REG - National Grid PLC - National Grid 2022/23 Half Year Results Statement
10/11/2022 07:00
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RNS Number : 9088F National Grid PLC 10 November 2022
London | 10 November 2022:
National Grid, a leading energy
transmission and distribution company,
today announces its Half-Year results.
Report for the period ended
30 September 2022
John Pettigrew
Chief Executive
"The results we've announced today reflect the strength and resilience of our
business, delivering for all our stakeholders in challenging economic
conditions. As we complete our strategic pivot, our investment in clean energy
infrastructure has continued at pace, with a record £3.9 billion in the half
year. This investment will continue into the future, and today, given changes
to the macro-economic outlook, we are updating our five year financial
framework that we set out 18 months ago. Between 2022 and 2026, we now expect
to invest up to £40 billion in critical infrastructure, of which £29
billion will be directly in the decarbonisation of energy networks.
Against this backdrop, we are focused on playing our part to mitigate the
affordability challenges of our customers. We have achieved £225 million of
operating cost efficiency savings to date, and this is enabling us to mitigate
some inflationary pressures on both the business and our customers. We have
also announced funding to help our most vulnerable customers and communities
through this winter and next.
However, ensuring security of supply and affordability, while delivering net
zero goals, can only be achieved with clear and stable regulatory frameworks
that incentivise the timely delivery of the investment required. We remain
committed to working with governments and regulators to achieve this as we
focus on delivering a clean, fair and affordable future for all."
Financial Summary
Six months ended 30 September: continuing operations(1)
Statutory results Underlying(2)
Unaudited 2022 2021 % change 2022 2021 % change
Operating profit (£m) 2,239 1,492 50% 2,117 1,407 50%
Profit before tax (£m) 1,572 1,083 45% 1,455 990 47%
Earnings per share (p) 30.8 10.5 193% 32.4 22.8 42%
Dividend per share (p) 17.84 17.21 4% 17.84 17.21 4%
Capital investment (£m) 3,883 2,840 37% 3,883 2,840 37%
1. Excluding UK Gas Transmission which is held as a discontinued
operation.
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 57.
Highlights
(Robust financial delivery)
■ Underlying operating profit up 50% at actual exchange rates to
£2.1 billion (44% at constant currency). Of the 50% increase, 38% came from
a full six months underlying operating profit from UK Electricity Distribution
and higher property sales to Berkeley Group; and the remaining 12% came from
other key drivers, including a first half contribution from North Sea Link and
IFA1 insurance receipts, a stronger USD, partly offset by the sale of
Narragansett Electric Company (NECO, Rhode Island) and the impact of NG
Partners (NGP) fair value movements.
■ Underlying EPS for continuing operations of 32.4p, up from 22.8p in the
prior period. This was driven by the above factors but also includes the
impact of higher interest costs principally from inflation on index-linked
debt and additional interest costs following the UK Electricity Distribution
acquisition.
■ Statutory operating profit up 50% to £2.2 billion, driven principally
by the gain on the sale of NECO this year and lower remeasurement gains and
adverse timing movements compared to the prior year.
■ Statutory EPS of 30.8p, up from 10.5p on the prior period, driven
principally by the gain on the sale of NECO this year, and no repeat of the
exceptional deferred tax charge (UK rate change) from half year 2021/22.
■ Interim dividend 17.84p/share in line with policy (17.21p/share in the
prior period).
Highlights continued
(Significant capital investment in energy infrastructure)
■ Record capital investment of £3.9 billion for continuing operations
(including £214 million of non-cash lease additions in the US), up 37% on
prior year at actual exchange rates (26% at constant currency). The increase
was principally driven by an additional 2.5 months of UK Electricity
Distribution ownership; higher investment across both New York and New
England, including the start of our upstate New York transmission project
Smart Path Connect; and higher investment for our Sellindge (IFA1) converter
station rebuild, our Viking interconnector, and our Isle of Grain expansion
project.
(Nearing the completion of our strategic pivot)
■ Sale of NECO to PPL completed in May.
■ Sale of a 60% stake in UK Gas Transmission & Metering on track to
complete by the end of this calendar year.
(Crystallised value in non-core assets)
■ Announced the sale of our 26.25% non-operated stake in the Millennium gas
pipeline, New York, for cash proceeds of $552 million (transaction completed
in early October 2022).
(Helping our communities and customers during the global energy crisis)
■ Announced winter funding support for communities and customers in
October 2022, with $17 million committed in the US and £50 million in the UK
for individuals and families who require most help.
■ Provided £250 million of working capital support for BSUoS charges
through the Electricity System Operator (ESO).
(Good regulatory progress)
■ Responded to Ofgem's draft determinations for the RIIO-ED2 price
control.
■ ESO submitted its updated RIIO-2 Business Plan covering the regulatory
period from April 2023 to March 2025.
■ Responded to Ofgem's 'Accelerating onshore electricity investment'
consultation, providing our views on how to meet the government's 50 GW
offshore wind target.
■ Received approval for $600 million of Phase 1 transmission investment
projects, in support of New York's Climate Leadership and Community Protection
Act (CLCPA).
■ Received $301 million approval in October from the Massachusetts
regulator for our electric Grid Modernization Plan (GMP).
(Further progress on our Group efficiency programme)
■ Delivered a further £85 million of Group efficiency savings during the
half year. This is in addition to the £140 million cumulative savings
reported at our full-year results in May.
(Delivering on our responsible business commitments)
■ Published our second Responsible Business Report, demonstrating the
progress we have made across our five pillars and the journey to net zero.
■ Progressed our Clean Energy Vision for our US networks through
continued engagement with our regulators and elected officials on our
legislative and policy agenda.
Revised Financial Outlook and Guidance
■ We have today upgraded our EPS guidance for 2022/23. We now see
underlying EPS growth from 2021/22 to 2022/23 in the middle of our new 6-8%
CAGR range, assuming an average exchange rate of £1:$1.20, and after taking
into account our recently announced winter funding support.
■ Given the macroeconomic moves we have seen over the past six months
(including changes in foreign exchange rates, inflation and interest rates),
coupled with confirmed further investment to deliver the energy transition, we
have also updated our Financial outlook over the five-year period to 2025/26.
We now expect:
■ total cumulative capital investment of up to £40 billion (up from our
prior guidance of £30-£35 billion);
■ asset growth CAGR of 8-10% (up from 6-8%) backed by our strong balance
sheet;
■ driving underlying EPS CAGR of 6-8% (up from 5-7%); and
■ credit metrics to remain within current rating thresholds, and Net
Debt/RAV to be around 70% once all three transactions are complete.
■ This five-year financial framework includes the UK Electricity
Distribution business, and takes account of the sale of NECO in May 2022 and
the planned sale of a majority stake in UK Gas Transmission & Metering by
the end of this calendar year.
Operational Key Performance Indicators(1)
As at and for the six months ended 30 September
(£ million, at actual exchange rates) 2022 2021 change %
Statutory operating profit:
UK Electricity Transmission 493 541 (9%)
UK Electricity Distribution 522 281 86%
UK Electricity System Operator (ESO) 146 50 192%
New England 720 252 186%
New York (26) 321 (108%)
NGV and Other 384 47 717%
Total statutory operating profit (continuing) 2,239 1,492 50%
Underlying operating profit:
UK Electricity Transmission 564 552 2%
UK Electricity Distribution 579 257 125%
UK Electricity System Operator (ESO) 52 49 6%
New England 316 247 28%
New York 202 141 43%
NGV and Other 404 161 151%
Total underlying operating profit (continuing) 2,117 1,407 50%
Capital investment:
UK Electricity Transmission 629 587 7%
UK Electricity Distribution 584 315 85%
UK Electricity System Operator (ESO) 42 65 (35%)
New England 862 700 23%
New York 1,242 851 46%
NGV and Other 524 322 63%
Total capital investment (continuing) 3,883 2,840 37%
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 57.
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
Alexandra Bateman +44 (0) 7970 479 571
Media
Molly Neal +44 (0) 7583 102 727
Danielle Dominey-Kent +44 (0) 7977 054 575
Brunswick
Dan Roberts +44 (0) 7980 959 590
Peter Hesse +44 (0) 7834 502 412
Results presentation webcast
An audio webcast and live Q&A with management will be held at 09:45 (GMT)
today. Please use this link to join via a laptop, smartphone or tablet:
https://www.nationalgrid.com/investors/events/results-centre.
A replay of the webcast will be available soon after the event at the same
link.
Dial-in number(s) to join Q&A UK-wide: +44 (0) 33 0551 0200
UK toll free: 0808 109 0700
Password Quote "National Grid" when prompted by the operator
Use of Alternative Performance Measures (APMs)
Throughout this release we use a number of alternative (or non-IFRS) and
regulatory performance measures to provide users with a clearer picture of the
regulated performance of the business. This is in line with how management
monitor and manage the business day-to-day. Further detail and definitions for
all alternative performance measures are provided on pages 57 to 60.
Inside Information
This announcement contains inside information for the purposes of Article 7 of
the UK Market Abuse Regulation. The person responsible for arranging the
release of this announcement on behalf of National Grid is Justine Campbell,
Group General Counsel & Company Secretary.
STRATEGIC OVERVIEW
A robust performance against a challenging economic backdrop
National Grid has reported a robust financial performance for the first six
months of the year, underpinned by good operational progress in both the UK
and US.
Group safety performance
We have continued to focus on safety with a Group Lost Time Injury Frequency
Rate (LTIFR) 1 of 0.12, an improvement on year end but slightly above our
industry leading Group target of 0.1. However, in May, one of our US employees
tragically lost his life whilst carrying out maintenance work at a site in
Massachusetts. We immediately conducted a thorough incident investigation led
by our Group Chief Engineer and Group Director of Safety, which resulted in
actions that have been fed into our safety strategy and have been implemented
across the Group.
Half-year operating financial performance
Our statutory operating profit is presented on page 3 which includes the
impact of exceptional items, remeasurements and timing, and a reconciliation
to our APMs is presented on page 58. Underlying operating profit increased by
50% at actual exchange rates (and by 44% at constant currency) versus the
prior period, to £2,117 million. Of the 50% increase at actual exchanges
rates, 38% came from a full six months underlying operating profit from UK
Electricity Distribution and higher property sales to Berkeley Group; and the
remaining 12% came from other key drivers, including a first half contribution
from North Sea Link and IFA1 insurance receipts, a stronger USD, partly offset
by the sale of NECO and the impact of NG Partners (NGP) fair value movements.
Underlying operating profit - continuing operations At actual At constant currency
Six months ended 30 September* exchange rates
(£ million) 2022 2021 % change 2021 % change
UK Electricity Transmission 564 552 2% 552 2%
UK Electricity Distribution 579 257 125% 257 125%
UK Electricity System Operator (ESO) 52 49 6% 49 6%
New England 316 247 28% 284 11%
New York 202 141 43% 162 25%
NGV and other activities 404 161 151% 166 143%
Total underlying operating profit 2,117 1,407 50% 1,470 44%
* '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 57 to 60.
Capital investment (continuing operations) increased by £1,043 million at
actual exchange rates (£791 million at constant currency) to
£3,883 million during the half year. This was driven principally by an
additional 2.5 months of UK Electricity Distribution ownership; higher
investment across both New York and New England, including the start of our
upstate New York transmission project Smart Path Connect; and higher
investment for our Sellindge (IFA1) converter station rebuild, our Viking
interconnector, and our Isle of Grain expansion project. Capital investment
for the period includes £214 million of non-cash lease additions in the US.
Delivering on our strategy - nearing the completion of our strategic pivot
National Grid has delivered excellent progress on our strategy over the half
year as we move towards the completion of our strategic pivot.
On 25 May, we announced the completion of the sale of NECO to PPL Rhode Island
Holdings LLC, receiving proceeds of £3.1 billion. The sale formed part of
the strategic portfolio repositioning announced in March 2021 alongside the
acquisition of UK Electricity Distribution and the sale of a majority stake in
UK Gas Transmission & Metering.
We remain on course to complete the sale of the 60% stake in UK Gas
Transmission & Metering to Macquarie Asset Management and British Columbia
Investment Management Corporation by the end of this calendar year. In
September, the Competition and Markets Authority (CMA) began its review of the
transaction which forms part of the approval process needed for the sale to
complete. The consortium also has an option to acquire the remaining 40%, on
broadly similar terms to those agreed for the majority stake, which can be
exercised in the first half of 2023.
Other asset sales during the half year
Although not part of the strategic pivot, in September we announced the sale
of our 26.25% Membership Interest in the Millennium Pipeline Company (MPC) to
existing partner DT Midstream (DTM) for a cash purchase price of $552 million.
MPC is a FERC 2 regulated gas transmission pipeline in New York State in
which we acquired our interest following the acquisition of KeySpan (Downstate
New York) in 2007. Our stake was a non-operational, minority interest, and
supply to customers will be unaffected as National Grid will remain a shipper
through the pipeline for the foreseeable future. The transaction, which closed
in October, has allowed us to crystallise value from a non-core asset.
Helping our communities during the energy crisis
Our focus is on delivering the energy transition in the UK and the US to
accelerate progress towards a more affordable, clean energy future. But we
recognise we are doing this against a tough economic backdrop for our
customers and communities, particularly as we look ahead to this winter. We
have therefore recently announced funding to help our most vulnerable
customers and communities who are faced with increased energy prices.
In October 2022, the Company committed $17 million in funding to be
distributed through its non-profit partners and the National Grid Foundation
that help customers in need across Massachusetts and New York. This funding is
in addition to the Company's Winter Customer Savings Initiative to help
customers reduce their energy use, better manage their bills, and secure
available energy assistance.
Also in October, we launched a £50 million support fund in the UK to help
alleviate financial distress caused by rising energy costs. Over the next two
winters, the fund will make significant donations to organisations working on
the front line of the energy crisis. It is targeted at charities who provide
financial relief to households to help them with energy costs immediately;
charities who fund energy efficiency measures to lower bills over the
long-term; and charities providing advisory services for households who need
help with energy bills, payments and debt. For example, money from the fund
will be used by beneficiary organisations to increase the number of support
staff working on crisis phone lines, provide fuel vouchers and insulate homes
at no cost to families. In addition, National Grid Electricity Distribution 3
launched a £2.5 million fund in October 2022 which is open to
grant applications from organisations working to help people in fuel poverty
across the Midlands, the South West and Wales.
As we announced in May, Ofgem approved National Grid's request to make early
repayments to consumers of £200 million over the next two years as part of
the regulatory regime for electricity interconnectors. We have agreed with the
regulator to begin this return from April 2023.
Regulatory and Winter Outlook
United Kingdom
Affordability and energy security remain key political objectives across the
UK and Europe, particularly given increased gas demand, sharply rising
commodity prices following the Russian invasion of Ukraine, and challenging
economic conditions.
Against this backdrop, Ofgem published its draft determinations in June for
the RIIO-ED2 price control which will cover UK Electricity Distribution for
the period from April 2023 to March 2028. The draft determinations are part of
the process towards agreeing a regulatory framework that will enable the
delivery of critical investment required to maintain the UK's progress to net
zero, and follows the submission of our final business plan in December 2021.
We are now working with the regulator on four key areas:
• firstly, Ofgem has proposed a 19% reduction to our RIIO-ED2 totex. We
are providing further engineering justification papers, and expect this gap to
narrow;
• secondly, we have seen the benefits to customers that a successful
incentives package can bring in RIIO-ED1, with our sector leading performance
around customer security and availability of supply, and are working with
Ofgem to include meaningful incentives in the final package;
• thirdly, the draft determination included 34 uncertainty mechanisms,
which we believe should be streamlined to reduce complexity and allow for
efficient investment; and
• lastly, given the recent macro-economic moves, we are also engaging
closely with Ofgem on the right financing package, in particular a fair
allowed cost of capital, both debt and equity, that reflects the changing
returns expectations in the markets, to incentivise the accelerated investment
needed. We expect Ofgem to publish final determinations in December.
In August, we responded to Ofgem's 'Accelerating onshore electricity
investment' consultation, providing our views on how to meet the government's
50 GW offshore wind target by 2030. Our response outlined how the
government's 2030 ambition would benefit consumers, but also recognised the
challenges that need to be addressed. In particular, we highlighted that over
five times the amount of new electricity transmission infrastructure will need
to be delivered in the next seven years than has been built in the past 30
years. Meeting this scale of challenge would require a reformed planning
regime that includes how best to reduce the impact on local communities; a
regulatory framework that incentivises the right behaviours to encourage
timely delivery with an appropriate risk/reward balance; and comfort that the
regulatory financing framework will be appropriate through the RIIO-T3 period.
Overall, the scale of the challenge will require us to fundamentally change
the delivery model for this infrastructure, moving from a traditional
project-by-project approach to a portfolio or programme approach with much
earlier supply chain involvement. This is why we have called for National Grid
to deliver 19 of the major transmission projects identified by the Holistic
Network Design (HND) in order to maximise speed and efficiency, thus enabling
us to deliver consumer benefits. We are working with government and Ofgem, as
the regulator aims to make its final decision on this by the end of the
calendar year.
In October, the Electricity System Operator (ESO) and Gas System Operator
(GSO) published the power and gas Winter Outlooks for the upcoming winter in
Great Britain.
The ESO's Winter Outlook Base Case shows de-rated margins of 3.7 GW or 6.3%,
similar to recent winters and within the required Reliability Standards.
Russia's invasion of Ukraine has meant that, overall, this is likely to be a
challenging winter for energy supply throughout Europe. The ESO also modelled
a scenario whereby the energy crisis in Europe results in electricity not
being available to import into Great Britain. This could be due to a shortage
of gas in Europe which in turn limits power generation. In preparation for
winter, the ESO has developed additional tools to manage the risk which
include: (a) securing contracts to keep approximately 2 GW of coal generation
capacity open and on standby through this winter; and (b) creating a new
Demand Flexibility Service with market funded incentives for cutting
consumption at key times to reduce overall demand across the system. These new
measures, alongside the robust set of tools already deployed by the ESO, will
contribute to maintaining adequate margins and mitigate impacts to customers.
In the unlikely event that electricity supply margins were further eroded,
supply interruptions to customers could occur for short periods although all
strategies, including the new measures, would be deployed to minimise the
disruption.
The Gas Winter Outlook includes three potential winter scenarios and outlines
gas reserve margins. The scenarios illustrate the extent to which Great
Britain is dependent on flexible sources of imported gas supplies throughout
winter, particularly Liquefied Natural Gas (LNG). The Outlook concludes that
gas infrastructure in Great Britain has sufficient capability to meet peak (1
in 20) demand this winter, but underlines the importance of imported gas
throughout to meet demand (a potential shortfall in European gas supplies
could impact the ability for the UK to import gas should it be required). The
GSO has the physical, commercial and market based tools to manage a supply and
demand imbalance, including those related to a Gas Supply Emergency, should it
be necessary.
Finally, we have continued to advance our plans to ensure an orderly
transition of the ESO to a new Future System Operator (FSO) by or in 2024. The
FSO will be an impartial body with responsibilities across both the
electricity and gas systems. We are seeking clarity on the recovery of costs
of the separation of the ESO as well as the structure of the FSO.
United States
In July, we received approval to proceed on Phase 1 transmission investment
projects, in support of New York's Climate Leadership and Community Protection
Act (CLCPA). In 2020, the New York Public Service Commission (PSC) ordered all
utilities to file proposals for distribution and transmission infrastructure
projects required to meet CLCPA objectives. Utilities, including National
Grid, grouped these projects into two categories, Phase 1 and Phase 2, based
on project readiness and availability of supporting regulatory frameworks.
Approval for Phase 1 represents around $600 million of investment before 2030
and includes projects such as 129 miles of circuit rebuild to support 330 MW
of incremental renewable generation capacity. We anticipate a response on
CLCPA Phase 2 projects before the end of 2022/23.
On 7 October 2022, the Massachusetts Department of Public Utilities (DPU)
announced that it had approved $301 million for our electric Grid
Modernization Plan (GMP) that we filed in July 2021. The funding is for Track
1 (existing technologies) and includes 'grid-facing' investments such as
Volt-Var optimisation, which helps to reduce losses and minimise demand across
the distribution network. We continue to await approval for Track 2 (new
technologies) which includes customer facing investments, such as Advanced
Metering Infrastructure (AMI), for which we filed for almost $400 million last
summer. We anticipate an outcome by the end of calendar year 2022.
Further progress on Group efficiency savings
As part of our Group efficiency savings programmes we have achieved a further
£85 million of savings during the half year 4 . This is in addition to the
£140 million of savings reported at our full-year results in May.
Of the £85 million savings achieved in the half year, £69 million have been
in New York and New England. This has principally been through property
rationalisation across our US businesses; increased gas and electric workplace
optimisation, such as the roll out of our Gas Business Enablement (GBE)
programme; and the roll out of new customer initiatives, including lower cost
service providers supporting our front office teams, and increased use of
e-billing and self-service options for customers.
We have also driven efficiency in the US through our continuous improvement
programme. This has allowed us to identify ways to reduce the workloads of our
network maintenance teams, whilst maximising productivity and maintaining
safety. For example, we have maximised resource capacity through combining
training for teams, and running two person rather than three person crews
where it is safe to do so. In addition, we have improved productivity through
combining projects where appropriate and making them more efficient to
deliver.
We remain on track to deliver the £400 million three-year savings target
(that we announced in November 2021) by the end of 2023/24.
Our responsible business - progress on our commitments
At National Grid, our vision and purpose is to be at the heart of a clean,
fair and affordable energy future. We have continued to work with the UK
Government this year as a COP26 Principal Partner, and with COP27 focused on
being the 'Implementation COP', it is crucial we move from ambition and
commitments to action.
Around £29 billion of our up to £40 billion investment programme (over our 5
year framework) will be invested in the decarbonisation of energy networks
aligned to the EU Taxonomy. This includes most of our electricity investment
across transmission and distribution, including the connection of renewable
energy and other sources of decarbonised power generation. It also covers
investment in methane emissions reduction across our gas networks, such as our
leak prone pipe replacement programme. Together, this makes us one of the
FTSE's biggest investors in the delivery of net zero.
During 2021/22, our key highlights included:
• advocating for action to mitigate climate change on a global platform
through our role as a Principal Partner at COP26;
• launching our US northeast Clean Energy Vision, which aims to deliver a
more affordable energy future through a hybrid of electric and clean gas
infrastructure;
• a commitment for the early return of £200 million from our interconnector
business, helping to reduce customer bills;
• record levels of capital investment in critical infrastructure; and
• new community investments in both the UK and across our US
jurisdictions.
The 2021/22 Responsible Business Report released in June set out the key
achievements we have made against each of the pillar-level targets we
published in our Responsible Business Charter. These included:
• a 65% reduction in scope 1 and 2 greenhouse gas emissions since our 1990
baseline;
• 2,500 MW of renewables connected to our UK and US transmission and
distribution networks;
• 38.6% workforce diversity, up from 37.9% in the prior year, and 49.5%
senior leadership diversity, up from 44.6% in the prior year;
• no material gender pay gap in the UK, and improvement in the reported
gender pay gap in the US; and
• a 30% increase in logged colleague volunteering hours.
We published our Climate Transition Plan alongside our 2021/22 Responsible
Business Report, and it received shareholder support at our AGM in July. The
plan sets out the detail and milestones for reaching the Group's greenhouse
gas reduction targets, with an overall pathway to net zero, and as close to
'real zero' as possible, by 2050.
Our continued efforts in supporting the energy transition, combined with the
direct actions we can take to reduce our emissions, keep us on track to meet
the 2030 targets in our Climate Transition Plan. Our short-term emissions
performance is to a large degree dependent on market factors, such as energy
supply and demand patterns. However, we continue to focus on our
decarbonisation initiatives such as the ongoing programme to replace
leak-prone methane gas pipes, energy efficiency and consumption improvements
and light duty vehicle fleet electrification.
The safety and wellbeing of the 30,000 people we employ across the UK and US
is a top priority for National Grid, underpinning everything we do. Our vision
is to build and develop an inclusive culture and a diverse workforce that is
fully representative of the communities we serve, and for everyone to be
treated fairly and without discrimination. We believe that the initiatives we
have implemented have kept us on track to meet our People & Culture
targets, with our workforce diversity improving to 39.5% at half year compared
to 38.6% in 2021/22. During the half year, National Grid has been recognised
five times as a top employer globally and regionally across gender equity
measures. In addition, six of our leaders have received recognition as top
leaders or colleagues who drive Diversity, Equity and Inclusion in the
workplace overall and specifically LGBTQ+ inclusion in the workplace.
Ensuring pay equity is another priority for the Group. We continue to meet the
Real Living Wage target while participating in the Living Wage Hours
accreditation in the UK, and we are at an advanced stage of securing first
year accreditation of Living Wage in the US.
Finally, the proposal to increase the proportion of incentives and executive
remuneration linked to ESG and progress against climate-related targets was
approved at our AGM in July. This move further embeds environmental and social
sustainability in our purpose, values and decision-making.
Board changes
Iain Mackay was appointed as a Non-executive Director of the Board effective
11 July 2022, joining the Remuneration and Audit & Risk Committees on
appointment.
Jonathan Dawson and Amanda Mesler retired from the Board on 11 July 2022.
FIVE-YEAR OUTLOOK
Our five-year financial framework includes the UK Electricity Distribution
business from the date of acquisition and takes account of the sale of NECO
(Rhode Island) in May 2022. It also assumes that we complete the sale of a
majority stake in UK Gas Transmission & Metering by the end of this
calendar year.
Capital investment and Group asset growth
Given the macroeconomic moves we have seen over the past six months, coupled
with confirmed further investment, we now expect to invest up to £40 billion
across our energy networks and adjacent businesses in the UK and US, over the
five-year period to 2025/26. This is largely driven by changes in foreign
currency and inflation expectations, as well as some acceleration of
investment required for the energy transition. Of this investment, around £29
billion is considered to be aligned with the principles of the EU Taxonomy
legislation as at the date of reporting.
In the UK, we now expect around £9 billion of investment in Electricity
Transmission over the five years to 2025/26 for asset health, anticipatory
system reinforcement to facilitate offshore generation and other new onshore
system connections. We expect our Electricity Distribution network to invest
around £6 billion over the five years to 2025/26 in asset replacement,
reinforcement and new connections, facilitating the infrastructure for
electric vehicles, heat pumps and directly connected generation.
In our US business, we expect investment of around £21 billion over the five
years to 2025/26 (split £12 billion in New York and £9 billion in New
England). Over half of this will be safety related projects in our gas
networks with the remainder in our electric networks such as for storm
hardening, other net zero investments as well as further electric transmission
investment.
We expect NGV to invest around £3-4 billion over the five years to 2025/26 in
completing the current interconnector programme, the Isle of Grain LNG
capacity expansion project, and continued US renewable generation.
We now expect the sum of these investments (together with our transactions and
the broad economic protection our businesses have against rising macroeconomic
variables such as inflation) to drive group asset growth of 8-10% CAGR through
to 2025/26.
Group gearing
We expect regulatory gearing to be around 70% once all three of the
transactions are completed. We remain committed to a strong, overall
investment grade credit rating. Combined with the benefit of our existing
hybrid debt, we expect gearing levels, and the other standard metrics we
monitor, to sit within our current BBB+/Baa1 corporate rating band.
Group underlying earnings growth and dividend growth
From 2020/21 through to 2025/26, we now expect our CAGR in underlying earnings
per share to be in the 6-8% range from the baseline 54.2 pence per share 5
(this includes our long run average scrip uptake of 25% per annum). This will
underpin our sustainable, progressive dividend policy into the future.
2022/23 FORWARD GUIDANCE
This forward guidance is based on our continuing businesses, as defined by
IFRS excluding UK Gas Transmission & Metering that is held as a
discontinued operation. This includes the assumption of a disposal of a 60%
stake in UK Gas Transmission & Metering by the end of this calendar year
(treated as a discontinued operation). From the assumed date of disposal of
the 60% stake, the share of post-tax income from our 40% minority retained
stake is included within continuing operations for 2022/23.
Overall, we now expect underlying earnings growth for 2022/23 in the middle of
our revised 6-8% CAGR growth range (assuming £1:$1.20), and after taking into
account our recently announced winter funding support (please refer to page 6
for further details). As well as the move in exchange rates, we are also
seeing an improvement from higher capitalised interest and some upside in
National Grid Ventures profitability.
The outlook and forward guidance contained in this statement should be viewed,
together with the forward-looking statements set out in this release, in the
context of the cautionary statement. The forward guidance in this section is
presented on an underlying basis and excludes remeasurements and exceptional
items.
UK Electricity Transmission
Net revenue (excluding timing) is expected to decrease by around £100 million
compared to 2021/22 as a result of the agreement to return to consumers
payments related to Western Link construction delays and the impact on
revenues of the UK capital allowance super-deductions announced in March 2021,
partially offset by higher revenues driven by indexation and lower other
costs. Depreciation is expected to reduce slightly due to asset write-offs in
the prior year.
We expect to deliver up to 100 basis points of outperformance in the second
year of RIIO-T2 in Operational Return on Equity. This is in line with our
target to deliver 100 basis points of operational outperformance on average
through the five-year period of the RIIO-T2 price control.
UK Electricity Distribution
The full-year impact on operating profit (excluding timing) of the acquisition
of WPD 6 (acquired on 14 June 2021) is around £230 million. Net revenue
(excluding timing) is expected to be around £70 million higher mainly due to
higher revenues driven by indexation, partially offset by slightly higher
depreciation due to asset growth and commissioning.
Operational Return on Equity is expected to outperform the allowed regulatory
return by over 250 basis points in line with recent years. 2022/23 is the
final year of the RIIO-ED1 price control.
UK Electricity System Operator (ESO)
Net revenue (excluding timing) is expected to increase by around £80 million
compared to 2021/22 including higher totex funding to deliver increasing
RIIO-2 outputs with an expected increase in controllable costs of around £70
million. Depreciation is expected to be broadly flat.
Under the RIIO-2 price control, totex in ESO is no longer subject to the totex
incentive mechanism and is instead regulated under a pass-through mechanism,
with cost increases or efficiencies trued-up the following year.
New England
The sale of the Rhode Island business results in lower operating profits
(excluding timing) of around $325 million. For the remaining business, we
expect net revenue (excluding timing) to be around $175 million higher from
expected rate increases. We expect controllable costs to be flat, due to
efficiencies offsetting inflation, and higher bad debt charges following a
reduction in bad debts in 2021/22. Other costs are expected to be around
$75 million higher due to rate funded increases and the impact of inflation.
We expect depreciation and property taxes to be slightly higher due to
increased investments.
Return on Equity for New England is expected to be around 80% of the allowed
return including the impact of the efficiency savings.
New York
Net Revenue (excluding timing) is expected to be around $300 million higher,
including increases from rate settlements. Around half of this is expected to
be offset by higher rate funded costs. Controllable costs are expected to be
broadly flat with workload increases and inflation offset by efficiencies.
Pensions costs are expected to be around $50 million lower following the
one-off pension gain included in the first half results. We expect
depreciation to be around $70 million higher in 2022/23 reflecting asset
growth.
Return on Equity for New York is expected to be broadly in line with the prior
year, at least 95% of the allowed RoE.
NGV and Other activities
In NGV, we expect underlying operating profit to be around £180 million
higher than 2021/22 with the return to full service of IFA1 following the
Sellindge converter station rebuild, first full year of operations of NSL,
increased auction prices and insurance proceeds received in 2022/23 and
increased profits at Isle of Grain.
We expect other activities' underlying operating profit to be broadly flat
year-on-year with higher sales in our Commercial Property business (agreement
for sale of a number of properties in 2022/23 following the disposal of the St
William business), offset by lower gains to be realised in National Grid
Partners (NGP) year on year and higher corporate costs to support our
communities as part of our response to the energy crisis.
Joint Ventures and Associates
Our share of the profit after tax of joint ventures and associates is expected
to be at a similar level to 2021/22. This includes higher profits in our
BritNed joint venture and includes our expected share for UK Gas Transmission
& Metering for the remaining 40% stake following completion of the
disposal of the majority stake, offset by the disposals of our St William and
Millennium joint ventures.
Interest and Tax (continuing operations)
Net finance costs in 2022/23 are expected to be around £350 million higher
than 2021/22 (at a forecast exchange rate of $1.20) reflecting the impact of
higher inflation on our inflation-linked debt, increasing rates for new
issuances and increasing rates impacting our existing floating portfolio,
partially offset by higher capitalised interest.
For the full year 2022/23, the underlying effective tax rate excluding the
share of post-tax profits from joint ventures and associates, is now expected
to be around 22%.
Investment, Growth and Net Debt
Overall Group capital investment for continuing operations in 2022/23 is now
expected to be around £7.5 billion, around £0.5 billion higher than the
guidance provided at full year. Underlying investment is increasing by around
£0.2 billion largely driven by non-cash additions for capital leases and
National Grid Partners, with the remaining increase driven by currency
movements on dollar related investment ($1.20 now forecast; previously $1.30).
Asset Growth is expected to be at or above the top end of our 8-10% target
range, reflecting an increase in capex along with higher indexation impacting
our UK regulated businesses.
Depreciation is expected to increase, reflecting the impact of continued high
levels of capital investment.
Cash outflow generated from continuing operations (excluding acquisitions,
disposals and transaction costs) is expected to increase by around £2 billion
compared to 2021/22 principally driven by increased capital investment and
higher interest costs.
Net debt is expected to reduce by around £5 billion at a forecast foreign
exchange rate of $1.20 (from £46.5 billion as at 30 September 2022), driven
by the expected receipt of sales proceeds from the 60% stake in UK Gas
Transmission & Metering, and the sale of our interest in Millennium
Pipeline, partially offset by business funding requirements in the second half
of the year.
Weighted average number of shares (WAV) is expected to be approximately 3,660
million in 2022/23.
FINANCIAL REVIEW - HY 2022/23
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 reconcile these to statutory results in 'Alternative
performance measures/non-IFRS reconciliations' on pages 57 to 60. 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) 2022 2021 change %
Statutory results
Operating profit 2,239 1,492 50%
Profit after tax 1,125 376 199%
Earnings per share (pence) 30.8 10.5 193%
Interim dividend per share (pence) 17.84 17.21 4%
Alternative performance measures:
Adjusted operating profit 1,756 1,303 35%
Adjusted profit after tax 917 738 24%
Underlying operating profit 2,117 1,407 50%
Underlying profit after tax 1,182 813 45%
Adjusted earnings per share (pence) 25.1 20.7 21%
Underlying earnings per share (pence) 32.4 22.8 42%
Capital investment 3,883 2,840 37%
Statutory operating profit was £2,239 million, 50% higher than the
comparative period. A number of items reported as 'exceptional' along with
period-on-period remeasurements of derivatives had a significant impact on our
statutory results. On 25 May 2022, we sold 100% of our share in NECO (our
Rhode Island business) to PPL Rhode Island Holdings, LLC for £3.1 billion
($3.9 billion) and the Group recognised a gain of £511 million (including
£40 million financing costs and £145 million from recycling foreign
currency translation reserve). We incurred exceptional charges in relation to
our major cost efficiency programme of £61 million. Separation and
transaction costs of £65 million were incurred on the sale of NECO, the
planned disposal of 60% of our UK Gas Transmission & Metering businesses
and the acquisition and integration of NGED (completed during 2021/22),
compared to £137 million incurred in the prior period. In the current year
we recognised an exceptional gain of £33 million for IFA1 property damage
insurance proceeds. Commodity remeasurement net gains were £65 million
compared to £350 million in the prior period, financial derivative
remeasurement net gains were £14 million compared to £25 million net gains
in the prior period, and remeasurement losses for joint ventures an associates
were £19 million compared to £17 million losses in the prior period. In the
first six months of last year, an exceptional deferred tax charge of
£484 million was recognised, as a result of the 6% increase in the UK
corporation tax rate to 25% (effective from 1 April 2023). As a consequence of
all of these, along with improved underlying business performance, partly
offset by adverse year on year timing swings, statutory profit after tax was
up 199% against the comparative period.
Excluding exceptional items and remeasurements, adjusted operating profit
increased by £453 million or 35%. Around half of the increase came from a
full six months' ownership of NG Electricity Distribution. Total revenue from
continuing operations of £9,444 million was up £2,503 million compared to
the prior period, primarily related to pass-through costs driven by the
increase in commodity prices (we do not make any profits on commodity
pass-through costs). Revenues (net of pass-through costs) were £887 million
higher, with benefits from an extra 2.5 months from NG Electricity
Distribution, additional property sales, higher interconnector income,
increases in New England and New York rates, the impact of favourable exchange
rates, partly offset by the sale of our Rhode Island business in May 2022 and
adverse timing swings. Controllable costs were slightly higher on a constant
currency basis, primarily driven by higher workload, but inflationary
increases were more than offset by efficiency savings. Pension and other
post-employment benefit costs were lower, driven by a £40 million buy-out
gain in NIMO. 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 NG Electricity Distribution, adjusted profit after tax was up
24% compared to the prior period.
Timing net under-recoveries were £361 million in the first six months
compared to £125 million under-recovery (at constant currency in the prior
year). Excluding the impact of timing, underlying operating profit of £2,117
million was up 50% and underlying EPS of 32.4p was up 42% 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) 2022 2021 2022 2021 2022 2021
Statutory results 2,239 1,492 1,125 376 30.8 10.5
Exceptional items and remeasurements (483) (189) (208) 362 (5.7) 10.2
Adjusted results 1,756 1,303 917 738 25.1 20.7
Timing 361 104 265 75 7.3 2.1
Major storm costs - - - - - -
Underlying results 2,117 1,407 1,182 813 32.4 22.8
Segmental income statement
The following tables set out the income statement on adjusted and underlying
bases.
Segmental analysis for continuing operations
Adjusted Underlying
£ million 2022 2021 change % 2022 2021 change %
UK Electricity Transmission 499 550 (9%) 564 552 2%
UK Electricity Distribution 531 281 89% 579 257 125%
UK Electricity System Operator (ESO) 147 63 133% 52 49 6%
New England 193 126 53% 316 247 28%
New York (18) 122 (115%) 202 141 43%
NGV and Other 404 161 151% 404 161 151%
Total operating profit 1,756 1,303 35% 2,117 1,407 50%
Net finance costs (732) (475) 54% (732) (475) 54%
Share of post-tax results of joint ventures and associates 70 58 21% 70 58 21%
Profit before tax 1,094 886 23% 1,455 990 47%
Tax (177) (148) 20% (273) (177) 54%
Profit after tax 917 738 24% 1,182 813 45%
EPS (pence) 25.1 20.7 21% 32.4 22.8 42%
UK Electricity Transmission adjusted operating profit decreased compared to
the same period in 2020/21 primarily driven by £68 million lower revenues
principally related to the return of Western Link liquidated damages to
customers. Excluding timing, allowed revenues were higher, with inflationary
increases more than offsetting this decrease. The £63 million adverse swing
in timing recoveries were driven by of under-recoveries of TNUoS and
under-recoveries of inflation true-ups, partly offset by the collection of
prior period balances.
UK Electricity Distribution adjusted operating profit increased by
£250 million to £531 million. This business contributed for a full six
months this year compared to only 3.5 months in the prior period, which after
adjusting for timing swings accounted for the majority of the £322 million
increase in underlying operating profit. In addition to this impact, revenues
were also higher as a result of inflationary increases and a gain on disposal
of its smart metering business, but these were partly offset by £72 million
of adverse timing (over-collection of DUoS revenues in the prior period and
under-collection of current year CPI true-ups).
UK Electricity System Operator adjusted operating profit was £147 million
compared to £63 million in the prior period, with a substantial benefit
arising from an £81 million year on year favourable timing swing. This was
driven by the collection of prior period TNUoS under-recovery from 2020/21.
Excluding timing, underlying operating profit was £52 million compared to
£49 million in the prior period.
New England adjusted operating profit was £193 million, £67 million higher
than the prior year (£48 million higher on a constant currency basis). Higher
revenues from Massachusetts Gas rate cases, wholesale networks and New England
Power tariffs were partially offset by higher depreciation and the impact of
our disposal of NECO in May 2022. Controllable and other costs were lower,
with the impact of the NECO sale and lower levels of storms more than
offsetting increases from foreign exchange. Timing under-recoveries of
£123 million (driven by commodities and revenue decoupling, partly offset by
energy efficiency) compared to £121 million in the comparative period
(£139 million at constant currency). Excluding the impact of timing,
underlying profit was £316 million, up £32 million or 11% (at constant
currency).
New York adjusted operating loss of £18 million in the first six months was
£140 million adverse to the comparative period last year (£158 million at
constant currency). This was mainly due to a £201 million adverse swing in
timing (£198 million at constant currency) related to the return of prior
year commodity over-collections, lower volumes and a net under-recovery of
pass-through costs. Excluding the impact of timing, underlying operating
profit was £202 million, £61 million higher (£40 million higher at
constant currency) with higher revenues from increase in rates and resumption
of late payment recoveries partially offset by higher environmental provision
costs, storm costs, property taxes and depreciation. Controllable costs were
higher as a result of timing of workload, however inflationary impacts were
more than offset by efficiency savings. Pension expense was lower including a
£40 million one off gain from a Niagara Mohawk pension buy-out in the period.
Bad debts were largely flat on the prior year period with increases from
utility-related bad debt charges offset by funding received from the New York
arrears relief programme.
Adjusted operating profit in NGV and Other activities increased by
£243 million (£238 million at constant currency) compared to the same
period in 2021/22, including a £210 million increase in Property sales. This
was as a result of our agreement to sell a number of additional land sites to
the Berkeley Group following disposal of our stake in the St William joint
venture. Adjusted operating profit includes a current year benefit of a £70
million business interruption insurance settlement (in respect of the
unplanned outage caused by a fire at Sellindge last year). The North Sea Link
interconnector contributed £41 million to the current year having commenced
operations in the second half of the prior year. Our LNG storage facility at
Grain contributed £19 million higher profits, as a result of higher gas
prices compared to the prior period. Partly offsetting these increases,
NG Partners investment portfolio reported a net operating loss of £17
million compared to net operating profits of £33 million in the first six
months of last year, related to mark-to-market revaluation of investments.
Discontinued operations comprise our UK Gas Transmission & Metering
operations in National Grid Gas plc. We remain on track to complete the sale
of a 60% stake in UK Gas Transmission & Metering by the end of this
calendar year.
Financing costs and tax
Net finance costs
Adjusted net finance costs for continuing operations were £257 million higher
than the prior period (£221 million at constant currency). This was driven by
higher inflation on RPI/CPI-linked debt, new financing requirements to fund
our ongoing capital investment programme along with the impact of interest on
borrowings for the additional 2.5 months of UK Electricity Distribution
following the part period of ownership in the prior period (including the
bridge financing of the acquisition). This was partially offset by favourable
interest on net pension assets and higher capitalised interest (increased
level of investment projects in the construction phase and higher rates).
Adjusted net financing costs for discontinued operations were £92 million
higher than the prior period, principally as a result of higher inflation on
index-linked debt.
Joint ventures and associates
The Group's share of net profits from joint ventures and associates increased
by £12 million year on year on an adjusted basis, driven by increased
performance in the BritNed interconnector and a number of NG Renewables
projects becoming live. This was partially offset by reduced performance in
the Nemo Link interconnector, lower NG Partners valuations and the impact of
disposal of the St William joint venture which completed last year.
Tax
The adjusted effective tax rate for continuing operations (excluding profits
from joint ventures and associates) was 17.3% (prior year 17.9%) and the
underlying effective tax rate for continuing operations (excluding profits
from joint ventures and associates) was 19.7% (prior year 19.0%). The
underlying effective tax rate is higher than in the prior period primarily due
to the in-year element of the deferred tax charge arising on the increase in
UK corporation tax rate to 25% being included in underlying in this period but
within exceptionals and remeasurements in the prior period.
Net debt
During the first six months of the year, net debt increased to £46.5 billion,
£3.7 billion higher than at 31 March 2022. A stronger US dollar increased
opening net debt to £46.2 billion. This was principally driven by cash
generated from operations (continuing operations) of £2.4 billion which was
more than offset by £3.9 billion of cash outflows for capital expenditure and
investments in joint ventures and associates, £0.6 billion of interest
outflows, £0.4 billion accretions on index-linked debt and £1.1 billion paid
in dividends. Net increases in net debt were broadly offset by £3.0 billion
of sales proceeds (net of financing costs) from the disposal of the Rhode
Island business received in May 2022. Consistent with the treatment at 31
March 2022, net debt at 30 September 2022 excludes £3.9 billion related to
our UK Gas Transmission & Metering business, which is classified as 'held
for sale'.
During the period we raised around £4 billion of new long-term senior debt to
refinance maturing debt and to fund a portion of our significant capital
programme. The new bonds included a green bond issued by our upstate New York
business. As at 30 September 2022, we have £6.5 billion of committed
facilities available for general corporate purposes.
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 17.84p per ordinary share
($1.0307 per American Depositary Share). This represents 35% of the total
dividend per share of 50.97p in respect of the last financial year
to 31 March 2022 and is in line with the Group's dividend policy. The
interim dividend is expected to be paid on 11 January 2023 to shareholders on
the register as at 25 November 2022.
The Board decided in March 2021 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 2022/23
interim dividend. As previously announced, we do not expect to buy back the
scrip shares issued during 2022/23.
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.
£3.9 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 £3,883
million, an increase of £1,043 million (37%) at actual exchange rates (26% at
constant currency) compared to the first half of 2021/22.
Group capital investment (continuing operations)
Six months ended 30 September At actual exchange rates At constant currency
(£ million)
2022 2021 % change 2021 % change
UK Electricity Transmission 629 587 7% 587 7%
UK Electricity Distribution 584 315 85% 315 85%
UK Electricity System Operator (ESO) 42 65 (35%) 65 (35%)
New England 862 700 23% 804 7%
New York 1,242 851 46% 978 27%
NGV and other activities(1) 524 322 63% 343 53%
Group capital investment - continuing 3,883 2,840 37% 3,092 26%
1. 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, which was sold in March 2022.
UK Electricity Transmission invested £629 million for the first six months
of the year, an increase of £42 million on the prior period, primarily driven
by further investment in the London Power Tunnels 2 project, overhead line
projects including Cottam-Wymondley and Bramford to Norwich, partly offset by
lower spend on the Hinkley-Seabank connection and Visual Impact Provision
(VIP) projects. UK Electricity Distribution invested £584 million, an
increase of £269 million on the prior period, principally driven by an
additional 2.5 months of UK Electricity Distribution ownership.
Investment in New York was £1,242 million, an increase of £391 million over
the period at actual exchange rates and an increase of £264 million at
constant currency. This was primarily driven by increased resilience and storm
hardening spend in line with our electric distribution rate commitments, as
well as the commencement of new transmission projects to assist large scale
renewable connections, such as our Smart Path Connect project. For New
England, investment reached £862 million, an increase of £162 million at
actual exchange rates and an increase of £58 million at constant currency.
This has been driven by increased asset condition work and leak-prone pipe
replacement, partially offset by the reduction in Rhode Island spend following
completion of the transaction with PPL in May. Capital investment in the half
year also includes £214 million of non-cash lease additions in the US (£185
million higher than the prior period at actual exchange rates and £181
million higher on a constant currency basis, due to one-off non-cash lease
additions).
Investment in NGV and other activities during the period was £524 million,
£202 million higher than the prior period at actual exchange rates and £181
million higher on a constant currency basis. This was principally driven by
the Sellindge (IFA1) converter station rebuild, LNG Grain re-life and
expansion work, continued construction of the Viking Link, and increased
investment in renewables for the construction of two further solar projects in
the US.
BUSINESS REVIEW
UK ELECTRICITY TRANSMISSION
Operations and capital investment
Operationally, our UK Electricity Transmission (NGET) business has continued
to deliver good levels of performance and our capital investment programme has
progressed as expected.
Capital investment reached £629 million, up £42 million on the prior period.
The increase was primarily driven by higher spend on LPT2, entering the first
full year of tunnel boring works, overhead line projects including
Cottam-Wymondley and Bramford to Norwich, with lower spend on the
Hinkley-Seabank and VIP projects.
Progress continues on the Hinkley-Seabank project, building a new high voltage
electricity connection between Bridgewater and Seabank with the connection now
over 75% complete and on track for completion by December 2024. To date, we
have installed 47 T-pylons, the first new pylon design in nearly a century, as
part of the 57 kilometre connection. T-pylons have a smaller footprint than
lattice pylons, use less land and have less visual impact. In June, the
Shurton 400 kV substation (the main connection point for Hinkley Point C) was
commissioned and energised. In addition, all Mendip Hill Project cables have
been installed which will enable the energisation of Sandford 400 kV
substation by the end of calendar year 2022.
We continue to progress Phase 2 of our LPT2 project which will see the
construction of 32.5 kilometres of underground cable tunnels connecting New
Cross to Wimbledon, Hurst to New Cross, and Hurst to Crayford by 2027. During
the half year, we completed the construction of 10 kilometres of tunnel as we
reached full production. We expect to complete all tunnel build activity in
the third quarter of calendar year 2023.
Customer Connections
The difference between when customers want to connect and when they can
connect is growing (for NGET, this includes generation customers, such as
power stations; and demand customers, such as Distribution Network Operators
and large consumers, such as data centres). We are implementing a number of
changes to industry frameworks (including an amnesty for customers wishing to
leave the connections queue and contractual management tools) to address this
now, while a fundamental reform of the process to connect to the power system
is established across the industry.
Regulatory progress
In our second year of RIIO-T2, we continue to make good progress in delivering
the agreed regulatory outputs despite challenging global supply chain
conditions. In addition, we are awaiting Ofgem's decision on over
£500 million of reopener allowances including for works on underground
cables from Dinorwig power station to our sub-station at Pentir, further works
at the Snowdonia VIP Scheme, works to reduce leakage on SF(6) equipment,
anti-flooding works to improve resilience of our network, and a number of
projects to help improve operability of the system.
Looking ahead, we have received approval from Ofgem for two new subsea high
voltage direct current links - green energy superhighways - between Scotland
and the North of England. The 'Green Links' form part of investment in new
major projects to help deliver the government's offshore wind targets,
expected to result in a potential investment of £14 billion. The two new
Green Links make up £3.7 billion of this investment, delivered through Joint
Ventures with Scottish & Southern Electricity Networks and Scottish Power
respectively, with £1.8 billion sitting within NGET. Approximately £0.8
billion of the spend will be delivered within the capital investment outlined
for NGET in our five-year financial framework, and hence within RIIO-T2.
UK ELECTRICITY DISTRIBUTION
Operations and capital investment
UK Electricity Distribution continues to perform well under RIIO-ED1. During
the period, capital investment reached £584 million, an increase of £269
million compared to the prior period. The increase is driven principally by an
additional 2.5 months of UK Electricity Distribution ownership; a 10% step up
in new customer connections year on year, mainly driven by growth in low
carbon technologies such as electric vehicle and heat pump connections; and
digital investments required to set up our Distribution System Operator (DSO)
function which will enable greater flexibility services and network
reinforcement investment for our customers.
Regulatory Progress
In June, Ofgem published its draft determinations for the RIIO-ED2 price
control which will cover UK Electricity Distribution for the period from April
2023 to March 2028. For further details, please refer to page 6 (Strategic
Overview) of this results statement.
During the half year, we have continued to integrate UK Electricity
Distribution into the Group. On 21 September we reached an important
integration milestone, completing the rebranding from Western Power
Distribution to National Grid. Customers were advised of the change through a
number of different communication channels including our social media
platforms. The rebrand makes UK Electricity Distribution central to the
Group's vision to be at the heart of a clean, fair and affordable energy
future. Whilst the rebranding is an important milestone, our central focus
remains unchanged - to safely and reliably deliver power to homes and
businesses across our service territory, and delivering excellent customer
service.
UK ELECTRICITY SYSTEM OPERATOR (ESO)
The ESO has performed well during the first half of the year. Capital
investment reached £42 million in the first half, £23 million lower than
prior period, driven by project phasing into the second half of the year.
In April 2022, the Department for Business, Energy and Industrial Strategy
(BEIS) and Ofgem announced their joint decision to create a new FSO that
builds on the track record and skills of the ESO whilst creating an impartial
body with responsibilities across both the electricity and gas systems. We
will continue to work closely with all parties involved in the coming months
to enable a smooth and successful transition. We have continued to advance our
plans during the half year to ensure an orderly transition by or in 2024 and
are seeking clarity on recovery of the costs of separation.
At the end of August, the ESO submitted its updated RIIO-2 Business Plan
covering the two year regulatory period from April 2023 to March 2025. Our
plan will deliver excellence in system operation, continue the drive towards
net zero and build efficient and effective markets. The plan proposes £816
million of totex over this period.
In October, the ESO and GSO published the gas and power Winter Outlooks for
the upcoming winter in Great Britain. Alongside the usual base scenarios
provided, additional scenarios were reviewed which looked at the potential
risks and uncertainties from a possible shortage of gas supply in Europe and
the impact it could have on the UK. For more information on the Winter
Outlook, please refer to the Strategic Overview on page 6.
NEW ENGLAND
Operations and capital investment
We achieved strong operational performance across New England during the half
year.
Capital investment remains on track with £862 million deployed during the
half-year, 23% higher at actual exchange rates (7% higher at constant
currency) than the prior period. Investment in our gas business increased by
$94 million largely driven by leak-prone pipe replacement (with 71 miles of
leak prone pipe replaced in the period in Massachusetts) and completion of
more mandated work due to fewer COVID-19 restrictions this year. Increased
investment in our Electric Distribution ($13 million) and our Electric
Transmission businesses ($48 million) was largely driven by asset condition
work. These increases were partially offset by the reduction in Rhode Island
spend following completion of the transaction with PPL in May.
Storm activity
There has been lower storm activity in New England compared to the prior
period, with minimal customer interruptions to supply.
COVID-19 recoveries
Following the update provided at our full-year results in May, the COVID-19
cost recovery and rate-making proposals (which we filed with the DPU in August
2020) are still pending.
Regulatory progress
On 26 September, the Massachusetts Department of Public Utilities (DPU)
approved our annual Performance Based Rate adjustments for both Massachusetts
Electric ($44 million) and Massachusetts Gas ($64 million). These rates became
effective 1 October 2022.
In July 2021, we filed our four-year short-term investment plan (STIP), and a
five-year strategic plan in the Massachusetts Electric Grid Modernization Plan
(the GMP), with the DPU. The GMP includes 'grid-facing' investments of $336
million such as Fault Location Isolation and Service Restoration (FLISR) and
Volt-Var optimisation (which helps to reduce losses and minimise demand across
the distribution network). Also in July 2021, we filed an Advanced Metering
Infrastructure (AMI) implementation plan supported by a proposed investment of
over $400 million which would see the full-scale implementation across our
customer base. On 7 October 2022, the DPU announced that it had approved a
$301 million budget cap for the Track 1 grid-facing investments. We anticipate
orders for both the Track 2 (new technologies) component of the grid facing
investments and the customer facing investments included in our AMI filing by
the end of the calendar year 2022.
In addition, we await DPU approval for our Massachusetts Electric Phase 3
Electric Vehicle (EV) proposal, also filed in July 2021. 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 to deliver EV make ready
infrastructure, 32,000 public and workplace charging stations, EV equipment on
the customer's side of the meter, and an alternative rate structure for larger
separately metered charging stations. We anticipate a regulatory decision on
this filing by the end of calendar year 2022.
In September, the DPU approved National Grid's Massachusetts Geothermal
Program Implementation Plan, a five‑year demonstration programme of
networked ground source heat pumps. The Company is currently reviewing
applications received from interested customers, with the goal of selecting
its first site in November 2022. The pilot is designed to explore how
geothermal networks can be used to assist with mitigating gas system
constraints, reduce greenhouse gas emissions in an affordable way for
customers and eliminate leak-prone pipe from our existing gas network.
Lastly, in this period as compared to the prior year, we received a full
contribution from new rates for Massachusetts Gas that became effective in
October 2021.
Customers and communities
In September, we launched our Winter Customer Savings Initiative to help
Massachusetts customers reduce their energy use, manage their bills, and
secure available energy assistance. The initiative includes payment assistance
programmes for income-eligible customers, extensive residential and business
energy efficiency programmes and incentives, and flexible payment programmes.
We have reached out to all customers through a variety of events to raise
awareness of the options open to them to reduce and manage their energy costs.
Our commitment to our customers and local communities has continued to
strengthen with the growth of our Grid for Good corporate social
responsibility programme, which launched in June 2022. Grid for Good's focus
includes workforce development and education, environmental justice, social
equity, clean energy and volunteering, and leverages the strong brand of the
Company's flagship workforce development programme. Since the launch, we have
held two New England-wide volunteer weeks, with the second in September, that
resulted in nearly 2,000 employee volunteer hours. This complements an
ongoing, steady stream of volunteer activities aligned to the Group community
investment strategy. Additionally, the team has been exploring new
partnerships aligned to the Grid for Good pillars, with an immediate focus on
organisations that prioritise environmental justice and social equity.
NEW YORK
Operations and capital investment
Our New York business delivered good operational performance during the half
year.
Capital investment reached £1,242 million during the half year, an increase
of £391 million (£264 million at constant currency) compared to the prior
period. This was primarily driven by increased resilience and storm hardening
spend in line with our electric distribution rate commitments, one-off lease
additions, as well as the commencement of new transmission projects to assist
large scale renewable connections, such as our upstate Smart Path Connect
project. Our Leak Prone Pipe (LPP) replacement programme continued on track
with 123 miles of pipeline replaced between the start of April and the end of
September.
In July, we received approval to proceed on Phase 1 transmission investment
projects in support of the Climate Leadership and Community Protection Act
(CLCPA). In 2020, the New York PSC ordered all utilities to file proposals for
distribution and transmission infrastructure projects required to meet CLCPA
objectives. Utilities, including National Grid, grouped these projects into
two categories, Phase 1 and Phase 2, based on project readiness and
availability of supporting regulatory frameworks. Our approval for Phase 1
represents around $600 million of investment before 2030, including projects
such as Inghams-Rotterdam and Churchtown-Pleasant Valley circuit rebuilds (129
miles) to support 330 MW of incremental headroom capacity for renewable
generation. We anticipate a response on CLCPA Phase 2 projects before the end
of 2022/23, which we expect to include further circuit rebuild projects as
well as substation and transformer upgrades.
Storm activity
During the half year we saw a number of storms across the New York
jurisdictions we serve. In August, three major storms affected the Central and
Western New York regions, impacting 90,000 of our electric customers. Our
teams responded quickly and restored connection to all customers within 25
hours.
COVID-19 recoveries
In June, we reached an agreement with the New York PSC to provide relief for
low‑income customers' arrears accumulated during the COVID-19 pandemic. As
part of this agreement, we received $51 million of government funding in
August and will collect approximately $70 million through a surcharge over the
next three years. We are currently in discussions with the PSC for Phase 2 of
the programme addressing customers that are not on assistance programmes but
were significantly impacted by the COVID-19 economic downturn.
Customers and communities
Our commitment to our customers and local communities has continued during the
half year. To mark the first anniversary of our Project C initiative, over
2,000 employees participated in a 'Day of Service' to make positive impacts by
donating their time, over 11,000 hours, at more than 200 volunteer events in
communities across the Company's New York service area. Through our long-term
partnership, we have also been working closely with HeartShare, a charity in
New York which is helping 120,000 families with their heating bills by
providing grants to people struggling with the cost of living. In addition, we
have continued our work with the Northland Workforce Training Centre in
Buffalo which focuses on developing skills amongst minorities in the fields of
manufacturing and energy.
NATIONAL GRID VENTURES
Capital investment, including joint ventures, reached £478 million in the
half year, an increase of £196 million at actual exchange rates (£181
million at constant currency) on the prior period as a result of the Sellindge
(IFA1) converter station rebuild, LNG Grain re-life and expansion work,
continued construction of the Viking Link, and through higher investments in
the US Joint Ventures for the construction of two further solar projects in
Emerald and the New York Energy Solution in Transco.
Interconnectors
Our North Sea Link, which commenced operations in October 2021, operated at
74% availability during the half year following a period of maintenance for
capacitor replacement, before returning to full technical availability in
June. To date, we have imported 1.4 TWh of 100% green energy through the 720
kilometre link to Norway, increasing the use of renewables in the UK. Work
continues on the Viking Link between the UK and Denmark, with the
interconnector on track to commission by end of calendar year 2023.
Following the 2021 fire at IFA1's Sellindge converter station, NGV has
received an interim insurance payment of £120 million. The first £40 million
was paid by National Grid's own captive insurance company with the balance of
payment coming from external reinsurers. £70 million of the interim payment
has been recorded within underlying income for the loss of revenue (business
interruption) claim and £50 million within exceptional operating income for
the property damage claim based upon the costs incurred at the time the
payment was made. The rebuild of the IFA1 asset remains on track, with 500 MW
due back in service in November, and a further 500 MW expected to return to
service in December 2022. Together with 1,000 MW that has been operational
throughout the year, this will result in 2,000 MW of available capacity by the
end of calendar year 2022.
On our other interconnectors, IFA2 (France) operated at 93% availability
during the half year; Nemo Link (Belgium) at 98% availability; and BritNed
(Netherlands) at 95%.
Grain LNG
Grain LNG continues to perform well. The five year expansion programme to
deliver additional LNG storage on site (Capacity 25) continues and, when
completed, will increase total site storage to 1,200,000 cubic metres and
total regasification capacity to 900 GWh/d.
US Renewables
During the half year, NG Renewables has progressed construction of 674 MW
additional solar capacity through our joint venture with Washington State
Investment Board (WSIB). This includes our Yellowbud 274 MW project in Ohio
which is due to commission in 2023, and our Noble Solar and Storage 400 MW
project in Texas which is due to commission towards the end of this year. In
October 2022, we announced the start of construction of our Copperhead Solar
and Storage plant in Texas which, when complete, will provide 150 MW of solar
and 100 MWh of electricity storage. As part of this, we have agreed a 140 MW
Power Purchase Agreement (PPA) with the Hershey Company for offtake from the
Copperhead project. When all of our construction projects are complete, our
operating portfolio of onshore wind and solar plant will increase from 625 MW
today to 1,449 MW.
Progress continues on Community Offshore Wind, our joint venture partnership
with RWE, to host around 3,000 MW of offshore wind capacity in the New York
Bight coastal region by 2030. We are currently preparing for a bid
solicitation to secure offtake for the project. This will be a New York
auction and will be held in January 2023. We are also making preparations to
commence site investigations.
OTHER ACTIVITIES
For the first half, Other activities generated an operating profit of £145
million, up £131 million on the prior period (£130 million at constant
currency), principally driven by planned property sales to Berkeley Group
which formed part of the sale of our equity interest in the St William Joint
Venture in March, but partially offset by National Grid Partners' fair value
loss.
Capital investment in Other activities was £46 million during the half year,
£6 million higher than the prior period. Of this, capital investment for
National Grid Partners reached £37 million.
DISCONTINUED OPERATIONS - UK GAS TRANSMISSION & METERING
The UK Gas Transmission & Metering business was reported as held for sale
in the consolidated statement of financial position as at 31 March 2022. As
UK Gas Transmission & Metering represents a major separate line of
business, it was also classified as a discontinued operation. Please refer to
note 6 for further detail.
Operationally, our UK Gas Transmission & Metering business has continued
to deliver good levels of performance and our capital investment programme has
continued as expected.
Capital investment reached £174 million, up £43 million on the prior period.
The increase is primarily driven by higher spend on asset health, St Fergus
and Hatton compressor stations, and higher capitalised interest and cyber
investment.
We remain on course to complete the sale of the 60% stake in UK Gas
Transmission & Metering to Macquarie Asset Management and British Columbia
Investment Management Corporation by the end of this calendar year. In
September, the Competition and Markets Authority (CMA) began its review of the
transaction which forms part of the approval process needed for the sale to
complete. The consortium also has an option to acquire the remaining 40%, on
broadly similar terms to those agreed for the majority stake, which can be
exercised in the first half of 2023.
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 57.
Alternative Performance Measures derived from IFRS
The following are terms or metrics that are reconciled to IFRS measures and
are defined on pages 57 to 60:
Net revenue
Adjusted profit measures
Underlying results
Constant currency
Timing impacts
Capital investment
Net debt - defined in note 11 on page 49.
PROVISIONAL 2022/23 FINANCIAL TIMETABLE
Date Event
10 November 2022 2022/23 half-year results
23 November 2022 ADRs go ex-dividend for 2022/23 interim dividend
24 November 2022 Ordinary shares go ex-dividend for 2022/23 interim dividend
25 November 2022 Record date for 2022/23 interim dividend
1 December 2022 Scrip reference price announced for 2022/23 interim dividend
12 December 2022 (5pm London time) Scrip election date for 2022/23 interim dividend
11 January 2023 2022/23 interim dividend paid to qualifying shareholders
18 May 2023 2022/23 Preliminary Results
1 June 2023 Ordinary shares and ADRs go ex-dividend for 2022/23 final dividend
2 June 2023 Record date for 2022/23 final dividend
8 June 2023 Scrip reference price announced for 2022/23 final dividend
10 July 2023 2023 Annual General Meeting
12 July 2023 (5pm London time) Scrip election date for 2022/23 final dividend
9 August 2023 2022/23 final dividend paid to qualifying shareholders
CAUTIONARY STATEMENT
This announcement contains certain statements that are neither reported
financial results nor other historical information. These statements are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended. These statements include information with respect to
National Grid's (the Company) financial condition, its results of operations
and businesses, strategy, plans and objectives. Words such as 'aims',
'anticipates', 'expects', 'should', 'intends', 'plans', 'believes', 'outlook',
'seeks', 'estimates', 'targets', 'may', 'will', 'continue', 'project' and
similar expressions, as well as statements in the future tense, identify
forward-looking statements. This document also references climate-related
targets and climate-related risks which differ from conventional financial
risks in that they are complex, novel and tend to involve projection over long
term scenarios which are subject to significant uncertainty and change. These
forward-looking statements are not guarantees of National Grid's future
performance and are subject to assumptions, risks and uncertainties that could
cause actual future results to differ materially from those expressed in or
implied by such forward-looking statements or targets. Many of these
assumptions, risks and uncertainties relate to factors that are beyond
National Grid's ability to control, predict or estimate precisely, such as
changes in laws or regulations, including any arising as a result of the
current energy crisis, announcements from and decisions by governmental bodies
or regulators, including those relating to the RIIO-T2 and RIIO-ED2 price
controls; 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; 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, and whether aspects of its
activities are contestable; the funding requirements and performance of
National Grid's pension schemes and other post-retirement benefit schemes; the
failure to attract, develop and retain employees with the necessary
competencies, including leadership and business capabilities, and any
significant disputes arising with National Grid's employees or the breach of
laws or regulations by its employees; the failure to respond to market
developments, including competition for onshore transmission; the threats and
opportunities presented by emerging technology; the failure by the Company to
respond to, or meet its own commitments as a leader in relation to, climate
change development activities relating to energy transition, including the
integration of distributed energy resources; and the need to grow the
Company's business to deliver its strategy, as well as incorrect or unforeseen
assumptions or conclusions (including unanticipated costs and liabilities)
relating to business development activity, including the integration of its UK
Electricity Distribution business, and the sale of a 60% 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 253 to 256
of National Grid's most recent Annual Report and Accounts, as updated by the
principal risks and uncertainties statement on page 54 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
2022 Notes Before Exceptional Total
exceptional items and remeasurements £m
items and remeasurements £m
£m
Continuing operations
Revenue 2(a),3 9,444 - 9,444
Provision for bad and doubtful debts (52) - (52)
Other operating costs 4 (7,636) (61) (7,697)
Other operating income 4 - 544 544
Operating profit 2(b),4 1,756 483 2,239
Finance income 4,5 69 (32) 37
Finance costs 4,5 (801) 46 (755)
Share of post-tax results of joint ventures and associates 2(b),4 70 (19) 51
Profit before tax 2(b),4 1,094 478 1,572
Tax 4,7 (177) (270) (447)
Profit after tax from continuing operations 4 917 208 1,125
Profit after tax from discontinued operations 6 121 10 131
Total profit for the period (continuing and discontinued) 1,038 218 1,256
Attributable to:
Equity shareholders of the parent 1,038 218 1,256
Non-controlling interests - - -
Earnings per share (pence)
Basic earnings per share (continuing) 8 30.8
Diluted earnings per share (continuing) 8 30.7
Basic earnings per share (continuing and discontinued) 8 34.4
Diluted earnings per share (continuing and discontinued) 8 34.2
2021 Notes Before Exceptional Total
exceptional items and remeasurements £m
items and remeasurements £m
£m
Continuing operations
Revenue 2(a),3 6,941 - 6,941
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 47 2 49
Finance costs 4,5 (522) 23 (499)
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 4,7 (148) (559) (707)
Profit after tax from continuing operations 4 738 (362) 376
Profit after tax from discontinued operations 6 260 (161) 99
Total profit for the period (continuing and discontinued) 998 (523) 475
Attributable to:
Equity shareholders of the parent 997 (523) 474
Non-controlling interests 1 - 1
Earnings per share (pence)
Basic earnings per share (continuing) 8 10.5
Diluted earnings per share (continuing) 8 10.5
Basic earnings per share (continuing and discontinued) 8 13.3
Diluted earnings per share (continuing and discontinued) 8 13.2
Consolidated statement of comprehensive income
for the six months ended 30 September
2022 2021
Notes £m £m
Profit after tax from continuing operations 1,125 376
Profit after tax from discontinued operations 131 99
Other comprehensive (loss)/income from continuing operations
Items from continuing operations that will never be reclassified to profit or
loss:
Remeasurement (losses)/gains on pension assets and post-retirement benefit 12 (631) 593
obligations
Net gains on equity instruments designated at fair value through other - 10
comprehensive income
Net gains in respect of cash flow hedging of capital expenditure 14 6
Tax on items that will never be reclassified to profit or loss 159 (95)
Total items from continuing operations that will never be reclassified to (458) 514
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 2,360 297
Exchange differences reclassified to the consolidated income statement on 6 (145) -
disposal
Net gains in respect of cash flow hedges(1) 450 21
Net losses in respect of cost of hedging (64) (43)
Net (losses)/gains on investments in debt instruments measured at fair value (47) 14
through other
comprehensive income
Share of other comprehensive income of associates, net of tax 1 1
Tax on items that may be reclassified subsequently to profit or loss (86) 6
Total items from continuing operations that may be reclassified subsequently 2,469 296
to profit or loss
Other comprehensive income for the period, net of tax, from continuing 2,011 810
operations
Other comprehensive (loss)/income for the period, net of tax, from 6 (86) 47
discontinued operations
Other comprehensive income for the period, net of tax 1,925 857
Total comprehensive income for the period from continuing operations 3,136 1,186
Total comprehensive income for the period from discontinued operations 6 45 146
Total comprehensive income for the period 3,181 1,332
Attributable to:
Equity shareholders of the parent
From continuing operations 3,133 1,186
From discontinued operations 45 146
3,178 1,332
Non-controlling interests 3 -
1. Within the line item net gains in respect of cash flow hedges, there is
an equal and opposite impact of £139 million (2021: £18 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 2022.
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 2022 485 1,300 26,611 (4,563) 23,833 23 23,856
Profit for the period - - 1,256 - 1,256 - 1,256
Other comprehensive (loss)/income for the period - - (564) 2,486 1,922 3 1,925
Total comprehensive income for the period - - 692 2,486 3,178 3 3,181
Equity dividends 9 - - (1,119) - (1,119) - (1,119)
Scrip dividend-related share issue 1 (1) - - - - -
Issue of treasury shares - - 14 - 14 - 14
Transactions in own shares - 5 (3) - 2 - 2
Share-based payments - - 20 - 20 - 20
Cash flow hedges transferred to the statement - - - 3 3 - 3
of financial position, net of tax
At 30 September 2022 486 1,304 26,215 (2,074) 25,931 26 25,957
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 9 - - (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 - - - 6 6 - 6
of financial position, net of tax
At 30 September 2021 482 1,288 23,637 (4,787) 20,620 21 20,641
Consolidated statement of financial position
30 September 2022 31 March 2022
Notes £m £m
Non-current assets
Goodwill 10,382 9,532
Other intangible assets 2(c) 3,536 3,272
Property, plant and equipment 2(c) 65,445 57,532
Other non-current assets 539 303
Pension assets 12 3,443 3,885
Financial and other investments 911 830
Investments in joint ventures and associates 1,277 1,238
Derivative financial assets 10 644 305
Total non-current assets 86,177 76,897
Current assets
Inventories and current intangible assets 971 511
Trade and other receivables 3,685 3,715
Current tax assets 129 106
Financial and other investments 11 2,686 3,145
Derivative financial assets 10 408 282
Cash and cash equivalents 11 259 204
Assets held for sale 6 6,258 10,000
Total current assets 14,396 17,963
Total assets 100,573 94,860
Current liabilities
Borrowings 11 (9,207) (12,121)
Derivative financial liabilities 10 (551) (144)
Trade and other payables (4,435) (4,915)
Contract liabilities (153) (130)
Current tax liabilities (86) (32)
Provisions (326) (240)
Liabilities held for sale 6 (5,442) (7,188)
Total current liabilities (20,200) (24,770)
Non-current liabilities
Borrowings 11 (39,387) (33,344)
Derivative financial liabilities 10 (1,175) (869)
Other non-current liabilities (922) (805)
Contract liabilities (1,688) (1,342)
Deferred tax liabilities (7,721) (6,765)
Pensions and other post-retirement benefit obligations 12 (808) (810)
Provisions (2,715) (2,299)
Total non-current liabilities (54,416) (46,234)
Total liabilities (74,616) (71,004)
Net assets 25,957 23,856
Equity
Share capital 486 485
Share premium account 1,304 1,300
Retained earnings 26,215 26,611
Other equity reserves (2,074) (4,563)
Total shareholders' equity 25,931 23,833
Non-controlling interests 26 23
Total equity 25,957 23,856
Consolidated cash flow statement
for the six months ended 30 September
2022 2021
Notes £m £m
Cash flows from operating activities
Operating profit from continuing operations 2(b) 2,239 1,492
Adjustments for:
Exceptional items and remeasurements 4 (483) (189)
Other fair value movements 31 (38)
Depreciation, amortisation and impairment 2(c) 932 840
Share-based payments 20 11
Changes in working capital (306) 117
Changes in provisions 82 1
Changes in pensions and other post-retirement benefit obligations (54) (81)
Cash flows relating to exceptional items (101) (116)
Cash generated from operations - continuing operations 2,360 2,037
Tax paid (88) (90)
Net cash flow from operating activities - continuing operations 2,272 1,947
Net cash flow from operating activities - discontinued operations 256 470
Cash flows from investing activities
Acquisition of financial investments (62) (68)
Contributions to National Grid Renewables and Emerald Energy Venture LLC (8) (10)
Acquisition of National Grid Electricity Distribution(1) - (7,844)
Investments in joint ventures and associates (376) (114)
Disposal of financial and other investments 70 34
Disposal of interest in The Narragansett Electric Company(2) 4,6 2,968 -
Purchases of intangible assets (224) (196)
Purchases of property, plant and equipment (3,258) (2,310)
Disposals of property, plant and equipment 63 3
Dividends received from joint ventures and associates 107 64
Interest received 20 7
Net movements in short-term financial investments 599 58
Cash outflows on derivatives (377) -
Cash flows relating to exceptional items 4 33 -
Net cash flow used in investing activities - continuing operations (445) (10,376)
Net cash flow used in investing activities - discontinued operations (181) (129)
Cash flows from financing activities
Proceeds from issue of treasury shares 14 15
Transactions in own shares 2 (2)
Proceeds received from loans 9,047 10,452
Repayments of loans (9,049) (426)
Payments of lease liabilities (78) (53)
Net movements in short-term borrowings 380 (507)
Cash inflows on derivatives 201 4
Cash outflows on derivatives (230) (7)
Interest paid (669) (450)
Dividends paid to shareholders 9 (1,119) (583)
Net cash flow (used in)/from financing activities - continuing operations (1,501) 8,443
Net cash flow used in financing activities - discontinued operations (334) (38)
Net increase in cash and cash equivalents 67 317
Reclassification to held for sale (5) (9)
Exchange movements 15 1
Net cash and cash equivalents at start of period 182 157
Net cash and cash equivalents at end of period 259 466
1. The balance for the period ended 30 September 2021 consists of cash
consideration paid and cash acquired from National Grid Electricity
Distribution (NGED, formerly known as Western Power Distribution).
2. The balance for the period ended 30 September 2022 consists of cash
proceeds received, net of cash disposed.
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 2022 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 2022 and 2021, together with the audited
consolidated statement of financial position as at 31 March 2022. The half
year financial information has been prepared applying consistent accounting
policies to those applied by the Group for the year ended 31 March 2022 and
are expected to be applicable for the year ending 31 March 2023. The notes to
the unaudited financial information are prepared on a continuing basis unless
otherwise stated.
The key sources of estimation uncertainty and areas of judgement for the
period ended 30 September 2022 are the same as those disclosed in the Annual
Report and Accounts for year ended 31 March 2022. In addition, the Group has
identified the following additional areas of judgement:
• in determining the discount rate applied to our environmental
provisions, we have assessed whether the recent trends in risk free rates are
sustained and should therefore be reflected in our environmental provisions
balance. As at 30 September 2022, we have concluded that we will not adjust
our real discount rate from 0.5%, however we will continue to monitor the
trends in risk free rates ahead of the year end. A 1% change in the discount
rate would result in a decrease in our environmental provisions balance of
£190 million; and
• whilst the valuation of the NGED group of cash-generating units remain
sensitive to the forecast cash flow duration, discount rate and terminal value
assumptions used in the value-in-use calculations, as disclosed
in the Annual Report and Accounts for year ended 31 March 2022, we have
concluded that no indicators of impairment exist as at 30 September 2022.
The Group has also identified the following as an additional key source of
estimation uncertainty:
• the valuation of GasT TopCo Limited in determining the fair value of the
written option over the 40% equity interest in GasT TopCo Limited that the
Group will hold post completion of the UK Gas Transmission business sale (see
notes 6 and 10).
The financial information for the six months ended 30 September 2022 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 2022, which were prepared in accordance with
International Financial Reporting Standards (IFRS) as issued by the IASB and
as adopted by the UK, 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.
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 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 2022.
Our results for the period ended 30 September 2022 include a full six months
ownership of NGED, which was acquired on 14 June 2021.
Disposal of the UK Gas Transmission business
Consistent with the treatment at 31 March 2022, the Group continues to
classify the assets and liabilities of the UK Gas Transmission business as
held for sale. The results of the business continue to be shown separately
from the continuing business for all periods presented on the face of the
income statement as a discontinued operation. Further details are included in
note 6.
1. Basis of preparation and new accounting standards, interpretations and
amendments (continued)
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) to PPL Rhode Island Holdings, LLC. On 25
May 2022 the Group completed the disposal for cash consideration of
£3.1 billion, recognising a post-tax gain on disposal of £280 million. The
transaction did not meet the criteria for classification as a discontinued
operation and therefore its results for the period have not been separately
disclosed on the face of the income statement, and are instead included within
the results from continuing operations.
Disposal of Millennium Pipeline Company LLC
On 28 September 2022 the Group signed an agreement to sell its 26.25% minority
ownership interest in Millennium Pipeline Company LLC to DT Midstream, an
existing investor. The Group completed the disposal on 7 October 2022 for
cash consideration of $552 million (see note 17). The investment has been
presented as held for sale in the consolidated statement of financial
position. Further details are included in note 6.
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 54) alongside potential downside business cash flow
scenarios impacting the Group's operations. The Directors specifically
considered both a base case and a reasonable worst-case scenario for business
cash flows. The assessment is prepared on the conservative assumption that the
Group has no access to the debt capital markets.
The main additional cash flow impacts identified in the reasonable worst-case
scenario are:
• additional potential working capital requirements in response to energy
price increases driven by wider energy market stability challenges and the
conflict between Russia and Ukraine;
• the likely timing and ultimate completion of the disposal of a majority
stake of the UK Gas Transmission business (see note 6);
• adverse impacts of inflation on our capex programme;
• 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 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.
As at 30 September 2022, the Group had undrawn committed facilities available
for general corporate purposes amounting to £6.5 billion. Based on these
available liquidity resources and having considered the reasonable worst-case
scenario, and the further levers at the Board's discretion, the Group has not
identified any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on its ability to
continue as a going concern for the foreseeable future, a period not less than
12 months from the date of this report.
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.£4.2 billion of new long-term senior debt issued in the period from
1 April to 30 September 2022 as evidence of the Group's ability to continue
to have access to the debt capital markets if needed.
1. Basis of preparation and new accounting standards, interpretations and
amendments (continued)
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.
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 2022 and have had a material impact on the
Group's results.
New IFRS accounting standards, interpretations and amendments not yet adopted
There are no new accounting standards and amendments to existing standards
that have been issued, but are not yet effective or have not yet been endorsed
by the UK that were not disclosed in our Annual Report and Accounts. The Group
has not early adopted any standard, amendment or interpretation that has been
issued but is not yet effective.
2. Segmental analysis
Revenue and the results of the business are analysed by operating segment,
based on the information the Board use 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 major storms and timing adjustments relating to revenue and certain
pass-through costs. 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.
The results of our five principal businesses are reported to the Board and are
accordingly treated as reportable operating segments. All other operating
segments are either reported to the Board on an aggregated basis or do not
meet the quantitative threshold in order to be considered a separate operating
segment. The following table describes the main activities for each reportable
operating segment:
UK Electricity Transmission The high-voltage electricity transmission networks in England and Wales.
UK Electricity Distribution The electricity distribution networks of UK ED in South Wales and the East
Midlands, West Midlands and South West of England.
UK Electricity System Operator The Great Britain 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, is the gas system operator in Great Britain and
includes the regulated gas metering operations (which was previously reported
within NGV and Other) 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 2022 when compared to 31 March 2022. 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, which has a focus on investment and future activities in emerging
renewables growth areas. Excluding the impacts of seasonal fluctuations noted
above, 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 2022 2021
Total sales Sales between segments(1) Sales to third parties Total sales Sales between segments(1) Sales to third
parties
£m £m £m £m £m £m
Operating segments - continuing operations:
UK Electricity Transmission 969 (14) 955 1,037 - 1,037
UK Electricity Distribution 1,005 (8) 997 509 - 509
UK Electricity System Operator 2,060 (15) 2,045 1,146 (4) 1,142
New England 1,760 - 1,760 1,686 - 1,686
New York 2,758 - 2,758 1,971 - 1,971
NGV and Other 938 (9) 929 596 - 596
Total revenue from continuing operations 9,490 (46) 9,444 6,945 (4) 6,941
Geographical areas:
UK 4,589 3,000
US 4,855 3,941
Total revenue from continuing operations 9,444 6,941
1. Sales between operating segments are priced having regard to the
regulatory and legal requirements to which the businesses are subject. The
analysis of revenue by geographical area is on the basis of destination. There
are no material sales between the UK and US geographical areas.
(b) Operating profit
Before exceptional items and remeasurements Exceptional items and remeasurements After exceptional items and remeasurements
Six months ended 30 September 2022 2021 2022 2021 2022 2021
£m £m £m £m £m £m
Operating segments - continuing operations:
UK Electricity Transmission 499 550 (6) (9) 493 541
UK Electricity Distribution 531 281 (9) - 522 281
UK Electricity System Operator 147 63 (1) (13) 146 50
New England 193 126 527 126 720 252
New York (18) 122 (8) 199 (26) 321
NGV and Other 404 161 (20) (114) 384 47
Total operating profit from continuing operations 1,756 1,303 483 189 2,239 1,492
Geographical areas:
UK 1,550 1,025 (32) (136) 1,518 889
US 206 278 515 325 721 603
Total operating profit from continuing operations 1,756 1,303 483 189 2,239 1,492
Before exceptional items and remeasurements Exceptional items and remeasurements After exceptional items and remeasurements
Six months ended 30 September 2022 2021 2022 2021 2022 2021
£m £m £m £m £m £m
Reconciliation to profit before tax:
Operating profit from continuing operations 1,756 1,303 483 189 2,239 1,492
Share of post-tax results of joint ventures and associates 70 58 (19) (17) 51 41
Finance income 69 47 (32) 2 37 49
Finance costs (801) (522) 46 23 (755) (499)
Total profit before tax from continuing operations 1,094 886 478 197 1,572 1,083
2. Segmental analysis (continued)
(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 2022 31 March 2022 30 September 2022 30 September 2021 30 September 2022 30 September 2021
£m £m £m £m £m £m
Operating segments:
UK Electricity Transmission 15,071 14,678 629 587 (235) (243)
UK Electricity Distribution 12,974 12,522 584 315 (104) (71)
UK Electricity System Operator 405 404 42 65 (40) (29)
New England 14,151 11,485 862 700 (184) (166)
New York 23,025 18,676 1,242 851 (292) (242)
NGV and Other 3,355 3,039 358 196 (77) (89)
Total 68,981 60,804 3,717 2,714 (932) (840)
Geographical areas:
UK 31,242 30,131 1,594 1,147 (432) (409)
US 37,739 30,673 2,123 1,567 (500) (431)
Total 68,981 60,804 3,717 2,714 (932) (840)
By asset type:
Property, plant and equipment 65,445 57,532 3,490 2,487 (829) (745)
Other intangible assets 3,536 3,272 227 227 (103) (95)
Total 68,981 60,804 3,717 2,714 (932) (840)
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 Electricity Transmission UK Electricity Distribution UK Electricity System Operator New New Total
30 September 2022 £m £m £m England York NGV and £m
£m £m Other
£m
Revenue under IFRS 15
Transmission 931 - 77 53 117 306 1,484
Distribution - 940 - 1,675 2,617 - 5,232
System Operator - - 1,968 - - - 1,968
Other(1) 16 43 - 4 6 69 138
Total IFRS 15 revenue 947 983 2,045 1,732 2,740 375 8,822
Other revenue
Generation - - - - - 224 224
Other(2) 8 14 - 28 18 330 398
Total other revenue 8 14 - 28 18 554 622
Total revenue from continuing operations 955 997 2,045 1,760 2,758 929 9,444
Geographic split of revenue for the six months ended 30 September 2022 UK Electricity Transmission UK Electricity Distribution UK Electricity System Operator New England New York Total
£m £m £m £m £m NGV and £m
Other
£m
Revenue under IFRS 15
UK 947 983 2,045 - - 310 4,285
US - - - 1,732 2,740 65 4,537
Total IFRS 15 revenue 947 983 2,045 1,732 2,740 375 8,822
Other revenue
UK 8 14 - - - 282 304
US - - - 28 18 272 318
Total other revenue 8 14 - 28 18 554 622
Total revenue from continuing operations 955 997 2,045 1,760 2,758 929 9,444
1. The UK Electricity Transmission and UK Electricity Distribution other
IFRS 15 revenue principally relates to engineering recharges, which are the
recovery of costs incurred for construction work requested by customers, such
as the 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, rental income and income arising in connection with the Transition
Services Agreement with PPL Rhode Island Holdings, LLC following the sale of
NECO. In the period ended 30 September 2022 the Group also recognised other
income of £47 million relating to business interruption insurance proceeds
received as a result of the fire at the IFA1 converter station at Sellindge,
Kent (see note 13).
3. Revenue (continued)
Revenue for the six months ended UK Electricity Transmission UK Electricity Distribution UK Electricity System Operator New England New York Total
30 September 2021 £m £m £m £m £m NGV and £m
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
Geographic split of revenue for the six months ended 30 September 2021 UK Electricity Transmission UK Electricity Distribution UK Electricity System Operator New England New York Total
£m £m £m £m £m NGV and £m
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
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 reported in NGV and Other.
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 as 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 2022 Exceptional items Remeasurements Total
£m £m £m
Included within operating profit from continuing operations
Net gain on disposal of NECO 511 - 511
Cost efficiency programme (61) - (61)
Transaction, separation and integration costs (65) - (65)
IFA1 property damage insurance proceeds 33 - 33
Net gains on commodity contract derivatives - 65 65
418 65 483
Included within net finance costs (note 5)
Net gains on derivative financial instruments - 46 46
Net losses on financial assets at fair value through profit and loss - (32) (32)
- 14 14
Included within share of post-tax results of joint ventures and associates
Net losses on financial instruments - (19) (19)
- (19) (19)
Total included within profit before tax from continuing operations 418 60 478
Tax on exceptional items and remeasurements (221) (49) (270)
Total exceptional items and remeasurements after tax from 197 11 208
continuing operations
4. Exceptional items and remeasurements (continued)
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 financial assets at fair value through profit and loss - 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 (634) 272 (362)
continuing operations
Net gain on disposal of NECO: In the period ended 30 September 2022 the Group
recognised a gain of £511 million on the disposal of 100% of the share
capital of NECO to PPL Rhode Island Holdings, LLC for cash consideration of
£3.1 billion ($3.9 billion) (see note 6). The receipt of cash has been
recognised within net cash used in investing activities within the
consolidated cash flow statement.
Cost efficiency programme: During the period, the Group incurred a further
£61 million of costs in relation to the major cost efficiency programme.
The cost efficiency programme, announced in November 2021, is targeting at
least £400 million savings per annum across the Group by the end of three
years. The costs recognised in the period primarily relate to property costs,
employee costs and professional fees incurred in delivering the programme.
Whilst the costs incurred during the period do not meet the quantitative
threshold to be classified as exceptional on a standalone basis, when taken
in aggregate with the £42 million of costs incurred in the year ended 31
March 2022 and the costs expected to be incurred over the remainder of the
programme, the costs qualify for exceptional treatment in line with our
exceptional items policy. Estimated costs expected to be incurred in future
years remain consistent with those disclosed in the Annual Report and Accounts
for year the ended 31 March 2022. The total cash outflow for the period in
relation to these costs was £38 million.
Transaction, separation and integration costs: During the period,
£65 million of transaction, separation and integration costs were incurred
in relation to the disposal of NECO, the planned disposal of our UK Gas
Transmission business (see note 6) and the integration of NGED. The costs
incurred primarily relate to legal fees, bankers' fees, professional fees,
and employee costs. The costs have been classified as exceptional, consistent
with similar costs for the year ended 31 March 2022 and past precedent. The
total cash outflow for the period in relation to these costs was
£59 million.
IFA1 interconnector insurance recovery: In September 2021, a fire at the IFA1
converter station in Sellindge, Kent caused significant damage to
infrastructure on-site. In the period, the Group recognised £33 million of
insurance proceeds received in connection with property damage at the site
(see note 13). The insurance receipts have been recorded as an exceptional
item in line with our exceptional items policy. The total cash inflow for the
period in relation to the property damage insurance proceeds was
£33 million.
4. Exceptional items and remeasurements (continued)
New operating model implementation costs: During the prior period, the Group
incurred £24 million of costs in relation to the design and implementation
of the new operating model built on a foundation of six business units. The
costs recognised primarily related to professional fees incurred in designing
the new operating model and redundancy provisions. The costs incurred, when
considered with the aggregated costs incurred over the duration of the
programme, were concluded to be classified as exceptional in line with our
exceptional items policy. The total cash outflow for the prior period in
relation to these costs was £12 million. Following the implementation of the
new operating model, the Group announced a major cost efficiency programme in
November 2021. Costs associated with this are reported as exceptional in the
current year.
Change in UK corporation tax rate: During the prior period, the Government
announced as part of the Spring Budget 2021 that from 1 April 2023, the UK
corporation tax rate would increase to 25%, and this was substantively enacted
on 24 May 2021. UK deferred tax balances were remeasured at the enacted rate
in the period ended 30 September 2021, with the £484 million impact of the
change recognised as an exceptional item, in line with previous periods.
5. Finance income and costs
2022 2021
Six months ended 30 September Notes £m £m
Finance income before exceptional items and remeasurements
Interest income from financing activities 14 2
Net interest on pensions and other post-retirement benefit obligations 41 2
Other interest income 14 43
69 47
Finance costs before exceptional items and remeasurements
Interest expense on financial instruments(1) (878) (556)
Unwinding of discount on provisions (42) (36)
Other interest 8 -
Less: interest capitalised 111 70
(801) (522)
Net finance costs before exceptional items and remeasurements (732) (475)
Total exceptional items and remeasurements² 4 14 25
Net finance costs including exceptional items and remeasurements (718) (450)
from continuing operations
1. Finance costs include principal accretion on inflation-linked debt of
£240 million (2021: £80 million) and principal accretion on
inflation-linked swaps of £5 million (2021: £nil).
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.
(a) Gain on disposal of The Narragansett Electric Company
On 17 March 2021, the Group signed an agreement to sell 100% of the share
capital of NECO to PPL Rhode Island Holdings, LLC. The Group subsequently
completed the sale on 25 May 2022 for cash consideration of £3.1 billion
($3.9 billion). NECO was part of our New England operating segment and is a
retail distribution company providing electricity and gas to customers in
Rhode Island. The associated assets and liabilities were presented as held for
sale in the consolidated financial statements with effect from the year ended
31 March 2021.
As NECO did not represent a separate major line of business or geographical
area of operation, it did not meet the criteria for classification as a
discontinued operation and therefore its results for the period are not
separately disclosed on the face of the income statement. Financial
information relating to the gain arising on the disposal of NECO is set out
below:
£m
Goodwill 616
Intangible assets 4
Property, plant and equipment 3,363
Trade and other receivables 215
Cash and cash equivalents 113
Other assets 165
Total assets on disposal 4,476
Borrowings (1,230)
Pension liabilities (19)
Other liabilities (552)
Total liabilities on disposal (1,801)
Net assets on disposal 2,675
Satisfied by:
Cash proceeds 3,081
Total consideration 3,081
Less:
Financing costs(1) (40)
Gain on sale before tax and reclassification of foreign currency translation 366
reserve
Reclassification of foreign currency translation reserve² 145
Tax³ (231)
Post-tax gain on disposal 280
1. Relates to the transfer of hedge losses previously deferred within
equity in respect of foreign exchange forward contracts which the Group
entered into in order to manage its exposure to the foreign currency cash
proceeds due from PPL Rhode Island Holdings, LLC.
2. The reclassification of the foreign currency translation reserve
attributable to NECO comprises a gain of £496 million relating to the
retranslation of NECO's operations offset by a loss of £351 million relating
to borrowings, cross-currency swaps and foreign exchange forward contracts
used to hedge the Group's net investment in NECO.
3. The tax charge arising on the gain on sale is primarily a result of the
tax base of the assets being significantly lower than the accounting base
which includes non-deductible goodwill.
No impairment losses were recognised upon remeasurement of the assets and
liabilities prior to classification as held for sale. NECO generated a profit
after tax of £83 million for the period until 25 May 2022 (2021:
£84 million) which was recognised within continuing operations.
6. Assets held for sale and discontinued operations (continued)
(b) 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 period ended 30 September 2022:
Total assets Total liabilities held for sale Net assets held for sale
held for sale £m £m
£m
Millennium Pipeline Company LLC 182 - 182
UK Gas Transmission 6,076 (5,442) 634
Net assets held for sale 6,258 (5,442) 816
Millennium Pipeline Company LLC
On 28 September 2022, the Group signed an agreement to sell its 26.25%
minority ownership interest in Millennium Pipeline Company LLC to DT
Midstream, an existing investor, in exchange for $552 million cash
consideration (subject to customary closing adjustments).
As the sale was considered highly probable and was expected to complete with a
year, the Group's investment in Millennium Pipeline Company LLC was
consequently presented as held for sale for the period ended 30 September
2022. No impairment loss was recognised on remeasurement of the investment
prior to classification as held for sale. The sale subsequently completed on 7
October 2022.
UK Gas Transmission
On 27 March 2022, the Group entered into an Acquisition Agreement to sell 100%
of the UK Gas Transmission business to GasT MidCo Limited, a newly
incorporated UK limited company owned indirectly by a another newly
incorporated UK limited company, GasT TopCo Limited, in exchange for
£4.2 billion cash consideration (subject to customary completion
adjustments) and a 40% equity interest in GasT TopCo Limited. The other 60%
equity interest in GasT TopCo Limited will be owned by Macquarie
Infrastructure and Real Assets (MIRA) and British Columbia Investment
Management Corporation (BCI) (together, the 'Consortium'). £2.0 billion of
the cash consideration comes from additional debt financing to be raised by
GasT MidCo Limited at completion. The sale is expected to complete in the
third quarter of the financial year ending 31 March 2023 subject to
the receipt of all regulatory approvals.
The Group classified the associated assets and liabilities of the business as
held for sale from 31 August 2021, when the sale was considered to be highly
probable following management approval of the sale timetable and communication
thereof to potential buyers. Accordingly, the UK Gas Transmission business was
also reported as held for sale in the consolidated statement of financial
position as at 31 March 2022. As the UK Gas Transmission business represents
a major separate line of business, the business was also classified as a
discontinued operation. 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.
On 27 March 2022, the Group also entered into a Further Acquisition Agreement
(FAA) with the Consortium. The FAA gives the Consortium the option to
purchase the Group's 40% equity interest in GasT TopCo Limited for
£1.4 billion plus an annualised escalation factor. The FAA is only binding
following the settlement of the Acquisition Agreement. Based on the current
expected completion timeline for the Acquisition Agreement, the option would
be exercisable between 1 April and 30 June 2023. The window can further be
deferred at the Group's discretion by three months. The FAA is a derivative,
which is accounted for at fair value. The fair value of the option at
30 September 2022 is a liability of £150 million (31 March 2022: £nil)
(see note 10).
6. Assets held for sale and discontinued operations (continued)
UK Gas Transmission (continued)
As at 30 September 2022, the following assets and liabilities of the UK Gas
Transmission business were classified as held for sale:
30 September 2022 31 March 2022
£m £m
Intangible assets 145 159
Property, plant and equipment 4,771 4,719
Trade and other receivables 318 215
Pension assets 549 664
Cash and cash equivalents 4 9
Financing derivatives 119 93
Other assets 170 12
Total assets held for sale 6,076 5,871
Borrowings (3,976) (4,165)
Deferred tax liabilities (893) (803)
Other liabilities (573) (562)
Total liabilities held for sale (5,442) (5,530)
Net assets held for sale 634 341
No impairment losses were recognised upon remeasurement of the assets and
liabilities prior to classification as held for sale.
The summary income statements for the periods ended 30 September 2022 and
2021 are as follows:
Before exceptional items Exceptional items and remeasurements Total
and remeasurements
2022 2021 2022 2021 2022 2021
£m £m £m £m £m £m
Discontinued operations
Revenue 805 710 - - 805 710
Other operating costs (465) (320) 6 (3) (459) (323)
Operating profit 340 390 6 (3) 346 387
Finance income 9 2 - - 9 2
Finance costs (173) (72) 6 (7) (167) (79)
Profit/(loss) before tax 176 320 12 (10) 188 310
Tax (55) (60) (2) (151) (57) (211)
Profit/(loss) after tax from discontinued operations 121 260 10 (161) 131 99
The summary statements of comprehensive income are as follows:
2022 2021
£m £m
Profit after tax from discontinued operations 131 99
Other comprehensive (loss)/income from discontinued operations
Items from discontinued operations that will never be reclassified to profit
or loss:
Remeasurement (losses)/gains on pension assets and post-retirement benefit (126) 91
obligations
Net losses on financial liability designated at fair value through profit and - (1)
loss attributable
to changes in own credit risk
Tax on items that will never be reclassified to profit or loss 31 (39)
Total (losses)/gains from discontinued operations that will never be (95) 51
reclassified to profit or loss
Items from discontinued operations that may be reclassified subsequently to
profit or loss:
Net gains/(losses) in respect of cash flow hedges 8 (3)
Net gains/(losses) in respect of cost of hedging 4 (2)
Tax on items that may be reclassified subsequently to profit or loss (3) 1
Total gains/(loss) from discontinued operations that may be reclassified 9 (4)
subsequently to profit or loss
Other comprehensive (loss)/income for the period, net of tax, from (86) 47
discontinued operations
Total comprehensive income for the period from discontinued operations 45 146
7. Tax from continuing operations
The tax charge from continuing operations for the six month period ended
30 September 2022 is £447 million (2021: £707 million), and before tax on
exceptional items and remeasurements, is £177 million (2021: £148 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 16.2% (2021: 16.7%),
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, including our share of post-tax results of joint ventures and
associates, primarily reflects seasonality of earnings in the US Group.
For the full year, we expect the Group's effective tax rate excluding tax on
exceptional items and remeasurements to be around 21% which includes the
impact of our share of post-tax results of joint ventures and associates. The
effective tax rate for the year ended 31 March 2022 before exceptional items
and remeasurements was 23.2% including the impact of our share of post-tax
results of joint ventures and associates.
8. 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
Earnings EPS Earnings EPS
Six months ended 30 September 2022 2022 2021 2021
£m pence £m pence
Profit after tax before exceptional items and remeasurements - continuing 917 25.1 737 20.7
Exceptional items and remeasurements after tax - continuing 208 5.7 (362) (10.2)
Profit after tax from continuing operations attributable to the parent 1,125 30.8 375 10.5
Profit after tax before exceptional items and remeasurements - discontinued 121 3.3 260 7.3
Exceptional items and remeasurements after tax - discontinued 10 0.3 (161) (4.5)
Profit after tax from discontinued operations attributable to the parent 131 3.6 99 2.8
Total profit after tax before exceptional items and remeasurements 1,038 28.4 997 28.0
Total exceptional items and remeasurements after tax 218 6.0 (523) (14.7)
Total profit after tax attributable to the parent 1,256 34.4 474 13.3
2022 2021
millions millions
Weighted average number of shares - basic 3,651 3,569
(b) Diluted earnings per share
Earnings EPS Earnings EPS
Six months ended 30 September 2022 2022 2021 2021
£m pence £m pence
Profit after tax before exceptional items and remeasurements - continuing 917 25.0 737 20.6
Exceptional items and remeasurements after tax - continuing 208 5.7 (362) (10.1)
Profit after tax from continuing operations attributable to the parent 1,125 30.7 375 10.5
Profit after tax before exceptional items and remeasurements - discontinued 121 3.3 260 7.3
Exceptional items and remeasurements after tax - discontinued 10 0.2 (161) (4.6)
Profit after tax from discontinued operations attributable to the parent 131 3.5 99 2.7
Total profit after tax before exceptional items and remeasurements 1,038 28.3 997 27.9
Total exceptional items and remeasurements after tax 218 5.9 (523) (14.7)
Total profit after tax attributable to the parent 1,256 34.2 474 13.2
2022 2021
millions millions
Weighted average number of shares - diluted 3,668 3,584
9. Dividends
Pence Cash Scrip
per share dividend dividend
paid £m
£m
Ordinary dividends
Final dividend in respect of the year ended 31 March 2022 33.76 1,119 114
Interim dividend in respect of the year ended 31 March 2022 17.21 339 282
Final dividend in respect of the year ended 31 March 2021 32.16 583 562
The Directors are proposing an interim dividend of 17.84 pence per share to be
paid in respect of the year ending 31 March 2023. This would absorb
approximately £653 million of shareholders' equity.
A final dividend for the year ended 31 March 2022 of 17.21 pence per share
was paid in August 2022. The cash dividend paid was £339 million with an
additional £282 million settled via a scrip issue.
10. 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 221 of the Annual Report and Accounts for the year ended 31 March 2022.
30 September 2022 31 March 2022
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 fair value through profit and loss 1,578 - 476 2,054 2,292 - 417 2,709
Investments held at fair value through other comprehensive income(1) - 435 - 435 - 413 - 413
Financing derivatives - 647 17 664 - 298 - 298
Commodity contract derivatives - 338 50 388 - 238 51 289
1,578 1,420 543 3,541 2,292 949 468 3,709
Liabilities
Financing derivatives - (1,408) (111) (1,519) - (804) (187) (991)
Commodity contract derivatives - (35) (22) (57) - (15) (7) (22)
FAA derivative(2) - - (150) (150) - - - -
Contingent consideration(3) - - (37) (37) - - (41) (41)
- (1,443) (320) (1,763) - (819) (235) (1,054)
Total 1,578 (23) 223 1,778 2,292 130 233 2,655
1. Investments held includes instruments which meet the criteria of IFRS 9
or IAS 19.
2. For the period ended 30 September 2022 a further derivative category
has been added for the FAA derivative. This relates to a written option which
allows the Consortium to purchase the 40% interest in GasT TopCo Limited that
the Group will hold post completion of the sale of the UK Gas Transmission
business (see note 6).
3. Contingent consideration relates to the acquisition of National Grid
Renewables Development LLC.
The estimated fair value of total borrowings, excluding lease liabilities,
using market values at 30 September 2022 is £42,008 million (31 March 2022:
£45,066 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.
10. Fair value measurement (continued)
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 forward 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.
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.
The FAA is a level 3 derivative, which is accounted for at fair value, and the
assumptions which are used to determine fair value are specific to the
contract and not readily observable in active markets. Significant
unobservable inputs include the valuation and volatility for GasT TopCo
Limited's unlisted equity post completion of the Acquisition Agreement. These
inputs are used as part of a Black Scholes option pricing model to produce the
reported valuation. The fair value of the option is £150 million (31 March
2022: £nil). The FAA derivative will be extinguished when the option is
either exercised or lapses. The option cannot be cash settled.
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
FAA derivative
Six months ended 30 September 2022 2021 2022 2021 2022 2021
£m £m £m £m £m £m
10% increase in commodity prices - - 35 16 - -
10% decrease in commodity prices - - (36) (16) - -
+10% market area price change - - 7 2 - -
-10% market area price change - - (7) (3) - -
+20 basis point increase in Limited Price Index (51) (56) - - - -
(LPI) market curve
-20 basis point decrease in LPI market curve 51 54 - - - -
+20 basis point increase in Retail Price Index 17 - - - - -
-20 basis point decrease in Retail Price Index (16) - - - - -
+50 basis points change in discount rate - - - - (9) (4)
-50 basis points change in discount rate - - - - 10 6
10% increase in the equity value of GasT TopCo Limited 102 - - - - -
10% decrease in the equity value of GasT TopCo Limited (79) - - - - -
20% increase in volatility of the FAA derivative 84 - - - - -
20% decrease in volatility of the FAA derivative (76) - - - - -
10. Fair value measurement (continued)
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/FAA derivative Commodity contract derivatives Other(1) Total
2022 2021 2022 2021 2022 2021 2022 2021
£m £m £m £m £m £m £m £m
At 1 April (187) (183) 44 (12) 376 183 233 (12)
Net gains/(losses) through the consolidated income statement for the 76 (16) 44 68 30 50 150 102
period(2,3)
Purchases (133) - (56) 11 37 37 (152) 48
Settlements - - (4) 24 (4) (4) (8) 20
Reclassification to held for sale(4) - 66 - - - - - 66
At 30 September(5) (244) (133) 28 91 439 266 223 224
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. Net
gains and loss are recognised within finance income and costs in the income
statement.
2. Gains of £93 million (2021: losses of £16 million) are attributable
to derivative financial instruments held at the end of the reporting period
and have been recognised in finance costs in the income statement.
3. Losses of £23 million (2021: gains of £132 million) are attributable
to the commodity contract derivative financial instruments held at the end
of the reporting period and have been recognised in other operating costs
in the consolidated income statement.
4. These liabilities are held by the UK Gas Transmission 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 (2021: none).
The Group also has a number of financial instruments which are not measured at
fair value in the balance sheet. The carrying value of current financial
assets at amortised cost approximates their fair values, primarily due to
short-dated maturities.
11. Net debt
Net debt is comprised as follows:
30 September 2022 31 March
2022
£m £m
Cash and cash equivalents 259 204
Current financial investments 2,686 3,145
Borrowings and bank overdrafts (48,594) (45,465)
Financing derivatives(1) (855) (693)
Net debt (net of related derivative financial instruments) (46,504) (42,809)
1. Includes £2 million liability (31 March 2022: £21 million liability)
in relation to the hedging of capital expenditure. The cash flows related to
these derivatives are included within investing activities in the
consolidated cash flow statement which is in the same manner as the
transactions which are the subject of the hedges. The financing derivatives
balance included in net debt exclude the commodity derivatives and the FAA
derivative (see note 10).
The following table splits out the total derivative balances on the face of
the consolidated statement of financial position by category:
30 September 2022 31 March 2022
Assets Liabilities Total Assets Liabilities Total
£m £m £m £m £m £m
Financing derivatives 664 (1,519) (855) 298 (991) (693)
Commodity contract derivatives 388 (57) 331 289 (22) 267
FAA derivative - (150) (150) - - -
Total derivative financial instruments 1,052 (1,726) (674) 587 (1,013) (426)
12. Pensions and other post-retirement benefit obligations
30 September 2022 31 March 2022
£m £m
Present value of funded obligations (18,804) (23,541)
Fair value of plan assets 21,822 27,013
3,018 3,472
Present value of unfunded obligations (304) (326)
Other post-employment liabilities (79) (71)
Net defined benefit asset 2,635 3,075
Presented in consolidated statement of financial position:
Assets 3,443 3,885
Liabilities (808) (810)
2,635 3,075
Key actuarial assumptions 30 September 2022 31 March 2022
Discount rate - UK past service 5.35% 2.78%
Discount rate - US 5.35% 3.65%
Rate of increase in RPI - UK past service 3.50% 3.60%
The net pensions and other post-retirement benefit obligations position, as
recorded under IAS 19, at
30 September 2022 was an asset of £2,635 million (31 March 2022:
£3,075 million asset). The movement of £440 million primarily reflects
asset performance being less than the discount rate, partially offset by
changes in actuarial assumptions resulting in a decrease in liabilities and
employer contributions paid over the accounting period.
Net actuarial losses of £631 million have been reflected within the
consolidated statement of comprehensive income. There was a loss of
£6,137 million (UK £3,993 million; US £2,144 million) relating to asset
performance which reflects returns on assets, both in the UK and US, being
less than the discount rate at the beginning of the year. Changes in
actuarial assumptions led to a gain on liabilities of £5,649 million (UK
£3,716 million; US £1,933 million). This primarily reflected movements
in discount rates which resulted from large increases in corporate bond
yields. Experience and demographic losses amounted to £143 million. In
addition, employer contributions of £146 million were paid over the
accounting period.
The significant fall in pension scheme asset and liability values for our
schemes was largely driven by a significant rise in UK and US Government bond
yields. As well as impacting IAS 19 valuations, our UK pension schemes were
required to source cash at short notice to cover collateral calls on their
liability driven investment (LDI) portfolios. These short-term liquidity
pressures did not materially impact the security of pension benefits, however
the Company took strategic action to mitigate any risks associated with
further increases in UK Government bond yields by providing additional
liquidity support to two of its defined benefit pension schemes (see
note 17).
The pension surpluses in both the UK and the US of £2,374 million and
£1,069 million respectively (31 March 2022: £2,668 million and
£1,217 million) continue to be recognised as assets under IFRIC 14 as
explained on page 198 of the Annual Report and Accounts for the year ended
31 March 2022.
13. Commitments and contingencies
At 30 September 2022, there were commitments for future energy purchase
agreements of £15,993 million (31 March 2022: £18,514 million) and future
capital expenditure contracted but not provided for in relation to the
acquisition of property, plant and equipment of £2,849 million (31 March
2022: £2,808 million), which includes continuing and discontinued
operations.
We also have contingencies in the form of certain guarantees and letters of
credit. These are described in further detail in note 30 to the Annual Report
and Accounts for the year ended 31 March 2022.
Litigation and claims
Through the ordinary course of our operations, we are party to various
litigation, claims and investigations. We do not expect the ultimate
resolution of any proceedings to have a material adverse effect on our results
of operations, cash flows or financial position.
Contingent assets
During the year, the Group continued to repair and rebuild the damage at the
IFA1 converter station in Sellindge, Kent that was damaged by fire in
September 2021. Concurrent with this, the Group has been in discussions with
its insurers over the timing and amount of its insurance claims for property
damage and business interruption. During the first half of this year, this
resulted in an £80 million interim payment received from the insurers (see
notes 3 and 4). As no final claim will be submitted until full restoration and
return to service of the asset is achieved, it is not possible to reliably
estimate the financial effects of any probable future insurance receipts.
14. 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 2022 2021 Year ended 31 March 2022
Closing rate applied at period end 1.12 1.35 1.31
Average rate applied for the period 1.21 1.39 1.35
15. Related party transactions
Related party transactions in the six months ended 30 September 2022 were
substantially the same in nature to those disclosed in note 31 of the Annual
Report and Accounts for the year ended 31 March 2022. There were no other
related party transactions in the period that have materially affected the
financial position or performance of the Group.
Refer to note 17 for details of the additional short-term liquidity support
provided by the Group to certain of its defined benefit pension schemes in the
UK subsequent to the half year.
16. Additional disclosures in respect of guaranteed securities
Niagara Mohawk Power Corporation, a wholly owned subsidiary of the Group, has
issued preferred shares that are listed on a US national securities exchange
and are guaranteed by National Grid plc. This guarantor commits to honour any
liabilities should the company issuing the debt have any financial
difficulties. In order to provide debt holders with information on the
financial stability of the company providing the guarantee, we are required to
disclose individual financial information for this company. We have chosen to
include this information in the half year financial information.
The following summarised financial information is given in respect of Niagara
Mohawk Power Corporation as a result of National Grid plc's guarantee, dated
29 October 2007, of Niagara Mohawk Power Corporation's 3.6% and 3.9% issued
preferred shares, which amount to $29 million. National Grid plc's guarantee
of Niagara Mohawk Power Corporation's preferred shares is full and
unconditional. There are no restrictions on the payment of dividends by
Niagara Mohawk Power Corporation or limitations on National Grid plc's
guarantee of the preferred shares, and there are no factors that may affect
payments to holders of the guaranteed securities.
The following summarised financial information for National Grid plc and
Niagara Mohawk Power Corporation is presented on a combined basis and
is intended to provide investors with meaningful and comparable financial
information, and is provided pursuant to the early adoption of Rule 13-01 of
Regulation S-X in lieu of the separate financial statements of Niagara Mohawk
Power Corporation.
Summarised financial information is presented, on a combined basis, as at
30 September 2022. The combined amounts are presented under IFRS measurement
principles. Intercompany transactions between National Grid plc and Niagara
Mohawk Power Corporation have been eliminated. Investments in other non-issuer
and non-guarantor subsidiaries are included at cost, subject to impairment.
National Grid plc and Niagara Mohawk Power Corporation combined
£m
Combined statement of financial position
Non-current loans to other subsidiaries -
Non-current assets 12,355
Current loans to other subsidiaries 29,158
Current assets 3,495
Current loans from other subsidiaries (15,736)
Current liabilities (8,018)
Non-current loans from other subsidiaries (2,095)
Non-current liabilities (11,783)
Net assets¹ 7,376
Equity 7,376
Combined income statement - continuing operations
Revenue 1,642
Operating costs (1,454)
Operating profit 188
Other income from other subsidiaries 1,691
Other income and costs, including taxation (173)
Profit after tax 1,706
1. Excluded from net assets above are investments in other consolidated
subsidiaries with a carrying value of £14,440 million.
17. Post balance sheet events
On 7 October 2022 the Group completed the disposal of its minority ownership
interest in the Millennium Pipeline Company LLC to DT Midstream for
consideration of $552 million (see note 6). The gain on disposal arising in
the year ended 31 March 2023 will be classified as exceptional.
Following recent large moves in UK government bond yields, the Company has
agreed to provide additional liquidity support to two of its defined benefit
pension schemes in the UK. Short-term loans totalling £325 million were
issued to the schemes on 19 October 2022 on normal commercial terms and will
be repayable no later than 16 January 2023. These short-term loans allow the
schemes additional time to liquidate assets in an efficient manner in order to
restore their significant liquidity buffers.
On 13 October 2022 the Group committed $17 million in funding to be
distributed through its non-profit partners and the National Grid Foundation
that are set up to help customers in need across New England and New York. In
the UK the Group has also launched a £50 million support fund on 1 November
2022 to help alleviate financial distress caused by rising energy costs.
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 2022 (principal
risks on pages 29-32 and inherent risks on pages 253-256) were reviewed to
ensure that the disclosures remained appropriate and adequate. Below is a
summary of our key risks as at 30 September 2022:
People risks
■ Failure to build capability and leadership capacity required to
deliver our vision and strategy.
Strategic risks
■ Failure to identify and/or deliver upon actions necessary to address
the transitional impacts (from a changing energy system) of climate change on
our business and demonstrate our leadership of climate change in the energy
sector.
■ Failure to influence future energy policies and secure satisfactory
regulatory agreements.
■ Failure to position ourselves appropriately to societal and political
expectations.
Operational risks
■ Failure to adequately anticipate and manage disruptive forces on our
systems because of a cyber-attack, or poor recovery of critical systems or
malicious external or internal parties.
■ Catastrophic asset failure leading to a significant safety and/or
environmental event.
■ Failure to predict and respond to a significant disruption of energy
supply.
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 2022, with the exception of the changes
in the period which are listed on page 9.
By order of the Board
……………………..
……………………..
John Pettigrew
Andy Agg
9 November
2022
9 November 2022
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 2022 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
17. 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 2022 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
9 November 2022
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.
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.
2022 2021
Six months ended 30 September Gross revenue Pass- Net revenue Gross revenue Pass- Net revenue
£m through £m £m through £m
costs costs
£m £m
UK Electricity Transmission 969 (90) 879 1,037 (100) 937
UK Electricity Distribution 1,005 (199) 806 509 (38) 471
UK Electricity System Operator 2,060 (1,783) 277 1,146 (985) 161
New England 1,760 (820) 940 1,686 (778) 908
New York 2,758 (1,316) 1,442 1,971 (691) 1,280
NGV and Other 938 - 938 596 - 596
Sales between segments (46) - (46) (4) - (4)
Total from continuing operations 9,444 (4,208) 5,236 6,941 (2,592) 4,349
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 13 and reconciled
below.
Adjusted results: These exclude the impact of exceptional items and
remeasurements that are treated as discrete transactions under IFRS and can
accordingly be classified as such. This is a measure used by management that
is used to derive part of the incentive target set annually for remunerating
certain Executive Directors and further details of these items are included in
note 4.
Underlying results: Further adapts our adjusted results 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 39 of the Annual Report and Accounts for the year ended
31 March 2022, 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 2022, which was $1.21 to £1.00. The weighted average rate for
the six months ended 30 September 2021, was $1.39 to £1.00. Assets and
liabilities as at 30 September 2022 have been retranslated at the closing
rate at 30 September 2022 of $1.12 to £1.00. The closing rate for the
balance sheet date 31 March 2022 was $1.31 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 2022 Statutory Exceptionals and remeasurements Adjusted Timing Major storm costs Underlying
£m £m £m £m £m £m
UK Electricity Transmission 493 6 499 65 - 564
UK Electricity Distribution 522 9 531 48 - 579
UK Electricity System Operator 146 1 147 (95) - 52
New England 720 (527) 193 123 - 316
New York (26) 8 (18) 220 - 202
NGV and Other(1) 384 20 404 - - 404
Total operating profit 2,239 (483) 1,756 361 - 2,117
Net finance costs (718) (14) (732) - - (732)
Share of post-tax results of JVs and associates 51 19 70 - - 70
Profit before tax 1,572 (478) 1,094 361 - 1,455
Tax (447) 270 (177) (96) - (273)
Profit after tax 1,125 (208) 917 265 - 1,182
1. Includes Property. 227 - 227 - - 227
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(1) 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
1. Includes Property. 17 - 17 - - 17
Reconciliation of Adjusted and Underlying Profits - At constant currency
At constant currency
Six months ended 30 September 2021 Adjusted Constant currency adjustment Adjusted Timing Major storm costs Underlying
at actual exchange rate
£m £m £m £m £m £m
UK Electricity Transmission 550 - 550 2 - 552
UK Electricity Distribution 281 - 281 (24) - 257
UK Electricity System Operator 63 - 63 (14) - 49
New England 126 19 145 139 - 284
New York 122 18 140 22 - 162
NGV and Other(1) 161 5 166 - - 166
Total operating profit 1,303 42 1,345 125 - 1,470
Net finance costs (475) (36) (511) - - (511)
Share of post-tax results of JVs and associates 58 3 61 - - 61
Profit before tax 886 9 895 125 - 1,020
1. Includes Property. 17 - 17 - - 17
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 2022 Profit after tax Non-controlling interest Profit after tax attributable to the parent Weighted average number of shares Earnings
£m £m £m Millions per share
pence
Statutory 1,125 - 1,125 3,651 30.8
Adjusted (also referred to as Headline) 917 - 917 3,651 25.1
Underlying 1,182 - 1,182 3,651 32.4
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
£m £m £m Millions per share
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
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 New Total
£m £m £m England(1) York(1) £m
£m £m
1 April 2022 opening balance(2) (85) 26 (127) (345) 661 130
Over/(under)-recovery (65) (48) 95 (123) (220) (361)
Disposal in the year(3) - - - (17) - (17)
30 September 2022 closing balance (150) (22) (32) (485) 441 (248)
to (recover)/return
UK Electricity Transmission UK Electricity Distribution UK Electricity System Operator New New Total
£m £m £m England(1) York(1) £m
£m £m
1 April 2021 opening balance - - (80) (297) 519 142
Over/(under)-recovery (2) 24 14 (139) (22) (125)
30 September 2021 closing balance (2) 24 (66) (436) 497 17
to (recover)/return
1. New England and New York in-year over/(under)-recovery and all New
England and New York balances have been translated using the average exchange
rate for the half year ended 30 September 2022.
2. Opening balances have been restated to reflect the finalisation of
calculated over/(under)-recoveries in the UK and the US.
3. Disposal of NECO (Rhode Island) in May 2022.
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 2022 was £346 million (2021: £387 million). This
included £6 million of exceptional items in the current period. Adjusted
operating profit for the six months ended 30 September 2022 was £340 million
(2021: £390 million), this includes a net timing under-recovery of £41
million (2021: £58 million over-recovery). Operating profit excluding timing
and exceptional items for discontinued operations for the six months ended
30 September 2022 was £381 million (2021: £332 million).
Gross revenue for discontinued operations for the six months ended
30 September 2022 was £805 million (2021: £710 million). After deducting
pass-through costs of £336 million (2021: £126 million), net revenue for
discontinued operations for the six months ended 30 September 2022 was £469
million (2021: £590 million).
Dividend per share
This is a statutory measure (as per note 9) with no differences to
'underlying' therefore no reconciliation is required as this is not considered
to be an alternative performance measure.
Capital investment
Capital investment is not a statutory measure as it is not a defined term
under IFRS. 'Capital investment' or 'investment' refers to additions to plant,
property and equipment and intangible assets, and contributions to joint
ventures and associates, other than the St William Homes LLP joint venture. We
also include the Group's investments 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 were excluded based
on the nature of this joint venture arrangement. We typically contributed
property assets to the joint venture in exchange for cash and accordingly did
not consider these transactions to be in the nature of capital investment.
At actual exchange rates At constant currency
Six months ended 30 September 2022 2021 % change 2022 2021 % change
£m £m £m £m
UK Electricity Transmission 629 587 7% 629 587 7%
UK Electricity Distribution 584 315 85% 584 315 85%
UK Electricity System Operator 42 65 (35%) 42 65 (35%)
New England 862 700 23% 862 804 7%
New York 1,242 851 46% 1,242 978 27%
NGV and Other 358 196 83% 358 198 81%
Total Group capital expenditure 3,717 2,714 37% 3,717 2,947 26%
Six months ended 30 September - at actual exchange rates 2022 2021 % change
£m £m
Capital expenditure 3,717 2,714 37%
Equity investment, funding contributions and loans to joint ventures and 129 89 45%
associates
Increase in financial assets (National Grid Partners) 37 37 -%
Total Group capital investment 3,883 2,840 37%
Six months ended 30 September - at constant currency 2022 2021 % change
£m £m
Capital expenditure 3,717 2,947 26%
Equity investment, funding contributions and loans to joint ventures and 129 102 26%
associates
Increase in financial assets (National Grid Partners) 37 43 (14%)
Total Group capital investment 3,883 3,092 26%
1 Employee and contractor lost time injury frequency rate per 100,000 hours
worked.
2 Federal Energy Regulatory Commission.
3 Rebranded from Western Power Distribution (WPD) in September 2022.
4 Excluding UK Gas Transmission & Metering, NECO, and the Electricity
System Operator (ESO).
5 Full-year underlying EPS (2020/21) as reported on 20 May 2021.
6 UK Electricity Distribution.
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