Business context and reporting period
National Grid plc is a UK-incorporated energy infrastructure company operating regulated electricity transmission and distribution businesses in the UK and northeastern United States, plus system operations, interconnectors, LNG, renewables and other ventures. The filing is an annual Form 20-F for the fiscal year ended 31 March 2023, filed 6 June 2023; it is not a quarterly filing for “2022 Q4.” Results are prepared under IFRS as issued by the IASB and reported in sterling.
The Group completed a strategic pivot toward electricity: it sold its Rhode Island business, sold a 60% interest in UK Gas Transmission and Metering, and retained a 40% interest in National Gas Transmission that was classified as held for sale.
Financial performance and position
| Metric | 2022/23 | Prior comparable period | Change |
|---|---|---|---|
| Continuing-operations revenue | £21.659bn | £18.449bn | +17% |
| Statutory operating profit | £4.879bn | £4.371bn | +12% |
| Statutory profit after tax, continuing operations | £2.714bn | £2.183bn | +24% |
| Underlying earnings | £2.549bn | £2.350bn | +8% |
| Statutory EPS, continuing operations | 74.2p | 60.6p | +22% |
| Underlying EPS | 69.7p | 65.3p | +7% |
| Operating cash flow, continuing operations | £6.343bn | £5.490bn | +16% |
| Capital investment, continuing operations | £7.740bn | £6.739bn | +15% |
| Net debt | £40.973bn | £42.809bn | Down £1.836bn |
| Regulatory gearing | 71% | 81% | Down 10 percentage points |
| Group return on equity | 11.0% | 11.4% | Down 40 basis points |
Continuing-operations statutory operating margin was approximately 22.5%, compared with approximately 23.7% in the prior period. The filing does not present a single consolidated underlying margin, but underlying operating profit was £4.582bn, up 15%.
- Gross borrowings were £42.985bn, including £36.855bn of non-current bonds and £2.955bn of current borrowings. Cash and cash equivalents were £163m, supplemented by £2.605bn of current financial investments.
- As of 31 March 2023, undrawn committed borrowing facilities totaled £6.503bn, of which £6.461bn was available for liquidity purposes. As of 18 May 2023, management reported £8.0bn of undrawn committed facilities available for general corporate purposes.
- Moody’s retained cash flow to adjusted net debt was 9.3%, above the 7.0% threshold cited by management. The reported Group credit ratings were BBB+ from S&P and Baa1 from Moody’s.
- The proposed full-year dividend was 55.44p per share, up 8.8%, with underlying dividend cover of approximately 1.3 times. The proposed final dividend was 37.60p per share.
- Net pension and other post-retirement benefit assets were £1.951bn, down from £3.075bn, primarily because of lower plan asset returns partly offset by higher discount rates.
Material changes versus the prior comparable period
- Revenue and earnings benefited from a full-year contribution from UK Electricity Distribution, stronger National Grid Ventures performance and higher regulated revenues. These benefits were partly offset by higher financing costs, higher storm costs and the disposal of Rhode Island.
- Statutory results included significant unusual items: a £511m gain on the Rhode Island disposal, a £335m gain on the Millennium Pipeline disposal, £130m of insurance recoveries related to the IFA fire, and a £176m credit from changes in environmental provision discount rates.
- Commodity derivative remeasurement moved from a £392m gain in 2021/22 to a £350m loss in 2022/23, creating substantial volatility in statutory results.
- Net profit from discontinued operations was £5.083bn, including a £4.803bn gain on disposal of 60% of UK Gas Transmission and Metering. Total Group profit was therefore £7.797bn, but this figure is not representative of recurring earnings.
- Capital investment increased to £7.740bn, including £5.557bn of green capital investment aligned with the EU Taxonomy. Group asset growth was 11.4%, above the 8.7% prior-year level.
- Operating cash flow increased, but continuing-operations cash capital investment exceeded operating cash flow, resulting in a £48m business net cash outflow before interest, tax and dividends.
Guidance, outlook, commentary and risks
- Management targets average regulated asset growth of 8%–10% CAGR and underlying EPS growth of 6%–8% CAGR for 2021/22–2025/26. It expects up to £40bn of capital investment over that period, including approximately £29bn of green investment.
- National Grid expects to operate Viking Link, the interconnector to Denmark, in early 2024. The new Strategic Infrastructure business unit is responsible for 17 major UK transmission projects under the ASTI framework intended to support 50 GW of offshore wind by 2030.
- The UK Electricity System Operator is expected to transfer to an independent Future System Operator in 2024, subject to legislation, regulatory approvals and agreement on cost recovery.
- Management reported £373m of cumulative efficiency savings at 31 March 2023 against a £400m target by 2023/24.
- Key risks include regulatory and planning delays, the financeability of major network investment, higher interest rates and inflation, supply-chain constraints, cyberattacks, major project execution, severe weather, energy-balancing failures, customer affordability and the future role of US gas networks in a net-zero system.
- Environmental provisions totaled £1.891bn, including £1.768bn in the US. The filing identifies significant estimation uncertainty regarding remediation costs, responsibility allocation and discount rates.
- Management continues to use current regulatory asset lives for US gas assets. If those assets were instead depreciated fully by 2050, annual depreciation would increase by approximately £239m in the disclosed sensitivity, although management considers that scenario unlikely and expects regulatory recovery mechanisms to be relevant.
- The Group reported two fatalities during the year and introduced the “Stand Up For Safety” campaign. Group lost-time injury frequency was 0.11, above the 0.10 target.
- The Board concluded that the Group had adequate resources to continue as a going concern for at least 12 months and had a reasonable expectation of viability through May 2028. Deloitte issued unqualified audit opinions and reported effective internal control over financial reporting.
Most important facts an investor should verify
- Separate recurring underlying earnings from the £4.803bn UK Gas Transmission disposal gain and other exceptional items when assessing valuation and dividend sustainability.
- Reconcile reported net debt, gross borrowings, cash, financial investments and the different undrawn-facility amounts reported at 31 March and 18 May 2023.
- Assess whether the 6%–8% underlying EPS growth and 8%–10% asset-growth targets remain achievable after higher financing costs, inflation and the UK capital-allowance changes expected to reduce future regulated revenues.
- Review the regulatory approvals, financing arrangements, permitting status, supply-chain capacity and cost recovery for the 17 ASTI projects and the broader £40bn investment plan.
- Evaluate exposure to US gas-asset useful-life changes, environmental remediation costs, pension assumptions, storm recovery and customer bad debt.
- Confirm the timing and conditions for the Future System Operator separation and the option held by the consortium to acquire National Grid’s remaining 40% interest in National Gas Transmission.
- Confirm shareholder approval and payment terms for the proposed 37.60p final dividend.