National Grid : 12 Nov 2020 Half year results for the period ended 30 September 2020

National Grid	2020/21 Half Year Results Statement

London | 12 November 2020: National Grid, a leading energy transmission and distribution company, today announces its Half Year results.

Report for the period ended

30 September 2020

Highlights

• Delivered safe, reliable networks throughout the COVID-19 pandemic
• Submitted comprehensive response to Ofgem RIIO-2 draft determination consultation
• Progressed a way forward on addressing downstate New York gas supply constraints
• Published our first Responsible Business Charter, setting updated ESG targets for 2030
• Continued positive discussions with NY PSC on new rates for KEDNY-KEDLI
• Filed for new rates for Niagara Mohawk
• Filing for Massachusetts Gas on 13 November
• Construction of three interconnectors remains on track

Financial Performance

• Underlying operating profit down 12% to £1.1bn
• Statutory operating profit up 13% to £1.1bn
• Underlying EPS down 14% to 17.2p reflecting higher COVID-19 related costs including US bad debts, storm costs, partly offset by improved UK Gas Transmission and US revenues
• Statutory EPS of 17.1p, up 51% reflecting mark- to-market remeasurement gains
• Capital investment of £2.6bn down 6%; stronger investment offset by the non-recurrence of Geronimo acquisition
• Interim dividend 17.0p/share in line with policy (16.57p/share in prior period)
• FY21 outlook: assumed COVID-19 underlying operating profit impact of approximately £400m

Financial Summary

Six months ended 30 September - continuing operations

		Statutory results			Underlying1
Unaudited		2020	2019	% change	2020	2019	% change
Operating profit (£m)		1,135	1,003	13 %		1,147	1,301	(12)%
Profit before tax (£m)		720	404	78 %		717	785	(9)%
Earnings per share (p)		17.1	11.3	51 %		17.2	20.0	(14)%
Capital investment (£m)2		2,560	2,722	(6)%		2,560	2,722	(6)%

John Pettigrew

Chief Executive

"In the first half of this year we delivered strong operational performance whilst managing the impact of COVID- 19 costs on our financial results. We have continued to ensure safe, reliable networks and have delivered on our investment programme through the pandemic. With the launch of our Responsible Business Charter, we have underlined our commitment to our environmental goals, whilst supporting employees and communities across our jurisdictions.

In the US, we have progressed a way forward on addressing gas constraints in downstate New York, and we continue positive discussions with the PSC on new rates for KEDNY and KEDLI. In the UK, we submitted a robust response to Ofgem's draft determinations, and have continued to work closely with the regulator to provide further evidence in support of our RIIO-2 business plans.

Looking ahead, the group is well positioned to manage the ongoing COVID-19 uncertainty, and our full-year financial guidance is unchanged. Our focus remains on agreeing regulatory settlements, and to help shape the energy transition as we look to enable decarbonisation of power, transport and heat."

1. 'Underlying' represents statutory results excluding exceptional items, remeasurements and timing. Further detail and definitions for all alternative performance measures are provided on page 44.
2. Includes additions to PP&E, intangibles, contributions to joint ventures and associates (excluding St William), investment in National Grid Partners and total consideration for the National Grid Renewables LLC (previously known as Geronimo) acquisition.

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National Grid	2020/21 Half Year Results Statement

Contacts

Investor Relations

Nick Ashworth

Jon Clay

James Flanagan

Peter Kennedy

[phone]

[phone]

[phone]

[phone]

Media

Molly Neal	[phone]
Surinder Sian	[phone]

Teneo

Charles Armitstead	[phone]

Conference call details

An audio call will be held at 09:15 (GMT) today. A webcast link is available at https://streamstudio.world- television.com/786-1014-25667/en Please use this link to join via a laptop, smartphone or tablet. Should you wish to ask a question, please dial in using the details below. A replay of the webcast will be available soon after the event at https://investors.nationalgrid.com/results-and-events/results-centre.

Live telephone coverage of the analyst presentation at 09:15

UK dial in numbers	+44	(0) 203 936 2999	(Local)
+44	(0) 800 640 6441	(UK toll free)
US dial in numbers	[phone]	(Local)
[phone]	(US toll free)
All other locations	+44	20 3936 2999
Access Code	498 832

National Grid image library is available at https://www.nationalgrid.com/media-centre

Use of Alternative Performance Measures

Throughout this release, we use a number of alternative (or non-IFRS) and regulatory performance measures to provide users with a clearer picture of the regulated performance of the business. This is in line with how management monitor and manage the business day-to-day. Further detail and definitions for all alternative performance measures are provided on page 44.

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National Grid	2020/21 Half Year Results Statement

OVERVIEW

A solid performance in the first half

National Grid has reported strong operational progress in both the UK and US for the first six months of the year. However, like all companies, we have incurred COVID-19 related costs, impacting our financial performance.

Safety has remained paramount and we continue to focus on ensuring the public, our employees and contractors are safe. During the period ended 30 September, our businesses have continued to deliver good performance with lost time injury frequency rates (LTIFR) trending down to 0.11 from the year end LTIFR performance of 0.12. On reliability, our performance has remained good across our businesses as we have successfully managed low levels of demand, particularly in the UK, and we have responded well to a series of large storms across our US regions.

Half-year financial performance

Underlying operating profit at constant currency decreased £147 million (11)% versus the prior period to £1,147 million (down 12% at actual exchange rates). This mainly reflects the impact of increased COVID-19 related costs including US bad debts, higher US storm costs, and non-recurrence of prior year MOD adjustments for UK Electricity Transmission, partly offset by higher revenue from US rate increases and the timing of UK Gas Transmission exit capacity income.

Underlying operating profit		At actual			At constant
Six months ended 30 September		exchange rates		currency
(£ million)		2020	2019	% change	2019	% change
UK Electricity Transmission		524	583	(10)%		583	(10)%
UK Gas Transmission	108	66	64 %	66	64 %
US Regulated	403	525	(23)%	518	(22)%
NGV and other activities		112	127	(12)%	127	(12)%
Total underlying operating profit		1,147	1,301	(12)%		1,294	(11)%

'Underlying results' and a number of other terms and performance measures are not defined within accounting standards and may be applied differently by other organisations. For clarity, we have provided definitions of these terms and, where relevant, reconciliations on pages 44 to 47.

Capital investment decreased by £136 million at constant currency to £2,560 million. This was driven principally by the non-recurrence of the National Grid Renewables Development LLC (previously known as Geronimo) acquisition and lower spend in UK Gas Transmission (lower Feeder-9 expenditure), partly offset by higher expenditure in UK Electricity Transmission (London Power Tunnels 2 and Hinkley-Seabank) and in our US regulated electricity transmission business.

Delivering safe, reliable networks through the COVID-19 pandemic

Throughout the COVID-19 pandemic the Group has adapted to new ways of working. We have delivered safe, reliable networks, whilst managing through all the new regulations and restrictions. During the first half, we have:

• Delivered on our substantial investment programme by investing £2.6 billion across our networks, broadly in line with investment in the same period last year;
• Delivered an outstanding response to a greater number of storms in the US;
• Maintained our cost discipline, and made good progress alleviating some of the COVID-19 cost pressure, remaining on track to deliver on our UK and US efficiency targets;
• Ensured we behave as a responsible and purpose led business, with a continued focus on our safety culture, supporting our people and our communities.

In the US, at the onset of the pandemic, our safety team created our COVID-19 Health and Safety Plan to act as a guideline for all employees and contractors. This helped deliver over 400 field visits across our operations in May to ensure new ways of working and safety expectations were made clear which has allowed us to deliver our critical investment with limited disruption. In the UK, our teams have continued to work through this period, with key workers going out on site during lockdown to keep gas and electricity flowing with enhanced safety protocols. We have also worked closely with our contractors across all projects to minimise delays associated with COVID-19, including major projects such as the London Power Tunnels 2 and Hinkley Point projects.

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National Grid	2020/21 Half Year Results Statement

COVID-19 - update on financial impact

During the first half, we estimate that COVID-19 impacted our underlying operating profit by £117 million year-on- year in three broad areas: (1) an increase in our bad debt provision of approximately £56 million, (2) a shortfall of revenue under existing regulatory agreements of £41 million, and (3) net direct costs of £20 million. In addition to the £117 million impact, the delay to updating rates in KEDNY and KEDLI at the start of COVID-19 resulted in a further approximate £24 million impact in the first half.

We continue to expect a full year impact from COVID-19 of around £400 million to underlying operating profit given the seasonal nature of our US regulated business. Whilst we see future uncertainties from COVID-19, we will continue to find ways to drive cost efficiencies. On this point, we have made progress to alleviate much of the direct cost burden, mitigating around £60 million of direct COVID-19 costs during the first half.

We also maintain our guidance of up to £1 billion of cash flow impact in the full year. On top of the underlying operating profit impact, we expect (1) continued weaker demand and lower revenues, which will be recovered as usual through regulatory true-ups in later years; (2) lower cash collections from our US customers, which, whilst below prior year levels, are in line with our expectations, and; (3) a small impact from revenue deferrals related to system costs in the UK that we will recover next year.

In the US, we remain confident that we will be able to recover the majority of our US COVID-19 related costs through our regulatory mechanisms. Whilst some of this will be through the usual course of rate filing negotiations, such as recovering revenue deferrals, some will be through separate filings. For example, we have open regulatory proceedings on COVID-19 cost recovery in both New York and Massachusetts. In June, we filed a Cost Recovery Plan with other stakeholders with the Massachusetts regulator, seeking to establish a regulatory asset for incremental COVID-19 costs; and in July, we joined other utilities in New York and filed comments with the Public Service Commission (PSC) on the effects of COVID-19 on our business. We will continue to work with all stakeholders on this during the second half of FY21.

In the UK, we have seen some limited impact from COVID-19. We have been working with industry and Ofgem on financial support packages to support the industry through these unforeseen circumstances. For Transmission Network Use of System (TNUoS) and gas charges, we provided £11 million as part of a wider industry scheme to support suppliers over the summer period. These charges will be recovered in the current financial year. For Balancing Services Use of System (BSUoS) charges, we provided £16m of temporary support to suppliers and generators to defer the payment of an element of the summer excess costs which will be recovered in the next financial year. We will continue to closely monitor this throughout the duration of the pandemic.

US delivering good performance despite increased storms

We achieved good performance across our US operating companies during a period with significant storm activity. With the impact of Tropical Storm Isaias in August and several major storms, the financial impact of major storms in the first half was $61 million. We also had a large storm that impacted upstate New York, Massachusetts, and Rhode Island in early October. Given the additional storms in October, it is likely we will incur over $100 million of storm costs for the full year.

The October storm was our third most impactful event in the last 15 years, where we saw over 550,000 customers lose power but with 95% fully restored in New York within 64 hours. Tropical Storm Isaias in early August was our seventh most impactful event in terms of customer disconnections. We have experienced 18 major storms in HY21 compared to 8 in HY20. Nevertheless, our operational response has been strong especially considering the COVID-19 impact which added complexity to our response efforts and required us to manage our Incident Command Structure remotely. Our crews have responded rapidly to restoring over 1 million disconnected customers during Isaias and the October storms, and there have been no safety incidents during these storms for our field workforce.

Storms remain a major focus for us and for our regulators given the enormous disruption they bring to customers and the cost of lost productivity to local communities. We continue to work with regulators to ensure our rate settlements reflect this changing climate, and we are focused on continuous improvement and are piloting digital technologies to help improve our performance. For example, we are using a new digital product called Vegetation Management Optimisation (VMO) that is capable of utilising satellite imagery to map the areas where vegetation poses a high risk to our networks, given trees cause the greatest number of outages in all our jurisdictions.

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