Cautionary statement/media/Files/N/National-Grid-IR-V… · Financing Metric 15 Interest cover...
Transcript of Cautionary statement/media/Files/N/National-Grid-IR-V… · Financing Metric 15 Interest cover...
Cautionary statement
1
Unless otherwise stated, all financial data of National Grid contained in this presentation is as reported under IFRS.This presentation contains certain statements that are neither reported financial results nor other historical information. These statements are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include information with respect to National Grid’s financial condition, National Grid’s results of operations and businesses, strategy, plans and objectives. Words such as “anticipates”, “expects”, “intends”, “plans”, “believes”, “seeks”, “estimates”, “may”, “will”, “continue”, “project” and similar expressions, as well as statements in the future tense, identify forward-looking statements. These forward-looking statements are not guarantees of National Grid’s future performance and are subject to assumptions, risks and uncertainties that could cause actual future results to differ materially from those expressed in or implied by such forward-looking statements. Many of these assumptions, risks and uncertainties relate to factors that are beyond National Grid’s ability to control or estimate precisely, such as delays in obtaining, or adverse conditions contained in, regulatory approvals and contractual consents, unseasonable weather affecting the demand for electricity and gas, competition and industry restructuring, changes in economic conditions, currency fluctuations, changes in interest and tax rates, changes in energy market prices, changes in historical weather patterns, changes in laws, regulations or regulatory policies, developments in legal or public policy doctrines, the impact of changes to accounting standards and technological developments. Other factors that could cause actual results to differ materially from those described in this presentation include the ability to integrate the businesses relating to announced or recently completed acquisitions with National Grid’s existing business to realise the expected synergies from such integration, the availability of new acquisition opportunities and the timing and success of future acquisition opportunities, the timing and success or other impact of the sales of National Grid’s non-core businesses, the failure for any reason to achieve reductions in costs or to achieve operational efficiencies, the failure to retain key management, the behaviour of UK electricity market participants on system balancing, the timing of amendments in prices to shippers in the UK gas market, the performance of National Grid’s pension schemes and the regulatory treatment of pension costs, and any adverse consequences arising from outages on or otherwise affecting energy networks, including gas pipelines owned or operated by National Grid. For a more detailed description of some of these assumptions, risks and uncertainties, together with any other risk factors, please see National Grid’s filings with and submissions to the US Securities and ExchangeCommission (the “SEC”) (and in particular the "Risk Factors" and "Operating and Financial Review" sections in its most recent Annual Report on Form 20-F). Except as may be required by law or regulation, National Grid undertakes no obligation to update any of its forward-looking statements. The effects of these factors are difficult to predict. New factors emerge from time to time and National Grid cannot assess the potential impact of any such factor on its activities or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement.
Sir John Parker
Chairman
Steve Lucas
Finance Director
Financial headlines
4
Very strong results
Operating profit up 22%
EPS up 23%*
Improved balance sheet efficiency
Positive outlook
Full-year operating profit and EPS in-line with our expectations
* At actual currencyContinuing business performance, excluding exceptional items, discontinued businesses, stranded costs recoveries and certain mark-to-market remeasurements2007 constant currency figures calculated by applying average 2007 rate ($2.02/£) to 2006 results (when average rate was $1.86/£)
GroupOperating profit
5
£852m£1,039m
US Stranded
US Stranded
2006 2007
£1,039m
£1,229m
55%
16%
19%
10%
Transmission Gas Distribution
Electricity Distribution & Generation
Non-regulated
(excludes US stranded cost recoveries)
• Continuing business performance, excluding exceptional items, discontinued businesses and certain mark-to-market remeasurements• 2007 constant currency figures calculated by applying average 2007 rate ($2.02/£) to 2006 results (when average rate was $1.86/£)
TransmissionOperating profit
6
£489m£574m
2006 2007
Increase in UK allowed revenues
Lower auction revenues on the French interconnector and LNG storage
Increased depreciation charge
Other items net positive17% up
• Continuing business performance, excluding exceptional items, discontinued businesses and certain mark-to-market remeasurements• 2007 constant currency figures calculated by applying average 2007 rate ($2.02/£) to 2006 results (when average rate was $1.86/£)
Gas DistributionOperating profit
7
£98m
£166m
2006 20079% UK price increase in October 2006
Re-profiling of UK allowed revenue recovery
US seasonal bias
Other items net negative69% up
• Continuing business performance, excluding exceptional items, discontinued businesses and certain mark-to-market remeasurements• 2007 constant currency figures calculated by applying average 2007 rate ($2.02/£) to 2006 results (when average rate was $1.86/£)
Electricity Distribution & GenerationOperating profit
8
£206m £196m
2006 2007
Increased electricity distribution revenues*
Timing benefit for pass-through items
Other items net negative – included:Storm costs
Bad debts
Increased reliability expenditure
Absence of one-off benefit in 2006/075% down
* Excluding pass-through commodity costs• Continuing business performance, excluding exceptional items, discontinued businesses and certain mark-to-market remeasurements• 2007 constant currency figures calculated by applying average 2007 rate ($2.02/£) to 2006 results (when average rate was $1.86/£)
Non-regulated & other businessesOperating profit
9
£60m
£103m
2006 2007Property up on timing of sales
Metering income up
Grain LNG income up
Net reduction in corporate and other costs72% up
• Continuing business performance, excluding exceptional items, discontinued businesses and certain mark-to-market remeasurements• 2007 constant currency figures calculated by applying average 2007 rate ($2.02/£) to 2006 results (when average rate was $1.86/£)
GroupOperating profit
10
£852m£1,039m
US Stranded
US Stranded
2006 2007
£1,039m
£1,229m
55%
16%
19%
10%
Transmission Gas Distribution
Electricity Distribution & Generation
Non-regulated
(excludes US stranded cost recoveries)
22% up** Excluding US stranded cost recoveries• Continuing business performance, excluding exceptional items, discontinued businesses and certain mark-to-market remeasurements• 2007 constant currency figures calculated by applying average 2007 rate ($2.02/£) to 2006 results (when average rate was $1.86/£)
Exchange rates
11
For the 6 months ended 30 September 2007 2006
Closing $ / £ rate 2.05 1.88
Average $ / £ rate for the period 2.02 1.86
(2)%Net currency impact on earnings
For the 6 months ended 30 September (£m) 2007
Impact on total operating profit (24)
Impact on interest 11
Impact on tax and minority interests 3
Net impact on earnings (10)
• Continuing business performance, excluding US stranded cost recoveries, discontinued businesses, exceptional items and certain mark-to-market remeasurements
Interest, tax, earnings and dividend
12
For the 6 months ended 30 September (£m) 2007 2006
Net finance cost (actual FX) (282) (253)Effective tax rate* 32% 32%EPS** 19.8p 16.1p
For the 6 months ended 30 September (£m) 2007 2006
DPS - ordinary 11.7p 10.9pDividend per American Depository Share $1.2153 $1.0279
Continuing business performance, excluding exceptional items, discontinued businesses and certain mark-to-market remeasurements*Expressed as a % of profits before exceptional and remeasurement adjustment, including US stranded costs **Excluding stranded costsNumber of shares: 2,663m (2007), 2,721m (2006)
Capital investment
13
£578m
£870m
£236m
£299m
£113m
£115m
£128m
£186m
2006 2007
Gas Distribution Non-regulated
Electricity Distribution & GenerationTransmission
£1,055m
£1,470m
• Continuing business capital investment at actual FX• Excludes Transmission capitalised expenditure relating to emissions trading in the UK• 2007 Gas Distribution includes £177m of replacement expenditure (repex) in the UK (2006: £159m)
Net debt and cashflow
14
01-Apr-07 Continuingoperatingcashflow*
Continuinginterest & tax
Investment Proceedsfrom
disposals
Acquisition ofKeySpan
Dividends &share buy
back
Other** 30-Sep-07
£(11.8)bn
£3.1bn
£(16.3)bn
£1.3bn
£0.1bn
£(0.4)bn
£(1.4)bn
£(5.9)bn
£(1.3)bn
*Includes exceptional spend of £(66)m, and excludes tax ** Other items also includes cashflows related to discontinued operations
Financing Metric
15
Interest cover (times)
2.75
3.00
3.25
3.50
3.75
4.00
4.25
2004/05 2005/06 2006/07 Future2.75
3.00
3.25
3.50
3.75
4.00
4.25
Target range Interest cover
Providing metric for the first time
Indicator of balance sheet efficiency
Annual reporting at each full-year results
Interest cover
Reflects the calculation used by our credit rating agencies
3.8x as at 31 March 2007
Aim to manage the long term trend in a range of 3.0 – 3.5x
Financial headlines
16
Very strong results
Operating profit up 22%
EPS up 23%*
Improved balance sheet efficiency
Positive outlook
Full-year operating profit and EPS in-line with our expectations
* At actual currencyContinuing business performance, excluding exceptional items, discontinued businesses, stranded costs recoveries and certain mark-to-market remeasurements2007 constant currency figures calculated by applying average 2007 rate ($2.02/£) to 2006 results (when average rate was $1.86/£)
Steve Holliday
Chief Executive
National Grid……clear and simple strategy
18
More focused
More integrated
More disciplined
Our achievements…
19
More focused
UK and US Wireless sold
Basslink sold
KeySpan acquisition completed
Our achievements…
20
More integrated
KeySpan integration
Global operating model
Support organisations:
Shared services established
Global Finance established
Global IS established
Implementing the operating model…
21
More integrated Rate plan controllableoperating costs ~£2bn…
Assetmgmt
Customer mgmt
Workdelivery
Market operation Global IS Shared
services
~45% Global
~30% Lines of Business
~25% Local
Implementing the operating model…
22
More integrated Rate plan controllableoperating costs ~£2bn…
Global IS Customer mgmt
Workdelivery
Market operation
Shared services
Assetmgmt
Global ~80%
Lines of Business ~5%
Local ~15%
Implementing the operating model…
23
More integrated Rate plan controllableoperating costs ~£2bn…
Workdelivery
Customer mgmt
Market operation Global IS Shared
servicesAssetmgmt
Global ~10%
Lines of Business ~80%
Local ~10%
Implementing the operating model…
24
More integrated Rate plan controllableoperating costs ~£2bn…
Customer mgmt
Workdelivery
Market operation Global IS Shared
servicesAssetmgmt
Global ~50%
Lines of Business
Local ~50%
Our achievements…
25
More disciplined
Return surplus cash
£1,042m returned under share buy-back programme
Interest cover metric
Investment discipline
Investment for growth……discipline in delivery
26
£1.5bn investment, up 39%
£870m£299m
£186m£115m
Electricity Distributionand Generation
Gas Distribution
Non-regulated
Transmission
Investment for growth……discipline in delivery
27
Transmission
£142m
£410m
£215m
£44m£44m £15m
UKelectricity
UK gas USelectricity
Other
US transmission
Asset replacement
Other
Customer connections & network reinforcement
£870m
Investment for growth……discipline in delivery
28
Gas Distribution
£41m
£187m
£11m£31m
£23m
£6m
UK gas US gas OtherKeySpan
Asset replacement
Other
Customer connections & network reinforcement
£299m
Investment for growth……discipline in delivery
29
Electricity Distribution & Generation
£56m
£56m
£1m £2m
US electricity Generation OtherAsset replacement
Other
Customer connections & network reinforcement
£115m
Investment for growth……discipline in delivery
30
Non-regulated
£72m
£97m
£12m
£5m
Metering Grain LNG Property OtherProperty Other
Metering
£186m
Grain LNG
Investment for growth……~£16bn* capital investment through to 2012
31
£ billion
0
2
4
6
8
10
12
14
16
2006 - 2012
£2.3bn
£12.0bn
Delivered in 2006/07
Expected balance to 2011/12
Electricity Distributionand Generation
£1.4bn
Gas Distribution
£4.9bn
Non-regulated
£1.6bn
Transmission
£5.6bn
£1.5bn
Delivered in H1 2007/08
* National Grid is currently working with Ofgem on the Gas Distribution Price Control Review for 2008-13. The projections set out above are central to the review with respect to assumptions about the level of investment and how investment, including repex, will be treated for regulatory purposes.
Regulatory settlements…staggered rate plans
32
2007 2008 2009 2010 2011 2012 2013 2014Transmission (2)
Gas Distribution (4)
NiMo (electric)
NiMo (gas)
KEDNY
KEDLI
MECO
Boston Gas
Essex Gas
Colonial Gas
Narrangansett (elec.)
Narragansett (gas)
GSE
Energy North
LI Generation
NEP Formula transmission rates
Preparing rate filing
Preparing rate filing
Preparing rate filing
FER
CN
HR
hode
Is
land
Mas
sach
uset
tsN
ew Y
ork
Ofg
em
Investment for growth……electricity distribution capital investment
33
$1.47bnUpstate New York filing
$0m
$100m
$200m
$300m
$400m
$500m
$600m
2007 2008 2009 2010 2011
Transmission Distribution
Note: US GAAP
Investment for growth……electricity distribution capital investment
34
$1.47bnUpstate New York filing
$0m
$100m
$200m
$300m
$400m
$500m
$600m
2007 2008 2009 2010 2011Customer connections & network reinforcementAsset replacement & reliability
Note: US GAAP
Investment for growth……electricity distribution capital investment
35
$2.4bnUpstate New York - potential increase to around
$0m
$100m
$200m
$300m
$400m
$500m
$600m
2007 2008 2009 2010 2011Sustainable reliabilityCustomer connections & network reinforcementAsset replacement & reliability
Note: US GAAP
Strong first-half, delivering our strategy on all fronts…next steps
36
More focused More integrated More disciplined
Decision on sale of National Grid Property
Sale of Ravenswood
UK gas distribution price control review
US gas rate plan filings
$200m+ KeySpan synergy savings
Operating model implementation
£2bn regulated annual controllable cost base
Deliver capital investment plans and rate base growth
Share buy-back
Dividend policy beyond 2008
Positive outlook… and a lot to do…
Appendix
IFRS – technical details
38
This presentation is based on continuing business performance, so it excludes exceptional items and remeasurements.
These remeasurements relate to movements in the carrying value of financial instruments and of commodity contracts. They arise from changes in mark-to-market values or exchange rates and are reflected in the income statement to the extent that hedge accounting is not achieved or is not fully effective.
Further details can be found in Note 3 of National Grid’s half-year report at www.nationalgrid.com
Business results
39
For the 6 months ended 30 September (£m) 2007 2006 change
Operating profit (actual FX) 1,2291,229
94724.1p
11.7p
1,078 14%
Operating profit (constant FX) 1,039 18%
Profit before tax (actual FX) 827 15%
Earnings per share 20.5p 18%
Dividend per share 10.9p 7%
* At actual currencyContinuing business performance, excluding exceptional items, discontinued businesses, stranded costs recoveries and certain mark-to-market remeasurements2007 constant currency figures calculated by applying average 2007 rate ($2.02/£) to 2006 results (when average rate was $1.86/£)
Business results and statutory results*
40
For the 6 months ended 30 September (£m) 2007 2006
Operating profit ** 1,229 1,078Exceptional operating items and remeasurements (42) 32Net finance costs (including exceptional items and remeasurements) (270) (331)
Share of post tax results of joint ventures - 2Statutory profit before tax (continuing businesses) 917 781Tax (132) (218)Statutory earnings (continuing businesses) 785 563Statutory earnings (discontinued operations) 1,613 33Statutory earnings 2,398 596Minority interests (2) (2)Statutory earnings attributable to equity shareholders 2,396 594Earnings per share 90.0p 21.8p
*At actual currency**excluding exceptional items, discontinued businesses and certain mark-to-market remeasurements
Revenue and other operating income*
41
For the 6 months ended 30 September (£m) 2007 2006
Transmission – UK 1,392 1,323
Transmission – US 153 151
Gas distribution – UK 547 447
Gas distribution – US 302 157
Electricity distribution and generation 1,446 1,530
Non-regulated businesses and other 330 292
US Stranded Costs 195 205
(Sales eliminations) (105) (123)
Total revenue and other operating income 4,260 3,982
*At actual currencyContinuing business performance, excluding exceptional items, discontinued businesses and certain mark-to-market remeasurements
Transmission* Depreciation & Amortisation
42
For the 6 months ended 30 September (£m) 2007 2006Electricity Transmission Owner* 118 104
Electricity System Operator 10 9
Sub-total – Electricity transmission – US 20 21Interconnectors – UK 2 2
LNG 3 3
Sub total – other 5 5Total Transmission depreciation & amortisation 206 186
Other Electricity 1 1
Sub total – Electricity transmission - UK 129 114Gas Transmission Owner** 44 36
Gas System Owner*** 8 10
Other Gas - -
Sub total – Gas transmission - UK 52 46New England Transmission 6 6
New York Transmission 10 11
Interconnectors 4 4
*At actual currency** Excludes profit on sale of fixed assets £[X]m in 2006/07 and capital contributions released of £4[X]m in 2006/07*** Excludes emissions trading amortisation of £[X]m in 2006/07 and excludes capital contributions released of £[X]m in 2006/07
Transmission* Operating costs
43
For the 6 months ended 30 September (£m) 2007 2006Electricity Transmission Owner** 140 148
Electricity System Operator 415 406
Sub-total – Electricity transmission – US 60 63Interconnectors – UK 3 4
LNG 17 19
Internal eliminations (9) (8)
Sub total – other 11 15Total Transmission operating costs 765 794
Other Electricity 8 7
Sub total – Electricity transmission - UK 563 561Gas Transmission Owner 75 68
Gas System Owner 52 82
Other gas 4 5
Sub total – Gas transmission - UK 131 155New England Transmission 25 29
New York Transmission 31] 29
Interconnectors 4 5
*At actual currency** Includes transfer of Scottish network owner income (£[X]m in 2006/07); hydro benefit costs (£[X]m in 2006/07); and BSIS costs (£[X]m
2006/07)
Transmission* Operating profit
44
For the 6 months ended 30 September (£m) 2007 2006Electricity Transmission Owner* 313 270
Electricity System Operator 19] 26
Sub-total – Electricity transmission – US 73 67Interconnectors – UK 15 30
LNG 5 23
Sub total – other 20 53Total Transmission operating profit 574 494
Other Electricity 4 1
Sub total – Electricity transmission - UK 336] 297Gas Transmission Owner 94 52
Gas System Owner 51 25
Other gas - -
Sub total – Gas transmission - UK 145 77New England Transmission 38 32
New York Transmission 31 31
Interconnectors 4 4
*At actual currency**Includes transfer from ESO to ETO of Electricity TO core revenue collected in GBSO
TransmissionPrincipal operating profit movements
45
2006 Currencyimpact
2006(constant FX)
UK regulatedrevenue
Frenchlink &LNG storage
Depreciation Other 2007
£108m
£(5)m
£(36)m £(20)m
£33m
£494m
£574m
£489m
Continuing business performance, excluding exceptional items, discontinued businesses, stranded costs recoveries and certain mark-to-market remeasurements2007 constant currency figures calculated by applying average 2007 rate ($2.02/£) to 2006 results (when average rate was $1.86/£)
Gas distribution* Operating profit
46
For the 6 months ended 30 September (£m) 2007 2006
Depreciation and amortisation – UK (89) (84)Depreciation and amortisation – US (25) (10)
Total Gas distribution operating profit 166 100
Total depreciation and amortisation costs (114) (94)Operating costs – UK (291) (296)Operating costs – US (278) (118)Total operating costs (569) (414)Operating profit – UK 167 71Operating profit – US (1) 29
*At actual currency
Gas distributionPrincipal operating profit movements
47
2006 Currencyimpact
2006(constant FX)
UK pricingformulachanges
UK underlyingnet formula
income
USseasonality
Other 2007
£46m
£(2)m
£(36)m
£(17)m
£75m
£100m
£166m
£98m
Continuing business performance, excluding exceptional items, discontinued businesses, stranded costs recoveries and certain mark-to-market remeasurements2007 constant currency figures calculated by applying average 2007 rate ($2.02/£) to 2006 results (when average rate was $1.86/£)
Electricity distribution and generation*Operating profit
48
For the 6 months ended 30 September (£m) 2007 2006
Operating costs (1,182) (1,243)
Depreciation and amortisation (68) (65)
Total Electricity distribution operating profit (actual FX) 196 222
* At actual currency
Electricity distribution and generationPrincipal operating profit movements
49
2006 Currencyimpact
2006 (constant FX)
Net margin Timing Other 2007
£11m
£(16)m £(29)m
£8m£222m
£196m £206m
Continuing business performance, excluding exceptional items, discontinued businesses, stranded costs recoveries and certain mark-to-market remeasurements2007 constant currency figures calculated by applying average 2007 rate ($2.02/£) to 2006 results (when average rate was $1.86/£)
Non-regulated and other activitiesOperating profit
50
For the 6 months ended 30 September (£m) 2007 2006Revenue and other operating income 20 19
Revenue and other operating income 197 186
Revenue and other operating income 81 47
Operating costs (18) (12)
Operating costs (10) (11)
Depreciation and amortisation (4) (3)
Sub total – Other (25) (31)Total Non-regulated and other businesses operating profit 103 60
Sub total – Grain LNG 6 5
Operating costs (65) (61)
Depreciation and amortisation (72) (71)
Sub total – Metering 60 54
Depreciation and amortisation (1) (3)
Sub-total – Property 62 32
Operating cashflow
51
For the 6 months ended 30 September 2007
Operating profit* 1,229Depreciation and amortisation 461Working capital and other (368)Operating cashflow** 1,322
£m
* Excluding exceptional items and certain mark-to-market remeasurements** Includes exceptional spend of £66m, and excludes tax
Cashflow and net debt
52
£m
Net debt at 1 April 2007 (11,788)
Sale of Wireless & Basslink 3,065
Share buy-back programme (796)
Operating cashflow from continuing operations* 1,256Net interest (249)Tax – continuing operations (136)
Acquisition of KeySpan (including debt acquired) (5,929)Cash payments for capital expenditure (1,376)Equity dividends paid (480)
Other cash flows** 35Change in net debt from cashflow in year (4,610)Total non cash movements in year 87Net debt at 30 September 2007 (16,311)
*Includes exceptional spend of £[X]m, and excludes tax ** Other items also includes cashflows related to discontinued businesses including the sold gas networks
Interest coverDetailed calculation
53
(£m) 2004/05 2005/06 2006/07Interest expense (P&L) 1,652 1,693 1,736
Interest income on financial instruments 64 135 218
Current pension service cost (134) (119) (113)
add back interest on pensions debt adjustment 97 71 41add back interest on decommissioning liabilities adjustment 6 6 4add back lease rentals 83 120 84
Capitalised interest 63 60 70Interest on pensions debt adjustment 97 71 41Interest on decommissioning liabilities adjustment 6 6 4Interest on lease rentals adjustment 28 40 28Pensions interest on scheme liabilities (881) (891) (869)Unwinding of discounts on provisions (14) (18) (21)Exceptional debt redemption costs - (49) (45)Adjusted interest expense 951 912 944
Net cash inflow from operating activities 3,308 2,971 2,958
Dividends received 5 2 -Working capital adjustment 105 212 (18)
add back employer pension contributions 184 191 276
Corporation tax (64) (415) (175)Prior year adjustment (if negative) - (17) -add back cash tax paid (for continuing operations) 52 103 310Adjusted net cash inflow from operating activities 3,276 3,260 3,586
Interest cover (adjusted funds from operations ÷ adjusted interest expense) 3.9 3.6 3.8
Source: NG plc statutory accounts and National Grid estimates
Exceptional items and remeasurements
54
For the 6 months ended 30 September 2007 £m
Restructuring costs (71)Remeasurements – commodity contracts 23Impact on operating profit (48)Exceptional finance remeasurement gain 18Total pre-tax exceptional items and remeasurements (30)
Pensions – IAS19 data
55
£m ESPS (mainly NGET) NGUK PS US NG total
At 30 September 2007Market value of assets 1,377 12,962 3,505 17,844Present value of liabilities (1,797) (12,446) (4,521) (18,764)(Deficit) / surplus (420) 516 (1,016) (920)Deferred tax 118 (144) 406 380(Deficit) / surplus net of deferred tax (302) 372 (610) (540)Discount rates 5.8% 5.8% 6.3%
At 31 March 2007Market value of assets 1,336 12,865 1,798 15,999Present value of liabilities (1,824) (12,828) (2,592) (17,244)(Deficit) / surplus (488) 37 (794) (1,245)Deferred tax 146 (11) 318 453Deficit net of deferred tax (342) 26 (476) (792)Discount rates 5.4% 5.4% 5.8%
Note – in 2007, Wireless pension liabilities are classified as liabilities of business held for sale.