REG - National Grid PLC - Results for the year ended 31 MARCH 2016 <Origin Href="QuoteRef">NG.L</Origin> - Part 4
19/05/2016 07:10
- Part 4: For the preceding part double click ID:nRSS6702Yc
486 437 486 437
UK Gas Distribution 878 826 878 826
US Regulated 1,185 1,164 1,196 1,081
Other activities 374 199 352 199
4,096 3,863 4,085 3,780
Geographical areas:
UK 2,889 2,820 2,867 2,820
US 1,207 1,043 1,218 960
4,096 3,863 4,085 3,780
Reconciliation to profit before tax:
Operating profit 4,096 3,863 4,085 3,780
Finance income 22 36 22 36
Finance costs (1,035) (1,069) (1,134) (1,234)
Share of post-tax results of joint ventures and associates 59 46 59 46
Profit before tax 3,142 2,876 3,032 2,628
3. Exceptional items and remeasurements
Exceptional items and remeasurements are items of income and expenditure that, in the judgment of management, should be
disclosed separately on the basis that they are important to an understanding of our financial performance and
significantly distort the comparability of financial performance between periods. Remeasurements comprise gains or losses
recorded in the income statement arising from changes in the fair value of commodity contracts and of derivative financial
instruments to the extent that hedge accounting is not achieved or is not effective.
2016 2015
£m £m
Included within operating profit:
Exceptional items - transaction costs1 (22) -
Remeasurements - commodity contracts2 11 (83)
(11) (83)
Included within finance costs:
Exceptional items:
Debt redemption costs3 - (131)
Remeasurements:
Net losses on derivative financial instruments4 (99) (34)
(99) (165)
Total included within profit before tax (110) (248)
Included within tax:
Exceptional credits arising on items not included in profit before tax:
Deferred tax credit arising on the reduction in the UK corporation tax rate5 296 6
Tax on exceptional items 4 28
Tax on remeasurements2,4 15 44
315 78
Total exceptional items and remeasurements after tax 205 (170)
Analysis of total exceptional items and remeasurements after tax:
Exceptional items after tax 278 (97)
Remeasurements after tax (73) (73)
Total 205 (170)
1. In November 2015, the Group announced that it was considering disposing of a majority stake in its UK Gas Distribution
business. In the year ended 31 March 2016, sale preparation costs of £22m were recognised in respect of this potential
transaction. These costs have been treated as exceptional, achieving a consistent presentation with the expected treatment
of the transaction on completion.
2. Remeasurements - commodity contracts represent mark-to-market movements on certain physical and financial commodity
contract obligations in the US. These contracts primarily relate to the forward purchase of energy for supply to customers,
or to the economic hedging thereof, that are required to be measured at fair value and that do not qualify for hedge
accounting. Under the existing rate plans in the US, commodity costs are recoverable from customers although the timing of
recovery may differ from the pattern of costs incurred.
3. Represents costs arising from a liability management programme. In 2015, we reviewed and restructured the Group debt
portfolio following the commencement of the RIIO price controls in 2013 and the slow down in our planned UK capital
investment programme as the industry assessed the impact of Electricity Market Reform.
4. Remeasurements - net losses on derivative financial instruments comprise losses arising on derivative financial
instruments reported in the income statement. These exclude gains and losses for which hedge accounting has been effective,
which have been recognised directly in other comprehensive income or which are offset by adjustments to the carrying value
of debt. The tax charge in the year includes a credit of £1m (2015: £1m credit) in respect of prior years.
5. The Finance No. 2 Bill 2015 included a reduction in the UK corporation tax rate from 20% to 19% for the year beginning
1 April 2017, with a further reduction from 19% to 18% for the year beginning 1 April 2020. The Finance Act 2013 enacted
reductions in the UK corporation tax rate from 23% to 21% from 1 April 2014, and from 21% to 20% from 1 April 2015. These
reductions have resulted in decreases to UK deferred tax liabilities in these periods.
4. Finance income and costs
2016 2015
£m £m
Finance income 22 36
Finance costs
Net interest on pension and other post-retirement benefit obligations (112) (101)
Interest expense on financial instruments (962) (981)
Unwinding of discounts on provisions (73) (73)
Less: interest capitalised1 112 86
Finance costs before exceptional items and remeasurements (1,035) (1,069)
Exceptional items:
Debt redemption costs - (131)
Remeasurements:
Net losses on derivative financial instruments2, 3 (99) (34)
Exceptional items and remeasurements included within finance costs (99) (165)
Finance costs (1,134) (1,234)
Net finance costs (1,112) (1,198)
1. Interest on funding attributable to assets in the course of construction in the current year was capitalised at a
rate of 3.3% (2015: 3.8%). In the UK, capitalised interest qualifies for a current year tax deduction with tax relief
claimed of £19m (2015: £24m). In the US, capitalised interest is added to the cost of plant and qualifies for tax
depreciation allowances.
2. Includes a net foreign exchange loss on financing activities of £407m (2015: £636m gain) offset by foreign exchange
gains and losses on derivative financial instruments measured at fair value.
3. Includes a net gain on instruments designated as fair value hedges of £34m (2015: £219m gain) and a net gain of £5m
(2015: £162m loss) arising from fair value adjustments to the carrying value of debt.
5. Tax
2016 2015
£m £m
Tax before exceptional items and remeasurements 753 695
Exceptional tax on items not included in profit before tax (note 3) (296) (6)
Tax on other exceptional items and remeasurements (19) (72)
Tax on total exceptional items and remeasurements (note 3) (315) (78)
Total tax charge 438 617
Tax as a percentage of profit before tax % %
Before exceptional items and remeasurements 24.0 24.2
After exceptional items and remeasurements 14.4 23.5
The tax charge for the year can be analysed as follows:
£m £m
Current tax
UK corporation tax at 20% (2015: 21%) 322 309
UK corporation tax adjustment in respect of prior years (7) (2)
Overseas corporation tax 38 51
Overseas corporation tax adjustment in respect of prior years (19) (62)
Total current tax 334 296
Deferred tax
UK deferred tax (152) 123
UK deferred tax adjustment in respect of prior years 26 7
Overseas deferred tax 229 138
Overseas deferred tax adjustment in respect of prior years 1 53
Total deferred tax 104 321
Total tax charge 438 617
6. Earnings per share
Adjusted earnings per share, excluding exceptional items and remeasurements, are provided to reflect the business
performance subtotals used by the Company. For further details of exceptional items and remeasurements, see note 3.
(a) Basic earnings per share
Earnings2016 Earnings Earnings2015 Earnings
per share2016 per share2015
£m pence £m pence1
Adjusted earnings 2,386 63.5 2,189 57.6
Exceptional items after tax 278 7.4 (97) (2.6)
Remeasurements after tax (73) (1.9) (73) (1.8)
Earnings 2,591 69.0 2,019 53.2
2016millions 2015millions
Weighted average number of shares - basic1 3,755 3,798
1. Comparative amounts have been restated to reflect the impact of additional shares issued as scrip dividends.
(b) Diluted earnings per share
Earnings2016 Earnings per share2016 Earnings2015 Earnings per share2015
£m pence £m pence1
Adjusted earnings 2,386 63.3 2,189 57.4
Exceptional items after tax 278 7.3 (97) (2.6)
Remeasurements after tax (73) (1.9) (73) (1.9)
Earnings 2,591 68.7 2,019 52.9
2016millions 2015millions
Weighted average number of shares - diluted1 3,771 3,815
1. Comparative amounts have been restated to reflect the impact of additional shares issued as scrip dividends.
7. Dividends
2016 2015
Pence Cash dividend paid Scrip dividend Pence Cash dividend paid Scrip dividend
per share £m £m per share £m £m
Interim dividend in respect of current year 15.00 532 31 14.71 531 26
Final dividend in respect of prior year 28.16 805 248 27.54 740 289
43.16 1,337 279 42.25 1,271 315
The Directors are proposing a final dividend for the year ended 31 March 2016 of 28.34p per share that will absorb
approximately £1,059m of shareholders' equity (assuming all amounts are settled in cash). It will be paid on 10 August 2016
to shareholders who are on the register of members at 3 June 2016 and a scrip dividend will be offered as an alternative,
subject to shareholders' approval at the Annual General Meeting.
8. Reconciliation of net cash flow to movement in net debt
2016 2015
£m £m
Increase/(decrease) in cash and cash equivalents 4 (247)
Increase/(decrease) in financial investments 391 (1,157)
(Increase)/decrease in borrowings and related derivatives (1,100) 682
Net interest paid on the components of net debt1 810 925
Change in net debt resulting from cash flows 105 203
Changes in fair value of financial assets and liabilities and exchange movements (515) (1,777)
Net interest charge on the components of net debt1 (913) (1,068)
Other non-cash movements (87) (83)
Movement in net debt (net of related derivative financial instruments) in the year (1,410) (2,725)
Net debt (net of related derivative financial instruments) at start of year (23,915) (21,190)
Net debt (net of related derivative financial instruments) at end of year (25,325) (23,915)
1. An exceptional expense of £nil (2015: £131m) is included in net interest charge on the components of net debt and an
exceptional cash outflow of £nil (2015: £152m) is included in net interest paid on the components of net debt.
9. Net debt
2016 2015
£m £m
Cash and cash equivalents 127 119
Bank overdrafts (3) (3)
Net cash and cash equivalents 124 116
Financial investments 2,998 2,559
Borrowings (excluding bank overdrafts) (28,341) (25,907)
Net debt related derivative financial assets 1,963 1,716
Net debt related derivative financial liabilities (2,069) (2,399)
Net debt (net of related derivative financial instruments) (25,325) (23,915)
10. Commitments and contingencies
2016 2015
£m £m
Future capital expenditure contracted for but not provided 2,616 2,360
Operating lease commitments 642 627
Energy purchase commitments 4,302 4,338
Guarantees and letters of credit (a) 2,391 1,297
(a) Guarantees and letters of credit
2016 2015
£m £m
Guarantee of sublease for US property (expires 2040) 219 236
Guarantees of certain obligations of Grain LNG Import Terminal (expire up to 2028) 113 151
Guarantees of certain obligations for construction of HVDC West Coast Link (expected expiry 2016) 415 555
Guarantees of certain obligations of Nemo Link Limited (various expiry dates) 166 -
Guarantees of certain obligations of National Grid North Sea Link Limited (various expiry dates) 1,038 -
Other guarantees and letters of credit (various expiry dates) 440 355
2,391 1,297
(b) Litigation and claims
Through the ordinary course of the Group's operations, we are party to various litigations, claims and investigations. We
do not expect the ultimate resolution of any of these proceedings to have a material adverse effect on our results of
operations, cash flows or financial position.
11. Exchange rates
The consolidated results are affected by the exchange rates used to translate the results of our US operations and US
dollar transactions. The US dollar to pound sterling exchange rates used were:
2016 2015
Closing rate applied at year end 1.44 1.49
Average rate applied for the year 1.47 1.58
12. Related party transactions
The following significant transactions with related parties were in the normal course of business. Amounts receivable from
and payable to related parties are due on normal commercial terms:
2016 2015
£m £m
Sales: Goods and services supplied to a pension plan and joint ventures 16 52
Purchases: Goods and services received from joint ventures and associates1 266 120
Receivable from a pension plan and joint ventures 7 4
Payable to joint ventures and associates2 103 6
Dividends received from joint venture and associates3 72 79
1. During the year the Company received goods and services from a number of joint ventures and associates, including
Iroquois Gas Transmission System, L.P. of £8m (2015: £24m), Millennium Pipeline Company, LLC of £29m (2015: £26m) for the
transportation of gas in the US and NGET/SPT Upgrades Limited of £167m (2015: £68m) for the construction of a transmission
link in the UK.
2. Included in amounts payable to joint ventures and associates is £87m (2015: £nil) in respect of deposits received for
National Grid properties from St William Homes LLP.
3. Dividends were received from BritNed Development Limited of £48m (2015: £49m), Iroquois Gas Transmission System, L.P.
of £7m (2015: £14m) and Millennium Pipeline Company, LLC of £17m (2015: £16m).
1 'Adjusted results', 'Value Added' 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. For clarity, we have provided
definitions of these terms, descriptions of restatements and, where relevant, proforma calculations on pages 38 to 42.
Prior year EPS has been adjusted to reflect the additional shares issued as scrip dividends, refer to note 6 on page 56.
2 In November, Ofgem ran the financial models that calculate substantial elements of the revenue allowances for National
Grid's UK regulated businesses. The outcome of these model runs (known as the 'MOD adjustments') were in line with National
Grid's expectations.
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