National Grid Regulatory News (NG.)

John Pettigrew 

Chief Executive

"I'm very pleased with the Group's financial, strategic and regulatory progress in the last six months. In the UK, we have made a strong start to the new RIIO-T2 period in electricity transmission, and we are preparing our business plan submission for WPD. In the US, we have completed a full refresh of rates across our distribution businesses. In National Grid Ventures, we commissioned the North Sea Link, our new interconnector to Norway.

Whilst delivering this strong performance, we have completed our acquisition of WPD, launched the process to sell a majority stake in National Grid Gas and the sale of our Rhode Island business is on track to be finalised by the end of our financial year, progressing our strategic pivot towards higher growth electricity, all made possible by the commitment of our people.

Looking ahead, the new organisational structure that we have implemented, alongside a major cost efficiency programme, will ensure we are in a strong position to capitalise on the significant growth opportunities ahead. Our focus will be on delivering critical and green investment to enable the decarbonisation of power, transport and heat, and lead a clean, fair and affordable energy transition across the jurisdictions we serve."

1. Excluding UK Gas Transmission which is held as a discontinued operation. Comparative figures have been re-presented accordingly.

2. 'Underlying' represents statutory results from continuing operations, but excluding exceptional items, remeasurements and timing. Further detail and definitions for all alternative performance measures are provided on page 56.

Highlights

• Strong financial delivery

◦ Underlying operating profit up 47% to £1.4bn. Excluding the first time contribution of £257m from Western Power Distribution (WPD), underlying operating profit was up 20% driven by the first six months of operations at IFA2, reduced impact from COVID-19 compared to the prior year, and higher UK Electricity Transmission net revenue as we accelerate our investment for the energy transition at the start of RIIO-T2.

◦ Statutory operating profit up 55% to £1.5bn, including £350m of commodity mark-to-market gains.

◦ Underlying EPS for continuing operations up 66% to 22.8p reflecting improved performance, acquisition of WPD and non-treasury interest benefits in the first half.

◦ Statutory EPS of 10.5p, down 25% as a result of the remeasurement of deferred tax balances at the new UK rate of 25% which comes into effect from 1 April 2023.

◦ Interim dividend 17.21p/share in line with policy (17.00p/share in the prior period).

• Significant capital investment

◦ Capital investment of £2.8bn for continuing operations, up 15% principally through WPD capex, and higher UK Electricity Transmission, partially offset by lower capital investment in NGV as our £350m IFA2 interconnector became operational.

◦ Work completed on the 1,400MW North Sea Link (NSL) to Norway, following our £620m investment.

Highlights continued

• Strategic pivot towards higher growth electricity

◦ Completed WPD acquisition.

◦ Rhode Island sale and majority stake sale in National Grid Gas on track.

• Good regulatory progress

◦ Finalised our CMA appeal process for RIIO-T2, which saw the removal of the outperformance wedge.

◦ Targeting to deliver 100 basis points of operational outperformance on average through the five-year period in UK Electricity Transmission.

◦ New rate agreements for KEDNY-KEDLI and Massachusetts Gas. Joint Proposal for Niagara Mohawk submitted, expecting approval by end of the calendar year.

• New organisational structure and efficiency programme

◦ Implemented a new operating model with seven business units across the Group as we look to deliver the financial, customer and regulatory outcomes that will be required on the journey to net zero.

◦ New cost efficiency programme to save at least £400m per annum across the Group by the end of 3 years.

• Delivering on our responsibility commitments

◦ Published our first Responsible Business Report, measuring the Group's progress against ESG targets.

• Updating full year outlook

◦ Given the strong start to the year, we now expect to deliver full year underlying EPS significantly above the top end of our 5 - 7% range. This is primarily driven by early commissioning of our new NSL interconnector, coupled with higher auction prices across our interconnector portfolio, which is expected to deliver around £100 million higher operating profit.

Operational Key Performance Indicators1

1. 'Underlying' represents statutory results from continuing operations, but excluding exceptional items, remeasurements and timing. Further detail and definitions for all alternative performance measures are provided on page 56.

2. Comparative amounts have been re-presented to reflect the classification of the UK Gas Transmission business as a discontinued operation and the new operating segments.

Contacts

Use of Alternative Performance Measures

Throughout this release, we use a number of alternative (or non-IFRS) and regulatory performance measures to provide users with a clearer picture of the regulated performance of the business. This is in line with how management monitor and manage the business day-to-day. Further detail and definitions for all alternative performance measures are provided on page 56.

STRATEGIC OVERVIEW

A good performance in the first half

National Grid has reported good operational progress in both the UK and US for the first half of the year.

Safety continues to be a top priority across the Group, and we remain focused on ensuring the public, our employees and contractors are safe. During the period ended 30 September, our businesses have delivered a lost time injury frequency rate (LTIFR) at a level of 0.11, in line with the prior period. On reliability, our performance has remained good across our businesses despite the storm activity in the North East US in the first half of the year.

Half-year financial performance

Underlying operating profit at constant currency increased by 52% versus the prior period to £1,407 million. This was principally driven by first time inclusion of WPD and IFA2, higher UK Electricity Transmission net revenue to fund higher investment levels, and gains on investments in National Grid Partners which invests in companies innovating to accelerate the energy transition.

1. 'Underlying 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 56 to 59.

2. Comparative amounts have been re-presented to reflect the classification of the UK Gas Transmission business as a discontinued operation and the new operating segments.

Capital investment (continuing operations) increased by £520 million at constant currency to £2,840 million. This was driven principally by capital investment at our new UK Electricity Distribution business, higher expenditure in UK Electricity Transmission on the London Power Tunnels 2 (LPT2) and Hinkley-Seabank connection projects, normalised levels of New York capex following some COVID-19 restrictions in the first half of the prior year, partially offset by lower expenditure in NGV on IFA2 and the North Sea Link (NSL) as both interconnectors became operational.

Solid progress on delivering our strategy

National Grid has continued to deliver solid progress on our strategy over the half year. Across the Group, we have completed the purchase of the UK's largest electricity distribution business, WPD, from PPL; made good progress with the sale of our Rhode Island business to PPL, which is expected to complete by the end of our financial year; launched the process for the sale of a majority stake in National Grid Gas (NGG) which includes the UK Gas Transmission and legacy metering business, and commissioned North Sea Link (NSL), the new 1,400 MW interconnector to Norway. However, we experienced a serious fire at our IFA convertor station in Sellindge, Kent, which caused significant damage to infrastructure on site. Following a detailed assessment on the 1,000MW of capacity that is offline due to fire damage, we are carrying out extensive work to safely return it to service.

We have made good progress on our regulatory strategy. During the period, we finalised the Competition and Markets Authority (CMA) appeal process for RIIO-T2 and, although we were disappointed that the CMA did not find in favour of our arguments on the cost of equity, we were pleased that the outperformance wedge has been removed. In the US, we reached a new multi-year rate settlement in our Downstate New York gas distribution businesses, KEDNY and KEDLI. In addition, we filed a Joint Proposal for new rates for our Upstate New York gas and electric distribution business, Niagara Mohawk (NIMO) which we expect the New York Public Service Commission (PSC) to approve before the end of the calendar year. We also received a rate order for our Massachusetts Gas business at the end of September, which means we have now completed a full refresh of all rates across our US distribution businesses.

We have also moved to a new organisational structure to prepare the Group to deliver the opportunities that net zero and the energy transition will bring. To do this, we have removed the regional layers and have adopted a business model where seven business units[1] have accountability for delivering the innovation and efficiencies specific to their areas. This means that (a) the US business is now replaced as New York and New England, (b) our two UK networks - UK Electricity Transmission and UK Electricity Distribution (WPD) - are structured along regulatory lines, (c) all our non-networks businesses are now grouped under National Grid Ventures, and (d) the UK ESO continues as a legally separate business unit.

All business units are now run as end-to-end enterprises with financial responsibility with their executive teams, increasing the focus on efficient operational delivery. This increased focus has allowed us to launch a new cost efficiency programme which will target at least £400 million savings per annum across the Group[2] by the end of 3 years. This will deliver a flat controllable cost base even whilst our regulated assets continue to grow by over 20% over the same period. As we deliver the new organisational structure, the cost savings programme and the separation of our Rhode Island and UK Gas Transmission businesses, we expect to incur future one-off costs of around £400 million.

COVID-19 update

During the half year, the business has continued to move forward following lockdowns and the impact of COVID-19 in FY2020/21.

In New York, the first half saw increased capex compared to the prior period when COVID-19 restrictions were in place, particularly on urban and customer facing work. Resumption of bill collections has begun in New England and New York. However, with collections starting earlier in Massachusetts, we have seen a more favourable impact on our bad debt charge versus New York.

Work on COVID-19 cost recoveries has also progressed in both New England and New York over the last half-year. In Massachusetts, supplementary testimony has been filed by all utilities, including National Grid, quantifying the amount of COVID-19 related costs being sought for recovery. The Massachusetts COVID-19 proceeding is still in 'discovery' phase and the earliest that recovery could begin is March 2022. For Rhode Island, a filing was submitted on 30 April requesting deferral treatment for COVID-19 related costs, including increases in bad debt expenses, lost revenue from late payment charges, and charges for other fees that the Company has waived pursuant to the orders of the Public Utilities Commission (Rhode Island regulator).

In New York, whilst we continued to experience a rise in bad debt, the state-wide pause on collections ended in July. In consultation with the New York Public Service Commission and peer utilities, collection activities commenced in September 2021. In addition, in September, a Regular Arrears Supplement programme was launched by New York State, assisting customers who received heating assistance during the year. To date, we have received $27 million of grants on behalf of our customers and we expect that to continue into the second half of the financial year. By the end of calendar year 2021, we also expect to have visibility into the state-wide arrears management programme and how State/Federal assistance will be administered. Along with continued collection activities, we expect this will provide further upside to addressing late stage arrears.

Our responsible business - delivering on our commitments

We continue to be vocal advocates for a fair and equitable energy transition across wider public policy. This is a key part of the Group's strategy, and we remain committed to the critical role of enabling decarbonisation across our jurisdictions. National Grid proudly served as a principal partner at COP26 in Glasgow and we welcomed the commitments agreed at COP26 from both governments and businesses. We are ready to play our part in transforming commitment into action to enable a fair energy transition.

In June, we published our first Responsible Business Report (RBR) covering the financial year to 31 March 2021. The report is the first standalone document to provide a comprehensive view of our non-financial performance across the business. It follows our Responsible Business Charter published last year which describes our long-term goals across five pillars, namely (1) the environment, (2) our communities, (3) our people, (4) the economy, and (5) governance.

The RBR demonstrates how we are progressing against the commitments and ambitions that we have laid out. For example, in 2020/21 we had reduced Scope 1 and 2 emissions by 68% compared to the 1990 baseline, and Scope 3 emissions by 13% compared to a 2019 baseline. On diversity, we had reached 37.9% workforce diversity in 2020/21, up from 37.4% in the prior year, and 44.6% senior leadership diversity, up from 42.1% in the prior year. The RBR, available on our website, provides a full update on all our ESG targets and progress in 2020/21.

Board changes

In June, we announced the appointment of Lord Livingston Of Parkhead (Ian P. Livingston) as a Non-executive Director of the Board, effective from 1 August 2021. Ian joined the Remuneration Committee on appointment and the Audit & Risk Committee on 1 September 2021.

Ian is a former FTSE 30 Chief Executive and has served in the UK Government as Minister of State for Trade and Investment. He is currently Chair of Currys PLC, having previously held that role for the fund manager, Man Group. He is also a Non-executive Director of S&P Global, where he sits on the Compensation and Leadership Development Committee and the Audit Committee. He has been a Non-executive Director of a variety of businesses including Celtic FC, Hilton Group and more recently the luxury hotels business, Belmond.

In July, we announced the appointments of Tony Wood and Martha Wyrsch as Non-executive Directors of the Board, effective from 1 September 2021. On appointment Tony joined the Safety & Sustainability and the People & Governance Committees and Martha joined the Remuneration and the Safety & Sustainability Committees.

Tony Wood currently serves as Chief Executive of Meggitt plc having previously joined the company as Chief Operating Officer. He previously served as President of the Aerospace division of Rolls-Royce.

Martha Wyrsch has served three times as general counsel of energy and utility companies and twice as a CEO of the divisions of major energy companies. She currently serves as an independent director on the Boards of Quanta Services Inc. and First American Financial Corp and previously held Board positions at Spectris plc, Noble Energy, Spectra Energy Corporation and SPX Corporation and senior leadership positions at Sempra Energy and Vestas American Wind Technology.

OUTLOOK

Our five-year financial framework includes WPD, our UK Electricity Distribution business, and assumes the sale of NECO (Rhode Island) completing in Q1 of Calendar Year 2022 and the sale of a majority stake of Gas Transmission being completed by the summer of 2022.

Capital investment and Group asset growth

We continue to expect to invest £30-£35 billion across our energy networks and adjacent businesses, in the UK and US, over the five-year period to 2025/26.

In the UK, we expect around £8 billion of investment in electricity transmission for asset health, anticipatory system reinforcement to facilitate offshore generation and other new onshore system connections.

In the US, we expect to invest around £10 billion in New York and around £7 billion in New England over the next five years. Over half of this will be safety related projects in our gas networks with the remainder in our electric networks such as for storm hardening and other net zero investments as well as further electric transmission investment.

We expect the WPD networks to invest £4-£5 billion over the next 5 years in asset maintenance, facilitating the infrastructure for electric vehicles and directly connected generation.

We expect NGV to invest £2-£3 billion over 5 years in completing the interconnector programme, additional investment in our Grain LNG terminal and in US renewable generation.

As we work through our transactions, coupled with the sum of these investments, and the broad economic protection our businesses have against rising macroeconomic variables such as inflation, group asset growth is expected to be 6-8% CAGR through to 2025/26.

Group gearing

We continue to expect regulatory gearing to increase and to settle above 70% once all three transactions are completed. We expect gearing levels, and the other standard metrics we monitor, to sit comfortably within our current BBB+/Baa1 corporate rating band from S&P and Moody's. As a result, we do not expect any further rating action at a Group level.

Group earnings growth and dividend growth

From 2020/21 through to 2025/26, we expect our compound annual growth rate in underlying earnings per share to be in the 5 - 7% range, including our long run average scrip take up of 25% per annum, which will underpin our sustainable, progressive dividend policy into the future.

Given the strong start to the year, we now expect to deliver full year underlying EPS significantly above the top end of our 5 - 7% range. This is primarily driven by early commissioning of our new NSL interconnector, coupled with higher auction prices across our interconnector portfolio, which is expected to deliver around £100 million higher operating profit.

2021/22 FORWARD GUIDANCE

This forward guidance is based on our continuing businesses (as defined by IFRS, excluding 100% of UK Gas Transmission, even though we expect to retain a minority stake) with the sale of a majority stake in National Grid Gas assumed to finalise in the next financial year. Although the sale of Rhode Island is expected to complete in the current financial year, it does not meet the criteria to be classified as discontinued under IFRS.

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

UK Electricity Transmission

Net Revenue (excluding timing) is expected to increase compared to 2020/21 as a result of the new RIIO-T2 price control and a benefit from CPIH indexation, but this should be offset by higher controllable and other costs as a result of increased IT and cyber spend. Excluding asset write-offs in the first half, depreciation is expected to be broadly flat year on year, following a benefit from a review of asset lives.

As we complete projects started in RIIO-T1, and move in to RIIO-T2, we are targeting to deliver 100 basis points of operational outperformance on average through the five-year period. We also expect to deliver this level in the first full year of this price control due to performance on customer driven capex which straddles the RIIO-T1 and RIIO-T2 periods.

UK Electricity Distribution

Following the acquisition of WPD which closed on 14 June 2021, operating profit (excluding timing) will be included for the 9½ months of 2021/22 it has been owned. The Electricity Distribution business is not highly seasonal, with a H1 weighting in a typical full year of between 45-50%.

Under the RIIO-D1 price control, Return on Equity is expected to outperform the allowed operational regulatory return by over 150bps.

UK Electricity System Operator (ESO)

Net Revenue (excluding timing) is expected to increase by around £70 million compared to 2020/21 as a result of the new RIIO-2 price control and also improved incentive performance. The higher revenue includes rate funding for workload increase, more employees and IT system requirements needed to deliver RIIO-2 outputs. As a result, costs are expected to increase by around £50 million. Depreciation is expected to be around £20 million higher as a result of asset growth.

Under the RIIO-2 price control, totex in ESO is no longer subject to the totex incentive mechanism and is treated as a pass-through, with cost increases or efficiencies trued-up the following year.

New England

Net Revenue (excluding timing) is expected to be around $50 million higher from expected rate increases in Massachusetts Gas following a move to performance based regulation and benefits from capital trackers. Bad debts and controllable costs are expected to be around $100 million lower than 2020/21, due to lower levels of non-payment as a result of COVID-19 and as a result of ongoing efficiencies, but partly offset by $50 million higher other costs (property taxes and cost of removal). We expect depreciation to be lower in 2020/21, despite asset growth, as a consequence of the cessation of depreciation of Rhode Island which is now classified as 'held for sale' in accordance with IFRS ($100 million benefit). This guidance reflects completion of the proposed Rhode Island sale on 31 March 2022.

Return on Equity for New England is expected to be at least 80% of the allowed RoE.

For comparability, New England's estimated underlying operating profit for the year to 31 March 2021 was £727 million.

New York

Net Revenue (excluding timing) is expected to be around $170 million higher, reflecting increases from proposed rate settlements, but this is expected to be offset by increased environmental reserves, higher cost of removal activity and higher other costs (funded by higher revenues). Bad debts are expected to be around $100 million lower than the high level in 2020/21 as a result of COVID-19. We expect depreciation to be higher in 2020/21 by around $80 million reflecting the higher level of asset growth.

Return on Equity for New York is expected to be at least 95% of the allowed RoE.

For comparability, New York's estimated underlying operating profit for the year to 31 March 2021 was £722 million.

NGV and Other activities

In NGV, as a result of IFA2 contributing for a full year in 2021/22, North Sea Link (NSL) commencing operations in October 2021, and the increase in auction prices across our interconnector portfolio, operating profit is expected to be around £100 million higher than in 2020/21.

We also expect other activities' underlying operating profit to be higher year-on-year driven by increased activity in our Commercial Property business, which is expected to return to their 2019/20 level of performance and expected fair value gains in National Grid Partners year on year.

In total, 'NGV and Other' operating profit is expected to increase by around £200 million year on year. For comparability, 'NGV and Other' estimated operating profit for the year to 31 March 2021 was £118 million.

Joint Ventures and Associates

Our share of the profit after tax of joint ventures and associates in the second half is expected to be similar to the first half, reflecting higher property sales from the St William joint venture and improved performance in BritNed and NEMO.

Interest and Tax (continuing operations)

Net finance costs in 2021/22 for treasury managed interest are expected to be around £300 million higher than 2020/21 from a higher RPI inflation and a higher average level of net debt, as a result of the acquisition of WPD in addition to funding our ongoing capital investment programme. Partly offsetting this, 'other interest' is expected to be around £100 million favourable compared to 2020/21, related to pensions, higher investment returns, increased capitalised interest and favourable property tax settlements.

For the full year 2021/22, the underlying effective tax rate excluding the share of post-tax profits from joint ventures and associates, is expected to be around 21%.

For comparability, estimated net finance costs for the year to 31 March 2021 were £865 million.

Investment, Growth and Net Debt

Overall Group capital investment for continuing operations in 2021/22 is expected to be around £6.5 billion.

Asset Growth is expected to be higher than 2020/21, reflecting the significant increase in capex along with higher inflation compared to the prior year. As a result, we expect to temporarily exceed the top end of our 6-8% forecast range.

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

Operating cashflow generated from continuing operations (excluding acquisitions, disposals and transaction costs) is expected to increase by around 30% compared to 2020/21 principally driven by higher operating profits, after accounting for the non-cash impact of depreciation.

Net debt is expected to remain consistent with the level at 30 September (excluding the impact of FX movements) at around £41.5bn at 31 March 2022 including the expected benefit of the Rhode Island disposal proceeds.

Weighted average number of shares (WAV) is expected to increase from 3,523 million last year to approximately 3,600 million in 2021/22.

FINANCIAL REVIEW - HY2021/22

In managing the business, we focus on various non-IFRS measures which provide meaningful comparisons of performance between years, monitor the strength of the Group's balance sheet as well as profitability, and reflect the Group's regulatory economic arrangements. Such alternative and regulatory performance measures are supplementary to, and should not be regarded as a substitute for, IFRS measures which we refer to as statutory results. We explain the basis of these measures and, where practicable, reconcile these to statutory results in 'Alternative performance measures/non-IFRS reconciliations' on pages 56 to 59. The Group does not believe that these measures are a substitute for IFRS measures, however, the Group does believe such information is useful in assessing the performance of the business on a comparable basis. Also, we distinguish between adjusted results, which exclude exceptional items and remeasurements, and underlying results, which further take account of: (i) volumetric and other revenue timing differences arising from our regulatory contracts, and (ii) major storm costs which are recoverable in future periods, neither of which give rise to economic gains or losses.

Performance for the six months ended 30 September

1. Comparative amounts have been re-presented to reflect the classification of the UK Gas Transmission business as a discontinued operation.

Statutory operating profit was £1,492 million, 55% higher than the comparative period. Commodity remeasurement net gains were £350 million compared to £73 million in the first six months of last year. In the current year, we incurred exceptional charges of £24 million for the implementation of our new operating model and £137 million of transaction costs related to the acquisition of WPD and the planned disposals of our Rhode Island and UK Gas Transmission businesses. In the prior period, a £15 million exceptional gain arose from the release of US environmental provisions. An exceptional deferred tax charge of £484 million was recognised in the period, as a result of the UK government's substantive enactment of a 6% increase in the UK corporation tax rate to 25% (effective from 1 April 2023). As a consequence of these, partly offset by higher remeasurement gains on commodity derivatives, statutory profit after tax was down 24% against the comparative period.

Excluding exceptional items and remeasurements, adjusted operating profit increased by £431m or 49%. The acquisition of WPD on 14 June 2021 contributed £281 million towards this in the first half. Revenues (net of pass-through costs) were £558 million higher. In the UK, RIIO-T2 commenced, in New York rate case increases came into effect, and we saw a full six months' contribution from our IFA2 interconnector in NGV. The impact of COVID was less, with a smaller impact on revenues, lower bad debts in the US and fewer incremental costs compared to the same period in 2020/21. Depreciation was higher from our ongoing investment programme. Other costs were higher, principally related to delivering outputs as agreed with our regulators. As a result of these factors, partly offset by higher net interest costs from inflation and additional debt used to finance the acquisition of WPD, adjusted profit after tax was up 77% compared to the prior period.

Timing net under-recoveries were £104 million in the first six months compared to £83 million under-recovery (at constant currency in the prior year). Excluding the impact of timing, underlying operating profit of £1,407 million was up 47% and underlying EPS of 22.8p was up 66% against the comparative period.

Reconciliation of different measures of profitability and earnings

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

1. Comparative amounts have been re-presented to reflect the classification of the UK Gas Transmission business as a discontinued operation.

Segmental income statement

The following tables set out the income statement on adjusted and underlying bases.

1. Comparative amounts have been re-presented to reflect the classification of the UK Gas Transmission business as a discontinued operation and the new operating segments.

UK Electricity Transmission adjusted operating profit increased compared to the same period in 2020/21 primarily driven by higher revenues related to higher totex funding under the RIIO-T2 price control. A £24 million adverse swing in timing recoveries (higher pass-through costs and lower collection of prior period under-recoveries) and higher controllable costs were mostly offset by the adverse impact of COVID in the previous period. Depreciation was broadly flat as a result of a beneficial review of asset lives during the year.

UK Electricity Distribution comprises the WPD businesses acquired on 14 June 2021. Post-acquisition results for the period reflect purchase price allocation adjustments to the book value of assets and liabilities acquired, mainly impacting depreciation and the amortisation of customer contributions towards capital investment. The electricity distribution business contributed £281 million to adjusted operating profit, which includes a favourable £24 million timing recovery for the 3.5 months owned.

UK Electricity System Operator adjusted operating profit was £63 million compared to a loss of £32 million in the prior period, principally arising from an £83 million year on year timing swing. This was driven by significant TNUoS under-collections in the prior period and other favourable regulatory timing in the current year. Excluding timing, higher revenues were partly offset by increased controllable costs to deliver outputs and higher depreciation.

New England adjusted operating profit was £27 million lower (on a constant currency basis) than the prior period as the result of a £94 million swing in timing. This was caused by a £121 million net under-recovery in the current period, related to higher gas prices and an under-collection of energy efficiency and other programme costs including residential assistance and solar Massachusetts. Higher revenues from Massachusetts Electric PBR rate increases were more than offset by increased workload, higher storm costs, property taxes and cost of removal. Bad debts were lower with higher cash collections following the resumption of collection activities in the first half. Depreciation was lower as a consequence of our Rhode Island business being treated as 'held for sale' meaning it is no longer depreciated.

New York adjusted operating profit was £39 million lower (on a constant currency basis) than the same period last year. Rate increases in Niagara Mohawk and in KEDNY and KEDLI along with a favourable property tax settlement were more than offset by increased environmental provisions and storm costs. Bad debt provisions were lower than the comparative period, driven by a reduced economic impact from COVID on collections in the current period, but depreciation was higher as a result of continued investment.

Operating profit in NGV and Other activities increased by £109 million compared to the same period in 2020/21. Our IFA2 interconnector contributed £42 million to the current year having commenced operations in January 2021. Our other IFA interconnector also benefited from higher revenues, but this was offset by a write-down for assets damaged by a fire at Sellindge in September which has resulted in an unplanned outage. Benefits arose from fair value gains on our NG Partners investment portfolio and the release of an aged liability related to historical balances for unclaimed dividends in the Group.

Discontinued operations comprise our UK Gas Transmission and metering operations in National Grid Gas plc, on the basis that we are expecting to dispose of a majority stake in this business within the next 12 months.

Financing costs and tax

Net finance costs

Adjusted net finance costs for continuing operations were £44 million higher than the prior period. This was primarily due to higher inflation on RPI-linked debt, along with the impact of the acquisition of WPD and new financing requirements to fund our ongoing capital investment programme. These were partly offset by favourable interest on net pension assets, more capitalised interest (increased level of capex projects in the construction phase) and increases in other interest (including favourable property tax settlements in the US). The effective interest rate on treasury managed debt was 3.1%, compared to 3.3% for the first six months of 2020/21.

Joint ventures and associates

The Group's share of net profits from joint ventures and associates increased by £20 million year on year on an adjusted basis, driven by increased performance in Nemo Link. On a statutory basis, it increased by £11 million to £41 million, which also included fair value losses on derivatives in our Emerald joint venture.

Tax

The adjusted effective tax rate for continuing operations (excluding profits from joint ventures and associates) was 17.9% (prior year 14.3%) at the half year and the underlying effective tax rate for continuing operations (excluding profits from joint ventures and associates) was 19.0% (prior year 15.7%). The effective tax rates for this year are higher than in the prior period primarily due to the change in the profit mix following the acquisition of WPD.

Net debt

During the first six months of the year, net debt increased to £41.5 billion, £13.0 billion higher than at 31 March 2021. This increase was driven by the acquisition of WPD on 14 June 2021, which was financed by an £8.2 billion loan to purchase the equity shares from PPL for consideration of £7.9 billion and to replace £350 million of borrowing facilities that expired on change of control. In line with the requirements of IFRS acquisition accounting, the acquired net debt in WPD was fair valued upwards by £1.6 billion to £8.2 billion, reflecting current market rates. Cash generated from operations of £2.0 billion was more than offset by £2.6 billion of cash outflows for capital investment, £1.1 billion paid in dividends, interest and tax and £0.6 billion of adverse exchange movements and other non-cash increases to opening net debt. Closing net debt at 30 September 2021 excludes £5.0 billion related to net debt within our UK Gas businesses, which has been reclassified to 'held for sale' from 1 September. Consistent with the treatment at 31 March 2021, net debt of £1.1 billion related to Rhode Island is also classified in 'held for sale'.

During the period we raised over £2.3 billion of new long-term senior debt to refinance maturing debt and to fund a portion of our significant capital programme. We also drew down on a facility of £8.2 billion for the acquisition of WPD. The new bonds issued include further borrowings under our Green Financing Framework. As at 30 September 2021, we have £7.2 billion of committed facilities available for general corporate purposes of which £0.3 billion is currently drawn down within WPD and all of which have expiry dates beyond January 2023.

There are no significant updates relating to credit agency actions. National Grid's balance sheet remains robust, with strong investment grade ratings from Moody's, Standard & Poor's (S&P) and Fitch.

Interim Dividend

The Board has approved an interim dividend of 17.21p per ordinary share ($1.1573 per American Depositary Share). This represents 35% of the total dividend per share of 49.16p in respect of the last financial year to 31 March 2021 and is in line with the Group's dividend policy. The interim dividend is expected to be paid on 19 January 2022 to shareholders on the register as at 3 December 2021.

The Board decided in March that, to reflect the move from RPI to CPIH in our UK regulated businesses, the aim from 2021/22 will be to grow the annual dividend per share in line with UK CPIH, thus maintaining the dividend per share in real terms. The Board will review this policy regularly, taking into account a range of factors including expected business performance and regulatory developments.

The scrip dividend alternative will again be offered in respect of the 2021/22 interim dividend. As previously announced, we do not expect to buy back the scrip shares issued during 2021/22.

GROWTH

A balanced portfolio to deliver asset and dividend growth

National Grid seeks to create value for shareholders through developing a balanced portfolio of businesses that offer an attractive combination of asset growth and cash returns.

£2.8 billion of capital investment for continuing operations across the Group

We continued to make significant investment in energy infrastructure in the first six months of the year. Capital investment across the Group was £2,840 million, an increase of £520 million (22%) compared to the first half of 2020/21 at constant currency.

1. Comparative amounts have been re-presented to reflect the classification of the UK Gas Transmission business as a discontinued operation and the new operating segments.

2. NGV and other activities capital investment includes equity and financing in joint ventures and associates, and investment in National Grid Partners but excludes £25 million of equity contributions to the St William property joint venture for 2021 (there were no equity contributions in 2020).

UK Electricity Transmission invested £587 million for the first six months of the year, an increase of £86 million on the prior period, driven by further investment in the London Power Tunnels 2 project and Hinkley Seabank connection. For UK Electricity Distribution (WPD), capital investment stood at £315 million during the first half, with expenditure for the Electricity System Operator reaching £65 million, an increase of £18 million over the same period driven by higher IT expenditure for RIIO-2.

Investment in New York was £851 million, an increase of £76 million over the prior period at constant currency. This was driven principally by higher expenditure compared to the same period last year when the initial impact of COVID-19 meant a minor delay to capex deployment. For New England, investment reached £700 million, a slight decrease on the prior period of £7 million, although the capital deployment plan remains on track.

Investment in NGV and other activities during the period was £322 million, £32 million higher than the prior period on a constant currency basis. This was principally driven by increased expenditure at Grain on the Capacity 25 project, partially offset by lower spend on IFA2 as it became operational.

BUSINESS REVIEW

UK Electricity Transmission

Operationally, our UK Electricity Transmission business has continued to deliver good levels of performance and our capital investment programme has continued as expected.

Capital investment reached £587 million, up £86 million on the prior period. Of this investment, £200 million was driven by load related expenditure, and £387 million by non-load related expenditure. The increase on the prior period was principally driven by higher spend on London Power Tunnels 2, the Hinkley Seabank connection, and accelerated expenditure on the Dorset Visual Impact Provision Project (VIP), partly offset by lower spend on our Smartwires investment where projects are in the latter stages of delivery.

In August, the Competition and Markets Authority (CMA) published its provisional determination in relation to the RIIO-T2 price control. This followed the Board's decision in March to submit a technical appeal to the CMA focused on the cost of equity and outperformance wedge. We were pleased to note that the CMA found in favour of the technical arguments on the outperformance wedge, although we were disappointed that it did not find in favour on the cost of equity. The CMA published its final determination in October which confirmed the findings in its provisional determination. This means that the change to the real level of return, with the removal of the outperformance wedge, will be applied retrospectively to the beginning of the current price control to keep us whole financially.

We are on track to deliver the agreed regulatory outputs in our first year of RIIO-T2. In addition, we have secured over £100 million of reopener allowances in the first six months of FY22 for further works at the Bengeworth Road site of the London Power Tunnels 2 project, where we are building a new substation and headhouse. This represents 98% of our requested amount.

Discontinued Operations - UK Gas Transmission

Operationally, our UK Gas Transmission business has continued to deliver good levels of performance and our capital investment programme has continued as expected.

Higher net revenue of £214 million during the first half of the year is largely driven by the change in the capacity pricing regime which came into effect in October 2020 removing seasonal variations. As a result, after adjusting for £71 million favourable year on year timing swing, operating profit (excluding exceptional items and timing) of £332 million is £144 million higher than the comparative period.

Capital investment reached £131 million, up £36 million on the prior period. The increase on the prior period was principally driven by higher spend on Asset Health, the Peterborough & Huntington compressor projects, and enhanced expenditure on Cyber related projects, all of which is partly offset by lower spend on Feeder 9.

Alongside our UK Electricity Transmission business, UK Gas Transmission will also benefit from the removal of the outperformance wedge following the Final Determination by the CMA. This will be applied retrospectively to the beginning of the current price control to keep us whole financially.

We are on track to deliver the agreed regulatory outputs across the RIIO-T2 period which includes works completed in the first year to ensure overall delivery of our 5 year targets. This includes tracking Price Control Deliverables and submitting regulatory reopeners on time.

UK Electricity Distribution

The acquisition of WPD was completed on 14 June 2021, and consequently 3.5 months of WPD's performance is included in the Group's half-year results.

WPD continues to perform well under RIIO-ED1. During the 3.5 months of ownership, capital investment reached £315 million driven principally by reinforcement and asset replacement capex. Compared to the same 3.5 months in the prior period, this was an estimated increase of around £50 million largely through lower capital investment activity in 2020 caused by UK Government restrictions as a result of COVID-19.

A further 18 months remain of the RIIO-ED1 price control period (to March 2023). Looking forward, work is on-going in terms of evaluating key components of the RIIO-ED2 price control with WPD's final RIIO-ED2 business plan submission due on 1 December 2021. We anticipate Ofgem's Draft Determination in June 2022, followed by the Final Determination in November/December 2022 (with RIIO-ED2 commencing in April 2023 for the five year period to March 2028).

Electricity System Operator (ESO)

The Electricity System Operator (ESO) has performed well during the first half of the year. Underlying net revenue was £32 million higher than the prior period, principally driven by higher base revenue. Capital investment reached £65 million in the first half, £18 million higher than prior period, driven by higher IT expenditure for RIIO-2.

In the first half of the year, the ESO has focused on initiating the programmes, investments and staff recruitment (+12%) to deliver the ambitious RIIO-2 business plan and has already started to deliver benefits. During the first half, the ESO has managed well through periods of calm, settled weather. In addition, the ESO published the Winter Outlook in October against the backdrop of a tighter winter outlook in the UK, forecasting an electricity capacity margin of 6.6%, lower than last year, but well within the required Reliability Standard.

New England

We achieved good performance across New England during a period with significant storm activity. With Tropical Storms in the half year, the financial impact of major storms in the first half was $66 million. Given the additional storms in October, it is likely we will incur over $100 million of storm costs (in aggregate across our US businesses) which means they would be reported outside of underlying results for the full year.

Capital investment in New England remains on track with £700 million deployed during the half-year, slightly lower than the prior period. In Massachusetts Gas, capital investment increased, primarily driven by increased work compared to the prior period when COVID-19 work restrictions were in place. For Massachusetts Electric, capital investment was slightly higher than the prior period, whilst expenditure on FERC assets, including New England Power, was broadly in line with the last half-year. However, lower Rhode Island capital expenditure more than offset increases in Massachusetts driven principally by permitting delays in the gas distribution business.

Tropical Storms Elsa, Ida and Henri struck the North East coast during the half-year, impacting supply to a number of our customers across Massachusetts and Rhode Island. However, our field teams responded rapidly to reconnect affected customers. Almost 30,000 customers were affected by Tropical Storm Elsa, with over 95% reconnected within 5 hours. During Tropical Storm Henri, 41,000 customers were affected in Massachusetts and 107,000 in Rhode Island, with 95% of customers reconnected in 19 hours and 55 hours respectively.

We have made further regulatory progress in Massachusetts during the half-year. On 30 September, we received the rate order for our Massachusetts Gas business from Massachusetts Department of Public Utilities (DPU). This followed the rate filing we made in November 2020. The order approved a five-year rate plan with new rates effective 1 October 2021. It included an allowed Return on Equity of 9.7% at an equity ratio of 53%, and a revenue increase of $72 million in the first rate year. A new Performance Based Rate Mechanism (PBRM) was approved, similar to that agreed for our Massachusetts Electric business in 2019. The mechanism will fund both capital and operational expenditure across the duration of the rate plan, ensuring inflation is factored into the cost base each year.

In July, we filed our second four-year Massachusetts Electric Grid Modernization Plan (the GMP) together with a five-year strategic plan. The GMP includes 'grid-facing' investments of $312 million such as Volt-Var optimization (which helps to reduce losses and minimise demand across the distribution network), and Advanced Metering Infrastructure (AMI) investment of almost $400 million which would see the full-scale implementation across our customer base. The GMP will help advance National Grid's and Massachusetts' shared clean energy goals, meets the Company's regulatory obligation to make progress on the DPU's objectives for grid modernization, and creates a significant investment opportunity for the Company. We are awaiting DPU approval on the filing in summer 2022.

Also in July, we filed our Massachusetts Phase 3 Electric Vehicle (EV) proposal with the DPU. The filing is the largest and most comprehensive EV proposal we have made in the State and puts forward $275 million of programmes over four years. The filing proposes 7,500 public and workplace EV ports, up to 24,000 residential EV ports for home charging and 175 fleet assessments to assist businesses in converting their vehicles to electric including 600 EV ports. It also includes targeted proposals for low income customers and environment justice communities. We anticipate approval of the filing in Q3 2022 calendar year.

New York

Our New York business delivered good performance during the half year.

Our capital investment programme in New York remains on track with £851 million deployed during the half year, an increase of £76 million at constant currency compared to the prior period. Of this, capital investment for KEDNY-KEDLI increased on the prior period, principally because of COVID-19 restrictions being in place, affecting the capital investment programme during part of the previous half year. Capital investment at Niagara Mohawk (NIMO) increased on the prior period driven by accelerated system reinforcement and asset replacement work.

We have continued to make good progress on regulatory rate filings in New York. In May, National Grid, the Department of Public Service Staff, and other settling parties filed a Joint Proposal for a multi-year rate settlement for our Downstate New York natural gas distribution businesses, KEDNY and KEDLI. The New York Public Service Commission approved the proposal in August and rates became effective on 1 September.

The agreement is a three-year settlement retroactive to April 2020. It includes an allowed RoE of 8.8% at an equity of 48%, with $3.3 billion of capex allowed across the rate plan to continue the investment in network safety, reliability, and replacing ageing pipe. In addition, the settlement includes funding to support our Future of Heat programmes, including (a) further funding for our Renewable Natural Gas (RNG) plant at Newtown Creek where we will capture biogas, upgrade it to pipeline natural gas, and inject it into KEDNY's distribution system, (b) a hydrogen blending study to consider the necessary requirements to prepare the gas system for hydrogen, with a grant from the New York State Energy Research and Development Authority (NYSERDA) funding a portion of the study, and (c) geothermal non-pipe alternatives, where KEDNY and KEDLI will support the deployment of geothermal heating as a non-pipe alternative in their service territories, through identifying instances where planned leak prone pipe replacement projects could be avoided by deploying shared geothermal loops or individual ground and air source heat pumps to affected customers.

Given the economic climate, and in the interest of maintaining affordability, the rate agreement also provided for a 0% revenue increase in Rate Year 1 and for no more than a 2% total revenue increase in Rate Years 2 and 3. We are able to achieve this by using regulatory credits of $95 million at KEDNY and $5 million at KEDLI to offset revenue requirements under the multi-year settlement. Overall, the agreement allows us to earn our allowed return, deploy capex across the businesses, all whilst minimising the impact on customer bills.

In September, we submitted a Joint Proposal to the PSC to update rates at our business in Upstate New York, Niagara Mohawk (NIMO). The proposed settlement is for a three-year rate plan with new rates back-dated to July 2021. It proposes an allowed Return on Equity of 9.0% at an equity ratio of 48% and a capital investment of $3.3 billion over the term of the rate plan. The Proposal also includes provisions that support emissions reductions from the gas network, including targeted reductions in billed gas usage, programmes to promote non-heat options, leak prone pipe replacement and high emitter leak repair programmes, and energy efficiency measures. Overall, the settlement proposes investment to promote affordable, decarbonised heating, including expansion to renewable natural gas, and adopts new earnings adjustment mechanisms and incentives. A final decision from the New York Public Service Commission is expected by the end of the calendar year.

In August, the independent monitor appointed to oversee our infrastructure and non-infrastructure investment in Downstate New York published a closing report that covered our progress since November 2019. This investment has continued over the last two years in expanding LNG and CNG facilities, as well as energy efficiency and other Demand Side Management measures, to ensure gas supply meets demand in the future. The monitor report described our progress delivering the distributed infrastructure approach to addressing the supply gap, as well as the results of an independent assessment that found our gas demand forecast is reasonable. The report included six new recommendations for the business, including (a) a recommendation that we file bi-annual reports on the status of the distributed infrastructure solutions, and (b) five recommendations around increasing the role of the compliance function in monitoring our execution of the supply plans and settlement-related items going forward.

Progress continues on our transmission projects in Upstate New York. In May, we announced a joint development agreement with the New York Power Authority (NYPA) to develop 110 miles of transmission lines in upstate New York for a total estimated cost of $1.1 billion, of which National Grid's investment is $535 million. The project, known as the "Smart Path Connect," will link other NYPA transmission projects in the region and unbottle existing renewable resources whilst yielding significant production cost savings, emissions reductions, and decreases in transmission congestion.  

Future of Heat

In April, we were pleased to co-author a report with the New York City Mayor's office and Con Edison titled 'Pathways to Carbon-Neutral NYC: Modernize, Reimagine, Reach.' The report looks at all sectors of the New York City economy and recommends the necessary action to reduce emissions to help meet the City's environmental targets. As part of this, it also calls for a 'reimagined' gas network that, in the longer term, will see greater levels of low carbon gas supplied to customers, particularly to those where electrification is impractical. Overall, it sees a future for the existing gas network and recognises gas, especially low carbon gas, as part of the long-term energy transition.

NGV & Other

During the period, work reached a conclusion on the 1,400MW North Sea Link which commenced operations in October. The 720 kilometre link, connecting Blyth in Northumberland to south-western Norway, is the world's longest undersea power cable and is a joint venture between National Grid and Statnett. It will help the UK reach its net zero target by importing hydro sourced generation from Norway, reducing UK carbon emissions by 23 million tonnes by 2030. At full capacity, it is expected to provide enough clean electricity to power 1.4 million homes. Work continues on the Viking Link between the UK and Denmark, with the interconnector on track to commission in 2023.

In September, a fire at the IFA convertor station in Sellindge, Kent caused significant damage to infrastructure on-site. Following a detailed assessment on the 1,000MW of capacity that is offline due to fire damage, National Grid is carrying out extensive work to safely return it to service. Consequently, we plan to bring 500MW back to service from October 2022 and 500MW in December 2022. This will result in 2,000MW of available capacity going into next Winter.

On our other interconnectors, IFA2 and NEMO continued to perform well with availabilities reaching 85% and 98% respectively in the half year. Availability on BritNed decreased to 62% compared to 96% in the prior period, driven principally by a cable fault in March 2021 with the link returning to full service in June.

Grain LNG continues to perform well, with utilisation 14% higher than the prior period mainly driven by unseasonable high utilisation in Q1 of FY22, largely as a result of high and rising gas prices. Capital investment reached £36 million in the half year, an increase of £28 million on the prior period as a result of initial investment in the Capacity 25 project.

In July, National Grid Renewables began operations at two Michigan solar projects - Bingham Solar and Temperance Solar. Combined, the projects produce 40MW and each has a Power Purchase Agreement (PPA) with Consumers Energy. During peak construction, 160 workers were employed, 95% of which were recruited from communities within 100 miles of each site. Additional job and economic benefits were also realised through employing local Michigan-based subcontractors.

In October, New York Transco - a partnership of New York's major utilities, including National Grid Ventures - submitted a bid to install increased transmission capacity to Long Island. The bid was in response to a solicitation by the New York Independent System Operator (NYISO) in August which called for transmission solutions to transfer at least 3GW and potentially up to 6GW of offshore wind generation that is expected to be connected to Long Island over the next decade. The connections would be made between Long Island and the rest of the State.

For the first half, Other activities generated an operating profit of £14 million, compared with a net loss of £31 million in for the prior period. This principally reflects current year benefits from fair value gains in NG Partners and the release of historical liabilities related to unclaimed dividends. Capital investment was £40 million, £15 million higher than last year, with an increased level of investment by NG Partners. The post-tax profit share for joint ventures was £13 million, £8 million higher primarily through gains on our share of the Energy Impact Partners investment fund.

APPENDIX

Unless otherwise stated, all financial commentaries in this results statement are given on an underlying basis at actual exchange rates for continuing operations. Underlying represents statutory results excluding exceptional items, remeasurements, timing and major storm costs. The underlying basis is further defined on page 56.

Alternative Performance Measures derived from IFRS

The following are terms or metrics that are reconciled to IFRS measures and are defined on pages 56 to 59:

Net revenue

Adjusted profit measures

Underlying results

Constant currency

Timing impacts

Capital investment

Net debt - defined in note 13 on page 49.

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 the implementation of the RIIO-2 price controls; 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 (including any that result in safety and/or environmental events), the inability to carry out critical non network operations and damage to infrastructure, due to adverse weather conditions including the impact of major storms as well as the results of climate change, due to counterparties being unable to deliver physical commodities, or due to the failure of or unauthorised access to or deliberate breaches of National Grid's IT systems and supporting technology; failure to adequately forecast and respond to disruptions in energy supply including those caused by the COVID-19 pandemic; performance against regulatory targets and standards and against National Grid's peers with the aim of delivering stakeholder expectations regarding costs and efficiency savings, as well as against targets and standards designed to deliver net zero; and customers and counterparties (including financial institutions) failing to perform their obligations to the Company. Other factors that could cause actual results to differ materially from those described in this announcement include fluctuations in exchange rates, interest rates and commodity price indices; restrictions and conditions (including filing requirements) in National Grid's borrowing and debt arrangements, funding costs and access to financing; regulatory requirements for the Company to maintain financial resources in certain parts of its business and restrictions on some subsidiaries' transactions such as paying dividends, lending or levying charges; the delayed timing of recoveries and payments in National Grid's regulated businesses, including as a result of the COVID-19 pandemic, and whether aspects of its activities are contestable; the funding requirements and performance of National Grid's pension schemes and other post-retirement benefit schemes; the failure to attract, develop and retain employees with the necessary competencies, including leadership skills, and any significant disputes arising with National Grid's employees or the breach of laws or regulations by its employees; the failure to respond to market developments, including competition for onshore transmission; the threats and opportunities presented by emerging technology; the failure by the Company to respond to, or meet its own commitments as a leader in relation to, climate change development activities relating to energy transition, including the integration of distributed energy resources; and the need to grow the Company's business to deliver its strategy, as well as incorrect or unforeseen assumptions or conclusions (including unanticipated costs and liabilities) relating to business development activity, including the integration of WPD, the sale of the Company's Rhode Island gas and electricity business and the proposed sale of a majority stake in its UK gas transmission business. 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 236 to 239 of National Grid's most recent Annual Report and Accounts, as updated by the Principal risks and uncertainties statement on page 53 of this announcement. 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. Comparative amounts have been re-presented to reflect the classification of the UK Gas Transmission business as a discontinued operation. See notes 1 and 6 for further information.

1. Comparative amounts have been re-presented to reflect the classification of the UK Gas Transmission business as a discontinued operation. See notes 1 and 6 for further information. In addition, the comparative amounts for exchange adjustments have been revised to reflect the impact of the prior year adjustments to property, plant and equipment, goodwill and deferred tax as described in note 1 to the Annual Report and Accounts for the year ended 31 March 2021.

2. Within the line item net gains in respect of cash flow hedges, there is an equal and opposite impact of £18 million (2020: £141 million) relating to spot foreign exchange movements on derivatives designated in cash flow hedges of foreign currency risk and interest rates. This has no net impact on the consolidated statement of comprehensive income. This is consistent with the Annual Report and Accounts for the year ended 31 March 2021.

1. Comparative amounts have been revised to reflect the prior year adjustments to property, plant and equipment, goodwill and deferred tax as described in note 1 to the Annual Report and Accounts for the year ended 31 March 2021.