National Grid(NGG)2024-05-24 21:37Financial Data and Key Metrics - Underlying effective tax rate for the full year was 15.6%, 170 basis points lower than the prior year, driven by higher capital expenditure qualifying for full expensing in FY '24 [1] - Underlying earnings were GBP2.9 billion, with EPS at 78 pence, up 6% on the prior year [1] - Cash generated from continuing operations was GBP7.3 billion, up 13% compared to the prior year, largely driven by timing items in UK regulated businesses [1] - Group return on equity was 8.9%, in-line with expectations, and the Board recommended a final dividend of 39.12 pence, taking the full year dividend to 58.52 pence per share, a 5.55% increase compared to the prior year [47] Business Line Performance - UK Electricity Transmission saw a 47% increase in capital investment, reflecting early progress on ASTI projects, with underlying operating profit of GBP1.31 billion, up 19% year-on-year [30][41] - New York business achieved an 8.5% return on equity, with underlying operating profit of GBP1.02 billion, up 21% year-on-year, driven by rate increases and early recovery on Smart Path Connect investment [42] - National Grid Ventures reported underlying operating profit of GBP571 million, GBP120 million lower than the prior year, due to lower profitability at BritNed interconnector and lower business interruption recoveries at IFA1 [45] Market Performance - In the US, the company is investing nearly half of the GBP60 billion capital investment, a 60% increase compared to the last five years, with GBP17 billion expected CapEx in New York over the next five years [2] - In the UK, the company has been awarded 17 major projects under Ofgem's Accelerated Strategic Transmission Investment program, with investment expected to be in the mid-to-high teens billions [16] - In New England, the company expects to invest GBP11 billion over the next five years, a 60% increase, including 4 billion Upstate Upgrade program in New York, to improve reliability and resilience [2][31] Management Commentary on Operating Environment and Future Outlook - The company sees the energy transition accelerating, with governments on both sides of the Atlantic acting with greater urgency to incentivize renewable generation and transform networks [15] - The company expects to deliver around GBP60 billion of CapEx over the next five years, driving group asset growth of around 10% per annum and an EPS CAGR of 6% to 8% from FY '25 [26][73] - The company is confident in the regulatory frameworks evolving to attract the investment required, with Ofgem indicating its intent to create an investable proposition for future regulation [20] Other Important Information - The company has selected seven suppliers as part of its new GBP9 billion enterprise partnership model to enable delivery of onshore projects [19] - The company plans to sell its National Grid Renewables business and Isle of Grain LNG terminal, expecting significant interest in these assets [37] - The company has announced a GBP7 billion fully underwritten rights issue to support its investment program, with new shares issued at a 34.7% discount to the dividend-adjusted theoretical ex-rights price [51] Q&A Session Summary Question: Why did the company choose to raise equity now, and what other financing options were considered? - The company considered various tools, including hybrids, dividend rebates, and asset sales, but chose to raise equity to maintain a strong balance sheet and support the significant step-up in investment [60][152] - The company wanted to provide clarity to the market on the GBP60 billion CapEx plan and ensure the business plan submitted to Ofgem is fully financeable [84][186] Question: What are the assumptions behind the EPS growth guidance? - The company expects to deliver 6% to 8% EPS CAGR from FY '25, with growth driven by asset base expansion and operational performance, despite dilution from the rights issue [73][155] - The company has taken a conservative view on regulatory outcomes and assumes some hybrid issuance towards the latter part of the five-year plan [87] Question: What is the expected phasing of the GBP60 billion CapEx over the five-year period? - The company expects CapEx to peak at around GBP12-13 billion, with a relatively uniform step-up over the five-year period [146] - The company has good visibility on the timing of large projects, particularly in the UK, with 17 ASTI projects now embedded in license obligations [16][99] Question: How does the company view the attractiveness of its dividend policy in a lower inflation environment? - The company believes its dividend policy remains attractive, with an inflation-protected dividend and a focus on delivering a combination of growth and yield [133][140] - The company has not experienced deflation in the past and would likely honor the dividend rather than reduce it in such a scenario [166]