2013/14. Half year results. London Thursday 21 November 2013

Transcription

1 2013/14 Half year results London Thursday 21 November 2013

2 Cautionary statement This presentation 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 financial condition, its results of operations and businesses, strategy, plans and objectives. Words such as 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 forwardlooking 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 or estimate precisely, such as changes in laws or regulations, presentations from and decisions by governmental bodies or regulators (including the timeliness of consents for construction projects); 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 arising from the potentially harmful nature of its activities; network failure or interruption (and National Grid s actual or perceived response thereto), the inability to carry out critical non network operations and damage to infrastructure, due to adverse weather conditions including the impact major storms as well as the results of climate change or due to unauthorised access to or deliberate breaches of National Grid s IT systems or otherwise; performance against regulatory targets and standards and against National Grid s peers with the aim of delivering stakeholder expectations regarding costs and efficiency savings, including those related to investment programmes and internal transformation projects (including the US financial system and process implementation); and customers and counterparties failing to perform their obligations to the Company. Other factors that could cause actual results to differ materially from those described in this presentation 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; inflation; the delayed timing of recoveries and payments in National Grid s regulated businesses 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 loss of key personnel or the ability to attract, train or retain qualified personnel and any significant disputes arising with the National Grid s employees or the breach of laws or regulations by its employees; and incorrect or unforeseen assumptions or conclusions (including financial and tax impacts and other unanticipated effects) relating to business development activity, including assumptions in connection with joint ventures. For further details regarding these and other assumptions, risks and uncertainties that may affect National Grid, please read the Strategic Review section and the Risk factors on pages 176 to 178 of National Grid s most recent Annual Report on Form 20-F as updated by National Grid s unaudited half-year financial information for the six months ended 30 September 2013 published on 21 November 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 forwardlooking 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 presentation.. 2

3 2013/14 Half year results Highlights Steve Holliday Chief Executive

4 Agenda Highlights Business review Outlook Steve Holliday Andrew Bonfield Steve Holliday 4

5 Solid start to 2013/14 Solid first half performance: on track for good full year result UK Good progress managing against regulatory targets Thorough business reorganisation Benefits of supplier & partner negotiations US Progress towards robust full year out-turn New rate plans in place SAP implementation Elevate 2015 programme 5

6 Financial performance 1.6bn 979m 761m operating profit profit before tax earnings 20.4p earnings per share 14.49p dividend per share Interim scrip suspended reflecting high take up in August Note: Business performance, excluding exceptional items, remeasurements and stranded cost recoveries for continuing operations All numbers include impacts of timing 6

7 Safety UK US Significant improvement in UK Lost time injury rate improved to under 0.1 Performance not yet at UK levels Investments in training and safety initiatives Lost time injury frequency rate refers to the number of lost time injuries per 100,000 hours worked in a 12 month period 7

8 Generating efficiency in the UK Transmission Headcount reductions Totex efficiencies - Alliance arrangements - Competitive contracting Efficiencies reduce consumer bills 40m 30m 26m Scoping Smart Design Tendering 8

9 Generating efficiency in the UK Transmission Headcount reductions Totex efficiencies - Alliance arrangements - Competitive contracting Gas Distribution IT investments Contract renegotiation Field force reorganisation Repex strategic partners Efficiencies reduce consumer Efficiencies bills reduce consumer bills 9

10 Capital investment m Sept 2013 Sept 2012 UK Elec.Transmission UK Gas Transmission UK Gas Distribution US Regulated Other Activities Joint ventures - 1 Total 1,688 1,825 10

11 Summary Solid start to the year Foundations for good overall performance in the year 11

12 2013/14 Half year results Business Review Andrew Bonfield Finance Director

13 Performance measures Measuring performance requires additional information produced annually Added context to IFRS movements More detailed disclosure at full year - Regulatory returns - Regulatory revenue movements and IOUs - Regulated Asset Value 13

14 Solid business performance UK Electricity Transmission 614m operating profit UK Gas Transmission 133m 12% Operating profit ex. timing operating profit 39 % of group operating profit 9 % of group operating profit Higher operating profit, led by increased regulatory allowances, link to RPI and French interconnector Timing over-recovery of 10m Lower operating profit reflecting reduced allowed return, higher gearing and gas permit timing Timing under-recovery of 12m UK Gas Distribution 456m operating profit US Regulated 330m operating profit Other 39m operating profit 29 % of group operating profit 21 % of group operating profit 2 % of group operating profit Higher operating profits driven by higher regulatory allowances Timing over-recovery of 8m Lower operating profit led by 60m loss of deferral income. 57m timing under-recovery Partially mitigated by new Massachusetts storm fund and lower bad debt expense Operating performance from main UK non-regulated businesses in line with prior year Profitability offset by continued US systems implementation costs Business performance, excluding exceptional items, remeasurements and stranded cost recoveries, prior period numbers adjusted for the implementation of IAS 19 (revised) Employee benefits All figures calculated at constant currency including timing Constant currency figures calculated by applying the average 2013 rate ($1.55 to 1.00) to 2012 results (when the average rate was $1.58 to 1.00) All timing over and under recoveries referred to are in period numbers 14

15 m Operating profit Operating profit excluding timing 3% lower Operating profit 2% lower Year on year timing of 32m Higher revenues led by RIIO revenue resets and the French interconnector Increased controllable costs and depreciation (71) (10) 25 (34) (30) 45 (73) 1,597 1, operating profit at constant currency timing net regulated income controllable operating costs post retirement costs regulated depreciation & amortisation bad debts other operating costs US system costs other activities 2013 operating profit Visual representation only not to scale Business performance, excluding exceptional items, remeasurements and stranded cost recoveries. Prior period numbers adjusted for the implementation of IAS 19 (revised) Employee benefits Constant currency figures calculated by applying the average 2013 rate ($1.55 to 1.00) to 2012 results (when the average rate was $1.58 to 1.00) Post retirement costs represent pensions and other post employment benefits 15

16 US systems Increased SAP workload continues Complex project, touching around 90 other systems Need to separate LIPA systems from start of 2014 Costs in the second half expected to be lower than the ~ 90m incurred in first six months 16

17 Interest, tax and earnings Finance costs 605m 9% higher* than 2012 Effective interest rate of 5.3% Higher cost of carry on gross debt associated with pre financing Business performance, excluding exceptional items, remeasurements and stranded cost recoveries * Constant currency figures calculated by applying the average 2013 rate ($1.55 to 1.00) to 2012 results (when the average rate was $1.58 to 1.00) 17

18 Debt financing Operating companies, external debt Over last six months long term interest rates increased by 100bps Only back to 2011 levels long way below pre-2008 financial crisis levels US ~ 4-5bn UK ~ 13-14bn ~80% fixed rate Debt allowances typically reflect embedded fixed rate - matching allowance manages risk Limited exposure in medium term to refinancing ~45% RPI linked Debt allowances reset annually using iboxx tracker 18

19 UK debt financing 5.00% 4.00% 3.00% 2.00% 2.92% 2.72% iboxx annual yield iboxx trailing average spread to NG yield 1.00% 0.00% iboxx: real rate of ~1.5% Scope to deliver continued outperformance 19

20 Interest, tax and earnings Finance costs 605m 9% higher* than 2012 Effective tax rate 23% at (225)m Earnings per share 20.4p Effective interest rate of 5.3% Higher cost of carry on gross debt associated with pre financing Tax rate 400bp lower than 2012 Reflects lower proportion of US profits in H1 and lower UK corporation tax rate 761m earnings 3,729m weighted avg. shares Business performance, excluding exceptional items, remeasurements and stranded cost recoveries * Constant currency figures calculated by applying the average 2013 rate ($1.55 to 1.00) to 2012 results (when the average rate was $1.58 to 1.00) 20

21 Dividend We aim to grow the ordinary dividend at least in line with the rate of RPI inflation each year for the foreseeable future 2013/14 interim dividend held at 14.49p Full effect of annual increase in the total dividend expected to be reflected in this year s final dividend Future interim dividends expected to be 35% of the prior year s full dividend 21

22 Scrip dividend August take up over 45% Over next few years, scrip helps maintain an A- credit rating However, excess take up of little further value Suspending this interim scrip option Limits this year s overall take up to around 30% 22

23 Cash flows and net debt Period ended 30 September 2013 m Operating profit 1,572 Depreciation & amortisation 690 Pensions (174) Working capital & other (130) Net operating cash flow 1,958 Net debt 21,374 Net operating cash flow 2.0bn Operating cash flow after capex Net debt 85m 21.4bn Operating cash flows from continuing operations before exceptional items, remeasurements, stranded cost recoveries and taxation 23

24 Guidance for 2013/14 French interconnector performed well in first half, somewhat lower in second half SAP costs continue, albeit reduced level expected Full year tax rate expected of 26% - 27% Capital investment revised to around 3.5bn Net debt increasing by around 1bn, excluding FX 24

25 2013/14 Half year results Strategy, growth and returns Steve Holliday Chief Executive

26 Business developments UK increased uncertainty around timing of new generation build US focusing on need for future investments 26

27 1600 m 09/10 prices MW UK: Electricity Transmission Baseline MW connections Baseline capital expenditure allowance* 6000 non-load load *Allowed capital spend for the electricity transmission owner, excludes system operator capex 27

28 UK: Electricity Transmission Contracted generation connections 80 Feb-2012 Aug Currently low levels of 40 new generation construction 20 0 Low level sustains reflecting delayed projects Increase in contracted generation to

29 UK: Electricity Transmission capital priorities Still investing in load related and strategic projects Extensive pre works Investment in constraint reduction Completion of major projects 29

30 UK: Electricity Transmission non-load investment Continuing at a material level Baseline capital expenditure allowance* 1600 non-load load Age of grid Need to replace critical infrastructure m 09/10 prices 800 ~ 500m in 2012/13 similar levels in 2013/ *Allowed capital spend for the electricity transmission owner, excludes system operator capex 30

31 UK: gas investments Different agenda Major transmission investments always planned for end of RIIO period Gas distribution remains focused on repex and safety agenda 31

32 UK: need for flexibility Investment could accelerate Overall investment programme still feels about right Totex allowances flex for the outputs needed Customers only fund necessary outputs Continue to invest a significant amount in next 2-3 years 32

33 UK: medium term drivers of investment Contracted generation connections Growth expectations remain 80 Feb-2012 Aug-2013 strong Sustained investment at current 60 levels in UK Electricity Transmission drives average % asset growth Overall UK growth ~6%pa

34 US: investment opportunities Medium term ~$2.5bn pa Next year forecast ~$2bn pa Shale gas Changing generation mix Network resilience Business development Currently investing ~$1.8bn pa 34

35 US: investment opportunities New York state Repowering generation in Long Island - Advanced discussions around $1.5bn investment in Barrett facility New York Transmission consortium energy superhighway 35

36 US: investment opportunities Clean Line Projects making good progress Grain Belt Express Clean Line - State of Kansas approval - $2 billion project - Targeted construction in Commissioning in

37 2013/14 priorities UK Streamline organisation and deliver outputs to drive outperformance under RIIO US Build on new rate cases and systems to enhance customer service and drive efficiencies 37

38 Outlook Solid start to the year Remain confident of delivering growth and returns 38

39 2013/14 Half year results Appendix

40 Appendix 1: Pensions & other post-retirement benefit obligations (IAS19 data) UK US At 30 September 2013 ( m) ESPS NGUK PS Pensions OPEBs NG total Market value of assets 1,871 15,225 4,145 1,520 22,761 Present value of liabilities (2,476) (15,671) (4,465) (2,529) (25,141) Net liability (605) (446) (320) (1,009) (2,380) Deferred taxation Liability net of taxation (484) (357) (186) (600) (1,627) Discount rates 4.4% 4.4% 5.3% 5.3% UK US At 31 March ( m) ESPS NGUK PS Pensions OPEBs NG total Market value of assets 1,943 15,449 4,378 1,515 23,285 Present value of liabilities (2,563) (15,998) (5,118) (3,103) (26,782) Net liability (620) (549) (740) (1,588) (3,497) Deferred taxation ,208 Liability net of taxation (477) (423) (437) (952) (2,289) Discount rates 4.3% 4.3% 4.7% 4.7% OPEBs = other post employment benefits 1 Adjusted for the impact of changes to financial accounting standard IAS19 ( Employee Benefits ) 40

41 Appendix 2: Timing Impacts m UK Electricity Transmission UK Gas Transmission UK Gas Distribution US Regulated Total 2013/14 Opening balance * 5 19 (8) /14 over/(under) recovery 10 (12) 8 (57) (51) 2013/14 Closing balance to return / (recover) /13 Opening balance (24) /13 over/(under) recovery 21 (9) (3) (92) (83) 2012/13 Closing balance to return / (recover) (3) (7) (1) Year on year timing variance (11) (3) All USD balances stated using the average 2013 rate ($1.55 to 1.00) 41

42 Appendix 3: Weighted average number of shares Period ended 30 September Number of shares (millions): Prior period as reported (weighted average) - 3,637 January 2013 scrip dividend shares - 27 Current period opening shares 3,665-3,665 3,664 August 2013 dividend scrip shares Other share issuances (weighted from issuance) 4 - Weighted average number of shares (2012 restated) 3,729 3,724 Business performance earnings ( m) Business performance EPS (2012 restated) 20.4p 20.6p 42