REG - National Grid PLC - Results for the year ended 31 MARCH 2017 <Origin Href="QuoteRef">NG.L</Origin> - Part 5
18/05/2017 07:07
- Part 5: For the preceding part double click ID:nRSR4855Fd
3,780 3,790
1. Comparative amounts have been re-presented to reflect the classification of the UK Gas Distribution business as a
discontinued operation.
2. Comparative amounts have been restated to reflect the impact of additional shares issued as scrip dividends.
7. Dividends
2017 2016
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 15.17 540 32 15.00 532 31
Final dividend in respect of prior year 28.34 923 151 28.16 805 248
43.51 1,463 183 43.16 1,337 279
Following completion of the sale of the majority interest in UK Gas Distribution, on 19 April 2017 the Directors declared
that an aggregate of approximately £3.2bn would be returned to shareholders through a special dividend of 84.375p per
existing ordinary share ($5.4224 per existing American Depositary Share). The special dividend is to be paid to those
shareholders on the register of members at 19 May 2017.
The Directors are proposing a final dividend for the year ended 31 March 2017 of 29.10p per share that will absorb
approximately £1bn of shareholders' equity (assuming all amounts are settled in cash). It will be paid on 16 August 2017 to
shareholders who are on the register of members at 2 June 2017 (subject to Shareholders' approval at the AGM). A scrip
dividend will be offered as an alternative.
8. Discontinued operations and disposal of UK Gas Distribution
On 8 December 2016 the Group entered into a sale agreement with a consortium of long term infrastructure investors, to
dispose of a 61% equity interest in the UK Gas Distribution business, principally comprising the Group's equity and debt
interests in National Grid Gas Distribution Limited together with certain other assets (principally property and a 45%
interest in Xoserve Limited). The Consortium comprises Macquarie Infrastructure and Real Assets (MIRA), Allianz Capital
Partners, Hermes Investment Management, CIC Capital Corporation, Qatar Investment Authority, Dalmore Capital and Amber
Infrastructure Limited/International Public Partnerships.
The transaction was contingent on merger clearance from the European Commission, which was received on 16 March 2017, and
the transaction completed on 31 March 2017. The Group sold its 100% equity interest in UK Gas Distribution to Quadgas
Holdco Limited, a newly incorporated UK limited company 61% owned by Quadgas Investments Bidco Limited and 39% by the
Group's subsidiary National Grid Holdings One plc. In exchange, the Group received cash consideration of £3,679m, and has
recognised a shareholder loan of £429m and a 39% equity interest in Quadgas Holdco Limited.
In addition, as part of the disposal process, a newly incorporated financing subsidiary of Quadgas Holdco Limited raised
£1,775m of long term debt, secured against the assets of National Grid Gas Distribution Limited, and remitted cash received
from this transaction to the Group. This amount has been treated as part of the net cash proceeds from the transaction
totalling £5,454m.
The final amount of consideration remains subject to completion adjustments which may result in a further gain/loss on
disposal within discontinued operations to be reported in 2017/18.
On 31 March 2017, the Group also entered into a Further Acquisition Agreement (FAA) with the Consortium over a 14% interest
(relating to both our equity and the shareholder loan), which includes the pricing mechanism, based on the price paid for
the initial 61% interest, and an annualised escalation factor. The FAA contains put and call options for both the Group and
the Consortium that can be exercised in the period between 1 March 2019 and 31 October 2019.
The UK Gas Distribution business met the criteria to be classified as held for sale at 8 December 2016, and depreciation
and amortisation (circa £25m per month) on tangible and intangible fixed assets ceased from this date. The disposal of UK
Gas Distribution resulted in a £5.3bn gain on disposal.
The business represents a reportable segment and a separate major line of business and accordingly has been presented as a
discontinued operation in the consolidated income statement, consolidated statement of comprehensive income and the
consolidated cash flow statement. The segmental analysis in note 2 has also been re-presented.
With respect to treasury activities, a Group-wide financing exercise was undertaken in order to: a) ensure that the
proportion of debt to equity financing in National Grid Gas Distribution Limited was in line with the requirements of its
regulatory licence and the financing structure of the business more generally; and b) to optimise the mix of debt in the
continuing businesses. The financing exercise involved the buyback of debt and derivatives in both of the Group's UK
regulated subsidiaries (National Grid Gas plc and National Grid Electricity Transmission plc) as well as the novation of
certain instruments to National Grid Gas Distribution Limited, and the issue of new debt by National Grid Gas Distribution
Limited whilst under the Group's control prior to the sale completion. Since all these activities formed part of a single
exercise, which would not have been undertaken in the absence of the sale, all costs have been allocated to discontinued
operations.
8. Discontinued operations and disposal of UK Gas Distribution continued
The presentation of the 2016/17 income statement is required to be split between continuing and discontinued operations and
to re-present results for previous periods in a comparable manner. Revenues, operating expenses and operating profits:
Discontinued results are closely aligned to the previously disclosed UK Gas Distribution segment, with the results of
Xoserve Limited re-allocated from within Other activities. Resultant tax amounts have then been charged in line with these
results.
The Group has presented interest costs for the continuing business on a basis consistent with how it expects to finance the
Group in future periods, to aid comparability in future periods. Interest costs associated with debt and derivatives which
remain in the Group as at 31 March 2017 have been attributed to the continuing group in full. Interest cost relating to
instruments bought back in the period since the disposal process started, debt novated across, and debt and derivatives
issued by UK Gas Distribution as part of the liability management exercise have been included within discontinued
operations. The interest costs in the comparative periods for discontinued operations only includes interest that relates
to the debt bought back in 2016/17 and the debt novated into UK Gas Distribution in 2016/17.
Costs included in the gain on disposal total £1,837m. These include £1,334m of financing costs (including debt buybacks),
the direct costs to sell UK Gas Distribution ('transaction costs'), and business restructuring costs. Included within
transaction costs is £150m relating to a voluntary distribution to be made for the benefit of energy consumers from the
proceeds of the sale.
Income statement - discontinued operations
for the years ended 31 March 2017 2016
£m £m
Revenue 1,887 1,903
Operating costs (993) (1,043)
Operating profit
Before exceptional items and remeasurements 894 882
Exceptional items and remeasurements1 - (22)
Total operating profit from discontinued operations 894 860
Finance costs
Before exceptional items and remeasurements (146) (157)
Exceptional items and remeasurements2 (6) -
Total finance costs (152) (157)
Profit before tax from discontinued operations
Before exceptional items and remeasurements 748 725
Exceptional items and remeasurements (6) (22)
Total profit before tax from discontinued operations 742 703
Tax from discontinued operations
Before exceptional items and remeasurements (142) (149)
Exceptional items and remeasurements 63 138
Total tax from discontinued operations (79) (11)
Profit after tax from discontinued operations
Before exceptional items and remeasurements 606 576
Exceptional items and remeasurements 57 116
Profit after tax from discontinued operations 663 692
Gain on disposal of UK Gas Distribution after tax 5,321 -
Total profit after tax from discontinued operations 5,984 692
1. 2016 includes sale preparation costs of £22m in respect of the disposal of the UK Gas Distribution business.
Current year costs have been included as part of transaction costs in determining the gain on disposal.
2. 2017 includes losses in respect of remeasurements of derivative financial instruments.
8. Discontinued operations and disposal of UK Gas Distribution continued
Statement of comprehensive income - discontinued operations
for the years ended 31 March 2017 2016
£m £m
Profit after tax from discontinued operations 5,984 692
Other comprehensive income/(loss) from discontinued operations
Items that will never be reclassified to profit or loss:
Remeasurement (losses)/gains of pension assets and post-retirement benefit obligations (75) 129
Tax on items that will never be reclassified to profit or loss 13 (30)
Total items from discontinued operations that will never be reclassified to profit or loss (62) 99
Items that may be reclassified subsequently to profit or loss:
Net losses in respect of cash flow hedges (106) (38)
Transferred to profit or loss in respect of cash flow hedges 233 3
Tax on items that may be reclassified subsequently to profit or loss (23) 7
Total items from discontinued operations that may be reclassified subsequently to profit or loss 104 (28)
Other comprehensive income for the year, net of tax from discontinued operations 42 71
Total comprehensive income for the year from discontinued operations 6,026 763
Gain on disposal of UK Gas Distribution
2017£m
Assets
Intangible assets 89
Property, plant and equipment 8,700
Cash and cash equivalents 5
Trade and other receivables 274
Defined benefit pension asset 37
Other assets1 83
Total assets 9,188
Liabilities
Borrowings1 (5,961)
Trade and other payables (488)
Provisions (94)
Deferred tax liabilities (1,073)
Defined benefit pension liability (3)
Deferred income (915)
Other liabilities (6)
Total liabilities (8,540)
Net assets on disposal 648
Satisfied by:
Cash proceeds 3,679
Loan proceeds 1,775
Shareholder loan 429
Associate at fair value 1,611
Total consideration 7,494
Less:
Financing costs (1,334)
Transaction costs (305)
Business restructuring costs (198)
Pre-tax gain on disposal 5,009
Tax 312
Post-tax gain on disposal 5,321
1. Net debt disposal of £5,890m principally comprises £5,961m of borrowings net of £71m of other financial assets.
9. Reconciliation of net cash flow to movement in net debt
2017 2016
£m £m
Increase in cash and cash equivalents 984 4
Increase in financial investments 5,675 391
Increase in borrowings and related derivatives (3,715) (1,100)
Net interest paid on the components of net debt 1,955 810
Change in net debt resulting from cash flows 4,899 105
Changes in fair value of financial assets and liabilities and exchange movements (2,273) (515)
Net interest charge on the components of net debt1 (2,401) (913)
Disposal of UK Gas Distribution 5,890 -
Other non-cash movements (64) (87)
Movement in net debt (net of related derivative financial instruments) in the year 6,051 (1,410)
Net debt (net of related derivative financial instruments) at start of year (25,325) (23,915)
Net debt (net of related derivative financial instruments) at end of year (19,274) (25,325)
1. An exceptional charge of £1,313m (2016: £nil) is included in net interest charge on the components of net debt and an
exceptional cash outflow of £1,052m (2016: £nil) is included in net interest paid on the components of net debt.
10. Net debt
2017 2016
£m £m
Cash and cash equivalents 1,139 127
Bank overdrafts - (3)
Net cash and cash equivalents 1,139 124
Financial investments 8,741 2,998
Borrowings (excluding bank overdrafts) (28,638) (28,341)
Net debt related derivative financial assets 1,707 1,963
Net debt related derivative financial liabilities (2,223) (2,069)
Net debt (net of related derivative financial instruments) (19,274) (25,325)
11. Commitments and contingencies
2017 2016
£m £m
Future capital expenditure contracted for but not provided 2,571 2,616
Operating lease commitments 619 642
Energy purchase commitments 5,699 4,302
Guarantees and letters of credit (a) 2,780 2,391
(a) Guarantees and letters of credit
2017 2016
£m £m
Guarantee of sublease for US property (expires 2040) 225 219
Guarantees of certain obligations of Grain LNG Import Terminal (expire up to 2028) 100 113
Guarantees of certain obligations for construction of HVDC West Coast Link (expected expiry 2017) 281 415
Guarantees of certain obligations of Nemo Link Limited (various expiry dates) 140 166
Guarantees of certain obligations of National Grid North Sea Link Limited (various expiry dates) 1,059 1,038
Guarantees of certain obligations of construction of IFA2 SAS (expected expiry 2021) 354 -
Guarantees of certain obligations of St William Homes LLP (various expiry dates) 147 96
Other guarantees and letters of credit (various expiry dates) 474 344
2,780 2,391
(b) Litigation and claims
Through the ordinary course of our 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.
12. 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:
2017 2016
Closing rate applied at year end 1.25 1.44
Average rate applied for the year 1.28 1.47
13. 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:
2017 2016
£m £m
Sales: Goods and services supplied to a pension plan 3 3
Sales: Goods and services supplied to joint ventures1 78 9
Sales: Goods and services supplied associates - 4
Purchases: Goods and services received from joint ventures2 168 183
Purchases: Goods and services received from associates2 169 83
Receivable from joint ventures 64 7
Receivable from associates3 457 -
Payable to joint ventures4 84 96
Payable to associates 27 7
Dividends received from joint ventures5 75 48
Dividends received from associates 24 24
1. During the year the Company sold property sites to joint venture St William Homes LLP.
2. During the year the Company received goods and services from a number of US associates, both for the transportation of
gas and for pipeline services in the US. Additionally, goods and services were received from UK joint ventures for the
construction of a transmission link in the UK.
3. Amounts receivable from associates includes a loan receivable balance from Quadgas Holdco Limited of £434m as a result
of the sale of the UK Gas Distribution business and a loan receivable balance of £61m from Nemo Link Limited.
4. Amounts payable to joint ventures include deposits received for National Grid property sites from St William Homes LLP.
5. Dividends in respect of joint ventures were received from BritNed Development Limited.
This information is provided by RNS
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