National Grid PLC (NG.) - Half year results 2012/13 RNS Number : 1706R National Grid PLC 15 November 2012 15 November 2012 National Grid plc Half year report for the six months ended 30 September 2012 (unaudited) Steve Holliday, Chief Executive, said:"I am pleased with the progress we made in the first half of the year: operating our networks safely and reliably and delivering a record level of investment. More recently, our teams in the US responded in a timely, safe and effective way to restore service to our customers andlimit disruption caused by 'Superstorm' Sandy. " Good performance in first 6 months of 2012/13 · Operating profit1 up 7% at constant currency2 excluding impact of timing and major storms3 · Profit before tax1 up 21%, up 15% excluding impact of timing and major storms · Earnings per share1 up4 20% at 23.0p, up 14% excluding impact of timing and major storms · Interim dividend increased by 4%, in line with policy Progress againststrategic priorities · Investment up 23% to £1.8bn; mostly in regulated UK and US operations · Settlement processes for new rates filed in New York and Rhode Island progressing · New power supply agreement concluded with the Long Island Power Authority (LIPA) · UK regulation: RIIO process in final stages Outlook and priorities unchanged · Sustain focus on improving returns and securing appropriate regulatory outcomes · Implement new UK operating model, aligning activities to deliver optimal outcomes under RIIO · Restoration expenses following 'Superstorm' Sandy, outside LIPA, not expected to exceed £100m Financial results for continuing operations (£m, at actual exchange rate) Business performance^1 Statutory Results Six months ended 30 September 2012 2011 % change 2012 2011 % change Operating profit 1,592 1,420 12 1,742 1,492 17 Pre-tax profit 1,154 953 21 1,285 941 37 Earnings 836 697 20 1,049 795 32 Earnings per share 23.0p 19.2p 20 28.8p 21.9p 32 Steve Holliday added:"This good first half year performance reflects increased net regulated revenues driven by our growing asset base and tight control over operating cost growth. Increased investment in both our UK and US operations is in line with our forecast. In the UK, as we work through the final stages of Ofgem's RIIO process, our focus is on successfully implementing a number of RIIO readiness initiatives, led by the ongoing development of our new UK operating model. In the US, our priority remains to improve overall returns through improved customer service and efficiency, combined with securing appropriate rate case outcomes in key jurisdictions. Overall, we are well positioned to deliver another year of good operating and financial performance." CONTACTS Investors John Dawson +44 (0)20 7004 3170 +44 (0) 7810 831944 (m) George Laskaris +1 718 403 2526 +1 917 375 0989 (m) Andy Mead +44 (0)20 7004 3166 +44 (0) 7752 890787 (m) Victoria Davies +44 (0)20 7004 3171 +44 (0) 7771 973447 (m) Tom Hull +44 (0)20 7004 3172 +44 (0) 7890 534833 (m) Caroline Dawson +44 (0)20 7004 3169 +44 (0) 7789 273241 (m) Media Clive Hawkins +44 (0)20 7004 3147 +44 (0) 7836 357173 (m) Chris Mostyn +44 (0)20 7004 3149 +44 (0) 7774 827710 (m) Gemma Stokes +44 (0)1926 655272 +44 (0) 7974 198333 (m) Brunswick Tom Burns +44 (0)20 7404 5959 Kate Holgate +44 (0)20 7404 5959 CONFERENCE CALL DETAILS An analyst presentation will be held at the London Stock Exchange, 20 Newgate Street, London EC4M 7LS at 9:15am (GMT) today. There will be a live webcast of the results presentation available to view at www.nationalgrid.com/investors. The presentation will be available through the same link as a replay this afternoon. Live telephone coverage of the analyst presentation UK dial in number 0808 109 0700 US dial in number 866 966 5335 Password National Grid National Grid images can be found via the following link www.flickr.com/photos/national_grid You can view or download copies of our latest Annual Report and Accounts and Performance Summary from our website at www.nationalgrid.com/investors or request a free printed copy by contacting email@example.com. BUSINESS REVIEW National Grid delivered another six months of good operational and financial performance. We have made further progress against our main strategic priorities, which we reiterated in May, of delivering our investment programme in a disciplined manner; finalising the development of an appropriate UK regulatory framework for the future; further improving returns in our US business and continuing to drive efficiency across our businesses. We have continued to perform well operationally, with strong delivery against our reliability targets across our businesses. Over the last six months we focused on strengthening the resources and processes needed to deliver an increase in workload and future performance improvements. In the UK, we have evolved our operating model, and this will help us capitalise on the opportunities that the new RIIO price controls are expected to bring. In addition, our safety record remained strong and we are continuing to develop best practice amongst our employees and also our contractors to drive further improvements. Following a comprehensive review of process safety within our business, we are currently implementing a new Group Process Safety Management System to improve the management of all our major hazard assets. Storm response In the US, we undertook a comprehensive review of our storm restoration performance following two major storms in 2011. As a result, we enhanced our restoration processes to respond more effectively and efficiently to customers who experience power outages. These processes were tested during our recent response to 'Superstorm' Sandy. In part as a result of the improvements made, we met or exceeded our restoration objectives for our upstate New York, Rhode Island and Massachusetts service areas, where our teams restored power to around 400,000 customers, nearly all of those affected, within three days. On Long Island storm damage was very significant, causing loss of power to more than 1.1 million customers whom we serve on behalf of LIPA with many also affected by severe flooding. Most are now reconnected and work is transitioning from restoration to reinforcement and rebuilding of the LIPA network. We continue to work with LIPA to restore service in a safe and timely manner to those where flood damage and other factors have limited the ability to restore service to date. Growth and Investment Capital investment5 in the period was £1,825m, an increase of £346m or 23% compared to the same period in 2011/12. This was principally due to a 34% increase in investment in our UK Transmission business. Higher spend on US transmission and gas distribution mains replacement along with phasing of investment last year contributed to an overall increase in US regulated business investment period on period. Regulatory developments in the UK On 27 July, Ofgem published the detailed initial proposals for price controls for our regulated UK Transmission and UK Distribution businesses. On 1 October, National Grid published formal responses to these consultations. These extensive and thorough responses address a number of important issues which we believe need to be resolved prior to the final proposals to ensure a fair balance of risk and reward for investors and customers. Throughout the RIIO process National Grid has been committed to working with Ofgem to deliver an affordable outcome for consumers which will allow our networks to finance the significant increase in essential UK infrastructure investment and adjust appropriately for the uncertainties that still remain around the future generation and gas supply landscape in the UK. Final proposals are expected on 17 December 2012. The Government is expected to introduce the new Energy Bill into parliament later in November detailing the proposed legislation on electricity market reform. The bill is expected to lay out the framework of tariffs and contracts under which new and existing UK generation will operate, setting the landscape for new generation investment that we believe will determine the mix of investment projects in our UK Transmission businesses over the next decade. Regulatory developments in the US Alongside delivering sustained high levels of customer service and efficient operations, rate filings remain an important tool for delivering appropriate returns from our US operations. In the last six months, discussions with participating parties have resulted in negotiated settlement recommendations for new rates in our Long Island Generation, Rhode Island and upstate New York businesses. If approved, we believe that these new rate agreements will enhance our ability to improve customer service further, through investing and operating efficiently and, in so doing, deliver appropriate returns. We announced the first of these settlements in early October. We agreed, with the Long Island Power Authority, to modify and extend our existing power supply agreement for at least another 12 years. National Grid owns and manages a number of power plants on Long Island, with a generation capacity of 3,700 megawatts. The new long-term agreement, once all regulatory approvals are received, is expected to provide a near-term cost reduction whilst offering National Grid and LIPA new options for updating the power plants and improving environmental performance. On 19 October, we filed an executed settlement agreement for review and approval by the Rhode Island Public Utilities Commission. The settlement agreement proposes a 9.5% allowed return on equity, a 49% equity portion in the assumed capital structure, increased operating cost allowances and pension trackers. The next steps in the process include evidentiary hearings to take place in November followed by a decision by the commission. New rates from this proceeding would become effective from 1 February 2013. In New York, on 31 October we filed a term sheet reflecting the provisions of a proposed three year agreement in respect of new rates in our Niagara Mohawk gas and electric businesses. This followed our initial filing in April and subsequent discussions with the staff of the New York Public Service Commission and other participants in the proceeding. The agreement proposes a 9.3% allowed return on equity, a 48% equity portion in the assumed capital structure and increased operating cost allowances for both businesses. The final agreement is scheduled to be filed in early December after which the administrative law judge will make a recommendation to the commission. We expect a final decision by the commission before the end of the current financial year, with new rates in effect as of 1 April 2013. Efficiency Programmes National Grid has a number of efficiency programmes underway in different parts of its business to support the cost effective delivery of our services and investments. In the UK, these programmes form part of our wider preparations for the challenges and opportunities under the new RIIO framework.We expect the new UK regulatory framework broadly to equalise the incentives in each of our UK regulated businesses around capital and operating costs. Recognising the need to prepare for RIIO, we have appointed John Pettigrew to a newly created position of UK Chief Operating Officer, reporting to Nick Winser, Executive Director, UK. Acknowledging the significance of the efficiency agenda, John has joined the Executive Committee. He is leading the implementation of our new UK operating model which, in part, seeks to align our business functions with key RIIO outputs and to optimise control of total expenditure. In the US, building on the success of the organisation changes introduced in 2011, we continue to reinforce our stronger jurisdictional focus and develop our financial systems and processes in line with the recommendations from the Liberty Audit. Strategy Our strategy is unchanged. As we set out in early 2011/12, our focus remains on managing a portfolio of assets that have a sustainable mix of cash generation, growth and risk to deliver an overall balance between long-term capital growth and cash generation to the benefit of our shareholders. Investment to date in 2012/13 has been dominated by our existing regulated utility operations. We regularly consider investment opportunities in projects and businesses outside of these operations. At the same time, we maintain a strict discipline to target investments that we believe can deliver rates of return and cash flows that meet the requirements of our capital providers and complement those available from existing businesses and alternative opportunities. Board changes As previously announced, there have been a number of changes to the Board of National Grid, in line with the transition set out in May 2012. During the first six months of the year there have been four changes. As previously announced, Stephen Pettit and Linda Adamany stepped down from the Board on 30 July 2012 and 31 October 2012 respectively. Nora Mead Brownell, a former commissioner of the Pennsylvania Public Utility Commission and the Federal Energy Regulatory Commission, joined the Board on 1 June 2012 and Mark Williamson, former Chief Financial Officer of International Power plc, joined the Board on 3 September 2012. DIVIDEND The Board has approved an increase in the interim dividend to 14.49p per ordinary share ($1.1497 per American Depositary Share) in line with our policy of targeting 4% growth in the dividend in the current financial year. The interim dividend is expected to be paid on 16 January 2013 to shareholders on the register as at 30 November 2012. A scrip dividend alternative will again be offered. As previously stated, we expect to announce a new dividend policy for the period from April 2013 by May 2013, once the outcomes of key regulatory developments are clear and updated investment plans have been reviewed. OUTLOOK In the UK, as we work through the final stages of Ofgem's RIIO process, our focus is on successfully implementing a number of RIIO readiness initiatives, led by the ongoing development of our new UK operating model. In the US, our priority remains to improve overall returns through improved customer service and efficiency, combined with securing appropriate rate case outcomes in key jurisdictions. Our actions in the first six months to deliver our strategic priorities and improve performance combine with a sustained drive to improve safety, reliability and customer service across our businesses. As a result, we are well positioned to deliver another year of good operating and financial performance. BASIS OF PRESENTATION Unless otherwise stated, all financial commentaries are given on a business performance basis6 at actual exchange rates. Under our regulatory frameworks, the majority of the revenues that we are allowed to collect each year are governed by a regulatory price control or rate plan. If we collect more than this allowed level of revenue, the balance must be returned to customers in subsequent years, and if we collect less than this level of revenue we may recover the balance from customers in subsequent years. These variances between allowed and collected revenues give rise to "over and under recoveries". In addition, in the US, a substantial portion of our costs are pass-through costs (including commodity and energy efficiency costs), and are fully recoverable from customers. These timing differences between costs of this type being incurred and their recovery through revenues are also included in over and under-recoveries.We identify these timing differences in order to enable a better comparison of performance from one period to another. Allowed revenues for our UK regulated businesses are set on an annual basis. Over and under-recoveries in the first 6 months of the year in these businesses, described as "timing differences", are therefore estimates based on an assumed allowed revenue profile. Opening balances of under and over-recoveries have been restated where appropriate to correspond with regulatory filings and calculations. REVIEW OF RESULTS AND FINANCIAL POSITION Operating profit Six months ended 30 September (£m) 2012 2011 % change UK Transmission 712 602 18 UK Gas Distribution 408 381 7 US Regulated 404 306 32 Other activities 68 131 (48) Operating profit - actual exchange rate 1,592 1,420 12 Operating profit - constant currency7 1,592 1,432 11 Timing and major storm adjustment 81 127 (36) Operating profit - constant currency excluding 1,673 1,559 7 major storms and timing Other selected financial information Six months ended 30 September (£m) - constant currency 2012 2011 % change Depreciation and amortisation (661) (627) (5) Net Finance costs (446) (477) 6 Other selected financial information Six months ended 30 September (£m) - actual exchange rates 2012 2011 % change Depreciation and amortisation (661) (619) (7) Net Finance costs (446) (468) 5 Taxation (317) (254) (25) Earnings attributable to equity shareholders 836 697 20 Operating profit was £1,592m, up £172m on the same period last year at actual exchange rates. The period-on-period movement in exchange rates had a £12m favourable impact on operating profit. On a constant currency basis, operating profit was up £160m or 11%. This included an adverse period-on-period timing adjustment of £25m. Over/(under)-recovery Six months ended 30 September Period-on-period change (£m - constant currency) estimated 2012 2011 Balance at start of period 109 73 (restated) In-year over/(under)-recovery (81) (56) (25) Balance at end of period 28 17 Operating profit 1,592 1,432 160 Adjust for timing differences 81 56 25 Operating profit excluding timing 1,673 1,488 185 As a result, operating profit excluding timing increased by £185m, 12%, on a constant currency basis. This was partly driven by the fact that the same period last year included significant costs of £71m associated with Hurricane Irene. Removing this impact, operating profit excluding timing and major storms increased by £114m, 7%, on a constant currency basis. In our regulated businesses, net regulated income increased by £270m partly due to the impact of RPI+X indexation and the rollover of the transmission price control on our UK regulated revenues and the effect of deferral recoveries in upstate New York. Post-retirement costs8 increased by £5m and bad debts decreased by £17m. Regulated depreciation and amortisation increased by £38m and regulated controllable costs increased by £33m. Other costs, including information system charges and the impact of year on year changes in environmental liabilities increased by £34m. Our other activities contributed £63m less than in the same period last year, driven by a reduction in metering operating profit following the sale of OnStream in 2011 and an increase in US information system and process costs relating to the implementation of the recommendations of the Liberty audit and of new SAP systems. Across our businesses, regulated controllable costs9 increased by £33m, 3%, on a constant currency basis compared to the same period last year, reflecting inflationary pressures on salaries and other costs and some increased recruitment in our UK Transmission business. The continued drive for efficiency in our businesses and the benefits of our US cost saving programme helped to partially mitigate these impacts. Net finance costs were £446m, 6% lower than the same period in 2011/12 at constant currency, primarily driven by lower accretions on RPI linked debt and continued refinancing of debt at lower prevailing interest rates. Profit before tax was up 21% to £1,154m. The tax charge on profit was £317m, £63m higher than the same period last year, reflecting increased profits in the period. Our effective tax rate increased to 27.5% from 26.7%. As a result, earnings were up £139m on the same period last year at £836m. Earnings per share increased 20% from 19.2p^4 last year to 23.0p. Exceptional items, remeasurements and stranded cost recoveries increased statutory earnings by £213m after tax. A detailed breakdown of exceptional items, remeasurements and stranded cost recoveries can be found on page 29. After these items and non-controlling interests, statutory earnings for continuing operations attributable to shareholders were £1,049m. Statutory basic earnings per share from continuing operations increased to 28.8p compared with 21.9p^4 for the same period last year. Operating cash flow, before exceptional items, remeasurements, stranded cost recoveries and taxation, was £1,866m, £64m higher than the same period in 2011/12. The increase in operating profits was mostly offset by working capital movements, reflecting weather and commodity costs in the US. Funding and net debt Net debtrose to £20.4bn at 30 September 2012 compared with £19.6bn at 31 March 2012, reflecting the impact of our ongoing investment programme. Our balance sheet remains in a strong position and we continue to access the capital markets to refinance maturing debt and to fund the growth in our asset base driven by our ongoing investment programme. In the first half of the year, we have issued around £1.2bn of new bonds from group operating companies as well as at holding company level. We have issued debt denominated in Euros, and Sterling and have also issued in Canadian dollars for the first time in 5 years. This CAD750m 5 year bond represents the largest corporate Maple transaction to date. We will continue to try to diversify our sources of finance to ensure that we fund our growth programme as efficiently as possible and maintain access to multiple sources of liquidity. TECHNICAL GUIDANCE We provide technical guidance to aid consistency across a range of modeling assumptions of a technical, rather than trading or core valuation, nature. We will provide appropriate updates to this information on a regular basis as part of our normal reporting. The outlook and technical 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. Further information about our principal risks and uncertainties for the next six months of the financial year is provided in Note 14 on page 36. Earnings Items Operating profit of £3,495m for the year ended 31 March 2012 included a number of timing differences, together totaling £18m. Excluding these timing differences, operating profit for that year would have been £3,477m. Over the course of the current year our UK Transmission business is expected to recover the opening under-recovered timing balance at 31 March 2012. Our US Regulated operations are expected to return a portion of the opening over-recovered balance. UK operations We expect UK inflation to contribute approximately £75m to an increase in our UK Gas Distribution allowed regulated RPI+X linked revenues in 2012/13 compared to 2011/12. The one year transmission rollover review in the UK increased the level of allowed revenues for 2012/13 by approximately £200m compared to 2011/12 including the impact of RPI inflation. UK controllable costs anddepreciation are both expected to increase in 2012/13 compared to 2011/12,reflecting continued inflation and technical staff recruitment and the impact of the recent high levels of capital investment. US operations The Niagara Mohawk deferral recoveries impacted the last 3 months of 2011/12 only and we would expect a full year on year impact for 2012/13 of approximately £90m. Further reductions in US regulated controllable operating costs in 2012/13 compared to 2011/12 as a result of last year's restructuring programme are expected to be at least offset by inflation and other cost increases. Incremental US storm costs of around £116m impacted full year results for 2011/12. Expenses associated with gas and electric customer restoration following 'Superstorm' Sandy (excluding those associated with electric restoration in the LIPA service area) are currently expected to impact operating profit in 2012/13 by no more than £100m. Additional costs associated with US financial system and process implementation in the first half of the current year are expected to impact the results for our other activities in 2012/13 compared to 2011/12. Group Net finance costs are expected to be around £50m higher in 2012/13 compared to 2011/12, reflecting an increase in average net debt. For the full year 2012/13, we expect our effective tax rate to be around 29%. Investment and other items Capital expenditure for 2012/13 is expected to be in the range £3.5bn to £3.8bn, reflecting increased investment in our UK Transmission business. Net debt is expected to increase by around £1bn to £1.5bn during 2012/13 to around £21bn, excluding the effect of any exchange rate impacts. REVIEW OF UK TRANSMISSION OPERATIONS Summary results Six months ended 30 September (£m) 2012 2011 % change Revenue 1,948 1,730 13 Operating costs (1,002) (920) (9) Depreciation and amortisation (234) (208) (13) Operating profit 712 602 18 Capital investment Six months ended 30 September (£m) 2012 2011 % change Capital investment 811 603 34 Performance in the first 6 months of 2012/13 UK Transmission operating profit was £712m, up £110m or 18%. This included an estimated over-recovery of revenues of £12m in our regulated businesses. Combined with an opening under-recovered balance of £22m relating to previous years, this leaves an estimated total balance to be recovered from future customers as at 30 September of £10m which, in the normal course of events, would be recovered in the second half of the year. In the same period last year, revenues were under-recovered by an estimated £23m. As a result, adjusting for the timing differences of £35m, operating profit for the period excluding timing increased by £75m, 12%, as set out in the following table. Over/(under)-recovery Six months ended 30 September Period-on-period change (£m) (estimated) 2012 2011 Balance at start of period (22) (7) (restated) In-year over/(under)-recovery 12 (23) 35 Balance at end of period (10) (30) Operating profit 712 602 110 Adjust for timing differences (12) 23 (35) Operating profit excluding timing 700 625 75 The increase in operating profit excluding timing reflected £116m of increased net regulated income driven by regulated revenue increases associated with the one-year roll-over of the TPCR4 transmission price control, including the benefit of RPI indexation on revenues. Included in net regulated income was a £6m charge compared to none in the same period last year relating to the balancing services incentive scheme (BSIS). Depreciation and amortisation increased by £26m, reflecting the growth in asset base due to our investment programme. Regulated controllable costs increased by £13m reflecting costs associated with the development of our UK operating model and higher maintenance workload and continued recruitment. Post-retirement costs increased by £3m and other costs decreased by £1m. We continue to invest in our people and processes in preparation for an expected increase in workload. This workload increase is associated with the significant growth and renewal of our asset base through our capital expenditure programme and new incentive mechanisms expected from 1 April 2013 as part of the RIIO-T1 price control. Our system reliability performance remains excellent. We are continuing to work with the UK government on the development of the new electricity market reform arrangements which we believe will set the framework for new generation connections and resultant workload on our system for the next decade and beyond. Investment activities in the first 6 months of 2012/13 Capital investment in our UK Transmission business for the period was £811m, up by £208m on the same period last year. This reflects increased investment in electricity transmission, including the Western HVDC link, and in gas transmission including emissions reduction expenditure relating to our compressor fleet. Future activities and outlook The outlook for our UK Transmission business for the remainder of the year is unchanged. We expect continued upward pressure on operating costs, in part due to our recruitment of more engineers to deliver our investment programme. Offsetting this are increased revenues from our regulated price controls including continued recovery of prior year under-recovered revenues in the second half of the year. REVIEW OF UK GAS DISTRIBUTION OPERATIONS Summary results Six months ended 30 September (£m) 2012 2011 % change Revenue 831 787 6 Operating costs (292) (286) (2) Depreciation and amortisation (131) (120) (9) Operating profit 408 381 7 Capital investment Six months ended 30 September (£m) 2012 2011 % change Capital investment 324 325 - Performance in the first 6 months of 2012/13 UK Gas Distribution operating profit was £408m, £27m or 7% higher than the same period last year. This included an estimated under-recovery of revenues of £3m. Combined with an opening over-recovered balance of £2m from previous years, this leaves an estimated total balance to be recovered from future customers as at 30 September of £1m. In the same period last year, revenues were under-recovered by an estimated £7m. As a result, adjusting for the timing differences of £4m, operating profit for the period excluding timing increased by £23m, 6%, as set out in the following table. Over/(under)-recovery Six months ended 30 September Period-on-period change (£m) (estimated) 2012 2011 Balance at start of period 2 (20) In-year over/(under)-recovery (3) (7) 4 Balance at end of period (1) (27) Operating profit 408 381 27 Adjust for timing differences 3 7 (4) Operating profit excluding 411 388 23 timing The increase in operating profit excluding timing reflected £43m of increased net regulated income driven by the impact of RPI+X indexation. Regulated controllable costs increased by £11m including increased emergency workforce costs. Involvement of this workforce in unregulated activities reduced period on period due mainly to a reduction in meter work. Depreciation and amortisation increased by £11m, post retirement costs increased by £2m and other costs decreased by £4m. We are particularly pleased with the performance of our teams in preparation for and during the Olympics and Paralympics in London over the summer. Their contribution was recognised and praised by many of the individuals and organisationsinvolved. We are now coming to the end of the current five year price control for our UK Gas Distribution businesses. We have performed well under the existing control, outperforming the regulatory allowance on operating costs and delivering significant additional value under incentive schemes. By the end of the five year period, we expect to have replaced over 10,000km of gas mains, around 8% of our total system. This is in line with our regulatory allowances and is expected to remain the cornerstone of creating safer, more reliable and lower emission networks for our customers. Our next challenge will be framed by the outcome of discussions around the next price control. The roll out of our UK Gas Distribution Front Office system is now mostly complete and is expected to deliver benefits in customer service and efficiency coinciding with the start of the RIIO-GD1 price control period. Investment activities in the first 6 months of 2012/13 Capital investment in our UK Gas Distribution business continues at a broadly steady rate and is dominated by our work on mains replacement, which accounted for £242m of our total £324m capital expenditure for the period. Future activities and outlook The outlook for our UK Gas Distribution business for the remainder of the year is unchanged. We plan to renew and reshape our strategic partnerships and our internal working arrangements to reflect the new incentives under the RIIO-GD1 regime, once it is finalised later this year. We will seek to align contractual and internal incentives and sharing arrangements to deliver outputs in a way that we believe will maximise value for investors and customers alike. REVIEW OF US REGULATED OPERATIONS Summary results Six months ended 30 September (£m) 2012 2011 % change Revenue* 3,013 3,285 (8) Operating costs (2,402) (2,781) 14 Depreciation and amortisation (207) (198) (5) Operating profit - actual exchange rate 404 306 32 Operating profit - constant currency 404 318 27 Capital investment Six months ended 30 September (£m, at actual exchange rate) 2012 2011 % change Capital investment 575 462 24 * Excludes revenue from stranded cost recoveries. Performance in the first 6 months of 2012/13 US operating profit was £404m, up £98m at actual exchange rates. The period-on-period movement in exchange rates had a £12m favourable impact on operating profit. As a result, operating profit was up £86m, 27%, on a constant currency basis. Our opening over-recovered balance of £129m, combined with a £90m under-recovery of revenue in the current period leaves a closing over-recovered balance as at 30 September of £39m. In the same period last year, revenues were under-recovered by £26m. As a result, adjusting for the timing differences of £64m, operating profit for the period excluding timing increased by £150m, as set out in the following table. Over/(under)-recovery Six months ended 30 September Period-on-period change (£m - constant currency) 2012 2011 Balance at start of period 129 100 (restated) In-year over/(under)-recovery (90) (26) (64) Balance at end of period 39 74 Operating profit at constant 404 318 86 currency Adjust for timing differences 90 26 64 Operating profit excluding timing 494 344 150 Major storm adjustment - 71 (71) Operating profit excluding timing 494 415 79 and major storms Operating profit excluding timing in 2011/12 included a £71m charge in respect of Hurricane Irene. Excluding the effect of both timing and Hurricane Irene, operating profit increased by £79m, 19%. Net regulated income increased by £111m, partly due to increases in revenues from our New York electricity business associated with the recovery of $240m of deferred costs over a 15 month period, which began in January 2012. Depreciation and amortisation were £1m higher, post-retirement costs remained constant and bad debts decreased by £17m. Regulated controllable costs increased by £9m, partly driven by increased information systems costs. Other operating costs in our regulated businesses increased by £39m, excluding the £71m impact of Hurricane Irene mentioned earlier. This includes increased allocation of new systems depreciation from service companies, higher costs related to capital work and the impact of prior year environmental adjustments. Reliability remains strong, with our electricity businesses on track to meet 14 out of 15 regulatory reliability targets and with projects in place which aim to prevent future faults of the type that have affected the final target in Massachusetts. Gas emergency response times are on track to meet or exceed regulatory targets in all jurisdictions. We continue to implement significant changes in our information systems and financial procedures. Our goal is to use these developments to drive efficiencies in the business through improved management information, streamlined finance processes and reduced workload in the preparation of future rate cases. On 3 July, in the US we completed the sale of our New Hampshire electric and gas distribution businesses, Granite State Electric Company and Energy North Natural Gas Inc., to Liberty Energy Utilities (New Hampshire) Corp., a subsidiary of Algonquin Power & Utilities Corp. Restoration activities following 'Superstorm' Sandy have been very significant, particularly on Long Island, the area we serve on behalf of LIPA. In comparison to Hurricane Irene last year, we have deployed over two and a half times the number of crews in this area, nearly 15,000 in total, working for a significantly longer period of time in order to repair the extensive damage caused by both wind and flooding. Investment activities in the first 6 months of 2012/13 Capital investment in our regulated US business continues at a run rate consistent with our medium term guidance of £1bn to £1.2bn p.a.. Capital expenditure for the period was £575m, up £113m or 24% on the same period last year, when investment was somewhat phased towards the second half of the year. Increased spend on transmission and also on mains replacement in our Massachusetts gas business were the main factors behind the growth in investment. Future activities and outlook The outlook for our US business for the remainder of the year is unchanged. The results of the rate filings mentioned in the business review are not expected to impact materially in the current financial year, with the main effect expected in 2013/14. We will continue our efforts to restore gas and electricity supplies to customers affected by the storms in October, as their properties and equipment become able to receive service safely once again. Timing of the recovery of prudently incurred costs associated with storm restoration will vary by jurisdiction. REVIEW OF OTHER ACTIVITIES Summary results Six months ended 30 September (£m) 2012 2011 % change Revenue 336 385 (13) Operating costs (179) (161) (11) Depreciation and amortisation (89) (93) 4 Operating profit - actual exchange rate 68 131 (48) Operating profit - constant currency 68 131 (48) Operating profit by principal activities (£m) Metering 80 97 (18) Grain LNG 45 45 - Property 13 18 (28) Sub-total operating profit 138 160 (14) Corporate and other activities (70) (29) (141) Operating profit 68 131 (48) Share of post-tax results of joint ventures and associates Total 8 1 700 Capital investment Metering 27 35 (23) Grain LNG 24 9 167 Property 1 2 (50) Other 62 43 44 Capital expenditure excluding joint ventures 114 89 28 Joint ventures (JVs) 1 - - Capital investment including investment in JVs 115 89 29 Operating profit from our Metering, Grain LNG and Property activities combined reduced by £22m. Overall, operating profit for our other activities decreased by 48% to £68m. This was mainly driven by an increase in cost related to US systems and finance restructuring and the sale of OnStream in October 2011. Metering operating profit was down £17m at £80m. During the period, capital investment in this business was £27m. The reduction in operating profit was principally due to the fact that the same period last year included a £12m contribution from OnStream, which was sold in October 2011. Capital expenditure in the same period last year included £12m related to the OnStream business. Our Grain LNG business delivered an operating profit of £45m, in line with the same period last year. Capital investment mostly reflects spend relating to security and a second cryogenic line. Our Property business delivered an operating profit of £13m, down £5m. The decrease primarily reflects a lower level of disposals compared to the same period last year. Corporate and other activities costs increased by £41m and other capital expenditure increased by £19m to £62m. This principally represents spend on the implementation of new US information systems and financial procedures. JOINT VENTURES Profit from our BritNed interconnector increased by £5m compared to the first half of 2011/12. This was the primary reason for the increased contribution from joint ventures In the first half of this year we invested a further £1m in existing joint ventures. Further transmission investment opportunities exist onshore in the US and offshore in both UK waters and those around Northern Europe. We will continue to consider these opportunities as they arise and expect additional transmission and interconnection investments to form part of our portfolio in the future. In relation to these future opportunities we have successfully completed a seabed survey in relation to the proposed interconnector to Norway and continue to progress towards construction of an interconnector to Belgium and a further interconnector to France. We have also signed a memorandum of understanding in relation to a 5GW sub-sea interconnector to Ireland. PROVISIONAL FINANCIAL TIMETABLE 28 November 2012 Ordinary shares go ex-dividend 30 November 2012 Record date for 2012/13 interim dividend 5 December 2012 Scrip reference price announced 14 December 2012 Scrip election date for 2012/13 interim dividend 16 January 2013 2012/13 interim dividend paid to qualifying ordinary shareholders January/February 2013 Interim management statement 16 May 2013 2012/13 preliminary results 5 June 2013 Ordinary shares go ex-dividend 7 June 2013 Record date for 2012/13 final dividend 12 June 2013 Scrip reference price announced June 2013 Annual Report and Accounts published 24 July 2013 Scrip election date for 2012/13 final dividend 29 July 2013 Interim management statement and Annual General Meeting, ICC, Birmingham 21 August 2013 2012/13 final dividend paid to qualifying ordinary shareholders CAUTIONARY STATEMENT This announcement contains certain statements that are neither reported financial results nor other historical information. These statements are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include information with respect to National Grid's financial condition, its results of operations and businesses, strategy, plans and objectives. Words such as '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 or estimate precisely, such as changes in laws or regulations and decisions by governmental bodies or regulators (including the new RIIO approach in the UK); breaches of, or changes in, environmental, climate change and health and safety laws or regulations, including breaches 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 Hurricane Sandy and other major storms as well as the results of climate change, or due to unauthorised access to or deliberate breaches of our IT systems or otherwise; performance against regulatory targets and standards and against National Grid's peers with the aim of delivering stakeholder expectations regarding costs and efficiency savings, including those related to investment programmes, restructuring and internal transformation projects; and customers and counterparties 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 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; inflation; the delayed timing of recoveries and payments in our regulated businesses; the funding requirements of its pension schemes and other post-retirement benefit schemes; the loss of key personnel or the ability to attract, train or retain qualified personnel and any disputes arising with its employees or the breach of laws or regulations by its employees; and incorrect or unforeseen assumptions or conclusions (including financial and tax impacts and other unanticipated effects) relating to business development activity, including assumptions in connection with joint ventures. The effects of these factors are difficult to predict. For further details regarding these and other assumptions, risks and uncertainties please read the Business Review section including the 'Risk factors' on pages 41 to 43 of National Grid's latest Annual Report and Accounts. 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, National Grid undertakes no obligation to update any of its forward-looking statements, which speak only as of the date of this announcement. The content of any website references herein do not form part of this announcement. Consolidated income statement Year ended 31 for the six months ended 30 September 2012 2011 March 2012 Notes £m £m £m Revenue 2(a) 6,079 6,306 13,832 Operating costs (4,337) (4,814) (10,293) Operating profit Before exceptional items, remeasurements and stranded cost recoveries 2(b) 1,592 1,420 3,495 Exceptional items, remeasurements and stranded cost recoveries 3 150 72 44 Total operating profit 2(b) 1,742 1,492 3,539 Interest income and similar income 4 623 648 1,301 Interest expense and other finance costs Before exceptional items and remeasurements 4 (1,069) (1,116) (2,218) Exceptional items and remeasurements 3 (19) (84) (70) Total interest expense and other finance costs 4 (1,088) (1,200) (2,288) Share of post-tax results of joint ventures and associates 8 1 7 Profit before tax Before exceptional items, remeasurements and stranded cost recoveries 2(b) 1,154 953 2,585 Exceptional items, remeasurements and stranded cost recoveries 3 131 (12) (26) Total profit before tax 2(b) 1,285 941 2,559 Taxation Before exceptional items, remeasurements and stranded cost recoveries 5 (317) (254) (755) Exceptional items, remeasurements and stranded cost recoveries 3 82 110 234 Total taxation (235) (144) (521) Profit after tax Before exceptional items, remeasurements and stranded cost recoveries 837 699 1,830 Exceptional items, remeasurements and stranded cost recoveries 3 213 98 208 Profit for the period 1,050 797 2,038 Attributable to: Equity shareholders of the parent 1,049 795 2,036 Non-controlling interests 1 2 2 1,050 797 2,038 Earnings per share* Basic 6(a) 28.8p 21.9p 56.1p Diluted 6(b) 28.7p 21.8p 55.8p * Comparative amounts have been restated to reflect the impact of additional shares issued as scrip dividends. Consolidated statement of comprehensive income Year ended 31 for the six months ended 30 September 2012 2011 March 2012 £m £m £m Profit for the period 1,050 797 2,038 Other comprehensive income/(loss): Exchange adjustments (21) 47 27 Actuarial net losses (1,001) (1,577) (1,325) Deferred tax on actuarial net losses 302 537 403 Net losses on cash flow hedges (39) (2) (18) Transferred to profit or loss on cash flow hedges 19 3 19 Deferred tax on cash flow hedges 3 (4) 2 Net gains on available-for-sale investments 8 1 16 Transferred to profit or loss on sale of available-for-sale investments - (1) (9) Deferred tax on available-for-sale investments (1) 1 (2) Other comprehensive loss for the period, net of tax (730) (995) (887) Total comprehensive income/(loss) for the period 320 (198) 1,151 Total comprehensive income/(loss) attributable to: Equity shareholders of the parent 319 (200) 1,149 Non-controlling interests 1 2 2 320 (198) 1,151 Consolidated balance sheet Year ended 31 as at 30 September 2012 2011 March 2012 Notes £m £m £m Non-current assets Goodwill 4,734 4,857 4,776 Other intangible assets 591 538 546 Property, plant and equipment 34,645 32,873 33,701 Other non-current assets 140 154 95 Pension assets 139 64 155 Financial and other investments 588 586 592 Derivative financial assets 9 1,969 1,941 1,819 Total non-current assets 42,806 41,013 41,684 Current assets Inventories and current intangible 404 528 assets 376 Trade and other receivables 1,711 1,867 1,971 Financial and other investments 9 2,747 2,664 2,391 Derivative financial assets 9 352 263 317 Cash and cash equivalents 9 432 291 332 Total current assets 5,646 5,613 5,387 Assets of businesses held for sale 11 - 598 264 Total assets 48,452 47,224 47,335 Current liabilities Borrowings 9 (3,633) (2,659) (2,492) Derivative financial liabilities 9 (326) (258) (162) Trade and other payables (2,219) (2,569) (2,685) Current tax liabilities (429) (494) (383) Provisions (241) (296) (282) Total current liabilities (6,848) (6,276) (6,004) Non-current liabilities Borrowings 9 (20,475) (20,991) (20,533) Derivative financial liabilities 9 (1,424) (1,237) (1,269) Other non-current liabilities (1,908) (1,952) (1,921) Deferred tax liabilities (3,487) (3,235) (3,738) Pensions and other post-retirement (3,777) (3,551) benefit obligations (3,088) Provisions (1,412) (1,498) (1,449) Total non-current liabilities (32,483) (32,464) (31,998) Liabilities of businesses held for 11 - (136) sale (87) Total liabilities (39,331) (38,876) (38,089) Net assets 9,121 8,348 9,246 Equity Called up share capital 430 421 422 Share premium account 1,347 1,356 1,355 Retained earnings 12,204 11,388 12,297 Other equity reserves (4,866) (4,825) (4,835) Shareholders' equity 9,115 8,340 9,239 Non-controlling interests 6 8 7 Total equity 9,121 8,348 9,246 Consolidated statement of Called changes in equity up Share Other Total share premium Retained equity share-holders' Non-controlling Total capital account earnings reserves equity interests equity Notes £m £m £m £m £m £m £m Changes in equity for the period: At 1 April 2012 422 1,355 12,297 (4,835) 9,239 7 9,246 Total comprehensive income/(loss) - - 350 (31) 319 1 320 Equity dividends 7 - - (906) - (906) - (906) Scrip dividend related share issue 7 8 (8) 436 - 436 - 436 Issue of treasury shares - - 18 - 18 - 18 Purchase of own shares - - (4) - (4) - (4) Other movements in non-controlling interests - - - - - (2) (2) Share-based payment - - 13 - 13 - 13 Tax on share-based payment - - - - - - - At 30 September 2012 430 1,347 12,204 (4,866) 9,115 6 9,121 Called up Share Other Total share premium Retained equity share-holders' Non-controlling Total capital account earnings reserves equity interests equity Notes £m £m £m £m £m £m £m Changes in equity for the period: At 1 April 2011 416 1,361 12,153 (4,870) 9,060 9 9,069 Total comprehensive (loss)/income - - (245) 45 (200) 2 (198) Equity dividends 7 - - (822) - (822) - (822) Scrip dividend related share issue 7 5 (5) 279 - 279 - 279 Issue of treasury shares - - 12 - 12 - 12 Purchase of own shares - - (4) - (4) - (4) Other movements in non-controlling interests - - - - - (3) (3) Share-based payment - - 13 - 13 - 13 Tax on share-based payment - - 2 - 2 - 2 At 30 September 2011 421 1,356 11,388 (4,825) 8,340 8 8,348 Called up Share Other Total share premium Retained equity share-holders' Non-controlling Total capital account earnings reserves equity interests equity Notes £m £m £m £m £m £m £m Changes in equity for the year: At 1 April 2011 416 1,361 12,153 (4,870) 9,060 9 9,069 Total comprehensive income - - 1,114 35 1,149 2 1,151 Equity dividends 7 - - (1,319) - (1,319) - (1,319) Scrip dividend related share issue 7 6 (6) 313 - 313 - 313 Issue of treasury shares - - 13 - 13 - 13 Purchase of own shares - - (4) - (4) - (4) Other movements in non-controlling interests - - - - - (4) (4) Share-based payment - - 24 - 24 - 24 Tax on share-based payment - - 3 - 3 - 3 At 31 March 2012 422 1,355 12,297 (4,835) 9,239 7 9,246 The story has been truncated, [TRUNCATED]
National Grid PLC NG. Half year results 2012/13
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