Earnings Transcript for NG.L - Q2 Fiscal Year 2022

Nick Ashworth: Good morning, and welcome to National Grid’s Half Year Results Presentation. Thank you for joining us this morning. I’m Nick Ashworth, Director of Investor Relations, and I’m joined this morning by our CEO, John Pettigrew, and CFO, Andy Agg. As usual, there will be time for questions after the presentation. But given the Investor Day later, please focus your questions on the first 6 months performance. So with that, I’d just like to draw your attention to the cautionary statement that you’ll find at the front of the presentation. And I’ll now hand over to John to begin.

John Pettigrew: Thank you, Nick. Good morning, and welcome to the call. As usual, I’m joined by Andy Agg, our CFO. And after the call, we’ll both be happy to take your questions. Looking across the group, I’m delighted with the progress we’ve made over the past 6 months. So let me start with the key takeaways. Following the transactions we announced in March, we were pleased to complete the purchase of WPD in June, a little ahead of expectations as we advance our strategic pivot that places National Grid to the heart of delivering net zero. The sale of our Rhode Island business continues on track, with completion expected by the end of the financial year. And we’ve recently launched the sale of a majority stake in our UK Gas Transmission business and expect to complete sometime next summer. Alongside these transactions, we’ve now moved to a new operating model with 7 business units across the group as we look to deliver the financial customer and regulatory outcomes that will be required on the journey to net zero. This has led to the creation of U.S. business units in New York and New England and U.K. business units for transmission and distribution. Management layers have been removed, with each unit having P&L accountability and clear responsibility for delivering the innovation and efficiencies specific to their area. And as we’ve announced this morning, it will help us deliver a new GBP 400 million cost efficiency program, maintaining a flat controllable cost base even whilst assets grow by over 20%. This focus on our cost base will in turn help us to deliver at least 95% of our allowed returns across our U.S. businesses as we achieve these efficiencies and support our ability to reach our targeted 100 basis points for annualized performance through RIIO-T2 period, alongside our continued focus on efficient capital delivery. I’m really excited to be able to talk about all of these areas and more at our investor event this afternoon, where I hope to see many of you in person. Alongside these key takeaways, I’ve also been really pleased with the strong financial and operational performance that we’ve delivered in the first half. On an underlying basis, that is excluding the impact of timing, exceptional items and the contribution from gas transmission and metering, which are now classified as discontinued businesses. Operating profit of GBP 1.4 billion was 52% above last year at constant currency. This was helped by first-time contribution from WPD. But even excluding this, operating profit increased by 24% compared to the prior year as we saw a first time contribution from the new IFA2 interconnector to France, part of our GBP 2 billion investment program to deliver 4 new interconnectors by 2024 and an incremental GBP 250 million of EBITDA and higher revenue contribution from UK Electricity Transmission as we start the new RIIO-T2 period, where we’ll be investing on average over 50% more per annum than in RIIO-T1 to accelerate the energy transition. Consequently, underlying earnings per share was up 66% compared with the first half of last year. Given this strong start, we now expect to deliver full year underlying EPS significantly above the top end of our 5% to 7% range. This is primarily driven by early commissioning of our new NSL interconnector, coupled with higher auction prices across our interconnector portfolio, which is expected to deliver around GBP 100 million higher operating profit. Andy will, as usual, cover the performance of each of our segments in more detail shortly. Moving now to our investment in critical infrastructure. Capital expenditure for our continuing operations was in line with guidance of GBP 2.8 billion, 22% above the prior year, reflecting our investment in enabling the energy transition across our markets, including higher U.K. electricity transmission investment on large projects such as the connection of the new Hinkley power station at Hinkley Point in the Southwest. The investment of GBP 350 million by WPD had increased U.S. network investments in reducing emissions from our gas pipelines and storm hardening for our electricity distribution network. And in line with our policy, the Board has proposed an interim dividend of 17.21p per share, reflecting 35% of last year’s full year dividend. Turning next to our safety and reliability performance. Safety is at the heart of delivery across our businesses. I’m pleased to say that in the first half of FY ‘22, we saw our lost time injury frequency rate maintained at the level of 0.11, the same as last year. Turning to reliability, which has also remained excellent across our U.K. and U.S. networks. In the U.S., we responded well to a number of storms, including tropical storms Elsa and Henri, where we saw significant disruption across our Massachusetts jurisdiction. However, despite this disruption, I’m proud to say that we were able to restore over 90% of our customers within 19 hours. And in the U.K., we’ve managed well through the summer despite low levels of wind generation, demonstrating the effectiveness of the new tools, the electricity system operator using as the energy transition progresses. And looking forward, the electricity system operator has published its winter outlook, forecasting an electricity capacity margin of 6.6%, slightly lower than last year, although well within the required reliability standards. And with regard to the U.K. gas network, whilst there have been heightened awareness of gas prices in the past few months like electricity, we are forecasting sufficient capacity this coming winter with available peak capacity of over 600 million cubic meters per day compared to a cold day demand forecast of around 500 million. In the U.S., following the Northeast at the end of last month and given the ever-present possibility of further storms, we’ve again reviewed our procedures and are well prepared for the coming period. In our National Grid Ventures business, the fire at our Sellindge interconnector station has led to the loss of half the capacity of IFA1. Following our internal investigation, we now expect 500 megawatts to be back online by next October, and I’m pleased we were recently able to announce that the remaining 500 megawatts will be back in service earlier than we anticipated by December 2022. So moving now to the operating performance across the business in the first half and starting with our new business, WPD, where we’re following our purchase on the 14th of June. We’re now reporting its contribution as our U.K. electricity distribution business. As I’ve said before, I’m incredibly excited about the opportunities WPD adds to the group, its long-term, highly visible growth and the transformation it brings to National Grid’s shape and positioning at a time of significant change across the energy sector. The first few months tells me there are lots of opportunities for National Grid, learning from WPD’s low-cost, customer-centric business model and for WPD to learn from our track record of engineering excellence. You’ll hear more about this from Phil Swift, the WPD President later this afternoon. And so in our first 3.5 months of ownership, WPD’s capital program delivered GBP 315 million of investment, mainly resulting from demand-related reinforcement, asset replacement, network faults and IT upgrade. Our focus is now on finalizing the business plan for the up-and-coming RIIO-ED2 regulatory review, which will be submitted in early December. As with the RIIO-T2 process, we’ve taken onboard significant amounts of stakeholder and customer feedback, and reflected this in the plans whilst also taking into account the lessons learned from the recent RIIO-T2 review. These plans will address the investment opportunity to deliver a step-up in the capacity to support wider rollout of electric vehicles, greater adoption of electric home heating and more renewable generation connecting to the distribution network. Moving on to our UK Electricity Transmission business. The first 6 months of RIIO-T2 marked a successful start to the new regulatory period. We continued our capital program with GBP 587 million of investment, 17% higher than the first half of last year. This investment was driven by a further step-up in our asset maintenance activity such as network refurbishment and substation replacement, continued progress on the Hinkley-Seabank connection where we’re utilizing the new T pipeline for the first time and higher spend on the tunnel boring phase of our GBP 1 billion London Power Tunnels project. The last half has also seen our technical appeal reviewed by the CMA. Its final determination was published at the end of October, where it confirmed the removal of the outperformance wedge. Having spent time recently at COP26, listening to and engaging with politicians and policymakers to encourage acceleration of green investment, it’s never been a more critical time to have a regulatory framework that can enable its delivery at pace if we are to meet the challenges and opportunities of net zero. You’ll hear more about this from me this afternoon. Finally, in the U.K., with the sale process now launched, Gas Transmission is reported as a discontinued operation. However, I’m really pleased with the performance in the first half of the year as it begins this new RIIO-T2 period. Capital investment of GBP 131 million was up 38%, reflecting higher spend on asset health. Unlike electricity transmission, it’s targeting 100 basis points of outperformance through this price control period. Moving now to our U.S. jurisdictional businesses, starting with New York. In the period, we invested GBP 851 million, up 10% at constant currency, mainly driven by code restrictions in the prior period. Our biggest program of work is the replacement of leak-prone pipe where we’ve delivered 171 miles in the first half, which is an increase of 80 miles in the prior period as we further reduced methane emissions across our network. On the electric side, you’ll hear later about the progress we’re making with transmission opportunities in upstate New York, such as the 2-gigawatt New York Energy Solutions project, which will help bring more renewable energy into the state. This project will replace 80-year-old transmission lines, and is due for completion by FY ‘23. Turning to regulation. I’m pleased with the significant progress we’ve made, where we’re targeting returns of at least 95% of the allowed level each year. We’ve reached a joint proposal with the New York Public Service Commission staff for Nemo in Upstate New York. The 3-year settlement, which includes an allowable ROE of 9%, will see us invest $3.3 billion in electric and gas infrastructure, fund over 300 new positions supporting measures such as new gas safety initiatives and energy efficiency programs and adopt innovative new features such as performance-based incentives giving us the ability to earn incremental returns up to an additional 86 basis points in our electric business. Moving across to New England. In the period, we invested GBP 700 million flat on the prior year. Whilst we saw higher levels of investment in Massachusetts, lower spend in Rhode Island due to COVID offset this increase. Like New York, we made strong progress with leak-prone pipe replacement and have delivered 85 miles of new pipe in the first half. On the electric side, we continued investing to strengthen our networks against increased storm activity and respond to customer requests, primarily in new urban residential areas. Turning to regulation. We’ve agreed a new rate case for Massachusetts Gas effective from October. This follows the same format as our performance-based rates we agreed for Massachusetts Electric last year. The rate case will further allow an ROE of 9.7%, incremental operating expenses of $65 million and over 130 new positions to support CapEx of around $3.5 billion over 5 years. These Massachusetts rate cases, combined with the inflation forecast we incorporated in our New York rate plans, means we have businesses that are in a strong position to mitigate our inflation exposure. Looking now at National Grid Ventures, where we now include U.S. generation following our reorganization. Investment of GBP 282 million was marginally up on the prior period. It was primarily focused on delivery of our interconnectors, and we’re pleased that the North Sea Link, our subsea connection with Norway, came online ahead of schedule in October this year. And our Viking Link with Denmark remains on track to be operational in 2024. Moving to the U.S., our onshore renewables business is completed the 200-megawatt Prairie Wolf solar project in Illinois, which will be commissioned by year-end and will bring our capacity under operation to just over 600 megawatts. So let me now hand over to Andy to take you through the detailed financials before I come back and briefly summarize our first half year achievements. Andy?

Andy Agg: Thank you, John, and good morning, everyone. I’d like to highlight that, as usual, we’re presenting our underlying results excluding timing and that all results are provided at constant exchange rates. The changes to our portfolio provide a bit of complexity this year, and I’ll shortly talk through the moving parts before turning to the group’s half year performance. However, the overall changes to our reporting lines, as John mentioned earlier, should enable a clearer understanding of our business performance going forward. With the acquisition of the U.K.’s largest electricity distribution network, Western Power Distribution, completed on the 14th of June 2021, its contribution is now included from that date. Our UK Gas Transmission business, including our legacy gas metering business, is now held as a discontinued operation following the launch of the process for a majority stake sale in this business. As such, all earnings from this segment have been excluded from the underlying earnings of the continuing group. Rhode Island was classified as held for sale on the 31st of March this year, and so depreciation ceased. However, since it does not meet the size criteria of discontinued operations under IFRS, we continue to include its operating profit contribution within underlying earnings until the sale to PPL is complete. This remains on track for the end of our financial year. Finally, as we move to business unit reporting, our U.S. regulated operations will be separately reported under New England and New York. Consequently, our U.S. generation business will now report through the National Grid Ventures portfolio. And we are now reporting the U.K. electricity system operator separately from electricity transmission. For comparability, prior year numbers are shown adjusted for these changes. Before I turn to our half year performance, I just want to say a few words on the new GBP 400 million cost efficiency program that we’ve announced this morning. The program builds on the U.K. and U.S. efficiency initiatives that we’ve run over the last 2 years that have already delivered over GBP 150 million of savings. The move to a new organizational structure along business unit lines, as John mentioned earlier, has provided the opportunity for us to identify further efficiency savings, both in the core businesses and across the shared corporate functions. In total, we are targeting over GBP 400 million of savings across the group over 3 years with the aim to keep controllable operating costs flat whilst growing our asset base around 20%. Across our U.S. businesses, we expect the efficiencies to be over GBP 300 million. And in the UK Electricity Transmission, together with National Grid Ventures, are targeting around GBP 100 million of savings. These efficiencies will come through a number of areas such as the increasing use of technology and digital solutions that will deliver greater work in practice productivity as well as standardizing our working practices and retaining more of this knowledge within the business. These programs sit alongside the continuing work we are doing on driving capital efficiency across the group, particularly in our large asset delivery programs such as for RIIO-T2 in our UK Electricity Transmission business. You’ll hear about some of the many areas where we are innovating and driving efficiencies across the business units later at our investor event. Now turning to our half year performance. Underlying operating profit on a continuing basis increased by GBP 483 million to GBP 1.4 billion. As John said, removing the first-time contribution from WPD, operating profit still increased 24% year-over-year, driven by the first-time contribution from the IFA2 interconnector as our interconnector program moves from construction into the operational phase and a higher contribution from UK Electricity Transmission as we move into RIIO-T2 and begin to deliver a capital program that will be over 50% greater per annum than in RIIO-T1. Higher operating profit as well as a lower-than-anticipated increase in financing costs given some one-off benefits in other interest, resulted in underlying earnings per share increasing by 66% to 22.8p. Capital investment from continuing operations was GBP 2.8 billion, 22% higher than the prior year. This reflects the first-time inclusion of WPD capital investment this period, the impact of COVID restrictions in the U.S. in the prior period and progress on major electricity projects, such as London Power Tunnels 2 and Hinkley-Seabank in our UK Electricity Transmission business, all partly offset by lower interconnector spend. In line with our policy, the Board has proposed an interim dividend of 17.21p per share. Scrip uptake in the summer on the full year dividend was 49% and will again be offering the scrip option at the half year. Now let me take you through the performance of each of our business segments. Starting with our new business. On the 14th of June 2021, we acquired WPD for a total cash consideration of GBP 7.9 billion. The deal was financed by an GBP 8.2 billion bridge loan, which is expected to be largely repaid using the proceeds of the planned disposal of our Rhode Island business to PPL and the majority stake sale of our UK Gas Transmission and metering businesses. On consolidation, we made a number of accounting adjustments as required by IFRS, which have ultimately had a net positive impact on the income statement. Firstly, PP&E has been fair valued and brought on to the balance sheet at GBP 10 billion, below the value in the WPD accounts. With only marginal changes to asset lives, this results in a lower depreciation charge going forward. This has been broadly offset by the removal of customer contributions previously recognized by WPD on the balance sheet, removing the benefit to operating profit going forward. Net debt has been fair valued upwards by GBP 1.6 billion to GBP 8.2 billion to reflect credit spreads, interest and inflation rates at the time of acquisition. This results in a lower annual interest charge. We will recognize an intangible asset of GBP 1.7 billion, representing WPD’s regulatory license as well as goodwill of GBP 4.7 billion. Both of these balances will be subject to annual impairment testing. Consequently, for the half year, we included a contribution of GBP 257 million within underlying operating profit and capital investment in the period of GBP 315 million. Underlying operating profit for the UK Electricity Transmission business was GBP 552 million, up GBP 65 million compared with the last half year. This primarily reflects the move to CPIH inflation indexation and higher base revenues as we enter the first year of RIIO-T2. We invested GBP 587 million on system resilience, asset health and new connections. This was GBP 86 million higher, reflecting progress on multiple large projects, such as London Power Tunnels 2 and Hinkley-Seabank, partly offset by lower investment in Smart Wires as these projects near completion. We’ve now had time to work through the RIIO-T2 final determinations in more detail since their publication. Whilst the price control will be challenging, we believe we’ll be able to find ways to innovate and deliver efficiently for our customers. As we complete projects started in RIIO-T1 and move into RIIO-T2, we are targeting to deliver 100 basis points of operational outperformance on average through the 5-year period. And given this profile, we also expect to deliver this level of performance in the first full year of this price control. And on the electricity system operator, underlying operating profit was up GBP 12 million in the period to GBP 49 million with higher revenues at the start of the new price control, more than offsetting higher costs. Moving now to the U.S., where underlying operating profit for New York was GBP 141 million, GBP 29 million lower than the prior year. This reflects higher revenues through our rate case settlements as well as the nonrecurrence of COVID costs from the prior period, more than offset by higher storm costs in the period, increased depreciation from higher levels of investment as well as a reassessment of recoverable environmental reserves, mainly due to inflation. Capital investment was GBP 851 million, GBP 76 million higher than prior year at constant currency. Increasing CapEx was driven by the impact of COVID restrictions in the prior year. Overall, we expect full year ROE to increase to at least 95% of our allowed level, improving on the 2020/’21 performance. Turning to New England, underlying operating profit was GBP 247 million, GBP 67 million higher than the prior year. This reflects higher rates in our Massachusetts Electric business under its new rate settlement; lower bad debts due to the resumption of collections; as well as lower COVID costs; and the cessation of depreciation, following the reclassification of Rhode Island as held for sale. Capital investment was GBP 700 million, GBP 7 million lower than prior year at constant currency. Massachusetts received higher levels of investment, primarily driven by the impact of COVID restrictions in the prior year. However, this has been more than offset by permit delays due to COVID in the Rhode Island business. Overall, full year ROE is expected to increase compared to 2020/’21, which was adversely affected by storms. And we expect to achieve over 80% of our allowed level. Looking forward, given the combination of new Massachusetts gas rates from the first of October, together with the new efficiency program we have announced this morning, we expect to make significant progress towards our target of at least 95% of our ROE allowances. National Grid Ventures continued to perform well, with underlying operating profit up GBP 66 million to GBP 147 million in the half year. This primarily reflected first-time contributions from the IFA2 interconnector, which commissioned earlier this year, and growth in our U.S. renewables business. Our 50% ownership in the Nemo interconnector to Belgium also benefited from higher auction prices, helping the performance of our joint ventures. However, performance was partially offset by a fire at the 2-gigawatt IFA1 converter station in Sellindge, Kent in September. The fire caused significant damage to infrastructure on site with 1 gigawatt of capacity currently offline. We now expect 500 megawatts to be back online by October 2022, with the remaining 500 megawatts to be back in service in December 2022. We are working on ways to bring the asset back online as quickly as possible and will update on the expected cost of repairs when we have more detail. With insurance in place to largely cover business interruption and rebuild costs, we don’t anticipate a material financial impact on the group. Capital investment across National Grid Ventures increased from GBP 272 million to GBP 282 million in the period. This reflects investments in additional capacity at our LNG terminal on the Isle of Grain and renewable generation in the U.S., largely offset by lower CapEx on the interconnector program following last month’s successful commissioning of the NSL interconnector to Norway. The operating profit for other activities for the half year was GBP 14 million, GBP 45 million higher than last year. This principally reflects fair value gains on investments held by National Grid Partners, our portfolio of start-up companies innovating and investing in new technologies that will drive a smarter energy future, including Dragos, a cybersecurity company for critical infrastructure. Capital investment was GBP 40 million, GBP 15 million higher than last year. With the launch of the sales process, we are now reporting our UK Gas Transmission business, including the legacy gas metering business as discontinued. For the period, operating profit excluding timing was GBP 332 million. This was GBP 144 million higher than the prior year, following a change in revenue-charging methodology, which has removed volume linkage and will lead to lower levels of seasonality going forward. Capital investment was GBP 131 million, GBP 36 million higher than the prior year. This primarily reflects higher spend on asset health and emissions work. Having now assessed the final determination for RIIO-T2, Gas Transmission is targeting to deliver 100 basis points of operational outperformance on average through the 5-year period. Net finance costs were GBP 475 million, up GBP 73 million, reflecting higher financing costs following first time inclusion of WPD debt and funding of bridge loan facility, partly offset by lower pension interest costs as well as interest on favorable property tax settlements. Our effective interest rate was around 20 basis points lower than the prior year at 3.1%. At constant currency, net finance costs are now expected to be around GBP 200 million higher for the full year as a result of higher inflation, higher average net debt following the acquisition of WPD and our ongoing capital investment program, partly offset by one-off benefits in other interest. The underlying effective tax rate before joint ventures was 19%, 330 basis points higher than the prior year due to a change in the profit mix and a reduced impact of prior year adjustments. For the full year, the underlying effective tax rate, excluding the share of joint venture post-tax profits is expected to be around 21%. Underlying earnings were GBP 812 million with EPS of 22.8p, up 66% from the prior year. Finally, given the strong start to the year, we now expect to deliver full year underlying EPS significantly above the top end of 5% to 7% range. This is primarily driven by the early commissioning of our new Sellindge connector coupled with higher auction prices across our interconnect portfolio, which we expect to deliver around GBP 100 million higher operating profit. Moving now to cash flow. Cash generated from continuing operations of GBP 2 billion, up 27% compared to the prior year. This reflects first-time contribution from WPD. Net cash flow in the period amounted to GBP 1.6 billion, down 24% on the prior period, with higher capital investment partly offset by lower cash dividend, given [Technical Difficulty]. Net debt decreased by GBP 12.9 billion to GBP 41.5 billion, reflecting consideration of WPD and existing debt, partly offset by the reclassification at National Grid Gas as held for sale. For the full year, net debt is expected to remain consistent with the level at 30th September at around GBP 41.5 billion, excluding the impact of FX. This includes expected benefits of the Rhode Island [disposal] proceeds. I’ve said previously, our net to [Technical Difficulty] is expected to remain stable, above [Technical Difficulty] once we completed our announced portfolio repositioning and the next level keeps [Technical Difficulty] within the range [Technical Difficulty] to maintain our existing ratings. As a reminder, our target range is above 7% [Technical Difficulty] debt and about 10% [Technical Difficulty] net debt ratio. Before handing back to John, and given market expectation around high levels of inflation and interest rates, I just want to touch on potential impacts we see across the businesses. Looking across the group and the regulatory set we have in place, moderato to higher inflation is a positive over the long term, with the protection of [Technical Difficulty] good proportion for our regulatory assets whilst [Technical Difficulty] higher interest cost should be neutral over time. As an example on inflation, in the U.K., higher inflation [Technical Difficulty] GBP 23 billion a regulated asset base, given inflation. This is partly offset by GBP 4 billion of inflation linked debt. So [Technical Difficulty] 1-year increase inflation [Technical Difficulty] runs around [GBP 190 million]. I think of incremental economic value. Across our [Technical Difficulty], while higher inflation [Technical Difficulty] higher interest cost [Technical Difficulty] of our inflation linked debt, our regulatory frameworks we had in good [Technical Difficulty] in the longer term revenue catch-up. In our U.K. regulatory businesses, revenues of CPIH, and we also get revenue [Technical Difficulty] specifically in labor and material costs under the real price protective mechanisms. In the U.S. on Massachusetts and FERC regulated businesses have annual increases. And New York, we’re able to include forward-looking prices in our [Technical Difficulty] plans. Moving to interest, the cost of debt allowances in the U.K. is up annually. And assuming [Technical Difficulty] debt higher interest cost should be neutral here now as we [lower] revenue allowances over time. And in the U.S., [Technical Difficulty] taken into account the cost of debt and provide a pass-through of these costs to customers, which is why [Technical Difficulty] and a long term in nature. So to summarize our half year. We’ve delivered strong financial performance, announcing full year underlying EPS significantly ahead of our 5% to 7% growth rate. We now [Technical Difficulty] business, WPD for the first time, following [Technical Difficulty] to electricity and seeing our interconnector program [Technical Difficulty] with the first time inclusion of IFA2 and commissioning of our [Technical Difficulty]. Capital investment levels are up, driven by new regulatory settlements with a great focus on [Technical Difficulty] whilst our balance sheet remains strong, allowing us to fund our investments efficiently. And we have moved to a new operating model and announced a new GBP 400 million cost efficiency program as we continue to focus on delivering a fair and affordable clean energy future for all. With that, I’ll hand you back to John.

John Pettigrew: Thank you, Andy. So to finish, we’ve had a strong start against our 5-year financial framework of annual asset and EPS growth. This is enabling us to upgrade our full year EPS guidance to be significantly ahead of our 5% to 7% range. We’re delighted to have completed the acquisition of WPD a little earlier than anticipated, having hit the ground running as we start to integrate and share best practice. We’re confident on new operating model structure. We’ll deliver the most efficient outcomes for all our stakeholders as we progress the journey to net zero. And on the back of this, we’ve announced a new GBP 400 million cost efficiency program to be delivered over the next 3 years. We made a strong start to the new RIIO-T2 price control in our UK Electricity Transmission business and have line of sight on operational and capital efficiencies to deliver outperformance through the period. And we’ve successfully completed a full refresh of rates across our New York and New England businesses, giving us fantastic visibility and regulatory certainty. We’re also really pleased to see our interconnector program heading from construction into operation with a first-time contribution from IFA2 in the period as well as the commissioning of our Norwegian interconnect last month. That just leaves the Viking link to come on in FY ‘24. Finally, we’re on track to deliver our 5-year financial framework of 6% to 8% asset growth, 5% to 7% EPS growth and, most importantly, to continue to deliver a sustainable CPIH linked dividend. At our investor event later today, we’re looking forward to giving you a lot more information on the medium and long-term drivers of growth and how we’re working with all our stakeholders to deliver a clean fair and affordable energy future. And hopefully, we’ll see many of you there in person. Thank you for listening. Andy and I will now be happy to take questions on the first half performance.

A - John Pettigrew: Excellent. Okay. Let’s make a start. So John Musk, I can see you’ve got your hand up. Do you want to ask the first question. Okay. So it doesn’t look like John has got his hand up. So Dominic, why don’t you ask the first question?

Dominic Nash: If anything at all, I’m from the Zoom call.

John Pettigrew: Dominic, I can’t hear you. Do you hear me?

Dominic Nash: Yes, I can now hear you. Yes.

John Pettigrew: Excellent.

Dominic Nash: Yes. I mean, the questions I’ve got are two, actually. Well, they’re saying that, I think they printed up on the screen, which is about the GBP 400 million of cost savings and how much of that is in the U.S. and -- in order for you to meet the regulatory targets and how much of that can go up. And the second one is on your offshore wind JV with RWE. I was hoping that you could probably give us some color as to what you think is going to happen with the BOEM later this year, beginning next year and your scope for ambitions for expansion to the offshore wind industry, please.

John Pettigrew: Okay, okay. Thanks, Dominic. So let start with cost savings. So as you saw this morning, we’ve announced the GBP 400 million of cost savings [indiscernible] of 3/4 of those savings will be in the U.S. business, so GBP 300 million and about GBP 100 million in the U.K. Effectively, what we’re trying to do here is that as we look forward over the next few years, we’ve got significant growth in our investment and we’re looking to keep our cost base broadly flat whilst we’re delivering that. So it’s really a cost avoidance program. And we think through looking at things like digital innovation, technology and driving productivity and performance, we can deliver those cost savings. And those cost savings will then help to deliver the ROEs that we’ve set out previously in terms of getting above 95% in our U.S. businesses and delivering, as you heard today, 100 basis points of outperformance in our U.K. businesses. In terms of the offshore wind joint venture. So as you know, we entered into a joint venture with RWE last year to look at the opportunities off the Northeast Coast given National Grid’s sort of experience and world-class capability in offshore cabling together with our knowledge of the Northeast from a regulatory perspective. It seemed like a natural evolution for us given the capabilities we’ve built up over the last few years. And we’re looking at the opportunity that’s in front of us. So in terms of bidding for the seabed access, which is likely to be at the turn of the year. I think it’s forecast to be around the January time. Our approach, as always, with investments that we do in Natural Grid Ventures is to take a very disciplined approach. So we will look at the opportunity. And if we think it’s right for our shareholders, then we will progress that. But time will tell in terms of exactly what that looks like as we move forward. Okay. So thanks for that, Dominic. I can see, Jenny, you’ve got your hand up. So why don’t we go to Jenny Ping.

Jenny Ping: Two questions. Just following on the GBP 400 million cost savings. Obviously, GBP 300 million you said is in the U.S. Can you just confirm there is no expectations as part of the rate settlement? Any cost savings to be returned or shared to consumers? So basically, that GBP 300 million is falling through to the shareholders’ bottom line. And then I note there is no mention of WPD in the U.K. part within that GBP 100 million. Is that -- should we read that as there isn’t any or is this to come, I guess, after the regulatory review? And then secondly, just on net debt, at least my numbers, my net debt is much lower than the GBP 41.5 billion that you have indicated for year-end. I was just wondering, maybe, Andy, if you can walk us through the building blocks of how we get from what it was last year and the various parts to get to that 41.5%.

John Pettigrew: Okay. Thanks, Jenny. Let me take the first two, and then I’ll hand over the third to Andy. So in terms of the efficiency targets that we’re setting today, then they’re fundamentally about delivering on the returns that we set out to get into the 95%. There are some sharing mechanisms within our rate files in the U.S., but they tend to be when you’re significantly above the allowed return. You can start to share that with customers. But this cost efficiency program, first and foremost, is about getting to above 95%. In terms of WPD, as you’d expect, our focus at the moment is very much on making sure that we put the very best business plan that we can into Ofgem. Since WPD became part of National Grid in the middle of June, I’ve been hugely impressed just with the level of detail that’s in their business plan, I think the only D&O that have published 3 versions. I think they’ve had more than 17,000 stakeholders comment on it. So I think I’m very confident that they’ve got a plan that is really going to deliver what their customers and stakeholders need. But that has been the focus. As I said, when we did the acquisition back at the beginning of the year, I remain hugely excited with the opportunity to bring together the capabilities and track record that WPD has in terms of delivering on reliability and short-term incentives and customer service together with National Grid’s engineering and asset management capabilities. And I see that as a real opportunity going forward. But the focus to date has been very much on that business plan. Andy?

Andy Agg: Yes. Thanks, Jenny, for the question. So hopefully, you’ve seen in the presentation this morning the main moves to get to our half year, 41.5%. And obviously, that excludes now the held-for-sale elements relating to both Gas Transmission in the U.K. and also just over GBP 1 billion related to the Rhode Island business. In terms of our guidance to that being flat net by the end of the year, that assumes that we will complete the Rhode Island transaction. So it means that the disposal proceeds will have come in. But as we’ve guided to and we’ve reaffirmed again this morning, we do expect to complete the gas transaction or in the summer of 2022. So therefore, there’s no expected proceeds and that held-for-sale amount will still be in the balance sheet as of 31st of March. And broadly, therefore, the Rhode Island proceeds net offset other normal working capital and cash movements that we expect through the second half.

John Pettigrew: John Musk, I think you do have your hand up, so let’s go back to John.

John Musk: Hopefully, you can hear me now.

John Pettigrew: Okay.

John Musk: So part of the sort of beat, let’s say, in the first half has been in the interconnectors, as you highlighted. Can you outline where you sit on those versus the regulatory caps that are in place on those interconnectors? And also, I think the mechanism is a 5-year average in terms of clawing back any beat. So can you just confirm that? And then secondly, hopefully, this is really an H1 and not a sort of CMD question. But with the strong guidance that you’re giving today of mid-teens -- or sorry, low-teens EPS and sticking to the 5% to 7% on average, does that mean the back end is coming down a bit? Or am I reading too much into that?

John Pettigrew: Yes, thanks, John. Let me take the first, and then I’ll ask Andy to take the second. So in terms of the interconnectors, just so everybody’s got the sort of picture, so the interconnectors, we drive our revenues through the arbitrage in terms of the difference in energy prices in the capacity that we sell, and then there are regulatory wrappers around that. So we got slightly different regulatory wrappers and approaches to each individual interconnectors. What you saw in the results today was, as we look forward, we are expecting to see strong interconnector performance in the second half, partly because we’ve got the new IFA2 interconnector in this year’s results. We’ve also brought on the Norwegian interconnector early, and we are expecting the arbitrage to remain attractive going forward. So in terms of -- those are the things that are driving the GBP 100 million that we talked about in the results today. In terms of where we sit, it is a 5-year process, John. So where we are at the moment will be determined by what happens over a rolling 5-year period. What I would say is the returns in the interconnectors continue to be in excess of what we see in our onshore transmission business. Andy?

Andy Agg: Yes. Thanks, John. In terms of the guidance, you may remember back in May when we first set out the 5% to 7%, we positioned it as our 5-year average CAGR in terms of EPS through to FY ‘26. And that remains a good guide today. What we’ve explained this morning is, given the performance that we now see with Norway coming online slightly earlier and with the arbitrage pricing that we are able to contract in as you described, the GBP 100 million puts us in into the low to mid-teens in terms of growth this year. But our 5% to 7% over the 5 years was assuming sort of the long run normalization of arbitrage rates. And therefore, the guidance is our best view for this year. But that’s why over the 5 years, the 5% to 7% remains a valid guidance range.

John Pettigrew: Thanks, John. Mark Freshney, I see you’ve got your hand up.

Mark Freshney: So Andy, a couple of questions for you. So on the -- first on the acquisition bridges, the GBP 8.2 billion. It seems your strategy is now to just let those run and pay them down with the NGG plc proceeds. Can you confirm that and whether you’d be looking for an earlier refi? Secondly, on -- and you cutout a little bit, and I wasn’t able to check quickly enough. But on the GBP 1.6 billion fair value uplift for the WPD debt, presumably, a large amount of your net debt is, therefore, GBP 1.6 billion of your net debt is noncash. And if you were to undertake a buyback of those bonds, presumably, there would not be a write-back through the income statement. Is that correct? And finally, a question for you, John. Just on the cost inflation. I take what you say about RAV indexation and debt indexation and so forth. But I guess the risk is that construction inflation and the kind of goods and services that you deal in go up by more the consumer inflation. So can you talk about what you’ve seen as you’ve gone to market to tender for equipment and services recently and what you’re seeing from your supply chain on pricing?

John Pettigrew: Yes. Thanks, Mark. Let me take the third, and then I’ll hand over to Andy for the first two. So in terms of price inflation, you’re right, let me just start to make sure everyone understands the sort of position for National Grid. So we have a pretty effective hedge on inflation with -- obviously, we got the indexation of the RAV in the U.K. on our regulated businesses, and that will continue for WPD as well, of course. And then in the U.K., increasingly with the new rate cases we put in place, we’ve got inflation protection on the revenues in Massachusetts Electric and Gas. And in New York, we’ve always had the ability to be able to put a forecast inflation into any forward multiyear rate case that we’ve done. So we feel that we’ve got a pretty good hedge. And on top of that, of course, in the U.K., we got the real price effect adjustment for commodities and raw materials from Ofgem as part of the price controls. What we’re seeing in the market, we are seeing some modest pressure, particularly on labor and raw materials. I would say it’s modest at the moment. So I guess the most significant thing we’re seeing and we’re managing actually is from a supply chain is just time duration for ordering materials. So we’ve had to adjust the way that we deliver our projects to make sure that we’re getting our strategic suppliers in earlier and that we’re committing to doing that on an earlier basis than we’ve done previously. It’s not something I’m losing sleep over, but it’s definitely something that needs to be managed at the moment. So I’d say we’re seeing modest price increases at the moment, but we are in a fortunate position that we’ve got very good hedges through our regulatory -- sort of regulatory agreements. Andy?

Andy Agg: Yes. Mark, so on the two. In terms of the GBP 8.2 billion bridge loan, I think it’s always been our intent to use the proceeds of Rhode Island and Gas Transmission and through metering to pay down the majority of that. And then any remaining balance depending on how we do with the gas transaction, that will just be part of our normal refinancing plans as we go through next year. Remember that we’re continuing to fund the ongoing business on top of that as well, so we’ve obviously been in the market through the first half. We did a green bond at plc level as well, for example. So we continue to fund our organic business on top of the plans around the bridge financing. In terms of the fair value adjustment, your question sort of implies that we might be doing something. I think as I said back in May, we’re inheriting the debt book. And at this point, we have no plans other than to continue to run that debt book through to its maturity. What will happen is that fair value accretion will effectively return back to the P&L over the remaining life of the bonds associated with the debt book as an acquisition, and that’s quite behind my comments in the presentation around. We’ll get a small pickup in the P&L with that accretion going back through the income statement.

John Pettigrew: Thanks, Andy. Deepa, I think you’ve got your hand up.

Deepa Venkateswaran: So I had a couple of questions. Actually, just staying on WPD. And I didn’t fully follow all the things, Andy, that you said because the audio quality was poor. So with reference to the published accounts of WPD, are you able to kind of quantify what are the different moving parts? So they had depreciation of GBP 250 million. They had interest of close to GBP 300 million. And so you said that these would be lower. Can you quantify how much? And you also mentioned something around some customer earnings that goes away. Again, can you explain what that is and just quantify that? And then on the debt itself, the GBP 1.6 billion, you’ve shown that in your net -- you’ve shown that in your net debt. But obviously, from a cash flow modeling, you’re still going to be paying the coupon. So I presume that’s not going to be very different from the GBP 300 million that you inherited. So please just correct me if the cash interest outflow is any different. And then on the cost-cutting program, just wanted to double check that we shouldn’t really be modeling all of that GBP 400 million getting into the bottom line if we also assume, for example, that you’re hitting 95% ROE, right? So I just wanted to check whether there was anything around, say, NG Ventures or anything, which would be additive and incremental on top of what we should already consider for the regulated businesses.

John Pettigrew: Thanks, Deepa. Let me just take the third and give Andy the first two. So yes, you’re absolutely right. In terms of the cost efficiency program, that’s exactly how we’re thinking about it. So it’s there to help us to contribute to deliver that 100 basis points of outperformance operationally that we’re committing to in electricity transmission and to get to the 95% of the low returns in the U.S. So that is absolutely how you should think about it.

Andy Agg: Okay. Thanks, Deepa. And in terms of the fair value adjustments and the impact going forward, so there’s 3 main elements that impact the income statement. Firstly, I mentioned the write-down to around GBP 10 billion in terms of the fair value of the PP&E, so the fixed assets coming into the balance sheet. That of itself would lead to a slightly lower depreciation charge going forward. I made the comment as well that we have absolutely reviewed asset lives, but have made any marginal changes to align with our own. The point I made earlier was that will be offset by derecognizing around GBP 2.7 billion of customer contributions that WPD have previously received, which would otherwise have been returned back through the income statement as well. So the combination of those 2 items broadly offsets itself in operating profit. So the net impact of income through the fair value of debt point, as I mentioned in the previous question, that GBP 1.6 billion of noncash accretion will effectively be amortized off through the income statement over the life of the bonds. And that will lead to a pickup in terms of the post-acquisition income statement going forward. But you’re absolutely right, it’s noncash. So the cash coupon will be as per the original debt instruments. No change there.

John Pettigrew: Thanks, Deepa. Martin Young, I think you got a question.

Martin Young: Yes. Can you hear me?

John Pettigrew: Yes, we can hear you, Martin.

Martin Young: It’s -- first question is around the GBP 400 million cost reduction program. Just wondered if there are any implementation costs of any significance in that respect. And then please correct me if I’m wrong, but I think at the time on the WPD debt, I think the number of about GBP 6 billion or GBP 6.1 billion was mentioned the debt, obviously, with the GBP 1.6 billion uplift that you’ve talked about today that would take us into the upper 7s. Am I wrong with that GBP 6 billion debt acquired number? Did that move? Is that the time between announcement and closing, I guess?

John Pettigrew: Okay, thanks, Martin. Again, I’ll take the first, and I’ll ask Andy to take the second on the debt. So with regards to the GBP 400 million in terms of the target we set today, yes, there are some costs associated with it. So there are costs associated actually with the separation of Rhode Island and GT and then there will be cost to achieve in terms of delivering those efficiencies. I mean, broadly, it’s around about GBP 400 million of cost to achieve across both the separation and those efficiency programs. Andy?

Andy Agg: Yes. Martin, thanks. In terms of the debt question, so I don’t have the GBP 6.1 billion in front of me, but the GBP 6.6 billion was the -- effectively, the book value in terms of WPD’s accounts at the completion of the acquisition in June, and the GBP 1.6 billion is the noncash fair value, which gets you to the GBP 8.2 billion. But those are the numbers as of the 14th of June.

John Pettigrew: Just looking, it looks like, Mark, your hand -- is that a new hand up? You’ve got another question.

Martin Young: It’s my other hand, yes. hands up.

John Pettigrew: Okay.

Martin Young: On -- can you talk about CCUS and the -- well, I guess, Project Cavendish is attached to Grain, but the Humber cluster, clearly, there’s a big consultation going on there. Could you talk about select total spend returns requirements to the extent that you can and that you would remain committed to CCUS rather than let your Gas Transmission team take it on?

John Pettigrew: Yes. So thanks, Mark. So the work we’re doing around CCUS, actually, sit with National Grid Ventures, not within our Gas Transmission business. So it will stay there. I mean at this stage, first of all, we were delighted that -- as you’re aware, the U.K. government selected 2 projects to take forward between now and 2025. Our project with BP and Equinor and others was one of the ones that selected. So we’re now taking it to the next stage, which is really understanding what is the investment is going to be required, what are the costs associated with that. But probably most importantly, at this stage, it’s worth just emphasizing that what is the business model on which that investment is going to be done. So that is still to be consulted on with the U.K. government. So I very much see it as an opportunity and a business development opportunity, but it’s just too early to say, Mark, in terms of exactly what is going to be the cost and what are the returns and what in fact is the business model, and therefore, what are the risk-adjusted returns that would be appropriate. What I would say from our perspective, Nash Grid’s role will be very much around the transport of the carbon onshore. That is the expertise that we would bring to this joint venture, and other players in the market will bring their own expertise offshore and in production of hydrogen. But it’s early days, but really pleased that we were selected and we’ll continue to work with our partners on exactly what that opportunity might look like. Okay. I’m going to go to Bartek. I think he’s got a question.

Bartlomiej Kubicki: Three, if I may, please. Firstly, on the CMA final decision and actually the disappointing decision for you. Do you think there’s anything else you can do in order to improve the returns somehow and still challenge what Ofgem and CMA has decided upon? Secondly, on this 100 basis points outperformance you are expecting for NGET over RIIO-2, do we understand it -- should I understand it as OpEx and incentives outperformers or this is something on top of what you usually outperform? I mean, how shall we understand this one? And thirdly, as interconnector seems to be good assets, do you have anything else in your pipeline to start construction off in the near future?

John Pettigrew: Okay. So let me just take those in turn. So with regards to the CMA decision. So -- and I guess, we were delighted to see that the outperformance word was removed and really pleased in the final decision from the CMA that not only was it removed, they didn’t refer it back to Ofgem, but they absolutely removed it. So I think we’re very clear on that. Yes, we would be disappointed with the cost of equity. That was the reason we made the referral on a technical basis. We felt there were errors in the calculation, but the CMA have said that, effectively, it’s within the realms of the judgment that Ofgem has. In terms of short term, is there any route to appeal it? There is a route to appeal it, which is judicial review. I think as I said to you today, I think that is incredibly unlikely that we would go down that route. The team is obviously going through the detail of the judgment, it’s well over 1,000 pages. But I think it’s unlikely that there will be any judicial review from National Grid. I think more broadly, I’ve always said that I think there is an opportunity to think around the regulatory framework, the institutional arrangements and the market mechanisms that we have in the U.K. as we think about delivering the energy transition over not just the next 5 years rather the next 30 years, and that’s certainly something that we’ll be looking to discuss with Ofgem and others as we move forward. In terms of the 100 basis points for RIIO-T2, well, I’ll use this an opportunity to advertise our Investor Day this afternoon. So if you are able to make it, then you’ll get the opportunity to spend some time with Chris Bennett and the ET team where they’ll talk through in detail how they’re approaching RIIO-T2. But at a high level, we’d expect to deliver that 100 basis points through operational outperformance, both in CapEx and OpEx. About 100 basis points of outperformance is operational performance. It doesn’t include any financial outperformance that we may be able to deliver. And then in terms of the interconnectors, as you know, we still have the work to do to complete the Danish interconnector, which should be complete by FY ‘24. We’re just in the middle of ratcheting up the Norwegian interconnector. So 700 megawatts is already flowing, and we’re aiming to increase that up to 1.4 gigawatts by hopefully the end of the fiscal year. And then beyond that, there’s a lot of work going on as part of the sort of vision for the North Sea. And again, if you’re at the Investor Day this afternoon, you’ll get a chance to see how the team is thinking about our vision for the North Sea, both in terms of potential future interconnectors, which we think there are opportunities. The U.K. government recently set out that they feel that could be potentially up to 18 gigawatts of interconnection between Mainland Europe and the U.K., and we’re a long way away from that. But also the team is looking at things called multipurpose interconnectors where not only do you connect point-to-point between the U.K. and Europe, but actually you interconnect into that electrical connection offshore wind farms. And we’ve got a couple of projects running with system operators in Mainland Europe on the potential for those types of sort of interconnectors, which we call multipurpose interconnectors. So there’s a lot of activity going on at the moment in that area, really thinking about what is the vision for the North Sea. So if you are there this afternoon, you got a chance to see some of that. Dominic, I think you’ve got your other hand up.

Dominic Nash: Yes, sorry about this. Can I have a couple of follow-up questions, please. Firstly, yesterday, SSC announced a couple of things that are quite interesting. One, that they’ve talked about dissynergies. I think it was [GBP 95 million] a year for splitting the business into two. And the GBP 200 million, I think, one-off cost. You obviously are doing quite a lot of restructuring at the moment. Are those numbers kind of in line with what you think the synergies -- stroke dissynergies are for WPD integration and gas transmission sort of demerger? And secondly, would you be interested in buying a 25% stake in a network or would control be something that’s sort of paramount to your investment decision? And then the final question, just quickly about the WPD, and apologies if you mentioned that, as I said, the sound quality was breaking out. But you had GBP 10 billion of fair value. Could you just quickly tell us what were the accounting assumptions to get to that 10 billion? And is that essentially sort of based on a RAV number? Or is it actually done on some form of DCF? Or how does it work, if you could sort of give us some color on that?

John Pettigrew: Okay. So let me take the first two, Dominic, and I’ll let Andy take the third. In terms of dissynergies and what SSC suggested, I think -- I don’t think it’s for me to comment on SSC’s business. I don’t know the business well enough to know whether those numbers are the right numbers or not. What I would say is that undertaking a separation is a complex process. And what we’ve set out in our numbers today, as you saw, is the cost of separation together with the GBP 400 million of efficiencies that we’re setting out. We said that we think that’s about GBP 400 million. We always aim -- we’ve rotated our portfolio over the years many times, as you know, and we always aim to try and minimize any stranded costs, but it is not a simple process, I would say, which is why it takes the time that it does. In terms of our interest in SSCs announcing over 25%, I think I’d say, Dominic, given the significant strategic pivot that we announced at the beginning of this year with the acquisition of WPD, the sale of Rhode Island and the sale of majority stake in Gas Transmission, I think we’re going to focus very much on that, making sure that we do that very well. It positions us, as I said, back in March fantastically well. It makes us 70% electric, 30% gas, broadly balanced between the U.K. and the U.S. and very well positioned for the energy transition. So I think that will remain our focus as we move forward. In terms of the GBP 10 billion fair value, Andy?

Andy Agg: Yes. So Dominic, so you’re right. So the GBP 10 billion is effectively the fair value attached to the existing PP&E of WPD. And while that’s recorded at historical cost, we’re required to fair value that as at the acquisition date. And I distinguish that from the value. I also mentioned, there’s a GBP 1.7 billion license intangible, which relates to part of the future benefits of ownership together with the goodwill balance. So the approach to get technical for a moment is that you’re required to look at the cash flows associated with the existing fixed assets. And then there’s lots of precedent, as you can imagine, from other transactions that our advisers look at in terms of comparable fair values, and you end up with a -- it ends up back solving to a small multiple of RAV. But you do look at the cash flows, but it’s because you’re only looking at the historical existing assets, not the future growth of future investment, obviously, which is one of the main focuses for us with that acquisition.

John Pettigrew: Okay, thanks. Chris, I think you’ve got your hand up.

Chris Laybutt: Just one question for me. John, earlier, you mentioned in relation to inflation that you’ve been adjusting the way that you manage projects and that you had seen some pressures come through, but they’ve been modest so far. You also mentioned some hedges through regulatory agreements or a comment like that, which, unfortunately, I didn’t hear at all. I’m wondering whether you could repeat what you said and maybe expand on it, just to give us an idea of how that regulatory framework may benefit you through this period.

John Pettigrew: Yes. It’s fine, Chris. Sorry, the line might not be great today. Yes, so what I was saying was we sort of have a natural hedge to increase inflation through our regulatory contracts. So in the U.K., obviously, with reregulation, we get indexation of the RAV. So as inflation increases, the increase in the -- the value of the RAV increases with that and then that flows through to revenues in the U.K. Over and above that in the U.K., we have built into the regulatory framework, what’s called real price effects. So that effectively adjusts our revenues every year for increases in commodity prices and raw materials that’s over and above inflation. So that’s what I meant by the hedge. And then similarly in the U.S., as we’ve evolved the regulatory framework, we now have, in Massachusetts, 5-year regulatory agreements, which are our performance-based regulation, which is I minus X, where I is inflation and the minus X at the moment is a positive number of 1.7 for electricity and 1.3 for gas. So again, our revenues increased by more than inflation in our Massachusetts business. And then finally, I was saying in New York, we’ve always been able to include forecast inflation into any multiyear settlement that we’ve done. So to the extent that we get our forecast right, we’ve got some coverage. We do have some exposure in New York to the extent that we get that forecast wrong. So it’s at the revenue line and at the asset base line that we’ve got this natural hedge. Thanks, Chris. Martin, I think you’ve got a question.

Martin Young: Yes. Can you hear me?

John Pettigrew: Yes, yes.

Martin Young: Yes. It’s only a very quick one, following up on the GBP 400 million sort of separation and cost reduction implementation costs. Will they be accounted for as non-underlying? So at some stage, you will take a hit for that GBP 400 million and keep it out of your underlying adjusted definition.

John Pettigrew: Thanks, Martin. I’ll let Andy to answer.

Andy Agg: Yes. So Martin, the answer is that that’s what we expect. Obviously, we have to look at those costs here, but our current expectation that you’ll have seen a small amount going through this year’s performance of around GBP 24 million, which is the initial spend on some of that. And yes, so we’d expect to take the remaining portion through exceptional outside of underlying as we incur them.

John Pettigrew: Dominic, is that your hand -- new hand? No. Okay. So it looks like there are no further questions. I’ll just check to see that I haven’t missed any. Okay. In which case, I’ll just say thank you, everybody, for joining the call this morning. As you heard, I think our first half has been good operational and financial performance. I think we’re very well positioned to deliver on our strategic operational and financial objectives for this year. And I’m very hopeful that we’ll see some of you in person later on this afternoon at our investor event. So thank you very much, everybody, and hopefully see you later on today.