National Grid Plc · LSE:NG.
National Grid — FY2011/12 Earnings Presentation
71 slides from National Grid's earnings presentation, May 17, 2012
Slide 1: Full Year Results 2011/12
2011/12 Full Year London | Thursday 17 May 2012 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: Key Highlights
2011/12 Full Year Results Key Highlights Steve Holliday | Chief Executive
Slide 4: Agenda
Agenda Key Highlights Business Review Strategic Priorities 4
Slide 5: Good financial performance
Good financial performance Excluding timing and major storm costs Profit before tax 1 £2,585m 5% 23% Operating profit 1 £3,495m 2% 9% Earnings £1,828m 5% 20% EPS 2 51.3p 1% 16% Dividend per share 39.28p 8% 1 Constant currency figures calculated by applying the average 2012 rate ($1.60 to £1.00) to 2
Slide 6: Another eventful year…
Another eventful year… Restructure the US business and drive performance improvements Deliver progress on RIIO Sustain a strong safety performance Sustain high service levels Essential network investment Major storms in the US Demonstrate how our businesses help deliver returns and finance growth 6
Slide 7: Another eventful year… with good positive outcomes overall
Another eventful year… … and with good positive outcomes overall Restructure the US business and drive performance improvements New organisational model introduced Deliver progress on RIIO Greater focus on customers and regulators Reached $200m annualised cost saving Sustain a strong safety performa
Slide 8: Another eventful year… with good positive outcomes overall
Another eventful year… … and with good positive outcomes overall Restructure the US business and drive performance improvements Deliver progress on RIIO Extensive stakeholder engagement Sustain a strong safety performance Open communications with the market, Sustain high service levels regulator and
Slide 9: Another eventful year… with good positive outcomes overall
Another eventful year… … and with good positive outcomes overall Restructure the US business and drive performance improvements Number of important safety lessons Good overall safety performance Deliver progress on RIIO but tragic events increase focus on Sustain a strong safety performance deliveri
Slide 10: Another eventful year… with good positive outcomes overall
Another eventful year… … and with good positive outcomes overall Restructure the US business and drive Long-term financial capacity supported by UK Set out the benefits of the UK Transmission distribution and US businesses performance improvements Distribution Natural trend to de-lever as a portfoli
Slide 11: Summary
Summary Overall, a good performance – good profit and earnings growth – solid cash performance – operational and strategic progress Solid foundation for the future 11
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Slide 13: Business Review
2011/12 Full Year Results Business Review Andrew Bonfield | Finance Director
Slide 14: UK Transmission
UK Transmission 38% of Group Operating Profit Operating profit excluding timing Timing effects of £91m 6% Higher revenues driven by RPI Operating profit Higher controllable costs driven by inflation, investments made 1% in both people and information systems 148 (24) (1) (31) (91) (10) £m 1,363 1,35
Slide 15: UK Gas Distribution
UK Gas Distribution 21% of Group Operating Profit Operating profit Timing effects of £18m excluding timing 5% Higher revenues driven by RPI and customer connections Controllable costs higher due to inflation and new systems Operating profit Depreciation increased led by systems investment and gas 7%
Slide 16: US Regulated
US Regulated 36% of Group Operating Profit Operating profit Timing effects of £183m excluding timing and storms 9% £116m net charge for major US storms Operating profit Revenue benefit from new rate cases 14% Controllable costs down in both real and nominal terms (183) (116) 36 9 14 (5) 20 30 £m 1,3
Slide 17: Improving US returns
Improving US returns New York FERC 2011 Massachusetts Rhode Island KEDNY FERC Massachusetts Gas Allowed returns Massachusetts Electric 11.1 % KEDLI 9.3 % Narragansett Electric 7.6% Niagara Mohawk Gas 6.4% Narragansett Gas 6.4% Niagara Mohawk (T&D) RoE 11.9% 11.6% (Calendar 10.6% year) 9.5% 9.4% 6.5%
Slide 18: US progress in 2011/12
US progress in 2011/12 US achieved Return on Equity (%) 6.9% 8.3% 8.8% 2009/10 2010/11 2011/12 Actual return as percentage of allowed return US Regulated Assets Rate Base $14.3bn $14.5bn Regulated Assets outside rate base $1.7bn $1.9bn RoEs represent calendar year returns. Regulated assets are closi
Slide 19: Other activities
Other activities 5% of Group Operating Profit Operating profit Grain LNG profits up after phase III completion Lower environmental costs in our Property business 57% Metering profits up due to higher revenue 25 (4) 27 20 £m 120 188 2011 operating profit at Grain LNG Property Metering other 2012 oper
Slide 20: Regulated controllable operating costs
Regulated controllable operating costs Increase of £5m – 3% reduction on a real basis Inflation offset by cost savings Regulated controllable operating costs Group efficiency metric2 106 165 92 83* 129 bad debts £m pensions & opebs 7.5 1,921 1,926 inflation reg controllable costs1 7.2 6.7 2010/11 20
Slide 21: Group operating profit
Operating profit Operating profit Timing effects of £256m and major storm impact of £116m excluding timing and storms 9% Excluding timing and severe weather, operating profit up £288m Increase in revenues driven by RPI in UK Operating profit Controllable costs down in real terms 2% Strong performanc
Slide 22: Impacts of timing
Impacts of timing Started 2011/12 £72m over-recovered Ended £90m over-recovered £18m in year timing 2011/12 £(108)m y-o-y headwind including £90m closing balance £3.5bn operating profit £256m y-o-y adverse impact in 2011/12 £274m in year timing 2010/11 Prior years numbers restated for finalisation o
Slide 23: Interest, tax and earnings
Interest, tax and earnings Finance costs 1 Tax Earning per share 18%at £(917)m lower 5% at £(755)m higher 1% at 51.3p higher (effective tax rate 29.2%) Lower average net debt Absence of buy-back costs Rate unchanged from 2010/11 Higher tax charge due to 16% higher Non-cash items excluding timing hig
Slide 24: Cash flows
Cash flows Year ended 31 March 2012 £m Net operating cash flow £4.4bn Operating profit 3,495 Depreciation & amortisation 1,282 Pensions (386) Working capital & other 54 Net operating cash flow 4,445 Business performance, excluding exceptional items, remeasurements and stranded cost recoveries Operat
Slide 25: Capital investment
Capital investment £m 2012 2011 UK Transmission 1,397 1,432 UK Gas Distribution 645 669 US Regulated 1,052 1,092 Other activities 281 275 Joint ventures 13 135 Total 3,388 3,603 25
Slide 26: Cash flows and balance sheet
Cash flows and balance sheet Year ended 31 March 2012 £m Net operating cash flow Operating profit 3,495 Depreciation & amortisation 1,282 £4.4bn Pensions (386) Operating cash flow after capex Working capital & other 54 Net operating cash flow 4,445 £1.1bn Operating cash flow after cash 1,119 Net deb
Slide 27: Spread and balance of activities supports our long-term funding needs
Spread and balance of activities supports our long-term funding needs Long-term financial capacity supported by UK distribution and US businesses UK Transmission Distribution Natural trend to de-lever as a result of front loaded income and Growth lower investment Non-regulated businesses Not to scal
Slide 28: Clear framework in place for assessing returns and performance
Clear framework in place for assessing returns and performance Regulators Equity Investors Operating return measures Shareholder value Allowed Achieved UK vanilla vanilla ROCE returns returns Group ROE Allowed Achieved regulated regulated US ROCE return on return on equity equity 28
Slide 29: Operating return measures
Operating return measures Regulators 2011/12 Operating return measures Allowed vanilla Achieved vanilla UK UK 5.0% 6.0% Outperformance against allowed vanilla returns Solid overall incentive performance Allowed ROE Achieved ROE US US Further progress towards our allowed returns 9.9% 8.8% Reflects co
Slide 30: Three year ROCE trend shows continued improvement
Three year ROCE trend shows continued improvement Return on Capital Employed UK movement reflects 2009/10 2010/11 2011/12 continued cost management and Gas Distribution incentive performance Improved US UK 9.6% 8.5% 8.6% ROCE reflects Differential reduced reflecting cost savings >400bps 140bps 100bp
Slide 31: Group Return on Equity remains a key measure of overall value creation
Group Return on Equity remains a key measure of overall value creation Group Return on Equity 1 Shareholder value 2009/10 2010/11 2011/12 Overall return for shareholders on investment in assets * reflecting actual 12.6% 10.8% 11.3 % financing structure and goodwill 1 Presented on the revised methodo
Slide 32: Guidance for 2012/13
Guidance for 2012/13 Inflation to impact UK revenues Absence of major storm costs this year Operating costs (excluding major storms) expected to increase due to growing asset base Financing costs expected to increase Effective tax rate unchanged Capital investment between £3.5bn - £3.8bn 32
Slide 33: Business Review Summary
Business Review Summary Good year driven by solid operating performance Positive outlook for next year Confident in balance sheet strength 33
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Slide 35: Strategic Priorities
2011/12 Full Year Results Strategic Priorities Steve Holliday | Chief Executive
Slide 36: Key priorities
Key priorities Build on success of new Drive sustained improvements in performance organisational model in US Deliver satisfactory rate case outcomes Secure appropriate regulatory outcomes Prepare UK organisation Investing in people and processes for new RIIO environment Delivering our investment pr
Slide 37: US rate filings update
US rate filings update Niagara Mohawk $59m reduction in electricity delivery rates $11m increase in gas delivery rates Driven by... Increased cost of equity and higher equity proportion Reduced baseline costs Increase in other costs and allowances net of savings from restructuring 37
Slide 38: US rate filings update
US rate filings update Narragansett $31m increase in electricity delivery rates $20m increase in gas delivery rates Driven by... Bridging the substantial gap between allowed expenses and those required to deliver service improvements 38
Slide 39: RIIO-GD1
RIIO-GD1 Resubmitted plans at end of April No significant changes Total expenditure £13.2bn Uncertainty mechanism treatment for street works Adjustments between gearing and transition measures Gearing moved to 60:40 (55:45 in London) Transition measures for mains replacement (25% fast money, 75% slo
Slide 40: Regulatory timetable
Regulatory timetable 2012/13 RIIO T1 & GD1 RIIO T1 & GD1 Start of new initial final proposals RIIO price proposals control May May Expected conclusion of US filings 40
Slide 41: Conclusions
Conclusions Another good year of financial and operating performance – Invested well and grown asset base – Maintained a robust balance sheet – New US operating model delivered on time, reduced costs and improved returns Positive outlook for next year 41
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Slide 43: Appendix
2011/12 Full Year Results Appendix
Slide 44: Business performance
Business performance Earnings per share and dividend per share For the year ended 31 March (£m) 2012 2011 change Operating profit (actual FX) 3,495 3,600 (3)% Operating profit (constant FX) 3,495 3,579 (2)% Profit before tax (actual FX) 2,585 2,473 5% Earnings per share* 51.3p 50.9p 1% Dividend per
Slide 45: Business performance: statutory results
Business performance Statutory results For the year ended 31 March (£m) 2012 2011 Operating profit* 3,495 3,600 Exceptional operating items, remeasurements and stranded cost recoveries 44 145 Net finance costs (including exceptional items and remeasurements) (987) (1,128) Share of post-tax results o
Slide 46: Business performance: revenue
Business performance Revenue For the year ended 31 March (£m) 2012 2011 UK Transmission 3,804 3,484 UK Gas Distribution 1,605 1,524 US Regulated (excluding stranded cost recoveries) 7,516 8,391 Non-regulated businesses and other 715 678 Stranded cost recoveries 279 355 (Sales between segments) (87)
Slide 47: UK Transmission
UK Transmission Depreciation & Amortisation For the year ended 31 March (£m) 2012 2011 Electricity Transmission Owner 270 252 Electricity System Operator 11 11 Sub total – UK Electricity Transmission 281 263 Gas Transmission Owner 133 115 Gas System Operator 11 12 Sub total – UK Gas Transmission 144
Slide 48: UK Transmission
UK Transmission Operating costs (excluding depreciation & amortisation) For the year ended 31 March (£m) 2012 2011 Electricity Transmission Owner 721 669 Electricity System Operator 889 644 Other electricity 45 62 Sub total – Electricity Transmission (UK) 1,655 1,375 Gas Transmission Owner 194 166 G
Slide 49: UK Transmission
UK Transmission Operating profit For the year ended 31 March (£m) 2012 2011 Electricity Transmission Owner 854 860 Electricity System Operator 11 43 Other electricity 11 8 Sub total – Electricity Transmission (UK) 876 911 Gas Transmission Owner 186 231 Gas System Operator 272 197 Other gas 1 1 Sub t
Slide 50: UK Transmission
UK Transmission Gas System Operator For the year ended 31 March (£m) 2012 2011 2010 2009 Revenue drivers 136 79 81 41 Incentives performance 16 23 24 23 Cost recovery* 252 269 293 293 Timing impacts 33 9 (6) (27) Total operating costs excluding depreciation (154) (171) (192) (199) Depreciation (11)
Slide 51: UK Transmission
UK Transmission Electricity System Operator For the year ended 31 March (£m) 2012 2011 2010 2009 Incentive performance (22) 15 15 (14) Prior year BSIS incentive adjustment - - 5 1 Cost recovery 933 683 1,103 1,293 Total operating costs excluding depreciation (889) (644) (1,060) (1,255) Depreciation
Slide 52: UK Gas Distribution
UK Gas Distribution For the year ended 31 March (£m) 2012 2011 Depreciation & amortisation (251) (218) Operating costs (591) (595) Total Gas Distribution operating profit 763 711 At actual currency Business performance, excluding exceptional items, remeasurements and stranded cost recoveries 52
Slide 53: US Regulated
US Regulated For the year ended 31 March (£m) 2012 2011 Depreciation & amortisation (406) (438) Operating costs (excluding depreciation & amortisation) (5,920) (6,546) Total US Regulated operating profit 1,190 1,407 At actual currency Business performance, excluding exceptional items, remeasurements
Slide 54: Metering, Grain LNG and Property
Metering, Grain LNG and Property For the year ended 31 March (£m) 2012 2011 Revenue 368 395 Depreciation & amortisation (111) (131) Operating costs (excluding depreciation & amortisation) (83) (115) Metering operating profit (1) 174 149 Revenue 208 160 Depreciation & amortisation (51) (37) Operating
Slide 55: Exchange rates
Exchange rates For the year ended 31 March 2012 2011 Closing $ / £ rate 1.60 1.61 Average $ / £ rate for the period 1.60 1.57 For the year ended 31 March (£m) 2012 Impact on operating profit * (21) Impact on interest * 10 Impact on tax, JVs and minority interests * 5 Net impact on earnings * (6) Imp
Slide 56: Pensions & other post-retirement benefit obligations (IAS19 data)
Pensions & other post-retirement benefit obligations (IAS19 data) UK US At 31 March 2012 (£m) ESPS NGUK PS Pensions OPEBs NG total Market value of assets 1,739 14,368 3,850 1,192 21,149 Present value of liabilities (2,251) (14,524) (4,614) (2,693) (24,082) Net liability (512) (156) (764) (1,501) (2,
Slide 57: Pensions & other post-retirement benefit obligations: regulatory recovery principles
Pensions & other post-retirement benefit obligations: regulatory recovery principles UK US Regulatory recovery principles ESPS NGUK PS Pensions OPEBs On-going pension costs recoverable 98% 90% 100% 100% Deficits recoverable 98% 63% 100% 100% (legacy non-regulated and some (true-up mechanisms / filin
Slide 58: US pensions & OPEBs: regulatory treatment by rate plan
US pensions & other post-retirement benefit obligations: regulatory treatment by rate plan Each of our five US regulatory commissions regulates the level of costs related to pensions and other post-retirement employee benefits (OPEBs) that are charged to customers. Approach 1: Periodic reconciliatio
Slide 59: Timing impacts
Timing impacts £m UK UK Gas US Regulated Total Transmission Distribution 2011/12 Opening balance (7) (20) 99 72 2011/12 over/(under) recovery (21) 22 17 18 2011/12 Closing balance to recover (28) 2 116 90 2010/11 Opening balance * (77) (24) (101) (202) 2010/11 over/(under) recovery * 70 4 200 274 20
Slide 60: 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 2012 for UK UK electricity UK gas transmission (b) UK gas distribution transmission (a) Regulator Ofgem Ofgem Ofgem Rate base / RAV £9,136m £5,100m £7,940m Base
Slide 61: New York Jurisdiction
New York Jurisdiction Regulated asset base (“Rate base”) and returns Rate bases are reported by regulatory entity as at 31 March 2012. Returns are those for the calendar year ended 31 December 2011 Upstate Upstate Long Island Downstate New York New York New York (KEDLI) (KEDNY) (NMPC Gas) (NMPC Elec
Slide 62: 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 2012. Returns are those for the calendar year ended 31 December 2011 Narragansett Massachusetts Massachusetts Narragansett Electric Electric (a) Gas
Slide 63: FERC Jurisdiction
FERC Jurisdiction Regulated asset base (“Rate base”) and returns Rate bases are reported by regulatory entity as at 31 March 2012. Returns are those for the calendar year ended 31 December 2011 Narragansett New England Canadian Long Island Electric Power Interconnector (a) Generation (b) (Transmissi
Slide 64: Group Return on Equity
Group Return on Equity Nominal Return on Equity for whole group Storm adjusted 11.3% Adjusted net income divided by 12.6% equity base 10.8% 10.9% UK RAV indexation adjustment to net income now on same basis as UK ROCE measure, long term inflation rate Adjusted RoE for 2011/12 is 11.3% 2010 2011 2012
Slide 65: Group Return on Equity: calculation
Group Return on Equity Calculation 2012 For the year ended 31 March (£m) 2012 2011 2010 (storm adjusted) Regulatory operating profit per ROCE 3,375 3,491 3,295 3,138 IFRS operating profit for non-regulated companies and post tax share of JV’s + 195 195 126 154 Treasury managed interest deduction (1,
Slide 66: Interest, tax, and exchange rates
Interest, tax, and exchange rates Effective interest rate* 5.4% 12 months ended 31 March Net finance cost, actual FX (£m) 2012 (917) 2011 (1,134) Down 40bps on prior year Effective tax rate 29.2% 12 months ended 31 March Tax (£m) 2012 (755) 2011 (722) no change on prior year Net currency impact 12 m
Slide 67: Interest cover – calculation
Interest cover – calculation For the year ended 31 March (£m) 2012 2011 2010 Interest expense (P&L) 2,218 2,415 2,160 Capitalised interest 124 129 99 Interest on pensions debt adjustment 67 30 92 Interest on decommissioning liabilities adjustment 5 5 6 Interest on lease rentals adjustment 32 30 29 P
Slide 68: Efficiency metric – calculation
Efficiency metric – calculation For the year ended 31 March (£m) 2012 2011 Adjusted regulated controllable costs (at constant currency, excluding bad debt 2,055 2,086 expense)(a) Regulated asset base UK regulatory asset value(b) 20,615 19,101 UK capital additions adjustment(c) 1,021 1,050 Depreciati
Slide 69: Weighted average number of shares
Weighted average number of shares For the year ended 31 March 2012 2011 Number of shares (millions): Prior period as reported (weighted average) - 3,378 Scrip dividend shares - 53 Current period weighted average 3,565 - Weighted average number of shares (2011 restated) 3,565 3,431 Business performan
Slide 70: US Return on Equity and Rate Base
US Return on Equity and Rate Base Return on Equity Regulatory Rate Base (calendar year) (at 31 March) 2011 2010 2012 2011 % % $m $m New York KEDNY 11.9 11.9 2,048 2,162 KEDLI 9.4 10.0 1,806 1,931 NMPC Gas 6.5 7.6 980 832 NMPC Electric 5.6 6.1 3,861 3,722 Total New York 8.0 8.4 8,695 8,647 Massachuse
Slide 71: Return on Capital Employed
Return on Capital Employed Year ended 31 March 2012 Year ended 31 March 2011 US £m UK US UK US (Storm adjusted) Statutory Operating Profit 2,093 1,154 1,270 1,964 1,704 Exceptional items, remeasurements and stranded cost recoveries 24 36 36 110 (297) Business Performance Operating Profit 2,117 1,190