National Grid Regulatory News (NG.)

Report for the period ended

30 September 2017

John Pettigrew

Chief Executive

"We have delivered a solid financial performance in line with our expectations, made further progress to evolve our business and maintained a world class, safe and reliable service. Our focus on efficiency and innovation has reduced costs and generated increased savings for bill payers. We also invested a further £2bn in critical infrastructure during the period. Our improved performance in the US is encouraging, with this part of the business now representing an increasingly important part of our investment proposition. Having reshaped our portfolio in the UK, we continue to expect our electricity and gas transmission businesses to deliver high levels of performance.

Our outlook for the year is unchanged, underpinned by our expectations for a stronger second half. We are focused on completing rate filings in the US, continuing proactive discussions with Ofgem ahead of the next regulatory settlement in 2021 and seeking new opportunities to grow the business and optimise our performance. We are confident that our strategy continues to create value for shareholders, delivering an attractive yield, and asset growth in the 5% to 7% range."

OVERVIEW OF THE FIRST HALF

National Grid has made a solid start to the year, delivering strong operational and safety performance. Capital investment has increased to £2bn for the first six months of the year, reflecting significant investment in developing and maintaining gas and electricity infrastructure that provides critical services for millions of customers in the UK and US.

Adjusted operating profit excluding timing increased £50m (or 4%) versus the prior period to £1,368m.

'Adjusted results' and a number of other terms and performance measures are not defined within accounting standards and may be applied differently by other organisations. For clarity, we have provided definitions of these terms and, where relevant, reconciliations on pages 43 - 46.

US Regulated business continues to make significant progress

The US Regulated business continues to make good progress with its rate case programme, supporting an increased level of investment and providing a clear path for improving returns. It is expected that the drivers for investment in the Northeast US will sustain a high level of asset growth for the US business of around 7% per annum over the medium term.

Niagara Mohawk rate case progressing well

As described at September's New York teach-in, National Grid's Niagara Mohawk rate case is on track. The Company is currently engaged in settlement discussions with the staff of the New York Public Service Commission and remains confident that a reasonable settlement can be reached, with new rates effective from April 2018.

Massachusetts Gas and Rhode Island Electric and Gas to file rate cases this month

National Grid plans to file rate cases for its Massachusetts Gas and Rhode Island Electric and Gas utilities in November 2017. Together these companies represent around 20% of National Grid's US rate base and are the final distribution companies to file for new rates following the temporary hiatus in rate case filings between 2013 and 2015. New rates would be expected to come into effect by September 2018 for Rhode Island Electric and Gas and October 2018 for Massachusetts Gas.

UK businesses focused on delivering further cost savings under RIIO T1 while engaging stakeholders to deliver a positive and sustainable framework for the future

National Grid's UK regulated operations continue to perform well in the fifth year of the eight year RIIO T1 price control. Reliability remains strong while the businesses continue to drive efficiency and build on the significant total expenditure (totex) savings achieved for customers.

UK regulation continues to be a key focus. Ofgem's consultation on introducing competition for the Hinkley Seabank connection is ongoing and National Grid aims to ensure that the development proceeds in a way that balances risk and cost for customers. National Grid has also started early stakeholder engagement for RIIO T2 which is expected to begin in 2021.

National Grid supports a customer-centric approach for the Hinkley Seabank connection

National Grid has submitted its response to Ofgem's consultation on the needs case and three potential delivery methods for the Hinkley Seabank connection. The Company's approach to this project has already reduced risk and delivered benefits to consumers by accelerating the planning process. We have responded to the consultation and await Ofgem's decision.

National Grid is working proactively with Ofgem to achieve shared objectives for RIIO T2

In the UK, there has been wide ranging commentary on the functioning and ownership of the UK's energy sector, and whether it is delivering value for customers. National Grid is a responsible organisation and will continue to work closely with local and national governments to ensure we can deliver a world-class service while responding to customer needs. Since privatisation National Grid has made significant progress. Electricity Transmission costs today are 30% lower than pre-privatisation levels on a real basis and in the last 10 years, National Grid has invested around £14bn in transmission infrastructure. Electricity and gas transmission costs represent 3% of the average household bill and under RIIO, the Group continues to invest and drive efficiency.

National Grid continues to work proactively with the government and Ofgem to ensure we achieve the shared objectives of putting the customer at the heart of decisions, while ensuring infrastructure is built as efficiently as possible and with a fair balance between risks, performance and returns for all stakeholders.

National Grid has highlighted five key principles for an effective framework. These are: giving all stakeholders a stronger voice in defining desired outcomes from networks; aligning the interests of companies and consumers; clarifying the allocation of risk between companies and consumers; allowing regulated companies to earn returns that are fair and represent good value for consumers and capital providers; and providing a stable and predictable regulatory regime which attracts efficient financing and investment over the long term.

Framework agreed for electricity System Operator separation

Following extensive consultation, Ofgem announced the scope of changes and the funding that National Grid will receive to evolve our electricity System Operator business. The System Operator will have an important role in delivering reliable and affordable electricity as we transition to lower carbon forms of generation. Following Ofgem's announcement, the Company has continued to prepare for April 2019, when the electricity System Operator will operate as a legally separate company with its own board and licence, while being wholly owned by National Grid.

National Grid is delivering on its commitment to return £4bn of proceeds from the Gas Distribution sale

Following the completion of the sale of the majority stake in the Gas Distribution business on 31 March 2017, National Grid has returned the vast majority of the net proceeds to shareholders. In June 2017, the Company paid a special dividend totalling £3.2bn or 84.375p per share and continues to return capital through an ongoing £835m share buyback programme. At 30 September, £413m of shares had been bought back with the remainder of the programme expected to be concluded by April 2018.

Solid first half for NG Ventures and other activities

NG Ventures and other activities have had a solid start to the year, with a total contribution of £233m, consisting of adjusted operating profit and post-tax share of JVs and associates earnings. Construction of the North Sea Link and Nemo Link interconnectors remains on track and offshore surveys commenced for IFA2, the second interconnector with France. The business has also been awarded preferred bidder status on the Shetland transmission project in the UK and won a competitive battery storage project and a separate solar project on Long Island. Other activities have benefitted from higher property profitability due to more sales in the first half of the year compared to the prior period.

OPERATIONAL PERFORMANCE

In the first half of the year, National Grid delivered solid operational performance in line with the Company's high standards of network availability and reliability.

The UK Electricity Transmission business has continued to have one of the highest levels of reliability in Europe.

The electricity System Operator has been working to ensure it has the right tools in place to efficiently balance the system. This will be the first winter under the new capacity market mechanism, which has contributed to a significant improvement in the forecast de-rated electricity capacity margin to 6.2 GW or 10.3%, up from 5.7% last winter.

The US networks have also performed reliably over the first six months and are on track for another strong year of performance.

Storm response continues to be an area of focus for National Grid in the US. Since June, the US business has seen a number of severe storms affect our Upstate New York and New England service territories. In November the New England territory was hit by one of the most severe storms in recent years impacting service for 400,000 customers. Preliminary indications are that the storm will cost around $50m, the majority of which is expected to be recovered in future periods.

Additionally, during the first half of the year, the US was hit by extreme storms outside the Group's service territory. National Grid sent over 300 employees and contractors from across all our jurisdictions to assist with restoration efforts in Florida and North Carolina, following Hurricane Irma in September.

The Group targets world class safety performance, measured as a lost time injury frequency rate of 0.1 or better for both directly employed staff and contractors (i.e. 0.1 lost time injuries per 100,000 hours worked in a 12-month period). After the first six months the business is on track to achieve this target once again for the full year. Safety continues to be a key focus area for National Grid to ensure it maintains its strong performance.

Focused on efficiency

In the UK, the benefits of the RIIO framework continued to be seen, with further innovative solutions developed in both Gas and Electricity Transmission businesses. One of many examples is the expected savings of £15m, or 20%, in the rebuild of the Littlebrook 400kV substation. This was achieved through an incremental gains approach where all aspects of the design and layout of the substation were reviewed.

The US Regulated business is also focused on efficiency as it delivers its extensive capital programme. This year, National Grid has formed a US capital delivery function based on the successes in the UK which has been a key factor in the delivery of £460m of UK customer savings (including National Grid's UK Gas Distribution business) over the first half of RIIO. The US capital delivery group will focus on the largest projects and programmes, accounting for almost two thirds of the annual spend, with the objective of delivering the capital plan more efficiently, reducing cost and risk.

On the gas side, the US business is ensuring it is well positioned for future growth, by building a more robust gas system to meet expected asset replacement and customer growth requirements and to address the increasing regulatory requirements around gas safety. The gas business enablement programme has been designed to support this growth while leaving the business well positioned to respond to the evolving expectations of customers and deliver on the enhanced expectations of our regulators with regards to gas safety and compliance reporting.

GROWTH

Balanced portfolio to deliver asset growth and sustainable dividend

National Grid aims to deliver value to shareholders through maintaining a portfolio of businesses with strong operational performance alongside attractive annual asset growth of around 5 to 7% assuming long-run average UK RPI inflation of 3%. Following the completion of the sale of a majority stake in UK Gas Distribution on 31 March 2017, the Group's portfolio of businesses is expected to deliver higher growth within the 5% to 7% range, while maintaining a strong balance sheet that allows the Group to continue to fund its investment programme and maintain the policy of increasing dividend per share by at least RPI for the foreseeable future.

£2.0bn of capital investment across the Group

National Grid continued to make significant investment in energy infrastructure in the first six months of the year. Capital investment across the Group was £2,000m, an increase of £68m or 4% at constant currency compared to the first half of 2016/17.

* NG Ventures and other activities capital investment includes equity and financing in joint ventures and associates but excludes £8m and £5m equity contribution to St William property joint venture for 2017 and 2016, respectively.

The UK regulated businesses invested £672m in the first half of 2017/18, with UK Electricity Transmission and UK Gas Transmission both investing in asset health to meet their respective Network Output Measures. Investment in our UK Electricity Transmission business reduced reflecting the Western HVDC Link project nearing completion, as well as reduced spend on the Wimbledon substation compared to last year. UK Gas Transmission investment increased compared to last year, as work continued on our Feeder 9 project to build a replacement pipeline under the Humber Estuary, as well as work on a new compressor turbine at Peterborough.

Investment in the US Regulated business was £1,095m for the first six months of the year, a decrease of £6m at constant currency. The business continues its significant investment in leak prone pipe replacement, enabling customer growth and reinforcing the electricity system to improve the safety and reliability of networks. This sustained level of investment was a key feature of the updated regulatory filings in Massachusetts Electric and the downstate New York gas businesses (KEDNY and KEDLI) and is expected to continue in future filings, supporting strong levels of rate base growth over the medium term.

National Grid Ventures and other activities investment increased by 81% to £233m in the first half of the year versus the prior period. Construction of the North Sea Link and Nemo Link progressed well in the period, with the detailed seabed surveys and design works on track and cable laying commencing on the Nemo Link.

FINANCIAL STRENGTH

Over £1.1bn of new long-term financing

National Grid's balance sheet remains robust, with strong investment grade credit ratings from Moody's, Standard & Poor's and Fitch.

During the past six months, National Grid has raised over £1.1bn of new long-term financing in the capital markets. This includes new funding for the US business at the holding company level and the operating company level for the Massachusetts Gas business.

We continue to find innovative ways to fund our business. For example, in October we secured export credit agency financing of €0.4bn for our investment in the second French Interconnector, providing an attractively priced and diversified source of funding for the Group.

Interim dividend of 15.49p, increased in line with policy

The Board has approved an interim dividend of 15.49p per ordinary share ($1.02 per American Depositary Share). This represents 35% of the total dividend per share of 44.27p in respect of the last financial year to 31 March 2017 and is in line with the Group's dividend policy. The interim dividend is expected to be paid on 10 January 2018 to shareholders on the register as at 24 November 2017.

The Group's dividend policy is to grow the ordinary dividend per share at least in line with the rate of UK RPI inflation each year for the foreseeable future. The 2017/18 interim dividend of 15.49p represents a 0.32p (2.1%) increase over the interim dividend for the year ended 31 March 2017 of 15.17p.

The scrip dividend alternative will again be offered. This is an efficient means for many investors to reinvest cash dividends in National Grid shares and can provide balance sheet support during a period of higher asset growth. The Directors received authority to allot and buy back shares at the Annual General Meeting on 31 July 2017. The Board expects to continue the active approach towards managing any excess dilution arising through the operation of its scrip dividend programme.

Board changes

As previously announced, on 31 July 2017 Ruth Kelly stepped down from her role as Non-executive Director of the Board.

OUTLOOK

Overall Group performance is anticipated to remain in line with the expectations set out at the full year results announcement in May 2017.

Financial performance will be significantly weighted to the second half, primarily due to seasonality of US Regulated profits. Performance in the US business is expected to improve year over year driven by a full year of new rates in our downstate New York gas and Massachusetts Electric businesses. In the UK Transmission businesses, totex performance is expected to remain consistent although incentive performance and legacy allowances are expected to decline. The overall contribution from NG Ventures and Other is expected to be higher than last year.

Capital investment is expected to increase to over £4bn driven by increased workload agreed under the new rate agreements in the US, together with higher asset health investment in our UK Transmission businesses and further investment in NG Ventures and Other.

Looking further ahead, National Grid is well-positioned to play a leading role as the energy market evolves. National Grid's reputation for innovation and delivery against regulatory outcomes will unlock opportunities for investment in the UK and US for continued growth and returns.

The Board believes that National Grid is in a strong position to continue to deliver a safe and reliable service to customers, while sustaining a strong balance sheet, delivering attractive asset growth and continuing the Group's commitment to the existing dividend policy.

2017/18 TECHNICAL GUIDANCE

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. It is prepared on the basis of the Group's continuing operations (i.e. after the completion of the sale of our 61% equity interest in NGGD) and for more meaningful narrative, prior year comparatives include an estimated equivalent contribution from a 39% stake in UK Gas Distribution (now Cadent) and associated return of capital. 'Adjusted results' and a number of other terms and performance measures are not defined within accounting standards and may be applied differently by other organisations. For clarity, we have provided definitions of these terms and, where relevant, reconciliations on pages 43 - 46.

UK Electricity Transmission

Net Revenue (excluding timing) is expected to decrease, with approximately a £70m reduction in revenue allowances compared to 2016/17 reflecting lower allowed base revenue and increased MOD adjustments3, partially offset by inflationary increases. MOD adjustments are expected to remain at least at the same level as in 2017/18, over the remainder of the RIIO price control.

Balancing Services Incentives Scheme (BSIS) performance is also expected to reduce in 2017/18, reflecting the revised incentive arrangements announced by Ofgem in April.

Totex outperformance is expected to be broadly in line with 2016/17, but incentive performance is expected to decline. Overall, Return on Equity outperformance is expected to be towards the higher end of the 200 - 300 basis points range.

UK Gas Transmission

Net Revenue (excluding timing) is expected to increase, with approximately £40m of additional revenue allowances compared to 2016/17, due to an increase in base revenues and the impact of inflation on our revenue allowances.

Totex and incentive performance are both expected to be similar to the prior year and, as expected, a number of legacy allowances will cease. As a result, Return on Equity is expected to be around the allowed level in 2017/18.

UK Timing

Revenues will be impacted by timing of recoveries including impacts from prior years. Electricity Transmission will continue to benefit from collection of prior year under-recoveries, although overall timing recoveries are expected to be significantly (c £100m) lower than in 2016/17. Gas Transmission timing is expected to be negative in 2017/18 compared to a £62m over-recovery in 2016/17.

US Regulated operations

Net Revenue (excluding timing) is expected to increase, with the full year benefit of new rate case filings and capex trackers. Inflationary pressure on controllable costs, increased cost of agreed works in rate filings, increased depreciation and cost of removal expenses and higher property taxes are expected to be broadly offset by the absence of the capital costs write offs experienced in 2016/17.

Return on Equity for overall US Regulated operations is expected to increase, reflecting a full year impact of new rate plans and we are targeting 90% of the average allowed returns in 2017/18.

US Timing

US in-year timing is heavily influenced by weather related volumetric impacts and commodity prices, particularly over the last quarter of the financial year. The business continues to collect the New York State Energy Research and Development Authority (NYSERDA) funding programme, with the balance at September standing at $358m. The collections are expected to continue to at least November, after which point the balance will begin to be passed on to NYSERDA with approval from the NY PSC.

NG Ventures and other activities

National Grid Ventures comprises our Grain LNG and Metering businesses in the UK, our existing interconnectors and those that are under development together with distributed energy opportunities including our partnership with Sunrun in the US.

Revenue is expected to decrease year-on-year, mainly due to lower auction revenues at our French interconnector and fewer domestic meters in the Metering business as the smart metering roll-out gradually gathers pace. Revenues from the Property business are expected to increase slightly year-on-year.

Other costs are expected to decrease in 2017/18 compared to the higher costs in 2016/17 associated with one-off business change programmes and US business development costs.

Joint Ventures and Associates

Our share of the profit after tax of joint ventures and associates will reflect the inclusion of our ongoing 39% share of Cadent profit after tax. Our share of Cadent earnings is expected to decrease compared to an estimated 2016/17 contribution of £144m. The reduction reflects lower base revenues and adverse timing. Our other joint ventures and associates are expected to deliver a similar performance compared to 2016/17.

Adjusted Interest and Taxation

Adjusted net finance costs in 2017/18 are expected to increase driven by higher RPI accretions, (primarily in the first half of the year), and higher average net debt.

For the full year 2017/18, the effective tax rate, excluding joint venture and associate post-tax profits, is expected to be around 27%.

Investment, Growth and Net Debt

Overall Group capital investment for 2017/18 is expected to increase to over £4bn with anticipated increases in asset health spend in UK Electricity Transmission and Gas Transmission. In the US, investment is expected to increase driven by higher spend on mains replacement, system reinforcements and customer growth. National Grid Ventures and other activities spend is also expected to increase as we invest more in interconnector development.

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

Operating cashflow generated from continuing operations is expected to increase slightly compared to last year, reflecting lower pension payments.

Net debt is expected to increase from £23.1bn at the half year excluding the impact of foreign exchange, reflecting the return of the remaining £0.4bn of Gas Distribution disposal proceeds and ongoing business cash requirements of approximately £0.5bn.

Weighted average number of shares are expected to reduce reflecting the share consolidation and share buyback programme following the distribution of Gas Distribution disposal proceeds. We expect the consolidation and ongoing share buyback (which commenced on 2 June 2017) to have the effect of reducing the number of shares in issue by approximately 400 million. This will have a partial impact on the weighted average number of shares in 2017/18 with a full impact in 2018/19.

FINANCIAL REVIEW

Unless otherwise stated, all financial commentaries in this release are given on an adjusted basis at actual exchange rates to provide a more meaningful analysis of the results for the period. For definitions and metrics see pages 22 to 23 of this statement and where relevant, reconciliations on pages 43 to 46.

Six months ended 30 September

Adjusted operating profit and controllable costs

Adjusted operating profit for the first six months was £1,259m, down £184m against the same period last year at actual exchange rates. The period on period movement in exchange rates had a £25m favourable impact on adjusted operating profit.

This included a negative year-on-year timing movement of £234m:

Adjusted operating profit excluding timing increased by £25m on a constant currency basis.

Adjusted operating profit from regulated activities increased by £18m on a constant currency basis, excluding the impact of timing. Net regulated income increased by £114m, due to US revenue growth from new rate plans and gas customer growth and increases in UK Gas Transmission's regulated revenues. Regulated controllable costs increased by £65m while post-retirement costs increased by £3m and bad debts increased by £1m. Depreciation and amortisation increased by £34m and other costs reduced by £7m.

National Grid Ventures and other activities contributed an additional £7m to adjusted operating profit in the period on a constant currency basis.

Interest

Adjusted net finance costs at £527m, were £83m higher than the same period in 2016/17 at actual exchange rates and £62m higher than 2016/17 at constant currency with increases driven by higher UK RPI inflation and higher borrowings.

The effective interest rate on Treasury managed debt for the period was 4.7% compared with 3.9% in the first six months of 2016/17.

Adjusted profit before tax and taxation

The Group's share of post-tax results from joint ventures and associates (including Cadent) at £75m, increased by £44m from the same period in 2016/17. This reflects the inclusion of the 39% stake of Cadent in the current period, offset by lower Britned interconnector revenues due to reduced price arbitrage.

Adjusted profit before tax was down 22% at actual exchange rates to £807m. Excluding the impact of timing, adjusted profit before tax was up 1% to £916m.

The tax on adjusted profits was £152m, £76m lower than the prior period, reflecting a lower level of profit before tax. The reported effective tax rate, excluding joint ventures and associate post-tax profits, decreased to 20.8% compared to 22.8% in the previous period partly reflecting a reduction in the UK corporation tax rate to 19%.

Other adjusted earnings metrics, EPS, exceptional and statutory earnings

Earnings attributable to non-controlling interests (minority interests) were £1m, compared to £nil in the prior period.

As a result, adjusted earnings attributable to equity shareholders were £654m, down £148m compared with the same period in 2016/17. Adjusted earnings per share were 18.5p, down 2.8p.

Excluding the impact of timing, adjusted earnings attributable to equity shareholders were £723m, up £22m compared with the same period in 2016/17. In part due to the share consolidation and buy back programme as part of returning the net proceeds of the UK Gas Distribution sale, adjusted earnings per share increased 10% to 20.4p.

Exceptional items and remeasurements including discontinued operations increased statutory earnings by £22m after tax. A detailed breakdown of these items can be found on page 34 - 35. After these items and non-controlling interests, statutory earnings attributable to equity shareholders were £676m.

Statutory basic earnings per share including discontinued operations were 19.1p compared with 13.4p for the same period in the prior year. The increase compared to the first half of 2016/17 reflects the debt buy back costs that were incurred in the prior year in preparation for the disposal of 61% of the UK Gas Distribution business.

Cash flow

Cash generated from continuing operations, before taxation was £2,022m, £198m higher than 2016/17, principally reflecting the higher pension contributions in the prior period.

Funding and net debt

Net debt as at 30 September 2017 was £23.1bn, £3.8bn higher than at 31 March 2017 (£19.3bn) reflecting the £3.6bn return of capital associated with the 61% disposal of the UK Gas Distribution business and ongoing cash requirements, partially offset by the impact of stronger sterling on the dollar denominated debt.

Pensions and other post - retirement obligations

The IAS 19 net pension position at 30 September 2017 was a deficit of £1.1bn compared with £1.9bn at 31 March 2017. The decrease, primarily in the UK, reflects an increase in the UK discount rate used to value the liabilities which increased to 2.7% from 2.4%. US liabilities increased due to a decrease in the US discount rate to 4.0% from 4.3%. This was partly offset by asset growth and contributions.

Comparison to prior period including a 39% Gas Distribution stake

To aid comparability for key items, the following analysis is presented comparing the 2017 continuing results to 2016 continuing results adjusted for an estimated equivalent contribution from a 39% stake in UK Gas Distribution and the impact of an associated return of capital:

Including the 39% stake in Gas Distribution in the prior period, adjusted net finance costs were £98m higher, largely due to the impact of higher inflation and exchange rate movements.

The Group's share of post-tax results from joint ventures and associates (including Cadent) at £75m, was down £27m from the same period in 2016/17, when the estimated results of a 39% stake of Gas Distribution is included in the prior period. This reflects adverse year-on-year timing in Cadent and reduced price arbitrage from the BritNed interconnector.

As a result, adjusted earnings attributable to equity shareholders were £654m, down £231m compared with the same period in 2016/17. Adjusted earnings per share were 18.5p, down 6.5p.

Excluding the impact of timing, adjusted earnings attributable to equity shareholders were £723m, down £61m compared with the same period in 2016/17 due to the higher adjusted interest charge, driven by increased RPI in the period. After the impact of the share consolidation and buy back programme as part of returning the net proceeds of the Gas Distribution sale, adjusted earnings per share decreased 8% to 20.4p.

BUSINESS REVIEW

Six months ended 30 September

* NG Ventures and other activities capital investment includes equity and financing in joint ventures and associates but excludes £8m and £5m equity contribution to St William property joint venture for 2017 and 2016, respectively.

'Adjusted results' and a number of other terms and performance measures are not defined within accounting standards and may be applied differently by other organisations. For clarity, we have provided definitions of these terms and, where relevant, reconciliations on pages 43 - 46.

UK ELECTRICITY TRANSMISSION

Adjusted operating profit in UK Electricity Transmission was £542m, down £155m for the first six months of the year compared to the same period in the prior year, including adverse timing movements of £85m. Excluding the impact of timing, adjusted operating profit was £70m lower reflecting decreased net revenues due to lower base allowances. Controllable costs increased reflecting the impact of inflation and costs incurred relating to System Operator separation work, which will be recovered in future years. Depreciation and pension costs were also higher, partially offset by a reduction in other costs.

Capital investment of £515m was £71m lower than the prior period. This reflects lower investment following the completion of parts of a number of large projects such as London Power Tunnels and the Wimbledon substation and lower investment in the Western Link compared to the prior period.

During a commissioning test on the Western Link in late September, there was a failure of a component at the converter station in Hunterston in Scotland. Investigations are currently ongoing to identify the root cause of the event, with SP Transmission and National Grid working with their Consortium partners.

Overall investment in the period reflected £382m of non-load related investment whilst load related investment was £133m.

The UK Electricity Transmission business expects to deliver its regulatory outputs for the year below the associated regulatory totex allowance. This reflects continued delivery of efficiencies in the capital programme and non-load related maintenance activities.

On 3 August, Ofgem published its decision on the future of the System Operator role confirming the path of further separation of the System Operator within National Grid. Following Ofgem's announcement, National Grid continue to work hard to ensure that we are ready for April 2019, when the electricity System Operator will operate in a legally separate company with its own board and licence, while still being wholly owned by National Grid.

On 30 August, Ofgem published its consultation on the final needs case and three potential delivery models for Hinkley Seabank. National Grid's response was submitted on 11 October and we await Ofgem's decision.

National Grid's System Operator business published the Winter Outlook on 12 October 2017. The outlook forecast a de-rated electricity capacity margin on an underlying demand basis of 6.2 GW or 10.3%, up from 5.7% last winter. Peak normalised transmission system demand is expected to be 50.7GW, down from 52.0GW last winter. Winter 2017/18 is the first delivery year of the Capacity Market and the business believes it has adequate tools in place to balance the system. The de-rated margin includes the capacity that was procured by a competitive auction process as part of the Capacity Market 2017/18 Early Auction. A new notification was introduced last winter during the transitional stages of the Capacity Market. A Capacity Market Notice (CMN) is an automated notice which may be published this winter.

UK GAS TRANSMISSION

Adjusted operating profit in UK Gas Transmission was £126m, down £33m for the first six months of the year compared to the same period in the prior year, including adverse timing movements of £62m. Excluding the impact of timing, adjusted operating profit was up £29m, with higher net revenues of £22m in part due to allowances related to Avonmouth that will be returned in 2018/19. Overall, costs were £11m higher due to higher headcount to support asset health work and higher Xoserve costs on the completion of UK-Link and increased depreciation reflecting ongoing investment and asset commissioning.

Capital investment of £157m was £41m higher than the prior period, driven by an increase in asset health spend to deliver RIIO Network Output Measures and the Feeder 9 project, a pipeline replacement under the Humber Estuary, which is moving into the construction phase.

The UK Gas Transmission business expects to deliver its regulatory outputs at a level of totex above the associated regulatory allowance for this year and at a similar level as the prior year. The business continues to focus on process improvements and innovation to increase efficiency over time.

An example of this is at St Fergus, the northernmost Gas Transmission site and largest terminal importing gas onto the National Transmission System (NTS). Due to the coastal location the site it is exposed to harsh environmental conditions resulting in corrosion, and two new, innovative techniques have been developed for dealing with this corrosion. 

The first technique is designed to deal with corrosion on vent and sealant lines as they transition below ground. Remediation of this corrosion using traditional techniques typically cost £220k per valve. The new technique involves digging to just below the wind and water line, as opposed to a full excavation. This technique reduces the cost by 85%, as well as significantly reducing the health and safety risks and time taken. The projected saving at St Fergus alone is around £10m for the remainder of RIIO-T1, and the business intends to use this technique across the NTS for similar repairs in future. 

For the full year the business expects to deliver a good incentive performance, similar to the level achieved in the prior year, while legacy incentives will cease, in line with the agreed profile. In 2018/19 approximately £85m will be included in the MOD adjustment to refund customers for revenues associated with the Avonmouth pipeline, reducing operating profit in this period.

In the Winter Outlook published on 12 October 2017, the gas System Operator confirmed that it again expects there to be sufficient gas supplies available to meet demand for winter 2017/18 from a wide range of supply sources. Demand is expected to be lower than 2016/17 (51.4bcm versus 52.9bcm last winter), with gas demand for electricity generation continuing to be high, but lower than last winter.

US REGULATED OPERATIONS

Adjusted operating profit in the US Regulated business was £433m, down £28m for the first six months of the year, on a constant currency basis, including adverse timing of £87m. Excluding timing, adjusted operating profit was £59m higher at constant currency mainly reflecting increased revenues from new rate cases. This was partially offset by higher healthcare costs and depreciation.

Capital investment was £1,095m, £6m lower than the prior period on a constant currency basis. The majority of this investment relates to leak prone pipe replacement and gas system reinforcement in the gas businesses, and storm hardening and resilience across the electric network. The drivers for investment in the northeast US remain consistent and are expected to support a strong level of investment over the medium term.

National Grid's US rate filing programme continues to progress well. This year the Company has filed a rate case for its Niagara Mohawk Electric and Gas business, representing approximately 30% of the US rate base, and plans to file for new rates for Massachusetts Gas and Narragansett Electric and Gas, together representing almost 20% of US rate base, in November 2017.

Following the conclusion of these rate cases, National Grid will have refreshed rates for all of its distribution companies since 2016. The Company expects to continue to make further rate filings as needed with the objective of maintaining returns as close as possible to the allowed level.

This year, the US Regulated business is targeting 90% of the allowed Return on Equity, with the increase driven by updated rate plans and a continued focus on operating efficiently.

US JURISDICTION UPDATE

New York

KEDNY and KEDLI are currently operating under the first year of three-year rate plans that came into effect on 1 January 2017. Under the plans, bill increases are phased over the three years to help mitigate customer bill impacts. IFRS revenues are more closely aligned with this phased profile. KEDNY bill increases were $174m in calendar year 2017 and will increase a further $135m in 2018. KEDLI bill increases were $84m in calendar year 2017 and will increase a further $49m in 2018. The allowed Return on Equity is 9.0% and the plan includes opportunities to earn performance incentives.

Importantly, the KEDNY/KEDLI rate plan allows for significant capital investment of $3bn over the three year period, enabling the Company to make critical investments in infrastructure on behalf of its customers.

Niagara Mohawk is currently operating under a rate plan that began in April 2013 and provided revenue increases through March 2016. A subsequent extension of the capital investment plan was made to fund $1.3bn of capital investment over 2016/17 and 2017/18.

On 28 April 2017, National Grid filed a full rate case for Niagara Mohawk Electric and Gas to modernise the electricity and gas networks to enhance reliability and resilience, to continue to provide a high level of customer service and assist the most vulnerable customers and to develop the energy infrastructure and technologies that support the State of New York's energy vision. The filing was a one-year plan; however, National Grid filed two additional years of data to provide the opportunity for a multi-year plan that could phase in customer bill increases to mitigate the impact.

The rate case process is on track and progressing as expected. Settlement discussions are underway and the Company remains confident that a multi-year settlement can be reached. New rates are expected to become effective 1 April 2018.

For the first half of 2017/18, investment in the New York companies increased compared to the first half of 2016/17 reflecting increased allowances. In downstate New York, KEDNY has begun the five-year Metropolitan Reliability Infrastructure project to meet the growing long-term system demands in Brooklyn and KEDLI has begun the six-year Northwest Nassau Gas Transmission Reliability project to increase operational reliability on Long Island. Together, these projects are expected to account for over $500m of new investment over six years.

In upstate New York, construction is underway on the Gardenville project, which is expected to be an investment of over $100m to rebuild certain substation and transmission line assets. In addition to improving asset conditions, the project enables capacity to accommodate load growth and enhance reliability.

In line with the rate allowances, the New York Jurisdiction is on track to exceed 2016/17 investment levels this year.

National Grid continues to develop and implement projects to progress New York State's Reforming the Energy Vision (REV) programme and currently has eight projects underway. These projects are designed to test the feasibility of the programmes with potential larger scale investments in the future. Further funding for the downstate projects was received through the KEDNY/KEDLI rate plan and additional funding for upstate projects has been requested in the recent Niagara Mohawk rate filing.

Massachusetts

Massachusetts Electric is operating under new rates that became effective from 1 October 2016, increasing allowed revenues for the 12 months from 1 October 2016 by $101m, as well as providing an allowed Return on Equity of 9.9%. As Massachusetts uses historical test years the rate plan is not for a fixed term but resets rates moving forward. The current fiscal year is the first full year under these refreshed rates.

Importantly, the approved plan also included a $79m increase in funded annual capital investment of up to $249m.

Massachusetts Gas is currently operating under rates that became effective November 2010. For 2017, National Grid agreed an investment plan of up to $241m with the regulator, allowing the business to earn a return on the increased level of investment needed for leak prone pipe replacement work. The company expects to file a new rate plan in November 2017.

Investment in the Massachusetts companies increased compared to the first half of 2016/17. The majority of the capital investment being made in Massachusetts is within the gas businesses, primarily driven by the Gas System Enhancement programme which allows for the replacement of ageing infrastructure on a 20-year cycle. The Company is also making good progress with its major projects including the $120m modernisation of the Commercial Point LNG site. This project will ensure compliance with modern industry codes and standards while improving safety, reliability, and operability.

National Grid's Massachusetts business has a number of initiatives underway to help the state meet its low carbon objectives. This year, the Company has commenced Phase 3 of its utility-scale solar programme, which will provide a further 14 MW of capacity alongside a 7 MW battery storage solution.

Last year, National Grid filed a proposal with Massachusetts to develop 1,200 electric vehicle charging stations, including 80 fast charging stations, across the state. Massachusetts DPU does not have a timeframe for responding to this proposal.

National Grid awaits a decision on its grid modernisation filing made in 2015. The filing included four proposals to modernise the electric network ranging from approximately $200m to approximately $900m over a five-year period.

Rhode Island

Both the Rhode Island gas and electric businesses are recovering base operating costs under one-year rate plans that became effective in February 2013. Other costs, including capital, pension and property taxes, are recovered through annual trackers. These include gas and electric Infrastructure Safety and Reliability (ISR) capital trackers that allow National Grid to agree to a level of investment for each coming year and concurrently recover the full costs associated with investment in year.

National Grid expects to file a new rate plan for its Rhode Island Electric and Gas utilities in November 2017.

Investment in the Rhode Island companies is at a similar level to the first half of 2016/17. The investment programme to replace ageing gas pipe and maintain safe and reliable electric service is on track. This year, the Company is making significant progress on the South Street substation re-build project which is critical in serving Providence and a cornerstone for the redevelopment that is underway in this area of the city.

In response to the Governor's Power Sector Transformation initiative launched in April 2017, the three Rhode Island Utility State Agencies have published a series of proposals that reflect six months of public consultation and significant collaboration with the Company. The proposals refine the existing regulatory framework, seeking to promote a flexible grid and enable Rhode Islanders to take full advantage of new, clean energy technologies. The Company will include a number of the proposals in its upcoming rate case, including foundational investment in advanced meter functionality and grid modernisation, a series of distributed energy resource (DER) programmes, and new upside only performance incentives.

FERC

Investment in the FERC companies for the first six months of the year is down from the first half of the prior year. Investment has been focused on improving the reliability of the transmission network and the generation assets, as well as upgrades for compliance with North American Electric Reliability Corporation Critical Infrastructure Protection to advance the physical security and cybersecurity of the Company's assets.

In April, the U.S. Court of Appeals for the District of Columbia Circuit found that FERC failed to articulate a satisfactory explanation for its actions in lowering the base return on equity for the New England transmission owners from 11.14% to 10.57%. In October 2017, FERC issued an order on remand rejecting the New England transmission owners filing to return to the original level of return on equity of 11.14%. The Commission will review the issue and make an eventual just and reasonable Return on Equity effective for the refund period. There are three further FERC RoE complaints and there is no timeframe for resolutions.

The FERC Jurisdiction continues to identify and develop innovative clean energy solutions for our customers. The island of Nantucket, Massachusetts is currently served by two submarine cables. Due to growing electricity demand, National Grid is developing its first large scale battery storage system which will maintain reliability, reduce emissions and provide an alternate supply in the event of a cable failure. The 48 megawatt hour battery energy storage system will work in tandem with a higher-capacity new diesel generator to replace the ageing system. National Grid's costs will be recovered through FERC transmission rates.

Additionally, the FERC Jurisdiction is undertaking a programme to deploy new technology to improve digital communication within its transmission substations. This will standardise communications within substations which is expected to improve safety, increase system availability and reduce operating costs.

NATIONAL GRID VENTURES AND OTHER ACTIVITIES

'Adjusted results' and a number of other terms and performance measures are not defined within accounting standards and may be applied differently by other organisations. For clarity, we have provided definitions of these terms and, where relevant, reconciliations on pages 43 - 46.

* excludes £8m and £5m equity contribution to St William property joint venture for 2017 and 2016, respectively.

'Adjusted results' and a number of other terms and performance measures are not defined within accounting standards and may be applied differently by other organisations. For clarity, we have provided definitions of these terms and, where relevant, reconciliations on pages 43 - 46.

National Grid Ventures

National Grid Ventures was created to explore growth opportunities, reinforce our technological expertise and strengthen our commercial capabilities as we continue to evolve for the future. National Grid Ventures includes the metering business, the Grain LNG facility and the French Interconnector. It also includes our new interconnector projects, North Sea Link and IFA2, as well as National Grid's share in joint ventures and associates including the BritNed and Nemo Link interconnectors, our investment in Sunrun and a 26% interest in the Millennium natural gas pipeline in New York State.

Adjusted operating profit for the first six months was £132m, down £7m compared to last year. Capital investment was £72m for the period to 30 September 2017, up £28m versus the prior period, mainly due to seabed survey and development costs for North Sea Link and IFA2.

In June, National Grid Ventures was awarded preferred bid status for the Shetland new energy solution. This joint project with Aggreko will be a 260 kilometer, 60MW HVDC interconnector connecting the Shetland Islands to the Scottish mainland, with back-up on-island generators. Contracts for the project are expected to be signed in December with operations beginning in 2021.

National Grid Ventures' partnership with Sunrun, which was announced earlier this year, is progressing well. The Company is gaining valuable first-hand experience about the residential solar market, and in particular, co-marketing and grid services pilots. The partnership is currently exploring the potential for customer-sited storage.

In June NG Ventures signed power purchase agreements with the Long Island Power Authority to build and operate battery storage energy systems. This project includes two 5 MW, 8 hour lithium-ion battery systems located on Long Island's South Fork and will help customers avoid the cost of new transmission or traditional generation. The business also won a competitive 20MW solar project in Suffolk County Long Island.

The post-tax share of joint ventures and associates that are included in National Grid Ventures for the first six months was £24m, down £10m compared to last year at constant currency. This was driven by lower auction revenue in BritNed in the current period due to lower arbitrage between the UK and Netherlands. Capital investment for the six months to 30 September 2017 increased significantly compared with the prior period, due to the ongoing construction of Nemo Link and our investment in Sunrun.

Other activities

Other activities consist of the Property business, US and UK corporate costs and other items. Other joint ventures and associates include the St. William and Cadent investments.

Adjusted operating profit for the six months ended 30 September 2017 was £26m, up £13m compared to last year, due to additional property site sales in the period versus the prior year.

The post-tax share of the joint ventures and associates for the first six months was £51m, up £54m compared to last year. This was due to the inclusion of National Grid's 39% share of Cadent in the current period.

The St. William partnership is progressing well, with National Grid entering into contracts for the sale of an additional site in the period. Construction is progressing on track at Battersea and Rickmansworth and is also planned to start at Borehamwood and Highbury in the second half of this year.

Following the sale of the majority stake in Cadent, the business performed in line with expectations for the first half of the year. Timing was adverse to expectations due to lower commodity and capacity income, along with RPI true ups, resulting in an under-recovery versus the comparative period for the 39% stake in Gas Distribution.

Capital investment in the first six months of the year was £53m, an increase of £11m compared with the prior period on a constant currency basis, driven primarily by increased IT system spend in the US.

APPENDIX: BASIS OF PRESENTATION, DEFINITIONS AND METRIC CALCULATIONS

BASIS OF PRESENTATION

Adjusted and Statutory Results

Unless otherwise stated, all financial commentaries in this release are given on an adjusted basis at actual exchange rates.

In considering the financial performance of our businesses and segments, we analyse each of our primary financial measures of adjusted operating profit, profit before tax, profit for the year attributable to equity shareholders and EPS into two components. The first of these components is referred to as an adjusted profit measure, also known as a business performance measure. This is the principal measure used by management to assess the performance of the underlying business. Adjusted results exclude exceptional items and remeasurements. These items are reported collectively as the second component of the financial measures. Note 3 on page 34 explains in detail the items which are excluded from our adjusted profit measures. As a matter of course, management also considers earnings performance by segment, excluding the effect of timing (see page 44).

Adjusted profit measures have limitations in their usefulness compared with the comparable total profit measures as they exclude important elements of our financial performance. However, we believe that by presenting our financial performance in two components it is easier to read and interpret financial performance between periods, as adjusted profit measures are more comparable having removed the distorting effect of the excluded items. Those items are more clearly understood if separately identified and analysed.

DEFINITIONS

Annual asset growth

'Annual asset growth' measures the increase in 'total regulatory value and other investments', defined below.

Capital investment

'Capital investment' or 'investment' refer to additions to property, plant and equipment and intangible assets (capital expenditure), and equity contributions and financing to joint ventures and associates, other than the St. William joint venture during the period. St. William is excluded based on the nature of this joint venture arrangement.

Constant currency

'Constant currency basis' refers to the reporting of the actual results against the results for the same period last year which, in respect of any US$ currency denominated activity, have been translated using the average US$ exchange rate for the six months ended 30 September 2017, which was $1.31 to £1.00. The average rate for the six months ended 30 September 2016, was $1.39 to £1.00. Assets and liabilities as at 30 September 2016 have been retranslated at the closing rate at 30 September 2017 of $1.34 to £1.00. The closing rate for the balance sheet date 30 September 2016 was $1.30 to £1.00.

Load related spend

'Load related spend' is capital expenditure that relates to the installation of new assets to accommodate changes in the level or pattern of energy supply and demand.

Net revenue

'Net revenue' is revenue less pass-through costs, such as payments to other UK network owners, system balancing costs, and gas and electricity commodity costs in the US. Pass-through costs are fully recoverable from our customers and are recovered through separate charges that are designed to recover those costs with no profit. Any over- or under-recovery of these costs is returned to, or recovered from, our customers.

Non-load related spend

'Non-load related spend' is capital expenditure that relates to the replacement or refurbishment of assets which are either at the end of their useful life due to their age or condition, or need to be replaced on safety or environmental grounds.

Return on equity

'Return on equity' 'RoE' or 'returns' is a performance metric measuring returns from the investment of shareholders' funds. It is a financial ratio of a measure of earnings divided by an equity base.

Timing

Under the Group's regulatory frameworks, the majority of the revenues that National Grid is allowed to collect each year are governed by a regulatory price control or rate plan. If a company collects more than this allowed level of revenue, the balance must be returned to customers in subsequent years, and if it collects less than this level of revenue it 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, a number of costs in both the UK and the US are pass-through costs (including substantial commodity and energy efficiency costs in the US), and are fully recoverable from customers. Any timing differences between costs of this type being incurred and their recovery through revenues are also included in over and under-recoveries. In the UK, timing differences also include an estimation of the difference between revenues earned under revenue incentive mechanisms and any associated revenues collected. UK timing balances and movements exclude any adjustments associated with changes to controllable cost (totex) allowances or adjustments under the totex incentive mechanism.

Identification of these timing differences enables a better comparison of performance from one period to another. Opening balances of under and over-recoveries have been restated where appropriate to correspond with regulatory filings and calculations.

Total regulatory value and other investments

The sum of: the regulatory asset value of the UK regulated businesses determined under the methodology set out in Ofgem's Price Control Financial Model; the rate bases applicable to each US regulated entity calculated according to the methodology used by each respective utility regulator; the value of assets held by the Group's other activities; together with investments in joint ventures and associates. National Grid Ventures and other activities primarily relate to non-network businesses and other commercial operations including: UK gas metering activities; the Great Britain-France Interconnector; UK commercial property; and a UK LNG import terminal.

Totex

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

PROVISIONAL FINANCIAL TIMETABLE

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 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 those relating to the role of the UK electricity system operator; 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; 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 and internal transformation and remediation plans; 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; inflation or deflation; 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, train or retain employees with the necessary competencies, including leadership skills, and any significant disputes arising with the 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, development activities relating to changes in the energy mix and the integration of distributed energy resources, and the need to grow the Company's business to deliver its strategy, as well as incorrect or unforeseen assumptions or conclusions (including unanticipated costs and liabilities) relating to business development activity, including assumptions in connection with the Company's sale of a majority stake in its gas distribution business and with joint ventures. 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 180 to 183 of National Grid plc's most recent 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, the Company undertakes no obligation to update any of its forward-looking statements, which speak only as of the date of this announcement.

UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

1. The non-controlling interests for the six month period ended 30 September 2017 relate to continuing operations.

2. The non-controlling interests for the six month period ended 30 September 2016 relate to discontinued operations.

3. Comparatives have been re-presented to reflect the classification of the UK Gas Distribution business as a discontinued operation (see note 5) and for the change to a columnar format (see note 1).

1. Comparatives have been re-presented to reflect the classification of the UK Gas Distribution business as a discontinued operation (see note 5).

2. The share of other comprehensive income of associates relates to items of other comprehensive income of Cadent (investment held through Quadgas Holdco Limited), comprising £60m remeasurement gains on pension assets and post-retirement benefit obligations, and a £4m net gain in respect of cash flow hedges. Both items are shown net of tax.

3. The non-controlling interests for the six month period ended 30 September 2016 relate to both continuing and discontinued operations.