REG - National Grid PLC - National Grid plc Full-Year Results 2022/23
18/05/2023 07:00
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RNS Number : 8032Z National Grid PLC 18 May 2023
Record investment, delivering for our customers and communities
London | 18 May 2023: National Grid, a leading energy transmission and
distribution company, today announces its Full Year results for the period
ended 31 March 2023.
John Pettigrew, Chief Executive, said:
"This has been another year of significant progress and strategic change for
National Grid with good results demonstrating excellent execution against our
key priorities. A record £7.7 billion has been invested in building clean,
smart energy infrastructure and maintaining world class reliability across our
networks. We've supported our communities, announcing the early return of
£100 million of interconnector revenues today on top of £200 million we've
already committed to return, whilst giving a further £65 million to our most
vulnerable customers. A further £236 million of operating cost efficiencies
during the year has helped to mitigate the impact of high energy prices.
As we look to the future, there has never been a more exciting time to be at
the heart of the energy industry. The strategic pivot we announced in 2021 is
now complete, enhancing our critical role at the heart of the energy
transition. The visibility of growth has been strengthened by the new
five-year RIIO-ED2 price control, $3.8 billion of additional longer-term
investment for our US business to drive greater connection and delivery of
clean power, and Ofgem's recent decision to award us 17 major transmission
projects to enable greater levels of offshore wind connection in the UK.
The opportunities for future growth are considerable, and we will continue to
work closely with governments and regulators to drive the energy transition
forward, achieving positive change for our communities and consumers, and a
clean, fair and affordable energy future for all."
Financial Summary - Year ended 31 March
Continuing operations only (not including UK Gas Transmission)
Statutory results Underlying(1) Underlying at constant currency(2)
2023 2022 % change 2023 2022 % change 2022 % change
Operating profit (£m) 4,879 4,371 12% 4,582 3,992 15% 4,171 10%
Profit before tax (£m) 3,590 3,441 4% 3,258 3,059 7% 3,187 2%
Earnings per share (p) 74.2 60.6 22% 69.7 65.3 7% 67.9 3%
Dividend per share (p) 55.44 50.97 8.77%
Capital investment (£m) 7,740 6,739 15%
3,659 million weighted average shares for 2022/23 (2021/22: 3,599 million).
1. 'Underlying' represents statutory results from continuing operations, but
excluding exceptional items, remeasurements, major storm costs (when greater
than $100 million) and timing. These and a number of other terms and
performance measures used in this document are not defined within accounting
standards and may be applied differently by other organisations. We have
provided definitions of these terms on page 79 and reconciliations of these
measures on pages 80 to 83. These measures are not a substitute for IFRS
measures, however the Group believes such information is useful in assessing
the performance of the business on a comparable basis.
2. Constant currency calculated using current year average exchange rate of
$1.216 (2022: actual average exchange rate was $1.348).
Highlights
(Successful completion of our strategic pivot)
Last year, National Grid completed the strategic repositioning of its
portfolio:
■ Completed the £3.1 billion sale of the Narragansett Electric Company
(NECO) to PPL Corporation in May 2022.
■ Completed the sale of a 60% stake in UK Gas Transmission and Metering
(UK Gas Transmission) to a consortium led by Macquarie Asset Management and
British Columbia Investment Management Corporation in January 2023.
(Financial delivery)
■ Underlying operating profit of £4.6 billion was up 15% at actual
exchange rates (10% at constant currency). This reflects a full year
contribution from UK Electricity Distribution; good operational performance
across our US regulated businesses; higher contribution from National Grid
Ventures (NGV); and increased property sales; partly offset by a shorter
period of NECO ownership (two months), and our community support package.
■ Statutory operating profit for continuing operations was up 12% to
£4.9 billion, benefiting from the gain on sale of NECO and our Millennium
investment, insurance recoveries following the IFA fire, partly offset by
adverse commodity remeasurements. Consequently, statutory EPS for continuing
operations was up by 22% compared to the prior year.
■ Underlying earnings per share (EPS) was up by 7% compared to the prior
year at actual exchange rates (3% at constant currency), driven by the above
reasons impacting underlying operating profit, offset by higher interest
costs.
■ Recommended final dividend of 37.60p to bring full year dividend to
55.44p, up 8.77% and in line with policy.
(Record capital investment across our energy networks)
■ Capital investment of £7.7 billion for continuing operations up £1.0
billion at actual exchange rates (8% at constant currency) including £266
million of non-cash lease additions in the US. This investment was principally
driven by a full year of UK Electricity Distribution ownership, as well as
higher levels of investment to drive forward the energy transition and deliver
energy security. This includes: New York where we have started our upstate New
York transmission project Smart Path Connect; UK Electricity Transmission for
our London Power Tunnels 2 (LPT2) project; higher investment for our Sellindge
(IFA) converter station rebuild; investment in our Viking interconnector to
Denmark; and our Isle of Grain expansion project. This was partly offset by a
shorter period of NECO ownership (two months).
■ In April 2023, established a new business unit, Strategic Infrastructure,
to deliver 17 major electricity transmission projects to help meet the UK
government's 50 GW offshore wind target.
(Crystallised value in assets)
■ Completed the sale of our 26.25% non-operated stake in the Millennium
gas pipeline, for cash proceeds of $552 million.
(Supporting our customers and communities through the energy crisis)
■ Reliability of over 99.9% across our electricity and gas networks.
■ Provided winter funding support for communities and customers in
October 2022, with $17 million committed in the US and £50 million in the UK
for individuals and families who require most help.
■ Today announced the early return of a further £100 million of
interconnector revenues to UK customers where we have collected above our cap
(subject to Ofgem consent). This is in addition to the £200 million of
revenues that we previously announced.
■ Strong response in New York and Massachusetts to reconnect over 350,000
customers impacted by Winter Storm Elliott in December.
(Strong progress on our Group efficiency programme)
■ Delivered a further £236 million of Group efficiency savings during the
year. This now takes cumulative efficiency savings to £373 million at actual
exchange rates, within close reach of our target of £400 million savings by
2023/24.
(Good regulatory progress)
■ Last week, published a detailed Policy Statement, setting out five
priorities that require action by government and regulators to support the
delivery of net zero infrastructure.
■ Accepted Ofgem's Final Determinations for the RIIO-ED2 price control.
■ Completed second year of RIIO-T2 price regulation in our UK Electricity
Transmission business delivering outperformance in line with expectations.
■ Received approval for $691 million in Phase 1 transmission investment
projects, and $2.1 billion in Phase 2, in support of New York's Climate
Leadership and Community Protection Act (CLCPA), with all projects planned to
be in service by 2030.
■ Received $336 million approval from the Massachusetts regulator for our
electric Grid Modernization Plan (GMP); $487 million for Advanced Metering
Infrastructure (AMI) investment and system integration; and $206 million for
our Phase 3 electric vehicle programme in the state.
■ Filed for new rates for our KEDNY-KEDLI businesses (April 2023).
(Delivering on our responsible business and net zero commitments)
■ Delivered £5.6 billion of green capital expenditure aligned to EU
Taxonomy principles, representing 75% of capital expenditure for the year.
■ Published our second Responsible Business Report, demonstrating the
progress we have made across our five pillars and the journey to net zero.
■ Senior level delegation hosted and participated in 65 events at COP27 as
a global leader in the energy transition.
■ Progressed our Clean Energy Vision for our US networks through
continued engagement with our regulators and elected officials on our
legislative and policy agenda.
■ Group Scope 1 and 2 emissions reduced by 7.5% compared to the prior
year; Scope 3 emissions up slightly (1.4%) compared to the prior year, driven
mainly by higher customer energy usage in the North East US.
■ Connected 686 MW of renewable energy capacity to our transmission and
distribution networks across our UK and US businesses.
■ Submitted a bid solicitation in New York for 1.3 GW offtake from our
offshore wind venture with RWE which, if successful, will provide over 4,600
jobs and reduce New York State's power sector emissions by up to 5%.
Financial Outlook and Guidance
■ Guidance is based on our continuing businesses, as defined by IFRS
excluding the minority stake of National Gas Transmission which is classified
as held for sale.
■ Financial outlook over the five year period 2020/21 to 2025/26 remains
unchanged:
■ Total cumulative capital investment of up to £40 billion;
■ Asset Growth CAGR(1) of 8-10% backed by our strong balance sheet;
■ Driving underlying EPS CAGR(1) of 6-8% from the 2020/21 EPS baseline
of 54.2 pence per share(2);
■ Credit metrics consistent with current Group rating;
■ Regulatory gearing to remain in the low 70% range following completion
of all three transactions.
■ For 2023/24, we expect underlying EPS to be modestly below 2022/23
levels following the UK Government's change to the capital allowance regime
from 1 April 2023. We expect this change to have a 6-7p per share impact on
EPS, albeit no economic impact over the long-term. Without this change,
underlying EPS was forecast to grow within our 6-8% CAGR range between 2022/23
and 2023/24, assuming an exchange rate of £1:$1.20.
1. Compound Annual Growth Rate.
2. Full-year underlying EPS (2020/21) as reported on 20 May 2021.
Financial Key Performance Indicators
Year ended 31 March
(£ million) 2023 2022 change %
Underlying operating profit (continuing) at constant currency(1):
UK Electricity Transmission 1,107 1,152 (4%)
UK Electricity Distribution 1,230 887 39%
UK Electricity System Operator 31 54 (43%)
New England (including NECO) 819 982 (17%)
New York 874 783 12%
National Grid Ventures 490 291 68%
Other 31 22 41%
Underlying operating profit (continuing) at constant currency 4,582 4,171 10%
Capital investment (continuing) at constant currency(1):
UK Electricity Transmission 1,303 1,195 9%
UK Electricity Distribution 1,220 899 36%
UK Electricity System Operator 108 108 -%
New England (including NECO) 1,677 1,731 (3%)
New York 2,454 2,174 13%
National Grid Ventures 906 968 (6%)
Other 72 113 (36%)
Capital investment (continuing) at constant currency 7,740 7,188 8%
RCF/Net debt 9.3 8.9 40bps
As at 31 March
Net debt (excludes businesses 'held for sale') (40,973) (42,809) (4%)
UK RAV(2) 28,205 31,577 (11%)
US rate base (£m at constant currency)(2) 23,038 23,628 (2%)
Total Group RAV and rate base (£m) 51,243 55,205 (7%)
NGV and Other businesses (£m) 6,604 5,374 23%
Total (£m) 57,847 60,579 (5%)
Regulated asset growth 11.4% 8.7% 270bps
Group return on equity 11.0% 11.4% -40bps
1. Constant currency calculated using current year average exchange rate of
$1.216 (2022: actual average exchange rate was $1.348). See page 81 for
details.
2. UK RAV and US rate base for 2022 includes UK Gas Transmission and NECO.
Constant currency calculated using closing exchange rate of $1.234.
ESG Key Performance Indicators
PwC assurance(1) 2023(2) 2022 change
Scope 1 and 2 greenhouse gas emissions (ktonnes CO(2)e)(3) 7,245 7,831 (7.5%)
Scope 3 greenhouse gas emissions (ktonnes CO(2)e)(3) 27,879 27,492 1.4%
Renewable energy connected to the UK Transmission and Distribution Grids 132 1,869 n/a
(MW)(4)
Renewable energy connected to the US Transmission and Distribution Grids 554 629 (12%)
(MW)
Group Lost Time Injury Frequency Rate (LTIFR) 0.11 0.13 -0.02
Employee engagement index 81% 81% -
Diversity % of the workforce 36% 39% (3%)
1. In 2023, as represented by , we engaged PricewaterhouseCoopers LLP (PwC)
to undertake a limited assurance engagement using the International Standard
on Assurance Engagements (ISAE) 3000 (Revised): 'Assurance Engagements Other
Than Audits or Reviews of Historical Financial Information' and ISAE 3410:
'Assurance Engagements on Greenhouse Gas Statements'. Details of PwC's full
limited assurance opinion and National Grid's Reporting Methodology are set
out within National Grid's Responsible Business Report.
2. Data includes UK Electricity Distribution, but excludes UK Gas
Transmission and NECO.
3. Prior year comparatives for all greenhouse gas (GHG) emissions metrics
have been adjusted to reflect the acquisition of UK Electricity Distribution
(National Grid Electricity Distribution) and disposals of NECO and UK Gas
Transmission.
4. Transmission MW only for 2022.
Contacts
Investor Relations
Nick Ashworth +44 (0) 7814 355 590
Angela Broad +44 (0) 7825 351 918
James Flanagan +44 (0) 7970 778 952
Alexandra Bateman +44 (0) 7970 479 571
Media
Molly Neal +44 (0) 7583 102 727
Danielle Dominey-Kent +44 (0) 7977 054 575
Brunswick
Dan Roberts +44 (0) 7980 959 590
Results presentation and webcast
John Pettigrew (CEO) and Andy Agg (CFO) will host the results presentation at
the London Stock Exchange, 10 Paternoster Square, London EC4M 7LS at 09:15
(BST) today. A live webcast and Q&A will also be available. Please use
this link to join via a laptop, smartphone or tablet:
https://www.nationalgrid.com/investors/events/results-centre. A replay of the
webcast will be available soon after the event at the same link.
UK (and International) +44 (0) 330 551 0200
UK (Toll Free) 0808 109 0700
US (Local) +1 786 697 3501
Password Quote "National Grid" when prompted by the operator
The Annual Report and Accounts 2022/23 (ARA) is expected to be publicly
available on 6 June 2023. You can view or download the ARA from National
Grid's website at nationalgrid.com/investors
Use of Alternative Performance Measures
Throughout this release we use a number of alternative (or non-IFRS) and
regulatory performance measures to provide users with a clearer picture of the
regulated performance of the business. This is in line with how management
monitor and manage the business day-to-day. Further detail and definitions for
all alternative performance measures are provided on pages 78 to 95.
STRATEGIC OVERVIEW
Good operational performance in a year of significant strategic change
In 2022/23, National Grid delivered good operational performance with high
levels of network reliability. Transmission and distribution network
reliability remained steady at c.99-100% across all of our networks
demonstrating the effects of our continued investment in network
re-enforcement.
Safety performance
In May 2022, one of our US employees tragically lost his life whilst carrying
out maintenance work at a site in Massachusetts. We immediately conducted a
thorough incident investigation led by our Group Chief Engineer and Group
Director of Safety, which resulted in actions that have been fed into our
safety strategy and have been implemented across the Group. A second fatality
occurred in September 2022 when a vegetation contractor in our New York
business tragically died following an allergic reaction to a bee sting.
During the year, we achieved a Lost Time Injury Frequency Rate (LTIFR) 1 of
0.11, above our industry leading Group target of 0.10, but a slight
improvement on the prior year (0.13).
A record year of investment: full-year financial performance
Across the Group, capital investment for continuing operations increased by
£552 million at constant currency to a record £7,740 million, an increase
of 8% on the prior year (15% at actual exchange rates). This increase was
principally due to a full year of UK Electricity Distribution; increased
investment in New York, including construction starting on our upstate New
York transmission project Smart Path Connect; higher investment in UK
Electricity Transmission, including our LPT2 project; higher investment in NGV
for our Sellindge (IFA) converter station rebuild; and investment in our
Viking interconnector and Isle of Grain expansion project. This was partly
offset by a shorter period of NECO ownership (two months).
Underlying operating profit for continuing operations increased by
£411 million at constant currency to £4,582 million, an increase of 10% on
the prior year (15% at actual exchange rates). This reflects a full year of
underlying operating profit from UK Electricity Distribution; good operational
performance across our US regulated businesses; a higher contribution from NGV
including increased interconnector revenues; partly offset by a shorter period
of NECO ownership (two months), and our community support package. Underlying
EPS was up by 7% compared to the prior year, driven by the above reasons
partly offset by higher interest costs.
When combined with RAV indexation 2 , capital expenditure drove Group asset
growth of 11.4%, ahead of the 8-10% Compound Annual Growth Rate (CAGR) we
published as part of our updated five-year financial guidance in November
2022.
Completing our strategic pivot - enabling the energy transition
This year we have completed the strategic pivot that we announced in 2021.
Through the acquisition of UK Electricity Distribution (June 2021), the sale
of NECO (May 2022), and the sale of a majority stake in UK Gas Transmission
(January 2023), National Grid has achieved a structural shift that moves our
asset base towards 70% electricity, up from 60% in 2021. This pivot enables
the Group to play a key role at the heart of the energy transition, drive
long-term shareholder value and deliver affordability for our customers.
Our strategic pivot
On 25 May 2022, we announced the completion of the sale of NECO to PPL Rhode
Island Holdings LLC, receiving proceeds of £3.1 billion ($3.9 billion). This
followed the acquisition of UK Electricity Distribution in the previous
financial year. On 31 January 2023, we received £4.0 billion 3 of cash
proceeds following the completion of the sale of a 60% equity interest in our
UK Gas Transmission business to a consortium comprised of Macquarie Asset
Management and British Columbia Investment Management Corporation. The
consortium has a call option to acquire the remaining 40%, on broadly similar
terms to those agreed for the majority stake, which can be exercised in a
three-month window from 1 May 2023 to 31 July 2023.
Other asset sales during the year
Although not part of the strategic pivot, in September we announced the sale
of our 26.25% interest in the Millennium Pipeline Company (MPC) to existing
partner DT Midstream for a cash purchase price of $552 million (£497
million). MPC is a Federal Energy Regulatory Commission (FERC) regulated gas
transmission pipeline in New York State in which we acquired our interest
following the acquisition of KeySpan in 2007. Our stake was a non-operational,
minority interest, and supply to customers will be unaffected as National Grid
will remain a shipper on the pipeline for the foreseeable future. The
transaction, which closed in October 2022, has allowed us to crystallise value
from this asset.
Helping our communities through a challenging winter and the energy crisis
Our vision at National Grid is to be at the heart of a clean, fair and
affordable energy future. We have a responsibility to demonstrate our
contribution to society, supporting our customers to use energy more
efficiently and tackling climate change by targeting net zero for our own
emissions by 2050. This year, we have seen this responsibility to our
customers and communities grow against the tough economic backdrop of rising
wholesale prices driving higher utility bills.
During the winter, we announced funding in the US and UK to help our most
vulnerable customers and communities.
Across both Massachusetts and New York, we committed $17 million to help
customers on the front line of the energy crisis. Our Winter Customer Savings
Initiative in Massachusetts resulted in more than 248,000 customers receiving
discounted rates, more than 25,000 electing for budget/balanced billing and
tens-of-thousands of customers visiting our dedicated help website. In New
York, we launched the state's first moderate-income assistance programme, with
$6 million donated to help customers. In addition, we donated $1 million to
assist Buffalo customers and communities after the Winter Storm Elliott event
in December.
In the UK, a £50 million winter fund was targeted at charities who provide
immediate, emergency financial relief to households using pre-payment energy
meters; charities who fund energy efficiency measures to lower bills over the
long-term; and charities providing advisory services for households who need
help with energy bills, payments and debt. Money from the two-year fund has
been used by beneficiary organisations to support people struggling with
energy costs by increasing the number of support staff giving advice on phone
lines, providing fuel vouchers and improving the energy efficiency of homes.
The fund supported over 12,000 customers in the first 10 weeks of our
partnership with charities, with consumers across the country benefiting from
almost £500,000 of additional income through benefits, energy efficiency
savings, and energy grants. It also allowed charities such as Citizens Advice
to deliver an Energy Efficiency Campaign to over 800,000 people,
with National Grid providing 12 fully funded employees who will work in local
Citizens Advice offices full time for a year.
In addition, UK Electricity Distribution launched a £2.5 million fuel poverty
fund in October 2022 as part of a £3.8 million Community Matters Fund. This
is open to grant applications from organisations working to help people in
fuel poverty across the Midlands, the South West and Wales and has been
provided to 319 organisations, supporting around 138,000 customers. From a
broader perspective, we have supported over 24,000 fuel poor customers,
leading to estimated annual savings for them of £20.6 million.
Finally, we are today announcing the early return of a further £100 million
of interconnector revenues to UK customers where we have collected above our
cap (subject to Ofgem consent). This is in addition to the £200 million of
revenues that we previously announced.
Progressing our cost efficiency programme
As part of our Group efficiency savings programme we have achieved a further
£236 million of savings in 2022/23. This now takes cumulative efficiency
savings under the programme to £373 million.
Of the £236 million savings achieved this financial year, almost £200
million has been in New York and New England. This has principally been
through property rationalisation and the use of digital solutions such as our
Gas Business Enablement (GBE) programme and electric digital solutions OnMyWay
(which digitises National Grid's paper-based work for electric line crews,
enabling more efficient job coordination). It has also been driven by the
continued roll out of new customer initiatives, including the use of lower
cost service providers supporting our front office teams, and increased use of
e-billing and self-service options for customers.
In our field operations, we have identified ways to reduce the workloads of
our maintenance teams whilst maintaining the safe and reliable operation of
the network. For example, we have maximised resource capacity through combined
training for teams, more efficient coordination with external partners to
reduce completion time, and optimising crew sizes where it is safe to do so.
In addition, we have improved productivity through combining projects where
appropriate and making them more efficient to deliver.
Throughout the rest of our business, we have driven efficiencies following the
2020/21 Business Unit reorganisation, enabled by new digital capabilities,
contract renegotiations and procurement strategies.
We remain on track to deliver the £400 million savings target (that we
announced in November 2021) by the end of 2023/24.
Good regulatory progress
During the year, we made good regulatory progress in the UK and the US. We
continue to have good visibility for capital spend as we invest to maintain
network reliability and help enable the energy transition.
United Kingdom
In December, Ofgem published its decision on Accelerated Strategic
Transmission Investment (ASTI), confirming that National Grid Electricity
Transmission (NGET) will be responsible for the delivery of 17 major
electricity transmission projects. We welcomed the certainty this decision
gives NGET, and the wider industry, as another step towards a more affordable,
resilient and clean energy system. We are working with Ofgem to develop the
details of the regulatory process around the ASTI projects which will
determine the project specifics to approve funding and incentivisation.
To help deliver this critical investment, we established a new Business Unit
called Strategic Infrastructure. The unit will deliver the 17 ASTI projects
that the government agreed in December, and will also lead the early-stage
development of six additional transmission projects that were identified in
the ESO's Holistic Network Design - two of which are onshore, four offshore.
UK Electricity Transmission will operate and maintain these assets once they
have been completed.
In February, we were pleased to see the establishment of the new Department
for Energy Security and Net Zero (DESNZ) and welcome the increased prominence
it will give to the clean energy transition within government. We will work
closely with DESNZ on planning reform to enable the timely delivery of new
infrastructure in the UK, and we are pleased to see government restating its
planning commitments. In particular, these included the intention to
accelerate the delivery of strategic transmission upgrades by at least three
years with an ambition to cut delivery times by half. We were also pleased to
see the community benefits consultation as a step forward in addressing one of
the main planning barriers and will continue to engage with DESNZ on the
detail of this over the coming months. We welcome the Department's 'Power Up
Britain' package which recognised the role networks play as the 'enabler' of
the energy transition.
Whilst we are encouraged by this progress, we need to see even greater urgency
from government and Ofgem in the development of policy and regulation.
To this end, last week, we published a detailed Policy Statement 4 where we
set out five priorities that require action by government and regulators.
First, the planning system needs to be reformed, to provide the clarity and
certainty required to support the delivery of net zero infrastructure, along
with a streamlined consenting process; second, governance frameworks need to
be set up to enable new delivery models, and must include expanding Ofgem's
mandate to support the delivery of Net Zero; third, the regulator must
transform the connections process from today's 'first come, first served'
model to one that prioritises strategically critical projects over those that
are not progressing; fourth, communities and consumers must be at the
forefront of the transition; and, finally, for the UK to compete in the global
race for resources, supply chain capacity and green skills need to be invested
in across the country. Regulatory support is required to provide the supply
chain with the clarity and certainty needed in order to scale up. In the
months ahead, we will engage with government and Ofgem on driving forward
these five priorities.
In March, we announced our acceptance of all of the RIIO-ED2 Final
Determinations, covering UK Electricity Distribution for the period April 2023
to March 2028. The price controls, developed with 25,000 stakeholders over the
course of two years, will further accelerate our delivery of smart,
decarbonised electricity distribution networks in the UK at the lowest cost to
customers. The key components of the price control arrangements included:
£5.9 billion (2021/22 prices) of totex funding, representing a 13% reduction
from our submission (although an increase from Draft Determinations); an
allowed real equity return of 5.23%, an increase of 48 basis points (bps) from
the 4.75% figure in Draft Determinations due to increasing gilt rates; a
cost of debt allowance based on a 17-year tracker with a 55 bps uplift; and
the introduction of 37 uncertainty mechanisms which flex funding through the
period dependent on outputs delivered and justification case made (for
example, cyber security and network reinforcement funding reopeners). This
settlement will allow the business to continue to drive forward the energy
transition, connecting a significant amount of renewable generation, enabling
up to 1.5 million electric vehicles (EVs) and the addition of 600,000 heat
pumps over the next five years.
Finally, we have continued to advance our plans to ensure an orderly
transition of the ESO to a new Future System Operator (FSO). In line with the
aspiration of the UK government, we are working towards establishing the FSO
in 2024, which will have responsibilities across both the electricity and gas
systems.
United States
Like the UK, we have also seen positive momentum around energy transition and
clean energy infrastructure across the US, and more locally within our
jurisdictions.
In August, we welcomed President Biden's Inflation Reduction Act 2022 (the
Act) which includes the largest Congressional funding package targeted at
energy in US history. Although state clean energy goals in New York and
Massachusetts are ahead of national targets, the Act is a major step forward
for our zero fossil strategy, for the states we serve, and for our customers.
We believe it has the potential to lower the cost of technologies such as
Hydrogen and Renewable Natural Gas (RNG), and increase the affordability of
decarbonisation goals. The Act also builds upon the Infrastructure Investment
and Jobs Act (IIJA), the bipartisan infrastructure bill signed in November
2021, which includes the largest investment in clean energy transmission and
grid resiliency in US history. IIJA funds will upgrade US power infrastructure
by building new, resilient transmission lines to facilitate the expansion of
renewables and clean energy, while lowering costs. The funding will also
support the development, demonstration, and deployment of cutting-edge clean
energy technologies on the transmission and distribution system to accelerate
transition to a zero-emission economy.
At state level, in February we received approval for $2.1 billion of Phase 2
transmission investment projects in New York. This is in support of the
state's Climate Leadership and Community Protection Act (CLCPA). The funding
will help unlock 2,200 MW of existing and 'shovel ready' generation through
building around 400 miles of new transmission line by 2030. This will also
include investment in a new 345kV substation, as well as 14 station upgrades
and rebuilds. It comes after funding we received in July for Phase 1
transmission projects in New York, which represented $691 million of
investment before 2030, including circuit rebuild projects to support 330 MW
of incremental renewable generation capacity.
In Massachusetts, during the second half of the year, we received funding
approval that supports our aim to enable the energy transition in the state.
In October, we received approval for $336 million of funding for Grid
Modernisation across the state, followed in November by approval for $391
million of funding for Advanced Metering Infrastructure (AMI) - smart meters
- that will be deployed in customer households and premises across our service
territory. In addition, the Massachusetts Department of Public Utilities (DPU)
approved a further five-year budget of $96 million that largely covers system
integration and customer help to support this AMI investment. At the end of
December, we also received approval from the DPU for $206 million of funding
for EV infrastructure. This funding, separate to capital investment agreed
through our network rate agreements, is for a four-year programme and will
enable more than 30,000 residential charging points, and 11,000 public and
workplace charging ports, across our service territory. For further
information on each of these funding approvals, please refer to the Business
Review section on page 35.
On regulation, in September the DPU approved our annual Performance Based Rate
adjustments for both Massachusetts Electric ($44 million) and Massachusetts
Gas ($64 million). These rates became effective 1 October 2022.
Finally, on 28 April 2023, National Grid submitted a rate filing for
KEDNY-KEDLI, our downstate New York gas distribution businesses, for new rates
commencing April 2024. Our filing is based on three objectives: firstly,
continue to meet our core obligation to deliver a safe, reliable service to
customers; secondly, to enhance our customers' ability to affordably meet
their energy needs, especially for our financially vulnerable customers,
while also improving the customer experience; third, to support the energy
transition in New York State and advance the goals in the CLCPA. For further
details of our rate filing, please see the Business Review section on page 39.
Return on Equity (RoE)
Across the Group, we achieved a Return on Equity (RoE) of 11.0% in 2022/23,
down on the prior year by 40bps. Group RoE was driven principally by a strong
performance from UK Electricity Distribution in the final year of RIIO-ED1,
and strong interconnector performance, partly offset by higher net financing
costs and indexation driving strong UK RAV growth (UK RAV is indexed at actual
CPIH inflation rates for UK Electricity Transmission, and RPI for UK
Electricity Distribution in its final year of RIIO-ED1).
We completed the second year of RIIO-T2 in our UK Electricity Transmission
business where we delivered an RoE of 7.5%. This includes 120bps of capex
outperformance reflecting delivery of projects across RIIO-T1 and RIIO-T2. For
UK Electricity Distribution, in the final year of RIIO-ED1, we delivered an
RoE of 13.2%, 360bps ahead of the allowed return, reflecting strong incentive
outperformance (including reliability and customer service), as well as totex
outperformance largely driven by capex. The ESO also successfully completed
the second year of its RIIO-2 price control under its new bespoke regulatory
funding framework. This allows recovery of all efficiently incurred costs as
well as incentivisation of the ESO to deliver an ambitious business plan and
value for money for consumers.
In the US, New York achieved an RoE of 8.6%, 20bps below the 8.8% delivered in
the prior year. This was principally driven by higher costs and non-recurrence
of a property tax settlement in KEDLI, partly offset by recovery of 2020/21
suspended late payment fees. In New England, excluding NECO, underlying RoE
increased 30bps from prior year to 8.3%. This reflects (a) a full year of new
rates at Massachusetts Gas following the rate order received in October
2021, partly offset by higher costs including increased property taxes, and
(b) a decrease in Massachusetts Electric as a result of increased IT spend,
increased vegetation management, and a number of one-off costs that are not
expected to repeat.
For further information on RoEs for each of our business entities, please
refer to the Business Review section on pages 26 to 46.
Delivering as a Responsible Business
In our second full year of delivery we have continued to make good progress
against the commitments in our Responsible Business Charter.
External engagement - COP27
Building on our role as a Principal Partner of COP26, we took part in COP27 in
November 2022 as a global leader in the energy transition. A senior level
delegation attended to host and participate in 65 events. Discussions included
how to collaborate across the public and private sectors to accelerate the
energy transition, as well as partnering with the UK government, the We Mean
Business Coalition, Climate Action and other organisations.
Green Financing and investment
In 2022/23 we delivered £5.6 billion of green capital expenditure aligned to
EU Taxonomy principles, a £1.1 billion increase on 2021/22. This increase
was driven by a full year of UK Electricity Distribution capital expenditure
as well as increased investment in our UK and US electricity networks. Over
our five year financial frame to 2025/26, we expect to invest around £29
billion in EU Taxonomy aligned capital expenditure.
During 2022/23 both Niagara Mohawk Power Corporation (NIMO) and National Grid
plc issued their second green bonds under our Green Financing Framework, for
$500 million and €750 million respectively. The proceeds for both bonds have
been fully allocated and used to fund green projects across the business.
Total estimated emissions avoided as a result of the bonds was around 10
million tCO(2).
Emissions
In providing a like-for-like comparison to reflect our current asset
portfolio, GHG emissions data for 2022/23 and for 2021/22 includes UK
Electricity Distribution, but does not include NECO and UK Gas Transmission.
Our Group Scope 1 and 2 emissions reduced by 7.5% compared to the prior year,
driven primarily by a reduction in emissions from Long Island Power Generation
and our continued leak prone pipe replacement programme which reduces
potential methane leaks across our US gas networks.
We are on track to meet our Scope 1 and 2 2030 target having reduced our
emissions by an estimated 70% from our historic 1990 baseline, and on target
for an 80% reduction by 2030. In addition, we have reduced Scope 1 and 2
emissions by 27% from our most recent 2015 Science Based Target baseline.
Our Group Scope 3 emissions have risen slightly (1.4%) compared to the prior
year, driven mainly by an increase in customer energy usage in the North East
US.
We have reduced SF(6) emissions across our UK and US networks by 0.5% this
year and by 21% since 2019, against our target of a 50% reduction by 2030.
Whilst the reduction this year is relatively small, this follows a 19%
reduction in 2021/22. We are reducing emissions from SF(6) leakage from our
networks through reducing leak rates in the short-term and, over the
longer-term, developing alternative gases to SF(6).
Light duty vehicle fleet conversions
During the year, we increased the number of EVs within the National Grid fleet
and now have 359 EVs (5% of our total fleet) across our UK and US businesses.
We remain on track for our fleet electrification plan which targets a 100%
electric fleet by 2030. Our fleet is primarily made up of leased vehicles and
our electrification plan typically has our fleet stock converting to electric
when each vehicle lease term comes up for renewal. As a large proportion of
our leased vehicles come up for renewal in 2025/2026, we expect to see a steep
acceleration in the proportion of EVs in our light duty fleet at that time.
Our progress against our plan is dependent on the sufficient supply of EVs
suitable for our operations and geography.
Group diversity
We aim for our workforce to reflect the diversity of the communities we serve.
In 2022/23, the diversity 5 of the workforce, including UK Electricity
Distribution, was 36.1%, a decrease of 2.5% compared to 2021/22 primarily
driven by the integration of UK Electricity Distribution Diversity, Equity and
Inclusion (DEI) data into the Group (which was reported separately
in 2021/22). Excluding UK Electricity Distribution, our diversity of the
workforce was 40.6%, an improvement of 2% on 2021/22. We continue to drive
accountability to increase DEI ownership across all of our businesses.
In 2022/23 we reached 49.1% in our Senior Leadership Group diversity, which
keeps us on track to reach our 50% target by 2025.
Board changes
As announced on 17 May 2023, Thérèse Esperdy will step down from the Board
on 31 December 2023.
Iain Mackay was appointed as a Non-executive Director of the Board effective
11 July 2022, joining the Remuneration and Audit & Risk Committees on
appointment. Iain became Chair of the Audit & Risk Committee with effect
from 1 January 2023.
Jonathan Dawson and Amanda Mesler retired from the Board on 11 July 2022.
FIVE-YEAR FINANCIAL FRAMEWORK
Our five-year financial framework (1 April 2021 to 31 March 2026) includes UK
Electricity Distribution from acquisition, the sale of NECO in May 2022, and
the sale of a 60% stake in our UK Gas Transmission business in January 2023.
Capital investment and Group asset growth
We expect to invest up to £40 billion across our energy networks and adjacent
businesses, in the UK and US, over the five-year period to 2025/26. Of this
investment, around £29 billion is considered to be aligned with the
principles of the EU Taxonomy legislation as at the date of reporting.
In the UK, we expect around £9 billion of investment in Electricity
Transmission for asset health and anticipatory system reinforcement to
facilitate offshore generation and other new onshore system connections. We
expect our Electricity Distribution network to invest around £6 billion over
the five years to 2025/26 in asset replacement, reinforcement and new
connections, facilitating the infrastructure for electric vehicles, heat pumps
and directly connected generation.
In our US regulated businesses, we expect to invest around £12 billion in New
York, and £9 billion in New England, over the five years to 2025/26. Over
half of this will be safety related projects in our gas networks with the
remainder in our electric networks such as for storm hardening, other net zero
investments as well as further electric transmission investment.
We expect NGV to invest £3-4 billion over the five years to 2025/26 in
completing the interconnector programme, the Isle of Grain Liquefied Natural
Gas (LNG) capacity expansion project, and US renewable generation.
As we have worked through the transactions, coupled with the sum of these
investments, and the broad economic protection our businesses have against
rising macroeconomic variables such as inflation, group asset growth is
expected to be 8-10% CAGR through to 2025/26.
Group gearing
Now the transactions are complete, we expect regulatory gearing to remain in
the low 70% range for the remainder of the five-year period to 2025/26. We
remain committed to a strong, overall investment grade credit rating. Combined
with the benefit of our hybrid debt, we expect gearing levels, and the other
standard metrics we monitor, to sit within our current BBB+/Baa1 corporate
rating band.
Group earnings growth and dividend growth
From 2020/21 through to 2025/26, we expect our CAGR in earnings per share to
be in the 6-8 percent range from the baseline 54.2 pence per share 6 . This
includes our long-run average scrip uptake of 25% per annum, which will
underpin our sustainable, progressive dividend policy into the future.
For 2023/24, we expect underlying EPS to be modestly below 2022/23 7
following the UK Government's change to the capital allowance regime from 1
April 2023. We expect this change to have a 6-7p per share impact on EPS,
albeit no economic impact over the long term. Without this change, underlying
EPS was forecast to grow within our 6-8% CAGR range between 2022/23 and
2023/24, assuming an exchange rate of £1:$1.20.
2023/24 FORWARD GUIDANCE
This forward guidance is based on our continuing businesses, as defined by
IFRS excluding the minority stake in National Gas Transmission which is
classified as held for sale.
The outlook and forward guidance contained in this statement should be
reviewed, together with the forward-looking statements set out in this
release, in the context of the cautionary statement.
UK Electricity Transmission
Net revenue (excluding timing) is expected to increase up to £200 million
compared to 2022/23 primarily driven by the non-repeat of the prior year
Western Link settlement, and higher revenues driven by indexation. This
includes the impact on underlying revenues of the extended UK capital
allowance scheme. Depreciation is expected to be around £50 million higher in
the year due to the increasing asset base.
We expect to deliver around 100bps of outperformance in the third year of
RIIO-T2 in Operational Return on Equity. This is in line with our target to
deliver 100 basis points of operational outperformance on average through the
five-year period of the RIIO-T2 price control.
UK Electricity Distribution
Net revenue (excluding timing) is expected to decrease by under £100 million
compared to 2022/23, as we enter the first year of the RIIO-ED2 price control.
This includes the impact on underlying revenues of the extended UK capital
allowance scheme. Controllable costs are expected to be around £30 million
higher compared to the prior year due to increased workload associated with
the new price control, inflationary impacts, and the non-repeat of some
one-off items, whilst depreciation is expected to be broadly flat.
We will be providing further financial guidance, on the five-year price
control and longer term expectations, at our investor event focusing on UK
Electricity Distribution in London on 6(th) July 2023.
UK Electricity System Operator (ESO)
Underlying operating profit (excluding timing) is expected to be around £20
million lower than 2022/23 with lower allowances for pension deficit funding
and the prior year benefiting from the final RIIO-1 MOD adjustment, partially
offset by improved incentive performance and increased revenues.
Under the RIIO-2 price control, totex in ESO is no longer subject to the totex
incentive mechanism and is instead regulated under a pass-through mechanism,
with cost increases or efficiencies trued-up the following year.
New England
The completion of the sale of NECO in May 2022 will reduce profits in 2023/24
by around $65 million. For the remaining business we expect net revenue
(excluding timing) to be around $200 million higher from expected rate
increases, with just under half of this to be offset by higher depreciation
due to increased investments. Controllable costs are expected to be broadly
flat as efficiencies are identified to offset inflation and higher rate funded
costs. Other costs are expected to be around $60 million higher due to rate
funded increases and the impact of inflation.
Return on Equity for New England is expected to slightly improve compared to
2022/23.
New York
Net Revenue (excluding timing) is expected to be around $90 million higher,
including increases from proposed rate settlements. Around half of this is
expected to be offset by higher rate funded costs whilst controllable costs
are expected to be broadly flat with workload increases and inflation offset
by efficiencies. Other costs are expected to be just over $200 million lower
primarily driven by a lower impact from bill relief programmes and
environmental reserve increases which occurred in 2022/23. We expect
depreciation to remain broadly flat.
Return on Equity for New York is expected to be broadly in line with 2022/23.
NGV and Other activities
In NGV, we expect operating profit to be around 10% lower than 2022/23 with
revenues broadly in line with the prior year being offset by development spend
on multi-purpose interconnectors and inflationary impacts.
We also expect other activities' underlying operating profit to be lower
year-on-year by over £100 million driven by reduced sales in our Commercial
Property business, partly offset by the impact of our significant community
spend in 2022/23.
Joint Ventures and Associates
Our share of the profit after tax of joint ventures and associates is expected
to be £50 million lower than 2022/23 as a result of lower auction revenues in
our joint venture interconnectors.
Interest and Tax (continuing operations)
Net finance costs in 2023/24 are expected to be around £50 million lower than
2022/23. This follows the repayment of the acquisition bridge loan and lower
inflationary rate increases, partially offset by increasing rates on new
issuances. Other interest is expected to remain broadly flat.
For the full year 2023/24, the underlying effective tax rate, excluding the
share of post-tax profits from joint ventures and associates, is expected to
be around 26%.
Investment, Growth and Net Debt
Overall Group capital investment for continuing operations in 2023/24 is
expected to be above £8 billion.
Asset Growth is expected to be within the 8-10% CAGR target range, reflecting
an increase in capex along with higher indexation impacting our UK regulated
businesses.
Depreciation is expected to increase, reflecting the impact of continued high
levels of capital investment.
Operating cashflow generated from continuing operations (excluding
acquisitions, disposals and transaction costs) is expected to increase by
around 10% compared to 2022/23 principally driven by higher operating profits
(including the impact of timing and storms) but more than offset by increased
capital investment and higher cash interest costs.
Net debt is expected to increase by around £4.5 billion (from £41.0 billion
as at 31 March 2023) at a GBP:USD rate of 1.2, driven by our continued levels
of significant investment in critical clean energy infrastructure, with
regulatory gearing broadly flat year over year. This does not include any sale
proceeds from the potential sale of the 40% stake in National Gas
Transmission.
Weighted average number of shares (WAV) is expected to be approximately 3,700
million in 2023/24.
FINANCIAL REVIEW
In managing the business, we focus on various non-IFRS measures which
provide meaningful comparisons of performance between years, monitor the
strength of the Group's balance sheet as well as profitability and reflect the
Group's regulatory economic arrangements. Such alternative and regulatory
performance measures are supplementary to, and should not be regarded as a
substitute for, IFRS measures, which we refer to as statutory results. We
explain the basis of these measures and, where practicable, reconcile these to
statutory results in 'Alternative performance measures/non-IFRS
reconciliations' on pages 78 to 95. Also, we distinguish between adjusted
results, which exclude exceptional items and remeasurements, and underlying
results, which further take account of: (i) volumetric and other revenue
timing differences arising from our regulatory contracts; and (ii) major
storm costs which are recoverable in future periods, where these are in excess
of $100 million in the year, neither of which give rise to economic gains or
losses.
Performance for the year ended 31 March
Financial summary for continuing operations
(£ million) 2022/23 2021/22 change %
Accounting profit:
Gross revenue 21,659 18,449 17%
Other operating income 989 228 334%
Operating costs (17,769) (14,306) 24%
Statutory operating profit 4,879 4,371 12%
Net finance costs (1,460) (1,022) 43%
Share of joint ventures and associates 171 92 86%
Tax (876) (1,258) (30%)
Non-controlling interest - (1) (100%)
Statutory IFRS earnings (note 7) 2,714 2,182 24%
Less: exceptional items and remeasurements (after tax) (379) 28 n/m
Less: timing and major storm costs (after tax) 214 140 n/m
Underlying earnings(1) 2,549 2,350 8%
EPS - statutory IFRS (pence) (note 7) 74.2p 60.6p 22%
EPS - underlying (pence) 69.7p 65.3p 7%
Dividend per share (pence) 55.4p 51.0p 9%
Dividend cover - underlying 1.3 1.3 - %
Economic profit:
Value Added(1) 4,807 3,833 25%
Group RoE(1) 11.0% 11.4% -40bps
Capital investment and asset growth:
Capital expenditure (including NECO additions within held for sale) 7,484 6,185 21%
Add: investments in JVs and associates (excluding St William) 197 461 (57%)
Add: investments in financial assets (National Grid Partners) 59 93 (37%)
Capital investment(1) 7,740 6,739 15%
Asset growth(1) 11.4% 8.7% 270bps
Balance sheet strength:
RCF/adjusted net debt (Moody's)(1) 9.3% 8.9% 40bps
Net debt (note 29) 40,973 42,809 (4%)
Add: held for sale net debt - 5,234 n/m
Net debt (including held for sale)(1) 40,973 48,043 (15%)
Group regulatory gearing(1) 71% 81% -10% pts
1. Non-GAAP alternative performance measures (APMs) and/or regulatory
performance measures (RPMs). For further details and, where practicable,
reconciliation to GAAP measures, see 'Alternative performance
measures/non-IFRS reconciliations' on pages 78 - 95.
Statutory IFRS earnings from continuing operations of £2,714 million were up
£532 million from 2021/22, significantly impacted by a £511 million gain
on disposal of NECO in May 2022 and a £335 million gain on disposal of our
Millennium Pipeline investment in October 2022. We had a full-year
contribution from our UK Electricity Distribution business (offset by a
shorter period of ownership of NECO in the US) and a further £457 million
increase in NGV's contribution (including exceptional insurance recoveries).
Statutory results were adversely impacted by £438 million higher interest
charges (mainly from inflation on index-linked debt and growth in new
long-term senior debt), £742 million adverse year-on-year movements from
commodity remeasurements, £252 million lower property contribution (2021/22
included £417 million exceptional gains related to the St William property
disposals) and a £95 million increase in major storm costs; but had no
repeat of the £458 million deferred tax charge recognised in 2021/22 from
the change in the UK tax rate. Statutory EPS for continuing operations of
74.2p was 13.6p higher than the prior year. The net exceptional gains of
£619 million (2022: £320 million net charge) and remeasurement losses of
£240 million (2022: £292 million net gains) are explained in further detail
in the notes to the financial statements.
Our 'adjusted' results exclude the impacts from exceptional items and
remeasurements, but include the impact from revenue timing and major
(deferrable) storm costs, as explained on page 18. Our 'underlying'
results exclude the total impact of exceptional items, remeasurements, timing
and major storm costs. A reconciliation between these alternative performance
measures and our statutory performance is detailed on page 80.
Underlying operating profit for continuing operations was up 15% (10% at
constant currency), driven by a full year's contribution and improved
performance from UK Electricity Distribution; higher revenues and IFA
insurance claim recoveries in NGV; increased underlying revenues, pension
gains and a lower COVID-19 impact in New York; and higher property profits
(excluding 2021/22's exceptional gains). UK Electricity Transmission
performance was lower as a result of the return of revenues related to
Western Link liquidated damages. New England profits were lower from the
sale of NECO two months into the current year, partly offset by increased
revenues (Massachusetts Electric, Massachusetts Gas and FERC). Our joint
ventures and associates' contribution increased (mainly UK interconnector
revenues). These factors were partly offset by higher net financing costs
principally from inflation on index-linked debt. Other interest was favourable
year on year. Underlying profit after tax increased by 8% and resulted in a 7%
increase in underlying EPS to 69.7p.
Capital investment of £7,740 million was £1,001 million (15%) higher than
2021/22, or £552 million (8%) higher at constant exchange rates, driven by a
full-year ownership of UK Electricity Distribution, increased capital
expenditure in New York, UK Electricity Transmission and NGV, partly offset
by lower investment in New England (following the sale of NECO). Higher
capital investment along with higher RAV indexation from higher inflation
increased our asset growth to 11.4% (2022: 8.7%).
Reconciliation of different measures of profitability and earnings
In calculating adjusted profit measures, where we consider it is in the
interests of users of the financial statements to do so we exclude certain
discrete items of income or expense that we consider to be exceptional in
nature. The table below reconciles our statutory profit measures for
continuing operations, at actual exchange rates, to adjusted and underlying
versions. Further information on exceptional items and remeasurements is
provided in notes 2, 4 and 5.
Reconciliation of profit and earnings from continuing operations
Operating profit Profit after tax Earnings per share (pence)
(£ million) 2023 2022 2023 2022 2023 2022
Statutory results 4,879 4,371 2,714 2,183 74.2 60.6
Exceptional items (935) (166) (619) 320 (16.9) 8.9
Remeasurements 350 (392) 240 (292) 6.5 (8.1)
Adjusted results 4,294 3,813 2,335 2,211 63.8 61.4
Timing 30 16 26 19 0.7 0.5
Major storm costs 258 163 188 121 5.2 3.4
Underlying results 4,582 3,992 2,549 2,351 69.7 65.3
Discontinued operations
On 31 January 2023, we sold 60% of our interest in the UK Gas Transmission
and Metering business in exchange for £4.0 billion cash consideration and a
40% retained interest in that business (now called National Gas Transmission).
The 60% interest in National Gas Transmission is owned by a consortium
of Macquarie Infrastructure and Real Assets and British Columbia Investment
Management Corporation. The consortium holds an option to acquire our
remaining 40% interest. Further details are provided in the 'assets held for
sale' note to the financial statements. The results of our 100% share of
this business (including metering) are presented
as 'discontinued operations' in 2021/22 and for the 10 months fully owned to
31 January 2023. On 31 August 2021, the 100% share of the business met the
IFRS 5 criteria to be classified as held for sale and depreciation was stopped
from that date. The retained 40% has also been classified as a business held
for sale with no further profits recognised in 2022/23.
Reconciliation of profit and earnings from discontinued operations
Statutory operating profit from discontinued operations of £715 million
(2022: £637 million) includes a £1 million credit in respect of exceptional
items (2022: £17 million debit) and timing over-recovery of £12 million
(2022: £80 million under-recovery). Tax on exceptional items for
discontinued operations comprises a £6 million credit (2022: £1 million
credit). The tax charge in 2021/22 also included a deferred tax exceptional
charge related to the change in the UK corporation tax rate of £145 million.
The after-tax gain on disposal of our 60% share in UK Gas Transmission of
£4,803 million is included in our statutory results for discontinued
operations. Tax on timing was £2 million (2022: £15 million). Statutory
earnings per share from discontinued operations was 138.9p (2022: 4.8p) and
adjusted earnings per share from discontinued operations (but excluding
the impact of timing) was 8.5p (2022: 11.4p).
Timing over/(under)-recoveries
In calculating underlying profit, we exclude regulatory revenue timing
over‑ and under-recoveries and major storm costs (as defined below). Under
the Group's regulatory frameworks, most of the revenues we are allowed
to collect each year are governed by regulatory price controls in the UK and
rate plans in the US. If more than this allowed level of revenue
is collected, an adjustment will be made to future prices to reflect this
over‑recovery; likewise, if less than this level of revenue is collected,
an adjustment will be made to future prices in respect of the under-recovery.
We also collect revenues from customers and pass these on to third parties
(e.g. NYSERDA). These variances between allowed and collected revenues and
timing of revenue collections for pass-through costs give rise to over- and
under-recoveries.
The following table summarises management's estimates of such amounts for the
two years ended 31 March 2023 for continuing and discontinued operations. All
amounts are shown on a pre-tax basis and, where appropriate, opening balances
are restated for exchange adjustments and to correspond with subsequent
regulatory filings and calculations and are translated at the 2022/23 average
exchange rate of $1.22:£1.
Timing over/(under)-recoveries
(£ million) 2023 2022(1)
Balance at start of year (restated) (49) 65
In-year (under)/over-recovery - continuing operations (30) (5)
In-year (under)/over-recovery - discontinued operations 12 (80)
Disposal of UK Gas Transmission/NECO 131 -
Balance at end of year 64 (20)
1. March 2022 balances restated to correspond with 2021/22 regulatory
filings and calculations.
In 2022/23, we experienced timing under-recoveries of £112 million in
UK Electricity Transmission, under-recoveries of £139 million in UK
Electricity Distribution, over-recoveries of £207 million in UK Electricity
System Operator, under-recoveries of £39 million in New England and
over-recoveries of £53 million in New York. In calculating the post-tax
effect of these timing recoveries, we impute a tax rate, based on the
regional marginal tax rates, consistent with the relative mix of UK and
US balances.
Major storm costs
We also take account of the impact of major storm costs in the US where the
aggregate amount is sufficiently material in any given year. Such costs (net
of certain deductibles and allowances) are recoverable under our rate plans
but are expensed as incurred under IFRS. Accordingly, where the net total cost
incurred exceeds $100 million in any given year, we exclude the net costs
from underlying earnings. In 2022/23, we incurred deferrable storm costs,
which are eligible for future recovery of $314 million (2022: $220 million).
Segmental income statement
The tables below set out operating profit on adjusted and underlying bases,
both of which exclude the gain of £4.8 billion on the disposal of our UK Gas
Transmission business.
Adjusted operating profit Underlying operating profit
(£ million) 2023 2022 change % 2023 2022 change %
UK Electricity Transmission 995 1,067 (7) 1,107 1,152 (4)
UK Electricity Distribution 1,091 909 20 1,230 887 39
UK Electricity System Operator 238 7 3,306 31 54 (43)
New England (including NECO) 708 743 (5) 819 886 (8)
New York 741 780 (5) 874 706 24
NGV 490 286 71 490 286 71
Other activities 31 21 48 31 21 48
Total operating profit 4,294 3,813 13 4,582 3,992 15
- continuing
Net finance costs (1,514) (1,081) 40 (1,514) (1,081) 40
Share of post-tax results of joint ventures and associates 190 148 28 190 148 28
Profit before tax - continuing 2,970 2,880 3 3,258 3,059 7
Tax - continuing (635) (669) (5) (709) (708) -
Profit after tax - continuing 2,335 2,211 6 2,549 2,351 8
Earnings per share (pence) 63.8 61.4 4 69.7 65.3 7
- continuing
Adjusted operating profit Adjusted operating profit
(excluding the impact of timing
and major storm costs)
(£ million) 2023 2022 change % 2023 2022 change %
Profit after tax - discontinued 320 344 (7) 310 409 (24)
Earnings per share (pence) 8.7 9.6 (9) 8.5 11.4 (25)
- discontinued
Profit after tax - total Group 2,655 2,555 4 2,859 2,760 4
Earnings per share (pence) 72.5 71.0 2 78.2 76.7 2
- total Group
Statutory operating profit increased in the year, primarily as a result
of the exceptional gains on disposal of businesses, improved NGV performance,
a full-year contribution from NGED, change in discount rate applied to
environmental provisions partly offset by year-on-year swings in commodity
derivative remeasurements and lower profits in our commercial property
business, which benefitted from exceptional gains related to disposal of a
joint venture in 2021/22. Excluding exceptional items and remeasurements,
adjusted operating profit increased by £481 million (13%) or 8% on a constant
currency basis. Major storm costs were £95 million higher than the prior
year. The reasons for the movements in underlying operating profit are
described in the Business Review.
Financing costs, share of post-tax joint ventures and associates and taxation
- continuing
Net finance costs
Net finance costs (excluding remeasurements) for the year were 40%
higher than last year at £1,514 million, with the £433 million increase
driven by higher net debt-related financing costs, from growth in new
long-term senior debt and a £244 million impact from higher inflation on our
index-linked debt, along with the impact of foreign exchange movements. These
higher costs were partly offset by favourable year on year other interest
income, with benefits from interest on pension and other post-employment
benefit (OPEB) liabilities and increased capitalised interest. The effective
interest rate for continuing operations of 4.4% is 120bps higher than the
prior year rate.
Joint ventures and associates
The Group's share of net profits from joint ventures and associates on
a statutory basis increased by £79 million, benefitting from £37 million
favourable year-on-year derivative remeasurements. On an adjusted basis, the
share of net profits from joint ventures and associates increased by £42
million compared with 2021/22, mainly as a result of BritNed, with higher
revenues driven by higher auction prices plus the impact of a two-month
outage in the prior year, partly offset by Nemo Link as a result of
interconnector cap adjustments and an adverse year-on-year contribution from
our joint venture investments in NG Partners as a result of downward market
fair value movements.
Tax
The underlying effective tax rate (excluding joint ventures and associates)
of 23.1% was 120bps lower than last year (2022: 24.3%). This reflects the
lower tax charge in 2022/23 for the remeasurement of state deferred taxes
following the sale of our Rhode Island business.
Cash flow, net debt and funding
Net debt is the aggregate of cash and cash equivalents, borrowings, current
financial and other investments and derivatives (excluding commodity contract
derivatives) as disclosed in note 11. 'Adjusted net debt' used for the
RCF/adjusted net debt calculation is principally adjusted for pension deficits
and hybrid debt instruments. For a full reconciliation see page 86. The
following table summarises the Group's cash flow for the year, reconciling
this to the change in net debt.
Summary cash flow statement
(£ million) 2023 2022 change %
Cash generated from continuing operations 6,432 5,788 11
Cash capital investment (net of disposals and exceptional insurance (7,167) (5,781) (24)
recoveries)
Disposal of Millennium/St William 497 413 20
Dividends from JVs and associates 190 166 14
Business net cash (outflow)/inflow from continuing operations (48) 586 n/m
Net interest paid (1,365) (1,013) (35)
Net tax paid (89) (298) 70
Cash dividends paid (1,607) (922) (74)
Other cash movements 17 30 (43)
Net cash outflow (continuing) (3,092) (1,617) (91)
Disposal of UK Gas Transmission and Metering and NECO(1) 6,995 - n/m
Acquisition of National Grid Electricity Distribution(2) - (7,837) 100
Discontinued operations (9) 657 n/m
(Repayment of)/proceeds from bridge loan to acquire (8,200) 8,200 n/m
National Grid Electricity Distribution
Other, including net financing raised in year 4,271 628 n/m
(Decrease)/increase in cash and cash equivalents (35) 31 n/m
Reconciliation to movement in net debt
(Decrease)/increase in cash and cash equivalents (35) 31 n/m
Bridge loan to acquire National Grid Electricity Distribution 8,200 (8,200) n/m
Less: other net cash flows from investing and financing transactions (4,271) (628) n/m
Net debt reclassified to held for sale - 4,063 (100)
Fair value of National Grid Electricity Distribution net debt acquired - (8,147) 100
Impact of foreign exchange movements on opening net debt (1,293) (828) (56)
Other non-cash movements (765) (554) (38)
Decrease/(increase) in net debt 1,836 (14,263) n/m
Net debt at start of year (42,809) (28,546) (50)
Net debt at end of year (40,973) (42,809) 4
1. Cash proceeds of £3,081 million for NECO and £4,032 million for UK Gas
Transmission, less balance of cash and cash equivalents disposed with
these businesses.
2. Includes £44 million cash and cash equivalents acquired with National
Grid Electricity Distribution.
Cash flow generated from continuing operations was £6.4 billion, £0.6
billion higher than last year, mainly due to a full-year contribution from
UK Electricity Distribution, higher revenues compared with 2021/22, lower
spend on provisions and higher net exceptional income, offset by favourable
working capital inflows on payables. Cash expended on investment activities
increased as a result of continued organic growth in our regulated and
non-regulated businesses, partly offset by the disposal of financial
investments.
Our strategic pivot is complete with the sale of NECO in May 2022 generating
£3,081 million of proceeds (less £40 million financing costs) and the sale
of 60% of UK Gas Transmission and Metering in January 2023 generating £4,032
million of proceeds. The disposal of our Millennium Pipeline investment in
October 2022 also generated £497 million of proceeds in 2022/23. In the
prior year, the sale of the St William joint venture generated £413 million
of proceeds. Net interest paid increased as a result of a higher average
level of net debt and increased base rates on borrowings. The Group made net
tax payments of £89 million for continuing operations during 2022/23. This
reflected utilising tax losses primarily against the gains on sale of NECO and
Millennium alongside refunds received in respect of US tax settlements for
historical years. The higher cash dividend of £1,607 million reflected a
lower scrip uptake of 15% (2022: 48%). In the prior year, the cash
acquisition of WPD in June 2021 for £7.9 billion increased net debt, along
with a further £8.1 billion increase from the fair value of net debt
acquired.
Discontinued operations represents UK Gas Transmission and Metering which
generated lower cash inflows in 2022/23, principally as a result of a
shorter period of ownership, higher capital expenditure and adverse working
capital movements, partly offset by favourable timing movements, lower tax
payments and other investing activities compared with 2021/22. Non-cash
movements primarily reflect changes in the sterling-dollar exchange rate,
accretions on index-linked debt, lease additions and other derivative fair
value movements, offset by the amortisation of fair value adjustments
on the debt acquired with WPD.
The Board has considered the Group's ability to finance normal operations
as well as funding a significant capital programme, taking account of the
disruption caused by the energy crisis. This includes stress testing of the
Group's finances under a 'reasonable worst-case' scenario, assessing the
timing of the sale of businesses held for sale and the further levers at the
Board's discretion to ensure our businesses are adequately financed. As a
result, the Board has concluded that the Group will have adequate resources
to do so.
FINANCIAL STRENGTH
Our overall Group credit rating remains at a strong investment grade level,
BBB+/Baa1 with stable outlook
During the year we raised over £7 billion of new long-term senior debt
to refinance maturing debt and to fund a portion of our significant capital
programme. The new bonds issued include further borrowings under our Green
Financing Framework. The £8.2 billion bridge financing facility to fund the
purchase of the UK Electricity Distribution business was fully repaid in
2022/23 following receipt of proceeds from the sales of NECO and a 60% stake
in our UK Gas Transmission and Metering business.
As at 18 May 2023, we have £8.0 billion of undrawn committed facilities
available for general corporate purposes, all of which have expiry dates
beyond May 2024. National Grid's balance sheet remains robust, with strong
overall investment grade ratings from Moody's, Standard & Poor's
(S&P) and Fitch.
Regulatory gearing, measured as net debt as a proportion of total regulatory
asset value and other business invested capital reduced significantly in the
year to 71% as at 31 March 2023. This was lower than the previous year end
level of 81% principally as a result of the sale of a 60% stake in our UK Gas
Transmission business for £4.0 billion in January 2023 along with £3.1
billion proceeds from the sale of NECO in May 2022. Taking into account the
benefit of our hybrid debt, adjusted gearing as at 31 March 2023 was 69%, with
the current overall Group credit rating of BBB+/Baa1 (S&P/Moody's).
Retained cash flow as a proportion of adjusted net debt was 9.3%. Taking into
account the benefit of our hybrid debt, we expect gearing levels, and the
other standard metrics we monitor, to sit within ranges that are appropriate
for the current, strong investment grade, overall Group credit rating. This
includes the long-term average Retained cash flow (RCF)/adjusted net debt
level of above 7% indicated by Moody's as consistent with maintaining our
current Group credit rating, and the Funds From Operations (FFO)/adjusted net
debt metric level of above 10% as indicated by S&P.
Dividend increase of 8.77% recommended for 2022/23
The Board has recommended an increase in the final dividend to 37.60p
per ordinary share ($2.3459 per American Depository Share), which will be
paid on 9 August 2023 to shareholders on the register of members as at 2 June
2023. If approved, this will bring the full-year dividend to 55.44p per
ordinary share, an increase of 8.77% over the 50.97p per ordinary share in
respect of the financial year ended 31 March 2022. This is in line with the
increase in average UK CPIH inflation for the year ended 31 March 2023 as set
out in our dividend policy. Our aim is to grow the annual dividend per share
in line with CPIH, thus maintaining it in real terms. The Board will review
this policy regularly, taking into account a range of factors including
expected business performance and regulatory developments.
At 31 March 2023, National Grid plc had £14 billion of distributable
reserves, which is sufficient to cover more than five years of forecast
Group dividends. If approved, the final dividend will absorb approximately
£1,383 million of shareholders' funds. This year's dividend is covered
approximately 1.3x by underlying earnings.
The Directors consider the Group's capital structure at least twice
a year when proposing an interim and final dividend and aim to
maintain distributable reserves that provide adequate cover for
dividend payments.
A scrip dividend alternative will again be offered in respect of the 2022/23
final dividend.
GROWTH AND VALUE ADDED
A balanced portfolio to deliver asset and dividend growth
National Grid seeks to create value for shareholders through developing a
balanced portfolio of businesses that offer an attractive combination of asset
growth and cash returns.
Strong organic growth driven by critical investment
Asset growth excludes the impact of the £9,608 million reduction in RAV, rate
base and other assets as a result of the disposal of our NECO and 60% of our
UK Gas Transmission and Metering business during the year.
In 2022/23, the Group achieved asset growth of 11.4% driven by our capital
investment programme alongside RAV indexation. This investment continued our
focus on building and maintaining world-class networks that are safe,
reliable, resilient and ready for the future. It is specifically focused on:
■ our regulated businesses: with the objective of upgrading and
modernising ageing infrastructure, especially in the US, to meet the changing
needs of customers and to drive the decarbonisation of energy supply; and
■ interconnector projects: with the objective of bringing a range of
lower cost and renewable energy sources into the UK.
In 2023/24, we expect Group capital investment to be above £8 billion for
continuing operations.
We are confident that this high-quality growth will continue to generate
attractive returns for shareholders and add to our long-term investment
proposition of sustainable asset and income growth.
£7.7 billion of capital investment for continuing operations in 2022/23, 8%
higher at constant currency
We continued to make significant investments in critical energy infrastructure
during 2022/23. Total capital investment for continuing operations across the
Group was £7,740 million, an increase of £1,001 million 15% (or 8% at
constant currency) compared to the prior year.
Capital investment
Year ended 31 March (£ million) At actual exchange rates At constant currency
2023 2022 % change 2023 2022 % change
UK Electricity Transmission 1,303 1,195 9% 1,303 1,195 9%
UK Electricity Distribution 1,220 899 36% 1,220 899 36%
UK Electricity System Operator 108 108 - % 108 108 - %
New England (including NECO) 1,677 1,561 7% 1,677 1,731 (3)%
New York 2,454 1,960 25% 2,454 2,174 13%
NGV 906 913 (1)% 906 968 (6)%
Other¹ 72 103 (30)% 72 113 (36)%
Total capital investment - continuing 7,740 6,739 15% 7,740 7,188 8%
UK Gas Transmission 301 261 15% 301 261 15%
Total capital investment - continuing and discontinued 8,041 7,000 15% 8,041 7,449 8%
1. Excludes £nil (2022: £25 million) equity contribution to the St William
Homes LLP joint venture. Includes £59 million National Grid Partners
investment (2022: £93 million, at actual exchange rates).
Capital investment in UK Electricity Transmission increased by £108 million
compared with 2021/22, primarily due to LPT2, overhead line projects including
Cottam to Wymondley, East Cost onshore projects and capitalised interest,
partly offset by lower Hinkley Seabank spend. UK Electricity Distribution
increased by £321 million primarily due to a full year of ownership alongside
increased customer-driven connection activities. In New England, capital
investment increased by £116 million (£54 million reduction on a constant
currency basis) primarily due to the disposal of our Rhode Island business
during 2022/23 resulting in a £280 million reduction (at constant currency),
partially offset by higher spend on gas assets, including the gas system
enhancement plan, and increased reinforcement of electricity networks. In New
York, capital investment was £280 million higher (on a constant currency
basis, £494 million higher at actual currency), primarily due to increased
electricity network reinforcement, right of use asset additions (non-cash
leases entered into in 2022/23), including renewing the Volney-Marcy
transmission line lease, increased digital and increased security investment,
partially offset by lower leak-prone pipe replacement work in our gas
businesses, following the acceleration in 2021/22. Capital investment in NGV
decreased by £7 million (£62 million lower at constant currency), with
higher expenditure in IFA following the fire in September 2021 and also in
Grain LNG being more than offset by lower North Sea Link (NSL) interconnector
investment (commissioned in 2021/22) and no recurrence of last year's
investment in an over 3 GW potential offshore wind seabed lease in New York.
Other activities capital investment reduced primarily as a result of lower
investments in National Grid Partners.
In UK Gas Transmission, capital investment increased by £40 million from
continued investment at Peterborough and Huntingdon compressor stations,
higher capitalised interest and higher cyber spend compared with 2021/22.
Achieved asset growth of 11.4% compared to 8.7% last year
During 2022/23, our combined regulated asset base and NGV and Other business
assets decreased by £2,732 million, of which £9,608 million related to the
decrease from the disposals of NECO and our UK Gas Transmission and Metering
business. Asset growth is calculated excluding the impact of these disposals.
UK RAV increased 11.5% including the impact of higher CPI and RPI inflation on
RAV indexation, partly offset by RAV depreciation. The US rate base grew
strongly by 8.0% during the year. NGV and Other businesses increased as a
result of ongoing capital investment.
Excluding the decrease as a result of the disposal of NECO and our UK Gas
Transmission business, our combined regulated asset base and NGV and Other
business assets grew by £6,876 million or 11.4%. For detailed calculations of
asset growth see pages 93 to 94.
Assets
Year ended 31 March (£ million at constant currency) 2023 Disposal of NECO and UK Gas Transmission(1) 2022 % change
UK RAV¹ 28,205 (6,989) 31,577 11.5%
US rate base¹ 23,038 (2,476) 23,628 8.0%
Total RAV and rate base 51,243 (9,465) 55,205 10.0%
NGV and Other businesses(2) 6,604 (143) 5,374 25.5%
Total 57,847 (9,608) 60,579 11.4%
1. UK RAV Includes UK Gas Transmission of £6,651 million and US rate base
includes NECO of $2,989 million at 31 March 2022.
2. The £143 million disposal adjustment relates to our non-regulated UK
metering business within UK Gas Transmission.
Value Added of £4,807 million driven by improved performance and higher RAV
indexation
Value Added excludes the reduction in assets and reduction in net debt as a
consequence of the sale of NECO and the sale of 60% of our UK Gas Transmission
business during 2022/23. Value Added, which reflects the key components of
value delivery to shareholders (i.e. dividend and growth in the economic
value of the Group's assets, net of growth in net debt) was £4.8 billion in
2022/23. This was higher than last year's £3.8 billion, driven by higher RAV
indexation in UK Electricity Transmission and UK Electricity Distribution,
stronger NGV and Other performance, higher US returns and a smaller adverse
impact from COVID-19 compared with 2021/22, offset by higher interest. Of the
£4.8 billion Value Added, £1.6 billion was paid to shareholders as cash
dividends and £3.2 billion was retained in the business. Value Added per
share was 131.4p compared with 106.5p in 2021/22. Value Growth is normalised
for long-run inflation assumptions by adjusting value added for the difference
between actual experienced inflation on UK RAV indexation and index-linked
debt and the equivalent movements at a long-run assumed inflation rate of 2%
CPIH or 3% RPI, and dividing this result by the equity base used to calculate
Group RoE (at closing exchange rates). Value growth was 12.4% compared with
12.8% in 2021/22. For detailed calculations of Value Added see pages 93 to 94.
BUSINESS REVIEW
In addition to IFRS based profit measures, National Grid calculates a number
of additional regulatory performance metrics to aid understanding of the
performance of the regulated businesses. These metrics aim to reflect the
impact of performance in the current year on future regulatory revenue
allowances. This includes the creation of future regulatory revenue adjustment
balances and the impact of current year performance on the regulated asset
base. These metrics also seek to remove the impacts on current year revenues
relating to 'catch up' or 'sharing' of elements of prior year performance, for
example the sharing of prior year efficiencies with customers.
These metrics include Return on Equity, Regulated Financial Performance and
Regulated Asset Value or Regulated Rate Base. Further detail on these is
provided on pages 86 to 93.
Year ended 31 March Regulatory Debt: Achieved Base or Allowed
Equity assumption Return on Equity Return on Equity
% 2023 2022 2023 2022
UK Electricity Transmission 55/45 7.5 7.7 6.3 6.3
UK Electricity Distribution 65/35 13.2 13.6 9.6 9.6
UK Gas Transmission 60/40 7.8 7.8 6.6 6.6
New England(1) Avg. 45/55 8.3 8.3 9.9 9.8
New York Avg. 52/48 8.6 8.8 8.9 8.9
Group Return on Equity 11.0 11.4 n/a n/a
1. Figure for 2023 excludes NECO, figure for 2022 includes NECO.
As at 31 March RAV, Rate Base or other business assets Total regulated and other balances(1)
(£ million, at constant currency) 2023 2022 2023 2022
UK Electricity Transmission 17,072 15,471 16,912 15,242
UK Electricity Distribution 10,773 9,248 10,756 9,299
UK Electricity System Operator 360 297 282 442
UK Gas Transmission - 6,561 - 6,669
New England(2) 7,907 9,860 10,080 11,774
New York 15,131 13,768 16,184 14,646
Total regulated 51,243 55,205 54,214 58,072
NGV and Other balances 6,604 5,374 6,712 4,566
Group regulated and other balances 57,847 60,579 60,926 62,638
1. March 2022 balances restated for opening balance adjustments to
correspond with 2021/22 regulatory filings and calculations.
2. Figure for 2023 excludes NECO, figure for 2022 includes NECO.
UK ELECTRICITY TRANSMISSION
Operational Performance
UK Electricity Transmission delivered another year of strong operational
performance reflected in an excellent network reliability of 99.999997%. Over
the winter, a taskforce was established to coordinate and deliver enhanced
levels of winter preparedness, looking across network availability, crisis
management, and communications, whilst working closely with the ESO, Ofgem,
government and wider stakeholders. Overall, the network performed well
and, working alongside the ESO, we were able to provide the required network
availability and resilience in the short term.
Capital investment and projects
In 2022/23, we invested £1,303 million in our UK Electricity Transmission
network, up 9% from the prior year as part of our RIIO-T2 promise to deliver
£9 billion capex across 2022-2026 in our Electricity Transmission business.
This increase was principally through higher spend on LPT2, overhead line
projects including Cottam-Wymondley, and East Coast Onshore projects, partly
offset by lower spend on the Hinkley-Seabank connection project as it moves
nearer to completion, and lower IT capex.
This year saw the installation of our new T-pylon design, the first new design
in nearly a century. At one third shorter, they have a smaller footprint than
lattice pylons, use less land and have less visual impact. Out of a total of
116 as part of the Hinkley programme, 93 have been installed. The Hinkley
programme is now more than 80% complete and remains on track to complete all
works by December 2024. We also made good progress on our LPT2 project, where
we have now completed the first of five drives for the tunnel
boring machines, marking a significant milestone for the project which will
future proof the energy infrastructure of London.
Whilst we continue to deploy record levels of investment across the
transmission network, we are continuing to enhance the natural environment.
Across the Peak District National Park, Somerset and the Mendip Hills, we have
now moved over 70km of overhead lines underground to reduce visual impact of
infrastructure in these areas of outstanding natural beauty. In addition, we
have achieved biodiversity net gains through our Peak District project through
careful management of the environment around the project's very sensitive and
constrained construction site. This included the creation of an additional
habitat for wildlife, the rehabilitation of a bird community, and the level of
permitted tree removal greatly reduced.
Regulatory progress
Our Electricity Transmission business continues to perform well against
RIIO-T2 Output Delivery Incentive (ODI) targets, delivering incentive
performance of £89 million in the second year of the price control period.
This shows our continued focus on operating a safe and reliable network that
meets the needs of our customers and network users against a background of
unprecedented rises in energy costs and energy supply challenges.
In December, Ofgem published its decision on accelerated onshore electricity
transmission investment, confirming that National Grid Electricity
Transmission (NGET) will be responsible for the delivery of 17 major
electricity transmission projects, of which four are in joint venture with
Scottish transmission operators. We welcomed the clarity and commitment this
decision gives NGET, and the wider industry, as the next step towards a more
affordable, resilient and clean energy system. Whilst this investment is
fundamental to the successful delivery of the decarbonisation of our
electricity system, it will also bring greater security of supply, as well as
improved affordability for customers in the long run. We expect these projects
to be delivered largely after the end of RIIO-T2, with most expenditure in the
next price control period. We are working with Ofgem to develop the details of
the regulatory process around the ASTI projects which will determine the
project specifics to approve funding and incentivisation.
As Ofgem has highlighted, urgent reform is still required across a number of
areas. The planning system needs streamlining to allow for the delivery of
this critical national infrastructure in a timely fashion; the setting of
allowances needs to enable a programmatic approach; and communities must see
clear long-term economic benefit to hosting infrastructure for the UK to
achieve its net zero ambition. We will continue to work alongside government
and Ofgem to progress these critical projects, as we look towards agreeing a
regulatory and financial framework that can enable the delivery of this
infrastructure in future years.
This year, UK Electricity Transmission has worked collaboratively with the ESO
to implement a number of measures to address the connection pipeline. With the
agreement of Ofgem, these include a two stage offer process which will allow
us to optimise projects in the pipeline and accelerate connection dates. We
will actively engage with the upcoming consultations on wider connection
reform.
Revenue and Costs in 2022/23 on an IFRS basis
UK Electricity Transmission statutory operating profit was £62 million lower
in the year. In 2022/23, there were £8 million of exceptional costs
related to the cost-efficiency programme (2022: £12 million) offset by a
£6 million (2022: £nil) credit in respect of change in discount rate
applied to environmental provisions. Timing under-recoveries of £112 million
in 2022/23 compared with £85 million in 2021/22 mainly due to
under-collection of Transmission Network Use of System (TNUoS) revenues from
lower volumes and the impact of higher inflation, partly offset by
the recovery of prior period recoveries.
Adjusted operating profit reduced by £72 million (7%), but this included £27
million adverse year-on-year timing movements. Underlying operating profit
reduced by 4%. Net revenues (adjusted for timing) were lower from the return
of £147 million for Western Link liquidated damages received in prior years,
the impact of tax allowances (super-deductions) and lower customer-funded
works (mainly HS2), partly offset by higher revenues from RAV indexation.
Regulated controllable costs were £14 million higher from the impact of
higher energy costs (own-use utilities and fuel costs). Other inflationary and
workload increases were offset by efficiency savings. Other costs were lower,
mainly relating to a one-off settlement in the prior year and higher profit
from sale of assets in the current year.
The decrease in depreciation and amortisation reflects prior year asset
write-offs partly offset by higher depreciation of a higher asset base.
UK Electricity Transmission
(£ million) 2023 2022 % change
Revenue 1,987 2,035 (2)
Operating costs (994) (980) 1
Statutory operating profit 993 1,055 (6)
Exceptional items 2 12 (85)
Adjusted operating profit 995 1,067 (7)
Timing 112 85 32
Underlying operating profit 1,107 1,152 (4)
Net revenue (adjusted for timing) 1,882 1,968 (4)
Regulated controllable costs (241) (227) 6
Post-retirement benefits (31) (26) 19
Other operating costs (19) (55) (65)
Depreciation and amortisation (484) (508) (5)
Underlying operating profit 1,107 1,152 (4)
Timing (112) (85) 32
Adjusted operating profit 995 1,067 (7)
Return on Equity
RoE for the year, normalised for a long-run CPIH inflation rate of 2%, was
7.5%. This includes 120bps outperformance, largely reflecting delivery of
projects spanning across RIIO-1 and RIIO-2. The principal components of RoE
are shown in the table below:
Year ended 31 March 2023 2022
Base return (including avg. 2% long-run inflation)(1) 6.3 6.3
Totex incentive mechanism(2) 1.1 1.4
Other revenue incentives 0.1 0.1
Return including in year incentive performance 7.5 7.8
Pre-determined additional allowances and other income - (0.1)
Return on Equity 7.5 7.7
1. Assuming regulatory gearing at 55%.
2. Excludes impact of exceptional restructuring costs (post sharing)
For Regulated Financial Performance, please refer to page 87.
Regulated Financial Position up 11%
In the year, RAV grew by 10% driven by ongoing investment coupled with RAV
indexation (8.9% 2022/23 versus 6.2% 2021/22).
2023 2022
Opening Regulated Asset Value (RAV) 15,471 14,328
Asset additions (slow money) - actual 1,180 1,130
Performance RAV or assets created 68 75
Inflation adjustment (actual CPIH) 1,373 894
Depreciation and amortisation (1,020) (941)
Closing RAV 17,072 15,486
Opening balance of other regulated assets and (liabilities) (268) (278)
Movement 108 66
Closing balance (160) (212)
Closing Regulated Financial Position 16,912 15,274
UK ELECTRICITY DISTRIBUTION
Operational Performance
UK Electricity Distribution delivered another year of strong operational
performance with an excellent network reliability of 99.99469%. This despite
winter periods with winds around 60 mph, freezing temperatures and heavy snow
across the network footprint. We completed the RIIO-ED1 price control period
in a position of strength, outperforming the majority of the 76 business plan
commitments we made at the start of the period across our key output areas
including customer satisfaction, reliability and environment. In the current
year, we beat our targets for customer minutes lost and customer interruptions
by around 30%. Our Business Carbon Footprint (BCF) has reduced by 42% since
2014/15, and UK Electricity Distribution has also been listed as one of
Europe's Climate Leaders for 2022 in the Financial Times-Statista list.
Capital investment and projects
In 2022/23, we invested £1,220 million in our UK Electricity Distribution
network, up 36% from the prior year. This increase was driven principally by a
full year of UK Electricity Distribution ownership; a 10% step up in new
customer connections year on year, mainly driven by growth in low carbon
technologies such as EV and heat pump connections; and digital investments
required to set up our Distribution System Operator (DSO) function which will
enable greater flexibility services and network reinforcement investment for
our customers. During the year, we have processed over 30,400 domestic EV
charger and heat pump applications in 2022/23. Of those, over 29,900 (or 98%)
were approved within two working days.
Customer focus
UK Electricity Distribution has an excellent track record of customer service
which is reflected in our performance against the Broad Measure of Customer
Satisfaction (BMCS) results, scoring 8.99 out of 10 overall. With our fuel
poverty schemes, we have supported over 24,000 fuel poor customers, leading
to estimated annual savings for them of £20.6 million. Our Community Matters
Fund has awarded over £3.8 million to 759 grassroots organisations in
2022/23, including £2.5 million to tackle fuel poverty in the communities we
serve.
In 2022/23, we experienced no categorised storm events across the UK
Electricity Distribution service territory, and the network has performed to
its normal industry leading levels.
We have streamlined our connections process making it quicker and easier for
customers to connect EV chargers and heat pumps, allowing 18,829 customers to
obtain connections approval within 24-48 hours. We have received and processed
over 30,000 domestic EV charger and heat pump applications in the current
year. To deal with increasing volumes of low carbon technology connections, a
new digital tool has been launched that allows customers to apply online to
connect domestic electric vehicle chargers. This tool will be extended to heat
pumps and domestic solar installations as well.
Over the past few years we have been addressing the provision of EV charging
at Motorway Services and on trunk roads. This came together in our Take Charge
innovation project which will deliver the electrical capacity to power 80
rapid EV charges at a single service station site. It is an innovative
solution that brings the 'electrical capacity of a small town' to each
motorway service station. The project won the Utility Week Disruptor of the
Year award for 2022.
RIIO-ED2 progress
In March, we announced our acceptance of all of the RIIO-ED2 price control
arrangements proposed by Ofgem in its Final Determinations, covering UK
Electricity Distribution for the period April 2023 to March 2028. The price
controls, developed with 25,000 stakeholders over the course of two years,
will further accelerate our delivery of smart, decarbonised electricity
distribution networks in the UK, at the lowest cost to customers.
The key components of the price control arrangements include:
■ £5.9 billion (2021/22 prices) of totex funding;
■ an allowed real equity return of 5.23% average;
■ introduction of 37 uncertainty mechanisms which flex funding through
the period dependent on outputs delivered and justification case made;
■ RIIO-ED2 incentive targets have tightened across most areas. There are
some new incentives, particularly around the Distribution System Operator
(DSO) incentive, and UK Electricity Distribution is looking at what and how we
deliver to ensure we continue to be a frontier performing DSO delivering for
our stakeholders. In addition, we continue to focus on our totex targets to
ensure we can deliver all other price control commitments in the most
efficient way; and
■ there are a number of uncertainty mechanism windows which Ofgem has
proposed in ED2 to provide additional funding. We will look to ensure we
provide the necessary evidence to secure the additional necessary funding
under these schemes.
We have also made good progress in integrating UK Electricity Distribution
into the rest of the Group including progressing synergy benefits. We have
made changes to align functions under common leadership, integrated IT systems
in a number of areas such as treasury and procurement, and are beginning to
harness our increased scale in joint procurement activities.
Revenue and Costs in 2022/23 on an IFRS basis
Statutory operating profit was £160 million higher in the year, reflecting
a full year of ownership, compared to a 9.5-month period for the year ended
31 March 2022.
In 2022/23, there were £22 million of exceptional costs related to the
integration of the business into the wider Group. Adjusted operating profit
increased by 20%, including the extra period of ownership and the impact of
£161 million adverse year-on-year timing movements. Timing under-recoveries
of £139 million in 2022/23 are mainly due to the under collection of earned
incentives and inflation true-ups, partly offset by over-recovery of
pass-through costs, as well as the return of prior period over-recovered
balances primarily as a result of the impact of tax allowances
(super-deductions).
Underlying operating profit increased by 39%. Net revenues (adjusted
for timing) were higher than the prior year due to the extra period of
ownership and higher revenues due to RAV indexation, partly offset by the
impact of tax allowances and lower engineering recharge revenues due to lower
workload.
Regulated controllable costs were higher than the prior year as a result of
the different period of ownership. Other costs were lower, mainly due to £13
million profit from the sale of the Smart Metering business and lower
engineering recharge costs due to lower work volumes offset by the longer
period of ownership.
The increase in depreciation and amortisation reflects the full year of
ownership and a higher asset base.
UK Electricity Distribution
(£ million) 2023 9.5 months to 31 March 2022 % change
Revenue 2,045 1,482 38
Operating costs (976) (573) 70
Statutory operating profit 1,069 909 18
Exceptional items 22 - n/a
Adjusted operating profit 1,091 909 20
Timing 139 (22) (732)
Underlying operating profit 1,230 887 39
Net revenue (adjusted for timing) 1,766 1,335 32
Regulated controllable costs (235) (180) 31
Post-retirement benefits (24) (24) -
Other operating costs (54) (86) (37)
Depreciation and amortisation (223) (158) 41
Underlying operating profit 1,230 887 39
Timing (139) 22 (732)
Adjusted operating profit 1,091 909 20
Return on Equity above base levels
RoE, normalised for a long-run RPI inflation rate of 3%, was 13.2% in 2022/23.
This includes 360bps outperformance, mainly due to strong incentive
performance including interruptions quality, reliability and customer service.
This was slightly lower on the prior year due to increased customer service
targets. The principal components of the difference are shown in the table
below:
For the year ended 31 March 2023 9.5 months to 31 March 2022
Base return (including avg. 3% long-run inflation) 9.6 9.6
Totex incentive mechanism 0.9 1.0
Other revenue incentives 2.7 3.0
Return on Equity 13.2 13.6
For Regulated Financial Performance, please refer to page 87.
Regulated Financial Position up 16%
In the year, RAV grew by 16% driven by ongoing investment coupled with RAV
indexation of 13.6% (2022: 9.0%).
2023 9.5 months to 31 March 2022
Regulated Asset Value (RAV) at acquisition date (estimated) 9,248 8,476
Asset additions (slow money) - actual 971 684
Performance RAV or assets created 22 9
Inflation adjustment (actual RPI) 1,261 593
Depreciation and amortisation (729) (512)
Closing RAV 10,773 9,250
Opening balance of other regulated assets and (liabilities) (2022: balance at 51 230
acquisition date)
Movement (68) (173)
Closing balance (17) 57
Closing Regulated Financial Position 10,756 9,307
UK ELECTRICITY SYSTEM OPERATOR (ESO)
Overview
The UK Electricity System Operator (ESO) has performed well during the year.
Underlying net revenue was £44 million higher than the prior year; capital
investment reached £108 million in the year, in line with the prior period,
primarily driven by transformational IT projects to deliver the RIIO-2
Business Plan.
In April 2022, the Department for Energy Security and Net Zero (DESNZ) and
Ofgem announced their joint decision to create a new Future System Operator
(FSO) that builds on the track record and skills of the ESO whilst creating an
impartial body with responsibilities across both the electricity and gas
systems. We will continue to work closely with all parties involved in the
coming months to enable a smooth and successful transition. We have continued
to advance our plans during the year to ensure an orderly transition in
2024. We are working with DESNZ and Ofgem to agree appropriate mechanisms for
compensation relating to this activity.
At the end of August, the ESO submitted its updated RIIO-2 Business Plan
covering the two year regulatory period from April 2023 to March 2025. Ofgem
issued their Final Determinations on the plan in March 2023. The plan will
deliver excellence in system operation, continue the drive towards net zero,
build efficient and effective markets, and includes £651 million 8 of totex
over this period.
In October, the ESO developed the most comprehensive Winter Preparedness plans
to date to maximise asset availability and performance. These proved very
effective over the winter period. The ESO deployed its usual range of tools to
manage the system as well as the new Demand Flexibility Service and winter
contingency coal contracts. Winter operations within the control room were
carried out as normal supported by new services.
During the year, the ESO continued to invest significantly in the new
Balancing Programme. This is a key technology programme designed to develop
the balancing capabilities that the Electricity National Control Centre needs
to deliver reliable and secure system operation, facilitate competition and
meet our ambition for net zero carbon operability. The Balancing Programme
will modernise and transform our balancing capabilities, together with
associated platforms, and is a key enabler to the £2.8 billion of benefits
expected to be delivered by the completion of our work in 2023/24 and 2024/25.
Customer connections
Looking forward, over 60% of the projects in the (generation) connection
pipeline have connection dates within 12 months of their requested date.
However, we are progressing the following options in order to address and
better manage the connection request pipeline:
■ ESO Connection Reform process - working towards an industry
consultation in summer 2023 on proposed options for changes to the connections
process and how they will be implemented.
■ Transmission Entry Capacity (TEC) Amnesty - this provides developers an
opportunity to leave the connections pipeline without incurring termination
liabilities. The amnesty is the first of its kind in nearly a decade, and
over 8 GW of generation applied before the end of the amnesty window in April
2023.
■ Pipeline Management - these are changes to the industry's commercial
framework to formally introduce better tools to manage the pipeline. To remain
in the pipeline, customers will need to demonstrate their project is
progressing by meeting key milestones. These proposals have now finished the
'development and assessment' phase, and we expect it to be submitted to Ofgem
for a decision in early summer 2023.
Revenue and Costs in 2022/23 on an IFRS basis
UK Electricity System Operator statutory operating profit increased
£232 million in the year, mostly driven by year-on-year timing movements.
Timing over-recoveries of £207 million in 2022/23 were driven by collection
of prior period balances (legacy TNUoS, Balancing Services Use of System
(BSUoS) deferrals, licence fee and other pass-through costs), a £22 million
totex over-recovery (reflecting lower totex spend compared with allowances)
and the net impact of other pass-through cost true-ups from inflation,
incentives and post-vesting connections. In 2022/23 £1 million (2022: £2
million) of exceptional costs were incurred as part of our broader cost
efficiency programme.
Adjusted operating profit increased by £231 million driven by the
£254 million year-on-year timing movement, partly offset by asset
write offs. Excluding the impact of timing, underlying operating profit
decreased by £23 million. Net revenue (adjusted for timing) was
£44 million higher, but broadly offset by increased regulated controllable
costs and pensions as a result of the expected higher volume of work under
RIIO-2, plus £10 million additional FSO costs ahead of separation of this
business. Depreciation and amortisation was £18 million higher, mostly from
accelerated depreciation of the Electricity Balancing System.
UK Electricity System Operator
(£ million) 2023 2022 % change
Revenue 4,690 3,455 36
Operating costs (4,453) (3,450) 29
Statutory operating profit 237 5 4,640
Exceptional items 1 2 (50)
Adjusted operating profit 238 7 3,300
Timing (207) 47 (540)
Underlying operating profit 31 54 (43)
Net revenue (adjusted for timing) 331 287 15
Controllable costs (175) (129) 36
Post-retirement benefits (17) (16) 6
Other operating costs (7) (5) 40
Depreciation and amortisation (101) (83) 22
Underlying operating profit 31 54 (43)
Timing 207 (47) (540)
Adjusted operating profit 238 7 3,300
NEW ENGLAND
Operational Performance
We achieved an excellent operational performance across our New England
regulated business during 2022/23 with an electric distribution network
reliability of 99.95212% and an electric transmission reliability of
99.96824%. Investment in the safety and reliability of our networks has
continued, with capex lower year-on-year by £54 million to £1,677 million
at constant currency. This decrease was principally driven by the sale of NECO
during the financial year, partly offset by higher electric transmission work
due to accelerated investment programmes. In our Massachusetts Gas business,
we continued with gas safety and reliability investments including the
replacement of a further 142 miles of leak prone pipe 9 .
Storm response
During the year, National Grid prepared for and responded to 18 weather events
across our New England service territory. Of these 18 events, 11 were
considered Major Storms, with approximately 600,000 customers affected. Our
average time to restore 95% of affected customers in each weather event was
17.1 hours. We delivered strong operational performance during the year
including 10 events in 11 weeks from December to March.
COVID-19 cost recovery
Massachusetts Electric and Massachusetts Gas will get recovery of all COVID-19
related commodity bad debt which represents the bulk of the outstanding
balance. For Massachusetts Electric and Massachusetts Gas, we are required to
track delivery related bad-debt write-offs for the two-year period from 1 July
2022 through 30 June 2024. A report will be filed with the DPU in August 2024
to commence recovery of any outstanding delivery related COVID-19 bad debt
expense in excess of base rate recovery levels.
Regulatory progress
We continued to make good regulatory progress in Massachusetts during the
year.
In September, the DPU approved our annual Performance Based Rate adjustments
for both Massachusetts Electric ($44 million) and Massachusetts Gas ($64
million). These rates became effective 1 October 2022.
During the second half of the year, we received funding approval that supports
our aim to enable the energy transition in Massachusetts. In October, we
received approval for $301 million of funding for Grid Modernisation across
the state, followed by an additional $35 million in November. The funding will
be focused on the implementation of a Distributed Energy Resource Management
System (DERMS) and advanced short-term load forecasting. DERMS is a digital
solution and platform that allows the Company to actively track, manage, and
optimise Distributed Energy Resources (DERs) that are connected to the network
through direct monitoring, control and coordination or via an aggregator. The
DERMS platform will improve the reliability, resiliency, efficiency and
overall performance of the electric distribution system.
In November, we received approval for $391 million of funding for Advanced
Metering Infrastructure (AMI). AMI's are smart meters that will be deployed in
customer households and premises across our service territory. The funding
covers the period through 2027. In addition, the DPU approved a further
five-year budget of $96 million that largely covers system integration and
customer help to support this AMI investment.
At the end of December, we received a further approval from the DPU for $206
million for EV infrastructure in Massachusetts. This funding - separate to
capital investment through our rate agreements - is for a four-year programme
and will enable more than 30,000 residential charging points, and 11,000
public and workplace charging ports, across our service territory.
Lastly, in this period as compared to the prior year, we received a full
contribution from new rates for Massachusetts Gas that became effective in
October 2021.
Electric Sector Modernization Plan
In December, the DPU requested all Electric utilities file an Electric Sector
Modernization Plan (ESMP) with the new Grid Modernization Advisory Council
(GMAC) by September 2023. Each Electric Distribution Company, including
Massachusetts Electric, must file its final ESMP with the DPU no later than
January 29, 2024. The ESMP will outline what is required to upgrade the
distribution and, where applicable, transmission systems to meet the
Commonwealth's Clean Energy and Climate Plan 2050 policy objectives and help
the state realise its statewide GHG emissions goals. The ESMP will help
quantify the total investment required for the state to meet its policy goals.
Customer and communities
In September, we launched our Winter Customer Savings Initiative to help
Massachusetts customers reduce their energy use, manage their bills, and
secure available energy assistance. The initiative includes payment assistance
programmes for income-eligible customers, extensive residential and business
energy efficiency programmes and incentives, and flexible payment programmes.
We have reached out to all customers through a number of events around
Massachusetts to raise awareness of the options open to them to reduce and
manage their energy costs.
Our commitment to our customers and local communities has continued to
strengthen with the growth of our Grid for Good social responsibility and
impact programme which launched in June 2022. It provided more than $4 million
to support non-profit organisations and community programmes focused on
workforce development and education, economic opportunity, equity and social
justice, as well as clean energy and climate change. This is underpinned by a
robust volunteering programme that delivered more than 13,000 hours, and
leverages the strong brand of the Company's flagship workforce development
programme. This complements an ongoing, steady stream of volunteer activities
aligned to the Group community investment strategy. Additionally, the team has
been exploring new strategic partnerships aligned to the Grid for Good
pillars.
Return on Equity
Excluding NECO, underlying RoE increased 30bps from prior year to 8.3%. This
reflects (a) a full year of new rates at Massachusetts Gas following the rate
order received in October 2021, partly offset by higher costs including
increased property taxes, and (b) a decrease in Massachusetts Electric as a
result of increased IT spend, increased vegetation management, and a number of
one-off costs that are not expected to repeat.
Return on Equity Rate Base ($m) as at 31 March
Regulated Entity FY23 FY22 FY21 Allowed most recent 2023 2022 % change
(%)
Massachusetts Gas 8.6 6.9 5.7 9.7 4,170 3,820 9
Massachusetts Electric 5.9 7.1 5.3 9.6 3,106 3,049 2
Total Massachusetts 7.4 7.0 5.5 9.6 7,276 6,869 6
Narragansett Gas n/a 8.4 6.9 n/a - 1,218 (100)
Narragansett Electric n/a 8.4 10.0 n/a - 983 (100)
Narragansett Electric n/a 12.5 11.1 n/a - 788 (100)
- Transmission
Total Rhode Island n/a 9.4 8.4 n/a - 2,989 (100)
New England Power 11.1 10.9 11.0 10.6 2,420 2,260 7
Canadian Interconnector & Other 11.1 11.1 13.0 11.1 59 46 28
Total FERC 11.1 10.9 11.0 10.6 2,479 2,306 8
Total New England 8.3 8.3 7.5 9.9 9,755 12,164 (20)
Regulated Financial Position
Overall, the New England rate base (excluding the estimated $3.0 billion
decrease from the disposal of Rhode Island) increased by $0.6 billion (6%) to
$9.8 billion driven by increased capital expenditure partially offset by
depreciation and deferred tax movements.
New England Regulated Assets
($ billion as at 31 March) 2023 2022 % change
Rate Base excl. working capital (w/c) 9.6 11.9 (19)
Working capital in Rate Base 0.2 0.3 (33)
Total Rate Base 9.8 12.2 (20)
Reg. assets outside Rate Base excl. w/c 2.5 2.5 -
Working capital outside Rate Base 0.1 (0.2) (150)
Total regulated assets outside Rate Base 2.6 2.3 13
Total New England Regulated Assets 12.4 14.5 (14)
£ billion as at 31 March 2023 2022 % change
Total New England Regulated Assets at actual currency 10.1 11.1 (9)
Total New England Regulated Assets at constant currency 10.1 11.8 (14)
Financial performance
New England
(£ million) 2023 2022 2022 at constant currency % change at actual currency
Revenue 4,427 4,550 5,047 (3)
Operating costs (3,295) (3,786) (4,200) (13)
Statutory operating profit 1,132 764 847 48
Exceptional items (456) 80 89 n/m
Remeasurements 32 (101) (112) n/m
Adjusted operating profit 708 743 824 (5)
Timing 39 32 35 n/m
Major storm costs 72 111 123 n/m
Underlying operating profit 819 886 982 (8)
Net revenue (adjusted for timing) 2,371 2,532 2,808 (6)
Regulated controllable costs (755) (813) (902) (7)
Post-retirement benefits (27) (40) (44) (33)
Bad debt expense (58) (45) (50) 29
Other operating costs (319) (383) (425) (17)
Depreciation and amortisation (393) (365) (405) 8
Underlying operating profit 819 886 982 (8)
Timing (39) (32) (35) n/m
Major storm costs (72) (111) (123) n/m
Adjusted operating profit 708 743 824 (5)
New England's results were impacted by the disposal of our Rhode Island
business, NECO, which was sold in May 2022. This business was classified as
held for sale on 31 March 2021 and has not been depreciated since that date.
New England's statutory operating profit increased by £368 million,
predominantly a result of the £511 million exceptional net gain on disposal
of NECO, lower year-on-year exceptional costs associated with transaction and
separation, and lower major storm costs, offset by £133 million
year-on-year unfavourable movements in commodity contract remeasurements and
higher exceptional costs associated with the cost efficiency programme.
Excluding the above items, the impacts of a partial year ownership of NECO
in 2022/23 and year-on-year foreign exchange movements were partly offset by
improved underlying performance in the remaining New England businesses.
Adjusted operating profit decreased by £35 million (5%) at actual exchange
rates. Adjusted operating profit includes the impact of major storm costs
which were £39 million lower than 2021/22 and also includes the impact of
timing which was broadly flat year on year.
Excluding the impact of major storm costs and timing, underlying operating
profit decreased by £67 million (8%). The impact of owning our Rhode Island
business for 10 months less in 2022/23 reduced underlying operating profit by
£267 million (30%). Unless stated otherwise, the following commentary is
presented excluding the impact of the disposal of NECO in May 2022 and also
excluding the impact of foreign currency movements. Net revenues (adjusted
for timing and exchange rate movements) increased by £140 million from the
benefits of rate case increments in Massachusetts Gas and Massachusetts
Electric and higher wholesale network revenues partially offset by the
non-recurrence of a property sale in 2021/22. New England controllable costs
increased by £22 million (at constant currency) as a result of inflation and
workload increases exceeding efficiency savings made in the year. Bad debt
expenses were £26 million higher (at constant currency) than 2021/22 due to
higher write-offs of aged receivables and the impact of provision
rates applied in the current year. Depreciation and amortisation increased
due to increased investment, but was offset by non-recurrence of charges in
2021/22. Other costs were lower due to decreases in environmental reserves
and favourable pension plan performance, offset by increased operating taxes
driven by increased network investment. The weaker pound in 2022/23 increased
underlying operating profit by £96 million.
NEW YORK
Operational Performance
We achieved very good operational performance across our New York regulated
business during 2022/23 with an electric distribution network availability of
99.92384% and an electric transmission network availability of 99.97189%. We
have received four Edison Electric Institute (EEI) Emergency Recovery/Response
Awards in 2022/23: one Response (assisting others) and three Recovery
(restoring our customers). We have received 39 Response and Recovery Awards
since 2010.
Investment in the safety and reliability of our networks continued during the
year with capital spend increasing £280 million at constant currency to
£2,454 million, principally driven by Volney Marcy, Gowanus and other IFRS
leases 10 , higher electricity investment, and higher other investment
including cyber security. This was partially offset by lower gas investment
driven by lower mains replacement.
Storm response
During the year, National Grid prepared for and responded to 58 weather events
across our New York service territories. Of these 58 events, 16 were
considered Major Storms, with around 1.5 million customers affected. Our
average time to restore 95% of affected customers in each weather event was 13
hours, further demonstrating strong storm performance.
In August, three major storms affected the Central and Western New York
regions, impacting 90,000 of our electric customers. Our teams responded
quickly and restored connection to all customers within 25 hours.
In December, Winter Storm Elliott hit our service territories across New York
State. The 'bomb cyclone' occurred during the holiday season with over 200,000
of our customers affected by the impact. More than 50 inches of snow fell
during the storm with fierce blizzard conditions across the region. As such,
the level of coordination required across our field force of 3,800 people to
reconnect customers was significant, and the speed of the response was swift.
Within 48 hours, over 99% of all customers affected had their electricity
supplies restored. During the storm, we were also able to maintain a reliable
supply of gas to our customers. Our gas distribution system performed well as
did our LNG peaking assets. In addition, National Grid remained in regular
communication with customers and community leaders to provide restoration
updates, reinforce vital safety information, and provide locations of 'warming
centers' to those customers most in need.
COVID-19 cost recovery
In June, we reached an agreement with the New York Public Service Commission
(NYPSC) to provide around $160 million relief for low‑income customers'
arrears accumulated during the COVID-19 pandemic. As part of this agreement,
$51 million of government funding was used to provide a one-time bill credit
to eligible customers. In January 2023, the NYPSC approved the second phase of
the COVID-19 arrears relief programme, which provided around $170 million of
arrears relief to residential and small commercial customers who did not
receive an initial credit but were significantly impacted by the COVID-19
economic downturn. Collectively, the bill relief programmes will drive around
$135 million of revenue over the next three years and resolves our arrears
balances due to the pandemic.
Regulatory progress
On 28 April 2023, National Grid submitted a rate filing for KEDNY-KEDLI, our
downstate New York gas distribution businesses, for new rates commencing April
2024. Our filing is based on three objectives: first, continue to meet our
core obligation to deliver a safe, reliable service to customers; second, to
enhance our customers' ability to affordably meet their energy needs,
especially for our financially vulnerable customers, while also improving the
customer experience; third, to support the energy transition in New York State
and advance the goals in the CLCPA. As part of our filing, we have requested
an RoE of 9.8% and capital investment of $1,013 million for KEDNY and $671
million for KEDLI in 2024/25 (which represents a 36% increase on 2022/23
capital investment). We also provided cost data for four years to facilitate a
potential multi-year settlement.
In 2020, the NYPSC ordered all utilities to file proposals for distribution
and transmission infrastructure projects required to meet CLCPA 2030
objectives for a green superhighway to unlock renewable generation from
upstate to downstate New York. Utilities, including National Grid, grouped
these projects into two categories, Phase 1 and Phase 2, based on project
readiness and availability of supporting regulatory frameworks. In July 2022,
we received approval to proceed on Phase 1 transmission investment projects,
at $691 million, In February, we received approval for $2.1 billion of Phase 2
funding in New York for new/upgraded transmission lines in our service
territory also before 2030.
New York State Climate Action Council - Scoping Plan
In December, New York State's Climate Action Council (CAC) announced the
approval of a Scoping Plan which outlines recommended policies and actions to
meet the goals of the CLCPA. The Plan is a meaningful first step in achieving
the goals set out in the CLCPA, including the reduction in New York's GHG
emissions by 40% by 2030, and 85% by 2050.
National Grid welcomed the CAC's Scoping Plan, in particular the importance of
upgrading gas infrastructure to reduce system emissions, and the role that
alternative fuels such as Renewable Natural Gas (RNG) and green hydrogen can
play in decarbonising energy networks. This supports National Grid's
Fossil-Free Vision which was published in April 2022. The New York Department
of Environmental Conservation (DEC) will draft regulations by January 2024
that ensure the state meets its GHG emission limits and achieves them in line
with the Scoping Plan.
Return on Equity
During the year, we achieved an RoE of 8.6%, 20bps below the 8.8% delivered in
the prior year. This was principally driven by higher costs and non-recurrence
of a property tax settlement in KEDLI, partly offset by recovery of 2020/21
suspended late payment fees.
Return on Equity Rate Base ($m) as at 31 March
Regulated Entity FY23 FY22 FY21 Allowed most recent 2023 2022 % change
(%)
KEDNY 9.2 8.1 6.1 8.8 6,048 5,429 11
KEDLI 9.2 11.0 8.2 8.8 3,774 3,369 12
NMPC Gas 7.1 8.1 7.2 9.0 1,800 1,584 14
NMPC Electric 8.1 8.5 6.3 9.0 7,045 6,603 7
Total New York 8.6 8.8 6.7 8.9 18,667 16,985 10
Regulated Financial Position
Overall, the New York rate base increased by $1.7 billion (10%) to $18.7
billion driven by increased capital expenditure partially offset by
depreciation and deferred tax movements.
New York Regulated Assets
($ billion as at 31 March) 2023 2022 % change
Rate Base excl. working capital (w/c) 18.2 16.6 10
Working capital in Rate Base 0.5 0.4 25
Total Rate Base 18.7 17.0 10
Reg. assets outside Rate Base excl. w/c 1.2 1.1 9
Working capital outside Rate Base 0.1 (0.2) (150)
Total regulated assets outside Rate Base 1.3 0.9 44
Total New York Regulated Assets 20.0 17.9 12
£ billion as at 31 March 2023 2022 % change
Total New York Regulated Assets at actual currency 16.2 13.6 19
Total New York Regulated Assets at constant currency 16.2 14.5 12
Financial performance
New York
(£ million) 2023 2022 2022 at constant currency % change at actual currency
Revenue 6,994 5,561 6,168 26
Operating costs (6,453) (4,466) (4,953) 44
Statutory operating profit 541 1,095 1,215 (51)
Exceptional items (118) (24) (27) n/m
Remeasurements 318 (291) (323) n/m
Adjusted operating profit 741 780 865 (5)
Timing (53) (126) (140) n/m
Major storm costs 186 52 58 n/m
Underlying operating profit 874 706 783 24
Net revenue (adjusted for timing) 3,984 3,274 3,631 22
Regulated controllable costs (1,151) (963) (1,068) 20
Post-retirement benefits (2) (44) (49) (95)
Bad debt expense (157) (87) (96) 80
Other operating costs (1,180) (937) (1,039) 26
Depreciation and amortisation (620) (537) (596) 15
Underlying operating profit 874 706 783 24
Timing 53 126 140 n/m
Major storm costs (186) (52) (58) n/m
Adjusted operating profit 741 780 865 (5)
New York statutory operating profit decreased by £554 million, principally as
a result of the £609 million year-on-year unfavourable movements in commodity
contract remeasurements and net exceptional gains which included £156 million
for increasing the discount rate on environmental provisions offset by £38
million of exceptional costs related to our cost efficiency programme. Timing
over-recoveries of £53 million in 2022/23 compared with timing
over-recoveries of £126 million in 2021/22, driven by commodity price
fluctuations and high auction sale prices on transmission wheeling. Major
storm costs of £186 million were £134 million higher year on year, driven by
Storm Elliott, but as in 2021/22, the total costs passed our threshold ($100
million in aggregate with New England) and so are excluded from our underlying
results. These factors, offset by increased underlying operating profit,
driven primarily by rate increases and a weaker pound, reduced statutory
operating profit to £541 million.
Adjusted operating profit decreased by £39 million (5%), impacted by
£73 million year-on-year unfavourable timing movements and higher
year-on-year major storm costs of £134 million, but partly offset by the
underlying operating profit increasing by 24%, including a £77 million
increase as a result of foreign exchange movements. Adjusted for the impact
of foreign currency, underlying operating profit increased by £91 million
(12%) compared with 2021/22. Net revenues (adjusted for timing and exchange
rate movements) increased by £353 million from the benefits of rate case
increases in KEDNY, KEDLI and Niagara Mohawk and income received under the
funded COVID-19 arrears management programme alongside resumed collection
activities. Regulated controllable costs were £83 million higher (at constant
currency) year on year, with increased workload and the impact of inflation
being partially offset by cost efficiency savings. Provisions for bad and
doubtful debts increased by £61 million (at constant currency) driven
by write offs related to the COVID-19 arrears management programme.
Depreciation and amortisation increased due to the growth in assets. Other
costs were higher due to increased property taxes and higher costs on funded
programmes (offset by rate increases), offset by the benefit of a gain on a
pension buyout in our Niagara Mohawk business.
NATIONAL GRID VENTURES (NGV)
Operating profit, share of joint ventures and associates and capital
investment
Adjusted operating profit Capital expenditure
(£ million) 2023 2022 2022 at constant currency change % at actual currency 2023 2022 2022 at constant currency change % at actual currency
NG Generation 33 33 37 - 94 36 40 161
Interconnectors 355 135 135 163 434 325 325 34
Grain LNG 131 113 113 16 162 94 94 72
NG Renewables - 11 12 (100) - 2 2 (100)
Other (29) (6) (6) 383 19 (5) (5) (480)
Total 490 286 291 71 709 452 456 57
Adjusted share of post-tax results Capital investment in joint ventures and associates
of joint ventures and associates
Interconnectors 164 91 91 80 - - - -
Millennium 14 22 24 (36) - - - -
NG Renewables 16 3 3 433 147 199 221 (26)
Bight Wind - - - - 7 223 247 (97)
Other 9 6 6 50 43 39 44 10
Total 203 122 124 66 197 461 512 (57)
Total NGV 693 408 415 70 906 913 968 (1)
NGV's statutory operating profit includes an exceptional gain of
£467 million, comprising a £335 million gain from the sale of NGV's stake
in Millennium Pipeline and £130 million credit for property damage insurance
claim recoveries related to the fire at our French interconnector (IFA) in
September 2021 and a £3 million credit for increasing the discount rate on
environmental provisions, offset by £1 million of exceptional costs
incurred as part of the broader cost efficiency programme. Our underlying and
adjusted results exclude the impact of these exceptional items.
Underlying and adjusted operating profit was £204 million higher than
2021/22. Interconnector profit increased versus prior year reflecting
a full year of contribution from NSL, higher auction revenues in IFA and
upside in our second French interconnector (IFA2) which benefitted from an
increase in the revenue cap following an Ofgem review. There was additional
upside in IFA relating to insurance recoveries following the September 2021
fire. Revenues in our Grain LNG business also increased year on year due
to increased utilisation.
Adjusted share of post-tax results from NGV's joint ventures and associates
were £81 million higher than 2021/22, resulting in a year-on-year increase to
total NGV contribution of £285 million, driven primarily by interconnectors.
This includes IFA insurance recoveries; improved interconnector performance,
including capacity, raised cap levels and optimised auction strategies; and
increased revenues resulting from higher prices on the energy markets.
Capital Investment
NGV capital expenditure was above the prior year by £253 million (at constant
currency). This was driven by the Sellindge converter station rebuild at IFA,
further expenditure on the Grain LNG expansion project, and increased
investment in Long Island Generation. This was partially offset by lower
investment within NSL following the completion of construction in the prior
year, with spend on the Viking Link broadly flat.
NGV capital investment, which includes investment in joint ventures and
associates, was £7 million lower than the prior year (£62 million lower at
constant currency) due to last year's investment in a potential offshore wind
seabed lease in New York.
Interconnectors
Overall, our interconnector links have performed well during the year. They
have responded to high levels of volatility within European power markets to
deliver flows of electricity both to and from the UK network as required to
meet demand. This includes a strong performance supporting security of supply
in the UK and Europe over winter.
Following the fire at the Sellindge converter station in September 2021, the
full capacity of the IFA interconnector has now returned to service. We were
able to return 1 GW to service after one month (October 2021), and since
returned the interconnector to its full 2 GW capacity on 27 January 2023.
This follows a complete restoration of the converter station, and we are now
focused on optimising the operating regime post-return to service to maximise
availability at 2 GW.
IFA2 has performed strongly in its second full year of operation. Availability
across the year reached 95.7%, which included the first annual planned
maintenance outage in June. Our BritNed interconnector has performed well
during the year with availability above 99%, whilst Nemo Link's availability
reached 98.1%. During the year, BritNed continued as one of the best
performing interconnectors in the world in terms of safety with over 4,200
days without a lost time injury (LTI). Finally, in its first full year of
operation, NSL has performed well reaching its full operational capacity in
July 2022. Availability averaged 86.8% across the year, affected by an
operational reduction in the first quarter of the financial year whilst
capacitors were replaced due to a manufacturing defect. Across the year, NSL
imported 4.7 TWh of 100% green energy, increasing renewable supply into the
UK.
We remain on track to commission the 1,400 MW Viking Link to Denmark by the
end of calendar year 2023. Five of seven cable laying programmes have now been
completed, with the final two campaigns completing by the end of summer 2023.
When commissioned, Viking Link will be the world's longest subsea
interconnector stretching 760 km across the North Sea.
US Renewables
In January, the joint venture partnership between National Grid and RWE
(Community Offshore Wind) submitted proposals to the New York State Energy
Research and Development Authority (NYSERDA) to deliver 1.3 GW of electricity
from the project. This was part of New York's competitive solicitation for
offtake bids from offshore wind developers. If selected, the proposals for the
joint venture would generate around $3 billion in direct economic benefits to
New York, provide over 4,600 new jobs, and help reduce New York State's power
sector emissions by up to 5%. We expect a decision by NYSERDA in the second
half of calendar year 2023. This follows the joint venture's success in
winning a seabed lease in the New York Bight auction in February 2022. We
expect the project to be over 3 GW when fully commissioned early next
decade, enough power to supply 1.1 million US homes.
At the half year, National Grid Renewables reported progressing 674 MW of
additional solar capacity through its joint venture with Washington State
Investment Board (WSIB). These projects include Noble, a 275 MW solar/
125 MWh Battery Energy Storage System (BESS) project in Texas, which was
completed in October 2022 and Yellowbud, a 274 MW solar project in Ohio, which
is set to commission in mid-2023. In the second half of 2022/23, the team
commenced constructing three additional projects: Copperhead, a 150 MW
solar/100 MWh BESS project in Texas, set to commission in early-2024; Wild
Springs, a 128 MW solar project in South Dakota, set to commission in
early-2024; and Ross & Fayette, a 168 MW solar project in Ohio, set to
commission in mid-2024. When completed, National Grid Renewables' operating
portfolio of onshore wind and solar plants will increase from 1,025 MW today
(including Noble) to 1,845 MW.
NGV Transmission Projects
In October 2021, New York Transco - a partnership of New York's major
utilities, including NGV - submitted a bid (NY Propel) to install increased
transmission capacity to Long Island. The bid was in response to a
solicitation by the New York Independent System Operator (NYISO) in August
2021 which called for transmission solutions to transfer at least 3 GW and
potentially up to 6 GW of offshore wind generation that is expected to be
connected to Long Island over the next decade. We expect NYISO to make a final
selection in summer 2023.
New York Transco continued to progress its New York Energy Solution (NYES)
project, which was selected by the New York Independent System Operator to
provide transmission upgrades to New York's power system, while enhancing
reliability and facilitating upstate clean energy resources to the downstate
demand centres. The upgrades are being made along 55 miles of utility-owned
land and are one of the largest transmission projects in New York in 40 years.
The project remains on track to be energised by the end of calendar 2023.
Grain LNG
During the year, Grain LNG delivered £131 million of operating profit, up
from £113 million in the prior year. The asset delivered 94 TWh of energy
into the UK gas network, receiving a record 102 ships versus 64 in the prior
year. Grain played a critical role supporting Great Britain security of supply
over winter. Our 5 year expansion programme to deliver additional LNG storage
on site remains on target to be ready for commercial operations in summer 2025
(Capacity 25). This expansion will see storage capacity increase to 1.2
million m(3).
Long Island Generation (NG Generation)
NG Generation safely and efficiently operates conventional generation plants
that are vital to security of supply in New York state, and supply two million
people on Long Island. The fleet generated 4,966 GWh of electricity
in 2022/23.
Over the next several years, we expect the fleet to generate less electricity
as alternative sources of energy supply are developed and connected to the
Long Island grid. In particular, new offshore wind generation will reduce the
need for NG Generation to produce power, which will lead to lower emissions.
Longer term, NG Generation will proactively manage the size and composition
of the fleet to ensure security of the system through the energy transition,
whilst exploring new technologies like hydrogen-fueled power generation.
OTHER ACTIVITIES
Operating profit, share of joint ventures and associates and capital
investment
Adjusted operating profit Capital expenditure
(£ million) 2023 2022 2022 at constant currency change % at actual currency 2023 2022 2022 at constant currency change % at actual currency
Property 216 40 40 440 7 3 3 133
NG Partners (25) 66 66 (138) - - - -
Corporate and other activities (160) (85) (84) 88 6 7 7 (14)
Total 31 21 22 48 13 10 10 30
Adjusted share of post-tax results Capital investment in financial assets
of joint ventures and associates
NG Partners (13) 15 17 (187) 59 93 103 (37)
St William - 11 11 (100) - - - -
Total (13) 26 28 (150) 59 93 103 (37)
Total other 18 47 50 (62) 72 103 113 (30)
Other activities statutory operating loss includes an exceptional
charge of £25 million related to the cost efficiency programme (2022:
£22 million), £31 million of costs for the separation of UK Gas
Transmission and Metering (2022: £61 million, which also included NECO
separation costs) and £16 million of integration costs for UK Electricity
Distribution (2022: £95 million of transaction costs for the acquisition of
National Grid Electricity Distribution). In 2021/22, we recognised an
exceptional gain of £417 million related to the St William disposal.
Excluding exceptional items, underlying operating profit was £31 million
(including corporate costs) in 2022/23 compared with £21 million in
2021/22. This increase mainly relates to property site sales which were
£176 million higher, primarily related to the sale of 15 sites to
St William following the disposal of that joint venture last year, mostly
offset by NG Partners investments' fair value losses (mainly driven by
Copperleaf) plus no repeat of the high level of fair value gains experienced
in 2021/22, and higher corporate costs which included support payments to
charitable causes and employees in respect of the energy crisis.
National Grid Partners (NGP)
NGP, our corporate investment and innovation arm, has continued to invest in
emerging technologies with a portfolio comprising 36 companies and 4 fund
investments, at a fair value of $487 million.
Capital investment at £59 million was 43% lower at constant currency compared
with prior year. Of the £59 million invested in 2022/23, £39 million in
new companies, £13 million in follow-on investments in existing portfolio
companies, and £7 million in external funds.
UK GAS TRANSMISSION AND METERING (discontinued operations)
Operational Performance
UK Gas Transmission delivered another year of strong operational performance.
For the 10 months of 2022/23 that we fully owned UK Gas Transmission we
invested £301 million in the network, up 15% on prior year, driven
principally by increased investments in cyber security and asset health.
Revenue and costs in 2022/23 on an IFRS basis
UK Gas Transmission statutory operating profit increased £78 million
in the year. In 2022/23, there was a £1 million credit (2022: £14
million) of costs incurred in separating the business from the Group and
transaction-related costs in preparation of the sales process; and the prior
year also included £3 million of exceptional costs related to the
reorganisation and cost efficiency programme. Timing net over-recoveries of
£12 million arose in 2022/23, mainly related to higher volumes offset by an
under-recovery of shrinkage costs from higher gas prices and under-collection
of pass-through cost true-ups including inflation. This compared with
under-recoveries of £80 million in the prior year also mainly related to
recovery of shrinkage costs from higher gas prices.
Despite UK Gas Transmission being fully owned for only 10 months of the
current year, adjusted operating profit increased by £60 million (9%), as
this included a year-on-year £92 million favourable timing movement.
Excluding the impact of timing, underlying operating profit decreased by 4%.
The prior year also included £91 million of depreciation to 31 August 2021
when the business was classified as held for sale. Net revenue (excluding
timing) was £123 million lower, reflecting the shorter period of ownership
partly offset by the impact of higher inflation and an increase in revenues
for customer-funded works. Regulated controllable costs (including pensions)
and other costs were £14 million lower as a result of two months' less
ownership in 2022/23 offset by increased customer-funded works, cyber and
decommissioning costs.
Within UK Gas Transmission, our non-regulated metering business's operating
profit of £129 million was lower than the prior year mainly impacted by a
shorter period of ownership in 2022/23.
For further details on UK Gas Transmission, including the gain on disposal of
this business, see note 9 'Assets held for sale and discontinued operations'.
PROVISIONAL 2022/23 FINANCIAL TIMETABLE
Date Event
18 May 2023 2022/23 Preliminary Results
1 June 2023 Ordinary shares go ex-dividend for 2022/23 final dividend
1 June 2023 ADRs go ex-dividend for 2022/23 final dividend
2 June 2023 Record date for 2022/23 final dividend
8 June 2023 Scrip reference price announced for 2022/23 final dividend
10 July 2023 2023 Annual General Meeting
12 July 2023 (5pm London time) Scrip election date for 2022/23 final dividend
9 August 2023 2022/23 final dividend paid to qualifying shareholders
9 November 2023 2023/24 half year results
22 November 2023 ADRs go ex-dividend for 2023/24 interim dividend
23 November 2023 Ordinary shares go ex-dividend for 2023/24 interim dividend
24 November 2023 Record date for 2023/24 interim dividend
30 November 2023 Scrip reference price announced for 2023/24 interim dividend
11 December 2023 (5pm London time) Scrip election date for 2023/24 interim dividend
11 January 2024 2023/24 interim dividend paid to qualifying shareholders
American Depositary Receipt (ADR) Deposit Agreement
The Company's Deposit agreement under which the ADRs are issued allows a fee
of up to $0.05 per ADR to be charged for any cash distribution made to ADR
holders, including cash dividends. ADR holders who receive cash in relation to
the 2022/23 final dividend will be charged a fee of $0.02 per ADR by the
Depositary prior to distribution of the cash dividend.
CAUTIONARY STATEMENT
This announcement contains certain statements that are neither reported
financial results nor other historical information. These statements are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended. These statements include information with respect to
National Grid's (the Company) financial condition, its results of operations
and businesses, strategy, plans and objectives. Words such as 'aims',
'anticipates', 'expects', 'should', 'intends', 'plans', 'believes', 'outlook',
'seeks', 'estimates', 'targets', 'may', 'will', 'continue', 'project' and
similar expressions, as well as statements in the future tense, identify
forward-looking statements. This document also references climate-related
targets and climate-related risks which differ from conventional financial
risks in that they are complex, novel and tend to involve projection over long
term scenarios which are subject to significant uncertainty and change. 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 or targets. Many of these
assumptions, risks and uncertainties relate to factors that are beyond
National Grid's ability to control, predict or estimate precisely, such as
changes in laws or regulations, including any arising as a result of the
current energy crisis, announcements from and decisions by governmental bodies
or regulators, including those relating to the RIIO-T2 and RIIO-ED2 price
controls and the creation of a future system operator; the timing of
construction and delivery by third parties of new generation projects
requiring connection; breaches of, or changes in, environmental, climate
change and health and safety laws or regulations, including breaches or other
incidents arising from the potentially harmful nature of its activities;
network failure or interruption (including any that result in safety and/or
environmental events), the inability to carry out critical non-network
operations and damage to infrastructure, due to adverse weather conditions
including the impact of major storms as well as the results of climate change,
due to counterparties being unable to deliver physical commodities or other
supplies, or due to the failure of or unauthorised access to or deliberate
breaches of National Grid's IT systems and supporting technology; failure to
adequately forecast and respond to disruptions in energy supply; performance
against regulatory targets and standards and against National Grid's peers
with the aim of delivering stakeholder expectations regarding costs and
efficiency savings, as well as against targets and standards designed to
deliver net zero; and customers and counterparties (including financial
institutions) failing to perform their obligations to the Company. Other
factors that could cause actual results to differ materially from those
described in this announcement include fluctuations in exchange rates,
interest rates and commodity price indices; inflation; restrictions and
conditions (including filing requirements) in National Grid's borrowing and
debt arrangements, funding costs and access to financing; regulatory
requirements for the Company to maintain financial resources in certain parts
of its business and restrictions on some subsidiaries' transactions such as
paying dividends, lending or levying charges; the delayed timing of recoveries
and payments in National Grid's regulated businesses, and whether aspects of
its activities are contestable; the funding requirements and performance of
National Grid's pension schemes and other post-retirement benefit schemes; the
failure to attract, develop and retain employees with the necessary
competencies, including leadership and business capabilities, and any
significant disputes arising with National Grid's employees or the breach of
laws or regulations by its employees; the failure to respond to market
developments, including competition for onshore transmission; the threats and
opportunities presented by emerging technology; the failure by the Company to
respond to, or meet its own commitments as a leader in relation to, climate
change development activities relating to energy transition, including the
integration of distributed energy resources; and the need to grow the
Company's business to deliver its strategy, as well as incorrect or unforeseen
assumptions or conclusions (including unanticipated costs and liabilities)
relating to business development activity, including the sale of a stake in
its UK Gas Transmission and Metering business, and joint ventures. For further
details regarding these and other assumptions, risks and uncertainties that
may impact National Grid, please read the Strategic Report section and the
'Risk factors' on pages 253 to 256 of National Grid's most recent Annual
Report and Accounts, as updated by National Grid's unaudited half-year
financial information for the six months ended 30 September 2022 published on
10 November 2022. In addition, new factors emerge from time to time and
National Grid cannot assess the potential impact of any such factor on its
activities or the extent to which any factor, or combination of factors, may
cause actual future results to differ materially from those contained in any
forward-looking statement. Except as may be required by law or regulation, the
Company undertakes no obligation to update any of its forward-looking
statements, which speak only as of the date of this announcement.
Consolidated income statement
for the years ended 31 March
2023 Notes Before Exceptional Total
exceptional items and remeasurements £m
items and remeasurements (see note 4)
£m £m
Continuing operations
Revenue 2(a),3 21,659 - 21,659
Provision for bad and doubtful debts (220) - (220)
Other operating costs 4 (17,158) (391) (17,549)
Other operating income 4 13 976 989
Operating profit 2(b) 4,294 585 4,879
Finance income 4,5 166 (28) 138
Finance costs 4,5 (1,680) 82 (1,598)
Share of post-tax results of joint ventures and associates 190 (19) 171
Profit before tax 2(b) 2,970 620 3,590
Tax 4,6 (635) (241) (876)
Profit after tax from continuing operations 2,335 379 2,714
Profit after tax from discontinued operations 9 320 4,763 5,083
Total profit for the year (continuing and discontinued) 2,655 5,142 7,797
Attributable to:
Equity shareholders of the parent 2,655 5,142 7,797
Non-controlling interests from continuing operations - - -
Earnings per share (pence)
Basic earnings per share (continuing) 7 74.2
Diluted earnings per share (continuing) 7 73.8
Basic earnings per share (continuing and discontinued) 7 213.1
Diluted earnings per share (continuing and discontinued) 7 212.1
2022 Notes Before Exceptional Total
exceptional items and remeasurements £m
items and remeasurements (see note 4)
£m £m
Continuing operations
Revenue 2(a),3 18,260 189 18,449
Provision for bad and doubtful debts (167) - (167)
Other operating costs¹ 4 (14,280) 141 (14,139)
Other operating income¹ 4 - 228 228
Operating profit 2(b) 3,813 558 4,371
Finance income 4,5 65 (15) 50
Finance costs 4,5 (1,146) 74 (1,072)
Share of post-tax results of joint ventures and associates 148 (56) 92
Profit before tax 2(b) 2,880 561 3,441
Tax 4,6 (669) (589) (1,258)
Profit after tax from continuing operations 2,211 (28) 2,183
Profit after tax from discontinued operations 9 344 (173) 171
Total profit for the year (continuing and discontinued) 2,555 (201) 2,354
Attributable to:
Equity shareholders of the parent 2,554 (201) 2,353
Non-controlling interests from continuing operations 1 - 1
Earnings per share (pence)
Basic earnings per share (continuing) 7 60.6
Diluted earnings per share (continuing) 7 60.3
Basic earnings per share (continuing and discontinued) 7 65.4
Diluted earnings per share (continuing and discontinued) 7 65.0
1. Comparatives have been re-presented to disclose other operating income
separately from other operating costs.
Consolidated statement of comprehensive income
for the years ended 31 March
2023 2022
Notes £m £m
Profit after tax from continuing operations 2,714 2,183
Profit after tax from discontinued operations 5,083 171
Other comprehensive income from continuing operations
Items from continuing operations that will never be reclassified to profit or
loss:
Remeasurement (losses)/gains on pension assets and post-retirement benefit (1,362) 2,172
obligations
Net gains on equity instruments designated at fair value through other - 12
comprehensive income
Net gains/(losses) in respect of cash flow hedging of capital expenditure 10 (1)
Tax on items that will never be reclassified to profit or loss 341 (496)
Total items from continuing operations that will never be reclassified to (1,011) 1,687
profit or loss
Items from continuing operations that may be reclassified subsequently to
profit or loss:
Retranslation of net assets offset by net investment hedge 883 630
Exchange differences reclassified to the consolidated income statement on 9 (170) -
disposal
Net (losses)/gains in respect of cash flow hedges - (57)
Net (losses)/gains in respect of cost of hedging (16) 1
Net (losses)/gains on investment in debt instruments measured at fair value (25) (11)
through other comprehensive income
Share of other comprehensive income of associates, net of tax 1 1
Tax on items that may be reclassified subsequently to profit or loss 11 15
Total items from continuing operations that may be reclassified subsequently 684 579
to profit or loss
Other comprehensive (loss)/income for the year, net of tax from continuing (327) 2,266
operations
Other comprehensive (loss)/income for the year, net of tax from discontinued 9 (227) 211
operations
Other comprehensive loss for the year, net of tax (554) 2,477
Total comprehensive income for the year from continuing operations 2,387 4,449
Total comprehensive income for the year from discontinued operations 9 4,856 382
Total comprehensive income for the year 7,243 4,831
Attributable to:
Equity shareholders of the parent
From continuing operations 2,386 4,447
From discontinued operations 4,856 382
7,242 4,829
Non-controlling interests
From continuing operations 1 2
Consolidated statement of changes in equity
for the years ended 31 March
Share Share Retained Other equity reserves £m Total Non- Total
capital premium account earnings share-holders' controlling interests equity
£m £m £m equity £m £m
£m
At 1 April 2021 474 1,296 23,163 (5,094) 19,839 21 19,860
Profit for the year - - 2,353 - 2,353 1 2,354
Other comprehensive income for the year - - 1,871 605 2,476 1 2,477
Total comprehensive income for the year - - 4,224 605 4,829 2 4,831
Equity dividends - - (922) - (922) - (922)
Scrip dividend-related share issue(1) 11 (12) - - (1) - (1)
Issue of treasury shares - - 17 - 17 - 17
Transactions in own shares - 16 (3) - 13 - 13
Share-based payments - - 43 - 43 - 43
Tax on share-based payments - - 7 - 7 - 7
Transfer of accumulated gains and losses on sale of equity investments(2) - - 82 (82) - - -
Cash flow hedges transferred to the statement of financial position, net of - - - 8 8 - 8
tax
1 April 2022 485 1,300 26,611 (4,563) 23,833 23 23,856
Profit for the year - - 7,797 - 7,797 - 7,797
Other comprehensive (loss)/income for the year - - (1,253) 698 (555) 1 (554)
Total comprehensive income for the year - - 6,544 698 7,242 1 7,243
Equity dividends - - (1,607) - (1,607) - (1,607)
Scrip dividend-related share issue(1) 3 (3) - - - - -
Issue of treasury shares - - 16 - 16 - 16
Transactions in own shares - 5 (4) - 1 - 1
Share-based payments - - 48 - 48 - 48
Cash flow hedges transferred to the statement of financial position, net of - - - 5 5 - 5
tax
At 31 March 2023 488 1,302 31,608 (3,860) 29,538 24 29,562
1. Included within the share premium account are costs associated with scrip
dividends.
2. In the year ended 31 March 2022, the Group disposed of its equity
instruments related to shares held as part of a portfolio of financial
instruments which back some long‑term employee liabilities. The equity
instruments were previously measured at FVOCI and prior to the disposal the
Group recognised a gain of £12 million. The accumulated gain and losses of
£82 million recognised in other comprehensive income were transferred to
retained earnings on disposal.
Consolidated statement of financial position
as at 31 March
2023 2022
Notes £m £m
Non-current assets
Goodwill 9,847 9,532
Other intangible assets 3,604 3,272
Property, plant and equipment 64,433 57,532
Other non-current assets 567 303
Pension assets 10 2,645 3,885
Financial and other investments 859 830
Investments in joint ventures and associates 1,300 1,238
Derivative financial assets 276 305
Total non-current assets 83,531 76,897
Current assets
Inventories and current intangible assets 876 511
Trade and other receivables 3,883 3,715
Current tax assets 43 106
Financial and other investments 2,605 3,145
Derivative financial assets 153 282
Cash and cash equivalents 163 204
Assets held for sale 9 1,443 10,000
Total current assets 9,166 17,963
Total assets 92,697 94,860
Current liabilities
Borrowings (2,955) (12,121)
Derivative financial liabilities (222) (144)
Trade and other payables (5,068) (4,915)
Contract liabilities (252) (130)
Current tax liabilities (236) (32)
Provisions (288) (240)
Liabilities held for sale 9 (109) (7,188)
Total current liabilities (9,130) (24,770)
Non-current liabilities
Borrowings (40,030) (33,344)
Derivative financial liabilities (1,071) (869)
Other non-current liabilities (921) (805)
Contract liabilities (1,754) (1,342)
Deferred tax liabilities (7,181) (6,765)
Pensions and other post-retirement benefit obligations 10 (694) (810)
Provisions (2,354) (2,299)
Total non-current liabilities (54,005) (46,234)
Total liabilities (63,135) (71,004)
Net assets 29,562 23,856
Equity
Share capital 488 485
Share premium account 1,302 1,300
Retained earnings 31,608 26,611
Other equity reserves (3,860) (4,563)
Total shareholders' equity 29,538 23,833
Non-controlling interests 24 23
Total equity 29,562 23,856
Consolidated cash flow statement
for the years ended 31 March
2023 2022
Notes £m £m
Cash flows from operating activities
Total operating profit from continuing operations 2(b) 4,879 4,371
Adjustments for:
Exceptional items and remeasurements 4 (585) (558)
Other fair value movements 21 (65)
Depreciation, amortisation and impairment 1,984 1,830
Share-based payments 48 38
Changes in working capital 286 361
Changes in provisions 23 140
Changes in pensions and other post-retirement benefit obligations (46) (76)
Cash flows relating to exceptional items (178) (253)
Cash generated from operations - continuing operations 6,432 5,788
Tax paid (89) (298)
Net cash inflow from operating activities - continuing operations 6,343 5,490
Net cash inflow from operating activities - discontinued operations 555 782
Cash flows from investing activities
Purchases of intangible assets (567) (446)
Purchases of property, plant and equipment (6,325) (5,098)
Disposals of property, plant and equipment 87 26
Investments in joint ventures and associates (443) (265)
Dividends received from joint ventures, associates and other investments 190 166
Acquisition of National Grid Electricity Distribution¹ - (7,837)
Disposal of interest in the UK Gas Transmission business(2) 9 4,027 -
Disposal of interest in The Narragansett Electric Company(2) 9 2,968 -
Disposal of interest in Millennium Pipeline Company LLC 497 -
Disposal of interest in St William Homes LLP - 413
Disposal of financial and other investments 116 215
Acquisition of financial investments (95) (197)
Contributions to National Grid Renewables and Emerald Energy Venture LLC (19) (16)
Net movements in short-term financial investments 586 (781)
Interest received 65 40
Cash inflows on derivatives - 17
Cash outflows on derivatives (362) (122)
Cash flows relating to exceptional items 79 -
Net cash flow used in investing activities - continuing operations 804 (13,885)
Net cash flow used in investing activities - discontinued operations (564) (125)
Cash flows from financing activities
Proceeds from issue of treasury shares 16 33
Transactions in own shares 1 (3)
Proceeds received from loans 11,908 12,347
Repayment of loans (15,260) (1,261)
Payments of lease liabilities (155) (117)
Net movements in short-term borrowings (511) (11)
Cash inflows on derivatives 190 20
Cash outflows on derivatives (118) (114)
Interest paid (1,430) (1,053)
Dividends paid to shareholders (1,607) (922)
Net cash flow (used in)/from financing activities - continuing operations (6,966) 8,919
Net cash flow (used in)/from financing activities - discontinued operations (207) (1,150)
Net (decrease)/increase in cash and cash equivalents (35) 31
Reclassification to held for sale 9 (11)
Exchange movements 7 5
Cash and cash equivalents at start of year 182 157
Cash and cash equivalents at end of year(3) 163 182
1. Balance consists of cash consideration paid and cash acquired from
National Grid Electricity Distribution (NGED, formerly known as Western Power
Distribution).
2. The balance for the year ended 31 March 2023 consists of cash proceeds
received, net of cash disposed.
3. Cash and cash equivalents at end of year are shown net of the Group's
bank overdraft as at 31 March 2023 of £nil (2022: £22 million).
Notes
1. Basis of preparation and new accounting standards, interpretations and
amendments
The full year financial information contained in this announcement, which does
not constitute statutory accounts as defined in Section 434 of the Companies
Act 2006, has been derived from the statutory accounts for the year ended 31
March 2023, which will be filed with the Registrar of Companies in due course.
Statutory accounts for the year ended 31 March 2022 have been filed with the
Registrar of Companies. The auditors' report on each of these statutory
accounts was unqualified and did not contain a statement under Section 498 of
the Companies Act 2006.
The full year financial information has been prepared in accordance with the
accounting policies applicable for the year ended 31 March 2023 which are
consistent with those applied in the preparation of our Annual Report and
Accounts for the year ended 31 March 2022, with the exception of any new
standards or interpretations adopted during the year.
Our income statement and segmental analysis separately identify financial
results before and after exceptional items and remeasurements. We continue to
use a columnar presentation as we consider it improves the clarity of the
presentation, and assists users of the financial statements to understand the
results. The Directors believe that presentation of the results in this way is
relevant to an understanding of the Group's financial performance. The
inclusion of total profit for the period from continuing operations before
exceptional items and remeasurements forms part of the incentive target set
annually for remunerating certain Executive Directors and accordingly we
believe it is important for users of the financial statements to understand
how this compares to our results on a statutory basis and period on period.
Areas of judgement and key sources of estimation uncertainty
Areas of judgement that have the most significant effect on the amounts
recognised in the financial statements are as follows:
• categorisation of certain items as exceptional items or remeasurements
and the definition of adjusted earnings (see notes 4 and 7). In applying the
Group's exceptional items framework, we have considered a number of key
matters, as detailed in note 4;
• the judgement that it is appropriate to classify our 40% equity
investment in GasT TopCo Limited, together with the FAA derivative, as held
for sale with effect from 31 January 2023, as detailed in note 9;
• in performing the NGED goodwill and indefinite-lived licence intangible
assets impairment assessment, judgement has been applied over the forecast
cash flow duration used in the value‑in-use calculations; and
• the judgement that, notwithstanding legislation enacted and targets
committing the states of New York and Massachusetts to achieving net zero
greenhouse gas emissions by 2050, these do not trigger a reassessment of the
remaining useful economic lives (UELs) of our US gas network assets (see key
sources of estimation uncertainty below).
Key sources of estimation uncertainty that have a significant risk of causing
a material adjustment to the carrying amounts of assets and liabilities
within the next financial year are as follows:
• the value attributable to GasT TopCo Limited following disposal of
our controlling stake in the UK Gas Transmission business and in determining
the fair value of the written option over the Group's 40% equity interest (see
note 9);
• the valuation of liabilities for pensions and other post-retirement
benefits (see note 10);
• the cash flows and real discount rates applied in determining the
environmental provisions, in particular relating to three US Superfund sites
(see note 4); and
• the estimates made regarding the UELs of our gas network assets due to
the length over which they are being depreciated, the potential for new and
evolving technologies over that period, and the range of potential pathways
for meeting net zero targets.
1. Basis of preparation and new accounting standards, interpretations and
amendments continued
Disposal of The Narragansett Electric Company
As described further in note 9, on 17 March 2021, the Group signed
an agreement to sell 100% of the share capital of a wholly owned subsidiary,
The Narragansett Electric Company (NECO), to PPL Rhode Island Holdings, LLC.
On 25 May 2022, the Group completed the disposal for cash consideration of
£3.1 billion, recognising a post-tax gain on disposal of £280 million
which has been classified as exceptional (see note 9). NECO did not meet
the criteria for classification as a discontinued operation and therefore
its results have not been separately disclosed on the face of the
income statement, and are instead included within the results from continuing
operations.
Disposal of the UK Gas Transmission business
As described further in note 9, on 27 March 2022, the Group entered into a
sale and purchase agreement to dispose of a 100% controlling stake in the UK
Gas Transmission business. The disposal completed on 31 January 2023 for
cash consideration of £4.0 billion and a 40% interest in a newly
incorporated UK limited company, GasT TopCo Limited, as further described
below. Proceeds received have been classified in the consolidated cash flow
statement within continuing operations. As a result, the Group derecognised
all of the assets and liabilities of the UK Gas Transmission business and
recognised the 40% interest acquired in GasT TopCo Limited. The 40% interest
is classified as an investment in an associate on the basis that the
Group has a significant influence over the business. The Group has
the ability to appoint two out of the five Directors to the Board of
GasT Topco Limited.
On 27 March 2022, the Group also entered into a Further Acquisition Agreement
(FAA) over its 40% interest in GasT TopCo Limited. The FAA became binding
following the settlement of the Acquisition Agreement and is exercisable in
the period between 1 May and 31 July 2023. The window can further be deferred
at the Group's discretion by three months. Taking into consideration the
timing of the FAA exercise window, the Group has classified its interest in
GasT TopCo Limited as held for sale with effect from 31 January 2023 and has
not equity accounted for its share of the associate's results. The disposal
group comprises our equity investment in GasT TopCo Limited and the
FAA derivative. Refer to note 9 for further details.
The results of the UK Gas Transmission business were treated as
a discontinued operation during the year ended 31 March 2022, with
comparatives restated accordingly. Remeasurements in relation to the FAA
derivative were also recorded within discontinued operations for the year
ended 31 March 2023. The classification impacts the consolidated income
statement, the consolidated statement of comprehensive income and consolidated
cash flow statement, as well as earnings per share (EPS) split between
continuing and discontinued operations.
New accounting standards and interpretations effective for the year ended 31
March 2023
The Group adopted the following amendments to standards which have had no
material impact on the Group's results or financial statement disclosures:
• amendments to IFRS 3 'Business Combinations';
• amendments to IAS 16 'Property, Plant and Equipment';
• amendments to IAS 37 'Provisions, Contingent Liabilities and Contingent
Assets'; and
• annual improvements to IFRS standards 2018-2020.
1. Basis of preparation and new accounting standards, interpretations and
amendments continued
New accounting standards not yet adopted
The following new accounting standards and amendments to existing standards
have been issued but are not yet effective or have not yet been endorsed by
the UK:
• IFRS 17 'Insurance Contracts';
• amendments to IAS 12 'Deferred Tax Related to Assets and Liabilities
Arising from a Single Transaction';
• amendments to IAS 1 'Presentation of Financial Statements'
on classification of liabilities as current or non-current;
• amendments to IAS 8 'Accounting Policies, Changes in Accounting
Estimates and Errors'; and
• amendments to IAS 1 and IFRS Practice Statement 2 - making materiality
judgements.
Effective dates will be subject to the UK endorsement process.
The Group is currently assessing the impact of the above standards, but they
are not expected to have a material impact.
The Group has not adopted any other standard, amendment or interpretation that
has been issued but is not yet effective.
Date of approval
This announcement was approved by the Board of Directors on 17 May 2023.
2. Segmental analysis
Revenue and the results of the business are analysed by operating segment,
based on the information the Board of Directors uses internally for the
purposes of evaluating the performance of each operating segment and
determining resource allocation between them. The Board is National Grid's
chief operating decision maker (as defined by IFRS 8 'Operating Segments') and
assesses the profitability of operations principally on the basis of a profit
measure that excludes certain income and expenses. We call that measure
'adjusted profit'. Adjusted profit excludes exceptional items and
remeasurements (as defined in note 4) and is used by management to monitor
financial performance as it is considered that it aids the comparability of
our reported financial performance from year to year. As a matter of course,
the Board also considers profitability by segment, excluding the effect of
timing. However, the measure of profit disclosed in this note is operating
profit before exceptional items and remeasurements, as this is the measure
that is most consistent with the IFRS results reported within these financial
statements.
In the year ended 31 March 2023, the National Grid Ventures (NGV) operating
segment met the quantitative thresholds set out in IFRS 8 to be identified
as the Group's sixth separate reportable segment. Accordingly, the Group's
operating segments have been modified and the data relating to previous
periods has been restated to reflect this change. The results of our six
principal businesses are reported to the Board of Directors and are
accordingly treated as reportable operating segments. All other operating
segments are reported to the Board of Directors on an aggregated basis. The
following table describes the main activities for each reportable operating
segment:
UK Electricity Transmission The high-voltage electricity transmission networks in England and Wales.
UK Electricity Distribution The electricity distribution networks of NGED in the East Midlands, West
Midlands and South West of England and South Wales.
UK Electricity System Operator The Great Britain system operator. As announced in April 2022, the entirety of
ESO is expected to transfer out of the Group to become part an independent
system operator public body, following the Future System Operator (FSO)
consultation. The FSO is subject to legislative approval and accordingly the
held for sale criteria have not been met as at 31 March 2023.
New England Gas distribution networks, electricity distribution networks and high-voltage
electricity transmission networks in New England.
New York Gas distribution networks, electricity distribution networks and high-voltage
electricity transmission networks in New York.
National Grid Ventures Comprises all commercial operations in LNG at the Isle of Grain in the UK, our
electricity generation business in the US, our electricity interconnectors in
the UK and our investment in National Grid Renewables Development LLC, our
renewables business in the US. NGV operates outside our regulated core
business.
Other activities that do not form part of any of the segments in the above
table primarily relate to our UK property business together with insurance and
corporate activities in the UK and US and the Group's investments in
technology and innovation companies through National Grid Partners.
2. Segmental analysis continued
(a) Revenue
Revenue primarily represents the sales value derived from the generation,
transmission and distribution of energy, together with the sales value derived
from the provision of other services to customers. Refer to note 3 for
further details.
Sales between operating segments are priced considering the regulatory and
legal requirements to which the businesses are subject. The analysis
of revenue by geographical area is on the basis of destination. There are no
material sales between the UK and US geographical areas.
2023 2022(1)
Total Sales Sales Total Sales Sales
sales between to third sales between to third
segments parties segments parties
£m £m £m £m £m £m
Operating segments - continuing operations:
UK Electricity Transmission 1,987 (41) 1,946 2,035 (7) 2,028
UK Electricity Distribution 2,045 (12) 2,033 1,482 (14) 1,468
UK Electricity System Operator 4,690 (31) 4,659 3,455 (18) 3,437
New England 4,427 - 4,427 4,550 - 4,550
New York 6,994 - 6,994 5,561 - 5,561
National Grid Ventures 1,341 (58) 1,283 1,024 - 1,024
Other 317 - 317 192 - 192
Total revenue before exceptional items and remeasurements 21,801 (142) 21,659 18,299 (39) 18,260
Exceptional items and remeasurements(2) - - - 189 - 189
Total revenue from continuing operations 21,801 (142) 21,659 18,488 (39) 18,449
Split by geographical areas - continuing operations:
UK 9,611 7,803
US 12,048 10,646
Total revenue from continuing operations 21,659 18,449
1. Comparative amounts have been re-presented to reflect NGV as a separate
operating segment.
2. In connection with the disposal of St William Homes LLP in the year ended
31 March 2022 the Group released deferred income within Other of
£189 million related to deferred profits from previous property sales (see
note 4).
2. Segmental analysis continued
(b) Operating profit
A reconciliation of the operating segments' measure of profit to profit before
tax from continuing operations is provided below. Further details of the
exceptional items and remeasurements are provided in note 4.
Before exceptional items and remeasurements Exceptional items and remeasurements After exceptional items and remeasurements
2023 2022(1) 2023 2022(1) 2023 2022(1)
£m £m £m £m £m £m
Operating segments - continuing operations:
UK Electricity Transmission 995 1,067 (2) (12) 993 1,055
UK Electricity Distribution 1,091 909 (22) - 1,069 909
UK Electricity System Operator 238 7 (1) (2) 237 5
New England 708 743 424 21 1,132 764
New York 741 780 (200) 315 541 1,095
National Grid Ventures 490 286 467 (3) 957 283
Other 31 21 (81) 239 (50) 260
Total operating profit from continuing operations 4,294 3,813 585 558 4,879 4,371
Split by geographical area - continuing operations:
UK 2,825 2,234 26 224 2,851 2,458
US 1,469 1,579 559 334 2,028 1,913
Total operating profit from continuing operations 4,294 3,813 585 558 4,879 4,371
1. Comparative amounts have been re-presented to reflect NGV as a separate
operating segment.
Before exceptional items and remeasurements Exceptional items and remeasurements After exceptional items and remeasurements
2023 2022 2023 2022 2023 2022
£m £m £m £m £m £m
Reconciliation to profit before tax:
Operating profit from continuing operations 4,294 3,813 585 558 4,879 4,371
Share of post-tax results of joint ventures and associates 190 148 (19) (56) 171 92
Finance income 166 65 (28) (15) 138 50
Finance costs (1,680) (1,146) 82 74 (1,598) (1,072)
Profit before tax from continuing operations 2,970 2,880 620 561 3,590 3,441
2. Segmental analysis continued
(c) Capital expenditure
Capital expenditure represents additions to property, plant and equipment and
non-current intangibles but excludes additional investments in and loans
to joint ventures and associates.
Net book value of property, plant and equipment and other intangible assets Capital expenditure Depreciation, amortisation and impairment
2023 2022(1) 2023 2022(1) 2023 2022(1)
£m £m £m £m £m £m
Operating segments:
UK Electricity Transmission 15,483 14,678 1,303 1,195 (484) (508)
UK Electricity Distribution 13,462 12,522 1,220 899 (223) (158)
UK Electricity System Operator 411 404 108 108 (101) (83)
New England 13,406 11,485 1,624 1,561 (393) (364)
New York 21,730 18,676 2,454 1,960 (620) (537)
National Grid Ventures 3,507 3,009 709 452 (149) (156)
Other 38 30 13 10 (14) (24)
Total 68,037 60,804 7,431 6,185 (1,984) (1,830)
Split by geographical area - continuing operations:
UK 32,343 30,131 3,259 2,546 (921) (879)
US 35,694 30,673 4,172 3,639 (1,063) (951)
Total 68,037 60,804 7,431 6,185 (1,984) (1,830)
Asset type:
Property, plant and equipment 64,433 57,532 6,853 5,714 (1,700) (1,544)
Non-current intangible assets 3,604 3,272 578 471 (284) (286)
Total 68,037 60,804 7,431 6,185 (1,984) (1,830)
1. Comparative amounts have been re-presented to reflect NGV as a separate
operating segment.
3. Revenue
Revenue arises in the course of ordinary activities and principally comprises:
• transmission services;
• distribution services; and
• generation services.
Transmission services, distribution services and certain other services
(excluding rental income) fall within the scope of IFRS 15 'Revenue from
Contracts with Customers', whereas generation services (which solely relate to
the contract with the Long Island Power Authority (LIPA) in the US) are
accounted for under IFRS 16 'Leases' as rental income, also presented within
revenue. Revenue is recognised to reflect the transfer of goods or services to
customers at an amount that reflects the consideration to which the Group
expects to be entitled to in exchange for those goods or services and excludes
amounts collected on behalf of third parties and value added tax. The Group
recognises revenue when it transfers control over a product or service to a
customer.
Revenue in respect of regulated activities is determined by regulatory
agreements that set the price to be charged for services in a given period
based on pre-determined allowed revenues. Variances in service usage can
result in actual revenue collected exceeding (over-recoveries) or falling
short (under-recoveries) of allowed revenues. Where regulatory agreements
allow the recovery of under-recoveries or require the return of
over-recoveries, the allowed revenue for future periods is typically adjusted.
In these instances, no assets or liabilities are recognised for under- or
over-recoveries respectively, because the adjustment relates to future
customers and services that have not yet been delivered.
Revenue in respect of non-regulated activities primarily relates to the sale
of capacity on our interconnectors, which is determined at auctions. Capacity
is sold in either day, month, quarter or year ahead tranches. The price
charged is determined by market fundamentals rather than regulatory agreement.
The interconnectors are subject to indirect regulation with regards to the
levels of returns they are allowed to earn. Where amounts fall below this
range they receive top-up revenues; where amounts exceed this range, they must
pass-back the excess. In these instances, assets or liabilities are recognised
for the top-up or pass-back respectively.
The following is a description of principal activities, by reportable segment,
from which the Group generates its revenue. For more detailed information
about our segments, see note 2.
(a) UK Electricity Transmission
The UK Electricity Transmission segment principally generates revenue by
providing electricity transmission services in England and Wales. Our business
operates as a monopoly regulated by Ofgem, which has established price control
mechanisms that set the amount of annual allowed returns our business can earn
(along with the Scottish and Offshore transmission operators amongst others).
The transmission of electricity encompasses the following principal services:
• the supply of high-voltage electricity - revenue is recognised based on
usage. Our performance obligation is satisfied over time as our customers make
use of our network. We bill monthly in arrears and our payment terms are up to
60 days. Price is determined prior to our financial year end with reference to
the regulated allowed returns and estimated annual volumes; and
• construction work (principally for connections) - revenue is recognised
over time, as we provide access to our network. Customers can either pay over
the useful life of the connection or upfront. Where the customer pays upfront,
revenues are deferred as a contract liability and released over the life of
the asset.
For other construction where there is no consideration for any future
services, for example diversions, revenues are recognised as the construction
work is completed.
3. Revenue continued
(b) UK Electricity Distribution
The UK Electricity Distribution segment principally generates revenue by
providing electricity distribution services in the Midlands and South West
of England and South Wales. Similar to UK Electricity Transmission, UK
Electricity Distribution operates as a monopoly in the jurisdictions that it
operates in and is regulated by Ofgem.
The distribution of electricity encompasses the following principal services:
• electricity distribution - revenue is recognised based on usage by
customers (over time), based upon volumes and price. The price control
mechanism in place that determines our annual allowances is similar to UK
Electricity Transmission. Revenues are billed monthly and payment terms are
typically within 14 days; and
• construction work (principally for connections) - revenue is recognised
over time as we provide access to our network. Where the customer pays
upfront, revenues are deferred as a contract liability and released over the
life of the asset.
For other construction where there is no consideration for any future
services, revenues are recognised as the construction is completed.
(c) UK Electricity System Operator
The UK System Operator earns revenue for balancing supply and demand of
electricity on Great Britain's electricity transmission system, where it acts
as principal. Balancing services are regulated by Ofgem and revenue, which is
payable by generators and suppliers of electricity, is recognised as the
service is provided.
The System Operator also collects revenues on behalf of transmission
operators, principally National Grid Electricity Transmission plc and the
Scottish and Offshore transmission operators, from users (electricity
suppliers) who connect to or use the transmission system. As the System
Operator acts as an agent in this capacity, it therefore records transmission
network revenues net of payments to transmission operators.
(d) New England
The New England segment principally generates revenue by providing electricity
and gas supply and distribution services and high-voltage electricity
transmission services in New England. Supply and distribution services are
regulated by the Massachusetts Department of Public Utilities (MADPU) and
transmission services are regulated by the Federal Energy Regulatory
Commission (FERC), both of whom regulate the rates that can be charged
to customers.
The supply and distribution of electricity and gas and the provision of
electricity transmission facilities encompasses the following principal
services:
• electricity and gas supply and distribution and electricity transmission
- revenue is recognised based on usage by customers (over time). Revenues are
billed monthly and payment terms are 30 days; and
• construction work (principally for connections) - revenue is recognised
over time as we provide access to our network. Where the customer pays
upfront, revenues are deferred as a contract liability or customer
contributions (where they relate to government entities) and released over the
life of the connection.
(e) New York
The New York segment principally generates revenue by providing electricity
and gas supply and distribution services and high-voltage electricity
transmission services in New York. Supply and distribution services are
regulated by the New York Public Service Commission (NYPSC) and transmission
services are regulated by the FERC, both of whom regulate the rates that can
be charged to customers.
The supply and distribution of electricity and gas and the provision of
electricity transmission facilities encompasses the following principal
services:
• electricity and gas supply and distribution and electricity transmission
- revenue is recognised based on usage by customers (over time). Revenues are
billed monthly and payment terms are 30 days; and
• construction work (principally for connections) - revenue is recognised
over time as we provide access to our network. Where the customer pays
upfront, revenues are deferred as a contract liability or customer
contributions (where they relate to government entities) and released over the
life of the connection.
3. Revenue continued
(f) National Grid Ventures
National Grid Ventures generates revenue from electricity interconnectors, LNG
at the Isle of Grain, National Grid Renewables and rental income.
The Group recognises revenue from transmission services through
interconnectors and LNG importation at the Isle of Grain by means of
customers' use of capacity and volumes. Revenue is recognised over time and is
billed monthly. Payment terms are up to 60 days.
Electricity generation revenue is earned from the provision of energy services
and supply capacity to produce energy for the use of customers of LIPA through
a power supply agreement where LIPA receives all of the energy and capacity
from the asset until at least 2028. The arrangement is treated as an operating
lease within the scope of the leasing standard where we act as lessor; with
rental income being recorded as other revenue, which forms part of total
revenue. Lease payments (capacity payments) are recognised on a straight-line
basis and variable lease payments are recognised as the energy is generated.
Other revenue in the scope of IFRS 15 principally includes sales of renewables
projects from National Grid Renewables to Emerald Energy Venture LLC
(Emerald), which is jointly controlled by National Grid and Washington State
Investment Board (WSIB). National Grid Renewables develops wind and solar
generation assets in the US, whilst Emerald has a right of first refusal to
buy, build and operate those assets. Revenue is recognised as it is earned.
Other revenue, recognised in accordance with standards other than IFRS 15,
primarily comprises adjustments in respect of the interconnector cap and floor
regime constructed by Ofgem for certain wholly owned interconnector
subsidiaries. Where an interconnector expects to exceed its total five-year
cap, a provision and reduction in revenue is recognised in the current
reporting period. Where an interconnector does not expect to reach its
five-year floor, either an asset will be recognised where a future inflow of
economic benefits is considered virtually certain, or a contingent asset will
be disclosed where the future inflow is concluded to be probable.
(g) Other
Revenue in Other relates to our UK commercial property business and insurance.
Revenue is predominantly recognised in accordance with standards other than
IFRS 15 and comprises property sales by our UK commercial property business
(including sales to our 50% share in the St William joint venture which was
disposed of in the prior year). Property sales are recorded when the sale is
legally completed.
3. Revenue continued
(h) Disaggregation of revenue
In the following tables, revenue is disaggregated by primary geographical
market and major service lines. The table below reconciles disaggregated
revenue with the Group's reportable segments (see note 2).
Revenue for the year ended UK Electricity Transmission UK Electricity Distribution UK Electricity System Operator New New NGV Other Total
31 March 2023 £m £m £m England York £m £m £m
£m £m
Revenue under IFRS 15
Transmission 1,868 - 126 52 567 791 - 3,404
Distribution - 1,951 - 4,314 6,373 - - 12,638
System Operator - - 4,533 - - - - 4,533
Other(1) 31 77 - 8 13 131 - 260
Total IFRS 15 revenue 1,899 2,028 4,659 4,374 6,953 922 - 20,835
Other revenue
Generation - - - - - 394 - 394
Other(2) 47 5 - 53 41 (33) 317 430
Total other revenue 47 5 - 53 41 361 317 824
Total revenue from continuing operations 1,946 2,033 4,659 4,427 6,994 1,283 317 21,659
1. The UK Electricity Transmission and UK Electricity Distribution other
IFRS 15 revenue principally relates to engineering recharges, which are the
recovery of costs incurred for construction work requested by customers, such
as the rerouting of existing network assets. Within NGV, the other IFRS 15
revenue principally relates to revenue generated from our NG Renewables
business.
2. Other revenue, recognised in accordance with accounting standards other
than IFRS 15, includes property sales by our UK commercial property business,
rental income, income arising in connection with the Transition Services
Agreements following the sales of NECO and the UK Gas Transmission business
in the year, and a provision and adjustment to NGV revenue in respect of the
interconnector cap and floor regime constructed by Ofgem. In the year
ended 31 March 2023 the Group also recognised other income relating to an
insurance claim.
Geographical split for the year ended 31 March 2023 UK Electricity Transmission UK Electricity Distribution UK Electricity System Operator New New NGV Other Total
£m £m £m England York £m £m £m
£m £m
Revenue under IFRS 15
UK 1,899 2,028 4,659 - - 799 - 9,385
US - - - 4,374 6,953 123 - 11,450
Total IFRS 15 revenue 1,899 2,028 4,659 4,374 6,953 922 - 20,835
Other revenue
UK 47 5 - - - (31) 205 226
US - - - 53 41 392 112 598
Total other revenue 47 5 - 53 41 361 317 824
Total revenue from continuing operations 1,946 2,033 4,659 4,427 6,994 1,283 317 21,659
3. Revenue continued
Revenue for the year ended UK Electricity Transmission UK Electricity Distribution UK Electricity System Operator New New NGV(1) Other(1) Total
31 March 2022 £m £m £m England York £m £m £m
£m £m
Revenue under IFRS 15
Transmission 1,983 - - 52 405 627 - 3,067
Distribution - 1,375 - 4,434 5,110 - - 10,919
System Operator - - 3,418 - - - - 3,418
Other(2) 35 89 19 10 10 147 - 310
Total IFRS 15 revenue 2,018 1,464 3,437 4,496 5,525 774 - 17,714
Other revenue
Generation - - - - - 373 - 373
Other(3) 10 4 - 54 36 (123) 192 173
Total other revenue 10 4 - 54 36 250 192 546
Total revenue before exceptional items and remeasurements 2,028 1,468 3,437 4,550 5,561 1,024 192 18,260
Exceptional items and remeasurements - - - - - 189 189
Total revenue from continuing operations 2,028 1,468 3,437 4,550 5,561 1,024 381 18,449
Geographical split for the year ended 31 March 2022 UK Electricity Transmission UK Electricity Distribution UK Electricity System Operator New New NGV(1) Other(1) Total
£m £m £m England York £m £m £m
£m £m
Revenue under IFRS 15
UK 2,018 1,464 3,437 - - 646 - 7,565
US - - - 4,496 5,525 128 - 10,149
Total IFRS 15 revenue 2,018 1,464 3,437 4,496 5,525 774 - 17,714
Other revenue
UK 10 4 - - - (132) 167 49
US - - - 54 36 382 25 497
Total other revenue 10 4 - 54 36 250 192 546
Total revenue before exceptional items and remeasurements 2,028 1,468 3,437 4,550 5,561 1,024 192 18,260
Exceptional items and remeasurements - - - - - 189 189
Total revenue from continuing operations 2,028 1,468 3,437 4,550 5,561 1,024 381 18,449
1. Comparative amounts have been re-presented to reflect NGV as a separate
operating segment.
2. The UK Electricity Transmission and UK Electricity Distribution other
IFRS 15 revenue principally relates to engineering recharges, which are the
recovery of costs incurred for construction work requested by customers, such
as the rerouting of existing network assets. UK Electricity System Operator
other IFRS 15 revenue reflects the net income from its role as agent in
respect of transmission network revenues. Within NGV, the other IFRS 15
revenue principally relates to revenue generated from our NG Renewables
business.
3. Other revenue, recognised in accordance with accounting standards other
than IFRS 15, includes property sales by our UK commercial property business
and rental income. Included within NGV is a provision and adjustment to NGV
revenue in respect of the interconnector cap and floor regime constructed
by Ofgem.
Contract liabilities represent revenue to be recognised in future periods
relating to contributions in aid of construction of £2,006 million (2022:
£1,472 million). Revenue is recognised over the life of the asset. The asset
lives for connections in UK Electricity Transmission, UK Electricity
Distribution, New England and New York are 40 years, 69 years, 51 years and up
to 51 years respectively. The weighted average amortisation period is
27 years.
Future revenues in relation to unfulfilled performance obligations not yet
received in cash amount to £5.0 billion (2022: £5.2 billion). £1.8 billion
(2022: £1.7 billion) relates to connection contracts in UK Electricity
Transmission which will be recognised as revenue over 24 years and £2.7
billion (2022: £3.0 billion) relates to revenues to be earned under Grain
LNG contracts until 2045. The remaining amount will be recognised as revenue
over two years.
The amount of revenue recognised for the year ended 31 March 2023 from
performance obligations satisfied (or partially satisfied) in previous
periods, mainly due to changes in the estimate of the stage of completion, is
£nil (2022: £nil).
4. Exceptional items and remeasurements
To monitor our financial performance, we use an adjusted consolidated profit
measure that excludes certain income and expenses. We exclude items from
adjusted profit because, if included, these items could distort understanding
of our performance for the year and the comparability between periods. This
note analyses these items, which are included in our results for the year but
are excluded from adjusted profit.
2023 2022
£m £m
Included within operating profit
Exceptional items:
Net gain on disposal of NECO 511 -
Net gain on disposal of Millennium Pipeline Company LLC 335 -
IFA fire 130 -
Transaction, separation and integration costs¹ (117) (223)
Changes in environmental provisions 176 -
Cost efficiency programme (100) (42)
New operating model implementation costs - (24)
Release of St William Homes LLP deferred income - 189
Net gain on disposal of St William Homes LLP - 228
Environmental insurance recovery - 38
935 166
Remeasurements - commodity contract derivatives (350) 392
585 558
Included within finance income and costs
Remeasurements:
Net gains on financing derivatives 82 74
Net (losses)/gains on financial assets at fair value through profit and loss (28) (15)
54 59
Included within share of post-tax results of joint ventures and associates
Remeasurements - net losses on financial instruments (19) (56)
Total included within profit before tax 620 561
Included within tax
Exceptional items - movements arising on items not included in profit before
tax:
Deferred tax charge arising as a result of UK tax rate change - (458)
Tax on exceptional items (316) (28)
Tax on remeasurements 75 (103)
(241) (589)
Total exceptional items and remeasurements after tax 379 (28)
Analysis of total exceptional items and remeasurements after tax
Exceptional items after tax 619 (320)
Remeasurements after tax (240) 292
Total exceptional items and remeasurements after tax 379 (28)
1. Transaction, separation and integration costs represent the aggregate of
distinct activities undertaken by the Group in the years presented.
Exceptional items
Management uses an exceptional items framework that has been discussed and
approved by the Audit & Risk Committee. This follows a three-step process
which considers the nature of the event, the financial materiality involved
and any particular facts and circumstances. In considering the nature of the
event, management focuses on whether the event is within the Group's control
and how frequently such an event typically occurs. With respect to
restructuring costs, these represent additional expenses incurred that are not
related to the normal business and day-to-day activities. In determining the
facts and circumstances, management considers factors such as ensuring
consistent treatment between favourable and unfavourable transactions, the
precedent for similar items, the number of periods over which costs will be
spread or gains earned, and the commercial context for the particular
transaction. The exceptional items framework was last updated in March 2022.
Items of income or expense that are considered by management for designation
as exceptional items include significant restructurings, write-downs
or impairments of non-current assets, significant changes in environmental or
decommissioning provisions, integration of acquired businesses, gains or
losses on disposals of businesses or investments and significant debt
redemption costs as a consequence of transactions such as significant
disposals or issues of equity, and the related tax, as well as deferred tax
arising on changes to corporation tax rates.
4. Exceptional items and remeasurements continued
Costs arising from efficiency and transformation programmes include redundancy
costs. Redundancy costs are charged to the consolidated income statement in
the year in which a commitment is made to incur the costs and the main
features of the restructuring plan have been announced to affected employees.
Set out below are details of the transactions against which we have considered
the application of our exceptional items framework in each of the years
for which results are presented. No COVID-19-related costs incurred have been
recognised as exceptional in any of the years presented.
2023
Net gain on disposal of NECO
During the year, the Group recognised a gain of £511 million on the
disposal of 100% of the share capital of NECO to PPL Rhode Island Holdings,
LLC for cash consideration of £3.1 billion ($3.9 billion) (see note 9). The
receipt of cash has been recognised within net cash used in investing
activities within the consolidated cash flow statement.
Net gain on disposal of Millennium Pipeline Company LLC
During the year, the Group recognised a gain of £335 million on the disposal
of its entire 26.25% equity interest in the Millennium Pipeline Company LLC
associate to DT Midstream for cash consideration of £497 million.
The receipt of cash has been recognised within net cash used in investing
activities within the consolidated cash flow statement.
Fire at IFA converter station
In September 2021, a fire at the IFA converter station in Sellindge, Kent
caused significant damage to infrastructure on site. In the year, the Group
recognised £130 million of insurance claims (net of asset write-offs) which
have been recognised as exceptional in line with our exceptional items policy.
The total cash inflow for the period was £79 million.
Transaction, separation and integration costs
During the year, separation costs of £39 million were incurred in relation
to the disposal of NECO, £38 million in relation to the disposal of a
majority stake in our UK Gas Transmission business (see note 9) and
£40 million in connection with the integration of NGED. The costs incurred
primarily relate to legal fees, bankers' fees, professional fees and employee
costs. The costs have been classified as exceptional, consistent with similar
costs for the years ended 31 March 2022 and 2021 and in line with the
exceptional items policy. The total cash outflow for the period in relation to
these costs was £84 million.
Changes in environmental provisions
The real discount rate applied to the Group's environmental provisions was
revised to 1.5% in the year (2022: 0.5%) to reflect the substantial and
sustained change in United States government bond yield curves. The principal
impact of this rate increase was a £165 million decrease in our US
environmental provisions and a £11 million decrease in our UK environmental
provision. The weighted average remaining duration of our cash flows is now
around 10.5 years.
Cost efficiency programme
During the year, the Group incurred a further £100 million of costs in
relation to the major cost efficiency programme announced in November 2021,
that is targeting at least £400 million savings per annum across the Group
by the end of three years. The costs recognised in the period primarily
relate to property costs, employee costs and professional fees incurred in
delivering the programme. Whilst the costs incurred during the period do not
meet the quantitative threshold to be classified as exceptional on a
standalone basis, when taken in aggregate with the £42 million of costs
incurred in the year ended 31 March 2022, the costs qualify for exceptional
treatment in line with our exceptional items policy. The total cash outflow
for the period in relation to these costs was £85 million.
4. Exceptional items and remeasurements continued
2022
Net gain on disposal of St William Homes LLP and release of deferred income
The Group recognised a gain of £228 million on the disposal of its entire
50% equity interest in the St William Homes LLP joint venture to The
Berkeley Group plc for cash consideration of £413 million. In connection
with the disposal, the Group also released deferred income of £189 million
which related to deferred profits from previous property sales to St William
Homes LLP. We concluded that the release of the deferred income should be
classified as exceptional given the crystallisation event for the release is
the sale of the Group's equity interest in St William Homes LLP.
New operating model implementation costs and cost efficiency programme
The Group incurred a further £24 million of costs in relation to the design
and implementation of our new operating model and £42 million in relation to
the major cost efficiency programme announced in November 2021. The costs
recognised primarily related to professional fees incurred and redundancy
provisions.
Whilst the costs incurred did not meet the quantitative threshold to be
classified as exceptional on a standalone basis, when taken in aggregate
with the costs expected to be incurred over the duration of the cost
efficiency programme, we concluded that the costs should be classified as
exceptional in line with our exceptional items policy. The total cash outflow
for the period was £48 million.
Transaction and separation costs
£223 million of transaction and separation costs were incurred in relation
to the acquisition of NGED, the planned disposal of NECO and the planned
disposal of our UK Gas Transmission business (see note 9). The costs related
to legal fees, bankers' fees and other professional fees. The costs were
classified as exceptional, consistent with similar costs for the year ended
31 March 2021. The total cash outflow for the year was £196 million.
Environmental insurance recovery
In the US, the most significant component of our £1.9 billion environmental
provision relates to several Superfund sites, and arose from former
manufacturing gas plant facilities, previously owned or operated by the Group
or its predecessor companies. Under Federal and State Superfund laws,
potential liability for the historical contamination may be imposed on
responsible parties jointly and severally, without regard to fault, even if
the activities were lawful when they occurred. In the year ended 31 March
2022, we recognised an exceptional gain of £38 million relating to an
insurance receivable for site remediation costs included in our Superfund
sites environmental provision. The insurance receipts were recorded as
an exceptional item in line with the treatment of the related costs.
4. Exceptional items and remeasurements continued
Remeasurements
Remeasurements comprise unrealised gains or losses recorded in the
consolidated income statement arising from changes in the fair value of
certain of our financial assets and liabilities accounted for at fair value
through profit and loss (FVTPL). Once the fair value movements are realised
(for example when the derivative matures), the previously recognised fair
value movements are then reversed through remeasurements and recognised within
earnings before exceptional items and remeasurements. These assets and
liabilities include commodity contract derivatives and financing derivatives
to the extent that hedge accounting is not available or is not
fully effective.
The unrealised gains or losses reported in profit and loss on certain
additional assets and liabilities treated at FVTPL are also classified within
remeasurements. These relate to financial assets (which fail the 'solely
payments of principal and interest test' under IFRS 9), the money market fund
investments used by Group Treasury for cash management purposes and the net
foreign exchange gains and losses on borrowing activities. These are offset by
foreign exchange gains and losses on financing derivatives measured at fair
value. In all cases, these fair values increase or decrease because
of changes in foreign exchange, commodity or other financial indices over
which we have no control.
We report unrealised gains or losses relating to certain discrete classes of
financial assets accounted for at FVTPL within adjusted profit. These comprise
our portfolio of investments made by National Grid Partners, our investment in
Sunrun Neptune 2016 LLC and the contingent consideration arising on the
acquisition of National Grid Renewables (all within NGV). The performance
of these assets (including changes in fair value) is included in our
assessment of adjusted profit for the relevant business units.
Remeasurements excluded from adjusted profit are made up of the following
categories:
i. Net gains/(losses) on commodity contract derivatives represent
mark-to-market movements on certain physical and financial commodity contract
obligations in the US. These contracts primarily relate to the forward
purchase of energy for supply to customers, or to the economic hedging
thereof, that are required to be measured at fair value and 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;
ii. Net gains/(losses) on financing derivatives comprise gains and
losses arising on derivative financial instruments used for the risk
management of interest rate and foreign exchange exposures and the offsetting
foreign exchange losses and gains on the associated borrowing activities.
These exclude gains and losses for which hedge accounting has been effective
and have been recognised directly in the consolidated statement of other
comprehensive income or are offset by adjustments to the carrying value of
debt. Net foreign exchange gains and losses on financing derivatives used for
the risk management of foreign exchange exposures are offset by foreign
exchange losses and gains on borrowing activities;
iii. Net gains/(losses) on financial assets measured at FVTPL comprise
gains and losses on the investment funds held by our insurance captives which
are categorised as FVTPL; and
iv. Unrealised net gains/(losses) on derivatives and other financial
instruments within our joint ventures and associates.
Items included within tax
2022
Change in UK corporation tax rate
In the Spring Budget 2021, the UK government announced that from 1 April 2023
the UK corporation tax rate will increase to 25%, and this was substantively
enacted on 24 May 2021. Deferred tax balances at 31 March 2022 were remeasured
at the enacted rate, with £458 million recognised as exceptional, in line
with previous periods.
5. Finance income and costs
2023 2022
£m £m
Finance income
Net interest income on pensions and other post-retirement benefit obligations 85 -
Interest income on financial instruments:
Bank deposits and other financial assets 80 32
Dividends received on equities held at fair value through other comprehensive 1 3
income (FVOCI)
Other income - 30
166 65
Finance costs
Net interest expense on pensions and other post-retirement benefit obligations - -
Interest expense on financial liabilities held at amortised cost:
Bank loans and overdrafts (328) (216)
Other borrowings(1) (1,330) (961)
Interest on derivatives (170) (59)
Unwinding of discount on provisions (88) (73)
Other interest (13) 11
Less: interest capitalised(2) 249 152
(1,680) (1,146)
Remeasurements - Finance income
Net (losses)/gains on FVTPL financial assets (28) (15)
(28) (15)
Remeasurements - Finance costs
Net gains on financing derivatives³:
Derivatives designated as hedges for hedge accounting 22 45
Derivatives not designated as hedges for hedge accounting 60 29
82 74
Total remeasurements - Finance income and costs 54 59
Finance income 138 50
Finance costs(4) (1,598) (1,072)
Net finance costs from continuing operations (1,460) (1,022)
1. Includes interest expense on lease liabilities.
2. Interest on funding attributable to assets in the course of construction
in the current year was capitalised at a rate of 4.7% (2022: 3.2%). In the UK,
capitalised interest qualifies for a current year tax deduction with tax
relief claimed of £30 million (2022: £16 million). In the US, capitalised
interest is added to the cost of property, plant and equipment and qualifies
for tax depreciation allowances.
3. Includes a net foreign exchange loss on borrowing activities of £86
million (2022: £110 million gain) offset by foreign exchange losses and gains
on financing derivatives measured at fair value.
4. Finance costs include principal accretion on inflation linked liabilities
of £483 million (2022: £241 million).
6. Tax
Tax charged to the consolidated income statement - continuing operations
2023 2022
£m £m
Tax before exceptional items and remeasurements 635 669
Exceptional tax on items not included in profit before tax (see note 4) - 458
Tax on other exceptional items and remeasurements 241 131
Total tax reported within exceptional items and remeasurements 241 589
Total tax charge from continuing operations 876 1,258
Tax as a percentage of profit before tax
2023 2022
% %
Before exceptional items and remeasurements - continuing operations 21.4 23.2
After exceptional items and remeasurements - continuing operations 24.4 36.6
2023 2022
£m £m
Current tax:
UK corporation tax at 19% (2022: 19%) 161 255
UK corporation tax adjustment in respect of prior years - (9)
161 246
Overseas corporation tax 225 6
Overseas corporation tax adjustment in respect of prior years (16) (26)
209 (20)
Total current tax from continuing operations 370 226
Deferred tax:
UK deferred tax 255 605
UK deferred tax adjustment in respect of prior years 13 (5)
268 600
Overseas deferred tax 233 425
Overseas deferred tax adjustment in respect of prior years 5 7
238 432
Total deferred tax from continuing operations 506 1,032
Total tax charge from continuing operations 876 1,258
Factors that may affect future tax charges
In the Spring Budget 2021, the UK government announced an increase in the main
corporation tax rate from 19% to 25% with effect from 1 April 2023. This was
substantively enacted on 24 May 2021. Deferred tax balances as at 31 March
2023 have been calculated at 25%.
The US government continues to consider changes to federal tax legislation,
but as no changes have been substantively enacted at the balance sheet date,
deferred tax balances as at 31 March 2023 have been calculated at the
prevailing tax rates based on the current tax laws.
We will continue to monitor the developments driven by Brexit, the OECD's Base
Erosion and Profit Shifting (BEPS) project and European Commission initiatives
including fiscal aid investigations. At this time, we do not expect this to
have any material impact on our future tax charges. Governments across the
world including the UK and the US have introduced various stimulus/reliefs for
businesses to cope with the impact of the COVID-19 pandemic, from which we do
not currently expect there to be a material impact on our future tax charges.
7. Earnings per share (EPS)
Adjusted earnings and EPS, which exclude exceptional items and remeasurements,
are provided to reflect the adjusted profit subtotals used by the Company. For
further details of exceptional items and remeasurements, see note 4. We have
included reconciliations from this additional EPS measure to earnings for both
basic and diluted EPS to provide additional detail for these items. The EPS
calculations are based on profit after tax attributable to equity shareholders
of the parent company which excludes non-controlling interests.
(a) Basic EPS
Earnings EPS Earnings EPS
2023 2023 2022 2022
£m pence £m pence
Adjusted earnings from continuing operations 2,335 63.8 2,210 61.4
Exceptional items and remeasurements after tax from continuing operations 379 10.4 (28) (0.8)
(see note 4)
Earnings from continuing operations 2,714 74.2 2,182 60.6
Adjusted earnings from discontinued operations (see note 9) 320 8.7 344 9.6
Exceptional items and remeasurements after tax from discontinued operations 4,763 130.2 (173) (4.8)
Earnings from discontinued operations 5,083 138.9 171 4.8
Total adjusted earnings 2,655 72.5 2,554 71.0
Total exceptional items and remeasurements after tax 5,142 140.6 (201) (5.6)
(including discontinued operations)
Total earnings 7,797 213.1 2,353 65.4
2023 2022
millions millions
Weighted average number of ordinary shares - basic 3,659 3,599
(b) Diluted EPS
Earnings EPS Earnings EPS
2023 2023 2022 2022
£m pence £m pence
Adjusted earnings from continuing operations 2,335 63.5 2,210 61.1
Exceptional items and remeasurements after tax from continuing operations 379 10.3 (28) (0.8)
(see note 4)
Earnings from continuing operations 2,714 73.8 2,182 60.3
Adjusted earnings from discontinued operations 320 8.7 344 9.5
Exceptional items and remeasurements after tax from discontinued operations 4,763 129.6 (173) (4.8)
(see note 9)
Earnings from discontinued operations 5,083 138.3 171 4.7
Total adjusted earnings 2,655 72.2 2,554 70.6
Total exceptional items and remeasurements after tax 5,142 139.9 (201) (5.6)
(including discontinued operations)
Total earnings 7,797 212.1 2,353 65.0
2023 2022
millions millions
Weighted average number of ordinary shares - diluted 3,676 3,616
8. Dividends
2023 2022
Pence Cash Scrip dividend Pence Cash Scrip
per share dividend £m per share dividend dividend
paid paid £m
£m £m
Interim dividend in respect of the current year 17.84 488 163 17.21 339 282
Final dividend in respect of the prior year 33.76 1,119 114 32.16 583 562
51.60 1,607 277 49.37 922 844
The Directors are proposing a final dividend for the year ended 31 March 2023
of 37.60p per share that would absorb approximately £1,383 million of
shareholders' equity (assuming all amounts are settled in cash). It will be
paid on 18 August 2023 to shareholders who are on the register of members
at 4 June 2023 (subject to shareholders' approval at the AGM). A scrip
dividend will be offered as an alternative.
9. Assets held for sale and discontinued operations
(a) Assets held for sale
The following assets and liabilities were classified as held for sale as at 31
March 2023:
2023 2022
Total Total liabilities held for sale Net assets held for sale Total Total liabilities held for Net assets held for
assets £m £m assets sale sale
held for sale held for £m £m
£m sale
£m
Investment in GasT TopCo Limited 1,443 - 1,443 - - -
FAA derivative - (109) (109) - - -
The Narragansett Electric Company - - - 4,129 (1,658) 2,471
UK Gas Transmission - - - 5,871 (5,530) 341
Net assets held for sale 1,443 (109) 1,334 10,000 (7,188) 2,812
Gain on disposal of The Narragansett Electric Company
On 17 March 2021, the Group signed an agreement to sell 100% of the share
capital of a wholly owned subsidiary, The Narragansett Electric Company
(NECO). The Group subsequently completed the NECO Sale to PPL Rhode Island
Holdings, LLC on 25 May 2022 for cash consideration of £3.1 billion
($3.9 billion). NECO was part of our New England operating segment and is a
retail distribution company providing electricity and gas to customers in
Rhode Island. The associated assets and liabilities were presented as held for
sale in the consolidated financial statements with effect from the year ended
31 March 2021.
As NECO did not represent a separate major line of business or geographical
area of operation, it did not meet the criteria for classification as a
discontinued operation and therefore its results are not separately disclosed
on the face of the income statement. Financial information relating to
the gain arising on the disposal of NECO is set out below:
£m
Goodwill 616
Intangible assets 4
Property, plant and equipment 3,363
Trade and other receivables 215
Cash and cash equivalents 113
Other assets 165
Total assets on disposal 4,476
Borrowings (1,230)
Pension liabilities (19)
Other liabilities (552)
Total liabilities on disposal (1,801)
Net assets on disposal 2,675
Satisfied by:
Cash proceeds 3,081
Total consideration received 3,081
Less:
Financing costs(1) (40)
Gain on sale before tax and reclassification of foreign currency translation 366
reserve
Reclassification of foreign currency translation reserve(2) 145
Tax(3) (231)
Post-tax gain on disposal 280
1. Relates to the transfer of hedge losses previously deferred within equity
in respect of foreign exchange forward contracts which the Group entered into
in order to manage its exposure to the foreign currency cash proceeds due from
PPL Rhode Island Holdings, LLC.
2. The reclassification of the foreign currency translation reserve
attributable to NECO comprises a gain of £496 million relating to the
retranslation of NECO's operations offset by a loss of £351 million relating
to borrowings, cross-currency swaps and foreign exchange forward contracts
used to hedge the Group's net investment in NECO.
3. The high effective tax rate arising on the gain on sale is primarily a
result of the tax base of the assets being significantly lower than the
accounting base which includes non-deductible goodwill.
9. Assets held for sale and discontinued operations continued
No impairment losses were recognised upon remeasurement of the assets and
liabilities prior to classification as held for sale. NECO generated profit
after tax of £84 million for the period until 25 May 2022 (2022:
£237 million) which was recognised within continuing operations.
Gain on disposal of the UK Gas Transmission business
On 27 March 2022, the Group entered into an Acquisition Agreement to sell 100%
of the UK Gas Transmission business in exchange for £4.0 billion of cash
consideration and a 40% interest in a newly incorporated company, GasT TopCo
Limited. The Group subsequently completed the sale on 31 January 2023. The
other 60% interest in GasT TopCo Limited is owned by Macquarie Infrastructure
and Real Assets (MIRA) and British Columbia Investment Management Corporation
(BCI) (together, the 'Consortium').
The Group classified the associated assets and liabilities of the business as
held for sale in the consolidated statement of financial position as at
31 August 2021, when the sale was considered to be highly probable following
management approval of the sale timetable and communication thereof to
potential buyers. Accordingly, the UK Gas Transmission business was also
reported as held for sale in the consolidated statement of financial position
as at 31 March 2022.
Financial information relating to the gain arising on the disposal of the UK
Gas Transmission business is set out below:
2023
£m
Intangible assets 180
Property, plant and equipment 4,981
Trade and other receivables 458
Pension assets 341
Cash and cash equivalents 5
Financing derivatives 96
Other assets 338
Total assets 6,399
Borrowings (4,276)
Deferred tax liabilities (800)
Other liabilities (711)
Total liabilities (5,787)
Net assets on disposal 612
Satisfied by:
Cash proceeds 4,032
Associate at fair value 1,443
Total consideration received 5,475
Less:
Transaction costs (60)
Gain on disposal 4,803
No impairment losses were recognised upon remeasurement of the assets and
liabilities prior to classification as held for sale. The portion of the
gain on disposal related to the remeasurement of the Group's retained
non-controlling investment to fair value is £1,198 million.
GasT TopCo Limited is an unlisted entity, and so no quoted price exists. The
fair value has been determined with reference to the equity value of GasT
TopCo Limited, derived through a valuation exercise performed under the
discount dividend model (DDM) methodology. The DDM methodology involves
estimating the future cash flows expected to be generated by the associate and
discounting those back to their present value using an appropriate discount
rate. Management has determined that the DDM methodology provides a reasonable
estimate of the fair value of the associate interest at the date of
acquisition.
9. Assets held for sale and discontinued operations continued
On 27 March 2022, the Group also entered into an FAA with the Consortium. The
FAA gives the Consortium the option to purchase the Group's 40% equity
interest in GasT TopCo Limited for £1.4 billion plus an annualised
escalation factor. The FAA became binding following the settlement of the
Acquisition Agreement and is exercisable in the period between 1 May and 31
July 2023. The window can further be deferred at the Group's discretion by
three months.
The FAA is a Level 3 derivative, which is accounted for at fair value, and the
assumptions which are used to determine fair value are specific to the
contract and not readily observable in active markets. Significant
unobservable inputs include the valuation and volatility of GasT TopCo
Limited's unlisted equity. These inputs are used as part of a Black-Scholes
option pricing model to produce the reported valuation. The fair value of the
option as at 31 March 2023 is £109 million (31 March 2022: £nil). The FAA
derivative will be extinguished when the option is either exercised or lapses.
The option cannot be cash settled.
The Group's interest in GasT TopCo Limited was immediately classified as held
for sale with effect from 31 January 2023 together with the FAA derivative.
The Group has not applied equity accounting in relation to its investment in
GasT TopCo Limited.
(b) Discontinued operations
UK Gas Transmission
As UK Gas Transmission represented a major separate line of business, the
business was also classified as a discontinued operation in the prior year.
The results of the business are shown separately from the continuing business
for all periods presented on the face of the income statement as a
discontinued operation. This is also reflected in the statement of
comprehensive income, as well as earnings per share (EPS) being shown split
between continuing and discontinued operations.
The summary income statement for the UK Gas Transmission business for the
period until 31 January 2023 and the year ended 31 March 2022 is as follows:
Before exceptional items Exceptional items Total
and remeasurements and remeasurements
2023 2022 2023 2022 2023 2022
£m £m £m £m £m £m
Discontinued operations
Revenue 1,604 1,362 - - 1,604 1,362
Other operating costs (890) (708) 1 (17) (889) (725)
Operating profit 714 654 1 (17) 715 637
Finance income 15 - 6 - 21 -
Finance costs(1) (310) (218) (53) (12) (363) (230)
Profit before tax 419 436 (46) (29) 373 407
Tax(2) (99) (92) 6 (144) (93) (236)
Profit after tax from 320 344 (40) (173) 280 171
discontinued operations
Gain on disposal - - 4,803 - 4,803 -
Total profit after tax from 320 344 4,763 (173) 5,083 171
discontinued operations
1. Finance costs from discontinued operations include principal accretion of
inflation-linked liabilities in the UK Gas Transmission business of
£268 million (2022: £158 million). Exceptional finance costs in the
current year relate to the remeasurement of the FAA derivative.
2. Of the £144 million exceptional tax charge in the year ended 31 March
2022, £145 million relates to an increase in deferred tax liability due to
the change in the UK corporation tax rate.
9. Assets held for sale and discontinued operations continued
The summary statement of comprehensive income for discontinued operations for
the period until 31 January 2023 and the year ended 31 March 2022 is as
follows:
2023 2022
£m £m
Profit after tax from discontinued operations 5,083 171
Other comprehensive (loss)/income from discontinued operations
Items from discontinued operations that will never be reclassified to profit
or loss:
Remeasurement (losses)/gains on pension assets and post-retirement benefit (313) 309
obligations
Net losses on financial liability designated at fair value through profit and - (1)
loss attributable to changes in own credit risk
Tax on items that will never be reclassified to profit or loss 78 (94)
Total (losses)/gains from discontinued operations that will never be (235) 214
reclassified to profit or loss
Items from discontinued operations that may be reclassified subsequently to
profit or loss:
Net gains in respect of cash flow hedges 6 1
Net gains/(losses) in respect of cost of hedging 4 (4)
Tax on items that may be reclassified subsequently to profit or loss (2) -
Total gains/(losses) from discontinued operations that may be reclassified 8 (3)
subsequently to profit or loss
Other comprehensive (loss)/income for the year, net of tax from discontinued (227) 211
operations
Total comprehensive income for the year from discontinued operations 4,856 382
Details of the cash flows relating to discontinued operations are set within
the consolidated cash flow statement.
10. Pensions and other post-retirement benefit obligations
2023 2022
£m £m
Present value of funded obligations (18,934) (23,541)
Fair value of plan assets 21,246 27,013
2,312 3,472
Present value of unfunded obligations (292) (326)
Other post-employment liabilities (69) (71)
Net defined benefit asset 1,951 3,075
Represented by:
Liabilities (694) (810)
Assets 2,645 3,885
1,951 3,075
The net pensions and other post-retirement benefit obligations position, as
recorded under IAS 19, at 31 March 2023 was a net asset of £1,951 million
compared to a net asset of £3,075 million at 31 March 2022. The movement of
£1,124 million reflects falls in asset values, partially offset by changes
in UK and US financial assumptions that resulted in a decrease in liabilities.
Actuarial Assumptions:
UK pensions US pensions US other
post-retirement benefits
2023 2022 2023 2022 2023 2022
% % % % % %
Discount rate - past service 4.80 2.78 4.85 3.65 4.85 3.65
Discount rate - future service 4.80 2.85 4.85 3.65 4.85 3.65
Rate of increase in RPI - past service 3.17 3.60 n/a n/a n/a n/a
Rate of increase in RPI - future service 3.07 3.33 n/a n/a n/a n/a
Salary increases 3.11 3.47 4.50 4.60 4.50 4.60
Initial healthcare cost trend rate n/a n/a n/a n/a 6.80 6.80
Ultimate healthcare cost trend rate n/a n/a n/a n/a 4.50 4.50
11. Net debt
Net debt is comprised as follows:
2023 2022
£m £m
Cash and cash equivalents 163 204
Current financial investments 2,605 3,145
Borrowings (42,985) (45,465)
Financing derivatives¹ (756) (693)
(40,973) (42,809)
1. The derivatives balance included in net debt excludes the commodity
derivative liabilities of £108 million (2022: assets of £267 million).
12. Reconciliation of net cash flow to movement in net debt
2023 2022
£m £m
(Decrease)/increase in cash and cash equivalents (48) 9
(Decrease)/increase in financial investments(1) (651) 752
Decrease/(increase) in borrowings 5,268 (9,993)
Increase in related derivatives(2) 455 262
Change in debt resulting from cash flows 5,024 (8,970)
Changes in fair value of financial assets and liabilities and exchange (1,242) (924)
movements
Net interest charge on the components of net debt (1,755) (1,193)
Other non-cash movements (283) 19
Movement in net debt (net of related derivative financial instruments) in the 1,744 (11,068)
year
Net debt (net of related derivative financial instruments) at start of year (42,809) (28,546)
Reclassification to held for sale 92 4,952
Acquisition of NGED - (8,147)
Net debt (net of related derivative financial instruments) at end of year (40,973) (42,809)
1. Cash flows on current financial investments comprise £65 million (2022:
£29 million) of interest received and £586 million of cash inflows (2022:
£781 million outflows) of net cash flow movements in short-term financial
investments, as presented in the consolidated cash flow statement.
2. The derivatives balance included in net debt excludes the commodity
derivative liabilities of £108 million (2022: assets of £267 million).
2023 2022
Borrowings Financing Borrowings Financing
and other derivatives and other derivatives
£m £m £m £m
Cash flows per financing activities section of cash flow statement:
Proceeds received from loans 11,908 - 12,347 -
Repayment of loans (15,260) - (1,261) -
Payments of lease liabilities (155) - (117) -
Net movements in short-term borrowings (511) - (11) -
Cash inflows on derivatives - 190 - 20
Cash outflows on derivatives - (118) - (114)
Interest paid (1,277) (153) (998) (55)
Cash flows per financing activities section of cash flow statement (5,295) (81) 9,960 (149)
Adjustments:
Non-net debt-related items 27 - 33 -
Derivative cash (outflow)/inflow in relation to capital expenditure - (12) - (8)
Derivative cash inflows per investing section of cash flow statement - - - 17
Derivative cash outflows per investing section of cash flow statement - (362) - (122)
Cash flows relating to financing liabilities within net debt (5,268) (455) 9,993 (262)
Analysis of changes in net debt:
Borrowings (5,268) - 9,993 -
Financing derivatives - (455) - (262)
Cash flow movements relating to financing liabilities within net debt (5,268) (455) 9,993 (262)
Alternative performance measures/non-IFRS reconciliations
Within the Annual Report, a number of financial measures are presented. These
measures have been categorised as alternative performance measures (APMs), as
per the European Securities and Markets Authority (ESMA) guidelines and the
Securities and Exchange Commission (SEC) conditions for use of non-GAAP
financial measures.
An APM is a financial measure of historical or future financial performance,
financial position, or cash flows, other than a financial measure defined
under IFRS. The Group uses a range of these measures to provide a better
understanding of its underlying performance. APMs are reconciled to the most
directly comparable IFRS financial measure where practicable.
The Group has defined the following financial measures as APMs derived from
IFRS: net revenue, the various adjusted operating profit, earnings and
earnings per share metrics detailed in the 'adjusted profit measures' section
below, net debt, capital investment, funds from operations (FFO), FFO
interest cover and retained cash flow (RCF)/adjusted net debt. For each of
these we present a reconciliation to the most directly comparable IFRS
measure. We present 'constant currency' comparative period performance and
capital investment by applying the current year average exchange rate to the
relevant US dollar amounts in the comparative periods presented, to remove the
year-on-year impact of foreign exchange translation.
We also have a number of APMs derived from regulatory measures which have no
basis under IFRS; we call these Regulatory Performance Measures (RPMs). They
comprise: Group RoE, operating company RoE, regulated asset base, regulated
financial performance, regulatory gearing, Asset Growth, Value Added,
including Value Added per share and Value Growth. These measures include the
inputs used by utility regulators to set the allowed revenues for many of
our businesses.
We use RPMs to monitor progress against our regulatory agreements and certain
aspects of our strategic objectives. Further, targets for certain of these
performance measures are included in the Company's Annual Performance Plan
(APP) and Long-Term Performance Plan (LTPP) and contribute to how we reward
our employees. As such, we believe that they provide close correlation to the
economic value we generate for our shareholders and are therefore important
supplemental measures for our shareholders to understand the performance of
the business and to ensure a complete understanding of Group performance.
As the starting point for our RPMs is not IFRS, and these measures are not
governed by IFRS, we are unable to provide meaningful reconciliations to any
directly comparable IFRS measures, as differences between IFRS and the
regulatory recognition rules applied have built up over many years. Instead,
for each of these we present an explanation of how the measure has been
determined and why it is important, and an overview as to why it would not be
meaningful to provide a reconciliation to IFRS.
Alternative performance measures
Net revenue
Net revenue is revenue less pass-through costs, such as UK system balancing
costs and gas and electricity commodity costs in the US. Pass-through costs
are fully recoverable from our customers and are recovered through separate
charges that are designed to recover those costs with no profit. Where
revenue received or receivable exceeds the maximum amount permitted by our
regulatory agreement, adjustments will be made to future prices to reflect
this over-recovery. No liability is recognised as such an adjustment to future
prices relates to the provision of future services. Similarly, no asset is
recognised where a regulatory agreement permits adjustments to be made to
future prices in respect of an under-recovery.
2023 2022
Year ended 31 March Gross revenue(1) Pass- Net revenue Gross revenue Pass- Net revenue
through through
costs costs
£m £m £m £m £m £m
UK Electricity Transmission 1,987 (217) 1,770 2,035 (152) 1,883
UK Electricity Distribution 2,045 (418) 1,627 1,482 (125) 1,357
UK Electricity System Operator 4,690 (4,152) 538 3,455 (3,215) 240
New England 4,427 (2,095) 2,332 4,550 (2,050) 2,500
New York 6,994 (2,957) 4,037 5,561 (2,161) 3,400
National Grid Ventures 1,341 - 1,341 1,024 - 1,024
Other 317 - 317 192 - 192
Sales between segments (142) - (142) (39) - (39)
Total - continuing operations 21,659 (9,839) 11,820 18,260 (7,703) 10,557
Discontinued operations 1,604 (658) 946 1,362 (397) 965
Total 23,263 (10,497) 12,766 19,622 (8,100) 11,522
1. Excluding exceptional income.
Adjusted profit measures
In considering the financial performance of our business and segments, we use
various adjusted profit measures in order to aid comparability of results year
on year. The various measures are presented on pages 16 to 22 and reconciled
below.
Adjusted results: These exclude the impact of exceptional items and
remeasurements that are treated as discrete transactions under IFRS and
can accordingly be classified as such. This is a measure used by management
that is used to derive part of the incentive target set annually for
remunerating certain Executive Directors, and further details of these items
are included in note 4.
Underlying results: Further adapts our adjusted results for continuing
operations to take account of volumetric and other revenue timing differences
arising due to the in-year difference between allowed and collected revenues,
including revenue incentives, as governed by our rate plans in the US or
regulatory price controls in the UK (but excluding totex-related allowances
and adjustments or allowances for pension deficit contributions). For 2022/23,
as highlighted below, our underlying results exclude £30 million (2021/22:
£16 million) of timing differences as well as £258 million (2021/22:
£163 million) of major storm costs (as costs exceeded our $100 million
threshold in both 2022/23 and 2021/22). We expect to recover major storm
costs incurred through regulatory mechanisms in the US.
Constant currency: 'Constant Currency Basis' refers to the reporting of the
actual results against the results for the same period last year which, in
respect of any US dollar currency denominated activity, have been translated
using the average US dollar exchange rate for the year ended 31 March 2023,
which was $1.22 to £1.00. The average rate for the year ended 31 March 2022,
was $1.35 to £1.00. Assets and liabilities as at 31 March 2023 have been
retranslated at the closing rate at 31 March 2023 of $1.23 to £1.00. The
closing rate for the reporting date 31 March 2022 was $1.31 to £1.00.
Reconciliation of statutory, adjusted and underlying profits from continuing
operations at actual exchange rates
Year ended 31 March 2023 Statutory Exceptionals and remeasurements Adjusted Timing Major storm costs Underlying
£m £m £m £m £m £m
UK Electricity Transmission 993 2 995 112 - 1,107
UK Electricity Distribution 1,069 22 1,091 139 - 1,230
UK Electricity System Operator 237 1 238 (207) - 31
New England 1,132 (424) 708 39 72 819
New York 541 200 741 (53) 186 874
National Grid Ventures 957 (467) 490 - - 490
Other (50) 81 31 - - 31
Total operating profit 4,879 (585) 4,294 30 258 4,582
Net finance costs (1,460) (54) (1,514) - - (1,514)
Share of post-tax results of joint ventures and associates 171 19 190 - - 190
Profit before tax 3,590 (620) 2,970 30 258 3,258
Tax (876) 241 (635) (4) (70) (709)
Profit after tax 2,714 (379) 2,335 26 188 2,549
Year ended 31 March 2022 Statutory Exceptionals and remeasurements Adjusted Timing Major storm costs Underlying
£m £m £m £m £m £m
UK Electricity Transmission 1,055 12 1,067 85 - 1,152
UK Electricity Distribution 909 - 909 (22) - 887
UK Electricity System Operator 5 2 7 47 - 54
New England 764 (21) 743 32 111 886
New York 1,095 (315) 780 (126) 52 706
National Grid Ventures 283 3 286 - - 286
Other 260 (239) 21 - - 21
Total operating profit 4,371 (558) 3,813 16 163 3,992
Net finance costs (1,022) (59) (1,081) - - (1,081)
Share of post-tax results of joint ventures and associates 92 56 148 - - 148
Profit before tax 3,441 (561) 2,880 16 163 3,059
Tax (1,258) 589 (669) 3 (42) (708)
Profit after tax 2,183 28 2,211 19 121 2,351
Reconciliation of adjusted and underlying earnings from continuing operations
at constant currency
At constant currency
Year ended 31 March 2022 Adjusted Constant currency adjustment Adjusted Timing Major storm costs Underlying
at actual exchange rate
£m £m £m £m £m £m
UK Electricity Transmission 1,067 - 1,067 85 - 1,152
UK Electricity Distribution 909 - 909 (22) - 887
UK Electricity System Operator 7 - 7 47 - 54
New England 743 81 824 35 123 982
New York 780 85 865 (140) 58 783
National Grid Ventures 286 5 291 - - 291
Other 21 1 22 - - 22
Total operating profit 3,813 172 3,985 5 181 4,171
Net finance costs (1,081) (55) (1,136) - - (1,136)
Share of post-tax results of joint ventures and associates 148 4 152 - - 152
Profit before tax 2,880 121 3,001 5 181 3,187
Tax (669) (32) (701) 6 (47) (742)
Profit after tax 2,211 89 2,300 11 134 2,445
Attributable to non-controlling interests (1) - (1) - - (1)
Earnings 2,210 89 2,299 11 134 2,444
Earnings per share (pence) 61.4 2.5 63.9 0.3 3.7 67.9
Earnings per share calculations from continuing operations - at actual
exchange rates
The table below reconciles the profit after tax from continuing operations as
per the previous tables back to the earnings per share from continuing
operations for each of the adjusted profit measures. Earnings per share is
only presented for those adjusted profit measures that are at actual exchange
rates, and not for those at constant currency.
Year ended 31 March 2023 Profit after tax Non-controlling interest Profit after tax attributable to the parent Weighted Earnings
£m £m £m average per share
number of pence
shares
Millions
Statutory 2,714 - 2,714 3,659 74.2
Adjusted 2,335 - 2,335 3,659 63.8
Underlying 2,549 - 2,549 3,659 69.7
Year ended 31 March 2022 Profit after tax Non-controlling interest Profit after tax attributable to the parent Weighted Earnings
£m £m £m average per share
number of pence
shares
Millions
Statutory 2,183 (1) 2,182 3,599 60.6
Adjusted 2,211 (1) 2,210 3,599 61.4
Underlying 2,351 (1) 2,350 3,599 65.3
Reconciliation of total Group statutory operating profit to 'adjusted earnings
excluding timing and major storm costs'
Adjusted Underlying
2023 2022 2023 2022
£m £m £m £m
Continuing operations
Adjusted operating profit 4,294 3,813 4,582 3,992
Adjusted net finance costs (1,514) (1,081) (1,514) (1,081)
Share of post-tax results of joint ventures and associates 190 148 190 148
Adjusted profit before tax 2,970 2,880 3,258 3,059
Adjusted tax (635) (669) (709) (708)
Adjusted profit after tax 2,335 2,211 2,549 2,351
Attributable to non-controlling interests - (1) - (1)
Adjusted earnings from continuing operations 2,335 2,210 2,549 2,350
Exceptional items after tax 619 (320) 619 (320)
Remeasurements after tax (240) 292 (240) 292
Earnings from continuing operations 2,714 2,182 2,928 2,322
Including timing and Excluding timing and
major storm costs major storm costs
2023 2022 2023 2022
£m £m £m £m
Discontinued operations
Adjusted operating profit 714 654 702 734
Adjusted net finance costs (295) (218) (295) (218)
Share of post-tax results of joint ventures and associates - - - -
Adjusted profit before tax 419 436 407 516
Adjusted tax (99) (92) (97) (107)
Adjusted profit after tax 320 344 310 409
Attributable to non-controlling interests - - - -
Adjusted earnings from discontinued operations 320 344 310 409
Exceptional items and gain on disposal after tax 4,811 (163) 4,811 (163)
Remeasurements after tax (48) (10) (48) (10)
Earnings from discontinued operations 5,083 171 5,073 236
Total Group (continuing and discontinued operations)
Adjusted operating profit 5,008 4,467 5,284 4,726
Adjusted net finance costs (1,809) (1,299) (1,809) (1,299)
Share of post-tax results of joint ventures and associates 190 148 190 148
Adjusted profit before tax 3,389 3,316 3,665 3,575
Adjusted tax (734) (761) (806) (815)
Adjusted profit after tax 2,655 2,555 2,859 2,760
Attributable to non-controlling interests - (1) - (1)
Adjusted earnings from continuing and discontinued operations 2,655 2,554 2,859 2,759
Exceptional items after tax 5,430 (483) 5,430 (483)
Remeasurements after tax (288) 282 (288) 282
Total Group earnings from continuing and discontinued operations 7,797 2,353 8,001 2,558
Reconciliation of adjusted EPS to statutory earnings (including and excluding
the impact of timing and major storm costs)
Including timing Excluding timing
and major storm costs and major storm costs
2023 2022 2023 2022
Year ended 31 March pence pence pence pence
Adjusted EPS from continuing operations 63.8 61.4 69.7 65.3
Exceptional items and remeasurements after tax from continuing operations 10.4 (0.8) 10.4 (0.8)
EPS from continuing operations 74.2 60.6 80.1 64.5
Adjusted EPS from discontinued operations 8.7 9.6 8.5 11.4
Exceptional items and remeasurements after tax from discontinued operations 130.2 (4.8) 130.2 (4.8)
EPS from discontinued operations 138.9 4.8 138.7 6.6
Total adjusted EPS from continuing and discontinued operations 72.5 71.0 78.2 76.7
Total exceptional items and remeasurements after tax from continuing 140.6 (5.6) 140.6 (5.6)
and discontinued operations
Total Group EPS from continuing and discontinued operations 213.1 65.4 218.8 71.1
Timing impacts
Under the Group's regulatory frameworks, the majority of the revenues that
National Grid is allowed to collect each year are governed by a regulatory
price control or rate plan. If we collect more than the allowed revenue,
adjustments will be made to future prices to reflect this over-recovery, and
if we collect less than the allowed level of revenue, adjustments will be made
to future prices to reflect the under-recovery. A number of costs in the UK
and the US are pass-through costs (including commodity and energy efficiency
costs in the US) and are fully recoverable from customers. Timing differences
between costs of this type being incurred and their recovery through revenues
are also included in over and under-recoveries. In the UK, timing
differences include an estimation of the difference between revenues earned
under revenue incentive mechanisms and associated revenues collected. UK
timing balances and movements exclude adjustments associated with changes to
controllable cost (totex) allowances or adjustments under the totex incentive
mechanism. Opening balances of over and under-recoveries have been restated
where appropriate to correspond with regulatory filings and calculations. New
England and New York in-year over/(under)-recovery and all New England and New
York balances have been translated using the average exchange rate of
$1.22 for the year ended 31 March 2023.
UK UK UK New New Continuing Discontinued Total
Electricity Transmission Electricity Distribution Electricity System Operator England York £m £m £m
£m £m £m £m £m
1 April 2022 opening balance(1) (95) 22 (129) (343) 656 111 (160) (49)
(Under)/over-recovery (112) (139) 207 (39) 53 (30) 12 (18)
Disposals - - - (17) - (17) 148 131
31 March 2023 closing balance to (recover)/return(2) (207) (117) 78 (399) 709 64 - 64
UK UK UK New New Continuing Discontinued Total
Electricity Transmission Electricity Distribution Electricity System Operator England York £m £m £m
£m £m £m £m £m
1 April 2021 opening balance(1) - - (80) (295) 516 141 (76) 65
(Under)/over-recovery (85) 22 (47) (35) 140 (5) (80) (85)
31 March 2022 closing balance to (recover)/return(2,3) (85) 22 (127) (330) 656 136 (156) (20)
1. Opening balances have been restated to reflect the finalisation of
calculated over/(under)-recoveries in the UK and the US.
2. The closing balance (including discontinued operations) at 31 March 2023
was £59 million over-recovered (translated at the closing rate of $1.23:£1).
31 March 2022 was £45 million under-recovered (translated at the closing
rate of $1.31:£1).
Capital investment
'Capital investment' or 'investment' refer to additions to property, plant and
equipment and intangible assets, and contributions to joint ventures and
associates during the period. We also include the Group's investments by
National Grid Partners during the period, which are classified for IFRS
purposes as non-current financial assets in the Group's consolidated statement
of financial position.
Investments made in previous years to our St William Homes LLP arrangement
were excluded based on the nature of that joint venture arrangement. We
typically contributed property assets to the joint venture in exchange for
cash and accordingly did not consider these transactions to be in the nature
of capital investment.
At actual exchange rates At constant currency
Year ended 31 March 2023 2022 % 2023 2022 %
£m £m change £m £m change
UK Electricity Transmission 1,303 1,195 9 1,303 1,195 9
UK Electricity Distribution 1,220 899 36 1,220 899 36
UK Electricity System Operator 108 108 - 108 108 -
New England(1) 1,677 1,561 7 1,677 1,731 (3)
New York 2,454 1,960 25 2,454 2,174 13
National Grid Ventures 709 452 57 709 456 55
Other 13 10 30 13 10 30
Group capital expenditure - continuing(1) 7,484 6,185 21 7,484 6,573 14
Equity investment, funding contributions and loans to joint ventures 197 461 (57) 197 512 (62)
and associates(2)
Investments in financial assets (National Grid Partners) 59 93 (37) 59 103 (43)
Group capital investment - continuing(1) 7,740 6,739 15 7,740 7,188 8
Discontinued operations 301 261 15 301 261 15
Group capital investment - total 8,041 7,000 15 8,041 7,449 8
1. New England capital investment for 2022/23 includes £54 million of
additions for NECO, which, although part of continuing operations, is also
classified as an 'asset held for sale' under IFRS. As such it is not
included within additions to PP&E and intangibles in note 2. Group capital
expenditure for continuing operations excluding NECO additions for 2022/23 was
£7,431 million (2022: £6,185 million).
2. Excludes £- million (2022: £25 million) equity contribution to the St
William Homes LLP joint venture.
Net debt
See notes 11 and 12 for reconciliation of net debt.
Funds from operations and interest cover
FFO are the cash flows generated by the operations of the Group. Credit rating
metrics, including FFO, are used as indicators of balance sheet strength.
Year ended 31 March 2023 2022¹
£m £m
Interest expense (income statement) 1,680 1,146
Hybrid interest reclassified as dividend (39) (38)
Capitalised interest 249 152
Pensions interest adjustment 11 11
Unwinding of discount on provisions (88) (73)
Pension interest 85 -
Interest charge (discontinued operations) - 218
Adjusted interest expense 1,898 1,416
Net cash inflow from operating activities 6,343 5,490
Interest received on financial instruments 65 40
Interest paid on financial instruments (1,430) (1,053)
Dividends received 190 166
Working capital adjustment (286) (361)
Excess employer pension contributions 116 99
Hybrid interest reclassified as dividend 39 38
Add back accretions 483 241
Difference in net interest expense in income statement to cash flow (395) (177)
Difference in current tax in income statement to cash flow (281) 72
Current tax related to prior periods - (35)
Cash flow from discontinued operations 555 668
Other fair value adjustments - -
Funds from operations (FFO) 5,399 5,188
FFO interest cover ((FFO + adjusted interest expense)/adjusted interest 3.8x 4.7x
expense)
1. Numbers for 2022 reflect the calculations for the total Group as based on
the published accounts for that year.
tained cash flow/adjusted net debt
RCF/adjusted net debt is one of two credit metrics that we monitor in order to
ensure the Group is generating sufficient cash to service its debts,
consistent with maintaining a strong investment-grade credit rating. We
calculate RCF/adjusted net debt applying the methodology used by Moody's,
as this is one of the most constrained calculations of credit worthiness.
The net debt denominator includes adjustments to take account of the equity
component of hybrid debt.
Year ended 31 March 2023 2022(1)
£m £m
Funds from operations (FFO) 5,399 5,188
Hybrid interest reclassified as dividend (39) (38)
Ordinary dividends paid to shareholders (1,607) (922)
RCF 3,753 4,228
Borrowings 42,985 45,465
Less:
50% hybrid debt (1,049) (1,027)
Cash and cash equivalents (126) (190)
Financial and other investments (1,764) (2,292)
Underfunded pension obligations 292 326
Borrowings in held for sale - 5,234
Adjusted net debt (includes pension deficit) 40,338 47,516
RCF/adjusted net debt 9.3% 8.9%
1. Numbers for 2022 reflect the calculations for the total Group as based on
the published accounts for that year.
Regulatory performance measures
Regulated financial performance - UK
Regulatory financial performance is a pre-interest and tax measure, starting
at segmental operating profit and making adjustments (such as the elimination
of all pass-through items included in revenue allowances and timing) to
approximate regulatory profit for the UK regulated activities. This measure
provides a bridge for investors between a well-understood and comparable IFRS
starting point and through the key adjustments required to approximate
regulatory profit. This measure also provides the foundation to calculate
Group RoE.
Under the UK RIIO regulatory arrangements the Company is incentivised to
deliver efficiencies against cost targets set by the regulator. In total,
these targets are set in terms of a regulatory definition of combined total
operating and capital expenditure, also termed 'totex'. The definition of
totex differs from the total combined regulated controllable operating costs
and regulated capital expenditure as reported in this statement according to
IFRS accounting principles. Key differences are capitalised interest, capital
contributions, exceptional costs, costs covered by other regulatory
arrangements and unregulated costs.
For the reasons noted above, the table below shows the principal differences
between the IFRS operating profit and the regulated financial performance, but
is not a formal reconciliation to an equivalent IFRS measure.
UK Electricity Transmission
Year ended 31 March 2023 2022
£m £m
Adjusted operating profit 995 1,067
Movement in regulatory 'IOUs' 107 82
Deferred taxation adjustment 73 26
RAV indexation - 2% CPIH long-run inflation 309 287
Regulatory vs IFRS depreciation difference (536) (433)
Fast money/other 37 (44)
Pensions (44) (42)
Performance RAV created 68 75
Regulated financial performance 1,009 1,018
UK Electricity Distribution
Year ended 31 March 2023 2022
£m £m
Adjusted operating profit 1,091 909
Less non-regulated profits (46) (51)
Movement in regulatory 'IOUs' 88 (42)
Deferred taxation adjustment 65 28
RAV indexation - 3% RPI long-run inflation 277 198
Regulatory vs IFRS depreciation difference (506) (358)
Fast money/other 11 17
Pensions (157) (111)
Performance RAV created 22 9
Regulated financial performance 845 599
UK Electricity System Operator
Year ended 31 March 2023 2022
£m £m
Adjusted operating profit 238 7
Movement in regulatory 'IOUs' (223) 31
Deferred taxation adjustment (4) (4)
RAV indexation - 2% CPIH long-run inflation 7 5
Regulatory vs IFRS depreciation difference 32 27
Fast money/other (2) (24)
Pensions (11) (10)
Performance RAV created - -
Regulated financial performance 37 32
UK Gas Transmission
Year ended 31 March 2023 2022
£m £m
Adjusted operating profit 714 654
Less non-regulated profits (129) (150)
Movement in regulatory 'IOUs' (24) 72
Deferred taxation adjustment 28 13
RAV indexation - 2% CPIH long-run inflation 109 126
Regulatory vs IFRS depreciation difference (331) (281)
Fast money/other (1) (4)
Pensions (9) -
Performance RAV created 5 3
Regulated financial performance 362 433
Regulated financial performance - US
New England
Year ended 31 March 2023 2022
£m £m
Adjusted operating profit 708 743
Major storm costs 72 111
Timing 39 32
Depreciation adjustment(1) (18) (67)
US GAAP pension adjustment 34 11
Regulated financial performance 835 830
1. The depreciation adjustment relates to the impact of the cessation of
depreciation for NECO under IFRS following reclassification as held for sale.
New York
Year ended 31 March 2023 2022
£m £m
Adjusted operating profit 741 780
Provision for bad and doubtful debts (COVID-19), net of recoveries¹ (21) -
Major storm costs 186 52
Timing (53) (126)
US GAAP pension adjustment 11 66
Regulated financial performance 864 772
1. New York financial performance includes an adjustment reflecting the
impact of our in-year recovery in respect of COVID-19-related provision for
bad and doubtful debts.
Total regulated financial performance
Year ended 31 March 2023 2022
£m £m
UK Electricity Transmission 1,009 1,018
UK Electricity Distribution 845 599
UK Electricity System Operator 37 32
UK Gas Transmission 362 433
New England 835 830
New York 864 772
Total regulated financial performance 3,952 3,684
New England and New York timing, major storms costs and movement in UK
regulatory 'IOUs' - Revenue related to performance in one year may
be recovered in later years. Where revenue received or receivable exceeds the
maximum amount permitted by our regulatory agreement, adjustments will be made
to future prices to reflect this over-recovery. No liability is recognised
under IFRS, as such an adjustment to future prices relates to the provision
of future services. Similarly, no asset is recognised under IFRS where a
regulatory agreement permits adjustments to be made to future prices in
respect of an under-recovery. In the UK, this is calculated as the movement in
other regulated assets and liabilities.
Performance RAV - UK performance efficiencies are in part remunerated by the
creation of additional RAV which is expected to result in future earnings
under regulatory arrangements. This is calculated as in-year totex
outperformance multiplied by the appropriate regulatory capitalisation ratio
and multiplied by the retained company incentive sharing ratio.
Pension adjustment - Cash payments against pension deficits in the UK are
recoverable under regulatory contracts. In US regulated operations, US GAAP
pension charges are generally recoverable through rates. Revenue recoveries
are recognised under IFRS but payments are not charged against IFRS operating
profits in the year. In the UK this is calculated as cash payments against
the regulatory proportion of pension deficits in the UK regulated business,
whereas in the US it is the difference between IFRS and US GAAP pension
charges.
2% CPIH and 3% RPI RAV indexation - Future UK revenues are expected to be set
using an asset base adjusted for inflation. This is calculated as UK RAV
multiplied by 2% long-run CPIH inflation assumption under RIIO-2 and a 3%
long-run RPI inflation assumption under RIIO-1.
UK deferred taxation adjustment - Future UK revenues are expected to recover
cash taxation cost including the unwinding of deferred taxation balances
created in the current year. This is the difference between: (1) IFRS
underlying EBITDA less other regulatory adjustments; and (2) IFRS underlying
EBITDA less other regulatory adjustments less current taxation (adjusted for
interest tax shield) then grossed up at full UK statutory tax rate.
Regulatory depreciation - US and UK regulated revenues include allowance for a
return of regulatory capital in accordance with regulatory assumed asset
lives. This return does not form part of regulatory profit.
Fast/slow money adjustment - The regulatory remuneration of costs incurred is
split between in-year revenue allowances and the creation of additional RAV.
This does not align with the classification of costs as operating costs and
fixed asset additions under IFRS accounting principles. This is calculated as
the difference between IFRS classification of costs as operating costs or
fixed asset additions and the regulatory classification.
Regulated asset base
The regulated asset base is a regulatory construct, based on predetermined
principles not based on IFRS. It effectively represents the invested capital
on which we are authorised to earn a cash return. By investing efficiently in
our networks, we add to our regulated asset base over the long term, and
this in turn contributes to delivering shareholder value. Our regulated
asset base comprises our regulatory asset value in the UK plus our rate base
in the US.
Maintaining efficient investment in our regulated asset base ensures we are
well positioned to provide consistently high levels of service to our
customers and increases our revenue allowances in future years. While we have
no specific target, our overall aim is to achieve between 6% and 8% growth in
regulated asset base each year through continued investment in our networks in
both the UK and US.
In the UK, the way in which our transactions impact RAV is driven by
principles set out by Ofgem. In a number of key areas these principles differ
from the requirements of IFRS, including areas such as additions and the
basis for depreciation. Further, our UK RAV is adjusted annually for
inflation. RAV in each of our retained UK businesses has evolved over the
period since privatisation in 1990 and, as a result, historical differences
between the initial determination of RAV and balances reported under UK GAAP
at that time still persist. In the case of WPD, differences arise as the
result of acquisition fair value adjustments (where PP&E at acquisition
has been valued above RAV). Due to the above, substantial differences exist in
the measurement bases between RAV and an IFRS balance metric, and therefore
it is not possible to provide a meaningful reconciliation between the two.
In the US, rate base is a regulatory measure determined for each of our main
US operating companies. It represents the value of property and other assets
or liabilities on which we are permitted to earn a rate of return, as set out
by the regulatory authorities for each jurisdiction. The calculations
are based on the applicable regulatory agreements for each jurisdiction and
include the allowable elements of assets and liabilities from our US
companies. For this reason, it is not practical to provide a meaningful
reconciliation from the US rate base to an equivalent IFRS measure. However,
we include the calculation below.
'Total regulated and other balances' for our UK regulated businesses include
the under- or over-recovery of allowances that those businesses target to
collect in any year, which are based on the regulator's forecasts for that
year. Under the UK price control arrangements, revenues will be adjusted in
future years to take account of actual levels of collected revenue, costs and
outputs delivered when they differ from those regulatory forecasts. In the
US, other regulatory assets and liabilities include regulatory assets and
liabilities which are not included in the definition of rate base, including
working capital where appropriate.
'Total regulated and other balances' for NGV and other businesses includes
assets and liabilities as measured under IFRS, but excludes certain assets
and liabilities such as pensions, tax, net debt and goodwill. This included a
£101 million deferred balance for separation and transaction costs incurred
in 2021/22 related to the sale of NECO and UK Gas Transmission, which has
been released to offset against the proceeds received on disposal of these
businesses in 2022/23.
RAV, rate base or other business balances Total regulated
and other balances
As at 31 March 2023 2022¹ 2023(2,3) 2022(1,2,3)
(£m at constant currency)
UK Electricity Transmission 17,072 15,471 16,912 15,242
UK Electricity Distribution 10,773 9,248 10,756 9,299
UK Electricity System Operator 360 297 282 442
UK Gas Transmission (excluding metering) - 6,561 - 6,669
New England 7,907 9,860 10,080 11,774
New York 15,131 13,768 16,184 14,646
Total regulated 51,243 55,205 54,214 58,072
National Grid Ventures and other businesses (including discontinued metering 6,604 5,374 6,712 4,566
business in 2022)
Total Group regulated and other balances 57,847 60,579 60,926 62,638
1. Figures relating to prior periods have, where appropriate, been
re-presented at constant currency, for segmental reorganisation, opening
balance adjustments following the completion of the UK regulatory reporting
pack process and finalisation of US balances.
2. Includes totex-related regulatory IOUs of £502 million (2022: £271
million), over-recovered timing balances of £246 million (2022: £346 million
under-recovered) and under-recovered legacy balances related to previous price
controls of £0 million (2022: £9 million).
3. Includes assets for construction work-in-progress of £2,319 million
(2022: £2,279 million), other regulatory assets related to timing and other
cost deferrals of £771 million (2022: £809 million) and net working
capital liabilities of £136 million (2022: £295 million).
New England and New York rate base and other total regulated and other
balances for 31 March 2022 have been re-presented in the table above
at constant currency. At actual currency the values were £11.1 billion and
£13.7 billion respectively.
Group return on equity (RoE)
Group RoE provides investors with a view of the performance of the Group as a
whole compared with the amounts invested by the Group in assets attributable
to equity shareholders. It is the ratio of our regulatory financial
performance to our measure of equity investment in assets. It therefore
reflects the regulated activities as well as the contribution from our
non-regulated businesses together with joint ventures and non-controlling
interests.
We use Group RoE to measure our performance in generating value for our
shareholders, and targets for Group RoE are included in the incentive
mechanisms for executive remuneration within both the APP and LTPP schemes.
Group RoE is underpinned by our regulated asset base. For the reasons noted
above, no reconciliation to IFRS has been presented, as we do not believe it
would be practical. However, we do include the calculations below.
Calculation: Regulatory financial performance including a long-run inflation
assumption (3% RPI for RIIO-1; 2% CPIH for RIIO-2), less adjusted interest
and adjusted taxation divided by equity investment in assets:
• adjusted interest removes accretions above long-run inflation rates,
interest on pensions, capitalised interest in regulated operations and unwind
of discount rate on provisions;
• adjusted taxation adjusts the Group taxation charge for differences
between IFRS profit before tax and regulated financial performance less
adjusted interest; and
• equity investment in assets is calculated as the total opening UK
regulatory asset value, the total opening US rate base plus goodwill plus
opening net book value of National Grid Ventures and other activities
(excluding certain amounts such as pensions, tax and commodities) and our
share of joint ventures and associates, minus opening net debt as reported
under IFRS restated to the weighted average sterling-dollar exchange rate for
the year.
Group RoE
Year ended 31 March 2023 2022
£m £m
Regulated financial performance 3,952 3,684
Operating profit of other activities - continuing operations 595 330
Operating profit of other activities - discontinued operations 113 150
Group financial performance 4,660 4,164
Share of post-tax results of joint ventures and associates(1) 202 148
Non-controlling interests - (1)
Adjusted total Group interest charge (including discontinued) (1,546) (1,191)
Total Group tax charge (including discontinued) (734) (761)
Tax on adjustments 7 43
Total Group financial performance after interest and tax 2,589 2,402
Opening rate base/RAV 55,558 41,043
Opening other balances 5,410 4,864
Opening goodwill 12,253 5,266
Opening capital employed 73,221 51,173
Opening net debt (49,691) (30,072)
Opening equity 23,530 21,101
Group RoE 11.0% 11.4%
1. 2023 Includes £12 million in respect of the Group's 40% retained
minority interest in National Gas Transmission.
UK and US regulated RoE
Year ended 31 March Regulatory Debt: Achieved Return Base or Allowed
Equity assumption on Equity Return on Equity
2023 2022 2023 2022
% % % %
UK Electricity Transmission 55/45 7.5 7.7 6.3 6.3
UK Electricity Distribution 65/35 13.2 13.6 9.6 9.6
UK Gas Transmission 60/40 7.8 7.8 6.6 6.6
New England Avg. 45/55 8.3 8.3 9.9 9.8
New York Avg. 52/48 8.6 8.8 8.9 8.9
UK businesses' regulated RoEs
UK regulated businesses' RoEs are a measure of how the businesses are
performing against the assumptions used by our UK regulator. These returns are
calculated using the assumption that the businesses are financed in line with
the regulatory adjudicated capital structure, at the cost of debt assumed by
the regulator, and that inflation is equal to a long-run assumption of 3% RPI
under RIIO-1 and 2% CPIH under RIIO-2. They are calculated by dividing
elements of out/under-performance versus the regulatory contract (i.e.
regulated financial performance disclosed above) by the average equity RAV in
line with the regulatory assumed capital structure and adding to the base
allowed RoE.
These are important measures of UK regulated businesses' performance, and our
operational strategy continues to focus on these metrics. These measures can
be used to determine how we are performing under the RIIO framework and also
helps investors to compare our performance with similarly regulated
UK entities. Reflecting the importance of these metrics, they are also key
components of the APP scheme.
The respective businesses' UK RoEs are underpinned by their RAVs. For the
reasons noted above, no reconciliation to IFRS has been presented,
as we do not believe it would be practical.
US businesses' regulated RoEs
US regulated businesses' RoEs are a measure of how the businesses are
performing against the assumptions used by the US regulators.
This US operational return measure is calculated using the assumption that
the businesses are financed in line with the regulatory adjudicated
capital structure and allowed cost of debt. The returns are divided by the
average rate base (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 adjudicated
capital structure.
These are important measures of our New England and New York regulated
businesses' performance, and our operational strategy continues to focus
on these metrics. This measure can be used to determine how we are performing
and also helps investors compare our performance with similarly regulated US
entities. Reflecting the importance of these metrics, they are also key
components of the APP scheme.
The New England and New York businesses' returns are based on a calculation
which gives proportionately more weighting to those businesses which have a
greater rate base. For the reasons noted above, no reconciliations to IFRS for
the RoE measures have been presented, as we do not believe it would be
practical to reconcile our IFRS balance sheet to the equity base.
The table below shows the principal differences between the IFRS result of the
New England and New York segments, and the 'returns' used to derive their
respective US jurisdictional RoEs. In outlining these differences, we also
include the aggregated business results under US GAAP for New England and New
York jurisdictions.
In respect of 2021/22, this measure is the aggregate operating profit of our
US OpCo entities' publicly available financial statements prepared under US
GAAP for the New England and New York jurisdictions respectively. For 2022/23,
this measure represents our current estimate, since local financial
statements have yet to be prepared.
2023 2022
£m £m
Underlying IFRS operating profit for New England segment 819 886
Underlying IFRS operating profit for New York segment 874 706
Weighted average £/$ exchange rate $1.216 $1.348
New England New York
2023 2022 2023 2022
$m $m $m $m
Underlying IFRS operating profit for US segments 995 1,194 1,060 951
Adjustments to convert to US GAAP as applied in our US OpCo entities
Adjustment in respect of customer contributions (26) (35) (34) (30)
Pension accounting differences(1) 39 14 12 88
Environmental charges recorded under US GAAP (3) 3 58 42
Storm costs and recoveries recorded under US GAAP (54) (75) (39) (8)
Removal of partial year Rhode Island in year of disposal (65) - - -
Other regulatory deferrals, amortisation and other items (217) (253) 86 46
Results for US regulated OpCo entities, aggregated under US GAAP(2) 669 848 1,143 1,089
Adjustments to determine regulatory operating profit used in US RoE
Adjustment for COVID-19-related provision for bad and doubtful debts(3) - - (171) -
Net other 113 71 171 85
Regulatory operating profit 782 919 1,143 1,174
Pensions(1) (17) 7 219 107
Regulatory interest charge (176) (227) (339) (316)
Regulatory tax charge (159) (179) (279) (263)
Regulatory earnings used to determine US RoE 430 520 744 702
1. Following a change in US GAAP accounting rules, an element of the
pensions charge is reported outside operating profit with effect from 2019.
2. Based on US GAAP accounting policies as applied by our US regulated OpCo
entities.
3. US RoE included an adjustment reflecting our expectation for future
recovery of COVID-19-related bad and doubtful debt costs in 2020/21. The
adjustment is being unwound as regulated assets are recognised in respect of
the same debts in our US GAAP accounts.
New England New York
2023 2022 2023 2022
$m $m $m $m
US equity base (average for the year) 5,155 6,253 8,670 7,946
US jurisdiction RoE 8.3% 8.3% 8.6% 8.8%
Asset growth, Value Added, Value Added per share and Value Growth
To help readers' assessment of the financial position of the Group, the table
below shows an aggregated position for the Group, as viewed from a regulatory
perspective. The asset growth and Value Added measures included in the
table below are calculated in part from financial information used to derive
measures sent to and used by our regulators in the UK and US, and accordingly
inform certain of the Group's regulatory performance measures, but are not
derived from, and cannot be reconciled to, IFRS. These alternative
performance measures include regulatory assets and liabilities and certain
IFRS assets and liabilities of businesses that were classified as held for
sale under IFRS 5.
Asset growth is the annual percentage increase in our RAV and rate base and
other business balances (including the assets of NGV and NG Partners)
calculated at constant currency.
Value Added is a measure that reflects the value to shareholders of our cash
dividend and the growth in National Grid's regulated and non-regulated assets
(as measured in our regulated asset base, for regulated entities), and
corresponding growth in net debt. It is a key metric used to measure our
performance and underpins our approach to sustainable decision making and
long-term management incentive arrangements.
Value Added is derived using our regulated asset base and, as such, it is not
practical to provide a meaningful reconciliation from this measure to an
equivalent IFRS measure due to the reasons set out for our regulated asset
base. The calculation is set out on page 94.
Value Added per share is calculated by dividing Value Added by the weighted
average number of shares (3,659 million) set out in note 7.
Value Growth of 12.4% (2022: 12.8%) is derived from Value Added by adjusting
Value Added to normalise for our estimate of the long-run inflation rate
(3% RPI for RIIO-1 and our RPI-linked net debt; 2% CPIH for RIIO-2). In 2023,
the numerator for Value Growth was £2,902 million (2022: £2,730 million).
The denominator is Group equity as used in the Group RoE calculation, adjusted
for foreign exchange movements.
The tables below include related balances and net debt up to the dates of
disposal for NECO and UK Gas Transmission and Metering, despite
being reclassified as held for sale under IFRS.
2022/23
£m constant currency 31 March 2023 Disposal 31 March 2022 Value Added Change
of NECO
and UK Gas Transmission(1)
UK RAV 28,205 (6,989) 31,577 3,617 11%
US rate base 23,038 (2,476) 23,628 1,886 8%
Total RAV and rate base 51,243 (9,465) 55,205 5,503 10%
National Grid Ventures and other 6,604 (143) 5,374 1,373 26%
Total assets (used to calculate asset growth) 57,847 (9,608) 60,579 6,876 11%
UK other regulated balances(2) (255) (141) 75 (189)
US other regulated balances(3) 3,226 (250) 2,792 684
Other balances 108 1,239 (808) (323)
Total assets and other balances 60,926 (8,760) 62,638 7,048
Cash dividends 1,607
Adjusted net debt movement(1) (3,848)
Value Added 4,807
1. The disposal of NECO on 25 May 2022 and UK Gas Transmission on 31 January
2023 resulted in an increase in assets which has been excluded from the total
change in the year used to calculate asset growth and Value Added for
2022/23. The decrease in RAV and rate base and other regulated balances
relating to the businesses disposed along with the net debt disposed and
cash proceeds received (plus associated transaction costs) are excluded from
the total adjusted net debt movement in the year used to calculate
asset growth and Value Added.
2. Includes totex-related regulatory IOUs of £502 million, under-recovered
timing balances of £246 million and under‑recovered legacy balances related
to previous price controls of £- million.
3. Includes assets for construction work-in-progress of £2,319 million,
other regulatory assets related to timing and other cost deferrals of £771
million and net working capital liabilities of £136 million.
2021/22
£m constant currency 31 March 2022 Acquisition 31 March 2021 Value Added Change
of WPD(1)
UK RAV 31,593 8,476 20,876 2,241 11%
US rate base 22,178 - 20,687 1,491 7%
Total RAV and rate base 53,771 8,476 41,563 3,732 9%
National Grid Ventures and other 5,226 - 4,920 306 6%
Total assets (used to calculate asset growth) 58,997 8,476 46,483 4,038 9%
UK other regulated balances(2) 84 230 (140) (6)
US other regulated balances(3) 2,621 - 1,995 626
Other balances (878) (168) (336) (374)
Total assets and other balances 60,824 8,538 48,002 4,284
Cash dividends 922
Adjusted net debt movement(1) (1,373)
Value Added 3,833
1. The acquisition of WPD on 14 June 2021 resulted in an increase in assets
which has been excluded from the total change in the year used to calculate
asset growth and Value Added for 2021/22. The increase in goodwill and
intangible licence recognised on the acquisition of WPD and the associated
fair value of net debt acquired and cash proceeds (along with associated
transaction costs) are excluded from the total adjusted net debt movement in
the year used to calculate asset growth and Value Added.
2. Includes totex-related regulatory IOUs of £271 million, under-recovered
timing balances of £346 million and under‑recovered legacy balances related
to previous price controls of £9 million.
3. Includes assets for construction work-in-progress of £2,139 million,
other regulatory assets related to timing and other cost deferrals of £759
million and net working capital liabilities of £277 million.
Figures relating to prior periods have, where appropriate, been re-presented
at constant currency, for opening balance adjustments following the completion
of the UK regulatory reporting pack process and finalisation of US balances.
Regulatory gearing
Regulatory gearing is a measure of how much of our investment in RAV and rate
base and other elements of our invested capital (including our investments in
NGV, UK property and other assets and US other assets) is funded through debt.
Comparative amounts as at 31 March 2022 are presented at historical exchange
rates and have not been restated for opening balance adjustments.
As at 31 March 2023 2022
£m £m
UK RAV 28,205 31,593
US rate base 23,038 22,178
Other invested capital included in gearing calculation 6,604 5,226
Total assets included in gearing calculation 57,847 58,997
Net debt (including 100% of hybrid debt and held for sale) (40,973) (48,043) change
Group gearing (based on 100% of net debt including held for sale) 71% 81% -10% pts
Group gearing (excluding 50% of hybrid debt from net debt) including held for 69% 80% -10% pts
sale
1 Employee and contractor lost time injury frequency rate per 100,000 hours
worked.
2 UK Transmission RAV indexed at CPIH in RIIO-T2; UK Electricity
Distribution RAV indexed at RPI during RIIO-ED1.
3 Prior to completion, the Group received a £225 million dividend from UK
Gas Transmission.
4 Our full Policy Statement can be found here:
https://www.nationalgrid.com/document/149496/download
5 Diverse employees are defined as females or those that identify themselves
as being LGBTQ+, having a disability or being part of an ethnic minority
group.
6 Full-year underlying EPS (2020/21) as reported on 20 May 2021.
7 With our 40% stake in National Gas Transmission accounted for as held for
sale, it is not included in our underlying EPS guidance for 2023/24.
8 In 2018/19 prices.
9 For calendar year 2022.
10 In accordance with IFRS 16 'Leases' when we sign a lease we are required
to recognise a lease liability on our balance sheet that represents the net
present value of future cash flows related to the lease. On day 1 we also
recognise a corresponding 'right of use' asset which is recorded within our
capital expenditure and is depreciated over the life of the lease.
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