National Grid plc Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Financial Performance: Underlying operating profit from continuing operations was £2 billion, 15% higher than the prior year at constant currency. Underlying earnings per share increased by 8% to 28.1p. Record capital investment of £4.6 billion was achieved.
• Capital Investment: UK electricity transmission saw a 43% increase in capital spend, and the US upstate upgrade program had a 20% year-on-year rise. ASTI Wave 1 projects have 5 under construction, with Wave 2 in consultation and procurement.
• Regulatory Developments: New rates were agreed for US downstate gas and Massachusetts electric businesses. Ofgem's RIIO-T3 regulatory process is ongoing, with discussions on allowed returns and cash characteristics.
• Policy Progress: UK NESO was established, New York and Massachusetts are advancing clean energy plans. The UK government is progressing planning system reforms to accelerate infrastructure delivery.
• Reliability and Safety: Reliability remained strong across UK and US networks despite severe weather. Lost Time Injury Frequency rate was 0.1, in line with group targets.

Segment Performance

• UK Electricity Distribution: Capital investment increased by 6% to £647 million. Underlying operating profit was £573 million, up £10 million compared to the prior year. Revenue contribution from this segment is part of the overall regulated business performance.
• UK Electricity Transmission: Capital expenditure reached £1.3 billion, a 43% increase year-on-year. Underlying operating profit was £724 million, up £68 million from the prior period.
• Strategic Infrastructure Business: Managing 17 ASTI projects in waves. Wave 1 (6 projects) has construction underway on 5 projects, with Wave 2 projects in consultation and procurement phases.
• US New York: Capital expenditure increased by 29% to £1.6 billion. Underlying operating profit was £288 million, £173 million higher than the prior year, driven by higher net revenue and non-repeat of environmental charges.
• US New England: Capital investment was £814 million, a 7% increase. Underlying operating profit was £237 million, £26 million higher than the prior period, boosted by higher rates and asset condition work.
• National Grid Ventures: Capital investment was £279 million, 11% lower due to completion of Viking Link to Denmark. Underlying contribution was £207 million, down £70 million from the prior year.

Guidance

• Expect a slightly stronger operating profit for the full year compared to May guidance, driven by higher revenues in regulated businesses.
• Net debt is expected to decrease by around £1.5 billion from the March level, assuming a USD 1.3 exchange rate.
• Continued focus on delivering £60 billion of capital investment in networks over the next five years, with clarity on financing beyond that period.

Risks

• Supply Chain: Challenges in securing timely and cost-effective supply chain for large-scale projects like ASTI.
• Regulatory: Uncertainty in Ofgem's allowed return range and potential changes in debt cost allowances impacting earnings.
• Policy: Delays or changes in planning and consenting processes for infrastructure projects due to evolving government policies.

Question and Answer

• Q: Remind on when National Grid will submit its business plan for RIIO-ED3 and the flavor of the plan?

A: The business plan is submitted in December. It is split into a baseline (covering projects with high confidence and cost certainty, like ASTI Wave 1) and a pipeline (aligned with NESO's future energy scenarios), impacted by connections reform and Clean Power Plan outcomes.

• Q: Impact of US election on US capital spend?

A: Majority of US investment is determined at the state level, so the US election is not expected to significantly impact the £60 billion capital plan over 2029.

• Q: Visibility on consenting and planning for ED3?

A: Planning reform is expected, with Phase 1 ASTI projects progressing. The spatial energy plan is due by 2026, interconnecting with Clean Power Plan and centralized strategic network plan timelines.