National Grid Plc continues to deliver investment at pace

National Grid plc (LON:NG), a leading energy transmission and distribution company, has announced its Half-Year results for the period ended 30 September 2024.

John Pettigrew, Chief Executive, said:

“Over the last six months, the exciting momentum within National Grid has continued as we deliver an unprecedented step up in capital investment. We successfully completed the £7 billion Rights Issue, underpinning our ability to deliver our five-year, £60 billion investment plan at pace. Delivery is well underway with investment increasing to a record £4.6 billion in the first half of this year. In the UK, work on our 17 major onshore and offshore transmission projects is moving forward, in consultation with our communities and stakeholders, and we are well progressed in securing the supply chain for all these projects. In the US, we’ve made good progress on our $4 billion Upstate Upgrade in New York, and delivered further gas mains replacement and network reinforcement across our communities.

We’ve been encouraged by policy and regulatory progress on both sides of the Atlantic. In the UK, we sold the Electricity System Operator to government, and Ofgem’s publication of the sector specific methodology decision marked the next step in the RIIO-T3 regulatory process. In the US, we have new rates for our downstate New York gas business, and for our Massachusetts Electric business, giving us greater visibility on investment plans.

National Grid is delivering a new and exciting phase of growth with an attractive investor proposition underpinned by high quality asset growth, strong earnings growth and an inflation protected dividend. We remain focused on playing our role in the energy transition and the responsible delivery of the new infrastructure required to enable the digital, electrified economies of the future.”

1.  ‘Underlying’ represents statutory results from continuing operations, but excluding exceptional items, remeasurements, major storm costs (when greater than $100 million), timing and the impact on underlying results of deferred tax in our UK regulated businesses (NGET and NGED). Further detail and definitions for all alternative performance measures (including constant currency) are provided from page 59.

2.  Comparatives restated for the change in our underlying earnings definition to remove the deferred tax in our UK regulated businesses (NGET and NGED).

3.  Comparatives restated for the impact of the bonus element of the Rights Issue (see note 9).

4.  Our definition of capital investment was amended in 2023/24 to align with our statutory measure (see note 2(c) to the financial statements). Comparative amounts have been restated.

Highlights

Good financial performance across the half year

■   Underlying operating profit on a continuing basis of £2.0 billion, an increase of 14% at actual exchange rates (15% at constant currency) versus the prior period. This was principally driven by: increased rates in our New York businesses; higher revenues in UK Electricity Transmission; a lower charge to the environmental provision in New York; and a higher contribution from the UK Electricity System Operator (ESO); partially offset by lower profits in National Grid Ventures (NGV).

■   Underlying EPS from continuing operations of 28.1p, up from 25.9p in the prior period, driven primarily by the above factors and lower net finance costs, partially offset by the increased share count following the Rights Issue in June 2024.

■   Statutory operating profit down 34% to £1.3 billion, driven principally by adverse timing movements primarily in ESO. Statutory EPS of 12.6p, down from 26.7p in the prior period.

■   Interim dividend of 15.84p/ordinary share. This represents 35% of the total rebased dividend per share of 45.26p in respect of the last financial year to 31 March 2024, in line with the Group’s dividend policy (see page 63 for calculation).

_{Record capital investment driving the energy transition}

■ Capital investment of £4.6 billion for continuing operations, £657 million higher than the prior period (£726 million higher at constant currency). This was principally driven by higher connection spend in UK Electricity Transmission, and increased spend on early Accelerated Strategic Transmission Investment (ASTI) projects; higher spend in New York through our Smart Path Connect and Climate Leadership and Community Protection Act (CLCPA) electric transmission projects, as well as additional gas network spend in our Leak Prone Pipe (LPP) replacement programme; partially offset by lower spend at Viking Link following commissioning in the prior year; and the ESO being classified as held for sale.

Evolving our strategy to focus on our pureplay energy networks

■   Successfully completed the £7 billion equity raise with proceeds received in June.

■   Moved forward with the initial phase of our significantly higher capital investment plan which, over the next five years, will be almost double the investment compared to the last five years.

■  National Grid Renewables and Grain LNG classified as held for sale following announced intention to sell both businesses.

■  Sold the ESO to the UK government for an enterprise value of £630 million^[1] (transaction completed 1 October).

■  Completed the sale of the final 20% equity interest in National Gas Transmission to a consortium of long-term infrastructure investors led by Macquarie Asset Management.

■  £58 million of cumulative synergy benefits now delivered across the Group as a result of the UK Electricity Distribution acquisition – on track to reach our £100 million target by the end of 2025/26.

Progressing the new phase of capital delivery

■  Good progress on our early ASTI investments, commencing construction on five of our 17 projects: Yorkshire Green; North London reinforcement; Eastern Green Links 1 (EGL1) and 2 (EGL2) joint ventures; and Bramford to Twinstead.

■ Held public consultations over the summer covering eight other ASTI projects, including 58 in-person consultations with over 7,600 people attending, and with 750 people through online webinars.

■  Working with seven strategic partners to agree the initial allocation of work under the Great Grid Partnership, our £9 billion supply chain framework to deliver nine ASTI projects.

■  On track to award all High Voltage Direct Current (HVDC) and converter station contracts for the remaining offshore ASTI projects in the first part of 2025.

■   Further progress on our ‘Upstate Upgrade’ in New York, with our Smart Path Connect project – the rebuild and upgrade of 110 circuit miles of transmission lines in upstate New York – reaching the halfway point of construction, slightly ahead of schedule.

■ Good progress on construction of our CLCPA Phase 1 projects. Issued a procurement and construction Request for Proposal (RFP) for our CLCPA Phase 2 projects.

Delivering customer connections across our networks

■  On course to connect a further 4.5 GW of new projects to our UK Electricity Transmission network in 2024/25, versus 3.4 GW in 2023/24.

■ Connected 269 MW of new projects across our UK Electricity Distribution network (including 196 MW solar, 67 MW energy storage).

Good regulatory and policy progress

■  Ofgem published the RIIO-T3 Sector Specific Methodology Decision (SSMD) which continues to recognise ‘investability’ as a priority when considering new price control regulation for RIIO-T3.

■   Responded to the UK government’s consultation on the National Planning Policy Framework (NPPF) calling for the explicit recognition of electricity network infrastructure and its role in delivering the government’s energy objectives.

■  Welcomed Ofgem’s open letter on connections reform, directing the ESO and industry to consider stronger alignment between future connection arrangements and government strategic energy plans.

■   New three-year rate agreement approved by the New York Public Service Commission (PSC) for our downstate gas distribution business, KEDNY-KEDLI.

■ New five-year rate order issued by the Massachusetts Department of Public Utilities (DPU) for our Massachusetts Electric (MECO) business.

■   Filed for new rates for Niagara Mohawk (NIMO), our upstate New York electric and gas distribution business.

■  Our Electric Sector Modernization Plan (ESMP) was approved by the DPU as a strategic roadmap, outlining the incremental investment required in our electric network over the next five years to help deliver Massachusetts’ clean energy goals.

■  Ofgem consultation launched on Offshore Hybrid Asset (OHA) regulatory framework to support first-of-a-kind OHAs.

Delivering on our responsible business commitments

■   Published our second Climate Transition Plan (CTP), outlining our greenhouse gas emissions reduction targets and our roadmap to achieve net zero by 2050.

■   Employees volunteered over 40,000 hours across communities during the half year. Now achieved 44% of our 10-year Group commitment of volunteering 500,000 hours.

■   Board diversity remained at 45.5%; Group Executive diversity at 53.9%. Since year end, gender and ethnically diverse colleagues have risen from circa 7,100 to 7,400 and 5,300 to 5,600 respectively^[2].

Financial Outlook and Guidance

■   Guidance is based on our continuing businesses, as defined by IFRS and includes the contribution of the ESO up until disposal. It excludes the minority stake in National Gas Transmission, which was classified as a discontinued operation until disposal.

■   Financial outlook over the five-year period from 2024/25 to 2028/29:

■   total cumulative capital investment of around £60 billion;

■   Group asset growth CAGRⁱ of around 10% backed by strong balance sheet;

■   driving underlying EPS CAGRⁱⁱ of 6-8% from a 2024/25 EPS baseline;

■   credit metrics consistent with current Group rating; and

■  regulatory gearing to fall to the low-60% range by March 2025, then expected to trend towards the high-60% range by the end of RIIO-T3.

■  For 2024/25 underlying EPS we continue to expect strong operational performance reflecting year-on-year operating profit growth of around 10%, as well as reduced financing costs due to lower average net debt. We anticipate the additional share count from the Rights Issue to largely offset this improved performance. We then expect an underlying EPS CAGR of 6-8% from a 2024/25 baseline, through to 2028/29. Please refer to the detail in the Five-Year Financial Framework and 2024/25 Forward Guidance on pages 15 to 17.

i.    Group asset compound annual growth rate from a FY24 baseline. Forward years based on assumed USD FX rate of 1.25; and long run UK CPIH and US CPI. Assumes sale of ESO, Grain LNG, and National Grid Renewables before 2029. Assumes 20% stake in National Gas Transmission treated as a discontinued operation and therefore does not contribute to Group asset growth.

ii.    Underlying EPS compound annual growth rate from FY25 baseline. Forward years based on assumed USD FX rate of 1.25; long run UK CPIH, US CPI and interest rate assumptions and scrip uptake of 25%. Assumed sale of ESO in 2024/25; and sale of Grain LNG and National Grid Renewables before 2029. Assumed 20% stake in National Gas Transmission treated as a discontinued operation and therefore did not contribute to underlying EPS.