Business Context and Reporting Period
Company: National Grid plc
Filing Type: Form 6-K (Full-Year Results Announcement)
Reporting Period: Year ended 31 March 2023
Announcement Date: 18 May 2023
National Grid, a leading energy transmission and distribution company, reported full-year results following the completion of its strategic pivot. The company has shifted its asset base to approximately 70% electricity through the acquisition of UK Electricity Distribution and the sale of its US Rhode Island business (NECO) and a 60% stake in UK Gas Transmission. The results reflect a full year of UK Electricity Distribution ownership and significant investment in clean energy infrastructure.
Key Financial Metrics
| Metric (£m unless stated) | 2023 | 2022 | % Change |
|---|---|---|---|
| Statutory Operating Profit (Continuing) | 4,879 | 4,371 | 12% |
| Underlying Operating Profit (Continuing) | 4,582 | 3,992 | 15% |
| Profit Before Tax (Continuing) | 3,590 | 3,441 | 4% |
| Statutory EPS (Continuing) | 74.2p | 60.6p | 22% |
| Underlying EPS (Continuing) | 69.7p | 65.3p | 7% |
| Dividend Per Share (Full Year) | 55.44p | 50.97p | 8.77% |
| Capital Investment (Continuing) | 7,740 | 6,739 | 15% |
| Net Debt (Excluding held for sale) | (40,973) | (42,809) | (4%) |
| Regulatory Gearing | 71% | 81% | -10 pts |
| Group Return on Equity | 11.0% | 11.4% | -40 bps |
Material Changes vs. Prior Period
- Strategic Transactions: Completed the sale of NECO (May 2022) for £3.1 billion and a 60% stake in UK Gas Transmission (January 2023) for £4.0 billion. These disposals significantly reduced net debt and regulatory gearing.
- Profit Growth: Underlying operating profit rose 15% (10% at constant currency), driven by a full year of UK Electricity Distribution, strong performance in US regulated businesses, and higher contributions from National Grid Ventures (NGV). This was partially offset by a shorter ownership period for NECO and community support costs.
- Investment: Capital investment reached a record £7.7 billion, an 8% increase at constant currency. Key drivers included UK Electricity Distribution, New York transmission projects (Smart Path Connect), and UK Electricity Transmission (London Power Tunnels 2).
- Community Support: Announced the early return of an additional £100 million of interconnector revenues to UK customers, on top of £200 million previously committed, plus £65 million for vulnerable customers.
- Efficiency: Delivered £236 million in operating cost efficiencies during the year, bringing cumulative savings to £373 million against a £400 million target.
Guidance, Outlook, and Risks
Financial Outlook (2020/21 to 2025/26)
- Capital Investment: Up to £40 billion cumulative investment.
- Asset Growth: 8-10% CAGR.
- Underlying EPS Growth: 6-8% CAGR from a 2020/21 baseline of 54.2p.
- Gearing: Expected to remain in the low 70% range.
2023/24 Guidance
- EPS Impact: Underlying EPS is expected to be modestly below 2022/23 levels due to a UK Government change in the capital allowance regime (April 2023), estimated to have a 6-7p per share impact. Without this change, EPS growth would have been within the 6-8% CAGR range.
- Capital Investment: Expected to be above £8 billion for continuing operations.
- Net Debt: Expected to increase by approximately £4.5 billion to fund infrastructure investment.
Risks and Contingencies
- Regulatory & Policy: Reliance on government and regulator action to reform planning systems and streamline consenting processes for net zero infrastructure.
- Operational: Risks related to network failure, major storms (e.g., Winter Storm Elliott), and cybersecurity.
- Financial: Exposure to inflation, interest rate fluctuations, and foreign exchange rates (GBP/USD).
- Climate: Long-term transition risks and the need to meet net zero targets while managing the useful economic lives of gas network assets.
Key Facts for Investor Verification
- Dividend Sustainability: Verify the 1.3x dividend cover by underlying earnings and the £14 billion in distributable reserves (covering >5 years of dividends).
- Capital Allowance Impact: Confirm the specific 6-7p EPS reduction for 2023/24 due to the UK capital allowance regime change and its long-term economic neutrality.
- Asset Growth Drivers: Validate the 11.4% asset growth achieved in 2022/23, driven by capex and RAV indexation, against the 8-10% CAGR target.
- Disposal Proceeds: Confirm the utilization of £7.1 billion in proceeds from NECO and UK Gas Transmission sales to repay the £8.2 billion bridge loan and reduce net debt.
- Regulatory Settlements: Monitor the implementation of the new RIIO-ED2 price control for UK Electricity Distribution and the approval of $2.1 billion in Phase 2 transmission projects in New York.