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REG - National Grid PLC - National Grid PLC 2023/24 Full Year Results

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RNS Number : 5547P  National Grid PLC  23 May 2024

£60 billion investment plan - building now, at pace, for the future

London | 23 May 2024: National Grid, a leading energy transmission and
distribution company, today announces its Full Year results for the period
ended 31 March 2024. Alongside these results the company has announced a fully
underwritten equity raise of £7 billion through a Rights Issue.

John Pettigrew, Chief Executive, said:

"Today is a defining moment for National Grid as we announce a significant
increase in investment that cements our position as a leader in the energy
transition on both sides of the Atlantic.

 

Governments and regulators are moving with increased urgency to attract the
levels of investment required to meet their net zero ambitions, giving us
improved visibility and confidence over our medium term investment plan. That
is why we're announcing today a new five-year financial framework. We will be
investing £60 billion in the five years to the end of March 2029 - that's
nearly double the level of investment of the past five years. We expect this
significant step-up in capital investment will deliver annual group asset
growth of around 10%, and 6-8% underlying EPS CAGR from a 2024/25 baseline,
supported by a comprehensive financing plan that includes a £7 billion equity
raise.

 

This is an unprecedented time for our industry that is creating significant
opportunities for National Grid today, over the next five years and for
decades to come. Our new five-year investment plan will deliver long-term
value and returns for our shareholders, support over 60,000 more jobs, and
accelerate the decarbonisation of the energy system for the digital,
electrified economies of the future.

 

Our readiness to take this step is underscored by another year of strong
financial and operational performance, with underlying operating profit and
underlying EPS both up 6% at constant currency, with record investment of
£8.2 billion across the Group. In the UK, our 17 major onshore and offshore
transmission projects are moving ahead at pace, and in the US our $4 billion
'Upstate Upgrade' is underway representing the largest investment in New
York's electricity transmission network for over a century. Our sixth
interconnector, the Viking Link to Denmark, came online in December and is the
world's longest onshore and subsea HVDC cable, demonstrating the world-class
capabilities within National Grid.

 

Alongside our new five-year financial framework, we are also today further
evolving our strategy to focus on networks and will therefore be streamlining
our business as we announce our intention to sell Grain LNG, our UK LNG asset,
and National Grid Renewables, our US onshore renewables business."

 

 Financial Summary - Year ended 31 March

 Continuing operations only (not including UK Gas Transmission)
                              Statutory results             Underlying(1,2)               Underlying at constant currency(1,3)
                              2024    2023    % change      2024    2023    % change      2023                 % change
 Operating profit (£m)        4,475   4,879   (8%)          4,773   4,582   4%            4,518                6%
 Profit before tax (£m)       3,048   3,590   (15%)         3,395   3,258   4%            3,215                6%
 Earnings per share (p)       60.0    74.2    (19%)         78.0    74.5    5%            73.6                 6%
 Dividend per share (p)       58.52   55.44   6%
 Capital investment(4) (£m)   8,235   7,593   8%

3,692 million weighted average shares for 2023/24 (2022/23: 3,659 million).

1.  Prior year comparatives have been restated to reflect the change in our
underlying earnings definition to remove the deferred tax in UK regulated
businesses (NGET and NGED).

2.  'Underlying' represents statutory results from continuing operations, but
excluding exceptional items, remeasurements, major storm costs (when greater
than $100 million), timing and the impact on underlying results of deferred
tax in our UK regulated businesses (NGET and NGED). These and a number of
other terms and performance measures used in this document are not defined
within accounting standards and may be applied differently by other
organisations. We have provided definitions of these terms on page 85 and
reconciliations of these measures on pages 87 to 91. These measures are not a
substitute for IFRS measures, however the Group believes such information is
useful in assessing the performance of the business on a comparable basis.

3.  Constant currency calculated using current year average exchange rate of
$1.262 (2023: actual average exchange rate was $1.216).

4.  Prior year comparatives have been restated to reflect the change in our
'capital investment' definition (an alternative performance measure, or APM),
which now comprises: additions to property, plant and equipment and intangible
assets, equity contributions to joint ventures and associates and capital
expenditure prepayments made during the period; but no longer includes the
Group's investments by National Grid Partners. This definition now aligns with
our statutory segmental disclosure of capital investment in note 2(c) to the
financial statements and as such, is no longer considered to be an APM.

 

Highlights

(A new exciting phase)

■   A refreshed strategy; to be a pre-eminent pureplay networks
business 1 .

■   A significant step up in investment, around £60 billion over the five
years to March 2029, nearly double the prior five years. This is expected to
drive 10% Group asset growth CAGR, with group assets heading towards £100
billion by 2029.

■  Of the £60 billion capital investment over the five years to March
2029, around £51 billion aligned to the EU Taxonomy to decarbonise energy
networks.

■ Nearly 80% of capital investment going into our Electricity Networks;
Group mix moving towards 80%/20% electricity/gas by 2029.

■ Investment programme backed by a balanced, comprehensive financing plan,
including a £7 billion fully-underwritten Rights Issue, providing funding
clarity out to at least the end of RIIO-T3.

■  Streamlining of the group - announcing our intention to sell Grain LNG,
our UK LNG business, and National Grid Renewables, our US onshore renewables
business.

(Strong financial delivery)

■  Underlying operating profit of £4.8 billion was up 4% at actual
exchange rates (6% at constant currency). This was principally driven by
growth in revenues in UK Electricity Transmission through the RIIO-T2 price
control, non-recurrence of Western Link liquidated damages, and higher rates
in New York and New England 2 ; partly offset by lower RIIO-ED2 incentives for
UK Electricity Distribution, lower interconnector revenues, and lower property
sales principally related to the St William transaction.

■  Statutory operating profit for continuing operations was down 8% to
£4.5 billion. This was principally driven by non-cash exceptional charges in
2023/24 versus gains on disposals (NECO and our Millennium investment) in the
prior year; partly offset by favourable timing and commodity swings and higher
underlying performance versus the prior year. Statutory earnings per share
(EPS) for continuing operations was down by 19% to 60.0p from 74.2p in the
prior year.

■  Underlying EPS was up by 5% compared to the prior year at actual
exchange rates (6% at constant currency), driven by the above reasons
impacting underlying operating profit.

■   Recommended final dividend of 39.12p to bring full year dividend to
58.52p, up 5.55% and in line with policy.

(Record capital investment across our energy networks)

■  Capital investment of £8.2 billion for continuing operations, an
increase of 8% at actual exchange rates (11% on the prior year at constant
currency). This increase was principally driven by early investment relating
to Accelerated Strategic Transmission Investment (ASTI) in our UK Electricity
Transmission business, increased spend on our new transmission projects in New
York, including our Smart Path Connect project, and higher asset condition and
Grid Modernization spend in New England; partially offset by lower investment
in NGV compared to the prior period due to lower spend on projects including
the IFA1 Sellindge converter station rebuild, Grain LNG expansion and Viking
Link interconnector as these projects neared completion.

(Entered a new phase of capital delivery)

■ Good progress on early ASTI projects, including the signing of joint
construction projects with ScottishPower Energy Networks for Eastern Green
Link 1 (EGL1) in August, and with Scottish and Southern Electricity Networks
(SSEN) Transmission for Eastern Green Link 2 (EGL2) in June. Construction
contracts signed for both projects.

■ Development consent granted for our Yorkshire GREEN ASTI project;
planning examination completed for development consent of our Bramford to
Twinstead network reinforcement project.

■ Launched the 'Great Grid Partnership' with seven industry partners that
will initially help to deliver network design and construction works on nine
major onshore ASTI projects (part of a £9 billion supply chain framework
which will also support infrastructure projects beyond 2030).

■ Launched our HVDC supply chain framework which, together with SSEN
Transmission and ScottishPower Energy Networks, aims to secure the supply
chain required for offshore cabling requirements across UK networks beyond
2030.

■  Launched our $4 billion 'Upstate Upgrade', a collection of more than 70
transmission enhancement projects through 2030 to deliver a modernised,
stronger, and cleaner energy network in Upstate New York.

■  Executed contracts to secure the supply chain for the Upstate Upgrade,
including circuit breakers and power transformers.

■  Received approval for our Propel NY Energy transmission project on Long
Island, a partnership between New York Transco and the New York Power
Authority, which will bring offshore wind into the state.

■ Commissioned our sixth interconnector, the 1,400 MW Viking Link to
Denmark, the world's longest subsea interconnector.

(Continued capital re-allocation from National Gas Transmission)

■ Completed the sale of a further 20% equity interest in National Gas
Transmission to the consortium led by Macquarie Asset Management and British
Columbia Investment Management Corporation (the Consortium), on equivalent
financial terms to the 60% stake sold to the Consortium in January 2023.

■   Agreed a new option with the same Consortium, exercisable between 1
May 2024 and 31 July 2024, allowing it to acquire the remaining interest.

(Good regulatory progress underpinning future growth)

■  Welcomed the enactment of the UK Energy Act 2023 which provides for an
operationally independent National Energy System Operator (NESO), introduces
onshore competition for networks and implements a 'net zero' duty for Ofgem.

■  Further progress from Ofgem and government to support the step-up in
investment required across UK energy networks, namely the Future System and
Network Regulation (FSNR), Ofgem's Sector Specific Methodology Consultation
(SSMC), and the Electricity System Operator's 'Beyond 2030' publication.

■   Filed a joint proposal for new rates at our downstate New York gas
distribution businesses, KEDNY and KEDLI, including an allowed Return on
Equity (RoE) of 9.35%, and an increase of around 30% in capital investment
compared to 2022/23.

■   Filed for new rates for Massachusetts Electric (MECO), requesting a
five-year rate plan with a RoE of 10.5%.

■  Filed the final version of our Electric Sector Modernization Plan
(ESMP) in Massachusetts, proposing $2 billion of investment over the next five
years in our electric distribution network to help meet state clean energy
goals 3 .

(Delivering on our responsible business and decarbonisation commitments)

■  UK Electricity Transmission delivered network reliability of
99.999998%. Overall reliability of over 99.9% across all our electricity
networks.

■  Updated our Responsible Business Charter to reflect our new portfolio,
focused on key pillars: environment, customers and communities, and our
people.

■  Achieved a 5.9% reduction in our Scope 1 and 2 emissions versus 2022/23,
a 11.8% reduction against the 2018/19 baseline. Total Scope 3 greenhouse gas
(GHG) emissions reduced by 1.7% year-on-year. Against our SBTi approved target
(which excludes sold electricity) our Scope 3 GHG emissions increased by 0.8%
principally driven by associated emissions linked to increased procurement
spend for new energy infrastructure.

■  Connected 3,030 MW of renewable energy across our UK and US
transmission and distribution networks, an increase of 2,344 MW compared to
the prior year.

■  78% of all Group capital expenditure 4  was aligned with EU Taxonomy
principles for sustainable investment, compared to 75% in the prior year.

■ Continued to provide financial support to those severely affected by
higher energy costs through our Energy Support Fund, with £13 million
distributed in our UK and US network jurisdictions.

■  Provided almost 78,000 hours of employee volunteering across our
communities, having now reached 36% of our ten year Group commitment of
500,000 volunteering hours.

■  Group Executive diversity reached 53.8%, an increase of 8.3% on the
prior year. We remain on track for our 2025 management gender and ethnic
diversity goals, reaching 35% and 17.6% respectively in 2023/24.

(Delivered above our Group efficiency target)

■ Delivered a further £139 million of Group efficiency savings during the
year taking the cumulative efficiency savings to £513 million at actual
exchange rates, significantly above our target of £400 million savings by the
end of 2023/24.

 

Financial Outlook and Guidance

■ Guidance is based on our continuing businesses, as defined by IFRS,
including the UK Electricity System Operator (ESO) until disposal. It excludes
the minority stake in National Gas Transmission, which is classified as a
discontinued operation.

■   Financial outlook over the five year period from 2024/25 to 2028/29:

■  Total cumulative capital investment of around £60 billion;

■  Group asset growth CAGR(i) of around 10% backed by strong balance
sheet;

■  Driving underlying EPS CAGR(ii) of 6-8% from a 2024/25 EPS baseline,
once adjusted for the Rights Issue(iii,iv);

■  Credit metrics consistent with current Group rating;

■  Regulatory gearing to fall to low 60% by March 2025, then trending back
to the high-60% range by the end of RIIO-T3.

■ For 2024/25, whilst we continue to expect strong operational performance
across the Group, we expect underlying EPS to be broadly in line with our
underlying 2023/24 EPS once this has been adjusted by the number of bonus
shares issued as part of the Rights Issue. We then expect underlying EPS CAGR
of 6-8% from a 2024/25 baseline, through to 2028/29, assuming an exchange rate
of £1:$1.25.

 

 

i.    Group asset compound annual growth rate from a FY24 baseline. Forward
years based on assumed USD FX rate of 1.25; and long run UK CPIH and US CPI.
Assumes sale of ESO, Grain LNG, and National Grid Renewables before 2029.
Assumes remaining 20% stake in UK Gas Transmission treated as a discontinued
operation and therefore does not contribute group asset growth.

ii.    Underlying EPS compound annual growth rate from FY25 baseline.
Forward years based on assumed USD FX rate of 1.25; long run UK CPIH, US CPI
and interest rate assumptions and scrip uptake of 25%. Assumes sale of ESO,
Grain LNG, and National Grid Renewables before 2029. Assumes remaining 20%
stake in UK Gas Transmission treated as a discontinued operation and therefore
does not contribute to underlying EPS.

iii.   For more detail on share count, see the 2024/25 Forward Guidance
section. Our 2023/24 comparative underlying EPS of 70.8 pence per share is
estimated  based on the weighted average number of shares of 3,692 million
adjusted for 374 million new shares (being the number of New Shares classified
as 'bonus shares' pursuant to IAS33 calculated based on the closing
middle-market share price of £11.275 on 22 May 2024). For 2024/25 all bonus
shares will be included in the EPS calculation along with the pro-rated number
of fully subscribed shares once the proposed Rights Issue completes.

iv.   The securities offered with respect to the proposed Rights Issue will
not be and have not been registered under the Securities Act of 1933 and may
not be offered or sold in the United States absent registration or an
applicable exemption from registration requirements.

 

Financial Key Performance Indicators

 Year ended 31 March
 (£ million)                                                        2024      2023      change %
 Underlying operating profit (continuing) at constant currency(1):
 UK Electricity Transmission                                        1,314     1,107     19%
 UK Electricity Distribution                                        1,152     1,230     (6%)
 UK Electricity System Operator                                     80        31        158%
 New England (prior year includes NECO)                             802       788       2%
 New York                                                           1,016     842       21%
 National Grid Ventures                                             469       489       (4%)
 Other                                                              (60)      31        (294%)
 Underlying operating profit (continuing) at constant currency      4,773     4,518     6%

 Capital investment (continuing) at constant currency(1):
 UK Electricity Transmission                                        1,912     1,301     47%
 UK Electricity Distribution                                        1,247     1,220     2%
 UK Electricity System Operator                                     85        108       (21%)
 New England (prior year excludes NECO)                             1,673     1,470     14%
 New York                                                           2,654     2,363     12%
 National Grid Ventures                                             662       955       (31%)
 Other                                                              2         13        (85%)
 Capital investment (continuing) at constant currency               8,235     7,430     11%

 RCF/Net debt                                                       9.2       9.3       -10bps

 As at 31 March
 Net debt                                                           (43,607)  (40,973)  6%

 UK RAV                                                             30,356    28,292    7%
 US rate base (£m at constant currency)                             25,097    22,517    11%
 Total Group RAV and rate base (£m)                                 55,453    50,809    9%
 NGV and Other businesses (£m)                                      7,593     6,639     14%
 Total (£m)                                                         63,046    57,448    10%

 Regulated asset growth                                             9.7%      11.4%     -170bps
 Group return on equity                                             8.9%      11.0%     -210bps

1.  Constant currency calculated using current year average exchange rate of
$1.262 (2023: actual average exchange rate was $1.216). See pages 88-91 for
details. Statutory capital investment definition amended in year to include
capital expenditure prepayments and additional equity investments in joint
ventures and associates. Prior year comparatives have been restated, as
explained on page 1.

 

ESG Key Performance Indicators

                                                                                PwC assurance(1)  2024    2023      change
 Scope 1 and 2 greenhouse gas emissions (ktonnes CO(2)e)                                          6,852   7,284²    (5.9%)
 Scope 3 greenhouse gas emissions (ktonnes CO(2)e)                                                27,384  27,867²   (1.7%)
 Renewable energy connected to the UK Transmission and Distribution Grids (MW)                    2,444   132       1,752%
 Renewable energy connected to the US Transmission and Distribution Grids (MW)                    586     554       6%
 Group Lost Time Injury Frequency Rate (LTIFR)                                                    0.08    0.11      (0.03)
 Employee engagement index                                                                        81%     81%       -
 Diversity percentage of the workforce
 Percentage female                                                                                24.6%   23.5%     1.1%
 Percentage ethnically and racially diverse                                                       18.6%   17.5%     1.1%

1.  We engaged PricewaterhouseCoopers LLP (PwC) to undertake a limited
assurance engagement, using International Standard on Assurance Engagements
(ISAE) 3000 (Revised) 'Assurance Engagements other than Audits or Reviews of
Historical Financial Information' and ISAE 3410 'Assurance engagements on
Greenhouse Gas Statements' over a range of data points within our Responsible
Business Report (RBR). The metrics identified with the leaf symbol above have
been extracted from the RBR and included in the scope of their work. Details
of PwC's full limited assurance opinion and National Grid's Reporting
Methodology are set out in the RBR.

2.  In setting our new near-term science-based targets, we follow the
WRI/WBCSD GHG Protocol guidance and recalculated our new baseline (2018/19),
aligning with our Recalculation Policy. This includes recalculating FY23
comparative figures to reflect improved calculation methodology.

 Contacts
 Investor Relations
 Nick Ashworth            +44 (0) 7814 355 590
 Angela Broad             +44 (0) 7825 351 918
 James Flanagan           +44 (0) 7970 778 952
 Media
 Molly Neal               +44 (0) 7583 102 727
 Danielle Dominey-Kent    +44 (0) 7977 054 575
 Lyndsey Evans            +44 (0) 7714 672 052
 Brunswick
 Dan Roberts              +44 (0) 7980 959 590
 Results presentation and webcast
 John Pettigrew (CEO) and Andy Agg (CFO) will host the results presentation at
 the IET London, 2 Savoy Place, WC2R 0BL, at 09:15 (BST) today. A live webcast
 and Q&A will also be available. Please use this link to join via a laptop,
 smartphone or tablet:
 https://www.nationalgrid.com/investors/events/results-centre. A replay of the
 webcast will be available soon after the event at the same link.
 UK (and International)   +44 (0) 330 551 0200
 UK (Toll Free)          0808 109 0700
 US (Local)               +1 786 697 3501
 Password                Quote "National Grid Full Year" when prompted by the operator

 The Annual Report and Accounts 2023/24 (ARA) will be published later today.
 When published, the ARA will be available on National Grid's website at
 nationalgrid.com/investors

 

     Use of Alternative Performance Measures

     Throughout this release we use a number of alternative (or non-IFRS) and
     regulatory performance measures to provide users with a clearer picture of the
     regulated performance of the business. This is in line with how management
     monitor and manage the business day-to-day. Further detail and definitions for
     all alternative performance measures are provided on pages 84 to 86.

 

STRATEGIC OVERVIEW

Good operational performance in a year of record network investment

In 2023/24, National Grid delivered good operational performance with high
levels of network reliability. Transmission and distribution reliability
remained steady at c.99-100% across all of our networks, demonstrating the
effects of our continued investment in network reinforcement and the steadfast
commitment of our operational teams. High levels of network reliability were
also achieved despite 13 named storms across our networks in the UK, and 13
major storm events across our New England and New York service territories.

Safety performance

During the year, we achieved a Lost Time Injury Frequency Rate (LTIFR) 5  of
0.08, compared to 0.11 in 2022/23 and against our Group target of 0.10.

 

In August 2023, one of our UK Electricity Distribution employees tragically
lost his life at a site in Ludlow, Shropshire, after falling from height
whilst performing overhead line work. Following this tragedy, we worked
closely with the individual's family, friends and colleagues to support them.
We also launched an internal investigation in response to this incident, and
we have reinforced measures across our operations to seek to prevent such
tragedies. We continue to cooperate with the ongoing Health and Safety
Executive investigation.

 

In December 2023, one of our Massachusetts employees tragically lost his life
after being struck by a vehicle driven by a member of the public, with two
other colleagues sustaining injuries. A police officer, who was supporting our
crew at the site, also lost his life. We have extended support to our team and
the families affected through our Employee Assistance Programme. This incident
has underscored the unpredictable nature of our work environment, prompting us
to continue our efforts in safeguarding our employees and partners.

A record year of capital investment: full-year financial performance

Group financial performance in 2023/24 was strong in an environment that has
seen supply chain inflation driven by higher demand from network owners across
the global market.

 

Our statutory operating profit is presented on page 21 which includes the
impact of exceptional items, remeasurements, major storms and timing. A
reconciliation to our Alternative Performance Measures (APMs) is presented on
page 87.

 

As set out in our recent pre-close statement, going forward we will be
reporting underlying earnings excluding the impact of deferred tax in our UK
regulated businesses (NGET and NGED). Across the Group, underlying operating
profit for continuing operations increased by £255 million at constant
currency to £4,773 million, an increase of 6% on the prior year (4% at actual
exchange rates). This performance was principally driven by growth in UK
Electricity Transmission revenues through the RIIO-T2 price control,
non-recurrence of Western Link liquidated damages, and higher rates in New
York and New England 6 ; partly offset by lower RIIO-ED2 incentives for UK
Electricity Distribution, and lower property sales principally related to the
St William transaction.

 

Capital investment for continuing operations increased by £805 million at
constant currency to a record £8,235 million, an increase of 11% on the prior
year (8% at actual exchange rates). This increase was principally driven by
early investment relating to ASTI in our UK Electricity Transmission business,
increased spend on our new transmission projects in New York including our
Smart Path Connect project, and higher asset condition and Grid Modernization
spend in New England; partially offset by lower investment in NGV compared to
the prior year due to lower spend on projects including the IFA1 Sellindge
converter station rebuild, Grain LNG expansion and Viking interconnector as
these projects neared completion.

 

When combined with RAV indexation, capital investment drove Group asset growth
of 9.7%, within our 8-10% Compound Annual Growth Rate (CAGR) we published as
part of our updated five-year financial guidance in November 2022.

 

Return on Equity (RoE)

Across the Group, we achieved a RoE of 8.9% in 2023/24, down on the prior year
by 210 basis points (bps). This decrease was driven principally by a lower
contribution from UK Electricity Distribution in the first year of RIIO-ED2,
lower non-regulated profits reflecting property sales in the prior year, lower
interconnector revenues, and a higher opening equity which was driven by prior
period performance, growth and RAV indexation.

 

In the UK, we completed the third year of RIIO-T2 in our UK Electricity
Transmission business where we delivered a RoE of 8.0%, up 50bps on the prior
year. This includes 100bps of outperformance, principally reflecting delivery
of capital projects during the year. For UK Electricity Distribution, we
delivered a RoE of 8.5%, which included 110bps of outperformance, mainly
driven by our totex efficiency programme including optimisation of our IT and
digital programmes, and synergy benefits across the Group.

 

In the US, New York achieved a RoE of 8.5%, broadly in line with the prior
year. This was principally driven by higher IT investments, partially offset
by lower controllable costs delivered through our efficiency programme along
with slightly higher Smart Path Connect recoveries. In New England, the
achieved RoE increased by 90bps to 9.2% helped by a net 50bps of one-offs
largely related to the recovery of historical property tax.

 

For further information on RoEs for each of our business entities, please
refer to the Business Review section on pages 32 to 53.

A new phase of capital delivery: positioning the Group for future growth

Our financial performance reflects our role in the energy transition and a new
phase of capital delivery that is firmly underway. With capital investment
reaching a record £8,235 million in 2023/24, we have stepped up our
investment in the 17 major onshore and offshore ASTI projects in the UK,
whilst in the US we are progressing a number of major transmission projects to
unlock renewable generation and upgrade infrastructure across our
jurisdictions.

 

The progress we have made during the course of the year with partners, across
supply chains, and on policy measures, and across both the UK and US
Northeast, gives us more confidence around the scale and profile of our
investment programme through the rest of this decade, and the regulatory
frameworks that will sit around this investment. This confidence is shown in
the announcement of our new five-year financial framework to March 2029, which
is expected to see a near doubling of investment across the Group over the
coming five years, to around £60 billion, versus the past five years. For
further information on our new framework, please refer to the Five-Year
Financial Framework section on page 18.

UK: The Great Grid Upgrade and ASTI

In March 2023, we announced The Great Grid Upgrade, our plan to build new
transmission infrastructure, and upgrade the existing grid, to bring clean,
green energy from where it is generated to where it is needed by homes and
businesses. The Great Grid Upgrade is the largest overhaul of the grid in
generations. In the next six years we will be required to build more than five
times the amount of new electricity transmission infrastructure than has been
built in the past 30 years.

 

The 17 ASTI projects, awarded to us by Ofgem in December 2022, form a
significant part of this grid upgrade. In August, Ofgem published transmission
licence modifications which formally placed the ASTI projects into
Transmission Operators' licences, including our own. The projects will focus
on upgrading the East Coast transmission network in support of the UK
government's 50 GW 2030 offshore wind target. We anticipate total capital
investment across the 17 projects to be in the mid-to-high teens of billions
of pounds range with the majority of investment to be deployed towards the end
of this decade. ASTI projects will be delivered by our Strategic
Infrastructure (SI) business unit and, as each project is commissioned, they
will be transferred to UK Electricity Transmission.

 

We have made good progress on our early ASTI projects in 2023/24. This
includes the signing of joint construction projects with ScottishPower Energy
Networks for Eastern Green Link 1 (EGL1) in August, and with SSEN Transmission
for Eastern Green Link 2 (EGL2) in June. For EGL1, Prysmian Group was selected
in December to supply 400 kilometres of HVDC cable between England and
Scotland, with GE Vernova's Grid Solutions and MYTILINEOS selected to supply
the converter stations and civils respectively. The design phase of the link
begins in 2024 with construction in 2025. The total investment for the joint
construction project is £2.5 billion, of which National Grid's share is £1.5
billion. For EGL2, the joint venture signed a contract in February, also with
the Prysmian Group, to supply around 1,000 kilometres of HVDC cable for the
project, as well as signing a contract with Hitachi Energy and the Royal BAM
Group for converter stations at either end of the cable. This represents a
significant milestone for the project as we make progress towards the delivery
phase. When complete, EGL2, connecting Peterhead in Scotland to Drax in
England, will be the longest HVDC cable in the UK and the country's single
largest electricity transmission project ever. The total investment for the
joint construction project is £4.4 billion, of which National Grid's share is
£2.4 billion. Between them, both EGL1 and EGL2 will provide enough energy to
power around four million homes.

 

In March, the Secretary of State for Energy Security and Net Zero granted a
development consent order for Yorkshire GREEN, our ASTI project to build 7
kilometres of new overhead lines, underground cables and two substations
between Shipton and Monk Fryston. This follows the conclusion of the
examination period in September and the issue of a recommendation report by
the Planning Inspectorate in December. The project will upgrade and reinforce
the high-voltage power network so that more low-carbon energy can be supplied
to homes and businesses in Yorkshire, with construction due to commence this
summer and project completion expected in 2028. In the same month, the
Planning Inspectorate completed its examination phase of the development
consent for our Bramford to Twinstead network reinforcement project which will
reinforce part of the East Coast transmission network through 18 kilometres of
new overhead line and around 11 kilometres of underground cable. Strengthening
the network here is vital to deliver cleaner, greener electricity efficiently,
reliably, and safely and to support the UK's move to net zero.

 

Looking ahead, we anticipate other ASTI projects to progress in 2024/25,
including consultations on the Norwich to Tilbury and Brinsworth to High
Marnham transmission projects, whilst consultations have also commenced on our
EGL3 and EGL4 projects.

 

UK: securing the supply chain

To enable the delivery of The Great Grid Upgrade we have made positive steps
in securing the necessary supply chain partners. In May 2023, we launched the
'Great Grid Partnership' to identify supply chain partners to help to
initially deliver nine major onshore ASTI projects. At the end of April 2024,
we selected seven partners to provide an initial £4.5 billion worth of
network infrastructure design and construction work out to 2030. Specifically,
two design and consenting service partners (Arup/AECOM and WSP), and five
construction partners (Laing O'Rourke, Omexon-Taylor Woodrow, Murphy, Morgan
Sindall Infrastructure and Morrison Energy Services) are joining National Grid
in the Great Grid Partnership. This is an important milestone that will enable
us to help deliver the significant new electricity network infrastructure
required to move more clean energy from where it is generated to where it is
needed, helping the UK meet its net zero ambitions.

 

By creating these long-term strategic contractual relationships, National Grid
will be well-positioned to overcome constraints while driving learning and
innovation. This 'enterprise' partnership model is designed to deliver
integrated planning and working between projects, enabling the supply chain to
combine capacity, capability, knowledge and experience to accelerate delivery
and deliver cost efficiencies, in turn delivering value for money for
consumers. It is also a model that we have successfully used before on our
London Power Tunnel projects.

 

Within the year we also launched our HVDC supply chain framework which,
together with SSEN Transmission and ScottishPower Energy Networks, aims to
secure the supply chain required for over 14,000 kilometres of cabling
requirements across UK networks out to and beyond 2030. The framework, which
has the provision for around £60 billion of investment, will enable National
Grid to create longer-term strategic contractual relationships as well as
provide a mechanism to secure not only our existing requirements but also
anticipated future capacity. It also aims to reduce the administrative burden
of individual tenders so that the Company becomes a more attractive client for
the supply chain. Our ambition is to procure a long-term framework for all SI
and NGV future needs - including cables, converters and civils - in
collaboration with our joint venture partners.

 

These contractual arrangements with the supply chain not only highlight our
confidence in being able to deliver ASTI projects efficiently, with 20% of our
project portfolio now contracted with the supply chain, but represent a
significant boost to the UK supply chain that will help deliver the energy
transition, underlining our commitment to investing in jobs, skills and people
required to deliver net-zero.

UK: National Gas Transmission

In July, we announced the sale of a further 20% in National Gas Transmission
to a consortium led by Macquarie Asset Management and British Columbia
Investment Management Corporation (the Consortium), with the equity sale on
equivalent financial terms to the original 60% transaction (acquired by the
same consortium) that was completed in January 2023. The 20% sale was
completed on 11 March 2024 following the same National Security and Investment
(NSI) clearance process as the initial 60% tranche. This has now taken the
Consortium's equity stake in National Gas Transmission to 80%. The Consortium
has an option to acquire the remaining 20% interest, exercisable between 1 May
2024 and 31 July 2024. If the option is partially exercised by the Consortium,
National Grid will have the right to put the remainder of its equity interest
in National Gas Transmission to the Consortium, which can be exercised by
National Grid between 1 December 2024 and 31 December 2024. If one or both of
these options are exercised, the consideration for the remaining interest is
expected to be paid in cash to National Grid on equivalent financial terms to
the original 60% transaction, subject to certain adjustments.

 

Following the completion of the 20% equity stake sale in National Gas
Transmission to the Consortium in March 2024, National Grid's asset base moved
to around 75% electricity, up from 60% in March 2021.

United States (New York) - Upstate Upgrade

In March, we announced plans to invest more than $4 billion in transmission
network infrastructure in New York. The 'Upstate Upgrade' is a collection of
more than 70 transmission enhancement projects through 2030 to deliver a
modernised, stronger, and cleaner energy network in Upstate New York. In
addition to generating thousands of new jobs, the investment will help the
state meet its climate goals outlined in the Climate Leadership and Community
Protection Act (CLCPA).

 

The Upstate Upgrade - the largest investment in New York's electricity
transmission network for over a century - will focus on three key areas: (1)
improving the energy network's resilience by reinforcing and upgrading
infrastructure such as transmission lines and substations to help reduce
outages during extreme weather events (this will include constructing,
rebuilding, and modernising over 1,000 miles of transmission line and 45
substations); (2) creating over 1,700 new construction jobs; and (3) powering
upstate New York's energy future by ensuring the network can meet increasing
electric demand and transmitting clean power produced in New York.

 

Key projects in the Upstate Upgrade include:

■ Smart Path Connect - the project, for which National Grid's share of
capital investment is $550 million, includes the rebuild and upgrade of
approximately 55 miles of our Adirondack-Porter 230 kV transmission circuits
to 345 kV in Northern New York. It remains on track for energisation in
December 2025.

■  CLCPA Phase 1 - construction has begun on the first stage of our
substation upgrade as part of the $800 million Phase 1 funding for
transmission upgrades. This also includes projects such as Inghams-Rotterdam
and Churchtown to Pleasant Valley circuit rebuilds (129 miles) to support 330
MW of incremental headroom capacity for renewable generation.

■  CLCPA Phase 2 - engineering contracts were awarded in October 2023 for
transmission projects as part of the $2.1 billion Phase 2 funding for
transmission networks and modernising the electric network.

 

On the supply chain, contracting has been executed to secure the supply of
critical, high demand materials required for these upgrades including circuit
breakers and power transformers. In November, National Grid hosted a supplier
conference in Albany, New York, with 16 of the largest contractors in the US
invited to discuss our vision and CLCPA projects. The key objectives were to
discuss CLCPA work packages and encourage supplier engagement and
relationships to support the growing portfolio. Of the 16 suppliers invited,
14 are now active participants in the CLCPA 2 bid event.

 

We also continue to grow strategic relationships with major contractors as
part of the Supply Chain Transformation programme launched in 2023. The
programme seeks to deliver two major outcomes with suppliers to aid becoming a
'Client of Choice'. Firstly, to partner more closely with the supply chain to
ensure our strategies and goals are aligned; and secondly, to enhance our
scale as a group to be able to secure wider, longer-term contracts with our
suppliers.

Transmission investment through National Grid Ventures

Whilst we are entering a new phase of capital delivery through our regulated
businesses, we are also pursuing new transmission opportunities through our
non-regulated business, National Grid Ventures (NGV).

 

NGV had a successful year through New York Transco, a partnership of New
York's major utilities, of which NGV has a share of 28.3%. In June 2023, New
York Transco's Propel NY Energy transmission project was selected by the New
York Independent System Operator (NYISO) to deliver increased transmission
capacity between the mainland and Long Island. The project is in partnership
with the New York Power Authority and follows the bid New York Transco
submitted in October 2021 as part of the NYISO's Long Island Offshore Wind
Export Public Policy Transmission Need solicitation. Total investment for the
project is $2.8 billion, of which NGV's capital contribution is around $340
million.

In the same month, our New York Energy Solution transmission line upgrade
project was fully energised. This project was selected by the NYISO to provide
transmission upgrades to New York's power system, while enhancing reliability
and facilitating upstate clean energy resources to downstate demand centres.
Total investment for the project is $670 million, of which NGV's capital
contribution is around $100 million.

UK regulatory progress

We have been encouraged by the good progress made during the year by
government and Ofgem to support the step-up in investment required across UK
energy networks. We are particularly pleased to see many of the areas we
highlighted in our Spring Policy Paper now being acted upon. As we deliver our
new contractual model for working with the supply chain it is important that
we see the regulatory and legislative support necessary to support this and
the investment required to upgrade the grid network. This is also critical to
ensuring we build a transmission network that will serve society, protect the
environment, and underpin economic growth for decades to come.

Delivering the future electricity network - National Grid

In May 2023, we published our Spring Policy Paper, 'Delivering for 2035:
Upgrading the grid for a secure, clean and affordable energy future'. The
paper outlined five priority areas of action for government and Ofgem to
ensure electricity networks can fully play their part in decarbonising the
power sector by 2035. These included (1) reforming the planning system,
centred around a strategic spatial energy plan; (2) ensuring the regulatory
and governance framework is set up for delivery; (3) transforming how clean
energy connects to the grid and accelerating decarbonisation projects; (4)
putting communities and consumers at the forefront of the transition; and (5)
developing supply chain capacity and a skills pipeline across the country.

 

The recommendations we made in the publication are critical to reforming the
scale and pace of the energy transition needed over the next decade,
particularly in transmission, to enable the decarbonisation of the UK power
sector by 2035. Since the publication of the paper we have been pleased to see
a number of positive developments that have supported our call for reform.

Legislative and regulatory change

In August, we welcomed the publication of the Electricity Networks
Commissioner's (ENC's) report and its recommendations aimed at significantly
reducing timelines for delivering onshore and offshore transmission network
infrastructure. Many of the recommendations align with our priority areas. In
particular, we supported the ENC's recommendation for a strategic spatial
approach to planning energy infrastructure and the robust need case this would
provide.

 

We were also pleased to see a number of the planning points we had advocated
in our Spring Policy Paper in the Chancellor's Autumn Statement in November.
This included updated National Policy Statements for Energy which give
transmission infrastructure 'Critical National Priority' status, and a
Transmission Acceleration Action Plan which aims to shorten the time taken for
new-build transmission projects to seven years through a range of initiatives
aligned with our recommendations, including:

■  the creation of a Strategic Spatial Energy Plan which will create
certainty for industry by identifying optimal generation locations and the
infrastructure needed to meet future demand and net zero commitments;

■ the development of a Centralised Strategic Network Plan (CSNP) which will
create a blueprint for the transmission network, establishing the need case
and strategic options for our projects to move towards consent; and

■  a 'minded to' position on community benefits associated with new
transmission infrastructure which will provide greater clarity for both the
communities that host our infrastructure and the teams developing these
project proposals.

 

In October, we welcomed the passing of the Energy Act 2023 which established
important policy and governance foundations to deliver on the UK's net zero
ambitions. It enables the separation of the Electricity System Operator (ESO)
from National Grid and the formation of the independent National Energy System
Operator (NESO) which we expect will complete later this calendar year. The
Energy Act also introduced a net zero duty for Ofgem, widening the regulator's
remit to consider net zero targets as part of its decision making.

 

In the same month, we also welcomed Ofgem's publication of the Future System
and Network Regulation (FSNR) Framework Decision, setting out the overarching
framework for the network price controls for electricity and gas transmission,
and gas distribution, which will run from April 2026, known as 'RIIO-3'. For
electricity transmission, the main points from the FSNR Decision included the
continuation of five-year price controls, the setting of returns to ensure
that necessary capital is attracted to support grid expansion, and the
evolution of a RIIO-style framework, with the introduction of a major projects
regime for significant network investments identified in the CSNP.

 

The detail of the frameworks will be developed by Ofgem through its sector
specific methodology phase. This began in December with the publication of the
regulator's Sector Specific Methodology Consultation (SSMC) for our UK
Electricity Transmission business relating to the RIIO-T3 regulatory period.
The consultation provided the framework on which we will base our UK
Electricity Transmission business plan for RIIO-T3 which is due for submission
in late 2024. In our response to the SSMC in March 2024, we welcomed Ofgem's
recognition of the need to deliver clear signals and direction so as to
provide certainty and assurance to investors that projects are viable,
investable and deliverable. We also highlighted that Ofgem's investment needs
assessment must allow projects to move at pace, that its cost assessment must
recognise supply chain competition and volatility, that the incentives package
must evolve to reflect the value that transmission operators deliver to
customers, and that the financial framework must reflect the scale of the
investment we must deliver and the changed macroeconomic environment. These
approaches will enable National Grid to continue delivering world class
networks at the lowest cost for consumers. In addition, the SSMC confirmed
that the overarching RIIO-T3 framework will provide a foundation for the
Electricity Distribution price control which will start in April 2028.

 

We expect the final methodology decision will be made by Ofgem in summer 2024,
whilst the precise framework and process for Electricity Distribution will be
consulted on separately in late 2024.

Looking beyond 2030

In March 2024, the ESO published the transitional Centralised Strategic
Network Plan (tCSNP2), referenced as 'Beyond 2030', which sets out the network
required to achieve a low carbon grid by 2035 (in line with the 6th UK Carbon
Budget). This follows the publication of the first tCSNP in 2022, also
referred to as the Holistic Network Design (HND), which set out the network
reinforcement options required to connect 23 GW of offshore wind, including
the 17 ASTI projects that are now within National Grid's transmission
operating license.

 

The tCSNP2 sets out the network reinforcement required against the ESO's
'Leading the Way' Future Energy Scenario (which achieves net zero power sector
emissions by 2034), and to support an additional 21 GW of wind in Scotland
identified under the HND Follow-Up Exercise (HNDFUE) in 2022/23. It sees up to
£58 billion of investment into the electricity transmission networks to be
delivered through the 2030s, across all UK transmission operators, as well as
a 65% growth in Great Britain's electricity demand between 2023 and 2035. For
National Grid, tCSNP2 sees 35 'investment signals' to develop into projects of
various sizes required for ongoing expansion and reinforcement of the grid
network. We continue to mature and develop these projects with Ofgem and the
ESO.

Driving connections reform across our transmission and distribution networks

During the year, National Grid launched a new reform initiative to accelerate
grid connections across our transmission and distribution networks.

 

On transmission, the ESO has worked with stakeholders, including UK
Electricity Transmission, to improve and reform the connections process to the
transmission network. This includes two major aspects: a shorter term Five
Point Plan, and a longer full connection reform process. The transmission
connection queue now stands at over 700 GW for Great Britain which represents
a significant oversubscription of what is required to meet the scenarios in
the ESO Future Energy Scenario publication.

 

One of the key changes on the Five Point Plan has been the introduction of
'Queue Management' clauses into connection agreements. This allows the ESO the
right to terminate connections for customers who miss key milestones in their
project development, an important measure as we look to move to a 'first
ready, first connected' process. Ofgem made the code modification required to
enable this in November 2023. In addition to Queue Management, measures
introduced through the Five Point Plan (which NGET worked on collaboratively
with the ESO) include changes to how battery projects are modelled and
updating background modelling assumptions, which have the potential to
accelerate the connections dates for up to 70 GW of projects currently in the
queue. For longer-term reform, the ESO published a consultation in the summer,
to which National Grid (as one of the UK's transmission operators) responded
with a recommended solution. We continue to work with Ofgem to understand a
way forward that can expedite the implementation and delivery of the benefits
of the proposed connection reform.

 

We also took further action on connections reform across our UK Electricity
Distribution network. In September, we announced plans to release 10 GW of
grid capacity for the connection of renewable generation assets to our
distribution network. This followed engagement with the ESO, Ofgem and the UK
government to find solutions to speed up the connection of low carbon
technologies. Through a new agreement with the ESO, projects connecting at
distribution level that require additional transmission network reinforcement
will be offered the chance to connect under an interim, non-firm connection
arrangement. In return for an earlier connection, the interim arrangements
would mean some projects could be curtailed when there is too much generation
on the system, such as on some of the windiest and sunniest summer days.

 

In September, we began replacing the current 'first come, first served'
connection model with a 'first ready, first connected' approach on our UK
Electricity Distribution network. This updated approach will accelerate the
connection of 'shovel ready' projects to allow more low carbon projects to
connect faster. As a result, these changes will allow customers to accelerate
their connection dates and provide a more agile approach to managing
connection requests. We also continue to work with members of the Energy
Networks Association (ENA) on reforming the connection process to distribution
networks. This includes promoting mature projects that are closer to delivery
above those that may be 'blocking' the queue, and changing how transmission
and distribution networks coordinate connections, improving their
interactivity. During the year, we removed 95 projects from the distribution
connection queue totalling 2.25 GW.

Offshore Hybrid Assets (OHA) - next phase of interconnection

In 2022, Ofgem opened an OHA pilot seeking to work with selected developers on
establishing an investible OHA regime. OHAs are the next phase of
interconnection, not only linking two countries but also connecting with
offshore wind generation. The two projects in the Ofgem OHA pilot are LionLink
(to the Netherlands) and Nautilus (to Belgium), both NGV projects, providing
us an opportunity to shape the OHA regime and prepare it for future
investment. In March, Ofgem granted a 'minded-to-approve' decision for
LionLink and we are now working with our partner, TenneT, to ensure the
project meets the approval conditions. However, Nautilus did not receive a
'minded-to-approve' with one of the main reasons cited by Ofgem being high
estimated constraint costs associated with the project. We continue to work
with our partner, Elia, to provide further evidence to address Ofgem's
concerns through our consultation response in May. We expect Ofgem to make a
final decision on LionLink, Nautilus and the OHA regime parameters in the
second half of calendar year 2024.

US regulatory progress

We have seen equally good momentum on regulatory progress across our US
jurisdictions during the year.

New York rate filings

On 10 April 2024, we filed a Joint Proposal with New York Public Service
Commission (PSC) Staff for a three-year rate settlement at our downstate gas
distribution businesses, KEDNY and KEDLI. This follows our initial rate filing
for the businesses in April 2023. The proposed settlement includes funding for
capital investment of $924 million for KEDNY and $646 million for KEDLI in the
first rate year (an increase of around 30% on 2022/23), and a RoE of 9.35%
which compares to 8.8% under the prior rate settlement. It will fund
programmes necessary to modernise the gas network and continue a safe and
reliable service for our customers. In addition, it maintains a focus on
customer affordability through delivering efficiencies and bill assistance
programmes, and includes programmes to reduce methane emissions, promote
non-gas alternatives, and expand energy efficiency in support of the State's
environmental goals. A final decision from the New York PSC is expected in the
next few months. For further details please refer to the Business Review
section on page 46.

 

We also remain on track to file for new rates for our upstate New York
electric and gas distribution business, Niagara Mohawk (NIMO), before summer
this calendar year.

New York transmission investment

In July, we received Federal Energy Regulatory Commission (FERC) approval for
cost recovery on our Smart Path Connect transmission rebuild and refurbishment
project in upstate New York. The order included a 10.3% RoE with a 50:50
debt:equity ratio, with cost recovery effective from 1 April 2023. The
project, to develop 110 miles of transmission lines in partnership with the
New York Power Authority (NYPA), will unlock more than 1,000 MW of existing
renewable resources, deliver significant production cost savings and emissions
reductions, and will decrease transmission congestion. The project is on track
to be completed by 2025.

Massachusetts - Electric Sector Modernization Plan (ESMP) and rate filings

In January, we filed our final ESMP with the Department for Public Utilities
(DPU) in Massachusetts. The plan outlines the investment required in our
electric distribution network over the next five years and beyond to help the
state meet its clean energy goals under the 2050 Clean Energy and Climate Plan
(CECP). Under the ESMP, we have proposed to invest up to $2 billion over the
next five years across the following areas:

■ Network infrastructure - upgraded power lines, transformers, substations,
to make the network more resilient, connect clean energy and plan in advance
for growth in demand from electrification;

■ Technology and platforms - new planning tools for smarter decision
making, including new data and monitoring systems to ensure system stability,
and new IT infrastructure; and

■   Customer programmes - helping customers reduce their carbon footprint
and drive smart energy use.

 

In our filing, we sought DPU approval to take forward the plan investment and
define the appropriate cost recovery approach. The DPU is now considering the
filing and we expect the regulator to issue an order on our proposal in
August. The proposed investment under the ESMP is not currently part of any
rate order for our service territory.

 

In November, we filed for new rates for our Massachusetts Electric business.
Our filing requested a five-year rate plan with a RoE of 10.5% and a revenue
increase of $131 million in the first rate year. The rate plan introduces a
comprehensive performance plan that includes a new capital recovery mechanism.
This will adjust rates annually to recover the costs of the Company's core
investment needs as well as any approved projects or programmes in the ESMP up
to a recovery cap. The proposal also includes a Performance Based Rate
Mechanism (PBRM) focused on core operations and maintenance (O&M) expense.
Overall, the total requested capital expenditure in this filing, together with
that under the ESMP, could reach up to $6 billion across the five years if the
DPU accepts our investment proposals for both the MECO rate filing and the
ESMP. The rate filing is currently progressing through the 'evidentiary' phase
of the process, and we anticipate the DPU making a final rate order in
September 2024.

The Future of Gas - Massachusetts and New York

In December, the Massachusetts DPU issued Order DPU 20-80, an investigation
into the role of local gas distribution companies (LDCs) in achieving the
state's 2050 climate goals. The Order establishes a framework to implement the
decarbonisation pathway established in the state's 2050 Climate and Clean
Energy Plan. The main requirement is for LDCs to consider Non-Pipeline
Alternatives (NPAs) as a condition of recovering additional investment in
distribution networks and must provide evidence when there is no NPA. The
Order is clear, however, that existing investments in natural gas
infrastructure by LDCs will not be affected. We are now working with other
utilities in the state to deliver a plan by 2025 that takes into account the
requirements of the Order. This will involve working with electric utilities
in jurisdictions where we are the gas network operator, and vice versa, to
deliver against the need for NPAs. The Order does not impact the current rate
order for our Massachusetts Gas business which runs to October 2026.

 

In New York, the PSC is considering issues relating to the future of gas in
its Gas System Planning Proceeding. Gas distribution companies are required to
submit Long Term Gas Plans which are consistent with the state's CLCPA on a
three year cycle. The initial Long Term Gas Plan filings for KEDNY, KEDLI and
NIMO are required to be submitted by 31 May 2024, following which there will
be a stakeholder engagement process with the final plan submitted in December
2024.

Community Offshore Wind (COSW)

In April 2024, the New York State Energy Research and Development Authority
(NYSERDA) announced that no final awards would be made to the provisional
awardees of New York's third offshore wind solicitation due to an inability of
developers to agree to contract terms with their manufacturing partners. The
New York Governor subsequently announced a path forward for New York's
offshore wind industry, including a supportive manufacturing and logistics
Request for Proposals (RfP) to grow the domestic supply chain in New York and
a Request for Information (RfI) to inform future development for the state's
fifth offshore wind solicitation.

 

The NYSERDA announcement followed our submission of 1.3 GW to New York's
fourth large-scale offshore wind bid solicitation in December. However,
following the announcement of the successful bidders in January, COSW was not
selected but instead placed on a 'waitlist', a new part of the bidding
process. COSW also submitted an offtake bid for a further 1.3 GW in August in
response to the New Jersey Board of Public Utilities (BPU) solicitation.
Following careful consideration, COSW withdrew its proposal, determining the
offtake design would not allow us to deliver an affordable project for
residents of New Jersey and for the state's climate goals.

 

COSW will look to participate in future offshore wind bid solicitation rounds
and we expect to see these moving forward in due course.

Efficiency savings significantly above our three-year target

In 2023/24, we delivered a further £139 million of Group efficiency savings
taking cumulative savings to £513 million at actual exchange rates. This
significantly exceeds our £400 million savings target that we announced in
November 2021, and that we committed to deliver by the end of 2023/24, and has
been delivered against a strong inflationary backdrop whilst growing the asset
base by 9.7%.

 

Our Group efficiency savings have been delivered through the year across four
key areas:

■   Digital improvements - in the UK, we have consolidated work management
programmes, reducing licensing and support costs in UK Electricity
Transmission. In the US, we have shifted customers to e-billing; introduced a
web portal for customer self-service; and introduced 'OnMyWay', automating
work schedules for our field workers.

■   Continuous improvement - in the UK, we have increased productivity and
reduced low value work allowing the redeployment of labour in UK Electricity
Transmission to capital projects as our capital workload increases; in the US,
we have achieved savings through redesigning transmission line inspections,
greater use of drones for asset health inspections, and extending the life of
transmission towers with a new steel coating technology.

■  Process improvement - in our US customer service centres, we have
reduced call volumes by providing self-service options; introduced new
automated messaging to direct customers online to resolve their queries,
thereby increasing availability of staff to deal with more complex calls; and
introduced new processes to resolve customer calls first time, reducing the
requirement for 'call-backs'.

■  Supply chain optimisation - across the Group, we have driven contract
efficiencies through consolidating our IT data centres; and utilising contract
management strategies to enable us to reduce external third party spend.

Delivering as a Responsible Business

Our Responsible Business Charter

Since we launched our first Responsible Business Charter three years ago the
external environment has continued to change and our business has evolved
significantly with the repositioning of our portfolio. To reflect these
changes, we updated the Charter in September following engagement with
stakeholders and with a focus on three core pillars: our environment; our
customers and community; and our people. Each of these pillars is underpinned
by our Responsible Business Fundamentals - committing to safely, reliably and
efficiently connecting millions of people to the energy they use - with the
previous pillars of economy and governance now embedded within these new focus
areas.

Progress on our environment pillar

Following the update to our Responsible Business Charter, our new aim is to
reduce Scope 1 and 2 green house gas (GHG) emissions by 60% by 2030, from a
2018/19 baseline 7 , whilst remaining committed to reducing Scope 3 emissions
excluding sold electricity by 37.5% by 2034. We recognise the need for urgent
action this decade and have worked with the Science Based Target initiative
(SBTi) to align our near-term targets to their 1.5°C pathway. As part of this
validation, we have also set a range of sub-targets which align to SBTi's more
ambitious power sector pathway and which require higher decarbonisation of
specific material emissions, such as generation and sold electricity. We now
plan to update our Climate Transition Plan in June 2024 to reflect these new
targets, which will be put to an advisory shareholder vote at the 2024 Annual
General Meeting (AGM).

 

In 2023/24, we achieved a 5.9% reduction in our Scope 1 and 2 emissions, or a
11.8% reduction against the 2018/19 baseline. Our total Scope 3 GHG emissions
decreased by 1.7% year-on-year. Against our SBTi approved target (which
excludes sold electricity) our Scope 3 GHG emissions have increased by 0.8%
since 2018/19. This was principally driven by emissions linked to our higher
annual spend in relation to purchased goods and services (including capital
investment) within our supply chain, with the bulk of these emissions coming
from resource-intensive activities associated with constructing new energy
infrastructure. Longer term, we expect a decline in the carbon intensity of
materials and sectors and anticipate a reduction in our supply chain
emissions. We aim to accelerate this by actively encouraging our suppliers to
establish action plans and adopt science-based decarbonisation targets of
their own.

 

During the year, we also connected 3,030 MW of renewable energy across our UK
and US transmission and distribution networks, an increase of 2,344 MW
compared to the prior year. In addition, the commissioning of our Viking Link
to Denmark in December 2023 increased our interconnector capacity by 1.4 GW.

As we delivered another record year of capital investment, we also reached a
higher proportion of green capital investment at 78% of Group capital
expenditure 8  (versus 75% in the prior year). This amounted to £6.0 billion
of green capital investment (versus £5.6 billion in the prior year) which was
aligned with EU Taxonomy principles for sustainable investment.

 

We also continued to work with our supply chain during the year to establish
decarbonisation roadmaps and Science Based Targets (SBTs). To help reduce our
Scope 3 GHG emissions, we have continued to engage with our key suppliers that
form a large part of our emissions linked to the goods and services we
procure. We are asking the top 50% of US suppliers by emissions to set a
decarbonisation roadmap plan towards a SBT by 2025/26. For our equivalent top
80% of UK suppliers, we are asking them to go one step further by formally
committing to set target(s) with the SBTi by 2025/26.

 

During 2023/24, we enhanced how we calculate the emissions of our purchased
goods and services (including capital goods) as part of our Climate Transition
Plan (CTP). The change in methodology has affected the emissions profile
associated with our suppliers, leading us to revise our list of carbon
strategic suppliers. We will continue engaging and working with suppliers in
partnership to identify common challenges and to help decarbonise our
business. Our CDP Supplier Engagement programme in 2023 included 50 carbon
strategic suppliers in the UK and 74 in the US that in aggregate accounts for
over 30% of our GHG emissions from our purchased goods and services (including
capital goods). Next year, we will revise our list of carbon strategic
suppliers as a result of the change in our methodology for calculating the
emissions of our purchased goods and services and in 2024/25 we will report on
our progress to meet our stated SBT supply chain engagement targets for the US
and the UK.

 

In December 2023, we partnered with the UK Government, We Mean Business
Coalition and Climate Action, amongst other organisations, at COP28,
participating in over 110 events and discussions on accelerating the energy
transition. Our focus was on achieving system-wide resilience, developing
reliable and clean power systems, and delivering a just and equitable
transition. We welcomed the final COP28 agreement published by governments
which included two new global goals to triple renewable energy capacity and
double energy efficiency by 2030, recognising the need to transition away from
fossil fuels in a just and equitable manner, in line with 1.5ºC and achieving
net zero by 2050.

Progress on our customers and community pillar

In 2023/24, we made good progress on making sure our economic and social role
has the greatest impact on the communities we serve. In the UK and US, with
the support of our charity partners, we continued to provide financial support
to those severely affected by rising energy costs through our Energy Support
Fund. This winter, our UK partners received £11.3 million, while our US
partners received approximately $1.8 million. In the UK, the funding helped
expand our UK Electricity Distribution Community Matters Fund, offering grants
to customers struggling with fuel poverty; our support for home visit,
customer advice and fuel vouchers through the National Energy Foundation and
Fuel Bank Foundation; and our support for Citizens Advice by funding an
additional 15 full-time caseworkers, delivering support to an additional 2,400
people with specialist advice.

 

In Massachusetts, we continued to provide support to those customers severely
affected by rising energy costs. This winter, we hosted over 185 in-person
customer savings events which helped connect our most vulnerable customers to
available resources. We facilitated more than $18 million in home energy
assistance funding and bill relief for our customers. Additionally, we
enrolled more than 250,000 customers on an income-based discount rate, as well
as nearly 31,000 customers in arrears management programmes. In New York,
through our September Week of Service and other community events, we continued
to have a positive impact on our communities through volunteering at over 400
different events. In addition, Project C was honoured by CenterState
Corporation for Economic Opportunity (CEO) as their 2023 Community Visionary
Award winner citing us as an 'unwavering partner' for our communities.

 

During the year, we continued to engage directly in our communities through
volunteering. In total, colleagues across the Group volunteered 77,918 hours
across our communities in 2023/24. In the US, we recorded over 47,000
volunteering hours, whilst in the UK we recorded over 30,000 hours.
Cumulatively, National Grid colleagues have now volunteered 179,480 hours
since the publication of our Responsible Business Charter in 2020, achieving
36% of our ten year Group commitment of 500,000 volunteering hours. We also
made good progress in skills development in 2023/24, with 18,907 people
provided access to skills development through National Grid programmes in the
UK and the US. Cumulatively, we have now delivered skills development for
30,730 people in our communities achieving 68% of our ten year commitment of
45,000.

Progress on our people pillar

In 2023/24, we welcomed a number of new additions to our Group Executive team,
including Carl Trowell (President, Strategic Infrastructure), Katie Jackson
(President, National Grid Ventures), Lisa Wieland (President, New England) and
Courtney Geduldig (Chief Corporate Affairs Officer). As of March 2024, Group
Executive diversity 9  stood at 53.8%, an increase of 8.3 percentage points on
the prior year. The diversity of National Grid's Board stood at 45.5%, down by
4.5 percentage points on the prior year and below our 50% goal by 2025,
principally through the departures of Thérèse Esperdy and Liz Hewitt, with
Jacqui Ferguson joining the Board in January 2024.

 

For management gender and ethnicity diversity representation, we ended 2023/24
with figures of 35% for gender and 17.6% for ethnicity, both higher than the
prior year which were 32.6% and 16.7% respectively; we remain on track to
attain our 2025 goals of 35% and 20%. Our new talent (new recruitment) gender
diversity reached 31.6% in 2023/24, an increase of 0.8% on the prior year. We
also saw a notable increase in the number of ethnically diverse new talent
joining National Grid during the year at 32.3% compared to 24.8% reported in
the prior year.

 

Finally, this year we received over 24,000 responses to our annual
independently managed employee engagement survey Grid:voice, the highest
number of colleagues to ever complete the survey. Our employee engagement
index score remained at 81% favourable, four points above the highest
performing companies. Our 'Safe to Say' Grid:voice score remains stable
year-on-year at 71%.

Board changes

On 17 May 2023, we announced that Thérèse Esperdy would step down from the
Board as a Non-Executive Director on 31 December 2023 after serving more than
nine years.

 

On 21 September 2023, we announced that Ian Livingston would succeed Thérèse
Esperdy as the Senior Independent Director on 31 December 2023.

 

On 11 December 2023, we announced that Jacqui Ferguson would join the National
Grid Board as an independent Non-Executive Director with effect from 1 January
2024; and that Liz Hewitt would step down from the Board on 31 January 2024.

 

FIVE-YEAR FINANCIAL FRAMEWORK

Our five-year financial framework is based on our continuing businesses, as
defined by IFRS, including the ESO until disposal. It excludes the minority
stake in National Gas Transmission, which is classified as a discontinued
operation. Following our announcement that we plan to sell these businesses,
we have also excluded Grain LNG and National Grid Renewables within the period
to 2028/29.

Capital investment and Group asset growth

We expect to invest around £60 billion across our energy networks and
adjacent businesses, in the UK and US, over the five-year period to 2028/29,
with group assets trending towards £100 billion by March 2029. Of the £60
billion investment over the five years to March 2029, around £51 billion is
considered to be aligned with the principles of the EU Taxonomy legislation as
at the date of reporting.

 

In the UK, we expect around £23 billion of investment in Electricity
Transmission for asset health and anticipatory system reinforcement to
facilitate offshore generation and other new onshore system connections. This
also includes the investment across our 17 Accelerated Strategic Transmission
Investment (ASTI) projects, as we invest in the critical infrastructure
required to enable the energy transition and a decarbonised electricity
network in the 2030s. We expect our Electricity Distribution network to invest
around £8 billion over the five years to 2028/29 in asset replacement,
reinforcement and new connections, facilitating the infrastructure for
electric vehicles, heat pumps and directly connected generation.

 

In our US regulated businesses, we expect to invest around £17 billion in New
York, and £11 billion in New England, over the five years to 2028/29. From
over half of our investment in the prior 5 year plan going to safety related
projects in our gas networks, we now expect to invest nearly 60% in this plan
into our electricity networks, as we see a step up in investment for renewable
connections, transmission network upgrades, and digital capabilities to enable
the energy transition.

 

NGV has committed capex of around £1 billion over the five years to 2028/29,
including low levels of maintenance investment across the six operational
interconnectors.

 

With the large step up in investment, we expect to see higher group asset
growth of around 10% CAGR through to 2028/29.

Group gearing

We remain committed to a strong, overall investment grade credit rating. We
expect to maintain credit metrics above our thresholds for our current group
credit ratings through to at least the end of the RIIO-T3 price control
period, with current thresholds of 10% for S&P's FFO/adjusted net debt,
and 7% for Moody's RCF/adjusted net debt. Following completion of the Rights
Issue, we expect regulatory gearing to be in the low 60% range by March 2025,
and then trend back towards the high 60% range by the end of RIIO-T3.

Group earnings growth and dividend growth

We expect our CAGR in underlying EPS to be in the 6-8% range from a 2024/25
baseline (guidance below)*. This includes our long-run average scrip uptake
assumption of 25% per annum, which will underpin our sustainable, progressive
dividend policy into the future.

 

For 2024/25, whilst we continue to expect strong operational performance
across the Group, we expect underlying EPS to be broadly in line with our
underlying 2023/24 EPS once this has been adjusted by the number of bonus
shares issued as part of the proposed Rights Issue. We then expect underlying
EPS CAGR of 6-8% from a 2024/25 baseline, through to 2028/29, assuming an
exchange rate of £1:$1.25.

 

We will maintain a progressive level of total dividend growing from the
current level that the Board has recommended for the year to March 2024. This
equates to a total DPS of 58.52p/share for 2023/24 which will then be rebased
given the increased number of shares following the Rights Issue. We then aim
to grow the DPS in line with UK CPIH in keeping with the current dividend
policy (for details of our dividend policy please refer to page 29).

 

 

*For more detail on share count, see the 2024/25 Forward Guidance section. Our
2023/24 comparative underlying EPS of 70.8 pence per share is estimated based
on the weighted average number of shares of 3,692 million adjusted for 374
million new shares (being the number of New Shares classified as 'bonus
shares' pursuant to IAS33 calculated based on the closing middle-market share
price of £11.275 on 22 May 2024). For 2024/25 all bonus shares will be
included in the EPS calculation along with the pro-rated number of fully
subscribed shares once the proposed Rights Issue completes.

2024/25 FORWARD GUIDANCE

 

This forward guidance is based on our continuing businesses, as defined by
IFRS. It excludes the minority stake in National Gas Transmission which is
classified as held for sale within discontinued operations, but includes the
ESO which is held for sale within continuing operations before it is assumed
to be sold and transferred to the UK Government in this calendar year.

 

The outlook and forward guidance contained in this statement should be
reviewed, together with the forward-looking statements set out in this
release, in the context of the cautionary statement. The forward guidance in
this section is presented on an underlying basis and excludes remeasurements
and exceptional items, deferrable major storm costs (when greater than $100
million), timing and the impact on underlying results of deferred tax in our
UK regulated businesses (NGET and NGED).

UK Electricity Transmission

Underlying net revenue is expected to increase by over £150 million compared
to 2023/24 primarily driven by higher allowances as a result of growing RAV,
including returns on increasing ASTI investment, and indexation. Depreciation
is expected to be up to £50 million higher in the year due to the increasing
asset base.

 

We expect to deliver around 100bps of outperformance in the fourth 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

Underlying net revenue is expected to increase by up to £100 million compared
to 2023/24, driven by allowances on a higher RAV following continued
investment and indexation. Depreciation is expected to offset around half of
this increase, reflecting the increasing asset base.

 

In line with our target, we expect to deliver around 100-125 basis points of
outperformance in the second year of RIIO-ED2 in operational Return on Equity.

UK Electricity System Operator (ESO)

Underlying operating profit is expected to be around a half of 2023/24 as a
result of the expected disposal in the year.

 

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 in the following year.

New England

Underlying net revenue is expected to be over $250 million higher, driven by
rate increases. This is expected to be offset by around $80 million higher
depreciation as a result of the increasing asset base and $70 million other
costs, driven by continued investment and business growth.

 

Return on Equity for New England is expected to be slightly lower than
2023/24, which had a one-off benefit relating to the regulatory recovery of a
historical property tax matter. Excluding the one-off benefits, New England
Return on Equity is expected to modestly improve from 2023/24.

New York

Underlying net revenue is expected to be nearly $450 million higher, including
increases from proposed rate settlements, primarily KEDNY/KEDLI. Depreciation
is expected to be around $100 million higher, reflecting the increasing asset
base, and environmental costs are expected to be around $100 million lower,
driven by reserve increases which occurred in 2022/23.

 

Return on Equity for New York is expected to be marginally improved from
2023/24 because of the KEDNY/KEDLI rate settlement.

NGV and Other activities

In NGV, we expect operating profit to be over £100 million lower than 2023/24
driven by expected lower interconnector revenues.

 

We also expect other activities' underlying operating loss to be greater
year-on-year by around £50 million driven by expected lower returns from our
captive insurance provider where we benefited from unusually low claims in
2023/24.

Joint Ventures and Associates

Our share of the profit after tax of joint ventures and associates is expected
to be around £10 million lower than 2023/24 as a result of lower revenues in
our joint venture interconnectors partially offset by growth in revenues from
renewables projects in our Emerald Joint Venture.

Interest and Tax (continuing operations)

Net finance costs in 2024/25 are expected to be over £100 million lower than
2023/24 as a result of expected favourable movements on inflation linked debt
and variable rate movements. Reduced costs also reflect the expected receipt
of proceeds from the Rights Issue being used to finance our increasing
investment, reducing the need for debt issuances in 2024/25.

 

For the full year 2024/25, the underlying effective tax rate, excluding the
share of post-tax profits from joint ventures and associates, is expected to
be around 15%. This is calculated following the new definition of underlying
earnings which excludes the impact of deferred tax on underlying results of
our UK regulated businesses (NGET and NGED).

Investment, Growth and Net Debt

Overall Group capital investment for continuing operations in 2023/24 is
expected to be around £10 billion.

 

Group Asset Growth is expected to be around 10% reflecting an increase in
investment, predominantly increasing ASTI investment, offsetting lower UK RAV
indexation.

 

Depreciation is expected to increase, reflecting the impact of continued high
levels of capital investment.

 

Operating cash flow generated from continuing operations (excluding
acquisitions, disposals and transaction costs) is expected to decrease by
around 5% compared to 2023/24 principally driven by the impact of ESO's
significant 2023/24 timing over recovery reversing in 2024/25, mostly offset
by increased underlying performance.

 

Net debt is expected to decrease by around £0.5 billion (from £43.6 billion
as at 31 March 2024) at a GBP:USD rate of 1.25, driven by the receipt of
proceeds from the Rights Issue largely financing our continued levels of
significant investment in critical clean energy infrastructure, with
regulatory gearing reducing to the low 60% range. The forecast excludes the
expected sale proceeds from the ESO disposal and the remaining 20% stake in
National Gas Transmission.

 

Weighted average number of shares (WAV) is expected to be approximately 4,688
million in 2024/25. Prior to the impact of the Rights Issue, we expected WAV
to be 3,750 million shares in 2024/25. We are expecting an increase of
approximately 938 million representing the full effect of the bonus element
alongside a pro-rating of the fully subscribed shares. In accordance with
IFRS, the number of fully paid shares are calculated as the number of shares,
at the theoretical ex-rights price, that would generate the proceeds of the
Rights Issue. The bonus shares are then the remaining new shares that are
expected to be issued. We plan to update this Forward Guidance at Half Year
once the Rights Issue has completed.

 

 

FINANCIAL REVIEW

In managing the business, we focus on various non-IFRS measures which provide
meaningful comparisons of performance between years, monitor the strength of
the Group's balance sheet as well as profitability and reflect the Group's
regulatory economic arrangements. Such alternative and regulatory performance
measures are supplementary to, and should not be regarded as a substitute for,
IFRS measures, which we refer to as statutory results. We explain the basis of
these measures and, where practicable, reconcile these to statutory results in
'Alternative performance measures/non-IFRS reconciliations' on pages 84 to
102. 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; (ii) major storm costs which are recoverable in future
periods, where these are in excess of $100 million (in aggregate) in the year;
and (iii) the impact of deferred tax on underlying results in our UK regulated
businesses (NGET and NGED); none of which give rise to economic gains or
losses.

Performance for the year ended 31 March

Financial summary for continuing operations

 (£ million)                                          2023/24   2022/23   change %
 Accounting profit:
 Gross revenue                                        19,850    21,659    (8%)
 Other operating income                               12        989       (99%)
 Operating costs                                      (15,387)  (17,769)  (13%)
 Statutory operating profit                           4,475     4,879     (8%)
 Net finance costs                                    (1,464)   (1,460)   -%
 Share of joint ventures and associates               37        171       (78%)
 Tax                                                  (831)     (876)     (5%)
 Non-controlling interest                             (1)       -         -%
 Statutory IFRS earnings (note 7)                     2,216     2,714     (18%)
 Exceptional items and remeasurements (after tax)     884       (379)     n/m
 Timing and major storm costs (after tax)             (523)     214       n/m
 Deferred tax on underlying profits in NGET and NGED  302       178       n/m
 Underlying earnings(1)                               2,879     2,727     6%
 EPS - statutory IFRS (pence) (note 7)                60.0p     74.2p     (19%)
 EPS - underlying(1)                                  78.0p     74.5p     5%
 Dividend per share                                   58.5p     55.4p     6%
 Dividend cover - underlying(1)                       1.3       1.3       -%

 Economic profit:
 Value Added(1)                                       2,931     4,807     (39%)
 Group RoE(1)                                         8.9%      11.0%     -210bps

 Capital investment and asset growth:
 Capital investment (note 2 (c))(2)                   8,235     7,593     8%
 Asset growth(1)                                      9.7%      11.4%     -170bps

 Balance sheet strength:
 RCF/adjusted net debt (Moody's)(1)                   9.2%      9.3%      -10bps
 Net debt (note 29)                                   43,607    40,973    6%
 Add: held for sale net debt                          (23)      -         n/m
 Net debt (including held for sale)(1)                43,584    40,973    6%
 Group regulatory gearing(1)                          69%       71%       -200bps

1.  Non-GAAP alternative performance measures (APMs) and/or regulatory
performance measures (RPMs). For further details see 'Alternative performance
measures/non-IFRS reconciliations' on pages 84-102. Our definition of
underlying results has been amended in 2023/24 to exclude the impact of
deferred tax on our underlying results in our UK regulated businesses (NGET
and NGED). Comparative amounts have been restated accordingly.

2.  Our definition of capital investment has changed and now aligns with our
statutory measure (see note 2 (c)). Comparative amounts have been restated.

Statutory IFRS earnings from continuing operations were £2,216 million in
2023/24, £498 million (18%) lower than last year (2023: £2,714 million) due
to a variety of different components. Statutory earnings were adversely
impacted by £1,011 million exceptional net charges before tax in 2023/24
(including a £496 million environmental provision in New York and a £498
million provision in UK Electricity System Operator for estimated timing
over-recoveries expected to be transferred through the disposal process in
2024/25), compared with a favourable impact from £935 million exceptional net
gains in the prior year. These were partly offset by £290 million favourable
year-on-year remeasurements of commodity and financial derivatives, £945
million favourable year-on-year revenue timing over-recoveries, the net impact
of tax on all these items, along with an improvement in underlying business
performance for the Group. Statutory EPS for continuing operations of 60.0p
was 14.2p lower than the prior year. The net exceptional charge of £852
million (2023: £619 million net gain) and remeasurement losses of £32
million (2023: £240 million net losses) are explained in further detail in
note 4 to the financial statements.

 

Our 'adjusted' results exclude the impacts from exceptional items and
remeasurements as explained on page 86. In 2023/24, adjusted earnings from
continuing operations were £3,100 million up £765 million, or 33% from the
prior year. Adjusted earnings in 2023/24 included a timing over-recovery after
tax of £688 million (2023: £26 million under-recovery) and major storm costs
(after tax) of £165 million (2023: £188 million). As a result adjusted
operating profit of £5,462 million was up £1,168 million (2023: £4,294
million). Adjusted net finance costs of £1,479 million were £35 million
lower, benefiting from lower inflation. Share of profits from joint ventures
and associates of £101 million was down £89 million related to high
interconnector revenues in the prior year. Adjusted tax of £983 million was
£348 million higher, primarily driven by higher profits and the increase in
the UK corporation tax rate.

 

As explained above, our 'underlying' results exclude the total impact of
exceptional items, remeasurements, timing, major storm costs and deferred tax
in UK regulated businesses (NGET and NGED). A reconciliation between these
alternative performance measures and our statutory performance is detailed on
page 87.

 

Underlying operating profit for continuing operations was up 4% (6% at
constant currency), driven by higher allowed revenues in UK Electricity
Transmission, rate increases in KEDNY/KEDLI and NIMO along with lower
controllable costs in New York, and the benefit of held for sale accounting
treatment within UK Electricity System Operator. Partly offsetting these
factors, UK Electricity Distribution performance was lower, driven by lower
incentives under the ED-2 price control and National Grid Ventures operating
profit was lower as a result of lower revenues at our IFA1 interconnector. New
England profits were broadly comparable, with the prior year including two
months' profit in respect of our Rhode Island business which was disposed in
May 2022. Our joint ventures and associates' contribution reduced (mainly UK
interconnector revenues). Net financing costs were marginally lower as the
impact of inflation on index-linked debt reduced alongside the impact of the
bridge loan held last year as part of our strategic pivot; partly offset by
the impact of higher interest rates. Other interest was adverse year on year.
Underlying profit after tax increased by 6% (7% increase at constant currency)
and resulted in a 5% increase (6% increase at constant currency) in underlying
EPS to 78.0p.

 

Capital investment of £8,235 million was £642 million (8%) higher than
2022/23, or £805 million (11%) higher at constant exchange rates, driven by
increased investment in UK Electricity Transmission, driven by the Accelerated
Strategic Transmission Investment (ASTI) programme, increased capital
expenditure in New York, New England and UK Electricity Distribution, partly
offset by lower investment in National Grid Ventures (following prior year
investment on Viking, Grain LNG and IFA1). Higher capital investment partly
offset by reduced year-on-year RAV indexation from lower inflation resulted in
asset growth of 9.7% in the year (2023: 11.4%).

 

Reconciliation of different measures of profitability and earnings

In calculating adjusted profit measures, where we consider it is in the
interests of users of the financial statements to do so we exclude certain
discrete items of income or expense that we consider to be exceptional in
nature. The table below reconciles our statutory profit measures for
continuing operations, at actual exchange rates, to adjusted and underlying
versions. Further information on exceptional items and remeasurements is
provided in notes 2, 4 and 5.

 

Reconciliation of profit and earnings from continuing operations

                                                      Operating profit          Profit after tax          Earnings per share (pence)
 (£ million)                                          2024       2023           2024       2023           2024            2023
 Statutory results                                    4,475      4,879          2,217      2,714          60.0            74.2
 Exceptional items                                    1,011      (935)          852        (619)          23.1            (16.9)
 Remeasurements                                       (24)       350            32         240            0.9             6.5
 Adjusted results                                     5,462      4,294          3,101      2,335          84.0            63.8
 Timing                                               (915)      30             (688)      26             (18.6)          0.7
 Major storm costs                                    226        258            165        188            4.4             5.2
 Deferred tax on underlying results in NGET and NGED  -          -              302        178            8.2             4.8
 Underlying results                                   4,773      4,582          2,880      2,727          78.0            74.5

 

Discontinued operations

On 31 January 2023, we sold 60% of our interest in the National Gas
Transmission in exchange for £2.2 billion cash consideration and we also
received approximately £2.0 billion from additional debt financing. The 60%
interest in National Gas Transmission was purchased by a consortium of
long-term infrastructure investors which also held an option to acquire our
remaining 40% interest. The consortium partially exercised this option on 11
March 2024 for total consideration of £681 million, reducing our retained
minority interest to 20%. Further details are provided in the 'Assets held for
sale and discontinued operations' note to the financial statements. The
results of our 100% share of this business (including metering) are presented
as discontinued operations for the 10 months fully owned to 31 January 2023.
Both the 100% owned business and the retained minority equity investment have
been classified as a business held for sale. The Group has not applied equity
accounting in relation to the retained interest, resulting in no subsequent
profits being recognised from the date of sale of our 60% interest onwards.

 

Timing over/(under)-recoveries

In calculating underlying profit, we exclude regulatory revenue timing over-
and under-recoveries, major storm costs (defined below) and deferred tax on
underlying results of our UK regulated business (NGET and NGED), also defined
below. Under the Group's regulatory frameworks, most of the revenues we are
allowed to collect each year are governed by regulatory price controls in the
UK and rate plans in the US. If more than this allowed level of revenue is
collected, an adjustment will be made to future prices to reflect this
over-recovery; likewise, if less than this level of revenue is collected, an
adjustment will be made to future prices in respect of the under-recovery.
These variances between allowed and collected revenues and timing of revenue
collections for pass-through costs give rise to 'timing' over- and
under-recoveries.

 

The following table summarises management's estimates of such amounts for the
two years ended 31 March 2024 for continuing and discontinued operations. All
amounts are shown on a pre-tax basis and, where appropriate, opening balances
are restated for exchange adjustments and to correspond with subsequent
regulatory filings and calculations, and are translated at the 2023/24 average
exchange rate of $1.26:£1.

 Timing over/(under)-recoveries
 (£ million)                                              2024  2023(1)
 Balance at start of year (restated)                      39    (60)
 In-year (under)/over-recovery - continuing operations    915   (30)
 In-year (under)/over-recovery - discontinued operations  -     12
 Disposal of UK Gas Transmission/NECO                     -     131
 Balance at end of year                                   954   53

1.  March 2023 balances restated to correspond with 2022/23 regulatory
filings and calculations.

 

In 2023/24, we experienced timing over-recoveries of £363 million in UK
Electricity Transmission, under-recoveries of £159 million in UK Electricity
Distribution, over-recoveries of £800 million in UK Electricity System
Operator (BSUoS revenues have been significantly more than system balancing
costs following the introduction of fixed price tariffs), under-recoveries of
£69 million in New England, and under-recoveries of £20 million in New York.
In calculating the post-tax effect of these timing recoveries, we impute a tax
rate based on the regional marginal tax rates, consistent with the relative
mix of UK and US balances.

Major storm costs

We also take account of the impact of major storm costs in the US where the
aggregate amount is sufficiently material in any given year. Such costs (net
of certain deductibles and allowances) are recoverable under our rate plans
but are expensed as incurred under IFRS. Accordingly, where the net total cost
incurred exceeds $100 million in any given year, we exclude the net costs from
underlying earnings. In 2023/24, we incurred deferrable storm costs, which are
eligible for future recovery of $285 million (2023: $314 million).

Deferred tax in UK regulated businesses

We also exclude deferred tax in our UK regulated businesses (NGET and NGED).
In the 2023 Spring budget, the UK government introduced 'full expensing' tax
relief for qualifying capital expenditure to encourage greater levels of
investment from businesses. This change became permanent in November 2023. To
represent underlying profitability more closely aligned to our regulatory
agreements, and to align with UK peers, we will now report underlying earnings
and underlying EPS excluding the impact of deferred tax in our UK regulated
businesses (NGET and NGED). This change in calculation of underlying results
has been applied to comparative periods. In 2023/24, we excluded £302 million
(2023: £178 million) of deferred tax charges from our underlying results.

 

Segmental income statement

The tables below set out operating profit on adjusted and underlying bases,
both of which exclude the gain of £4.8 billion on the disposal of our UK Gas
Transmission business in 2022/23.

                                                             Adjusted results                Underlying results
 (£ million)                                                 2024     2023     change %      2024     2023(1)  change %
 UK Electricity Transmission                                 1,677    995      69            1,314    1,107    19
 UK Electricity Distribution                                 993      1,091    (9)           1,152    1,230    (6)
 UK Electricity System Operator                              880      238      270           80       31       158
 New England                                                 643      708      (9)           802      819      (2)
 New York                                                    860      741      16            1,016    874      16
 National Grid Ventures                                      469      490      (4)           469      490      (4)
 Other activities                                            (60)     31       (294)         (60)     31       (294)
 Total operating profit                                      5,462    4,294    27            4,773    4,582    4

 - continuing
 Net finance costs                                           (1,479)  (1,514)  (2)           (1,479)  (1,514)  (2)
 Share of post-tax results of joint ventures and associates  101      190      (47)          101      190      (47)
 Profit before tax - continuing                              4,084    2,970    37            3,395    3,258    4
 Tax - continuing                                            (983)    (635)    55            (515)    (531)    (3)
 Profit after tax - continuing                               3,101    2,335    33            2,880    2,727    6
 Earnings per share (pence)                                  84.0     63.8     32            78.0     74.5     5

 - continuing

1.  Prior year comparatives have been restated to reflect the change in our
underlying earnings definition to remove the deferred tax in UK regulated
businesses (NGET and NGED).

 

Statutory operating profit decreased in the year, primarily as a result of
exceptional net charges of £1,011 million in 2023/24 (compared with
exceptional net gains of £935 million in 2022/23). This was partly offset by
£945 million favourable year-on-year movements in timing net over-recoveries,
£374 million favourable year-on-year movements in commodity derivative
remeasurements, improved underlying performance in UK Electricity
Transmission, New York, and New England (once the impact of Rhode Island
disposal in 2022/23 is considered), a UK Electricity System Operator
accounting benefit (no depreciation following classification as held for
sale), but lower property sales in 'Other activities' than 2022/23. Excluding
exceptional items and remeasurements, adjusted operating profit increased by
£1,168 million (27%) or 29% on a constant currency basis. Major storm costs
were £32 million lower than the prior year. The reasons for the movements in
underlying operating profit are described in the Business Review.

 

Financing costs, share of post-tax joint ventures and associates and taxation
- continuing

Net finance costs

Net finance costs (excluding derivative remeasurements) for the year were 2%
lower than last year at £1,479 million, with the £35 million reduction
driven by a lower accretion charge on our index linked debt, the impact of the
bridge facility held last year to complete the strategic pivot which was
repaid in 2022/23, offset by the impact of higher interest rates on
refinancing completed in the current year (including higher interest costs in
our US businesses). Other interest was adverse year-on-year reflecting higher
discount unwind on provisions offset by higher pensions related interest. The
effective interest rate for continuing operations of 4.2% is 20bps lower than
the prior year rate.

 

Joint ventures and associates

The Group's share of net profits from joint ventures and associates on a
statutory basis decreased by £134 million. Of this decrease, £45 million
relates to year-on-year derivative remeasurement losses in our NG Renewables
joint venture. On an adjusted basis, the share of net profits from joint
ventures and associates decreased by £89 million compared with 2022/23,
mostly reflecting lower BritNed revenues driven by lower auction prices.

 

Tax

The statutory tax charge for continuing operations was £831 million (2023:
£876 million) including the impact of tax on exceptional items and
remeasurements of £152 million credit (2023: £241 million charge). The
adjusted tax charge for continuing operations was £983 million (2023: £635
million), resulting in an effective tax rate for continuing operations
(excluding profits from joint ventures and associates) of 24.7% (2023: 22.8%).

 

Our underlying tax (a non-GAAP measure) takes our adjusted tax charge and
further excludes the tax impacts on timing and major storm costs and deferred
tax in our UK regulated businesses (NGET and NGED). The underlying tax charge
for the year was £515 million (2023: £531 million).

 

The underlying effective tax rate (excluding joint ventures and associates) of
15.6% was 170bps lower than last year (2023: 17.3%). This reflects a lower UK
tax charge in 2023/24 primarily due to more capital expenditure qualifying for
full expensing in 2023/24 than qualified for super-deductions in 2022/23,
offset by the increase in the UK corporation tax rate.

 

 

Cash flow, net debt and funding

Net debt is the aggregate of cash and cash equivalents, borrowings, current
financial and other investments and derivatives (excluding commodity contract
derivatives) as disclosed in note 11 to the financial statements. 'Adjusted
net debt' used for the RCF/adjusted net debt calculation is principally
adjusted for pension deficits and hybrid debt instruments. For a full
reconciliation see page 93. The following table summarises the Group's cash
flow for the year, reconciling this to the change in net debt.

 Summary cash flow statement
 (£ million)                                                                 2024      2023      change %
 Cash generated from continuing operations                                   7,281     6,432     13
 Cash capital investment (net of disposals and exceptional insurance         (7,588)   (7,167)   (6)
 recoveries)
 Disposal of Millennium                                                      -         497       (100)
 Dividends from JVs and associates                                           176       190       (7)
 Business net cash (outflow)/inflow from continuing operations               (131)     (48)      n/m
 Net interest paid                                                           (1,479)   (1,365)   (8)
 Net tax paid                                                                (342)     (89)      n/m
 Cash dividends paid                                                         (1,718)   (1,607)   (7)
 Other cash movements                                                        16        17        (6)
 Net cash outflow (continuing)                                               (3,654)   (3,092)   (18)
 Disposal of UK Gas Transmission and Metering and NECO(1)                    681       6,995     (90)
 Discontinued operations                                                     102       (9)       n/m
 Repayment of bridge loan to acquire National Grid Electricity Distribution  -         (8,200)   100
 Other, including net financing raised in year                               3,298     4,271     (23)
 Increase/(decrease) in cash and cash equivalents                            427       (35)      n/m

 Reconciliation to movement in net debt
 Increase/(decrease) in cash and cash equivalents                            427       (35)      n/m
 Repayment of bridge loan to acquire National Grid Electricity Distribution  -         8,200     (100)
 Less: other net cash flows from investing and financing transactions        (3,298)   (4,271)   23
 Net debt reclassified to held for sale                                      (23)      -         n/m
 Impact of foreign exchange movements on opening net debt                    466       (1,293)   n/m
 Other non-cash movements                                                    (206)     (765)     73
 (Increase)/decrease in net debt                                             (2,634)   1,836     n/m
 Net debt at start of year                                                   (40,973)  (42,809)  4
 Net debt at end of year                                                     (43,607)  (40,973)  (6)

1.  Cash proceeds of £3,081 million for NECO and £4,032 million for UK Gas
Transmission, less balance of cash and cash equivalents disposed with these
businesses.

 

Cash flow generated from continuing operations was £7.3 billion, £0.8
billion higher than last year, mainly due to timing over-recoveries (primarily
in UK Electricity System Operator as a consequence of BSUoS revenues being
higher than system balancing costs) and also higher revenues in UK Electricity
Transmission and New York compared with 2022/23. These factors were partly
offset by adverse year-on-year working capital movements (driven by higher
payables at March 2023) and higher spend on provisions. Cash expended on
investment activities increased as a result of continued growth in our
regulated businesses (including prepayments of capital investment on ASTI
offshore projects in UK Electricity Transmission). The £7.6 billion (2023:
£7.2 billion) outflow is net of insurance recoveries related to the rebuild
of the IFA1 interconnector in the UK. The disposal of our Millennium Pipeline
investment in October 2022 also generated £497 million of proceeds in
2022/23.

 

Net interest paid increased as a result of a higher average level of net debt
and increased interest rates on borrowings. The Group made net tax payments of
£342 million (2023: £89 million) for continuing operations during 2023/24.
This increase mainly related to higher taxable profits driven by
over-recovered revenues in the UK Electricity System Operator. Prior year cash
tax was also reduced by the offset of tax losses against gains on the sale of
NECO and Millennium alongside refunds received in respect of US tax
settlements for historical years.

 

The higher cash dividend of £1,718 million reflected a higher dividend per
share due to the annual inflationary increase, partly offset by a higher scrip
uptake of 18% (2023: 15%).

 

In 2022/23, we completed the sale of NECO for £3,081 million and the sale of
60% of the UK Gas Transmission and metering business for proceeds of £4,032
million. In 2023/24 we sold a further 20% interest in UK Gas Transmission for
£681 million and received a dividend payment of £102 million in discontinued
operations. Non-cash movements primarily reflect changes in the
sterling-dollar exchange rate, accretions on index-linked debt, lease
additions and other derivative fair value movements, offset by the
amortisation of fair value adjustments on acquired debt.

 

The Board has considered the Group's ability to finance normal operations as
well as funding a significant capital programme. This includes stress testing
of the Group's finances under a 'reasonable worst-case' scenario, assessing
the timing of the sale of businesses held for sale and the further levers at
the Board's discretion to ensure our businesses are adequately financed. As a
result, the Board has concluded that the Group will have adequate resources to
do so.

FINANCIAL STRENGTH

Our overall Group credit rating remains at a strong investment grade level,
BBB+/Baa1 with stable outlook

During the year we raised £5.6 billion of new long-term senior debt to
refinance maturing debt and to fund a portion of our significant capital
programme. In 2022/23, the £8.2 billion bridge financing facility to fund the
purchase of the UK Electricity Distribution business was fully repaid
following receipt of proceeds from the sales of NECO and a 60% stake in our UK
Gas Transmission and Metering business.

 

As at 22 May 2024, we have £7.9 billion of undrawn committed facilities
available for general corporate purposes, all of which have expiry dates
beyond May 2025. National Grid's balance sheet remains robust, with strong
overall investment grade ratings from Moody's, Standard & Poor's (S&P)
and Fitch.

 

Regulatory gearing, measured as net debt as a proportion of total regulatory
asset value and other business invested capital reduced in the year to 69% as
at 31 March 2024. This was lower than the previous year end level of 71%, with
benefits from £0.9 billion in-year timing over-recoveries and the £0.7
billion proceeds from the sale of a further 20% stake in National Gas
Transmission. Taking into account the benefit of our hybrid debt, adjusted
gearing as at 31 March 2024 was 67%.

 

Retained cash flow as a proportion of adjusted net debt was 9.2%. We remain
committed to maintaining the current strong overall investment grade credit
rating for the Group. National Grid currently has strong investment grade
credit ratings across almost all of its major operating companies, as well as
senior unsecured debt ratings at the holding company, National Grid plc, at
Baa2/BBB levels from each of Moody's, S&P and Fitch. We consider these
ratings optimise our cost of capital and deliver appropriate access to capital
markets. We expect to maintain credit metrics above our thresholds for our
current group credit ratings through to the end of the RIIO-T3 price control
period, with thresholds of 10% for S&P's FFO/adjusted net debt, and 7% for
Moody's RCF/adjusted net debt.

Dividend increase of 5.55% recommended for 2023/24

The Board has recommended an increase in the final dividend to 39.12p per
ordinary share ($2.4939 per American Depository Share), which will be paid on
19 July 2024 to shareholders on the register of members as at 7 June 2024. If
approved, this will bring the full-year dividend to 58.52p per ordinary share,
an increase of 5.55% over the 55.44p per ordinary share in respect of the
financial year ended 31 March 2023. This is in line with the increase in
average UK CPIH inflation for the year ended 31 March 2024 as set out in our
dividend policy.

 

Going forward, and following the rebasing of the 2023/24 dividend per share
(DPS) following the Rights Issue, the Board will aim to grow annual DPS in
line with UK CPIH, thus maintaining the DPS in real terms. The Board will
review this policy regularly, taking into account a range of factors including
expected business performance and regulatory developments.

 

At 31 March 2024, National Grid plc had £12.5 billion of distributable
reserves, which is sufficient to cover more than five years of forecast Group
dividends. If approved, the final dividend will absorb approximately £1,455
million of shareholders' funds. The 2023/24 dividend is covered approximately
1.3x by underlying earnings.

 

The Directors consider the Group's capital structure at least twice a year
when proposing an interim and final dividend and aim to maintain distributable
reserves that provide adequate cover for dividend payments.

 

A scrip dividend alternative will again be offered in respect of the 2023/24
final dividend.

GROWTH AND VALUE ADDED

A balanced portfolio to deliver asset and dividend growth

National Grid seeks to create value for shareholders through developing a
balanced portfolio of businesses that offer an attractive combination of asset
growth and cash returns.

Strong organic growth driven by critical investment

In 2023/24, the Group achieved asset growth of 9.7% driven by our capital
investment programme alongside RAV indexation. This investment continued our
focus on building and maintaining world-class networks that are safe,
reliable, resilient and ready for the future. It is specifically focused on
our regulated businesses, with the objective of upgrading and modernising
ageing infrastructure, in both the UK and US, to meet the changing needs of
customers and to drive the decarbonisation of energy supply.

 

In 2024/25, we expect Group capital investment to be around £10 billion for
continuing operations.

 

We are confident that this high-quality growth will continue to generate
attractive returns for shareholders and add to our long-term investment
proposition of sustainable asset and income growth.

£8.2 billion of capital investment for continuing operations in 2023/24, 8%
higher at actual exchanges rates (11% higher at constant currency)

We continued to make significant investments in critical energy infrastructure
during 2023/24. Total capital investment for continuing operations across the
Group was £8,235 million, an increase of £642 million, 8% (or 11% at
constant currency) compared to the prior year.

 

 Capital investment
 Year ended 31 March (£ million)                             At actual exchange rates             At constant currency
                                                             2024       2023¹      % change       2024     2023¹    % change
 UK Electricity Transmission                                 1,912      1,301      47%            1,912    1,301    47%
 UK Electricity Distribution                                 1,247      1,220      2%             1,247    1,220    2%
 UK Electricity System Operator                              85         108        (21%)          85       108      (21%)
 New England (including NECO)                                1,673      1,527      10%            1,673    1,470    14%
 New York                                                    2,654      2,454      8%             2,654    2,363    12%
 National Grid Ventures                                      662        970        (32%)          662      955      (31%)
 Other¹                                                      2          13         (85%)          2        13       (85%)
 Total capital investment - continuing                       8,235      7,593      8%             8,235    7,430    11%
 UK Gas Transmission                                         -          301        (100%)         -        301      (100%)
 Total capital investment - continuing and discontinued      8,235      7,894      4%             8,235    7,731    7%

1.  Comparative amounts have been represented to reflect the reclassification
of our US LNG operations from New England to NGV following an internal
reorganisation in the year and the change in presentation for capital
investments.

 

Capital investment represents additions to property, plant and equipment,
prepayments to suppliers to secure production capacity in relation to our
capital projects, non-current intangibles and additional equity investments in
joint ventures and associates. Segmental information used for internal
decision making was revised in the year to include the capital expenditure
prepayments and additional equity investments in joint ventures and
associates. Accordingly, comparative information for the year ended 31 March
2023 has been re-presented to reflect the change in the Group's segmental
measure in the year.

 

Capital investment in UK Electricity Transmission increased by £611 million
compared with 2022/23 primarily due to increased expenditure in respect of
ASTI projects (including capacity payments made to secure the supply chain)
and additional spend in customer connections and asset operations. UK
Electricity Distribution increased by £27 million primarily due to additional
asset health funding in ED-2, including overhead line clearance, growth in
connections partly offset by lower reinforcement capital expenditure. In New
England, capital investment increased by £146 million (£203 million increase
on a constant currency basis) primarily due to higher electric capital
investment driven by transmission asset conditioning and higher gas investment
driven by the Gas System Enhancement Plan (GSEP - our programme to accelerate
the replacement of leak-prone pipe (LPP) across our gas business). In New
York, capital investment was £200 million higher (£291 million higher at
constant currency), primarily due to increased electricity network
reinforcement (driven by the Smart Path Connect and CLCPA programmes) as well
as higher gas capital investment driven by main replacement work including
leak prone pipe and system integrity work. Capital investment in NGV decreased
by £308 million (£293 million lower at constant currency) following the
higher capital investment last year on largely completed projects during
2022/23.

 

In discontinued operations, UK Gas Transmission capital investment in the
prior year of £301 million represented capital investment prior to disposal
of the business in January 2023.

Achieved asset growth of 9.7% compared to 11.4% last year

During 2023/24, our combined regulated asset base and NGV and Other business
assets increased by £5,598 million. UK RAV increased 7.3% including the
impact of higher CPI inflation on RAV indexation, partly offset by RAV
depreciation. The US rate base grew strongly by 11.5% during the year. NGV and
Other businesses increased as a result of ongoing capital investment.

 

For detailed calculations of asset growth see pages 100 to 101.

 

 Assets
 Year ended 31 March (£ million at constant currency)       2024    2023    % change
 UK RAV                                                     30,356  28,292  7.3%
 US rate base                                               25,097  22,517  11.5%
 Total RAV and rate base                                    55,453  50,809  9.1%
 NGV and Other businesses                                   7,593   6,639   14.4%
 Total                                                      63,046  57,448  9.7%

Value Added of £2,931 million impacted by lower inflation on UK RAV
indexation

Value Added, which reflects the key components of value delivery to
shareholders (i.e. dividend and growth in the economic value of the Group's
assets, net of growth in net debt), was £2.9 billion in 2023/24. This was
lower than last year's £4.8 billion, principally driven by lower RAV
indexation in UK Electricity Transmission and UK Electricity Distribution, and
lower National Grid Ventures and Other profits. Of the £2.9 billion Value
Added, £1.7 billion was paid to shareholders as cash dividends and £1.2
billion was retained in the business. Value Added per share was 79.4p compared
with 131.4p in 2022/23. Value Growth is normalised for long-run inflation
assumptions by adjusting Value Added for the difference between actual
experienced inflation on UK RAV indexation and index-linked debt and the
equivalent movements at a long-run assumed inflation rate of 2% CPIH or 3%
RPI, and dividing this result by the equity base used to calculate Group RoE
(at closing exchange rates). Value Growth was 9.5% compared with 12.4% in
2022/23. For detailed calculations of Value Added see pages 100 to 101.

BUSINESS REVIEW

In addition to IFRS based profit measures, National Grid calculates a number
of additional regulatory performance metrics to aid understanding of the
performance of the regulated businesses. These metrics aim to reflect the
impact of performance in the current year on future regulatory revenue
allowances. This includes the creation of future regulatory revenue adjustment
balances and the impact of current year performance on the regulated asset
base. These metrics also seek to remove the impacts on current year revenues
relating to 'catch up' or 'sharing' of elements of prior year performance, for
example the sharing of prior year efficiencies with customers.

 

These metrics include Return on Equity, Regulated Financial Performance and
Regulated Asset Value or Regulated Rate Base. Further detail on these is
provided on pages 93 to 101.

 Year ended 31 March          Regulatory Debt:        Achieved                  Base or Allowed

                              Equity assumption       Return on Equity          Return on Equity
 %                                                    2024       2023           2024       2023
 UK Electricity Transmission  55/45                   8.0        7.5            7.0        6.3
 UK Electricity Distribution  60/40                   8.5        13.2           7.4        9.6
 UK Gas Transmission          60/40                   -          7.8            -          6.6
 New England(1)               Avg. 45/55              9.2        8.3            9.9        9.9
 New York                     Avg. 52/48              8.5        8.6            8.9        8.9
 Group Return on Equity                               8.9        11.0           n/a        n/a

1.  Figure for 2023 excludes NECO.

 

 As at 31 March                      RAV, Rate Base or other business assets         Total regulated and other balances(1)
 (£ million, at constant currency)   2024                  2023                      2024                 2023
 UK Electricity Transmission         18,462                17,150                    17,940               17,009
 UK Electricity Distribution         11,469                10,787                    11,611               10,776
 UK Electricity System Operator      425                   355                       (452)                277
 New England(2)                      8,710                 7,728                     10,565               9,852
 New York                            16,387                14,789                    17,425               15,818
 Total regulated                     55,453                50,809                    57,089               53,732
 NGV and Other balances              7,593                 6,639                     7,213                6,735
 Group regulated and other balances  63,046                57,448                    64,302               60,467

1.  March 2023 balances restated for opening balance adjustments to
correspond with 2022/23 regulatory filings and calculations.

2.  Figure for 2023 excludes NECO.

 

UK ELECTRICITY TRANSMISSION

Operational highlights

In 2023/24, we achieved excellent operational performance, maintaining our
world-class record for reliability. Despite extensive flooding during the
winter, and 13 named storms, we achieved a network reliability of 99.999998%
during the year.

 

Capital investment reached £1,912 million across our UK ET network, up 47%
from the prior year as part of our expected £11 billion capital investment
over the RIIO-T2 regulatory period (2021-2026). This was driven by over £400
million on investment in our early ASTI projects, including over £180 million
to secure supply chain contracts for the EGL1 and EGL2 projects. In addition,
higher capital investment was driven by additional spend in customer
connections and asset health expenditure. For further information on our ASTI
projects, please refer to page 8 in the Strategic Overview section.

Enabling the energy transition for all

Our capital delivery has remained strong in 2023/24. During the year, we
connected 2,970 MW of generation and 314 MVA of demand capacity to the
network, including the first 1,200 MW phase of the world's largest offshore
wind farm at Dogger Bank, and the UK's first transmission connected solar
farm, Larks Green (70 MW). We also reached significant milestones on our major
in-flight projects, notably the installation of overhead lines on all 116 new
T-pylons as part of the Hinkley Connection Project, and the final tunnelling
breakthrough on our £1 billion London Power Tunnels 2 (LPT2) project.

 

Alongside connecting green energy to the network, we remain committed to
reducing our SF(6) emissions by 50% by 2030. Whilst we fell slightly short of
meeting our 2023/24 SF(6) target for UK ET (232 ktCO(2)e versus a target of
228 ktCO(2)e), we have identified a number of actions to repair top leaking
assets in 2024/25 and set out a plan to achieve our 2030 ambitions. We have
also collaborated closely with suppliers and universities and successfully
trialled innovative leak repair technology, enabling us to avoid outages and
keep electricity flowing whilst we work.

Delivering for our customers efficiently

UK ET delivered £17 million of efficiency and synergy savings in 2023/24,
driven by leveraging the opportunities provided by the acquisition of the UK
ED business.

 

Against the backdrop of a rapidly growing pipeline of customers looking to
connect to the transmission network, our extensive engagement with Ofgem, the
Department for Energy Security & Net Zero (DESNZ) and NESO has helped
drive significant progress on connections reform in support of the Connections
Action Plan (CAP). New queue management arrangements will ensure projects meet
contractual milestones or face being removed to make way for connection-ready
schemes. Our collaborative work with distribution networks is unlocking
significant capacity for regional connections and updated approaches to the
treatment of storage is enabling the acceleration of connections at
transmission and distribution level. We will continue advocating for further
reform in 2024/25 (for further information on connections reform please refer
page 12 in the Strategic Overview section).

Growing our organisational capability

Our Transmission Network Control Centre (TNCC) has played an important role in
ensuring network reliability over the last decade. With more sources of energy
generation and demand connecting to our network, and a need to stay at the
cutting edge of cyber protection, we are building a new Electricity
Transmission Control Centre (ETCC). The new facility will use a state of the
art, purpose-built integrated network control system (SCADA) and bring
together security, cyber and transmission network control functions ready for
the low-carbon energy future.

 

We have transformed our procurement processes and collaborating more closely
than ever with our supply chain so that we can deliver our ASTI and other
major projects at pace. To leverage the full capabilities of our supply chain,
we have established a collaborative and integrated HVDC Framework and
Enterprise Delivery Model. The HVDC framework secures offshore supply chains,
while our enterprise delivery model addresses onshore constraints. These
arrangements are based on long-term relationships and incentivised outputs,
giving us quicker access to our supply chain in a constrained market. For
further information, please refer to page 8 in the Strategic Overview section.

Empowering colleagues for greater performance

Our combined (employee and contractor) Lost Time Injury rate was 0.14 for
2023/24 - 0.08 for employees, and 0.19 for contractors. The majority (73%) of
incidents were from our contractors, reflecting that we deliver our capital
construction works through our contractors, not our direct labour force. We
are continuing to work with contractors to drive through the required
improvements in their performance. Behavioural safety is key to making the
next step in our safety maturity and we have developed and rolling out our
behavioural safety programme, 'Safe Choices for All', designed to improve
safety by addressing the root causes of unsafe behaviour.

 

For further examples of progress against each of our pillars, please refer to
page 32 of our 2023/24 Annual Report and Accounts.

Operating profit in 2023/24

UK Electricity Transmission statutory operating profit was £681 million
higher in the year. In 2023/24, there were £2 million of exceptional costs
related to our cost-efficiency programme (2023: £2 million) and integration
costs of £1 million (2023: £nil). Timing over-recoveries of £363 million in
2023/24 compared with £112 million under-recoveries in 2022/23. This is
mainly due to a favourable net impact of capital allowances, lower
under-collections of Transmission Network Use of System (TNUoS) revenues
driven by lower volumes and the impact of higher inflation in the prior year,
an over-recovery of pass-through costs and higher recovery of prior period
balances compared with 2022/23.

 

Adjusted operating profit increased by £682 million (69%), but this was
primarily driven by £475 million of favourable year-on-year timing movements.
Underlying operating profit increased by 19%. Underlying net revenues were
£265 million (14%) higher principally from the impact of last year's revenue
reduction related to the return of £147 million for Western Link liquidated
damages (received in earlier years), alongside higher revenues from continued
investment growth and RAV indexation.

 

Regulated controllable costs were £7 million (3%) higher from the impact of
inflationary and workload increases mostly offset by efficiency savings. Other
costs were higher, mainly relating to profit from sale of assets in the prior
year and an increase in higher network innovation allowance costs.

 

The higher depreciation and amortisation principally reflects a higher asset
base as a result of continued investment.

 

 UK Electricity Transmission
 (£ million)                    2024     2023   % change
 Revenue                        2,735    1,987  38
 Operating costs                (1,061)  (994)  7
 Statutory operating profit     1,674    993    69
 Exceptional items              3        2      50
 Adjusted operating profit      1,677    995    69
 Timing                         (363)    112    n/m
 Underlying operating profit    1,314    1,107  19

 Underlying net revenue         2,147    1,882  14
 Regulated controllable costs   (248)    (241)  3
 Post-retirement benefits       (38)     (31)   23
 Other operating costs          (26)     (19)   37
 Depreciation and amortisation  (521)    (484)  8
 Underlying operating profit    1,314    1,107  19
 Timing                         363      (112)  n/m
 Adjusted operating profit      1,677    995    69

 

 

Return on Equity

RoE for the year, normalised for a long-run CPIH inflation rate of 2%, was
8.0%. This includes 100bps of totex outperformance, principally reflecting
delivery of capital projects in RIIO-T2 including Protection and Control work,
Harker Super Grid Transformer replacement, and generation connections. The
principal components of RoE are shown in the table below:

 Year ended 31 March                                    2024   2023
 Base return (including avg. 2% long-run inflation)(1)  7.0    6.3
 Totex incentive mechanism(2)                           1.1    1.1
 Other revenue incentives                               (0.1)  0.1
 Return including in year incentive performance         8.0    7.5
 Pre-determined additional allowances and other income  -      -
 Return on Equity                                       8.0    7.5

1.  Assuming regulatory gearing at 55%.

2.  Excludes impact of exceptional restructuring costs (post sharing)

 

For Regulated Financial Performance, please refer to page 94.

Regulated Financial Position up 6%

In the year, RAV grew by 8% driven by ongoing investment coupled with RAV
indexation (3.8% 2023/24 versus 8.9% 2022/23).

 

                                                              2024     2023
 Opening Regulated Asset Value (RAV)                          17,150   15,471
 Asset additions (slow money) - actual                        1,660    1,180
 Performance RAV or assets created                            68       68
 Inflation adjustment (actual CPIH)                           658      1,373
 Depreciation and amortisation                                (1,074)  (1,020)
 Closing RAV                                                  18,462   17,072

 Opening balance of other regulated assets and (liabilities)  (159)    (268)
 Movement                                                     (363)    108
 Closing balance                                              (522)    (160)

 Closing Regulated Financial Position                         17,940   16,912

 

 

UK ELECTRICITY DISTRIBUTION

Operational highlights

In 2023/24, we achieved excellent operational performance with a network
reliability of 99.99261%.

 

The start of RIIO-ED2 has marked a new phase of capital delivery. In the first
year of the price control we are on track to deliver our £7.5 billion
investment programme across the ED2 regulatory period, along with our core
business plan commitments. In 2023/24, we invested £1,247 million in our UK
Electricity Distribution network, up 2% from the prior year. This increase was
driven principally by additional workload funding in RIIO-ED2, specifically
for asset replacement and non-operational capex (including IT and vehicles)
and growth in connecting new customers, particularly renewables, to the grid
network.

 

Our larger capital investment projects remain on track, including the £65
million Hinkley Point connection to link the new nuclear power station and UK
Electricity Transmission's 400 kV circuit between Bridgwater and Seabank. The
vast majority of works are now complete and UK Electricity Transmission has
taken on the responsibility for the works at Seabank. The project is expected
to complete in 2024.

 

During the year, we saw 13 named storms across the network, a notable increase
compared to an average of six storms over the past five years. During the four
major storms impacting our region, the business saw 878 faults impacting over
126,549 customers. With the prompt deployment of field resources, including a
fleet of five helicopters, we were able to restore 126,445 customers within 24
hours and only 104 customers were not restored within the guaranteed
timeframes.

Enabling the energy transition for all

Working with the ESO, Ofgem and the UK Government, we released 10 GW of
capacity in our network during the year to help accelerate projects in the
connections pipeline. This is part of our work with the Energy Networks
Association (ENA) to find innovative solutions to speed up the connection of
low-carbon technologies to the grid network. For further information on
reforms to the connections pipeline process, please refer to page 12 in the
Strategic Overview section.

 

We are committed to lower cost energy transition options such as flexibility
services. In 2023/24, we maintained our position as the largest flexibility
provider in the UK with 846 MW flexibility contracted to date, an increase of
11% on the prior year. In addition to the existing sources of flexibility, we
have been investigating the potential for customers to flex their power
requirements for heat pumps with our EQUINOX project, an innovative trial that
will enable distribution network operators to unlock flexibility from
residential electric heat pumps to help reduce electricity usage. Our first
successful trials won the Heat Pump Project of the year award at the 2023
H&V News Awards. Building on this, we have now expanded the trial by
enrolling over 1,000 customers in the next phase of testing. As part of our
pledge to promote net zero in communities we serve, a school in
Gloucestershire has become the first to install solar panels with funding from
us.

Delivering for our customers efficiently

The Group has delivered £39 million of Electricity Distribution synergy totex
benefits to date, keeping us on track to deliver our £100 million target over
three years. These synergies have come through procurement strategy and
management, reviewing how we run and operate the 48 sites we share with UK ET
and operational delivery, and aligning with wider Group functions (including
IT, insurance and pensions). We have also tested how UK ED can collaborate
with UK ET moving forward and have launched a programme to align the
investment plans and joint ways of working of both business units.

 

We also maintained a high level of customer satisfaction with a score of 9/10,
managing to achieve a net reward despite tougher targets in the first year of
RIIO-ED2.

 

We have continued to digitalise the connection journey for our customers,
extending our programme to other Low Carbon Technologies (LCT) after a
successful implementation of our self-serve online tool for EV charger
applications last year. We made over 80,000 LCT connections during the year,
with 89% of direct enquiries approved on the same day. We have implemented
changes to our license through the Network Access Significant Code Review,
allowing networks to pick up a greater proportion of reinforcement costs for
both demand and generation, lowering connection costs for customers.

 

Growing our organisational capability

We have mobilised our new operating model, building on the strength of our
local delivery expertise through the introduction of critical central planning
functions of Customer Excellence, Distribution System Operator (DSO) and Asset
Management. This will ensure we are well placed to meet the predicted changes
in requirements and future increases in customer demand. As part of this, we
have introduced an independent DSO Panel, which is progress against our
commitments to enable efficient and transparent governance within our
functionally separate DSO. The panel is made up of industry experts
representing a broad range of stakeholder views to strategically scrutinise
the DSO outputs.

Empowering colleagues for great performance

In response to feedback from previous employee surveys, we performed a
complete review of our communication channels and styles to ensure that there
is a more effective two-way dialogue across the business. As a result, the
2023 employment survey saw a 12-point improvement in engagement scores. We
have also continued to focus on our 'Safe to say' initiative launched last
year. This includes improving the number of channels through which staff can
be empowered to flag concerns and offer ideas. Our 2023 'Safe to say' scores
saw an increase of 11%.

 

For further examples of progress against each of our pillars, please refer to
page 33 of our 2023/24 Annual Report and Accounts.

Operating profit in 2023/24

UK Electricity Distribution statutory operating profit was £94 million lower
in the year, reflecting lower incentives under RIIO ED-2 price control that
commenced this financial year, mainly driven by changes in the incentive
regime compared with RIIO ED-1.

 

In 2023/24, there were £18 million of exceptional costs related to the
integration of the business into the wider Group (2023: £22 million).
Adjusted operating profit reduced by 9% including the impact of £20 million
adverse year-on-year timing movements. Timing under-recoveries of £159
million in 2023/24 are mainly due to an under-recovery for inflation true-ups
and the return of prior period balances.

 

Underlying operating profit reduced by £78 million (6%). Underlying net
revenues were £45 million lower than the prior year due to lower incentives
under RIIO ED-2, lower engineering recharge revenue and lower Smart Metering
sales, partly offset by the impact of higher inflation.

 

Regulated controllable costs were £35 million (15%) higher than the prior
year from the impact of inflationary and workload increases, partly offset by
efficiencies achieved.

 

Depreciation and amortisation remains in line with the prior year with the
impact of increasing asset base offset by other fair value movements.

 

 UK Electricity Distribution
 (£ million)                    2024   2023   % change
 Revenue                        1,795  2,045  (12)
 Operating costs                (820)  (976)  (16)
 Statutory operating profit     975    1,069  (9)
 Exceptional items              18     22     (18)
 Adjusted operating profit      993    1,091  (9)
 Timing                         159    139    n/m
 Underlying operating profit    1,152  1,230  (6)

 Underlying net revenue         1,721  1,766  (3)
 Regulated controllable costs   (270)  (235)  15
 Post-retirement benefits       (20)   (24)   (17)
 Other operating costs          (56)   (54)   4
 Depreciation and amortisation  (223)  (223)  -
 Underlying operating profit    1,152  1,230  (6)
 Timing                         (159)  (139)  n/m
 Adjusted operating profit      993    1,091  (9)

 

 

Return on Equity above base levels

In 2023/24, the first year of RIIO-ED2, RoE was 8.5%. This includes 110bps
outperformance, mainly driven by a combination of benefits achieved in our
totex efficiency programme, including optimisation of our IT and digital
programme, and synergy benefits across the Group. The principal components of
the difference are shown in the table below:

 For the year ended 31 March                         2024  2023
 Base return (including avg. 2% long-run inflation)  7.4   9.6
 Totex incentive mechanism                           1.1   0.9
 Other revenue incentives                            -     2.7
 Return on Equity                                    8.5   13.2

 

For Regulated Financial Performance, please refer to page 94.

Regulated Financial Position up 8%

In the year, RAV grew by 6% driven by ongoing investment coupled with RAV
indexation of 3.8% (2023: 13.6%).

                                                              2024    2023
 Opening Regulated Asset Value (RAV)                          10,787  9,248
 Asset additions (slow money) - actual                        979     971
 Performance RAV or assets created                            51      22
 Inflation adjustment (2024: actual CPIH; 2023: actual RPI)   430     1,261
 Depreciation and amortisation                                (778)   (729)
 Closing RAV                                                  11,469  10,773

 Opening balance of other regulated assets and (liabilities)  (32)    51
 Movement                                                     174     (68)
 Closing balance                                              142     (17)

 Closing Regulated Financial Position                         11,611  10,756

 

UK ELECTRICITY SYSTEM OPERATOR (ESO)

Operational highlights

The ESO has performed well in 2023/24. Capital investment stood at £85
million during the year, £23 million lower than prior period primarily
because ESO was reclassified as an 'asset held for sale' on 27 October 2023,
partially offset by higher IT spend prior to the reclassification.

 

This year, we have built further system resilience and delivered the second
year of our Demand Flexibility Service, giving us valuable insight to support
the future of flexibility services. In December, we launched the first phase
of our 'Open Balancing Platform', which will support the bulk dispatch of
battery storage units and Balancing Mechanism Units. The Platform will further
optimise the operation of the grid network by enabling smaller generation
assets to receive instructions from the ESO control room. Further stages will
be delivered over the next year to integrate additional services into the
Platform, such that by 2027 it is expected to replicate and replace the
existing Electricity Balancing System, Balancing Mechanism and Ancillary
Services Dispatch Platform.

 

The ESO has also continued to work at pace and cross-industry towards
long-term reforms to the connections process, to unblock the queue and pave
the way for investment, ensuring the grid is ready to help deliver the energy
transition. For further information on the connections reform process, please
refer to page 12 of the Strategic Overview section.

Progress on ESO separation

The Energy Act 2023, which received Royal Assent in October, includes
legislation to enable the separation of the ESO from National Grid and the
formation of a National Energy System Operator (NESO) in 2024. Previously
denoted as the Future System Operator (or FSO), NESO will be an independent,
public corporation with responsibility for planning Britain's electricity and
gas networks and operating the electricity system. The new organisation will
be founded on the current activities and capabilities of the ESO, but will
also take on new roles with a whole system perspective across energy sectors.
It will play a central role along with other key stakeholders in ensuring that
Britain's energy system is secure and affordable, as well as forging the path
to a sustainable future. We expect to complete the sale and transfer of the
ESO to the Government later this calendar year.

Operating profit in 2023/24

UK Electricity System Operator statutory operating profit increased by £145
million in the year as a result of £593 million favourable year-on-year
timing over-recoveries, partly offset by a £498 million exceptional provision
for the return (in future periods) of the estimated remaining balance of
over-collected revenues at the date of disposal. Under IFRS a regulatory
liability is not usually recognised on balance sheet for the return of such
over-recoveries, however due to the intended disposal of this business during
2024/25, a liability has been recognised because these amounts are expected to
be settled through the planned sale process in 2024/25.

 

During 2023/24, UK Electricity System Operator had a timing over-recovery of
£800 million (2023: £207 million net over-recovery including the collection
of under-recovered balances from prior years). The 2023/24 over-recovery is
the result of higher revenues collected through the BSUoS fixed price tariffs
compared with total system balancing costs incurred for the year. The
over-recovered position is £877 million at 31 March 2024, which from an ESO
perspective, will be returned to customers by adjusting tariffs in 2024/25 and
in future periods as required. In 2022/23, £1 million of exceptional costs
were incurred as part of our broader cost efficiency programme.

 

Adjusted operating profit increased by £642 million driven by the £593
million year-on-year timing movement and also the impact of no further
depreciation following classification as 'held for sale'. Excluding the impact
of timing, underlying operating profit increased by £49 million. Underlying
net revenue was £52 million higher, but broadly offset by increased costs as
a result of the expected higher volume of work under RIIO-2 and additional
Future System Operator costs ahead of separation of this business.
Depreciation and amortisation was £40 million lower, representing
depreciation being charged for only the first seven months of the year, up to
27 October 2023, the date the business was classified as 'held for sale'.

 UK Electricity System Operator
 (£ million)                     2024     2023     % change
 Revenue                         3,788    4,690    (19)
 Operating costs                 (3,406)  (4,453)  (24)
 Statutory operating profit      382      237      61
 Exceptional items               498      1        n/m
 Adjusted operating profit       880      238      270
 Timing                          (800)    (207)    286
 Underlying operating profit     80       31       158

 Underlying net revenue          383      331      16
 Controllable costs              (212)    (175)    21
 Post-retirement benefits        (21)     (17)     24
 Other operating costs           (9)      (7)      29
 Depreciation and amortisation   (61)     (101)    (40)
 Underlying operating profit     80       31       158
 Timing                          800      207      286
 Adjusted operating profit       880      238      270

 

NEW ENGLAND

Operational highlights

During 2023/24, we achieved an excellent operational performance across our
New England regulated business with an electric distribution network
reliability of 99.94327% and an electric transmission reliability of
99.97549%. In our Massachusetts Gas business, we achieved a 99% response time
to leaks within 60 minutes and replaced a further 131 miles of Leak Prone Pipe
(LPP).

 

Investment in the safety and reliability of our networks has continued, with
capital investment higher year-on-year by £203 million to £1,673 million at
constant currency. This increase was principally driven by higher investment
in our electric transmission network, and higher gas network investment driven
by our Gas System Enhancement Plan (GSEP - our programme to accelerate the
replacement of LPP across our gas business).

 

National Grid was pleased to receive two Edison Electric Institute Awards in
June 2023 for outstanding storm response for the two most severe winter storms
in New England in the prior year (on 23 December 2022, and 13 March 2023).
During 2023/24, the New England Emergency Response Organization was activated
on 15 occasions in response to several significant weather events. Activations
included response to Hurricane Lee in July, as well as a winter storm in
December that affected over 187,000 customers at peak and proved to be one of
the most impactful storms to our customers in many years. Emergency Response
Teams were well-prepared to respond safely and restored all outages rapidly,
well within regulatory requirements. For the December storm, we were able to
restore most customers within 48 hours, a rate of 100 customers per minute,
the best recovery performance in almost 15 years. Our teams continue to
exercise, train rigorously, and prepare for storm and non-storm emergency
events to best serve our customers.

Enabling the energy transition for all

In January, we filed our final Electric Sector Modernization Plan (ESMP) with
the Department for Public Utilities (DPU) in Massachusetts. The plan outlines
the investment required in our electric distribution network over the next
five years and beyond to help the state meet its clean energy goals under the
2050 Clean Energy and Climate Plan (CECP). Under the ESMP, we have proposed to
invest up to $2 billion over the next five years across the following areas:

■  Network infrastructure: upgraded power lines, transformers,
substations, to make the network more resilient, connect clean energy and plan
in advance for growth in electric demand;

■ Technology and platforms: new planning tools for smarter decision making,
including new data and monitoring systems to ensure system stability, and new
IT infrastructure; and

■   Customer programmes: help customers reduce carbon footprint, drive
smart energy use.

 

The DPU is now considering the filing and we expect the regulator to issue an
Order on our proposal in August. The proposed investment under the ESMP is not
currently part of any rate order for our service territory.

 

We continue to install Fault Location Isolation and System Restoration (FLISR)
units across our network which now covers 20% of our customer base, delivering
benefits from 'self-healing' networks and improved reliability. We also
connected over 200 MW of distributed energy resources over the last year,
installed heat pumps in more than 15,000 residential households (with over
1,500 at no cost to customers in our income eligible programmes), and deployed
391 fast charging EV installations.

 

In addition to our electric network plans, we will build support for the use
of renewable natural gas in our system to achieve our fossil-free fuel goals,
while exploring alternative fuel sources and creating clean energy jobs.

Delivering for our customers efficiently

As part of our Group wide efficiency programme, we have delivered £120
million of savings to the New England business over the last three years, with
£31 million reached in 2023/24.

 

During the year, we set out to improve customer experience by inviting all
colleagues to engage with a 'Find It & Fix It' process. This focuses on
the core principles of delivering incremental, quick value for our customers,
as well as communicating early and often with impacted customers and our
employee ambassadors. Over 165 customer issues have been resolved in
Massachusetts with the help of the Find It & Fix It programme, including
resolving issues related to estimated bills and metering. We also established
an Account Management function to provide additional support to our large
commercial customers and developers.

 

The Massachusetts Advanced Meter Infrastructure (AMI) programme successfully
kicked off in September 2023 with stakeholder engagement across business
teams. Our improved self-service and digital channels continue to improve
customer experience and have reduced the number of calls by over two million.
In 2023/24, the Gas Business Enablement (GBE) programme deployed new
technology to enable digital workforce management, asset management, and
construction work management capabilities across Massachusetts. This reduces
paper and manual work and enables better decision-making in asset investments.

Growing our organisational capability

In spring 2023, we launched our state-wide Strategic Workforce Development
Program partnering with educational institutions and non-profits to provide
trainees from historically underrepresented groups with career exposure,
development, and employment opportunities within National Grid and the greater
clean energy industry through our suite of four clean energy academies. We
have hired almost 70 graduates of our programmes who are now working across
the business, and we have positively impacted nearly 1,000 work-ready adults,
college, high school, and middle school students across Massachusetts.

Empowering colleagues for great performance

We have recently made organisational changes within our New England Electric
and Customer Account Management teams aimed at empowering our colleagues,
enhancing our customer focus, increasing our investments, and ensuring
scalability for the future. To support the growth and development of our staff
in New England, we have placed a high priority on leadership development
through a range of internal programmes to ensure they are fully prepared to
embrace the challenges and opportunities that lie ahead, including the
potential brought by digitisation to our system. By encouraging our employees
to focus on a forward-looking approach, we will continue on our path to
delivering smarter, stronger, and cleaner energy solutions.

 

Colleagues in the region surpassed our yearly Grid for Good goal with nearly
19,000 volunteer hours, an excellent achievement that fosters engagement and
our commitment to serving our communities.

 

For further examples of progress against each of our pillars, please refer to
page 34 of our 2023/24 Annual Report and Accounts.

 

Return on Equity

RoE increased 90bps from prior year to 9.2%. This principally reflects rate
increases and the recovery of a historical property tax matter in
Massachusetts, partly offset by higher capital investments in both
Massachusetts Gas and Massachusetts Electric.

                                          Return on Equity                              Rate Base ($m) as at 31 March
 Regulated Entity                         FY24   FY23   FY22   Allowed most recent      2024        2023        % change

                                                               (%)
 Massachusetts Gas                        9.2    8.6    6.9    9.7                      4,759       4,170       14
 Massachusetts Electric                   7.6    5.9    7.1    9.6                      3,541       3,106       14
 Total Massachusetts                      8.6    7.4    7.0    9.7                      8,300       7,276       14

 New England Power                        11.1   11.1   10.9   10.6                     2,646       2,420       9
 Canadian Interconnector & Other          11.1   11.1   11.1   11.1                     48          59          (19)
 Total FERC                               11.1   11.1   10.9   10.6                     2,694       2,479       9

 Total New England                        9.2    8.3    8.3    9.9                      10,994      9,755       13

Regulated Financial Position

Overall, the New England rate base increased by $1.2 billion (13%) to $11.0
billion driven by increased capital expenditure partially offset by
depreciation and deferred tax movements.

 New England Regulated Assets
 ($ billion as at 31 March)                                    2024   2023  % change
 Rate Base excluding working capital                           10.7   9.6   11
 Working capital in Rate Base                                  0.3    0.2   50
 Total Rate Base                                               11.0   9.8   13
 Regulated assets outside Rate Base excluding working capital  2.5    2.5   -
 Working capital outside Rate Base                             (0.2)  0.1   (300)
 Total regulated assets outside Rate Base                      2.3    2.6   (12)
 Total New England Regulated Assets                            13.3   12.4  7

 £ billion as at 31 March                                      2024   2023  % change
 Total New England Regulated Assets at actual currency         10.6   10.1  5
 Total New England Regulated Assets at constant currency       10.6   9.9   7

 

Operating profit in 2023/24

 New England
 (£ million)                    2024     2023     2023 at constant currency  % change at actual currency
 Revenue                        3,948    4,427    4,263                      (11)
 Operating costs                (3,307)  (3,295)  (3,173)                    -
 Statutory operating profit     641      1,132    1,090                      (43)
 Exceptional items              17       (456)    (439)                      n/m
 Remeasurements                 (15)     32       31                         n/m
 Adjusted operating profit      643      708      682                        (9)
 Timing                         69       39       37                         n/m
 Major storm costs              90       72       69                         25
 Underlying operating profit    802      819      788                        (2)

 Underlying net revenue         2,364    2,371    2,283                      -
 Regulated controllable costs   (701)    (755)    (728)                      (7)
 Post-retirement benefits       (7)      (27)     (26)                       (74)
 Bad debt expense               (79)     (58)     (55)                       36
 Other operating costs          (355)    (319)    (307)                      11
 Depreciation and amortisation  (420)    (393)    (379)                      7
 Underlying operating profit    802      819      788                        (2)
 Timing                         (69)     (39)     (37)                       n/m
 Major storm costs              (90)     (72)     (69)                       25
 Adjusted operating profit      643      708      682                        (9)

 

New England's statutory operating profit decreased by £491 million,
principally as a result of the non-recurrence of the £511 million exceptional
net gain on disposal of NECO in 2022/23. Exceptional items also included £6
million of charges related to our cost efficiency programme (2023: £27
million), £11 million of transaction costs related to disposal of NECO (2023:
£36 million) and an £8 million exceptional credit in 2022/23 related to the
discount rate on environmental provisions. Major storm costs were £18 million
higher than 2022/23, commodity remeasurements were £47 million favourable to
the prior year and timing under-recoveries were £30 million higher
year-on-year driven by returning commodity over-recoveries from 2022/23.

 

Excluding the above items, the impacts of partial year ownership of NECO in
2022/23 and unfavourable year-on-year foreign exchange movements are partially
offset by improved underlying performance in the remaining New England
businesses.

 

Adjusted operating profit decreased by £65 million (9%) at actual exchange
rates. Adjusted operating profit includes the impact of major storm costs
which were £18 million higher than the prior year (but as in 2022/23, these
passed our $100 million threshold in aggregate with New York, so are excluded
from our underlying results) along with £30 million unfavourable year-on-year
timing movements.

 

Underlying operating profit decreased by £17 million (2%, at actual FX
rates). The impact of not owning our Rhode Island business for two months in
2023/24 reduced underlying operating profit by £52 million (6%) and movements
in foreign exchange reduced 2023/24 underlying operating profit by £31
million (4%). Unless stated otherwise, the following commentary is presented
excluding the impact of the disposal of NECO in May 2022 and also excluding
the impact of foreign currency movements. Underlying net revenue was £7
million lower, but £81 million higher at constant currency and £176 million
higher after excluding the impact of the disposal of NECO, driven by the
benefits of rate case increments in Massachusetts Gas and Massachusetts
Electric and higher wholesale network revenues. New England controllable costs
decreased by £3 million as a result of efficiency savings partially offset by
inflation and workload increases. Bad debt expense increased by £25 million
as a result of higher accounts receivable in 2023/24, driven by increased net
revenue (on a constant currency basis). Depreciation and amortisation
increased as a result of higher investment. Other costs were higher due to
increases in environmental reserves and capital-related operating and
maintenance costs partially offset by the benefit of a gain on a pension
buyout.

NEW YORK

Operational highlights

In 2023/24, we achieved an excellent operational performance across our New
York regulated business with an electric distribution network availability of
99.92823% and an electric transmission network availability of 99.97168%.
Investment in our networks continued during the year with capital spend
increasing year-on-year by £291 million to £2,654 million at constant
currency. This increase was principally through higher electric investment
driven by our Smart Path Connect project, transmission projects associated
with CLCPA Phases 1 and 2, and higher gas capital investment driven by mains
replacement (including Leak Prone Pipe and system integrity spend). This was
partially offset by lower right of use lease assets, driven by the
non-recurrence of Volney-Marcy and Gowanus leases in the prior year.

 

Across our New York business, we continued with gas safety and reliability
investments including the replacement of a further 206 miles of leak prone
pipe.

 

Between October and end of March, New York Electric Operations prepared 17
times for storms and severe weather, including eight major storm events. For
the full year, we prepared 49 times and had 13 major storms events. This is an
equal amount of storm activity to the prior year, but in general slightly
increased compared to previous years. Where our service territories were
affected by storm activity in 2023/24, we restored electricity to 95% of
disconnected customers from the peak within 12 hours, which was a total of 1.4
million customers. The most impactful storm event was Winter Storm Finn in
January 2024 which impacted 202,000 customers.

Enabling the energy transition for all

Our Upstate Upgrade is a collection of more than 70 transmission enhancement
projects through 2030 to deliver a modernised, stronger, and cleaner energy
network in Upstate New York. In addition to generating thousands of new jobs,
the investment will help the state meet its climate goals outlined in the
Climate Leadership and Community Protection Act (CLCPA). The upgrade includes
the following large-scale transmission projects:

■  Smart Path Connect - the project, for which National Grid's share of
capital investment is $550 million, includes the rebuild and upgrade of
approximately 55 miles of our Adirondack-Porter 230 kV transmission circuits
to 345 kV in Northern New York. It remains on track for energisation in
December 2025.

■  CLCPA Phase 1 - construction has begun on the first stage of our
substation upgrade as part of the $800 million Phase 1 funding for
transmission upgrades. This also includes projects such as Inghams-Rotterdam
and Churchtown to Pleasant Valley circuit rebuilds (129 miles) to support 330
MW of incremental headroom capacity for renewable generation.

■  CLCPA Phase 2 - engineering contracts were awarded in October 2023 for
transmission projects as part of the $2.1 billion Phase 2 funding for
transmission networks and modernising the electric network.

 

Our KEDNY-KEDLI Joint Proposal contains a number of provisions supporting New
York's clean energy goals. These include continued investment to significantly
reduce system leaks and associated emissions, and programmes in support of
non-pipe alternatives, including specific programmes related to LPP project
retirements, reinforcements and main extensions. In addition, the Joint
Proposal extends our commitment to not market new gas connections and
conversions during the term of the rate plans, and we will instead encourage
applicants requesting new or expanded service to consider electrification
options.

 

As we continue to develop a smarter, stronger, cleaner energy network,
decarbonising our gas networks is a priority for our New York business. The
KEDNY-KEDLI Joint Proposal funds investment and programmes that will
significantly reduce system leaks and associated emissions. Through main
replacement and leak repairs, we are targeting reductions to leak inventories
of more than 80% at KEDNY and 90% at KEDLI from the levels a few years ago. We
will also be deploying advanced leak detection technology to identify and
repair the higher emitting leaks on the system. To help customers manage their
energy usage, the Joint Proposal provides for approximately $75 million
annually for energy efficiency, and we are providing up to $2 million/year for
weatherisation health and safety programmes to address barriers to energy
efficiency for low-to-moderate income and disadvantaged community households.

 

During the year, we were also awarded $11.4 million in economic development
funds to support various projects across Western New York, including the
construction of the first North American facility that will produce clean,
carbon-free hydrogen. Funds will also support an onsite, lithium battery
storage device, providing a greener backup power alternative for the Buffalo
Niagara Medical Campus.

Delivering for our customers efficiently

As part of our Group wide efficiency programme, we have delivered £177
million of savings to the New York business over the last three years, with
£48 million delivered in 2023/24. This has helped reduce cost pressures on
our customers and deliver flat controllable costs for over 3 years in a
volatile inflationary environment. Our new field-based dispatch tools in both
Gas and Electric continue to improve routing and the bundling of work across
our footprint, reducing fuel costs by 20% and the number of 'truck rolls' by
20,000. In addition, the further roll out of self-service channels in our
customer operations has reduced call volumes by 17%.

 

Our ongoing commitment to customers and communities has continued during
2023/24. To celebrate the third year of our Project C initiative, we expanded
the Company's annual day of service to a week of service. This included more
than 2,000 company employee volunteers engaging in 200 events taking place in
communities across New York. This year's theme, 'Live together. Grow
together.', highlighted the importance of creating meaningful change in the
communities we serve. As part of the week of service our employees also
pledged to complete Acts of Kindness, including collecting and donating books,
food and clothing to a local charity, and donating blood to a blood bank.
Across the whole Project C initiative, New York employees also contributed
over 16,000 hours of volunteering in local communities during the year.

Growing our organisational capability

Our KEDNY-KEDLI Joint Proposal also makes provision for more than 200 extra
full time employees (FTE) by the end of the third year of the multi-year rate
proposal. The FTEs will help build our core front line operations and customer
teams leveraging several of our workforce development programmes that seek to
hire and train employees from under represented communities.

 

This year we also celebrated the graduation of the first class from the New
York City Housing Authority (NYCHA) Clean Energy Academy programme, which
National Grid helps fund. This innovative workforce development programme
seeks to train 250 public housing residents over four years for promising
careers delivering the clean energy and sustainability transition. The
programme seeks to connect resident trainees with NYCHA contractors who will
be performing nearly half a billion dollars of retrofit and renewable energy
projects at NYCHA developments through 2026.

Empowering colleagues for great performance

Since launching Project C in September 2021, National Grid has supported
100,000 local businesses, launched 1,000 community partnerships, planted or
donated 2,300 trees, trained 3,400 workers to grow the clean energy workforce,
and adopted 60 parks to revitalise gathering spaces. In addition, employees
have volunteered over 28,000 hours in their New York communities. As part of
the company's Responsible Business Charter, National Grid has committed to
amassing 500,000 volunteer hours by 2030.

 

For further examples of progress against each of our pillars, please refer to
page 35 of our 2023/24 Annual Report and Accounts.

 

Return on Equity

During the year, we achieved an RoE of 8.5%, 10bps below the 8.6% delivered in
2023/24. This was principally driven by a lower RoE in our upstate New York
(NIMO) business, largely offset by a higher RoE compared to prior year at
KEDNY-KEDLI.

                       Return on Equity                              Rate Base ($m) as at 31 March
 Regulated Entity      FY24   FY23   FY22   Allowed most recent      2024        2023        % change

                                            (%)
 KEDNY                 9.0    9.2    8.1    8.8                      6,454       6,048       7
 KEDLI                 9.7    9.2    11.0   8.8                      4,149       3,774       10
 NMPC Gas              6.0    7.1    8.1    9.0                      1,765       1,800       (2)
 NMPC Electric         8.1    8.1    8.5    9.0                      8,317       7,045       18
 Total New York        8.5    8.6    8.8    8.9                      20,685      18,667      11

Regulated Financial Position

Overall, the New York rate base increased by $2.0 billion (11%) to $20.7
billion driven by increased capital expenditure partially offset by
depreciation and deferred tax movements.

 New York Regulated Assets
 ($ billion as at 31 March)                                    2024   2023  % change
 Rate Base excluding working capital                           20.3   18.2  12
 Working capital in Rate Base                                  0.4    0.5   (20)
 Total Rate Base                                               20.7   18.7  11
 Regulated assets outside Rate Base excluding working capital  1.7    1.2   42
 Working capital outside Rate Base                             (0.4)  0.1   n/m
 Total regulated assets outside Rate Base                      1.3    1.3   -
 Total New York Regulated Assets                               22.0   20.0  10

 £ billion as at 31 March                                      2024   2023  % change
 Total New York Regulated Assets at actual currency            17.4   16.2  7
 Total New York Regulated Assets at constant currency          17.4   15.8  10

 

 

Operating profit in 2023/24

 New York
 (£ million)                    2024     2023     2023 at constant currency  % change at actual currency
 Revenue                        6,094    6,994    6,734                      (13)
 Operating costs                (5,732)  (6,453)  (6,213)                    (11)
 Statutory operating profit     362      541      521                        (33)
 Exceptional items              506      (118)    (113)                      n/m
 Remeasurements                 (8)      318      306                        n/m
 Adjusted operating profit      860      741      714                        16
 Timing                         20       (53)     (51)                       n/m
 Major storm costs              136      186      179                        (27)
 Underlying operating profit    1,016    874      842                        16

 Underlying net revenue         4,057    3,984    3,836                      2
 Regulated controllable costs   (1,057)  (1,151)  (1,108)                    (8)
 Post-retirement benefits       (21)     (2)      (2)                        n/m
 Bad debt expense               (96)     (157)    (151)                      (39)
 Other operating costs          (1,209)  (1,180)  (1,136)                    2
 Depreciation and amortisation  (658)    (620)    (597)                      6
 Underlying operating profit    1,016    874      842                        16
 Timing                         (20)     53       51                         n/m
 Major storm costs              (136)    (186)    (179)                      (27)
 Adjusted operating profit      860      741      714                        16

 

New York statutory operating profit decreased by £179 million, principally as
a result of £624 million higher exceptional charges, partly offset by £326
million favourable year-on-year movements in commodity contract
remeasurements. The exceptional items swing includes a £156 million gain in
2022/23 for increasing the discount rate on environmental provisions and a
£496 million charge for the increase in environmental provisions to reflect
updates on the scope and design of remediation activities related to certain
of our sites. Other exceptional items (related to our cost efficiency
programme) were £28 million lower than the prior year. Timing
under-recoveries of £20 million in 2023/24 compared with timing
over-recoveries of £53 million in 2022/23 primarily driven by lower auction
sale prices on transmission wheeling, higher commodity under-recovery and
under-recovery of Smart Path Connect incentives. Major storm costs of £136
million were £50 million lower year-on-year, driven by non-recurrence of
Storm Elliott, but as in 2022/23, the total costs passed our threshold ($100
million in aggregate with New England) and so are excluded from our underlying
results. These factors, offset by increased underlying operating profit,
driven primarily by rate increases and controllable cost efficiencies, reduced
statutory operating profit to £362 million.

 

Adjusted operating profit increased by £119 million (16%), impacted by £73
million year-on-year unfavourable timing movements, offset by lower
year-on-year major storm costs of £50 million and underlying operating profit
increasing by £142 million (16%), including a £32 million decrease as a
result of foreign exchange movements. Adjusted for the impact of foreign
currency, underlying operating profit increased by £174 million (21%)
compared with 2022/23. Underlying net revenues increased by £73 million
(£221 million increase at constant currency) from the benefits of rate case
increases in KEDNY, KEDLI and NIMO alongside early recovery of expenditure on
our Smart Path Connect programme. Regulated controllable costs were £51
million lower year-on-year, with increased workload and the impact of
inflation being more than offset by cost efficiency savings and one-off items
in 2022/23 not recurring. Provisions for bad and doubtful debts decreased by
£55 million driven by non-recurrence of write-offs related to the COVID-19
arrears management programme recorded in 2022/23. Depreciation and
amortisation increased due to the growth in assets. Other costs (on an
underlying basis) were higher due to increased property taxes and higher costs
on funded programmes (offset by rate increases), and higher pension buy out
gain in 2022/23.

NATIONAL GRID VENTURES (NGV)

Operational highlights

NGV businesses have performed well in 2023/24. We currently have six
interconnectors in operation, with a capacity of 7.8 GW connecting the UK with
France, the Netherlands, Belgium, Denmark, and Norway. IFA2 has performed well
again this year, with strong auctions results helping to offset an outage
following a cable fault (annual availability was 71.2%). Our BritNed and NEMO
interconnectors have also performed well with availability reaching 98.0% and
96.8% respectively. Finally, in its second full year of operation, North Sea
Link (NSL) has performed well at full operational capacity, and availability
of 95.9% across the year. Overall, total interconnector availability increased
7% following the IFA1 return to service and improved availability on NSL.

 National Grid Ventures
 (£ million)                                     2024   2023   2023 at constant currency  % change at actual currency
 Revenue                                         1,389  1,341  1,322                      4
 Operating costs                                 (831)  (384)  (379)                      116
 Statutory operating profit                      558    957    943                        (42)
 Exceptional items                               (89)   (467)  (454)                      n/m
 Underlying/adjusted operating profit            469    490    489                        (4)

 Statutory post-tax share of JVs and associates  38     184    184                        (79)
 Remeasurements                                  64     19     18                         237
 Adjusted post-tax share of JVs and associates   102    203    202                        (50)

 Analysed by business:
 Interconnectors                                 306    355    355                        (14)
 Grain LNG                                       149    131    131                        14
 NG Generation                                   29     33     32                         (12)
 Other                                           (15)   (29)   (29)                       (48)
 Adjusted operating profit                       469    490    489                        (4)

 Interconnectors                                 69     164    164                        (58)
 NG Renewables                                   22     16     16                         38
 Millennium                                      -      14     13                         (100)
 Other                                           11     9      9                          22
 Adjusted post-tax share of JVs and associates   102    203    202                        (50)
 Total NGV contribution (adjusted/underlying)    571    693    691                        (18)

 Interconnectors                                 192    434    434                        (56)
 NG Renewables                                   271    146    141                        86
 Grain LNG                                       104    162    162                        (36)
 NG Generation                                   24     93     90                         (74)
 Community Offshore Wind                         45     7      7                          n/m
 Other                                           26     128    121                        (80)
 Capital investment                              662    970    955                        (32)

 

National Grid Ventures' statutory operating profit of £558 million in 2023/24
includes an exceptional gain of £89 million. Of this exceptional gain, £92
million relates to property damage insurance proceeds received following the
fire at our French interconnector (IFA1) in September 2021, offset by £3
million of exceptional costs incurred as part of the broader cost efficiency
programme. National Grid Ventures' statutory operating profit in 2022/23
included exceptional items related to a £335 million gain from the sale of a
stake in Millennium Pipeline, a £130 million credit for property damage
proceeds (again related to the IFA1 fire) and a £3 million credit for
increasing the discount rate on environmental provisions, offset by £1
million of exceptional costs incurred as part of the broader cost efficiency
programme. Our underlying and adjusted results exclude the impact of these
exceptional items.

 

Underlying and adjusted operating profit was £21 million lower than 2022/23.
Overall interconnector profit decreased versus prior year reflecting
non-recurrence of prior year business interruption insurance recoveries in
IFA1 relating to the September 2021 fire, along with lower capacity prices.
This is partially offset by improved availabilities in our North Sea Link
interconnector (which benefited from an increase in the revenue cap following
an Ofgem review) and improved performance in our Grain LNG business.

Capital investment

National Grid Ventures' capital investment, which includes investment in joint
ventures and associates, was £308 million lower than the prior year (£293
million lower at constant currency). This decrease was driven primarily by the
non‑recurrence of capital spend on projects in the prior year, namely the
IFA converter station rebuild, capital expenditure on Viking Link, and spend
on the Grain LNG capacity expansion. This decrease was partly offset by higher
investment in Emerald Energy LLC (National Grid Renewables) and Community
Offshore Wind LLC (COSW).

Enabling the energy transition for all

Our sixth interconnector, Viking Link, became operational in December 2023,
connecting Lincolnshire in the UK with Revsing in Denmark. It is currently
restricted by the Danish System Operator to 1,100 MW, although we have seen
long periods of operation above this to 1,400 MW when day ahead system
conditions allow. We expect to increase to the full 1,400 MW by mid-2026
following Danish West Coast network upgrades. It is the world's longest land
and subsea interconnector stretching for 475 miles (765 kilometres) between
the two countries with capacity to provide enough green energy for up to 2.5
million UK homes.

 

In the US, National Grid Renewables has begun onsite construction on its
Unbridled solar project located in Kentucky. At 160 megawatts (MW), Unbridled
is anticipated to be the largest producer of clean, solar energy in the state
once it reaches operations in 2024. In Ohio, Amazon Solar Farm Ohio -
Yellowbud - a 274 MW solar project, commenced commercial operation.
Construction has also started at neighbouring projects, namely the Ross County
Solar Project and the Fayette Solar Project, which once operational will
deliver a combined 167.5 MW of clean solar power. In South Dakota, onsite
field construction started at its Wild Springs Solar Project. The 128 MWAC
solar project is the largest solar energy project in the state to-date. In
February, National Grid Renewables announced the start of on-site construction
for two solar projects in its home state of Minnesota; the Fillmore County and
Louise Solar Projects totalling 95 MW and have a Power Purchase Agreement
(PPA) with Xcel Energy.

 

COSW will look to participate in future New York and New Jersey offshore wind
bid solicitation rounds and expect to see these moving forward in due course.
We continue to believe in the fundamental need of offshore wind in the
Northeast US to help deliver energy transition and decarbonisation goals. For
further information on COSW, please refer to page 14 of the Strategic Overview
section.

 

On transmission, NGV's 90 mile (149 kilometres) Propel NY Energy electric
project (a partnership with Avangrid, Central Hudson and Con Edison) was
selected by the New York Independent System Operator (NYISO) to help connect
the future expansion of offshore wind capacity to the grid network.

 

Delivering for our customers efficiently

In the UK, we have made good progress on the CAP 25 expansion project at Grain
LNG. When complete in 2025, the increased capacity - together with existing
capacity at Grain LNG - will play an increasingly critical role in energy
security by supplying up to 33% of UK gas demand. In February, we announced
two capacity agreements with Sonatrach and Venture Global that will further
strengthen the security of supply of LNG to the UK. During the year, the new
190,000 m(3) storage tank reached a number of construction milestones from
successfully raising the roof of the tank to completing concreting. The
project has created more than 800 jobs during construction. In the US, in May
2023 we commissioned our new Fields Point Liquefier at our Providence LNG
facility, expanding its operating capacity to serve customers across
Massachusetts.

Empowering colleagues for great performance

NGV actively encourages everyone to speak out about safety, with an emphasis
on reporting at all levels. In the latest Grid:voice survey, 93% of colleagues
said they felt their manager encourages them to talk openly about safety
indicating good progress towards a 'Proactive Safety Culture'. Improvements
have been made across the board in terms of leadership and employee
engagement, highlighting the continued need for conversations around safety
where we have increased our focus on reducing high risk, and severity events
with communication campaigns and deep dive activities.

 

In 2023, NGV launched a series of wellbeing events to promote mental and
physical wellbeing. Sessions included men's health, mental health and Time to
Talk coffee drop-in sessions which proved popular with employees. In addition
to internal programmes, Grain has refined its wellbeing strategy to encompass
our employee's highest health risks from available data. Several dedicated
activities including 'Beat the burnout' for shift teams and musculoskeletal
health (MSK) awareness month were included in our plans. Grain is also leading
the way in external advocacy of mental health and wellbeing matters in
sponsoring local events such as the Kent Mental Wellbeing Awards (having
previously been award winners) and representatives speaking at seminars.
National Grid Renewables received recognition for its excellence in workplace
safety and health during the 2023 Minnesota Safety and Health Conference. In
May, National Grid Renewables was among 210 employers to be honoured through
the awards programme, coordinated by the Minnesota Safety Council.

For further examples of progress against each of our pillars, please refer to
page 36 of our 2023/24 Annual Report and Accounts.

 

OTHER ACTIVITIES

Highlights

Other activities primarily relate to UK property, insurance and corporate
activities, as well as National Grid Partners, the corporate investment and
innovation arm of National Grid. In UK Land and Property, we continue to make
good progress with the divestment of the surplus property portfolio. In this
fiscal year, we completed on the sale of 30 sites, realising approximately
£30 million profit.

 Other
 (£ million)                                  2024   2023   2023 at constant currency  % change at actual currency
 Revenue                                      244    317    313                        (23)
 Operating costs                              (361)  (367)  (363)                      (2)
 Statutory operating (loss)/profit            (117)  (50)   (50)                       134
 Exceptional items                            (57)   (81)   (81)                       n/m
 Underlying/adjusted operating (loss)/profit  (60)   31     31                         (294)

 Analysed by business:
 Property                                     30     216    216                        (86)
 NG Partners                                  (13)   (25)   (25)                       (48)
 Corporate and other activities               (77)   (160)  (160)                      (52)
 Adjusted operating (loss)/profit             (60)   31     31                         (294)

 

Other activities statutory operating loss of £117 million (2023: £50 million
loss) includes an exceptional charge of £46 million related to the cost
efficiency programme (2023: £25 million), £5 million of costs for the
separation of UK Gas Transmission (2023: £31 million) and £6 million of
integration costs for UK Electricity Distribution (2023: £16 million).

 

Adjusted operating loss was £60 million (including corporate costs) in
2023/24 compared with £31 million profit in 2022/23. This decrease mainly
relates to property site sales in the previous year, primarily related to the
sale of 15 sites to St William. This is partially offset by lower corporate
costs, which in the prior year included support payments to charitable causes
and employees in respect of the energy crisis, and increased insurance income
through insurance captives and claims.

PROVISIONAL 2023/24 FINANCIAL TIMETABLE

 Date                               Event
 23 May 2024                        2023/24 Full-Year Results
 6 June 2024                        Ordinary shares go ex-dividend for 2023/24 final dividend
 6 June 2024                        ADRs go ex-dividend for 2023/24 final dividend
 7 June 2024                        Record date for 2023/24 final dividend
 13 June 2024                       Scrip reference price announced for 2023/24 final dividend
 24 June 2024 (5pm London time)     Scrip election date for 2023/24 final dividend
 10 July 2024                       2024 Annual General Meeting
 19 July 2024                       2023/24 final dividend paid to qualifying shareholders
 7 November 2024                    2024/25 Half-Year Results
 20 November 2024                   ADRs go ex-dividend for 2024/25 interim dividend
 21 November 2024                   Ordinary shares go ex-dividend for 2024/25 interim dividend
 22 November 2024                   Record date for 2024/25 interim dividend
 28 November 2024                   Scrip reference price announced for 2024/25 interim dividend
 9 December 2024 (5pm London time)  Scrip election date for 2024/25 interim dividend
 13 January 2025                    2024/25 interim dividend paid to qualifying shareholders

 

American Depositary Receipt (ADR) Deposit Agreement

The Company's Deposit agreement under which the ADRs are issued allows a fee
of up to $0.05 per ADR to be charged for any cash distribution made to ADR
holders, including cash dividends. ADR holders who receive cash in relation to
the 2022/23 final dividend will be charged a fee of $0.02 per ADR by the
Depositary prior to distribution of the cash dividend.

 

CAUTIONARY STATEMENT

This announcement contains certain statements that are neither reported
financial results nor other historical information. These statements are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended. These statements include information with respect to
National Grid's (the Company) financial condition, its results of operations
and businesses, strategy, plans and objectives. Words such as 'aims',
'anticipates', 'expects', 'should', 'intends', 'plans', 'believes', 'outlook',
'seeks', 'estimates', 'targets', 'may', 'will', 'continue', 'project' and
similar expressions, as well as statements in the future tense, identify
forward-looking statements. This document also references climate-related
targets and climate-related risks which differ from conventional financial
risks in that they are complex, novel and tend to involve projection over long
term scenarios which are subject to significant uncertainty and change. These
forward-looking statements are not guarantees of National Grid's future
performance and are subject to assumptions, risks and uncertainties that could
cause actual future results to differ materially from those expressed in or
implied by such forward-looking statements or targets. Many of these
assumptions, risks and uncertainties relate to factors that are beyond
National Grid's ability to control, predict or estimate precisely, such as
changes in laws or regulations and decisions by governmental bodies or
regulators, including those relating to current and upcoming price controls in
the UK and rate cases in the US, as well as the future of system operation in
the UK; the timing of construction and delivery by third parties of new
generation projects requiring connection; breaches of, or changes in,
environmental, climate change and health and safety laws or regulations,
including breaches or other incidents arising from the potentially harmful
nature of its activities; network failure or interruption, the inability to
carry out critical non-network operations and damage to infrastructure, due to
adverse weather conditions including the impact of major storms as well as the
results of climate change, due to counterparties being unable to deliver
physical commodities; reliability of and access to IT systems, including or
due to the failure of or unauthorised access to or deliberate breaches of
National Grid's 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 support its role
in the energy transition; 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 breaches of
laws or regulations by its employees; the failure to respond to market
developments, including competition for onshore transmission; the threats and
opportunities presented by emerging technology; the failure by the Company to
respond to, or meet its own commitments as a leader in relation to, climate
change development activities relating to energy transition, including the
integration of distributed energy resources; and the need to grow the
Company's business to deliver its strategy, as well as incorrect or unforeseen
assumptions or conclusions (including unanticipated costs and liabilities)
relating to business development activity, including the sale of a stake in
its UK Gas Transmission and Metering business, its strategic infrastructure
projects and joint ventures and the separation and transfer of the ESO to the
public sector. 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 226 to 231 of
National Grid's Annual Report and Accounts for the year ended 31 March 2024,
which is published today. 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. This
announcement is for informational purposes only and does not constitute an
offer to sell or the solicitation of an offer to buy any securities. The
securities mentioned herein have not been, and will not be, registered under
the Securities Act or the securities laws of any state or other jurisdiction,
and may not be offered or sold in the United States absent registration or an
applicable exemption from registration requirements. No public offering of
securities is being made in the United States.

 

Consolidated income statement

for the years ended 31 March

 2024                                                        Notes       Before                     Exceptional                Total

                                                                         exceptional                items and remeasurements   £m

                                                                         items and remeasurements   (see note 4)

                                                                         £m                         £m

 Continuing operations
 Revenue                                                     2(a),3      19,850                     -                          19,850
 Provision for bad and doubtful debts                                    (179)                      -                          (179)
 Other operating costs                                       4           (14,221)                   (987)                      (15,208)
 Other operating income                                                  12                         -                          12
 Operating profit                                            2(b)        5,462                      (987)                      4,475
 Finance income                                              4,5         244                        4                          248
 Finance costs                                               4,5         (1,723)                    11                         (1,712)
 Share of post-tax results of joint ventures and associates              101                        (64)                       37
 Profit before tax                                           2(b)        4,084                      (1,036)                    3,048
 Tax                                                         4,6         (983)                      152                        (831)
 Profit after tax from continuing operations                             3,101                      (884)                      2,217
 Profit after tax from discontinued operations               9           13                         61                         74
 Total profit for the year (continuing and discontinued)                 3,114                      (823)                      2,291
 Attributable to:
 Equity shareholders of the parent                                       3,113                      (823)                      2,290
 Non-controlling interests from continuing operations                    1                          -                          1
 Earnings per share (pence)
 Basic earnings per share (continuing)                       7                                                                 60.0
 Diluted earnings per share (continuing)                     7                                                                 59.7
 Basic earnings per share (continuing and discontinued)      7                                                                 62.0
 Diluted earnings per share (continuing and discontinued)    7                                                                 61.7

 

 2023                                                        Notes       Before                     Exceptional                Total

                                                                         exceptional                items and remeasurements   £m

                                                                         items and remeasurements   (see note 4)

                                                                         £m                         £m

 Continuing operations
 Revenue                                                     2(a),3      21,659                     -                          21,659
 Provision for bad and doubtful debts                                    (220)                      -                          (220)
 Other operating costs                                       4           (17,158)                   (391)                      (17,549)
 Other operating income                                      4           13                         976                        989
 Operating profit                                            2(b)        4,294                      585                        4,879
 Finance income                                              4,5         166                        (28)                       138
 Finance costs                                               4,5         (1,680)                    82                         (1,598)
 Share of post-tax results of joint ventures and associates              190                        (19)                       171
 Profit before tax                                           2(b)        2,970                      620                        3,590
 Tax                                                         4,6         (635)                      (241)                      (876)
 Profit after tax from continuing operations                             2,335                      379                        2,714
 Profit after tax from discontinued operations               9           320                        4,763                      5,083
 Total profit for the year (continuing and discontinued)                 2,655                      5,142                      7,797
 Attributable to:
 Equity shareholders of the parent                                       2,655                      5,142                      7,797
 Non-controlling interests from continuing operations                    -                          -                          -
 Earnings per share (pence)
 Basic earnings per share (continuing)                       7                                                                 74.2
 Diluted earnings per share (continuing)                     7                                                                 73.8
 Basic earnings per share (continuing and discontinued)      7                                                                 213.1
 Diluted earnings per share (continuing and discontinued)    7                                                                 212.1

 

Consolidated statement of comprehensive income

for the years ended 31 March

                                                                                           2024   2023
                                                                                Notes      £m     £m
 Profit after tax from continuing operations                                               2,217  2,714
 Profit after tax from discontinued operations                                             74     5,083
 Other comprehensive income from continuing operations
 Items from continuing operations that will never be reclassified to profit or
 loss:
 Remeasurement (losses)/gains on pension assets and post-retirement benefit                (218)  (1,362)
 obligations
 Net (losses)/gains in respect of cash flow hedging of capital expenditure                 (37)   10
 Tax on items that will never be reclassified to profit or loss                            59     341
 Total items from continuing operations that will never be reclassified to                 (196)  (1,011)
 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                                (335)  883
 Exchange differences reclassified to the consolidated income statement on      9          -      (170)
 disposal
 Net gains/(losses) in respect of cash flow hedges                                         240    -
 Net gains/(losses) in respect of cost of hedging                                          26     (16)
 Net gains/(losses) on investment in debt instruments measured at fair value               21     (25)
 through other comprehensive income
 Share of other comprehensive income of associates, net of tax                             -      1
 Tax on items that may be reclassified subsequently to profit or loss                      (66)   11
 Total items from continuing operations that may be reclassified subsequently              (114)  684
 to profit or loss
 Other comprehensive (loss)/income for the year, net of tax from continuing                (310)  (327)
 operations
 Other comprehensive income/(loss) for the year, net of tax from discontinued   9          10     (227)
 operations
 Other comprehensive loss for the year, net of tax                                         (300)  (554)
 Total comprehensive income for the year from continuing operations                        1,907  2,387
 Total comprehensive income for the year from discontinued operations           9          84     4,856
 Total comprehensive income for the year                                                   1,991  7,243
 Attributable to:
 Equity shareholders of the parent
 From continuing operations                                                                1,906  2,386
 From discontinued operations                                                              84     4,856
                                                                                           1,990  7,242
 Non-controlling interests
 From continuing operations                                                                1      1

 

Consolidated statement of changes in equity

for the years ended 31 March

                                                                              Share     Share             Retained   Other equity reserves £m       Total            Non-                        Total

                                                                              capital   premium account   earnings                                  share-holders'   controlling interests       equity

                                                                              £m        £m                £m                                        equity           £m                          £m

                                                                                                                                                    £m
 At 1 April 2022                                                              485       1,300             26,611     (4,563)                        23,833           23                          23,856
 Profit for the year                                                          -         -                 7,797      -                              7,797            -                           7,797
 Other comprehensive (loss)/income for the year                               -         -                 (1,253)    698                            (555)            1                           (554)
 Total comprehensive income for the year                                      -         -                 6,544      698                            7,242            1                           7,243
 Equity dividends                                                             -         -                 (1,607)    -                              (1,607)          -                           (1,607)
 Scrip dividend-related share issue(1)                                        3         (3)               -          -                              -                -                           -
 Issue of treasury shares                                                     -         -                 16         -                              16               -                           16
 Transactions in own shares                                                   -         5                 (4)        -                              1                -                           1
 Share-based payments                                                         -         -                 48         -                              48               -                           48
 Cash flow hedges transferred to the statement of financial position, net of  -         -                 -          5                              5                -                           5
 tax
 1 April 2023                                                                 488       1,302             31,608     (3,860)                        29,538           24                          29,562
 Profit for the year                                                          -         -                 2,290      -                              2,290            1                           2,291
 Other comprehensive loss for the year                                        -         -                 (168)      (132)                          (300)            -                           (300)
 Total comprehensive income/(loss) for the year                               -         -                 2,122      (132)                          1,990            1                           1,991
 Equity dividends                                                             -         -                 (1,718)    -                              (1,718)          -                           (1,718)
 Scrip dividend-related share issue(1)                                        5         (6)               -          -                              (1)              -                           (1)
 Issue of treasury shares                                                     -         -                 21         -                              21               -                           21
 Transactions in own shares                                                   -         2                 (6)        -                              (4)              -                           (4)
 Share-based payments                                                         -         -                 37         -                              37               -                           37
 Tax on share-based payments                                                  -         -                 2          -                              2                -                           2
 Cash flow hedges transferred to the statement of financial position, net of  -         -                 -          2                              2                -                           2
 tax
 At 31 March 2024                                                             493       1,298             32,066     (3,990)                        29,867           25                          29,892

1.  Included within the share premium account are costs associated with scrip
dividends.

 

Consolidated statement of financial position

as at 31 March

                                                                    2024      2023
                                                         Notes      £m        £m
 Non-current assets
 Goodwill                                                           9,729     9,847
 Other intangible assets                                            3,431     3,604
 Property, plant and equipment                                      68,907    64,433
 Other non-current assets(1)                                        848       620
 Pension assets                                          10         2,407     2,645
 Financial and other investments                                    880       859
 Investments in joint ventures and associates                       1,420     1,300
 Derivative financial assets                                        324       276
 Total non-current assets                                           87,946    83,584
 Current assets
 Inventories and current intangible assets                          828       876
 Trade and other receivables(1)                                     3,415     3,830
 Current tax assets                                                 11        43
 Financial and other investments                                    3,699     2,605
 Derivative financial assets                                        44        153
 Cash and cash equivalents                                          559       163
 Assets held for sale                                    9          1,823     1,443
 Total current assets                                               10,379    9,113
 Total assets                                                       98,325    92,697
 Current liabilities
 Borrowings                                                         (4,859)   (2,955)
 Derivative financial liabilities                                   (335)     (222)
 Trade and other payables                                           (4,076)   (5,068)
 Contract liabilities                                               (127)     (252)
 Current tax liabilities                                            (220)     (236)
 Provisions                                                         (298)     (288)
 Liabilities held for sale                               9          (1,474)   (109)
 Total current liabilities                                          (11,389)  (9,130)
 Non-current liabilities
 Borrowings                                                         (42,213)  (40,030)
 Derivative financial liabilities                                   (909)     (1,071)
 Other non-current liabilities                                      (880)     (921)
 Contract liabilities                                               (2,119)   (1,754)
 Deferred tax liabilities                                           (7,519)   (7,181)
 Pensions and other post-retirement benefit obligations  10         (593)     (694)
 Provisions                                                         (2,811)   (2,354)
 Total non-current liabilities                                      (57,044)  (54,005)
 Total liabilities                                                  (68,433)  (63,135)
 Net assets                                                         29,892    29,562
 Equity
 Share capital                                                      493       488
 Share premium account                                              1,298     1,302
 Retained earnings                                                  32,066    31,608
 Other equity reserves                                              (3,990)   (3,860)
 Total shareholders' equity                                         29,867    29,538
 Non-controlling interests                                          25        24
 Total equity                                                       29,892    29,562

1.  In the year we have revised our policy in relation to the classification
of capital expenditure prepayments between current and non-current in order to
align these to the operating cycles of the underlying assets to which they
relate. Accordingly, comparative amounts have been represented to reflect this
change.

 

Consolidated cash flow statement

for the years ended 31 March

                                                                                         2024     2023
                                                                              Notes      £m       £m
 Cash flows from operating activities
 Total operating profit from continuing operations                            2(b)       4,475    4,879
 Adjustments for:
 Exceptional items and remeasurements                                         4          987      (585)
 Other fair value movements                                                              (16)     21
 Depreciation, amortisation and impairment                                               2,061    1,984
 Share-based payments                                                                    37       48
 Changes in working capital                                                              (49)     286
 Changes in provisions                                                                   (154)    23
 Changes in pensions and other post-retirement benefit obligations                       31       (46)
 Cash flows relating to exceptional items                                                (91)     (178)
 Cash generated from operations - continuing operations                                  7,281    6,432
 Tax paid                                                                                (342)    (89)
 Net cash inflow from operating activities - continuing operations                       6,939    6,343
 Net cash inflow from operating activities - discontinued operations                     -        555
 Cash flows from investing activities
 Purchases of intangible assets                                                          (549)    (567)
 Purchases of property, plant and equipment                                              (6,904)  (6,325)
 Disposals of property, plant and equipment                                              52       87
 Investments in joint ventures and associates                                            (332)    (443)
 Dividends received from joint ventures, associates and other investments                176      190
 Disposal of interest in the UK Gas Transmission business(1)                  9          681      4,027
 Disposal of interest in The Narragansett Electric Company(1)                            -        2,968
 Disposal of interest in Millennium Pipeline Company LLC                                 -        497
 Disposal of financial and other investments                                             102      116
 Acquisition of financial investments                                                    (81)     (95)
 Contributions to National Grid Renewables and Emerald Energy Venture LLC                (19)     (19)
 Net movements in short-term financial investments                                       (1,141)  586
 Interest received                                                                       148      65
 Cash inflows on derivatives                                                             123      -
 Cash outflows on derivatives                                                            -        (362)
 Cash flows relating to exceptional items                                                143      79
 Net cash flow used in investing activities - continuing operations                      (7,601)  804
 Net cash flow from/(used in) investing activities - discontinued operations             102      (564)
 Cash flows from financing activities
 Proceeds from issue of treasury shares                                                  20       16
 Transactions in own shares                                                              (4)      1
 Proceeds received from loans                                                            5,563    11,908
 Repayment of loans                                                                      (1,701)  (15,260)
 Payments of lease liabilities                                                           (118)    (155)
 Net movements in short-term borrowings                                                  544      (511)
 Cash inflows on derivatives                                                             86       190
 Cash outflows on derivatives                                                            (58)     (118)
 Interest paid                                                                           (1,627)  (1,430)
 Dividends paid to shareholders                                                          (1,718)  (1,607)
 Net cash flow from/(used in) financing activities - continuing operations               987      (6,966)
 Net cash flow used in financing activities - discontinued operations                    -        (207)
 Net increase/(decrease) in cash and cash equivalents                                    427      (35)
 Reclassification to held for sale                                                       (30)     9
 Exchange movements                                                                      (1)      7
 Cash and cash equivalents at start of year                                              163      182
 Cash and cash equivalents at end of year                                                559      163

1.  The balance for the year ended 31 March 2023 consists of cash proceeds
received, net of cash disposed.

 

Notes

1.   Basis of preparation and recent accounting developments

 

The full year financial information contained in this announcement, which does
not constitute statutory accounts as defined in Section 434 of the Companies
Act 2006, has been derived from the statutory accounts for the year ended 31
March 2024, which will be filed with the Registrar of Companies in due course.
Statutory accounts for the year ended 31 March 2023 have been filed with the
Registrar of Companies. The auditors' report on each of these statutory
accounts was unqualified and did not contain a statement under Section 498 of
the Companies Act 2006.

 

The full year financial information has been prepared in accordance with the
accounting policies applicable for the year ended 31 March 2024 which are
consistent with those applied in the preparation of our Annual Report and
Accounts for the year ended 31 March 2023, with the exception of any new
standards or interpretations adopted during the year.

 

Our income statement and segmental analysis separately identify financial
results before and after exceptional items and remeasurements. We continue to
use a columnar presentation as we consider it improves the clarity of the
presentation, and assists users of the financial statements to understand the
results. The Directors believe that presentation of the results in this way is
relevant to an understanding of the Group's financial performance. The
inclusion of total profit for the period from continuing operations before
exceptional items and remeasurements forms part of the incentive target set
annually for remunerating certain Executive Directors and accordingly we
believe it is important for users of the financial statements to understand
how this compares to our results on a statutory basis and period on period.

 

Areas of judgement and key sources of estimation uncertainty

Areas of judgement that have the most significant effect on the amounts
recognised in the financial statements are:

•  categorisation of certain items as exceptional items or remeasurements
and the definition of adjusted earnings (see notes 4 and 7). In applying the
Group's exceptional items framework, we have considered a number of key
matters, as detailed in note 4;

•  the judgement that it is appropriate to classify our 20% equity
investment in GasT TopCo Limited, together with the RAA option, as held for
sale, as detailed in note 9; and

•  the judgement that, notwithstanding legislation enacted and targets
committing the states of New York and Massachusetts to achieving net zero
greenhouse gas emissions by 2050, these do not shorten the remaining useful
economic lives (UELs) of our US gas network assets, which we consider will
have an expected use and utility beyond 2050 (see key sources of estimation
uncertainty below).

 

Key sources of estimation uncertainty that have a significant risk of causing
a material adjustment to the carrying amounts of assets and liabilities within
the next financial year are:

•  the cash flows and real discount rates applied in determining the US
environmental provisions, in particular relating to three Superfund sites and
certain other legacy Manufacturing Gas Plant (MGP) sites (see note 4);

•  the estimates made regarding the UELs of our gas network assets due to
uncertainty over the pace of delivery of the energy transition and the
multiple pathways by which it could be delivered. Our estimates consider
anticipated changes in customer behaviour and developments in new technology,
the potential to decarbonise fuel through the use of renewable natural gas and
green hydrogen, and the feasibility and affordability of increased
electrification; and

•  the valuation of liabilities for pensions and other post-retirement
benefits (see note 10).

 

 

1.   Basis of preparation and recent accounting developments continued

 

Disposal of the UK Electricity System Operator (ESO)

As described further in note 9, at the end of October 2023, the legislation
required to enable the separation of the ESO and the formation of the National
Energy System Operator (NESO) was passed through Parliament. The NESO is
expected to be established as an independent Public Corporation this calendar
year, with responsibilities across both the electricity and gas systems. As a
result, the Group took the judgement to classify the associated assets and
liabilities of the ESO as held for sale in the consolidated statement of
financial position at the end of October 2023. The ESO has not met the
criteria for classification as a discontinued operation and therefore its
results have not been separately disclosed on the face of the income
statement, and are instead included within the results from continuing
operations.

 

Disposal of the UK Gas Transmission business

Following the Group's disposal of a 60% controlling stake in the UK Gas
Transmission business in the year ended 31 March 2023, the Group completed the
sale of a further 20% of its retained interest in the business (held through
GasT TopCo Limited) on 11 March 2024. The other 80% of GasT TopCo Limited is
owned by Macquarie Infrastructure and Real Assets (MIRA) and British Columbia
Investment Management Corporation (BCI) (together, the Consortium). The
Group's remaining 20% interest in GasT TopCo Limited is classified as an
investment in an associate on the basis that the Group has a significant
influence over the business.

 

The remaining 20% interest is subject to an option agreement with the
Consortium, the Remaining Acquisition Agreement (RAA), which on 9 July 2023
replaced the previous Further Acquisition Agreement (FAA) under which the 20%
disposal in the year was executed. The RAA option is exercisable, at the
Consortium's option, between 1 May 2024 and 31 July 2024. If the RAA option is
partially exercised by the Consortium, the Group will have the right to put
the remainder of its interests in GasT TopCo Limited to the Consortium, which
can be exercised by the Group between 1 December 2024 and 31 December 2024.
Taking into consideration the timing of the RAA exercise window, the Group has
continued to classify its remaining interest in GasT TopCo Limited as held for
sale and has not equity accounted for its share of the associate's results.

 

The loss on the 20% disposal of GasT TopCo Limited and the remeasurements in
relation to the FAA option and the RAA option have been recorded within
discontinued operations. As an associate held for sale, the Group has not
recognised any share of results in the year ended 31 March 2024. The
classification impacts on the consolidated income statement, the consolidated
statement of comprehensive income and the consolidated cash flow statement, as
well as earnings per share (EPS) split between continuing and discontinued
operations.

 

New accounting standards and interpretations effective for the year ended 31
March 2024

The Group adopted the following new standards and amendments to standards
which have had no material impact on the Group's results or financial
statement disclosures:

•  IFRS 17 'Insurance Contracts';

•  amendments to IAS 1 and IFRS Practice Statement 2 - 'Making Materiality
Judgements';

•  amendments to IAS 12 'International Tax Reform - Pillar Two Model
Rules'; and

•  amendments to IAS 8 'Accounting Policies, Changes in Accounting
Estimates and Errors'.

 

 

1.   Basis of preparation and recent accounting developments continued

 

New accounting standards not yet adopted

The following new accounting standards and amendments to existing standards
have been issued but are not yet effective or have not yet been endorsed by
the UK:

•  amendments to IFRS 10 and IAS 28 'Sale or Contribution of Assets between
an Investor and its Associate or Joint Venture';

•  amendments to IAS 1 'Classification of Liabilities as Current or
Non‑current';

•  amendments to IAS 1 'Non-current Liabilities with Covenants';

•  amendments to IAS 7 and IFRS 7 'Supplier Finance Arrangements';

•  amendments to IFRS 16 'Lease Liability in a Sale and Leaseback'; and

•  amendments to IAS 21 'The Effects of Changes in Foreign Exchange Rates'.

 

Effective dates will be subject to the UK endorsement process.

 

The Group is currently assessing the impact of the above standards, but they
are not expected to have a material impact.

 

The Group has not adopted any other standard, amendment or interpretation that
has been issued but is not yet effective.

 

Date of approval

This announcement was approved by the Board of Directors on 22 May 2024.

2.   Segmental analysis

 

Revenue and the results of the business are analysed by operating segment,
based on the information the Board of Directors uses internally for the
purposes of evaluating the performance of each operating segment and
determining resource allocation between them. The Board is National Grid's
chief operating decision maker (as defined by IFRS 8 'Operating Segments') and
assesses the profitability of operations principally on the basis of a profit
measure that excludes certain income and expenses. We call that measure
'adjusted profit'. Adjusted profit excludes exceptional items and
remeasurements (as defined in note 4) and is used by management to monitor
financial performance as it is considered that it aids the comparability of
our reported financial performance from year to year. As a matter of course,
the Board also considers profitability by segment, excluding the effects of
timing and major storms. 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 six principal businesses are reported to the Board of
Directors and are accordingly treated as reportable operating segments. All
other operating segments are reported to the Board of Directors on an
aggregated basis. The following table describes the main activities for each
reportable operating segment:

 UK Electricity Transmission     The high-voltage electricity transmission networks in England and Wales. This
                                 includes our Accelerated Strategic Transmission Investment projects to connect
                                 more clean, low-carbon power to the transmission network in England and Wales.
 UK Electricity Distribution     The electricity distribution networks of NGED in the East Midlands, West
                                 Midlands and South West of England and South Wales.
 UK Electricity System Operator  The Great Britain system operator. The ESO met the criteria to be classified
                                 as held for sale at the end of October 2023.
 New England                     Gas distribution networks, electricity distribution networks and high-voltage
                                 electricity transmission networks in New England.
 New York                        Gas distribution networks, electricity distribution networks and high-voltage
                                 electricity transmission networks in New York.
 National Grid Ventures          Comprises all commercial operations in LNG at the Isle of Grain in the UK and
                                 Providence, Rhode Island in the US, our electricity generation business in the
                                 US, our electricity interconnectors in the UK and our investment in National
                                 Grid Renewables Development LLC, our renewables business in the US. Whilst NGV
                                 operates outside our regulated core business, the electricity interconnectors
                                 in the UK are subject to indirect regulation by Ofgem regarding the level of
                                 returns they can earn. Our US LNG operations were reclassified from the New
                                 England segment following an internal reorganisation in the year.

 

Other activities that do not form part of any of the segments in the above
table primarily relate to our UK property business together with insurance and
corporate activities in the UK and US and the Group's investments in
technology and innovation companies through National Grid Partners.

 

 

2.   Segmental analysis continued

 

(a)  Revenue

 

Revenue primarily represents the sales value derived from the generation,
transmission and distribution of energy, together with the sales value derived
from the provision of other services to customers. Refer to note 3 for further
details.

 

Sales between operating segments are priced considering the regulatory and
legal requirements to which the businesses are subject. The analysis of
revenue by geographical area is on the basis of destination. There are no
material sales between the UK and US geographical areas.

                                                       2024                              2023
                                                       Total   Sales      Sales          Total   Sales      Sales

                                                       sales   between    to third       sales   between    to third

                                                               segments   parties                segments   parties
                                                       £m      £m         £m             £m      £m         £m
 Operating segments - continuing operations:
 UK Electricity Transmission                           2,735   (40)       2,695          1,987   (41)       1,946
 UK Electricity Distribution                           1,795   (5)        1,790          2,045   (12)       2,033
 UK Electricity System Operator                        3,788   (35)       3,753          4,690   (31)       4,659
 New England                                           3,948   -          3,948          4,427   -          4,427
 New York                                              6,094   -          6,094          6,994   -          6,994
 National Grid Ventures                                1,389   (57)       1,332          1,341   (58)       1,283
 Other                                                 244     (6)        238            317     -          317
 Total revenue from continuing operations              19,993  (143)      19,850         21,801  (142)      21,659

 Split by geographical areas - continuing operations:
 UK                                                                       9,063                             9,611
 US                                                                       10,787                            12,048
 Total revenue from continuing operations                                 19,850                            21,659

 

 

2.   Segmental analysis continued

 

(b)  Operating profit

 

A reconciliation of the operating segments' measure of profit to profit before
tax from continuing operations is provided below. Further details of the
exceptional items and remeasurements are provided in note 4.

                                                      Before exceptional items and remeasurements         Exceptional items and remeasurements          After exceptional items and remeasurements
                                                      2024                    2023                        2024                 2023                     2024                    2023
                                                      £m                      £m                          £m                   £m                       £m                      £m
 Operating segments - continuing operations:
 UK Electricity Transmission                          1,677                   995                         (3)                  (2)                      1,674                   993
 UK Electricity Distribution                          993                     1,091                       (18)                 (22)                     975                     1,069
 UK Electricity System Operator                       880                     238                         (498)                (1)                      382                     237
 New England                                          643                     708                         (2)                  424                      641                     1,132
 New York                                             860                     741                         (498)                (200)                    362                     541
 National Grid Ventures                               469                     490                         89                   467                      558                     957
 Other                                                (60)                    31                          (57)                 (81)                     (117)                   (50)
 Total operating profit from continuing operations    5,462                   4,294                       (987)                585                      4,475                   4,879

 Split by geographical area - continuing operations:
 UK                                                   3,923                   2,825                       (487)                26                       3,436                   2,851
 US                                                   1,539                   1,469                       (500)                559                      1,039                   2,028
 Total operating profit from continuing operations    5,462                   4,294                       (987)                585                      4,475                   4,879

 

                                                             Before exceptional items and remeasurements         Exceptional items and remeasurements          After exceptional items and remeasurements
                                                             2024                    2023                        2024                 2023                     2024                    2023
                                                             £m                      £m                          £m                   £m                       £m                      £m
 Reconciliation to profit before tax:
 Operating profit from continuing operations                 5,462                   4,294                       (987)                585                      4,475                   4,879
 Share of post-tax results of joint ventures and associates  101                     190                         (64)                 (19)                     37                      171
 Finance income                                              244                     166                         4                    (28)                     248                     138
 Finance costs                                               (1,723)                 (1,680)                     11                   82                       (1,712)                 (1,598)
 Profit before tax from continuing operations                4,084                   2,970                       (1,036)              620                      3,048                   3,590

 

The following items are included in the total operating profit by segment:

 Depreciation, amortisation and impairment  2024     2023
                                            £m       £m
 Operating segments:
 UK Electricity Transmission                (521)    (484)
 UK Electricity Distribution                (223)    (223)
 UK Electricity System Operator             (61)     (101)
 New England                                (420)    (393)
 New York                                   (658)    (620)
 National Grid Ventures                     (166)    (149)
 Other                                      (12)     (14)
 Total                                      (2,061)  (1,984)

 Asset type:
 Property, plant and equipment              (1,769)  (1,700)
 Non-current intangible assets              (292)    (284)
 Total                                      (2,061)  (1,984)

 

2.   Segmental analysis continued

 

(c)  Capital investment

 

Capital investment represents additions to property, plant and equipment,
prepayments to suppliers to secure production capacity in relation to our
capital projects, non-current intangibles and additional equity investments in
joint ventures and associates. Segmental information used for internal
decision making was revised in the year to include the capital expenditure
prepayments and additional equity investments in joint ventures and
associates. Accordingly, comparative information for the year ended 31 March
2023 has been re-presented to reflect the change in the Group's segmental
measure in the year.

                                                      2024   2023(1)
                                                      £m     £m
 Operating segments:
 UK Electricity Transmission                          1,912  1,301
 UK Electricity Distribution                          1,247  1,220
 UK Electricity System Operator                       85     108
 New England                                          1,673  1,527
 New York                                             2,654  2,454
 National Grid Ventures                               662    970
 Other                                                2      13
 Total                                                8,235  7,593

 Asset type:
 Property, plant and equipment                        7,124  6,783
 Non-current intangible assets                        481    578
 Equity investments in joint ventures and associates  332    197
 Capital expenditure prepayments                      298    35
 Total                                                8,235  7,593

1.  Comparative amounts have been represented to reflect the reclassification
of our US LNG operations from New England to NGV following an internal
reorganisation in the year and the change in presentation for capital
investments.

 

 

(d)  Geographical analysis of non-current assets

 

Non-current assets by geography comprise goodwill, other intangible assets,
property, plant and equipment, investments in joint ventures and associates
and other non-current assets.

                                              2024    2023
                                              £m      £m
 Split by geographical area:
 UK                                           40,065  38,043
 US                                           44,270  41,761
                                              84,335  79,804

 Reconciliation to total non-current assets:
 Pension assets                               2,407   2,645
 Financial and other investments              880     859
 Derivative financial assets                  324     276
 Non-current assets                           87,946  83,584

 

3.   Revenue

 

Revenue arises in the course of ordinary activities and principally comprises:

•  transmission services;

•  distribution services; and

•  generation services.

 

Transmission services, distribution services and certain other services
(excluding rental income) fall within the scope of IFRS 15 'Revenue from
Contracts with Customers', whereas generation services (which solely relate to
the contract with the Long Island Power Authority (LIPA) in the US) are
accounted for under IFRS 16 'Leases' as rental income, also presented within
revenue. Revenue is recognised to reflect the transfer of goods or services to
customers at an amount that reflects the consideration to which the Group
expects to be entitled to in exchange for those goods or services and excludes
amounts collected on behalf of third parties and value added tax. The Group
recognises revenue when it transfers control over a product or service to a
customer.

 

Revenue in respect of regulated activities is determined by regulatory
agreements that set the price to be charged for services in a given period
based on pre-determined allowed revenues. Variances in service usage can
result in actual revenue collected exceeding (over-recoveries) or falling
short (under-recoveries) of allowed revenues. Where regulatory agreements
allow the recovery of under-recoveries or require the return of
over-recoveries, the allowed revenue for future periods is typically adjusted.
In these instances, no assets or liabilities are recognised for under- or
over-recoveries respectively, because the adjustment relates to future
customers and services that have not yet been delivered.

 

Revenue in respect of non-regulated activities primarily relates to the sale
of capacity on our interconnectors, which is determined at auctions. Capacity
is sold in either day, month, quarter or year ahead tranches. The price
charged is determined by market fundamentals rather than regulatory agreement.
The interconnectors are subject to indirect regulation with regards to the
levels of returns they are allowed to earn. Where amounts fall below this
range they receive top-up revenues; where amounts exceed this range, they must
pass-back the excess. In these instances, assets or liabilities are recognised
for the top-up or pass-back respectively.

 

The following is a description of principal activities, by reportable segment,
from which the Group generates its revenue. For more detailed information
about our segments, see note 2.

 

(a)  UK Electricity Transmission

 

The UK Electricity Transmission segment principally generates revenue by
providing electricity transmission services in England and Wales. Our business
operates as a monopoly regulated by Ofgem, which has established price control
mechanisms that set the amount of annual allowed returns our business can earn
(along with the Scottish and Offshore transmission operators amongst others).

 

The transmission of electricity encompasses the following principal services:

•  the supply of high-voltage electricity - revenue is recognised based on
usage. Our performance obligation is satisfied over time as our customers make
use of our network. We bill monthly in arrears and our payment terms are up to
60 days. Price is determined prior to our financial year end with reference to
the regulated allowed returns and estimated annual volumes; and

•  construction work (principally for connections) - revenue is recognised
over time, as we provide access to our network. Customers can either pay over
the useful life of the connection or upfront. Where the customer pays upfront,
revenues are deferred as a contract liability and released over the life of
the asset.

 

For other construction where there is no consideration for any future services
(for example diversions), revenues are recognised as the construction work is
completed.

 

 

3.   Revenue continued

 

(b)  UK Electricity Distribution

 

The UK Electricity Distribution segment principally generates revenue by
providing electricity distribution services in the Midlands and South West of
England and South Wales. Similar to UK Electricity Transmission, UK
Electricity Distribution operates as a monopoly in the jurisdictions that it
operates in and is regulated by Ofgem.

 

The distribution of electricity encompasses the following principal services:

•  electricity distribution - revenue is recognised based on usage by
customers (over time), based upon volumes and price. The price control
mechanism that determines our annual allowances is similar to UK Electricity
Transmission. Revenues are billed monthly and payment terms are typically
within 14 days; and

•  construction work (principally for connections) - revenue is recognised
over time as we provide access to our network. Where the customer pays
upfront, revenues are deferred as a contract liability and released over the
life of the asset.

 

For other construction where there is no consideration for any future
services, revenues are recognised as the construction work is completed.

 

(c)  UK Electricity System Operator

 

The UK Electricity System Operator earns revenue for balancing supply and
demand of electricity on Great Britain's electricity transmission system,
where it acts as principal. Balancing services are regulated by Ofgem and
revenue, which is payable by generators and suppliers of electricity, is
recognised as the service is provided.

 

The UK Electricity System Operator also collects revenues on behalf of
transmission operators, principally National Grid Electricity Transmission plc
and the Scottish and Offshore transmission operators, from users (electricity
suppliers) who connect to or use the transmission system. As the UK
Electricity System Operator acts as an agent in this capacity, it records
transmission network revenues net of payments to transmission operators.

 

(d)  New England

 

The New England segment principally generates revenue by providing electricity
and gas supply and distribution services and high-voltage electricity
transmission services in New England. Supply and distribution services are
regulated by the Massachusetts Department of Public Utilities (MADPU) and
transmission services are regulated by the Federal Energy Regulatory
Commission (FERC), both of whom regulate the rates that can be charged to
customers.

 

The supply and distribution of electricity and gas and the provision of
electricity transmission facilities encompasses the following principal
services:

•  electricity and gas supply and distribution and electricity transmission
- revenue is recognised based on usage by customers (over time). Revenues are
billed monthly and payment terms are 30 days; and

•  construction work (principally for connections) - revenue is recognised
over time as we provide access to our network. Where the customer pays
upfront, revenues are deferred as a contract liability or customer
contributions (where they relate to government entities) and released over the
life of the connection.

 

(e)  New York

 

The New York segment principally generates revenue by providing electricity
and gas supply and distribution services and high-voltage electricity
transmission services in New York. Supply and distribution services are
regulated by the New York Public Service Commission (NYPSC) and transmission
services are regulated by the FERC, both of which regulate the rates that can
be charged to customers.

 

The supply and distribution of electricity and gas and the provision of
electricity transmission facilities encompasses the following principal
services:

•  electricity and gas supply and distribution and electricity transmission
- revenue is recognised based on usage by customers (over time). Revenues are
billed monthly and payment terms are 30 days; and

•  construction work (principally for connections) - revenue is recognised
over time as we provide access to our network. Where the customer pays
upfront, revenues are deferred as a contract liability or customer
contributions (where they relate to government entities) and released over the
life of the connection.

 

3.   Revenue continued

 

(f)   National Grid Ventures

 

National Grid Ventures generates revenue from electricity interconnectors, LNG
at the Isle of Grain in the UK and Providence, Rhode Island in the US,
National Grid Renewables and rental income.

 

The Group recognises revenue from transmission services through
interconnectors and LNG importation at the Isle of Grain and Providence by
means of customers' use of capacity and volumes. Revenue is recognised over
time and is billed monthly. Payment terms are up to 60 days.

 

Electricity generation revenue is earned from the provision of energy services
and supply capacity to produce energy for the use of customers of LIPA through
a power supply agreement, where LIPA receives all of the energy and capacity
from the asset until at least 2028. The arrangement is treated as an operating
lease within the scope of the leasing standard where we act as lessor, with
rental income being recorded as other revenue, which forms part of total
revenue. Lease payments (capacity payments) are recognised on a straight-line
basis and variable lease payments are recognised as the energy is generated.

 

Other revenue in the scope of IFRS 15 principally includes sales of renewables
projects from National Grid Renewables to Emerald Energy Venture LLC
(Emerald), which is jointly controlled by National Grid and Washington State
Investment Board (WSIB). National Grid Renewables develops wind and solar
generation assets in the US, whilst Emerald has a right of first refusal to
buy, build and operate those assets. Revenue is recognised as it is earned.

 

Other revenue, recognised in accordance with standards other than IFRS 15,
primarily comprises adjustments in respect of the interconnector cap and floor
and Use of Revenue regimes constructed by Ofgem for certain wholly owned
interconnector subsidiaries. Under the cap and floor regime, where an
interconnector expects to exceed its total five-year cap, a provision and
reduction in revenue is recognised in the current reporting period. Where an
interconnector does not expect to reach its five-year floor, either an asset
will be recognised where a future inflow of economic benefits is considered
virtually certain, or a contingent asset will be disclosed where the future
inflow is concluded to be probable. Under the Use of Revenue framework, any
revenues in excess of an agreed incentive level must be passed on as savings
to consumers. Where the obligation to transfer excess revenues arises, a
payable and reduction in revenue is recognised in the current reporting
period.

 

(g)  Other

 

Revenue in Other relates to our UK commercial property business and insurance.
Revenue is predominantly recognised in accordance with standards other than
IFRS 15 and comprises property sales by our UK commercial property business
(including sales to the St William joint venture, which was disposed of in the
year ended 31 March 2022). Property sales are recorded when the sale is
legally completed.

 

 

3.   Revenue continued

(h)  Disaggregation of revenue

 

In the following tables, revenue is disaggregated by primary geographical
market and major service lines. The table below reconciles disaggregated
revenue with the Group's reportable segments (see note 2).

 Revenue for the year ended                UK Electricity Transmission  UK Electricity Distribution  UK Electricity System Operator  New       New    National Grid Ventures  Other  Total

 31 March 2024                             £m                           £m                           £m                              England   York   £m                      £m     £m

                                                                                                                                     £m        £m
 Revenue under IFRS 15
 Transmission(1)                           2,591                        -                            (10)                            73        493    869                     -      4,016
 Distribution                              -                            1,712                        -                               3,786     5,500  -                       -      10,998
 System Operator                           -                            -                            3,763                           -         -      -                       -      3,763
 Other(2)                                  25                           73                           -                               8         15     168                     4      293
 Total IFRS 15 revenue                     2,616                        1,785                        3,753                           3,867     6,008  1,037                   4      19,070
 Other revenue
 Generation                                -                            -                            -                               -         -      360                     -      360
 Other(3)                                  79                           5                            -                               81        86     (65)                    234    420
 Total other revenue                       79                           5                            -                               81        86     295                     234    780
 Total revenue from continuing operations  2,695                        1,790                        3,753                           3,948     6,094  1,332                   238    19,850

1.  The UK Electricity System Operator transmission revenue in the year
represents transmission revenues collected, net of payments made to
transmission owners.

2.  The UK Electricity Transmission and UK Electricity Distribution other
IFRS 15 revenue principally relates to engineering recharges, which are the
recovery of costs incurred for construction work requested by customers, such
as the rerouting of existing network assets. Within NGV, the other IFRS 15
revenue principally relates to revenue generated from our National Grid
Renewables business.

3.  Other revenue, recognised in accordance with accounting standards other
than IFRS 15, includes property sales by our UK commercial property business,
rental income, income arising in connection with the Transition Services
Agreements following the sales of NECO and the UK Gas Transmission business in
the prior year, and an adjustment to NGV revenue in respect of the
interconnector cap and floor and Use of Revenue regimes constructed by Ofgem.

 

 Geographical split for the year ended 31 March 2024  UK Electricity Transmission  UK Electricity Distribution  UK Electricity System Operator  New       New    National Grid Ventures  Other  Total

                                                      £m                           £m                           £m                              England   York   £m                      £m     £m

                                                                                                                                                £m        £m
 Revenue under IFRS 15
 UK                                                   2,616                        1,785                        3,753                           -         -      878                     1      9,033
 US                                                   -                            -                            -                               3,867     6,008  159                     3      10,037
 Total IFRS 15 revenue                                2,616                        1,785                        3,753                           3,867     6,008  1,037                   4      19,070
 Other revenue
 UK                                                   79                           5                            -                               -         -      (76)                    22     30
 US                                                   -                            -                            -                               81        86     371                     212    750
 Total other revenue                                  79                           5                            -                               81        86     295                     234    780
 Total revenue from continuing operations             2,695                        1,790                        3,753                           3,948     6,094  1,332                   238    19,850

 

 

3.   Revenue continued

 Revenue for the year ended                UK Electricity Transmission  UK Electricity Distribution  UK Electricity System Operator  New       New    National Grid Ventures  Other  Total

 31 March 2023                             £m                           £m                           £m                              England   York   £m                      £m     £m

                                                                                                                                     £m        £m
 Revenue under IFRS 15
 Transmission                              1,868                        -                            126                             52        567    791                     -      3,404
 Distribution                              -                            1,951                        -                               4,314     6,373  -                       -      12,638
 System Operator                           -                            -                            4,533                           -         -      -                       -      4,533
 Other(1)                                  31                           77                           -                               8         13     131                     -      260
 Total IFRS 15 revenue                     1,899                        2,028                        4,659                           4,374     6,953  922                     -      20,835
 Other revenue
 Generation                                -                            -                            -                               -         -      394                     -      394
 Other(2)                                  47                           5                            -                               53        41     (33)                    317    430
 Total other revenue                       47                           5                            -                               53        41     361                     317    824
 Total revenue from continuing operations  1,946                        2,033                        4,659                           4,427     6,994  1,283                   317    21,659

1.  The UK Electricity Transmission and UK Electricity Distribution other
IFRS 15 revenue principally relates to engineering recharges, which are the
recovery of costs incurred for construction work requested by customers, such
as the rerouting of existing network assets. Within NGV, the other IFRS 15
revenue principally relates to revenue generated from our National Grid
Renewables business.

2.  Other revenue, recognised in accordance with accounting standards other
than IFRS 15, includes property sales by our UK commercial property business,
rental income, income arising in connection with the Transition Services
Agreements following the sales of NECO and the UK Gas Transmission business,
and a provision and adjustment to NGV revenue in respect of the interconnector
cap and floor regime constructed by Ofgem. In the year ended 31 March 2023,
the Group also recognised other income relating to an insurance claim.

 

 Geographical split for the year ended 31 March 2023  UK Electricity Transmission  UK Electricity Distribution  UK Electricity System Operator  New       New    National Grid Ventures  Other  Total

                                                      £m                           £m                           £m                              England   York   £m                      £m     £m

                                                                                                                                                £m        £m
 Revenue under IFRS 15
 UK                                                   1,899                        2,028                        4,659                           -         -      799                     -      9,385
 US                                                   -                            -                            -                               4,374     6,953  123                     -      11,450
 Total IFRS 15 revenue                                1,899                        2,028                        4,659                           4,374     6,953  922                     -      20,835
 Other revenue
 UK                                                   47                           5                            -                               -         -      (31)                    205    226
 US                                                   -                            -                            -                               53        41     392                     112    598
 Total other revenue                                  47                           5                            -                               53        41     361                     317    824
 Total revenue from continuing operations             1,946                        2,033                        4,659                           4,427     6,994  1,283                   317    21,659

 

Contract liabilities represent revenue to be recognised in future periods
relating to contributions in aid of construction of £2,246 million (2023:
£2,006 million).Revenue is recognised over the life of the asset. The asset
lives for connections in UK Electricity Transmission, UK Electricity
Distribution, New England and New York are 40 years, 69 years, 51 years and up
to 51 years respectively. The weighted average amortisation period is 32
years.

 

Future revenues in relation to unfulfilled performance obligations not yet
received in cash amount to £6.1 billion (2023: £5.0 billion). £1.9 billion
(2023: £1.8 billion) relates to connection contracts in UK Electricity
Transmission which will be recognised as revenue over 24 years and £3.8
billion (2023: £2.7 billion) relates to revenues to be earned under Grain LNG
contracts until 2045. The remaining amount will be recognised as revenue over
two years.

 

The amount of revenue recognised for the year ended 31 March 2024 from
performance obligations satisfied (or partially satisfied) in previous
periods, mainly due to changes in the estimate of the stage of completion, is
£nil (2023: £nil).

4.   Exceptional items and remeasurements

 

To monitor our financial performance, we use an adjusted consolidated profit
measure that excludes certain income and expenses. We exclude items from
adjusted profit because, if included, these items could distort understanding
of our performance for the year and the comparability between periods. This
note analyses these items, which are included in our results for the year but
are excluded from adjusted profit.

 

                                                                               2024     2023
                                                                               £m       £m
 Included within operating profit
 Exceptional items:
 Transaction, separation and integration costs(1)                              (44)     (117)
 Cost efficiency programme                                                     (65)     (100)
 IFA fire                                                                      92       130
 Changes in environmental provisions                                           (496)    176
 Provision for UK electricity balancing costs                                  (498)    -
 Net gain on disposal of NECO                                                  -        511
 Net gain on disposal of Millennium Pipeline Company LLC                       -        335
                                                                               (1,011)  935
 Remeasurements - commodity contract derivatives                               24       (350)
                                                                               (987)    585
 Included within finance income and costs
 Remeasurements:
 Net gains/(losses) on financial assets at fair value through profit and loss  4        (28)
 Net gains on financing derivatives                                            11       82
                                                                               15       54
 Included within share of post-tax results of joint ventures and associates
 Remeasurements:
 Net losses on financial instruments                                           (64)     (19)
 Total included within profit before tax                                       (1,036)  620
 Included within tax
 Tax on exceptional items                                                      159      (316)
 Tax on remeasurements                                                         (7)      75
                                                                               152      (241)
 Total exceptional items and remeasurements after tax                          (884)    379
 Analysis of total exceptional items and remeasurements after tax
 Exceptional items after tax                                                   (852)    619
 Remeasurements after tax                                                      (32)     (240)
 Total exceptional items and remeasurements after tax                          (884)    379

1.  Transaction, separation and integration costs represent the aggregate of
distinct activities undertaken by the Group in the years presented.

 

Exceptional items

Management uses an exceptional items framework that has been discussed and
approved by the Audit & Risk Committee. This follows a three-step process
which considers the nature of the event, the financial materiality involved
and any particular facts and circumstances. In considering the nature of the
event, management focuses on whether the event is within the Group's control
and how frequently such an event typically occurs. With respect to
restructuring costs, these represent additional expenses incurred that are not
related to the normal business and day-to-day activities. These can take place
over multiple reporting periods given the scale of the Group, the nature and
complexity of the transformation initiatives and due to the impact of
strategic transactions. In determining the facts and circumstances, management
considers factors such as ensuring consistent treatment between favourable and
unfavourable transactions, the precedent for similar items, the number of
periods over which costs will be spread or gains earned, and the commercial
context for the particular transaction. The exceptional items framework was
last updated in March 2022.

 

Items of income or expense that are considered by management for designation
as exceptional items include significant restructurings, write-downs or
impairments of non-current assets, significant changes in environmental or
decommissioning provisions, integration of acquired businesses, gains or
losses on disposals of businesses or investments and significant debt
redemption costs as a consequence of transactions such as significant
disposals or issues of equity, and the related tax, as well as deferred tax
arising on changes to corporation tax rates.

 

4.   Exceptional items and remeasurements continued

 

Costs arising from efficiency and transformation programmes include redundancy
costs. Redundancy costs are charged to the consolidated income statement in
the year in which a commitment is made to incur the costs and the main
features of the restructuring plan have been announced to affected employees.

 

Set out below are details of the transactions against which we have considered
the application of our exceptional items framework in each of the years for
which results are presented.

 

2024

Transaction, separation and integration costs

During the year, separation costs of £11 million were incurred in relation to
the disposal of NECO, £6 million in relation to the disposal of the UK Gas
Transmission business and £27 million in connection with the integration of
NGED. The costs incurred primarily relate to professional fees, relocation
costs and employee costs. The costs have been classified as exceptional in
accordance with our exceptional items policy. Whilst the transaction,
separation and integration 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 £340 million of costs in previous periods,
the costs qualify for exceptional treatment in line with our exceptional items
policy. The total cash outflow for the period was £33 million. The Group is
entitled to cost recovery in relation to the separation of the ESO.
Accordingly, these costs have not been classified as exceptional.

 

Cost efficiency programme

During the period, the Group incurred a further £65 million of costs in
relation to the major cost efficiency programme announced in November 2021,
that targeted 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
redundancy provisions, 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 £142 million of costs
incurred since the announcement of the programme, the costs qualify for
exceptional treatment in line with our exceptional items policy. The total
cash outflow for the period was £53 million. The cost efficiency programme
completed in the year.

 

Fire at IFA converter station

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 net insurance claims of £92 million, which were recognised as
exceptional in line with our exceptional items policy and consistent with
related claims in the prior year. The total cash inflow in the period in
relation to the insurance proceeds was £92 million.

 

Changes in environmental provisions

In the US, we recognise environmental provisions related to the remediation of
the Gowanus Canal and the former manufacturing gas plant facilities previously
owned or operated by the Group or its predecessor companies. The sites are
subject to both state and federal environmental remediation laws in the US.
Potential liability for the historical contamination may be imposed on
responsible parties jointly and severally, without regard to fault, even if
the activities were lawful when they occurred. The provisions and the Group's
share of estimated costs are re-evaluated at each reporting period. During the
second half of the financial year, following discussions with the New York
State Department of Environmental Conservation and the Environmental
Protection Agency on the scope and design of remediation activities related to
certain of our responsible sites, we have re-evaluated our estimates of total
costs and increased our provision by £496 million. Under the terms of our
rate plans, we are entitled to recovery of environmental clean-up costs from
rate payers in future reporting periods. Such recoveries through overall
allowed revenues are not classified as exceptional in the future periods that
they occur due to the extended duration over which such costs are recovered
and the immateriality of the recoveries in any given year.

 

Provision for UK electricity balancing costs

During the year, the ESO's operating profit increased due to a substantial
over-recovery of allowed revenues received under its regulatory framework. As
described in note 3, under IFRS a corresponding liability is not recognised
for the return of over-recoveries as this relates to future customers and
services that have not yet been delivered. At the end of October 2023,
legislation required to enable the separation of the ESO and the formation of
the NESO was passed through Parliament and accordingly, the Group took the
judgement to classify the assets and liabilities of the ESO as held for sale
(see note 9). An element of the over-recoveries will now be settled through
the sale process and it no longer represents an unrecognised regulatory
liability for the Group. Accordingly, a liability has been recognised for the
over-recovered revenues which are forecasted to transfer through the disposal.

4.   Exceptional items and remeasurements continued

 

2023

Transaction, separation and integration costs

Separation costs of £39 million were incurred in relation to the disposal of
NECO, £38 million in relation to the disposal of a majority stake in our UK
Gas Transmission business and £40 million in connection with the integration
of NGED. The costs incurred primarily relate to legal fees, bankers' fees,
professional fees and employee costs. The costs have been classified as
exceptional, consistent with similar costs for the years ended 31 March 2022
and 2021, and in line with the exceptional items policy. The total cash
outflow for the period was £84 million.

 

Cost efficiency programme

The Group incurred a further £100 million of costs in relation to the major
cost efficiency programme announced in November 2021. The costs recognised
primarily related to property costs, employee costs and professional fees
incurred in delivering the programme. Whilst the costs incurred during the
period did not meet the quantitative threshold to be classified as exceptional
on a standalone basis, when taken in aggregate with the £42 million of costs
incurred in the year ended 31 March 2022, the costs qualified for exceptional
treatment in line with our exceptional items policy. The total cash outflow
for the period was £85 million.

 

Fire at IFA converter station

In September 2021, a fire at the IFA1 converter station in Sellindge, Kent
caused significant damage to infrastructure on site. In the year, the Group
recognised £130 million of insurance claims (net of asset write-offs), which
have been recognised as exceptional in line with our exceptional items policy.
The total cash inflow for the period was £79 million.

 

Changes in environmental provisions

The real discount rate applied to the Group's environmental provisions was
revised to 1.5% (2023: 0.5%) to reflect the substantial and sustained change
in US government bond yield curves. The principal impact of this rate increase
was a £165 million decrease in our US environmental provisions and a £11
million decrease in our UK environmental provision. The weighted average
remaining duration of our cash flows was around 10.5 years.

 

Net gain on disposal of NECO

On 25 May 2022, the Group completed the sale of a wholly owned subsidiary,
NECO, to PPL Rhode Island Holdings, LLC for cash consideration of £3.1
billion. As a result, the Group derecognised net assets of £2.7 billion,
resulting in a pre-tax gain of £511 million. The receipt of cash was
recognised within net cash used in investing activities within the
consolidated cash flow statement.

 

Net gain on disposal of Millennium Pipeline Company LLC

The Group recognised a gain of £335 million on the disposal of its entire
26.25% equity interest in the Millennium Pipeline Company LLC associate to DT
Midstream for cash consideration of £497 million. The receipt of cash was
recognised within net cash used in investing activities within the
consolidated cash flow statement.

 

 

4.   Exceptional items and remeasurements continued

 

Remeasurements

Remeasurements comprise unrealised gains or losses recorded in the
consolidated income statement arising from changes in the fair value of
certain of our financial assets and liabilities accounted for at fair value
through profit and loss (FVTPL). Once the fair value movements are realised
(for example, when the derivative matures), the previously recognised fair
value movements are then reversed through remeasurements and recognised within
earnings before exceptional items and remeasurements. These assets and
liabilities include commodity contract derivatives and financing derivatives
to the extent that hedge accounting is not available or is not fully
effective.

 

The unrealised gains or losses reported in profit and loss on certain
additional assets and liabilities treated at FVTPL are also classified within
remeasurements. These relate to financial assets (which fail the 'solely
payments of principal and interest test' under IFRS 9), the money market fund
investments used by Group Treasury for cash management purposes and the net
foreign exchange gains and losses on borrowing activities. These are offset by
foreign exchange gains and losses on financing derivatives measured at fair
value. In all cases, these fair values increase or decrease because of changes
in foreign exchange, commodity or other financial indices over which we have
no control.

 

We report unrealised gains or losses relating to certain discrete classes of
financial assets accounted for at FVTPL within adjusted profit. These comprise
our portfolio of investments made by National Grid Partners, our investment in
Sunrun Neptune 2016 LLC and the contingent consideration arising on the
acquisition of National Grid Renewables (all within NGV). The performance of
these assets (including changes in fair value) is included in our assessment
of adjusted profit for the relevant business units.

 

Remeasurements excluded from adjusted profit are made up of the following
categories:

i.   Net gains/(losses) on commodity contract derivatives represent
mark-to-market movements on certain physical and financial commodity contract
obligations in the US. These contracts primarily relate to the forward
purchase of energy for supply to customers, or to the economic hedging
thereof, that are required to be measured at fair value and that do not
qualify for hedge accounting. Under the existing rate plans in the US,
commodity costs are recoverable from customers although the timing of recovery
may differ from the pattern of costs incurred;

ii.  Net gains/(losses) on financing derivatives comprise gains and losses
arising on derivative financial instruments, net of interest accrued, used for
the risk management of interest rate and foreign exchange exposures and the
offsetting foreign exchange losses and gains on the associated borrowing
activities. These exclude gains and losses for which hedge accounting has been
effective and have been recognised directly in the consolidated statement of
other comprehensive income or are offset by adjustments to the carrying value
of debt. Net foreign exchange gains and losses on financing derivatives used
for the risk management of foreign exchange exposures are offset by foreign
exchange losses and gains on borrowing activities;

iii. Net gains/(losses) on financial assets measured at FVTPL comprise gains
and losses on the investment funds held by our insurance captives which are
categorised as FVTPL; and

iv. Unrealised net gains/(losses) on derivatives and other financial
instruments within our joint ventures and associates.

 

 

5.   Finance income and costs

                                                                                    2024     2023
                                                                                    £m       £m
 Finance income
 Net interest income on pensions and other post-retirement benefit obligations      100      85
 Interest income on financial instruments:
 Bank deposits and other financial assets                                           139      80
 Dividends received on equities held at fair value through other comprehensive      1        1
 income (FVOCI)
 Other income                                                                       4        -
                                                                                    244      166
 Finance costs
 Interest expense on financial liabilities held at amortised cost:
 Bank loans and overdrafts                                                          (140)    (328)
 Other borrowings(1)                                                                (1,424)  (1,330)
 Interest on derivatives                                                            (277)    (170)
 Unwinding of discount on provisions                                                (102)    (88)
 Other interest                                                                     (31)     (13)
 Less: interest capitalised(2)                                                      251      249
                                                                                    (1,723)  (1,680)
 Remeasurements - Finance income
 Net gains/(losses) on FVTPL financial assets                                       4        (28)
                                                                                    4        (28)
 Remeasurements - Finance costs
 Net gains on financing derivatives³
 Derivatives designated as hedges for hedge accounting                              13       22
 Derivatives not designated as hedges for hedge accounting                          (2)      60
                                                                                    11       82
 Total remeasurements - Finance income and costs                                    15       54

 Finance income                                                                     248      138
 Finance costs(4)                                                                   (1,712)  (1,598)

 Net finance costs from continuing operations                                       (1,464)  (1,460)

1.  Includes interest expense on lease liabilities.

2.  Interest on funding attributable to assets in the course of construction
in the current year was capitalised at a rate of 4.7% (2023: 4.7%). In the UK,
capitalised interest qualifies for a current year tax deduction with tax
relief claimed of £39 million (2023: £30 million). In the US, capitalised
interest is added to the cost of property, plant and equipment, and qualifies
for tax depreciation allowances.

3.  Includes a net foreign exchange gain on borrowing and investment
activities of £271 million (2023: £86 million loss) offset by foreign
exchange gains and losses on financing derivatives measured at fair value and
the impacts of hedge accounting.

4.  Finance costs include principal accretion on inflation-linked liabilities
of £208 million (2023: £483 million).

 

6.   Tax

 

Tax charged to the consolidated income statement - continuing operations

                                                                          2024   2023
                                                                          £m     £m
 Tax before exceptional items and remeasurements                          983    635
 Exceptional tax on items not included in profit before tax (see note 4)  -      -
 Tax on other exceptional items and remeasurements                        (152)  241
 Total tax reported within exceptional items and remeasurements           (152)  241
 Total tax charge from continuing operations                              831    876

 

Tax as a percentage of profit before tax

                                                                      2024  2023
                                                                      %     %
 Before exceptional items and remeasurements - continuing operations  24.1  21.4
 After exceptional items and remeasurements - continuing operations   27.3  24.4

 

                                                                2024  2023
                                                                £m    £m
 Current tax:
 UK corporation tax at 25% (2023: 19%)                          410   161
 UK corporation tax adjustment in respect of prior years        (36)  -
                                                                374   161
 Overseas corporation tax                                       82    225
 Overseas corporation tax adjustment in respect of prior years  (90)  (16)
                                                                (8)   209
 Total current tax from continuing operations                   366   370
 Deferred tax:
 UK deferred tax                                                388   255
 UK deferred tax adjustment in respect of prior years           43    13
                                                                431   268
 Overseas deferred tax                                          (40)  233
 Overseas deferred tax adjustment in respect of prior years     74    5
                                                                34    238
 Total deferred tax from continuing operations                  465   506

 Total tax charge from continuing operations                    831   876

 

Factors that may affect future tax charges

The main UK corporation tax rate is 25% with effect from 1 April 2023.
Deferred tax balances as at 31 March 2024 have been calculated at 25%.

 

The US government continues to consider changes to federal tax legislation,
but as no changes have been substantively enacted at the balance sheet date,
deferred tax balances as at 31 March 2024 have been calculated at the
prevailing tax rates based on the current tax laws.

 

The legislation implementing the Organisation for Economic Co-operation and
Development's (OECD) proposals for a global minimum corporation tax rate
(Pillar Two) was enacted into UK law on 11 July 2023. The legislation includes
an income inclusion rule and a domestic minimum tax, which together are
designed to ensure a minimum effective tax rate of 15% in each country in
which the Group operates. Similar legislation is being enacted by other
governments around the world. The legislation is effective for National Grid
from 1 April 2024 and therefore the rules do not impact the Group's
consolidated financial statements for year ended 31 March 2024. The Group has
applied the mandatory exception in the UK to recognising and disclosing
information about the deferred tax assets and liabilities related to Pillar
Two income taxes in accordance with the amendments to IAS 12 published by the
IASB on 23 May 2023. The Group does not expect there to be a material impact
on our future tax charges.

 

7.   Earnings per share (EPS)

 

Adjusted earnings and EPS, which exclude exceptional items and remeasurements,
are provided to reflect the adjusted profit subtotals used by the Company. For
further details of exceptional items and remeasurements, see note 4. We have
included reconciliations from this additional EPS measure to earnings for both
basic and diluted EPS to provide additional detail for these items. The EPS
calculations are based on profit after tax attributable to equity shareholders
of the parent company which excludes non-controlling interests.

 

(a)  Basic EPS

                                                                               Earnings  EPS       Earnings  EPS
                                                                               2024      2024      2023      2023
                                                                               £m        pence     £m        pence
 Adjusted earnings from continuing operations                                  3,100     84.0      2,335     63.8
 Exceptional items and remeasurements after tax from continuing operations     (884)     (24.0)    379       10.4

 (see note 4)
 Earnings from continuing operations                                           2,216     60.0      2,714     74.2
 Adjusted earnings from discontinued operations (see note 9)                   13        0.3       320       8.7
 Exceptional items and remeasurements after tax from discontinued operations   61        1.7       4,763     130.2
 Earnings from discontinued operations                                         74        2.0       5,083     138.9
 Total adjusted earnings                                                       3,113     84.3      2,655     72.5
 Total exceptional items and remeasurements after tax (including discontinued  (823)     (22.3)    5,142     140.6
 operations)
 Total earnings                                                                2,290     62.0      7,797     213.1

                                                                                         2024                2023
                                                                                         millions            millions
 Weighted average number of ordinary shares - basic                                      3,692               3,659

 

(b)  Diluted EPS

                                                                               Earnings  EPS       Earnings  EPS
                                                                               2024      2024      2023      2023
                                                                               £m        pence     £m        pence
 Adjusted earnings from continuing operations                                  3,100     83.6      2,335     63.5
 Exceptional items and remeasurements after tax from continuing operations     (884)     (23.9)    379       10.3

 (see note 4)
 Earnings from continuing operations                                           2,216     59.7      2,714     73.8
 Adjusted earnings from discontinued operations                                13        0.3       320       8.7
 Exceptional items and remeasurements after tax from discontinued operations   61        1.7       4,763     129.6

 (see note 9)
 Earnings from discontinued operations                                         74        2.0       5,083     138.3
 Total adjusted earnings                                                       3,113     83.9      2,655     72.2
 Total exceptional items and remeasurements after tax (including discontinued  (823)     (22.2)    5,142     139.9
 operations)
 Total earnings                                                                2,290     61.7      7,797     212.1

                                                                                         2024                2023
                                                                                         millions            millions
 Weighted average number of ordinary shares - diluted                                    3,709               3,676

 

 

8.   Dividends

                                                  2024                                       2023
                                                  Pence       Cash       Scrip dividend      Pence       Cash       Scrip

                                                  per share   dividend   £m                  per share   dividend   dividend

                                                              paid                                       paid       £m

                                                              £m                                         £m
 Interim dividend in respect of the current year  19.40       393        320                 17.84       488        163
 Final dividend in respect of the prior year      37.60       1,325      56                  33.76       1,119      114
                                                  57.00       1,718      376                 51.60       1,607      277

 

The Directors are proposing a final dividend for the year ended 31 March 2024
of 39.12p per share that would absorb approximately £1,455 million of
shareholders' equity (assuming all amounts are settled in cash). It will be
paid on 19 July 2024 to shareholders who are on the register of members at 7
June 2024 (subject to shareholders' approval at the AGM). A scrip dividend
will be offered as an alternative.

9.   Assets held for sale and discontinued operations

 

(a)  Assets held for sale

 

The following assets and liabilities were classified as held for sale:

                                   2024                                                                           2023
                                   Total           Total liabilities held for sale  Net assets held for sale      Total      Total liabilities held for  Net assets held for

                                   assets          £m                               £m                            assets     sale                        sale

                                   held for sale                                                                  held for   £m                          £m

                                   £m                                                                             sale

                                                                                                                  £m
 UK Electricity System Operator    1,134           (1,427)                          (293)                         -          -                           -
 Investment in GasT TopCo Limited  689             -                                689                           1,443      -                           1,443
 FAA option                        -               -                                -                             -          (109)                       (109)
 RAA option                        -               (47)                             (47)                          -          -                           -
 Net assets held for sale          1,823           (1,474)                          349                           1,443      (109)                       1,334

 

UK Electricity System Operator

At the end of October 2023, legislation required to enable the separation of
the ESO and the formation of the NESO was passed through Parliament. The NESO
is expected to be established as a Public Corporation this calendar year, with
responsibilities across both the electricity and gas systems. The assets and
liabilities are consequently presented as held for sale in the consolidated
financial statements for the year ended 31 March 2024.

 

Based on the scale and pass-through nature of the ESO, it is not considered a
separate major line of business or geographic operation under IFRS 5 for
treatment as a discontinued operation, and its disposal is not part of a
single coordinated plan being undertaken by the Group. Accordingly, the
results of the ESO have not been separately disclosed on the face of the
income statement.

 

The following assets and liabilities of the ESO were classified as held for
sale at 31 March 2024.

                                                            £m
 Intangible assets                                          405
 Property, plant and equipment                              113
 Trade and other receivables                                563
 Pension asset                                              17
 Cash and cash equivalents                                  30
 Financing derivatives                                      6
 Total assets                                               1,134
 Borrowings                                                 (13)
 Other liabilities                                          (916)
 Provision for UK electricity balancing costs (note 4)      (498)
 Total liabilities                                          (1,427)
 Net liabilities                                            (293)

 

No impairment losses were recognised on reclassification of the ESO assets and
liabilities classified to held for sale. The ESO generated profit after tax of
£178 million for the year ended 31 March 2024 (2023: £182 million profit;
2022: £12 million loss).

 

 

9.   Assets held for sale and discontinued operations continued

The UK Gas Transmission business

On 31 January 2023, the Group disposed of 100% of the UK Gas Transmission
business for cash consideration of £4.0 billion and a 40% interest in a newly
incorporated UK limited company, GasT TopCo Limited. The other 60% was
purchased by MIRA and BCI (together, the Consortium). On disposal, the Group
recognised an investment in GasT TopCo Limited of £1.4 billion. As a result,
the Group derecognised net assets of £0.6 billion and the gain on disposal,
after transaction costs, was £4.8 billion. The Group also entered into a
Further Acquisition Agreement (the FAA option) with the Consortium over its
remaining 40% interest. Both the investment in GasT TopCo Limited and the FAA
option were immediately classified as held for sale. The Group has not applied
equity accounting in relation to its investment in GasT TopCo Limited.

 

On 11 March 2024, the FAA option was partially exercised by the Consortium and
the Group disposed of 20% of the 40% interest in GasT TopCo Limited that was
acquired on 31 January 2023. The total sales proceeds were £681 million and
the loss on disposal, after transaction costs, was £4 million.

 

As part of the transaction, the Group also entered into a new option agreement
with the Consortium, the Remaining Acquisition Agreement (the RAA option), to
replace the FAA option for the potential sale of all or part of the remaining
20% equity interest in GasT TopCo Limited. The RAA option is exercisable, at
the Consortium's option, between 1 May 2024 and 31 July 2024. If the RAA
option is partially exercised by the Consortium, the Group will have the right
to put the remainder of its interests in GasT TopCo Limited to the Consortium,
which can be exercised by the Group between 1 December 2024 and 31 December
2024.

 

The RAA option is a Level 3 derivative, which is accounted for at fair value,
and the assumptions which are used to determine fair value are specific to the
contract and not readily observable in active markets. Significant
unobservable inputs include the valuation and volatility of GasT TopCo
Limited's unlisted equity. These inputs are used as part of a Black-Scholes
option pricing model to provide the reported fair values. The fair value of
the option as at 31 March 2024 is £47 million. The RAA option will be
extinguished when the option is either exercised or lapses. The option cannot
be cash settled.

 

(b)  Discontinued operations

 

UK Gas Transmission

The disposal of the Group's interests in GasT TopCo Limited is considered to
be the final stage of the plan to dispose of the UK Gas Transmission business
which was first announced in 2021. As a discontinued operation, the results of
the business prior to the recognition of the associate and any remeasurements
pertaining to the financial derivatives noted above are shown separately from
the continuing business for all periods presented on the face of the income
statement. This is also reflected in the statement of comprehensive income, as
well as EPS being shown split between continuing and discontinued operations.

 

The summary income statements for the years ended 31 March 2024 and 2023 are
as follows:

                              Before exceptional items          Exceptional items           Total

                              and remeasurements                and remeasurements
                              2024           2023               2024        2023            2024  2023
                              £m             £m                 £m          £m              £m    £m
 Discontinued operations
 Revenue                      -              1,604              -           -               -     1,604
 Other operating costs        -              (890)              -           1               -     (889)
 Operating profit             -              714                -           1               -     715
 Finance income               17             15                 -           6               17    21
 Finance costs(1)             -              (310)              62          (53)            62    (363)
 Profit before tax            17             419                62          (46)            79    373
 Tax                          (4)            (99)               3           6               (1)   (93)
 Profit after tax from        13             320                65          (40)            78    280

 discontinued operations
 (Loss)/gain on disposal      -              -                  (4)         4,803           (4)   4,803
 Total profit after tax from  13             320                61          4,763           74    5,083

 discontinued operations

1.  Exceptional finance costs include the remeasurement of the FAA and RAA
options.

 

9.   Assets held for sale and discontinued operations continued

The summary statements of comprehensive income for discontinued operations for
the years ended 31 March 2024 and 2023 are as follows:

                                                                                2024  2023
                                                                                £m    £m
 Profit after tax from discontinued operations                                  74    5,083
 Other comprehensive (loss)/income from discontinued operations
 Items from discontinued operations that will never be reclassified to profit
 or loss:
 Remeasurement (losses)/gains on pension assets and post-retirement benefit     -     (313)
 obligations
 Net losses on financial liability designated at fair value through profit and  -     -
 loss attributable to changes in own credit risk
 Tax on items that will never be reclassified to profit or loss                 -     78
 Total (losses)/gains from discontinued operations that will never be           -     (235)
 reclassified to profit or loss
 Items from discontinued operations that may be reclassified subsequently to
 profit or loss:
 Net gains in respect of cash flow hedges                                       -     6
 Net gains/(losses) in respect of cost of hedging                               -     4
 Net gains on investments in debt instruments measured at fair value through    13    -
 other comprehensive income
 Tax on items that may be reclassified subsequently to profit or loss           (3)   (2)
 Total gains/(losses) from discontinued operations that may be reclassified     10    8
 subsequently to profit or loss
 Other comprehensive income/(loss) for the year, net of tax from discontinued   10    (227)
 operations
 Total comprehensive income for the year from discontinued operations           84    4,856

 

Details of the cash flows relating to discontinued operations are set out
within the consolidated cash flow statement. Cash inflows from investing
activities in the year comprised dividends received from GasT TopCo Limited of
£102 million.

 

 

10. Pensions and other post-retirement benefit obligations

                                        2024      2023
                                        £m        £m
 Present value of funded obligations    (17,601)  (18,934)
 Fair value of plan assets              19,733    21,246
                                        2,132     2,312
 Present value of unfunded obligations  (266)     (292)
 Other post-employment liabilities      (52)      (69)
 Net defined benefit asset              1,814     1,951
 Represented by:
 Liabilities                            (593)     (694)
 Assets                                 2,407     2,645
                                        1,814     1,951

 

The net pensions and other post-retirement benefit obligations position, as
recorded under IAS 19, at 31 March 2024 was a net asset of £1,814 million
compared to a net asset of £1,951 million at 31 March 2023. The movement of
£137 million reflects falls in asset values, partially offset by changes in
UK and US financial assumptions that resulted in a decrease in liabilities.

 

Actuarial Assumptions:

                                           UK pensions         US pensions         US other

                                                                                   post-retirement benefits
                                           2024    2023        2024    2023        2024           2023
                                           %       %           %       %           %              %
 Discount rate - past service              4.87    4.80        5.15    4.85        5.15           4.85
 Discount rate - future service            4.92    4.80        5.15    4.85        5.15           4.85
 Rate of increase in RPI - past service    3.05    3.17        n/a     n/a         n/a            n/a
 Rate of increase in RPI - future service  2.92    3.07        n/a     n/a         n/a            n/a
 Salary increases                          3.10    3.11        4.50    4.50        4.50           4.50
 Initial healthcare cost trend rate        n/a     n/a         n/a     n/a         7.10           6.80
 Ultimate healthcare cost trend rate       n/a     n/a         n/a     n/a         4.50           4.50

 

11. Net debt

 

Net debt is comprised as follows:

                                2024      2023
                                £m        £m
 Cash and cash equivalents      559       163
 Current financial investments  3,699     2,605
 Borrowings                     (47,072)  (42,985)
 Financing derivatives¹         (793)     (756)
                                (43,607)  (40,973)

1.  The derivatives balance included in net debt excludes the commodity
derivative liabilities of £83 million (2023: assets of £108 million).

 

 

12. Reconciliation of net cash flow to movement in net debt

                                                                                2024      2023
                                                                                £m        £m
 Increase/(decrease) in cash and cash equivalents                               427       (48)
 Increase/(decrease) in financial investments                                   993       (651)
 (Increase)/decrease in borrowings                                              (2,976)   5,268
 Increase in related derivatives(1)                                             140       455
 Change in debt resulting from cash flows                                       (1,416)   5,024
 Changes in fair value of financial assets and liabilities and exchange         703       (1,242)
 movements
 Net interest charge on the components of net debt                              (1,689)   (1,755)
 Other non-cash movements                                                       (209)     (283)
 Movement in net debt (net of related derivative financial instruments) in the  (2,611)   1,744
 year
 Net debt (net of related derivative financial instruments) at start of year    (40,973)  (42,809)
 Reclassification to held for sale                                              (23)      92
 Net debt (net of related derivative financial instruments) at end of year      (43,607)  (40,973)

1.  The derivatives balance included in net debt excludes the commodity
derivative liabilities of £83 million (2023: assets of £108 million).

 

                                                                        2024                          2023
                                                                        Borrowings  Financing         Borrowings  Financing

                                                                        and other   derivatives       and other   derivatives

                                                                        £m          £m                £m          £m
 Cash flows per financing activities section of cash flow statement:
 Proceeds received from loans                                           5,563       -                 11,908      -
 Repayment of loans                                                     (1,701)     -                 (15,260)    -
 Payments of lease liabilities                                          (118)       -                 (155)       -
 Net movements in short-term borrowings                                 544         -                 (511)       -
 Cash inflows on derivatives                                            -           86                -           190
 Cash outflows on derivatives                                           -           (58)              -           (118)
 Interest paid                                                          (1,330)     (297)             (1,277)     (153)
 Cash flows per financing activities section of cash flow statement     2,958       (269)             (5,295)     (81)
 Adjustments:
 Non-net debt-related items                                             18          -                 27          -
 Derivative cash (outflow)/inflow in relation to capital expenditure    -           (5)               -           (12)
 Derivative cash (outflow)/inflow included in revenue                   -           11                -           -
 Derivative cash inflows per investing section of cash flow statement   -           123               -           -
 Derivative cash outflows per investing section of cash flow statement  -           -                 -           (362)
 Cash flows relating to financing liabilities within net debt           2,976       (140)             (5,268)     (455)

 Analysis of changes in net debt:
 Borrowings                                                             2,976       -                 (5,268)     -
 Financing derivatives                                                  -           (140)             -           (455)
 Cash flow movements relating to financing liabilities within net debt  2,976       (140)             (5,268)     (455)

 

13. Post balance sheet events

On 22 May 2024, the Board resolved to offer a fully underwritten Rights Issue
to raise gross proceeds of £7 billion.

Alternative performance measures/non-IFRS reconciliations

 

Within the Annual Report, a number of financial measures are presented. These
measures have been categorised as alternative performance measures (APMs), as
per the European Securities and Markets Authority (ESMA) guidelines and the
Securities and Exchange Commission (SEC) conditions for use of non-GAAP
financial measures.

 

An APM is a financial measure of historical or future financial performance,
financial position, or cash flows, other than a financial measure defined
under IFRS. The Group uses a range of these measures to provide a better
understanding of its underlying performance. APMs are reconciled to the most
directly comparable IFRS financial measure where practicable.

 

The Group has defined the following financial measures as APMs derived from
IFRS: net revenue, the various adjusted operating profit, earnings and
earnings per share metrics detailed in the 'adjusted profit measures' section
below, net debt, funds from operations (FFO), FFO interest cover and retained
cash flow (RCF)/adjusted net debt. For each of these we present a
reconciliation to the most directly comparable IFRS measure. We present
'constant currency' comparative period performance and capital investment by
applying the current year average exchange rate to the relevant US dollar
amounts in the comparative periods presented, to remove the year-on-year
impact of foreign exchange translation.

 

We also have a number of APMs derived from regulatory measures which have no
basis under IFRS; we call these Regulatory Performance Measures (RPMs). They
comprise: Group RoE, operating company RoE, regulated asset base, regulated
financial performance, regulatory gearing, Asset growth, Value Added,
including Value Added per share and Value Growth. These measures include the
inputs used by utility regulators to set the allowed revenues for many of our
businesses.

 

We use RPMs to monitor progress against our regulatory agreements and certain
aspects of our strategic objectives. Further, targets for certain of these
performance measures are included in the Company's Annual Performance Plan
(APP) and LTPP and contribute to how we reward our employees. As such, we
believe that they provide close correlation to the economic value we generate
for our shareholders and are therefore important supplemental measures for our
shareholders to understand the performance of the business and to ensure a
complete understanding of Group performance.

 

As the starting point for our RPMs is not IFRS, and these measures are not
governed by IFRS, we are unable to provide meaningful reconciliations to any
directly comparable IFRS measures, as differences between IFRS and the
regulatory recognition rules applied have built up over many years. Instead,
for each of these we present an explanation of how the measure has been
determined and why it is important, and an overview as to why it would not be
meaningful to provide a reconciliation to IFRS.

 

 

Alternative performance measures

Net revenue and underlying net revenue

'Net revenue' is revenue less pass-through costs, such as UK system balancing
costs and gas and electricity commodity costs in the US. Pass-through costs
are fully recoverable from our customers and are recovered through separate
charges that are designed to recover those costs with no profit. Where revenue
received or receivable exceeds the maximum amount permitted by our regulatory
agreement, adjustments will be made to future prices to reflect this
over-recovery. No liability is recognised, as such an adjustment to future
prices relates to the provision of future services. Similarly, no asset is
recognised where a regulatory agreement permits adjustments to be made to
future prices in respect of an under-recovery. 'Underlying net revenue'
further adjusts net revenue to remove the impact of 'timing', i.e. 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).

 

 Year ended 31 March 2024        Gross     Pass-     Net revenue  Timing  Underlying

                                 revenue   through   £m           £m      net revenue

                                 £m        costs                          £m

                                           £m
 UK Electricity Transmission     2,735     (225)     2,510        (363)   2,147
 UK Electricity Distribution     1,795     (233)     1,562        159     1,721
 UK Electricity System Operator  3,788     (2,605)   1,183        (800)   383
 New England                     3,948     (1,653)   2,295        69      2,364
 New York                        6,094     (2,057)   4,037        20      4,057
 National Grid Ventures          1,389     -         1,389        -       1,389
 Other                           244       -         244          -       244
 Sales between segments          (143)     -         (143)        -       (143)
 Total - continuing operations   19,850    (6,773)   13,077       (915)   12,162
 Discontinued operations         -         -         -            -       -
 Total                           19,850    (6,773)   13,077       (915)   12,162

 

 Year ended 31 March 2023        Gross        Pass-     Net revenue  Timing  Underlying

                                 revenue(1)   through   £m           £m      net revenue

                                 £m           costs                          £m

                                              £m
 UK Electricity Transmission     1,987        (217)     1,770        112     1,882
 UK Electricity Distribution     2,045        (418)     1,627        139     1,766
 UK Electricity System Operator  4,690        (4,152)   538          (207)   331
 New England                     4,427        (2,095)   2,332        39      2,371
 New York                        6,994        (2,957)   4,037        (53)    3,984
 National Grid Ventures          1,341        -         1,341        -       1,341
 Other                           317          -         317          -       317
 Sales between segments          (142)        -         (142)        -       (142)
 Total - continuing operations   21,659       (9,839)   11,820       30      11,850
 Discontinued operations         1,604        (658)     946          (12)    934
 Total                           23,263       (10,497)  12,766       18      12,784

1.  Excluding exceptional income.

 

 

Adjusted profit measures

In considering the financial performance of our business and segments, we use
various adjusted profit measures in order to aid comparability of results
year-on-year. The various measures are presented on pages 21 to 28 and
reconciled below.

 

Adjusted results: These exclude the impact of exceptional items and
remeasurements that are treated as discrete transactions under IFRS and can
accordingly be classified as such. This is a measure used by management that
is used to derive part of the incentive target set annually for remunerating
certain Executive Directors, and further details of these items are included
in note 4.

 

Underlying results: Further adapts our adjusted results for continuing
operations to take account of volumetric and other revenue timing differences
arising due to the in-year difference between allowed and collected revenues,
including revenue incentives, as governed by our rate plans in the US or
regulatory price controls in the UK (but excluding certain totex-related
allowances and adjustments or allowances for pension deficit contributions).
For 2023/24, as highlighted below, our underlying results exclude £915
million (2022/23: £30 million) of timing differences as well as £226 million
(2022/23: £258 million) of major storm costs (as costs exceeded our $100
million threshold in both years). We expect to recover major storm costs
incurred through regulatory mechanisms in the US. Underlying results also
exclude deferred tax in our UK regulated business (NGET and NGED). Our UK
regulated revenue contain an allowance for current tax, but not for deferred
tax, so excluding the IFRS deferred tax charge aligns our underlying results
APM more closely with our regulatory performance measures.

 

Constant currency: 'Constant Currency Basis' refers to the reporting of the
actual results against the results for the same period last year which, in
respect of any US dollar currency denominated activity, have been translated
using the average US dollar exchange rate for the year ended 31 March 2024,
which was $1.26 to £1.00. The average rate for the year ended 31 March 2023,
was $1.22 to £1.00. Assets and liabilities as at 31 March 2023 have been
retranslated at the closing rate at 31 March 2024 of $1.26 to £1.00. The
closing rate for the reporting date 31 March 2023 was $1.23 to £1.00.

 

Reconciliation of statutory, adjusted and underlying profits from continuing
operations at actual exchange rates

 Year ended 31 March 2024                                    Statutory  Exceptionals and remeasurements  Adjusted  Timing  Major storm costs  Deferred tax on underlying profits in  Underlying

                                                             £m         £m                               £m        £m      £m                 NGET and NGED                          £m

                                                                                                                                              £m
 UK Electricity Transmission                                 1,674      3                                1,677     (363)   -                  -                                      1,314
 UK Electricity Distribution                                 975        18                               993       159     -                  -                                      1,152
 UK Electricity System Operator                              382        498                              880       (800)   -                  -                                      80
 New England                                                 641        2                                643       69      90                 -                                      802
 New York                                                    362        498                              860       20      136                -                                      1,016
 National Grid Ventures                                      558        (89)                             469       -       -                  -                                      469
 Other                                                       (117)      57                               (60)      -       -                  -                                      (60)
 Total operating profit                                      4,475      987                              5,462     (915)   226                -                                      4,773
 Net finance costs                                           (1,464)    (15)                             (1,479)   -       -                  -                                      (1,479)
 Share of post-tax results of joint ventures and associates  37         64                               101       -       -                  -                                      101
 Profit before tax                                           3,048      1,036                            4,084     (915)   226                -                                      3,395
 Tax                                                         (831)      (152)                            (983)     227     (61)               302                                    (515)
 Profit after tax                                            2,217      884                              3,101     (688)   165                302                                    2,880

 

 Year ended 31 March 2023                                    Statutory  Exceptionals and remeasurements  Adjusted  Timing  Major storm costs  Deferred tax on underlying profits in  Underlying(1)

                                                             £m         £m                               £m        £m      £m                 NGET and NGED                          £m

                                                                                                                                              £m
 UK Electricity Transmission                                 993        2                                995       112     -                  -                                      1,107
 UK Electricity Distribution                                 1,069      22                               1,091     139     -                  -                                      1,230
 UK Electricity System Operator                              237        1                                238       (207)   -                  -                                      31
 New England                                                 1,132      (424)                            708       39      72                 -                                      819
 New York                                                    541        200                              741       (53)    186                -                                      874
 National Grid Ventures                                      957        (467)                            490       -       -                  -                                      490
 Other                                                       (50)       81                               31        -       -                  -                                      31
 Total operating profit                                      4,879      (585)                            4,294     30      258                -                                      4,582
 Net finance costs                                           (1,460)    (54)                             (1,514)   -       -                  -                                      (1,514)
 Share of post-tax results of joint ventures and associates  171        19                               190       -       -                  -                                      190
 Profit before tax                                           3,590      (620)                            2,970     30      258                -                                      3,258
 Tax                                                         (876)      241                              (635)     (4)     (70)               178                                    (531)
 Profit after tax                                            2,714      (379)                            2,335     26      188                178                                    2,727

1.  Prior year comparatives have been restated to reflect the change in our
underlying earnings definition to remove the deferred tax in UK regulated
businesses (NGET and NGED).

 

Reconciliation of adjusted and underlying earnings from continuing operations
at constant currency

                                                                                           At constant currency
 Year ended 31 March 2023                                    Adjusted                      Constant currency adjustment  Adjusted  Timing  Major storm costs  Deferred tax on underlying profits in  Underlying(1)

                                                             at actual exchange rate                                                                          NGET and NGED
                                                             £m                            £m                            £m        £m      £m                 £m                                     £m
 UK Electricity Transmission                                 995                           -                             995       112     -                  -                                      1,107
 UK Electricity Distribution                                 1,091                         -                             1,091     139     -                  -                                      1,230
 UK Electricity System Operator                              238                           -                             238       (207)   -                  -                                      31
 New England                                                 708                           (26)                          682       37      69                 -                                      788
 New York                                                    741                           (27)                          714       (51)    179                -                                      842
 National Grid Ventures                                      490                           (1)                           489       -       -                  -                                      489
 Other                                                       31                            -                             31        -       -                  -                                      31
 Total operating profit                                      4,294                         (54)                          4,240     30      248                -                                      4,518
 Net finance costs                                           (1,514)                       22                            (1,492)   -       -                  -                                      (1,492)
 Share of post-tax results of joint ventures and associates  190                           (1)                           189       -       -                  -                                      189
 Profit before tax                                           2,970                         (33)                          2,937     30      248                -                                      3,215
 Tax                                                         (635)                         8                             (627)     (4)     (68)               178                                    (521)
 Profit after tax                                            2,335                         (25)                          2,310     26      180                178                                    2,694
 Attributable to non-controlling interests                   -                             -                             -         -       -                  -                                      -
 Earnings                                                    2,335                         (25)                          2,310     26      180                178                                    2,694
 Earnings per share (pence)                                  63.8                          (0.7)                         63.1      0.7     4.9                4.9                                    73.6

1.  Prior year comparatives have been restated to reflect the change in our
underlying earnings definition to remove the deferred tax in UK regulated
businesses (NGET and NGED).

 

Earnings per share calculations from continuing operations - at actual
exchange rates

The table below reconciles the profit after tax from continuing operations as
per the previous tables back to the earnings per share from continuing
operations for each of the adjusted profit measures. Earnings per share is
only presented for those adjusted profit measures that are at actual exchange
rates, and not for those at constant currency.

 Year ended 31 March 2024  Profit after tax  Non-controlling interest  Profit after tax attributable to the parent  Weighted    Earnings

                           £m                £m                        £m                                           average     per share

                                                                                                                    number of   pence

                                                                                                                    shares

                                                                                                                    Millions
 Statutory                 2,217             (1)                       2,216                                        3,692       60.0
 Adjusted                  3,101             (1)                       3,100                                        3,692       84.0
 Underlying                2,880             (1)                       2,879                                        3,692       78.0

 

 Year ended 31 March 2023  Profit after tax  Non-controlling interest  Profit after tax attributable to the parent  Weighted    Earnings

                           £m                £m                        £m                                           average     per share

                                                                                                                    number of   pence

                                                                                                                    shares

                                                                                                                    Millions
 Statutory                 2,714             -                         2,714                                        3,659       74.2
 Adjusted                  2,335             -                         2,335                                        3,659       63.8
 Underlying(1)             2,727             -                         2,727                                        3,659       74.5

1.  Prior year comparatives have been restated to reflect the change in our
underlying earnings definition to remove the deferred tax in UK regulated
businesses (NGET and NGED).

 

Reconciliation of total Group statutory operating profit to adjusted earnings
(including and excluding the impact of timing, major storm costs and deferred
tax on underlying profits in NGET and NGED)

 

                                                                   Adjusted                                                                              Underlying
                                                                   2024                                     2023                                         2024                                     2023(1)
                                                                   £m                                       £m                                           £m                                       £m
 Continuing operations
 Adjusted operating profit                                         5,462                                    4,294                                        4,773                                    4,582
 Adjusted net finance costs                                        (1,479)                                  (1,514)                                      (1,479)                                  (1,514)
 Share of post-tax results of joint ventures and associates        101                                      190                                          101                                      190
 Adjusted profit before tax                                        4,084                                    2,970                                        3,395                                    3,258
 Adjusted tax                                                      (983)                                    (635)                                        (515)                                    (531)
 Adjusted profit after tax                                         3,101                                    2,335                                        2,880                                    2,727
 Attributable to non-controlling interests                         (1)                                      -                                            (1)                                      -
 Adjusted earnings from continuing operations                      3,100                                    2,335                                        2,879                                    2,727
 Exceptional items after tax                                       (852)                                    619                                          (852)                                    619
 Remeasurements after tax                                          (32)                                     (240)                                        (32)                                     (240)
 Earnings from continuing operations                               2,216                                    2,714                                        1,995                                    3,106

                                                                   Including timing, major storm costs and deferred tax on underlying profits in         Excluding timing, major storm costs and deferred tax on underlying profits in
                                                                   NGET and NGED                                                                         NGET and NGED
                                                                   2024                                     2023                                         2024                                     2023(1)
                                                                   £m                                       £m                                           £m                                       £m
 Discontinued operations
 Adjusted operating profit                                         -                                        714                                          -                                        702
 Adjusted net finance costs                                        17                                       (295)                                        17                                       (295)
 Share of post-tax results of joint ventures and associates        -                                        -                                            -                                        -
 Adjusted profit before tax                                        17                                       419                                          17                                       407
 Adjusted tax                                                      (4)                                      (99)                                         (4)                                      (97)
 Adjusted profit after tax                                         13                                       320                                          13                                       310
 Attributable to non-controlling interests                         -                                        -                                            -                                        -
 Adjusted earnings from discontinued operations                    13                                       320                                          13                                       310
 Exceptional items and gain on disposal after tax                  (4)                                      4,811                                        (4)                                      4,811
 Remeasurements after tax                                          65                                       (48)                                         65                                       (48)
 Earnings from discontinued operations                             74                                       5,083                                        74                                       5,073

 Total Group (continuing and discontinued operations)
 Adjusted operating profit                                         5,462                                    5,008                                        4,773                                    5,284
 Adjusted net finance costs                                        (1,462)                                  (1,809)                                      (1,462)                                  (1,809)
 Share of post-tax results of joint ventures and associates        101                                      190                                          101                                      190
 Adjusted profit before tax                                        4,101                                    3,389                                        3,412                                    3,665
 Adjusted tax                                                      (987)                                    (734)                                        (519)                                    (628)
 Adjusted profit after tax                                         3,114                                    2,655                                        2,893                                    3,037
 Attributable to non-controlling interests                         (1)                                      -                                            (1)                                      -
 Adjusted earnings from continuing and discontinued operations     3,113                                    2,655                                        2,892                                    3,037
 Exceptional items after tax                                       (856)                                    5,430                                        (856)                                    5,430
 Remeasurements after tax                                          33                                       (288)                                        33                                       (288)
 Total Group earnings from continuing and discontinued operations  2,290                                    7,797                                        2,069                                    8,179

1.  Prior year comparatives have been restated to reflect the change in our
underlying earnings definition to remove the deferred tax in UK regulated
businesses (NGET and NGED).

 

Reconciliation of adjusted EPS to statutory earnings (including and excluding
the impact of timing, major storm costs and deferred tax on underlying profits
in NGET and NGED)

                                                                              Including timing, major storm costs and deferred tax on underlying profits in         Excluding timing, major storm costs and deferred tax on underlying profits in
                                                                              NGET and NGED                                                                         NGET and NGED
                                                                              2024                                     2023                                         2024                                     2023(1)
 Year ended 31 March                                                          pence                                    pence                                        pence                                    pence
 Adjusted EPS from continuing operations                                      84.0                                     63.8                                         78.0                                     74.5
 Exceptional items and remeasurements after tax from continuing operations    (24.0)                                   10.4                                         (24.0)                                   10.4
 EPS from continuing operations                                               60.0                                     74.2                                         54.0                                     84.9
 Adjusted EPS from discontinued operations                                    0.3                                      8.7                                          0.3                                      8.5
 Exceptional items and remeasurements after tax from discontinued operations  1.7                                      130.2                                        1.7                                      130.2
 EPS from discontinued operations                                             2.0                                      138.9                                        2.0                                      138.7
 Total adjusted EPS from continuing and discontinued operations               84.3                                     72.5                                         78.3                                     83.0
 Total exceptional items and remeasurements after tax from continuing and     (22.3)                                   140.6                                        (22.3)                                   140.6
 discontinued operations
 Total Group EPS from continuing and discontinued operations                  62.0                                     213.1                                        56.0                                     223.6

1.  Prior year comparatives have been restated to reflect the change in our
underlying earnings definition to remove the deferred tax in UK regulated
businesses (NGET and NGED).

 

Timing impacts

Under the Group's regulatory frameworks, the majority of the revenues that
National Grid is allowed to collect each year are governed by a regulatory
price control or rate plan. If we collect more than the allowed revenue,
adjustments will be made to future prices to reflect this over-recovery, and
if we collect less than the allowed level of revenue, adjustments will be made
to future prices to reflect the under-recovery. A number of costs in the UK
and the US are pass-through costs (including commodity and energy efficiency
costs in the US) and are fully recoverable from customers. Timing differences
between costs of this type being incurred and their recovery through revenues
are also included in over and under-recoveries. In the UK, timing differences
include an estimation of the difference between revenues earned under revenue
incentive mechanisms and associated revenues collected. UK timing balances and
movements exclude adjustments associated with changes to controllable cost
(totex) allowances or adjustments under the totex incentive mechanism. Opening
balances of over and under-recoveries have been restated where appropriate to
correspond with regulatory filings and calculations. New England and New York
in-year over/(under)-recovery and all New England and New York balances have
been translated using the average exchange rate of $1.26 for the year ended 31
March 2024.

 

                                                       UK                         UK                         UK                            New       New    Continuing  Discontinued  Total

                                                       Electricity Transmission   Electricity Distribution   Electricity System Operator   England   York   £m          £m            £m

                                                       £m                         £m                         £m                            £m        £m
 1 April 2023 opening balance(1)                       (213)                      (124)                      77                            (384)     683    39          -             39
 (Under)/over-recovery                                 363                        (159)                      800                           (69)      (20)   915         -             915
 31 March 2024 closing balance to (recover)/return(2)  150                        (283)                      877                           (453)     663    954         -             954

 

                                                         UK                         UK                         UK                            New       New    Continuing  Discontinued  Total

                                                         Electricity Transmission   Electricity Distribution   Electricity System Operator   England   York   £m          £m            £m

                                                         £m                         £m                         £m                            £m        £m
 1 April 2022 opening balance(1)                         (95)                       22                         (129)                         (330)     632    100         (160)         (60)
 (Under)/over-recovery                                   (112)                      (139)                      207                           (37)      51     (30)        12            (18)
 Disposals                                               -                          -                          -                             (17)      -      (17)        148           131
 31 March 2023 closing balance to (recover)/return(2,3)  (207)                      (117)                      78                            (384)     683    53          -             53

1.  Opening balances have been restated to reflect the finalisation of
calculated over/(under)-recoveries in both the UK and the US and also adjusted
for the regulatory time value of money impact on opening balances, where
appropriate, in the UK.

2.  The closing balance at 31 March 2024 was £954 million over-recovered
(translated at the closing rate of $1.26:£1). 31 March 2023 was £59 million
over-recovered (including discontinued operations and translated at the
closing rate of $1.23:£1).

 

 

Capital investment

We have updated our definition of capital investment this year. 'Capital
investment' or 'investment' both refer to additions to property, plant and
equipment and intangible assets, including capital prepayments plus equity
contributions to joint ventures and associates during the period. This measure
of capital investment is aligned with how we present our segmental information
(see note 2(c) to the financial statements for further details). References to
'capital investment' in our regulated networks include the following segments:
UK Electricity Transmissions, UK Electricity Distribution, UK Electricity
System Operator, New England and New York, but exclude National Grid Ventures
and 'Other'. Capital investment measures are presented at actual exchange
rates, but are also shown on a constant currency basis to show the
year-on-year comparisons excluding any impact of foreign currency translation
movements.

 

                                          At actual exchange rates             At constant currency
 Year ended 31 March                      2024       2023       %              2024     2023     %
                                          £m         £m         change         £m       £m       change
 UK Electricity Transmission              1,912      1,301      47             1,912    1,301    47
 UK Electricity Distribution              1,247      1,220      2              1,247    1,220    2
 UK Electricity System Operator           85         108        (21)           85       108      (21)
 New England                              1,673      1,527      10             1,673    1,470    14
 New York                                 2,654      2,454      8              2,654    2,363    12
 Capital investment (regulated networks)  7,571      6,610      15             7,571    6,462    17
 National Grid Ventures                   662        970        (32)           662      955      (31)
 Other                                    2          13         (85)           2        13       (85)
 Group capital investment - continuing    8,235      7,593      8              8,235    7,430    11
 Discontinued operations                  -          301        (100)          -        301      (100)
 Group capital investment - total         8,235      7,894      4              8,235    7,731    7

 

Capital expenditure

Capital expenditure (for the purposes of measuring green capex aligned to EU
Taxonomy) comprises additions to property, plant and equipment and intangible
assets, but excludes capital prepayments and equity contributions to joint
ventures and associates during the period.

 

                                                      2024   2023
                                                      £m     £m
 Asset type:
 Property, plant and equipment                        7,124  6,783
 Non-current intangible assets                        481    578
 Transfers from prepayments                           43     70
 Group capital expenditure - continuing               7,648  7,431
 Equity investments in joint ventures and associates  332    197
 Capital expenditure prepayments                      298    35
 Transfers to capital expenditure additions           (43)   (70)
 Group capital investment - continuing                8,235  7,593

 

Net debt

See notes 11 and 12 for reconciliation of net debt.

 

 

Funds from operations and interest cover

FFO are the cash flows generated by the operations of the Group. Credit rating
metrics, including FFO, are used as indicators of balance sheet strength.

 Year ended 31 March                                                      2024     2023¹
                                                                          £m       £m
 Interest expense (income statement)                                      1,723    1,680
 Hybrid interest reclassified as dividend                                 (38)     (39)
 Capitalised interest                                                     251      249
 Pensions interest adjustment                                             9        11
 Unwinding of discount on provisions                                      (102)    (88)
 Pension interest                                                         94       85
 Adjusted interest expense                                                1,937    1,898
 Net cash inflow from operating activities                                6,939    6,343
 Interest received on financial instruments                               148      65
 Interest paid on financial instruments                                   (1,627)  (1,430)
 Dividends received                                                       176      190
 Working capital adjustment                                               49       (286)
 Excess employer pension contributions                                    27       116
 Hybrid interest reclassified as dividend                                 38       39
 Add back accretions                                                      208      483
 Difference in net interest expense in income statement to cash flow      (253)    (395)
 Difference in current tax in income statement to cash flow               (24)     (281)
 Cash flow from discontinued operations                                   -        555
 Funds from operations (FFO)                                              5,681    5,399
 FFO interest cover ((FFO + adjusted interest expense)/adjusted interest  3.9x     3.8x
 expense)

1.  Numbers for 2023 reflect the calculations for the total Group as based on
the published accounts for that year.

 

Retained cash flow/adjusted net debt

RCF/adjusted net debt is one of two credit metrics that we monitor in order to
ensure the Group is generating sufficient cash to service its debts,
consistent with maintaining a strong investment-grade credit rating. We
calculate RCF/adjusted net debt applying the methodology used by Moody's, as
this is one of the most constrained calculations of credit worthiness. The net
debt denominator includes adjustments to take account of the equity component
of hybrid debt.

 

 Year ended 31 March                           2024     2023(1)
                                               £m       £m
 Funds from operations (FFO)                   5,681    5,399
 Hybrid interest reclassified as dividend      (38)     (39)
 Ordinary dividends paid to shareholders       (1,718)  (1,607)
 RCF                                           3,925    3,753
 Borrowings                                    47,072   42,985
 Less:
 50% hybrid debt                               (1,034)  (1,049)
 Cash and cash equivalents                     (578)    (126)
 Financial and other investments               (3,084)  (1,764)
 Underfunded pension obligations               266      292
 Borrowings in held for sale                   13       -
 Adjusted net debt (includes pension deficit)  42,655   40,338
 RCF/adjusted net debt                         9.2%     9.3%

1.  Numbers for 2023 reflect the calculations for the total Group as based on
the published accounts for that year.

 

 

Regulatory performance measures

Regulated financial performance - UK

Regulatory financial performance is a pre-interest and tax measure, starting
at segmental operating profit and making adjustments (such as the elimination
of all pass-through items included in revenue allowances and timing) to
approximate regulatory profit for the UK regulated activities. This measure
provides a bridge for investors between a well-understood and comparable IFRS
starting point and through the key adjustments required to approximate
regulatory profit. This measure also provides the foundation to calculate
Group RoE.

 

Under the UK RIIO regulatory arrangements the Company is incentivised to
deliver efficiencies against cost targets set by the regulator. In total,
these targets are set in terms of a regulatory definition of combined total
operating and capital expenditure, also termed 'totex'. The definition of
totex differs from the total combined regulated controllable operating costs
and regulated capital expenditure as reported in this statement according to
IFRS accounting principles. Key differences are capitalised interest, capital
contributions, exceptional costs, costs covered by other regulatory
arrangements and unregulated costs.

 

For the reasons noted above, the table below shows the principal differences
between the IFRS operating profit and the regulated financial performance, but
is not a formal reconciliation to an equivalent IFRS measure.

 

 

UK Electricity Transmission

 Year ended 31 March                                  2024   2023
                                                      £m     £m
 Adjusted operating profit                            1,677  995
 Movement in regulatory 'IOUs'                        (363)  107
 UK regulatory notional deferred taxation adjustment  219    73
 RAV indexation - 2% CPIH long-run inflation          343    309
 Regulatory vs IFRS depreciation difference           (553)  (536)
 Fast money/other                                     (119)  37
 Pensions                                             (2)    (44)
 Performance RAV created                              68     68
 Regulated financial performance                      1,270  1,009

 

UK Electricity Distribution

 Year ended 31 March                                         2024   2023
                                                             £m     £m
 Adjusted operating profit                                   993    1,091
 Less non-regulated profits                                  (8)    (46)
 Movement in regulatory 'IOUs'                               158    88
 UK regulatory notional deferred taxation adjustment         38     65
 RAV indexation - 2% CPIH (2023: 3% RPI) long-run inflation  216    277
 Regulatory vs IFRS depreciation difference                  (555)  (506)
 Fast money/other                                            (36)   11
 Pensions                                                    -      (157)
 Performance RAV created                                     50     22
 Regulated financial performance                             856    845

 

UK Electricity System Operator

 Year ended 31 March                                  2024   2023
                                                      £m     £m
 Adjusted operating profit                            880    238
 Movement in regulatory 'IOUs'                        (800)  (223)
 UK regulatory notional deferred taxation adjustment  2      (4)
 RAV indexation - 2% CPIH long-run inflation          7      7
 Regulatory vs IFRS depreciation difference           (19)   32
 Fast money/other                                     (29)   (2)
 Pensions                                             -      (11)
 Performance RAV created                              -      -
 Regulated financial performance                      41     37

 

UK Gas Transmission

 Year ended 31 March                                  2024  2023
                                                      £m    £m
 Adjusted operating profit                            -     714
 Less non-regulated profits                           -     (129)
 Movement in regulatory 'IOUs'                        -     (24)
 UK regulatory notional deferred taxation adjustment  -     28
 RAV indexation - 2% CPIH long-run inflation          -     109
 Regulatory vs IFRS depreciation difference           -     (331)
 Fast money/other                                     -     (1)
 Pensions                                             -     (9)
 Performance RAV created                              -     5
 Regulated financial performance                      -     362

 

 

Regulated financial performance - US

 

New England

 Year ended 31 March              2024  2023
                                  £m    £m
 Adjusted operating profit        643   708
 Major storm costs                90    72
 Timing                           69    39
 Depreciation adjustment(1)       -     (18)
 US GAAP pension adjustment       29    34
 Regulated financial performance  831   835

1.  The depreciation adjustment relates to the impact of the cessation of
depreciation for NECO under IFRS following reclassification as held for sale.

 

New York

 Year ended 31 March                                                   2024   2023
                                                                       £m     £m
 Adjusted operating profit                                             860    741
 Provision for bad and doubtful debts (COVID-19), net of recoveries¹   (34)   (21)
 Major storm costs                                                     136    186
 Timing                                                                20     (53)
 US GAAP pension adjustment                                            42     11
 Regulated financial performance                                       1,024  864

1.  New York financial performance includes an adjustment reflecting our
expectation for future recovery of COVID-19 related provisions for bad and
doubtful debts.

 

Total regulated financial performance

 Year ended 31 March                    2024   2023
                                        £m     £m
 UK Electricity Transmission            1,270  1,009
 UK Electricity Distribution            856    845
 UK Electricity System Operator         41     37
 UK Gas Transmission                    -      362
 New England                            831    835
 New York                               1,024  864
 Total regulated financial performance  4,022  3,952

 

New England and New York timing, major storms costs and movement in UK
regulatory 'IOUs' - Revenue related to performance in one year may be
recovered in later years. Where revenue received or receivable exceeds the
maximum amount permitted by our regulatory agreement, adjustments will be made
to future prices to reflect this over-recovery. No liability is recognised
under IFRS, as such an adjustment to future prices relates to the provision of
future services. Similarly, no asset is recognised under IFRS where a
regulatory agreement permits adjustments to be made to future prices in
respect of an under-recovery. In the UK, this is calculated as the movement in
other regulated assets and liabilities.

 

Performance RAV - UK performance efficiencies are in part remunerated by the
creation of additional RAV which is expected to result in future earnings
under regulatory arrangements. This is calculated as in-year totex
outperformance multiplied by the appropriate regulatory capitalisation ratio
and multiplied by the retained company incentive sharing ratio.

 

Pension adjustment - Cash payments against pension deficits in the UK are
recoverable under regulatory contracts. In US regulated operations, US GAAP
pension charges are generally recoverable through rates. Revenue recoveries
are recognised under IFRS but payments are not charged against IFRS operating
profits in the year. In the UK this is calculated as cash payments against the
regulatory proportion of pension deficits in the UK regulated business,
whereas in the US it is the difference between IFRS and US GAAP pension
charges.

 

2% CPIH and 3% RPI RAV indexation - Future UK revenues are expected to be set
using an asset base adjusted for inflation. This is calculated as UK RAV
multiplied by 2% long-run CPIH inflation assumption under RIIO-2 and a 3%
long-run RPI inflation assumption under RIIO-1.

 

UK regulatory notional deferred taxation adjustment - Future UK revenues are
expected to recover cash taxation cost including the unwinding of deferred
taxation balances created in the current year. This is the difference between:
(1) IFRS underlying EBITDA less other regulatory adjustments; and (2) IFRS
underlying EBITDA less other regulatory adjustments less current taxation
(adjusted for interest tax shield) then grossed up at full UK statutory tax
rate.

 

Regulatory depreciation - US and UK regulated revenues include allowance for a
return of regulatory capital in accordance with regulatory assumed asset
lives. This return does not form part of regulatory profit.

 

Fast/slow money adjustment - The regulatory remuneration of costs incurred is
split between in-year revenue allowances and the creation of additional RAV.
This does not align with the classification of costs as operating costs and
fixed asset additions under IFRS accounting principles. This is calculated as
the difference between IFRS classification of costs as operating costs or
fixed asset additions and the regulatory classification.

 

Regulated asset base

The regulated asset base is a regulatory construct, based on predetermined
principles not based on IFRS. It effectively represents the invested capital
on which we are authorised to earn a cash return. By investing efficiently in
our networks, we add to our regulated asset base over the long term, and this
in turn contributes to delivering shareholder value. Our regulated asset base
comprises our regulatory asset value in the UK plus our rate base in the US.

 

Maintaining efficient investment in our regulated asset base ensures we are
well positioned to provide consistently high levels of service to our
customers and increases our revenue allowances in future years. While we have
no specific target, our overall aim is to achieve around 10% growth in
regulated asset base each year through continued investment in our networks in
both the UK and US.

 

In the UK, the way in which our transactions impact RAV is driven by
principles set out by Ofgem. In a number of key areas these principles differ
from the requirements of IFRS, including areas such as additions and the basis
for depreciation. Further, our UK RAV is adjusted annually for inflation. RAV
in each of our retained UK businesses has evolved over the period since
privatisation in 1990 and, as a result, historical differences between the
initial determination of RAV and balances reported under UK GAAP at that time
still persist. In the case of UK ED, differences arise as the result of
acquisition fair value adjustments (where PP&E at acquisition has been
valued above RAV). Due to the above, substantial differences exist in the
measurement bases between RAV and an IFRS balance metric, and therefore it is
not possible to provide a meaningful reconciliation between the two.

 

In the US, rate base is a regulatory measure determined for each of our main
US operating companies. It represents the value of property and other assets
or liabilities on which we are permitted to earn a rate of return, as set out
by the regulatory authorities for each jurisdiction. The calculations are
based on the applicable regulatory agreements for each jurisdiction and
include the allowable elements of assets and liabilities from our US
companies. For this reason, it is not practical to provide a meaningful
reconciliation from the US rate base to an equivalent IFRS measure. However,
we include the calculation below.

 

'Total regulated and other balances' for our UK regulated businesses include
the under- or over-recovery of allowances that those businesses target to
collect in any year, which are based on the regulator's forecasts for that
year. Under the UK price control arrangements, revenues will be adjusted in
future years to take account of actual levels of collected revenue, costs and
outputs delivered when they differ from those regulatory forecasts. In the US,
other regulatory assets and liabilities include regulatory assets and
liabilities which are not included in the definition of rate base, including
working capital where appropriate.

 

'Total regulated and other balances' for NGV and other businesses includes
assets and liabilities as measured under IFRS, but excludes certain assets and
liabilities such as pensions, tax, net debt and goodwill. This included a
£101 million deferred balance for separation and transaction costs incurred
in 2021/22 related to the sale of NECO and UK Gas Transmission, which has been
released to offset against the proceeds received on disposal of these
businesses in 2022/23.

 

                                                     RAV, rate base or other business balances         Total regulated

                                                                                                       and other balances
 As at 31 March                                      2024                   2023¹                      2024(2,3)   2023(1,2,3)

 (£m at constant currency)
 UK Electricity Transmission                         18,462                 17,150                     17,940      17,009
 UK Electricity Distribution                         11,469                 10,787                     11,611      10,776
 UK Electricity System Operator                      425                    355                        (452)       277
 New England                                         8,710                  7,728                      10,565      9,852
 New York                                            16,387                 14,789                     17,425      15,818
 Total regulated                                     55,453                 50,809                     57,089      53,732
 National Grid Ventures and other business balances  7,593                  6,639                      7,213       6,735
 Total Group regulated and other balances            63,046                 57,448                     64,302      60,467

1.  Figures relating to prior periods have, where appropriate, been
re-presented at constant currency, for segmental reorganisation, opening
balance adjustments following the completion of the UK regulatory reporting
pack process and finalisation of US balances.

2.  Includes totex-related regulatory IOUs of £514 million (2023: £502
million) and over-recovered timing balances of £744 million (2023: £246
million under-recovered).

3.  Includes assets for construction work-in-progress of £2,068 million
(2023: £2,267 million), other regulatory assets related to timing and other
cost deferrals of £1,279 million (2023: £754 million) and net working
capital liabilities of £455 million (2023: £133 million net working capital
assets).

 

New England and New York rate base and other total regulated and other
balances for 31 March 2023 have been re-presented in the table above at
constant currency. At actual currency the values were £10.1 billion and
£16.2 billion respectively.

 

Group return on equity (RoE)

Group RoE provides investors with a view of the performance of the Group as a
whole compared with the amounts invested by the Group in assets attributable
to equity shareholders. It is the ratio of our regulatory financial
performance to our measure of equity investment in assets. It therefore
reflects the regulated activities as well as the contribution from our
non-regulated businesses together with joint ventures and non-controlling
interests.

 

We use Group RoE to measure our performance in generating value for our
shareholders, and targets for Group RoE are included in the incentive
mechanisms for executive remuneration within both the APP and LTPP schemes.

 

Group RoE is underpinned by our regulated asset base. For the reasons noted
above, no reconciliation to IFRS has been presented, as we do not believe it
would be practical. However, we do include the calculations below.

 

Calculation: Regulatory financial performance including a long-run inflation
assumption (3% RPI for RIIO-1; 2% CPIH for RIIO-2), less adjusted interest and
adjusted taxation divided by equity investment in assets:

•  adjusted interest removes accretions above long-run inflation rates,
interest on pensions, capitalised interest in regulated operations and unwind
of discount rate on provisions;

•  adjusted taxation adjusts the Group taxation charge (before exceptional
items and remeasurements) for differences between IFRS profit before tax and
regulated financial performance less adjusted interest; and

•  equity investment in assets is calculated as the total opening UK
regulatory asset value, the total opening US rate base plus goodwill plus
opening net book value of National Grid Ventures and other activities
(excluding certain amounts such as pensions, tax and commodities) and our
share of joint ventures and associates, minus opening net debt as reported
under IFRS restated to the weighted average sterling-dollar exchange rate for
the year.

 

Group RoE

 Year ended 31 March                                             2024      2023
                                                                 £m        £m
 Regulated financial performance                                 4,022     3,952
 Operating profit of other activities - continuing operations    467       595
 Operating profit of other activities - discontinued operations  -         113
 Group financial performance                                     4,489     4,660
 Share of post-tax results of joint ventures and associates(1)   174       202
 Non-controlling interests                                       (1)       -
 Adjusted total Group interest charge (including discontinued)   (1,613)   (1,546)
 Total Group tax charge (including discontinued)                 (983)     (734)
 Tax on adjustments                                              270       7
 Total Group financial performance after interest and tax        2,336     2,589
 Opening rate base/RAV                                           50,806    55,558
 Opening other balances                                          7,973     5,410
 Opening goodwill                                                11,444    12,253
 Opening strategic pivot (asset swap) adjustment(2)              (3,464)   -
 Opening capital employed                                        66,759    73,221
 Opening net debt                                                (40,505)  (49,691)
 Opening equity                                                  26,254    23,530
 Group RoE                                                       8.9%      11.0%

1.  2024 includes £73 million (2023: £12 million) in respect of the Group's
retained minority interest in National Gas Transmission.

2.  Following the completion of our strategic pivot, regulatory gains on the
disposal of NECO and UK Gas Transmission (based on the proceeds received less
the RAV, rate base and other related balances used to calculate the Group RoE
denominator) have been deducted against the IFRS goodwill recognised on the
acquisition of National Grid Electricity Distribution in calculating the total
denominator used to calculate Group RoE. For this metric, the purchase of NGED
and the sales of both NECO and UK Gas Transmission are deemed to be linked
transactions and so the opening equity reflects the impact of these as asset
swaps rather than as unrelated transactions.

 

UK and US regulated RoE

 Year ended 31 March          Regulatory Debt:        Achieved Return         Base or Allowed

                              Equity assumption       on Equity               Return on Equity
                                                      2024      2023          2024       2023

                                                      %         %             %          %
 UK Electricity Transmission  55/45                   8.0       7.5           7.0        6.3
 UK Electricity Distribution  60/40                   8.5       13.2          7.4        9.6
 UK Gas Transmission          60/40                   -         7.8           -          6.6
 New England                  Avg. 45/55              9.2       8.3           9.9        9.9
 New York                     Avg. 52/48              8.5       8.6           8.9        8.9

 

UK businesses' regulated RoEs

UK regulated businesses' RoEs are a measure of how the businesses are
performing against the assumptions used by our UK regulator. These returns are
calculated using the assumption that the businesses are financed in line with
the regulatory adjudicated capital structure, at the cost of debt assumed by
the regulator, and that inflation is equal to a long-run assumption of 3% RPI
under RIIO-1 and 2% CPIH under RIIO-2. They are calculated by dividing
elements of out/under-performance versus the regulatory contract (i.e.
regulated financial performance disclosed above) by the average equity RAV in
line with the regulatory assumed capital structure and adding to the base
allowed RoE.

 

These are important measures of UK regulated businesses' performance, and our
operational strategy continues to focus on these metrics. These measures can
be used to determine how we are performing under the RIIO framework and also
help investors to compare our performance with similarly regulated UK
entities. Reflecting the importance of these metrics, they are also key
components of the APP scheme.

 

The respective businesses' UK RoEs are underpinned by their RAVs. For the
reasons noted above, no reconciliation to IFRS has been presented, as we do
not believe it would be practical.

 

 

US businesses' regulated RoEs

US regulated businesses' RoEs are a measure of how the businesses are
performing against the assumptions used by the US regulators. This US
operational return measure is calculated using the assumption that the
businesses are financed in line with the regulatory adjudicated capital
structure and allowed cost of debt. The returns are divided by the average
rate base (or where a reported rate base is not available, an estimate based
on rate base calculations used in previous rate filings) multiplied by the
adjudicated equity portion in the regulatory adjudicated capital structure.

 

These are important measures of our New England and New York regulated
businesses' performance, and our operational strategy continues to focus on
these metrics. This measure can be used to determine how we are performing and
also helps investors compare our performance with similarly regulated US
entities. Reflecting the importance of these metrics, they are also key
components of the APP scheme.

 

The New England and New York businesses' returns are based on a calculation
which gives proportionately more weighting to those businesses which have a
greater rate base. For the reasons noted above, no reconciliations to IFRS for
the RoE measures have been presented, as we do not believe it would be
practical to reconcile our IFRS balance sheet to the equity base.

 

The table below shows the principal differences between the IFRS result of the
New England and New York segments, and the 'returns' used to derive their
respective US jurisdictional RoEs. In outlining these differences, we also
include the aggregated business results under US GAAP for New England and New
York jurisdictions.

 

In respect of 2022/23, this measure is the aggregate operating profit of our
US OpCo entities' publicly available financial statements prepared under US
GAAP for the New England and New York jurisdictions respectively. For 2023/24,
this measure represents our current estimate, since local financial statements
have yet to be prepared.

 

                                                           2024    2023
                                                           £m      £m
 Underlying IFRS operating profit for New England segment  802     819
 Underlying IFRS operating profit for New York segment     1,016   874
 Weighted average £/$ exchange rate                        $1.262  $1.216

 

                                                                          New England         New York
                                                                          2024    2023        2024   2023
                                                                          $m      $m          $m     $m
 Underlying IFRS operating profit for US segments                         1,013   995         1,283  1,060
 Adjustments to convert to US GAAP as applied in our US OpCo entities
 Adjustment in respect of customer contributions                          (29)    (26)        (37)   (34)
 Pension accounting differences(1)                                        43      39          63     12
 Environmental charges recorded under US GAAP                             10      (3)         21     58
 Storm costs and recoveries recorded under US GAAP                        (56)    (54)        6      (39)
 Removal of partial year Rhode Island in year of disposal                 -       (65)        -      -
 Other regulatory deferrals, amortisation and other items                 (139)   (217)       (155)  86
 Results for US regulated OpCo entities, aggregated under US GAAP(2)      842     669         1,181  1,143
 Adjustments to determine regulatory operating profit used in US RoE
 Adjustment for COVID-19-related provision for bad and doubtful debts(3)  -       -           -      (171)
 Net other                                                                14      113         151    171
 Regulatory operating profit                                              856     782         1,332  1,143
 Pensions(1)                                                              60      (17)        159    219
 Regulatory interest charge                                               (199)   (176)       (374)  (339)
 Regulatory tax charge                                                    (196)   (159)       (305)  (279)
 Regulatory earnings used to determine US RoE                             521     430         812    744

1.  Following a change in US GAAP accounting rules, an element of the
pensions charge is reported outside operating profit with effect from 2019.

2.  Based on US GAAP accounting policies as applied by our US regulated OpCo
entities.

3.  US RoE included an adjustment reflecting our expectation for future
recovery of COVID-19-related bad and doubtful debt costs in 2020/21. The
adjustment is being unwound as regulated assets are recognised in respect of
the same debts in our US GAAP accounts.

 

                                        New England         New York
                                        2024    2023        2024   2023
                                        $m      $m          $m     $m
 US equity base (average for the year)  5,645   5,155       9,517  8,670
 US jurisdiction RoE                    9.2%    8.3%        8.5%   8.6%

 

Asset growth, Value Added, Value Added per share and Value Growth

To help readers' assessment of the financial position of the Group, the table
below shows an aggregated position for the Group, as viewed from a regulatory
perspective. The asset growth and Value Added measures included in the table
below are calculated in part from financial information used to derive
measures sent to and used by our regulators in the UK and US, and accordingly
inform certain of the Group's regulatory performance measures, but are not
derived from, and cannot be reconciled to, IFRS. These alternative performance
measures include regulatory assets and liabilities and certain IFRS assets and
liabilities of businesses that were classified as held for sale under IFRS 5.

 

Asset growth is the annual percentage increase in our RAV and rate base and
other non-regulated business balances (including our investments in NGV, UK
property and other assets and US other assets) calculated at constant
currency.

 

Value Added is a measure that reflects the value to shareholders of our cash
dividend and the growth in National Grid's regulated and non-regulated assets
(as measured in our regulated asset base, for regulated entities), and
corresponding growth in net debt. It is a key metric used to measure our
performance and underpins our approach to sustainable decision making and
long-term management incentive arrangements.

 

Value Added is derived using our regulated asset base and, as such, it is not
practical to provide a meaningful reconciliation from this measure to an
equivalent IFRS measure due to the reasons set out for our regulated asset
base. The calculation is set out on page 101.

 

Value Added per share is calculated by dividing Value Added by the weighted
average number of shares (3,692 million) set out in note 7.

 

Value Growth of 9.5% (2023: 12.4%) is derived from Value Added by adjusting
Value Added to normalise for our estimate of the long-run inflation rate (3%
RPI for RIIO-1, 2% CPIH for RIIO-2) on RAV indexation and index-linked debt
interest accretions. In 2024, the numerator for Value Growth was £2,503
million (2023: £2,902 million). The denominator is Group equity as used in
the Group RoE calculation, adjusted for foreign exchange movements.

 

The tables below include related balances and net debt up to the dates of
disposal for NECO (25 May 2022) and the UK Gas Transmission and Metering (31
January 2023), despite being reclassified as held for sale under IFRS.

 

                                                2023/24
 £m constant currency                           31 March 2024  31 March 2023  Value Added  Change
 UK RAV                                         30,356         28,292         2,064        7%
 US rate base                                   25,097         22,517         2,580        11%
 Total RAV and rate base                        55,453         50,809         4,644        9%
 National Grid Ventures and other               7,593          6,639          954          14%
 Total assets (used to calculate asset growth)  63,046         57,448         5,598        10%
 UK other regulated balances(1)                 (1,257)        (230)          (1,027)
 US other regulated balances(2,3)               3,489          3,153          791
 Other balances                                 (976)          96             (1,072)
 Total assets and other balances                64,302         60,467         4,290

 Cash dividends                                                               1,718
 Adjusted net debt movement                                                   (3,077)
 Value Added                                                                  2,931

1.  Includes totex-related regulatory IOUs of £514 million, under-recovered
timing balances of £744 million.

2.  Change in year excludes a £455 million reduction in US other regulated
balances related to tax assets for net operating losses that were utilised in
2023/24 to offset tax due on disposal of NECO, which was sold in 2022/23.

3.  Includes assets for construction work-in-progress of £2,068 million,
other regulatory assets related to timing and other cost deferrals of £1,279
million and net working capital liabilities of £455 million.

 

                                                2022/23
 £m constant currency                           31 March 2023  Disposal                     31 March 2022  Value Added  Change

                                                               of NECO

                                                               and UK Gas Transmission(1)
 UK RAV                                         28,205         (6,989)                      31,577         3,617        11%
 US rate base                                   23,038         (2,476)                      23,628         1,886        8%
 Total RAV and rate base                        51,243         (9,465)                      55,205         5,503        10%
 National Grid Ventures and other               6,604          (143)                        5,374          1,373        26%
 Total assets (used to calculate asset growth)  57,847         (9,608)                      60,579         6,876        11%
 UK other regulated balances(2)                 (255)          (141)                        75             (189)
 US other regulated balances(3)                 3,226          (250)                        2,792          684
 Other balances                                 108            1,239                        (808)          (323)
 Total assets and other balances                60,926         (8,760)                      62,638         7,048

 Cash dividends                                                                                            1,607
 Adjusted net debt movement(1)                                                                             (3,848)
 Value Added                                                                                               4,807

1.  The disposal of NECO on 25 May 2022 and UK Gas Transmission on 31 January
2023 resulted in an increase in assets which has been excluded from the total
change in the year used to calculate asset growth and Value Added for 2022/23.
The decrease in RAV and rate base and other regulated balances relating to the
businesses disposed along with the net debt disposed and cash proceeds
received (plus associated transaction costs) are excluded from the total
adjusted net debt movement in the year used to calculate asset growth and
Value Added.

2.  Includes totex-related regulatory IOUs of £502 million, under-recovered
timing balances of £246 million.

3.  Includes assets for construction work-in-progress of £2,319 million,
other regulatory assets related to timing and other cost deferrals of £771
million and net working capital assets of £136 million.

 

Figures relating to prior periods have, where appropriate, been re-presented
at constant currency, for opening balance adjustments following the completion
of the UK regulatory reporting pack process and finalisation of US balances.

 

Regulatory gearing

Regulatory gearing is a measure of how much of our investment in RAV and rate
base and other elements of our invested capital (including our investments in
NGV, UK property and UK other assets and US other assets) is funded through
debt. Comparative amounts as at 31 March 2023 are presented at historical
exchange rates and have not been restated for opening balance adjustments.

 As at 31 March                                                                 2024      2023
                                                                                £m        £m
 UK RAV                                                                         30,356    28,205
 US rate base                                                                   25,097    23,038
 Other invested capital included in gearing calculation                         7,593     6,604
 Total assets included in gearing calculation                                   63,046    57,847
 Net debt (including 100% of hybrid debt and held for sale)                     (43,584)  (40,973)   change
 Group gearing (based on 100% of net debt including held for sale)              69%       71%       (2)% pts
 Group gearing (excluding 50% of hybrid debt from net debt) including held for  67%       69%       (2)% pts
 sale

 

 1 For further information, please refer to our announcement made today,
"National Grid plc - 7 for 24 fully underwritten Rights Issue to raise c.£7
billion;

New 5-year investment framework for FY25-29; Deliver £60bn investment in
energy infrastructure."

 2 Excluding two months' contribution from Narragansett Electric Company
(NECO) in 2022/23.

 3 If approved, this would be in addition to the capital investment requested
under the MECO filing.

 4 KPI relates to capital expenditure as defined in Article 8 of the EU
Taxonomy regulation. It does not include 'equity investments to joint ventures
and associates' or 'capital expenditure prepayments'.

 5 Employee and contractor lost time injury frequency rate per 100,000 hours
worked.

 6 Excluding Narragansett Electric Company from 2022/23.

 7 Our previous SBT was to reduce Scope 1 and 2 emissions by 50% by 2030 from
a 2015/16 baseline.

 8 KPI relates to capital expenditure as defined in Article 8 of the EU
Taxonomy regulation. It does not include 'equity investments to joint ventures
and associates' or 'capital expenditure prepayments'.

 9 A diverse employee is defined as a colleague who identifies as a woman, as
a person with a disability, part of the LGBTQ+ community or from an
under-represented ethnic/racially diverse background.

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rns@lseg.com (mailto:rns@lseg.com)
 or visit
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.

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.   END  FR ATMBTMTJTTJI

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