National Grid plc Form 20-F Summary
Business context and reporting period
National Grid plc filed its annual Form 20-F for the fiscal year ended 31 March 2020, dated 25 June 2020. The filing reports under IFRS as issued by the IASB and is presented in pounds sterling. Although the request metadata refers to “2019 Q4,” the source is an annual filing rather than a quarterly filing. National Grid operates regulated electricity and gas transmission and distribution businesses in the UK and northeastern United States, alongside National Grid Ventures and other commercial activities.
The company completed the sale of its remaining 39% interest in Cadent in June 2019 for approximately £1.965 billion. The Electricity System Operator became legally separate from the electricity transmission business on 1 April 2019, while remaining within the UK Electricity Transmission reporting segment.
Key financial metrics
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Continuing revenue | £14.540bn | £14.933bn | (3)% |
| Statutory operating profit | £2.780bn | £2.870bn | (3)% |
| Profit after tax from continuing operations | £1.274bn | £1.502bn | (15)% |
| Total profit after tax | £1.265bn | £1.514bn | (16)% |
| Basic EPS from continuing operations | 36.8p | 44.3p | (17)% |
| Underlying operating profit | £3.454bn | £3.427bn | 1% |
| Underlying profit after tax | £2.015bn | £1.998bn | 1% |
| Underlying EPS | 58.2p | 58.9p | (1)% |
| Capital investment | £5.405bn | £4.506bn | 20% |
| Cash generated from continuing operations | £4.914bn | £4.464bn | 10% |
| Net debt | £28.590bn | £26.529bn | 8% |
| Group return on equity | 11.7% | 11.8% | (10)bps |
| Regulatory gearing | 63% | 66% | (3) percentage points |
Statutory results were affected by £402 million of exceptional environmental charges, a £192 million deferred tax charge from the reversal of the planned UK corporation tax rate reduction, and £125 million of commodity derivative remeasurement losses. The resulting total after-tax impact from exceptional items and remeasurements was £639 million from continuing operations.
The bad debt charge increased to £234 million from £181 million, including an estimated £117 million incremental provision associated primarily with COVID-19-related suspension of US collections and service terminations.
Material changes versus the prior comparable period
- Underlying operating profit increased modestly despite higher bad debts, depreciation, financing costs and the non-recurrence of prior-year property-sale and legal-settlement benefits.
- US Regulated underlying operating profit increased 3% to £1.636 billion, while US return on equity improved to 9.3% from 8.8%. US asset growth was 12.2%.
- UK Electricity Transmission underlying operating profit increased 8% to £1.174 billion, and UK Gas Transmission increased 18% to £402 million.
- NGV and Other underlying operating profit declined 40% to £242 million, principally because the prior year benefited from the Fulham property sale and US legal settlements.
- Capital investment rose substantially, driven by US network investment, UK transmission projects, three interconnectors and the acquisition of Geronimo and Emerald.
- Net debt increased by £2.061 billion. Adoption of IFRS 16 increased reported net debt by £474 million and added right-of-use assets and lease liabilities.
- Cash dividends paid declined to £892 million from £1.160 billion because of higher scrip dividend participation. A 32.00p final dividend was proposed, bringing the full-year dividend to 48.57p, up 2.6% and covered 1.2 times by underlying EPS.
Guidance, outlook, commentary and risks
Management expects to invest approximately £5 billion annually over the long term. The strategy emphasizes regulated asset growth, the energy transition, operational efficiency, customer affordability and expansion in interconnectors and renewables. Total regulated asset and other business assets grew 9% in FY2020, above the stated 5% to 7% long-term objective range.
National Grid committed to net zero Scope 1 and Scope 2 emissions by 2050, with interim reduction targets of 80% by 2030 and 90% by 2040. The company believes gas networks may remain useful beyond 2050 through natural gas back-up, hydrogen, biomethane and carbon capture, but acknowledges that future use depends on technology and government and regulatory policy.
COVID-19 caused lower US collections, higher bad debt, deferred rate increases and some capital-programme delays. Management expected further short-term effects in FY2021, including higher bad debts, direct costs and deferred rate increases, but expected a large portion to be recoverable through regulatory mechanisms. The Board concluded that the Group had adequate resources to continue as a going concern for at least 12 months from signing and assessed the Group as viable through May 2025.
As of 17 June 2020, the Group reported £5.8 billion of undrawn committed facilities with expiries beyond June 2021, strong investment-grade ratings on stable outlook, and £0.9 billion of debt issued in April 2020. The company also raised more than £2.9 billion of long-term senior debt and £1.1 billion of hybrid debt refinancing during FY2020.
Principal risks include COVID-19 and future pandemics, cyberattacks, major network or asset failure, extreme weather and climate change, regulatory and political uncertainty, RIIO-2 outcomes, US rate cases, New York gas supply constraints, customer and counterparty defaults, pension funding, financing and liquidity, foreign exchange and interest rates, and the future role of gas assets. Environmental provisions increased to £2.654 billion, including £2.071 billion for environmental remediation.
The filing identifies ongoing regulatory matters, including KEDNY/KEDLI rate cases, the New York gas-supply settlement, Massachusetts regulatory audits, FERC proceedings concerning New England transmission returns, and the ongoing review of the UK Electricity System Operator structure. Management states that litigation and claims in the ordinary course are not expected to have a material adverse effect, but outcomes remain uncertain.
Facts investors should verify
- Confirm the annual reporting period and distinguish FY2020 results from the “2019 Q4” metadata.
- Reconcile statutory EPS of 36.8p with underlying EPS of 58.2p and assess the recurring nature of environmental, tax and derivative items.
- Review COVID-19 assumptions, the £117 million incremental bad debt provision and the extent to which costs and deferred revenues are recoverable through regulation.
- Assess debt maturities, interest costs, pension obligations, environmental provisions and the Group’s continuing access to capital markets.
- Monitor RIIO-2 determinations, US rate cases, FERC proceedings and the resolution of downstate New York gas-supply constraints.
- Evaluate whether gas network useful lives and asset values remain supportable under net-zero pathways; management disclosed significant depreciation sensitivities if lives are shortened.
- Verify approval and payment of the proposed 32.00p final dividend and the sustainability of 1.2-times underlying dividend cover.
- Track execution and returns from £5.4 billion of capital investment, Geronimo and Emerald, renewable projects and interconnector construction.
- Consider operational safety, cyber security, extreme weather and climate-transition risks, including the reported US employee fatality and Group lost-time injury frequency rate of 0.12.