National Grid plc

Good morning and welcome to National Grid's half-year results presentation. I'm Angela Broad, Head of Investor Relations, and it's great to have so many of you on the call today. Firstly, please can I draw your attention to the cautionary statement at the front of the pack. As usual, a Q&A with John and Andy will follow the presentation. Please join by the conference call and use star 1 to ask a question or use the tab at the bottom of the webcast to submit a written question. All of today's materials are available on our website, And of course, for any further queries after the call, please reach out to me or one of the IRR team. So, with that, I'd now like to hand you over to our CEO, John Pettigrew. John.

Many thanks, Angela, and good morning, everyone. Thank you for joining us today. As ever, I'm here with Andy Ag, and once we've been through our respective presentations, we'll, of course, be very happy to answer your questions. As you know, in May we updated our strategy and announced the actions we'd be taking to make National Grid the pre-eminent peer play network's business. This marked the beginning of an exciting new era of growth, with unmatched visibility on around £60 billion of capital investment in our networks over the next five years and clarity on financing well beyond that. Over the last six months, the pace of change in our industry has continued, as has the exciting momentum within National Grid. We successfully completed the £7 billion rights issue, positioning our balance sheet to deliver this growth at pace. We're delivering on our major capital projects, increasing investment to a record £4.6 billion in the first half. In the UK, construction is already underway on five of our ASTI projects. And in the US, regulated capex increased 20% year-on-year as we've continued our $4 billion upstate upgrade programme. and our policy agendas continue to move forwards as well. We're encouraged by the start the new UK government has made against their energy priorities. As you would have seen, the National Energy System Operator, or NISO, was established on the 1st of October following our sale of the electricity system operator for £613 million. They've also formed Mission Control to help accelerate progress on energy projects needed for 2030 And at the end of this year, they'll set up their action plan to achieve this, taking into account the advice set out this week by the NISO. The NISO's report is a welcome milestone towards clarity on the steps needed to deliver against this goal, and will continue to play our part alongside the government, regulator and industry. The government has also commissioned NISO to develop a strategic spatial energy plan, setting out where energy assets need to be built and when to meet the country's 2015 net zero goals. We're pleased that the King's speech in July included expected legislation to reform the planning system. This will help to accelerate the delivery of critical infrastructure, something that we've long been advocating for. In the US, Massachusetts and New York policymakers are continuing to progress plans to align economic growth and system reliability needs with their clean energy and climate goals. Both states recognise the need for long-term, holistic energy planning, and we're encouraged that this is now underway. From a regulatory perspective, we've agreed new rates for our downstate New York gas business and for our Massachusetts electric business, giving us even greater visibility on our investment plans. And in the UK, Ofgem's publication of the sector-specific methodology decision marked the next step in the Rio T3 regulatory process. We've also achieved another important strategic milestone by completing in September the sale of our final 20% stake in our UK gas transmission business for £686 million. So, as I say, exciting momentum and progress in the last six months that underpins our compelling investor proposition of delivering low-risk, high-quality asset growth, strong earnings growth and an inflation-protected dividend. Now, turning to our financial performance for the first six months. On an underlying basis, that is excluding the impact of timing in exceptional items, operating profit from continuing operations was £2 billion, 50% higher compared to the prior year at constant currency. This reflects good performance across all of our regulated businesses, which drove an increase in underlying earnings per share of 8% to 28.1 pence. Our business delivered a record £4.6 billion of investment, up 19% year-on-year at constant currency, and in line with our policy, the Board has declared an interim dividend of 15.84 pence per share. Turning next to reliability and safety. Reliability has remained strong across our UK and US networks, despite severe weather in most jurisdictions. our teams restored outages rapidly and well within regulatory requirements, including in our New York region, where during the most significant storms, the average time to restore 95% of customers was just 12 hours. As we look ahead, MISA recently published its Winter Outlook Report for the UK, in which they're forecasting an electricity capacity margin of 8.8%, slightly higher than last year's and broadly in line with recent winter's. Overall, we're confident in delivering our usual high-standard reliability across our networks in the months ahead and remain vigilant as we move through the winter in both the UK and the US. Safety, as always, remains a critical focus across the business. In the first six months, our lost time injury frequency rate was 0.1, in line with our group target. With our significant increase in capital delivery, we're recruiting new contractors working for Nashvit for the first time, and so we've reinforced our protocols to ensure that our high safety standards are maintained. Now moving to our operating performance across the group, starting the UK electricity distribution. Capital investment increased by 6% to £647 million, driven by increased customer connections, asset health workload and network reinforcements. We've also made further progress to improve our customer service, including in May when we launched Clearview Connect. This online tool provides visibility of grid supply point capacity, including a view of the generation connections pipeline to help prospective developers identify the quickest and cheapest connection points. And we've made good progress in reforming the connections process. By playing a leading role in the industry's technical limits initiative, we've been able to accelerate the connection offer dates on over 280 megawatts of distribution generation. And as mentioned at our connections investor event in January, by reviewing projects that aren't progressing, we've been able to remove 3.7 gigawatts of capacity from the contracted connections queue. Looking ahead, whilst we're still more than three years remaining in ED2, we're already thinking about the next regulatory cycle. Yesterday, OFTIM issued its framework consultation which includes wide-ranging questions to help shape the ADT price control and will respond early in the new year. Turning to UK electricity transmission, where capex increased by 43% to £1.3 billion, driven by an increase in customer connections, with 2.3 gigawatts of new customer connections in the first half. And good progress on our £1 billion London Power Tunnels project, where we successfully energised a 2.5km circuit between Hurst substation and Crayford. Looking further ahead, we are seeing an increase in transmission scale connection requests for data centres that is driving significant investment for new and upgraded substations in the South East. On regulatory developments, Ofgem published in July their decision on the sector-specific methodology marking the next step in the Rio T3 regulatory process that will run through to the final determination at the end of 2025. We were pleased to see that the document included a commitment to streamlining the overall framework to enable faster decision-making on which projects proceed, proposals for an advanced procurement mechanism which enables us to secure supply chain capacity early, and the introduction of mechanisms similar to the ASTI approach to allow funding on projects earlier than historically has been the case. As you'd expect, we're engaging constructively with Ofgem, as well as wider stakeholders, to agree the right regulatory frameworks that delivers a net zero energy system and a fair return. Whilst we are encouraged by Ofgem's inclusion of a cost of equity range of 4.6% to 6.4%, the allowed return needs to be at the top end of the range in order to continue to attract sufficient capital to the sector. Ofgem also concluded on its inflation consultation with the introduction of a nominal return on fixed-rate debt, which will allow better matching of allowances to actual debt costs and faster recovery of cash. On the policy front, we've seen progress on connections reform, and I'm pleased that we now have consensus with government, Ofgem and NISO on the steps that need to be taken. In the second half of 2025, NISO is expected to implement reforms where projects must move through a two-stage process based on a combination of project readiness, and alignment with the Clean Power Plan. Turning next to our strategic infrastructure business, created last year to deliver the 17 ASTI projects. We're managing these projects in distinct waves. Wave 1 comprises the six most advanced projects, and Wave 2 comprises the remaining 11, which are at earlier stages of development. We're well progressed with obtaining the required consent for the first wave of projects, and we expect to have all the key equipment and material contracts in place by early next year. As I mentioned earlier, construction has started on five of the first wave, including the offshore Eastern Green Links 1 and 2, Yorkshire Green, North London Reinforcement, and Brantford to Twinstead. With construction due to start shortly on the Green to Tilbury project, by the end of this fiscal year, we'll have broken ground on all six of our Wave 1 projects. Turning to our Wave 2 projects, we had a number of public consultations running over the summer, and with further consultations planned in 2025, we're progressing well through the consenting process. We're making good progress on procurement and are well advanced in securing the supply chain, and we're submitting early construction funding requests to Ofgem on Eastern Green Links 3 and 4 and our C-Link project to allow these projects to move forward at pace. Coming to the US and starting with New York, CAPEX has continued to be strong, increasing 29% to £1.6 billion in the first half. This reflects strong progress with our $4 billion upstate upgrade, including our SmartPath Connect project, which has reached the halfway point in construction, well ahead of schedule. And the work approved under the Climate Leadership and Communities Protection Act, where construction on Phase 1 of the project is progressing well, and we've just issued the procurement tenders for Phase 2. We've also increased investment in our gas network, replacing a further 161 miles of leak-prone pipe as we continue to reduce our methane emissions. On the regulatory front, in August, our three-year rate case settlement for our Kedney and Kedley gas distribution businesses was approved by the Commission. We expect to invest $5 billion over the next three years, with an improved ROE of 9.35%. And we filed for new rates in our Niagara Mohawk business in upstate New York. Filing proposes transmission investment to integrate renewables, line and substation upgrades and further investment in our leak-prone pipe replacement programme. At the end of September, as usual, the PRC staff provided rebuttal testimony, including a 9.5% cost of equity against our current allowed return of 9% and smaller increases to our proposed capital investment. The filing will now continue to progress as we enter settlement negotiations, and we're confident we can reach a constructive outcome by the spring. Turning to policy, we're in July. A draft report from the New York PRC acknowledged for the first time that New York State is likely to miss its target of 70% renewable generation by 2030. In response to the report, Governor Hochul's administration has taken several actions. including reconvening the State Energy Planning Board to draft a roadmap for the state to build a clean energy system for New York, taking into account resource adequacy and affordability. As a result, a more pragmatic dialogue has opened up, and as you'd expect, we're engaged in supporting the process, which provides an opportunity to shape a more balanced approach to the energy transition. In New England, capital investment increased by 7% to £814 million. This largely reflects the continued steady growth delivered through investment in grid modernisation and acid health work and leak-prone pipe replacement activity. From a regulatory perspective, in September the DPU issued its rate case order for our Massachusetts electric business, approving a five-year plan with a revenue increase of around $100 million. The order includes a new regulatory recovery mechanism that provides timely funding for growing capital investment, an updated performance-based rate mechanism providing inflation protection for operating and maintenance costs, and increased allowances to cover the increasing cost of storms. Taken together, these enhanced recovery mechanisms will enable us to earn closer to the allowed return of 9.35%. The DPO has also approved our Electric Sector Modernisation Plan as a strategic roadmap to support decarbonisation investments. As part of this, we filed for $2 billion of investment, including upgraded power lines, transformers, substations and technology platforms over the next five years. We expect the proposed costs and recovery mechanisms will be agreed ahead of the programme starting next summer. And over the past summer, Governor Healey's administration has been working to pass comprehensive energy and climate legislation. The proposed bill addresses critical issues we've been advocating for, including setting out an accelerated timeline for siting and permitting of clean energy infrastructure projects, and we're hopeful it will progress before the end of the year. And finally, in Nashville Ventures, capital investment was 11% lower at £279 million following completion of the Viking link to Denmark last year, partially offset by increased investment in Nashville Renewables and the Isle of Grain. We've made good progress on the Propel transmission project through our New York Transco joint venture, which will help to deliver offshore wind power from Long Island to the Bronx in New York City and Westchester County. We've made further progress in the fourth phase of the expansion of our Isle of Drain LNG facility, which remains on track for completion next summer. And we've also commenced the sale process for National Grid renewables. So, as I said at the start, we've achieved significant progress across all areas of the business in the first half as we continue to support and invest in the energy transition. Let me stop there and hand over to Andy to walk through the numbers before I come back to talk about priorities for the second half.

Andy. Thank you, John, and good morning, everyone. I'd like to highlight that, as usual, we're presenting our underlying results, excluding timing, UK deferred tax and exceptional items, and that all results are provided at constant exchange rates and less specified. Our final 20% stake in National Gas is reported as a discontinued operation up until 26th September when it was sold. As such, all earnings from this business have been excluded from the underlying earnings of the continuing group. So, starting with our overall performance in the first half. We've delivered strong results with underlying operating profit on a continuing basis at £2 billion, a 15% increase on the prior year. primarily driven by higher revenues across our UK and US regulated businesses and the non-repeat of a prior year environmental charge in our New York business, partially offset by a lower profit in National Grid Ventures. Underlying earnings per share of 28.1 pence was 8% higher than the prior year restated figure. This reflects the improved performance from across our regulated businesses and a slight decline in finance costs which more than offset the increased share count following the rights issue. As John said, we've made excellent progress with our capital programme, with investment from continuing operations at £4.6 billion, another record level and up 19% year over year. This has been driven by more connections in our electricity transmission business, accelerated delivery of our ASTI projects, increased pipe replacement across our US gas businesses, and a step up in our SmartPath Connect and CLCPA transmission projects in upstate New York. In line with our policy, the board has declared an interim dividend of 15.84 pence per share, representing 35% of last year's rebased four-year dividend. Turning now to our business segments, starting with UK electricity distribution. Underlying operating profit was 573 million pounds, up £10 million versus the prior year. Increased revenues were partially offset by higher controllable costs, which were £21 million higher, as we prioritised activities to strengthen the business for the remainder of Rio ED2. This included spend on field, customer and asset management teams and costs to implement new distribution system operator functionality. We expect the full-year controllable cost performance to be broadly in line with the prior year. We're also on track to deliver our target of £100 million of synergy benefits by FY26, having delivered £58 million to date through leveraging our increased buying power, working more efficiently at the 48 joint transmission and distribution sites across the UK, and delivering savings from combining support functions. Capital investment was £647 million for the half year, an increase of £39 million compared to the prior period. primarily driven by higher spend on reinforcement work and asset replacement. In our UK electricity transmission business, underlying operating profit was £724 million, up £68 million compared with the prior period. A strong first-half performance was driven by higher allowed revenues and lower controllable costs as we deliver further cost efficiencies. Capital investment was £1.3 billion, 43% higher than the prior period. This reflects work on our Rio T2 projects, including customer connections, as well as the step-up in investment on our ASTI projects, notably Eastern Green Link 1, Yorkshire Green, and our North London reinforcement projects. Finally, in the UK, the electricity system operator delivered an underlying operating profit of £115 million. Moving now to the US, where underlying operating profit for New York was £288 million, £173 million higher than the prior year, reflecting higher net revenue driven by an increase in rates and the non-repeat of an environmental charge in the prior period. This was partially offset by an increase in depreciation, reflecting the new rate case in our downstate gas businesses, Kedney and Kedley. Capital investment was £1.6 billion. This was £352 million higher than the prior year, helped by a further step up in investment in the SmartPath Connect and CLCPA transmission projects in upstate New York, and increased investment in our gas distribution networks, reflecting the additional workload approved in our downstate gas rate case. In New England, underlying operating profit was £237 million. £26 million higher than the prior period. This reflects high rates in our Massachusetts electric and gas businesses, driven by the annual performance-based rates mechanism, and higher rates from the capital tracker in the gas business, partly offset by high depreciation and controllable costs. Capital investment was £814 million, £50 million higher than the prior year. This was driven by increased asset condition work in our electricity distribution business and higher gas spend, including leak-prone pipe replacement. Moving to National Grid Ventures, where the underlying contribution was £207 million, including joint ventures. The decrease of £70 million compared to the prior year was primarily due to the one-off post-construction review adjustment on the North Sea Link interconnector in the prior period, and lower profitability across the US ventures businesses. Capital investment across National Grid Ventures was £279 million, £33 million lower than the prior period, largely reflecting the completion of the Viking interconnector and partially offset by higher investments at our grain LNG facility as we move closer to completing the fourth phase of capacity expansion. Following the announced intention to sell grain LNG and National Grid renewables, these assets will be treated as held for sale for accounting purposes from 30 September. Our other activities reported an operating loss of £38 million, £25 million higher than the prior period. This was principally driven by changes in the value of National Grid partners' investments, which are held at fair value. partially offset by a greater number of property sales in the first half compared with the prior period. Turning to financing costs and tax, net finance costs were £670 million, down 4% compared with the prior year. The benefits of lower average net debt following the rights issue and lower inflation on index-linked debt were partially offset by the impact of higher refinancing costs, where we have issued £1.8 billion over the first half. The underlying effective tax rate before joint ventures was 11.9%, 180 basis points higher than the prior year, principally due to a change in profit mits, reflecting the one-off charges impacting the US business last year. Underlying earnings were £1.27 billion, with EPS at 28.1 pence. On cash flow, cash generated from continuing operations was £2.7 billion, down 12% compared to the prior year. This decrease is driven by timing as we returned the prior year balancing charge over recoveries in the system operator. Excluding timing, cash flow from operations is £570 million higher due to improved cash generation across the UK and US regulated businesses. In total, net debt decreased by £5.1 billion to £38.5 billion compared to the prior year end, reflecting a net cash inflow from continuing operations of £3.5 billion, including the receipt of the rights issue proceeds, beneficial movements in exchange rates and other non-cash movements of £1.4 billion, and receipt of £686 million from the final 20% sale of national gas. For the full year, we expect net debt to decrease by around 1.5 billion pounds from the March level, assuming a 1.3 US dollar exchange rate. In terms of forward guidance, we've included detailed guidance for the full year in our results statement as usual. Relative to our guidance in May, we expect a slightly stronger operating profit for the full year, reflecting the high ESO contribution prior to sale, and higher net revenues in our New York business, partially offset by a weaker US dollar outlook. Therefore, we continue to expect strong operational performance and year-on-year operating profit growth of around 10%, as well as reduced financing costs due to lower average net debt. We anticipate this improved performance to be largely offset by the additional share count. Before I hand back to John, I wanted to return to the five-year framework we set out in May, where we anticipate that investment of around £60 billion will drive group asset growth of around 10% per annum over the next five years, and a strong underlying EPS CAGR of 6% to 8% from an FY25 baseline. Our framework is underpinned by a supportive regulatory and policy environment, an increasing level of certainty over our multi-year investment programme, and a track record of delivery, both operationally and financially. Alongside this, we set out a comprehensive financing plan, which supports our investment program and allows us to maintain our strong investment-grade credit rating. And looking ahead, with an expected asset base of around £100 billion by FY29, funding clarity, strong earnings growth, and an inflation-protected dividend, we've further enhanced what I believe is a compelling investor proposition, delivering value creation through both higher asset growth and an attractive dividend yield. With that, I'll hand you back to John.