National Grid plc

Ladies and gentlemen, welcome to the National Grid 2019-2020 Full Year Results Call. My name is Felicia, and I'll be coordinating your call today. At the end of this presentation, you will have the opportunity to ask a question, so please press star followed by one on your telephone keypad if you wish to do so. I will now hand over to your host today, Nick Ashworth, to begin. Please go ahead, Nick.

Thank you, Felicia. Good morning and welcome to our full year results presentation. Thank you for joining us remotely. I hope you're all safe and well. Firstly, I would just like to draw your attention to the cautionary statement that you'll find at the front of the presentation. Secondly, after the presentation, as usual, the IR team will be available by phone to help if you have any further questions. So with that, I'd like to hand it over to our CEO, John Pettigrew. John.

Thank you, Nick, and good morning, everyone. Welcome to our full year results call. As usual, I'm joined today by Andy Ag, our CFO. We have plenty of time for the call today, so Andy and I will be able to answer any questions you may have after the presentations. Clearly, everyone's safety and well-being are at the forefront of our minds at this time. Whilst dealing with the disruption that COVID-19 is causing, National Grid's greatest priority has been our people, as well as the safety and well-being of our customers and communities. Before we turn to our results for 19-20, I want to start today's presentation by taking you through how we've been reacting to COVID-19 and how well our business continues to deliver despite this major new challenge. At the end of March, as the crisis unfolded, we successfully implemented our business continuity plans. Although COVID has had a profound impact on demand levels and on the way in which we work, I'm proud to say that we've maintained excellent levels of reliability across our networks and we continue to deliver on our significant capital program. As the crisis evolved, we took action to change working practices quickly and safely. In particular, we've risk assessed all our operational and construction projects, issued new working guidance to our field force, and collaborated across the industry, sharing best practices and finding innovative new ways of working. And despite these changes, we continue to deliver strong operational performance. A great example of this was our team's rapid restoration of power to 142,000 customers following a significant storm in Massachusetts on the 13th of April. We were able to restore power within 29 hours to 95% of impacted customers. Away from the field, our dedicated control room staff have been working tirelessly, sequestered away from their families to ensure they're protected and can maintain our real-time operational systems. So as you can see, we've adapted extremely well to the challenges, and I'm proud of how our employees have responded. Turning now to our customers, our focus has been not only to keep the electricity and gas flowing, but also to help those customers who may be in financial difficulty. In the U.S., recognizing the economic environment, we've not pursued debt collections or disconnecting customers at the present time. And as you're aware, we've also deferred proposed rate increases in New York. We're also helping customers to ascertain whether they're eligible for a discount on their bill, if they qualify for home energy assistance grants, or if we can offer them flexible payment plans. In the UK, we'll continue to work with other network companies and off-gen to help suppliers address financial challenges that COVID has brought, without imposing additional burden on consumers. A good example is the deferral of network charges for eligible suppliers. This will help the most vulnerable suppliers with a regulatory mechanism, which allows us to recover these charges within our financial year. We're also working with Ofgem to see how we can help our customers bear the increased balancing costs associated with managing the system through COVID. In addition, we're supporting our communities. There are many examples from across the business, including financial donations to help the most vulnerable, supports by individual employees in their local communities, and direct actions taken by our businesses. For example, our gas teams in the U.S. upgraded supplies in record time to help turn a college gym into a thousand-bed hospital on Long Island. I won't go into further detail on other examples here, but I can say that National Grid is acting in a responsible way and living our value of doing the right thing. Of course, as well as ensuring the support of our staff, customers, and communities, we also need to manage the financial impact of COVID. Andy will provide more details shortly, but to summarize, we expect to see a £400 million impact on underlying operating profit in 2021, primarily driven by higher costs and lower revenues in the U.S. However, with the regulatory mechanisms and precedents, we expect to recover these over the medium term. And we're also maintaining our focus on efficiency plans. So whilst we see a financial impact in the near term, we currently don't expect to see a significant economic impact on the business longer term. So having provided that context, I'd now like to turn to the strong results we've delivered in the past year. On an underlying basis that is excluding the impact of timing, major storms, and exceptional items, operating profit of 3.5 billion pounds was broadly in line with the prior year. This reflects the expected increase in revenues from new rate cases in the U.S. and lower operating costs as our efficiency programs have started to deliver, but offset by the impact of an additional provision for U.S.-bound debts. Consequently, underlying earnings per share was down slightly by 1% to 58.2 pence. Underpinning this performance was a record year of investment in critical infrastructure, with CapEx up 19% to £5.4 billion. This was driven predominantly by increased spend in our UK electricity transmission business as we progressed major projects like Hinkley. Higher US CapEx, much of it mandated on safety spend, and higher capex and national ventures from continued interconnected investment, as well as the acquisition of Geronimo. This delivered organic asset growth of 9% above our stated target of 5% to 7%. We've achieved a group return on equity of 11.7% in line with the prior year, delivering ongoing sustainable returns for our shareholders. And in accordance with our policy, the Board has proposed a final dividend of 32 pence per share This takes the total dividend for the year to 48.57 pence per share, an increase of 2.6% in line with UK inflation. So as you can see, it's been a strong year for financial performance across the group. As you know, our safety and reliability performance remain the key to our success. On safety, our UK and National Good Ventures businesses have delivered good performance, with their lost time injury frequency rates falling to record low levels. In the U.S., we've seen an increase in the number of safety incidents. However, we've conducted a thorough review of all our working practices, and in the coming year, we'll be implementing programs to further reinforce positive safety behaviors. Turning to reliability, performance has remained excellent across our U.K. and U.S. regulated networks, as well as our interconnectors. As you know, on 9 August, we experienced a rare power outage event in the UK that caused huge disruption to many people. In January, reports into the incident from the Energy Emergencies Executive Committee and Ofgem found no link between NASCA's actions and the power cut. Since the reports were published, we've worked with the industry, Ofgem and BASE, and all the actions proposed are progressing to time. And in the U.S., despite another year with a significant number of storms, we've delivered excellent reliability in line with levels from the prior year. I'll now turn to the progress on our operational priorities last year. Starting with the U.S., I'm delighted that the Board has confirmed that Badar Khan is the new president of our U.S. business. Badar has been with the group for three years and takes over a business that's seen strong operational performance. During the year, we achieved a return on equity of 9.3% and increased the 50 basis points, representing 99% of our allowed return. We achieved strong rate-based growth of 12% from 9.2% last year as we invested over $4 billion in critical infrastructure and as a number of projects under construction were added to the rate base. This investment was mainly driven by mandated spend to maintain the safety and reliability of our networks. An example of this is the 458 miles of leak-prone pipe we replaced across our jurisdictions. This brings the total we've replaced to date to more than 10,500 miles and means we're now halfway through the long-term replacement program. We've also made good progress on the regulatory front. In October, we agreed new rates for Massachusetts Electric with a five-year agreement that gives us long-term visibility for our investment, greater protection against cost pressures, and more incentives to innovate and create value for our customers. And we've made good progress on our cost efficiency program, where we met our target to deliver $30 million of savings this year and remain on course to deliver $50 million in 2021. However, as you're aware, we also experienced some challenges with gas constraints in downstate New York. Addressing this has been a major priority of mine this year. As you know, in November, we agreed to lift the moratorium on all new connections until September 2021. Since then, and in line with the terms of the agreement with the state, we filed a report outlining options for meeting long-term customer demand. This was followed by a series of public and virtual meetings that were attended by over 800 people. From these meetings, feedback was included in a supplemental report that was filed with the regulator. We're continuing to work proactively with New York State, the regulator, and our customers to find a long-term solution and anticipate an outcome this summer. Turning now to the UK, it's been an important year as we head towards the end of Rio T1. Operationally, both our electricity and gas transmission businesses continue to deliver good levels of performance. Let me talk you through a few of the key highlights. During the year, we achieved a return on equity of 12.4% within our target range of 200 to 300 basis points of outperformance. And we continued our capital program with investment of £1.3 billion, which was up 5% in the prior year, giving asset growth of 3.8%. This takes our total investment in Rio 1 to over £11 billion, delivering world-class reliability, enabling the connection of 4.6 gigawatts of renewable energy and generating over 700 million pounds of savings for customers. During the year, we've made progress across a number of our large projects, including completing the feeder 9 tunnel and the Humber, our largest gas project in over a decade, and driving forward the second phase of our London Power Tunnels project. We've also made good progress on our investment at Hinkley, and we welcome Ofgem's decision on allowances and the use of strategic wider works as the delivery model for this project. And of course, we've made significant focus on Rio T2 with draft business plan submitted in December. Our plans cover a crucial period when rapid change is expected in the energy system to reduce carbon emissions and help achieve the UK's environmental goals. In delivering the plans, we've engaged with over 25,000 stakeholders and were the first company to set up the independent stakeholder user groups. And finally, during the year, we remained focused on our efficiency programs and exceeded our savings target of 50 million pounds. This achievement has been driven by cost and process improvements, such as the overhaul of our IT contracts and optimization of control and field teams. Driving cost efficiencies whilst keeping our workforce engaged will be the key to delivering continued benefits to our customers as we move into the Rio T2 period. Moving now to National Grid Ventures and our other businesses. With the DARS appointment in the U.S., in April we announced that John Butterworth would step up to be the new managing director of National Grid Ventures. John has spent many years at National Grid and brings a wealth of experience to the role. And it's been another year of significant progress. Investment was up substantially to 815 million pounds, mainly driven by higher interconnector spend, together with our investment in Geronimo. Progress on our new interconnectors remains on track. On IFA 2, the subsea cable connection has been completed and successfully tested, and commissioning the link is on course for the end of the year. On our North Sea link and Viking interconnectors, we've managed the disruption caused by COVID, and commissioning remains on track. And last year, we completed the acquisition of Geronimo Energy, and have since announced the start of commercial operations of our 200-megawatt wind farm in South Dakota. Finally, it's been another busy year in our property business where we continue to sell sites into the St. William joint venture. And I'm pleased to say that it was also the first year where the joint venture contributed net profit through the sale of homes from customers. So in summary, I'm pleased to report that 19-20 was a strong year for National Grid and good strategic progress was made despite the challenging backdrop at the year end. And I've been incredibly proud to see some of the amazing things our people have done to help our customers and communities get through this COVID crisis. I'll review shortly our priorities for the coming year, but first let me hand over to Andy to discuss our financial performance in more detail.