in 2016/17 with opportunities for the
business to deliver healthy outperformance led by the totex
incentive. The business will continue to focus on using process
improvements, efficiency and innovation to deliver the RIIO outputs
at the lowest sustainable cash cost, generating savings for
consumers and shareholders. The business expects to generate
savings from finding new and innovative ways to maintain, repair
and replace its assets.
National Grid expects UK Electricity Transmission capital
investment in 2016/17 to be broadly similar to the 2015/16 level,
as lower levels in Western HVDC Link and London Power Tunnels are
offset by increased non-load spend to deliver RIIO-T1 outputs. The
business expects to deliver real growth in regulated asset value,
including the benefit of efficiencies, above the rate of inflation
in 2016/17.
Total investment in UK Electricity Transmission over the eight
year RIIO price control is currently expected to be around GBP10bn,
with RAV growth on average of around 6% per annum over the RIIO
period including a 3% RPI inflation assumption.
As mentioned above, the UK Electricity Transmission business has
been in consultation with Ofgem on the introduction of onshore
competition. This new competition principally relates to large
projects with a capital spend above GBP100m, that meet certain
criteria (still to be agreed by the UK regulator). Within UK
Electricity Transmission's capital investment plan two projects are
potentially contestable. These relate to the possible connection of
new nuclear generation for Hinkley Point and Moorside, which
together represent around GBP1bn of planned capex in the RIIO-T1
period. National Grid is supportive of the work that Ofgem is
undertaking to explore the introduction of onshore competition but
believes that competition should only be taken forward where it is
in the best interests of customers.
APPIX to REVIEW OF UK ELECTRICITY TRANSMISSION OPERATIONS
Revenue and Costs in 2015/16 on an IFRS basis
On an IFRS basis UK Electricity Transmission operating profit
was GBP1,173m, down GBP64m or 5%. Net revenues in the year were in
line with the prior year. Adjusting for timing movements, operating
profit decreased by GBP158m principally due to the lower net
revenue, increases in controllable costs and higher asset
depreciation.
The principal components of the movement in operating profit are
shown below.
Year ended 31 March
(GBPm) 2016 2015 % change
-------------------------------------- ------ ------ ---------
Net revenue 1,947 1,933 1
Regulated controllable operating
costs (311) (283) (10)
Post-retirement costs (40) (36) (11)
Other operating costs and provisions (33) (1)
Depreciation and amortisation (390) (376) (4)
-------------------------------------- ------ ------ ---------
Operating profit 1,173 1,237 (5)
-------------------------------------- ------ ------ ---------
Less: Timing impact 5 (89) 106
Operating profit excluding timing 1,168 1,326 (12)
Net revenue (net of pass through costs) increased by GBP14m.
Excluding timing impacts of GBP94m, net regulated revenue decreased
by GBP80m. This primarily reflected a one off benefit in the prior
year from a legal settlement and a reduction associated with the
impact of sharing RIIO year 1 efficiencies with customers through
the MOD adjustments, partially offset by higher post vesting
connection income and termination revenues.
Regulated controllable operating costs increased by GBP28m,
reflecting an increase in maintenance expenditure, business change
and preparation costs. Post-retirement costs increased by GBP4m and
other operating costs and provisions increased by GBP32m reflecting
asset write offs.
Depreciation and amortisation increased by GBP14m, reflecting
investment driven growth in the asset base.
REVIEW OF UK GAS TRANSMISSION OPERATIONS
2015/16 Overview
In 2015/16 UK Gas Transmission delivered a solid performance.
The Company enjoyed strong levels of network availability
reflecting the investment and improvements in planning and
maintenance activities. The business reported its first lost time
injury for 995 days in December 2015, otherwise delivering good
safety performance. The Company delivered 408 Network Output
Measures above its in year target. The most significant asset
health project, at Bacton terminal, was delivered in March 2016
with operational acceptance achieved ahead of schedule on 22 March
2016. UK Gas Transmission awarded a contract to "Pipe9 JV"
comprising Skanska, AHak and PORR for detailed design of the tunnel
and construction of the Feeder 9 project to build around 5km of
tunnel and gas transmission pipeline under the Humber Estuary.
The gas demand across winter 2015/16 was higher than forecast
and in its role as Gas System Operator, the business successfully
managed this period and the rest of the year.
Performance reflects continued prior period benefit and strong
incentive delivery
Return on Equity 250bps above base levels
Return on Equity for the year, using a long-run inflation rate
of 3%, was 12.5% compared with a regulatory assumption, used in
calculating the original revenue allowance, of 10.0%. The principal
components of the difference are shown in the table below.
Return on Equity 2015/16 2014/15
--------
Base return (including avg.
3% long-run inflation) 10.0% 10.0%
Totex incentive mechanism (0.2)% (0.4)%
Other revenue incentives 1.2% 2.4%
----------------------------------------- -------- --------
Return including in year incentive
performance 11.0% 12.0%
Pre-determined additional allowances 1.5% 2.2%
Operational Return on Equity 12.5% 14.2%
----------------------------------------- -------- --------
The business performed slightly below the targets set by the
totex incentive mechanism in the third year of RIIO. Operating
costs were GBP3m higher than allowance reflecting increased spend
on safety. Totex spend was GBP0.3bn, marginally above the estimated
allowance, adjusted for outputs and phasing. The Company's share of
this difference is expected to be GBP3m.
The business had another good year of incentive performance,
consistent with performance levels in 2014/15 after excluding the
gas permits performance (a one off incentive) from the prior year.
Increased efforts to identify customer and stakeholder needs,
undertaken by the business, continued to support good customer
incentive performance. Overall, the UK Gas Transmission business
delivered around 120 bps of additional returns through other
revenue incentives. On a pre-tax basis, this equates to an
estimated GBP31m of additional revenue allowance, most of which is
due to be recovered in future years under the RIIO funding
mechanisms.
Contribution from legacy incentives was 150bps, a decrease
year-on-year, as expected and in accordance with the agreed
profile.
Regulated Financial Performance down 17% year-on-year
An explanation of the regulatory financial performance measure
can be found in the section on UK Electricity Transmission and in
the glossary before the notes to this statement.
Regulated financial performance for UK Gas Transmission
decreased to GBP535m from GBP648m, down 17%. The year-on-year
reduction reflected in part a one off benefit in the prior year
related to gas permit incentive income.
Reconciliation of regulated
financial performance to operating
profit (GBPm) 2016 2015 % change
Operating profit 486 437 11
Movement in regulatory "IOUs" (80) (16)
Deferred taxation adjustment 45 85
RAV indexation (3% long-run
avg.) 166 166
Regulatory v IFRS depreciation
difference (18) (22)
Fast/Slow money adjustment 18 54
Pensions (77) (49)
Performance RAV created (5) (7)
------------------------------------- ------- ------- -----------
Regulated financial performance 535 648 (17)
------------------------------------- ------- ------- -----------
Regulated Financial Position broadly unchanged with RPI below
long-run expectations
RAV was broadly flat year-on-year, with continued investment and
lower than expected inflation almost entirely offset by
depreciation. Net other regulatory assets decreased by GBP80m,
mainly reflecting current year revenue over recoveries associated
with lower than expected inflation and higher volumes.
GBPm 2016 2015
-------------------------------------- ------ ------
Opening Regulated Asset Value
(RAV)* 5,525 5,529
-------------------------------------- ------ ------
Asset additions (aka slow money)
(actual) 185 174
Performance RAV or assets created (5) (7)
Inflation adjustment (actual
RPI) 85 50
Depreciation and amortisation (196) (194)
Closing RAV 5,594 5,552
-------------------------------------- ------ ------
Opening balance of other regulated
assets and (liabilities)* 157 174
-------------------------------------- ------ ------
Movement (80) (16)
-------------------------------------- ------ ------
Closing balance 77 158
-------------------------------------- ------ ------
Closing Regulated Financial
Position 5,671 5,710
-------------------------------------- ------ ------
*March 2016 opening balances adjusted to correspond with 2014/15
regulatory filings and calculations
Investment activities in 2015/16 focussed on asset health
UK Gas Transmission invested GBP186m during the year, a slight
increase on prior year, which was almost entirely non-load, asset
health and emissions reduction work.
Asset health expenditure forms part of an essential and
co-ordinated programme of work throughout the RIIO T1 period. This
programme is designed to enable UK Gas Transmission to maintain a
safe network and continue to meet regulatory output requirements,
known as Network Output Measures (NOMs). During the year, work
commenced on the Feeder 9 crossing of the Humber Estuary a GBP180m
project to ensure system integrity at a critical point on the
network.
Investment in emissions reduction work continued to support the
business in improving the local air quality around its gas
compressors sites in line with both the Industrial Emissions
Directive (IED) and Integrated Pollution Prevention and Control
(IPPC) legislation.
Regulatory and other business developments
During 2015/16, UK Gas Transmission has responded to Ofgem's
open consultation on the potential RIIO-T1 Mid-Period Review and on
12 May 2016, Ofgem announced its intent for a Mid-Period Review. As
expected, the scope of this review is narrow with no changes to key
financial parameters. Ofgem will run a consultation process this
summer, with any changes to be implemented in April next year.
The business agreed an exemption in the latest draft of the
Medium Combustion Plant (MCP) Directive with an extended date for
compliance of 2030 for gas compressor stations, (previously 2020).
This followed tripartite meetings between the European Parliament,
European Commission and MEPs and was ratified by the European
Parliament in September 2015. The exemption will allow the UK Gas
Transmission business to be more efficient in complying with the
Directive and is expected to provide a reduction in future costs to
customers.
Diversity of supply benefits Great Britain's gas security but
the varied sources lead to greater operational unpredictability.
The business continues to work with the industry to understand its
flexibility requirements and will publish an update in its Winter
Outlook Report ahead of winter 2016/17.
Future activities and outlook
UK Gas Transmission expects to outperform its base allowances in
2016/17 through continued delivery of good incentive performance.
Overall achieved Return on Equity is likely to reduce somewhat
compared to the level in 2015/16 as legacy allowances are expected
to reduce in accordance with agreed profiles.
The business continues to focus on finding and delivering
operational efficiencies, in particular in improving the efficiency
of asset health and investment delivery processes. Successful
innovation is expected to be a key contributor in achieving future
cost efficiencies.
Capital investment in UK Gas Transmission in 2016/17 is expected
to increase compared to 2015/16 reflecting the increased asset
health activity and as the construction of Feeder 9 project
progresses. As a result, regulated asset value is expected to grow
slightly above the rate of inflation in 2016/17.
APPIX to REVIEW OF UK GAS TRANSMISSION OPERATIONS
Revenue and Costs in 2015/16 on an IFRS basis
On an IFRS basis UK Gas Transmission operating profit was
GBP486m, up GBP49m or 11%. This increase was mainly driven by
timing and closure costs of an LNG storage facility in the prior
year. Excluding the impact of timing, net revenues in the year were
lower due to lower gas permit income. Adjusting for timing
movements, operating profit decreased by GBP36m.
The principal components of the movement in operating profit are
shown below.
(GBPm) Year ended 31 March
2016 2015 % change
-------------------------------------- ------ ------ ---------
Net revenue 826 780 6
Regulated controllable operating
costs (135) (125) (8)
Post-retirement costs (18) (18) -
Other operating costs and provisions (9) (28) 68
Depreciation and amortisation (178) (172) (3)
-------------------------------------- ------ ------ ---------
Operating profit 486 437 11
-------------------------------------- ------ ------ ---------
Less: Timing impact 67 (18) 472
Operating profit excluding timing 419 455 (8)
Net revenue (net of pass through costs) increased by GBP46m.
Excluding timing impacts of GBP85m, net regulated revenue decreased
by GBP39m. This primarily relates to GBP29m of prior year permit
income.
Regulated controllable costs increased by GBP10m. This included
higher TO and SO transformation costs and higher Xoserve
charges.
Depreciation and amortisation increased by GBP6m. Other
operating costs decreased by GBP19m, mostly reflecting additional
costs relating to the closure of LNG facilities in 2014/15.
REVIEW OF UK GAS DISTRIBUTION OPERATIONS
2015/16 Overview
In the third year of its RIIO price control period, UK Gas
Distribution completed all major outputs ahead of required levels.
The integrated operational model of Gas Distribution provided
further efficiency through utilisation of resource across the four
networks to support delivery of repair, maintenance and emergency
response requirements. The business has continued to make
improvements in its customer processes.
During the year, the business increased its mains replacement
activity replacing around 1,900km of metallic mains with new
polyethylene pipes, delivering safety and environmental benefits
and meeting key regulatory outputs. By delivering the increased
replacement activity efficiently in the year, the business has
generated further savings which will help to reduce bills for its
customers. UK Gas Distribution has made good progress in the
further development and trials of innovative "no dig" solutions.
When implemented these innovations should help to drive down the
costs of the mains replacement programme on behalf of customers and
deliver an increasing level of planned workload to further improve
the safety and reliability of the networks.
Regulated Returns and Financial Performance reflect good
efficiency and incentive delivery
Return on Equity 310bps above base levels
Return on Equity for the year, using a long-run inflation rate
of 3%, was 13.0% compared with a regulatory assumption, used in
calculating the original revenue allowance, of 9.9%. The principal
components of the difference are shown in the table below. This is
in line with the Return on Equity last year.
Return on Equity 2015/16 2014/15
--------
Base return (including avg.
3% long-run inflation) 9.9% 9.9%
Totex incentive mechanism 2.0% 2.3%
Other revenue incentives 1.0% 0.6%
----------------------------------------- -------- --------
Return including in year incentive
performance 12.9% 12.8%
Pre-determined additional allowances 0.1% 0.1%
Operational Return on Equity 13.0% 12.9%
----------------------------------------- -------- --------
In 2015/16, UK Gas Distribution again drove significant
outperformance against regulatory cost allowances by delivering
savings and generating additional returns through the totex
incentive mechanism. The Gas Distribution Strategic Partnerships
(GDSP) contractual arrangements that the business put in place
ready for the start of the RIIO period have helped to drive much of
the totex performance through innovative and efficient delivery of
the mains replacement programme.
Overall, totex was around GBP0.9bn compared with an estimated
allowance, adjusted for outputs and phasing of spend, of GBP1.0bn.
The Company's share of this efficiency saving is expected to be
GBP56m, partly reflected in an estimate of increased regulatory
asset value (Performance RAV).
Other incentive performance in UK Gas Distribution increased
compared with 2014/15 levels. Continued performance in
environmental, stakeholder and customer satisfaction activities
delivered consistent levels of performance to 2014/15, while the
reliability (exit capacity) incentive was up GBP15m on prior year.
Overall the business delivered around 110bps of performance through
incentives and other legacy allowances.
Regulated Financial Performance
An explanation of the calculation of regulatory financial
performance can be found in the section on UK Electricity
Transmission and in the glossary before the notes to this
statement.
Regulated financial performance for UK Gas Distribution remained
consistent with the prior year at GBP819m. This reflected a similar
achieved operational return on equity.
Reconciliation of regulated
financial performance to operating
profit (GBPm) 2016 2015 % change
Operating profit 878 826 6
Movement in regulatory "IOUs" (35) (28)
Deferred taxation adjustment (34) 60
RAV indexation (assuming 3%
RPI inflation) 255 255
Regulatory v IFRS depreciation
difference (104) (148)
Fast/Slow money adjustment (168) (182)
Pensions (13) (5)
Performance RAV created 40 41
------------------------------------- ------- ------- -----------
Regulated financial performance 819 819 -
------------------------------------- ------- ------- -----------
Regulated Financial Position steady
In the year, RAV grew by 2% with investment and a share of
savings delivered in the form of performance RAV partially offset
by regulatory depreciation. The contribution to growth from RPI
inflation in the year was relatively low, compared to long-run
levels. During the year, net other regulatory liabilities increased
by GBP35m, leaving a closing balance of GBP124m to return to
customers in future years. Much of this movement relates to revenue
over recoveries due to lower than anticipated inflation in the
current year.
GBPm 2016 2015
-------------------------------------- ------ ------
Opening Regulated Asset Value
(RAV)* 8,513 8,495
-------------------------------------- ------ ------
Asset additions (aka slow money)
(actual) 392 333
Performance RAV or assets created 40 41
Inflation adjustment (actual
RPI) 133 76
Depreciation and amortisation (402) (434)
Closing RAV 8,676 8,511
-------------------------------------- ------ ------
Opening balance of other regulated
assets and (liabilities) * (89) (55)
-------------------------------------- ------ ------
Movement (35) (28)
-------------------------------------- ------ ------
Closing balance (124) (83)
-------------------------------------- ------ ------
Closing Regulated Financial Position 8,552 8,428
-------------------------------------- ------ ------
*March 2016 opening balances adjusted to correspond with 2014/15
regulatory filings and calculations
Investment activities in 2015/16
Overall capital investment in UK Gas Distribution was GBP549m,
including GBP417m of replacement expenditure (GBP57m higher than
2014/15) with substantially more pipe replaced than the prior year.
Other capex was GBP132m, down GBP6m on last year.
UK Gas Distribution continues to explore new and innovative
approaches to deliver capital and replacement projects at lower
costs. The business has developed technology that contributed to a
reduction in the volume of excavations and is exploring a number of
alternative "no dig" solutions to achieve further reductions to
volume and duration of excavations in future years.
National Grid trialled number of these technologies in the
summer of 2015, including Tier One Robotic System (TORS) which will
allow the connection of mains and services with minimal excavations
and Pipe Renewal In-Situ Manufactured (PRISM), a multi-party
project translating existing technology used in the water industry
to the gas distribution industry which could revolutionise the
replacement of ageing gas pipes using a polymer in existing
pipelines.
Regulatory and other business developments
During 2015/16, UK Gas Distribution responded to Ofgem's open
consultation on the potential RIIO-GD1 Mid-Period Review. On 12 May
2016, Ofgem announced that it will not carry out a Mid-Period
Review of UK Gas Distribution.
In March, the business agreed with Ofgem that it would make a
charitable donation of GBP3m to National Energy Action (NEA) to
support fuel poor initiatives as recognition that the business did
not achieve certain repair network outputs in 2014/15.
2015/16 was the third year of the eight year RIIO price control
reflecting a stable regulatory environment for the business. As the
UK's energy mix changes, National Grid continues to develop its
networks to accommodate gas from new sources and adapting its
network to the future role of gas. This included further
bio-methane connections being made this year, increasing the total
number of connections to 22. The business has also developed a
demonstration plant for BioSNG technology which would enable
household waste to be converted into gas to be transported through
its distribution network. In addition, UK Gas Distribution has
completed the UK's first Local Transmission System (LTS) connected
Compressed Natural Gas filing station. This facility located in
Leyland, Lancashire is capable of refuelling more than 500 heavy
goods vehicles per day.
UK Gas Distribution has been instrumental in an industry wide
initiative to provide better services to more vulnerable customers.
Leading a cross-industry working group, the business has developed
a common set of needs codes for vulnerable customers which will be
used across utility industries to identify the services that these
customers require.
Sale of majority stake
In November 2015, National Grid announced the potential sale of
a majority stake in the UK Gas Distribution business. As this
business is fully integrated with the other UK businesses, it needs
to be separated. Since November, the business has made good
progress on the activity needed to create a standalone business
that can operate efficiently, while maintaining its primary role as
a provider of safe and reliable networks. The necessary
consultations are underway with internal and external stakeholders
to enable a smooth separation process.
Future activities and outlook
UK Gas Distribution is expected to sustain its incentive
performance and the business expects to build on the good totex
incentive performance in the year.
The business remains on track to deliver the RIIO risk reduction
outputs and the Health and Safety Executive requirement for length
of main replaced over the course of the eight year RIIO period.
In the first three years of the price control, UK Gas
Distribution has delivered its primary replacement output, risk
reduction on metallic mains, in line with the eight year RIIO
target. The run rate of the secondary replacement metric, length of
metallic main replaced, is below the eight year average but in line
with the business' delivery plans. The business expects to increase
the length of mains replaced as the RIIO price control progresses
(and has phased the allocation of totex allowances accordingly when
calculating Return on Equity). At the same time, the business
expects to leverage the benefits of innovation to drive further
totex performance and customer value.
National Grid expects total investment by UK Gas Distribution to
be broadly in line with 2015/16 levels. As a result, the business
expects to grow its RAV slightly higher than RPI inflation for the
year.
APPIX to REVIEW OF UK GAS DISTRIBUTION OPERATIONS
Revenue and Costs in 2015/16 on an IFRS basis
On an IFRS basis UK Gas Distribution operating profit was
GBP878m, up GBP52m or 6%. Regulated revenues in the year were
higher. Costs increased and depreciation was higher than last year,
offset by favourable provision adjustments. Adjusting for timing
movements, operating profit increased by GBP39m.
The principal components of the movement in operating profit are
shown below.
(GBPm) Year ended 31 March
2016 2015 % change
--------------------------------------------------- ------ ------ ---------
Net revenue 1,566 1,504 4
Regulated controllable operating
costs (374) (353) (6)
Post-retirement costs (39) (36) (8)
Other operating costs and provisions/contribution
release 23 (3)
Depreciation and amortisation (298) (286) (4)
--------------------------------------------------- ------ ------ ---------
Operating profit 878 826 6
--------------------------------------------------- ------ ------ ---------
Less: Timing impact 26 13 100
Operating profit excluding timing 852 813 5
Net revenue (net of pass through costs) increased by GBP62m.
Excluding timing impacts of GBP13m, net regulated revenue increased
by GBP49m. This increase was primarily driven by higher allowed
revenue collections relating to a change in the tax treatment of
replacement expenditure and higher reliability incentive
performance.
Regulated controllable costs increased by GBP21m, up 6%,
reflecting higher leasing costs, NEA donation and legal
settlements. Post-retirement costs increased by GBP3m and other
operating costs decreased by GBP26m reflecting a prior year
provision for additional asset protection costs.
Depreciation and amortisation increased by GBP12m, reflecting
investment driven growth in the asset base.
REVIEW OF US REGULATED OPERATIONS
2015/16 Overview
US Regulated operations delivered solid operational performance
reflecting National Grid's continued focus on efficiently
delivering significant investment to enhance the resilience of its
networks. The gas and electricity networks stood up to increased
demands including record gas send-out in New York and Massachusetts
on 14 February. The Company's electricity transmission network
delivered availability of over 99% and the broader US business
achieved almost all of its key reliability metrics, reflecting the
benefit of infrastructure investment in recent years as well as
continued focus on effective storm response.
The US saw significant improvements in all three of its primary
safety measures; lost time injury frequency, road traffic
collisions and Occupational Safety & Health Administration
recordable events. Safety continues to be a focus of the business
as it strives to achieve world class performance.
Return on equity in-line with expectations
Return on Equity for the year was 8.0%, a reduction of 40 bps
compared to last year. As expected, this reduction was due to some
entities operating under old rate plans and a high level of rate
base growth, a portion of which is not reflected in current rate
plans. The additional rate base growth will drive future revenues,
but places an additional pressure on returns until rate base is
reflected in updated regulatory allowances. This should be largely
corrected through the current and planned rate plan filings.
Regulated Return on Achieved (%) Calendar Most recent
Equity year* granted**
(%)
US Jurisdiction 2015 2014 2013
New York 7.7 8.2 8.8 9.4
Massachusetts 5.8 6.2 7.4 10.1
Rhode Island 10.2 10.4 10.0 9.5
FERC 11.4 11.5 11.8 10.5
---------------------- -------- ------- ------- ------------
Total US* 8.0 8.4 9.0 9.7
* operating company return weighted by average
rate base
** a weighted average by rate base of each
of National Grid's operating companies granted
returns
Another significant year of capital investment
Capital investment to enhance and extend the Company's US
networks increased by around $400m to $2.7bn. This increase was
supported by a continued focus on mains replacement as well as
reliability and reinforcement expenditure in the electricity
companies, mandated programmes and ongoing transmission projects.
Of this investment approximately $1.3bn was in gas distribution,
$0.9bn in electricity distribution and $0.4bn in transmission and
other FERC regulated assets. The business continues to invest in
network resilience by assessing vulnerabilities throughout the
networks and targeting investment where it can provide the most
benefit.
Detailed US Rate Base: Rate Base ($m) as at 31 March
US Jurisdiction 2016 2015 % change
New York 10,482 10,046 4
Massachusetts 4,101 3,652 12
Rhode Island 1,234 1,066 16
FERC 2,444 2,449 -
Total US rate base 18,261 17,213 6
-------------------- ------- ------- ---------
Regulated Financial Position
Overall, US regulated assets increased by 2% to $20.3bn. The
increase was driven by growth in rate base excluding work capital
of 7% reflecting the significant level of capital investment in the
US business offset by depreciation. This growth was partially
offset by lower levels of working capital and increased deferred
tax liabilities.
US Regulated Assets ($bn as at 31 March)
2016 2015 % change
-------------------------------- ------ ----- ---------
Rate Base excl. working
capital (w/c) 17.5 16.3 7
Working capital in Rate
Base 0.8 0.9 (11)
------ ----- ---------
Total Rate Base 18.3 17.2 6
Reg. assets outside Rate
Base excl. w/c 2.1 2.4 (13)
Working capital outside
Rate Base (0.1) 0.4 (125)
-------------------------------- ------ ----- ---------
Total regulated assets outside
Rate Base 2.0 2.8 (29)
--------------------------------- ------ ----- ---------
Total US Regulated Assets 20.3 20.0 2
--------------------------------- ------ ----- ---------
GBPbn as at 31 March
--------------------------------- ------ ----- ---------
2016 2015 % change
--------------------------------- ------ ----- ---------
Total US regulated assets
at actual currency 14.1 13.5 4
--------------------------------- ------ ----- ---------
Total US regulated assets
at constant currency 14.1 13.9 1
--------------------------------- ------ ----- ---------
Financial performance
Headline operating profit increased to GBP1,185m, an increase of
GBP21m at actual exchange rates including an GBP81m benefit from
the stronger dollar.
At constant currency, net regulated revenue (excluding timing)
increased by GBP81m to GBP4,412m, primarily related to increased
revenue allowances from third year of the Niagara Mohawk rate plans
together with capex trackers, Smart Grid recoveries and new
customer growth. Regulated controllable costs decreased by GBP71m.
This was driven in part by lower gas leak response costs and
proactive cost management.
Post-retirement costs increased by GBP15m and bad debts were at
similar levels to last year. Depreciation and amortisation
increased by GBP51m and other costs, including the impact of higher
cost of removal increased by GBP36m.
Adjusting for year-on-year timing differences of GBP105m,
operating profit at constant currency for the year excluding timing
was GBP45m (4%) higher than 2014/15.
The principal components of the movement in operating profit are
shown below.
Year ended 31 March
(GBPm, constant currency) 2016 2015 % change
-------------------------------------- -------- -------- ---------
Net revenue 4,339 4,363 (1)
Regulated controllable operating
costs (1,453) (1,524) 5
Post-retirement costs (96) (81) (19)
Bad debts (132) (127) (4)
Other operating costs and provisions (938) (902) (4)
Depreciation and amortisation (535) (484) (11)
-------------------------------------- -------- -------- ---------
Operating profit 1,185 1,245 (5)
-------------------------------------- -------- -------- ---------
Less: Timing impact (73) 32
-------------------------------------- -------- -------- ---------
Operating profit excluding timing 1,258 1,213 4
-------------------------------------- -------- -------- ---------
Regulatory and other business developments
National Grid continues to work with regulators and other
stakeholders on infrastructure spend to modernise the gas and
electricity networks to provide safe and reliable service to its
customers through mains replacement, localised grid modernisation
and transmission projects.
During 2015/16 the business submitted three full rate plan
filings in Massachusetts and New York, the Company's first full
rate plans in over 6 years for Massachusetts and over 10 years for
the New York utilities. The purpose of these filings is to provide
updated cost recovery and enable an increased level of customer
driven investment. The Company continues to focus on a customer led
service culture, operational progress and efficiency while
strengthening the jurisdictional model to provide enhanced local
capabilities.
The requirements for network investment have been increasing as
customers are requiring a more resilient, modernised, responsive
network with quicker network restorations. Outside of the
traditional rate plans, regulators are pursuing grid modernisation
initiatives that will include elements such as advanced metering,
communications systems, grid control and distributed resources.
These initiatives align well with National Grid's own programmes
for network investment and National Grid continues to play an
active role in the ongoing industry progression.
Future activities and outlook
The 2016/17 outlook for National Grid's US Regulated activities
remains one of expected continued investment and growth. The
Company expects to focus on delivering efficient, customer-led
services that support a safe and reliable network. New rate
decisions expected later in the year are expected to help offset
rising costs and increase returns, although the full year impact of
the rate decisions are not expected to be until the 2017/18
financial year. In the meantime, National Grid expects to manage
costs proactively and maximise revenue opportunities. As a result,
the business expects to deliver a similar level of IFRS operating
profit in 2016/17, excluding any impact from timing.
US Regulated capital investment is expected to increase in
2016/17. Most of the increase will be in the Massachusetts and FERC
jurisdiction while the remaining jurisdictions should have capital
spend similar to this year. The capital investment reflects
continued investment in upgrading the gas and electricity
distribution infrastructure and the start of the Rhode Island LNG
project. As a result, underlying growth in rate base (i.e. before
working capital movements) is expected to remain around 7% in
2016/17.
US JURISDICTION UPDATE
New York
The New York jurisdiction had a year of solid performance across
the utilities. The gas utilities achieved record send-outs on 13-14
February and the gas system performed well under these extreme
conditions and the electric business achieved all its reliability
targets. The $70m Brooklyn Queens Interconnect project completed,
providing the first new gas supply delivery point in New York City
in 40 years and addressing long term supply issues. In addition,
the Company received approval for two demonstration projects in the
upstate region, a solar project in its Western New York service
area and a microgrid solution project in a Northern New York
community. The projects are part of the New York State 'Reforming
the Energy Vision' (REV) programme and will be used to gather
information on the feasibility of future projects.
In New York, overall returns reduced by 50bps to 7.7%,
reflecting in large part increases in operating costs at KEDNY due
to mandated gas safety and compliance work not covered in current
rates and higher operating costs at Niagara Mohawk (NMPC) electric
that also exceeded current rate allowances. KEDLI benefited from an
increase in revenues due to customer growth from its gas expansion
program and its capital expenditure tracking mechanism that went
into effect beginning January 2015. New rates for KEDNY are also
expected to be in place at the start of calendar year 2017 which
will address cost increases that are not covered by current rate
allowances. NMPC plans on filing for new rates to become effective
in 2018 to also address cost increases in excess of current rate
allowances.
Regulated Return on Achieved (%) Calendar Most
Equity year recent
granted
(%)
Regulated Entity 2015 2014 2013
New York
KEDNY 7.1 8.5 9.5 9.4
KEDLI 7.3 6.5 8.8 9.8
NMPC Gas 8.4 8.3 10.3 9.3
NMPC Electric 8.1 9.0 8.0 9.3
--------------------- -------- ------- ------- ---------
Total New York* 7.7 8.2 8.8 9.4
* total return weighted by average rate
base
In January, the New York jurisdiction filed new rate plans for
the KEDNY and KEDLI utilities to address cost increases that are
not covered by current rate allowances. The filings include
requested revenue increases of $245m for KEDNY and $142m for KEDLI
to cover increased operating and investment costs. The filings
remain on track and a decision is expected in December 2016 with
new rates expected to be in place in early calendar year 2017.
In addition to the two full rate filings, the New York
jurisdiction filed a proposal with the New York Public Service
Commission in December 2015 to invest $1.4 billion over a two year
period in its upstate NMPC utility. The Company plans on filing a
full rate plan for both NMPC gas and electric to become effective
in 2018.
On a US GAAP basis, capital investment in the region reached a
record high of $1.3bn focused mostly in the gas companies. Part of
this investment is tracked under the KEDNY capital agreement
allowing for a total spend of $900m for calendar years 2015 and
2016 and the second year of a $400m capital plan for KEDLI. In New
York, the Company started the $100m, Queens Reliability Project,
which will modernise part of the Queens' natural gas system.
Rate Base ($m) as at 31 March
New York Regulated Entity 2016 2015 % change
--------------------------- ------- ------- ---------
KEDNY 2,525 2,387 6
KEDLI 2,176 2,146 1
NMPC Gas 1,160 1,060 9
NMPC Electric 4,621 4,453 4
--------------------------- ------- ------- ---------
Total New York 10,482 10,046 4
--------------------------- ------- ------- ---------
Massachusetts
The Massachusetts jurisdiction's networks performed reliably
throughout the year. Similar to New York, the gas system performed
well, with record gas send-out on 14 February. On the electric
side, the business is in the second year of its two-year Smart
Energy pilot that integrates customer and grid facing technologies
and includes the installation of around 15,000 smart meters as well
as the installation of advanced distribution automation devices and
advanced grid monitoring devices. In addition, the business
submitted a grid modernisation plan to the regulator last year that
includes several alternatives for advanced technologies including
communication, metering and grid system automation.
Overall return on equity for the Massachusetts Jurisdiction was
5.8%, impacted by low returns in the electric business. These
declining returns were partially offset by increased returns in the
gas business, reflecting the partial elimination of regulatory lags
associated with a new forward looking capital tracker on leak prone
pipe replacement.
Most
recent
Regulated Return on Achieved (%) Calendar granted
Equity year (%)
---------
Regulated Entity 2015 2014 2013
Massachusetts
Massachusetts Gas 8.4 7.8 8.5 9.8
Massachusetts Electric 3.4 4.6 6.4 10.4
------------------------ -------- ------- ------- ---------
Total Massachusetts
* 5.8 6.2 7.4 10.1
* total return weighted by average rate
base
In November, the Massachusetts jurisdiction submitted a full
rate plan filing for its electric business, the first since 2009.
The Company requested a revenue increase of $143m to cover
increased operating and investment costs and expects a Commission
decision in September, with new rates beginning in October
2016.
On a US GAAP basis, the Company invested a record high of around
$700m, including expenditure to improve the resiliency of the
electricity distribution network, replace ageing gas pipe and
connect new customers. The majority of the over $200m in gas
business leak prone pipe investment is covered within the approved
capital tracker, allowing for concurrent recovery. Required
customer-driven investment in the electricity distribution network
exceeded the agreed plan by approximately $120m which the Company
expect to be included in the rate base following the outcome of the
ongoing rate filing.
Rate Base ($m) as at 31 March
Massachusetts Regulated 2016 2015 % change
Entity
------------------------- ------ ------ ---------
Massachusetts Gas 1,945 1,747 11
Massachusetts Electric 2,156 1,905 13
------------------------- ------ ------ ---------
Total Massachusetts 4,101 3,652 12
------------------------- ------ ------ ---------
Rhode Island
The Rhode Island jurisdiction continues to perform well across
its electric and gas utilities. All of the gas and electricity
regulatory reliability goals were met, including gas leak response,
and electric interruptions and recovery. National Grid was also
recognised nationally by the Edison Electric Institute for its
storm performance during a severe storm in August which caused
significant damage to the electricity system with 121,000 customer
outages. The Company was able to restore power to 90% of the
customers within 48 hours due to its continued commitment to
improve its storm restoration activities.
The Rhode Island jurisdiction achieved return on equity
outperformance for both its gas and electricity utilities. This
reflects the continued impact of updated rates in 2013 with
additional tracker and true-up mechanisms including the
Infrastructure, Safety and Reliability (ISR) programme that allows
for concurrent cost recovery. The ISR programme covers capital
expenditure and some operating expenses and is updated on an annual
basis.
Most
recent
Regulated Return on Achieved (%) Calendar granted
Equity year (%)
---------
Regulated Entity 2015 2014 2013
Rhode Island
Narragansett Gas 9.8 11.6 9.9 9.5
Narragansett Electric 10.5 9.5 10.1 9.5
--------------------------- -------- ------- ------- ---------
Total Rhode Island* 10.2 10.4 10.0 9.5
* total return weighted by average rate
base
Under the state's ISR programme, which is approved each year,
capital investment in the region was approximately $200m on a US
GAAP basis.
Rate Base ($m) as at 31 March
Rhode Island Regulated Entity 2016 2015 % change
------------------------------- ------ ------ ---------
Narragansett Gas 577 496 16
Narragansett Electric 657 570 15
------------------------------- ------ ------ ---------
Total Rhode Island 1,234 1,066 16
------------------------------- ------ ------ ---------
Federal Energy Regulatory Commission (FERC)
Robust, long-term transmission improvements are more important
than ever for New England, as the business looks ahead to support
an energy future that will include retirement of older power plants
and increased renewables. The FERC jurisdiction continues to
construct and manage federally regulated transmission
infrastructure to meet these needs.
The FERC jurisdiction delivered a regulated return on equity of
11.4%, demonstrating consistently strong performance compared with
the allowed returns. Within this, improved performance by the Long
Island Generation business was partially offset by the reduction of
New England allowed base transmission returns to 10.57% from
11.14%, which came into effect from October 2014.
Most
recent
Regulated Return on Achieved (%) Calendar granted
Equity year (%)
Regulated Entity 2015 2014 2013
FERC
Long Island Generation 12.5 10.5 11.9 9.9
New England Power 11.0 11.6 11.7 10.6
Canadian Interconnector 13.0 13.0 13.0 13.0
Narragansett Electric
Transmission 11.2 12.1 12.0 10.6
------------------------- -------- ------- ------- ---------
Total FERC* 11.4 11.5 11.8 10.5
* total return weighted by average rate
base
In the ongoing New England FERC transmission ROE proceeding, the
FERC administrative law judge released his initial decision in
March 2016 which recommended that the New England transmission ROE
should be reduced from 10.57% to 9.59% for a retroactive 15-month
period (January 2013 to March 2014) but then increased to 10.9% for
a second retroactive 15-month period (August 2014 to October 2015)
and moving forward. FERC will review the recommendation and input
from the other parties to the complaint and issue a final order
expected in late 2016 or early 2017.
This year, the $725m NEEWS project, one of the Company's largest
multi-year transmission projects, finished ahead of its deadline
and under budget. Overall capital investment in the FERC
jurisdiction this year was around $400m, on a US GAAP basis.
The Company also started a new project, with a total estimated
investment of $115m, in Rhode Island to connect the first offshore
wind farm in the US.
Rate Base ($m) as at 31 March
FERC Regulated Entity 2016 2015 % change
--------------------------------------- ------ ------ ---------
Long Island Generation 420 446 (6)
New England Power 1,405 1,380 2
Canadian Interconnector 11 16 (31)
Narragansett Electric Transmission 608 607 -
--------------------------------------- ------ ------ ---------
Total FERC 2,444 2,449 -
--------------------------------------- ------ ------ ---------
The Company continues to pursue competitively tendered FERC
regulated gas and electric projects including the partnership in
Access Northeast which supports gas pipeline expansion in New
England as well as the Green Line Infrastructure Alliance to build
transmission projects in New England.
REVIEW OF OTHER ACTIVITIES
Strong performance in the year
Operating profit by principal 2016 2015 % change
activities (GBPm)
-------------------------------------- ----- ------ ---------
Metering 162 160 1
Grain LNG 72 72 -
French Interconnector 123 103 19
Property 56 28 100
UK corporate and other activities (61) (43) (42)
Sub-total UK operating profit 352 320 10
US corporate and other activities 22 (121) 118
Total operating profit 374 199 88
Total operating profit - constant
currency 374 191 96
-------------------------------------- ----- ------ ---------
Share of post-tax results of joint
ventures and associates 59 46 28
-------------------------------------- ----- ------ ---------
Metering profit steady; cash flow remains strong
The Metering business's operating profit increased slightly by
GBP2m as the displacement of its population of meters, driven in
part by the replacement of National Grid meters by third party
smart meters was more than offset by lower maintenance and
operating costs. Capital investment decreased by GBP7m.
Grain LNG profit steady; two capital investment projects
commissioned in year
National Grid's LNG import terminal on the Isle of Grain
delivered a consistent level of financial performance in 2015/16.
Operating profit was flat year-on-year, with reduced environmental
provisions compared to the prior year offset by higher
depreciation. During 2015/16, Grain LNG commissioned a road tanker
facility which provides LNG to off-grid customers and heavy goods
vehicle operators. In addition, the business completed its first UK
LNG ship reload, becoming the only facility in the UK to offer
small scale ship reloading facilities. The Company continues to
look for additional ways to generate additional revenues from its
investment. Capital investment was lower in the year at GBP25m
(2014/15: GBP43m) due to lower investment in a second cryogenic
line and the road tankering load facility (commissioned in November
2015) as these projects were completed during the year.
Increased power price differentials drive 19% increase in French
Interconnector profit
The 2GW capacity French Interconnector delivered another year of
strong performance, increasing operating profit to GBP123m
(2014/15: GBP103m). This primarily reflected a high power price
differential between France and the UK in the first half of the
year, increasing the revenue generated from the auctions of the
interconnector's capacity.
Significant property sales and good progress in St William
JV
The Property business delivered an operating profit of GBP56m
(2014/15: GBP28m), principally derived from property sales at
Tottenham and Northfleet.
National Grid Property has exchanged contracts on the sale of
the first seven sites to St William Homes, its joint venture with
Berkeley Group plc. These seven sites provide almost 40 acres of
brownfield land to be regenerated with up to 3,500 new homes to be
developed around London and the South East of England. Further
conditions remain to be met prior to site sale completion,
including gasholder demolition, obtaining vacant possession, site
remediation, operational plant relocation and the securing of
planning consent. As a result, no profits on sale have been
recognised to date. Once completion takes place, National Grid's
Property business would expect to recognise half of any uplift of
the transfer price compared to the book value and, presently, the
Company expects to see the first benefit to operating profit from
the first sale completion in 2016/17.
Increased level of business development activity
National Grid continued to pursue a series of attractive
investment opportunities in both the UK and Northeast US in the
year. Requiring investment over the latter part of this decade,
these investments would provide environmental benefits and enhance
the security of supply for customers, and would be expected to
deliver cash flow benefits in future years.
Two new UK interconnectors under construction, two more close to
investment decision
National Grid commenced construction on two new subsea
electricity interconnectors in the year. The Company expects to
invest around EUR350m in the 1GW Nemo Link between Great Britain
and Belgium and around EUR1bn in the 1.4GW North Sea Link between
Great Britain and Norway. National Grid will have a 50% stake in
each project and both will be governed by their own cap and floor
regulatory regimes. The Company expects to have completed
development of both of these projects by early next decade.
National Grid also made progress on its plans for potential new
interconnection projects to France (IFA2) and Denmark (Viking) and
continues to consider an interconnection project to Iceland. It is
currently expected that IFA2 will progress to a final investment
decision in late 2016 whilst the decision on the Viking project is
expected to follow in early 2018.
US partnership projects to enhance Northeast transmission
infrastructure continue to progress
As part of the Green Line Alliance, the partners submitted the
Vermont Green Line project in January 2016 in response to New
England's Clean Energy Request for Proposals which is a competitive
process. This project is a 400MW buried HVDC transmission line that
will deliver wind and hydropower from Plattsburg, NY to load
centres in New England.
Further progress was made in the $3bn Spectra Access Northeast
pipeline project in which National Grid has a 20% interest. In
February 2016, several New England electric distribution companies
filed precedent agreements with the state regulators for their
review and approval. The approval of these agreements is needed for
cost recovery associated with this pipeline.
National Grid made further progress with NY Transco, a project
between affiliates of the publicly listed New York transmission
owners to modernise the transmission system in which National Grid
has a 28% interest. In March 2016, FERC approved 3 of the 5
submitted projects with a 10% ROE and 53% equity ratio. The
cumulative total cost of the 3 projects is approximately $230m.
Other projects expect to be added to Transco after a competitive
FERC Order 1000 process and award by New York Independent System
Operator (NYISO). This includes National Grid's Edic to Pleasant
Valley line in upstate New York.
On 13 October, National Grid joined as a limited partner in
Energy Impact Partners Fund LLC (EIP) which will focus on
investments to optimise energy consumption and improve sustainable
energy generation. National Grid believes that working with EIP
will enable the Company to benefit from technological innovation
and will help the Company to identify and effectively plan for the
changes to its existing business that will accompany new
technologies.
Other costs down reflecting Iroquois exchange and completion of
US system upgrade
Other costs, including business development costs and UK and US
corporate costs were GBP39m, down GBP133m from 2014/15 at constant
currency primarily due to the non-recurrence of US financial system
implementation costs and the GBP49m gain on the exchange of
National Grid's interest in the Iroquois Pipeline for shares in
Dominion Midstream Partners, LP.
Capital investment
(GBPm) - actual currency 2016 2015 % change
--------------------------------- ----- ----- ---------
Metering 39 46 (15)
Grain LNG 25 43 (42)
French Interconnector 5 1 400
Property 15 2 650
Other UK 49 16 206
Other US 85 105 19
Capital expenditure excluding
joint ventures 218 213 2
Investment in joint ventures 53 -
(JVs)* -
Capital investment including
investment in JVs 271 213 27
--------------------------------- ----- ----- ---------
*excludes GBP63m (2014: GBPnil) equity contribution to St
William property joint venture
Other selected financial information Year ended 31 March
(GBPm) - constant currency 2016 2015 % change
-------------------------------------- ------ ------ ---------
Operating profit 374 191 96
Depreciation (213) (199) (7)
Depreciation (actual exchange
rates) (213) (196) (9)
-------------------------------------- ------ ------ ---------
JOINT VENTURES AND ASSOCIATES
Share of post-tax results by principal 2016 2015 % change
activities (GBPm)
---------------------------------------- ----- ----- ---------
BritNed 50 31 61
Millennium 11 9 22
Iroquois 3 7 (57)
Other (5) (1)
Share of post-tax results of joint
ventures and associates 59 46 28
---------------------------------------- ----- ----- ---------
Joint ventures and associates in the Group consist principally
of interests in an electricity transmission interconnector and gas
pipelines. At the start of the year these included a 50% interest
in the 1GW BritNed electricity interconnector between the
Netherlands and England, a 26% interest in the Millennium natural
gas pipeline in New York State and a 20% interest in the Iroquois
gas pipeline between Long Island and the Canadian border. In
September 2015, National Grid exchanged its equity interest in the
Iroquois gas pipeline for a $225.4m stake in Dominion Midstream
Partners, LP. This took the form of approximately 6.8 million
Dominion Midstream common units. Dominion Midstream has existing
interests in the Cove Point LNG facility and the Carolina Gas
Transmission Company and is expected to grow further through future
contributions of assets.
National Grid's share of post-tax results of joint ventures for
the year was GBP59m, an increase of GBP13m compared with 2014/15.
This reflected a significant increase in the contribution from the
BritNed Interconnector reflecting increased power price
differentials between the Netherlands and the UK.
APPIX: BASIS OF PRESENTATION, DEFINITIONS AND METRIC
CALCULATIONS
BASIS OF PRESENTATION
Adjusted and Statutory Results
Unless otherwise stated, all financial commentaries in this
release are given on an adjusted basis at actual exchange rates.
Prior year earnings per share figures are restated to reflect the
impact of additional shares issued as scrip dividends (refer to
note 6 on page 56).
'Adjusted' results are a key financial performance measure used
by National Grid, being the results for continuing operations
before exceptional items and remeasurements. Remeasurements
comprise gains or losses recorded in the income statement arising
from changes in the fair value of commodity contracts and of
derivative financial instruments to the extent that hedge
accounting is not achieved or is not fully effective. Commentary
provided in respect of results after exceptional items and
remeasurements is described as 'statutory'. Further details are
provided in note 3 on page 53. A reconciliation of business
performance to statutory results is provided in the consolidated
income statement on page 45.
DEFINITIONS
Constant currency
'Constant currency basis' refers to the reporting of the actual
results against the results for the same period last year which, in
respect of any US$ currency denominated activity, have been
translated using the average US$ exchange rate for the year ended
31 March 2016, which was $1.47 to GBP1.00. The average rate for the
year ended 31 March 2015, was $1.58 to GBP1.00. Assets and
liabilities as at 31 March 2015 have been retranslated at the
closing rate at 31 March 2016 of $1.44 to GBP1.00. The closing rate
for the balance sheet date 31 March 2015 was $1.49 to GBP1.00.
Earnings per share
Prior year earnings per share figures are restated to reflect
the impact of additional shares issued as scrip dividends.
Other regulatory assets and liabilities
The revenues that National Grid's UK regulated businesses
targets to collect in any year are based on the regulator's
forecasts for that year. Under the new UK price control
arrangements, revenues will be adjusted in future years to take
account of actual levels of collected revenue, costs and outputs
delivered when they differ from those regulatory forecasts. This
includes adjustments designed to share performance efficiencies
with customers. National Grid's estimate of these future revenue
adjustments are represented in the calculation of regulated
financial performance and regulated financial position as "other
regulatory assets and liabilities". These include:
-- Revenues associated with sharing under the totex incentive mechanism
-- Adjustments for changes to customer output requirements on totex allowances
-- True ups for pass through costs, actual RPI and pensions deficit repair costs
-- Differences between allowed/targeted and recovered revenues
-- Differences between revenues collected and earned under other incentive mechanisms
In addition, other regulatory assets and liabilities include
balances relating to "phasing adjustments". Where expenditure
allowances have been awarded in one year but are associated with
expenditure that is now expected to be incurred in a different year
National Grid applies "phasing adjustments" to better match the
allowances to the year of expenditure. In such cases, the revenues
associated with these re-phased allowances are included in other
regulated assets and liabilities and reversed when the associated
expenditure is incurred.
In the US, other regulatory assets and liabilities include
regulatory assets and liabilities which are not included in the
definition of rate base within that jurisdiction, including working
capital where appropriate.
Performance RAV
UK performance efficiencies are in part remunerated by the
creation of additional RAV which is expected to result in future
earnings under regulatory arrangements. This is an addition to RAV
above and beyond that associated with the remuneration of actual
expenditure and is termed "performance RAV".
Regulated asset base
'Regulated asset base' refers to assets included in regulated
asset value and rate base within our UK and US regulated
businesses, respectively.
Timing
Under the Group's regulatory frameworks, the majority of the
revenues that National Grid is allowed to collect each year are
governed by a regulatory price control or rate plan. If a company
collects more than this allowed level of revenue, the balance must
be returned to customers in subsequent years, and if it collects
less than this level of revenue it may recover the balance from
customers in subsequent years. These variances between allowed and
collected revenues give rise to "over and under recoveries". In
addition, a number of costs in both the UK and the US are
pass-through costs (including substantial commodity and energy
efficiency costs in the US), and are fully recoverable from
customers. Any timing differences between costs of this type being
incurred and their recovery through revenues are also included in
over and under-recoveries. In the UK, timing differences also
include an estimation of the difference between revenues earned
under revenue incentive mechanisms and any associated revenues
collected. UK timing balances and movements exclude any adjustments
associated with changes to controllable cost (totex) allowances or
adjustments under the totex incentive mechanism.
Identification of these timing differences enables a better
comparison of performance from one period to another. Opening
balances of under and over-recoveries have been restated where
appropriate to correspond with regulatory filings and
calculations.
Totex
Under the UK RIIO regulatory arrangements the Company is
incentivised to deliver efficiencies against cost targets set by
the regulator. In total, these targets are set in terms of a
regulatory definition of combined total operating and capital
expenditure, also termed "totex". The definition of totex differs
from the total combined regulated controllable operating costs and
regulated capital expenditure as reported in this statement
according to IFRS accounting principles. Key differences are
capitalised interest, capital contributions, exceptional costs,
costs covered by other regulatory arrangements and unregulated
costs.
METRIC CALCULATIONS
Regulated financial 2015/16 2014/15
performance (GBPm)
-----------------------------------
UKET UKGT UKGD US UKET UKGT UKGD US
REG REG
---------------------------------- ------ ------ ------ ------ ------ ------ ------ ------
Statutory operating
profit 1,173 486 878 1,196 1,237 437 826 1,081
Exceptional items/remeasurements - - - (11) - - - 83
Adjusted operating
profit 1,173 486 878 1,185 1,237 437 826 1,164
Depreciation and
amortisation 390 178 298 535 376 172 286 452
---------------------------------- ------ ------ ------ ------ ------ ------ ------ ------
EBITDA 1,563 664 1,176 1,720 1,613 609 1,112 1,616
Regulatory treatment
adjustments
Movement in UK
regulatory "IOUs" (147) (80) (35) - (130) (16) (28) -
US timing - - - 73 - - - (30)
Performance RAV
created 80 (5) 40 - 77 (7) 41 -
Pensions deficit
contributions (54) (77) (13) (144) (48) (49) (5) (92)
3% RAV Indexation 339 166 255 - 326 166 255 -
UK deferred taxation
adjustment 80 45 (34) - 88 85 60 -
Regulatory depreciation (758) (196) (402) (535) (728) (194) (434) (452)
Fast/slow money
adjustment 92 18 (168) - 34 54 (182) -
Regulated financial
performance 1,195 535 819 1,114 1,232 648 819 1042
----------------------------------- ------ ------ ------ ------ ------ ------ ------ ------
Group RoE calculation 2016 2015 2014
(year ended 31 March)
--------------------------------------- --------- --------- ---------
Regulated financial performance 3,663 3,741 3,468
Operating profit of other
activities 374 199 131
Group financial performance 4,037 3,940 3,599
--------------------------------------- --------- --------- ---------
Share of post-tax results
of joint ventures 59 46 28
Non-controlling interests (3) 8 12
Adjusted group interest
charge (922) (945) (1,055)
Group tax charge (753) (695) (581)
Tax on adjustments 4 (14) 73
---- --------------------------------- --------- --------- ---------
Group financial performance
after interest and tax 2,422 2,340 2,076
--------------------------------------- --------- --------- ---------
Opening rate base/RAV 36,998 35,237 33,128
Opening NBV of non-regulated
businesses 1,213 1,341 1,185
Joint Ventures 319 358 371
Opening Goodwill 5,182 4,856 5,028
--------------------------------------- --------- --------- ---------
Opening capital employed 43,712 41,792 39,712
Opening Net Debt (24,024) (21,974) (21,429)
--------------------------------------- --------- --------- ---------
Opening Equity 19,688 19,818 18,283
--------------------------------------- --------- --------- ---------
Return on Equity 12.3% 11.8% 11.4%
--------------------------------------- --------- --------- ---------
Regulated financial position 2015/16
(GBPm - constant currency)
---------------------------------------------------
UKET UKGT UKGD US REG
-------------------------------------------------- ------- ------ ------ -------
Opening RAV/rate base* 11,285 5,525 8,513 11,974
In year movement 545 69 163 729
Closing RAV/rate base 11,830 5,594 8,676 12,703
Opening other regulatory assets and liabilities* 49 157 (89) 1,951
In year movement (147) (80) (35) (515)
Closing other regulatory assets and liabilities (98) 77 (124) 1,436
Closing regulated financial position 11,732 5,671 8,552 14,139
--------------------------------------------------- ------- ------ ------ -------
Total 2015/16 40,094
-------------------------------------------------- ----------------------- -------
*Adjusted to correspond with 2014/15 regulatory filings and
calculations
DESCRIPTION OF METRIC CALCULATIONS
Regulated financial performance
The regulated financial performance calculation provides a
measure of the performance of the regulated operations before the
impacts of interest and taxation. It makes adjustments to reported
operating profit to reflect the impact of the businesses'
regulatory arrangements when presenting financial performance. It
reflects both the value realised on behalf of providers of capital
in the year and also an estimation of net value created, but not
yet realised, that is reasonably expected to be realised or
returned to customers in future periods under the Group's
regulatory arrangements.
The principal adjustments from reported operating profit to
regulated financial performance are:
Adjustment Calculation
US timing & movement
in UK regulatory "IOUs" US: As per US Timing.
Revenue related to performance UK: Movement in other
in one year may be recovered regulated assets and liabilities.
in later years. Revenue
may be recovered in one
year but be required
to be returned to customers
in future years.
Performance RAV
UK performance efficiencies In year totex outperformance
are in part remunerated multiplied by the appropriate
by the creation of additional regulatory capitalisation
RAV which is expected ratio and multiplied by
to result in future earnings the retained company incentive
under regulatory arrangements. sharing ratio.
Pension adjustment
Cash payments against UK: cash payments against
pension deficits in the the regulatory proportion
UK are recoverable under of pension deficits in
regulatory contracts. the UK regulated business.
In US Regulated operations, US: the difference between
US GAAP pension charges IFRS and US GAAP pension
are generally recoverable charges.
through rates. Revenue
recoveries are recognised
under IFRS but payments
are not charged against
IFRS operating profits
in the year.
3% RAV Indexation
Future UK revenues expected UK RAV multiplied by 3%
to be set using an asset (long-run RPI inflation
base adjusted for inflation. assumption).
UK deferred taxation
adjustment The difference between
Future UK revenues are 1. IFRS EBITDA less other
expected to recover cash regulatory adjustments
taxation cost including and 2. IFRS EBITDA less
the unwinding of deferred other regulatory adjustments
taxation balances created less current taxation
in the current year. (adjusted for interest
tax shield) then grossed
up at full UK statutory
tax rate.
Regulatory depreciation
US and UK regulated revenues Regulatory depreciation.
include allowance for
a return of regulatory
capital in accordance
with regulatory assumed
asset lives. This return
does not form part of
regulatory profit.
Fast/slow money adjustment
The regulatory remuneration Difference between IFRS
of costs incurred is classification of costs
split between in year as operating costs or
revenue allowances and fixed asset additions
the creation of additional and the regulatory classification.
RAV. This does not align
with the classification
of costs as operating
costs and fixed asset
additions under IFRS
accounting principles.
Group RoE Calculation
The Group Return on Equity (RoE) calculation provides a measure
of the performance of the whole Group compared with the amounts
invested by the Group in assets attributable to equity
shareholders.
Calculation: Regulatory financial performance, including a
long-run assumption of 3.0% RPI inflation, less adjusted interest
and adjusted taxation divided by equity investment in assets
-- Adjusted interest removes interest on pensions, capitalised
interest and release of provisions Adjusted taxation adjusts the
Group taxation charge for differences between IFRS profit before
tax and regulated financial performance less adjusted interest
-- Equity investment in assets is calculated as the total
opening UK regulatory asset value, the total opening US rate base
plus goodwill plus opening net book value of joint ventures and
other activities; minus opening net debt as reported under IFRS
US Regulated Return on Equity (nominal)
US Regulated Return on Equity is a measure of how a business is
performing operationally against the assumptions used by the
regulator.
This US operational return measure is calculated using the
assumption that the businesses are financed in line with the
regulatory adjudicated capital structure.
This is a post-tax US GAAP metric as calculated annually
(calendar year to 31 December).
Calculation: Regulated net income divided by equity rate
base:
-- Regulated net income calculated as US GAAP operating profit
less interest on the adjudicated debt portion of the rate base
(calculated at the actual rate on long term debt, adjusted where
the proportion of long term debt in the capital structure is
materially different from the assumed regulatory proportion) less
tax at the adjudicated rate
-- Regulated net income is adjusted for earned savings in New
York and Narragansett Electric and for certain material specified
items
-- Equity rate base is the average rate base for the calendar
year as reported to the Group's regulators or, where a reported
rate base is not available, an estimate based on rate base
calculations used in previous rate filings multiplied by the
adjudicated equity portion in the regulatory capital structure
UK Regulated Return on Equity (nominal)
UK operational return is a measure of how a business is
performing operationally against the assumptions used by the
regulator.
These returns are calculated using the assumption that the
businesses are financed in line with the regulatory adjudicated
capital structure, at the cost of debt assumed by the regulator and
that RPI is equal to a long-run assumption of 3.0%.
Calculation: Base allowed Return on Equity plus or minus the
following items
-- Additional allowed revenues/profits earned in the year from
incentive schemes, less associated corporation tax charge;
-- Totex outperformance multiplied by the company sharing factor set by the regulator; and
-- Revenues (net of associated depreciation and base allowed
asset return) allowed in the year associated with incentive
performance earned under previous price controls but not yet fully
recovered, less associated corporation tax charge (excluding
logging up or pensions recovery)
Divided by average equity RAV in line with regulatory assumed
capital structure.
PROVISIONAL FINANCIAL TIMETABLE
19 May 2016 2015/16 preliminary results
2 June 2016 Ordinary shares go ex-dividend
3 June 2016 Record date for 2015/16 final dividend
9 June 2016 Scrip reference price announced
20 June 2016 Preliminary Scrip election date for 2015/16 final dividend
25 July 2016 Annual General Meeting, ICC, Birmingham
10 August 2016 2015/16 final dividend paid to qualifying shareholders
10 November 2016 2016/17 half year results
24 November 2016 Ordinary shares go ex-dividend
25 November 2016 Record date for 2016/17 interim dividend
1 December 2016 Scrip reference price announced
9 December 2016 Scrip election date for 2016/17 interim dividend
11 January 2017 2016/17 interim dividend paid to qualifying shareholders
May 2017 2016/17 preliminary results
American Depositary Receipt (ADR) Deposit Agreement
The Company amended the deposit agreement under which the ADRs
representing its ordinary shares are issued to allow a fee of up to
$0.05 per ADR to be charged for any cash distribution made to ADR
holders, including cash dividends. ADR holders who receive cash in
relation to the 2015/16 final dividend will be charged a fee of
$0.02 per ADR by the Depositary prior to distribution of the cash
dividend.
CAUTIONARY STATEMENT
This announcement contains certain statements that are neither
reported financial results nor other historical information. These
statements are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. These
statements include information with respect to National Grid's
financial condition, its results of operations and businesses,
strategy, plans and objectives. Words such as 'anticipates',
'expects', 'should', 'intends', 'plans', 'believes', 'outlook',
'seeks', 'estimates', 'targets', 'may', 'will', 'continue',
'project' and similar expressions, as well as statements in the
future tense, identify forward-looking statements. These
forward-looking statements are not guarantees of National Grid's
future performance and are subject to assumptions, risks and
uncertainties that could cause actual future results to differ
materially from those expressed in or implied by such
forward-looking statements. Many of these assumptions, risks and
uncertainties relate to factors that are beyond National Grid's
ability to control or estimate precisely, such as changes in laws
or regulations, announcements from and decisions by governmental
bodies or regulators (including the timeliness of consents for
construction projects); the timing of construction and delivery by
third parties of new generation projects requiring connection;
breaches of, or changes in, environmental, climate change and
health and safety laws or regulations, including breaches or other
incidents arising from the potentially harmful nature of its
activities; network failure or interruption, the inability to carry
out critical non network operations and damage to infrastructure,
due to adverse weather conditions including the impact of major
storms as well as the results of climate change, due to
counterparties being unable to deliver physical commodities, or due
to the failure of or unauthorised access to or deliberate breaches
of National Grid's IT systems and supporting technology;
performance against regulatory targets and standards and against
National Grid's peers with the aim of delivering stakeholder
expectations regarding costs and efficiency savings, including
those related to investment programmes and internal transformation
and remediation plans; and customers and counterparties (including
financial institutions) failing to perform their obligations to the
Company. Other factors that could cause actual results to differ
materially from those described in this announcement include
fluctuations in exchange rates, interest rates and commodity price
indices; restrictions and conditions (including filing
requirements) in National Grid's borrowing and debt arrangements,
funding costs and access to financing; regulatory requirements for
the Company to maintain financial resources in certain parts of its
business and restrictions on some subsidiaries' transactions such
as paying dividends, lending or levying charges; inflation or
deflation; the delayed timing of recoveries and payments in
National Grid's regulated businesses and whether aspects of its
activities are contestable; the funding requirements and
performance of National Grid's pension schemes and other
post-retirement benefit schemes; the failure to attract, train or
retain employees with the necessary competencies, including
leadership skills, and any significant disputes arising with the
National Grid's employees or the breach of laws or regulations by
its employees; 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
joint ventures. For further details regarding these and other
assumptions, risks and uncertainties that may impact National Grid,
please read the Strategic Report section and the 'Risk factors' on
pages 173 to 176 of National Grid's most recent Annual Report and
Accounts, as updated by National Grid's unaudited half-year
financial information for the six months ended 30 September 2015
published on 10 November 2015. In addition, new factors emerge from
time to time and National Grid cannot assess the potential impact
of any such factor on its activities or the extent to which any
factor, or combination of factors, may cause actual future results
to differ materially from those contained in any forward-looking
statement. Except as may be required by law or regulation, the
Company undertakes no obligation to update any of its
forward-looking statements, which speak only as of the date of this
announcement.
Consolidated income statement
for the years ended 31 March
2016 2015
Notes GBPm GBPm
----------------------------------------------- ----- -------- --------
Revenue 2(a) 15,115 15,201
Operating costs (11,030) (11,421)
Operating profit
Before exceptional items and remeasurements 2(b) 4,096 3,863
Exceptional items and remeasurements 3 (11) (83)
Total operating profit 2(b) 4,085 3,780
Finance income 4 22 36
Finance costs
Before exceptional items and remeasurements 4 (1,035) (1,069)
Exceptional items and remeasurements 3 (99) (165)
Total finance costs 4 (1,134) (1,234)
Share of post-tax results of joint
ventures and associates 59 46
Profit before tax
Before exceptional items and remeasurements 2(b) 3,142 2,876
Exceptional items and remeasurements 3 (110) (248)
Total profit before tax 2(b) 3,032 2,628
Tax
Before exceptional items and remeasurements 5 (753) (695)
Exceptional items and remeasurements 3 315 78
Total tax 5 (438) (617)
Profit after tax
Before exceptional items and remeasurements 2,389 2,181
Exceptional items and remeasurements 3 205 (170)
Profit for the year 2,594 2,011
------------------------------------------------ ----- -------- --------
Attributable to:
Equity shareholders of the parent 2,591 2,019
Non-controlling interests 3 (8)
2,594 2,011
----------------------------------------------- ----- -------- --------
Earnings per share(1)
Basic 6(a) 69.0p 53.2p
Diluted 6(b) 68.7p 52.9p
1. Comparative amounts have been restated to reflect the impact
of additional shares issued as scrip dividends.
Consolidated statement of comprehensive income
for the years ended 31 March
2016 2015
GBPm GBPm
---------------------------------------------- ----- -----
Profit for the year 2,594 2,011
Other comprehensive income/(loss)
Items that will never be reclassified
to profit or loss:
Remeasurements of net retirement benefit
obligations 539 (771)
Tax on items that will never be reclassified
to profit or loss (125) 299
------------------------------------------------ ----- -----
Total items that will never be reclassified
to profit or loss 414 (472)
------------------------------------------------ ----- -----
Items that may be reclassified subsequently
to profit or loss:
Exchange adjustments 69 175
Net gains/(losses) in respect of cash
flow hedges 50 (154)
Transferred to profit or loss in respect
of cash flow hedges 29 13
Net gains on available-for-sale investments 43 41
Transferred to profit or loss on sale
of available-for-sale investments - (8)
Tax on items that may be reclassified
subsequently to profit or loss (32) 11
------------------------------------------------ ----- -----
Total items that may be reclassified
subsequently to profit or loss 159 78
------------------------------------------------ ----- -----
Other comprehensive income/(loss) for
the year, net of tax 573 (394)
------------------------------------------------ ----- -----
Total comprehensive income for the
year 3,167 1,617
------------------------------------------------ ----- -----
Attributable to:
Equity shareholders of the parent 3,164 1,624
Non-controlling interests 3 (7)
3,167 1,617
---------------------------------------------- ----- -----
Consolidated statement of
changes in Share Other Total
equity Share premium Retained equity share-holders' Non-controlling Total
for the years ended 31 March capital account earnings reserves equity interests equity
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- -------- -------- --------- --------- --------------- --------------- -------
At 1 April 2014 439 1,336 14,895 (4,759) 11,911 8 11,919
Profit for the year - - 2,019 - 2,019 (8) 2,011
Total other comprehensive
(loss)/income
for the year - - (472) 77 (395) 1 (394)
------------------------------- -------- -------- --------- --------- --------------- --------------- -------
Total comprehensive
income/(loss)
for the year - - 1,547 77 1,624 (7) 1,617
Equity dividends 7 - - (1,271) - (1,271) - (1,271)
Scrip dividend related share
issue(1) 4 (5) - - (1) - (1)
Purchase of treasury shares - - (338) - (338) - (338)
Issue of treasury shares - - 23 - 23 - 23
Purchase of own shares - - (7) - (7) - (7)
Other movements in
non-controlling
interests - - (3) - (3) 11 8
Share-based payment - - 20 - 20 - 20
Tax on share-based payment - - 4 - 4 - 4
------------------------------ -------- -------- --------- --------- --------------- --------------- -------
At 31 March 2015 443 1,331 14,870 (4,682) 11,962 12 11,974
Profit for the year - - 2,591 - 2,591 3 2,594
Total other comprehensive
income for
the year - - 414 159 573 - 573
------------------------------- -------- -------- --------- --------- --------------- --------------- -------
Total comprehensive income for
the year - - 3,005 159 3,164 3 3,167
Equity dividends 7 - - (1,337) - (1,337) - (1,337)
Scrip dividend related share
issue(1) 4 (5) - - (1) - (1)
Purchase of treasury shares - - (267) - (267) - (267)
Issue of treasury shares - - 16 - 16 - 16
Purchase of own shares - - (6) - (6) - (6)
Other movements in
non-controlling
interests - - - - - (5) (5)
Share-based payment - - 22 - 22 - 22
Tax on share-based payment - - 2 - 2 - 2
------------------------------ -------- -------- --------- --------- --------------- --------------- -------
At 31 March 2016 447 1,326 16,305 (4,523) 13,555 10 13,565
------------------------------ -------- -------- --------- --------- --------------- --------------- -------
1. Included within share premium account are costs associated
with scrip dividends.
Consolidated statement of financial position
as at 31 March
2016 2015
Notes GBPm GBPm
----------------------------------- ----- -------- --------
Non-current assets
Goodwill 5,315 5,145
Other intangible assets 887 802
Property, plant and equipment 43,364 40,723
Other non-current assets 82 80
Pension assets 410 121
Financial and other investments 482 330
Investments in joint ventures and
associates 397 318
Derivative financial assets 9 1,685 1,539
------------------------------------ -----
Total non-current assets 52,622 49,058
------------------------------------ ----- -------- --------
Current assets
Inventories and current intangible
assets 437 340
Trade and other receivables 2,472 2,836
Financial and other investments 9 2,998 2,559
Derivative financial assets 9 278 177
Cash and cash equivalents 9 127 119
------------------------------------ ----- -------- --------
Total current assets 6,312 6,031
------------------------------------ ----- -------- --------
Total assets 58,934 55,089
------------------------------------ ----- -------- --------
Current liabilities
Borrowings 9 (3,611) (3,028)
Derivative financial liabilities 9 (337) (635)
Trade and other payables (3,285) (3,292)
Current tax liabilities (252) (184)
Provisions (236) (235)
------------------------------------ ----- -------- --------
Total current liabilities (7,721) (7,374)
------------------------------------ ----- -------- --------
Non-current liabilities
Borrowings 9 (24,733) (22,882)
Derivative financial liabilities 9 (1,732) (1,764)
Other non-current liabilities (2,071) (1,919)
Deferred tax liabilities (4,634) (4,297)
Pensions and other post-retirement
benefit obligations (2,995) (3,379)
Provisions (1,483) (1,500)
------------------------------------ ----- -------- --------
Total non-current liabilities (37,648) (35,741)
------------------------------------ ----- -------- --------
Total liabilities (45,369) (43,115)
------------------------------------ ----- -------- --------
Net assets 13,565 11,974
------------------------------------ ----- -------- --------
Equity
Share capital 447 443
Share premium account 1,326 1,331
Retained earnings 16,305 14,870
Other equity reserves (4,523) (4,682)
------------------------------------ ----- -------- --------
Shareholders' equity 13,555 11,962
Non-controlling interests 10 12
------------------------------------ ----- -------- --------
Total equity 13,565 11,974
------------------------------------ ----- -------- --------
Consolidated cash flow statement
for the years ended 31 March
2016 2015
Notes GBPm GBPm
--------------------------------------- ----- ------- -------
Cash flows from operating activities
Total operating profit 2(b) 4,085 3,780
Adjustments for:
Exceptional items and remeasurements 3 11 83
Depreciation, amortisation and
impairment 1,614 1,494
Share-based payment charge 22 20
Gain on exchange of associate
for available-for-sale investment (49) -
Changes in working capital 456 301
Changes in provisions (90) (41)
Changes in pensions and other
post-retirement benefit obligations (327) (270)
Cash flows relating to exceptional
items (62) (17)
Cash generated from operations 5,660 5,350
Tax paid (292) (343)
---------------------------------------- -----
Net cash inflow from operating
activities 5,368 5,007
---------------------------------------- ----- ------- -------
Cash flows from investing activities
Acquisition of investments (116) -
Purchases of intangible assets (220) (207)
Purchases of property, plant
and equipment (3,408) (3,076)
Disposals of property, plant
and equipment 4 9
Dividends received from joint
ventures 72 79
Interest received 23 37
Net movements in short-term
financial investments (391) 1,157
---------------------------------------- ----- ------- -------
Net cash flow used in investing
activities (4,036) (2,001)
---------------------------------------- ----- ------- -------
Cash flows from financing activities
Purchase of treasury shares (267) (338)
Proceeds from issue of treasury
shares 16 23
Purchase of own shares (6) (7)
Proceeds received from loans 2,726 1,534
Repayments of loans (896) (2,839)
Net movements in short-term
borrowings and derivatives (730) 623
Interest paid (834) (826)
Exceptional finance costs on
the redemption of debt - (152)
Dividends paid to shareholders (1,337) (1,271)
---------------------------------------- ----- ------- -------
Net cash flow used in financing
activities (1,328) (3,253)
---------------------------------------- ----- ------- -------
Net increase/(decrease) in cash
and cash equivalents 8 4 (247)
Exchange movements 4 24
Net cash and cash equivalents
at start of year 116 339
---------------------------------------- ----- ------- -------
Net cash and cash equivalents
at end of year(1) 124 116
---------------------------------------- ----- ------- -------
1. Net of bank overdrafts of GBP3m (2015: GBP3m).
Notes
1. Basis of preparation and new accounting standards,
interpretations and amendments
The full year financial information contained in this
announcement, which does not constitute statutory accounts as
defined in Section 434 of the Companies Act 2006, has been derived
from the statutory accounts for the year ended 31 March 2016, which
will be filed with the Registrar of Companies in due course.
Statutory accounts for the year ended 31 March 2015 have been filed
with the Registrar of Companies. The auditors' report on each of
these statutory accounts was unqualified and did not contain a
statement under Section 498 of the Companies Act 2006.
The full year financial information has been prepared in
accordance with the accounting policies applicable for the year
ended 31 March 2016 which are consistent with those applied in the
preparation of our accounts for the year ended 31 March 2015.
The following standards, interpretations and amendments, issued
by the IASB and by the IFRS Interpretations Committee (IFRIC), are
effective for the year ended 31 March 2016. None of the
pronouncements had a material impact on the Company's consolidated
results or assets and liabilities for the year ended 31 March
2016.
-- Amendment to IAS 19 'Defined Benefit Plans: Employee Contributions';
-- Annual Improvements to IFRSs 2010-2012 Cycle;
-- Annual Improvements to IFRSs 2011-2013 Cycle.
Date of approval
This announcement was approved by the Board of Directors on 18
May 2016.
2. Segmental analysis
We present revenue and the results of the business analysed by
operating segment, based on the information the Board of Directors
uses internally for the purposes of evaluating the performance of
operating segments and determining resource allocation between
operating segments. The Board is National Grid's chief operating
decision-making body (as defined by IFRS 8 'Operating segments')
and assesses the performance of operations principally on the basis
of operating profit before exceptional items and remeasurements
(see note 3).
There have been no changes to our reporting structure during the
year ended 31 March 2016.
The following table describes the main activities for each
operating segment:
UK Electricity Transmission High voltage electricity transmission
networks in Great Britain.
---------------------------- ---------------------------------------
UK Gas Transmission The gas transmission network in
Great Britain and UK liquefied
natural gas (LNG) storage activities.
---------------------------- ---------------------------------------
UK Gas Distribution Four of the eight regional networks
of Great Britain's gas distribution
system.
---------------------------- ---------------------------------------
US Regulated Gas distribution networks, electricity
distribution networks and high
voltage electricity transmission
networks in New York and New England
and electricity generation facilities
in New York.
---------------------------- ---------------------------------------
Other activities primarily relate to non-regulated businesses
and other commercial operations not included within the above
segments, including: UK gas metering activities; the Great
Britain-France Interconnector; UK property management; a UK LNG
import terminal (National Grid Grain LNG Limited); US LNG
operations; US unregulated transmission pipelines; together with
corporate activities.
Sales between operating segments are priced considering the
regulatory and legal requirements to which the businesses are
subject. The analysis of revenue by geographical area is on the
basis of destination. There are no material sales between the UK
and US geographical areas.
(a) Revenue
2016 2015
GBPm GBPm
------------------------------ ------ ------
Operating segments:
UK Electricity Transmission 3,977 3,754
UK Gas Transmission 1,047 1,022
UK Gas Distribution 1,918 1,867
US Regulated 7,493 7,986
Other activities 876 762
Sales between segments (196) (190)
------------------------------- ------ ------
15,115 15,201
------------------------------ ------ ------
Geographical areas:
UK 7,522 7,191
US 7,593 8,010
------------------------------- ------ ------
15,115 15,201
------------------------------ ------ ------
2. Segmental analysis continued
(b) Operating profit
Before exceptional After exceptional
items and remeasurements items and remeasurements
--------------------------- ---------------------------
2016 2015 2016 2015
GBPm GBPm GBPm GBPm
------------------------------------ ------------- ------------ ------------- ------------
Operating segments:
UK Electricity Transmission 1,173 1,237 1,173 1,237
UK Gas Transmission 486 437 486 437
UK Gas Distribution 878 826 878 826
US Regulated 1,185 1,164 1,196 1,081
Other activities 374 199 352 199
------------------------------------ ------------- ------------ ------------- ------------
4,096 3,863 4,085 3,780
------------------------------------ ------------- ------------ ------------- ------------
Geographical areas:
UK 2,889 2,820 2,867 2,820
US 1,207 1,043 1,218 960
------------------------------------ ------------- ------------ ------------- ------------
4,096 3,863 4,085 3,780
------------------------------------ ------------- ------------ ------------- ------------
Reconciliation to profit before
tax:
Operating profit 4,096 3,863 4,085 3,780
Finance income 22 36 22 36
Finance costs (1,035) (1,069) (1,134) (1,234)
Share of post-tax results
of joint ventures and associates 59 46 59 46
------------------------------------ ------------- ------------ ------------- ------------
Profit before tax 3,142 2,876 3,032 2,628
------------------------------------ ------------- ------------ ------------- ------------
3. Exceptional items and remeasurements
Exceptional items and remeasurements are items of income and
expenditure that, in the judgment of management, should be
disclosed separately on the basis that they are important to an
understanding of our financial performance and significantly
distort the comparability of financial performance between periods.
Remeasurements comprise gains or losses recorded in the income
statement arising from changes in the fair value of commodity
contracts and of derivative financial instruments to the extent
that hedge accounting is not achieved or is not effective.
2016 2015
GBPm GBPm
--------------------------------------------------- ----- -----
Included within operating profit:
Exceptional items - transaction costs(1) (22) -
Remeasurements - commodity contracts(2) 11 (83)
(11) (83)
--------------------------------------------------- ----- -----
Included within finance costs:
Exceptional items:
Debt redemption costs(3) - (131)
Remeasurements:
Net losses on derivative financial instruments(4) (99) (34)
---------------------------------------------------- ----- -----
(99) (165)
--------------------------------------------------- ----- -----
Total included within profit before tax (110) (248)
---------------------------------------------------- ----- -----
Included within tax:
Exceptional credits arising on items
not included in profit before tax:
Deferred tax credit arising on the reduction
in the UK corporation tax rate(5) 296 6
Tax on exceptional items 4 28
Tax on remeasurements(2,4) 15 44
315 78
--------------------------------------------------- ----- -----
Total exceptional items and remeasurements
after tax 205 (170)
---------------------------------------------------- ----- -----
Analysis of total exceptional items and remeasurements
after tax:
Exceptional items after tax 278 (97)
Remeasurements after tax (73) (73)
Total 205 (170)
---------------------------------------------------- ----- -----
1. In November 2015, the Group announced that it was considering
disposing of a majority stake in its UK Gas Distribution business.
In the year ended 31 March 2016, sale preparation costs of GBP22m
were recognised in respect of this potential transaction. These
costs have been treated as exceptional, achieving a consistent
presentation with the expected treatment of the transaction on
completion.
2. Remeasurements - commodity contracts represent mark-to-market
movements on certain physical and nancial commodity contract
obligations in the US. These contracts primarily relate to the
forward purchase of energy for supply to customers, or to the
economic hedging thereof, that are required to be measured at fair
value and that do not qualify for hedge accounting. Under the
existing rate plans in the US, commodity costs are recoverable from
customers although the timing of recovery may differ from the
pattern of costs incurred.
3. Represents costs arising from a liability management
programme. In 2015, we reviewed and restructured the Group debt
portfolio following the commencement of the RIIO price controls in
2013 and the slow down in our planned UK capital investment
programme as the industry assessed the impact of Electricity Market
Reform.
4. Remeasurements - net losses on derivative nancial instruments
comprise losses arising on derivative nancial instruments reported
in the income statement. These exclude gains and losses for which
hedge accounting has been effective, which have been recognised
directly in other comprehensive income or which are offset by
adjustments to the carrying value of debt. The tax charge in the
year includes a credit of GBP1m (2015: GBP1m credit) in respect of
prior years.
5. The Finance No. 2 Bill 2015 included a reduction in the UK
corporation tax rate from 20% to 19% for the year beginning 1 April
2017, with a further reduction from 19% to 18% for the year
beginning 1 April 2020. The Finance Act 2013 enacted reductions in
the UK corporation tax rate from 23% to 21% from 1 April 2014, and
from 21% to 20% from 1 April 2015. These reductions have resulted
in decreases to UK deferred tax liabilities in these periods.
4. Finance income and costs
2016 2015
GBPm GBPm
------------------------------------------ ------- -------
Finance income 22 36
Finance costs
Net interest on pension and other
post-retirement benefit obligations (112) (101)
Interest expense on financial instruments (962) (981)
Unwinding of discounts on provisions (73) (73)
Less: interest capitalised(1) 112 86
------------------------------------------- ------- -------
Finance costs before exceptional
items and remeasurements (1,035) (1,069)
Exceptional items:
Debt redemption costs - (131)
Remeasurements:
Net losses on derivative financial
instruments(2, 3) (99) (34)
Exceptional items and remeasurements
included within finance costs (99) (165)
------------------------------------------- ------- -------
Finance costs (1,134) (1,234)
------------------------------------------- ------- -------
Net finance costs (1,112) (1,198)
------------------------------------------- ------- -------
1. Interest on funding attributable to assets in the course of
construction in the current year was capitalised at a rate of 3.3%
(2015: 3.8%). In the UK, capitalised interest qualifies for a
current year tax deduction with tax relief claimed of GBP19m (2015:
GBP24m). In the US, capitalised interest is added to the cost of
plant and qualifies for tax depreciation allowances.
2. Includes a net foreign exchange loss on financing activities
of GBP407m (2015: GBP636m gain) offset by foreign exchange gains
and losses on derivative nancial instruments measured at fair
value.
3. Includes a net gain on instruments designated as fair value
hedges of GBP34m (2015: GBP219m gain) and a net gain of GBP5m
(2015: GBP162m loss) arising from fair value adjustments to the
carrying value of debt.
5. Tax
2016 2015
GBPm GBPm
-------------------------------------------------- ----- ----
Tax before exceptional items and remeasurements 753 695
--------------------------------------------------- ----- ----
Exceptional tax on items not included
in profit before tax (note 3) (296) (6)
Tax on other exceptional items and remeasurements (19) (72)
--------------------------------------------------- ----- ----
Tax on total exceptional items and remeasurements
(note 3) (315) (78)
--------------------------------------------------- ----- ----
Total tax charge 438 617
--------------------------------------------------- ----- ----
Tax as a percentage of profit before
tax %%
-------------------------------------------------- ----- ---
Before exceptional items and remeasurements 24.0 24.2
After exceptional items and remeasurements 14.4 23.5
--------------------------------------------------- ----- ----
The tax charge for the year can be analysed
as follows:
GBPm GBPm
-------------------------------------------------- ----- ----
Current tax
UK corporation tax at 20% (2015: 21%) 322 309
UK corporation tax adjustment in respect
of prior years (7) (2)
Overseas corporation tax 38 51
Overseas corporation tax adjustment in
respect of prior years (19) (62)
Total current tax 334 296
--------------------------------------------------- ----- ----
Deferred tax
UK deferred tax (152) 123
UK deferred tax adjustment in respect
of prior years 267
Overseas deferred tax 229 138
Overseas deferred tax adjustment in respect
of prior years 1 53
--------------------------------------------------- ----- ----
Total deferred tax 104 321
--------------------------------------------------- ----- ----
Total tax charge 438 617
--------------------------------------------------- ----- ----
6. Earnings per share
Adjusted earnings per share, excluding exceptional items and
remeasurements, are provided to reflect the business performance
subtotals used by the Company. For further details of exceptional
items and remeasurements, see note 3.
(a) Basic earnings per share
Earnings Earnings
per per
Earnings share Earnings share
2016 2016 2015 2015
GBPm pence GBPm pence(1)
------------------------ --------- --------- --------- ---------
Adjusted earnings 2,386 63.5 2,189 57.6
Exceptional items after
tax 278 7.4 (97) (2.6)
Remeasurements after
tax (73) (1.9) (73) (1.8)
Earnings 2,591 69.0 2,019 53.2
-------------------------- --------- --------- --------- ---------
2016 2015
millions millions
------------------------ --------- --------- --------- ---------
Weighted average number
of shares - basic(1) 3,755 3,798
-------------------------- --------- --------- --------- ---------
1. Comparative amounts have been restated to reflect the impact
of additional shares issued as scrip dividends.
(b) Diluted earnings per share
Earnings Earnings
Earnings per share Earnings per share
2016 2016 2015 2015
GBPm pence GBPm pence(1)
------------------------ ---------- ---------- ---------- ----------
Adjusted earnings 2,386 63.3 2,189 57.4
Exceptional items after
tax 278 7.3 (97) (2.6)
Remeasurements after
tax (73) (1.9) (73) (1.9)
Earnings 2,591 68.7 2,019 52.9
-------------------------- ---------- ---------- ---------- ----------
2016 2015
millions millions
------------------------ ---------- ---------- ---------- ----------
Weighted average number
of shares - diluted(1) 3,771 3,815
-------------------------- ---------- ---------- ---------- ----------
1. Comparative amounts have been restated to reflect the impact
of additional shares issued as scrip dividends.
7. Dividends
2016 2015
---------------------------- ----------------------------
Cash Cash
Pence dividend Scrip Pence dividend Scrip
per paid dividend per paid dividend
share GBPm GBPm share GBPm GBPm
----------------------------------- ------ --------- --------- ------ --------- ---------
Interim dividend in respect of
current year 15.00 532 31 14.71 531 26
Final dividend in respect of prior
year 28.16 805 248 27.54 740 289
43.16 1,337 279 42.25 1,271 315
----------------------------------- ------ --------- --------- ------ --------- ---------
The Directors are proposing a final dividend for the year ended
31 March 2016 of 28.34p per share that will absorb approximately
GBP1,059m of shareholders' equity (assuming all amounts are settled
in cash). It will be paid on 10 August 2016 to shareholders who are
on the register of members at 3 June 2016 and a scrip dividend will
be offered as an alternative, subject to shareholders' approval at
the Annual General Meeting.
8. Reconciliation of net cash flow to movement in net debt
2016 2015
GBPm GBPm
-------------------------------------- -------- --------
Increase/(decrease) in cash and cash
equivalents 4 (247)
Increase/(decrease) in financial
investments 391 (1,157)
(Increase)/decrease in borrowings
and related derivatives (1,100) 682
Net interest paid on the components
of net debt(1) 810 925
--------------------------------------- -------- --------
Change in net debt resulting from
cash flows 105 203
Changes in fair value of financial
assets and liabilities and exchange
movements (515) (1,777)
Net interest charge on the components
of net debt(1) (913) (1,068)
Other non-cash movements (87) (83)
--------------------------------------- --------
Movement in net debt (net of related
derivative financial instruments)
in the year (1,410) (2,725)
Net debt (net of related derivative
financial instruments) at start of
year (23,915) (21,190)
--------------------------------------- -------- --------
Net debt (net of related derivative
financial instruments) at end of
year (25,325) (23,915)
--------------------------------------- -------- --------
1. An exceptional expense of GBPnil (2015: GBP131m) is included
in net interest charge on the components of net debt and an
exceptional cash outflow of GBPnil (2015: GBP152m) is included in
net interest paid on the components of net debt.
9. Net debt
2016 2015
GBPm GBPm
--------------------------------------- -------- --------
Cash and cash equivalents 127 119
Bank overdrafts (3) (3)
---------------------------------------- -------- --------
Net cash and cash equivalents 124 116
Financial investments 2,998 2,559
Borrowings (excluding bank overdrafts) (28,341) (25,907)
Net debt related derivative financial
assets 1,963 1,716
Net debt related derivative financial
liabilities (2,069) (2,399)
---------------------------------------- -------- --------
Net debt (net of related derivative
financial instruments) (25,325) (23,915)
---------------------------------------- -------- --------
10. Commitments and contingencies
2016 2015
GBPm GBPm
-------------------------------------- ----- -----
Future capital expenditure contracted
for but not provided 2,616 2,360
Operating lease commitments 642 627
Energy purchase commitments 4,302 4,338
Guarantees and letters of credit
(a) 2,391 1,297
(a) Guarantees and letters of credit
2016 2015
GBPm GBPm
--------------------------------------------------- ----- -----
Guarantee of sublease for US property (expires
2040) 219 236
Guarantees of certain obligations of Grain
LNG Import Terminal (expire up to 2028) 113 151
Guarantees of certain obligations for construction
of HVDC West Coast Link (expected expiry
2016) 415 555
Guarantees of certain obligations of Nemo
Link Limited (various expiry dates) 166 -
Guarantees of certain obligations of National
Grid North Sea Link Limited (various expiry
dates) 1,038 -
Other guarantees and letters of credit (various
expiry dates) 440 355
---------------------------------------------------- ----- -----
2,391 1,297
--------------------------------------------------- ----- -----
(b) Litigation and claims
Through the ordinary course of the Group's operations, we are
party to various litigations, claims and investigations. We do not
expect the ultimate resolution of any of these proceedings to have
a material adverse effect on our results of operations, cash flows
or financial position.
11. Exchange rates
The consolidated results are affected by the exchange rates used
to translate the results of our US operations and US dollar
transactions. The US dollar to pound sterling exchange rates used
were:
2016 2015
---------------------------------- ---- ----
Closing rate applied at year end 1.44 1.49
Average rate applied for the year 1.47 1.58
----------------------------------- ---- ----
12. Related party transactions
The following significant transactions with related parties were
in the normal course of business. Amounts receivable from and
payable to related parties are due on normal commercial terms:
2016 2015
GBPm GBPm
-------------------------------------------- ---- ----
Sales: Goods and services supplied
to a pension plan and joint ventures 16 52
Purchases: Goods and services received
from joint ventures and associates(1) 266 120
Receivable from a pension plan and
joint ventures 7 4
Payable to joint ventures and associates(2) 103 6
Dividends received from joint venture
and associates(3) 72 79
--------------------------------------------- ---- ----
1. During the year the Company received goods and services from
a number of joint ventures and associates, including Iroquois Gas
Transmission System, L.P. of GBP8m (2015: GBP24m), Millennium
Pipeline Company, LLC of GBP29m (2015: GBP26m) for the
transportation of gas in the US and NGET/SPT Upgrades Limited of
GBP167m (2015: GBP68m) for the construction of a transmission link
in the UK.
2. Included in amounts payable to joint ventures and associates
is GBP87m (2015: GBPnil) in respect of deposits received for
National Grid properties from St William Homes LLP.
3. Dividends were received from BritNed Development Limited of
GBP48m (2015: GBP49m), Iroquois Gas Transmission System, L.P. of
GBP7m (2015: GBP14m) and Millennium Pipeline Company, LLC of GBP17m
(2015: GBP16m).
(1) 'Adjusted results', 'Value Added' and a number of other
terms and performance measures used in this document are not
defined within accounting standards and may be applied differently
by other organisations. For clarity, we have provided definitions
of these terms, descriptions of restatements and, where relevant,
proforma calculations on pages 38 to 42. Prior year EPS has been
adjusted to reflect the additional shares issued as scrip
dividends, refer to note 6 on page 56.
(2) In November, Ofgem ran the financial models that calculate
substantial elements of the revenue allowances for National Grid's
UK regulated businesses. The outcome of these model runs (known as
the 'MOD adjustments') were in line with National Grid's
expectations.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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