2014/15. Half Year Results. London Friday 7 November 2014

Transcription

1 2014/15 Half Year Results London Friday 7 November 2014

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 aims, 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 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 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, announcements 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 or other incidents arising from the potentially harmful nature of its activities; network failure or interruption, the inability to carry out critical non network operations and damage to infrastructure, due to adverse seasonal and weather conditions including the impact of 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 and supporting technology; changes in public safety concerns, including due to network failure or interruption involving National Grid or other utility providers, and related increases in repair and emergency response activities; 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; and customers and counterparties (including financial institutions) failing to perform their obligations to the Company. Other factors that could cause actual results to differ materially from those described in this announcement 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 failure to attract, train or retain employees with the necessary competencies, including leadership skills, and any significant disputes arising with National Grid s employees or the breach of laws or regulations by its employees; and the failure to respond to market developments and grow the Company s business to deliver its strategy, as well as incorrect or unforeseen assumptions or conclusions (including unanticipated costs and liabilities) 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 impact National Grid, please read the Strategic Report section and the Risk factors on pages 167 to 169 of National Grid s most recent Annual Report and Accounts. 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 forward-looking 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 2014/15 Half Year Results Highlights Steve Holliday Chief Executive

4 On track for another good year Consistent delivery of growth & continued execution against our plans UK performing well US systems implementation completed US business growing Delivering the fundamentals 4

5 Safety, reliability & customer service UK employee safety remains world class; US making excellent progress Network reliability remains strong Delivering another year of substantial investment 5

6 Financial headlines 1.6bn 1.1bn 883m operating profit profit before tax earnings 23.4p earnings per share 14.71p dividend per share Capital investment 1.6bn Note: Adjusted performance, excluding exceptional items and remeasurements for continuing operations All numbers include impacts of timing 6

7 UK Priorities Electricity Transmission Significant investment programme Gas Transmission Several important upgrades required Gas Distribution Challenge to improve customer service 7

8 London power tunnels Significant investment programme 8

9 Gas Transmission compressors Several important upgrades 9

10 Gas Distribution customer service Challenge to improve customer service 10

11 US Priorities Complete installation of new financial systems Sustain asset growth and returns 11

12 US Priorities Complete installation of new financial systems Completed Sustain asset growth and returns Upgrade successfully installed in July New financial systems fully integrated 12

13 US Priorities Operations performing well Strong growth in regulated assets Complete installation of new financial systems Headwinds to expected returns Unplanned gas mains repair costs End of bonus depreciation dilutes returns Sustain asset growth and returns 13

14 Unplanned gas mains repair costs 14

15 Property JV with Berkeley Group Property deal up to 24 sites into JV First 10 sites identified Berkeley Group invest cash, we provide sites Realise greater value for our London portfolio 15

16 Responsible business Responsible business of the year award from Business in the Community Recognised UK & US businesses: - focus on sustainability - work in the community - developing skills and talent 16

17 2014/15 Half Year Results Business Review Andrew Bonfield Finance Director

18 In line with expectations Operating profit UK Electricity Transmission UK Gas Transmission UK Gas Distribution 687m 110m 434m US Regulated 307m Other Activities 73m Full Year focus on - value added - returns - regulatory financial performance & position Half Year update - key drivers - outlook on full year returns Note: Adjusted performance, excluding exceptional items and remeasurements for continuing operations All numbers include impacts of timing 18

19 Electricity Transmission Incentives Totex Other Add l Overall UK Electricity Transmission Totex 687m + = = + UK Transmission Legal settlements of 53m not included in 14/15 returns Totex improvements driven by capital efficiencies Other incentives to maintain into the full year Additional (legacy) price control benefits continue On track for improved performance Note: Adjusted performance, excluding exceptional items and remeasurements for continuing operations All numbers include impacts of timing 19

20 Gas Transmission Incentives Totex Other Add l Overall UK Gas Transmission Totex 110m + + = + UK Transmission Lower totex spend - in line with allowances Permit income to boost traditional (other) incentives Additional (legacy) allowances to remain in line with 13/14 but will ramp down from 2015/16 Note: Adjusted performance, excluding exceptional items and remeasurements for continuing operations All numbers include impacts of timing 20

21 Gas Distribution Incentives Totex Other Add l Overall UK Gas Distribution Totex 434m = + = = UK Transmission Another good year for mains replacement activities Customer service improvements should benefit other incentives Small amount of additional benefits set to continue Note: Adjusted performance, excluding exceptional items and remeasurements for continuing operations All numbers include impacts of timing 21

22 US bonus depreciation Stimulus measure to encourage investment Lowered cash tax by accelerating tax deductions Creates deferred tax liability, offset against rate base growth No impact on revenues, potential upside when rate base growth trued up For calendar year, likely to add around $350m to rate base growth a 20 basis point headwind to returns 22

23 US Regulated US Regulated 307m 8.5 % - 8.9% projected 2014 returns UK Transmission Operations performing well Strong growth in regulated assets Returns expect to reflect - bonus depreciation impact - costs associated with winter weather of 2013/14 Fundamentals of US business remain attractive Note: Adjusted performance, excluding exceptional items and remeasurements for continuing operations All numbers include impacts of timing 23

24 Other Metering Grain LNG IFA Property Other operating activities 87m 38m 51m 26m Operating activities continue to provide steady performance Positive outlook for the full year Joint venture with Berkeley Group should unlock value of London property portfolio over time Corporate costs associated with business development and regulatory filings Note: Adjusted performance, excluding exceptional items and remeasurements for continuing operations All numbers include impacts of timing

25 Interest, tax and earnings Finance costs 492m 19% lower than 2013 Effective interest rate 4.5% Lower cost of carry from holding cash & refinancing debt at attractive rates Adjusted performance, excluding exceptional items and remeasurements 25

26 Debt financing $900m NiMo bond raising - 10 years at 3.5% - 20 years at 4.3% 1.5bn bank loan facility arranged with European Investment Bank 26

27 Interest, tax and earnings Finance costs 492m 19% lower than 2013 Effective tax rate 22.7% at (258)m Earnings per share 23.4p Effective interest rate 4.5% Lower cost of carry from holding cash & refinancing debt at attractive rates Tax rate 30bp lower than 2013 Reflects lower UK corporation tax rate 883m earnings 3,771m weighted avg. shares Adjusted performance, excluding exceptional items and remeasurements 27

28 Cash flows and net debt Period ended 30 September 2014 m Operating profit 1,611 Depreciation & amortisation 721 Provisions, incl. pensions (197) Working capital & other 432 Net operating cash flow 2,567 Net debt 21,744 Net operating cash flow 2.6bn Operating cash flow after capex Net debt 85m 21.7bn Operating cash flows from continuing operations before exceptional items, remeasurements and taxation 28

29 Capital investment m H H UK Transmission UK Gas Transmission UK Gas Distribution US Regulated Other Activities Total 1,579 1,688 c.5% group growth rate expected 29

30 Technical guidance 2014/15 US 18a timing refund $120-$140m Impacts of US weather Interest costs lower Full year tax rate of 25% 2015/16 Two-year lag in UK regulation - return revenues - share savings - collect incentives No impact on returns 30

31 Summary Solid first half Good progress to year end objectives Continue to grow group whilst supporting dividend 31

32 2014/15 Half Year Results Priorities & outlook Steve Holliday Chief Executive

33 Electricity Market Reform Managed capacity market qualification process - 63GW capacity qualified - target of 51GW First capacity auctions in December 2014 First contract for difference awards in early

34 Winter outlook Loss of load expectation (LOLE) Worsening reliability Supplemental & Demand-side Balancing Reserve EMR Capacity Market in place Improving reliability Source: Ofgem June Electricity Capacity Assessment Report

35 UK Priorities Electricity Transmission Significant investment programme Gas Transmission Several important upgrades required Gas Distribution Challenge to improve customer service 35

36 US Priorities Drive performance and efficiency Smaller targeted applications for cost allowances Complete installation of new financial systems - Massachusetts & KEDLI Major filings in New York and Massachusetts Sustain asset growth and returns 36

37 Tom King Tom King to step down in March 2015 Seven years of important change Leaves behind an organisation with strong jurisdictional & regulatory focus 37

38 Dean Seavers Dean Seavers will join in December 2014 as US CEO Brings wealth of experience in performance management 38

39 Peggy Smyth Peggy Smyth joined in October as US CFO Brings strong utility experience after time at Consolidated Edison 39

40 US Priorities Drive performance and efficiency Smaller targeted applications for cost allowances Complete installation of new financial systems - Massachusetts & KEDLI Major filings in New York and Massachusetts Sustain asset growth and returns 40

41 Growth pipeline UK 16bn - 20bn over bn - 3bn pa 41

42 Growth pipeline US 16bn - 20bn Network modernisation over Gas mains replacement Customer 2bn - connections 3bn pa $2bn - $2.5bn+ pa 42

43 Growth pipeline UK 16bn - 20bn over bn - 3bn pa + Interconnectors US $2bn - $2.5bn+ pa Nemo Link 500m, 1GW Belgian interconnector NSN Link 2bn, 1.4GW Norwegian interconnector 43

44 Growth pipeline 16bn - 20bn New York State Transco JV over JV between four transmission operators 2bn - 3bn pa Reinforce north-south + transfer of power Interconnectors Expect overall $2bn investment UK FERC 1000 Wide range of opportunities US $2bn - $2.5bn+ pa + New York Transco + FERC1000 & Other 44

45 Growth pipeline UK 16bn - 20bn over bn - 3bn pa US $2bn - $2.5bn+ pa + New York Transco + Interconnectors + FERC1000 & Other = Attractive Combination of Growth & Yield 45

46 In summary Safety, reliability and operational execution Well positioned & confident in our future 46

47 2014/15 Half Year Results Appendices

48 Appendix 1: Pensions & other post-retirement benefit obligations (IAS19 data) UK US At 30 September 2014 ( m) ESPS NGUK PS Pensions OPEBs NG total Market value of assets 2,102 16,029 4,506 1,696 24,333 Present value of liabilities (2,612) (16,194) (5,056) (2,847) (26,709) Net liability (510) (165) (550) (1,151) (2,376) Deferred taxation Liability net of taxation (408) (132) (328) (688) (1,556) Discount rates 4.0% 4.0% 4.6% 4.6% UK US At 31 March 2014 ( m) ESPS NGUK PS Pensions OPEBs NG total Market value of assets 1,957 15,452 4,229 1,620 23,258 Present value of liabilities (2,467) (15,695) (4,752) (2,755) (25,669) Net liability (510) (243) (523) (1,135) (2,411) Deferred taxation Liability net of taxation (408) (194) (313) (679) (1,594) Discount rates 4.3% 4.3% 4.8% 4.8% OPEBs = other post employment benefits

49 Appendix 2: Timing Impacts m UK Electricity Transmission UK Gas Transmission UK Gas Distribution US Regulated Total 2014/15 Opening balance (67) (11) /15 over/(under) recovery (6) 10 3 (35) (28) 2014/15 Closing balance to return / (recover) (73) (1) /14 Opening balance (7) 10 (8) /14 over/(under) recovery 10 (12) 8 (52) (46) 2013/14 Closing balance to return / (recover) 3 (2) Year on year timing variance (16) 22 (5) All USD balances stated using the average 2014 rate ($1.68 to 1.00)

50 Appendix 3: Weighted average number of shares Period ended 30 September Number of shares (millions): Prior period as reported (weighted average) - 3,729 Current period opening shares 3,730 - August 2014 dividend scrip shares Other share issuances (weighted from issuance) 6 - Weighted average number of shares (2013 restated) 3,771 3,764 Business performance earnings ( m) Business performance EPS (2013 restated) 23.4p 20.2p