National Grid Plc Q2 FY2022 earnings call

Management Statement and Operational Highlights

• Key Transactions: Completed purchase of WPD in June 2021; sale of Rhode Island business on track for completion by end of financial year; launched sale of majority stake in UK Gas Transmission expected next summer.
• New Operating Model: Moved to 7 business units across the group, removing management layers, with each unit having P&L accountability.
• Financial Performance: Underlying operating profit was GBP 1.4 billion, 52% above last year at constant currency; underlying EPS up 66%; capital expenditure for continuing operations was GBP 2.8 billion, 22% above prior year.
• WPD Performance: First 3.5 months of ownership saw GBP 315 million capital program, focusing on finalizing WPD's RIIO-ED2 business plan.
• UK Electricity Transmission: Successful start to RIIO-T2, with GBP 587 million investment, and CMA final determination removed the outperformance wedge.
• US Businesses: New York and New England had investments, progress on rate cases, and efficiency programs; interconnectors like IFA2 contributed to strong performance.

Segment Performance

• WPD: Acquired in June 2021, contributed GBP 257 million to underlying operating profit in the first half, with capital investment of GBP 315 million.
• UK Electricity Transmission: Underlying operating profit was GBP 552 million, up GBP 65 million compared to the prior half year, with capital investment of GBP 587 million.
• US New York: Underlying operating profit was GBP 141 million, GBP 29 million lower than the prior year, with capital investment of GBP 851 million.
• US New England: Underlying operating profit was GBP 247 million, GBP 67 million higher than the prior year, with capital investment of GBP 700 million.
• National Grid Ventures: Underlying operating profit increased by GBP 66 million to GBP 147 million, with capital investment of GBP 282 million.
• UK Gas Transmission (discontinued): Operating profit excluding timing was GBP 332 million, GBP 144 million higher than the prior year, with capital investment of GBP 131 million.

Guidance

• Full year underlying EPS expected significantly above 5%-7% range, driven by early NSL interconnector commissioning and higher auction prices.
• Target GBP 400 million cost efficiency program over 3 years, keeping controllable costs flat while assets grow over 20%.
• US businesses aim for at least 95% of allowed returns; UK Electricity Transmission targets 100 basis points of operational outperformance through RIIO-T2.

Risks

• Potential impacts of inflation and interest rates on costs and revenues.
• Supply chain challenges affecting material ordering and timing.
• Fire at Sellindge interconnector station caused 1 gigawatt capacity offline, but expecting 500 MW back by Oct 2022 and remaining by Dec 2022.

Question and Answer

Q: About the GBP 400 million cost savings and offshore wind JV with RWE.

A: John Pettigrew discussed cost savings breakdown (GBP 300M in US, GBP 100M in UK) and offshore wind JV disciplined approach.

Q: On the CMA final decision and 100 basis points outperformance for NGET.

A: John Pettigrew explained CMA removed outperformance wedge and NGET targets 100 basis points through operational outperformance.

Q: Regarding WPD fair value and accounting assumptions.

A: Andy Agg explained GBP 10 billion fair value of WPD's PP&E based on fair valuation of existing assets and regulatory license intangible.