National Grid plc: Form 6-K Summary (Year Ended 31 March 2012)
Business Context and Reporting Period
This Form 6-K reports the full-year results for National Grid plc for the financial year ended 31 March 2012, announced on 17 May 2012. The company operates regulated electricity and gas transmission and distribution networks in the UK and the US, alongside non-regulated activities including LNG and metering. The reporting period reflects the final year of the company's previous dividend policy and the implementation of a new US operating model.
Key Financial Metrics
| Metric | 2012 (£m) | 2011 (£m) | Change |
|---|---|---|---|
| Revenue | 13,832 | 14,343 | (4%) |
| Operating Profit (Business Performance) | 3,495 | 3,600 | (3%) |
| Profit Before Tax (Business Performance) | 2,585 | 2,473 | 5% |
| Profit Before Tax (Statutory) | 2,559 | 2,624 | (2%) |
| Earnings Per Share (Adjusted) | 51.3p | 50.9p | 1% |
| Earnings Per Share (Statutory) | 57.1p | 62.9p | (9%) |
| Operating Cash Flow | 4,445 | 4,658 | (5%) |
| Net Debt | 19,597 | 18,731 | +5% |
| Capital Investment | 3,400 | 3,615 | (6%) |
Note: Operating profit excluding timing differences and major storms increased 9% on a constant currency basis. Net debt increased to £19.6bn, driven by investment programs and foreign exchange movements.
Material Changes vs. Prior Period
- US Storm Impacts: Operating profit was negatively impacted by £116m due to Hurricane Irene and the October 2011 snowstorm. Excluding these events and timing differences, underlying operating profit grew by 9%.
- Regulatory Returns: The US regulated return on equity improved by 50 basis points to 8.8% in calendar year 2011. UK operational returns continued to outperform regulatory allowances.
- Cost Efficiency: The company achieved its target of a $200m run-rate cost reduction in the US through restructuring and a new operating model. Regulated controllable costs decreased by 3% in real terms.
- Asset Base Growth: Combined UK and US regulated assets grew by £1.6bn to £32.4bn, with UK Regulated Asset Value (RAV) rising 7% to £22.2bn.
- Divestments: The company sold its US exploration and production business (Seneca-Upshur) for $153m and its UK metering business (OnStream) for £274m.
Guidance, Outlook, and Risks
- Dividend Policy: The Board recommended a final dividend of 25.35p, bringing the full-year dividend to 39.28p (an 8% increase). A new one-year policy targets a 4% nominal dividend increase for 2012/13.
- 2012/13 Outlook: Management maintains a positive outlook, expecting good operating and financial performance. Capital expenditure is forecast between £3.5bn and £3.8bn. Net debt is expected to rise by approximately £1.5bn.
- Regulatory Developments: New 8-year investment plans (RIIO) were submitted for UK businesses. New rate filings were submitted in upstate New York and Rhode Island in April 2012 to improve returns.
- Risks and Contingencies:
- Weather: Unpredictable severe weather remains a significant operational and financial risk, as evidenced by the 2011 storms.
- Regulatory: Outcomes of the UK RIIO price control review and US rate cases are critical to future revenue and returns.
- Legal: Ongoing class action litigation regarding financial swap transactions (KeySpan) remains a contingency, though previous claims were dismissed.
- Contract Loss: National Grid was not selected to continue managing Long Island's electricity system beyond December 2013, though the financial impact is estimated at only 1% of group operating profit.
Key Facts for Investor Verification
- Underlying Growth: Verify the 9% growth in operating profit excluding timing and storm impacts to assess core business performance.
- US Return on Equity: Confirm the trajectory of the US regulated return on equity (8.8%) against the target of 9.9% granted in rate cases.
- Capital Expenditure: Monitor the execution of the £3.4bn investment program and the projected £40bn investment over the next eight years.
- Net Debt Trajectory: Track the increase in net debt to £19.6bn and the projected further increase of £1.5bn in 2012/13 against cash flow generation.
- Regulatory Approvals: Watch for Ofgem's initial RIIO proposals (expected July 2012) and outcomes of US rate filings in New York and Rhode Island.