| Report for the period ended |
| 30 September 2022 |
John Pettigrew
Chief Executive
“The results we’ve announced today reflect the strength and resilience of our business, delivering for all our stakeholders in challenging economic conditions. As we complete our strategic pivot, our investment in clean energy infrastructure has continued at pace, with a record £3.9 billion in the half year. This investment will continue into the future, and today, given changes to the macro-economic outlook, we are updating our five year financial framework that we set out 18 months ago. Between 2022 and 2026, we now expect to invest up to £40 billion in critical infrastructure, of which £29 billion will be directly in the decarbonisation of energy networks.
Against this backdrop, we are focused on playing our part to mitigate the affordability challenges of our customers. We have achieved £225 million of operating cost efficiency savings to date, and this is enabling us to mitigate some inflationary pressures on both the business and our customers. We have also announced funding to help our most vulnerable customers and communities through this winter and next.
However, ensuring security of supply and affordability, while delivering net zero goals, can only be achieved with clear and stable regulatory frameworks that incentivise the timely delivery of the investment required. We remain committed to working with governments and regulators to achieve this as we focus on delivering a clean, fair and affordable future for all.”
| Financial SummarySix months ended 30 September: continuing operations1 | |||||||||
| Statutory results | Underlying2 | ||||||||
| Unaudited | 2022 | 2021 | % change | 2022 | 2021 | % change | |||
| Operating profit (£m) | 2,239 | 1,492 | 50% | 2,117 | 1,407 | 50% | |||
| Profit before tax (£m) | 1,572 | 1,083 | 45% | 1,455 | 990 | 47% | |||
| Earnings per share (p) | 30.8 | 10.5 | 193% | 32.4 | 22.8 | 42% | |||
| Dividend per share (p) | 17.84 | 17.21 | 4% | 17.84 | 17.21 | 4% | |||
| Capital investment (£m) | 3,883 | 2,840 | 37% | 3,883 | 2,840 | 37% |
1. Excluding UK Gas Transmission which is held as a discontinued operation.
2. ‘Underlying’ represents statutory results from continuing operations, but excluding exceptional items, remeasurements and timing. Further detail and definitions for all alternative performance measures are provided on page 57.
Highlights
Robust financial delivery
â– Underlying operating profit up 50% at actual exchange rates to £2.1 billion (44% at constant currency). Of the 50% increase, 38% came from a full six months underlying operating profit from UK Electricity Distribution and higher property sales to Berkeley Group; and the remaining 12% came from other key drivers, including a first half contribution from North Sea Link and IFA1 insurance receipts, a stronger USD, partly offset by the sale of Narragansett Electric Company (NECO, Rhode Island) and the impact of NG Partners (NGP) fair value movements.
â– Underlying EPS for continuing operations of 32.4p, up from 22.8p in the prior period. This was driven by the above factors but also includes the impact of higher interest costs principally from inflation on index-linked debt and additional interest costs following the UK Electricity Distribution acquisition.
â– Statutory operating profit up 50% to £2.2 billion, driven principally by the gain on the sale of NECO this year and lower remeasurement gains and adverse timing movements compared to the prior year.
â– Statutory EPS of 30.8p, up from 10.5p on the prior period, driven principally by the gain on the sale of NECO this year, and no repeat of the exceptional deferred tax charge (UK rate change) from half year 2021/22.
â– Interim dividend 17.84p/share in line with policy (17.21p/share in the prior period).
Highlights continued
Significant capital investment in energy infrastructure
â– Record capital investment of £3.9 billion for continuing operations (including £214 million of non-cash lease additions in the US), up 37% on prior year at actual exchange rates (26% at constant currency). The increase was principally driven by an additional 2.5 months of UK Electricity Distribution ownership; higher investment across both New York and New England, including the start of our upstate New York transmission project Smart Path Connect; and higher investment for our Sellindge (IFA1) converter station rebuild, our Viking interconnector, and our Isle of Grain expansion project.
Nearing the completion of our strategic pivot
â– Sale of NECO to PPL completed in May.
â– Sale of a 60% stake in UK Gas Transmission & Metering on track to complete by the end of this calendar year.
Crystallised value in non-core assets
â– Announced the sale of our 26.25% non-operated stake in the Millennium gas pipeline, New York, for cash proceeds of $552 million (transaction completed in early October 2022).
Helping our communities and customers during the global energy crisis
â– Announced winter funding support for communities and customers in October 2022, with $17 million committed in the US and £50 million in the UK for individuals and families who require most help.
â– Provided £250 million of working capital support for BSUoS charges through the Electricity System Operator (ESO).
Good regulatory progress
â– Responded to Ofgem’s draft determinations for the RIIO-ED2 price control.
â– ESO submitted its updated RIIO-2 Business Plan covering the regulatory period from April 2023 to March 2025.
â– Responded to Ofgem’s ‘Accelerating onshore electricity investment’ consultation, providing our views on how to meet the government’s 50 GW offshore wind target.
â– Received approval for $600 million of Phase 1 transmission investment projects, in support of New York’s Climate Leadership and Community Protection Act (CLCPA).
â– Received $301 million approval in October from the Massachusetts regulator for our electric Grid Modernization Plan (GMP).
Further progress on our Group efficiency programme
â– Delivered a further £85 million of Group efficiency savings during the half year. This is in addition to the £140 million cumulative savings reported at our full-year results in May.
Delivering on our responsible business commitments
â– Published our second Responsible Business Report, demonstrating the progress we have made across our five pillars and the journey to net zero.
â– Progressed our Clean Energy Vision for our US networks through continued engagement with our regulators and elected officials on our legislative and policy agenda.
Revised Financial Outlook and Guidance
â– We have today upgraded our EPS guidance for 2022/23. We now see underlying EPS growth from 2021/22 to 2022/23 in the middle of our new 6-8% CAGR range, assuming an average exchange rate of £1:$1.20, and after taking into account our recently announced winter funding support.
â– Given the macroeconomic moves we have seen over the past six months (including changes in foreign exchange rates, inflation and interest rates), coupled with confirmed further investment to deliver the energy transition, we have also updated our Financial outlook over the five-year period to 2025/26. We now expect:
â– total cumulative capital investment of up to £40 billion (up from our prior guidance of £30-£35 billion);
â– asset growth CAGR of 8-10% (up from 6-8%) backed by our strong balance sheet;
â– driving underlying EPS CAGR of 6-8% (up from 5-7%); and
â– credit metrics to remain within current rating thresholds, and Net Debt/RAV to be around 70% once all three transactions are complete.
â– This five-year financial framework includes the UK Electricity Distribution business, and takes account of the sale of NECO in May 2022 and the planned sale of a majority stake in UK Gas Transmission & Metering by the end of this calendar year.
Operational Key Performance Indicators1
| As at and for the six months ended 30 September | |||
| (£ million, at actual exchange rates) | 2022 | 2021 | change % |
| Statutory operating profit: | |||
| UK Electricity Transmission | 493 | 541 | (9%) |
| UK Electricity Distribution | 522 | 281 | 86% |
| UK Electricity System Operator (ESO) | 146 | 50 | 192% |
| New England | 720 | 252 | 186% |
| New York | (26) | 321 | (108%) |
| NGV and Other | 384 | 47 | 717% |
| Total statutory operating profit (continuing) | 2,239 | 1,492 | 50% |
| Underlying operating profit: | |||
| UK Electricity Transmission | 564 | 552 | 2% |
| UK Electricity Distribution | 579 | 257 | 125% |
| UK Electricity System Operator (ESO) | 52 | 49 | 6% |
| New England | 316 | 247 | 28% |
| New York | 202 | 141 | 43% |
| NGV and Other | 404 | 161 | 151% |
| Total underlying operating profit (continuing) | 2,117 | 1,407 | 50% |
| Capital investment: | |||
| UK Electricity Transmission | 629 | 587 | 7% |
| UK Electricity Distribution | 584 | 315 | 85% |
| UK Electricity System Operator (ESO) | 42 | 65 | (35%) |
| New England | 862 | 700 | 23% |
| New York | 1,242 | 851 | 46% |
| NGV and Other | 524 | 322 | 63% |
| Total capital investment (continuing) | 3,883 | 2,840 | 37% |
1. ‘Underlying’ represents statutory results from continuing operations, but excluding exceptional items, remeasurements and timing. Further detail and definitions for all alternative performance measures are provided on page 57.