REG - National Grid PLC - National Grid 2021/22 Half Year Results Statement
18/11/2021 07:00
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RNS Number : 7511S National Grid PLC 18 November 2021
London | 18 November 2021:
National Grid, a leading energy
transmission and distribution company,
today announces its Half Year results.
Report for the period ended
30 September 2021
John Pettigrew
Chief Executive
"I'm very pleased with the Group's financial, strategic and regulatory
progress in the last six months. In the UK, we have made a strong start to the
new RIIO-T2 period in electricity transmission, and we are preparing our
business plan submission for WPD. In the US, we have completed a full refresh
of rates across our distribution businesses. In National Grid Ventures, we
commissioned the North Sea Link, our new interconnector to Norway.
Whilst delivering this strong performance, we have completed our acquisition
of WPD, launched the process to sell a majority stake in National Grid Gas and
the sale of our Rhode Island business is on track to be finalised by the end
of our financial year, progressing our strategic pivot towards higher growth
electricity, all made possible by the commitment of our people.
Looking ahead, the new organisational structure that we have implemented,
alongside a major cost efficiency programme, will ensure we are in a strong
position to capitalise on the significant growth opportunities ahead. Our
focus will be on delivering critical and green investment to enable the
decarbonisation of power, transport and heat, and lead a clean, fair and
affordable energy transition across the jurisdictions we serve."
Financial Summary
Six months ended 30 September: continuing operations(1)
Statutory results Underlying(2)
Unaudited 2021 2020 % change 2021 2020 % change
Operating profit (£m) 1,492 960 55 % 1,407 959 47 %
Profit before tax (£m) 1,083 583 86 % 990 566 75 %
Earnings per share (p) 10.5 14.0 (25) % 22.8 13.7 66 %
Dividend per share (p) 17.21 17.00 1 % 17.21 17.00 1 %
Capital investment (£m) 2,840 2,465 15 % 2,840 2,465 15 %
1. Excluding UK Gas Transmission which is held as a discontinued
operation. Comparative figures have been re-presented accordingly.
2. 'Underlying' represents statutory results from continuing operations,
but excluding exceptional items, remeasurements and timing. Further detail and
definitions for all alternative performance measures are provided on page 56.
Highlights
• Strong financial delivery
◦ Underlying operating profit up 47% to £1.4bn. Excluding the first
time contribution of £257m from Western Power Distribution (WPD), underlying
operating profit was up 20% driven by the first six months of operations at
IFA2, reduced impact from COVID-19 compared to the prior year, and higher UK
Electricity Transmission net revenue as we accelerate our investment for the
energy transition at the start of RIIO-T2.
◦ Statutory operating profit up 55% to £1.5bn, including £350m of
commodity mark-to-market gains.
◦ Underlying EPS for continuing operations up 66% to 22.8p reflecting
improved performance, acquisition of WPD and non-treasury interest benefits in
the first half.
◦ Statutory EPS of 10.5p, down 25% as a result of the remeasurement of
deferred tax balances at the new UK rate of 25% which comes into effect from 1
April 2023.
◦ Interim dividend 17.21p/share in line with policy (17.00p/share in
the prior period).
• Significant capital investment
◦ Capital investment of £2.8bn for continuing operations, up 15%
principally through WPD capex, and higher UK Electricity Transmission,
partially offset by lower capital investment in NGV as our £350m IFA2
interconnector became operational.
◦ Work completed on the 1,400MW North Sea Link (NSL) to Norway,
following our £620m investment.
Highlights continued
• Strategic pivot towards higher growth electricity
◦ Completed WPD acquisition.
◦ Rhode Island sale and majority stake sale in National Grid Gas on
track.
• Good regulatory progress
◦ Finalised our CMA appeal process for RIIO-T2, which saw the removal
of the outperformance wedge.
◦ Targeting to deliver 100 basis points of operational outperformance
on average through the five-year period in UK Electricity Transmission.
◦ New rate agreements for KEDNY-KEDLI and Massachusetts Gas. Joint
Proposal for Niagara Mohawk submitted, expecting approval by end of the
calendar year.
• New organisational structure and efficiency programme
◦ Implemented a new operating model with seven business units across the
Group as we look to deliver the financial, customer and regulatory outcomes
that will be required on the journey to net zero.
◦ New cost efficiency programme to save at least £400m per annum
across the Group by the end of 3 years.
• Delivering on our responsibility commitments
◦ Published our first Responsible Business Report, measuring the
Group's progress against ESG targets.
• Updating full year outlook
◦ Given the strong start to the year, we now expect to deliver full
year underlying EPS significantly above the top end of our 5 - 7% range. This
is primarily driven by early commissioning of our new NSL interconnector,
coupled with higher auction prices across our interconnector portfolio, which
is expected to deliver around £100 million higher operating profit.
Operational Key Performance Indicators(1)
As at and for the six months ended 30 September
(£ million) 2021 2020(2) change %
Statutory operating profit:
UK Electricity Transmission 541 509 6 %
UK Electricity Distribution 281 - n/m
UK Electricity System Operator (ESO) 50 (32) n/m
New England 252 192 31 %
New York 321 239 34 %
NGV and Other 47 52 (10) %
Total statutory operating profit (continuing) 1,492 960 55 %
Underlying operating profit:
UK Electricity Transmission 552 487 13 %
UK Electricity Distribution 257 - n/m
UK Electricity System Operator (ESO) 49 37 32 %
New England 247 197 25 %
New York 141 186 (24) %
NGV and Other 161 52 210 %
Total underlying operating profit (continuing) 1,407 959 47 %
Capital investment:
UK Electricity Transmission 587 501 17 %
UK Electricity Distribution 315 - n/m
UK Electricity System Operator (ESO) 65 47 38 %
New England 700 773 (9) %
New York 851 847 - %
NGV and Other 322 297 8 %
Total capital investment (continuing) 2,840 2,465 15 %
1. 'Underlying' represents statutory results from continuing operations,
but excluding exceptional items, remeasurements and timing. Further detail and
definitions for all alternative performance measures are provided on page 56.
2. Comparative amounts have been re-presented to reflect the
classification of the UK Gas Transmission business as a discontinued operation
and the new operating segments.
Contacts
Investor Relations
Nick Ashworth +44 (0) 7814 355 590
Angela Broad +44 (0) 7825 351 918
Jon Clay +44 (0) 7899 928 247
James Flanagan +44 (0) 7970 778 952
Caroline Dawson +44 (0) 7789 273 241
Peter Kennedy +44 (0) 7966 200 094
Media
Molly Neal +44 (0) 7583 102 727
Surinder Sian +44 (0) 7812 485 153
Teneo
Charles Armitstead +44 (0) 7703 330 269
Results presentation webcast
An audio webcast with management will be held at 09:15 (GMT) today. Please use
this link to join via a laptop, smartphone or tablet:
https://www.nationalgridinvestorday.com/page/1899669/results
(https://www.nationalgridinvestorday.com/page/1899669/results) .
A replay of the webcast will be available soon after the event at the same
link.
Use of Alternative Performance Measures
Throughout this release, we use a number of alternative (or non-IFRS) and
regulatory performance measures to provide users with a clearer picture of the
regulated performance of the business. This is in line with how management
monitor and manage the business day-to-day. Further detail and definitions for
all alternative performance measures are provided on page 56.
STRATEGIC OVERVIEW
A good performance in the first half
National Grid has reported good operational progress in both the UK and US for
the first half of the year.
Safety continues to be a top priority across the Group, and we remain focused
on ensuring the public, our employees and contractors are safe. During the
period ended 30 September, our businesses have delivered a lost time injury
frequency rate (LTIFR) at a level of 0.11, in line with the prior period. On
reliability, our performance has remained good across our businesses despite
the storm activity in the North East US in the first half of the year.
Half-year financial performance
Underlying operating profit at constant currency increased by 52% versus the
prior period to £1,407 million. This was principally driven by first time
inclusion of WPD and IFA2, higher UK Electricity Transmission net revenue to
fund higher investment levels, and gains on investments in National Grid
Partners which invests in companies innovating to accelerate the energy
transition.
Underlying operating profit At actual At constant currency
- continuing operations exchange rates
Six months ended 30 September(1)
(£ million) 2021 2020(2) % change 2020(2) % change
UK Electricity Transmission 552 487 13 % 487 13 %
UK Electricity Distribution 257 - n/m - n/m
UK Electricity System Operator (ESO) 49 37 32 % 37 32 %
New England 247 197 25 % 180 37 %
New York 141 186 (24) % 170 (17) %
NGV and other activities 161 52 210 % 50 222 %
Total underlying operating profit 1,407 959 47 % 924 52 %
1. 'Underlying results' and a number of other terms and performance
measures are not defined within accounting standards and may be applied
differently by other organisations. For clarity, we have provided definitions
of these terms and, where relevant, reconciliations on pages 56 to 59.
2. Comparative amounts have been re-presented to reflect the
classification of the UK Gas Transmission business as a discontinued operation
and the new operating segments.
Capital investment (continuing operations) increased by £520 million at
constant currency to £2,840 million. This was driven principally by capital
investment at our new UK Electricity Distribution business, higher expenditure
in UK Electricity Transmission on the London Power Tunnels 2 (LPT2) and
Hinkley-Seabank connection projects, normalised levels of New York capex
following some COVID-19 restrictions in the first half of the prior year,
partially offset by lower expenditure in NGV on IFA2 and the North Sea Link
(NSL) as both interconnectors became operational.
Solid progress on delivering our strategy
National Grid has continued to deliver solid progress on our strategy over the
half year. Across the Group, we have completed the purchase of the UK's
largest electricity distribution business, WPD, from PPL; made good progress
with the sale of our Rhode Island business to PPL, which is expected to
complete by the end of our financial year; launched the process for the sale
of a majority stake in National Grid Gas (NGG) which includes the UK Gas
Transmission and legacy metering business, and commissioned North Sea Link
(NSL), the new 1,400 MW interconnector to Norway. However, we experienced a
serious fire at our IFA convertor station in Sellindge, Kent, which caused
significant damage to infrastructure on site. Following a detailed assessment
on the 1,000MW of capacity that is offline due to fire damage, we are carrying
out extensive work to safely return it to service.
We have made good progress on our regulatory strategy. During the period, we
finalised the Competition and Markets Authority (CMA) appeal process for
RIIO-T2 and, although we were disappointed that the CMA did not find in favour
of our arguments on the cost of equity, we were pleased that the
outperformance wedge has been removed. In the US, we reached a new multi-year
rate settlement in our Downstate New York gas distribution businesses, KEDNY
and KEDLI. In addition, we filed a Joint Proposal for new rates for our
Upstate New York gas and electric distribution business, Niagara Mohawk (NIMO)
which we expect the New York Public Service Commission (PSC) to approve before
the end of the calendar year. We also received a rate order for our
Massachusetts Gas business at the end of September, which means we have now
completed a full refresh of all rates across our US distribution businesses.
We have also moved to a new organisational structure to prepare the Group to
deliver the opportunities that net zero and the energy transition will bring.
To do this, we have removed the regional layers and have adopted a business
model where seven business units 1 have accountability for delivering the
innovation and efficiencies specific to their areas. This means that (a) the
US business is now replaced as New York and New England, (b) our two UK
networks - UK Electricity Transmission and UK Electricity Distribution (WPD) -
are structured along regulatory lines, (c) all our non-networks businesses are
now grouped under National Grid Ventures, and (d) the UK ESO continues as a
legally separate business unit.
All business units are now run as end-to-end enterprises with financial
responsibility with their executive teams, increasing the focus on efficient
operational delivery. This increased focus has allowed us to launch a new cost
efficiency programme which will target at least £400 million savings per
annum across the Group 2 by the end of 3 years. This will deliver a flat
controllable cost base even whilst our regulated assets continue to grow by
over 20% over the same period. As we deliver the new organisational structure,
the cost savings programme and the separation of our Rhode Island and UK Gas
Transmission businesses, we expect to incur future one-off costs of around
£400 million.
COVID-19 update
During the half year, the business has continued to move forward following
lockdowns and the impact of COVID-19 in FY2020/21.
In New York, the first half saw increased capex compared to the prior period
when COVID-19 restrictions were in place, particularly on urban and customer
facing work. Resumption of bill collections has begun in New England and New
York. However, with collections starting earlier in Massachusetts, we have
seen a more favourable impact on our bad debt charge versus New York.
Work on COVID-19 cost recoveries has also progressed in both New England and
New York over the last half-year. In Massachusetts, supplementary testimony
has been filed by all utilities, including National Grid, quantifying the
amount of COVID-19 related costs being sought for recovery. The Massachusetts
COVID-19 proceeding is still in 'discovery' phase and the earliest that
recovery could begin is March 2022. For Rhode Island, a filing was submitted
on 30 April requesting deferral treatment for COVID-19 related costs,
including increases in bad debt expenses, lost revenue from late payment
charges, and charges for other fees that the Company has waived pursuant to
the orders of the Public Utilities Commission (Rhode Island regulator).
In New York, whilst we continued to experience a rise in bad debt, the
state-wide pause on collections ended in July. In consultation with the New
York Public Service Commission and peer utilities, collection activities
commenced in September 2021. In addition, in September, a Regular Arrears
Supplement programme was launched by New York State, assisting customers who
received heating assistance during the year. To date, we have received $27
million of grants on behalf of our customers and we expect that to continue
into the second half of the financial year. By the end of calendar year 2021,
we also expect to have visibility into the state-wide arrears management
programme and how State/Federal assistance will be administered. Along with
continued collection activities, we expect this will provide further upside to
addressing late stage arrears.
Our responsible business - delivering on our commitments
We continue to be vocal advocates for a fair and equitable energy transition
across wider public policy. This is a key part of the Group's strategy, and we
remain committed to the critical role of enabling decarbonisation across our
jurisdictions. National Grid proudly served as a principal partner at COP26 in
Glasgow and we welcomed the commitments agreed at COP26 from both governments
and businesses. We are ready to play our part in transforming commitment into
action to enable a fair energy transition.
In June, we published our first Responsible Business Report (RBR) covering the
financial year to 31 March 2021. The report is the first standalone document
to provide a comprehensive view of our non-financial performance across the
business. It follows our Responsible Business Charter published last year
which describes our long-term goals across five pillars, namely (1) the
environment, (2) our communities, (3) our people, (4) the economy, and (5)
governance.
The RBR demonstrates how we are progressing against the commitments and
ambitions that we have laid out. For example, in 2020/21 we had reduced Scope
1 and 2 emissions by 68% compared to the 1990 baseline, and Scope 3 emissions
by 13% compared to a 2019 baseline. On diversity, we had reached 37.9%
workforce diversity in 2020/21, up from 37.4% in the prior year, and 44.6%
senior leadership diversity, up from 42.1% in the prior year. The RBR,
available on our website, provides a full update on all our ESG targets and
progress in 2020/21.
Board changes
In June, we announced the appointment of Lord Livingston Of Parkhead (Ian P.
Livingston) as a Non-executive Director of the Board, effective from 1 August
2021. Ian joined the Remuneration Committee on appointment and the Audit &
Risk Committee on 1 September 2021.
Ian is a former FTSE 30 Chief Executive and has served in the UK Government as
Minister of State for Trade and Investment. He is currently Chair of Currys
PLC, having previously held that role for the fund manager, Man Group. He is
also a Non-executive Director of S&P Global, where he sits on the
Compensation and Leadership Development Committee and the Audit Committee. He
has been a Non-executive Director of a variety of businesses including Celtic
FC, Hilton Group and more recently the luxury hotels business, Belmond.
In July, we announced the appointments of Tony Wood and Martha Wyrsch as
Non-executive Directors of the Board, effective from 1 September 2021. On
appointment Tony joined the Safety & Sustainability and the People &
Governance Committees and Martha joined the Remuneration and the Safety &
Sustainability Committees.
Tony Wood currently serves as Chief Executive of Meggitt plc having previously
joined the company as Chief Operating Officer. He previously served as
President of the Aerospace division of Rolls-Royce.
Martha Wyrsch has served three times as general counsel of energy and utility
companies and twice as a CEO of the divisions of major energy companies. She
currently serves as an independent director on the Boards of Quanta Services
Inc. and First American Financial Corp and previously held Board positions at
Spectris plc, Noble Energy, Spectra Energy Corporation and SPX Corporation and
senior leadership positions at Sempra Energy and Vestas American Wind
Technology.
OUTLOOK
Our five-year financial framework includes WPD, our UK Electricity
Distribution business, and assumes the sale of NECO (Rhode Island) completing
in Q1 of Calendar Year 2022 and the sale of a majority stake of Gas
Transmission being completed by the summer of 2022.
Capital investment and Group asset growth
We continue to expect to invest £30-£35 billion across our energy networks
and adjacent businesses, in the UK and US, over the five-year period to
2025/26.
In the UK, we expect around £8 billion of investment in electricity
transmission for asset health, anticipatory system reinforcement to facilitate
offshore generation and other new onshore system connections.
In the US, we expect to invest around £10 billion in New York and around
£7 billion in New England over the next five years. 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 and other net zero investments as well as
further electric transmission investment.
We expect the WPD networks to invest £4-£5 billion over the next 5 years in
asset maintenance, facilitating the infrastructure for electric vehicles and
directly connected generation.
We expect NGV to invest £2-£3 billion over 5 years in completing the
interconnector programme, additional investment in our Grain LNG terminal and
in US renewable generation.
As we work through our 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 6-8% CAGR through to 2025/26.
Group gearing
We continue to expect regulatory gearing to increase and to settle above 70%
once all three transactions are completed. We expect gearing levels, and the
other standard metrics we monitor, to sit comfortably within our current
BBB+/Baa1 corporate rating band from S&P and Moody's. As a result, we do
not expect any further rating action at a Group level.
Group earnings growth and dividend growth
From 2020/21 through to 2025/26, we expect our compound annual growth rate in
underlying earnings per share to be in the 5 - 7% range, including our long
run average scrip take up of 25% per annum, which will underpin our
sustainable, progressive dividend policy into the future.
Given the strong start to the year, we now expect to deliver full year
underlying EPS significantly above the top end of our 5 - 7% range. This is
primarily driven by early commissioning of our new NSL interconnector, coupled
with higher auction prices across our interconnector portfolio, which is
expected to deliver around £100 million higher operating profit.
2021/22 FORWARD GUIDANCE
This forward guidance is based on our continuing businesses (as defined by
IFRS, excluding 100% of UK Gas Transmission, even though we expect to retain a
minority stake) with the sale of a majority stake in National Grid Gas assumed
to finalise in the next financial year. Although the sale of Rhode Island is
expected to complete in the current financial year, it does not meet the
criteria to be classified as discontinued under IFRS.
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 compared to 2020/21 as
a result of the new RIIO-T2 price control and a benefit from CPIH indexation,
but this should be offset by higher controllable and other costs as a result
of increased IT and cyber spend. Excluding asset write-offs in the first half,
depreciation is expected to be broadly flat year on year, following a benefit
from a review of asset lives.
As we complete projects started in RIIO-T1, and move in to RIIO-T2, we are
targeting to deliver 100 basis points of operational outperformance on average
through the five-year period. We also expect to deliver this level in the
first full year of this price control due to performance on customer driven
capex which straddles the RIIO-T1 and RIIO-T2 periods.
UK Electricity Distribution
Following the acquisition of WPD which closed on 14 June 2021, operating
profit (excluding timing) will be included for the 9½ months of 2021/22 it
has been owned. The Electricity Distribution business is not highly seasonal,
with a H1 weighting in a typical full year of between 45-50%.
Under the RIIO-D1 price control, Return on Equity is expected to outperform
the allowed operational regulatory return by over 150bps.
UK Electricity System Operator (ESO)
Net Revenue (excluding timing) is expected to increase by around £70 million
compared to 2020/21 as a result of the new RIIO-2 price control and also
improved incentive performance. The higher revenue includes rate funding for
workload increase, more employees and IT system requirements needed to deliver
RIIO-2 outputs. As a result, costs are expected to increase by around £50
million. Depreciation is expected to be around £20 million higher as a result
of asset growth.
Under the RIIO-2 price control, totex in ESO is no longer subject to the totex
incentive mechanism and is treated as a pass-through, with cost increases or
efficiencies trued-up the following year.
New England
Net Revenue (excluding timing) is expected to be around $50 million higher
from expected rate increases in Massachusetts Gas following a move to
performance based regulation and benefits from capital trackers. Bad debts and
controllable costs are expected to be around $100 million lower than 2020/21,
due to lower levels of non-payment as a result of COVID-19 and as a result of
ongoing efficiencies, but partly offset by $50 million higher other costs
(property taxes and cost of removal). We expect depreciation to be lower in
2020/21, despite asset growth, as a consequence of the cessation of
depreciation of Rhode Island which is now classified as 'held for sale' in
accordance with IFRS ($100 million benefit). This guidance reflects completion
of the proposed Rhode Island sale on 31 March 2022.
Return on Equity for New England is expected to be at least 80% of the allowed
RoE.
For comparability, New England's estimated underlying operating profit for the
year to 31 March 2021 was £727 million.
New York
Net Revenue (excluding timing) is expected to be around $170 million higher,
reflecting increases from proposed rate settlements, but this is expected to
be offset by increased environmental reserves, higher cost of removal activity
and higher other costs (funded by higher revenues). Bad debts are expected to
be around $100 million lower than the high level in 2020/21 as a result of
COVID-19. We expect depreciation to be higher in 2020/21 by around $80 million
reflecting the higher level of asset growth.
Return on Equity for New York is expected to be at least 95% of the allowed
RoE.
For comparability, New York's estimated underlying operating profit for the
year to 31 March 2021 was £722 million.
NGV and Other activities
In NGV, as a result of IFA2 contributing for a full year in 2021/22, North Sea
Link (NSL) commencing operations in October 2021, and the increase in auction
prices across our interconnector portfolio, operating profit is expected to be
around £100 million higher than in 2020/21.
We also expect other activities' underlying operating profit to be higher
year-on-year driven by increased activity in our Commercial Property business,
which is expected to return to their 2019/20 level of performance and expected
fair value gains in National Grid Partners year on year.
In total, 'NGV and Other' operating profit is expected to increase by around
£200 million year on year. For comparability, 'NGV and Other' estimated
operating profit for the year to 31 March 2021 was £118 million.
Joint Ventures and Associates
Our share of the profit after tax of joint ventures and associates in the
second half is expected to be similar to the first half, reflecting higher
property sales from the St William joint venture and improved performance in
BritNed and NEMO.
Interest and Tax (continuing operations)
Net finance costs in 2021/22 for treasury managed interest are expected to be
around £300 million higher than 2020/21 from a higher RPI inflation and a
higher average level of net debt, as a result of the acquisition of WPD in
addition to funding our ongoing capital investment programme. Partly
offsetting this, 'other interest' is expected to be around £100 million
favourable compared to 2020/21, related to pensions, higher investment
returns, increased capitalised interest and favourable property tax
settlements.
For the full year 2021/22, the underlying effective tax rate excluding the
share of post-tax profits from joint ventures and associates, is expected to
be around 21%.
For comparability, estimated net finance costs for the year to 31 March 2021
were £865 million.
Investment, Growth and Net Debt
Overall Group capital investment for continuing operations in 2021/22 is
expected to be around £6.5 billion.
Asset Growth is expected to be higher than 2020/21, reflecting the significant
increase in capex along with higher inflation compared to the prior year. As a
result, we expect to temporarily exceed the top end of our 6-8% forecast
range.
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 30% compared to 2020/21 principally driven by higher operating profits,
after accounting for the non-cash impact of depreciation.
Net debt is expected to remain consistent with the level at 30 September
(excluding the impact of FX movements) at around £41.5bn at 31 March 2022
including the expected benefit of the Rhode Island disposal proceeds.
Weighted average number of shares (WAV) is expected to increase from 3,523
million last year to approximately 3,600 million in 2021/22.
FINANCIAL REVIEW - HY2021/22
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 56 to 59.
The Group does not believe that these measures are a substitute for IFRS
measures, however, the Group does believe such information is useful in
assessing the performance of the business on a comparable basis. 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,
neither of which give rise to economic gains or losses.
Performance for the six months ended 30 September
Financial summary for continuing operations
(£ million) 2021 2020(1) change %
Statutory results
Operating profit 1,492 960 55 %
Profit after tax 376 492 (24) %
Earnings per share (pence) 10.5 14.0 (25) %
Interim dividend per share (pence) 17.21 17.00 1 %
Alternative performance measures:
Adjusted operating profit 1,303 872 49 %
Adjusted profit after tax 738 416 77 %
Underlying operating profit 1,407 959 47 %
Underlying profit after tax 813 483 68 %
Adjusted earnings per share (pence) 20.7 11.8 75 %
Underlying earnings per share (pence) 22.8 13.7 66 %
Capital investment 2,840 2,465 15 %
1. Comparative amounts have been re-presented to reflect the
classification of the UK Gas Transmission business as a discontinued
operation.
Statutory operating profit was £1,492 million, 55% higher than the
comparative period. Commodity remeasurement net gains were £350 million
compared to £73 million in the first six months of last year. In the current
year, we incurred exceptional charges of £24 million for the implementation
of our new operating model and £137 million of transaction costs related to
the acquisition of WPD and the planned disposals of our Rhode Island and UK
Gas Transmission businesses. In the prior period, a £15 million exceptional
gain arose from the release of US environmental provisions. An exceptional
deferred tax charge of £484 million was recognised in the period, as a
result of the UK government's substantive enactment of a 6% increase in the UK
corporation tax rate to 25% (effective from 1 April 2023). As a consequence of
these, partly offset by higher remeasurement gains on commodity derivatives,
statutory profit after tax was down 24% against the comparative period.
Excluding exceptional items and remeasurements, adjusted operating profit
increased by £431m or 49%. The acquisition of WPD on 14 June 2021 contributed
£281 million towards this in the first half. Revenues (net of pass-through
costs) were £558 million higher. In the UK, RIIO-T2 commenced, in New York
rate case increases came into effect, and we saw a full six months'
contribution from our IFA2 interconnector in NGV. The impact of COVID was
less, with a smaller impact on revenues, lower bad debts in the US and fewer
incremental costs compared to the same period in 2020/21. Depreciation was
higher from our ongoing investment programme. Other costs were higher,
principally related to delivering outputs as agreed with our regulators. As a
result of these factors, partly offset by higher net interest costs from
inflation and additional debt used to finance the acquisition of WPD, adjusted
profit after tax was up 77% compared to the prior period.
Timing net under-recoveries were £104 million in the first six months
compared to £83 million under-recovery (at constant currency in the prior
year). Excluding the impact of timing, underlying operating profit of £1,407
million was up 47% and underlying EPS of 22.8p was up 66% against the
comparative period.
Reconciliation of different measures of profitability and earnings
The table below reconciles our statutory profit measures for continuing
operations, at actual exchange rates, to adjusted and underlying versions.
Reconciliation of profit and earnings from continuing operations
Operating profit Profit after tax Earnings per share (pence)
(£ million) 2021 2020(1) 2021 2020(1) 2021 2020(1)
Statutory results 1,492 960 376 492 10.5 14.0
Exceptional items and remeasurements (189) (88) 362 (76) 10.2 (2.2)
Adjusted results 1,303 872 738 416 20.7 11.8
Timing 104 87 75 67 2.1 1.9
Major storm costs - - - - - -
Underlying results 1,407 959 813 483 22.8 13.7
1. Comparative amounts have been re-presented to reflect the
classification of the UK Gas Transmission business as a discontinued
operation.
Segmental income statement
The following tables set out the income statement on adjusted and underlying
bases.
Segmental analysis for continuing operations
Adjusted Underlying
£ million 2021 2020(1) change % 2021 2020(1) change %
UK Electricity Transmission 550 509 8 % 552 487 13 %
UK Electricity Distribution 281 - n/m 257 - n/m
UK Electricity System Operator (ESO) 63 (32) n/m 49 37 32 %
New England 126 167 (25) % 247 197 25 %
New York 122 176 (31) % 141 186 (24) %
NGV and Other 161 52 210 % 161 52 210 %
Total operating profit 1,303 872 49 % 1,407 959 47 %
Net finance costs (475) (431) 10 % (475) (431) 10 %
Share of post-tax results of joint ventures and associates 58 38 53 % 58 38 53 %
Profit before tax 886 479 85 % 990 566 75 %
Tax (148) (63) 135 % (177) (83) 113 %
Profit after tax 738 416 77 % 813 483 68 %
EPS (pence) 20.7 11.8 75 % 22.8 13.7 66 %
1. Comparative amounts have been re-presented to reflect the
classification of the UK Gas Transmission business as a discontinued operation
and the new operating segments.
UK Electricity Transmission adjusted operating profit increased compared to
the same period in 2020/21 primarily driven by higher revenues related to
higher totex funding under the RIIO-T2 price control. A £24 million adverse
swing in timing recoveries (higher pass-through costs and lower collection of
prior period under-recoveries) and higher controllable costs were mostly
offset by the adverse impact of COVID in the previous period. Depreciation was
broadly flat as a result of a beneficial review of asset lives during the
year.
UK Electricity Distribution comprises the WPD businesses acquired on 14 June
2021. Post-acquisition results for the period reflect purchase price
allocation adjustments to the book value of assets and liabilities acquired,
mainly impacting depreciation and the amortisation of customer contributions
towards capital investment. The electricity distribution business contributed
£281 million to adjusted operating profit, which includes a favourable £24
million timing recovery for the 3.5 months owned.
UK Electricity System Operator adjusted operating profit was £63 million
compared to a loss of £32 million in the prior period, principally arising
from an £83 million year on year timing swing. This was driven by significant
TNUoS under-collections in the prior period and other favourable regulatory
timing in the current year. Excluding timing, higher revenues were partly
offset by increased controllable costs to deliver outputs and higher
depreciation.
New England adjusted operating profit was £27 million lower (on a constant
currency basis) than the prior period as the result of a £94 million swing in
timing. This was caused by a £121 million net under-recovery in the current
period, related to higher gas prices and an under-collection of energy
efficiency and other programme costs including residential assistance and
solar Massachusetts. Higher revenues from Massachusetts Electric PBR rate
increases were more than offset by increased workload, higher storm costs,
property taxes and cost of removal. Bad debts were lower with higher cash
collections following the resumption of collection activities in the first
half. Depreciation was lower as a consequence of our Rhode Island business
being treated as 'held for sale' meaning it is no longer depreciated.
New York adjusted operating profit was £39 million lower (on a constant
currency basis) than the same period last year. Rate increases in Niagara
Mohawk and in KEDNY and KEDLI along with a favourable property tax settlement
were more than offset by increased environmental provisions and storm costs.
Bad debt provisions were lower than the comparative period, driven by a
reduced economic impact from COVID on collections in the current period, but
depreciation was higher as a result of continued investment.
Operating profit in NGV and Other activities increased by £109 million
compared to the same period in 2020/21. Our IFA2 interconnector contributed
£42 million to the current year having commenced operations in January 2021.
Our other IFA interconnector also benefited from higher revenues, but this was
offset by a write-down for assets damaged by a fire at Sellindge in September
which has resulted in an unplanned outage. Benefits arose from fair value
gains on our NG Partners investment portfolio and the release of an aged
liability related to historical balances for unclaimed dividends in the Group.
Discontinued operations comprise our UK Gas Transmission and metering
operations in National Grid Gas plc, on the basis that we are expecting to
dispose of a majority stake in this business within the next 12 months.
Financing costs and tax
Net finance costs
Adjusted net finance costs for continuing operations were £44 million higher
than the prior period. This was primarily due to higher inflation on
RPI-linked debt, along with the impact of the acquisition of WPD and new
financing requirements to fund our ongoing capital investment programme. These
were partly offset by favourable interest on net pension assets, more
capitalised interest (increased level of capex projects in the construction
phase) and increases in other interest (including favourable property tax
settlements in the US). The effective interest rate on treasury managed debt
was 3.1%, compared to 3.3% for the first six months of 2020/21.
Joint ventures and associates
The Group's share of net profits from joint ventures and associates increased
by £20 million year on year on an adjusted basis, driven by increased
performance in Nemo Link. On a statutory basis, it increased by £11 million
to £41 million, which also included fair value losses on derivatives in our
Emerald joint venture.
Tax
The adjusted effective tax rate for continuing operations (excluding profits
from joint ventures and associates) was 17.9% (prior year 14.3%) at the half
year and the underlying effective tax rate for continuing operations
(excluding profits from joint ventures and associates) was 19.0% (prior year
15.7%). The effective tax rates for this year are higher than in the prior
period primarily due to the change in the profit mix following the acquisition
of WPD.
Net debt
During the first six months of the year, net debt increased to £41.5 billion,
£13.0 billion higher than at 31 March 2021. This increase was driven by the
acquisition of WPD on 14 June 2021, which was financed by an £8.2 billion
loan to purchase the equity shares from PPL for consideration of £7.9 billion
and to replace £350 million of borrowing facilities that expired on change of
control. In line with the requirements of IFRS acquisition accounting, the
acquired net debt in WPD was fair valued upwards by £1.6 billion to £8.2
billion, reflecting current market rates. Cash generated from operations of
£2.0 billion was more than offset by £2.6 billion of cash outflows for
capital investment, £1.1 billion paid in dividends, interest and tax and
£0.6 billion of adverse exchange movements and other non-cash increases to
opening net debt. Closing net debt at 30 September 2021 excludes £5.0 billion
related to net debt within our UK Gas businesses, which has been reclassified
to 'held for sale' from 1 September. Consistent with the treatment at 31 March
2021, net debt of £1.1 billion related to Rhode Island is also classified in
'held for sale'.
During the period we raised over £2.3 billion of new long-term senior debt to
refinance maturing debt and to fund a portion of our significant capital
programme. We also drew down on a facility of £8.2 billion for the
acquisition of WPD. The new bonds issued include further borrowings under our
Green Financing Framework. As at 30 September 2021, we have £7.2 billion of
committed facilities available for general corporate purposes of which £0.3
billion is currently drawn down within WPD and all of which have expiry dates
beyond January 2023.
There are no significant updates relating to credit agency actions. National
Grid's balance sheet remains robust, with strong investment grade ratings from
Moody's, Standard & Poor's (S&P) and Fitch.
Interim Dividend
The Board has approved an interim dividend of 17.21p per ordinary share
($1.1573 per American Depositary Share). This represents 35% of the total
dividend per share of 49.16p in respect of the last financial year to 31 March
2021 and is in line with the Group's dividend policy. The interim dividend is
expected to be paid on 19 January 2022 to shareholders on the register as at
3 December 2021.
The Board decided in March that, to reflect the move from RPI to CPIH in our
UK regulated businesses, the aim from 2021/22 will be to grow the annual
dividend per share in line with UK CPIH, thus maintaining the dividend per
share in real terms. The Board will review this policy regularly, taking into
account a range of factors including expected business performance and
regulatory developments.
The scrip dividend alternative will again be offered in respect of the 2021/22
interim dividend. As previously announced, we do not expect to buy back the
scrip shares issued during 2021/22.
GROWTH
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.
£2.8 billion of capital investment for continuing operations across the Group
We continued to make significant investment in energy infrastructure in the
first six months of the year. Capital investment across the Group was £2,840
million, an increase of £520 million (22%) compared to the first half of
2020/21 at constant currency.
Group capital investment (continuing operations) At actual At constant currency
Six months ended 30 September exchange rates
(£ million) 2021 2020(1) % change 2020(1) % change
UK Electricity Transmission 587 501 17 % 501 17 %
UK Electricity Distribution 315 - n/m - n/m
UK Electricity System Operator (ESO) 65 47 38 % 47 38 %
New England 700 773 (9) % 707 (1) %
New York 851 847 - % 775 10 %
NGV and other activities(2) 322 297 8 % 290 11 %
Group capital investment - continuing 2,840 2,465 15 % 2,320 22 %
1. Comparative amounts have been re-presented to reflect the
classification of the UK Gas Transmission business as a discontinued operation
and the new operating segments.
2. NGV and other activities capital investment includes equity and
financing in joint ventures and associates, and investment in National Grid
Partners but excludes £25 million of equity contributions to the St William
property joint venture for 2021 (there were no equity contributions in 2020).
UK Electricity Transmission invested £587 million for the first six months of
the year, an increase of £86 million on the prior period, driven by further
investment in the London Power Tunnels 2 project and Hinkley Seabank
connection. For UK Electricity Distribution (WPD), capital investment stood at
£315 million during the first half, with expenditure for the Electricity
System Operator reaching £65 million, an increase of £18 million over the
same period driven by higher IT expenditure for RIIO-2.
Investment in New York was £851 million, an increase of £76 million over the
prior period at constant currency. This was driven principally by higher
expenditure compared to the same period last year when the initial impact of
COVID-19 meant a minor delay to capex deployment. For New England, investment
reached £700 million, a slight decrease on the prior period of £7 million,
although the capital deployment plan remains on track.
Investment in NGV and other activities during the period was £322 million,
£32 million higher than the prior period on a constant currency basis. This
was principally driven by increased expenditure at Grain on the Capacity 25
project, partially offset by lower spend on IFA2 as it became operational.
BUSINESS REVIEW
UK Electricity Transmission
Operationally, our UK Electricity Transmission business has continued to
deliver good levels of performance and our capital investment programme has
continued as expected.
Capital investment reached £587 million, up £86 million on the prior period.
Of this investment, £200 million was driven by load related expenditure, and
£387 million by non-load related expenditure. The increase on the prior
period was principally driven by higher spend on London Power Tunnels 2, the
Hinkley Seabank connection, and accelerated expenditure on the Dorset Visual
Impact Provision Project (VIP), partly offset by lower spend on our Smartwires
investment where projects are in the latter stages of delivery.
In August, the Competition and Markets Authority (CMA) published its
provisional determination in relation to the RIIO-T2 price control. This
followed the Board's decision in March to submit a technical appeal to the CMA
focused on the cost of equity and outperformance wedge. We were pleased to
note that the CMA found in favour of the technical arguments on the
outperformance wedge, although we were disappointed that it did not find in
favour on the cost of equity. The CMA published its final determination in
October which confirmed the findings in its provisional determination. This
means that the change to the real level of return, with the removal of the
outperformance wedge, will be applied retrospectively to the beginning of the
current price control to keep us whole financially.
We are on track to deliver the agreed regulatory outputs in our first year of
RIIO-T2. In addition, we have secured over £100 million of reopener
allowances in the first six months of FY22 for further works at the Bengeworth
Road site of the London Power Tunnels 2 project, where we are building a new
substation and headhouse. This represents 98% of our requested amount.
Discontinued Operations - UK Gas Transmission
Operationally, our UK Gas Transmission business has continued to deliver good
levels of performance and our capital investment programme has continued as
expected.
Higher net revenue of £214 million during the first half of the year is
largely driven by the change in the capacity pricing regime which came into
effect in October 2020 removing seasonal variations. As a result, after
adjusting for £71 million favourable year on year timing swing, operating
profit (excluding exceptional items and timing) of £332 million is £144
million higher than the comparative period.
Capital investment reached £131 million, up £36 million on the prior period.
The increase on the prior period was principally driven by higher spend on
Asset Health, the Peterborough & Huntington compressor projects, and
enhanced expenditure on Cyber related projects, all of which is partly offset
by lower spend on Feeder 9.
Alongside our UK Electricity Transmission business, UK Gas Transmission will
also benefit from the removal of the outperformance wedge following the Final
Determination by the CMA. This will be applied retrospectively to the
beginning of the current price control to keep us whole financially.
We are on track to deliver the agreed regulatory outputs across the RIIO-T2
period which includes works completed in the first year to ensure overall
delivery of our 5 year targets. This includes tracking Price Control
Deliverables and submitting regulatory reopeners on time.
UK Electricity Distribution
The acquisition of WPD was completed on 14 June 2021, and consequently 3.5
months of WPD's performance is included in the Group's half-year results.
WPD continues to perform well under RIIO-ED1. During the 3.5 months of
ownership, capital investment reached £315 million driven principally by
reinforcement and asset replacement capex. Compared to the same 3.5 months in
the prior period, this was an estimated increase of around £50 million
largely through lower capital investment activity in 2020 caused by UK
Government restrictions as a result of COVID-19.
A further 18 months remain of the RIIO-ED1 price control period (to March
2023). Looking forward, work is on-going in terms of evaluating key components
of the RIIO-ED2 price control with WPD's final RIIO-ED2 business plan
submission due on 1 December 2021. We anticipate Ofgem's Draft Determination
in June 2022, followed by the Final Determination in November/December 2022
(with RIIO-ED2 commencing in April 2023 for the five year period to March
2028).
Electricity System Operator (ESO)
The Electricity System Operator (ESO) has performed well during the first half
of the year. Underlying net revenue was £32 million higher than the prior
period, principally driven by higher base revenue. Capital investment reached
£65 million in the first half, £18 million higher than prior period, driven
by higher IT expenditure for RIIO-2.
In the first half of the year, the ESO has focused on initiating the
programmes, investments and staff recruitment (+12%) to deliver the ambitious
RIIO-2 business plan and has already started to deliver benefits. During the
first half, the ESO has managed well through periods of calm, settled weather.
In addition, the ESO published the Winter Outlook in October against the
backdrop of a tighter winter outlook in the UK, forecasting an electricity
capacity margin of 6.6%, lower than last year, but well within the required
Reliability Standard.
New England
We achieved good performance across New England during a period with
significant storm activity. With Tropical Storms in the half year, the
financial impact of major storms in the first half was $66 million. Given the
additional storms in October, it is likely we will incur over $100 million of
storm costs (in aggregate across our US businesses) which means they would be
reported outside of underlying results for the full year.
Capital investment in New England remains on track with £700 million deployed
during the half-year, slightly lower than the prior period. In Massachusetts
Gas, capital investment increased, primarily driven by increased work compared
to the prior period when COVID-19 work restrictions were in place. For
Massachusetts Electric, capital investment was slightly higher than the prior
period, whilst expenditure on FERC assets, including New England Power, was
broadly in line with the last half-year. However, lower Rhode Island capital
expenditure more than offset increases in Massachusetts driven principally by
permitting delays in the gas distribution business.
Tropical Storms Elsa, Ida and Henri struck the North East coast during the
half-year, impacting supply to a number of our customers across Massachusetts
and Rhode Island. However, our field teams responded rapidly to reconnect
affected customers. Almost 30,000 customers were affected by Tropical Storm
Elsa, with over 95% reconnected within 5 hours. During Tropical Storm Henri,
41,000 customers were affected in Massachusetts and 107,000 in Rhode Island,
with 95% of customers reconnected in 19 hours and 55 hours respectively.
We have made further regulatory progress in Massachusetts during the
half-year. On 30 September, we received the rate order for our Massachusetts
Gas business from Massachusetts Department of Public Utilities (DPU). This
followed the rate filing we made in November 2020. The order approved a
five-year rate plan with new rates effective 1 October 2021. It included an
allowed Return on Equity of 9.7% at an equity ratio of 53%, and a revenue
increase of $72 million in the first rate year. A new Performance Based Rate
Mechanism (PBRM) was approved, similar to that agreed for our Massachusetts
Electric business in 2019. The mechanism will fund both capital and
operational expenditure across the duration of the rate plan, ensuring
inflation is factored into the cost base each year.
In July, we filed our second four-year Massachusetts Electric Grid
Modernization Plan (the GMP) together with a five-year strategic plan. The GMP
includes 'grid-facing' investments of $312 million such as Volt-Var
optimization (which helps to reduce losses and minimise demand across the
distribution network), and Advanced Metering Infrastructure (AMI) investment
of almost $400 million which would see the full-scale implementation across
our customer base. The GMP will help advance National Grid's and
Massachusetts' shared clean energy goals, meets the Company's regulatory
obligation to make progress on the DPU's objectives for grid modernization,
and creates a significant investment opportunity for the Company. We are
awaiting DPU approval on the filing in summer 2022.
Also in July, we filed our Massachusetts Phase 3 Electric Vehicle (EV)
proposal with the DPU. The filing is the largest and most comprehensive EV
proposal we have made in the State and puts forward $275 million of programmes
over four years. The filing proposes 7,500 public and workplace EV ports, up
to 24,000 residential EV ports for home charging and 175 fleet assessments to
assist businesses in converting their vehicles to electric including 600 EV
ports. It also includes targeted proposals for low income customers and
environment justice communities. We anticipate approval of the filing in Q3
2022 calendar year.
New York
Our New York business delivered good performance during the half year.
Our capital investment programme in New York remains on track with £851
million deployed during the half year, an increase of £76 million at constant
currency compared to the prior period. Of this, capital investment for
KEDNY-KEDLI increased on the prior period, principally because of COVID-19
restrictions being in place, affecting the capital investment programme during
part of the previous half year. Capital investment at Niagara Mohawk (NIMO)
increased on the prior period driven by accelerated system reinforcement and
asset replacement work.
We have continued to make good progress on regulatory rate filings in New
York. In May, National Grid, the Department of Public Service Staff, and other
settling parties filed a Joint Proposal for a multi-year rate settlement for
our Downstate New York natural gas distribution businesses, KEDNY and KEDLI.
The New York Public Service Commission approved the proposal in August and
rates became effective on 1 September.
The agreement is a three-year settlement retroactive to April 2020. It
includes an allowed RoE of 8.8% at an equity of 48%, with $3.3 billion of
capex allowed across the rate plan to continue the investment in network
safety, reliability, and replacing ageing pipe. In addition, the settlement
includes funding to support our Future of Heat programmes, including (a)
further funding for our Renewable Natural Gas (RNG) plant at Newtown Creek
where we will capture biogas, upgrade it to pipeline natural gas, and inject
it into KEDNY's distribution system, (b) a hydrogen blending study to consider
the necessary requirements to prepare the gas system for hydrogen, with a
grant from the New York State Energy Research and Development Authority
(NYSERDA) funding a portion of the study, and (c) geothermal non-pipe
alternatives, where KEDNY and KEDLI will support the deployment of geothermal
heating as a non-pipe alternative in their service territories, through
identifying instances where planned leak prone pipe replacement projects could
be avoided by deploying shared geothermal loops or individual ground and air
source heat pumps to affected customers.
Given the economic climate, and in the interest of maintaining affordability,
the rate agreement also provided for a 0% revenue increase in Rate Year 1 and
for no more than a 2% total revenue increase in Rate Years 2 and 3. We are
able to achieve this by using regulatory credits of $95 million at KEDNY and
$5 million at KEDLI to offset revenue requirements under the multi-year
settlement. Overall, the agreement allows us to earn our allowed return,
deploy capex across the businesses, all whilst minimising the impact on
customer bills.
In September, we submitted a Joint Proposal to the PSC to update rates at our
business in Upstate New York, Niagara Mohawk (NIMO). The proposed settlement
is for a three-year rate plan with new rates back-dated to July 2021. It
proposes an allowed Return on Equity of 9.0% at an equity ratio of 48% and a
capital investment of $3.3 billion over the term of the rate plan. The
Proposal also includes provisions that support emissions reductions from the
gas network, including targeted reductions in billed gas usage, programmes to
promote non-heat options, leak prone pipe replacement and high emitter leak
repair programmes, and energy efficiency measures. Overall, the settlement
proposes investment to promote affordable, decarbonised heating, including
expansion to renewable natural gas, and adopts new earnings adjustment
mechanisms and incentives. A final decision from the New York Public Service
Commission is expected by the end of the calendar year.
In August, the independent monitor appointed to oversee our infrastructure and
non-infrastructure investment in Downstate New York published a closing report
that covered our progress since November 2019. This investment has continued
over the last two years in expanding LNG and CNG facilities, as well as energy
efficiency and other Demand Side Management measures, to ensure gas supply
meets demand in the future. The monitor report described our progress
delivering the distributed infrastructure approach to addressing the supply
gap, as well as the results of an independent assessment that found our gas
demand forecast is reasonable. The report included six new recommendations for
the business, including (a) a recommendation that we file bi-annual reports on
the status of the distributed infrastructure solutions, and (b) five
recommendations around increasing the role of the compliance function in
monitoring our execution of the supply plans and settlement-related items
going forward.
Progress continues on our transmission projects in Upstate New York. In May,
we announced a joint development agreement with the New York Power Authority
(NYPA) to develop 110 miles of transmission lines in upstate New York for a
total estimated cost of $1.1 billion, of which National Grid's investment is
$535 million. The project, known as the "Smart Path Connect," will link other
NYPA transmission projects in the region and unbottle existing renewable
resources whilst yielding significant production cost savings, emissions
reductions, and decreases in transmission congestion.
Future of Heat
In April, we were pleased to co-author a report with the New York City Mayor's
office and Con Edison titled 'Pathways to Carbon-Neutral NYC: Modernize,
Reimagine, Reach.' The report looks at all sectors of the New York City
economy and recommends the necessary action to reduce emissions to help meet
the City's environmental targets. As part of this, it also calls for a
'reimagined' gas network that, in the longer term, will see greater levels of
low carbon gas supplied to customers, particularly to those where
electrification is impractical. Overall, it sees a future for the existing gas
network and recognises gas, especially low carbon gas, as part of the
long-term energy transition.
NGV & Other
During the period, work reached a conclusion on the 1,400MW North Sea Link
which commenced operations in October. The 720 kilometre link, connecting
Blyth in Northumberland to south-western Norway, is the world's longest
undersea power cable and is a joint venture between National Grid and
Statnett. It will help the UK reach its net zero target by importing hydro
sourced generation from Norway, reducing UK carbon emissions by 23 million
tonnes by 2030. At full capacity, it is expected to provide enough clean
electricity to power 1.4 million homes. Work continues on the Viking Link
between the UK and Denmark, with the interconnector on track to commission in
2023.
In September, a fire at the IFA convertor station in Sellindge, Kent caused
significant damage to infrastructure on-site. Following a detailed assessment
on the 1,000MW of capacity that is offline due to fire damage, National Grid
is carrying out extensive work to safely return it to service. Consequently,
we plan to bring 500MW back to service from October 2022 and 500MW in December
2022. This will result in 2,000MW of available capacity going into next
Winter.
On our other interconnectors, IFA2 and NEMO continued to perform well with
availabilities reaching 85% and 98% respectively in the half year.
Availability on BritNed decreased to 62% compared to 96% in the prior period,
driven principally by a cable fault in March 2021 with the link returning to
full service in June.
Grain LNG continues to perform well, with utilisation 14% higher than the
prior period mainly driven by unseasonable high utilisation in Q1 of FY22,
largely as a result of high and rising gas prices. Capital investment reached
£36 million in the half year, an increase of £28 million on the prior period
as a result of initial investment in the Capacity 25 project.
In July, National Grid Renewables began operations at two Michigan solar
projects - Bingham Solar and Temperance Solar. Combined, the projects produce
40MW and each has a Power Purchase Agreement (PPA) with Consumers Energy.
During peak construction, 160 workers were employed, 95% of which were
recruited from communities within 100 miles of each site. Additional job and
economic benefits were also realised through employing local Michigan-based
subcontractors.
In October, New York Transco - a partnership of New York's major utilities,
including National Grid Ventures - submitted a bid 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
which called for transmission solutions to transfer at least 3GW and
potentially up to 6GW of offshore wind generation that is expected to be
connected to Long Island over the next decade. The connections would be made
between Long Island and the rest of the State.
For the first half, Other activities generated an operating profit of £14
million, compared with a net loss of £31 million in for the prior period.
This principally reflects current year benefits from fair value gains in NG
Partners and the release of historical liabilities related to unclaimed
dividends. Capital investment was £40 million, £15 million higher than last
year, with an increased level of investment by NG Partners. The post-tax
profit share for joint ventures was £13 million, £8 million higher primarily
through gains on our share of the Energy Impact Partners investment fund.
APPENDIX
Unless otherwise stated, all financial commentaries in this results statement
are given on an underlying basis at actual exchange rates for continuing
operations. Underlying represents statutory results excluding exceptional
items, remeasurements, timing and major storm costs. The underlying basis is
further defined on page 56.
Alternative Performance Measures derived from IFRS
The following are terms or metrics that are reconciled to IFRS measures and
are defined on pages 56 to 59:
Net revenue
Adjusted profit measures
Underlying results
Constant currency
Timing impacts
Capital investment
Net debt - defined in note 13 on page 49.
PROVISIONAL FINANCIAL TIMETABLE
Date Event
18 November 2021 2021/22 half year results
2 December 2021 Ordinary shares and ADRs go ex-dividend
3 December 2021 Record date for 2021/22 interim dividend
9 December 2021 Scrip reference price announced
20 December 2021 (5pm London time) Scrip election date for 2021/22 interim dividend
19 January 2022 2021/22 interim dividend paid to qualifying shareholders
19 May 2022 2021/22 Preliminary Results
1 June 2022 Ordinary shares go ex-dividend
3 June 2022 ADRs go ex-dividend
6 June 2022 Record date for 2021/22 final dividend
10 June 2022 Scrip reference price announced
11 July 2022 2022 AGM
20 July 2022 (5pm London time) Scrip election date
17 August 2022 2021/22 final dividend paid to qualifying shareholders
CAUTIONARY STATEMENT
This announcement contains certain statements that are neither reported
financial results nor other historical information. These statements are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended. These statements include information with respect to
National Grid's (the Company) financial condition, its results of operations
and businesses, strategy, plans and objectives. Words such as 'aims',
'anticipates', 'expects', 'should', 'intends', 'plans', 'believes', 'outlook',
'seeks', 'estimates', 'targets', 'may', 'will', 'continue', 'project' and
similar expressions, as well as statements in the future tense, identify
forward-looking statements. These forward-looking statements are not
guarantees of National Grid's future performance and are subject to
assumptions, risks and uncertainties that could cause actual future results to
differ materially from those expressed in or implied by such forward-looking
statements. Many of these assumptions, risks and uncertainties relate to
factors that are beyond National Grid's ability to control, predict or
estimate precisely, such as changes in laws or regulations, including any
arising as a result of the United Kingdom's exit from the European Union,
announcements from and decisions by governmental bodies or regulators,
including the implementation of the RIIO-2 price controls; 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 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 including those caused by the
COVID-19 pandemic; 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;
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,
including as a result of the COVID-19 pandemic, 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 skills, and any significant disputes
arising with National Grid's employees or the breach of laws or regulations by
its employees; the failure to respond to market developments, including
competition for onshore transmission; the threats and opportunities presented
by emerging technology; 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 integration of WPD, the sale of
the Company's Rhode Island gas and electricity business and the proposed sale
of a majority stake in its UK gas transmission business. 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 236 to 239 of National Grid's most recent Annual Report and Accounts,
as updated by the Principal risks and uncertainties statement on page 53 of
this announcement. In addition, new factors emerge from time to time and
National Grid cannot assess the potential impact of any such factor on its
activities or the extent to which any factor, or combination of factors, may
cause actual future results to differ materially from those contained in any
forward-looking statement. Except as may be required by law or regulation, the
Company undertakes no obligation to update any of its forward-looking
statements, which speak only as of the date of this announcement.
UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Consolidated income statement
for the six months ended 30 September
2021 Notes Before exceptional items and remeasurements Exceptional items and remeasurements Total
£m £m £m
Continuing operations
2(a),3 6,941 - 6,941
Revenue
Provision for bad and doubtful debts (53) - (53)
Other operating costs 4 (5,585) 189 (5,396)
Operating profit 2(b),4 1,303 189 1,492
Finance income 4,5 45 2 47
Finance costs 4,5 (520) 23 (497)
Share of post-tax results of joint ventures and associates 2(b),4 58 (17) 41
Profit before tax 2(b),4 886 197 1,083
Tax 4,8 (148) (559) (707)
Profit/(loss) after tax from continuing operations 4 738 (362) 376
Profit/(loss) after tax from discontinued operations 4,6 260 (161) 99
Total profit/(loss) for the period (continuing and discontinued) 998 (523) 475
Attributable to:
Equity shareholders of the parent 997 (523) 474
Non-controlling interests from continuing operations 1 - 1
Earnings per share (pence)
Basic earnings per share (continuing) 9 10.5
Diluted earnings per share (continuing) 9 10.5
Basic earnings per share (continuing and discontinued) 9 13.3
Diluted earnings per share (continuing and discontinued) 9 13.2
2020(1) Notes Before exceptional items and remeasurements Exceptional items and remeasurements Total
£m £m £m
Continuing operations
Revenue 2(a),3 6,064 - 6,064
Provision for bad and doubtful debts (120) - (120)
Other operating costs 4 (5,072) 88 (4,984)
Operating profit 2(b),4 872 88 960
Finance income 4,5 13 14 27
Finance costs 4,5 (444) 10 (434)
Share of post-tax results of joint ventures and associates 2(b),4 38 (8) 30
Profit before tax 2(b),4 479 104 583
Tax 4,8 (63) (28) (91)
Profit after tax from continuing operations 4 416 76 492
Profit/(loss) after tax from discontinued operations 4,6 111 (1) 110
Total profit for the period (continuing and discontinued) 527 75 602
Attributable to:
Equity shareholders of the parent 526 75 601
Non-controlling interests from continuing operations 1 - 1
Earnings per share (pence)
Basic earnings per share (continuing) 9 14.0
Diluted earnings per share (continuing) 9 13.9
Basic earnings per share (continuing and discontinued) 9 17.1
Diluted earnings per share (continuing and discontinued) 9 17.0
1. Comparative amounts have been re-presented to reflect the
classification of the UK Gas Transmission business as a discontinued
operation. See notes 1 and 6 for further information.
Consolidated statement of comprehensive income
for the six months ended 30 September
2021 2020¹
Notes £m £m
Profit after tax from continuing operations 376 492
Other comprehensive income/(loss) from continuing operations
Items from continuing operations that will never be reclassified to profit or
loss:
Remeasurement gains/(losses) on pension assets and post-retirement benefit 16 593 (136)
obligations
Net gains on equity instruments designated at fair value through other 10 28
comprehensive income
Net gains in respect of cash flow hedging of capital expenditure 6 22
Tax on items that will never be reclassified to profit or loss (95) (10)
Total gains/(losses) from continuing operations that will never be 514 (96)
reclassified to 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 297 (490)
Net gains in respect of cash flow hedges(2) 21 15
Net losses in respect of cost of hedging (43) (4)
Net gains on investments in debt instruments measured at fair value through 14 53
other comprehensive income
Share of other comprehensive income of associates, net of tax 1 -
Tax on items that may be reclassified subsequently to profit or loss 6 (2)
Total gains/(losses) from continuing operations that may be reclassified 296 (428)
subsequently to profit or loss
Other comprehensive income/(loss) for the period, net of tax, from continuing 810 (524)
operations
Other comprehensive income/(loss) for the period, net of tax, from 6 47 (279)
discontinued operations
Other comprehensive income/(loss) for the period, net of tax 857 (803)
Total comprehensive income/(loss) for the period from continuing operations 1,186 (32)
Total comprehensive income/(loss) for the period from discontinued operations 6 146 (169)
Total comprehensive income/(loss) for the period 1,332 (201)
Attributable to:
Equity shareholders of the parent 1,332 (201)
1. Comparative amounts have been re-presented to reflect the
classification of the UK Gas Transmission business as a discontinued
operation. See notes 1 and 6 for further information. In addition, the
comparative amounts for exchange adjustments have been revised to reflect the
impact of the prior year adjustments to property, plant and equipment,
goodwill and deferred tax as described in note 1 to the Annual Report and
Accounts for the year ended 31 March 2021.
2. Within the line item net gains in respect of cash flow hedges, there
is an equal and opposite impact of £18 million (2020: £141 million)
relating to spot foreign exchange movements on derivatives designated in cash
flow hedges of foreign currency risk and interest rates. This has no net
impact on the consolidated statement of comprehensive income. This is
consistent with the Annual Report and Accounts for the year ended 31 March
2021.
Consolidated statement of changes in equity
for the six months ended 30 September
Share Share premium account Retained earnings Other equity reserves Total Non-controlling interests Total
capital share-holders' equity equity
Notes £m £m £m £m £m £m £m
At 1 April 2021 474 1,296 23,163 (5,094) 19,839 21 19,860
Profit for the period - - 474 - 474 1 475
Other comprehensive income/(loss) for the period - - 557 301 858 (1) 857
Total comprehensive income for the period - - 1,031 301 1,332 - 1,332
Equity dividends 10 - - (583) - (583) - (583)
Scrip dividend-related share issue 8 (8) - - - - -
Issue of treasury shares - - 15 - 15 - 15
Purchase of own shares - - (2) - (2) - (2)
Share-based payments - - 13 - 13 - 13
Cash flow hedges transferred to the statement of financial position, net of - - - 6 6 - 6
tax
At 30 September 2021 482 1,288 23,637 (4,787) 20,620 21 20,641
Share capital Share premium account Retained earnings Other equity reserves Total share-holders' equity Non-controlling interests Total
equity
Notes £m £m £m £m £m £m £m
At 31 March 2020 (as previously reported) 470 1,301 21,710 (3,919) 19,562 22 19,584
Prior year adjustment(1) - - 185 24 209 - 209
At 1 April 2020 (revised) 470 1,301 21,895 (3,895) 19,771 22 19,793
Profit for the period - - 601 - 601 1 602
Other comprehensive loss for the period - - (401) (401) (802) (1) (803)
Total comprehensive income/(loss) for the period - - 200 (401) (201) - (201)
Equity dividends 10 - - (1,065) - (1,065) - (1,065)
Scrip dividend-related share issue 1 (1) - - - - -
Issue of treasury shares - - 16 - 16 - 16
Purchase of own shares - - (2) - (2) - (2)
Share-based payments - - 10 - 10 - 10
Cash flow hedges transferred to the statement of financial position, net of - - - (7) (7) - (7)
tax
At 30 September 2020 471 1,300 21,054 (4,303) 18,522 22 18,544
1. Comparative amounts have been revised to reflect the prior year
adjustments to property, plant and equipment, goodwill and deferred tax as
described in note 1 to the Annual Report and Accounts for the year ended 31
March 2021.
Consolidated statement of financial position
30 September 2021 31 March 2021
Notes £m £m
Non-current assets
Goodwill 7 9,423 4,588
Other intangible assets 2(c) 3,259 1,443
Property, plant and equipment 2(c),11 54,699 47,043
Other non-current assets 273 293
Pension assets 16 2,542 1,747
Financial and other investments 873 755
Investments in joint ventures and associates 952 867
Derivative financial assets 12 426 542
Total non-current assets 72,447 57,278
Current assets
Inventories and current intangible assets 516 439
Trade and other receivables 2,947 2,919
Current tax assets 81 67
Financial and other investments 13,14 2,288 2,342
Derivative financial assets 12 276 457
Cash and cash equivalents 13,14 466 157
Assets held for sale 6 9,917 3,557
Total current assets 16,491 9,938
Total assets 88,938 67,216
Current liabilities
Borrowings 13,14 (10,744) (3,737)
Derivative financial liabilities 12 (232) (145)
Trade and other payables (3,716) (3,517)
Contract liabilities (75) (66)
Current tax liabilities (52) (75)
Deferred tax liabilities 6 (331) -
Provisions (252) (260)
Liabilities held for sale 6 (8,526) (1,568)
Total current liabilities (23,928) (9,368)
Non-current liabilities
Borrowings 13,14 (33,151) (27,483)
Derivative financial liabilities 12 (605) (754)
Other non-current liabilities (880) (843)
Contract liabilities (1,112) (1,094)
Deferred tax liabilities (5,575) (4,815)
Pensions and other post-retirement benefit obligations 16 (993) (1,032)
Provisions (2,053) (1,967)
Total non-current liabilities (44,369) (37,988)
Total liabilities (68,297) (47,356)
Net assets 20,641 19,860
Equity
Share capital 482 474
Share premium account 1,288 1,296
Retained earnings 23,637 23,163
Other equity reserves (4,787) (5,094)
Total shareholders' equity 20,620 19,839
Non-controlling interests 21 21
Total equity 20,641 19,860
Consolidated cash flow statement
for the six months ended 30 September 2021 2020¹
Notes £m £m
Cash flows from operating activities
Operating profit from continuing operations 2(b) 1,492 960
Adjustments for:
Exceptional items and remeasurements 4 (189) (88)
Other fair value movements (38) (6)
Depreciation, amortisation and impairment 2(c) 840 761
Share-based payment charge 11 8
Changes in working capital 117 97
Changes in provisions 1 (74)
Changes in pensions and other post-retirement benefit obligations (81) (43)
Cash flows relating to exceptional items (116) (10)
Cash generated from continuing operations 2,037 1,605
Tax (paid)/received (90) 2
Net cash flow from operating activities - continuing operations 1,947 1,607
Net cash flow from operating activities - discontinued operations 470 187
Cash flows from investing activities
Acquisition of WPD(2) 7 (7,844) -
Contingent consideration relating to the acquisition of National Grid (10) (13)
Renewables Development LLC and Emerald
Acquisition of financial investments (68) (59)
Disposal of financial investments 34 43
Investments in joint ventures and associates (114) (63)
Purchases of intangible assets (196) (197)
Purchases of property, plant and equipment (2,310) (2,055)
Disposals of property, plant and equipment 3 10
Dividends received from joint ventures and associates 64 48
Interest received 7 13
Net movements in short-term financial investments 58 673
Cash inflows on derivatives - 41
Cash outflows on derivatives - (81)
Net cash flow used in investing activities - continuing operations (10,376) (1,640)
Net cash flow used in investing activities - discontinued operations (129) (70)
Cash flows from financing activities
Purchase of own shares (2) (2)
Proceeds from issue of treasury shares 15 16
Proceeds received from loans 14b 10,452 3,506
Repayments of loans 14b (426) (903)
Payments of lease liabilities 14b (53) (63)
Net movements in short-term borrowings 14b (507) (981)
Cash inflows on derivatives 14b 4 36
Cash outflows on derivatives 14b (7) (26)
Interest paid 14b (450) (407)
Dividends paid to shareholders 10 (583) (1,065)
Net cash flow from financing activities - continuing operations 8,443 111
Net cash flow used in financing activities - discontinued operations (38) (102)
Net increase in cash and cash equivalents 14a 317 93
Reclassification to held for sale 14a (9) -
Exchange movements 14a 1 (2)
Net cash and cash equivalents at start of period 14a 157 73
Net cash and cash equivalents at end of period 14a 466 164
1. Comparative amounts have been re-presented to reflect the
classification of the UK Gas Transmission business as a discontinued
operation. See notes 1 and 6 for further information.
2. Balance consists of cash consideration paid and cash acquired from
WPD.
Notes to the financial statements
1. Basis of preparation and new accounting standards, interpretations and
amendments
The half year financial information covers the six month period ended
30 September 2021 and has been prepared in accordance with IAS 34 'Interim
Financial Reporting' as issued by the International Accounting Standards Board
(IASB) and as adopted by the United Kingdom (UK); and the Disclosure and
Transparency Rules of the Financial Conduct Authority. This condensed set of
financial statements comprises the unaudited financial information for the
half years ended 30 September 2021 and 2020, together with the audited
consolidated statement of financial position as at 31 March 2021.
The financial information for the six months ended 30 September 2021 does not
constitute statutory accounts as defined in Section 434 of the Companies Act
2006. It should be read in conjunction with the statutory accounts for the
year ended 31 March 2021, which were prepared in accordance with
International Financial Reporting Standards (IFRS) as issued by the IASB and
as adopted by the EU, and have been filed with the Registrar of Companies. The
Deloitte LLP audit report on those statutory accounts was unqualified, did not
contain an emphasis of matter and did not contain a statement under Section
498 of the Companies Act 2006.
The half year financial information has been prepared in accordance with IFRS
as issued by the IASB and as adopted by the UK, consistent with the accounting
policies expected to be applicable for the year ending 31 March 2022. The
notes to the financial information are prepared on a continuing basis unless
otherwise stated.
Our consolidated income statement and segmental analysis (see note 2)
separately identify financial results before and after exceptional items and
remeasurements. The Directors believe that presentation of the results in this
way is relevant to an understanding of the Group's financial performance.
Presenting financial results before exceptional items and remeasurements is
consistent with the way that financial performance is measured by management
and reported to the Board and Executive Committee and improves the
comparability of reported financial performance from year to year. Items which
are classified as exceptional items or remeasurements are defined in the
Annual Report and Accounts for the year ended 31 March 2021.
Disposal of the UK Gas Transmission business
The Group announced its intention to sell a majority stake in the UK Gas
Transmission business on 18 March 2021, thus initiating the process to sell
the business.
As the sale is considered highly probable and is expected to complete within a
year, the associated assets and liabilities have been presented as held for
sale in the consolidated statement of financial position. As UK Gas
Transmission represents a major separate line of business, the business has
also been classified as a discontinued operation at 30 September 2021.
Accordingly, 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. Further details are included
in note 6.
Disposal of The Narragansett Electric Company
As described further in note 6, 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 sale is expected to complete in
early 2022 once all regulatory approvals are obtained.
As the sale is considered highly probable and is expected to complete within a
year, the associated assets and liabilities have been presented as held for
sale in the consolidated statement of financial position. However, the
transaction has not met the criteria for classification as a discontinued
operation and therefore its results for the period are not separately
disclosed on the face of the income statement, and are instead included within
the results from continuing operations. Further details are included in note
6.
1. Basis of preparation and new accounting standards, interpretations and
amendments (continued)
Acquisition of WPD
On 14 June 2021, National Grid plc acquired 100% of the share capital of PPL
WPD Investments Limited (WPD), the holding company of Western Power
Distribution plc, which is the UK's largest electricity distribution network
operator. The total cash consideration for the transaction was £7.9 billion.
For further details, please see note 7.
Areas of judgement and key sources of estimation uncertainty
In preparing this half year financial information, we have considered the
areas where judgement has been exercised by management in applying the Group's
accounting policies and the key sources of estimation uncertainty as compared
to those applied in the preparation of the Annual Report and Accounts for the
year ended 31 March 2021.
Areas of judgement that have the most significant effect on the amounts
recognised in the financial information:
• Categorisation of certain items as exceptional items or
remeasurements: We have continued to apply the Group's exceptional items
framework and have recognised exceptional items in relation to transaction
costs from the WPD acquisition and the planned disposals of NECO and the UK
Gas Transmission business, continued implementation costs of the new operating
model and the impact of the change in the UK corporation tax rate (see note 4
for details). We continue to treat certain items as remeasurements as
disclosed in note 4.
• In relation to the planned disposal of a majority stake in the UK
Gas Transmission business, the key judgement that has been applied is the date
from which the business qualified for classification as held for sale and a
discontinued operation, as explained further in note 6.
• The other area of judgement applied relates to the useful economic
lives of our gas networks remaining appropriate, consistent with the judgement
for the year ended 31 March 2021.
Key sources of estimation uncertainty that have the most significant effect on
the amounts recognised in the financial information:
• In respect of the acquisition of WPD, the key source of estimation
uncertainty relates to the provisional purchase price allocation to determine
the fair value of identifiable assets and liabilities acquired, specifically
the valuation and allocation of the fair value principally between property,
plant and equipment, the acquired license intangibles and the value of
goodwill recorded. Refer to note 7 for further details.
• The other key sources of estimation uncertainty are consistent with
those for the year ended 31 March 2021:
• the valuation of liabilities for pensions and other post-retirement
benefits; and
• the cash flows applied in determining environmental provisions.
1. Basis of preparation and new accounting standards, interpretations and
amendments (continued)
Going concern
As part of the Directors' consideration of the appropriateness of adopting
the going concern basis of accounting in preparing the half year financial
information, the Directors have considered the Group's principal risks
(discussed on page 53) alongside potential downside business cashflow
scenarios impacting the Group's operations. The Directors specifically
considered both a base case and a reasonable worst-case scenario for business
cashflows and the timing of the planned disposals of NECO and of a majority
stake of the UK Gas Transmission business (see note 6).
The reasonable worst-case scenario included the following key sensitivities:
• additional potential working capital requirements in our UK
businesses in response to the wider gas market stability challenges;
• adverse impact from timing across the Group, i.e. a net
under-recovery of allowed revenues or reductions in over-collections;
• a significant reduction in cash collections driven by lower
customer demand and increased bad debt in our US businesses and potential
supplier defaults in our UK business;
• higher cash outflow than expected following the recent Sellindge
Interconnector fire;
• higher operating costs than expected; or non-delivery of planned
efficiencies across the Group; and
• the potential impact of further significant storm costs in the US.
As part of their analysis, the Board also considered the following potential
levers at their discretion to improve the position identified by the analysis
if the debt capital markets are not accessible:
• the payment of dividends to shareholders;
• significant changes in the phasing of the Group's capital
programme with elements of non-essential works and programmes delayed; and
• a number of further reductions in operating expenditure across the
Group primarily related to workforce cost reductions in both the UK and the
US.
Having considered the reasonable worst-case scenario, the impact and timing of
the planned strategic transactions, and the further levers at the Board's
discretion, the Group continues to have headroom against the Group's committed
facilities identified in note 15 of the half year financial information.
In addition to the above, the ability to raise new and extend existing
financing was separately included in the analysis, and the Directors noted the
c.£2.3 billion of new long-term senior debt completed in the period from 1
April to 30 September 2021 as evidence of the Group's ability to continue to
have access to the debt capital markets if needed.
Based on the above, the Directors have concluded the Group is well placed to
manage its financing and other business risks satisfactorily, and have a
reasonable expectation that the Group will have adequate resources
to continue in operation for at least twelve months from the signing date of
these consolidated interim financial statements. They therefore consider it
appropriate to adopt the going concern basis of accounting in preparing
the half year financial information.
1. Basis of preparation and new accounting standards, interpretations and
amendments (continued)
New IFRS accounting standards, interpretations and amendments adopted in the
period
There are no new standards, interpretations or amendments, issued by the IASB
or by the IFRS Interpretations Committee (IFRIC), that are applicable for the
period commencing on 1 April 2021 and have had a material impact on the
Group's results.
New IFRS accounting standards, interpretations and amendments not yet adopted
The following new amendment to existing standards has been issued, since the
publication of our Annual Report and Accounts, but is not yet effective or has
not yet been endorsed in the UK:
• Amendments to IAS 12 - Deferred tax related to assets and
liabilities arising from a single transaction.
The Group is currently assessing the impact of the amendment but it is not
expected to have a material impact. The Group has not early adopted any
standard, amendment or interpretation that has been issued but is not yet
effective.
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 operating
profit before exceptional items and remeasurements (see note 4). As a matter
of course, the Board also considers profitability by segment, excluding the
effect of timing. 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.
As a result of the new operating model, the operating segments reported to the
Board have changed during the period to align with the six business units that
will continue to operate. The UK Gas Transmission business, that is expected
to be disposed of, is now considered a discontinued operation (see note 6).
Five of these continuing businesses meet the size criteria set out in the
accounting standards to be treated as reportable operating segments. The
remaining businesses that are not reportable operating segments and the
corporate centre activities are reported to the Board of Directors on an
aggregated basis.
The following table describes the main activities for each reportable
operating segment within continuing operations:
UK Electricity Transmission The high-voltage electricity transmission networks in England and Wales.
UK Electricity Distribution The electricity distribution networks of WPD in East Midlands, West Midlands,
South Wales and the South West.
UK Electricity System Operator The independent Great Britain electricity system operator.
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.
The UK Gas Transmission business, which owns the high-pressure gas
transmission networks in Great Britain and system operator in Great Britain,
is now a discontinued operation and classified as held for sale. Therefore,
while it is still a reportable operating segment, it is no longer presented
within continuing operations.
The New England and New York segments typically experience seasonal
fluctuations in revenue and operating profit due to higher delivery volumes
during the second half of the financial year, for example as a result of
extreme weather over the winter. These seasonal fluctuations have a
consequential impact on the working capital balances (primarily trade debtors
and accrued income) in the consolidated statement of financial position at
30 September 2021 when compared to 31 March 2021. The majority of UK
revenues are governed by the arrangements under RIIO, through which revenue is
primarily based on availability of network capacity rather than usage, and
therefore are not subject to the same seasonal fluctuations as in New York and
New England.
The National Grid Ventures (NGV) operating segment is outside our regulated
core business and operates in competitive markets across the UK and the US.
The business comprises all commercial operations in LNG at the Isle of Grain
in the UK, our electricity generation business in the US, our electricity
interconnectors and our investment in National Grid Renewables Development LLC
(formerly Geronimo), with a focus on investment and future activities in
emerging growth areas. NGV does not meet the thresholds set out in IFRS 8 to
be identified as a separate reportable segment and therefore its results are
not required to be separately presented.
Other activities that do not form part of any of the segments in the above
table or NGV 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
Six months ended 30 September 2021 2020¹
Total sales Sales between segments(2) Sales to third parties Total sales Sales between segments(2) Sales to third parties
£m £m £m £m £m £m
Operating segments - continuing operations:
UK Electricity Transmission 1,037 - 1,037 940 (5) 935
UK Electricity Distribution 509 - 509 - - -
UK Electricity System Operator 1,146 (4) 1,142 948 - 948
New England 1,686 - 1,686 1,839 - 1,839
New York 1,971 - 1,971 1,903 - 1,903
NGV and Other 596 - 596 440 (1) 439
Total revenue from continuing operations 6,945 (4) 6,941 6,070 (6) 6,064
Discontinued operations - UK Gas Transmission 716 (6) 710 476 (5) 471
Total 7,661 (10) 7,651 6,546 (11) 6,535
Geographical areas:
UK 3,000 2,071
US 3,941 3,993
Total revenue from continuing operations 6,941 6,064
Discontinued operations - UK Gas Transmission 710 471
Total 7,651 6,535
1. Comparative amounts have been re-presented to reflect the
classification of the UK Gas Transmission business as a discontinued operation
and the new operating segments.
2. Sales between operating segments are priced having regard to the
regulatory and legal requirements to which the businesses are subject. The
analysis of revenue by geographical area is on the basis of destination.
(b) Operating profit
Before exceptional items and remeasurements After exceptional items and remeasurements
Six months ended 30 September 2021 2020¹ 2021 2020¹
£m £m £m £m
Operating segments - continuing operations:
UK Electricity Transmission 550 509 541 509
UK Electricity Distribution 281 - 281 -
UK Electricity System Operator 63 (32) 50 (32)
New England 126 167 252 192
New York 122 176 321 239
NGV and Other 161 52 47 52
Total operating profit from continuing operations 1,303 872 1,492 960
Discontinued operations - UK Gas Transmission 390 175 387 175
Total 1,693 1,047 1,879 1,135
Geographical areas
UK 1,025 510 889 510
US 278 362 603 450
Total operating profit from continuing operations 1,303 872 1,492 960
Discontinued operations - UK Gas Transmission 390 175 387 175
Total 1,693 1,047 1,879 1,135
1. Comparative amounts have been re-presented to reflect the
classification of the UK Gas Transmission business as a discontinued operation
and the new operating segments.
2. Segmental analysis (continued)
Below we reconcile total operating profit from continuing operations to profit
before tax from continuing operations. The operating exceptional items and
remeasurements income of £189 million (2020: £88 million income) relates
to UK Electricity Transmission, £9 million expense (2020: £nil); UK
Electricity System Operator, £13 million expense (2020: £nil); New England,
£126 million income (2020: £25 million income); New York, £199 million
income (2020: £63 million income); and NGV and Other, £114 million expense
(2020: £nil).
Before exceptional items and remeasurements After exceptional items and remeasurements
Six months ended 30 September 2021 2020¹ 2021 2020¹
£m £m £m £m
Reconciliation to profit before tax:
Operating profit from continuing operations 1,303 872 1,492 960
Share of post-tax results of joint ventures and associates 58 38 41 30
Finance income 45 13 47 27
Finance costs (520) (444) (497) (434)
Profit before tax from continuing operations 886 479 1,083 583
Profit before tax from discontinued operations 320 138 310 137
Total profit before tax 1,206 617 1,393 720
1. Comparative amounts have been re-presented to reflect the
classification of the UK Gas Transmission business as a discontinued
operation.
(c) Capital expenditure
Capital expenditure represents additions to property, plant and equipment and
other intangible assets 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
30 September 2021 31 March 2021¹ 30 September 2021 30 September 2020¹ 30 September 2021 30 September 2020¹
£m £m £m £m £m £m
Operating segments:
UK Electricity Transmission 14,351 14,000 587 501 (243) (238)
UK Electricity Distribution 12,050 - 315 - (71) -
UK Electricity System Operator 415 379 65 47 (29) (20)
New England 10,775 10,165 700 773 (166) (202)
New York 17,491 16,466 851 847 (242) (234)
NGV and Other 2,876 2,751 196 235 (89) (67)
Total from continuing operations 57,958 43,761 2,714 2,403 (840) (761)
Discontinued operations - UK Gas Transmission 4,761 4,725 131 95 (90) (92)
Total 62,719 48,486 2,845 2,498 (930) (853)
Geographical areas:
UK 29,176 16,628 1,147 763 (409) (301)
US 28,782 27,133 1,567 1,640 (431) (460)
Total from continuing operations 57,958 43,761 2,714 2,403 (840) (761)
Discontinued operations - UK Gas Transmission 4,761 4,725 131 95 (90) (92)
Total 62,719 48,486 2,845 2,498 (930) (853)
By asset type:
Property, plant and equipment 54,699 42,424 2,487 2,201 (745) (682)
Other intangible assets 3,259 1,337 227 202 (95) (79)
Total from continuing operations 57,958 43,761 2,714 2,403 (840) (761)
Discontinued operations - UK Gas Transmission 4,761 4,725 131 95 (90) (92)
Total 62,719 48,486 2,845 2,498 (930) (853)
1. Comparative amounts have been re-presented to reflect the
classification of the UK Gas Transmission business as a discontinued operation
and the new operating segments.
3. Revenue
Under IFRS 15 'Revenue from Contracts with Customers', revenue is recorded as
or when the Group satisfies a performance obligation by transferring a
promised good or service to a customer. A good or service is transferred when
the customer obtains control of that good or service.
The transfer of control of our distribution or transmission services coincides
with the use of our network, as electricity and gas pass through our network
and reach our customers. The Group principally satisfies its performance
obligations over time and the amount of revenue recorded corresponds to the
amounts billed and accrued for volumes of gas and electricity
delivered/transferred to/from our customers.
Revenue for the six months ended UK UK UK New New Total
30 September 2021 Electricity Transmission Electricity Distribution Electricity System Operator England York NGV £m
£m £m £m £m £m and
Other
£m
Revenue under IFRS 15:
Transmission 1,020 - - 17 167 221 1,425
Distribution - 447 - 1,644 1,783 - 3,874
System Operator - - 1,142 - - - 1,142
Other(1) 13 60 - 4 4 99 180
Total IFRS 15 revenue 1,033 507 1,142 1,665 1,954 320 6,621
Other revenue:
Generation - - - - - 178 178
Other(2) 4 2 - 21 17 98 142
Total other revenue 4 2 - 21 17 276 320
Total revenue from continuing operations 1,037 509 1,142 1,686 1,971 596 6,941
Total revenue from discontinued operations - UK Gas Transmission 710
Total 1,037 509 1,142 1,686 1,971 596 7,651
Geographic split of revenue for the six months ended 30 September 2021 UK UK UK New England New York Total
Electricity Transmission Electricity Distribution Electricity System Operator £m £m NGV £m
£m £m £m and
Other
£m
Revenue under IFRS 15:
UK 1,033 507 1,142 - - 229 2,911
US - - - 1,665 1,954 91 3,710
Total IFRS 15 revenue 1,033 507 1,142 1,665 1,954 320 6,621
Other revenue:
UK 4 2 - - - 83 89
US - - - 21 17 193 231
Total other revenue 4 2 - 21 17 276 320
Total revenue from continuing operations 1,037 509 1,142 1,686 1,971 596 6,941
Total revenue from discontinued operations - UK Gas Transmission 710
Total 1,037 509 1,142 1,686 1,971 596 7,651
1. Within UK Electricity Distribution, the 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 re-routing
of existing network assets. Within NGV and Other, 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 and rental income.
3. Revenue (continued)
Revenue for the six months ended UK UK UK New England New York Total
30 September 2020¹ Electricity Transmission Electricity Distribution Electricity System Operator £m £m NGV £m
£m £m £m and
Other
£m
Revenue under IFRS 15:
Transmission 895 - - 45 171 142 1,253
Distribution - - - 1,770 1,710 - 3,480
System Operator - - 945 - - - 945
Other(2) 31 - - 4 3 51 89
Total IFRS 15 revenue 926 - 945 1,819 1,884 193 5,767
Other revenue:
Generation - - - - - 197 197
Other(3) 9 - 3 20 19 49 100
Total other revenue 9 - 3 20 19 246 297
Total revenue from continuing operations 935 - 948 1,839 1,903 439 6,064
Total revenue from discontinued operations - UK Gas Transmission 471
Total 935 - 948 1,839 1,903 439 6,535
Geographic split of revenue for the six months ended 30 September 2020¹ UK UK UK New England New York Total
Electricity Transmission Electricity Distribution Electricity System Operator £m £m NGV £m
£m £m £m and
Other
£m
Revenue under IFRS 15:
UK 926 - 945 - - 147 2,018
US - - - 1,819 1,884 46 3,749
Total IFRS 15 revenue 926 - 945 1,819 1,884 193 5,767
Other revenue:
UK 9 - 3 - - 41 53
US - - - 20 19 205 244
Total other revenue 9 - 3 20 19 246 297
Total revenue from continuing operations 935 - 948 1,839 1,903 439 6,064
Total revenue from discontinued operations - UK Gas Transmission 471
Total 935 - 948 1,839 1,903 439 6,535
1. Comparative amounts have been re-presented to reflect the
classification of the UK Gas Transmission business as a discontinued operation
and the new operating segments.
2. Within NGV and Other, 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.
4. Exceptional items and remeasurements
Exceptional items and remeasurements are items of income and expenditure that,
in the judgement of the Directors, should be disclosed separately on the basis
that they are important in providing an understanding of our financial
performance and may significantly distort the comparability of financial
performance between periods.
Remeasurements comprise unrealised gains or losses recorded in the
consolidated income statement arising from changes in the fair value of
certain financial assets and liabilities categorised as held at fair value
through profit and loss (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 contracts and derivative financial instruments
to the extent that hedge accounting is either not achieved or is not
effective. We have also classified the unrealised gains or losses reported in
profit and loss on certain additional assets treated at FVTPL 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 losses and gains 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.
Six months ended 30 September 2021 Exceptional items Remeasurements Total
£m £m £m
Included within operating profit from continuing operations:
New operating model implementation costs (24) - (24)
Transaction costs (137) - (137)
Net gains on commodity contract derivatives - 350 350
(161) 350 189
Included within net finance costs (note 5):
Net gains on derivative financial instruments - 23 23
Net gains on FVTPL financial assets - 2 2
- 25 25
Included within share of post-tax results of joint ventures and associates
Net losses on financial instruments - (17) (17)
- (17) (17)
Total included within profit before tax from continuing operations (161) 358 197
Exceptional deferred tax arising on the change in UK corporation tax rate (484) - (484)
Tax on exceptional items and remeasurements 11 (86) (75)
Total exceptional items and remeasurements after tax from continuing (634) 272 (362)
operations
Total exceptional items and remeasurements after tax from discontinued (155) (6) (161)
operations
Total exceptional items and remeasurements after tax (789) 266 (523)
4. Exceptional items and remeasurements (continued)
Six months ended 30 September 2020¹ Exceptional items Remeasurements Total
£m £m £m
Included within operating profit from continuing operations
Environmental charges 15 - 15
Net gains on commodity contract derivatives - 73 73
15 73 88
Included within net finance costs (note 5)
Net gains on derivative financial instruments - 10 10
Net gains on FVTPL financial assets - 14 14
Net gains on FVTPL financial liabilities - - -
- 24 24
Included within share of post-tax results of joint ventures and associates
Net losses on financial instruments - (8) (8)
- (8) (8)
Total included within profit before tax from continuing operations 15 89 104
Tax on exceptional items and remeasurements (4) (24) (28)
Total exceptional items and remeasurements after tax from continuing 11 65 76
operations
Total exceptional items and remeasurements after tax from discontinued - (1) (1)
operations
Total exceptional items and remeasurements after tax 11 64 75
1. Comparative amounts have been re-presented to reflect the
classification of the UK Gas Transmission business as a discontinued
operation.
New operating model implementation costs: In the period ended 30 September
2021, the Group incurred a further £24 million of costs in relation to the
design and implementation of our new operating model that is built on a
foundation of six business units. The costs recognised in the period primarily
relate to professional fees incurred in designing the new operating model and
redundancy provisions accrued where announcements have been made for employees
that will be leaving the organisation as a result of the changes. The costs
incurred during the period do not meet the quantitative threshold to be
classified as exceptional on a standalone basis. However, when considered with
the aggregated costs expected to be incurred over the duration of the
programme, we have concluded the costs should be classified as exceptional in
line with our exceptional items framework. The total cash outflow for the
period in relation to these costs was £12 million.
Transaction costs: £137 million of transaction costs were incurred in the
period to date in relation to the acquisition of WPD (see note 7) and the
planned disposals of NECO and our UK Gas Transmission business (see note 6).
The costs incurred relate to Stamp Duty Land Tax, legal fees, bankers' fees
and professional fees. The costs have been classified as exceptional,
consistent with similar costs for the year ended 31 March 2021. The total cash
outflow for the period in relation to these costs was £79 million.
Change in UK corporation tax rate: In the Spring Budget 2021, the 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. UK deferred tax
balances have been remeasured at the enacted rate, with the £484m impact of
the change in rates recognised as an exceptional item, in line with previous
periods.
Environmental charges: During the prior period, we recognised £15 million of
exceptional gains relating to the release of environmental provisions related
to one of our US Superfund sites, following the finalisation of discussions
with government authorities on the scope of remediation. The release has
been recorded as exceptional in line with the treatment of the original
provision.
5. Finance income and costs
Six months ended 30 September 2021 2020¹
Notes £m £m
Finance income before exceptional items and remeasurements
Interest income from financing activities 2 7
Other interest income 43 6
45 13
Finance costs before exceptional items and remeasurements
Net interest on pensions and other post-retirement benefit obligations 2 (28)
Interest expense on financial instruments (556) (428)
Unwinding of discount on provisions (36) (41)
Less: Interest capitalised 70 53
(520) (444)
Net finance costs before exceptional items and remeasurements (475) (431)
Total exceptional items and remeasurements(2) 4 25 24
Net finance costs including exceptional items and remeasurements from (450) (407)
continuing operations
Net finance costs including exceptional items and remeasurements from (77) (38)
discontinued operations
Net finance costs including exceptional items and remeasurements (527) (445)
1. Comparative amounts have been re-presented to reflect the
classification of the UK Gas Transmission business as a discontinued
operation.
2. Includes a net foreign exchange gain on borrowing activities, offset
by foreign exchange losses and gains on financing derivatives measured
at fair value.
6. Assets held for sale and discontinued operations
Assets and businesses are classified as held for sale when their carrying
amounts are recovered through sale rather than through continuing use. They
only meet the held for sale condition when the assets are ready for immediate
sale in their present condition, management is committed to the sale and it is
highly probable that the sale will complete within one year. Depreciation
ceases on assets and businesses when they are classified as held for sale and
the assets and businesses are impaired if their carrying value exceeds their
fair value less expected costs to sell.
The results and cash flows of assets or businesses classified as held for sale
or sold during the year, that meet the criteria of being a major separate line
of business or geographical area of operation, are shown separately from our
continuing operations, and presented within discontinued operations in the
income statement and cash flow statement.
Assets held for sale
The Group is currently in the process of disposing of the following two
businesses that have met the criteria for classification as held for sale as
at the half year:
As at 30 September 2021
£m
Assets held for sale
UK Gas Transmission 6,127
The Narragansett Electric Company 3,790
9,917
Liabilities held for sale
UK Gas Transmission (6,914)
The Narragansett Electric Company (1,612)
(8,526)
Net assets held for sale 1,391
6. Assets held for sale and discontinued operations (continued)
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). NECO is part of our New England segment and is a retail distribution
company providing electricity and gas to customers in Rhode Island. The
expected sale proceeds are £2.8 billion ($3.8 billion), and the sale is
expected to complete before the financial year end if all regulatory approvals
are obtained.
As the sale is considered highly probable and is expected to complete within a
year, the associated assets and liabilities have been presented as held for
sale in the consolidated statement of financial position since 31 March 2021.
However, as NECO does not represent a separate major line of business or
geographical area of operation, it has not met the criteria for
classification as a discontinued operation and therefore its results for the
period are not separately disclosed on the face of the income statement.
The following assets and liabilities of NECO were classified as held for sale
at 30 September 2021:
30 September 2021 31 March 2021
£m £m
Goodwill 575 562
Intangible assets 3 3
Property, plant and equipment 2,913 2,713
Trade and other receivables 199 237
Cash and cash equivalents 16 4
Other assets 84 38
Total assets held for sale 3,790 3,557
Borrowings (1,147) (1,123)
Pension liabilities (31) (49)
Other liabilities (434) (396)
Total liabilities held for sale (1,612) (1,568)
Net assets held for sale 2,178 1,989
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 ended 30 September 2021 (year
ended 31 March 2021: £104 million). Current tax liabilities of £7 million
and deferred tax liabilities of £331 million relating to NECO have not been
included as held for sale on the basis that they will be retained by the Group
rather than transferred with the other assets and liabilities of NECO. These
retained balances are classified as current as they are expected to
crystallise in less than one year.
6. Assets held for sale and discontinued operations (continued)
UK Gas Transmission
The Group announced its intention to sell a majority stake in the UK Gas
Transmission business on 18 March 2021. The business has been actively
marketed, with the current expectation to agree a sale of a majority stake in
the business within twelve months, assuming all regulatory approvals are
obtained.
As a result, the Group took the judgement to classify 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.
The following assets and liabilities of the UK Gas Transmission were
classified as held for sale at 30 September 2021:
30 September 2021
£m
Intangible assets 119
Property, plant and equipment 4,642
Trade and other receivables 279
Pension assets 448
Other assets 639
Total assets held for sale 6,127
Borrowings (5,548)
Deferred tax (725)
Other liabilities (641)
Total liabilities held for sale (6,914)
Net liabilities held for sale (787)
As UK Gas Transmission represents a major separate line of business, the
business has also met the criteria for classification as a discontinued
operation, and therefore the results of the business have been shown
separately from the continuing business for all periods presented on the face
of the income statement as a discontinued operation. The summary income
statements for the periods ended 30 September 2021 and 2020 are as follows:
2021 Before exceptional items and remeasurements Exceptional Total
£m items and remeasurements
Discontinued operations
Revenue 710 - 710
Other operating costs (320) (3) (323)
Operating profit 390 (3) 387
Finance income 2 - 2
Finance costs (72) (7) (79)
Profit/(loss) before tax 320 (10) 310
Tax (60) (151) (211)
Profit/(loss) after tax from discontinued operations 260 (161) 99
6. Assets held for sale and discontinued operations (continued)
2020 Before exceptional items and remeasurements Exceptional Total
£m items and remeasurements
Discontinued operations
Revenue 471 - 471
Other operating costs (296) - (296)
Operating profit 175 - 175
Finance income 1 - 1
Finance costs (38) (1) (39)
Profit/(loss) before tax 138 (1) 137
Tax (27) - (27)
Profit/(loss) after tax from discontinued operations 111 (1) 110
The summary statement of comprehensive income is as follows:
2021 2020
£m £m
Profit after tax from discontinued operations 99 110
Other comprehensive income/(loss) from discontinued operations
Items from discontinued operations that will never be reclassified to profit
or loss:
Remeasurement gains/(losses) on pension assets and post-retirement benefit 91 (331)
obligations
Net losses on financial liability designated at fair value through profit and (1) (8)
loss attributable to changes in own credit risk
Tax on items that will never be reclassified to profit or loss (39) 64
Total gains/(losses) from discontinued operations that will never be 51 (275)
reclassified to profit or loss
Items from discontinued operations that may be reclassified subsequently to
profit or loss:
Net losses in respect of cash flow hedges (3) (2)
Net losses in respect of cost of hedging (2) (3)
Tax on items that may be reclassified subsequently to profit or loss 1 1
Total losses from discontinued operations that may be reclassified (4) (4)
subsequently to profit or loss
Other comprehensive income/(loss) for the period, net of tax, from 47 (279)
discontinued operations
Total comprehensive income/(loss) for the period from discontinued operations 146 (169)
7. Acquisitions
On 14 June 2021, National Grid plc acquired 100% of the share capital of PPL
WPD Investments Limited (WPD), the holding company of Western Power
Distribution plc, which is the UK's largest electricity distribution network
operator. The acquisition, along with the two planned disposals disclosed in
note 6, strategically pivots National Grid's UK portfolio towards electricity,
in order to significantly enhance National Grid's role in the delivery of the
UK's net zero targets, given that electricity distribution is expected to see
a high level of asset growth as a result of the ongoing energy transition.
The total cash consideration for the transaction was £7.9 billion, all of
which was paid upfront, with no further contingent or deferred consideration
payable. As a result of the acquisition, one of WPD's existing borrowing
facilities became repayable immediately due to a change in control clause
within the original borrowing agreement. The borrowing facility was
immediately replaced with an intercompany loan of £350 million from National
Grid plc. National Grid funded the transaction price and the new
intercompany loan by taking out a bridge financing facility (see note 15),
that it intends to repay using the proceeds of the planned disposals.
The provisional fair values of the assets and liabilities recognised at the
acquisition date are set out below:
IFRS book value at acquisition Provisional adjustments Provisional fair value
£m £m £m
Non-current assets
Property, plant and equipment 14,099 (4,045) 10,054
Other intangible assets 49 1,714 1,763
Pension assets 402 164 566
Deferred tax - 253 253
Other non-current assets 27 - 27
Total non-current assets 14,577 (1,914) 12,663
Current assets
Trade and other receivables 265 - 265
Financial and other investments 69 - 69
Cash 37 - 37
Other current assets 42 - 42
Total current assets 413 - 413
Total assets 14,990 (1,914) 13,076
Current liabilities
Borrowings (730) - (730)
Trade and other payables (532) 49 (483)
Other current liabilities (38) - (38)
Total current liabilities (1,300) 49 (1,251)
Non-current liabilities
Borrowings (5,966) (1,590) (7,556)
Deferred tax (1,016) (23) (1,039)
Contract liabilities (2,706) 2,706 -
Other non-current liabilities (70) (11) (81)
Total non-current liabilities (9,758) 1,082 (8,676)
Total liabilities (11,058) 1,131 (9,927)
Total identifiable net assets 3,932 (783) 3,149
Goodwill 1,254 3,478 4,732
Total consideration transferred 5,186 2,695 7,881
Satisfied by:
Cash consideration 7,881
Total consideration transferred 7,881
The fair values are considered provisional as at 30 September 2021 and are
planned to be finalised in the Annual Report for the year ending 31 March
2022. The principal items outstanding are contingent or unrecorded
liabilities, other intangible assets and related tax impacts.
7. Acquisitions (continued)
The provisional goodwill arising from the acquisition represents the future
expected growth in the WPD business, the benefits that are expected to be
achieved as a result of the combination of the two businesses and the
expertise of the management team acquired. No component of goodwill qualifies
for recognition as separate tangible or intangible asset. The goodwill is not
deductible for tax purposes and at the acquisition date, there were no
material contingent liabilities.
The fair value of trade and other receivables at 14 June 2021 was £267
million and includes trade receivables with a fair value of £215 million.
The gross contractual amount for trade receivables due was £234 million, of
which £19 million was expected to be uncollectible.
Total acquisition-related costs of £91 million were recognised within other
operating costs, within exceptional items and remeasurements in the
consolidated income statement, of which £15 million was recognised in the
year ended 31 March 2021 and £76 million in the period ended 30 September
2021.
WPD generated revenues of £509 million and profit before tax of £220 million
for the period from 14 June 2021 to 30 September 2021. If the acquisition had
occurred on 1 April 2021, the Group's consolidated revenue and consolidated
profit before tax from continuing operations for the six months ended 30
September 2021 would have been £7,298 million and £1,217 million
respectively.
Subsequent to the acquisition of WPD, the total consolidated Group goodwill is
as follows:
£m
Opening balance at 1 April 2021 4,588
Acquisition of WPD 4,732
Exchange adjustments 103
Closing balance at 30 September 2021 9,423
8. Tax from continuing operations
The tax charge from continuing operations for the six month period ended
30 September 2021 is £707 million (2020: £91 million), and before tax on
exceptional items and remeasurements, is £148 million (2020: £63 million).
It is based on management's estimate of the weighted average effective tax
rate by jurisdiction expected for the full year. The effective tax rate
excluding tax on exceptional items and remeasurements is 16.7% (2020: 13.2%),
which includes the impact of our share of post-tax results of joint ventures
and associates.
The half year effective tax rate before exceptional items and remeasurements
primarily reflects seasonality of earnings in the US Group, whilst after
exceptional items and remeasurements reflects both seasonality of earnings in
the US Group and the impact of UK corporation tax rate change (see below).
For the full year, we expect the Group's effective tax rate to be around 20%
excluding tax on exceptional items and remeasurements. The effective tax rate
for the year ended 31 March 2021 was 20.5% before exceptional items and
remeasurements and 21.7% after exceptional items and remeasurements.
In the Spring Budget 2021, the 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. UK deferred tax balances have been remeasured at the
enacted rate, with the impact of the change in rates recognised as an
exceptional item (see note 4).
9. Earnings per share
Earnings per share (EPS), excluding exceptional items and remeasurements, are
provided to reflect the adjusted profit subtotals used by the Group, as set
out in note 1. The earnings per share calculations are based on profit after
tax attributable to equity shareholders of the parent company which excludes
non-controlling interests.
(a) Basic earnings per share
Six months ended 30 September 2021 2021 2020¹ 2020¹
Earnings EPS Earnings EP
S
£m Pence £m Pence
Profit after tax before exceptional items and remeasurements - continuing 737 20.7 415 11.9
Exceptional items and remeasurements after tax - continuing (362) (10.2) 76 2.1
Profit after tax from continuing operations attributable to the parent 375 10.5 491 14.0
Profit after tax before exceptional items and remeasurements - discontinued 260 7.3 111 3.1
Exceptional items and remeasurements after tax - discontinued (161) (4.5) (1) -
Profit after tax from discontinued operations attributable to the parent 99 2.8 110 3.1
Total profit after tax before exceptional items and remeasurements 997 28.0 526 15.0
Total exceptional items and remeasurements after tax (523) (14.7) 75 2.1
Total profit after tax attributable to the parent 474 13.3 601 17.1
Millions Millions
Weighted average number of shares - basic 3,569 3,513
1. Comparative amounts have been re-presented to reflect the
classification of the UK Gas Transmission business as a discontinued
operation.
(b) Diluted earnings per share
Six months ended 30 September 2021 2021 2020¹ 2020¹
Earnings EPS Earnings EP
S
£m Pence £m Pence
Profit after tax before exceptional items and remeasurements - continuing 737 20.6 415 11.8
Exceptional items and remeasurements after tax - continuing (362) (10.1) 76 2.1
Profit after tax from continuing operations attributable to the parent 375 10.5 491 13.9
Profit after tax before exceptional items and remeasurements - discontinued 260 7.3 111 3.1
Exceptional items and remeasurements after tax - discontinued (161) (4.6) (1) -
Profit after tax from discontinued operations attributable to the parent 99 2.7 110 3.1
Total profit after tax before exceptional items and remeasurements 997 27.9 526 14.9
Total exceptional items and remeasurements after tax (523) (14.7) 75 2.1
Total profit after tax attributable to the parent 474 13.2 601 17.0
Millions Millions
Weighted average number of shares - diluted 3,584 3,530
1. Comparative amounts have been re-presented to reflect the
classification of the UK Gas Transmission business as a discontinued
operation.
10. Dividends
Pence Cash dividend paid Scrip
per £m dividend
share £m
Ordinary dividends
Final dividend in respect of the year ended 31 March 2021 32.16 583 562
Interim dividend in respect of the year ended 31 March 2021(1) 17.00 348 249
Final dividend in respect of the year ended 31 March 2020(1) 32.00 1,065 54
1. Paid during the year ended 31 March 2021.
The Directors are proposing an interim dividend of 17.21 pence per share in
respect of the year ending 31 March 2022. It will be paid on 19 January 2022
to shareholders who are on the register of members at 3 December 2021. A scrip
dividend will be offered as an alternative. This would absorb approximately
£622 million of shareholders' equity.
11. Property, plant and equipment
Land and buildings Plant and machinery Assets in the course of construction Motor vehicles and office equipment Total
£m £m £m £m £m
Cost
Cost at 1 April 2021 3,752 56,061 5,221 1,018 66,052
Exchange adjustments 48 756 52 17 873
Additions 13 390 2,169 30 2,602
Acquisition of WPD (note 7) 200 9,674 - 180 10,054
Disposals (23) (174) - (40) (237)
Reclassifications 67 1,687 (1,791) 25 (12)
Reclassification to held for sale (note 6) (313) (8,575) (556) (248) (9,692)
Cost at 30 September 2021 3,744 59,819 5,095 982 69,640
Accumulated depreciation
Accumulated depreciation at 1 April 2021 (876) (17,482) - (651) (19,009)
Exchange adjustments (9) (164) - (10) (183)
Depreciation charge for the period (52) (695) - (76) (823)
Disposals 22 165 - 40 227
Reclassifications (1) (3) - 1 (3)
Reclassification to held for sale (note 6) 192 4,453 - 205 4,850
Accumulated depreciation at 30 September 2021 (724) (13,726) - (491) (14,941)
Net book value at 30 September 2021 3,020 46,093 5,095 491 54,699
Land and buildings Plant and machinery Assets in the course of construction Motor Total
vehicles and office equipment
£m £m £m £m £m
Cost
Cost at 1 April 2020(1) 3,897 59,609 4,771 1,036 69,313
Exchange adjustments(1) (82) (1,263) (73) (28) (1,446)
Additions 72 183 2,001 29 2,285
Disposals - (115) (7) (12) (134)
Reclassifications(1) 65 1,146 (1,253) 22 (20)
Cost at 30 September 2020 3,952 59,560 5,439 1,047 69,998
Accumulated depreciation
Accumulated depreciation at 1 April 2020(1) (847) (18,042) - (662) (19,551)
Exchange adjustments(1) 13 273 - 17 303
Depreciation charge for the period (46) (657) - (58) (761)
Disposals (1) 108 - 11 118
Reclassifications (1) (3) - 4 -
Accumulated depreciation at 30 September 2020 (882) (18,321) - (688) (19,891)
Net book value at 30 September 2020 3,070 41,239 5,439 359 50,107
1. Comparative amounts have been revised to reflect the prior year
adjustments to property, plant and equipment, goodwill and deferred tax as
described in note 1 to the Annual Report and Accounts for the year ended 31
March 2021.
12. Fair value measurement
Assets and liabilities measured at fair value
Included in the statement of financial position are certain financial assets
and liabilities which are measured at fair value. The following table
categorises these assets and liabilities by the valuation methodology applied
in determining their fair value using the fair value hierarchy described on
page 200 of the Annual Report and Accounts for the year ended 31 March 2021.
30 September 2021 31 March 2021
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
£m £m £m £m £m £m £m £m
Assets
Investments held at FVTPL 1,670 - 311 1,981 1,768 - 240 2,008
Investments held at FVOCI(1) 105 458 - 563 99 416 - 515
Financing derivatives - 391 - 391 - 942 - 942
Commodity contract derivatives - 206 105 311 - 12 45 57
1,775 1,055 416 3,246 1,867 1,370 285 3,522
Liabilities
Financing derivatives - (618) (133) (751) - (584) (183) (767)
Commodity contract derivatives - (72) (14) (86) - (75) (57) (132)
Liabilities held at fair value - - - - (682) - - (682)
Contingent consideration(2) - - (45) (45) - - (57) (57)
- (690) (192) (882) (682) (659) (297) (1,638)
Total 1,775 365 224 2,364 1,185 711 (12) 1,884
1. Investments held includes instruments which meet the criteria of IFRS
9 or IAS 19.
2. Contingent consideration relates to the acquisition of National Grid
Renewables Development LLC.
The estimated fair value of total borrowings using market values at
30 September 2021 is £46,868 million (31 March 2021: £34,676 million).
Our level 1 financial investments and liabilities held at fair value are
valued using quoted prices from liquid markets.
Our level 2 financial investments held at fair value are valued using quoted
prices for similar instruments in active markets, or quoted prices for
identical or similar instruments in inactive markets. Alternatively, they are
valued using models where all significant inputs are based directly or
indirectly on observable market data.
Our level 2 financing derivatives include cross-currency, interest rate and
foreign exchange derivatives. We value these derivatives by discounting all
future cash flows by externally sourced market yield curves at the reporting
date, taking into account the credit quality of both parties. These
derivatives can be priced using liquidly traded interest rate curves and
foreign exchange rates, and therefore we classify our vanilla trades as level
2 under the IFRS 13 framework.
Our level 2 commodity derivatives include over-the-counter gas swaps and power
swaps as well as forward physical gas deals. We value our contracts based on
market data obtained from the New York Mercantile Exchange (NYMEX) and the
Intercontinental Exchange (ICE) where monthly prices are available. We
discount based on externally sourced market yield curves at the reporting
date, taking into account the credit quality of both parties and liquidity in
the market. Our commodity contracts can be priced using liquidly traded swaps.
Therefore we classify our vanilla trades as level 2 under the IFRS 13
framework.
Our level 3 investments include equity instruments accounted for at fair value
through profit and loss. These equity holdings are part of our corporate
venture capital portfolio held by National Grid Partners and comprise a series
of small, early stage unquoted investments where prices or valuation inputs
are unobservable. These investments are either recently acquired or there have
been recent funding rounds with third parties and therefore the valuation is
based on the latest transaction price and any subsequent investment-specific
adjustments.
12. Fair value measurement (continued)
Our level 3 investments also include our investment in Sunrun Neptune 2016
LLC, which is accounted for at fair value through profit and loss. The
investment is fair valued by discounting expected cash flows using a weighted
average cost of capital specific to Sunrun Neptune 2016 LLC.
Our level 3 financing derivatives include inflation-linked swaps, where the
market is illiquid. In valuing these instruments we use in-house valuation
models and obtain external valuations to support each reported fair value.
Our level 3 commodity contract derivatives primarily consist of our
over-the-counter gas and power options and forward purchases of gas that we
value using proprietary models. Derivatives are classified as Level 3 where
significant inputs into the valuation technique are neither directly nor
indirectly observable (including our own data, which are adjusted, if
necessary, to reflect the assumptions market participants would use in the
circumstances).
The impacts on a post-tax basis of reasonably possible changes in significant
assumptions used in valuing assets and liabilities classified within level 3
of the fair value hierarchy are as follows:
Financing derivatives Commodity contract derivatives Other
within net debt
(note 13)
Six months ended 30 September 2021 2020 2021 2020 2021 2020
£m £m £m £m £m £m
10% increase in commodity prices - - 16 3 - -
10% decrease in commodity prices - - (16) (2) - -
+10% market area price change - - 2 (5) - -
-10% market area price change - - (3) 6 - -
+20 basis point increase in Limited Price Index (56) (98) - - - -
(LPI) market curve
-20 basis point decrease in LPI market curve 54 93 - - - -
+50 basis points change in discount rate - - - - (4) (5)
-50 basis points change in discount rate - - - - 6 5
The impacts disclosed above were considered on a contract by contract basis
with the most significant unobservable inputs identified. A reasonably
possible change in assumptions for other level 3 assets and liabilities would
not result in a material change in fair values.
The changes in fair value of our level 3 financial assets and liabilities in
the six months to 30 September are presented below:
Financing derivatives within net debt Commodity contract derivatives Other(1) Total
(note 13)
2021 2020 2021 2020 2021 2020 2021 2020
£m £m £m £m £m £m £m £m
At 1 April (183) (235) (12) 2 183 137 (12) (96)
Net (losses)/gains through the consolidated income statement for the period (16) 6 68 (9) 50 - 102 (3)
(2,3)
Purchases - - 11 - 37 9 48 9
Settlements - 1 24 20 (4) 13 20 34
Reclassification to held for sale(4) 66 - - - - - 66 -
At 30 September(5) (133) (228) 91 13 266 159 224 (56)
1. Other comprises our investments in Sunrun Neptune 2016 LLC and the
investments made by National Grid Partners, which are accounted for at fair
value through profit and loss and the contingent consideration arising from
the acquisition of National Grid Renewables Development LLC.
2. Losses of £16 million (2020: gains of £6 million) are attributable
to derivative financial instruments held at the end of the reporting period.
3. Gains of £132 million (2020: gains of £10 million) are attributable
to commodity contract derivative financial instruments held at the end of the
reporting period.
4. These liabilities are held by the UK Gas business, the total balances
for which can now be found in note 6 as held for sale.
5. There were no reclassifications in or out of level 3 (2020: none).
13. Net debt
Net debt is comprised as follows:
30 September 2021 31 March 2021
£m £m
Cash and cash equivalents 466 157
Current financial investments 2,288 2,342
Borrowings and bank overdrafts (43,895) (31,220)
Financing derivatives(1) (360) 175
Net debt (net of related derivative financial instruments) (41,501) (28,546)
1. Includes £17 million liability (31 March 2021: £32 million
liability) in relation to the hedging of capital expenditure and a
deal-contingent foreign exchange forward contract liability of £18 million
(31 March 2021: £9 million) in relation to the disposal of NECO. The cash
flows related to these derivatives are included within investing activities
and not financing activities in the consolidated cash flow statement.
The following table splits out the total derivative balances on the face of
the consolidated statement of financial position by category:
30 September 2021 31 March 2021
Assets Liabilities Total Assets Liabilities Total
£m £m £m £m £m £m
Financing derivatives 391 (751) (360) 942 (767) 175
Commodity contract derivatives 311 (86) 225 57 (132) (75)
Total derivative financial instruments 702 (837) (135) 999 (899) 100
14. Changes in net debt
(a) Reconciliation of cash flow from liabilities within net debt to cash
flow statement
Cash and cash equivalents Financial investments Borrowings(1) Financing derivatives Total
£m £m £m £m £m
At 1 April 2021 157 2,342 (31,220) 175 (28,546)
Cash flows 280 (60) (9,040) 25 (8,795)
Fair value gains and losses - 4 57 (147) (86)
Foreign exchange movements 1 18 (327) - (308)
Interest income/(charge) - 2 (535) (21) (554)
Lease additions - - (29) - (29)
Acquisition of WPD (note 7) 37 69 (8,286) 26 (8,154)
Reclassification to held for sale (note 6)(2) (9) (87) 5,485 (418) 4,971
At 30 September 2021 466 2,288 (43,895) (360) (41,501)
(b)
Cash and cash equivalents Financial investments Borrowings(1) Financing derivatives Total
£m £m £m £m £m
At 1 April 2020 73 1,998 (30,794) 133 (28,590)
Cash flows 93 (681) (1,055) 23 (1,620)
Fair value gains and losses - 14 - 84 98
Foreign exchange movements (2) (23) 397 183 555
Interest income/(charge) - 7 (482) 5 (470)
Lease additions - - (88) - (88)
At 30 September 2020 164 1,315 (32,022) 428 (30,115)
1. Included within borrowings are lease liabilities amounting to £667
million (30 September 2020: £735 million).
2. Reclassification to held for sale represents the opening net debt
position of the UK Gas Transmission business. The closing net debt position of
the UK Gas Transmission business is disclosed in Note 6.
14. Changes in net debt (continued)
(c) Reconciliation of cash flows from financing liabilities to cash flow
statement
30 September 2021 30 September 2020
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 10,452 - 3,506 -
Repayment of loans (426) - (911) -
Payments of lease liabilities (53) - (66) -
Net movements in short-term borrowings (507) - (1,046) -
Cash inflows on derivatives - 4 - 50
Cash outflows on derivatives - (7) - (28)
Interest paid (435) (15) (441) (4)
Cash flows per financing activities section of cash flow statement 9,031 (18) 1,042 18
Adjustments:
Non-net debt-related items 9 - 13 -
Derivative cash outflow in relation to capital expenditure - (7) - (1)
Derivative cash inflows per investing section of cash flow statement - - - 41
Derivative cash outflows per investing section of cash flow statement - - - (81)
Cash flows relating to financing liabilities within net debt 9,040 (25) 1,055 (23)
Analysis of changes in net debt:
Borrowings 9,040 - 1,055 -
Financing derivatives - (25) - (23)
Cash flow movements relating to financing liabilities within net debt 9,040 (25) 1,055 (23)
(d) Reconciliation of changes in liabilities arising from financing
activities
The table below reconciles changes in liabilities arising from financing
activities, including both changes arising from cash flows and non-cash
changes. Liabilities arising from financing activities are those for which
cash flows were, or future cash flows will be, classified in the statement of
cash flows within financing activities. As a result we have separately
disclosed the reconciliation below, excluding derivatives associated with our
net investment hedges and derivatives associated with the hedging of capital
expenditure, given that they are both classified in the consolidated cash flow
statement within investing activities.
Borrowings Financing derivatives Total
£m £m £m
At 1 April 2021 (31,220) 96 (31,124)
Cash flows (9,040) 18 (9,022)
Fair value gains and losses 57 17 74
Foreign exchange movements (327) - (327)
Interest (charges)/income (535) (19) (554)
Lease additions (29) - (29)
Acquisition of WPD (note 7) (8,286) 26 (8,260)
Reclassification to held for sale (note 6)(1) 5,485 (420) 5,065
At 30 September 2021 (43,895) (282) (44,177)
1. Reclassification to held for sale represents the opening net debt
position of the UK Gas Transmission business. The closing net debt position of
the UK Gas Transmission business is disclosed in Note 6.
Borrowings Financing derivatives Total
£m £m £m
At 1 April 2020 (30,794) 228 (30,566)
Cash flows (1,055) (19) (1,074)
Fair value gains and losses - 168 168
Foreign exchange movements 397 - 397
Interest (charges)/income (482) 6 (476)
Lease additions (88) - (88)
At 30 September 2020 (32,022) 383 (31,639)
15. Borrowing facilities
To support our liquidity requirements and provide backup to commercial paper
and other borrowings, we agree loan facilities with financial institutions
over and above the value of borrowings that may be required. Our total
facility amounts are listed below.
30 September 2021 31 March 2021
£m £m
Committed borrowing facilities expiring:
Less than 1 year - -
In 1 to 2 years(1) 1,445 1,668
In 2 to 3 years 4,132 534
In 3 to 4 years 1,605 1,718
In 4 to 5 years - 1,605
More than 5 years - -
7,182 5,525
1. Includes facilities that have been drawn totalling £306 million
(31 March 2021: £nil)
Of the facilities as at 30 September 2021, £7,065 million (31 March 2021:
£5,410 million) are held for liquidity purposes, while £117 million
(31 March 2021: £115 million) is available as backup to specific US
borrowings.
Included in the table above within three to four years is a facility of
£350 million related to National Grid Gas plc, a company treated as held
for sale.
In addition, we have the following facilities which are not included in the
table above:
• For the separately regulated business of National Grid Electricity
System Operator Limited, the Group has a facility of £550 million
(31 March 2021: £550 million), of which £550 million (31 March 2021:
£550 million) is undrawn. This facility is not available as Group general
liquidity support.
• The Group continues to have access to Export Credit Agreements
(ECAs) funding specific projects, of which £417 million (31 March 2021:
£446 million) is undrawn.
• The Group entered into a loan facility in relation to the
acquisition of WPD of £8,250 million, of which £8,179 million has been
drawn, with no further drawdown available (31 March 2021: Undrawn). The
bridge facility allows for the extension of the facility maturity date up to
September 2023 but includes a requirement that the proceeds of the sale of
NECO and the proposed sale of a majority stake in the UK Gas Transmission
business are applied to repay the facility.
16. Pensions and other post-retirement benefit obligations
30 September 2021 31 March 2021
£m £m
Present value of funded obligations (25,785) (23,283)
Fair value of plan assets 27,733 24,388
1,948 1,105
Present value of unfunded obligations (344) (324)
Other post-employment liabilities (55) (66)
Net defined benefit asset 1,549 715
Presented in consolidated statement of financial position:
Assets 2,542 1,747
Liabilities (993) (1,032)
Net defined benefit asset 1,549 715
Key actuarial assumptions 30 September 2021 31 March 2021
Discount rate - UK past service 2.00 % 2.00 %
Discount rate - US 3.00 % 3.25 %
Rate of increase in RPI - UK past service 3.30 % 3.15 %
16. Pensions and other post-retirement benefit obligations (continued)
The net pensions and other post-retirement benefit obligations position, as
recorded under IAS 19, at
30 September 2021 was an asset of £1,549 million (31 March 2021: £715
million asset). The movement of £834 million includes the addition of a
pension asset of £566 million on the acquisition of WPD offset by the
transfer to assets held for sale of a pension asset of £448 million relating
to Section B of the National Grid UK Pension Scheme.
The net impact of actuarial gains and losses of £684 million (continuing
£593 million; discontinued £91 million) have been reflected within the
consolidated statement of comprehensive income. These consist of a £1,488
million gain relating to asset performance which reflects returns on assets,
both in the UK and US, being more than the discount rate at the beginning of
the year. Changes in actuarial assumptions, primarily movements in discount
rates and inflation, led to an increase in liabilities of £673 million (an
increase in UK and US liabilities of £297 million and £376 million
respectively), which reflected decreases in corporate bond yields in the US
and increased inflation assumptions in the UK. Experience losses amounted to
£131 million. In addition, employer contributions of £174 million were paid
over the accounting period.
The pension surpluses in both the UK and the US of £1,624 million and £918
million respectively (31 March 2021: £1,109 million and £638 million)
continue to be recognised as assets under IFRIC 14 as explained on page 177 of
the Annual Report and Accounts for the year ended 31 March 2021.
17. Commitments and contingencies
At 30 September 2021, there were commitments for future capital expenditure
contracted but not provided for of £3,143 million (30 September 2020:
£3,137 million), which includes continuing and discontinued operations.
We also have other commitments relating primarily to commodity purchase
contracts and contingencies in the form of certain guarantees and letters of
credit. These commitments and contingencies are described in further detail in
note 30 to the Annual Report and Accounts for the year ended 31 March 2021.
Litigation and claims
Through the ordinary course of our operations, we are party to various
litigation, claims and investigations. These include ongoing inquiries by US
state regulators following criminal allegations of fraud against five former
employees. We do not expect the ultimate resolution of any proceedings to have
a material adverse effect on our results of operations, cash flows or
financial position.
18. Exchange rates
The consolidated results are affected by the exchange rates used to translate
the results of our US operations and US dollar transactions. The US dollar to
pound sterling exchange rates used were:
30 September 2021 2020 Year ended 31 March 2021
Closing rate applied at period end 1.35 1.29 1.38
Average rate applied for the period 1.39 1.27 1.34
19. Related party transactions
Related party transactions in the six months ended 30 September 2021 were
substantially the same in nature to those disclosed in note 31 of the Annual
Report and Accounts for the year ended 31 March 2021. There were no other
related party transactions in the period that have materially affected the
financial position or performance of the Group.
Principal risks and uncertainties
When preparing the half year financial information the risks as reported in
the Annual Report and Accounts for the year ended 31 March 2021 (principal
risks on pages 25-27 and inherent risks on pages 236-239) were reviewed to
ensure that the disclosures remained appropriate and adequate. In September
2021, based on the latest risk assessment and due to coverage within the other
principal risks, the Board retired and/or de-escalated the principal risks
related to disruptive forces and data management. Below is a summary of our
key risks as at 30 September 2021:
People risks:
• Failure to build capability and leadership capacity (including
effective succession planning) required to deliver our vision and strategy.
Strategic risks:
• Failure to identify and/or deliver upon actions necessary to
address the physical and transitional impacts of climate change on our
business and demonstrate our leadership of climate change within the energy
sector;
• Failure to identify and respond to shifts in societal and
political expectations and perceptions.
Operational risks:
• Failure to prepare and respond to significant disruptive factors
caused by the COVID-19 pandemic;
• Catastrophic cyber incident caused by the abuse of our digital
systems because of a malicious action by an external or internal party;
• Catastrophic asset failure results in a significant safety and/or
environmental event;
• Failure to predict and respond to a significant disruption of
energy;
• Failure to successfully execute the sale of NECO, the proposed
sale of our UK Gas Transmission business, and the integration of WPD.
Compliance Risk
• Failure to influence future energy policies and secure
satisfactory regulatory outcomes.
Statement of Directors' Responsibilities
The half year financial information is the responsibility of, and has been
approved by, the Directors. The Directors are responsible for preparing the
half year financial information in accordance with the Disclosure and
Transparency Rules (DTR) of the United Kingdom's Financial Conduct Authority.
The Directors confirm that to the best of their knowledge:
a) the condensed consolidated interim financial statements have been
prepared in accordance with IAS 34 'Interim Financial Reporting' as issued by
the International Accounting Standards Board and as adopted by the United
Kingdom;
b) the half year management report includes a fair review of the
information required by DTR 4.2.7R (indication of important events during the
first six months and description of principal risks and uncertainties for the
remaining six months of the year); and
c) the half year management report includes a fair review of the
information required by DTR 4.2.8R (disclosure of related parties'
transactions and changes therein).
The Directors of National Grid plc are listed in the Annual Report and
Accounts for the year ended 31 March 2021, with the exception of the changes
in the period which are listed on page 7.
By order of the Board
……………………..
……………………..
John
Pettigrew
Andy Agg
17 November
2021
17 November 2021
Chief Executive
Chief Financial Officer
INDEPENDENT REVIEW REPORT TO NATIONAL GRID PLC
We have been engaged by the Company to review the condensed consolidated
interim financial statements in the half year results statement for the six
months ended 30 September 2021 which comprise the consolidated income
statement, the consolidated statement of comprehensive income, the
consolidated statement of financial position, the consolidated statement of
changes in equity, the consolidated cash flow statement and related notes 1 to
19. We have read the other information contained in the half year results
statement and considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed consolidated
interim financial statements.
Directors' responsibilities
The half year results statement is the responsibility of, and has been
approved by, the Directors. The Directors are responsible for preparing the
half year results statement in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the Group are
prepared in accordance with United Kingdom adopted International Financial
Reporting Standards. The condensed consolidated interim financial statements
included in this half year results statement have been prepared in accordance
with United Kingdom adopted International Accounting Standard 34 'Interim
Financial Reporting'.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed
consolidated interim financial statements in the half year results statement
based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410 'Review of Interim Financial Information
Performed by the Independent Auditor of the Entity' issued by the Financial
Reporting Council for use in the United Kingdom. A review of interim financial
information consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK) and consequently does
not enable us to obtain assurance that we would become aware of all
significant matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed consolidated interim financial statements in the
half year results statement for the six months ended 30 September 2021 are
not prepared, in all material respects, in accordance with United Kingdom
adopted International Accounting Standard 34 and the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct Authority.
Use of our report
This report is made solely to the company in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim
Financial Information Performed by the Independent Auditor of the Entity"
issued by the Financial Reporting Council. Our work has been undertaken so
that we might state to the company those matters we are required to state to
it in an independent review report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone
other than the company, for our review work, for this report, or for the
conclusions we have formed.
Deloitte LLP
Statutory Auditor
London, United Kingdom
17 November 2021
Alternative performance measures/non-IFRS reconciliations
Within the Half Year Results Statement, a number of financial measures are
presented. Some of these measures have been categorised as alternative
performance measures (APMs), as per the European Securities and Markets
Authority (ESMA) guidelines and the Securities and Exchange Commission (SEC)
conditions for use of non-IFRS Financial Measures.
An APM is a financial measure of historical or future financial performance,
financial position, or cash flows, other than a financial measure defined
under IFRS. The Group uses a range of these measures to provide a better
understanding of its underlying performance. APMs are reconciled to the most
directly comparable IFRS financial measure where practicable.
The Group has defined the following financial measures as APMs derived from
IFRS within the Half Year Results Statement: net revenue, the various adjusted
operating profit, earnings and earnings per share metrics detailed in the
'adjusted profit measures' section below and capital investment. For each of
these we present a reconciliation to the most directly comparable IFRS
measure, and where relevant, comparative amounts have been re-presented to
reflect the new operating model.
Net revenue
'Net revenue' is revenue less pass-through costs, such as system balancing
costs, and gas and electricity commodity costs in the US. Pass-through costs
are fully recoverable from our customers and are recovered through separate
charges that are designed to recover those costs with no profit. Any over- or
under-recovery of these costs is returned to, or recovered from, our
customers.
2021 2020¹
Six months ended 30 September Gross revenue Pass- through costs Net revenue Gross revenue Pass-through costs Net revenue
£m £m £m £m £m £m
UK Electricity Transmission 1,037 (100) 937 940 (53) 887
UK Electricity Distribution 509 (38) 471 - - -
UK Electricity System Operator 1,146 (985) 161 948 (902) 46
New England 1,686 (778) 908 1,839 (772) 1,067
New York 1,971 (691) 1,280 1,903 (546) 1,357
NGV and Other 596 - 596 440 - 440
Sales between segments (4) - (4) (6) - (6)
Total from continuing operations 6,941 (2,592) 4,349 6,064 (2,273) 3,791
1. Comparative amounts have been re-presented to reflect the
classification of the UK Gas Transmission business as a discontinued operation
and the new operating segments.
Adjusted profit measures:
In considering the financial performance of our business and segments, we use
various adjusted profit measures in order to aid comparability of results
year-on-year. The various measures are presented on page 11 and reconciled
below.
Adjusted results, also referred to as Headline results: These exclude the
impact of exceptional items and remeasurements that are treated as discrete
transactions under IFRS and can accordingly be classified as such. This is a
measure used by management that forms part of the incentive target set
annually for remunerating certain Executive Directors and further details of
these items are included in note 4.
Underlying results: Further adapts our adjusted results to take account of
volumetric and other revenue timing differences arising due to the in-year
difference between allowed and collected revenues, including revenue
incentives, as governed by our rate plans in the US or regulatory price
controls in the UK (but excluding totex-related allowances and adjustments).
As defined on page 32 of the Annual Report and Accounts for the year ended
31 March 2021, major storm costs are costs (net of certain deductibles) that
are recoverable under our US rate plans but expensed as incurred under IFRS.
Where the total incurred costs (after deductibles) exceed $100 million in any
given year we also exclude the net amount from underlying earnings.
Constant currency: 'Constant Currency Basis' refers to the reporting of the
actual results against the results for the same period last year which, in
respect of any US dollar currency-denominated activity, have been translated
using the weighted average US dollar exchange rate for the six months ended
30 September 2021, which was $1.39 to £1.00. The weighted average rate for
the six months ended 30 September 2020, was $1.27 to £1.00. Assets and
liabilities as at 30 September 2021 have been retranslated at the closing
rate at 30 September 2021 of $1.35 to £1.00. The closing rate for the
balance sheet date 31 March 2021 was $1.38 to £1.00.
Alternative performance measures/non-IFRS reconciliations (continued)
Reconciliation of Statutory, Adjusted and Underlying Profits and Earnings - At
actual exchange rates - Continuing operations
Six months ended 30 September 2021 Statutory Exceptionals and remeasurements Adjusted Timing Major storm costs Underlying
£m £m £m £m £m £m
UK Electricity Transmission 541 9 550 2 - 552
UK Electricity Distribution 281 - 281 (24) - 257
UK Electricity System Operator 50 13 63 (14) - 49
New England 252 (126) 126 121 - 247
New York 321 (199) 122 19 - 141
NGV and Other 47 114 161 - - 161
Total operating profit 1,492 (189) 1,303 104 - 1,407
Net finance costs (450) (25) (475) - - (475)
Share of post -tax results of JVs and associates 41 17 58 - - 58
Profit before tax 1,083 (197) 886 104 - 990
Tax (707) 559 (148) (29) - (177)
Profit after tax 376 362 738 75 - 813
Six months ended 30 September 2020(1) Statutory Exceptionals and remeasurements Adjusted Timing Major storm costs Underlying
£m £m £m £m £m £m
UK Electricity Transmission 509 - 509 (22) - 487
UK Electricity Distribution - - - - - -
UK Electricity System Operator (32) - (32) 69 - 37
New England 192 (25) 167 30 - 197
New York 239 (63) 176 10 - 186
NGV and Other 52 - 52 - - 52
Total operating profit 960 (88) 872 87 - 959
Net finance costs (407) (24) (431) - - (431)
Share of post -tax results of JVs and associates 30 8 38 - - 38
Profit before tax 583 (104) 479 87 - 566
Tax (91) 28 (63) (20) - (83)
Profit after tax 492 (76) 416 67 - 483
1. Comparative amounts have been re-presented to reflect the
classification of the UK Gas Transmission business as a discontinued operation
and the new operating segments.
Reconciliation of Adjusted and Underlying Profits - At constant currency
At constant currency
Six months ended 30 September 2020(1) Adjusted Constant currency adjustment Adjusted Timing Major Storm costs Underlying
at actual exchange rate
£m £m £m £m £m £m
UK Electricity Transmission 509 - 509 (22) - 487
UK Electricity Distribution - - - - - -
UK Electricity System Operator (32) - (32) 69 - 37
New England 167 (14) 153 27 - 180
New York 176 (15) 161 9 - 170
NGV and Other 52 (2) 50 - - 50
Total operating profit 872 (31) 841 83 - 924
Net finance costs (431) 29 (402) - - (402)
Share of post -tax results of JVs and associates 38 (1) 37 - - 37
Profit before tax 479 (3) 476 83 - 559
1. Comparative amounts have been re-presented to reflect the
classification of the UK Gas Transmission business as a discontinued operation
and the new operating segments.
Alternative performance measures/non-IFRS reconciliations (continued)
Earnings per share calculations from continuing operations - At actual
exchange rates
The table below reconciles the profit after tax from continuing operations per
the previous tables back to the earnings per share from continuing operations
for each of the adjusted profit measures. Earnings per share is only presented
for those adjusted profit measures that are at actual exchange rates, and not
for those at constant currency.
Six months ended 30 September 2021 Profit after tax Non-controlling interest Profit after tax attributable to the parent Weighted average number of shares Earnings
per share
£m £m £m Number Pence
Statutory 376 (1) 375 3,569 10.5
Adjusted (also referred to as Headline) 738 (1) 737 3,569 20.7
Underlying 813 (1) 812 3,569 22.8
Six months ended 30 September 2020(1) Profit after tax Non-controlling interest Profit after tax attributable to the parent Weighted average number of shares Earnings
per share
£m £m £m Number Pence
Statutory 492 (1) 491 3,513 14.0
Adjusted (also referred to as Headline) 416 (1) 415 3,513 11.8
Underlying 483 (1) 482 3,513 13.7
1. Comparative amounts have been re-presented to reflect the
classification of the UK Gas Transmission business as a discontinued
operation.
Timing impacts from continuing operations
Under the Group's regulatory frameworks, the majority of the revenues that
National Grid is allowed to collect each year are governed by a regulatory
price control or rate plan. If National Grid collects more than this allowed
level of revenue, the balance must be returned to customers in subsequent
years, and if it collects less than this level of revenue, it may recover the
balance from customers in subsequent years. These variances between allowed
and collected revenues give rise to 'over and under-recoveries'. A number of
costs in the UK and the US are pass-through costs (including commodity and
energy efficiency costs in the US), and are fully recoverable from customers.
Timing differences between costs of this type being incurred and their
recovery through revenues are also included in over and under-recoveries. In
the UK, timing differences include an estimation of the difference between
revenues earned under revenue incentive mechanisms and associated revenues
collected. UK timing balances and movements exclude adjustments associated
with changes to controllable cost (totex) allowances or adjustments under the
totex incentive mechanism. Opening balances of over and under-recoveries have
been restated where appropriate to correspond with regulatory filings and
calculations.
UK Electricity Transmission UK Electricity Distribution UK Electricity System Operator New England New York Total(1 2)
£m £m £m £m £m £m
31 March 2021 closing balance (10) - (60) (261) 458 127
Opening balance adjustments 10 - (2) 2 2 12
Restated 1 April 2021 opening balance - - (62) (259) 460 139
Over/(under)-recovery (2) 24 14 (121) (19) (104)
30 September 2021 closing balance (2) 24 (48) (380) 441 35
to (recover)/return
UK Electricity Transmission UK Electricity Distribution UK Electricity System Operator New England New York Total(1 2)
£m £m £m £m £m £m
31 March 2020 closing balance (56) - 75 (253) 471 237
Opening balance adjustments - - (1) - - (1)
Restated 1 April 2020 opening balance (56) - 74 (253) 471 236
Over/(under)-recovery 22 - (69) (27) (9) (83)
30 September 2020 closing balance (34) - 5 (280) 462 153
to (recover)/return
1. The closing balances as at 30 September 2021 and 30 September 2020
would have been £37 million and £159 million respectively had the closing
exchange rates been used.
2. Comparative amounts have been re-presented to reflect the new
operating segments.
Alternative performance measures/non-IFRS reconciliations (continued)
Reconciliation of APMs for discontinued operations
Statutory operating profit for discontinued operations for the six months
ended 30 September 2021 was £387 million (2020: £175 million). This included
£3 million of exceptional items in the current period. Adjusted operating
profit for the six months ended 30 September 2021 was £390 million (2020:
£175 million), this includes a net timing over-recovery of £58 million
(2020: £13 million under-recovery). Operating profit excluding timing and
exceptional items for discontinued operations for the six months ended 30
September 2021 was £332 million (2020: £188 million).
Gross revenue (including sales to other segments) for discontinued operations
for the six months ended 30 September 2021 was £716 million (2020: £476
million). After deducting pass-through costs of £126 million (2020: £100
million), net revenue for discontinued operations for the six months ended 30
September 2021 was £590 million (2020: £376 million).
Capital investment
'Capital investment' or 'investment' refers to additions to plant, property
and equipment and intangible assets, and contributions to joint ventures and
associates, other than the St William Homes LLP joint venture. In addition, we
include the total consideration paid for the acquisition of businesses. 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
on the Group consolidated statement of financial position).
Investments made to our St William Homes LLP arrangement are excluded based on
the nature of this joint venture arrangement. We typically contribute property
assets to the joint venture in exchange for cash and accordingly do not
consider these transactions to be in the nature of capital investment.
At actual exchange rates At constant currency
Six months ended 30 September 2021 2020¹ % change 2021 2020¹ % change
£m £m £m £m
UK Electricity Transmission 587 501 17 % 587 501 17 %
UK Electricity Distribution 315 - - % 315 - -
UK Electricity System Operator 65 47 38 % 65 47 38 %
New England 700 773 (9) % 700 707 (1) %
New York 851 847 - % 851 775 10 %
NGV and Other 196 235 (17) % 196 233 (16) %
Group capital expenditure - continuing 2,714 2,403 13 % 2,714 2,263 20 %
Discontinued operations 131 95 38 % 131 95 38 %
Group capital expenditure - total 2,845 2,498 14 % 2,845 2,358 21 %
1. Comparative amounts have been re-presented to reflect the
classification of the UK Gas Transmission business as a discontinued operation
and the new operating segments.
Six months ended 30 September - at actual exchange rates 2021 2020(1) % change
£m £m
Capital expenditure 2,714 2,403 13 %
Equity investment, funding contributions and loans to joint ventures and 89 52 71 %
associates
Increase in financial assets (National Grid Partners) 37 10 270 %
Group capital investment - continuing 2,840 2,465 15 %
Discontinued operations 131 95 38 %
Group capital investment - total 2,971 2,560 16 %
1. Comparative amounts have been re-presented to reflect the
classification of the UK Gas Transmission business as a discontinued
operation.
Six months ended 30 September - at constant currency 2021 2020(1) % change
£m £m
Capital expenditure 2,714 2,263 20 %
Equity investment, funding contributions and loans to joint ventures and 89 47 89 %
associates
Increase in financial assets (National Grid Partners) 37 10 270 %
Group capital investment - continuing 2,840 2,320 22 %
Discontinued operations 131 95 38 %
Group capital investment - total 2,971 2,415 23 %
1. Comparative amounts have been re-presented to reflect the
classification of the UK Gas Transmission business as a discontinued
operation.
1 UK Gas Transmission is also a Business Unit but is currently discontinued
operations.
2 Excluding UK Electricity Distribution (WPD).
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