19th May 2016 11:55
LONDON (Alliance News) - National Grid PLC said it expects its performance to remain broadly flat this year after delivering another set of solid financial results on Thursday as the utility firm posted a 16% rise in profit and a positive outlook for the current year.
The gas and electric network operator comfortably beat analyst expectations in the last financial year and also continued to increase its dividend in line with inflation.
National Grid said its pretax profit rose to GBP3.03 billion in the financial year ended in March from the GBP2.62 billion reported a year earlier, whilst pretax profit before exceptional items rose by 9.0% to GBP3.14 billion from GBP2.87 billion to beat analyst estimates of GBP3.07 billion by 2.2%.
Earnings and profit rose in the year despite National Grid posting a slip in revenue to GBP15.11 billion from GBP15.20 billion, showing its operating margin significantly improved in the year.
Adjusted earnings before interest and tax rose to GBP4.09 billion from GBP3.83 billion, beating consensus estimates of USD4.07 billion by 0.5%. Once exceptional items are taken into account, that Ebit increased to GBP4.08 billion from GBP3.78 billion.
Exceptional items in the year totaled GBP110.0 million, falling from GBP248.0 million last year.
Breaking down the adjusted Ebit, all of National Grid's units posted year-on-year rises except for the UK electricity transmission business, one of its two biggest segments.
The UK electricity transmission business posted a 5.0% fall in adjusted Ebit to GBP1.17 billion from GBP1.23 billion but its other biggest division covering its regulated business in the US posted a 2.0% rise in adjusted Ebit to GBP1.18 billion from GBP1.16 billion.
The smaller gas transmission business in the UK reported an 11% rise in adjusted Ebit to GBP878.0 million from GBP826.0 million whilst the gas distribution business in the UK saw earnings rise by 6.0% to GBP486.0 million from GBP437.0 million.
Other activities saw adjusted Ebit soar by 88% to GBP374.0 million from GBP199.0 million - But National Grid warned this will fall this year as the rise was due to some one-off items.
As expected, National Grid increased its dividend for the year in line with inflation, increasing it by 1.1% to 43.34 pence from the 42.87 pence paid last year.
"In 2015/16, alongside the strong performance, we also made good progress with important rate filings in the US, and the start of a process to sell a majority interest in the UK Gas Distribution business, which is expected to complete in early 2017," said Chief Executive John Pettigrew.
National Grid made its first ever request to the the New York Public Service Commission back in January asking for the gas distribution rates for its two utilities serving New York State to be increased in the hope annual revenue can increase from 2017, arguing more revenue will allow further investment into the KEDNY and KEDLI US businesses serving 1.8 million customers in and around New York.
National Grid is aiming to increase investment, and more importantly revenue from KEDNY by USD245.0 million per year and from KEDLI by USD142.0 million per year by increasing the distribution rates - which combined is equal to around 2.5% of National Grid's overall annual revenue posted Thursday.
Alongside the hike in the dividend, National Grid is preparing to pay a special dividend using the proceeds from the sale of a stake in its UK gas distribution unit, which operates four of the eight networks across the UK. No formal guidance has been provided about what stake will be sold, how much it will be sold for or the size of the special dividend.
"The process for the sale of a majority interest in the UK Gas Distribution business is on track with separation activities ongoing and the group expect to complete a sale in early 2017," said National Grid.
"We are well positioned to deliver asset growth in 2016/17 and beyond. We will continue to enhance efficiency across the group to deliver an outstanding and affordable service to our customers. At the same time, National Grid will continue to adapt to the new trends in the energy sector, to ensure we keep delivering value for shareholders," he added.
National Grid said it expects it performance to remain broadly flat this year, stating earnings from its US business will be "maintained" but said its performance in "other activities" will not be as good due to lower auction revenue in the French interconnector and domestic metering businesses.
"Overall group performance [in the current year] is expected to remain in line with the group's expectations," the company said.
With the UK business well established and mature, the US is an area where National Grid can generate some growth.
The regulated business in the UK delivered another set of solid results in the year whilst the US business performed in line with company expectations after the company stepped up its investment in the country throughout the year.
The overall return on equity in the year improved to 12.3% from 11.8% last year. The regulated business in the UK delivered returns of 13.3% but the return on equity from the US of 8.0% was down from 8.4% last year as returns from Massachusetts fell by 0.4% and New York by 0.5% - with growth not expected to emerge until those new rate filings come into play in 2017.
Notably, all of the UK units generated return on equity above the allowed return but the US unit's 8.0% return was lower than the 9.7% return that is allowed.
Looking forward, National Grid said it expects net revenue excluding timing from the UK electricity transmission and gas transmission businesses both to increase this year but said the return on equity from both units will be slightly lower.
The UK gas distribution unit is expected to report broadly flat net revenue this year whilst return on equity should increase slightly.
Shareholders will be pleased to hear that revenue from its regulated business in the US will increase this year whilst bad debt expenses will decline. Return on equity from the US will remain flat.
National Grid said it managed to grow its regulated asset base by 4.0% in the year compared to 3.0% growth in the previous year after it invested GBP3.90 billion worth of capital across all of its assets in the year.
The company's overall regulated asset base stood at GBP38.80 billion at the end of the period, up from GBP37.30 billion at the end of last year, with a 3% net increase worth GBP777.0 million coming from the UK whilst a 6% lift worth GBP729.0 million came from the US.
Notably, National Grid said the growth from the US would have been higher at 7.5% if working capital movements were excluded.
"The effects of low inflation in the year held back the value of the UK RAV growth to 3% [from 2% last year]. Over the medium-term, National Grid expects UK inflation to return to long-run levels closer to 3% per annum, contributing to expected higher levels of asset growth," said the company.
"Capital investment is expected to be at a similar level to 2015/16, driven by gas distribution in the US and continued asset health investments in the UK, together with further investment in electricity interconnector activities," said National Grid.
Net debt at the end of March stood at GBP25.30 billion after rising from GBP23.90 billion, and said this will rise by a further GBP1.50 billion this year.
By Joshua Warner; [email protected]; @JoshAlliance
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