Title of presentation - National Grid/media/Files/N/National-Grid-IR/... · This presentation contains certain statements that are neither reported financial results nor other historical

2012/13

Half YearResults

London | Thursday 15 November 2012

2

This presentation contains certain statements that are neither reported financial results nor other historical information. These statements are

forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities

Exchange Act of 1934, as amended. These statements include information with respect to National Grid’s financial condition, its results of

operations and businesses, strategy, plans and objectives. Words such as ‘anticipates’, ‘expects’, 'should’, ‘intends’, ‘plans’, ‘believes’, ‘outlook’,

‘seeks’, ‘estimates’, ‘targets’, ‘may’, ‘will’, ‘continue’, ‘project’ and similar expressions, as well as statements in the future tense, identify forward-

looking statements. These forward-looking statements are not guarantees of National Grid’s future performance and are subject to assumptions,

risks and uncertainties that could cause actual future results to differ materially from those expressed in or implied by such forward-looking

statements. Many of these assumptions, risks and uncertainties relate to factors that are beyond National Grid’s ability to control or estimate

precisely, such as changes in laws or regulations and decisions by governmental bodies or regulators (including the new RIIO approach in the

UK); breaches of, or changes in, environmental, climate change and health and safety laws or regulations, including breaches arising from the

potentially harmful nature of its activities; network failure or interruption, the inability to carry out critical non network operations and damage to

infrastructure, due to adverse weather conditions, including the impact of Hurricane Sandy and other major storms as well as the results of

climate change, or due to unauthorised access to or deliberate breaches of our IT systems or otherwise; performance against regulatory targets

and standards and against National Grid’s peers with the aim of delivering stakeholder expectations regarding costs and efficiency savings,

including those related to investment programmes, restructuring and internal transformation projects; and customers and counterparties failing

to perform their obligations to the Company. Other factors that could cause actual results to differ materially from those described in this

presentation include fluctuations in exchange rates, interest rates and commodity price indices; restrictions in National Grid’s borrowing and

debt arrangements, funding costs and access to financing; regulatory requirements for the Company to maintain financial resources in certain

parts of its business and restrictions on some subsidiaries’ transactions, such as paying dividends, lending or levying charges; inflation; the

delayed timing of recoveries and payments in our regulated businesses; the funding requirements of its pension schemes and other post-

retirement benefit schemes; the loss of key personnel or the ability to attract, train or retain qualified personnel and any disputes arising with its

employees or the breach of laws or regulations by its employees; and incorrect or unforeseen assumptions or conclusions (including financial

and tax impacts and other unanticipated effects) relating to business development activity, including assumptions in connection with joint

ventures. The effects of these factors are difficult to predict. For further details regarding these and other assumptions, risks and uncertainties

please read the Business Review section including the ‘Risk factors’ on pages 41 to 43 of National Grid’s latest Annual Report and Accounts. In

addition new factors emerge from time to time and National Grid cannot assess the potential impact of any such factor on its activities or the

extent to which any factor, or combination of factors, may cause actual future results to differ materially from those contained in any forward-

looking statement. Except as may be required by law or regulation, National Grid undertakes no obligation to update any of its forward-looking

statements, which speak only as of the date of this presentation. The content of any website references herein do not form part of this

presentation.

Cautionary statement

Key Highlights

2012/13

Half YearResults

Steve Holliday | Chief Executive

4

Agenda

First half highlights

Business review

Developments, priorities

and outlook

Good financial performance

5

1 Constant currency figures calculated by applying the average HY 2012/13 rate ($1.58 to £1.00) to HY 2011/12 results (when the average rate was $1.64 to £1.00)

2 Earnings per share for 2011/12 restated for scrip dividends

Note Business performance, excluding exceptional items, remeasurements and stranded cost recoveries for continuing operations

Profit before tax £1,154m

Operating profit 1

£1,592m

Earnings

EPS 2

Dividend per share

21%

12%

£836m

20%

23.0p

20%

14.49p

4%

15%

Excluding timing and

major storm costs

7%

14%

14%

UK – working to agree and implement

new price controls

6

Highlights of the first six months…

Focused on the key issues to address

before finalising the long term price controls

RIIO sets out major changes to incentives

and sharing mechanisms in principle

Changing the UK business to ensure we are

well positioned to deliver maximum benefits

7


US – improving returns Embedding the 2012 organisational and

process changes

Benefits of our jurisdictional model

Improved regulatory engagement

Better stakeholder communication


new price controls

8

Hurricane Sandy

9



new price controls

US – improving returns

Safety – targeting best in

class safety standards

Redoubled efforts after challenging 2011/12

Good progress in first six months with

significantly improved reduction in serious

employee injuries

10

Summary

Good start to the year

Solid operating and financial

performance

Good progress toward

strategic goals

Business Review

2012/13

Half YearResults

Andrew Bonfield | Finance Director

12

Performance driven by increased net

regulated income +£116m

Increased depreciation (£26m) & regulated

controllable costs (£13m)

Performance driven by increased net

regulated income +£43m

Increases in controllable costs & depreciation

Deferred income recoveries in New York &

lower bad debts

Increases in controllable and other costs

Removed contribution from Onstream

metering business (£12m)

US system & finance process implementation

costs

Good business performance

UK Transmission

12%Operating profit ex. timing

Operating profit ex. timing

and major storms

% of group operating profit

42

UK Gas Distribution

6%Operating profit ex. timing % of group operating profit

25

US Regulated

19%Operating profit ex. timing

and major storms% of group operating profit

29

Other activities

48%Operating profit % of group operating profit

4

All figures calculated at constant currency excluding timing and major storms

Business performance, excluding exceptional items, remeasurements and stranded cost recoveries

Constant currency figures calculated by applying the average 2012 rate ($1.58 to £1.00) to 2011 results (when the average rate was $1.64 to £1.00)

Year on year timing of (£25m)

Increase in revenues driven by RPI and TPCR4 rollover in the UK

& recovery of deferred costs in New York in the US

Some increase in controllable costs

Reduced performance from other activities

13

Visual representation only – not to scale



Post retirement costs represent pensions and other post employment benefits

Operating profit

1,432 1,592

71

270

17

(25)

(33) (5)(38)

(34)

(63)

2011 operating profit at constant currency

timing major storms

net regulated income

controllable operating

costs

post retirement

costs

regulated depreciation

& amortisation

bad debts other operating

costs

other activities

2012 operating

profit

£m

Operating profit

11%

Operating profit excluding timing

and major storms 7%

Regulated controllable costs

169 182

142 153

641 650

2011 2012

Inflation

US Regulated

UK Gas Distribution

UK Transmission

20

14

972 985

Regulated controllable operating costs excluding pensions, other post employment benefits and bad debts


£m

Up 1% in real

terms

15

Interest, tax and earnings

Finance costs

6% lowerat £(446)m


* Constant currency figures calculated by applying the average 2012 rate ($1.58 to £1.00) to 2011 results (when the average rate was $1.64 to £1.00)

Effective interest rate of

4.9%

Debt refinancing

programme

Lower accretions on RPI

debt

*

16

C$750m Canadian Bond

Issued in September 2012 by National

Grid Electricity Transmission (NGET)

5 year - maturing September 2017

Largest corporate Maple transaction of

its kind in Canadian history

17

Interest, tax and earnings

Effective tax rate

27.5%at £(317)m (25% increase period on period)

Earning per share

23.0p

Rate 0.8% higher

Higher tax charge

reflecting increased US

profitability

14.49pDividend per share

4% growth rate

Effective interest rate of

4.9%

Debt refinancing

programme

Lower accretions on RPI

debt

6% lower

Finance costs

at £(446)m

*


* Constant currency figures calculated by applying the average 2012 rate ($1.58 to £1.00) to 2011 results (when the average rate was $1.64 to £1.00)

18

Record capital investment

603811

325

324

462

575

2011 2012

Other activities & joint ventures

US Regulated

UK Gas Distribution

UK Transmission

89

115

1,479

1,825£m

Up 23%

Capital expenditure including joint ventures

19

Cash flows and net debt

Operating cash flows from continuing operations before exceptional items, remeasurements, stranded cost recoveries and taxation

Period ended 30 September 2012 £m

Operating profit 1,592

Depreciation & amortisation 661

Pensions (247)

Working capital & other (140)

Net operating cash flow 1,866

Net debt 20,358

Net operating cash flow

£1.9bnOperating cash flow after capex

£85mNet debt

£20.4bn

20

Guidance

Broadly unchanged from May 2012

Timing in US business

Restoration expenses (excl. LIPA) not expected to exceed £100m

Pension accounting changes impact from 2013/14

21

Priorities

Communication Improved disclosure and definitions

Regulatory assets and returns

Portfolio and business benefits

Comparative returns in UK & US

businesses

Communication

22

Priorities

US finance function

effectiveness Liberty Audit and rate case outcomes set out

clear opportunities for improvement

Investments to support people and improve

processes

Progress evidenced by recent rate case

filings

Communication

23

Priorities

US finance function

effectiveness

UK finance function

effectiveness UK function engaged in RIIO process

Important role in future performance of UK

business

Communication

24

Priorities

US finance function

effectiveness

Long-term financing

strategy

UK finance function

effectiveness Focus of our activity of next few months

Finalise UK regulatory arrangements and

evaluate other long-term investment plans

Considerations should balance A- credit

rating, an appropriate dividend policy and

delivering growth in equity value

Full update by preliminary results in May 2013

Strategic Priorities

2012/13

Steve Holliday | Chief Executive

Half YearResults

26

Key priorities

Finalising the development of an

appropriate UK regulatory framework

Deliver investment programme in

disciplined manner

Improving returns in our US

businesses

Drive further efficiency across our

businesses

UK Regulatory timetable2012 - 2013

27

RIIO T1 & GD1

final proposals17 December

May

Deadline for

decision End Feb 2013

Start of RIIO

price controlApril 2013

Final proposals published on 17 December

Thorough review of detail before any

conclusions

0 2000 4000 6000 8000 10000 12000 14000

28

US returns and rate base

11.9% 11.6%10.6%

9.5% 9.4%

6.5%

6.4%

5.6%

2011

Rate base (31 March 2012)


RoE(Calendar

year)

New York

Allowed returns

FERC

Massachusetts

Rhode Island

FERCKEDNY

Massachusetts Gas

Massachusetts Electric

KEDLI

Narragansett Electric 7.6%

Niagara Mohawk Gas

Narragansett Gas 6.4%

Niagara Mohawk Electric

11.1 %

9.3 %

Rhode Island

29

Proposed terms in settlement agreement

9.5% return on equity

49% equity portion of rate base

One year deal with new trackers, capital investment and cost

allowances to enable delivery of multi-year performance

objectives

Narragansett Gas and Electric rate case timeline

November ’12

Hearings

January

2013

November

Hearings

February

Rates

effective

January

Commission

decision

Upstate New York

30

Term sheet details

9.3% return on equity

48% equity portion of rate base

Three year deal

$1.6bn of capital investment allowances

Early Dec –

Executed

settlement

filed

Late Dec –

Statements

filed

January –

ALJ

decision

March –

Commission

order

March

2013

Niagara Mohawk Gas and Electric rate case timeline

Investment & Efficiency

31

UK

Efficient capital spend –

‘totex’ approach

Position the organisation

for the RIIO price control

UK Chief Operating

Officer appointed

US Steady investment in

regulated distribution

Opportunities in

transmission

Continued cost focus

32

Outlook

Another good half year of financial and

operating performance

Well positioned moving forward

Positive outlook for remainder of the year

Appendices

2012/13

Half YearResults

34

Appendix 1: Pensions & other post-retirement

benefit obligations: (IAS19 data)

UK US

At 30 September 2012 (£m) ESPS NGUK PS Pensions OPEBs NG total

Market value of assets 1,730 14,472 4,022 1,268 21,492

Present value of liabilities (2,337) (14,926) (4,961) (2,906) (25,130)

Net liability (607) (454) (939) (1,638) (3,638)

Taxation* 140 104 372 642 1,258

Liability net of taxation (467) (350) (567) (996) (2,380)

Discount rates 4.2% 4.2% 4.5% 4.5%

* Taxation is calculated using the UK statutory tax rate and the US tax rate attributable to the combined pension

and OPEBs balance at 30 September 2012 and 31 March 2012 respectively.

• OPEBs = other post employment benefits

UK US

At 31 March 2012 (£m) ESPS NGUK PS Pensions OPEBs NG total

Market value of assets 1,739 14,368 3,850 1,192 21,149

Present value of liabilities (2,251) (14,524) (4,614) (2,693) (24,082)

Net liability (512) (156) (764) (1,501) (2,933)

Taxation* 123 37 303 582 1,045

Liability net of taxation (389) (119) (461) (919) (1,888)

Discount rates 4.8% 4.8% 5.1% 5.1%

35

Appendix 2: Timing impacts

£m UK Transmission UK Gas Distribution US Regulated Total

March 2012 opening balance * (22) 2 129 109

2012/13 H1 over/(under)-recovery 12 (3) (90) (81)

September 2012 closing balance (10) (1) 39 28

March 2011 opening balance (7) (20) 100 73

2011/12 H1 over/(under)-recovery (23) (7) (26) (56)

September 2011 closing balance (30) (27) 74 17

Period on period timing variance 35 4 (64) (25)

* Restated for finalisation of UK K and US overs and unders

• All US $ balances stated using the average 2012 exchange rate of $1.58 to £1.00

36

Appendix 3: Weighted average number of shares

Period ended

30 September 2012

Period ended

30 September 2011

Number of shares (millions):

Prior period as reported (weighted average)

January 2012 dividend scrip shares

Current period opening shares

-

-

3,566

3,559

6

-

3,566 3,565

August 2012 dividend scrip shares

Other share issuances (weighted from issuance)

67

4

67

-

Weighted average number of shares (2011 restated) 3,637 3,632

Business performance earnings (£m) 836 697

Business performance EPS (2011 restated) 23.0p 19.2p

Performance driven by increased net regulated income +£116m

Increased depreciation (£26m) and regulated controllable costs

(£13m)

37

*Excluding impacts of timing and major storms




Appendix 4: UK Transmission 42% of Group Operating Profit*

Operating profit

18%

602 712

35

1161

(13) (3)(26)

2011 operating profit

timing net regulated income

regulated controllable

operating costs

post retirement costs

depreciation & amortisation

other 2012 operating profit

£m


12%

Performance driven by increased net regulated income +£43m

Increases in controllable costs & depreciation

38

Appendix 5: UK Gas Distribution25% of Group Operating Profit*

381 408

4

434

(11) (2) (11)

2011 operating profit

timing net regulated income

regulated controllable

operating costs

post retirement costs


other 2012 operating profit

£m

Operating profit

7%


6%





Deferred income recoveries in New York & lower bad debts

Increases in controllable and other costs

39






Appendix 6: US Regulated29% of Group Operating Profit*

318 404

71

111 0 17

(64)

(9) (1) (39)


timing major storms net regulated income

regulated controllable operating

costs

post retirement

costs


bad debts other 2012 operating

profit

£m

Operating profit

27%


and major storms 19%

Removed contribution from Onstream metering business

(£12m)

US system & finance process implementation costs

40





Appendix 7: Other activities4% of Group Operating Profit*

Operating profit

48%

131 68

(5)

(17)

(41)


Grain LNG Property Metering other 2012 operating profit

£m

0

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Title of presentation - National Grid/media/Files/N/National-Grid-IR/... · This presentation contains certain statements that are neither reported financial results nor other historical