National Grid plc

What's a strong group? Good to go. So, good morning, everyone, and welcome to National Grid's full year results presentation. So, I'm Nick Ashworth, Head of Investor Relations, and I'm really pleased to see so many of you here at the Stock Exchange this morning, and I know we've also got a good number of people listening and watching online as well. So, look, as always, we'll start with safety. We're not expecting a planned fire alarm test this morning, but if there is one, please vacate the building, and we'll meet out in Platonosa Square and maybe carry on it out there. The second important thing to draw your attention to is the cautionary statement which is at the front of the presentation. All of today's materials are available on the website and as usual there'll be a Q&A with John and Andy after the presentation. If you need more info then please do feel free to reach out to me or the IR team later in the day. And so with that all said, let's start the presentation.

Good morning, everyone. It's great to see so many of you here today and have so many of others joining online. As usual, I'm joined with Andy Ag, our CFO, and following the presentation, we'll both be happy to take your questions. So it's been another good year of performance for National Grid. Our significant progress is demonstrated by the positive impact of record levels of investment of both earnings growth and the energy transition. A portfolio that's now repositioned to capture attractive growth for many years ahead. And the continued support we're providing to our customers and communities during these challenging times. Last year, energy was in the spotlight for many different reasons. Not least due to the affordability issues caused by much higher commodity prices. We've seen this galvanise governments and regulators' resolve to accelerate the energy transition as they look to bring an end to expensive and unpredictable fossil fuel costs, increase the level of renewable generation and deliver greater levels of domestic energy security. National Grid is at the heart of this push, empowering change through investment in critical energy infrastructure. And we're doing this across all areas of our business. such as in our UK electricity transmission business, where Ofgem have recently awarded us 17 major onshore transmission projects to enable greater levels of offshore wind connection. And in our US businesses, where we've had approval for $3.8 billion outside of rate cases to drive greater investment in the connection and delivery of clean energy. But the energy transition isn't just about the future. We're delivering it today with another record year of investment across the UK and US Northeast. You'll have seen in the opening video, we've energized the world's first tea pylons as part of the Hinkley Connection project, which will connect 6 million homes and businesses to low carbon electricity. We're rewiring London with 90% of tunnel boring complete at the 33 kilometer London Power Tunnel project. Across our UK electricity distribution business, we've enabled twice as many EV connections in the past two years than all previous years put together. In national adventures, we continue to make great progress on Viking Link, our 1.4 gigawatt clean energy interconnected to Denmark. Across our U.S. gas businesses, we've replaced over 360 miles of leak-prone pipe, taking the cumulative total to over 4,200 miles and avoiding annually 134,000 metric tons of CO2 equivalent. And in New York, we broke ground on our $600 million SmartPath Connect transmission project, which will bring clean energy from upstate New York to demand centers downstate. The investments that we're making right now are driven by our vision to be at the heart of a clean, fair and affordable energy future. And our key focus is to capture future growth opportunities by delivering the critical infrastructure required as safely and as efficiently as possible. National Grid has never been as well positioned to do that as we are today. The strategic pivot we announced just over two years ago is now complete. Our UK electricity distribution business, formerly Western Power Distribution, is now well embedded within National Grid, with new leadership in place. As part of the pivot, we've completed the sale of our Rhode Island business to PPL in May 2022. In January, we also completed the sale of a 60% stake in our UK gas transmission business to a Macquarie-led consortium. And as a reminder, the consortium has the option to acquire the remaining 40%. We continue our work to set up the future electricity system operator as an independent separate body ahead of agreeing a timeline for separation with the UK government. And finally, following Ofgem's decision in December to award us the 17 major onshore transmission projects, we've created a new strategic infrastructure business unit. This will oversee and efficiently deliver the significant increase in transmission infrastructure needed in the UK over the next decade and beyond. So it's been a very busy time for National Grid. Today, our geographic and regulatory diversity with a portfolio that's broadly 70% electricity and 30% gas ensures we're in a strong position to capture the considerable opportunities the energy transition brings. And I'm also proud of the way we've stepped up as a company in the past 12 months, helping our people, customers, and communities through an incredibly tough economic environment. Today we're announcing the early return of £100 million of interconnected income, where we've collected revenues above our cap. This comes on top of the £200 million of revenues we've already committed to return early. In the UK, this winter, we allocated nearly £24 million of our £50 million energy support fund to help 30,000 households through the energy crisis. And in the U.S., we launched our customer assistance program, contributing $6 million so far to help support vulnerable households. We also continue to play our role within our communities. September saw the second day of service for our Project C initiative, with over 2,000 colleagues dedicating 11,000 hours across more than 200 locations, double last year's achievement. As a responsible business, we'll continue to do what we can to support our customers in easing bill pressures as we move through this challenging period. But it's clear to me this isn't a quick fix. Only significant investment in clean energy will bring customer bills down in the long term. So turning now to our financial performance. On an underlying basis, that is excluding the impact of timely major storms and exceptional items. underlying operating profit was up 15% or 10% on a constant currency basis to £4.6 billion. This reflects a full year of earnings for UK electricity distribution, good operational performance across all of our regulated networks and a strong performance in national grid ventures. This was partly offset by the sale of our Rhode Island business and the energy support fund we launched to help vulnerable customers this winter. Underlying earnings per share was 69.7 pence, up 7% compared with the prior year. Capital investment from our continuing operations was a record £7.7 billion, 8% above the prior year at a constant currency. We've also made great strides with our cost efficiency programme, delivering a further £236 million of savings on top of the £137 million previously announced and within close reach of our £400 million target. And in accordance with our policy to grow the dividend in line with UK CPIH, the board has declared a final dividend of 37.6 pence per share. This takes the total dividend for the year to 55.44 pence, an increase of 8.77%. Turning next to our safety and reliability performance. Last year was another year of good safety performance with a small improvement in our lost time injury frequency rate. However, following the tragic events in Massachusetts last May when an employee lost his life, we've been focused on ensuring the lessons learned have been shared across the whole organization. Safety continues to be an area of close attention for us to ensure that we continue to improve our performance. Moving to reliability, we've had another excellent year of reliability with over 99.9% availability across our regulated networks. I'm particularly pleased with this outcome, given some of the challenging weather we experienced this year, and proud of the role we've been playing in safeguarding security of supply. In the US, winter storm Elliot saw historic levels of snow, wind and low temperatures, with the largest field force in Western New York's history helping to restore power to over 200,000 customers. In the UK, July saw the hottest temperatures on record. Our electricity transmission teams took extra measures to ensure our network continued to operate efficiently, including continuous monitoring for overheating and guarding against wildfire hazards close to our overhead lines. And our electricity system operator developed one of the most comprehensive winter preparedness plans we've ever had, ensuring that we successfully navigated what could have been a very difficult winter. So let me now turn to our operational performance. starting with New York, where we achieved a return on equity of 8.6%, 96% at the allowed level. During the year, our capital investment increased by £340 million to $3 billion, resulting in a strong rate-based growth of 9.9%. And it's been a busy period for policy and regulation in New York. In July, we received approval to proceed with $691 million of transmission investment projects to support the Climate Leadership and Community Protection Act, or CLCPA. In February, we received an additional $2.1 billion of funding to enable over 2 gigawatts of renewable generation in upstate New York. In December, New York's Climate Action Council approved the Scoping Plan, which outlines recommended policies to help meet the goals of the CLCPA. Within this, we were particularly pleased to see recognition for the importance of a decarbonised gas network in the state, as well as the role alternative fuels such as hydrogen and RNG can play in this decarbonisation pathway. The plan also made the case for continued investment in the replacement of leak-prone pipe, which will improve network safety whilst continuing to reduce emissions. Moving to New England, where we've seen similar momentum in regulatory approvals for clean infrastructure investment. Our achieved return on equity was 8.3%, a 30 basis points improvement on last year. I'm confident the programs underway to streamline and modernize our systems in Massachusetts will be a significant contributor to getting closer to the allowed level. During the year, we delivered capital investment of $2 billion, which excluding Rhode Island was $276 million higher than last year, with rate-based growth of 6.3%. As I noted earlier, over the last few months, we received funding outside of rate cases for new clean energy investments. This includes nearly $340 million for grid modernization projects, $487 million for the rollout of the Advanced Metering Infrastructure Program, and $206 million for EV infrastructure, which will provide over 30,000 charging points. In the UK, our electricity transmission business continues to perform well, with capital investment increasing by 9% to £1.3 billion. The business delivered a return on equity of 7.5%, 120 basis points above the allowed return of 6.3%. Ofgem published its accelerated strategic transmission investment decision document in December. This confirmed the award of 17 projects to National Grid, with much of the investment expected being the second half of the decade. However, included in the £9 billion of CAPEX in our five-year outlook is around £1 billion of early investment in these projects. Getting this certainty was one of the key priorities that I talked about back in November, and it's just one of several positive developments in the past six months. The establishment of the new Department for Energy Security and Net Zero should bring increased prominence to the clean energy transition within government. In March, the Department announced its Powering Up Britain package, highlighting networks as a key enabler of the transition. As part of this, the government restated its intention to streamline planning processes to accelerate the delivery of transmission upgrades. and we are pleased to see that the Community Benefits Framework that we've been advocating for help to address planning barriers is now out for consultation. Whilst all this is encouraging progress, in order to meet the Government's climate ambitions, we still need to see faster development of policy. I'll come on to talk more about this later. Turning now to UK electricity distribution, In the final year of ED1, the business continued to perform well, delivering a return on equity of 13.2%, including a 360 basis points of outperformance and customer satisfaction scores of 8.99 out of 10. Capital investment grew by 10% to £1.2 billion, driven by increased customer connections for renewable generation and electric vehicle charging infrastructure. In March, we announced our acceptance of the five-year Rio ED2 price control, which started on the 1st of April. Whilst the final determination is stretching, we believe there's a strong position to deliver the outcomes customers require, as well as our regulatory commitments. And lastly, moving to Nashgrid Ventures, where capital investment was £906 million. We're making good progress on the Viking link to Denmark. We've now laid 75% of the cable and expect to commission the project by the end of the calendar year. Our North Sea link to Norway has completed its first full year of operation, and I was delighted that we resumed full service of our IFA link to France in January. Grain LNG had a record year of utilization with 102 ships offloaded, supporting energy resilience in the UK and Europe. and we remain on track to deliver the Phase 4 project with the outer walls and roof of the main tank now completed. In the US, our offshore wind joint venture with RWE submitted proposals to NYSERDA, and we expect them to announce the winning bid in the coming months. So as you can see, it's been a great year of progress right across the group. And following Andy's presentation on the financials, I'll come back and share with you our key priorities for the coming year. Andy.

Thank you, John, and good morning, everyone. I'd like to highlight that, as usual, we're presenting our underlying results, excluding timing, major storms, exceptional items, and that all results are provided at constant exchange rates. Furthermore, following the completion of the 60% stake sale of our UK gas transmission and metering business in January, we continue to hold the remaining 40% as held for sale. So turning to our numbers, I'm pleased to be reporting another good year of financial performance. Underlying operating profits on a continuing basis increased by £411 million to £4.6 billion. This was mainly driven by a full 12 months of earnings from UK electricity distribution following its acquisition in June 2021. Good performance across our regulated businesses, further supported by our efficiency programme. and a higher contribution from National Grid Ventures, coming from a first full-year contribution from our Norwegian interconnector, NSL. IFA business interruption recoveries relating to the Selinge fire in September 2021, and continuing good performance across the interconnected portfolio. Higher operating profit, partially offset by a rise in interest costs, helped underlying earnings per share increase by 3% to 69.7 pence per share, an increase of 7% at actual exchange rates. We have now delivered 370 million pounds of enduring efficiency savings and are within close reach of our 400 million pounds target. And our robust operational performance was also reflected in the 11% group return on equity. In line with our policy, the Board has recommended a final dividend of 37.6 pence, taking the full-year dividend to 55.44 pence per share, representing an 8.77% increase compared to the prior year, reflecting 2023 average CPIH inflation. We've continued to deliver record levels of investment, with capital programmes to drive forward the energy transition on both sides of the Atlantic. Capital investment from continuing operations increased to £7.7 billion, 8% higher than the prior year. Alongside the full 12-month inclusion of UK electricity distribution, this also reflected high New York investment on electricity system reinforcements as well as across cyber, digital and customer experience. Increased investment in UK electricity transmission as we make progress on our £1 billion London Power Tunnels project and in National Grid Ventures, given the rebuild at our I41 interconnected converter station at Selinge following the fire, and investment at Grain as we advance the work on the Phase 4 project. Now let me take you through the performance of each of our business segments. Starting with UK electricity distribution, underlying operating profit was £1.23 billion, up £343 million from the prior year. Whilst this reflects a full year of ownership, we saw a strong final year of delivery in the ED1 price control, with an ROE of 13.2%, 360 basis points ahead of the allowed return. Across the eight years, electricity distribution exceeded its 76 ED1 business plan commitments, with delivery of 2% outperformance against Totex allowances, all whilst keeping network reliability at 99.995%. Capital investment increased to £1.22 billion, an increase of £321 million compared to the prior year, in part reflecting our first full year of ownership. Moving to electricity transmission, where underlying operating profit was £1.1 billion, down £45 million compared to last year. The underlying operating performance was offset by the near £150 million that we've returned to customers in the year following the Western Link settlement. Capital investment was £1.3 billion in the period as we delivered network reinforcements, asset health programmes and new connections, as well as made good progress on London power tunnels, where the main tunnelling is 90% complete, and the installation of new T-pylons at our Hinkley connection project. We've achieved a 7.5% return on equity, 120 basis points ahead of baseline allowance, and we remain on track to achieve 100 basis points of average annual outperformance throughout Rio T2. Finally, in the UK, the electricity system operator saw underlying operating profit of £31 million and the RAV end of the year at £360 million. Moving now to the US, where New York achieved an 8.6% return on equity, 20 basis points lower year over year. Underlying operating profit was £874 million, £91 million higher than the prior year. This reflects rate increases across our operating businesses, as well as strong efficiency delivery. Partially offset by higher property taxes due to increased investment, as well as a higher bad debt accounting charge. This relates to agreed COVID bad debt relief arrangements in New York, where we now have certainty of COVID cost recovery in the coming years. Capital investment was 2.5 billion pounds, 280 million pounds higher than the prior year. This was partly driven by higher investment across our electric business on reinforcement and renewable connection projects, such as through our CLCPA investment and SmartPath Connect project in upstate New York. It also recognises non-cash capital leases at the Gowanus environmental site and the Volney-Marcy transmission line. In New England, the return on equity was 8.3%, 30 basis points improved on the prior year, excluding Rhode Island. Underlying operating profit was 819 million pounds. Excluding the impact of the sale of our Rhode Island business in May last year, it was 104 million pounds higher. reflecting the annual performance-based regulatory reset in our distribution businesses, as well as a continued focus on efficiency delivery, partially offset by higher spend on cyber and vegetation management. Capital investment was £1.7 billion, an increase of £226 million excluding Rhode Island. This was driven by higher electric investment on asset condition work, system capacity and customer requested work, and fewer COVID-related restrictions leading to increased leak-prone gas pipeline replacement. We had another strong year in national grid ventures, with underlying operating profit, including joint ventures, up £278 million to £693 million for the year. This primarily reflects a first full year from the North Sea Link interconnector to Norway, continued higher revenues across our interconnector portfolio, insurance recoveries following the Selinge fire, as well as higher income through incentives at Grain LNG. Capital investment decreased by £62 million to £906 million for the year. with increased investment at IFA and Grain, marginally offset by the non-recurrence of the seabed lease purchase at our New York Bight offshore wind project in the prior year. Operating profit for other activities for the full year was £31 million, £9 million higher than last year. This increase is principally driven by property sales completing as part of the St William transaction. mostly offset by fair value losses at National Grid Partners, given adverse market conditions, and our community support payments through this winter. Capital investment was £72 million, down year over year due to lower investments by National Grid Partners. Net finance costs were £1.5 billion, up £378 million, with Treasury managed interest £493 million higher, driven primarily by inflation movements on index-linked debt costs and refinancing of the underlying portfolio. This is partly offset by higher non-Treasury interest income from higher pension and capitalised interest. For the fall year, the underlying effective tax rate excluding the share of joint ventures was 23.1%, 120 basis points lower than the prior year. This reflects a lower re-measurement of state deferred taxes following the Rhode Island sale and UK property sales with a lower effective tax rate. Underlying earnings were £2.5 billion, with EPS at 69.7 pence, up 7% on the prior year at actual exchange rates. Moving now to cash flow. Cash generated from continuing operations was £6.4 billion, up 11% compared to the prior year. This primarily reflects stronger operating profit and the full year impact of UK electricity distribution. Net cash outflow at £3.1 billion was nearly double the £1.6 billion outflow from the prior year, driven by higher levels of capital investment and lower levels of script dividend uptake in the year. Net debt at the full year was £41 billion, 7% or £3.1 billion lower than the prior year at constant currency. as we received proceeds from the sale of Rhode Island, gas transmission and the Millennium Pipeline through the year. Following the repayment of the acquisition bridge loan, our levels of floating rate debt are back in line with levels pre-transactions at around 10%. Around 70% of our debt sits within our regulated operating companies and has a high degree of regulatory protection, with our overall debt book having an average maturity of 11 years. The £7 billion of bond financing completed in the past year demonstrates our strong access to financial markets and we expect to issue between £5 and £6 billion in the coming year. Lastly, I'll turn to our full-year 2024 guidance and longer-term outlook, starting with 2024. We expect another good year of underlying performance, However, following the UK government's spring budget and changes to capital allowances, we now expect underlying EPS to be modestly lower year over year. Looking more closely at those changes to capital allowances, the UK government has announced increased rates of relief for expenditure on qualifying plant machinery, running from the 1st of April 2023 to the 31st of March 2026. For our UK regulated businesses, the impact is economically neutral. as we will receive lower revenue allowances through our system charges to reflect the lower amount of cash tax that we will pay. For our electricity transmission business, we expect the impact on revenue to be around £200 million per annum, and for electricity distribution, around £100 million. However, this does have an IFRS accounting impact. Our total accounting tax charge will remain broadly unchanged, as we will pay lower cash tax today, but recognise a deferred tax liability to reflect higher future payments. Without this change in legislation, we would have seen underlying EPS growth in 2024 within our 6% to 8% CAGR range. But with the implementation of the capital allowance legislation, which, as I've said, is economically and cash neutral to the group, we now expect a six to seven pence per share impact on our underlying EPS for full year 2024. And this results in our 2024 EPS guidance being below our reported underlying 2023 EPS. Furthermore, we expect the 6 to 7 pence per share impact to grow modestly each year through to 2025-2026 as our capital investment grows. If the policy does end by March 2026, we would see a significant optical benefit to EPS in the following year, as we'd receive higher allowed revenues given the increased cash taxes we would then pay. Moving to our five-year outlook, we're reconfirming our financial framework from April 21 to March 2026. As a reminder, we expect to deliver capital investment for the group of up to £40 billion, which will drive asset CAGR of 8% to 10%, an underlying EPS CAGR of 6% to 8%, with the change in capital allowance legislation now moving our expectation towards the lower end of the range by 2026. and an aim to grow the dividend in line with average CPIH. All of this whilst maintaining credit metrics within the bands required, consistent with our strong investment-grade credit rating, and with net debt to RAV to remain in the low 70s. With that, I'll hand you back to John.