National Grid 2016 Annual Report Download - page 26

Financial review continued
The UK RoCE has decreased from 8.6% to 8.1% in
2015/16. This reduction reflects one-off benefits of legal
settlements last year in Electricity Transmission that did
not repeat and the reduction in gas permit and legacy
incentive revenues in our Gas Transmission business in the
year. Excluding these two items, operational performance,
incentives and returns are at similar levels to last year.
US RoCE has decreased by 30bps in the year to 5.7%.
Regulated financial performance was at a similar level to
last year, however the overall return has decreased as high
levels of capital investment have driven rate base growth.
Capital expenditure
For the year ended 31 March 2016, capital expenditure
of £3,893 million was £423 million higher than last year.
The Group also invested £63 million in the St William
Homes joint venture with Berkeley Group and £53 million
in other joint ventures including a new electricity
interconnector between the UK and Belgium.
Our US Regulated business continues to increase levels
of investment in both electricity and gas distribution
reinforcement. Capital expenditure in 2015/16 was
£355 million higher than last year, and reflected higher
spend on gas mains replacement, gas customer growth,
system reinforcement and initial spend on a solar project
in Massachusetts, together with the impact of a stronger
US dollar.
UK Gas Distribution capital expenditure was £51 million
higher than last year, reflecting an increased level of mains
replacement work, in line with our target to replace a
pre-determined length of main over the course of the
RIIO-GD1 period.
UK Electricity
Transmission
US Gas
Transmission
UK Gas
Distribution
US
Regulated
Other activities
11/12
12/13 13/14 14/15 15/16
3,893
3,470
3,441
3,686
3,375
Capital expenditure
£m
Dividend growth
We remain committed to our dividend policy to grow the
dividend at least in line with the rate of average RPI inflation
each year for the foreseeable future.
During the year we generated £1.9 billion of business net
cash flow after our capital expenditure programmes. This
has enabled the growth of the dividend in line with average
RPI, being 1.1% (2014/15: 2.0%; 2013/14: 2.9%), taking into
account the recommended final dividend of 28.34 pence.
During the year, the Company has repurchased shares in
the market with the overall goal being to reduce the dilutive
effect of the scrip as much as possible to the extent that
is consistent with maintaining the Group’s strong financial
position as reflected in its credit rating.
Other performance measures
UK regulated return on equity
UK RoE has decreased 40bps to 13.3%. This reduction
in RoE reflects a reduction in incentive performance year
on year, particularly as a result of the end of the gas permit
incentive scheme last year. Totex out-performance was
at a similar level to last year. This performance represents
320bps of outperformance over allowed returns.
11/12
12/13 13/14 14/15 15/16
13.3
13.7
12.7
13.6
13.0
UK return on equity %
US regulated return on equity
US RoE for calendar year 2015 decreased 40bps to 8.0%,
reflecting high winter gas leak and snow removal costs at
the start of 2015, together with rate base growth as a result
of record capital investment spend.
2011
1. Calculated on a calendar year basis.
2012 2013 2014 2015
8.0
8.4
9.0
9.2
8.8
US return on equity
1 %
Return on capital employed
RoCE provides a performance comparison between
our regulated UK and US businesses and is one of
the measures that we use to monitor our portfolio of
businesses. The table below shows our RoCE for our
businesses over the last five years:
UK US
11/12
12/13 13/14 14/15 15/16
8.1
5.7
6.0
6.4
7.1
6.8
8.6
8.0
8.6
8.6
Return on capital employed
%
In focus
Commentary on
the consolidated
cash flow statement
page 101
Commentary on
borrowings
page 131
24 National Grid Annual Report and Accounts 2015/16 Strategic Report