National Grid plc: Form 6-K Summary (Year Ended 31 March 2011)
Business Context and Reporting Period
This Form 6-K reports the full-year results for National Grid plc for the period ended 31 March 2011, announced on 19 May 2011. National Grid operates regulated electricity and gas transmission and distribution networks in the UK and the US, alongside non-regulated activities. The reporting period reflects a strategic focus on disciplined capital investment, US regulatory improvements, and the development of the UK's new RIIO regulatory framework.
Key Financial Metrics
| Metric | 2011 (£m) | 2010 (£m) | % Change |
|---|---|---|---|
| Revenue (excluding stranded costs) | 13,988 | 13,631 | 3% |
| Operating Profit (Business Performance) | 3,600 | 3,121 | 15% |
| Pre-tax Profit (Business Performance) | 2,473 | 1,974 | 25% |
| Earnings (Business Performance) | 1,747 | 1,418 | 23% |
| Earnings Per Share (Adjusted) | 51.7p | 49.5p | 4% |
| Operating Cash Flow | 4,658 | 4,146 | 12% |
| Net Debt | 18,731 | 22,139 | (15%) |
| Capital Investment | 3,600 | 3,335 | 8% |
Note: Statutory earnings per share were 63.9p (2010: 48.4p), driven by exceptional items and remeasurements.
Material Changes vs. Prior Period
- Profit Growth: Pre-tax profit increased by 25% to £2,473m. This was primarily driven by timing differences (over-recovery of revenues) contributing approximately £270m to operating profit, alongside strong UK returns and improved US returns (up 130bps to 8.2%).
- Balance Sheet: Net debt decreased by £3.4bn to £18.7bn, largely due to the receipt of £3.2bn from a rights issue in June 2010 and the redemption of approximately £1.3bn of debt securities.
- Investment: Record capital investment of £3.6bn was deployed, with £2.1bn in UK regulated businesses and £1.1bn in US regulated businesses. Major projects completed include Grain LNG Phase III and the BritNed interconnector.
- Costs: Regulated controllable operating costs reduced by £39m (5% in real terms) due to efficiency programs and lower bad debt expenses in the US.
Guidance, Outlook, and Risks
- Outlook 2011/12: Management expects another year of good operating performance. However, comparative results will be impacted by the absence of the favorable timing differences that boosted 2010/11 results.
- US Restructuring: A targeted US restructuring program aims to deliver $200m (approx. £125m) in annual cost savings by March 2012. The total gross cost of this restructuring is estimated at up to $100m.
- Regulatory Environment:
- UK: The new RIIO regulatory regime (starting April 2013) is expected to provide significant growth opportunities. The company is preparing business plans for submission in July 2011.
- US: While revenue decoupling and cost trackers were implemented in most businesses, the Niagara Mohawk electric rate case outcome was disappointing. A new rate filing is expected in 2012.
- Divestment: The sale of New Hampshire businesses (Granite State Electric and EnergyNorth) to Algonquin Power & Utilities Corp is on track for completion in the second half of 2011/12 for $285m plus working capital.
- Risks: Key risks include regulatory decisions on rate cases, the outcome of the UK RIIO framework, exchange rate fluctuations, and the execution of the US restructuring program.
Key Facts for Investor Verification
- Timing Impact: Verify the sustainability of earnings growth, as £270m of the 2010/11 operating profit increase was due to non-recurring timing differences (revenue over-recovery).
- US Returns: Monitor the progress of the US restructuring and the outcome of the pending Niagara Mohawk electric rate filing scheduled for 2012, as current returns in upstate New York remain below regulatory assumptions.
- Capital Expenditure: Confirm the execution of the planned £19bn investment program over the four years to March 2015, particularly in UK transmission assets.
- Dividend Policy: The Board has recommended a final dividend of 23.47p, bringing the full-year dividend to 36.37p (an 8% increase on a rebased basis).
- Net Debt Trajectory: Net debt is expected to increase by approximately £1bn in 2011/12 (excluding exchange rate impacts) to fund the investment program.