TIDMNG. TIDM35DT TIDM46QK TIDM71GP TIDMTTM
RNS Number : 2545S
National Grid PLC
17 November 2011
17 November 2011
National Grid plc
Half year report for the six months ended 30 September 2011
(unaudited)
Steve Holliday, Chief Executive, said: "We have started the year
well, with a good underlying performance and steady progress toward
our strategic goals."
HIGHLIGHTS
Good underlying performance in first 6 months of 2011/12
-- Profit before tax(1) up 2%, up 19% excluding impact of timing and Hurricane Irene(2)
-- Operating profit(1) up 7% at constant currency(3) excluding
impact of timing and Hurricane Irene
-- Earnings per share(1) down(4) 2% at 19.6p, up 14% excluding
impact of timing and Hurricane Irene
-- Interim dividend increased by 8%, in line with policy
Good strategic progress
-- Delivering our core investment programme to drive growth in our asset base
-- Submitted RIIO Transmission business plans, including GBP25bn of forecast capital investment
-- Transition to new US operating model completed
-- $200m cost reduction programme on track
-- Over GBP350m of cash generated through disposals of non-core
assets from our portfolio in October
Outlook and priorities unchanged
-- Focus on improving returns and efficiency
-- New RoCE metric introduced to increase clarity of portfolio performance
FINANCIAL RESULTS FOR CONTINUING OPERATIONS
(GBPm, at actual exchange Business performance(1) Statutory Results
rate)
Six months ended 30 September 2011 2010 % change 2011 2010 % change
------------------------------- ------- ------- ---------- ------ ------ ---------
Operating profit 1,420 1,509 (6) 1,492 1,581 (6)
Pre-tax profit 953 938 2 941 971 (3)
Earnings 697 656 6 795 760 5
Earnings per share 19.6p 19.9p (2) 22.3p 23.1p (3)
------------------------------- ------- ------- ---------- ------ ------ ---------
Steve Holliday added: "In the UK, we submitted comprehensive
business plans for our Transmission businesses to Ofgem,
incorporating the output of the significant stakeholder
consultation which is critical to securing investment in this
essential UK infrastructure. At the same time, we continued to
invest in the engineering teams and processes to allow us to
deliver the major step up in capital investment over the next few
years.
In the US, we delivered our new operating model on time,
significantly reducing headcount and embedding our new regional
structure. I am confident that this new structure will improve
customer service in our jurisdictions and underpin the continuing
drive for efficiency in our US operations and the associated
improvement in financial performance.
As a result, notwithstanding the exceptional US weather, we
remain well positioned to deliver another good year, although
comparative progress will be impacted by the timing differences
that benefited 2010/11."
CONTACTS
Investors
John Dawson +44 (0)20 7004 3170 +44 (0) 7810 831944 (m)
George Laskaris +1 718 403 2526 +1 917 375 0989 (m)
Andy Mead +44 (0)20 7004 3166 +44 (0) 7752 890787 (m)
Michael Smart +44 (0)20 7004 3214 +44 (0) 7767 298988 (m)
Iwan Hughes +44 (0)20 7004 3169 +44 (0) 7900 405898 (m)
Tom Hull +44 (0)20 7004 3172 +44 (0) 7890 534833 (m)
Media
Clive Hawkins +44 (0)20 7004 3147 +44 (0) 7836 357173 (m)
Chris Mostyn +44 (0)20 7004 3149 +44 (0) 7774 827710 (m)
Gemma Stokes +44 (0)1926 655272 +44 (0) 7974 198333 (m)
Brunswick
Tom Burns +44 (0)207 404 5959
Tom Batchelar +44 (0)207 404 5959
CONFERENCE CALL DETAILS
An analyst presentation will be held at the London Stock
Exchange, 20 Newgate Street, London EC4M 7LS at 9:15am (GMT)
today.
There will be a live webcast of the results presentation
available to view at www.nationalgrid.com/investors. The
presentation will be available through the same link as a replay
this afternoon.
Live telephone coverage of the analyst presentation
UK dial in number +44 (0) 20 7784 1036 US dial in number +1 212 444 0895
Confirmation
Code 9836540
Telephone replay of the analyst presentation (available until 24
November 2011)
UK dial in number +44 (0) 20 7111 1244 US dial in number +1 347 366 9565
Confirmation
Code 9836540#
National Grid images can be found via the following link
www.flickr.com/photos/national_grid
You can view or download copies of our latest Annual Report and
Accounts and Performance Summary from our website at
www.nationalgrid.com/investors or request a free printed copy by
contacting investor.relations@ngrid.com.
BUSINESS REVIEW
National Grid delivered good operational and financial
performance in the first half of the year. In May, we set out our
strategic priorities for 2011/12, focused on delivering our core
investment programme, implementing our new operating model and
achieving our cost reduction programmes.
At the same time, we sustained our focus on delivering the level
of service that our customers need and continue to operate in a way
that places safety at the forefront of our considerations. We kept
our lost time injury rate consistently low and continued our work
on further enhancing process safety. We will use the lessons
learned from incidents over the period to further reduce risks for
our people, our customers, our contractors and the public. We made
significant improvement in our customer satisfaction performance
scores in our UK Gas Distribution business and further improvements
in reliability in our US operations, excepting the impact from the
extreme weather in the US.
Growth and Investment
Growth in our core asset base, underpinned by good regulatory
frameworks that focus on operational cost efficiency and customer
service to provide incentive driven performance, is a major driver
of long term value creation for our investors.
We continue to invest in regulated assets at rates significantly
in excess of depreciation levels looking to invest capital only
where we expect to be able to earn an acceptable return. Capital
investment(5) in the period decreased by GBP160m, compared to the
same period in 2010/11 on a constant currency basis led by a
reduction in expenditure related to our other activities, including
non-regulated businesses and joint ventures.
In July, we submitted to Ofgem our UK Transmission business
plans for the eight years from 2013/14 through to 2020/21. These
plans set out proposals for a material increase in capital
investment, driven mainly by the changes in the UK generating
fleet, including additional wind generation as well as new gas and
nuclear power stations. As a result, taken together with
investments in 2011/12 and 2012/13, our UK Transmission regulated
asset value (RAV) would be expected to increase to over GBP35bn by
March 2021 from the GBP13.3bn we reported at March 2011, an annual
growth rate of around 10%.
Regulatory developments in the UK
In August, Ofgem published its initial proposals for the one
year rollover of the Transmission Price Control Review 4 (TPCR4) to
cover the year 2012/13. These proposals set out a proposed increase
in allowed revenues for both Electricity Transmission and Gas
Transmission. This increase is driven in part by the growth in RAV
due to our increased capital investment over recent years. The
proposals also recommended that real returns on equity remain
unchanged at 7.0% and that the real cost of debt be reduced from
3.75% to 3.25%, reflecting underlying changes in the cost of
borrowing in recent years. Final proposals are expected in
November, with the new control running for one year from 1 April
2012.
The subsequent price control period will be for the eight years
from 2013/14 through 2020/21. This will be the first price control
under the new RIIO regulatory framework, set out by Ofgem in July
2010. In July this year, we submitted business plans that set out
GBP31bn of total expenditure (totex) over the eight year period,
including proposals for incentive schemes, revenue adjustment
mechanisms and our view of the financing requirement for these
plans. This included a proposed 7.5% return on equity, a 55%
notional gearing level (i.e. 55% debt and 45% equity in the
notional businesses) and a 16 year (2 price control periods)
transitional arrangement for our Electricity Transmission business
around changes to future asset depreciation.
In October, we received Ofgem's initial assessment of our
business plans. Feedback on many areas was positive and identified
areas for further consultation and clarification over the coming
months. As expected, we were not identified for potential
fast-tracking and now have clarity on the timings of the next steps
in the process. We will develop our business plans further and
following ongoing discussions with stakeholders will submit updated
plans in March 2012. Subsequently, initial proposals are expected
in July 2012 with final proposals by the end of 2012, to come into
effect from 1 April 2013. Our UK Gas Distribution businesses will
submit their business plan in November 2011.
We continue to believe that the emerging regulatory framework
around our future investment plans will present National Grid with
positive opportunities to invest for long-term profitable growth
and reasonable returns.
Regulatory developments in the US
As set out in our full year results in May, further rate-filings
in a number of our US jurisdictions will be an important component
of our long term performance improvement in the US, allied with
delivering further improvements in customer service and cost
efficiency. By combining new filings with more efficient
operational and capital investment processes we are seeking to
achieve and sustain higher returns from our combined US operations
than the current level.
Consistent with the objective to be responsive to our regulators
in each of the jurisdictions in which we operate, we have been
making a number of changes to our organisational model, cost base,
accounting systems and processes. These changes are already
providing a much stronger alignment around managing regulatory
engagement and customer service, as well as delivering necessary
changes to our controls and accounting processes, in line with the
recommendations set out in the recent Liberty Consulting Group
audit of our US operations.
In July we filed with the New York Public Service Commission
(NYPSC) for the recovery of $236m of deferred costs in Niagara
Mohawk Electric, in line with the timetable set out in the rate
case approved in January 2011. These recoveries relate to costs
that have been incurred by the business over a number of years in
relation to pensions, environmental costs, capital expenditure and
other activities not yet charged to customers. We expect an order
from the NYPSC in December for cost recovery commencing in January
2012. We continue to work with Overland in respect of the audit of
our upstate New York business which was commissioned by the NYPSC
last year.
In November, the Massachusetts Department of Public Utilities
issued an order in response to our request to correct certain
calculation errors appearing in the gas rate order issued last
year. The new order issued approved a further increase in gas
distribution rates of $2.8m p.a. We are awaiting a decision in
response to another pending request for reconsideration of other
issues in the same case.
Our appeal of certain aspects of the Rhode Island Commission's
last electric rate order in 2010 continues. The highest court in
the state heard oral arguments in relation to this appeal and a
decision is expected by the end of this calendar year. In the
period, revenue decoupling mechanisms were put in place for our
Rhode Island businesses.
We continue to expect to file new gas and electric rate cases
for Niagara Mohawk in New York and Narragansett in Rhode Island in
2012.
Efficiency Programmes
National Grid has a number of efficiency programmes underway in
different parts of its business to ensure the cost effective
delivery of our services and investments.
The first release of our Gas Distribution Front Office system
was rolled out across all of our UK Distribution networks and the
second release was rolled out in two of our networks. Roll out will
continue into the remaining two networks after the peak winter
workload period is completed, together with the continuation of the
third release. In addition, implementation of a revised UK Gas
Distribution structure was substantially completed in October,
involving a number of management and staff changes. These
initiatives are designed to bring our businesses closer to the
efficiency frontier of all UK gas networks. We have already seen
both absolute and comparative improvements in customer satisfaction
scores in our UK gas networks with further benefits expected later
this year and in 2012/13.
Implementation of our new US organisational model has been
completed, together with a reduction of over 1,150 mostly
management and administrative positions. Benefits of the changes
are already being seen with a stronger jurisdictional focus and
reductions in controllable costs.
Strategy
The Group's strategy is unchanged. In early 2011/12 we set out
how we manage our business using a portfolio approach. We own
developed assets with minimal investment requirements and strong
cash generation, businesses with low to medium levels of growth and
positive cash generation, and businesses with high levels of
investment and growth. Maintaining an appropriate mix of businesses
enables our portfolio of activities to deliver an overall balance
between long-term capital growth and cash generation for the
benefit of our shareholders.
This year we streamlined the business further through a number
of small divestments. In October, we completed the sale of our
Seneca Upshur exploration and production business for $153m and the
sale of our OnStream UK unregulated metering business for
GBP274m.
In addition, the agreed sale of our Granite State Electric and
EnergyNorth businesses in New Hampshire, for $285m, continues to
progress, subject to regulatory approvals.
New return metric
We outlined in May our intention to publish clear, comparable
measures of financial performance for our UK and US businesses. At
an operating company level, we will continue to publish our
regulated returns, which are clearly understood and are a very
effective way of managing towards our regulated targets and driving
efficiency. However, due to differences in the way each regulator
sets these targets, these are not suitable measures for comparing
each part of the business with one another. Our new return metric
is intended to look through these differences and provide a measure
that can be used, in conjunction with others, to assess future
investment decisions.
This measure of return on capital employed ("RoCE") is designed
to show a better comparison between our UK and US businesses and
set out in detail one of the measures that we use to make decisions
around our portfolio and our investments. Our RoCE calculation is a
post-tax measure based on an IFRS operating profit measure less
taxation at the statutory rate. We make adjustments to capture the
difference between the treatment of certain costs, including
taxation and pension costs, by regulators and their treatment in
the financial accounts. We adjust to better match the costs and the
timing of recovery of revenues associated with those costs and to
take account of the impact of inflation on UK regulated returns.
The capital employed is, in so far as possible, consistent with the
regulated capital as defined in our regulated return on equity
calculations.
The RoCE for our businesses over the last two years is shown in
the table below:
2010/11 2009/10
-------------- -------- --------
UK Regulated 8.5% 9.6%
US Regulated 7.1% 5.5%
The movement in UK Regulated RoCE was principally caused by the
lag in RPI indexation benefits on UK allowed revenues which, as a
result, did not increase materially in 2010/11. In contrast, the
RAV increased as a result of actual inflation over the year to
March 2010 of 4.4%. In the US, the improved RoCE was the result of
stronger performance and increased revenues under new rate plans.
The 140 bps difference for 2010/11 between the UK Regulated and US
Regulated RoCE largely reflects a US business which, while
improving significantly, does not yet meet our expectations. A
detailed breakdown of our RoCE calculation is available on page 20
of this statement.
Financing
Our balance sheet remains in a strong position. Contributing to
this are strong cash flows from the business and growth in our
regulatory asset base. The latter item is partly driven by the
positive impact of retail price index (RPI) inflation, currently
running at over 5% p.a., approximately 2-3% above long term rates.
Our UK RAV, which was approximately GBP21bn at 31 March 2011,
increases each year with RPI inflation. As a result, higher
inflation delivers a stronger financial position by increasing
growth in our regulatory asset base by around GBP500m in the first
6 months of the year, partially offset by the impact of accretion
on our RPI-linked debt.
Board changes
In December 2011, Sir John Parker will step down from his
position as Chairman of the Board of National Grid after over 10
years as Chairman of National Grid and previously Lattice Group.
Sir Peter Gershon joined the Board as Deputy Chairman on 1 August
and will assume the role of Chairman of the Board of National Grid
when Sir John steps down with effect from 1 January 2012.
In July, John Allan, a non-executive director of National Grid
for the last six years, stepped down from the Board. In September,
Ruth Kelly, Managing Director, HSBC Global Asset Management and a
former UK government minister, joined the Board as a non-executive
director.
DIVIDEND
The Board has approved an increase in the interim dividend to
13.93p per ordinary share ($1.0967 per American Depositary Share)
in line with our policy of targeting 8% growth until March 2012.
The interim dividend will be paid on 18 January 2012 to
shareholders on the register as at 2 December 2011. A scrip
dividend alternative will again be offered.
The existing dividend policy expires in the current financial
year and so applies to the interim dividend to be paid in January
2012 and the final dividend to be paid in August 2012. We expect to
announce a one year policy in January 2012 to cover the year
2012/13. During 2013, we expect to announce a dividend policy to
run from 2013/14 onwards, after the outcomes of the RIIO price
control reviews are known.
OUTLOOK
The strategic priorities we identified for the 2011/12 financial
year remain unchanged: developing our portfolio of assets to
maximise value for shareholders, delivering our investment
programme in a disciplined manner, improving returns in our US
business, inputting to the development of the UK regulatory
framework and continuing to drive efficiency across the
business.
The restructuring of our US business is now largely complete and
is delivering operational and financial benefits to underpin our
progress on further improving US returns alongside our efforts for
further cost reductions. Our existing price controls in the UK
continue to deliver attractive returns and we are working to ensure
that this can continue under the RIIO framework.
As a result, notwithstanding the impact of some exceptional US
weather, we remain well positioned to deliver another good year,
although comparative progress will be impacted by the timing
differences that benefited 2010/11.
BASIS OF PRESENTATION
Unless otherwise stated, all financial commentaries are given on
a business performance basis(6) at actual exchange rates. The
results for the period are presented in line with the new reporting
structure, separated into segments for our UK Transmission, UK Gas
Distribution and US Regulated businesses. The results for the same
period last year have also been re-presented in these new
segments.
Under our regulatory frameworks, the majority of the revenues
that we are allowed to collect each year are governed by a
regulatory price control or rate plan. If we collect more than this
allowed level of revenue, the balance must be returned to customers
in subsequent years, and if we collect less than this level of
revenue we 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, in the US, a
substantial portion of our costs are pass-through costs (including
commodity and energy efficiency costs), and are fully recoverable
from customers. These timing differences between costs of this type
being incurred and their recovery through revenues are also
included in over and under-recoveries. We identify these timing
differences in order to enable a better comparison of performance
from one period to another.
Allowed revenues for our UK regulated businesses are set on an
annual basis. Over and under-recoveries in the first 6 months of
the year in these businesses, described as "timing differences",
are therefore estimates based on an assumed allowed revenue
profile. Opening balances of under and over-recoveries have been
restated where appropriate to correspond with regulatory
filings.
REVIEW OF RESULTS AND FINANCIAL POSITION
Operating profit Six months ended 30 September Full year
(GBPm) 2011 2010 % change 2010/11
----------------------------------------- --------- --------- ------------ ----------
UK Transmission 602 645 (7) 1,363
UK Gas Distribution 381 383 (1) 711
US Regulated 306 380 (19) 1,407
Other activities 131 101 30 119
Operating profit - actual exchange
rate 1,420 1,509 (6) 3,600
Operating profit - constant currency 1,420 1,481 (4)
----------------------------------------- --------- --------- ------------ ----------
Operating profit was GBP1,420m, down GBP61m (4%) on the same
period last year on a constant currency basis(7) . This reflected
an adverse period-on-period timing adjustment of GBP87m:
Over/(under)-recovery Six months ended 30 September Period-on-period
(GBPm - constant currency) change
------------------------------- -----------------
2011 2010
------------------------------- --------------- --------------- -----------------
Balance at start of period
(restated) 69 (199)
In-year over/(under)-recovery (55) 32 (87)
Balance at end of period 14 (167)
------------------------------- --------------- ---------------
Operating profit 1,420 1,481 (61)
Adjust for timing differences 55 (32) 87
------------------------------- --------------- --------------- -----------------
Operating profit excluding
timing 1,475 1,449 26
------------------------------- --------------- --------------- -----------------
As a result, operating profit excluding timing increased by
GBP26m (2%) on a constant currency basis. This increase was partly
driven by an increased contribution of GBP30m from our other
activities, principally our Grain LNG and our UK metering
businesses. In our regulated businesses, net regulated income
increased by GBP86m partly due to the impact of RPI+X indexation on
our UK regulated revenues. Post-retirement costs(8) decreased by
GBP3m and bad debts increased by GBP3m. Depreciation and
amortisation increased by GBP7m and regulated controllable costs
increased by GBP16m. This excludes the impact of Hurricane Irene in
the US, which decreased operating profit by a further GBP69m. Other
costs, including property taxes and capex related costs decreased
by GBP2m. The period-on-period movement in exchange rates decreased
operating profit by GBP28m. As a result, reported operating profit
for the period was GBP1,420m.
Across our businesses, regulated controllable costs increased by
GBP16m (2%) on a constant currency basis compared to the same
period last year, reflecting inflationary pressures on salaries and
other costs and some increased recruitment in our UK transmission
business. The continued drive for efficiency in our businesses and
some early impacts from our US cost saving programme helped to
mitigate these impacts. Adjusting for inflation, regulated
controllable costs reduced by 1.6% in real terms.
Net finance costs were GBP468m, 15% lower than the same period
in 2010/11 at constant currency partly driven by lower average net
debt and lower pension interest.
Profit before tax was up 2% to GBP953m.
The tax charge on profit was GBP254m, GBP25m lower than the same
period last year, reflecting an increased proportion of UK profits
and a lower UK tax rate. For the same reasons our effective tax
rate decreased to 26.7% from 29.7%.
As a result, earnings were up GBP41m on the same period last
year at GBP697m. Earnings per share decreased 2% from 19.9p
(restated) last year to 19.6p, reflecting the increased weighted
average number of shares in the first 6 months of the year compared
to the same period last year, as new shares resulting from the
rights issue only impacted this measure part way through the period
in 2010.
Exceptional items and remeasurements and stranded cost
recoveries increased statutory earnings by GBP98m after tax. A
detailed breakdown of exceptional items, remeasurements and
stranded cost recoveries can be found on page 29. Included in
exceptional items are a provision of GBP54m related to
environmental remediation liabilities and a GBP55m charge relating
to severance and pension costs associated with our US restructuring
programme. After these items and non-controlling interests,
statutory earnings for continuing operations attributable to
shareholders were GBP795m. Statutory basic earnings per share from
continuing operations were 22.3p compared with 23.1p (restated) for
the same period last year.
Operating cash flow, before exceptional items, remeasurements,
stranded cost recoveries and taxation, was GBP1,802m, GBP131m lower
than the same period in 2010/11.
Funding and net debt
Net debt rose to GBP20.0bn at 30 September 2011 compared with
GBP18.7bn at 31 March 2011, reflecting the impact of our investment
programme and foreign exchange movements, which increased debt by
GBP342m due to the strengthening of the US dollar.
We continue to utilise our cash balances to invest in capital
expenditure and retire maturing debt. As a result, at 30 September
2011 cash and cash equivalents and short term financial investments
were GBP3.0bn, compared with GBP3.3bn at 31 March 2011.
Despite having cash within the group at this time, our approach
to long term debt financing is unchanged and we continue to issue
long term debt where attractive opportunities exist. As a result,
in October we issued a total GBP273m of index-linked retail bonds
from National Grid plc at a real coupon of 1.25%. This is the
largest retail bond issued in the UK and the first index-linked
retail bond ever issued by a company in the UK debt markets. We
also issued a 4 year maturity EUR500m note from National Grid USA
in May, paying a coupon of 3.25%.
US Regulated Return on Equity calculations
As part of the development of our new published return metric,
we reviewed our US Regulated Return on Equity calculations with
particular attention to the recent rate case outcomes that have
occurred since we began publishing these metrics.
We have made some adjustments to the calculations to simplify
them and account for inconsistencies between the treatment of
certain items by different regulators. We have also focused on the
definition of rate base used by the regulators when setting recent
rate plans. We are publishing the results of these revised
calculations for the calendar year 2010 plus comparatives for the
year 2009. The revised calculation methodology will be used for the
current calendar year. The results of the revised Regulated Return
on Equity calculations are provided below.
US Regulated Return on Equity
(%)
US Regulated Entity 2010 2009
--------------------------------------- -------------- ----------------
New York
KEDNY 11.9 11.0
KEDLI 10.0 10.7
NMPC Gas 7.6 5.1
NMPC Electric 6.1 4.5
-------------------------------------- -------------- ----------------
Total New York 8.4 7.4
Massachusetts and Rhode Island
Massachusetts Gas 3.5 3.6
Massachusetts Electric 10.0 4.5
Narragansett Gas 0.6 5.8
Narragansett Electric 8.3 (3.4)
-------------------------------------- -------------- ----------------
Total Massachusetts and Rhode Island 6.7 3.0
FERC
Long Island Generation 11.2 13.5
New England Power 11.6 11.8
Canadian Interconnector 13.0 13.0
Narragansett Electric, Transmission 11.8 11.5
-------------------------------------- -------------- ----------------
Total FERC 11.5 12.4
Total US 8.3 6.9
--------------------------------------- -------------- ----------------
US Rate Base as at 31 March
Going forward we are proposing to publish an estimate of rate
base as at 31 March rather than as at 31 December. This is intended
to better aid comparability between the published UK RAVs and the
published US rate base numbers and match with our other reported
financials. It will also form the basis of the Return on Capital
Employed calculation.
The value of our reported rate base changed between December
2010 and March 2011 for a number of reasons. The point in time at
which the rate base is reported affects the value, in part due to
the movement in working capital between December and March in our
US gas businesses as gas stocks are utilised over the winter
heating period. In addition, the move to using the latest
regulatory definition of rate base particularly affects our
Massachusetts and downstate New York gas businesses, which had
previously used invested capital as an estimate of rate base. As a
result, as at 31 March 2011, $600m of regulated assets are now
classified in this method of presentation as outside the regulatory
definition of rate base in those companies. As before, we expect to
recover these and, for over half, to attract a return under the
regulatory arrangements in the meantime. As a result of these
changes, the rate base used for the purpose of calculating
Regulatory Return on Equity for 31 March 2011 would have been
$14.3bn.
Rate Base: 31 March ($m)
US Regulated Entity 2011 2010
--------------------------------------- ------------- ------------
New York
KEDNY 2,162 2,154
KEDLI 1,931 1,897
NMPC Gas 832 928
NMPC Electric 3,722 3,807
-------------------------------------- ------------- ------------
Total New York 8,647 8,786
Massachusetts and Rhode Island
Massachusetts Gas 1,280 1,194
Massachusetts Electric 1,659 1,542
Narragansett Gas 324 294
Narragansett Electric 602 598
-------------------------------------- ------------- ------------
Total Massachusetts and Rhode Island 3,865 3,628
FERC
Long Island Generation 504 531
New England Power 918 844
Canadian Interconnector 55 63
Narragansett Electric, Transmission 284 205
-------------------------------------- ------------- ------------
Total FERC 1,761 1,643
Total US 14,273 14,057
--------------------------------------- ------------- ------------
TECHNICAL GUIDANCE
We provide technical guidance to aid consistency across a range
of modeling assumptions of a technical, rather than trading or core
valuation, nature. We will provide appropriate updates to this
information on a regular basis as part of our normal reporting. The
outlook and technical guidance contained in this statement should
be reviewed together with the forward looking statements set out in
this release in the context of the cautionary statement.
Further information about our principal risks and uncertainties
for the next six months of the financial year is provided in Note
14 on page 35.
Earnings Items
There are no changes to the items described as "technical
guidance" in relation to earnings items given at the time of
results in May 2011. In addition to those items, we are providing
the following additional technical guidance.
We expect net finance costs to be approximately GBP100m lower in
the current year than 2010/11. This is partly due to an expected
GBP50m movement in the non-cash pension finance charge. In addition
continued low interest rates on new debt and the maturity of
existing, higher coupon debt, are expected to contribute around a
further GBP50m reduction in net finance costs.
We expect the impact of US storm costs to adversely affect
reported earnings for 2011/12. In the first half of the year the
impact of Hurricane Irene had a negative GBP69m impact on operating
profit. We expect this to be reflected in the full year results
along with an estimated GBP50m impact from the snow storms
experienced in the US in October. Recovery of storm costs in
jurisdictions outside of Long Island will be subject to filings
that, with the exception of the deferral filing in upstate New
York, are unlikely to be approved before the end of the financial
year.
Investment and other items
Capital expenditure(5) for 2011/12 is expected to be in the
range GBP3.2bn to GBP3.3bn, lower than the prior year due mainly to
reduced investment in our non-regulated businesses and joint
ventures, particularly Grain LNG and BritNed. In the US, investment
is now expected to be at the low end of our medium term guidance of
GBP1.0bn - GBP1.2bn per annum, largely reflecting the benefit of a
stronger regional focus on prioritising activities and exchange
rate movements. In the UK, forecast investment in Gas Distribution
remains in line with expectations, albeit lower than the prior
year. Investment in UK Transmission is expected to be lower than
early forecasts, reflecting process and procurement efficiencies
and re-phasing of projects to align with updated regulatory funding
allowances.
There are no other changes to the items described as "technical
guidance" in relation to investment and other items given at the
time of results in May 2011. In addition to those items, we are
providing the following additional technical guidance.
The UK RAV is adjusted each year to account for RPI inflation in
the UK. Based on the assumption that inflation at March 2012 will
be approximately 4% year-on-year we expect our UK RAV to grow to
over GBP22bn by March 2012.
REVIEW OF UK TRANSMISSION OPERATIONS
Summary results Six months ended 30 September
(GBPm) 2011 2010 % change
---------------------------------- --------- --------- ------------
Revenue 1,730 1,686 3
Operating costs (920) (846) (9)
Depreciation and amortisation (208) (195) (7)
Operating profit 602 645 (7)
---------------------------------- --------- --------- ------------
Capital investment Six months ended 30 September
(GBPm) 2011 2010 % change
----------------------- -------- -------- --------------
Capital investment 603 627 (4)
----------------------- -------- -------- --------------
Performance in the first 6 months of 2011/12
UK Transmission operating profit was down GBP43m (7%). This
included an estimated under-recovery of revenues of GBP23m in our
regulated businesses. Combined with an opening balance of GBP7m
owed to the business from previous years, this leaves a total
balance owed to our businesses as at 30 September of GBP30m which,
in the normal course of events, would be recovered in the second
half of the year. In the same period last year, revenues were
over-recovered by an estimated GBP31m. As a result, adjusting for
the timing differences of GBP54m, operating profit for the period
excluding timing increased by GBP11m as set out in the following
table.
Over/(under)-recovery Six months ended 30 September Period-on-period
(GBPm) (estimated) change
------------------------------- -----------------
2011 2010
------------------------------- --------------- --------------- -----------------
Balance at start of period
(restated) (7) (77)
In-year over/(under)-recovery (23) 31 (54)
Balance at end of period (30) (46)
------------------------------- --------------- ---------------
Operating profit 602 645 (43)
Adjust for timing differences 23 (31) 54
------------------------------- --------------- --------------- -----------------
Operating profit excluding
timing 625 614 11
------------------------------- --------------- --------------- -----------------
The increase in operating profit excluding timing reflected
GBP38m of increased net regulated income driven by RPI+X indexation
on UK regulated revenues and included a GBP14m decrease in French
Interconnector auction revenues partly as the result of essential
maintenance work. Depreciation and amortisation increased by
GBP13m, reflecting the growth in asset base due to our investment
programme. Regulated controllable costs increased by GBP15m partly
reflecting further investment in people as the business continues
to prepare for the RIIO review and the associated increase in
investment workload. Post-retirement costs increased by GBP3m and
other costs decreased by GBP4m. As a result, reported operating
profit for the period was GBP602m.
We are preparing the business for a period of increased capital
expenditure whilst maintaining our focus on efficiency and customer
service. We have also enhanced our internal capabilities by
recruiting 162 new engineers. At the same time we have published
our Transmission customer commitment detailing how we will
communicate with customers and deliver what they need while we are
significantly expanding our existing network.
As we outlined in the business review, we filed our business
plans for RIIO in July and received Ofgem's initial view of these
plans in October.
Investment activities in the first 6 months of 2011/12
Capital investment in our UK Transmission business for the
period was GBP603m, GBP24m down on the same period last year.
Investment in new gas transmission pipelines reduced compared to
the same period last year and contributed to a GBP34m reduction in
gas transmission spend. Partly offsetting this, we increased
capital investment in electricity transmission by GBP10m. We have
increased investment in our London cable tunnels project and are
continuing to invest in other major load related projects. We also
increased investment to enhance the security, reliability and
efficiency of our system through our programme of non-load related
investment.
Future activities and outlook
The outlook for our UK Transmission business for the remainder
of the year is unchanged. We expect continued upward pressure on
operating costs, in part due to our recruitment of more engineers
to deliver our investment programme. Offsetting this are increased
revenues from indexation and higher gas transportation tariffs in
the second half of the year.
REVIEW OF UK GAS DISTRIBUTION OPERATIONS
Summary results Six months ended 30 September
(GBPm) 2011 2010 % change
---------------------------------- --------- --------- ------------
Revenue 787 772 2
Operating costs (286) (279) (3)
Depreciation and amortisation (120) (110) (9)
Operating profit 381 383 (1)
---------------------------------- --------- --------- ------------
Capital investment Six months ended 30 September
(GBPm) 2011 2010 % change
----------------------- -------- -------- --------------
Capital investment 325 329 (1)
----------------------- -------- -------- --------------
Performance in the first 6 months of 2011/12
UK Gas Distribution operating profit was GBP2m (1%) lower than
the same period last year. This included an estimated
under-recovery of revenues of GBP7m. Combined with an opening
balance of GBP20m owed to the business from previous years, this
leaves a total balance owed to our businesses as at 30 September of
GBP27m which, in the normal course of events, would be recovered in
the second half of the year. In the same period last year, revenues
were over-recovered by an estimated GBP11m. As a result, adjusting
for the timing differences of GBP18m, operating profit for the
period excluding timing increased by GBP16m as set out in the
following table.
Over/(under)-recovery Six months ended 30 September Period-on-period
(GBPm) (estimated) change
------------------------------- -----------------
2011 2010
------------------------------- --------------- --------------- -----------------
Balance at start of period
(restated) (20) (24)
In-year over/(under)-recovery (7) 11 (18)
Balance at end of period (27) (13)
------------------------------- --------------- ---------------
Operating profit 381 383 (2)
Adjust for timing differences 7 (11) 18
------------------------------- --------------- --------------- -----------------
Operating profit excluding
timing 388 372 16
------------------------------- --------------- --------------- -----------------
The increase in operating profit excluding timing reflected
GBP37m of increased net regulated income driven by the impact of
RPI+X indexation. Regulated controllable costs increased by GBP7m
with the impact of inflation and resources to support the
implementation of new systems. Depreciation and amortisation
increased by GBP10m and other costs increased by GBP4m. As a
result, reported operating profit for the period was GBP381m.
As part of our drive to improve efficiency and customer service
we are restructuring and transforming our Gas Distribution
operations. We have made improvements in both areas, with customer
satisfaction improving whilst holding regulated operating costs
approximately flat in real terms compared to the same period last
year. As discussed in the business review, we have implemented the
second release of our Front Office system in two of our four gas
networks to date.
The new systems and ways of working have been designed to enable
us to ramp up our efficiency by giving our people excellent
technology and tools. These new systems are expected to give us a
better view of our assets, where they are and what work is being
done on them. They are designed to assess what skills are required
to complete the work and match those needs to the right people. As
a result, we expect to significantly improve our capability to
profile our workload and resources across the year, and dispatch
work to the right individuals with the right skills at the right
time.
Investment activities in the first 6 months of 2011/12
Capital investment in our UK Gas Distribution business continues
at a broadly steady rate and continues to be dominated by our work
on mains replacement, which accounted for GBP245m of our total
GBP325m capital expenditure for the period. This was GBP4m down on
the same period last year mainly due to a reduction in spend on
information systems.
Future activities and outlook
The outlook for our UK Gas Distribution business for the
remainder of the year is unchanged. One of our key priorities for
the year is to provide the foundation to bring our networks closer
to the efficiency frontier that Ofgem measures. We will continue
our restructuring to drive further efficiencies in our operations.
We plan to close our Northampton site and consolidate operations on
our Hinckley site once the peak winter workload period has
completed.
We will file our business plans for the period April 2013 to
March 2021 with the regulator at the end of this month as part of
the RIIO price control process. We expect to see feedback on these
plans in February 2012, with initial proposals in July 2012 and
final proposals towards the end of 2012, with the control running
for eight years from 1 April 2013.
REVIEW OF US REGULATED OPERATIONS
Summary results Six months ended 30 September
(GBPm) 2011 2010 % change
-------------------------------------------- ---------- ---------- ----------
Revenue* 3,285 3,498 (6)
Operating costs (2,781) (2,887) 4
Depreciation and amortisation (198) (231) 14
Operating profit - actual exchange rate 306 380 (19)
Operating profit - constant currency 306 352 (13)
-------------------------------------------- ---------- ---------- ----------
Capital investment Six months ended 30 September
(GBPm, at actual exchange rate) 2011 2010 % change
--------------------------------- -------- -------- --------------
Capital investment 462 521 (11)
--------------------------------- -------- -------- --------------
* Excludes revenue from stranded cost recoveries.
Performance in the first 6 months of 2011/12
US operating profit was down GBP46m (13%) on a constant currency
basis. This included the return of GBP25m of revenue owed to
customers from over-recoveries in previous years. Combined with an
opening balance of GBP96m owed to customers from previous years,
this leaves a total balance owed to customers as at 30 September of
GBP71m which, in the normal course of events, would be returned in
the second half of the year. In the same period last year, revenues
were under-recovered by GBP10m. As a result, adjusting for the
timing differences of GBP15m, operating profit for the period
excluding timing decreased by GBP31m, as set out in the following
table.
Over/(under)-recovery Six months ended 30 September Period-on-period
(GBPm - constant currency) change
------------------------------- -----------------
2011 2010
------------------------------- -------------- ---------------- -----------------
Balance at start of period 96 (98)
In-year over/(under)-recovery (25) (10) (15)
Balance at end of period 71 (108)
------------------------------- -------------- ----------------
Operating profit at constant
currency 306 352 (46)
Adjust for timing differences 25 10 15
------------------------------- -------------- ---------------- -----------------
Operating profit excluding
timing 331 362 (31)
------------------------------- -------------- ---------------- -----------------
The reduction in operating profit excluding timing also included
a GBP69m charge in respect of Hurricane Irene. As a result,
operating profit, excluding the effect of timing and Hurricane
Irene, increased by GBP38m. Net regulated income increased by
GBP11m, partly due to increases from new rate cases in our
Massachusetts gas businesses, offset by a reduction in income from
our New York electricity business where warm weather in the same
period last year positively impacted profits excluding timing.
Depreciation and amortisation decreased by GBP16m primarily due to
a reassessment of our asset lives. Regulated controllable costs
reduced by GBP6m, post-retirement costs decreased by GBP6m and bad
debts increased by GBP3m. Other operating costs decreased by GBP2m,
excluding the GBP69m impact of Hurricane Irene mentioned earlier.
The period-on-period movement in exchange rates had a GBP28m
unfavourable impact on operating profit. As a result, reported
operating profit for the period was GBP306m.
The impact of Hurricane Irene, flooding and tornadoes in
Massachusetts combined to make it an exceptional summer for weather
in our US operating territory. In the immediate aftermath of
Hurricane Irene, over 30% of our US electricity customers were
without power. Around 3,500 of our non-field force employees
combined with our front line employees to contribute to the
restoration efforts. As a result, 90% of our customers were
restored within 5 days. Over 12,000 employees and contractors were
mobilised, working in excess of an estimated 1 million man
hours.
The costs to date of Hurricane Irene within the Long Island
Power Authority service territory have not significantly impacted
operating profit as we expect to recover prudently incurred storm
costs with minimal lag under our contractual arrangements. These
represent approximately 60% of the total costs of the hurricane
within the areas we serve. We have filed for recovery of a
substantial portion of the estimated costs in upstate New York and
expect to file for the remaining recoverable costs which are not
already covered by existing storm funds in our other territories.
The timing of recovery will vary by jurisdiction and recovery of
the costs is expected to positively impact operating profit in
future periods.
These exceptional storms will clearly have affected the
reliability performance in our US business and we expect that these
impacts will be exempted from any regulatory measure. Prior to the
impact of the storms, progress in our US business was positive,
with further improvements in reliability in our US operations.
Despite the exceptional weather, we have continued with our cost
reduction programme targeting a run rate of $200m of savings by
March 2012. The final appointments into the structure were made in
September and the transition to the new structure with
jurisdictional focus is now complete.
Investment activities in the first 6 months of 2011/12
Capital investment in our regulated US business continues at a
broadly steady rate. Capital expenditure for the period was
GBP462m, GBP59m down on the same period last year, primarily due to
movements in exchange rates. On a constant currency basis, capital
investment was GBP21m lower than the same period last year. We
increased spend on the New England East-West System transmission
project, offset by lower spend in our upstate New York electric
business.
Future activities and outlook
The outlook for our US business for the remainder of the year,
excluding the impact of storms and timing is unchanged. The full
year results are expected to be impacted by the storms we have
experienced to date.
As discussed in the business review we have filed for the
recovery of deferred costs in our Niagara Mohawk Electric business.
These will not impact the 2011 Regulated Return on Equity that we
will report for Niagara Mohawk. Also, in 2011, benefits from the
cost reduction programme will be offset by the non-recurrence of a
one-off benefit from warm weather experienced last year, before
decoupling came into effect. We do not expect returns to improve
materially in that business until both the benefits of new rate
filings and the cost reduction programme are achieved. For the US
overall, the outlook for returns in 2011 remains positive.
We continue to progress with the implementation of a single
financial system across all of our US businesses. This system will
address a number of findings from the Liberty audit and is expected
to deliver greater transparency and consistency of cost
treatment.
REVIEW OF OTHER ACTIVITIES
Summary results Six months ended 30 September
(GBPm) 2011 2010 % change
--------------------------------------- --------- --------- ------------
Revenue and other operating income 385 353 9
Operating costs (161) (169) 5
Depreciation and amortisation (93) (83) (12)
Operating profit 131 101 30
--------------------------------------- --------- --------- ------------
Operating profit by principal activities Six months ended 30 September
(GBPm) 2011 2010 % change
------------------------------------------ -------- -------- --------------
Metering 97 87 11
Grain LNG 45 28 61
Property 18 12 50
Sub-total operating profit 160 127 26
Corporate and other activities (29) (26) (12)
Operating profit 131 101 30
------------------------------------------ -------- -------- --------------
Capital investment* Six months ended 30 September
(GBPm) 2011 2010 % change
----------------------- -------- -------- --------------
Metering 35 61 (43)
Grain LNG 9 33 (73)
Property 2 2 -
Other 43 36 19
Capital investment 89 132 (33)
----------------------- -------- -------- --------------
* Excludes investment in joint ventures.
Operating profit from our other activities increased by 30% to
GBP131m. This was mainly driven by an increase in operating profit
from our Grain LNG and Metering businesses.
Metering operating profit was up GBP10m at GBP97m. During the
period, capital investment in this business was GBP35m. GBP12m of
Metering operating profit and GBP12m of Metering capital investment
related to the OnStream business which was sold in October this
year. In our National Grid Metering business, the contracts which
governed the majority of our meter charges last year were not in
place for the first six months of the current year. The affected
customers have instead been charged for regulated services at the
full tariff cap rate, resulting in an increase in revenues and
operating profit.
Our Grain LNG business delivered an operating profit of GBP45m,
up 61%. The phase III capacity expansion, which commenced
commercial operations in December 2010, made an increased
contribution to operating profit in the first half of the year. As
construction of phase III completed last year, capital investment
in Grain LNG was GBP24m lower period-on-period.
Our Property business delivered an operating profit of GBP18m,
up 50%. The increase relates to our lettings business, with profits
from disposals at approximately the same level as the first 6
months of 2010/11.
Other capex increased by GBP7m to GBP43m. This principally
represents spend on US financial systems.
JOINT VENTURES
In the first half of this year we did not invest further in our
joint ventures compared to GBP72m in the same period last year. The
reduction in investment is principally due to the completion of the
BritNed interconnector between England and the Netherlands, our
joint venture with TenneT, which entered commercial operation on 1
April 2011. In addition capital investment in our Millennium
Pipeline joint venture completed last year.
PROVISIONAL FINANCIAL TIMETABLE
30 November 2011 Ordinary shares go ex-dividend
2 December 2011 Record date for 2011/12 interim dividend
7 December 2011 Scrip reference price announced
16 December 2011 Scrip election date for 2011/12 interim dividend
18 January 2012 2011/12 interim dividend paid to qualifying ordinary
shareholders
January/February Interim management statement
2012
17 May 2012 2011/12 preliminary results
30 May 2012 Ordinary shares go ex-dividend
1 June 2012 Record date for 2011/12 final dividend
8 June 2012 Scrip reference price announced
Mid-June 2012 Annual Report & Accounts published
18 July 2012 Scrip election date for 2011/12 final dividend
30 July 2012 Interim management statement and
Annual General Meeting, ICC, Birmingham
15 August 2012 2011/12 final dividend paid to qualifying ordinary
shareholders
CAUTIONARY STATEMENT
This announcement contains certain statements that are neither
reported financial results nor other historical information. These
statements are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. These
statements include information with respect to National Grid's
financial condition, its results of operations and businesses,
strategy, plans and objectives. Words such as 'anticipates',
'expects', 'intends', 'plans', 'believes', '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 and decisions by
governmental bodies or regulators; breaches of, or changes in,
environmental, climate change and health and safety laws or
regulations, including breaches 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 Hurricane Irene and other storms;
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, restructuring and internal
transformation projects; and customers and counterparties 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 in
National Grid's borrowing and debt arrangements, funding costs and
access to financing; National Grid's status as a holding company
with no revenue generating operations of its own; inflation;
seasonal fluctuations; the funding requirements of its pension
schemes and other post-retirement benefit schemes; the loss of key
personnel or the ability to attract, train or retain qualified
personnel and any disputes arising with its employees or the breach
of laws or regulations by its employees; accounting standards,
rules and interpretations, including changes of law and accounting
standards and other factors that may affect National Grid's
effective rate of tax; and incorrect or unforeseen assumptions or
conclusions relating to business development activity. For a more
detailed description of some of these assumptions, risks and
uncertainties, together with any other risk factors, please see
National Grid's filings with and submissions to the US Securities
and Exchange Commission (the 'SEC') (and in particular the 'Risk
factors' and 'Operating and Financial Review' sections in our most
recent Annual Report on Form 20-F). The effects of these factors
are difficult to predict. 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 results to differ materially from those
contained in any forward-looking statement. Except as may be
required by law or regulation, National Grid undertakes no
obligation to update any of its forward-looking statements, which
speak only as of the date of this announcement. The content of any
website references herein do not form part of this
announcement.
RoCE Calculation
The detailed breakdown of the RoCE calculations is set out
below.
UK Regulated US Regulated
2010/11 2009/10 2010/11 2009/10
------------------------------------- -------- -------- -------- --------
Statutory operating profit 1,964 1,934 1,704 1,300
Exceptional items, remeasurements
and stranded cost recoveries 110 100 (297) (359)
Business performance EBIT 2074 2,034 1,407 941
Depreciation and amortisation 618 574 438 441
----------------------------------- -------- -------- -------- --------
EBITDA 2,692 2,608 1,845 1,382
In year timing (74) 38 (203) 125
----------------------------------- -------- -------- -------- --------
EBITDA excluding timing 2,618 2,646 1,642 1,507
Regulatory treatment adjustments
Pensions adjustment (77) (86) (119) (216)
RPI Indexation 558 517
UK deferred taxation adjustment 231 290
Regulatory depreciation (911) (870) (438) (441)
Repex adjustment (209) (209)
----------------------------------- -------- -------- -------- --------
Adjusted EBIT 2,210 2,288 1,085 850
Statutory tax rate 28% 28% 40% 40%
Taxation at statutory rate (619) (641) (434) (340)
----------------------------------- -------- -------- -------- --------
Post tax return 1,591 1,647 651 510
Opening capital employed (rate
base/RAV) 18,614 17,217 9,113 9,289
Return on Capital Employed 8.5% 9.6% 7.1% 5.5%
METRIC DEFINITIONS
The financial metrics we have reported today are designed to
give greater transparency on National Grid's relative performance
and our performance against regulatory contracts.
US REGULATED RETURN ON EQUITY (nominal)
This is a 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) less tax at the
adjudicated rate
-- Regulated net income is adjusted for earned savings in New
York and Narragansett Electric and certain material specified
items.
-- Equity rate base is the average rate base for the calendar
year as reported to our 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
_________________ (1) Excluding exceptional items,
remeasurements and stranded cost recoveries. For definition of
business performance results see footnote 6. (2) Hurricane Irene
struck the North East US on Sunday 28 August 2011, affecting power
supplies to over 1 million National Grid customers. (3) \'Constant
currency' comparison uses recalculated results for H1 2010/11 using
the average US$ exchange rate for H1 2011/12. For detailed
definition of currency adjustments see footnote 7. (4) Prior year
EPS adjusted to reflect the additional shares issued as scrip
dividends, refer to note 7 on page 33.
(5) Including investment in joint ventures (6) Business performance results are the primary financial performance measure used by National Grid, being the results for continuing operations before exceptional items, remeasurements and stranded cost recoveries. 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. Stranded cost recoveries are costs associated with historical generation investment and related contractual commitments that were not recovered through the sale of those investments. Commentary provided in respect of results after exceptional items, remeasurements and stranded cost recoveries is described as 'statutory'. Further details are provided in note 3 on page 29. A reconciliation of business performance to statutory results is provided in the consolidated income statement on page 21. (7) '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 6 months ended 30 September 2011, which was $1.64 to GBP1.00. The average rate for the year ended 30 September 2010, was $1.52 to GBP1.00.
(8) Post-retirement costs include the cost of pensions and other post employment benefits
Year ended
Consolidated income statement 31 March
for the six months ended 30 September 2011 2010 2011
Notes GBPm GBPm GBPm
----------------------------------------------- ----- ------- ------- ----------
Revenue* 2(a) 6,306 6,436 14,343
Operating costs (4,814) (4,855) (10,598)
Operating profit
Before exceptional items, remeasurements
and stranded cost recoveries 2(b) 1,420 1,509 3,600
Exceptional items, remeasurements and
stranded cost
recoveries 3 72 72 145
Total operating profit 2(b) 1,492 1,581 3,745
Interest income and similar income
Before exceptional items 4 648 651 1,281
Exceptional items 3 - - 43
Total interest income and similar income 4 648 651 1,324
Interest expense and other finance
costs
Before exceptional items and remeasurements 4 (1,116) (1,225) (2,415)
Exceptional items and remeasurements 3 (84) (39) (37)
Total interest expense and other finance
costs 4 (1,200) (1,264) (2,452)
Share of post-tax results of joint
ventures and associates 1 3 7
Profit before tax
Before exceptional items, remeasurements
and stranded cost recoveries 2(b) 953 938 2,473
Exceptional items, remeasurements and
stranded cost recoveries 3 (12) 33 151
Total profit before tax 2(b) 941 971 2,624
Taxation
Before exceptional items, remeasurements
and stranded cost recoveries 5 (254) (279) (722)
Exceptional items, remeasurements and
stranded cost recoveries 3 110 71 261
Total taxation (144) (208) (461)
Profit after tax
Before exceptional items, remeasurements
and stranded cost recoveries 699 659 1,751
Exceptional items, remeasurements and
stranded cost recoveries 3 98 104 412
Profit for the period 797 763 2,163
----------------------------------------------- ----- ------- ------- ----------
Attributable to:
Equity shareholders of the parent 795 760 2,159
Non-controlling interests 2 3 4
797 763 2,163
----------------------------------------------- ----- ------- ------- ----------
Earnings per share**
Basic 6(a) 22.3p 23.1p 63.0p
Diluted 6(b) 22.2p 22.9p 62.7p
----------------------------------------------- ----- ------- ------- ----------
* Items previously reported separately as 'other operating
income' have been included within revenue.
** Comparative amounts have been restated to reflect the impact
of additional shares issued as scrip dividends.
Consolidated statement of comprehensive Year ended
income 31 March
for the six months ended 30 September 2011 2010 2011
GBPm GBPm GBPm
----------------------------------------------- ------- ------- ----------
Profit for the period 797 763 2,163
Other comprehensive (loss)/income:
Exchange adjustments 47 (56) (95)
Actuarial net (losses)/gains (1,577) (1,178) 571
Deferred tax on actuarial net gains and
losses 537 404 (181)
Net (losses)/gains on cash flow hedges (2) 9 7
Transferred to profit or loss on cash flow
hedges 3 (9) (7)
Deferred tax on cash flow hedges (4) (2) (2)
Net gains on available-for-sale investments 1 6 16
Transferred to profit or loss on sale of
available-for-sale investments (1) (2) (3)
Deferred tax on available-for-sale investments 1 - (1)
Share of post-tax other comprehensive loss
of joint ventures - (4) (4)
----------------------------------------------- ------- ------- ----------
Other comprehensive (loss)/income for the
period, net of tax (995) (832) 301
Total comprehensive (loss)/income for the
period (198) (69) 2,464
----------------------------------------------- ------- ------- ----------
Total comprehensive (loss)/income attributable
to:
Equity shareholders of the parent (200) (72) 2,460
Non-controlling interests 2 3 4
----------------------------------------------- ------- ------- ----------
(198) (69) 2,464
----------------------------------------------- ------- ------- ----------
Year ended
Consolidated balance sheet 31 March
as at 30 September 2011 2010 2011
Notes GBPm GBPm GBPm
----------------------------------- ----- -------- -------- ----------
Non-current assets
Goodwill 4,857 4,931 4,776
Other intangible assets 538 444 501
Property, plant and equipment 32,873 31,333 31,956
Other non-current assets 154 137 135
Pension assets 64 - 556
Financial and other investments 586 506 593
Derivative financial assets 9 1,941 1,903 1,270
----------------------------------- ----- --------
Total non-current assets 41,013 39,254 39,787
----------------------------------- ----- -------- -------- ----------
Current assets
Inventories and current intangible
assets 528 579 320
Trade and other receivables 1,867 1,715 2,212
Financial and other investments 9 2,664 2,931 2,939
Derivative financial assets 9 263 459 468
Cash and cash equivalents 9 291 419 384
----------------------------------- ----- -------- -------- ----------
Total current assets 5,613 6,103 6,323
----------------------------------- ----- -------- -------- ----------
Assets of businesses held for sale 11 598 - 290
----------------------------------- ----- -------- -------- ----------
Total assets 47,224 45,357 46,400
----------------------------------- ----- -------- -------- ----------
Current liabilities
Borrowings 9 (2,659) (2,835) (2,952)
Derivative financial liabilities 9 (258) (250) (190)
Trade and other payables (2,569) (2,424) (2,828)
Current tax liabilities (494) (427) (503)
Provisions (296) (271) (353)
----------------------------------- ----- -------- -------- ----------
Total current liabilities (6,276) (6,207) (6,826)
----------------------------------- ----- -------- -------- ----------
Non-current liabilities
Borrowings 9 (20,991) (21,010) (20,246)
Derivative financial liabilities 9 (1,237) (863) (404)
Other non-current liabilities (1,952) (1,995) (1,944)
Deferred tax liabilities (3,235) (2,957) (3,766)
Pensions and other post-retirement
benefit obligations (3,551) (3,984) (2,574)
Provisions (1,498) (1,435) (1,461)
----------------------------------- ----- -------- -------- ----------
Total non-current liabilities (32,464) (32,244) (30,395)
----------------------------------- ----- -------- -------- ----------
Liabilities of businesses held for
sale 11 (136) - (110)
----------------------------------- ----- -------- -------- ----------
Total liabilities (38,876) (38,451) (37,331)
----------------------------------- ----- -------- -------- ----------
Net assets 8,348 6,906 9,069
----------------------------------- ----- -------- -------- ----------
Equity
Called up share capital 421 414 416
Share premium account 1,356 1,363 1,361
Retained earnings 11,388 6,858 12,153
Other equity reserves (4,825) (1,738) (4,870)
----------------------------------- ----- -------- -------- ----------
Shareholders' equity 8,340 6,897 9,060
Non-controlling interests 8 9 9
----------------------------------- ----- -------- -------- ----------
Total equity 8,348 6,906 9,069
----------------------------------- ----- -------- -------- ----------
Called Share Other Total
Consolidated statement of up share premium Retained equity share-holders' Non-controlling Total
changes in equity capital account earnings reserves equity interests equity
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ --------- -------- --------- --------- --------------- --------------- -------
Changes in equity for the
period:
At 1 April 2011 416 1,361 12,153 (4,870) 9,060 9 9,069
Total comprehensive
(loss)/income - - (245) 45 (200) 2 (198)
Equity dividends 7 - - (822) - (822) - (822)
Scrip dividend related share
issue 7 5 (5) 279 - 279 - 279
Issue of treasury shares - - 12 - 12 - 12
Purchase of own shares - - (4) - (4) - (4)
Other movements in
non-controlling
interests - - - - - (3) (3)
Share-based payment - - 13 - 13 - 13
Tax on share-based payment - - 2 - 2 - 2
----------------------------- --------- -------- --------- --------- --------------- --------------- -------
At 30 September 2011 421 1,356 11,388 (4,825) 8,340 8 8,348
----------------------------- --------- -------- --------- --------- --------------- --------------- -------
Called Share Other Total
up share premium Retained equity share-holders' Non-controlling Total
capital account earnings reserves equity interests equity
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ --------- -------- --------- --------- --------------- --------------- -------
Changes in equity for the
period:
At 1 April 2010 298 1,366 7,316 (4,781) 4,199 12 4,211
Total comprehensive
(loss)/income - - (14) (58) (72) 3 (69)
Rights issue 113 - - 3,101 3,214 - 3,214
Equity dividends 7 - - (613) - (613) - (613)
Scrip dividend related share
issue 7 3 (3) 141 - 141 - 141
Issue of treasury shares - - 16 - 16 - 16
Other movements in
non-controlling
interests - - - - - (6) (6)
Share-based payment - - 11 - 11 - 11
Tax on share-based payment - - 1 - 1 - 1
----------------------------- --------- -------- --------- --------- --------------- --------------- -------
At 30 September 2010 414 1,363 6,858 (1,738) 6,897 9 6,906
----------------------------- --------- -------- --------- --------- --------------- --------------- -------
Called Share Other Total
up share premium Retained equity share-holders' Non-controlling Total
capital account earnings reserves equity interests equity
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ --------- -------- --------- --------- --------------- --------------- -------
Changes in equity for the
year:
At 1 April 2010 298 1,366 7,316 (4,781) 4,199 12 4,211
Total comprehensive
income/(loss) - - 2,549 (89) 2,460 4 2,464
Rights issue 113 - - 3,101 3,214 - 3,214
Transfer between reserves - - 3,101 (3,101) - - -
Equity dividends 7 - - (1,064) - (1,064) - (1,064)
Scrip dividend related share
issue 7 5 (5) 206 - 206 - 206
Issue of treasury shares - - 18 - 18 - 18
Purchase of own shares - - (3) - (3) - (3)
Other movements in
non-controlling
interests - - - - - (7) (7)
Share-based payment - - 25 - 25 - 25
Tax on share-based payment - - 5 - 5 - 5
----------------------------- --------- -------- --------- --------- --------------- --------------- -------
At 31 March 2011 416 1,361 12,153 (4,870) 9,060 9 9,069
----------------------------- --------- -------- --------- --------- --------------- --------------- -------
Year ended
Consolidated cash flow statement 31 March
for the six months ended 30 September 2011 2010 2011
Notes GBPm GBPm GBPm
------------------------------------------------ ----- ------- ------- ----------
Cash flows from operating activities
Total operating profit 2(b) 1,492 1,581 3,745
Adjustments for:
Exceptional items, remeasurements and
stranded cost recoveries 3 (72) (72) (145)
Depreciation and amortisation 619 619 1,245
Share-based payment charge 13 11 25
Changes in working capital 39 46 185
Changes in provisions (82) (85) (93)
Changes in pensions and other post-retirement
benefit obligations (207) (167) (304)
Cash flows relating to exceptional items (69) (43) (147)
Cash flows relating to stranded cost recoveries 159 166 343
------------------------------------------------ ----- ------- ------- ----------
Cash generated from operations 1,892 2,056 4,854
Tax (paid)/received (157) (116) 4
------------------------------------------------ ----- -------
Net cash inflow from operating activities 1,735 1,940 4,858
------------------------------------------------ ----- ------- ------- ----------
Cash flows from investing activities
Acquisition of investments - (72) (135)
Net proceeds from sale of investments
in subsidiaries - 21 11
Purchases of intangible assets (80) (77) (176)
Purchases of property, plant and equipment (1,474) (1,467) (2,958)
Disposals of property, plant and equipment 13 10 26
Dividends received from joint ventures 9 3 9
Interest received 12 12 26
Net movements in short-term financial
investments 314 (1,541) (1,577)
------------------------------------------------ ----- ------- ------- ----------
Net cash flow used in investing activities (1,206) (3,111) (4,774)
------------------------------------------------ ----- ------- ------- ----------
Cash flows from financing activities
Proceeds of rights issue - 3,218 3,214
Proceeds from issue of treasury shares 12 16 18
Purchase of own shares (4) - (3)
Proceeds from loans received 1,093 350 767
Repayments of loans (1,080) (1,475) (2,878)
Net movements in short-term borrowings
and derivatives 277 (205) 348
Interest paid (379) (491) (965)
Exceptional finance costs on the redemption
of debt - (57) (73)
Dividends paid to shareholders (543) (472) (858)
------------------------------------------------ ----- ------- ------- ----------
Net cash flow (used in)/from financing
activities (624) 884 (430)
------------------------------------------------ ----- ------- ------- ----------
Net decrease in cash and cash equivalents 9 (95) (287) (346)
Reclassified as held for sale (6) - -
Exchange movements (1) (3) (3)
Net cash and cash equivalents at start
of period 342 691 691
------------------------------------------------ ----- ------- ------- ----------
Net cash and cash equivalents at end of
period (i) 240 401 342
------------------------------------------------ ----- ------- ------- ----------
(i) Net of bank overdrafts of GBP51m (30 September 2010: GBP18m;
31 March 2011: GBP42m).
Notes to the 2011/12 Half Year Financial Information
1. Basis of preparation and new accounting standards,
interpretations and amendments
The half year financial information covers the six month period
ended 30 September 2011 and has been prepared under International
Financial Reporting Standards (IFRS) as issued by the International
Accounting Standards Board (IASB), and IFRS as adopted by the
European Union, in accordance with International Accounting
Standard 34 'Interim Financial Reporting' and the Disclosure and
Transparency Rules of the Financial Services Authority. The half
year financial information is unaudited but has been reviewed by
the auditors and their report is attached to this document.
The following standards, interpretations and amendments, issued
by the IASB and by the IFRS Interpretations Committee (IFRIC), are
effective for the year ending 31 March 2012. None of the
pronouncements had a material impact on the Company's consolidated
results or assets and liabilities for the six month period ended 30
September 2011.
-- IFRIC 19 on extinguishing financial liabilities with equity instruments
-- Amendment to IFRIC 14 on pension minimum funding requirements
-- Amendment to IFRS 1 on first time adoption of IFRS
-- IAS 24 related party disclosures
-- Improvements to IFRS 2010
The half year financial information does not constitute
statutory accounts as defined in Section 434 of the Companies Act
2006. It should be read in conjunction with the statutory accounts
for the year ended 31 March 2011, which were prepared in accordance
with IFRS as issued by the IASB and as adopted by the European
Union, and have been filed with the Registrar of Companies. The
auditors' report on these statutory accounts was unqualified and
did not contain a statement under Section 498 of the Companies Act
2006.
The half year financial information has been prepared in
accordance with the accounting policies expected to be applicable
for the year ending 31 March 2012 and consistent with those applied
in the preparation of our accounts for the year ended 31 March
2011.
Having made enquiries, the Directors consider that the Company
and its subsidiary undertakings have adequate resources to
continue in business for the foreseeable future, and that it is
therefore appropriate to adopt the going concern basis in preparing
the half year financial information.
Date of approval
This announcement was approved by the Board of Directors on 16
November 2011.
2. Segmental analysis
The Board of Directors is National Grid's chief operating
decision making body (as defined by IFRS 8 on operating segments).
The segmental analysis is based on the information the Board of
Directors uses internally for the purposes of evaluating the
performance of operating segments and determining resource
allocation between segments. The performance of operating segments
is assessed principally on the basis of operating profit before
exceptional items, remeasurements and stranded cost recoveries. The
following table describes the main activities for each operating
segment:
UK Transmission High voltage electricity transmission networks,
the gas transmission network in Great Britain,
UK liquefied natural gas (LNG) storage activities
and the French electricity interconnector.
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-based gas and electricity metering
activities; UK property management; a UK LNG import terminal; other
LNG operations; US unregulated transmission pipelines; US gas
fields; together with corporate activities.
Sales between operating segments are priced having regard to the
regulatory and legal requirements to which the businesses are
subject. The analysis of revenue by geographical area is on the
basis of destination. There are no material sales between the UK
and US geographical areas.
As a consequence of the introduction of a new operating model,
which took effect on 4 April 2011, there has been a corresponding
change to our reported segments. The former US Transmission, US Gas
Distribution and US Electricity Distribution & Generation
segments have been combined and are now reported as 'US
Regulated'.
(a) Revenue
Year ended
31 March
Six months ended 30 September 2011 2010* 2011
GBPm GBPm GBPm
----------------------------------------- ----- ----- ----------
Operating segments
UK Transmission 1,730 1,686 3,484
UK Gas Distribution 787 772 1,524
US Regulated 3,455 3,674 8,746
Other activities 385 353 678
Sales between segments (51) (49) (89)
----------------------------------------- ----- ----- ----------
6,306 6,436 14,343
----------------------------------------- ----- ----- ----------
Total excluding stranded cost recoveries 6,136 6,260 13,988
Stranded cost recoveries 170 176 355
----------------------------------------- ----- ----- ----------
6,306 6,436 14,343
----------------------------------------- ----- ----- ----------
Geographical areas
UK 2,829 2,732 5,556
US 3,477 3,704 8,787
----------------------------------------- ----- ----- ----------
6,306 6,436 14,343
----------------------------------------- ----- ----- ----------
* Items previously reported separately as 'other operating
income' have been included within revenue. 2. Segmental analysis
continued
(b) Operating profit
Before exceptional items, After exceptional items,
remeasurements and stranded remeasurements and stranded
cost recoveries cost recoveries
-------------------------------- --------------------------------------
Year ended Year ended
31 March 31 March
Six months ended 30 September 2011 2010 2011 2011 2010 2011
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ --------- ------- ------------ ----------- ----------- ------------
Operating segments
UK Transmission 602 645 1,363 602 592 1,293
UK Gas Distribution 381 383 711 375 389 671
US Regulated 306 380 1,407 392 539 1,704
Other activities 131 101 119 123 61 77
------------------------------ --------- ------- ------------ ----------- ----------- ------------
1,420 1,509 3,600 1,492 1,581 3,745
------------------------------ --------- ------- ------------ ----------- ----------- ------------
Geographical areas
UK 1,116 1,127 2,226 1,110 1,016 2,055
US 304 382 1,374 382 565 1,690
------------------------------ --------- ------- ------------ ----------- ----------- ------------
1,420 1,509 3,600 1,492 1,581 3,745
------------------------------ --------- ------- ------------ ----------- ----------- ------------
Reconciliation to profit
before tax:
Operating profit 1,420 1,509 3,600 1,492 1,581 3,745
Interest income and similar
income 648 651 1,281 648 651 1,324
Interest expense and other
finance costs (1,116) (1,225) (2,415) (1,200) (1,264) (2,452)
Share of post-tax results
of joint ventures and
associates 1 3 7 1 3 7
------------------------------ --------- ------- ------------ ----------- ----------- ------------
Profit before tax 953 938 2,473 941 971 2,624
------------------------------ --------- ------- ------------ ----------- ----------- ------------
3. Exceptional items, remeasurements and stranded cost
recoveries
Exceptional items, remeasurements and stranded cost recoveries
are items of income and expenditure that, in the judgment of
management, should be disclosed separately on the basis that they
are material, either by their nature or their size, 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. Stranded
cost recoveries represent the recovery of historical
generation-related costs in the US, related to generation assets
that are no longer owned by National Grid. Such costs are being
recovered from customers as permitted by regulatory agreements.
Year ended
31 March
Six months ended 30 September 2011 2010 2011
GBPm GBPm GBPm
-------------------------------------------------- ---- ----- ----------
Included within operating profit:
Exceptional items:
Restructuring costs (1) (72) 7 (89)
Environmental charges (2) (37) (75) (128)
Net gain on disposal of businesses (3) 19 19 15
Impairment charges and related costs (4) - (58) (133)
Other (5) (3) (3) (15)
(93) (110) (350)
Remeasurements - commodity contracts (6) (2) 10 147
Stranded cost recoveries (7) 167 172 348
-------------------------------------------------- ---- ----- ----------
72 72 145
-------------------------------------------------- ---- ----- ----------
Included within interest income and similar
income:
Exceptional items:
Interest credit on tax settlement (8) - - 43
-------------------------------------------------- ---- ----- ----------
Included within finance costs:
Exceptional items:
Debt redemption costs (9) - (57) (73)
Remeasurements:
Net (losses)/gains on derivative financial
instruments (10) (84) 18 36
-------------------------------------------------- ---- ----- ----------
(84) (39) (37)
-------------------------------------------------- ---- ----- ----------
Total included within profit before tax (12) 33 151
-------------------------------------------------- ---- ----- ----------
Included within taxation:
Exceptional credits arising on items not included
in profit before tax:
Deferred tax credit arising on the reduction
in the UK tax rate (11) 125 115 226
Other (12) - - 59
Tax on exceptional items 36 28 79
Tax on remeasurements (6, 10) 16 (3) 36
Tax on stranded cost recoveries (67) (69) (139)
-------------------------------------------------- ---- ----- ----------
110 71 261
-------------------------------------------------- ---- ----- ----------
Total exceptional items, remeasurements and
stranded cost recoveries after tax 98 104 412
-------------------------------------------------- ---- ----- ----------
Analysis of exceptional items, remeasurements
and stranded cost recoveries after tax:
Total exceptional items after tax 68 (24) (16)
Total remeasurements after tax (70) 25 219
Total stranded cost recoveries after tax 100 103 209
-------------------------------------------------- ---- ----- ----------
Total 98 104 412
-------------------------------------------------- ---- ----- ----------
3. Exceptional items, remeasurements and stranded cost
recoveries continued
1) Restructuring costs for the period include: transformation
related initiatives of GBP17m (2010: GBP26m; year ended 31 March
2011: GBP103m); and costs related to the restructuring of our US
operations of GBP55m (2010: GBPnil; year ended 31 March 2011:
GBP10m) which include severance costs and pension and other
post-retirement benefit curtailment gains and losses. For the six
months ended 30 September 2010 and the year ended 31 March 2011
restructuring costs also included: costs related to the integration
of KeySpan of GBP6m and GBP15m respectively; and a release of
GBP39m in both periods of restructuring provisions recognised in
prior years.
2) Environmental charges include GBPnil (2010: GBP69m; year
ended 31 March 2011: GBP70m) and GBP37m (2010: GBP6m; year ended 31
March 2011: GBP58m) related to specific exposures in the UK and US
respectively. Costs incurred with respect to US environmental
provisions are substantially recoverable from customers.
3) During the period we recognised a net credit of GBP19m in
relation to disposals of businesses made in prior periods
representing additional charges and release of various unutilised
provisions. During the year ended 31 March 2011 we sold three
wholly owned subsidiaries and an interest in an associate resulting
in a gain of GBP15m (six months ended 30 September 2010: GBP19m net
gain).
4) Impairment charges and related costs for the year ended 31 March 2011 included:
- a charge of GBP49m relating to our investment in Blue-NG, a
joint venture investing in combined heat and power generation. The
charge comprised an impairment of the carrying value of the
investment together with committed funding and associated exit
costs (six months ended 30 September 2010: GBP58m);
- an impairment charge of GBP34m against the carrying value of
the goodwill relating to our US companies in New Hampshire,
following our announcement in December 2010 of the proposed sale of
these businesses; and
- a charge of GBP50m relating to our US generation assets for
impairment and associated decommissioning.
5) Other exceptional charges for the period include an
amortisation charge of GBP3m (2010: GBP3m; year ended 31 March
2011: GBP7m) in relation to acquisition-related intangibles. In
addition the charge for the year ended 31 March 2011 included a
GBP8m penalty levied by Ofgem on our UK gas distribution
business.
6) Remeasurements - commodity contracts represent mark-to-market
movements on certain physical and financial commodity contract
obligations in the US. These contracts primarily relate to the
forward purchase of energy for supply to customers, or to the
economic hedging thereof, that are required to be measured at fair
value and that do not qualify for hedge accounting. Under the
existing rate plans in the US, commodity costs are recoverable from
customers although the timing of recovery may differ from the
pattern of costs incurred. These movements are comprised of those
affecting operating profit which are based on the change in the
commodity contract liability and those recorded in finance costs as
a result of the time value of money.
7) Stranded cost recoveries include the recovery of some of our
historical investments in generating plants that were divested as
part of the restructuring and wholesale power deregulation process
in New England and New York during the 1990s. Stranded cost
recoveries on a pre-tax basis consist of revenue of GBP170m (2010:
GBP176m; year ended 31 March 2011: GBP355m) and operating costs of
GBP3m (2010: GBP4m; year ended 31 March 2011: GBP7m).
8) During the year ended 31 March 2011 we reached agreement with
the US tax authorities on the settlement of pre-acquisition tax
liabilities which resulted in the repayment of tax and interest
accruing.
9) Debt redemption costs for the year ended 31 March 2011 of
GBP73m (six months ended 30 September 2010: GBP57m) represented
costs arising from our debt repurchase programme, undertaken
primarily in the first half of last year, to manage our cash
resources efficiently following the rights issue.
10) Remeasurements - net gains and losses on derivative
financial instruments comprise gains and losses arising on
derivative financial instruments reported in the income statement.
These exclude gains and losses for which hedge accounting has been
effective, which have been recognised directly in other
comprehensive income or which are offset by adjustments to the
carrying value of debt. The tax credit on remeasurements includes
GBPnil (2010: GBPnil; year ended 31 March 2011: GBP104m credit) in
respect of prior years.
11) The exceptional tax credit arises from a reduction in the UK
corporation tax rate from 26% to 25% included and enacted in the
Finance Act 2011 and applicable from 1 April 2012. Other UK tax
legislation also reduced the UK corporation tax rate in the prior
periods (2010: from 28% to 27%; year ended 31 March 2011: from 28%
to 26%). These reductions have resulted in a decrease in deferred
tax liabilities.
12) The exceptional tax credit for the year ended 31 March 2011
primarily arose from a settlement of pre-acquisition tax
liabilities with the US tax authorities.
4. Finance income and costs
Year ended
31 March
Six months ended 30 September 2011 2010 2011
GBPm GBPm GBPm
------------------------------------------------------ ------- ------- ----------
Expected return on pension and other post-retirement
benefit plan assets 637 638 1,256
Interest income on financial instruments 11 13 25
------------------------------------------------------ ------- -------
Interest income and similar income before exceptional
items 648 651 1,281
Exceptional interest credit on tax settlement - - 43
------------------------------------------------------ ------- ------- ----------
Interest income and similar income 648 651 1,324
------------------------------------------------------ ------- ------- ----------
Interest on pension and other post-retirement
benefit plan obligations (601) (626) (1,231)
Interest expense on financial instruments (545) (604) (1,185)
Unwinding of discounts on provisions (30) (56) (128)
Less: interest capitalised 60 61 129
------------------------------------------------------ ------- ------- ----------
Interest expense and other finance costs before
exceptional items and remeasurements (1,116) (1,225) (2,415)
Exceptional debt redemption costs - (57) (73)
Net (losses)/gains on derivative financial
instruments and commodity contracts
included in remeasurements (84) 18 36
------------------------------------------------------ ------- ------- ----------
Exceptional items and remeasurements (84) (39) (37)
------------------------------------------------------ ------- -------
Interest expense and other finance costs (1,200) (1,264) (2,452)
------------------------------------------------------ ------- ------- ----------
Net finance costs (552) (613) (1,128)
------------------------------------------------------ ------- ------- ----------
5. Taxation
The tax charge for the period, excluding tax on exceptional
items, remeasurements and stranded cost recoveries is GBP254m
(2010: GBP279m; year ended 31 March 2011: GBP722m). The effective
tax rate of 26.7% (2010: 29.7%) for the period is based on the best
estimate of the weighted average annual income tax rate by
jurisdiction expected for the full year. The current period rate
reflects the varied seasonality of earnings in the US. For the full
year we expect the group effective tax rate to be approximately
29%. The effective tax rate for the year ended 31 March 2011 was
29.2%.
6. Earnings per share
(a) Basic earnings per share
Year ended
31 March Year ended
Six months ended 30 September 2011 2011 2010 2010* 2011 31 March
Earnings Earnings 2011* Earnings
Earnings per share Earnings per share Earnings per share
GBPm pence GBPm pence GBPm pence
------------------------------- --------- ---------- --------- ---------- ------------ ---------------
Adjusted basic 697 19.6 656 19.9 1,747 51.0
Exceptional items after tax 68 1.9 (24) (0.7) (16) (0.5)
Remeasurements after tax (70) (2.0) 25 0.8 219 6.4
Stranded cost recoveries after
tax 100 2.8 103 3.1 209 6.1
------------------------------- --------- ---------- --------- ---------- ------------ ---------------
Basic 795 22.3 760 23.1 2,159 63.0
------------------------------- --------- ---------- --------- ---------- ------------ ---------------
millions millions* millions*
------------------------------- --------- ---------- --------- ---------- ------------ ---------------
Weighted average number of
shares - basic 3,559 3,297 3,425
------------------------------- --------- ---------- --------- ---------- ------------ ---------------
(b) Diluted earnings per share
Year ended Year ended
31 March 31 March
Six months ended 30 September 2011 2011 2010 2010* 2011 2011*
Earnings Earnings Earnings
Earnings per share Earnings per share Earnings per share
GBPm pence GBPm pence GBPm pence
------------------------------- --------- ---------- --------- ---------- ------------ ----------
Adjusted diluted 697 19.5 656 19.8 1,747 50.7
Exceptional items after tax 68 1.9 (24) (0.7) (16) (0.5)
Remeasurements after tax (70) (2.0) 25 0.8 219 6.4
Stranded cost recoveries after
tax 100 2.8 103 3.0 209 6.1
------------------------------- --------- ---------- --------- ---------- ------------ ----------
Diluted 795 22.2 760 22.9 2,159 62.7
------------------------------- --------- ---------- --------- ---------- ------------ ----------
millions millions* millions*
------------------------------- --------- ---------- --------- ---------- ------------ ----------
Weighted average number of
shares - diluted 3,578 3,316 3,444
------------------------------- --------- ---------- --------- ---------- ------------ ----------
* Comparative amounts have been restated to reflect the impact
of additional shares issued as scrip dividends.
7. Dividends
The following table shows the actual dividends paid to equity
shareholders:
Year Year Year
ended ended ended
Six months ended 30 31 March 31 March 31 March
September 2011 2011 2011 2010 2010 2010 2011 2011 2011
Settled Settled Settled
pence via pence via pence via
per Total scrip per Total scrip per Total scrip
share GBPm GBPm share GBPm GBPm share GBPm GBPm
--------------------- ------ ----- -------- ------ ----- ------- --------- --------- ---------
Ordinary dividends
Final - year ended
2011 23.47 822 279 - - - - - -
Interim - year ended
2011 - - - - - - 12.90 451 65
Final - year ended
2010 - - - 24.84 613 141 24.84 613 141
--------------------- ------ ----- -------- ------ ----- ------- --------- --------- ---------
Actual 23.47 822 279 24.84 613 141 37.74 1,064 206
--------------------- ------ ----- -------- ------ ----- ------- --------- --------- ---------
The Directors are proposing an interim dividend of 13.93p per
share that would absorb approximately GBP496m of shareholders'
equity to be paid in respect of the year ending 31 March 2012. A
scrip dividend will again be offered as an alternative.
8. Reconciliation of net cash flow to movement in net debt
Year ended
31 March
Six months ended 30 September 2011 2010 2011
GBPm GBPm GBPm
------------------------------------------------ -------- -------- ----------
Decrease in cash and cash equivalents (95) (287) (346)
(Decrease)/increase in financial investments (314) 1,541 1,577
(Increase)/decrease in borrowings and related
derivatives (290) 1,330 1,763
Net interest paid on the components of net debt 374 525 1,011
------------------------------------------------ -------- -------- ----------
Change in net debt resulting from cash flows (325) 3,109 4,005
Changes in fair value of financial assets and
liabilities and exchange movements (382) 416 690
Net interest charge on the components of net
debt (525) (632) (1,228)
Reclassified as held for sale (8) - 9
Other non-cash movements (15) - (68)
------------------------------------------------ -------- --------
Movement in net debt (net of related derivative
financial instruments) in the period (1,255) 2,893 3,408
Net debt (net of related derivative financial
instruments) at start of period (18,731) (22,139) (22,139)
------------------------------------------------ -------- -------- ----------
Net debt (net of related derivative financial
instruments) at end of period (19,986) (19,246) (18,731)
------------------------------------------------ -------- -------- ----------
9. Net debt
Year ended
31 March
At 30 September 2011 2010 2011
GBPm GBPm GBPm
-------------------------------------------------- -------- -------- -----------
Cash and cash equivalents 291 419 384
Bank overdrafts (51) (18) (42)
-------------------------------------------------- -------- -------- -----------
Net cash and cash equivalents 240 401 342
Financial investments 2,664 2,931 2,939
Borrowings (excluding bank overdrafts) (23,599) (23,827) (23,156)
-------------------------------------------------- -------- -------- -----------
(20,695) (20,495) (19,875)
Net debt related derivative financial assets 2,204 2,362 1,738
Net debt related derivative financial liabilities (1,495) (1,113) (594)
-------------------------------------------------- -------- -------- -----------
Net debt (net of related derivative financial
instruments) (19,986) (19,246) (18,731)
-------------------------------------------------- -------- -------- -----------
10. Commitments and contingencies
Year ended
31 March
At 30 September 2011 2010 2011
GBPm GBPm GBPm
---------------------------------------------- ----- ----- -----------
Future capital expenditure contracted for but
not provided 1,725 1,472 1,614
Operating lease commitments 776 822 795
Energy purchase commitments (i) 3,614 3,850 3,543
Guarantees and letters of credit (a) 767 1,115 762
(i) Commodity contracts that do not meet the normal purchase,
sale or usage criteria and hence are accounted for as derivative
contracts are recorded at fair value and incorporated in other
non-current assets, trade and other receivables, trade and other
payables and other non-current liabilities. At 30 September 2011
these amounted to net liabilities of GBP120m (2010: GBP270m; 31
March 2011: GBP109m).
(a) Guarantees and letters of credit
Year ended
31 March
At 30 September 2011 2010 2011
GBPm GBPm GBPm
------------------------------------------------------ ---- ----- ----------
Guarantee of sublease for US property (expires
2040) 318 344 328
Letter of credit and guarantee of certain obligations
of BritNed Interconnector (expire 2011) 9 364 36
Guarantees of certain obligations of Grain LNG
Import Terminal (expire up to 2028) 161 145 139
Other guarantees and letters of credit (various
expiry dates) 279 262 259
------------------------------------------------------ ---- ----- ----------
767 1,115 762
------------------------------------------------------ ---- ----- ----------
Save as disclosed below, there have been no significant changes
in relation to litigation and claims, from the position reported on
page 152 of our Annual Report and Accounts 2010/11.
In respect of the Gas Distribution mains replacement
investigation, following the receipt of the Final Penalty Notice on
13 May 2011, we paid the penalty in full on 20 June, within the
relevant deadline.
In respect of the KeySpan class actions, the claim dismissed in
the federal court on 22 March 2011 was appealed by the plaintiff on
3 June in the Second Circuit U.S. Court of Appeals. In respect of
the claim in the New York State Court our initial application for
dismissal was denied on procedural grounds; we are filing a notice
of appeal against this and the claim will enter a customary
procedural discovery phase pending the decision on
appeal. We continue to believe that both complaints and their allegations are without merit.
As reported in our 2010/11 Annual Report and Accounts, the
severe winter weather significantly increased emergency workload
and hindered our engineers' travel. As a result we fell short in
six of our eight standards of service for gas escapes where we are
required to attend 97% of the escapes between one and two hours of
the report. As a result, in October Ofgem announced that it will
investigate whether we complied with the emergency standards
included in our gas transporter licence.
11. Businesses held for sale
As at 31 March 2011, our EnergyNorth gas business and Granite
State electricity business in New Hampshire were classified as
businesses held for sale. As at 30 September 2011, these businesses
continued to be classified as held for sale as they are expected to
be disposed during the year ending 31 March 2012. As at 30
September 2011, Seneca-Upshur our oil and gas exploration business
in West Virginia and Pennsylvania; and OnStream our non-regulated
metering business in the UK were also reclassified as businesses
held for sale and were sold on 3 October 2011 and 24 October 2011
respectively.
The results of these businesses have not been separately
disclosed from those of continuing operations as they do not
constitute a separate major line of business or geographical area
of National Grid's operations.
12. Exchange rates
The consolidated results are affected by the exchange rates used
to translate the results of our US operations and US dollar
transactions. The US dollar to pound sterling exchange rates used
were:
Year ended
31 March
30 September 2011 2010 2011
------------------------------------ ---- ---- ----------
Closing rate applied at period end 1.56 1.57 1.61
Average rate applied for the period 1.64 1.52 1.57
------------------------------------ ---- ---- ----------
13. Related party transactions
The following material 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.
Year ended
31 March
Six months ended 30 September 2011 2010 2011
GBPm GBPm GBPm
-------------------------------------------------- ---- ---- ----------
Sales: Services and goods supplied to a pension
plan and joint ventures 5 7 11
Purchases: Services and goods received from
joint ventures (i) 37 38 84
Interest income: Interest receivable on loans
with joint ventures - 1 2
Receivable from a pension plan and joint ventures 3 1 2
Payable to joint ventures 8 6 8
Dividends received from joint ventures (ii) 9 3 9
-------------------------------------------------- ---- ---- ----------
(i) During the period the Company received services and goods
from a number of joint ventures, including Iroquois Gas
Transmission System, LP of GBP19m (2010: GBP20m, 31 March 2011:
GBP40m) and Millennium Pipeline Company, LLC of GBP11m (2010:
GBP12m, 31 March 2011: GBP28m) for the transportation of gas in the
US.
(ii) Dividends of GBP7m (2010: GBP3m, 31 March 2011: GBP9m) were
received from Iroquois Gas Transmission System, LP.
14. Principal risks and uncertainties
The principal risks and uncertainties which could affect
National Grid for the remaining six months of the financial year
remain the same as those disclosed at the year ended 31 March 2011
in the Annual Report and Accounts 2010/11 ('Annual Report'). A list
of the significant risks is provided on pages 36 and 37 of the
Annual Report, and the risks are then disclosed in more detail on
pages 91 to 93, and pages 157 to 164. Our overall risk management
process is designed to identify, manage, and mitigate our business
risks, including financial risks. Our assessment of the principal
risks and uncertainties and our risk management processes have not
changed since the year end. A summary of these principal risks and
uncertainties is provided below:
-- Changes in law or regulation and decisions by governmental bodies or regulators
-- Potentially harmful activities, the environment and climate change
-- Network failure or interruption, the inability to carry out
critical non-network operations and damage to infrastructure
-- Business performance and regulatory targets
-- Exchange rates, interest rates and commodity price indices
-- Borrowing and debt arrangements, funding costs, tax and access to financing
-- Inflation
-- Business development including acquisitions and disposals
-- Funding of our pension schemes and other post-retirement benefits
-- Customers and counterparty risk
-- Capabilities and performance of our personnel
-- Seasonal fluctuations of weather
Statement of Directors' Responsibilities
The half year financial information is the responsibility of,
and has been approved by, the Directors. The Directors are
responsible for preparing the half year report in accordance with
the Disclosure and Transparency Rules of the United Kingdom's
Financial Services Authority.
The Directors confirm that the financial information has been
prepared in accordance with IAS 34 as adopted by the European
Union, and that the half year report herein includes a fair review
of the information required by DTR 4.2.7 and DTR 4.2.8.
The Directors of National Grid plc are as listed in the National
Grid plc Annual Report for the year ended 31 March 2011 with the
exception of the following changes to the Board:
-- Sir Peter Gershon who was appointed as Deputy Chairman on 1 July 2011;
-- John Allan who resigned as a non-executive director on 25 July 2011; and
-- Ruth Kelly who was appointed as a non-executive director on 1 October 2011
By order of the Board
.......................... ..........................
Steve Holliday Andrew Bonfield
16 November 2011 16 November 2011
Chief Executive Officer Finance Director
Independent review report to National Grid plc
Introduction
We have been engaged by the Company to review the condensed set
of financial statements in the half year financial information for
the six months ended 30 September 2011, which comprises the
consolidated income statement, statement of comprehensive income,
balance sheet, statement of changes in equity, cash flow statement
and related notes. We have read the other information contained in
the half year financial information and considered whether it
contains any apparent misstatements or material inconsistencies
with the information in the condensed set of financial
statements.
Directors' responsibilities
The half year financial information is the responsibility of,
and has been approved by, the directors. The directors are
responsible for preparing the half year financial information in
accordance with the Disclosure and Transparency Rules of the United
Kingdom's Financial Services Authority.
As disclosed in note 1, the annual financial statements of the
group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this half year financial information has been prepared in
accordance with International Accounting Standard 34, "Interim
Financial Reporting", as adopted by the European Union.
The maintenance and integrity of the National Grid Plc website
is the responsibility of the directors; the work carried out by the
auditors does not involve consideration of these matters and,
accordingly, the auditors accept no responsibility for any changes
that may have occurred to the financial statements since they were
initially presented on the website.
Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half year
financial information based on our review. This report, including
the conclusion, has been prepared for and only for the Company for
the purpose of the Disclosure and Transparency Rules of the
Financial Services Authority and for no other purpose. We do not,
in producing this report, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown
or into whose hands it may come save where expressly agreed by our
prior consent in writing.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK and Ireland) and consequently does not enable us to
obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half year financial information for the six months ended 30
September 2011 is not prepared, in all material respects, in
accordance with International Accounting Standard 34 as adopted by
the European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Services Authority.
PricewaterhouseCoopers LLP
Chartered Accountants
London
16 November 2011
This information is provided by RNS
The company news service from the London Stock Exchange
END
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