Earnings Transcript for NG.L - Q4 Fiscal Year 2021

Nicholas Ashworth: Good morning, everyone, and welcome to the National Grid Full-Year Results Presentation. I'm Nick Ashworth, Director of Investor Relations, and I'm here with our Chief Executive, John Pettigrew; and CFO, Andy Agg. I'm pleased that we are able to join you this morning by video, and that we will be able to see you ask questions by video. Instructions are on your webcast screen. So before we start, I'd like to draw your attention to the cautionary statement that you'll find at the top of the presentation. And after the presentation, as usual, the IR team will be available by phone to help if you have any further questions. And so with that, I'll hand over to our CEO, John Pettigrew. John?

John Pettigrew: Thank you, Nick, and good morning, everyone, and welcome to the call. As usual, I'm joined by Andy Agg, our CFO, and following the presentation, we'll both be happy to take your questions. A lot has happened over the past year. We performed strongly during the pandemic and delivered solid financial performance, testament to the resilience of our businesses and the commitment of our people. It's from this position of strength that we announced our acquisition of WPD in March, this is a transformational development for National Grid, increasing our focus on electricity, putting us firmly at the heart of the energy transition and enhancing the long-term growth profile of the Group. This transaction alongside our decision to sell a majority stake in our UK Gas Transmission business, combined with a greater level of regulatory certainty, underpins the new five-year outlook that we are announcing today. But first, let me start with the financial performance for the year. On an underlying basis, that is excluding the impact of timing, major storms and exceptional items, operating profit of £3.3 billion was 3% below last year at constant currency driven by the financial impact of COVID. Consequently, underlying earnings per share was down 7% to 54.2 pence and Group return on equity was 10.6%. Excluding the increase in costs due to COVID, financial performance across our regulated businesses was in line with last year. Andy will cover the impact of COVID in more detail shortly. But as I've said previously, we expect to recover the majority of these costs over the medium term. And despite the challenges brought about by COVID, we've delivered another strong year of investment in critical infrastructure. Capital expenditure was in line with guidance at £5 billion, similar to the prior year at constant currency and adjusting for the Geronimo acquisition. This has driven Group asset growth of 6%. In line with our policy, the Board has proposed a final dividend of 32.16 pence per share. This takes the total dividend for the year to 49.16 pence, an increase of 1.21% in line with UK RPI. Looking forward and reflecting the move from RPI to CPIH in our UK regulated businesses, the Board announced in March our aim to grow the annual dividend per share in line with UK CPIH. Turning next to our safety and reliability performance. Safety is at the heart of performance across our businesses. FY2021 saw our lost time injury frequency rates reduce with the UK delivering the best of the year of safety. In the U.S., we also saw a fall in our lost time injury frequency rates, whilst in National Grid Ventures, we've seen a small rise in minor incidents and already doubling our efforts to reverse this trend. Turning to reliability. Performance has remained excellent across our UK and U.S. regulated networks. In particular, I'm really pleased with how the teams have adapted to the change in demand patterns we’ve seen over the past 12 months. In the UK, the Electricity System Operator developed new innovative services to manage periods of very low levels of demand coupled with high levels of renewable generation. And we implemented learnings from the storms in 2018 to manage the highest gas demands in a decade without incident or disruption to our customers. In the U.S., electricity network reliability remained excellent at over 99.9%. However, the significant number of severe storms we experienced throughout the year, particularly in Massachusetts, led us to incur a service quality penalty of $14 million. We are continuing to take action to improve performance during storms as well as to realign our regulatory frameworks, which I'll talk about shortly. Overall, I'm pleased to say we delivered another good year of safety and reliability against the challenging backdrop, and this outcome underpinned our resilient operational performance, which I'll cover now. So starting with the U.S., where we've made good operational progress against our target. Our financial performance has been impacted by the additional costs of COVID and a greater number of storms with our achieved return on equity decreasing by 210 basis points to 7.2%. Adjusting for these headwinds and the impact of rate case delays, shows our return on equity at 8.6% or 92% of our allowed return. As we highlighted at our half year results and as the slide shows, we've seen a greater number of storms across our regions in the past year. However, we've made strong progress to minimize their impact through upgrading our infrastructure, undertaking weather impact studies as well as introducing new digital technologies in areas such as vegetation management. Our success at reducing their impact means more storms have been categorized as minor, which do not qualify for cost deferral and recovery. We are therefore developing new mechanisms for future rate cases that will both incentivize improved storm performance and provide a greater level of upfront cost recovery. During the year, we increased investment in critical infrastructure by $200 million to $4.3 billion with our single largest area of investment continuing to be our gas pipe replacement program. Despite challenges due to COVID, we managed to deliver over 350 miles of main replacement, exceeding our initial target of 300 miles. This means we are now well over halfway through the 20,000 miles we've identified that we need to replace. This enabled us to continue to deliver strong rate base growth at 8% in FY2021. On the regulatory front, we made significant progress this year. We've reached a joint proposal with the New York Public Service Commission staff for KEDNY and KEDLI in downstate New York. The three-year settlement, which includes an allowable ROE of 8.8% will see us invest $3.3 billion to modernize gas infrastructure and enhanced network safety and support a sustainable and affordable path towards a low carbon energy future. In upstate New York, the new filings for our Niagara Mohawk business are in settlement discussions, and we expect an outcome sometime this summer. And in November, we filed a five-year rate plan for our Massachusetts Gas business. Hearings are underway, and we expect the new rates to be effective from October this year. Finally, it's also been a good year for our Electricity Transmission business. With the increasing focus on delivering greater levels of renewable energy, the New York Power Authority has selected National Grid as its partner in the Northern New York Priority Transmission Project. This project will see us invest an estimated $500 million over four years to rebuild a 100 mile transmission line supporting the state in meeting its clean energy goals. So moving to the UK, where FY2021 mark the end of a very successful RIIO-T1 period. Through the eight years, our total investment reached over £12.5 billion and generated over £850 million of savings for customers. In the last year of T1, we achieved a return on equity of 12.6% within our target range of 200 basis points to 300 basis points of our performance. And I am really pleased to say that this year in both our Electricity and Gas Transmission businesses, we saw our highest customer and stakeholder satisfaction scores of the T1 period. We continued our capital program with £1.2 billion of investment leading to 2.2% asset growth. Spend was driven by significant progress in our Hinkley-Seabank connection in the second phase of our London Power Tunnels project. This was partly offset by lower spending gas transmission from the completion of the Feeder 9 project. But we are also investing in new technology that's helping to support connecting increasing levels of renewable generation on our electricity transmission system. Working with a Californian company called SmartWires, we are installing smart power flow control devices that increased our network capacity without the need to build new lines. This is the first time this solution has been used at transmission voltages, and we've already commissioned three circuits with a further two expected this summer. On the gas side, we've made significant advances with hydrogen, for example, our ambitious FutureGrid project, which is the largest of its kind in the world will test the options for repurposing the existing transmission network to hydrogen. And finally, our focus in the UK over the last 12 months has very much been in reaching a successful outcome for RIIO-T2. Over the five-year price control, we expect substantially higher investment levels than in RIIO-T2, particularly in electricity transmission, where we expect to spend around £8 billion on asset health, system reinforcement to connect offshore renewable generation and other new onshore system connections. However, whilst we were pleased with the improved package around investment levels in the final determination, we still believe there is a strong technical argument for a higher overall cost of equity and view the outperformance wedge is conceptually flawed. The CMA has recently granted permission for our appeal and we work closely with them as this process moves forward through the summer. Looking now at National Grid Ventures and our other businesses. Investment of £576 million was primarily focused on delivery of our interconnectors. IFA2 was commissioned in January and the North Sea Link with Norway and the Viking Link with Denmark are on track to come online in 2021 and 2024. Working in collaboration with Elia and TenneT, we are continuing to assess the feasibility of offshore multi-purpose interconnectors and believe they can play a key role in enabling the UK government's ambition for 40 gigawatts of offshore wind. We've been successful in our Humber carbon capture project, receiving a contribution of £56 million from government to develop a system to capture, transport and store carbon emissions from industries in the Humber and Teesside areas in partnership with a number of oil and gas majors. Moving to the U.S., our onshore renewables business continues to grow following the completion of our acquisition of Geronimo, now named National Grid Renewables. The business operates over 400 megawatts renewable generation with another 600 megawatts currently under construction, including noble, solar and battery project in Texas, which we expect to begin operations in the first half of 2022. With regard to our other businesses, year-on-year profitability was lower as a result of fewer land development sales in our property division. So to summarize, we've delivered strong performance across our operations in a very challenging year, and whether our announced transaction in launch, we further strengthened the resilience of our business as we look to the future. So having spent some time reviewing the year just gone and before moving on to talk about our new five-year outlook, I'd like to spend a moment talking about why I think our portfolio mix is the right one. National Grid is one of the handful of Footsie 100 companies to have consistently grown its dividend for over 20 years, help or the balance between different regulatory regimes in the U.S. and the UK and the ebb and flow of CapEx requirements as we've seen growth rise and fall at different times in different jurisdictions. The geographic and regulatory diversity has been key to delivering strong returns with an annualized total shareholder return of nearly 10% over the past 10 years versus the Footsie 100 delivering just under six. And following the completion of our transactions, I'm confident that this diversity will continue to underpin our performance in the years ahead, given the exciting opportunities we see, including the connection of offshore wind, the infrastructure requirements for EV charging, the critical investment in safety and clean gas growth, and then our National Grid Ventures business, the opportunities with interconnectors and renewables. As you can see, our portfolio places us firmly at the heart of the energy transition. And so it's against this backdrop, but today for the first time, we are setting out our longer-term expectations for the Group. The next five years will see us increase our CapEx to between £30 billion and £35 billion, the highest ever level of investment for National Grid. And as we finalized the purchase of WPD and crystallized our planned assets sales together with this higher level of investment, we expect to deliver Group asset growth of 6% to 8% per annum on average to 2026. We'll deliver this growth whilst maintaining a strong balance sheet with comfortable headroom at our current credit rating level throughout the period. Growth in our assets drives growth in our earnings with Group underlying EPS expected to grow by 5% to 7% per annum on average through to 2026, and to be at or above the top-end of our range in the early years of this period. And this will continue to support our policy to grow the dividend in line with CPIH. So with that, I'll now hand over to Andy to go through our full-year results, as well as providing a little more detail on our five-year plan. I'll then come back and talk about our priorities and outlook for the coming year.

Andrew Agg: Thank you, John, and good morning, everyone. Before covering the Group's full-year performance, I'd like to provide the details of the COVID financial impacts we've experienced during this year. Firstly, I'd like to start by saying that I'm really pleased with the performance we've delivered. Our teams have done a great job in mitigating direct COVID costs against the tough operating backdrop whilst continuing to deliver the service our customers expect. Against our guidance of £400 million underlying operating profit impact from COVID, we've seen an impact of £355 million. Additionally, in the last few weeks, we've recognized £59 million revenue recovery in FY2021 for the commodity portion of some of our COVID bad debts. Therefore, our year-end underlying operating profit impact from COVID is £296 million. This is made up of a residual bad debt cost of £120 million. The shortfall of revenue under existing rate plans of £78 million, net direct COVID costs of £28 million and £70 million impact from delays to new rates being approved in KEDNY and KEDLI. We also guided to a cash flow impact from COVID of up to £1 billion for the full-year with our final cash impact being around £600 million with some elements ultimately being smaller than initially estimated. As our regions emerged from COVID during FY2022, we continue to expect an impact we felt from weaker demand and reduced cash collection from our U.S. customers. But as I've said before, in the U.S., we remain confident that we will be able to recover the majority of these COVID-related costs either through the usual regulatory mechanisms or through separate filings. Turning now to the overall Group performance for the year, which was resilient in the face of COVID, delivering a solid financial performance. As John has mentioned, underlying operating profit was £3.3 billion, down 3% at constant currency versus last year, mainly reflecting the impact of favorable net income from rate case increases across our U.S. regulated businesses, lower controllable costs in our UK regulated businesses, which altogether were more than offset by higher depreciation in UK Electricity Transmission, and the impact of COVID, including the bad debts in our U.S. business. EPS was down 7% to 54.2 pence, reflecting COVID-related costs, a weaker U.S. dollar and lower property sales, all partly offset by lower financing costs. Our resilient operational performance was also reflected in the 10.6% Group return on equity, and our value added per share was 51.3 pence. Our asset base grew by 5.6%, reflecting capital investment of £5 billion in line with our guidance. The full-year dividend of 49.16 pence per share is up 1.2% in line with our policy, and the Board has recommended a final dividend of 32.16 pence. Now looking at the performance of each of our segments in detail. UK Electricity Transmission delivered another year of strong operational performance, achieving a 13.9% return on equity, 370 basis points above the allowed. Totex incentives contributed 240 basis points from our streamlined capital delivery processes in load and non-load projects and further OpEx efficiency savings. Other incentives and legacy allowances contributed 130 basis points, 50 basis points above last year. Underlying operating profit of £1.1 billion was down 4% largely due to the impact of COVID and higher depreciation. The UK efficiency program continued to deliver savings with a further £34 million reduction in controllable costs compared to the prior year in total exceeding the £100 million overall UK efficiency savings target that we set two years ago. Capital investment of £1.1 billion was 3% higher than last year, primarily due to continued spend on the second phase of the London Power Tunnels project and the Hinkley-Seabank project. This investment along with the inflation linked growth in the RAV increased our year-end regulated asset value by 3.1% to £14.6 billion. UK Gas Transmission delivered a return on equity of 9.6%, reflecting the higher capital costs of key compressor and data center projects. Other incentive performance of 90 basis points was below last year due to lower shrinkage performance. Underlying operating profit of £438 million was up £36 million or 9% compared to FY2020. This is primarily due to higher revenues, year-on-year RPI uplift and lower controllable costs. Capital investment was £176 million, £73 million lower than last year due to the completion of several large projects and lower spend on compressor projects and IT infrastructure. And including inflation the regulated asset value was flat year-on-year at £6.3 billion. Turning now to our U.S. business. The return on equity excluding COVID, high levels of non-deferrable storm costs and the impact of rate case delays that John mentioned was 8.6%, 92% of the allowed level. After taking accounts of storms and incremental COVID costs, the return on equity was 7.2%. Underlying operating profit was £1.5 billion driven by an increase in net revenues of £216 million at constant currency, reflecting rate increases and capital trackers more than offset by an increase in controllable costs due to higher IT costs and inflation, higher depreciation due to growth in the rate base and a year-on-year increase in COVID costs. We've increased investment in our U.S. networks to $4.3 billion driving strong rate base growth of 8% to $27.6 billion. Assets outside rate base excluding working capital grew year-on-year to $3.2 billion, reflecting our investment in several multi-year projects that we expect to be coming into service in future years. National Grid Ventures contributed £354 million, an increase of 5% on last year, including the first period of operation for IFA2 our second interconnector to France. Grain LNG profits were higher than last year due to the extension of asset lives in line with our new contracts and metering profits fell less than expected reflecting a slower decline in our legacy meter population. Capital investment decreased significantly to £509 million mainly driven by the non-recurrence of the acquisition of Geronimo and lower investments in our interconnector projects as they progress towards completion. Our other activities had a net charge of £61 million, £34 million higher than prior year, reflecting fewer property sales and slightly higher insurance costs. Our venture capital business and National Grid Partners invested £38 million, £21 million lower than FY2020 at constant currency due to reduced activity at the start of the year in the early months of COVID. Financing costs decreased by 8% at constant currency to £942 million, mostly due to lower RPI and favorable borrowing rates. The effective interest rate for the year decreased from 4.1% to 3.2%. The underlying effective tax rate was 21.2%, 130 basis points higher than FY2020, primarily as a result of a smaller impact in tax credits relating to prior years. Underlying earnings were down 5% to £1.9 billion and underlying earnings per share decreased 7% to 54.2 pence. Operating cash flow was £4.6 billion, £300 million lower than last year driven by increased storm costs, lower U.S. customer collections and reduced UK revenues. During the year, we raised over £5.6 billion of senior debt, and the year-end closing net debt was £29.7 billion, including £1.6 billion favorable movement from exchange rates. After adjusting for Rhode Island as an asset held for sale, the revised closing net debt was £28.6 billion. Our regulatory gearing for the year was at 65% and the RCF to debt and FFO debt metrics was 6.6% and 11.7%, respectively. These both reflect lower revenues in COVID costs. And as we have previously said, the credit agencies have signaled they are willing to look through any short-term COVID-related weakness. Going forward, we expect to be comfortably positioned in our new rating band and this rating position coupled with our regulatory frameworks means we are well placed as we look to the future. So turning to our guidance and starting with the current year. As usual, business-by-business detail is given in our forward guidance section in the results statement. This forward guidance is based on our existing businesses for the entire year. Given this scenario, we expect FY2022 underlying EPS growth to be towards or above the top-end of the 5% to 7% growth range as set out in our five-year guidance. Our earnings outlook will change as the transactions move forward through the course of the year. We expect to provide guidance on WPD by half year results, and WPDs earnings will be included in Group results from the point of deal completion. We expect to commence the sale process for a majority stake in Gas Transmission in the second half of this financial year. And therefore, under accounting rules, we expect this business to be classified as a discontinued operation. This means, we'll have to remove all of its contribution to the Group results when this change in disclosures made. For Rhode Island, we would expect to include it in earnings in our FY2022 results up to the point of sale completion. So putting this together, we still expect to deliver FY2022 underlying EPS at or above the top-end of the 5% to 7% growth range as set out in our five-year guidance. Turning now to the longer-term guidance. As you all have seen earlier, our five-year financial framework is presented based on WPD being a full member of our group, the sale of Rhode Island completing by the end of the financial year and the sale of a majority stake of Gas Transmission completing during FY2023. We're confident in the visibility that the £30 billion to £35 billion Group investment levels to FY2026 gives us. And I'd like to give a little more detail about this. In the UK, we expect investment levels around £8 billion in Electricity Transmission will be needed during the RIIO-T2 period. As we explained, we accepted the majority of the T2 package, this will cover assets health, anticipatory in system reinforcement to facilitate offshore generation and other new onshore system connections. We expect the WPD networks to be investing £4 billion to £5 billion over the next five years in asset maintenance, facilitating the infrastructure for electric vehicles and directly connected generation. In our U.S. businesses, we expect investment of around £17 billion over the years to FY2026. And as we've previously explained, this includes safety-related projects in our gas networks, storm hardening and other net-zero investments in our electricity distribution networks, as well as incremental investments in electricity transmission projects. Lastly, we expect that National Grid Ventures will invest £2 billion to £3 billion over five years, focusing on our interconnector program and continued investment in U.S. renewable generation. As we complete the WPD purchase, subsequent asset sales and deliver the capital investment program whilst taking into account the broad economic protection our businesses have against rising macro-variables, such as inflation, Group asset growth is expected to be 6% to 8% per year on average to FY2026. I've said previously that while we settle the WPD, Rhode Island and Gas Transmission transactions, Group gearing levels will be above current levels. Over the five years to FY2026, under our central assumption of CPI at 2%, we expect regulatory gearing to increase through the transactions and then to settle above 70% once all three transactions are completed. However, throughout the period, we expect our long run gearing levels and the other standard metrics we monitor to sit comfortably within our current BBB+/Baa1 corporate rating band from S&P and Moody's. And as a result, we do not expect any further rating action at a Group level. The changing mix of the Group coupled with a strong growth opportunities we see across our businesses in the coming years is expected to deliver compound annual growth and underlying earnings per share in the 5% to 7% range through FY2026, including our long run average scrip take-up assumption of 25% per annum. As we work through the transactions together with recovery from the impact of COVID, we would expect earnings growth to be at or above the top-end of our range in the early years. This will continue to underpin our sustainable dividend policy into the future. So to summarize, we preformed strongly in mitigating the direct costs of COVID and continue to work with regulators on cost recovery mechanisms. We've delivered £5 billion investments in critical infrastructure and achieved a solid underlying financial performance. The recent acquisitions have enhanced the long-term growth profile of the Group, and our confidence is reflected in the new five-year financial framework we have set out today. Now, John will take you through the priorities and outlook for the coming year.

John Pettigrew: Thank you, Andy. So hopefully you can appreciate from what Andy and I have covered this morning. It's been a very busy year for the Group, and I'm pleased with the significant progress that we've made. Within the five-year framework we've outlined today, in the coming year, our priorities are to complete our proposed transactions, maintain our regulatory progress, build momentum through stakeholder engagement and continue to lead the debate on climate action. So turning first to our transactions. Our first priority will be to complete the WPD purchase this summer, and then file the final business plan for RIIO-ET2 by the end of the year. Preparations for the sale of Gas Transmission business are well underway, and we still expect to launch the process in the second half of this year. And regulatory clearances regarding our Rhode Island business are also anticipated by the end of our financial year. Our intention is to host a Capital Markets event in Q4. We'll provide more detail on our longer-term plans and the growth opportunities we see across our businesses. Alongside this, we'll continue to progress our regulatory agenda. In the UK with regards to our RIIO-T2 appeal to the CMA, we expect a final determination at the end of October, and while it's not a direct read across, we've been encouraged by the CMA’s recent decision on the water PR19 review and continue to believe our strong technical arguments should lead to a higher level of return. In the U.S., in our upstate New York filings, we are working on agreeing a multi-year settlement, which will include investment to support decarbonized heat, whilst maintaining a focus on managing customer affordability. New rates are expected to become effective in July 2021. And in Massachusetts Gas, distribution filing that we made in June, it proposed a new performance-based rate mechanism that will link annual revenue increases to inflation, it also proposes funding for projects to decarbonize the gas network, including hydrogen renewables, natural gas and demand side measures. We expect new rates to become effective from October, 2021. We are also working with regulators on these filings, we are also excited to see greater levels of political and stakeholder engagement across all aspects of the energy transition. In New York, we've recently published a joint report with Con Edison and the mayor's office on pathways to a carbon-neutral New York City. This study highlights the critical need for continued investment in gas networks to maintain systems safety, reliability, and affordability as we continue the energy transition. In Massachusetts, the regulator is also consulting on the future of heat as it looks to develop roadmaps with the gas distribution companies that will help the state to achieve 2050 net-zero targets. We've used our experience in developing scenarios for the energy transition in the UK, as well as our recent study in New York to develop these pathways that can meet these targets in an efficient way for our customers. 2021 will also be a very busy year with UK political engagement. We are expecting to see a Transport Decarbonization Plan, the publication of the UK's Hydrogen Strategy, BEIS' consultation on net-zero governance and further thoughts on the offshore transmission review, and we will be engaging across all of these topics and more. And as you've heard me say many times, our ambition is to enable the energy transition for all, and we will continue to lead the debate on this. This November, the UN COP26 Conference in Glasgow provides us with a perfect platform to do just that. And I'm proud that National Grid is the principal partner of this event. The responsible business charter we laid out last year sets out our climate change strategy, including how we support transitioning to a cleaner energy system, a system that is vital to meet the ambitious net-zero targets set by governments, regulators, and businesses. This summer, we'll see the first publication of our responsible business report alongside our annual report. This will showcase the priorities we've set and the actions we're taking in delivering our climate and responsible business goals. It will enable people to track our progress, bringing all our sustainability reporting into one place. And I'm pleased to announce that this report will include our new Scope 3 reduction emission targets aligned to the science-based target initiative to reduce carbon emissions by 37.5% by 2034 from our 2019 baseline. In the years ahead, we'll invest to accelerate the energy transition for all of our customers in regulated electricity and gas networks and adjacent infrastructure that supports the goal of energy decarbonization. So to summarize, this is shaping up to be a defining year ahead as we make a significant strategic pivot towards electricity with the integration of WPD with an outcome on the CMA appeal on RIIO-T2 and agree new rates for upstate New York and Massachusetts Gas. Work on defining net-zero roadmaps across both the UK and the U.S., what's also using our voice to influence climate change action in the run-up to COP26. And we are in a strong position to enact this change. Our geographic and regulatory diversification will continue to underpin the stability of the business as it's done over the course of the past 20 years, and it provides the platform to build on the huge number of opportunities that we see ahead. This attractive asset growth will drive sustainable long-term earnings growth, maintaining and underpinning our dividend policy. I'm very excited about delivering the ambitious five-year plans we set out and the increasingly important role that National Grid is playing in the energy transition. Now, before we come to questions, I'd just like to take a moment to thank Nicola Shaw, who is stepping down from her role later this year. Nicola has helped to drive the UK business forward in her five years with the company, and we wish her very well for the future. And after over nine years as Chairman, Sir Peter Gershon will be retiring from the Board at the end of the month. Sir Peter has made an outstanding contribution to National Grid during his tenure. National Grid is a very different and much better position Group to the one that he joined. I would personally like to thank him for all the support and advice he has given me during his time. With that, I'll thank you for listening, and Andy and I would be happy to take any of your questions.

A - Nicholas Ashworth: Thanks, John. Now it's time for our Q&A. As a reminder, the instructions to ask a question are on your webcast screen and on the Q&A slide that you can see in front of you. I'm going to hand back over to John now, who will start with the video questions. John, over to you.

John Pettigrew: Okay. Thanks, Nick. So I can see there's lots of hands up. So should we start with Dominic and then go to Chris Laybutt. So Dominic?

Dominic Nash: Hi, everyone. Hopefully you can hear me, okay. Two questions for me please. The first question is on the CapEx numbers. In the guidance, you've given us £30 billion, £35 billion. Within that, you've obviously given us quite a tight range for ED, electricity distribution. Can you just give us a little bit of color there? Is the draft business plan being submitted before completion of WPD? And how involved have you been on developing that plan? And do you think Ofgem will adopt a number of scenarios similar to the RIIO-2 transmission program? So basically the question leading into is how much scope for uncertainties around that £4 billion to £5 billion? And the second question I've got, I'm intrigued by the JV that was announced this morning with RWE on U.S. offshore wind. Can you provide some details on this? Like, what size projects are you lining up? And is this an enduring JV or is this a JV just for a one-off project in the U.S.? Thank you.

John Pettigrew: Yes. So thanks, Dominic. So let me just pick up on the CapEx question first. So as you heard today, what we tried to set out is a range of £30 billion to £35 billion. I think to reflect the confidence that we have in the transparency of the regulatory frameworks that we now see. So as you know, in electricity transmission, we accepted the vast majority of the RIIO-T2 price control, and therefore, we got good visibility of what we expect the investment to be. Similarly you would have seen recently that we've just agreed KEDLI and KEDNY, $3.3 billion over the next three years with potential extension for the fourth year. With regards to WPD, obviously they've submitted their first draft business plan. They received feedback from their stakeholders. They are about to submit this second draft business plan at the end of July, that will go through the usual iteration that you'd expect during these types of price controls, and then make the final business plan submission in December. We've set out in our outlook that we expected to be £4 billion to £5 billion. I think we're reasonably confident with that level of investment often usually. We'll look at various scenarios, but when we look at the fundamentals in terms of asset replacement, connections for distributed generation and new customers, and then supporting EVs. I think the range that we set out for the Group of £30 billion to £35 billion, looks very sensible and we're very comfortable with that. With regards to RWE and the announcement on that. So as you know, over the last few years, we've always look to use the capabilities that we have in National Grid to look to adjacent markets. More recently over the last three or four years, that's been in our interconnectors business, as well as onshore solar renewables with the acquisition of Geronimo, which is now National Grid Renewables. So over the last few years, we built up a fantastic capability of being able to develop these offshore cables. Add to that, the local knowledge we have in the Northeast, the RWE JV just looks like a natural extension. So as always, we take a very disciplined approach to any investments that we take. We're not expecting there to be significant CapEx in the short-term. As you know, development of offshore wind has a long lead time both in terms of the seabed lease process, and then ultimately the construction. So modest CapEx in the next three to four years, but we do see it as a natural extension of our National Grid Ventures business.

Dominic Nash: Is it a JV that covers RWE for all offshore in North America? Or is it just that single project?

John Pettigrew: Yes. It’s focusing on the developments as we see them today in the Northeast, and we'll see how we take that forward down there. So it's not just a single project. It is relationship for offshore wind in the Northeast U.S.

Dominic Nash: Thank you.

John Pettigrew: Okay. Should we take Chris' question then turn to Jenny.

Christopher Laybutt: Good morning, guys. Thank you very much. And I guess – thank you for me also for providing five-year guidance and EPS, that's very useful for us. In terms of that guidance, our immediate thoughts this morning went to the impact of COVID on 2021, which was 6 pence to 7 pence at EPS on our calculations. Reflecting on your recent experience with the PSC, do you think that might be a little bit more challenging than previously thought to recover that amount and how long do you think that might take to recover that lost ground? And then secondly, just on storms, it looks like non-deferrable storm costs have increased fairly significantly in the period. Do you think that's a trend which would be ongoing? And if so, how long do you think it will take for your proposed mechanisms to be in place to recover these costs? Are they in specific areas under the mandate of specific regulators? Or is it quite widespread? Just some more detail would be very helpful. Thank you.

John Pettigrew: Yes. Thanks, Chris. Why don’t I take the second then Andy, you want to pick up the first. So in terms of the non-deferrable storms, I mean, what we actually saw in the last 12 months, Chris is probably a doubling of the level of storms that we normally see at this time of year. And I wonder we're sort of victim of our own success, which is the storms. When they do happen, they're having a lower impact on our customer base, and therefore, rather than being classed as major storms, which we can then defer and get recovery on they're being captured as minor storms. So we've recognized that issue in terms of our improved performance when we have storms, and we've started to engage with regulators in Massachusetts, Rhode Island and New York, about how we can assure that the rate filings that we do going forward capture fairly the actual cost of minor storms as they come along. I think it's too early to assume that we're actually seeing more storms every year. Going forward, we are doing some work, looking at the weather and whether there is an impact that's more sort of permanent. But at the moment, we're going to engaging with our regulators to make sure that when we do our rate filings, we get some upfront recovery as well as being incentivized on the performance of storms. Andy?

Andrew Agg: Yes. Thanks, John. So in terms of the recovery, I think as we've said previously, the recovery of the COVID costs, particularly the bad debts that we've incurred to date, we still expect to recover the majority of those. But as we've previously said, we expected to be over a period of time, so into the medium term years rather than months. The element that we reported today, the 59 million of commodity recovery is if you'd like the first installment, but we expect that to come back in over a period of time. I think in terms of FY2022, absolutely, we expect a much smaller impact of COVID. As we mentioned this morning, some ongoing minor impacts in terms of U.S. collections and bad debts. But in terms of the overall guidance for FY2022 as well as COVID, you obviously need to look at the impacts of the Electricity Transmission business moving into T2, and also the higher interest costs that we guided to this morning as well.

Christopher Laybutt: So Andy, in terms of that COVID impact, which gets a little bit – I guess, you're paring it back in 2022, but do we assume that by the end of the five years, you've recovered all that lost ground and so that sort of 6 pence to 7 pence comes back to you in the form of earnings. Is that the assumption underpinning the guidance?

Andrew Agg: Yes. I mean, it's hard to be precise until we've agreed all of those specific mechanisms. But I think it's fair to say that over the period of five years, we would anticipate recovering the majority of it, but we will be able to firm that out once we get the specific mechanisms in place.

Christopher Laybutt: Thank you.

John Pettigrew: Thanks, Chris. We go to Jenny and then to Mark Freshney.

Jenny Ping: Hi. Thanks. Couple questions, please. If I can just follow-on from Dominic's question in terms of the RWE JV, is this a venture for Geronimo that's specifically focused on the Northeast of U.S.? Or are you thinking of going offshore wind more globally, really making grounds in entering that market? First question. And then secondly, just on your ventures business, you talk about a CapEx of £2 billion to £3 billion predominantly linked to the interconnectors as well as the U.S. renewables business. Can you talk a little bit more about multi-purpose interconnectors, the £23 billion to £29 billion that the UK government is talking about to connect the 30 gigawatts? And more specifically beyond the £2 billion to £3 billion CapEx that you've highlighted, what is the potential scope and also timelines of when we can hear from the government on this? And then linked to that, I guess is you're talking about 70% debt to RAV already post-transactions. So if the MPIs were to come along and further growth in ventures, does that mean you need to raise additional equity or is the hybrids possibility will cover that? Thanks.

John Pettigrew: Okay. Thanks. Jenny. Quite a few questions there. Let me just work through all of that. So in terms of the JV with RWE, and our thinking about involvement in offshore wind, this is very much around the Northeast of the U.S. So as I've said previously, we look for opportunities where we've got capabilities and that we can create value for our shareholders. We have fantastic expertise in offshore cables, and we have fantastic expertise in understanding onshore transmission and distribution in the Northeast. So that capability means that we're a strong partner with RWE in that region, but we're not looking to expand beyond that. We will focus on the regions that we know best. In terms of the National Grid Ventures and the £2 billion to £3 billion. So we have a great pipeline of investment opportunities. As Andy and I've said many times, we will be disciplined around that. So those opportunities include potentially things like MPIs, multiple purpose interconnectors as well as onshore transmission – sorry, onshore solar and wind in the U.S. With regards to the MPIs, at the moment, it's a relatively early concept. We think that it has potential in terms of mitigating some of the cost impacts of connecting offshore wind, whilst taking advantage of the benefits of connecting the UK with the rest of Europe, so hence while we're working with TenneT and Elia to think through that. In terms of the broader sort of CapEx to connect the 30 gigawatts of offshore wind, then I think the current review that's going on with BEIS on the offshore transmission review is incredibly important. I think everybody recognizes the concept of every single individual offshore wind farm connecting to these coasts, it's going to be problematic from a planning perspective, and therefore, a degree of coordination is needed. From our perspective, clearly, when we understand exactly the timing of that investment, then we'll be able to have a better understanding of how much investment is needed onshore. One of the things the National Grid has been advocating for and others in the industry are, is to have a clearer blueprint of what the networks look like both offshore and onshore by 2030. And we'll continue to advocate that. And I know that Ofgem have recently started to engage in this issue to try and get a better understanding of what infrastructure investment is needed. Andy, do you want to pick up the second point?

Andrew Agg: Yes. So Jenny, in terms of the – I guess, your point about the funding of those potential additional investments. I think as John said, the timescales maybe slightly further out given sort of the elements that need to be worked through. So we're comfortable with it in terms of funding the range of investments we put out. And as we've always said, to make disciplined decisions about investing in additional projects, we want to make sure we have the right regulatory or other frameworks to ensure appropriate funding for those and recovery of those investments as well. So we'd make those decisions down the track. But at this point, we're very comfortable with the framework we've set out this morning.

Jenny Ping: Thank you.

John Pettigrew: Okay. Thanks. Should we take Mark and then go to John Musk after that.

Mark Freshney: Mark Freshney from Credit Suisse. Thank you for taking my questions. I have two major questions. The first one is on the Ofgem report on system operator independence that they have sent to BEIS. We've heard very little on that since then. When you meet with BEIS ministers, what are they saying and how likely is it that you maybe forced to look at independent ownership there? And just secondly, on the Gas Transmission business, we know the RIIO-1 price control was just inappropriate for that business eight years ago, we know that. In the final year of RIIO-1, the ROEs were almost unacceptable. The outperformance was almost unacceptable. But in terms of RIIO-2, how is that review looking for that business? And what steps have you and Nicola, and the MD of that business made to turn around performance ahead of sale?

John Pettigrew: Yes. Thank you, Mark. In terms of the Electricity System Operator, you're quite right. So the loss of a key piece of news was Ofgem's consultation that looked at its thoughts on the future of the ESO. Since then things haven't hugely progressed. The next step in the process is that these are due to issue a broader consultation around the institutional arrangements that will support the energy transition to net-zero for the UK. National Grid position hasn't changed either in that. We continue to work with Ofgem and BEIS. We believe it is important to look at the institutional arrangements. And inevitably as part of that, you get into the role of the ESO. Until you do that broader piece looking right across the industry, it's difficult to decide whether its right that the ESO should be further separated from National Grid. So we're participating in that. The exact timing for BEIS to do the consultation, I think it's slightly unclear. I know it's due this year, but whether it's before the summer recess or after, I'm not clear, Mark, but we continue to participate in that discussion as we said at the half year results. In terms of Gas Transmission, so in terms of – as you know, as part of the price control for RIIO-T2, we accepted the vast majority of the price control both for electricity transmission and gas transmission. You’ll recall that when we had the session on that, we talked about £10 billion of investment across the UK, eight of that relates to the electricity transmission and just under two of it to gas transmission. So there is a step up in the level of investment that’s been agreed as part of RIIO-T2 compared to T1 for gas transmission. And we were comfortable with that base level of CapEx together with the uncertainty mechanisms that were put in place to deal with things like compressor replacement for environmental issues was sufficient for us to be able to agree to those levels. So given that, we remain confident that we've got the right levels of CapEx to support the business going forward. In terms of the sale process itself, we're still in the early stages of that. So as we said back in March, we're intended to launch the process in the second half of this year. We believe it will be a competitive process. The Gas Transmission business is a strong business, has got a great reputation and with the clarity of regulation that we now have, we expect that will be a competitive process. Thanks, Mark. Should we go to John and then we'll go to Ajay after that.

John Musk: Yes. Good morning. Two questions for me. Firstly, on the CMA process. Just wanted to understand what sort of input you've had into that since last ticked off, lot of discussions there may have been between them and you, or is it very much that you've submitted your files and you're just waiting to hear back. And then secondly, I did have a question on ESO as well, but Mark took that. But can you just give the numbers for the system operator this year – or sorry, in FY2021? What did that contribute at EBIT and what is it as a share of RCD or a number for the RCD?

John Pettigrew: Yes. Thanks, John. I let Andy pick up the numbers on the ESO. I mean in terms of the CMA process. So as you know, our application was in terms of the challenge around the cost of equity on the outperformance wedge was agreed. Actually this week, there were clarification sessions with the commission. So Nicola Shaw and the team were actually in front of the commission this week, but it was very much around clarification and understanding of the submission that we've made. The next step is there'll be sessions around cost of equity outperformance wedge and for the other networks, of course, they've referred to other aspects. And the timing is I think August for draft decision and then a final decision in October. So we are engaged with the commission and this week really has been the first step when we've been in front of the commission to be able to make some points. Andy?

Andrew Agg: Yes. John, just in terms of the ESO, so its operating profit for FY2021 was £70 million. So that's significantly down on last year because we had some specific one-off recovery amounts last year around some of the data center work in particular. So £70 million this year and I think that's consistent what we've said for many years, which is – it's a very small part of the overall organization around 2% of the total business.

John Pettigrew: Thanks, John. Should we take Ajay and then go to Sam after that.

Ajay Patel: Good morning, and thank you very much for the presentation. So I have two questions. Firstly, the one on the earnings growth and over the next five years, is there any chance we could unpack that a little bit? So what proportion is – is there synergies in there from the WPD deal? Or is that not yet included? Or any sort of broad proportion of the growth that comes from synergies? What are you assuming sort of for the outcome and the reviews? Are you assuming returns that are equivalent to what you've just received in transmission? Or are you assuming maybe what the CMA? Would that be an uplift for example? And then on the U.S., maybe another way of looking at is what sort of cumulative bill increases do you think you need over the five years to attain that earnings target to give us a sense of what maybe required in rate cases? And then on the – sort of more strategically, there has been a sizable change here away from gas and towards electricity as a function of the announced deals that we've made. I'm just wondering, is the journey finished or why – is this the right split for the company? Maybe some thoughts there would be really, really helpful. Thank you very much.

John Pettigrew: Okay. Why don’t I pick up on the strategic question, and then Andy pick up on the financial questions? In terms of the strategic possession, as we set out in March, the opportunity for us to participate at scale in the UK came along with the WPD transaction. It did allow us to shift the overall Group to around about 70% electric, 30% gas. And we feel that gives us the right sort of geographic and regulatory diversity that actually has delivered the sustainable returns that I talked about in my remarks this morning. So if you look over the last 10 years then we've been able to deliver a total shareholder return of just under 10% against the Footsie of six and over the 20 years, we've been able to deliver sustainable increases in the dividend. So I think when we look at the overall shape of the Group in terms of diversity and regulation, we feel very comfortable. And then added to that, it really reflects, I think, sort of broader view we have about how we see the energy transition. So there is no doubt we're going to see significant growth in electricity demand, but there's also no doubt that we're going to see gas play significantly important role in this energy transition. So when we put all that together, I think we're very comfortable that the shape that we've got the Group is the right one. Andy?

Andrew Agg: Yes. Thanks, John. So AJ, just in relation to the five-year guidance, as you can imagine, Group of this size over a period of that time that there's many different parameters evolved in that. And what we've set out this morning is a range that we're very comfortable with in terms of those set out balanced assumptions, allowing for the fact that some of those will change and you called out a few in terms of both cost efficiency regulatory outcomes potentially from the CMA and so forth. I think what I'd say is we're comfortable that we've made a sensible set of assumptions based on the regulatory frameworks we have, and it converts into a sensible bill profile. As you've seen just in the KEDNY-KEDLI joint proposal this week, we'd be very focused on that with our regulators in New York. For example, agreeing the zero and then two and two for the outer years. And we're comfortable that with our focus on driving cost efficiency as we always do that is something that we can convert through to the appropriate level of earnings growth.

Ajay Patel: Can I just follow-up, Andy, and just want to check though that guidance does include synergy benefits from this deal and the base level returns on the reviews at least. So we know that these are incremental to come or is some quantity already in the numbers? If just so that we have a reference point to start with.

Andrew Agg: Yes. Again, I’d be – nobody get drawn into specifics. I think, as we said back in March, when we announced the transactions, when we think about the opportunities going forward, we're confident there are opportunity to continue to deliver value for our customers through the WPD transaction and for all our stakeholders. And I think that's part of what we'll be working through as we go ahead. But we'll have to continue to work on those. I think I'd say again, we're confident that we've set out the right range to allow for many different outcomes in those parameters at this point.

Ajay Patel: Okay. All right. Fair enough. Thank you very much.

John Pettigrew: Okay. Should we go to Sam and then go to Martin after that.

Samuel Arie: Thank you. Good morning, everybody. I have a question for Andy on the guidance and then maybe a bigger picture one for you, John. Andy, let me start with the guidance question. I'm always a bit nervous when I'm kind of way down the line of questions, and nobody's asked my question yet, which makes me worry, perhaps I misunderstand something. But this seems to me something very important changed on gas today. So can I just check, you've given us a five-year guidance now, which is working back from a 2025/2026 number that includes zero contribution from gas at all. So you're confirming, I guess that not just the 51% step, but a 100% of the gas is out of the result by 2025/2026. And then if I heard your comments correctly earlier on in the voiceover, you might be taking a 100% of gas out of the result from the second half of this year. So not even keeping a 49% associate holding, and yet you still think in the early years of the five years, you'll beat the 5% to 7% EPS range. I mean, that sounds quite bullish and good to me. But can I just confirm Andy that I've understood that correctly?

Andrew Agg: So not quite – let me just take you through the two bits quickly. In terms of the five-year guidance, as you said, the CapEx that we've set out the £30 billion to £35 billion, you're absolutely right, that doesn't include an element relation to gas transmission. Effectively that – because that is relating to how we will be reporting our CapEx when we have a minority ongoing stake in that business that will not show up if you like in our CapEx that will be included within our minority interests, that will be reported through the dividend stream that we would expect to retain. So it's not in the £30 billion to £35 billion, but it is included in the earnings trajectory and ultimately asset growth, obviously our retained share in that business through to FY2026. The point that I made this morning in my comments around the accounting rules is, you are right that effectively as soon as we get to the point of the sale becoming highly probable, which we would expect to happen once we've launched the process and work through some of the separation work that we need to get stepped through that – absolutely, we will have to report the whole income of gas transmission as discontinued through this period, even though ultimately we expect to retain, as we said, a significant minority stake, that's just – unfortunately how the accounting rules require us to report it.

Samuel Arie: Okay. Can I just confirm in the 5% to 7% EPS growth that is including 49% gas minority then in the 2025/2026 year, or it's including nothing from gas?

Andrew Agg: In terms of the EPS guidance we've given this morning, it continues to assume a retained minority stake. We haven't been too cyclical about the size.

Samuel Arie: Okay. Well, that kind of triggers a follow-on question. Apologies, but I suppose, and I think it was a great package that you put out today and a really good presentation. The only thing that we thought there might be questions on is the sort of implication, you said 5% to 7% earnings growth over five years, but you might be at the top of that range or slightly above in the earlier years. If I just look at where consensus is for this coming year, consensus is looking for nearly 62p, which is what 14% above what you've just announced for the year completed. So I was wondering if that difference was explained by the fact that you're not going to be including any of the gas in a surprising way, but now I think I understand that you are still including basically half the gas at the bottom line. So I wonder if maybe that means consensus is overcooking a little bit the WPD contribution for this year, or could there be some other explanation. I'm assuming, I guess, Andy, that 14% would be not within what you're saying about early years EPS growth being above the 5% to 7% range.

Andrew Agg: Yes. So I think it's probably not for me now to try and interpret exactly what's in consensus across different analysts. I think as we set out this morning, it is a complicated story, understand that. And you'll see over the next few days, I'm sure the team will be very happy to help you through that. What we've been clear on this morning is as we said, in the early years of the five, we do expect to be at or potentially above the top-end. We do have to take account of the discontinued operations, but as I said this morning, we're comfortable with that range even with including that accounting impact that we set out this morning. Beyond that it's probably sensible that we sort of catch up with you offline on that.

Samuel Arie: Okay. Very good. Thanks for your help on that. And John, if I could maybe turn to you with just my bigger picture question, but I can't resist asking because you did mention the climate conferences at the end of the year, and I know you're very close to the powers that be organizing that conference this year. Can you just share with us any sense that you have of what actually might be achieved at that conference? I suppose Madrid was the last one and that was a great disappointment that nothing was actually signed. What do you think might actually happen at Glasgow?

John Pettigrew: Yes. Thanks, Sam. Difficult to know exactly what will happen in Glasgow. But I think what I would say is what we've seen over the last sort of six to nine months in the run-up to COP26 is increasing alignment and increasingly ambitious targets being set from various countries, including the U.S. So I think there is a sense of optimism that something significant can be achieved at COP26. I know that the UK government is very keen to be able to layout roadmaps by sector for what net-zero will look like going forward as one of their objectives. But so I'm pretty optimistic. I think it's a fantastic opportunity for the UK to be able to showcase all the great work that we've done so far and actually some of the good things that we're doing to support net-zero going forward as well. So we're very proud to be a principal partner. But I'm still pretty optimistic actually that it could be a very significant UN Conference given what I've seen in the run-up over the last six to nine months. Okay. Thanks, Sam. I'm going to go to Martin, I think, and then I'm going to go to Deepa.

Martin Young: Yes. Good morning to everybody. I've got a couple of questions, if I can, please. The first relates to sort of the high level thinking about returns for that distribution in – electricity distribution in the UK. If we look at the CMA report and your own comments this morning, I don't think there's any validity whatsoever to the idea of the outperformance wedge, so let's assume that goes and transmission returns get positioned higher. But if you step back and think about where the action really is likely to be over the next five, six, seven, eight years plus, it's going to be in electricity distribution with the [indiscernible] EV charging deployments, et cetera, and given the CMA comments around an uplift to the range of four networks that require investments in resiliency, et cetera. Should we be thinking that the distribution and rate of return should be higher than what ultimately gets awarded for transmission? The second question gets back to that the five-year guidance. I note that you've based that on an exchange rates of $1.3 to the pound obviously were above that level at this juncture. If we were to mark-to-market that $1.4 or a little above $1.4, what would that do to the guidance that you've set out this morning? Thanks.

John Pettigrew: Okay. Thank you, Martin. I'll take the first question, and I'll ask Andy to take the second. So in terms of distribution returns, well, I'll start with just reflecting on where we are with the CMA process for gas distribution and the electricity transmission companies. I think we took some heart from the PR19 process. There was an awful lot in there that I think reinforced our view, that it was right to make the technical referral that we did. And I think – as I said in my remarks, you can't do a direct read across. I think if you just apply some of the logic that they've taken for the water companies to the engine companies, you will end up with a higher return then we’re – often we are in the final determination. I think added to that, I sort of concur with your thoughts in terms of electricity distribution. Clearly over the next five years, there's going to be a significant need for investment to support EVs given the acceleration of the government's target together with the needs continue to connect distributed generation and therefore it does need to be an environment that attracts investment. I think often themselves about 12 months ago, we talked about the fact that they felt that electricity distribution was where the action would be over the next five years. And therefore, if you take that logic, you would suggest that you would want to see a higher return for transmission. Having said all that, it's early days. WPD will be putting its draft business planning at the end of July, and then we will listen to the stakeholders before putting this final planning at the end of December. But I definitely agree there is an awful lot to be done and we want to create the right environment if we're going to meet these targets that the government has set. Andy?

Andrew Agg: Yes. Thanks, Martin. In terms of FX, as you'll know, we continue to run a significant hedge of our dollar balance sheet and our dollar assets. And that continues to give us a significant level of protection in terms of earnings volatility as well. So broadly, as we've seen this year around $0.05 swing and the average rate was just over half a penny. So it's that sort of range if you wanted to do something for your modeling.

Martin Young: Thanks.

John Pettigrew: Okay. Thank you. I'm going to go to Deepa, and then I’ll go to Ahmed. So Deepa?

Deepa Venkateswaran: Thanks. I have a few questions. So the first one is on the U.S. business. So next year you've guided to a 100 basis points improvement in ROE, which would still only get you to 8.2. So I was wondering whether what is the medium-term objective. Do we still aim for 95% of the allowed ROE towards that 9% number, so any guidance on that? And then long-term, how should we think about the EBIT trajectory of this division versus this 2021 phase given that now you've at least got more and more visibility on your KEDNY-KEDLI settlement? What I think that's one area which is a bit unfair for me. Second question just on the gas transmission sale process, when do you think the market will have an idea of what valuation that asset will get? I mean, are we talking about Q3 of calendar 2022 or will you already have some indication before that? And just a clarification on, Andy, when you gave the guidance – when you've said that you expect it to be more than at the top-end of the range for this year, if you took all these transaction impacts into account. Can I just confirm that on that one gas transmission is not included at all not even as associate, whereas in your longer-term guidance for the next five years, it is included as a minority? So those would be my main questions. And last one for you, John, I'm sure you read the IEA’s net-zero pathway report. So I was just wondering if you had any reflections particularly on the mammoth task of 4x scale up in renewables in just 10 years. And any thoughts on that would be greatly appreciated. Thanks.

John Pettigrew: Thanks, Deepa. I think I captured five questions there, so let me have a go at the first, the third and the fifth, and then I'll let Andy do the second and the fourth, hope he captured them. So in terms of U.S. returns, I think our in guidance we set out some of the things that are pushing returns back to this year, which we're not assuming that we're going to repeat it next. So our position on U.S. returns, my position always been the same, which is our aim is to get as close to the allowed return as possible, and that will be the focus of the business going forward. We are pleased that we've now got a settlement in KEDLI and KEDNY, a three-year settlement with an agreed CapEx of $3.3 billion and an 8.8% ROE. And as you know, we've got a filing in Niagara Mohawk to complete this summer and then Massachusetts Gas later on this year. So our focus will continue to be to get the right regulatory frameworks to recognize the challenges of affordability, but also the need for investment. But the team's aim is always to get to these as close to the allowed returns as possible. In terms of the gas transmission sales. So just in terms of the process, so we are still in a position where we're likely to launch the process in the second half of this year. As I've said previously, we've got quite a bit of work to do to separate our gas transmission from the UK business. But our base plan is that we will launch in the second half. In terms of valuations, if it follows a similar drumbeat of timings to the gas distribution sale, then it's likely to be around the turn of the year. But we will have a much clearer view, I think after the summer than we have today, but my baseline assumption would be around about then. And in terms of the report you mentioned, I think from our perspective, we believe a lot of the targets that have been set are achievable, but hugely ambitious. What we've said consistently is that we need to get the right policies and the right regulation in place, but really 2021 and 2022 needs to be the year when we start to really see execution, if we're going to deliver the levels of renewables and the levels of decarbonization that have been set out in lots of reports over the last six months or so. Andy?

Andrew Agg: Yes. Thanks. So Deepa, on the two. I think first one was around, how does it – sort of the returns expectations in the U.S. flow through into earnings and operating profit of that business? And I think as we said previously, on the basis that we are continuing to target, maintaining and delivering a good returns performance over time, we would anticipate that the CapEx growth and the asset growth that we're driving will then effectively get delivered through the earnings trajectory for that business as well. As we've seen in the most recent rate case that we talked about this morning with KEDNY and KEDLI, in the short-term, clearly there's a focus on customer bills. But again, we've maintained a balanced set of assumptions looking forward. And with that, we would expect the earnings and the operating profits of the U.S. business to go on an upwards trajectory in line with the asset growth. In terms of GT, yes, I think is the short answer. So as we said, for next year, the discontinued treatment means that we effectively have to report the whole earnings of the gas transmission out of our FY2022 numbers. That's what we've mentioned in terms of the next year with the flow-through of the transactions in FY2022. But you're right then in FY2026, the five-year frame continues to assume that we earn our share from the retained minority interest in that business going forward.

John Pettigrew: Okay. Thanks, Andy. Should we go to Ahmed and then go to Elchin. So Ahmed?

Ahmed Farman: Good morning. Thank you for taking my questions. A few from my side. I think when you originally provided us the guidance for March 2021, you talked about a £1 billion cash impact from various sort of COVID-related issues and you've sort of come in at £600 million. So I just wanted to understand a little bit better the variation there. And then if you could also just talk a little bit about cash collection trends in the U.S., and what at your end you can do to sort of improve those that would be helpful. And just finally on the transaction effects that you outlined on Page 21. And I'm just sort of really thinking here about the EPS bridge between 2021 and 2022. Are you able to sort of give us a little bit of sort of granularity as to what these mean sort of at the EPS level on a net basis year-on-year impact that would be very helpful. Thank you.

John Pettigrew: Okay. Andy?

Andrew Agg: Yes. Sure. So on the first one, I think a few points in terms of what's driving that. I think clearly in terms of the original guidance, we were deliberately at the time estimating how significant it could be. And what we've seen as we've gone through the year is there is a number of elements of that, which have actually come in slightly inside our expectations. So the impact, for example, on UK demand flowing through into the revenues of the transmission business, also some of the volume reductions in the U.S. business as well have been slightly less. We've still seen – as you imagine in terms of the bad debt impact, we've still seen some lower U.S. customer collections and therefore larger outstanding receivables in the U.S., that still feeding through into that £600 million. But all in all, just some of our estimation has come in slightly inside what we were expecting when we set that guidance a year-ago. In terms of cash collections, I think variety of things. To be clear, all the three states that we're in still have restrictions on ability to enacting some of the specific measures around customer collections and termination for default, et cetera. A lot of that is still being pushed out because of COVID quite rightly. But we are working very closely with our customers on a range of measures in terms of U.S. federal support for low income households and other measures like that which enabled us to continue to collect revenues across our customer base. So we're doing what we can and we'd expect some of those measures to either be taken away or potentially extended depending on each legislature in the three states that we operate in. And then in terms of FY2022, obviously, there's a detail in the results statement. I think what I'd call out in terms of the bridge from 2021 to 2022 is we don't expect, as we said earlier, such a significant impact from COVID next year. There's a small amount still potentially in U.S. bad debts that we anticipate. So the bulk of that will come back from an earnings perspective. We've guided to the impact of moving into T2, particularly in electricity transmission. And then we've also mentioned the fact that the interest rates and the interest charge is likely to increase year-on-year. So those are the three things I call out, but as I say, that the detail is set out in the results statement.

John Pettigrew: Okay. Thank you, Andy. Should we go to Elchin and then to Bartek.

Elchin Mammadov: Hi, everyone. I have two questions, well, about two topics. The first one is on the rising yields and rates. Are you expecting any upward pressure on your ROE in the U.S. business particularly? So any benefit from that given your upcoming rate case reviews? And similarly, are you expecting any potential negative impact on the valuation of your UK Gas business? And the second set of questions is on your ESG metrics, please. I mean, following the divestments of UK GT and Rhode Island, you mentioned that the share of gas will fall to 30% of the assets. Are there any plans to divest the remaining gas business to further improve your ESG metrics, maybe that remain a minority statement possibly? And the second part of the ESG metrics question that is not unclear to me is on your CCS projects that you could potentially go into, would that have any impact on your emissions reporting? I don't know how CCS counts when it comes to emissions. So if you can give us a bit more color on that, that will be great.

John Pettigrew: Yes. So if I answer – I'll go to the second question and then ask Andy to pick up the first. So regards to the ESG metrics, I mean, I think the key message you want to get across the new target that we've set for our Scope 3 emissions of 37.5% reduction. In terms of those emissions that we see in National Grid, the vast majority of our emissions in that area are through the sale of gas to our customers in the U.S. We don't have any intention of further divestment for the reasons I said earlier, which is that we're very comfortable with the overall shape of the portfolio. We think it's important that we work with our key stakeholders to work through the energy transition and that includes the decarbonization of gas and heat. And we think there are some really important opportunities both in terms of renewable natural gas as well as things like repurposing the networks for hydrogen. So our focus is very much in those areas in terms of the actions that we can take to help with climate change and without ESG targets. In terms of CCUS, CCUS is a partnership that we're working on. As I said earlier in my remarks, we've got support from the UK government to look at these zero carbon clusters in the Northeast. Our role would be to help to develop the transport of the carbon dioxide that would be captured as part of that process. So in terms of the targets itself is not going to impact on the targets that we've set out, but clearly it is an important role as we think about the broader agenda in the UK about how we decarbonize gas. So what we're looking at there is a cluster, whereby industry can potentially use hydrogen rather than natural gas. Generation is usually hydrogen, either directly to create electricity or that it's being captured at the backend through carbon capture and storage. And then we transport the carbon dioxide that is captured back to oil gas fields in the North Sea. So I think it's a really positive project. It's got significant government support, as you would have seen as part of the Prime Minister's 10-point plan. And we're working with our partners on that, on the sort of the early engineering feasibility of it. Andy?

Andrew Agg: Yes. Thanks, John. So I think in terms of the two areas, in terms of the U.S. ROEs, so as you're probably aware that the methodology for setting U.S. cost of equity is well established. It's a very mathematical calculation and subject to sort of reviews through the litigation process as well. So there could potentially be upside if those rates stay higher for longer, we'll have to wait and see. It's not something that we're anticipating, and it's certainly not something we've assumed in the guidance we've set out this morning. But one thing I would say is that actually cost of equity has held up very resiliently when we've been through such an elongated low rate period. But yes, there is potential upside in the future, but we're not banking on that today. In terms of gas transmission, I think two things. The debt book within the Gas Transmission business is a long-term portfolio. It has a good proportion of both index-linked debt and also fixed rate debt as well. So we don't have a significant exposure to short-term rate movements. Obviously, we have the debt tracking mechanism in that business as well, which has served us well. And I think going into T2 and beyond, obviously we've agreed the indexation of the cost of equity as part of the new price control as well. So with those, I'm comfortable that we have a lot of protection against any concerns in the macro rate environment.

Elchin Mammadov: Thank you.

John Pettigrew: Thanks. I'm going to make this – unfortunately, we've run out of time, so we'll make this the last question. So Bartek, do you want to ask your question?

Bartlomiej Kubicki: Sure. Good morning. Thank you. Few questions. Firstly, I would like to ask you about this FY2022 guidance for UK, you are talking about the third decent revenues increasing both NGGT and NGET. But on the other hand, there's also guidance for quite significant costs increase, which could offset the revenues. Consequently, I would like to ask you whether you can elaborate a little bit what is the key driver of those costs apart from the depreciation, of course, and whether this could be somehow compensated for regulatory mechanisms. And secondly, I would like to ask you about the inflation protection in the U.S., of course, in the UK, it's clear everything with this inflation index. But if we are facing the rising inflation in the U.S., how are you protected from the regulatory point of view and from that and whether this could squeeze your future ROEs? And thirdly, if you don't mind, on WPD, it has quite a lot of high coupon bonds in its portfolio. So I just wonder once you buy it, what are you going to do with this? Are you going to somehow refinance? Or will you keep day bonds on your balance sheet? Thank you.

John Pettigrew: Yes. So thanks, Bartek. Why don’t I take the second one on inflation, then I will ask Andy to pick up the first and the third. So if you look across the Group for National Grid, actually we have reasonable protection against higher inflation. So in the UK, obviously we get indexation of our regulated asset base. And as a consequence of that, our revenues will follow it. In the U.S., we have the ability to pass through the costs in our transmission FERC-regulated businesses. You'll probably be aware that last year we agreed a new regulatory formula in Massachusetts for Massachusetts Electric, which is effectively an RPI minus X type form of regulation. So again, we get indexation there. And we have, as part of our rate filing on the gas side, done exactly the same. And with regards to New York, then we're able to project cost increases as part of any multi-year settlement, which, of course, we would have done as part of KEDLI and KEDNY, and we will do in Niagara Mohawk. If we see significant inflation, you've always got the ability in the U.S. to be able to go back in and do a subsequent rate filing. So a little bit of exposure when you've got a multi-year settlement in New York, but across the vast majority of the Group, we've got reasonable protection against higher inflation. Andy?

Andrew Agg: Yes. Thanks. So in terms of the question around UK costs as we look into FY2022, and you mentioned depreciation, obviously that is one of the drivers of the continued growth in the asset base. I think, remember that the UK also includes the system operator and exceeded their price control. There is a significant level of investment in new technology in terms of delivering their program of work over the next five years as part of their price control. So a lot of that is pass-through. So the recovery is assured, but it does flow through our numbers as OpEx costs, which is one of the drivers. And then just secondly, across the rest of the transmission businesses, we deliver our increased work programs we’ve talked about this morning, stepping up towards the £10 billion of investment over the five years that clearly comes with some associated OpEx. But important thing, again, those are included in the allowances that have been agreed for T2. And then on the WPD point, yes, I think I mentioned this when we announced the transaction back in March, yes, conscious that the debt book does have some higher coupon debt in its day. We don't have any immediate plans for sort of any focused effort on that. We would expect it to – the debt book to churn. Obviously, as we go through the next few years and we refinance and therefore, I'd expect some opportunities as we go through that, but nothing sort of specifically on that at this point.

John Pettigrew: Thank you, Andy. So as I said, unfortunately, we've run out of time. Can I just say thank you, everybody, for joining us on the results call today. As you hopefully have got a true sense, we're very excited about what we set out in terms of our five-year plans to deliver £30 billion to £35 billion over the next five years. And we look forward to seeing you all, where we'll share a lot more detail with you on each of the businesses at our Capital Markets event later in the year. So thank you for joining us.