7 for 24 fully underwritten Rights Issue to raise c.£7.0 billion
New 5-year investment framework for FY25-29
Deliver £60bn investment in energy infrastructure
To fund a significant step up in capital investment to around £60 billion in energy network infrastructure, the Board of National Grid plc (“National Grid” or the “Company”) today announces a capital raise of approximately £7.0 billion by way of a fully underwritten Rights Issue of 1,085,448,980 New Shares at 645 pence per New Share on the basis of 7 New Shares for every 24 Existing Shares (the “Rights Issue”).
HIGHLIGHTS
· National Grid announces capital investment of around £60 billion over the next 5 years (FY25 to FY29), nearly double the previous 5-year period, to deliver a significant step-change in critical energy infrastructure in the UK and US in support of the energy transition and economic growth objectives
· As part of a comprehensive financing plan to deliver the investment, National Grid is announcing a 7 for 24 fully underwritten Rights Issue to raise net proceeds of approximately £6.8 billion
· National Grid’s comprehensive financing plan comprises:
o A c.£7.0 billion Rights Issue which provides shareholders with the pre-emptive opportunity to fund and benefit from our higher growth strategy;
§ the Issue Price of 645 pence per New Share represents a 34.7% discount to the theoretical ex-rights price based on the closing middle-market price on 22 May 2024 (being the last business day before the announcement of the terms of the Rights Issue) of 1,127.5 pence per Share, adjusted for the recommended final dividend for FY24 of 39.12 pence per Share
o streamlining of the portfolio to focus on pureplay networks across regulated and competitive, onshore and offshore networks, with the intention to sell Grain LNG and National Grid Renewables; and
o senior debt and future hybrid issuance to maintain balance sheet strength and investment flexibility
· The Board unanimously believes this comprehensive financing plan will allow the Group to fund a significant increase in capital investment, maintain its strong investment grade credit rating, deliver for customers, and continue to achieve attractive shareholders returns
· Alongside this, National Grid is announcing a new 5-year financial framework from FY25 to FY29, which will see it deliver:
o Group asset growth of c.10% CAGR;
o 6-8% underlying EPS CAGR from an FY25 baseline; and
o continuing our progressive dividend policy, maintaining the total level of dividend following the Rights Issue. Aim to continue to grow the DPS in line with UK CPIH, from a rebased FY24 DPS level
· Overall, this makes National Grid one of the FTSE’s biggest investors in the delivery of the energy transition, and positions the Company to become a pre-eminent pureplay networks business
John Pettigrew, Chief Executive, said:
“Today is a defining moment for National Grid as we announce £60 billion of investment, cementing our position as a leader in the energy transition in the UK and US northeast.
On both sides of the Atlantic, governments and regulators are moving with increased urgency to attract the levels of investment required to meet their decarbonisation targets. As economies become increasingly digital, electrified and decarbonised, the need for energy infrastructure has rarely been more pressing. Our investment will unlock significant economic growth and, by the end of the decade, National Grid is expected to support over 60,000 more jobs, while also decarbonising our energy systems, bolstering security of supply, and reducing consumer bills in the long term. Our strong track record of infrastructure delivery, positive engagement with our regulators and wider stakeholders, alongside clarity on the scale and profile of our capital investment positions National Grid to take advantage of the significant growth opportunities we see ahead.”
SUMMARY OF BACKGROUND TO AND REASONS FOR THE RIGHTS ISSUE
National Grid plays a critical role in delivering the energy transition across our jurisdictions, by building and maintaining the transmission and distribution infrastructure to enable the connection of cleaner, more affordable renewable energy. Not only will this enable the decarbonisation of the economies we serve, it will also ensure we can meet the demand growth we anticipate from a more technology-enabled economy, as well as greater electrification of homes, heating and vehicles.
The opportunities presented by the growth of electricity demand, and the consensus among our regulators and jurisdictions of the urgent need for decarbonisation are unprecedented. It’s against this backdrop that we expect to significantly increase our capital investment over the next five years.
Our geographic position and our work with governments and regulators provides us with an unprecedented growth opportunity that we expect will create substantial value for our shareholders. This investment in new infrastructure will enhance resiliency and enable the jurisdictions in which we operate to make meaningful progress in their journeys towards a decarbonised energy system. The step-up in investment as set out in our new 5-year financial framework underscores National Grid’s position as one of the FTSE’s biggest investors in the delivery of the energy transition. Over the last three years we have reshaped our portfolio and now have a mix of businesses that is increasingly weighted towards electricity transmission and distribution, making us well-placed to capture the significant network growth opportunities that lie ahead. With our operational and regulatory capabilities, combined with a strong track record of delivery, we are confident that we can deliver this step-up in new infrastructure that will provide greater levels of energy security and enable diversification of energy sources to help decarbonise the economies we serve.
The Board unanimously believes that raising net proceeds of approximately £6.8 billion through the Rights Issue will give the Group appropriate financial flexibility to deliver the Group’s strategy over the 5-year financial framework, and funding clarity until at least the end of the RIIO-T3 period.
In particular, the Board believes it will allow the Group to fund a significant increase in capital investment and continue to deliver attractive returns to shareholders, whilst maintaining strong investment grade credit ratings for our operating companies and the Group overall.
The Rights Issue net proceeds of approximately £6.8 billion will principally be utilised to fund a higher-growth investment phase for the Group, with around £60 billion of capital investment expected during the 5-year period from FY25 to FY29. In the near term, to support efficient management of funding costs, approximately £750 million of the net proceeds will be used to refinance a portion of the Group’s outstanding hybrid bonds that have first call dates in the next 15 months.
The Rights Issue provides shareholders with the pre-emptive opportunity to fund and, we believe, to benefit from our higher growth strategy. We believe that the Group will deliver an attractive mix of asset and earnings growth and dividend yield, while enabling the energy transition in our UK and US markets. This builds on our track record of having delivered an over 30% higher Total Shareholder Return compared with the FTSE 100 over the last decade.
Further details of energy policy and regulatory progress, as well as National Grid’s planned infrastructure investments are set out in the full “Background To and Reasons For The Rights Issue” section further down this announcement.
Key highlights of our new 5-year financial framework, covering the period from 1 April 2024 to 31 March 2029 (FY25 to FY29), comprise:
· a significant increase in capital investment to around £60 billion over the period, with approximately 52% of expected spend to be in the United Kingdom and 48% in the United States. Around 85%, or £51 billion, is expected to be “green investment” aligned to the EU Taxonomy, and 98% of the total investment is in our regulated businesses, including around 80% in our electricity networks and approximately 10% in offshore; and
· a high asset growth phase which we anticipate will result in a compound annual growth rate (“CAGR“) of around 10% in our group asset base, leading to a forecasted combined asset base of nearly £100 billion by 2029, of which we expect nearly 80% to be in our electricity networks, (based on an assumed average UK CPIH inflation rate of 2.5%);
· translating into a strong underlying earnings per share (“EPS”) growth CAGR of 6 to 8% from a FY25 baseline, following the issuance of New Shares
· We will continue our progressive dividend policy, maintaining the total level of dividend following the Rights Issue. Our aim is to grow Dividend Per Share (“DPS”) in line with UK CPIH inflation in keeping with the current dividend policy. We will aim to increase the FY25 DPS by UK CPIH following the rebase of the FY24 DPS of 58.52 pence, after taking account of the new shares issued following the Rights Issue[1]
At a business level, we expect investment over the period to comprise:
· around £23 billion into the UK Electricity Transmission business, representing a more than 250% increase in capital investment versus the prior 5-year period. This includes continued funding for our 17 Accelerated Strategic Transmission Investment (“ASTI”) projects;
· investment of around £8 billion in UK Electricity Distribution, representing a more than 30% increase in capital investment versus the prior 5-year period, as we continue to deliver the remaining four years of our RIIO-ED2 price control and invest to create the smart distribution network to enable the accelerated adoption of low carbon technologies, such as electric vehicles and heat pumps, by our customers;
· together these will help grow our UK regulated asset base to over £50 billion by 2029 (assuming average UK CPIH of 2.5%)
· In our US regulated businesses we will invest around £28 billion across New York and New England, comprising investment of approximately £17 billion in New York and £11 billion in New England, and reflecting a 60% increase in capital investment (excluding the Narragansett Electric Company, which was sold in FY23)
· With this we expect our combined US rate base to grow from approximately £25 billion today, to nearly £45 billion in 2029 (at an exchange rate of £1:$1.25)
· Committed investment of around £1 billion in our National Grid Ventures (NGV) business
We remain committed to a strong, overall investment grade credit rating. We expect to maintain credit metrics above our thresholds for current group credit ratings through to at least the end of the RIIO-T3 price control period, with current thresholds of 10% for S&P’s FFO/adjusted net debt, and 7% for Moody’s RCF/adjusted net debt. Following completion of the Rights Issue, we expect regulatory gearing to be in the low 60% range by March 2025, and then trend back towards the high 60% range by the end of RIIO-T3.
To maintain a resilient balance sheet and the strong investment grade credit rating referred to above, whilst enabling this material step-up in investment in the coming years, we are setting out a comprehensive plan of financing measures.
In addition to cashflow generated from operations, where we aim to continue our successful cost mitigation program by keeping controllable costs broadly flat as we continue the strong growth of our asset base, the principal elements of this plan are:
· Debt: we will continue to issue senior debt within the capital markets
· Hybrid capital: we expect to utilise further hybrid debt issuances later in the 5-year period to maintain balance sheet strength and enable investment flexibility
· Proceeds from the planned sales of our Grain LNG terminal and National Grid Renewables businesses
· Rights Issue: equity issuance of approximately £7.0 billion, as announced today
As regards dividends and dividend policy:
· We will maintain a progressive total level of dividend, growing from current levels of approximately £2,168 million which the Board has recommended for the year to 31 March 2024
· This equates to a final DPS of 39.12 pence, leading to a total DPS of 58.52 pence for FY24. This will then be rebased to take account of the new shares issued following the Rights Issue
· We then aim to grow DPS in line with UK CPIH, in keeping with the current dividend policy
· We will continue to offer a scrip dividend, given the continued high level of group asset growth we expect to deliver
Further details of National Grid’s dividend policy are set out in the full “Background To and Reasons For The Rights Issue” section further down this announcement.