Half Year Results 2010/ November 2010

Transcription

1 Half Year Results 2010/11 18 November 2010

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 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', 'targets', 'may', 'will', 'continue', 'project' and similar expressions, as well as statements in the future tense, identify forward-looking statements. These forwardlooking 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 such as changes in laws or regulations and decisions by governmental bodies or regulators; breaches of, or changes in, environmental, climate change and health and safety laws or regulations; network failure or interruption, the inability to carry out critical non-network operations and damage to infrastructure; performance against regulatory targets and standards, including delivery of costs and efficiency savings; customers and counterparties failing to perform their obligations; and unseasonable weather affecting energy demands. Other factors that could cause actual results to differ materially from those described in this presentation include fluctuations in exchange rates, interest rates, commodity price indices and settlement of hedging arrangements; restrictions in National Grid's borrowing and debt arrangements; changes to credit ratings of National Grid and its subsidiaries; adverse changes and volatility in the global credit markets; National Grid's ability to access capital markets and other sources of credit in a timely manner and other sources of credit on acceptable terms; deflation or inflation; the seasonality of National Grid's businesses; the future funding requirements of National Grid's pension schemes and other post-retirement benefit schemes, and the regulatory treatment of pension costs; the loss of key personnel or the inability to attract, train or retain qualified personnel; new or revised accounting standards, rules and interpretations, including changes of law and accounting standards that may affect National Grid's effective rate of tax; incorrect assumptions or conclusions underpinning business development activity, and any unforeseen significant liabilities or other unanticipated or unintended effects of such activities and the performance of National Grid's subsidiaries. In addition National Grid's reputation may be harmed if consumers of energy suffer a disruption to their supply. 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 (and in particular the Risk Factors and Operating and Financial Review sections in its most recent Annual Report on Form 20-F). 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 its results to differ materially from those contained in any forward-looking statement. Except as may be required by law or regulation, National Grid undertakes no obligation to update any of its forward-looking statements, which speak only as of the date of this presentation

3 Half Year Results 2010/11 Steve Holliday

4 Agenda Operational performance Financial results Update on priorities

5 Operational performance Safety 16% improvement in Injury Frequency rate Improved process safety Reliability On track to meet UK reliability performance US may be impacted by extreme weather events Customer satisfaction UK Gas Dx up 2% since last year US Gas Dx residential up from 3 rd to 2 nd quartile Efficiency Delivering KeySpan efficiency savings

6 Strong financial results Six months to Sep 2010 Operating profit up 31% Operating cash flows up 20% Earnings up 18% EPS up 5% Interim dividend up 8% Constant currency figures calculated by applying the average 2010 rate ($1.52 to 1.00) to 2009 results (when the average rate was $1.55 to 1.00) Prior year reported EPS of 22.5p has been restated to 19.4p reflecting scrip dividends and the impact of the bonus element of the rights issue Business performance, excluding exceptional items, remeasurements and stranded cost recoveries for continuing operations Operating cash flow from continuing operations before exceptional items, remeasurements, stranded cost recoveries and taxation Prior year dividend rebased reflecting the impact of the bonus element of the rights issue

7 Half Year Results 2010/11 Steve Lucas Finance Director

8 Strong financial results Six months to Sep 2010 Operating profit up 31% Operating cash flows up 20% Earnings up 18% EPS up 5% Interim dividend up 8% Constant currency figures calculated by applying the average 2010 rate ($1.52 to 1.00) to 2009 results (when the average rate was $1.55 to 1.00) Prior year reported EPS of 22.5p has been restated to 19.4p reflecting scrip dividends and the impact of the bonus element of the rights issue Business performance, excluding exceptional items, remeasurements and stranded cost recoveries for continuing operations Operating cash flow from continuing operations before exceptional items, remeasurements, stranded cost recoveries and taxation Prior year dividend rebased reflecting the impact of the bonus element of the rights issue

9 Transmission Operating profit 13% up at constant currency Transmission operating profit 48% share of group 109m 6m (14)m (16)m 724m 639m 2009 Net regulated income US Timing Depreciation Net other 2010 Operating profit at constant currency Visual representation only not to scale Business performance, excluding exceptional items, remeasurements and stranded cost recoveries for continuing operations Constant currency figures calculated by applying the average 2010 rate ($1.52 to 1.00) to 2009 results (when the average rate was $1.55 to 1.00)

10 Gas Distribution Operating profit 30% up at constant currency Gas Distribution operating profit 21% share of group 24m 59m 18m (27)m 324m 250m 2009 Net regulated income US Timing Bad debts Net other including (19)m depreciation Operating profit at constant currency 2010 Visual representation only not to scale Business performance, excluding exceptional items, remeasurements and stranded cost recoveries for continuing operations Constant currency figures calculated by applying the average 2010 rate ($1.52 to 1.00) to 2009 results (when the average rate was $1.55 to 1.00)

11 Electricity Distribution and Generation Operating profit 108% up at constant currency ED & G operating profit 24% share of group 129m 5m (13)m 66m 360m 173m 2009 Net regulated income Timing Bad debts Net other 2010 Operating profit at constant currency Visual representation only not to scale Business performance, excluding exceptional items, remeasurements and stranded cost recoveries for continuing operations Constant currency figures calculated by applying the average 2010 rate ($1.52 to 1.00) to 2009 results (when the average rate was $1.55 to 1.00)

12 Non-regulated and other Operating profit 12% up at constant currency Non-reg. & other operating profit 7% share of group 8m 2m 1m 101m 90m 2009 Grain LNG Property Metering 2010 Operating profit at constant currency Visual representation only not to scale Business performance, excluding exceptional items, remeasurements and stranded cost recoveries for continuing operations Constant currency figures calculated by applying the average 2010 rate ($1.52 to 1.00) to 2009 results (when the average rate was $1.55 to 1.00)

13 Group operating profit Operating profit 31% up 1,509m Business performance, excluding exceptional items, remeasurements and stranded cost recoveries for continuing operations Constant currency figures calculated by applying the average 2010 rate ($1.52 to 1.00) to 2009 results (when the average rate was $1.55 to 1.00)

14 Operating cash flow Net operating cash flow 20% up at actual FX Six months ended 30 September 2010 m 30 September 2009 m Operating profit 1,509 1,149 Depreciation & amortisation Pensions (167) (409) Working capital & other (28) 282 Net operating cash flow 1,933 1,607 1,607m 1,933m Operating cash flow from continuing operations before exceptional items, remeasurements, stranded cost recoveries and taxation. Further details on pensions including IAS19 data and regulatory recovery principles available in the Appendix

15 Net Debt Closing net debt 2.9bn lower m Net debt at 1 April 2010 (22,139) Operating cash flow (a) 1,933 Interest & tax (652) Cash investment (1,585)* Dividends (472) (22.1)bn (19.2)bn Proceeds from rights issue 3,218 Other (b) 38 Net debt before FX (19,659) FX movements 413 '1 1 April September 30-Sep Net debt at 30 September 2010 (19,246) (a) Operating cash flow from continuing operations before exceptional items, remeasurements, stranded cost recoveries and taxation (b) Includes cash flows relating to exceptional operating items, stranded cost recoveries and other non cash items *Including JVs and disposals

16 Effective cash management Debt buybacks reduce cost of carry 50 debt repurchases in period 10 individual bonds 619m Debt maturities 2 bank loans prepaid Debt maturities not refinanced 182m Bank loans prepaid 731m Debt buybacks 2010

17 Cost savings and efficiency 1% reduction in controllable costs* KeySpan synergy savings on track for $200m Efficiency metric** set to improve at the full year * Controllable costs excluding bad debts, pension and other post employment benefits ** Regulated controllable costs excluding bad debts on a constant currency basis divided by mid-year UK regulatory asset value plus US rate base at constant currency.

18 Interest, tax, and exchange rates Net finance costs 70m up 6 months ended 30 September 2010 Net finance cost, actual FX ( m) (574) 2009 (504) at actual FX Effective tax rate 29.7% 6 months ended 30 September Tax ( m) 2010 (279) 2009 (93) Full year rate expected to be c.30% Net currency impact (3)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

19 Capital investment Capital investment 1.7 billion Gas Distribution 542m Capital investment to significantly increase over 2009/10 Further increase in Transmission investment during second half Transmission 760m 175m 204m Non-regulated & other (including joint ventures) Electricity Distribution & Generation Capital investment including investment in joint ventures

20 Capital investment September 2010: 24km Easington gas transmission pipeline Completed Completed ~ 63m October 2010: 44km Wormington gas transmission pipeline ~ 89m Completed September 2010: GIS substation connection for Dong Energy ~ 56m October 2010: New Tilbury 400kv Substation & up rating of 15km of power cable Completed ~ 62m

21 Summary Strong results Interim dividend up 8% Well positioned for 2010/11 Prior year dividend rebased reflecting the impact of the bonus element of the rights issue

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23 Half Year Results 2010/11 Steve Holliday

24 Update on priorities US regulatory progress UK regulatory update Capital investment programme

25 US industry rate filings Average annual US electric and gas rate filing submissions Rate case filings Increasing Source: SNL Regulatory Research Associates * *2010 figure year to date

26 Rate case outcomes Revenue Increases Post KeySpan Merger TBD $m Narr Gas Long Island Gen Energy- North NM PC Gas Narr Elec M ass Elec NM PC Gas* Energy North** M ass Gas Total to date NM PC Elec Future Rate Filings Rates Effective Dec 2008 Feb 2009 Apr 2009 May 2009 Jan 2010 Jan 2010 May 2010 Jun 2010 Nov 2010 * Year 2 re-opener of existing rate case to update recovery of pension/opeb, property tax and environmental expenses ** Temporary rates, effective June

27 Update on Massachusetts Gas Requested Granted Revenue Increase $104m $58m Return on Equity 11.3% 9.75% Capital structure 53.6% equity 50% equity O&M expense $338m $331m Decoupling Capital tracker Pension true up Commodity bad debt true up Overall revenue increase $58m

28 Changing features of rate plans % Decoupled % Capital trackers % Pension true ups % Bad debt commodity trackers Dec % 12% 64% 24% Nov % 64% 95% 71% % of business with feature or not exposed to risk* % gap *Businesses that have a full or partial tracker or some other equivalent mechanism are included along with, for decoupling and bad debts, our transmission & generation rate plans which have no exposure to volumes or bad debts Percentage figure relates to proportion of rate base (at 31 Dec 2009) affected (excluding stranded costs)

29 Update on US regulatory progress Filings in progress NMPC Electric rate filing EnergyNorth rate filing Revenue requested $361m $11m Features requested Decoupling, commodity bad debt, pensions, capital Decoupling, commodity bad debt, pensions, capital To be filed Rhode Island Gas Rhode Island Electric Revenue request Features request Decoupling, capital tracker Decoupling, capital tracker

30 Continuing strong UK performance Delivering attractive returns Ahead on incentives Delivering on investment plans

31 RIIO - Supporting UK investment Retain ex ante control Innovation Incentives RIIO component Outputs led through enhanced engagement 8 year price controls

32 UK regulation timeline Dec 2010 Mar 2011 July 2011 Dec 2011 TPCR4 roll over Initial Proposals Final Proposals RIIO Initial Strategy Consultation Initial Strategy Conclusions RIIO-T1 & RIIO-GD1 Business plans submitted

33 2010/11 forecast capex spend and remuneration 3.7bn* in 2010/11 Up 0.4bn More than 99% of capex remunerated Capex split Capex remuneration commences Non-reg customer contracts 2 year lag 1 year lag Not fully remunerated Non-reg & other* ED&G Gas Distribution US Gas Distribution UK Transmission US Transmission UK Within year Assumes an average exchange rate of $1.60 to 1.00 for the year * Includes investment in joint ventures

34 Major UK investment projects UK investment 16bn* over 5 years Currently in construction phase 100m Thames Estuary connection and reinforcement works Currently in pre-engineering phase 400m 450m 650m 800m Hinkley Point C nuclear power station connection works Sizewell new generation connection works Western HVDC link between Scotland & north Wales London cable tunnels *Includes non-regulated investment & JVs Projects due to incur significant spend before March 2012

35 Regulated asset growth Group assets CAGR % p.a. Total Capex 5 year spend UK regulated US regulated Other, including offshore transmission, Grain, interconnectors 14bn 6bn 2bn 22bn Asset annual growth rate UK Electricity Transmission UK Gas Transmission UK Gas Distribution US regulated businesses ~13% ~7% ~4% ~4% UK RAV estimated using depreciation methodology, regulatory asset lives and treatment of mains repex as per price controls starting in 2007 and 2008 and assuming inflation of 3.7% p.a. in 2010/11 & 2011/12 & 3% p.a. thereafter US rate base estimated using existing methodology as stipulated under current regulatory agreements

36 Outlook next 6 months NMPC electric outcome RIIO strategy consultation 3.7bn full year forecast investment Continued push on cost efficiency Well positioned for full year

37 Appendix 2010/11

38 Investment and UK RAV Growth Group capex 2010/11 to 2014/15 UK RAV* Business UK regulated onshore electricity transmission UK gas transmission UK gas distribution US transmission US gas distribution US electricity distribution Other, including offshore transmission, Grain, interconnectors Total bn 9bn 2bn 3bn 2bn 2bn 2bn 2bn 22bn 8.6bn 7.0bn 6.4bn 4.5bn 14.1bn 7.5bn UKET UKGT UKGD *UK RAV estimated using depreciation methodology, regulatory asset lives and treatment of mains repex as per price controls starting in 2007 and 2008 and assuming inflation of 3.7% p.a. in 2010/11 & 2011/12 & 3% p.a. thereafter

39 Pensions & other post employment benefit obligations: regulatory recovery principles UK US Regulatory recovery principles ESPS NGUK PS Pensions OPEBs Ongoing pension costs recoverable 98% 90% 100% 100% Deficits recoverable 98% 63% 100% 100% (legacy non-regulated and some ERDC excluded) (true-up mechanisms / filings lead to timing variances only) OPEB costs & deficits recoverable N/A N/A 100% 100% (no obligation to fund deficits standard practice adopted) Next actuarial valuation expected Annually Annually US pensions and OPEBs on going and deficit costs are typically 100% recoverable for regulated activities through base allowances, with the majority of rate plans also containing reconciliation / true up mechanisms. Actual pension costs for this purpose are as measured on a US GAAP basis, which includes the amortisation of deficits or surpluses. OPEBs = Other Post Employment Benefits. ERDC = Early Retirement Deficit Contributions.

40 US pensions & other post employment benefit obligations: regulatory treatment by rate plan Each of our five US regulatory commissions regulate the level of costs related to pensions and other post-employment benefits (OPEBs) that are charged to customers. Approach 1: Periodic reconciliation of revenues to true-up actual pension / OPEB costs. Jurisdiction Mechanism New York Reconciliation with deferred amounts collected / credited in CTC (deferral account) reset Massachusetts Reconciliation with deferred amounts collected / credited over 3 years Rhode Island (gas) Annual reconciliation agreed in 2008 rate case FERC Formula Rate monthly reconciliation of actual expenses LIPA Generation Base rates reset annually based on current year actuarial expense Approach 2: Pension / OPEBs are a component of cost of service used to set rates. Level remains in effect until next rate case with no true-up. Jurisdiction Mechanism Rhode Island (electric) Proposed reconciliation mechanism in rate case filing in 2010, however, it was denied New Hampshire has not been included above as we are currently evaluating our options to allow us to exit these businesses.

41 Pensions and other post retirement benefit obligations (IAS19 data) UK US At 30 September 2010 ( m) ESPS NGUK PS Pensions OPEBs Total Market value of assets 1,512 13,605 3, ,519 Present value of liabilities (2,137) (14,000) (4,457) (2,909) (23,503) Deficit (625) (395) (1,033) (1,931) (3,984) Deferred tax* ,459 Deficit net of deferred tax (450) (284) (622) (1,169) (2,525) Discount rates 5.0% 5.0% 5.1% 5.1% * Deferred tax is calculated using the UK statutory tax rate and the US effective tax rate attributable to the pension and OPEBs balances at 30 September OPEBs = Other Post Employment Benefits.

42 US Timing impacts US Transmission US Gas Distribution Elec. Dist. & Gen. Total Over / (under) collections impact 2009 timing* - (140) (65) (205) Over / (under) collections impact 2010 timing 6 (81) 64 (11) Period on period variance Closing balance at 30 September (143) 24 (117) * Restated for change in reporting methodology and at constant currency Constant currency figures calculated by applying the average 2010 rate ($1.52 to 1.00) to 2009 results (when the average rate was $1.55 to 1.00)

43 Bad debt % write-off of billed revenue 8 bps lower on prior period Improved performance across the Group 1.69% 1.61% Bad debts write off as a percentage of 180 day lagged revenues on a 12 month rolling basis, for continuing operations.

44 Ready reckoner - weighted average number of shares Period ended 30 September 2010 Period ended 30 September 2009 Number of shares (millions): Prior period as reported (weighted average) January 2010 dividend scrip shares Current period opening shares - - 2,473 2,473 2, ,469 Bonus element of rights issue ( bonus factor) August 2010 dividend scrip shares Non bonus element of rights issue (weighted from issuance) Other share issuances (weighted from issuance) Weighted average number of shares (2009 restated) 3,238 2,850 Business performance earnings ( m) Business performance EPS (2009 restated) 20.3p 19.4p Total rights issue shares of 990.4m issued on 14 th June Non bonus shares of 637.5m (990.4m 353m) in issue for 109 days out of 183 days: * (109/183) = 380m