National Grid Plc · LSE:NG.
National Grid — FY2012/13 Earnings Presentation
68 slides from National Grid's earnings presentation, May 16, 2013
Slide 1: Full Year Results 2012/13
2012/13 Full Year London | Thursday 16 May 2013 Results
Slide 2: Cautionary statement
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 Securit
Slide 3: Full Year Results Key Highlights
2012/13 Full Year Results Key Highlights Steve Holliday | Chief Executive
Slide 4: Introduction
Introduction Two years of transition Business wide change Step change to US performance Increasing capital investments Exceptional clarity… … for the majority of our business … around financing our growth … priorities for our leadership team 4
Slide 5: Agenda
Agenda Highlights Business review and financial priorities Strategy, growth and returns 5
Slide 6: Good financial performance
Good financial performance Operating profit1 £3,644m 4% Profit before tax1 £2,742m 6% Capital Investment2 £3,700m 9% Earnings £2,055m 12% EPS3 56.1p 12% Dividend per share 40.85p 4% 1 Constant currency figures calculated by applying the average 2013 rate ($1.57 to £1.00) to 2012 results (when the av
Slide 7: Key strategic priorities
Key strategic priorities Last two years Secure a good RIIO UK outcome despite early financing proposals Implement major restructuring US Increase jurisdictional focus Conclude important rate case filings 7
Slide 8: UK RIIO outcome
UK RIIO outcome Clear framework to focus delivery of investment, customer service and returns Around £25bn investment allowance in essential infrastructure over 8 years Significant incentives around total expenditure Continued incentives to reward customer focus Underpinned by effective financing fr
Slide 9: UK Operational Progress
UK Operational Progress Continued ramp up of major investments Grew regulated asset value by £1.6bn, up 7% In September, launched new UK operating model - 12 month programme to reshape UK business - objective to focus business on RIIO outcomes 9
Slide 10: US Strategic Progress
US Strategic Progress Four rate cases approved in Rhode Island and New York jurisdictions Agreed new long term power supply agreement on Long Island Extension of rates in KEDNY for two years agreed 10
Slide 11: ‘Superstorm’ Sandy
‘Superstorm’ Sandy 11
Slide 12: US Operational Progress
US Operational Progress Invested over £1.1bn or $1.8bn to improve infrastructure and customer service Implemented new back office SAP system – replaced multiple legacy platforms – addresses many regulatory audit findings – improve information for future filings Delivered good rate base growth of 4%
Slide 13: Safety and reliability
Safety and reliability Major incidents down significantly Lost time injury Safety frequency rate of 0.13 Key focus across the whole business UK network reliability Service remains high US building stronger and community relationships reliability and improving standards of service Lost time injury fr
Slide 14: Summary
Summary Well positioned for future Major regulatory agreements updated covering over 80% of asset base Significant clarity in the medium term 14
Slide 15: Full Year Results Business Review
2012/13 Full Year Results Business Review Andrew Bonfield | Finance Director
Slide 16: UK Transmission
UK Transmission 44% of Group Operating Profit Operating profit Year on year timing effects of £67m excluding timing 14% Higher revenues driven by roll-over year, asset growth and RPI Operating profit BSIS losses more than offset by strong performance 19% from other incentives 277 (24) (7) (58) 67 £m
Slide 17: UK Gas Distribution
UK Gas Distribution 22% of Group Operating Profit Operating profit excluding timing Year on year timing effects of £(32)m 9% Higher revenues driven by RPI Operating profit Inflation and depreciation increased costs, together with 4% reduced benefit from metering work 85 (13) (2) 3 (10) £m (32) 763 7
Slide 18: US Regulated
US Regulated 34% of Group Operating Profit Operating profit excluding timing Year on year timing effects of £(37)m and major storms 3% Income driven by recovery of New York deferred costs Operating profit Investment in information systems, environmental 3% expenses and depreciation increased costs 1
Slide 19: US progress in 2012/13
US progress in 2012/13 US achieved Return on Equity (%) Actual return as percentage of allowed return 6.9% 8.3% 8.8% 9.2% 2009/10 2010/11 2011/12 2012/13 US Regulated Assets Rate Base $14.3bn $14.5bn $15.0bn Regulated Assets outside rate base $1.7bn $1.9bn $2.2bn RoEs represent calendar year returns
Slide 20: Other activities
Other activities Operating profit excluding major storms and systems £130m One off costs related to US storms and systems – ‘Superstorm’ Sandy self-insurance costs Operating loss £(12)m No contribution from Onstream in metering 0 2 (24) (35) £m (51) 187 130 (91) (12) 2012 operating Grain LNG Propert
Slide 21: US systems
US systems Essential investments to improve legacy systems – allow delivery of cost savings – address findings of Liberty and Overland audit Higher resource requirements have driven costs Steady progress in solving implementation issues 21
Slide 22: Regulated controllable operating costs
Regulated controllable operating costs Reported increase of £56m: 1% increase on a real basis Inflation and cost increases mitigated by efficiency programmes Regulated controllable operating costs Group efficiency metric2 94 61 130 168 48* bad debts £m pensions & OPEBs 6.8 1,950 2,006 inflation 6.6
Slide 23: Group operating profit
Operating profit Operating profit excluding timing Operating profit up £148m, excluding timing and severe and major storms 4% weather Operating profit Revenue increase led by UK and New York deferrals 4% Other activities impacted by systems costs 497 (56) 33 (38) (85) (55) (148) (2) (18) £m 3,516 3,
Slide 24: Impacts of timing
Impacts of timing Started 2012/13 £110m over-recovered Ended £126m over-recovered £16m in year timing 2012/13 £3.6bn £(142)m y-o-y headwind operating including £126m closing balance profit £(2)m y-o-y impact in 2012/13 £18m in year timing 2011/12 Starting numbers restated for finalisation of UK timi
Slide 25: Interest
Interest Finance costs1 £920m Broadly unchanged at constant currency Continued refinancing of historic debt Lower accretions on RPI linked debt Business performance, excluding exceptional items, remeasurements and stranded cost recoveries 1 Constant currency figures calculated by applying the averag
Slide 26: Hybrid bond
Hybrid bond £2.1bn raised in National Grid’s first hybrid bond issuance Effective interest rate of 5.45% Rating agencies provide 50% equity credit Supports ongoing capital investment programme 26
Slide 27: Interest, tax and earnings
Interest, tax and earnings Finance costs1 Tax Earnings per share £920m 25% group 12% rate Unchanged at constant at £(686)m currency Continued refinancing of historic debt Lower UK corporate tax rate up Lower accretions on RPI Prior year adjustments at 56.1p linked debt Business performance, excludin
Slide 28: Cash flows
Cash flows Year ended 31 March 2013 £m Net operating cash flow £4.1bn Operating profit 3,644 Depreciation & amortisation 1,361 Pensions (413) Working capital & other (443) Net operating cash flow 4,149 Business performance, excluding exceptional items, remeasurements and stranded cost recoveries Ope
Slide 29: Capital investment
Capital investment £m 2013 2012 UK Transmission 1,680 1,397 UK Gas Distribution 666 645 US Regulated 1,124 1,052 Other activities 216 281 Joint ventures 14 13 Total 3,700 3,388 29
Slide 30: London power tunnels
nationalgrid London power tunnels
Slide 31: Capital investment
Capital investment £m 2013 2012 UK Transmission 1,680 1,397 UK Gas Distribution 666 645 US Regulated 1,124 1,052 Other activities 216 281 Joint ventures 14 13 Total 3,700 3,388 31
Slide 32: Cash flows and balance sheet
Cash flows and balance sheet Year ended 31 March 2013 £m Net operating cash flow Operating profit Depreciation & amortisation 3,644 1,361 £4.1bn Pensions (413) Operating cash flow after cash capital investment Working capital & other (443) Net operating cash flow 4,149 £792m Operating cash flow 792
Slide 33: Operating return measures
Operating return measures Regulators Operating return measures 8 UK* 12 US 7 6.7 10.3 10.3 6.3 10 9.9 9.8 6.1 6 6.0 9.2 8.8 % vanilla return % return on equity 8.3 5 5.0 5.0 5.0 8 4.8 6.9 4 6 3 4 2 1 2 0 0 2009/10 2010/11 2011/12 2012/13 2009 2010 2011 2012 Allowed Achieved Allowed Achieved US ROEs
Slide 34: Return on Capital Employed
Return on Capital Employed Return on Capital Employed UK movement reflects 2010/11 2011/12 2012/13 continued cost management Gas Transmission incentives and rollover revenues UK 8.5% 8.6% 8.8% US reflects cost savings, higher revenues under new rate plans and deferral US 7.1% 7.6*% 7.7*% recoveries
Slide 35: Group Return on Equity
Group Return on Equity Key measure of overall value creation Group Return on Equity Shareholder value 2010/11 2011/12 2012/13 Overall return for shareholders on investment in assets * * reflecting actual 10.8% 11.3 % 11.7 % financing structure and goodwill * Excluding the impact of major storms 35
Slide 36: Guidance for 2013/14
Guidance for 2013/14 Revenue increases under UK RIIO price controls Guidance on incentive performance & depreciation Adjustments for deferral recoveries and storms Finance costs will be restated for £200m non-cash IAS19 pensions adjustment Underlying interest expected to increase due to carry costs
Slide 37: Performance focus going forward
Performance focus going forward “Delivering regulatory outputs at lowest possible total cash cost” Totex key driver of returns - focuses on cash efficient investment UK Asset growth remains significant, drives long-term revenue growth Regulatory outputs continue to drive meaningful incentives “Inves
Slide 38: Total return for National Grid
Total return for National Grid Credit Rating A- total ~ 6% per annum • Focus on profits, shareholder • Organic growth led efficiency and cash return by RIIO & US reg. = investments Funding dividend yield • Scrip alternative + Other projects • Earnings impact of growth in the • Subject to a total hyb
Slide 39: Strategy, growth and returns
2012/13 Full Year Results Strategy, growth and returns Steve Holliday | Chief Executive
Slide 40: Outlook for regulated asset growth
Outlook for regulated asset growth Next five years > £45bn ~ £35bn US regulated UK gas distribution UK transmission 40
Slide 41: Dividend policy
Dividend policy “We aim to grow the ordinary dividend at least in line with the rate of RPI inflation each year for the foreseeable future” 41
Slide 42: Line of sight
Line of sight Align employee goals and behaviours Reinforce a performance culture … …organic growth …efficiency …outputs & customer needs …innovation …to drive incentive performance, returns and cash generation 42
Slide 43: Key strategic priorities
Key strategic priorities 2013/14 Streamline organisation and UK deliver outputs to drive outperformance under RIIO 43
Slide 44: UK ‘delivering RIIO’ seminar
UK ‘delivering RIIO’ seminar 6 August 2013 – King’s Place, London John Pettigrew (UK Chief Operating Officer) and key operational managers How we plan to deliver outputs and behaviours to maximise our performance For joining instructions contact the Investor Relations team 44
Slide 45: Key strategic priorities
Key strategic priorities 2013/14 Streamline organisation and UK deliver outputs to drive outperformance under RIIO Build on new rate cases US and systems to enhance customer service and drive efficiencies 45
Slide 46: Conclusion and Outlook
Conclusion and Outlook Good financial and solid operating performance Strong asset growth and attractive pipeline of investment opportunities to sustain growth Period of significant clarity for our businesses 46
Slide 47: Full Year Results Appendix
2012/13 Full Year Results Appendix
Slide 48: UK Transmission
UK Transmission For the year ended 31 March (£m) 2013 2012 Revenue 4,246 3,804 Depreciation & amortisation (489) (431) Regulated controllable costs (367) (343) Post retirement costs (47) (40) Other costs incl. pass through (1,734) (1,636) Total UK Transmission operating profit 1,609 1,354 At actual
Slide 49: UK Transmission
UK Transmission Operating profit For the year ended 31 March (£m) 2013 2012 Electricity Transmission Owner 1,046 854 Electricity System Operator (3) 11 Other electricity 6 11 Sub total – Electricity Transmission 1,049 876 Gas Transmission Owner 271 186 Gas System Operator 258 272 Other gas - 1 Sub t
Slide 50: UK Transmission Gas System Operator
UK Transmission Gas System Operator For the year ended 31 March (£m) 2013 2012 2011 2010 Revenue drivers 132 136 79 81 Incentives performance 16 16 23 24 Cost recovery* 283 252 269 293 Timing impacts - 33 9 (6) Total operating costs excluding depreciation (154) (154) (171) (192) Depreciation (19) (1
Slide 51: UK Transmission Electricity System Operator
UK Transmission Electricity System Operator For the year ended 31 March (£m) 2013 2012 2011 2010 Incentive performance (30) (20) 15 15 Prior year BSIS incentive adjustment - - - 5 Cost recovery 925 931 683 1,103 Total operating costs excluding depreciation (885) (889) (644) (1,060) Depreciation (13)
Slide 52: UK Transmission Depreciation & Amortisation
UK Transmission Depreciation & Amortisation For the year ended 31 March (£m) 2013 2012 Electricity Transmission Owner 310 270 Electricity System Operator 13 11 Sub total – Electricity Transmission 323 281 Gas Transmission Owner 142 133 Gas System Operator 19 11 Sub total – Gas Transmission 161 144 F
Slide 53: UK Gas Distribution
UK Gas Distribution For the year ended 31 March (£m) 2013 2012 Revenue 1,714 1,605 Depreciation & amortisation (261) (251) Regulated controllable costs (317) (304) Post retirement costs (41) (39) Other costs inc pass through (301) (248) Total UK Gas Distribution operating profit 794 763 At actual cu
Slide 54: US Regulated
US Regulated For the year ended 31 March (£m) 2013 2012 Revenue 7,918 7,516 Depreciation & amortisation (430) (406) Regulated Controllable costs (1,322) (1,279) Post retirement costs (80) (50) Bad debt (61) (92) Major storms (85) (116) Other costs inc pass through (4,687) (4,383) Total US Regulated
Slide 55: Metering, Grain LNG and Property
Metering, Grain LNG and Property For the year ended 31 March (£m) 2013 2012 Revenue 319 368 Depreciation & amortisation (88) (111) Operating costs (excluding depreciation & amortisation) (81) (83) Metering operating profit (1) 150 174 Revenue 209 208 Depreciation & amortisation (54) (51) Operating c
Slide 56: Exchange rates
Exchange rates For the year ended 31 March 2013 2012 Closing $ / £ rate 1.52 1.60 Average $ / £ rate for the period 1.57 1.60 For the year ended 31 March (£m) 2013 Impact on operating profit * 21 Impact on interest * (9) Impact on tax, JVs and minority interests * (5) Net impact on earnings * 7 Impa
Slide 57: Pensions & other post-retirement benefit obligations
Pensions & other post-retirement benefit obligations (IAS19 data) UK US At 31 March 2013 (£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) (5,117) (3,106) (26,784) Net liability (620) (549) (739) (1,591) (3,
Slide 58: Timing impacts
Timing impacts £m UK UK Gas US Regulated Total Transmission Distribution 2012/13 Opening balance * (22) 2 130 110 2012/13 over/(under) recovery 46 (10) (20) 16 2012/13 Closing balance to return / (recover) 24 (8) 110 126 2011/12 Opening balance (7) (20) 101 74 2011/12 over/(under) recovery (21) 22 1
Slide 59: UK Transmission and UK Distribution
UK Transmission and UK Distribution Regulated asset value (“RAV”) and returns RAV* and returns reported by regulatory entity as at 31 March 2013 for UK UK Electricity Transmission (a) UK Gas Transmission (b) UK Gas Distribution Regulator Ofgem Ofgem Ofgem Rate base / RAV £10,145m £5,340m £8,330m 4.7
Slide 60: New York Jurisdiction
New York Jurisdiction Regulated asset base (“Rate base”) and returns Rate bases are reported by regulatory entity as at 31 March 2013. Returns are those for the calendar year ended 31 December 2012 Long Island Downstate New York Upstate New York Upstate New York (KEDLI) (KEDNY) (NMPC Gas) (NMPC Elec
Slide 61: Massachusetts and Rhode Island Jurisdiction
Massachusetts and Rhode Island Jurisdiction Regulated asset base (“Rate base”) and returns Rate bases are reported by regulatory entity as at 31 March 2013. Returns are those for the calendar year ended 31 December 2012 Narragansett Massachusetts Massachusetts Electric Narragansett Gas Electric (a)
Slide 62: FERC Jurisdiction
FERC Jurisdiction Regulated asset base (“Rate base”) and returns Rate bases are reported by regulatory entity as at 31 March 2013. Returns are those for the calendar year ended 31 December 2012 Narragansett Canadian Long Island New England Power Electric Interconnector (a) Generation (b) (Transmissi
Slide 63: Return on Capital Employed
Return on Capital Employed Year ended 31 March 2013 Year ended 31 March 2012 US US £m UK US UK US (Storm adjusted) (Storm adjusted) Statutory Operating Profit 2,329 1,522 1,437 2,093 1,270 1,154 Exceptional items, remeasurements and stranded cost 74 (184) (184) 24 36 36 recoveries Business Performan
Slide 64: Group Return on Equity
Group Return on Equity Calculation 2013 2012 For the year ended 31 March (£m) 2013 2012 2011 (storm adjusted) (storm adjusted) Regulatory operating profit per ROCE 3,740 3,655 3,491 3,375 3,295 IFRS operating profit for non-regulated companies and post tax share 57 6 195 195 126 of JV’s + Treasury m
Slide 65: Interest cover – calculation
Interest cover – calculation For the year ended 31 March (£m) 2013 2012 2011 Interest expense (P&L) 2,172 2,218 2,415 Hybrid interest reclassified as dividend (2) - - Capitalised interest 122 124 129 Interest on pensions debt adjustment 60 67 30 Interest on decommissioning liabilities adjustment 1 5
Slide 66: Efficiency metric – calculation
Efficiency metric – calculation For the year ended 31 March (£m) 2013 2012 2011 Adjusted regulated controllable costs (at constant currency, excluding 2,174 2,080 2,114 bad debt expense)(a) Regulated asset base UK regulatory asset value(b) 22,564 20,615 19,101 UK capital additions adjustment(c) 1,17
Slide 67: Weighted average number of shares
Weighted average number of shares For the year ended 31 March 2013 2012 Number of shares (millions): Prior period as reported (weighted average) 3,565 Scrip dividend shares 94 Current period weighted average 3,664 - Weighted average number of shares (2012 restated) 3,664 3,659 Business performance e
Slide 68: UK Transmission
UK Transmission Dep’n & Operating Operating For the year ended 31 March 2013 (£m) Revenue Amortisation Costs Profit Electricity Transmission Owner 2,165 (310) (809) 1,046 Electricity System Operator 895 (13) (885) (3) Other Electricity 51 - (45) 6 Subtotal – Electricity Transmission 3,111 (323) (1,7