National Grid plc Investor Update. 14 January 2010

Transcription

1 National Grid plc Investor Update 14 January

2 Cautionary statement Unless otherwise stated, all financial data of National Grid contained in this presentation is as reported under IFRS. 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, results of operations and businesses, strategy, plans and objectives. Words such as anticipates, expects, intends, plans, believes, seeks, estimates, may, will, continue, project and similar expressions, as well as statements in the future tense, identify forward-looking 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 forwardlooking 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 delays in obtaining, or adverse conditions contained in, regulatory approvals and contractual consents, unseasonable weather affecting the demand for electricity and gas, competition and industry restructuring, changes in economic conditions, currency fluctuations, changes in interest and tax rates, changes in energy market prices, changes in historical weather patterns, changes in laws, regulations or regulatory policies, developments in legal or public policy doctrines, the impact of changes to accounting standards, technological developments and the ability to access capital markets and other sources of credit in a timely manner on acceptable terms, especially considering the recent deterioration of market conditions in the global economy and financial markets. Other factors that could cause actual results to differ materially from those described in this presentation include the ability to integrate the businesses relating to announced or recently completed acquisitions with National Grid s existing business to realise the expected synergies from such integration, the availability of new acquisition opportunities and the timing and success of future acquisition opportunities, the timing and success or other impact of the sales of National Grid s non-core businesses, the failure for any reason to achieve reductions in costs or to achieve operational efficiencies, the failure to retain key management, the behaviour of UK electricity market participants on system balancing, the timing of amendments in prices to shippers in the UK gas market, the performance of National Grid s pension schemes and the regulatory treatment of pension costs, and any adverse consequences arising from outages on or otherwise affecting energy networks, including gas pipelines owned or operated by National Grid. For a more detailed description of some of these assumptions, risks and uncertainties, together with any other risk factors, please see National Grid s filings with and submissions to the US Securities and Exchange Commission (the SEC ) (and in particular the "Risk Factors" and "Operating and Financial Review" sections in its most recent Annual Report on Form 20-F). Except as may be required by law or regulation, National Grid undertakes no obligation to update any of its forward-looking statements. The effects of these factors are difficult to predict. 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 results to differ materially from those contained in any forward-looking statement. The contents of any website referenced herein do not form part of this document. 2

3 National Grid plc 3

4 About us National Grid is an international electricity and gas company and one of the largest investor-owned energy companies in the world. We play a vital role in delivering gas and electricity to many millions of people across Great Britain and northeastern US in an efficient, reliable and safe manner. Key Stats as at 31 March Over 27,500 employees - Market Capitalisation of 16.8bn* ($27bn)** - Adjusted EPS up 6% to 50.9p - Interest Cover of 3.1x within target range - Revenue of 15.6bn ($25bn)** NOTES * As at Jan 13 th, 2010 **Assuming a rate of $1.6/ 1. 4

5 National Grid is one of the world's largest utilities Our business model Low risk Strong investment pipeline driving future growth Building on constructive regulatory relationships Driving out-performance and creating value Where we operate Electricity - UK Gas UK UK Electricity US Gas US 5

6 We are a low risk business Risk factor Regulation Inflation / deflation Demand Commodity (energy) Currency Exposure Low Low Low Very low Low Notes ~95% of our activities (a) are regulated Portfolio of ~20 regulatory agreements Historically predictable revenues and cash flows UK revenues RPI indexed, nominal US revenues (variety of protections against high inflation under US regulation) Over 50% of net debt index linked / floating rate No UK demand exposure Residual exposure under some US rate plans diminishing risk as new rate case filings include demand decoupling No commodity exposure under UK agreements US rate-plans pass through commodity costs $ earnings exposure minimised by our natural debt hedge +/-10 cent move +/- 10m on earnings (a) NOTES (a) Measured on a business performance basis. Business performance results are the primary financial performance measure used by National Grid, being the results for continuing operations before exceptional items, remeasurements and stranded cost recoveries. Remeasurements comprise gains or losses recorded in the income statement arising from changes in the fair value of commodity contracts and derivative financial instruments to the extent that hedge accounting is not achieved or is not fully effective. Stranded cost recoveries are costs associated with historic generation investment and related contractual commitments that were not recovered through the sale of those investments these recoveries end in

7 National Grid structure with Group borrowing facilities National Grid USA Group $2bn NGUSA commercial paper programme: nil outstanding 4bn NGUSA EMTN programme: 0.1bn issued National Grid plc Baa1 / BBB+ / BBB+ National Grid plc USCP $3bn: nil outstanding ECP $1.5bn: c. $203m outstanding 15bn EMTN programme (joint with NGET): National Grid in issue 6.03bn; NGET 3.27bn National Grid USA A3 / BBB+ / NR National Grid Holdings One plc NR / BBB+ / NR KeySpan Corp Baa1 / A- / A- Niagara Mohawk Power Corp A3 / A- / NR Granite State Electric The Brooklyn Union Gas Company NR / A / A+ National Grid Gas plc A3 / A- / A National Grid Electricity Transmission plc A3 / A- / A Massachusetts Electric A3 / A- / NR New England Power A3 / A- / NR Nantucket Electric Narragansett Electric A3 / A- / NR KeySpan Gas East Corp A3 / A / A Colonial Gas Co A3 / A- / NR Boston Gas Co. Baa1 / A- / NR Essex Gas Co. EnergyNorth Natural Gas Inc National Grid Generation LLC Baa1/ A- /NR National Grid Gas plc USCP $2.5bn: nil outstanding ECP $1.25bn: nil outstanding 10bn EMTN programme: 5.78bn issued National Grid Electricity Transmission plc USCP $1bn: nil outstanding ECP $1bn: nil outstanding 15bn EMTN programme (joint with NGET) 7

8 09/10 Interim Results 8

9 Financial headlines Very strong results Operating profit up 6% Profit before tax up by 16% Earnings per share up by 31% Sound financial position Funding for 2009/10 completed Operating cash flow up 747m* Credit ratings confirmed with stable outlook Well positioned for 2009/10 Business performance, excluding exceptional items, remeasurements, and stranded cost recoveries for continuing operations. Operating profit, profit before tax, earnings per share performance and operating cash flow at actual FX. * Pre tax operating cash flow on a business performance basis. 9

10 Operating profit Operating profit 70m up at actual FX 1,079m 1,149m m Transmission UK 549 Transmission US 88 Gas Distribution UK 385 Gas Distribution US (132) Electricity Distribution & Generation US 169 Other activities 90 Operating Profit 1, Operating profit before exceptional items, remeasurements and stranded cost recoveries Business performance, excluding exceptional items, remeasurements, and stranded cost recoveries for continuing operations. 10

11 Operating cash flow Net operating cash flow 747m up at actual FX 860m 1,607m Six months ended 30 September 2009 m Operating profit 1,149 Depreciation & amortisation 585 Pensions (409) Working capital & other 282 Net operating cash flow 1,607 Significant improvement: Higher operating profit Working capital improvement Lower pensions payments Pre tax operating cash flow on a business performance basis. Business performance, excluding exceptional items, remeasurements, and stranded cost recoveries for continuing operations. Further details on pensions including IAS19 data and regulatory recovery principles available in the appendix. 11

12 Interest, tax, and exchange rates Net finance costs 20m down 6 months ended 30 September Net finance cost, actual FX ( m) (504) (524) Effective tax rate 14.3% Full-year rate expected to be ~29% 6 months ended 30 September Tax, actual FX ( m) (93) (125) Net currency benefit/(impact) (7)m on earnings 6 months ended 30 September Average $ / rate for the period Closing $ / rate Business performance, excluding exceptional items, remeasurements, and stranded cost recoveries for continuing operations. 12

13 Focus for 2009/10 Regulation Regulatory progress in the US Constructive UK regulatory developments Driving efficiency On track for improvement in efficiency metric $140m run rate KeySpan synergy savings Disciplined investment Invested 1.5bn Already funded 1.3bn for 2010/11 Credit ratings confirmed as stable 13

14 Funding 14

15 Net debt Closing net debt (22)bn (22.7)bn (22.0)bn m Net debt at 1 April 2009 (22,673) Operating cash flow (a) 1,607 Interest & tax (599) Investment (b) (1,461) Dividends (420) Other (c) 108 Net change in net debt (765) Non-cash movements (mainly FX) 1,458 Net debt at 30 September 2009 (21,980) 1 April September 2009 (a) (b) (c) Pre-tax operating cash flows on a business performance basis. Investment excluding Joint Ventures. Includes cash flows relating to exceptional items, stranded cost recoveries, and other items. 15

16 Sound financial position 2009/10 funding complete 1.3bn pre-funding for 2010/11 3.8bn 0.4bn ~ 3.0bn Credit ratings affirmed with stable outlook Rating metrics set to significantly strengthen this year 2.5bn 3.4bn 1.3bn First US OpCo issuances in 10 years 2009/10 and 2010/11 floating interest rates substantially locked in 2009/10 funding requirement* Funding to date 2010/11 funding** Working capital improvement Issued Pre-funding 2010/11 * 2009/10 funding requirement as at 31 March 2009 based on an FX rate of $1.44 to ** 2010/11 funding requirement as at 30 September 2009 based on an FX rate of $1.60 to

17 1,400 1,200 1, Recent funding loans and bonds 17 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 m equiv. MECO NIMO NGUSA NG NGET NGGas Total funding for January 2008 to November 2009 was c. 7.7bn $/ =1.45

18 Liquidity support committed bank lines and cash Total Amount ( m)* Group Committed Facilities *USD/GBP = 1.6 KeySpan Corp New England Power NG Gas NG Electricity Transmission National Grid plc 0 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Maturity c. 1.5bn of available cash at 30th September 2009 Potential to hold more cash or increase bank lines Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 c. 3bn of undrawn committed bank lines. 18

19 Funding policies Counterparty risk Controlled through credit limits, approvals and monitoring procedures For multiple transactions with a single counterparty we usually use a master netting agreement to reduce exposure to credit risk Refinancing risk Controlled through limits on the amount of financing obligations arising in any given year Limits the amount of debt falling due for refinancing in any given time frame Foreign exchange risk management Principle foreign exchange risk is $US Natural hedge : manage $US financial liabilities to match $US cash flows Hedge certain contractually committed foreign exchange transactions Interest rate risk management We minimise total financing costs to manage interest cost and total financing cost below pre-set limits Exposure managed using fixed-rate and floating rate debt, interest rate swaps, swap options & forward rate agreements Debt maturity profile as at 16 th Nov 09 at 1=$

20 Treasury contacts Malcolm Cooper (Group Tax and Treasury Director): D: +44 (0) Andrew Kluth (Assistant Treasurer, Funding): D: +44 (0) Andy Mead (Senior Corporate Banking Manager): D: +44 (0) David Morgan (Senior Structured Finance Manager): D: +44 (0) Group website: Detailed debt investor information: 20

21 Appendix 21

22 Current US regulatory position Regulatory entity Base allowed return Achieved return % of US rate base Previously agreed 33% New England Power Narragansett (electricity transmission) Canadian interconnector KEDNY KEDLI 11.14% 11.7% 11.14% 11.6% 13.0% 13.5% 9.8% 11.9% 9.8% 11.1% 47% 14% Settlement reached / pending (a) Rhode Island (gas) 10.5% 7.6% NiMo (gas) 10.2% 4.8% New Hampshire (gas) 9.54% 4.4% Massachusetts Electric Company 10.35% 7.0% 100% 53% To be filed/ already filed in the next 15 months (b) Rhode Island (electric) (filed June 2009) 2.3% NiMo (electric) 6.7% Boston gas Colonial gas Massachusetts gas 8.3% Essex gas (a) (b) Includes Long Island generation rate base of $574m. Includes Granite State and Nantucket electric rate bases, totalling $131m. 22

23 2009/10 Disciplined capital investment Capital investment 3.4bn 99% fully remunerated 0.2bn 0.5bn 1.1bn 1.6bn 0.2bn 0.6bn 2.6bn Not fully remunerated Customer contracts Within the next few years Plan Transmission Elec. Dist. & Gen. Remuneration Gas Distribution Non-regulated Within the year 23

24 2006 Utility sector potential investment 2006 worldwide investment to 2020 Generation Replacement of ageing assets Major new transmission build 20% investment in US $10trn Networks $6trn 24

25 2009 Greater clarity on growth potential Asset replacement 2009 UK investment to 2020 Emerging energy policy Climate change Diversity of supply Generation 200bn Networks c 70bn Disciplined approach to investment 2009 US electricity investment to 2030 Generation $1.5-2trn Electricity Networks c$1trn 25

26 Predictability of regulated cash flows is a key factor in our ratings Group credit ratings Senior Unsecured / Short-Term ratings Moody s S&P National Grid plc Baa1/P2 BBB+/A2 National Grid Electricity Transmission plc A3/P2 A-/A2 National Grid Holdings One plc Not rated BBB+/A2 National Grid Gas plc 1 A3/P2 A-/A2 National Grid Gas Holdings Limited A3/--- A- 3 /--- National Grid USA A3/P2 BBB+/A2 Niagara Mohawk Power Corporation A3/-- A-/A2 Massachusetts Electric Co. A3 2 /P2 A-/A2 New England Power Co. A3/P2 A-/A2 The Narragansett Electric Co. A3 2 /--- A- 3 A2 KeySpan Corporation Baa1/P2 A-/A2 The Brooklyn Union Gas Company Not rated A/--- KeySpan Gas East Corporation A3/--- A/--- Boston Gas Company Baa1/-- A-/-- Colonial Gas Company A3/--- A- 3 /--- National Grid Generation LLC Baa1 2 /--- A- 3 /--- 1 NGG is also rated A/Stable by JCR 2 Issuer rating 3 Corporate credit rating Fitch BBB+/F2 A/F2 Not rated A/F2 A/--- Not rated Not rated Not rated Not rated Not rated A-/--- A+/--- A/--- Not rated Not rated Not rated The ratings set forth above are not a recommendation to purchase, hold or sell National Grid s notes, that may be issued from time to time, inasmuch as the ratings do not comment as to market price or suitability for a particular investor. The ratings are based on current information we have furnished to the rating agencies and information obtained by the rating agencies from other sources. The ratings are only accurate as of the date hereof and may be changed, superseded or withdrawn as a result of changes in, or unavailability of, such information and, therefore, a prospective purchaser should check the current ratings before purchasing National Grid s notes. 26