National Grid reports strong year but warns of lower EPS

(Sharecast News) - National Grid reported a positive full-year financial performance on Thursday, but warned of lower earnings going forward as a result of regulatory changes in the UK. The FTSE 100 company said underlying operating profit for the 12 months ended 31 March was up 15% at £4.58bn.

It put the growth down to a full-year contribution from UK electricity distribution, strong operational performance in its US regulated businesses, a higher contribution from National Grid Ventures (NGV), increased property sales, and its community support package.

However, those gains were partly offset by the shorter period of NECO ownership of two months.

National Grid's statutory operating profit for continuing operations rose 12% to £4.9bn, driven by the gain on the sale of NECO and the Millennium investment, and insurance recoveries following the IFA fire.

However, adverse commodity remeasurements partially offset the gains, and as a result, the statutory earnings per share for continuing operations saw an increase of 22% compared to the previous year.

Underlying earnings per share also demonstrated positive growth, rising 7% at actual exchange rates.

National Grid recommended a final dividend of 37.6p per share, bringing the full-year dividend to 55.44p per share, up 8.77% year-on-year.

Looking ahead, National Grid's financial outlook and guidance for the five-year period to 2026 remained unchanged.

The company said it was planning to make a total cumulative capital investment of up to £40bn, aiming for an asset growth compounded annual growth rate of 8% to 10%, backed by a strong balance sheet.

Additionally, it anticipated driving underlying earnings per share compounded annual growth of 6% to 8% based on the 2020-2021 earnings per share baseline of 54.2p per share.

The firm said it was aiming to maintain credit metrics consistent with its current group rating, while its regulatory gearing was expected to remain in the low 70% range after completing all three transactions.

However, for the 2024 financial year, National Grid said it anticipated that underlying earnings per share would be slightly below 2023 due to the UK government's recent change to the capital allowance regime, effective from 1 April.

The change was projected to have an impact of 6p to 7p per share.

Still, the firm said iti expect]ed no long-term economic impact from the change, adding that without the alteration, underlying earnings per share were forecast to grow within the targeted 6% to 8% compounded annual growth rate range between 2023 and 2024, assuming a sterling-dollar exchange rate of $1.20.

"This has been another year of significant progress and strategic change for National Grid with good results demonstrating excellent execution against our key priorities," said chief executive officer John Pettigrew.

"A record £7.7bn has been invested in building clean, smart energy infrastructure and maintaining world class reliability across our networks.

"We've supported our communities, announcing the early return of £100m of interconnector revenues today on top of £200m we've already committed to return, whilst giving a further £65m to our most vulnerable customers."

Pettigrew noted that a further £236m of operating cost efficiencies during the year had helped to mitigate the impact of high energy prices.

"As we look to the future, there has never been a more exciting time to be at the heart of the energy industry.

"The strategic pivot we announced in 2021 is now complete, enhancing our critical role at the heart of the energy transition."

John Pettigrew said National Grid's visibility of growth had been strengthened by the new five-year RIIO-ED2 price control, $3.8bn of additional longer-term investment for its US business to drive greater connection and delivery of clean power, and Ofgem's recent decision to award it 17 major transmission projects to enable greater levels of offshore wind connection in the UK.

"The opportunities for future growth are considerable, and we will continue to work closely with governments and regulators to drive the energy transition forward, achieving positive change for our communities and consumers, and a clean, fair and affordable energy future for all."

At 1002 BST, shares in National Grid were down 1.05% at 1,129p.

Reporting by Josh White for Sharecast.com.