National Grid plc Q4 FY2025 earnings call

Management Statement and Operational Highlights

• Strategy and Investment: Refined strategy on pure-play networks, with a £60 billion capital investment plan. Delivered record capital investment of £9.8 billion in the first year of the five-year framework, 20% higher than the previous year. Secured over two-thirds of the £60 billion capital investment supply chain.
• Financial Performance: Underlying operating profit increased 12% to £5.4 billion at constant currency. Underlying earnings per share was 73.3p, up 2%. Declared a final dividend of 30.88p per share, total dividend for the year 46.72p.
• Reliability and Safety: Reliabilities remained strong despite severe weather events. Storm Darragh response with 95% of customers' power restored within 48 hours. NESO interim report on North Hyde substation fire, with final report expected in June. Lost time injury frequency rate 0.1%.
• Regulatory Developments: Submitted £35 billion RIIO-T3 business plan for UK Electricity Transmission. Ofgem's advanced procurement mechanism for transmission owners. Renewed and approved rate plans in U.S. businesses.
• Priorities for the Coming Year: Progress on RIIO-T3, addressing affordability in U.S. businesses, impact of planning and infrastructure bill, ramping up ASTI program, and achieving £100 million synergy benefits in UK Electricity Distribution.

Segment Performance

• UK Electricity Transmission: Underlying operating profit was £1.4 billion, 9% higher than the prior year. Capital investment was £3 billion, up 57%. Achieved a return on equity of 8.3%.
• UK Electricity Distribution: Underlying operating profit was £1.2 billion, £51 million higher than the prior year. Capital investment was £1.4 billion, 14% higher. Return on equity was 7.9%.
• U.S. New York: Underlying operating profit was £1.45 billion, 43% higher than the prior year. Capital investment was £3.3 billion, 24% up. Return on equity was 8.7%.
• U.S. New England: Underlying operating profit was £924 million, up 15%. Capital investment was £1.75 billion, 5% higher. Return on equity was 9.1%.
• National Grid Ventures: Underlying operating profit, including joint ventures, was £455 million, £116 million lower than the prior year. Capital investment was £378 million, down 43%.

Guidance

• FY2026 guidance: EPS growth expected at the lower end of the 6%-8% range due to a slightly weaker dollar. Capital investment expected to be over £11 billion next year, driving asset growth of around 11%. Net debt expected to increase by just over £6 billion, excluding proceeds from sales.
• Reaffirmed five-year framework: Expect to invest around £60 billion over five years, driving asset growth of around 10% and EPS growth of 6%-8% from the 73.3p baseline. Aim to grow dividend in line with average CPIH.

Risks

• Turbulent economic and geopolitical environment impacting operations.
• Supply chain and delivery challenges for £60 billion capital investment.
• Regulatory and policy changes affecting investment plans.
• Severe weather events like Storm Darragh impacting costs and operations.
• Offshore wind industry slowdown and accounting impairments in National Grid Ventures.

Question and Answer

Q: On RIIO-T3, what do you expect to see different in the Draft Determination (DD) to your business plan?

A: Conversations with Ofgem focus on the financial framework, including returns, cash characteristics, and ensuring an investable framework.

Q: On the Iberian blackout, what discussions have you had with policymakers?

A: Waiting for the investigation results to learn lessons for the UK, focusing on resilience and system issues.

Q: On the North Hyde substation fire report, what do you expect to see?

A: Hoping the report covers asset failure, resilience, transmission-distribution interaction, and network changes.

Q: On affordability in Massachusetts, how is it being addressed?

A: Work with regulators to balance investment and affordability, including rate case adjustments and customer support programs.

Q: On planning and infrastructure bill impact, what's the outlook?

A: Supportive of the bill's streamlining of planning, which helps derisk projects and shortens the process.