National Grid plc Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Investment Scale and Profile: In the UK, awarded 17 major projects under Ofgem's Accelerated Strategic Transmission Investment program (ASTI); signed GBP1.8 billion contracts for cable and converter stations for Eastern Green Link 1 and GBP4.4 billion contracts for Eastern Green Link 2; selected seven suppliers for a GBP9 billion enterprise partnership model. In the US, filed new rates and clean energy investment plans, with GBP2 billion of clean energy investment through the Electric Sector Monetization Plan (ESMP).
• Regulatory Frameworks: UK Ofgem intent to create an investable proposition for future regulation; US agreed joint proposals for rate plans in gas businesses and filed new rates in electric businesses; regulatory frameworks evolving to attract investment for decarbonization.
• Financial Performance: Strong underlying operating profit of GBP4.8 billion and underlying earnings per share of 78 pence, both up 6% at constant currency; record capital investment of GBP7.6 billion in regulated businesses; safety protocols reinforced after two colleagues lost their lives.
• Business Segments: Detailed performance of UK Electricity Distribution, Transmission, US New York, New England, and National Grid Ventures, including investment levels, operating profits, and returns.
• Strategic Moves: Announced intention to sell National Grid Renewables and Isle of Grain LNG terminal; focus National Grid Ventures on interconnectors, offshore hybrid assets, and competitive electricity transmission projects.

Segment Performance

• UK Electricity Distribution: Underlying operating profit was GBP1.15 billion, GBP78 million lower than prior year; capital investment was GBP1.2 billion, slightly higher; ROE was 8.5%, outperforming allowance by 110 basis points.
• Electricity Transmission: Underlying operating profit was GBP1.31 billion, 19% higher than last year; capital investment was GBP1.9 billion, up 47%; ROE was 8%, 100 basis points ahead of baseline allowance.
• US New York: Return on equity was 8.5%, 96% of its allowance; underlying operating profit was GBP1.02 billion, 21% higher than the prior year; capital investment was GBP2.7 billion, 12% up on the prior year.
• US New England: Return on equity was 9.2%, 90 basis points improved on the prior year; underlying operating profit was GBP802 million, up 9%, excluding the contribution from Rhode Island in the prior year; capital investment was GBP1.7 billion, 14% higher.
• National Grid Ventures: Underlying operating profit including joint ventures was GBP571 million, GBP120 million lower than the prior year; capital investment decreased to GBP662 million as key projects were completed.

Guidance

• Capital Investment: Expect to deliver around GBP60 billion of capital investment between now and 2029, nearly double the past five years; split broadly 50-50 between the UK and US, with 85% green investment aligned to the EU taxonomy.
• EPS CAGR: 6% to 8% EPS CAGR from an FY '25 baseline; FY '25 underlying EPS expected to be broadly flat; adjusted FY '24 EPS at 70.8 pence per share; post-rights issue, FY '25 underlying EPS flat, with 6% to 8% CAGR from FY '25 to FY '29.
• Financing Plan: GBP7 billion equity raise, along with use of senior debt, asset sales, hybrids, scrip, and continued dividend growth, with FY '25 dividend per share growing from a rebased FY '24 DPS.

Risks

• Safety Incidents: Tragic incidents led to reinforcement of safety protocols, which could impact operations and reputation.
• Regulatory Uncertainty: Delays or changes in regulatory frameworks in the UK and US could affect investment timelines and returns.
• Supply Chain Issues: Potential delays or disruptions in supply chain capacity and planning for large projects could impact CapEx timelines and costs.

Question and Answer

Q: Two questions from me. Firstly, we've always known that your CapEx was going to go up a lot and you used to always sit and kind of explain other options of financing that you had available to you. Is it possible just to explain to us what other options that you have and what you've examined for you since selling minority stakes, raising hybrids trimming your dividend, and why you've chosen this particular route?

A: John Pettigrew and Andy Agg discuss consideration of various financing tools, including equity, hybrids, and asset sales, and why the equity raise was chosen as part of a comprehensive financing plan to support GBP60 billion of CapEx over five years.

Q: Could you give us a sense of the overall -- so you talked about GBP7 billion equity raise, hybrid plus some disposals. Is there a -- can you give us a sense of the overall size of the proceed that you're looking to raise to sort of fund the plan?

A: Andy Agg explains that the GBP7 billion equity raise is part of a package that includes other tools like senior debt, asset sales, and hybrids, with disposals being relatively neutral to credit metrics as they are cash-generative assets.