Information  X 
Enter a valid email address

National Grid PLC (NG.)

  Print   

Thursday 18 June, 2020

National Grid PLC

Final Results

RNS Number : 3027Q
National Grid PLC
18 June 2020
 
 

 

London | 18 June 2020 : National Grid, a leading

energy transmission and distribution company,

today announces its Full Year results.

 

 

Report for the year ended

31 March 2020

 

 

Business Highlights

•   Business continuity plans successfully implemented in response to COVID-19

•   Continued progress on 2050 net zero emissions target; achieved 70% reduction on 1990 baseline; new interim target to achieve 80% by 2030

•   Record capital investment of £5.4bn leading to strong asset growth of 9%

•   Published long-term gas options for New York

•   Business plans submitted for RIIO-2

•   Cost efficiency programmes delivered around £100m savings

•   First renewable project commissioned through Geronimo since acquisition in July

 

 

Financial Performance

•   Underlying operating profit up 1% to £3.5bn

•   COVID-19 impact on earnings, primarily driven by a £117m increased provision for US bad debts

•   Statutory operating profit down 3% to £2.8bn

•   Underlying EPS down 1% to 58.2p reflecting improved regulated performance, offset by non-recurrence of prior year one-off benefits

•   Statutory EPS of 36.8p, impacted by environmental provision, commodity remeasurements, and timing

•   Group RoE of 11.7% (2019: 11.8%)

•   Achieved 99% of allowed RoE in the US (9.3%)

•   Recommended final dividend to bring full year dividend to 48.57p, up 2.6%, in line with policy

•   FY21 outlook: assumed COVID-19 underlying operating profit impact of approximately £400m

 

Financial Summary

Year ended 31 March - continuing operations

 

 

Statutory results

 

Underlying [1]

 

 

 

2020

2019

% change

 

2020

 

2019

% change

 

Operating profit (£m)

 

2,780

 

2,870

 

(3

)%

 

3,454

 

 

3,427

 

1

%

 

Profit before tax (£m)

 

1,754

 

1,841

 

(5

)%

 

2,493

 

 

2,474

 

1

%

 

Earnings per share (p)

 

36.8

44.3

(17

)%

 

58.2

 

 

58.9

(1

)%

 

Capital investment (£m)

 

5,405

 

4,506

 

20

%

 

5,405

 

 

4,506

 

20

%

 

3,461 million weighted average shares for 2019/20 (2018/19: 3,386 million).

John Pettigrew

Chief Executive

 

"We have successfully implemented our business continuity plans in response to the COVID-19 pandemic, ensuring the well-being of our staff and customers, whilst maintaining continuity of service. I am proud of our response and contribution to help our customers and communities through these challenging times.

 

National Grid made good progress in 2019/20. We maintained high levels of reliability across our networks and delivered good financial performance. Asset growth of 9% was underpinned by record investment of £5.4 billion. We achieved continued regulatory progress in the UK, responded proactively to the challenges in downstate New York, whilst further developing our interconnector and renewable portfolios.

 

Looking ahead, whilst COVID-19 will impact our financial performance in FY21, we expect this to be largely recoverable over future years and therefore anticipate no material economic impact on the Group in the long-term. We continue to target asset growth of 5-7% in the near term and with an efficient balance sheet that underpins asset and dividend growth, the Group is well positioned to create value for shareholders."

 

 

 

Contacts

 

Investor Relations

Nick Ashworth

 

+44 (0) 7814 355 590

Jon Clay

 

+44 (0) 7899 928 247

James Flanagan

 

+44 (0) 7970 778 952

Media

Molly Neal

 

+44 (0) 7583 102 727

Gemma Stokes

 

 +44 (0) 7974 198 333

Teneo

Charles Armitstead

 

+44 (0) 7703 330 269

Conference call details

 

 

An audio call will be held at 09:15 (BST) today. A webcast link is available here . Please use this link to join via a laptop, smartphone or tablet. Should you wish to ask a question, please dial in using the details below. A replay of the webcast will be available soon after the event at investors.nationalgrid.com/ .

 

Live telephone coverage of the analyst presentation at 09:15

UK dial in numbers

+44 (0) 20 3936 2999 (Local)
+44 (0) 800 640 6441 (UK toll free)

US dial in numbers

+1 646 664 1960 (Local)
+1 855 9796 654 (US toll free)

All other locations

+44 20 3936 2999

Access Code

750 435

 

The National Grid image library is available here . The 2020 Annual Report and Accounts (ARA) is expected to be publicly available on 25 June 2020. You can view or download the ARA from National Grid's website at investors.nationalgrid.com/ or request a free printed copy by contacting [email protected]

 

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 72 to 83.

 

 

 

 

2019/20 OVERVIEW

Strong reliability maintained and record year for investment

In 2019/20, National Grid continued to deliver good operational progress across the Group with high levels of network reliability. In the UK, we experienced a rare and exceptional event with the 9 August power cut that caused significant disruption to many people. We welcomed Ofgem's technical report into the incident that found no link between National Grid's actions and the power cut. The report confirmed the initiation of a review into the structure and governance of the Electricity System Operator (ESO), which we were expecting. We are working and cooperating closely with Ofgem on this review.

 

This year, we achieved a Group Lost Time Injury Frequency Rate (LTIFR)[2] of 0.12, slightly higher than the Group target of 0.1. The UK delivered its best ever year of safety with a LTIFR of 0.07, whilst National Grid Ventures (NGV) also achieved a record low LTIFR of 0.05. In the US, we saw an increase in the number of safety incidents with a LTIFR of 0.16. In response, we are reviewing safety controls across the business to ensure they are current and appropriate, and to ensure they are reflected in working methods and operating procedures.

 

Across the Group, capital investment increased by £858 million at constant currency to £5,405 million, an increase of 19% (or 20% at actual exchanges rates). This capital expenditure, when combined with RPI inflation, drove Group asset growth of 9%. In addition, we maintained a Return on Equity (RoE) of 11.7% for the Group which was driven by good performance across all our businesses.

 

National Grid has a critical role to play in enabling the energy transition to a low carbon future. We have strengthened our commitment to our net zero emissions aim with a tougher interim target. This is to reach an 80% reduction in our emissions, from a 1990 baseline, by 2030, and a 90% reduction by 2040. This follows the commitment we made in November to reach net zero for our own emissions by 2050.

Responding to an unprecedented challenge: COVID-19

Impact on our workforce

Throughout the COVID-19 crisis, National Grid's priority has been to keep employees safe whilst doing their job, and to ensure the safety and wellbeing of our customers and communities.

 

COVID-19 has had a significant impact on the way in which we work. At the end of March, as the crisis unfolded, we successfully implemented our business continuity plans in the UK and US. This included taking action to change working habits quickly and safely, including a risk assessment of all our operational projects. In addition, we issued new working guidance to our field force that included measures such as limits on team sizes, changes to rotas, revised cleaning arrangements, and single occupancy in vehicles. We have continued to work successfully with these 'lockdown' constraints and social distancing requirements since the end of March. For example, in April, our teams in Massachusetts rapidly restored power to 142,000 customers following a significant storm, with 95% of our affected customers reconnected within 24 hours.

 

Away from the field, our dedicated control room staff have worked tirelessly, some sequestered away from their families. In the UK, we set up sleeping pods and recreation centres on site for those staff in isolation, and this was replicated across our businesses in the US. Our digital infrastructure is also playing a key role in enabling new ways of working, as around half of our employees across the organisation have been successfully working from home.

Keeping electricity and gas flowing

Against this backdrop, we have been focused on maintaining reliable flows of electricity and gas. Demand has reduced across all our jurisdictions, with the increase in residential demand more than offset by lower levels of industrial, commercial, and business demand. In the UK, we saw record low levels of transmission system demand on the electricity network at 14.5GW over the recent Spring Bank Holiday weekend and again at the end of May. To ensure the ESO can continue to safely and reliably manage the system at these unprecedented low demand levels, it has put in place a suite of additional balancing services. It is continuing to work closely with Ofgem and industry on ways to ease pressures on customers from potential increases in balancing costs.

 

In the US, across our service territories, we have seen an 8% decrease in gas consumption between mid-March and the end of April. For electricity, we have seen a 6% decrease in consumption between mid-March and the end of May, although this is comprised of a 5% increase in residential usage, and a 9% decrease in Industrial and Commercial usage.

Supporting our communities

We are acutely aware of the impact COVID-19 has had on the communities where we operate. Our teams have stepped forward with multiple initiatives, including financial donations to help the most vulnerable. In the UK, we have made donations to support key charities delivering aid; in the US, we have provided funding for customers experiencing financial hardship and for community-based organisations. In April, we made a donation to the University Hospitals Birmingham Charity appeal in the UK that provides vital support to both patients and staff. The donation will be used to purchase almost 400 tablet computers that will be used by patients to help them speak to relatives while in isolation. In the US, our teams upgraded gas supply in record time to help turn a college gym into a 1,000-bed hospital on Long Island.

Supporting our customers

We are also providing support and assistance to our customers. In the US, where we collect directly from end consumers, we took several actions following discussions with regulators. We suspended debt collection and disconnections across all our US service territories. We deferred rate increases in our upstate New York business, Niagara Mohawk (NIMO), that were due to take effect on 1 April; and we delayed the NIMO rate filing, originally planned at the end of April, as we look to minimise the impact on bills when many customers are experiencing economic hardship. We have also offered flexible bill plans and arrangements for overdue bills, as well as eligibility discounts dependent on household income and size.

 

In the UK, we are working with other network companies and Ofgem to help suppliers address financial challenges caused by COVID-19, without imposing additional burdens on consumers. We have extended credit terms for eligible suppliers to help our most vulnerable customers, and we are also working with Ofgem to identify how we can help our customers bear increased balancing costs associated with securely managing the system.

Financial impact on our business

As lockdown measures began to take hold towards the end of 2019/20, incremental costs due to COVID-19 were limited on the Group. However, the help we are giving our customers, and the additional costs that COVID-19 has brought, will lead to a financial impact for 2020/21. We currently estimate the impact of COVID-19 on underlying operating profit to be around £400 million, with a potential impact of up to £1 billion on cash flow by the end of this financial year. We have seen only a small impact on our investment programme, and whilst we have slowed down some works given restrictions and working within new guidelines, we still expect to invest around £5 billion this financial year.

 

As we highlight in our Forward Guidance section below, these estimates assume a scenario of continued gradual easing of lockdowns across our territories, together with cost recovery mechanisms that continue to be based on regulatory precedent. If other scenarios play out through the course of the year, then this could have a range of impacts on cashflows and earnings, which could be different from our current assessment. However, whilst we expect to see a financial impact in the near term, ultimately we see limited economic impact from COVID-19 for the Group.

 

Of the £400 million underlying operating profit impact we expect to see in 2020/21, whilst we do expect to see some additional costs in the UK, and a limited impact in our NGV business, most of the impact will come from our US business. The impact in the US is driven by three, broadly similar, impacts: (1) the deferral of rate increases, (2) COVID-19 related costs, and (3) higher bad debt charges.

 

Higher levels of operating costs due to COVID-19 relate to areas such as higher IT costs, higher cleaning costs, costs to sequester critical teams to maintain system integrity, and PPE and health screening costs to enable return to work. The lower capitalisation of workforce costs related to an amendment in capital programmes also has an impact. In the US, we are working to recover incremental COVID-19 costs going forward.

 

With a weaker economic backdrop, we also anticipate bad debt costs to rise in 2020/21. This follows the £117 million additional provision for bad debts we have accounted for in 2019/20, and we currently estimate a slightly bigger impact in 2020/21. Whilst we receive allowances for bad debts across all our operating businesses, we expect forecast levels of bad debt to be above this allowance in 2020/21. We would anticipate recovering bad debts, above our regulatory allowances, through future rate plans.

 

The weaker economic backdrop is also likely to lead to lower customer revenue collections in the US by year end, impacting cashflow. This should be recoverable in time either as we fully resume our collection activity across our jurisdictions, or through recovery in future rate cases if receivables turn in to bad debts, as described above.

 

As well as potential lower US customer revenue collection affecting cashflow in 2020/21, we currently assume additional revenue shortfall in the UK and US due to COVID-19 that will impact both headline earnings and cash flow. These impacts come from areas where we have (or will have) regulatory mechanisms in place, thereby classified as timing impacts, such as, (1) lower demand in the UK and US, and (2) customer assistance programmes in the UK.

 

Lower levels of energy usage due to COVID-19 may impact our revenue collection within year, and therefore headline earnings, although we expect limited economic impact as almost all our revenues are decoupled from demand across the UK and US. This means that any under-collection is primarily a timing one and we expect to recover revenues through existing regulatory mechanisms in the medium term.

 

Similarly, in the UK, we are participating in a scheme that has been set up to help some of the smaller energy supply customers. This involves the relaxation of network charge payment terms for suppliers and shippers who are facing cash flow challenges as a result of COVID-19. We view these measures to strengthen and support the market positively. The open letter from Ofgem proposes all network charges are repayable in the current financial year and allows us to recover any unsettled amounts in the 2021/22 financial year.

 

In the UK, the ESO is also working with Ofgem and industry on ways in which it could help ease pressures on its customers from the potential increase in balancing costs. We would expect any programme to be put in place to be consistent with current regulatory practice, with any deferrals of costs to be recovered over time.

Operational and regulatory progress in FY2020

Throughout 2019/20 we continued to make progress in our US regulatory strategy as we align our rate filings and agreements with the environmental goals of the states where we operate. We have delivered comprehensive business plans as part of the RIIO-2 process in the UK, and we have continued to make significant progress on our interconnector portfolio. We also completed the acquisition of Geronimo, our first meaningful step into US renewable generation.

US business delivering continued growth and value

We achieved good performance across most of our US operating companies which resulted in an RoE of 9.3%. This represents 99% of our allowed returns, above our 95% expectation that we guided to at the beginning of the year.

 

Our US Regulated business invested $4.2 billion in the year which, coupled with a $380 million net transfer from Construction Work in Progress (CWIP), resulted in strong rate base growth of 12.2%. This was primarily driven by increases in Massachusetts Gas capex compared to prior year, and higher mandated and reliability capital investment in New York, such as City-State construction and Metropolitan Reliability Infrastructure projects. Across all our jurisdictions, we have continued to focus on modernising ageing networks and providing better safety, reliability and resilience throughout the year. An example of this is the additional 458 miles of leak prone pipe we replaced this year, bringing the total replaced to date to more than 10,500 miles, just over half of the 20,000 miles of pipe we have identified in need of replacing.

 

We have continued to make good regulatory progress during the year, with new rates agreed for Massachusetts Electric. The rate case order, effective October 2019, is for 5 years and included an allowed Return on Equity of 9.6%. It also included a new Performance Based Rate Mechanism (PBRM) that funds both capital and operational expenditure across the rate plan, ensuring inflation is factored into the cost base. In April 2019, we filed for new rates for KEDNY/KEDLI. We are resuming settlement negotiations in the KEDNY/KEDLI rate case in the interest of agreeing on a multi-year rate plan that mitigates bill impacts for our customers while allowing us to maintain safe and reliable service, advance our clean energy goals, and earn a reasonable return. If we are unable to reach a negotiated settlement, the rate cases will continue to a litigated outcome at which time we would then plan to file a new multi-year rate case proposal.

 

In downstate New York, we continue to work with all parties to find solutions to the gas supply constraints faced by the region. We took the difficult decision in May 2019 to stop processing applications for new or expanded gas service in our service territories. This followed further delays to permits for the Williams' Northeast Supply Enhancement Project (otherwise known as the NESE pipeline) which was the final piece of a series of long-term gas supply projects. Following an order issued by the New York Public Service Commission (PSC) requiring us to connect approximately 1,100 customer accounts, we implemented a plan to expand demand response and energy efficiency programmes, alongside sourcing incremental compressed natural gas.

 

In November, we agreed to lift the moratorium on all new connections until September 2021. Under the terms of the agreement, we committed to offering $7 million in customer assistance to address hardships arising from the moratorium; $8 million in demand response and energy efficiency programs; and an additional $20 million investment in clean energy projects and clean tech business investments. In addition, we committed to filing a report providing a comprehensive analysis of the gas capacity constraints affecting our downstate New York service territory, outlining all reasonably available options for meeting long-term customer demand. This report was filed and made available to the public on 24 February and was followed by a series of public and virtual meetings in March and April to solicit report feedback. The meetings were constructive and attended by over 800 people with more than 7,000 comments filed with the PSC. In May, we filed a supplementary report that focused on feedback from the meetings and two potential solutions to long-term constraints. The proposed solutions were (a) a portfolio including LNG vaporisation, gas compression enhancements, combined with incremental energy efficiency and demand response, or (b) the Williams' NESE pipeline. In mid-May, certain permits were denied in New York and New Jersey for the pipeline and therefore we are advancing the portfolio of solutions that were identified in the supplementary report.

 

Our US cost efficiency initiative continues to ensure we deliver our significant capital investment programme as efficiently as possible. We are streamlining operations, simplifying our supply chain, and rationalising our property portfolio. As a result, the programme delivered cost savings of over $30 million in 2019/2020, in line with the target set in 2018.

Consistent delivery across the UK

The UK has delivered another year of strong operational performance reflected in an RoE of 12.4%. The weighted average outperformance for the UK is within our forecast range of 200 to 300 basis points under RIIO-T1.

 

Our transmission networks in the UK have continued to deliver with £1.3 billion of investment in 2019/20, slightly higher than prior year. This was driven by increased investment for the Hinkley-Seabank connection, and for our London Power Tunnels 2 project, a 33km, £1 billion link from Wimbledon to Crayford which will provide significant resilience across south London when completed in 2028. We also completed the tunnelling of the Feeder 9 gas pipeline under the Humber estuary, a critical reinforcement of the gas network. This takes our total investment in RIIO-1 to over £11 billion, which has generated £767 million savings for customers[3]. The benefits of this investment were evident during the early months of 2020 when the flood protection we had installed at our sites prevented flooding and enabled ongoing supply of electricity to our customers.

 

The UK cost efficiency programme that we announced in 2018 continues to deliver a more efficient and agile business ahead of RIIO-2. Through this initiative we have simplified ways of working with a leaner organisation and more efficient IT and back office activities. In 2019/20, the programme enabled us to deliver efficiency savings of £54 million in Electricity Transmission, and £19 million in Gas Transmission, above the target we set for the UK in 2018.

 

In September, we published a technical report on the loss of power event on 9 August. The power cut was a rare and exceptional event and, whilst we do not underestimate the significant disruption and inconvenience that it caused, we were able to restore power within 7 minutes. Both the ESO and transmission network operated as designed and in accordance with our license obligations. We published an interim and final report from the ESO setting out its findings. In December, we welcomed Ofgem's technical report that found no link between National Grid's actions and the power cut (its investigation was closed in June). The report also announced that it intended to undertake a review of system operation. This review had always been foreseen as likely for the ESO at the end of its first year of legal separation. It will enable broader thinking about the appropriate industry arrangements to assist the UK in its commitment to achieve Net Zero emissions by 2050.

 

In October, we welcomed Ofgem's minded-to position on the Hinkley-Seabank connection to use existing Strategic Wider Works (SWW) for the project. We had argued for the SWW mechanism as we believed the Competition Proxy Model did not include the financial parameters necessary to deliver a project of this complexity. We have continued to work with Ofgem to support our view of the efficient costs to complete the project, and last month we reached agreement on the final cost. The allowance for the project is £656 million and will use the SWW mechanism as the delivery model in the RIIO-2 price control. We are pleased with this outcome and the project remains on track to be ready for connection in 2025.

 

In November, we were pleased to reach the final commissioning stage of the Western Link, a high capacity cable over 400 kilometres long, and a joint venture between National Grid and Scottish Power. In January, testing was carried out following the detection of a cable fault with the link returning to service in February. Following this trip, Ofgem announced an investigation into the delivery and operation of the cable. We are currently working closely with Scottish Power and the cable manufacturer, the Prysmian-Siemens consortium, to provide Ofgem with the information it requires to conclude the investigation. The cable plays an important role in bringing renewable energy from Scotland to homes and businesses in England and Wales, helping the UK to meet its renewable energy targets and providing Scotland with additional resilience.

 

This has been the first year that the ESO has operated as a separate legal entity. The transition itself has been smooth and, operationally, the ESO has performed well.

RIIO-2 process continues

Ofgem has continued to progress its framework for the RIIO-2 price control, which will run for five years from April 2021. Achieving the right regulatory framework is vital to enable the necessary investments to maintain excellent safety and reliability levels we expect from our networks. It is also critical to ensure that the rapid decarbonisation of the UK energy system can continue, and ongoing investment in innovation to benefit consumers in the long term is encouraged.

 

In December, we published the outcome of the stakeholder group reports and submitted final business plans for our Electricity Transmission (ET) and Gas Transmission (GT) businesses, and for the ESO. Our plans cover a crucial period when rapid change is expected in the energy system to reduce carbon emissions and help achieve the UK's environmental goals. In delivering the plans, we engaged with over 25,000 households, businesses and energy consumers and were the first networks to set up independent stakeholder user groups.

 

The business plans propose £10 billion[4] of totex over the five-year price control period for RIIO-2. This is split approximately £7.5 billion for ET and £2.5 billion for GT. For ET, the business plan seeks to connect over 15GW of capacity over the duration of the price control, providing the UK with clean power and flexible storage. In addition, it seeks to maintain network reliability, network availability, and increase resilience to cyber and physical attacks.  For GT, the plan aims to increase asset health spend to maintain levels of network reliability, replace two compressor units at our Wormington site, and increase system resilience to environmental and cyber challenges. These business plans represent a step change in investment from the RIIO T1 baseline and would see our part of the consumer bill reducing in real terms as we identified efficiency savings of 11%.

 

Looking forward, the next key date on the RIIO-2 timeline is initial determinations which are expected in July. Planned open hearings in March and April were cancelled as a consequence of the COVID-19 crisis and lockdown restrictions. However, we have continued our dialogue with Ofgem and stakeholders on the proposed parameters for RIIO-2, and we have continued to make representations on those areas we believe need to be addressed.

Further progress in National Grid Ventures

National Grid Ventures (NGV) delivered a good performance in 2019/20, broadly in line with the prior year. Capital investment increased significantly to £815 million pounds, mainly driven by the acquisition of Geronimo and higher investment in our North Sea Link, Viking and IFA2 interconnector projects.

 

Nemo Link, the electricity interconnector between the UK and Belgium, achieved over 96% availability in its first full year of operation. Availability on IFA reached 91% for the year, and 99% on BritNed. On IFA2, the AC connection from Daedalus to Chilling has been completed and successfully tested, and the 25km French land cable has also been constructed. Commissioning of IFA2 is on course for the end of the calendar year, whilst progress on both the North Sea Link (NSL) and Viking interconnectors remains on track. These links are due to commission in FY2022 and FY2024 respectively.

 

In July, we completed the acquisition of Geronimo[5], our first meaningful step into US renewable generation, including a joint venture with Washington State Investment Board (WSIB). In December, we announced the start of commercial operations for the 200MW Crocker Wind Farm in South Dakota, with 100% of generation contracted under PPAs for 12 years. This was followed in February by signing a PPA agreement with Basin Electric Power Cooperative for the 128MW Wild Springs Solar Project, also in South Dakota, which is expected to commission in FY2023.

 

Our Grain LNG business contributed another good year to the business, with over 30% utilisation throughout FY2020, welcoming the 500th ship to the terminal in March. Legacy metering profits fell broadly in line with our falling meter population as the mandated smart meter rollout continues.

Property - first year of St William profits

Our Property business delivered another strong year. Our joint venture with St William Homes delivered a net profit to the Group selling approximately 370 homes of which over 20% were affordable. The business also sold another two sites into the joint venture, Hornsey and Poplar, and we exchanged contracts on a further four sites at Brighton, Worthing, Bromley by Bow and Kensal Green. Across the wider Property business, we sold another 34 sites in cities including St Albans, Manchester, Bristol and Chelmsford.

Group RoE of 11.7%

Group RoE of 11.7% was broadly in line with prior year (2018/19: 11.8%).

 

The UK regulated businesses delivered a combined return of 12.4%, including an assumption of 3% long-run average Retail Price Index (RPI) inflation. US RoE, at 99% of the allowed return, increased to 9.3% reflecting improved performance as a result of increased revenues from new rate allowances and efficiency measures to reduce operating costs.

 

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

We aim to deliver asset growth of 5-7%, assuming an average long-run UK RPI inflation of 3%.

 

In 2019/20, the Group achieved asset growth of 9% driven by a £5.4 billion capital investment programme. 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, especially in the US, to meet the changing needs of customers and to drive the decarbonisation of energy supply; and

• interconnector projects: with the objective of bringing a range of lower cost and renewable energy sources into the UK.

 

Looking forward, we expect capital investment to be around £5 billion for the Group in FY2021, and to remain at that level in FY2022. We expect this to continue to drive asset growth in our target range of 5-7% assuming an average long-run UK RPI inflation of 3%.

 

National Grid is 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.

Funding of organic growth

National Grid has a strong balance sheet and an efficient capital structure which supports the effective financing of our investment programme. This programme will be financed through a combination of:

• additional debt financing;

• internally generated equity capital, delivered through strong financial performance in both the UK and US, including from operating efficiencies and from faster recovery of regulatory assets through rate filings and re-openers; and

• additional equity capital generated through the take up of the shareholder scrip dividend option, originally established to support the business in periods of higher asset growth.

 

Reflecting the continuing high level of investment, the Group currently expects to continue to utilise the scrip dividend mechanism to fund asset growth.

Over £5 billion of Capital Investment in 2019/20, 19% higher at constant currency

We continued to make significant investments in critical energy infrastructure during 2019/20. Total capital investment across the Group was £5,405 million, an increase of around £858 million (19% at constant currency) compared to the prior year.

Year ended 31 March

 

 

 

 

 

 

 

 

Capital investment (£ million)

 

At actual exchange rates

 

At constant currency

 

 

2020

2019

% change

 

2020

2019

% change

UK Electricity Transmission

 

1,043

 

925

 

13

%

 

1,043

 

925

 

13

%

UK Gas Transmission

 

249

 

308

 

(19

)%

 

249

 

308

 

(19

)%

US Regulated

 

3,228

 

2,650

 

22

%

 

3,228

 

2,688

 

20

%

NGV and other activities¹

 

885

 

623

 

42

%

 

885

 

626

 

41

%

Group capital investment

 

5,405

 

4,506

 

20

%

 

5,405

 

4,547

 

19

%

1. Excludes £15 million (2019: £47 million) equity contribution to the St William Homes LLP joint venture. Includes £61 million National Grid Partners investment (2019: £58 million).

 

Investment in UK Electricity Transmission increased, primarily driven by higher investment for the Hinkley-Seabank connection, and for our London Power Tunnels 2 project. Completion of the Feeder 9 gas pipeline replacement project under the Humber Estuary was the primary reason for the decrease in investment in UK Gas Transmission. In the US, investment increased by 20% on a constant currency basis, primarily driven by increases in Massachusetts Gas capex compared to prior year, and higher mandated and reliability capital investment in New York. Investment in NGV stepped up driven by the acquisition of Geronimo and higher investment in our North Sea Link, Viking and IFA2 interconnector projects.

Achieved asset growth of 9.0% compared to 7.2% last year

During 2019/20, our combined regulated asset base and NGV and Other business assets grew by £3,730 million, or 9.0% on a constant currency basis. This was helped by the acquisition of Geronimo, as well as the transfer of Construction Work in Progress (CWIP) in to rate base, which combined added around 100bp to the annual growth. This compared to an increase of 7.2% in the prior year. UK RAV growth was 3.8% including RPI indexation of 2.6% while the US rate base grew strongly by 12.2%.

Year ended 31 March

 

 

 

 

Assets (£ million at constant currency)

 

 

 

 

 

 

2020

2019²

% change

UK RAV¹

 

20,431

 

19,692

 

4

%

US rate base

 

20,644

 

18,407

 

12

%

Total RAV and rate base

 

41,075

 

38,099

 

8

%

NGV and Other businesses

 

4,105

 

3,351

 

23

%

Total

 

45,180

 

41,450

 

9

%

1. UK RAV excludes Cadent investment.

2. 2019 restated to reflect the impact of IFRS16.

Value Added of £2.0 billion, driven by asset growth

Value Added

As at 31 March

 

change

(£m constant currency)

2020

2019¹

 

2020

2019

UK RAV

20,431

 

19,692

 

 

739

 

687

 

US rate base

20,644

 

18,407

 

 

2,237

 

1,478

 

NGV and Other businesses

4,105

 

3,351

 

 

754

 

515

 

Total

45,180

 

41,450

 

 

3,730

 

2,680

 

UK other regulated balances

(357

)

(302

)

 

(55

)

196

 

US other regulated balances

1,791

 

1,987

 

 

(196

)

(22

)

Other balances

(514

)

(679

)

 

165

 

185

 

Total group assets and other balances

46,100

 

42,456

 

 

3,644

 

3,039

 

 

 

 

 

 

 

Increase in goodwill

 

 

 

81

 

-

 

Cash dividend

 

 

 

892

 

1,160

 

Adjusted net debt movement

 

 

 

(2,577

)

(2,128

)

Value Added

 

 

 

2,040

 

2,071

 

Value Added per Share²

 

 

 

58.9p

61.2p

1. Figures relating to prior periods have, where appropriate, been re-presented at constant currency and for opening balance adjustments following the completion of the UK regulatory reporting pack process in 2019, reclassifications between US rate base and US other balances, the finalisation of US balances, and the impact of IFRS16.

2. Based on 3,461 million weighted average shares for 2019/20 (2018/19: 3,386 million).

 

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 £2.0 billion in 2019/20. This was slightly lower than last year's £2.1 billion, with consistent UK returns, the impact of asset growth and good performance from NGV and Other activities, offset by lower Cadent dividends received. Of the £2.0 billion value added, £0.9 billion was paid to shareholders as cash dividends, and £1.1 billion was retained in the business. Value added per share was 58.9p compared with 61.2p in 2018/19. This excludes the benefit of the Cadent sale where a further £2 billion proceeds were retained in the business to fund asset growth.

 

FINANCIAL STRENGTH

Credit metrics remain strong, maintain A- rating

Our overall Group credit rating remains at A-/A3 (S&P/Moody's). Group gearing, measured as net debt as a proportion of total regulatory value and other business invested capital, was 63% at 31 March 2020, slightly lower than the level, at constant currency, at 31 March 2019. Gearing remains at an appropriate level for the credit rating. Retained cash flow (RCF)/adjusted net debt, using Moody's methodology, was 9.2%. The Funds From Operations (FFO) to debt metric, using S&P's methodology, was 12.3%.

 

At 31 March 2020, the Group had £1 billion of cash and short-term financial investments available and £5.5 billion of committed bank facilities providing general liquidity across the Group. In addition, the ESO has £550 million of committed bank facilities. These facilities are provided by our relationship banking group and all remain undrawn.

 

During the year, we raised £2.9 billion of long-term senior debt and refinanced £1.1 billion of our hybrid debt. In January, we used our Green Financing Framework to issue our inaugural green bond, a €500 million bond issued by National Grid Electricity Transmission with a coupon of 0.19 percent. We have also used this framework to agree £598 million of ECA financing for our Viking interconnector. In April, we raised $600 million for Narragansett Electric and £400 million for National Grid Electricity Transmission. Both were priced attractively highlighting global debt investor confidence in National Grid despite COVID-19 volatility.

Dividend increase of 2.6% recommended for 2019/20

Our dividend policy, set out in 2013, aims to grow the ordinary dividend per share at least in line with RPI inflation each year for the foreseeable future. As is its usual practice, the Board reviews this policy regularly, taking into account a range of factors including expected business performance and regulatory developments.

 

The Board has recommended an increase in the final dividend to 32.0 pence per ordinary share ($2.0126 per American Depositary Share) which will be paid to shareholders on the register as at 3 July 2020. If approved, this will bring the full year dividend to 48.57 pence per ordinary share, an increase of 2.6% over the 47.34 pence per ordinary share in respect of the financial year ending 31 March 2019. This rise is in line with the increase in UK RPI for the twelve months to 31 March 2020 as set out in the policy announcement of 28 March 2013.

 

A scrip dividend alternative will again be offered in respect of the 2019/20 final dividend.

Board changes

In May 2019, we announced the appointment of Jonathan Silver as a Non-Executive Director of the Board. Jonathan joined the Finance, Remuneration and Nominations Committees. Amanda Mesler joined the Safety, Environment and Health Committee and stepped down from the Finance Committee.

 

In November 2019, we announced that, for personal reasons, Dean Seavers, US Executive Director, would step down with immediate effect from his position as a member of the Board and as President of the US Business. Dean remained with the business until 31 December 2019 to ensure a smooth leadership transition and handover.

 

In January 2020, Liz Hewitt was appointed as a Non-Executive Director, joining the Audit, Nominations and Safety, Environment and Health Committees.

 

 

OUTLOOK

For 2020/21, we have assumed an impact on Group underlying operating profit, based on the scenario set out in the Forward Guidance section, of around £400 million from COVID-19. This is driven largely by our US operations where we are expecting (1) higher levels of bad debt, (2) additional direct COVID-19 costs, and (3) deferral of rate increases. However, given regulatory mechanisms and precedents, we expect to recover a large part of this. In the UK, we do expect to see some limited cost impact from COVID-19. We are also currently working with regulators on support mechanisms for our customers, which may lead to cash flow impacts this year, but we would ultimately expect to be recoverable. Therefore, whilst COVID-19 will impact earnings and cash flow in the short term, we currently anticipate limited economic impact longer term.

 

For the year ahead, our focus in the US will be to work with regulators on developing the appropriate rate plans for a post COVID-19 world. In the UK, we will focus on agreeing a fair settlement for RIIO-2 with Ofgem. We will continue to place a sharp emphasis on efficiency across the business. With our enhanced medium-term net zero emissions targets, we remain committed to working with all our stakeholders towards enabling the energy transition.

 

National Grid continues to expect asset growth towards the top end of its target range of 5-7% in the near term, assuming RPI at 3%, with annual capital investment of around £5 billion. As we emerge from the COVID-19 crisis, our focus will continue to be on customer affordability, safety and reliability across our networks as we work with regulators on agreeing new frameworks in the US and UK. With an efficient balance sheet that underpins asset and dividend growth, the Group is well positioned to create value for shareholders.

 

 

 

2020/21 FORWARD GUIDANCE

 

The forward guidance below assumes a scenario of continued gradual easing of lockdowns across our territories, together with cost recovery mechanisms that continue to be based on regulatory precedent. If other scenarios play out through the course of the year, then this could have a range of impacts on cashflows and earnings, which could be different from our current assessment.

 

The outlook and forward guidance contained in this statement should be reviewed, together with the forward-looking statements set out in this release, in the context of the cautionary statement.

UK Electricity Transmission

Net Revenue (excluding timing) is expected to decrease compared to 2019/20, including lower connections income, however this should be mostly offset by lower controllable costs reflecting continuing benefit from the UK cost efficiency programme, and taking into account COVID-19 related costs.

 

Depreciation is expected to increase by over £40 million reflecting the ongoing investment programme.

 

Totex and other outperformance is expected to decrease slightly compared to 2019/20, but Incentive performance is expected to increase. Overall, Return on Equity is expected to be similar to the level in 2019/20.

UK Gas Transmission

Net Revenue (excluding timing) is expected to increase by approximately £30 million compared to 2019/20, including base revenue increases and the benefit of RPI inflation. Overall costs, including depreciation, are expected to be broadly flat on 2019/20, as COVID-19 related costs offset the benefit of the ongoing cost efficiency programme.

 

Return on Equity is expected to be lower than 2019/20, with lower totex performance.

UK Timing

Revenues are likely to be impacted by timing of recoveries including impacts from prior years and lower volume expectations for 2020/21 given lower system demand due to COVID-19. This will drive under-recovery of revenues in Electricity Transmission in 2020/21. Gas Transmission timing is expecting a small over-recovery.

US Regulated operations

Net Revenue (excluding timing) is expected to be over £100 million higher, reflecting the first full year of new rates in our Massachusetts Electric business, and rate increases under existing rate plans. We do not expect significant revenue increases in our New York businesses due to deferral of rate increases in upstate New York, as well as a delay to updating rates in KEDNY/KEDLI.

 

However, under our current assumptions, we expect costs to increase by over £150 million y-o-y driven by:

•   continuing higher levels of bad debts, above our current regulatory allowances

•   additional COVID-19 related costs

 

We expect to recover most of these additional costs through regulatory mechanisms. The timing of recovery through revenues will depend on the outcome of negotiations with our regulators.

 

We expect depreciation to be higher in 2020/21 by around £100 million reflecting the higher level of asset growth.

 

Return on Equity for overall US Regulated operations is expected to decrease compared to 2019/20. The size of the decrease will be dependent on the arrangements for recoveries of additional costs related to the pandemic.

US Timing

Revenues will be impacted by timing of recoveries. We expect timing to be significantly favourable relative to the timing outflow seen in FY20.

 

 

NGV and Other activities

NG Ventures operating profits are expected to decrease by around 5% year-on-year due to lower meter volumes and lower interconnector arbitrage. New interconnectors are not expected to start to contribute materially to operating profit until 2021/22.

 

We also expect other activities' underlying operating profit to be lower year on year driven by lower property operating profit, and lower NG Partners fair value gains resulting from the current economic climate.

Joint Ventures and Associates

Our share of the profit after tax of joint ventures and associates is expected to reduce as property sales from the St William property joint venture slow.

Interest and Tax

Net finance costs in 2020/21 are expected to be a little lower than 2019/20, with lower RPI inflation and lower interest rates more than offsetting the impact of increased net debt.

 

For the full year 2020/21, the underlying effective tax rate relating to profit generated in the year, excluding the share of joint venture and associate post-tax profits, is expected to be around 22%.

Investment, Growth and Net Debt

Overall Group capital investment for 2020/21 is expected to reduce to around £5 billion, on the back of implementing new working practices to follow government guidelines based on the impacts of the COVID-19 pandemic. Investment in 2019/20 included the acquisition of Geronimo.

 

Asset Growth is expected to be lower than in 2019/20, reflecting our expectations for lower capex and lower RPI inflation. We expect asset growth to be towards the top end of our 5-7% target range at 3% RPI.

 

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

 

Operating cashflow generated from continuing operations is expected to decrease with lower EBITDA driven primarily by costs related to COVID-19.

 

Net debt is expected to increase by around £3 billion (excluding the impact of foreign exchange) from £28.6 billion. We currently forecast an impact of up to £1 billion on cash flow by the end of this financial year due to COVID-19.

 

Weighted average number of shares (WAV) is expected to increase from 3,461 million last year to approximately 3,540 million in 2020/21 reflecting the impact of scrip shares, assuming a 25% scrip uptake.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 72 to 83.

 

Also, we distinguish between adjusted results, which exclude exceptional items and remeasurements, and underlying results, which further take account of: (i) volumetric and other revenue timing differences arising from our regulatory contracts, and (ii) major storm costs which are recoverable in future periods, neither of which give rise to economic gains or losses.

 

Performance for the year ended 31 March

Financial summary for continuing operations

 

 

(£ million)

2020

2019

change %

Statutory results

 

 

 

Operating profit

2,780

 

2,870

 

(3

)

Profit after tax

1,274

 

1,502

 

(15

)

Earnings per share (pence)

36.8

 

44.3

 

(17

)

Dividend per share (pence), including proposed final dividend

48.57

 

47.34

 

2.6

 

 

 

 

 

 

 

 

 

Alternative performance measures:

 

 

 

Underlying operating profit

3,454

 

3,427

 

1

 

Underlying profit after tax

2,015

 

1,998

 

1

 

Adjusted earnings per share (pence)

55.2

 

59.0

 

(6

)

Underlying earnings per share (pence)

58.2

 

58.9

 

(1

)

Underlying dividend cover

1.2

 

1.2

 

-

 

Capital investment

5,405

 

4,506

 

20

 

Retained cash flow/adjusted net debt

9.2%

 

9.4%

 

(20)bps

Regulatory performance measures:

 

 

 

Asset growth

9.0%

 

7.2%

 

180bps

Group return on equity

11.7%

 

11.8%

 

(10)bps

Value added

2,040

 

2,071

 

(1

)

Regulatory gearing

63%

 

66%

 

(300)bps

 

The Group's statutory results for the year were adversely impacted by exceptional charges. The impact on statutory EPS as a result of these charges is presented after each item. These included additional environmental provisions and a reduction in the discount rate applied to certain provisions across the Group (8.6p) and a deferred tax charge due to the reversal of the expected reduction in the UK corporation tax rate originally enacted by the Finance Act 2016 (5.6p). Last year's statutory results were adversely impacted by exceptional charges incurred in respect of the Massachusetts Gas labour dispute (6.2p), our UK and US cost efficiency and restructuring programme (4.7p) and the impairment of development costs in respect of the termination of the NuGen and Horizon nuclear connection projects (3.3p).

 

Statutory operating profit was also adversely impacted by commodity remeasurement losses of £125 million in 2019/20 (2018/19: £52 million gains) from mark-to-market movements on derivatives which are used to hedge the cost of buying wholesale gas and electricity on behalf of our US customers.

 

Underlying operating profit was up 1% as higher rate case revenues in our US Regulated businesses and lower operating costs more than offset higher deferable storm costs, higher bad debts costs, increased depreciation, the non-recurrence of favourable US legal settlements and sale of our Fulham property site in 2018/19. The combination of these factors was partly offset by higher net financing costs, driven by the implementation of IFRS 16 and higher average net debt. Underlying profit after tax increased by 1% and, combined with a higher share count, resulted in a 1% decrease in underlying EPS to 58.2p.

 

Capital investment of £5.4 billion increased our asset growth to 9%. We delivered Value Added (our measure of economic profit) of £2.0 billion in 2019/20, slightly lower than in 2018/19. Group RoE of 11.7% was comparable to 11.8% in 2018/19, reflecting the higher new rate allowances in our US businesses, while 2018/19 benefited from the Fulham sale and legal settlements. RCF/net debt at 9.2% remained consistent with the Company's strong investment grade credit rating. The recommended full-year dividend per ordinary share of 48.57 pence is in line with policy and is covered 1.2 times by underlying EPS. 

 

The adoption of IFRS 16 'Leases' during the year increased our net debt by £474 million, with a corresponding increase in right-of-use assets recorded on the balance sheet. This standard has resulted in lower operating costs within our businesses, offset by a higher depreciation charge and a higher interest cost.

Reconciliation of different measures of profitability and earnings

The table below reconciles our statutory profit measures for continuing operations, at actual exchange rates, to adjusted and underlying versions.

Reconciliation of profit and earnings from continuing operations

 

Operating profit

 

Profit after tax

 

Earnings per share (pence)

(£ million)

2020

2019

 

2020

2019

 

2020

2019

Statutory results

2,780

 

2,870

 

 

1,274

 

1,502

 

 

36.8

 

44.3

 

Exceptional items

402

 

624

 

 

491

 

480

 

 

14.2

 

14.2

 

Remeasurements

125

 

(52

)

 

148

 

19

 

 

4.2

 

0.5

 

Adjusted results

3,307

 

3,442

 

 

1,913

 

2,001

 

 

55.2

 

59.0

 

Timing

147

 

(108

)

 

102

 

(72

)

 

3.0

 

(2.1

)

Major storm costs

-

 

93

 

 

-

 

69

 

 

-

 

2.0

 

Underlying results

3,454

 

3,427

 

 

2,015

 

1,998

 

 

58.2

 

58.9

 

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 summarises such items; full details are contained in note 4 to the financial statements together with an explanation of the process used to make this determination.

Exceptional income/(expense) for continuing operations

 

Impact on

operating profit

 

Impact on

profit after tax

 

Impact on

EPS (pence)

(£ million)

2020

2019

 

2020

2019

 

2020

2019

Changes in environmental provision

(402

)

-

 

 

(299

)

-

 

 

(8.6)

-

 

Massachusetts Gas labour dispute

-

 

(283

)

 

-

 

(209

)

 

-

 

(6.2

)

UK and US cost efficiency and restructuring programme

-

 

(204

)

 

-

 

(160

)

 

-

 

(4.7

)

Impairment of nuclear connections development costs

-

 

(137

)

 

-

 

(111

)

 

-

 

(3.3

)

Deferred tax arising on the reversal of the reduction in UK corporation tax rate

-

 

-

 

 

(192

)

-

 

 

(5.6)

-

 

Total

(402

)

(624

)

 

(491

)

(480

)

 

(14.2)

(14.2

)

 

 

This year we have classified the following items as exceptional:

Changes in environmental provisions: a £326 million net increase in the provision for estimated costs and cost sharing allocations borne by the Company associated with environmental clean-up related to former manufacturing gas plant facilities, formerly owned or operated by the Group or its predecessor companies and additionally, £76 million for the impact of a reduction of 0.5% in the real discount rate applied to the environmental provisions across the Group; and

Deferred tax arising on the reversal of the reduction in UK corporation tax rate: The Finance Act 2016 reduced the UK corporation tax rate to 17% with effect from April 2020. A £192 million deferred tax charge has been made, following the reversal of this legislation, which retains the UK corporation tax rate at 19%, resulting in an increase in deferred tax liabilities.

 

In the prior year we classified the £283 million cost arising as a result of the Massachusetts Gas labour dispute as exceptional, along with the £204 million charge relating to the UK and US cost efficiency and restructuring programme and the £137m impairment charge relating to nuclear connection development costs. 

 

 

We also exclude certain unrealised gains and losses on mark-to-market financial instruments from adjusted profit; see notes 5 and 6 to the financial statements for further information. Net remeasurement losses of £125 million on commodity contract derivatives were incurred in addition to net remeasurement losses of £64 million on financing-related instruments and a further £1 million of remeasurement losses related to our share of post-tax results of joint ventures. 

Timing over/(under)-recoveries

 

In calculating underlying profit, we exclude regulatory revenue timing over- and under-recoveries and major storm costs. 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, the balance must be returned to customers in subsequent years; likewise, if less than this level of revenue is collected, the balance will be recovered from customers in subsequent years. We also collect revenues from customers and pass these on to third parties (e.g. NYSERDA). These variances between allowed and collected revenues and timing of revenue collections for pass-through costs give rise to over- and under-recoveries. 

 

 

 

 

The following table summarises management's estimates of such amounts for the two years ended 31 March 2020. 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. All amounts are translated at the current year average exchange rate of $1.29:£1. 

Timing over/(under)-recoveries

(£ million)

2020

2019

Balance at start of year (restated)¹

403

 

301

 

In-year over/(under)-recovery

(147

)

111

 

Balance at end of year

256

 

412

 

1. March 2019 opening balances adjusted to correspond with 2018/19 regulatory filings and calculations.

 

Timing over-recoveries of £146 million in UK Electricity Transmission were more than offset by timing under-recoveries of £54 million in UK Gas Transmission and timing under-recoveries of £239 million in US Regulated in 2019/20. 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. For the year ended 31 March 2020 this tax rate was 31%.

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) are recoverable under our rate plans but are expensed as incurred under IFRS. Accordingly, where the total incurred cost (after deductibles) exceeds $100 million in any given year, we exclude the net costs from underlying earnings. In 2019/20, although we experienced a number of storms, the $98 million of deferrable storm costs we incurred (in aggregate) fell just below this threshold. During 2018/19 we experienced bad weather events across the year, with storms unusually occurring during April and May as well as in the winter months. In that year the total net costs exceeded the $100 million threshold and were excluded from our underlying results. 

Segmental income statement

The tables below set out operating profit on adjusted and underlying bases. 

 

Adjusted operating profit

 

Underlying operating profit

£ million

2020

2019

change %

 

2020

2019

change %

UK Electricity Transmission

1,320

 

1,015

 

30

 

 

1,174

 

1,092

 

8

 

UK Gas Transmission

348

 

303

 

15

 

 

402

 

341

 

18

 

US Regulated

1,397

 

1,724

 

(19

)

 

1,636

 

1,594

 

3

 

NGV and Other activities

242

 

400

 

(40

)

 

242

 

400

 

(40

)

Total operating profit

3,307

 

3,442

 

(4

)

 

3,454

 

3,427

 

1

 

Net finance costs

(1,049

)

(993

)

6

 

 

(1,049

)

(993

)

6

 

Share of post-tax results of joint ventures and associates

88

 

40

 

120

 

 

88

 

40

 

120

 

Profit before tax

2,346

 

2,489

 

(6

)

 

2,493

 

2,474

 

1

 

Tax

(433

)

(488

)

(11

)

 

(478

)

(476

)

-

 

Profit after tax

1,913

 

2,001

 

(4

)

 

2,015

 

1,998

 

1

 

Earnings per share (pence)

55.2

 

59.0

 

(6

)

 

58.2

 

58.9

 

(1

)

 

The statutory operating profit for all three reportable segments fell in the year primarily as a result of the £402 million exceptional charges referred to earlier. The reasons for the movements in underlying operating profit are described in the Business Review.

 

 

Financing costs and tax

Net finance costs

Net finance costs (excluding remeasurements) for the year were 6% higher than last year at £1,049 million, with the £56 million increase mostly driven by the impact of IFRS 16, lower capitalised interest and adverse foreign exchange movements, partly offset by interest on tax settlements. The effective interest rate of 4.1% on net debt was 20bps lower than the prior year rate of 4.3%. 

 

Joint ventures and associates

The Group's share of net profits from joint ventures and associates increased as a result of St William's first year of profits. Our Minnesota-based joint venture, Emerald Energy Ventures LLC, which we acquired in July also contributed £1 million of post-tax earnings in 2019/20. 

 

Tax

The underlying effective tax rate of 19.9% was 30bps higher than last year. The tax charge for the year benefited from the release of reserves following settlement of tax audits relating to earlier years and gains on chargeable disposals which are offset by previously unrecognised capital losses. In the prior year, significantly higher gains on property disposals that were offset by previously unrecognised capital losses resulted in a lower underlying effective tax rate.

 

Discontinued operations

We completed the sale of our remaining 39% interest in Quadgas HoldCo Limited, the holding company for the Cadent gas networks, in June 2019 for approximately £2 billion. As described further in note 10 to the financial statements, we have treated all items of income and expense relating to the disposal of Quadgas HoldCo Limited within discontinued operations. 

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 13. '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 77. 

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

2020

2019

change %

Cash generated from continuing operations

4,914

 

4,464

 

10

 

Cash capital expenditure and acquisition of investments

(5,098

)

(4,148

)

23

 

Dividends from joint ventures and associates

75

 

68

 

10

 

Business net cash flow from continuing operations

(109

)

384

 

(128

)

Net interest paid

(884

)

(846

)

4

 

Net tax (paid)/received

(199

)

(75

)

165

 

Ordinary dividends

(892

)

(1,160

)

(23

)

Other cash movements

10

 

15

 

(33

)

Net cash flow from continuing operations

(2,074

)

(1,682

)

23

 

Quadgas sale proceeds

1,965

 

-

 

n/a

Discontinued operations

(91

)

85

 

(207

)

Non-cash movements

(1,387

)

(1,930

)

(28

)

Increase in net debt

(1,587

)

(3,527

)

(55

)

Net debt at start of year

(26,529

)

(23,002

)

15

 

Impact of adoption of IFRS 16

(474

)

-

 

n/a

Net debt at end of year

(28,590

)

(26,529

)

8

 

 

Cash flow generated from continuing operations was £4.9 billion, £0.5 billion higher than last year, principally due to exceptional items in 2018/19 and favourable working capital (mainly higher inflows from collection of prior year winter receivables), partly offset by adverse timing on revenues and provisions. Cash expended on investment activities increased for the reasons described above. Net interest paid increased due to the growth in net debt and also higher interest income received in 2018/19. The Group made net tax payments of £199 million during 2019/20. A 46% scrip take-up in the year reduced the cash dividend to £892 million, £268 million lower than in 2018/19, when the scrip take-up was 26%. Proceeds of £1,965 million (plus £6 million of interest) from the Quadgas HoldCo Limited disposal, were partly offset by outflows for residual provisions and accruals classified within discontinued operations. In 2018/19, discontinued operations included dividend and interest income of £156 million from our investment in Quadgas. Non-cash movements primarily reflect changes in the sterling-dollar exchange rate, the impact of adopting IFRS 16 'Leases', accretions on index-linked debt, finance lease additions and other derivative fair value movements. 

Overall, the increase in net debt was driven by continuing high levels of capital investment and the impact of a stronger US dollar on the translation of US dollar-denominated debt. As at 31 March 2020 the Group reduced its total financial liabilities denominated in US dollars from $21 billion at the start of the year to $20 billion at 31 March 2020, as a hedge of foreign exchange movements in the value of its US businesses. 

 

During the year we raised over £2.9 billion of new long-term senior debt including 13 bond issues, and £1.1 billion of hybrid debt refinancing. The Board has considered the Group's ability to finance normal operations at the same time as funding a significant capital programme, in light of the potential impacts of COVID-19. This includes stress-testing of the Group's finances under a 'reasonable worst case' scenario and consideration of levers available to ensure our businesses are adequately financed. As a result, the Board has concluded that the Group will have adequate resources to do so. In April, we issued £0.9 billion of debt through 2 bonds, evidencing our ability to raise new finance. In addition, as at 17 June 2020, we have £5.8 billion of undrawn committed facilities, all of which have expiry dates beyond June 2021. The three major credit rating agencies - Moody's, Standard & Poor's (S&P) and Fitch - have all maintained their strong investment grade ratings of National Grid plc on stable outlook. 

 

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 77 to 83.

Year ended 31 March

Regulatory Debt:Equity assumption

 

Achieved

Return on Equity

 

Base or Allowed Return on Equity

%

 

2020

2019

 

2020

2019

UK Electricity Transmission

60/40

 

13.5

 

13.7

 

 

10.2

 

10.2

 

UK Gas Transmission

62.5/37.5

 

9.8

 

9.5

 

 

10.0

 

10.0

 

UK Weighted Average

 

 

12.4

 

12.4

 

 

10.1

 

10.1

 

US Regulated

Avg. 50/50

 

9.3

 

8.8

 

 

9.4

 

9.4

 

Group

 

 

11.7

 

11.8

 

 

 

 

 

As at 31 March

RAV, Rate Base or other business assets

 

Total Regulated and other balances

(£ million, at constant currency)

2020

2019

 

2020

2019

UK Electricity Transmission

14,133

 

13,537

 

 

13,769

 

13,291

 

UK Gas Transmission

6,298

 

6,155

 

 

6,305

 

6,099

 

US Regulated

20,644

 

18,407

 

 

22,435

 

20,394

 

Total regulated

41,075

 

38,099

 

 

42,509

 

39,784

 

NGV and Other activities

4,105

 

3,351

 

 

3,591

 

2,672

 

Group regulated and other balances

45,180

 

41,450

 

 

46,100

 

42,456

 

 

 

UK ELECTRICITY TRANSMISSION

2019/20 Overview

UK Electricity Transmission delivered another strong year of operational performance, maintaining a focus on safe, reliable, innovative and efficient operations.

 

We achieved an excellent network reliability of 99.99997% during the year, while maintaining a strong safety performance. Our customers were also more satisfied with our performance - we achieved a score of 8.2 against a baseline target of 6.9 set by Ofgem.

 

During the year we have continued to deliver complex projects to ensure continued reliability of the network. As part of this investment, in December we awarded the £400 million tunnelling contract associated with our London Power Tunnels 2 project, a 33.5km, £1 billion link from Wimbledon to Crayford which will provide significant resilience across south London when completed in 2028. Four other major contracts associated with the cable and substation works will be let this year.

 

We have made good progress on the £116 million Dorset Visual Impact Provision (VIP) during the year, with site establishment and preliminary civil works well underway. We are on track to underground 8.8km of overhead line and remove 22 pylons in the Dorset Area of Outstanding Natural Beauty (AONB) by 2022. Funding and planning applications have been submitted for the Peak East VIP project. This £43 million project will remove 6 pylons and 2km of overhead line in the Peak District National Park. A preferred bidder has been selected to install a 3.4km tunnel through the Snowdonia National Park for the Snowdonia VIP project, and engineering and consenting activities have commenced on the first of our RIIO-2 portfolio of VIP projects, the undergrounding of 4.4km of overhead line through the North Wessex Downs AONB.

 

The UK electricity transmission network is continuing with innovation investments. We are focused on reducing our carbon footprint from our construction activities and seeking ways to reduce the greenhouse gas impact from gas-insulated assets. We have engaged extensively with regional stakeholders in our Zero 2050 South Wales project to better understand the changes in decarbonising society. We have made progress in the construction of our transmission accelerator at Deeside, recognising the need to test and adopt new technologies faster, and we continue to research technologies to enhance our cyber security and further digitise our grid infrastructure.

Regulated Returns and Financial Performance reflect efficiency and incentive delivery

Return on Equity above base levels

RoE for the year, normalised for a long-run inflation rate of 3%, was 13.5% compared with a regulatory assumption, used in calculating the original revenue allowance, of 10.2%. The principal components of the difference are shown in the table below:

Year ended 31 March

2020

2019

Base return (including avg. 3% long-run inflation)

10.2

 

10.2

 

Totex incentive mechanism

2.5

 

2.3

 

Other revenue incentives

0.1

 

0.5

 

Return including in year incentive performance

12.8

 

13.0

 

Pre-determined additional allowances

0.7

 

0.7

 

Return on Equity

13.5

13.7

 

 

Totex incentives contributed over 250 basis points from efficiency savings across our asset health programmes and high performing load related schemes. For the first time in RIIO-T1 we outperformed against the opex element of our totex allowance, as well as the capex element (excluding cash spend relating to the restructuring provision we made in 2018/19). This outperformance was driven by process improvement and contract management savings, partially offset by lower ESO incentive revenues and the true up of prior year incentives. Additional allowances contributed 70 basis points, slightly above prior year.

 

We continued to deliver good performance under the stakeholder engagement and customer satisfaction incentives and we continue to work to identify opportunities for future outperformance across these areas.

Investment activities in 2019/20

Capital investment in UK Electricity Transmission was £1,043 million, £118 million higher than the prior year. This was primarily due to increased investment for the Hinkley-Seabank connection, and for our second phase of the London Power Tunnels 2 project.

 

The business continued to seek improved totex efficiency in its investment through a combination of innovation and process simplification. This focus on engineering for best value while maintaining safety standards ensures consumer bills are kept as low as possible and supports attractive levels of asset growth through the creation of performance RAV. Overall, investment in the year included £780 million of non-load related investment whilst load related spend was £263 million.

Regulated Financial Performance down 3% year-on-year

The regulated financial performance calculation adjusts reported operating profit to reflect the impact of the business' regulatory arrangements when presenting financial performance.

 

Regulated financial performance for UK Electricity Transmission decreased to £1,324 million from £1,361 million. The year-on-year decrease primarily reflects lower achieved RoE and lower cost of debt allowance.

Reconciliation of regulated financial performance to operating profit

(£ million)

2020

2019

% change

Operating profit

1,320

 

1,015

 

30

 

Movement in other regulated assets and liabilities

(99

)

174

 

(157

)

Deferred tax adjustment

63

 

64

 

(2

)

RAV indexation (avg. 3% long-run inflation)

406

 

391

 

4

 

Regulatory v IFRS depreciation difference

(459

)

(394

)

16

 

Fast money/other

26

 

72

 

(64

)

Pensions

(52

)

(51

)

2

 

Performance RAV created

119

 

90

 

32

 

Regulated Financial Performance

1,324

 

1,361

 

(3

)

Regulated Financial Position up 3.5%

In the year, RAV grew by 4.4%, an increase on last year's growth rate driven primarily by increased investment, and inflation linked growth in the RAV (2.6% 2019/20 versus 2.4% 2018/19).

 

2020

2019

Opening Regulated Asset Value (RAV)¹

13,537

 

13,045

 

Asset additions (slow money) - actual

1,048

 

967

 

Performance RAV or assets created

119

 

90

 

Inflation adjustment (actual RPI)

357

 

321

 

Depreciation and amortisation

(928

)

(886

)

Closing RAV

14,133

 

13,537

 

 

 

 

Opening balance of other regulated assets and (liabilities)

(265

)

(410

)

Movement

(99

)

175

 

Closing balance

(364

)

(235

)

 

 

 

Closing Regulated Financial Position

13,769

 

13,302

 

1. March 2019 opening balances adjusted to correspond with 2018/19 regulatory filings and calculations

Regulatory and other business developments

As highlighted in the 2019/20 Overview sections, Ofgem has continued to progress its framework for the RIIO-2 price control, which will run for five years from April 2021.

 

In December, we published the outcome of the stakeholder group reports and submitted the final business plan for Electricity Transmission (ET). Our plans cover a crucial period when rapid change is expected in the energy system to reduce carbon emissions and help achieve the UK's net zero target by 2050. They highlight specific opportunities within the regulatory framework to enable and accelerate the UK's progress to net zero. In delivering the plans, we engaged with over 25,000 households, businesses and energy consumers and were the first network to set up independent stakeholder user groups.

 

The ET business plan proposes £7.5 billion[6] of totex over the five-year price control period for RIIO-2. It seeks to connect over 15GW of capacity over the duration of the price control, providing the UK with clean power and flexible storage. In addition, it seeks to maintain network reliability, network availability, and increase resilience to cyber and physical attacks. The plan represents a step change in investment from the RIIO-T1 baseline and would see our part of the consumer bill reducing in real terms as we identified efficiency savings of 11%.

 

Looking forward, the next key date on the RIIO-2 timeline is initial determinations which are expected in July. Planned open hearings in March and April were cancelled as a consequence of the COVID-19 crisis and lockdown restrictions. However, we have continued our dialogue with Ofgem and stakeholders on the proposed parameters for RIIO-2, and we have continued to make representations on those areas we believe need to be addressed.

Future activities and outlook

UK Electricity Transmission expects to continue to deliver good returns and asset growth in 2020/21 with opportunities for the business to deliver continued strong outperformance led by totex and other incentives in the final year of RIIO-T1. The business will continue to focus on using process improvements, efficiency and innovation to deliver the RIIO outputs at the lowest sustainable cash cost, generating savings for consumers and returns for shareholders.

 

National Grid expects UK Electricity Transmission capital investment in 2020/21 to be slightly higher than 2019/20. The majority of our capital expenditure will be non-load related, including the replacement of existing assets, system upgrades and improvements to site safety and visual amenity. The load related spend mainly includes the connection of new generation sources. The business expects to continue to deliver growth in RAV, including the benefit of efficiencies, above the rate of inflation in 2020/21.

 

APPENDIX to UK ELECTRICITY TRANSMISSION

Revenue and Costs in 2019/20 on an IFRS basis

UK Electricity Transmission statutory operating profit increased by £538 million in the year. In 2018/19, there were £137 million of exceptional costs related to the cancellation of nuclear connections (net of termination income) and £100 million in relation to our cost-efficiency and restructuring programme. Timing over-recoveries of £146 million in 2019/20 compared to under-recoveries of £77 million in the prior year primarily due to the collection of prior year balances.

Adjusted operating profit increased by £305 million (30%), driven by £223 million favourable year-on-year timing over-recoveries. Underlying operating profit increased by 8%. Net revenues (excluding timing) were relatively flat, with higher re-opener allowances for cyber and data centres, funding for ESO legal separation and the RPI uplift, being fully offset by output and allowances true-up in the annual iteration, along with lower ESO incentive income. Regulated controllable costs were lower, with efficiency savings and lower ESO separation costs, partly offset by higher IT costs and inflation. Post-retirement benefit costs were little changed year-on-year. Other costs were lower, mainly relating to 2018/19's provisions against income recognised on early termination of connections.

The decrease in depreciation and amortisation charges reflects a benefit from the release of provisions related to prior years. 

UK Electricity Transmission

 

(£ million)

2020

2019

% change

Revenue

3,702

 

3,351

 

10

 

Operating costs

(2,386

)

(2,573

)

(7

)

Statutory operating profit

1,316

 

778

 

69

 

Exceptional items

4

 

237

 

(98

)

Adjusted operating profit

1,320

 

1,015

 

30

 

Timing

(146

)

77

 

n/a

Underlying operating profit

1,174

 

1,092

 

8

 

 

 

 

 

Net revenue (excl. timing)

2,028

 

2,031

 

-

 

Regulated controllable costs

(306

)

(332

)

(8

)

Post-retirement benefits

(48

)

(49

)

(2

)

Other operating costs

(31

)

(65

)

(52

)

Depreciation and amortisation

(469

)

(493

)

(5

)

Underlying operating profit

1,174

 

1,092

 

8

 

Timing

146

 

(77

)

n/a

Adjusted operating profit

1,320

 

1,015

 

30

 

 

 

UK GAS TRANSMISSION

2019/20 Overview

In 2019/20, UK Gas Transmission performed in line with expectations with a strong safety performance. We achieved an excellent network reliability of 99.99959% during the year, and we also met our customer satisfaction targets, where we achieved a score of 8.0 against a baseline target of 6.9 which is set by Ofgem.

 

In January, we completed the tunnelling of the Feeder 9 gas pipeline under the Humber estuary, a critical reinforcement of the gas network. On our gas compressor refurbishment, we are in talks with Costain, our contractor, about cost and timing overruns on the project. As on all our sites, activities were paused briefly while risk assessments were put in place following the COVID-19 impact. We aim to complete these refurbishments as soon as possible.

 

The UK cost efficiency programme that we announced last year continues to deliver a more agile business ahead of RIIO-2. We remain on track to become a leaner organisation with simplified ways of working and more efficient IT and back office activities. In 2019/20, the Gas Transmission business delivered cost savings of £19 million.

 

Our UK gas transmission business has been leading our research to better understand the role of transitioning to a hydrogen future. Our 'HyNTS' Hydrogen Portfolio of projects aims to identify the opportunities and potential challenges to hydrogen injection into the National Transmission System (NTS). Working in collaboration with industry, the programme includes the building of a test facility using decommissioned NTS assets. When built, it will allow us to run tests with 0%, 20% and 100% hydrogen in natural gas. The plan envisages this facility being built by April 2023, after which the transportation of hydrogen will be tested, and access granted to third parties to trial new technologies. We aim to fund this facility through a Network Innovation Allowance (NIA) and Network Innovation Competition funding from Ofgem. The use of hydrogen across the transmission network is likely to have a key role to play in achieving net zero emissions by 2050, and this facility will help us develop a pathway and learning to future deployment.

Return on Equity lower than base levels

RoE for the year, using a long-run inflation rate of 3%, was 9.8%. The principal components of the performance are shown in the table below.

Year ended 31 March

2020

2019

Base return (including avg. 3% long-run inflation)

10.0

 

10.0

 

Totex incentive mechanism

(0.7

)

(1.1

)

Other revenue incentives

1.1

 

1.2

 

Return including in year incentive performance

10.4

 

10.1

 

Pre-determined additional allowances

(0.6

)

(0.6

)

Return on Equity

9.8

 

9.5

 

 

The RoE was 30 bps higher than 2018/19 but marginally lower than the allowed level. This slight underperformance reflects the higher costs of delivering key compressor projects and our new data centres.

Regulated Financial Performance up 7% year-on-year

The regulated financial performance calculation adjusts reported operating profit to reflect the impact of the business' regulatory arrangements when presenting financial performance. Regulated financial performance for UK Gas Transmission was higher than prior year at £473 million reflecting an increased asset base and improved RoE.

Reconciliation of regulated financial performance to operating profit

(£ million)

2020

2019

% change

Operating profit

348

 

303

 

15

 

Movement in other regulated assets and liabilities

67

 

68

 

(1

)

Deferred tax adjustment

25

 

8

 

213

 

RAV indexation (3% long-run avg.)

185

 

179

 

3

 

Regulatory v IFRS depreciation difference

(77

)

(42

)

83

 

Fast money/other

(17

)

(10

)

70

 

Pensions

(34

)

(33

)

3

 

Performance RAV created

(24

)

(30

)

(20

)

Regulated Financial Performance

473

 

443

 

7

 

Regulated Financial Position increased 3.2%

RAV increased 2.3% in the year, compared to 3.3% in 2018/19. The reduction in growth reflects lower capital expenditure.

£ million

2020

2019

Opening Regulated Asset Value (RAV)¹

6,155

 

5,960

 

Asset additions (slow money) actual

253

 

302

Performance RAV or assets created

(24

)

(30

)

Inflation adjustment (actual RPI)

162

 

146

Depreciation and amortisation

(248

)

(223

)

Closing RAV

6,298

 

6,155

 

 

 

 

Opening balance of other regulated assets and (liabilities)¹

(60

)

(111

)

Movement

67

 

68

 

Closing balance

7

 

(43

)

 

 

 

Closing Regulated Financial Position

6,305

 

6,112

 

1. March 2019 opening balances adjusted to correspond with 2018/19 regulatory filings and calculations.

Investment activities in 2019/20 focused on asset health

UK Gas Transmission invested £249 million during the year, 19% lower than the investment made in 2018/19. This decrease was driven primarily by completion of the Feeder 9 gas pipeline replacement project under the Humber Estuary.

Regulatory and other business developments

As highlighted in the 2019/20 Overview sections, Ofgem has continued to progress its framework for the RIIO-2 price control, which will run for five years from April 2021.

 

In December, we published the outcome of the stakeholder group reports and submitted our final business plan for Gas Transmission (GT). Our plans cover a crucial period when rapid change is expected in the energy system to reduce carbon emissions and help achieve the UK's net zero target by 2050. They highlight specific opportunities within the regulatory framework to enable and accelerate the UK's progress to net zero. In delivering the plans, we engaged with over 25,000 households, businesses and energy consumers and were the first network to set up independent stakeholder user groups.

 

The GT business plan proposes £2.5 billion[7] of totex over the five-year price control period for RIIO-2. It aims to increase asset health spend to maintain levels of network reliability, replace two compressor units at our Wormington site, and increase system resilience to environmental and cyber challenges. These business plans represent a step change in investment from the RIIO-T1 baseline and would see our part of the consumer bill reducing in real terms as we identified efficiency savings of 11%.

 

Looking forward, the next key date on the RIIO-2 timeline is initial determinations which are expected in July. Planned open hearings in March and April were cancelled as a consequence of the COVID-19 crisis and lockdown restrictions. However, we have continued our dialogue with Ofgem and stakeholders on the proposed parameters for RIIO-2, and we have continued to make representations on those areas we believe need to be addressed.

Future activities and outlook

UK Gas Transmission expects returns to remain in line with the allowed level in the final year of RIIO-T1, with continued incentive performance offset by higher totex spend compared to our allowances.

 

Capital investment in UK Gas Transmission in 2020/21 is expected to be slightly lower than 2019/20 on the back of implementing new working practices to follow government guidelines based on the impacts of the COVID-19 pandemic. Regulated asset value is expected to grow albeit below the rate of inflation in 2020/21.

 

 

APPENDIX to UK GAS TRANSMISSION

Revenue and costs in 2019/20 on an IFRS basis

UK Gas Transmission statutory operating profit increased £80 million in the year. In 2018/19, £36 million of costs in relation to our efficiency and restructuring programme were treated as exceptional. Timing under-recoveries of £54 million in 2019/20 compared to £38 million in the prior year reflecting lower than expected volumes and higher shrinkage costs.

Adjusted operating profit increased by £45 million (15%), including £16 million year-on-year adverse timing under-recoveries. Underlying operating profit increased by 18%. Net revenue (excluding timing) was higher, reflecting the re-opener allowances for cyber and data centres, the RPI uplift and the impact of 2018/19's Avonmouth pipeline project revenue allowance clawback. Regulated controllable costs were £17 million lower, driven by efficiency savings. Post-retirement costs were lower, mainly related to the 2018/19 Guaranteed Minimum Pension (GMP) ruling. Other costs were higher principally due to the non-recurrence of provision releases in 2018/19.

The depreciation charge was lower than in 2018/19 as a result of an additional charge in the prior period following a detailed review of asset lives.

 

UK Gas Transmission

 

(£ million)

2020

2019

% change

Revenue

927

 

896

 

3

 

Operating costs

(580

)

(629

)

(8

)

Statutory operating profit

347

 

267

 

30

 

Exceptional items

1

 

36

 

(97

)

Adjusted operating profit

348

 

303

 

15

 

Timing

54

 

38

 

n/a

Underlying operating profit

402

 

341

 

18

 

 

 

 

 

Net revenue (excl. timing)

739

 

707

 

5

 

Regulated controllable costs

(127

)

(144

)

(12

)

Post-retirement benefits

(19

)

(27

)

(30

)

Other operating costs

(20

)

(14

)

43

 

Depreciation and amortisation

(171

)

(181

)

(6

)

Underlying operating profit

402

 

341

 

18

 

Timing

(54

)

(38

)

n/a

Adjusted operating profit

348

 

303

 

15

 

 

 

 

 

 

US REGULATED OPERATIONS

2019/20 Overview

National Grid's US Regulated business continued to make good progress during 2019/20, achieving increased levels of investment and delivering another new rate case agreement. We responded to an increased number of storms across our service territories and continued to focus on driving improved safety performance.

 

We achieved excellent network reliability of 99.994% across our electric distribution business during the year, and 99.955% across our electric transmission business.

 

Safety continues to be a critical pillar of our daily operations and the Company is fully committed to the well-being and safety of employees and customers alike. This year, a tragic event took the life of one of our employees in a car accident and reminded us to continue striving to improve our safety culture. As at 31 March 2020, our Lost Time Injury Frequency Rate was 0.16. In response, we are reviewing safety controls across the business to ensure they are current and appropriate, and to ensure they are reflected in working methods and operating procedures.

 

During the year we exceeded our electric vehicle charging station deployment goals in New York. We enabled more than 900 stations across more than 100 customer sites. We are currently in the process of proposing a significantly larger program to New York regulators to enable even more customers to convert to clean vehicle options.

Increased minor storms

We have continued to maintain excellent reliability across our networks this year, despite increased minor storms across our US jurisdictions. The efforts that we have made over time to significantly change and improve our speed of restoration means that we are now able to reconnect the majority of our customers in less than 24 hours.

Return on Equity

We achieved an RoE of 9.3% in our US business, representing 99% of our average allowed returns. We achieved good performance in most of our operating companies, primarily driven by higher net revenues through new rates, lower controllable costs due to the non-recurrence of last year's Rhode Island gas interruption, and delivered efficiency savings of over $30 million in 2019/2020, in line with the target we set in 2018.

Another year of significant capital investment

Our US Regulated business invested $4.2 billion in the year resulting in rate base growth of 12.2%. This was partly driven by increases in Massachusetts Gas capex compared to prior year, and higher mandated and reliability capital investment in New York, such as City-State Construction and Metropolitan Reliability Infrastructure projects. Across all our jurisdictions, we have continued to focus on modernising ageing networks and providing better safety, reliability and resilience throughout the year.

Regulated Financial Position

Overall, the US rate base increased by $2.7 billion (12%) to $25.6 billion[8] driven by increased capital expenditure partially offset by depreciation and deferred tax movements.

US Regulated Assets

($ billion as at 31 March)

2020

2019¹

% change

Rate Base excl. working capital (w/c)

24.5

 

21.9

 

12

 

Working capital in Rate Base

1.1

 

1.0

 

10

 

Total Rate Base

25.6

 

22.9

 

12

 

Reg. assets outside Rate Base excl. w/c

2.7

 

2.5

 

8

 

Working capital outside Rate Base

(0.4

)

(0.1

)

300

 

Total regulated assets outside Rate Base

2.3

 

2.4

 

(4

)

Total US Regulated Assets

27.9

 

25.3

 

10

 

 

 

 

 

£ billion as at 31 March

2020

2019

% change

Total US Regulated Assets at actual currency

22.4

 

19.5

 

15

 

Total US Regulated Assets at constant currency

22.4

 

20.4

 

10

 

1. 2019 restated for movements between categories.

Financial performance

US Regulated

(£ million)

2020

2019

2019 at constant currency

% change

Revenue

9,205

 

9,846

 

9,988

 

(7

)

Operating costs

(8,325

)

(8,421

)

(8,542

)

(1

)

Statutory operating profit

880

 

1,425

 

1,446

 

(38

)

Exceptional items

392

 

351

 

356

 

12

 

Remeasurements

125

 

(52

)

(53

)

(340

)

Adjusted operating profit

1,397

 

1,724

 

1,749

 

(19

)

Timing

239

 

(223

)

(226

)

(207

)

Major storm costs

-

 

93

 

94

 

(100

)

Underlying operating profit

1,636

 

1,594

 

1,617

 

3

 

 

 

 

 

 

Net revenue (excl. timing)

5,984

 

5,645

 

5,727

 

6

 

Regulated controllable costs

(1,871

)

(1,895

)

(1,922

)

(1

)

Post-retirement benefits

(95

)

(94

)

(95

)

1

 

Bad debt expense

(231

)

(146

)

(148

)

58

 

Other operating costs

(1,296

)

(1,216

)

(1,235

)

7

 

Depreciation and amortisation

(855

)

(700

)

(710

)

22

 

Underlying operating profit

1,636

 

1,594

 

1,617

 

3

 

Timing

(239

)

223

 

226

 

(207

)

Major storm costs

-

 

(93

)

(94

)

(100

)

Adjusted operating profit

1,397

 

1,724

 

1,749

 

(19

)

 

US Regulated statutory operating profit fell partly as a result of the £177 million year-on-year adverse swing in commodity contract remeasurements. Exceptional charges also increased reflecting £392 million environmental costs detailed above. In 2018/19, £283 million of exceptional costs were incurred for the Massachusetts Gas labour dispute in addition to £68 million of restructuring costs. Timing under-recoveries of £239 million in 2019/20 compared to timing over-recoveries of £223 million in 2018/19, driven by revenue decoupling, commodity recoveries and lower net energy efficiency collections contributed to a reduction in statutory and adjusted operating profit.

 

Adjusted operating profit decreased by £327 million (19%), including £462 million year-on-year adverse timing under-recoveries, partly offset by £93 million of deferrable storm costs qualifying as major (in aggregate) in 2018/19. Underlying operating profit increased by 3%. Net revenues (excluding timing) increased by £257 million as the benefits of rate case increments (including KEDNY, KEDLI and Niagara Mohawk) and £82 million from foreign exchange movements. A stronger US dollar increased underlying operating profit by £23 million in the year. US Regulated controllable costs decreased as a result of cost efficiencies (principally from benefit of restructurings and contract management), partly offset by workload increases and inflation. Bad debt related costs increased by £85 million, driven by £117 million additional provision for receivables related to the impact of COVID-19. Depreciation and amortisation increased due to the growth in assets. Other costs were higher due to increased property taxes and higher storm costs partly offset by lower cost of removal. Deferrable storm costs were removed from underlying results last year.

Regulatory and other business developments

National Grid works collaboratively with regulators and other stakeholders to ensure the necessary investments are made to construct and maintain safe and reliable networks, while managing costs to customers. Where appropriate, National Grid continues to propose further projects and initiatives to provide benefits to customers through the use of new technology or by facilitating the transition to a low carbon economy.

 

We have continued to make good regulatory progress during the year, with new rates agreed for Massachusetts Electric. The rate case order, effective October 2019, is for 5 years and included an allowed Return on Equity of 9.6%. It also included a new Performance Based Rate Mechanism (PBRM) that funds both capital and operational expenditure across the rate plan, ensuring inflation is factored into the cost base. In April 2019, we filed for new rates for KEDNY/KEDLI. We are resuming settlement negotiations in the KEDNY/KEDLI rate cases in the interest of agreeing on a multi-year rate plan that mitigates bill impacts for our customers while allowing us to maintain safe and reliable service, advance our clean energy goals, and earn a reasonable return. If we are unable to reach a negotiated settlement, the rate cases will continue to a litigated outcome at which time we would then plan to file a new multi-year rate case proposal.

 

In downstate New York, we continue to work with all parties to find solutions to the gas supply constraints faced by the region. We took the difficult decision in May 2019 to stop processing applications for new or expanded gas service in our service territories. This followed further delays to permits for the Williams' Northeast Supply Enhancement Project (otherwise known as the NESE pipeline) which was the final piece of a series of long-term gas supply projects. Following an order issued by the New York Public Service Commission (PSC) requiring us to connect approximately 1,100 customer accounts, we implemented a plan to expand demand response and energy efficiency programmes, alongside sourcing incremental compressed natural gas.

 

In November, we agreed to lift the moratorium on all new connections until September 2021. Under the terms of the agreement, we committed to offering $7 million in customer assistance to address hardships arising from the moratorium; $8 million in demand response and energy efficiency programs; and an additional $20 million investment in clean energy projects and clean tech business investments. In addition, we committed to filing a report providing a comprehensive analysis of the gas capacity constraints affecting our downstate New York service territory, outlining all reasonably available options for meeting long-term customer demand. This report was filed and made available to the public on 24 February and was followed by a series of public and virtual meetings in March and April to solicit report feedback. The meetings were constructive and attended by over 800 people with more than 7,000 comments filed with the PSC. In May, we filed a supplementary report that focused on feedback from the meetings and two potential solutions to long-term constraints. The proposed solutions were (a) a portfolio including LNG vaporisation, gas compression enhancements, combined with incremental energy efficiency and demand response, or (b) the Williams' NESE pipeline. In mid-May, certain permits were denied in New York and New Jersey for the pipeline and therefore we are advancing the portfolio of solutions that were identified in the supplementary report.

 

 

 

 

 

Return on Equity

 

Rate Base ($m) as at 31 March

Regulated Entity

 

FY20

FY19

FY18

Allowed most recent

(%)

 

2020

2019

% change

KEDNY

 

7.7

 

6.2

 

9.0

 

9.0

 

 

4,555

 

3,711

 

23

 

KEDLI

 

9.7

 

9.9

 

10.1

 

9.0

 

 

2,932

 

2,630

 

11

 

NMPC Gas

 

8.7

 

9.8

 

7.9

 

9.0

 

 

1,328

 

1,266

 

5

 

NMPC Electric

 

8.9

 

9.4

 

8.8

 

9.0

 

 

5,881

 

5,358

 

10

 

Total New York

 

8.7

 

8.6

 

9.0

 

9.0

 

 

14,696

 

12,965

 

13

 

 

 

 

 

 

 

 

 

 

 

Massachusetts Gas

 

7.8

 

7.4

 

6.6

 

9.5

 

 

3,108

 

2,761

 

13

 

Massachusetts Electric

 

10.3

 

7.8

 

9.0

 

9.6

 

 

2,858

 

2,564

 

11

 

Total Massachusetts

 

9.0

 

7.6

 

7.8

 

9.5

 

 

5,966

 

5,325

 

12

 

 

 

 

 

 

 

 

 

 

 

Narragansett Gas

 

8.8

 

4.7

 

8.4

 

9.3

 

 

944

 

887

 

6

 

Narragansett Electric

 

11.9

 

10.7

 

5.6

 

9.3

 

 

895

 

779

 

15

 

Total Rhode Island

 

10.3

 

7.7

 

6.9

 

9.3

 

 

1,839

 

1,666

 

10

 

 

 

 

 

 

 

 

 

 

 

Long Island Generation

 

14.1

 

14.2

 

13.5

 

9.9

 

 

456

 

454

 

-

 

New England Power

 

11.0

 

11.0

 

11.0

 

10.6

 

 

1,844

 

1,630

 

13

 

Narragansett Electric Transmission

 

11.1

 

11.3

 

11.5

 

10.6

 

 

788

 

744

 

6

 

Canadian Interconnector & Other

 

13.0

 

13.0

 

13.0

 

13.0

 

 

52

 

79

 

(34

)

Total FERC

 

11.4

 

11.5

 

11.5

 

10.6

 

 

3,140

 

2,907

 

8

 

 

 

 

 

 

 

 

 

 

 

Total US Regulated

 

9.3

 

8.8

 

8.9

 

9.4

 

 

25,641

 

22,863

 

12

 

Future activities and outlook

On rate filings and agreements, we will see the full benefit from the new rate case agreed for Massachusetts Electric, we are resuming settlement negotiations for KEDNY/KEDLI, and we plan to file for new rates for Massachusetts Gas towards the end of this calendar year. For our Niagara Mohawk (NIMO) business, we are exploring options including an extension of the current rate plan or a rate case filing later this summer.

 

Overall, we expect capital investment to be slightly lower in 2020/21 compared to 2019/20. This is on the back of implementing new working practices following the impact of COVID-19.

 

 

NGV AND OTHER ACTIVITIES

 

Operating profit

 

Capital investment1

(£ million)

2020

2019

2019 at constant currency

change % at constant currency

 

2020

2019

2019 at constant currency

change % at constant currency

Metering

158

 

153

 

153

 

3

 

 

41

 

57

 

57

 

(28

)

Interconnectors

61

 

64

 

64

 

(5

)

 

498

 

252

 

252

 

98

 

Grain LNG

78

 

74

 

74

 

5

 

 

7

 

8

 

8

 

(13

)

Geronimo

(9

)

-

 

-

 

n/a

 

123

 

-

 

-

 

n/a

Other

(19

)

(28

)

(28

)

(32

)

 

-

 

6

 

6

 

(100

)

Total NGV

269

 

263

 

263

 

2

 

 

669

 

323

 

323

 

107

 

Property

63

 

181

 

181

 

(65

)

 

4

 

10

 

10

 

(60

)

NG Partners

(11

)

(8

)

(8

)

38

 

 

50

 

52

 

53

 

(6

)

Corporate and other activities

(79

)

(36

)

(35

)

126

 

 

5

 

111

 

112

 

(96

)

Total Other

(27

)

137

 

138

 

(120

)

 

59

 

173

 

175

 

(66

)

Total NGV and Other

242

 

400

 

401

 

(40

)

 

728

 

496

 

498

 

46

 

1. Excluding investment in joint ventures and associates.

Joint ventures and associates

 

Share of post-tax results

 

Capital investment

(£ million)

2020

2019

2019 at constant currency

change % at constant currency

 

2020

2019

2019 at constant currency

change % at constant currency

Interconnectors

29

 

29

 

29

 

-

 

 

-

 

52

 

52

 

(100

)

Millennium

22

 

18

 

18

 

22

 

 

-

 

52

 

53

 

(100

)

Sunrun

13

 

8

 

8

 

63

 

 

-

 

-

 

-

 

n/a

Emerald

1

 

-

 

-

 

n/a

 

127

 

-

 

-

 

n/a

Other

2

 

(2

)

(2

)

(200

)

 

19

 

17

 

17

 

12

 

Total NGV

67

 

53

 

53

 

26

 

 

146

 

121

 

122

 

20

 

NG Partners

3

 

4

 

4

 

(25

)

 

11

 

6

 

6

 

83

 

Other (including St William)

18

 

(17

)

(17

)

(206

)

 

-

 

-

 

-

 

n/a

Total Other

21

 

(13

)

(13

)

(262

)

 

11

 

6

 

6

 

83

 

Joint Ventures and Associates

88

 

40

 

40

 

120

 

 

157

 

127

 

128

 

23

 

NATIONAL GRID VENTURES

National Grid Ventures' statutory operating profits were broadly in line with 2018/19, with higher use of our LNG import terminal at Grain and lower business development costs, offset by lower revenues from our declining meter population and costs related to the Geronimo business.

Metering profits broadly flat; cash flows remain strong

Metering profits were broadly flat in FY20 reflecting non-recurrence of the smart meter impairment last year and a more gradual decline than expected in our legacy meter population as the mandated smart meter rollout continues. We now own 8.9 million gas meters, down 1 million on the prior year.

Grain LNG profit steady

National Grid's LNG import terminal on the Isle of Grain continues to deliver a consistent level of operating profit which is backed by long-term 'take or pay' capacity contracts with suppliers. During FY2020, Grain's utilisation reached 30%, and we welcomed the 500th ship to the terminal in March.

BritNed, IFA and Nemo links in line with expectations

Nemo Link achieved over 96% availability in its first full year of operation. Availability on IFA reached 91.4% for the year, and 98.6% on BritNed, both of which were above target for the year. NEMO delivered its first year contribution to the Group, and our share of BritNed profit after tax was broadly in line with prior year.

Continued good progress on IFA2, NSL and Viking links

On IFA2, the AC connection from Daedalus to Chilling has been completed and successfully tested, and the 25km French land cable has also been constructed. Commissioning of IFA2 is on course for the end of the calendar year, whilst progress on both the North Sea Link (NSL) and Viking interconnectors remains on track. Both links are due to commission in FY2022 and FY2024 respectively.

Geronimo

In July, we completed the acquisition of Geronimo, our first meaningful step into US renewable generation, including a joint venture with Washington State Investment Board (WSIB). In December, we announced the start of commercial operations for the 200MW Crocker Wind Farm in South Dakota, with 100% of generation contracted under PPAs. This was followed in February by signing a PPA agreement with Basin Electric Power Cooperative for the 128MW Wild Springs Solar Project, also in South Dakota, which is expected to commission in 2023.

 

Geronimo has been our first meaningful step into developing renewable generation in the US, providing us with a potential pipeline of over 6GW of solar and onshore wind projects at different stages of development. The joint venture with WSIB gives optionality and flexibility to hold projects jointly with WSIB, or, if warranted, sell projects to third parties. This investment is consistent with our long-term strategy of evolving the Group for the future.

OTHER ACTIVITIES

In 'other' activities, we incurred net costs of £27 million, compared to a net profit of £137 million in 2019/20. The performance of the Property business was lower than prior year reflecting the sale of the Fulham site to the St William joint venture in 2018/19. 

 

Corporate and other activities did not include last year's benefit of £95 million of legal settlements to recover costs associated with a US systems implementation. The National Grid Partners operating loss of £11 million was £3 million higher than in 2018/19. 

National Grid Partners (NGP)

NGP had a strong second year of operation delivering value to the Group. In 2019, we continued to make strategic investments in our incubation and corporate venture capital portfolios.

 

As of 31 March 2020, our investment portfolio included direct investments in 17 start-up companies and 4 venture funds, with a fair value of £134 million. These investments provide valuable insights, collaborations and deployment opportunities that strengthen and future-proof our core business activities. For example, we have deployed cyber detection and response solutions from Dragos, asset management decision software from Copperleaf, and demand response management services from Autogrid.

 

In April 2019, we created a central innovation team, targeting disruptive innovations, and lean start-up methods to the organisation. The team has explored innovation opportunities in collaboration with our core businesses with several projects progressing into prototype stages during 2020.

Future activities and outlook

Looking ahead, our interconnector investment will continue next year as spend on NSL, IFA2 and Viking Link continues. Around a further £1 billion will be invested through to 2023 when the final interconnector project, Viking, will begin commissioning. As these projects become operational their EBITDA contribution will increase, with approximately £75 million in 2021/22 increasing to approximately £250 million from 2024/25 onwards (including NEMO link, which successfully commissioned in January 2019).

 

For Geronimo, the project pipeline remains strong. Following peak investment in our Interconnector program, we will consider increasing investment in Geronimo and delivering more capacity of clean renewable energy.

 

During FY2020, we entered into a new joint venture agreement with Places for People, one of the largest regeneration, development and property management companies in the UK, and a registered provider of affordable housing. As part of the venture, we aim to build up to 500 new homes on the first three sites and delivering 10 sites into the joint venture over the next three years.

 

 

 

 

PROVISIONAL 2020/21 FINANCIAL TIMETABLE

Date

Event

18 June 2020

2019/20 Preliminary Results

1 July 2020

ADRs go ex-dividend for 2019/20 final dividend

2 July 2020

Ordinary shares go ex-dividend for 2019/20 final dividend

3 July 2020

Record date for 2019/20 final dividend

9 July 2020

Scrip reference price announced

22 July 2020 (5pm London time)

Scrip election date

27 July 2020

Annual General Meeting

19 August 2020

2019/20 final dividend paid to qualifying shareholders

12 November 2020

2020/21 half year results

25 November 2020

ADRs go ex-dividend

26 November 2020

Ordinary shares go ex-dividend

27 November 2020

Record date for 2020/21 interim dividend

3 December 2020

Scrip reference price announced

14 December 2020 (5pm London time)

Scrip election date for 2020/21 interim dividend

13 January 2021

2020/21 interim dividend paid to qualifying shareholders

 

 

American Depositary Receipt (ADR) Deposit Agreement

National Grid amended the deposit agreement under which the ADRs representing its ordinary shares are issued to allow 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 2019/20 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. These forward-looking statements are not guarantees of National Grid's future performance and are subject to assumptions, risks and uncertainties that could cause actual future results to differ materially from those expressed in or implied by such forward-looking statements. Many of these assumptions, risks and uncertainties relate to factors that are beyond National Grid's ability to control, predict or estimate precisely, such as the impact of COVID-19 on our operations, our employees, our counterparties, our funding and our regulatory and legal obligations, but also, more widely, changes in laws or regulations, including any arising as a result of the United Kingdom's exit from the European Union, announcements from and decisions by governmental bodies or regulators, including proposals relating to the RIIO-2 price controls as well as increased economic uncertainty resulting from COVID-19; 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, or due to the failure of or unauthorised access to or deliberate breaches of National Grid's IT systems and supporting technology; failure to adequately forecast and respond to disruptions in energy supply; performance against regulatory targets and standards and against National Grid's peers with the aim of delivering stakeholder expectations regarding costs and efficiency savings; 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 skills, and any significant disputes arising with National Grid's employees or the breach of laws or regulations by its employees; the failure to respond to market developments, including competition for onshore transmission; the threats and opportunities presented by emerging technology; the failure by the Company to respond to, or meet its own commitments as a leader in relation to, climate change development activities relating to energy transition, including the integration of distributed energy resources; and the need to grow the Company's business to deliver its strategy, as well as incorrect or unforeseen assumptions or conclusions (including unanticipated costs and liabilities) relating to business development activity. 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 212 to 215 of National Grid's most recent Annual Report and Accounts as updated by National Grid's unaudited half-year financial information for the six months ended 30 September 2019 published on 14 November 2019. 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.

 

 

 

 

Consolidated income statement

for the years ended 31 March

 

2020

Notes

 

Before

exceptional

items and remeasurements

£m

Exceptional

items and remeasurements

(see note 4)

£m

Total

£m

 
 

Continuing operations

 

 

 

 

 

 

Revenue

2(a),3

 

14,540

 

-

 

14,540

 

 

Provision for bad and doubtful debts

 

 

(234

)

-

 

(234

)

 

Other operating costs

4

 

(10,999

)

(527

)

(11,526

)

 

Operating profit/(loss)

2(b)

 

3,307

 

(527

)

2,780

 

 

Finance income

4,5

 

70

 

(16

)

54

 

 

Finance costs

4,5

 

(1,119

)

(48

)

(1,167

)

 

Share of post-tax results of joint ventures and associates

 

 

88

 

(1

)

87

 

 

Profit/(loss) before tax

2(b)

 

2,346

 

(592

)

1,754

 

 

Tax

4,6

 

(433

)

(47

)

(480

)

 

Profit/(loss) after tax from continuing operations

 

 

1,913

 

(639

)

1,274

 

 

Profit/(loss) after tax from discontinued operations

9

 

5

 

(14

)

(9

)

 

Total profit/(loss) for the year (continuing and discontinued)

 

 

1,918

 

(653

)

1,265

 

 

Attributable to:

 

 

 

 

 

 

Equity shareholders of the parent

 

 

1,917

 

(653

)

1,264

 

 

Non-controlling interests from continuing operations

 

 

1

 

-

 

1

 

 

Earnings per share (pence)

 

 

 

 

 

 

Basic earnings per share (continuing)

7

 

 

 

36.8

 

 

Diluted earnings per share (continuing)

7

 

 

 

36.6

 

 

Basic earnings per share (continuing and discontinued)

7

 

 

 

36.5

 

 

Diluted earnings per share (continuing and discontinued)

7

 

 

 

36.3

 

 

 

 

 

 

2019

Notes

 

Before

exceptional

items and remeasurements

£m

Exceptional

items and remeasurements

(see note 4)

£m

Total

£m

 
 

Continuing operations

 

 

 

 

 

 

Revenue

2(a),3

 

14,933

 

-

 

14,933

 

 

Provision for bad and doubtful debts

 

 

(181

)

-

 

(181

)

 

Other operating costs

4

 

(11,310

)

(572

)

(11,882

)

 

Operating profit/(loss)

2(b)

 

3,442

 

(572

)

2,870

 

 

Finance income

4,5

 

73

 

15

 

88

 

 

Finance costs

4,5

 

(1,066

)

(91

)

(1,157

)

 

Share of post-tax results of joint ventures and associates

 

 

40

 

-

 

40

 

 

Profit/(loss) before tax

2(b)

 

2,489

 

(648

)

1,841

 

 

Tax

4,6

 

(488

)

149

 

(339

)

 

Profit/(loss) after tax from continuing operations

 

 

2,001

 

(499

)

1,502

 

 

Profit/(loss) after tax from discontinued operations

9

 

57

 

(45

)

12

 

 

Total profit/(loss) for the year (continuing and discontinued)

 

 

2,058

 

(544

)

1,514

 

 

Attributable to:

 

 

 

 

 

 

Equity shareholders of the parent

 

 

2,055

 

(544

)

1,511

 

 

Non-controlling interests from continuing operations

 

 

3

 

-

 

3

 

 

Earnings per share (pence)

 

 

 

 

 

 

Basic earnings per share (continuing)

7

 

 

 

44.3

 

 

Diluted earnings per share (continuing)

7

 

 

 

44.1

 

 

Basic earnings per share (continuing and discontinued)

7

 

 

 

44.6

 

 

Diluted earnings per share (continuing and discontinued)

7

 

 

 

44.4

 

 

 

 

Consolidated statement of comprehensive income

for the years ended 31 March

 

 

 

2020

2019

 

Notes

 

£m

£m

Profit after tax from continuing operations

 

 

1,274

 

1,502

 

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 obligations

 

 

(724

)

68

 

Net losses on equity instruments designated at fair value through other comprehensive income

 

 

(9

)

-

 

Net (losses)/gains on financial liability designated at fair value through profit and loss attributable to changes in own credit risk

 

 

(3

)

7

 

Net losses in respect of cash flow hedging of capital expenditure

 

 

(17

)

(13

)

Tax on items that will never be reclassified to profit or loss

 

 

212

 

(15

)

Total items from continuing operations that will never be reclassified to profit or loss

 

 

(541

)

47

 

Items from continuing operations that may be reclassified subsequently to profit or loss:

 

 

 

 

Exchange adjustments

 

 

551

 

347

 

Net losses in respect of cash flow hedges

 

 

(128

)

(40

)

Net losses in respect of cost of hedging

 

 

(78

)

(66

)

Net (losses)/gains on investment in debt instruments measured at fair value
through other comprehensive income

 

 

(15

)

2

 

Share of other comprehensive (losses)/income of associates, net of tax

 

 

(5

)

1

 

Tax on items that may be reclassified subsequently to profit or loss

 

 

35

 

12

 

Total items from continuing operations that may be reclassified subsequently to profit or loss

 

 

360

 

256

 

Other comprehensive (loss)/income for the year, net of tax from continuing operations

 

 

(181

)

303

 

Other comprehensive income for the year, net of tax from discontinued operations¹

9

 

6

 

36

 

Other comprehensive (loss)/income for the year, net of tax

 

 

(175

)

339

 

Total comprehensive income for the year from continuing operations

 

 

1,093

 

1,805

 

Total comprehensive (loss)/income for the year from discontinued operations

9

 

(3

)

48

 

Total comprehensive income for the year

 

 

1,090

 

1,853

 

Attributable to:

 

 

 

 

Equity shareholders of the parent

 

 

 

 

From continuing operations

 

 

1,091

 

1,801

 

From discontinued operations

 

 

(3

)

48

 

 

 

 

1,088

 

1,849

 

Non-controlling interests

 

 

 

 

From continuing operations

 

 

2

 

4

 

1. The other comprehensive income from discontinued operations relates to the items of other comprehensive income of Cadent (investment through Quadgas HoldCo Limited). Refer to note 9 for further details.

 

Consolidated statement of changes in equity

for the years ended 31 March

 

Share

capital

£m

Share
premium account

£m

Retained
earnings

£m

Other equity  reserves £m

 

Total

share-holders'
equity

£m

Non-
controlling interests

£m

 

Total
equity

£m

At 31 March 2018 (as previously reported)

452

 

1,321

 

21,599

 

(4,540

)

 

18,832

 

16

 

 

18,848

 

Impact of transition to IFRS 9 and IFRS 15

-

 

-

 

(268

)

72

 

 

(196

)

-

 

 

(196

)

At 1 April 2018 (as restated)

452

 

1,321

 

21,331

 

(4,468

)

 

18,636

 

16

 

 

18,652

 

Profit for the year

-

 

-

 

1,511

 

-

 

 

1,511

 

3

 

 

1,514

 

Other comprehensive income for the year

-

 

-

 

89

 

249

 

 

338

 

1

 

 

339

 

Total comprehensive income for the year

-

 

-

 

1,600

 

249

 

 

1,849

 

4

 

 

1,853

 

Equity dividends

-

 

-

 

(1,160

)

-

 

 

(1,160

)

-

 

 

(1,160

)

Scrip dividend-related share issue¹

6

 

(7

)

-

 

-

 

 

(1

)

-

 

 

(1

)

Issue of treasury shares

-

 

-

 

18

 

-

 

 

18

 

-

 

 

18

 

Purchase of own shares

-

 

-

 

(2

)

-

 

 

(2

)

-

 

 

(2

)

Share-based payments

-

 

-

 

27

 

-

 

 

27

 

-

 

 

27

 

Cash flow hedges transferred to the statement of financial position, net of tax

-

 

-

 

-

 

(18

)

 

(18

)

-

 

 

(18

)

At 1 April 2019

458

 

1,314

 

21,814

 

(4,237

)

 

19,349

 

20

 

 

19,369

 

Profit for the year

-

 

-

 

1,264

 

-

 

 

1,264

 

1

 

 

1,265

 

Other comprehensive (loss)/income for the year

-

 

-

 

(509

)

333

 

 

(176

)

1

 

 

(175

)

Total comprehensive income for the year

-

 

-

 

755

 

333

 

 

1,088

 

2

 

 

1,090

 

Equity dividends

-

 

-

 

(892

)

-

 

 

(892

)

-

 

 

(892

)

Scrip dividend-related share issue¹

12

 

(13

)

-

 

-

 

 

(1

)

-

 

 

(1

)

Issue of treasury shares

-

 

-

 

17

 

-

 

 

17

 

-

 

 

17

 

Purchase of own shares

-

 

-

 

(6

)

-

 

 

(6

)

-

 

 

(6

)

Share-based payments

-

 

-

 

19

 

-

 

 

19

 

-

 

 

19

 

Tax on share-based payments

-

 

-

 

3

 

-

 

 

3

 

-

 

 

3

 

Cash flow hedges transferred to the statement of financial position, net of tax

-

 

-

 

-

 

(15

)

 

(15

)

-

 

 

(15

)

At 31 March 2020

470

 

1,301

 

21,710

 

(3,919

)

 

19,562

 

22

 

 

19,584

 

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

 

Consolidated statement of financial position

as at 31 March

 

 

 

2020

2019

 

Notes

 

£m

£m

Non-current assets

 

 

 

 

Goodwill

 

 

6,233

 

5,869

 

Other intangible assets

 

 

1,295

 

1,084

 

Property, plant and equipment

10

 

48,770

 

43,913

 

Other non-current assets

 

 

354

 

264

 

Pension assets

11

 

1,849

 

1,567

 

Financial and other investments

 

 

543

 

667

 

Investments in joint ventures and associates

 

 

995

 

608

 

Derivative financial assets

 

 

1,249

 

1,045

 

Total non-current assets

 

 

61,288

 

55,017

 

Current assets

 

 

 

 

Inventories and current intangible assets

 

 

549

 

370

 

Trade and other receivables

 

 

2,986

 

3,153

 

Current tax assets

 

 

102

 

126

 

Financial and other investments

 

 

1,998

 

1,981

 

Derivative financial assets

 

 

93

 

108

 

Cash and cash equivalents

 

 

73

 

252

 

Assets held for sale

9

 

-

 

1,956

 

Total current assets

 

 

5,801

 

7,946

 

Total assets

 

 

67,089

 

62,963

 

Current liabilities

 

 

 

 

Borrowings

 

 

(4,072

)

(4,472

)

Derivative financial liabilities

 

 

(380

)

(350

)

Trade and other payables

 

 

(3,602

)

(3,769

)

Contract liabilities

 

 

(76

)

(61

)

Current tax liabilities

 

 

(86

)

(161

)

Provisions

 

 

(348

)

(316

)

Total current liabilities

 

 

(8,564

)

(9,129

)

Non-current liabilities

 

 

 

 

Borrowings

 

 

(26,722

)

(24,258

)

Derivative financial liabilities

 

 

(954

)

(833

)

Other non-current liabilities

 

 

(891

)

(808

)

Contract liabilities

 

 

(1,082

)

(933

)

Deferred tax liabilities

 

 

(4,184

)

(3,965

)

Pensions and other post-retirement benefit obligations

11

 

(2,802

)

(1,785

)

Provisions

 

 

(2,306

)

(1,883

)

Total non-current liabilities

 

 

(38,941

)

(34,465

)

Total liabilities

 

 

(47,505

)

(43,594

)

Net assets

 

 

19,584

 

19,369

 

Equity

 

 

 

 

Share capital

 

 

470

 

458

 

Share premium account

 

 

1,301

 

1,314

 

Retained earnings

 

 

21,710

 

21,814

 

Other equity reserves

 

 

(3,919

)

(4,237

)

Total shareholders' equity

 

 

19,562

 

19,349

 

Non-controlling interests

 

 

22

 

20

 

Total equity

 

 

19,584

 

19,369

 

 

 

 

 

 

Consolidated cash flow statement

for the years ended 31 March

 

 

 

2020

2019

 

Notes

 

£m

£m

Cash flows from operating activities

 

 

 

 

Total operating profit from continuing operations

2(b)

 

2,780

 

2,870

 

Adjustments for:

 

 

 

 

Exceptional items and remeasurements

4

 

 

527

 

572

 

Depreciation, amortisation and impairment

 

 

1,640

 

1,588

 

Share-based payments

 

 

19

 

27

 

Changes in working capital

 

 

269

 

40

 

Changes in provisions

 

 

(169

)

(110

)

Changes in pensions and other post-retirement benefit obligations

 

 

(92

)

(123

)

Cash flows relating to exceptional items

 

 

(60

)

(400

)

Cash generated from operations - continuing operations

 

 

4,914

 

4,464

 

Tax paid

 

 

(199

)

(75

)

Net cash inflow from operating activities - continuing operations

 

 

4,715

 

4,389

 

Net cash used in operating activities - discontinued operations

9

 

 

(97

)

(71

)

Cash flows from investing activities

 

 

 

 

Acquisition of financial investments

 

 

(108

)

(89

)

Acquisition of Geronimo and Emerald

15

 

 

(139

)

-

 

Investments in joint ventures and associates

 

 

(82

)

(143

)

Loans to joint ventures and associates

 

 

-

 

(31

)

Disposal of financial investments

 

 

63

 

18

 

Disposal of interests in Quadgas HoldCo Limited

9

 

 

1,965

 

-

 

Purchases of intangible assets

 

 

(317

)

(306

)

Purchases of property, plant and equipment

 

 

(4,583

)

(3,635

)

Disposals of property, plant and equipment

 

 

68

 

38

 

Dividends received from joint ventures and associates

 

 

75

 

68

 

Interest received

 

 

73

 

68

 

Net movements in short-term financial investments

 

 

7

 

822

 

Net movements in derivatives¹

 

 

(223

)

(412

)

Net cash flow used in investing activities - continuing operations

 

 

(3,201

)

(3,602

)

Net cash flow used in investing activities - discontinued operations

9

 

 

6

 

156

 

Cash flows from financing activities

 

 

 

 

Proceeds from issue of treasury shares

 

 

16

 

17

 

Purchase of own shares

 

 

(6

)

(2

)

Proceeds received from loans

 

 

4,218

 

2,932

 

Repayment of loans

 

 

(3,253

)

(1,969

)

Payments of lease liabilities

 

 

(121

)

(70

)

Net movements in short-term borrowings

 

 

(424

)

179

 

Net movements in derivatives¹

 

 

(187

)

35

 

Interest paid

 

 

(957

)

(914

)

Dividends paid to shareholders

 

 

(892

)

(1,160

)

Net cash flow used in financing activities - continuing operations

 

 

(1,606

)

(952

)

Net cash flow (used in)/from financing activities - discontinued operations

9

 

 

-

 

-

 

Net decrease in cash and cash equivalents

 

 

(183

)

(80

)

Exchange movements

 

 

4

 

3

 

Cash and cash equivalents at start of year

 

 

252

 

329

 

Cash and cash equivalents at end of year

 

 

73

 

252

 

1. Certain derivative balances have been represented for all periods presented to reflect a reclassification from financing activities to investing activities to reflect a change in accounting policy.

 

Notes

 

1.  Basis of preparation and new accounting standards, interpretations and amendments

 

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 2020, which will be filed with the Registrar of Companies in due course. Statutory accounts for the year ended 31 March 2019 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 2020 which are consistent with those applied in the preparation of our accounts for the year ended 31 March 2019, with the exception of the new standards 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 as follows:

• 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 notwithstanding legislation enacted and targets established during the year ended 31 March 2020 committing the UK, New York State and Massachusetts to achieving net zero greenhouse gas emissions by 2050, these do not trigger a reassessment of the remaining useful economic lives of our gas network assets (see estimate below); and

• following the legal separation of the Electricity System Operator on 1 April 2019, we concluded that the Electricity System Operator acts as an agent in respect of certain Transmission Network Use of Service revenues, principally those collected on behalf of the Scottish and Offshore transmission operators.

 

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 as follows:

• the valuation of liabilities for pensions and other post-retirement benefits (see note 11); and

• the cash flows applied in determining the environmental provisions, in particular relating to three US Superfund sites (see note 4).

 

In light of the current ongoing impact of the COVID-19 pandemic, valuations of certain assets and liabilities are necessarily more subjective. In particular, two further areas of estimation uncertainty impacting the Group's position as at 31 March 2020 have been identified:

• the valuation of certain pension assets, in particular unquoted equities, properties and diversified alternatives, in light of the volatile economic markets (see note 11); and

• the recoverability of customer receivables, particularly in relation to US retail customers, in light of the suspension of debt collection activities and customer termination activities.

 

In addition, we also highlight the estimates made regarding the useful economic lives of our gas network assets due to the length over which they are being depreciated, the potential for new and evolving technologies over that period, and the range of potential pathways for meeting net zero targets (see note 10 for details and sensitivity analysis).

 

1.  Basis of preparation and new accounting standards, interpretations and amendments continued

 

Treatment of interests in Quadgas HoldCo Limited (Quadgas) - Discontinued operations

 

We completed the disposal of our retained 39% interest in the UK Gas Distribution business (held through Quadgas) at the end of June 2019. We have treated the results of Quadgas as a discontinued operation in the consolidated income statement. Refer to note 9 for further details.

 

New accounting standards adopted in the year

 

The Group adopted IFRS 16 'Leases' with effect from 1 April 2019. We have applied the modified retrospective approach permitted in the Standards whereby prior year comparatives have not been restated on adoption. Instead, the cumulative transition adjustments are reflected through reserves. Refer to note 14 for full details of the impact and transition adjustments arising on adoption.

 

The UK's Financial Conduct Authority announced that LIBOR will cease to exist by the end of 2021, and will be replaced by alternative reference rates. In September 2019, the IASB amended IFRS 9 and IFRS 7 by issuing Interest Rate Benchmark Reform, which provides exceptions to specific hedge accounting requirements to ensure that hedging relationships are not considered to be modified as a result of the change in the reference rate. The amendments were endorsed in January 2020 for adoption in the EU. The Group early-adopted these changes to IFRS 9 and IFRS 7 with effect from 1 April 2019. There were no transition adjustments on adoption.

 

The Group has also adopted the following amendments to standards, which have had no material impact on the Group's results or financial statement disclosure:

• IFRIC 23 'Uncertainty over Income Tax Treatments';

• Amendments to IAS 28 'Investments in Associates - Long-term Interests in Associates and Joint Ventures';

• Annual Improvements to IFRS Standards 2015-2017 Cycle; and

• Amendments to IAS 19 'Employee Benefits'.

 

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 EU:

• IFRS 17 'Insurance Contracts';

• Amendments to IFRS 3 'Business Combinations';

• Amendments to the References to the Conceptual Framework;

• Amendments to IAS 1 and IAS 8: Definition of material; and

• Amendments to IAS 1 'Presentation of Financial Statements'.

 

Effective dates remain subject to the EU 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 17 June 2020.

 

 

 

2.  Segmental analysis

 

Revenue and the results of the business are analysed by operating segment, based on the information the Board of Directors uses internally for the purposes of evaluating the performance of each operating segment and determining resource allocation between them. The Board is National Grid's chief operating decision maker (as defined by IFRS 8 'Operating Segments') and assesses the profitability of operations principally on the basis of operating profit before exceptional items and remeasurements (see note 4). As a matter of course, the Board also considers profitability by segment, excluding the effect of timing. However, the measure of profit disclosed in this note is operating profit before exceptional items and remeasurements as this is the measure that is most consistent with the IFRS results reported within these financial statements.

 

The results of our three principal businesses are reported to the Board of Directors and are 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 and Great Britain system operator.

UK Gas Transmission

The high-pressure gas transmission networks in Great Britain and system operator in Great Britain.

US Regulated

Gas distribution networks, electricity distribution networks and high-voltage electricity transmission networks in New York and New England and electricity generation facilities in New York.

 

The UK Electricity Transmission segment also includes the independent Electricity System Operator (ESO). Although there is a separate governance structure (including a separate Executive Committee), the Board receives financial information on an aggregated UK Electricity Transmission basis, which includes the results of the ESO, and accordingly the ESO is included within the reportable segment.

 

 

National Grid Ventures (NGV) is our only other operating segment. It does not currently meet the thresholds set out in IFRS 8 to be identified as a separate reportable segment and therefore its results are not required to be separately presented. Instead, NGV's results are reported alongside the results of all other operating businesses on an aggregated basis as "NGV and Other", with certain additional disclosure included in footnotes. NGV represents our key strategic growth area outside our regulated core business in competitive markets across the US and the UK. The business comprises all commercial operations in metering, LNG at the Isle of Grain in the UK, electricity interconnectors and our new investments in Geronimo Energy LLC (Geronimo) and Emerald Energy Venture LLC (Emerald). Geronimo is a developer of wind and solar generation based in Minneapolis in the US. The acquisition is National Grid's first ownership stake in wind generation and an expansion of our activities in solar generation.

 

 

 

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

 

The segmental information is presented in relation to continuing operations only and therefore does not include the profits and losses relating to our interest in Quadgas for any period presented (see note 9).

 

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.

 

2020

 

2019

 

Total
sales

Sales
between
segments

Sales
to third
parties

 

Total
sales

Sales
between
segments

Sales
to third 
parties

 

£m

£m

£m

 

£m

£m

£m

Operating segments - continuing operations:

 

 

 

 

 

 

 

UK Electricity Transmission

3,702

 

(8

)

3,694

 

 

3,351

 

(20

)

3,331

 

UK Gas Transmission

927

 

(16

)

911

 

 

896

 

(12

)

884

 

US Regulated

9,205

 

-

 

9,205

 

 

9,846

 

-

 

9,846

 

NGV and Other1

736

 

(6

)

730

 

 

876

 

(4

)

872

 

Total revenue from continuing operations

14,570

 

(30

)

14,540

 

 

14,969

 

(36

)

14,933

 

 

 

 

 

 

 

 

 

Split by geographical areas - continuing operations:

 

 

 

 

 

 

 

UK

 

 

5,282

 

 

 

 

5,045

 

US

 

 

9,258

 

 

 

 

9,888

 

 

 

 

14,540

 

 

 

 

14,933

 

1. Included within NGV and Other is £608 million (2019: £597 million) of revenue relating to NGV.

 

(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

 

After exceptional items and remeasurements

 

2020

2019

 

2020

2019

 

£m

£m

 

£m

£m

Operating segments - continuing operations:

 

 

 

 

 

UK Electricity Transmission

1,320

 

1,015

 

 

1,316

 

778

 

UK Gas Transmission

348

 

303

 

 

347

 

267

 

US Regulated

1,397

 

1,724

 

 

880

 

1,425

 

NGV and Other1,2

242

 

400

 

 

237

 

400

 

Total operating profit from continuing operations

3,307

 

3,442

 

 

2,780

 

2,870

 

 

 

 

 

 

 

Split by geographical area - continuing operations:

 

 

 

 

 

UK

1,925

 

1,695

 

 

1,915

 

1,422

 

US

1,382

 

1,747

 

 

865

 

1,448

 

 

3,307

 

3,442

 

 

2,780

 

2,870

 

1. Included within NGV and Other is £269 million (2019: £263 million) of operating profit before exceptional items and remeasurements and £268 million of operating profit after exceptional items and remeasurements (2019: £263 million), relating to NGV.

2. In 2019, NGV and Other included gains of £95 million in relation to cash received in respect of two legal settlements.

 

2.  Segmental analysis continued

 

Below we reconcile total operating profit from continuing operations to profit before tax from continuing operations. Total operating exceptional items and remeasurements of 527 million charge (2019: £572 million charge) are detailed in note 4. This is comprised of a £4 million charge (2019: £237 million charge) attributable to UK Electricity Transmission; £1 million charge (2019: £36 million charge) to UK Gas Transmission; £517 million charge (2019: £299 million charge) to US Regulated; and £5 million charge (2019: £nil) to NGV and Other.

 

Before exceptional items and remeasurements

 

After exceptional items and remeasurements

 

2020

2019

 

2020

2019

 

£m

£m

 

£m

£m

Reconciliation to profit before tax:

 

 

 

 

 

Operating profit from continuing operations

3,307