Ladies and gentlemen, welcome to the National Grid 2019, 2020 Full Year Results Call. My name is Felicia and I'll be coordinating your call today. At the end of this presentation, you will have the opportunity to ask a question. [Operator Instructions] I will now hand over to your host today Nick Ashworth. Please go ahead, Nick.

Thank you, Felicia. Good morning and welcome to our full year results presentation. Thank you for joining us remotely. I hope you're all safe and well. Firstly, I would just like to draw your attention to the cautionary statement, that you'll find at the front of the presentation. Secondly, after the presentation as usual the IR team will be available by phone to help you with any further questions. So with that, I'd like to hand it over to our CEO, John Pettigrew. John?

Thank you, Nick. And good morning, everyone. Welcome to our full year results call. As usual, I'm joined today by Andy Agg, our CFO. We have plenty of time for the call today, so Andy I will be able to answer any questions you may have after the presentations. Clearly, everyone's safety and well-being are at the forefront of our minds at this time. Whilst dealing with the disruption that COVID-19 is causing, National Grid's greatest priority has been our people, as well as the safety and well-being of our customers and communities. Before we turn to our results for ’19, ’20, I want to start today's presentation by taking you through how we've been reacting to COVID-19 and how well our business continues to deliver despite this major new challenge. At the end of March as the crisis unfolded, we successfully implemented our business continuity plans. Although COVID just had a profound impact on demand levels and on the way in which we work, I'm proud to say that we've maintained excellent levels of reliability across our networks and we continue to deliver on our significant capital program. As the crisis evolves, we took action to change working practices quickly and safely. In particular, we risk assessed all our operational and construction projects, issued new working guidance to our field force and collaborated across the industry, sharing best practices and finding innovative new ways of working. And despite these changes, we’ve continue to deliver strong operational performance. A great example of this was our team's rapid restoration of power to 142,000 customers following significant storm in Massachusetts on the 13th of April. We were able to restore power within 29 hours to 95% of impacted customers. Away from the field, our dedicated control room staff have been working tirelessly,…

Thank you, John. And good morning, everybody. I'll start with reviewing our financial performance over the last year, before covering the impact of COVID on our business in detail. Overall, the group delivered a strong financial performance last year. As John has mentioned, underlying operating profit was £3.5 billion, mainly reflecting the impact of revenue increases in the US, driven by new rate cases, lower controllable costs across both the UK and US businesses, higher UK profit with the with nonrecurrence of the return of Avonmouth revenues in K Gas Transmission, which together were offset by the expectation of additional COVID related bad debts, high levels of US depreciation on increasing levels of CapEx spend and the impact of lower profits from the nonrecurrence of the Fulham sale and the legal settlements last year. EPS was down 1% at 58.2 pence, reflecting improved regulated business performance, offset by a 2.5 pence impact of the COVID related bad debt provision, an increase in finance costs, increased share count and a slightly higher effective tax rate. Our robust operational performance was also reflected in the 11.7% group return on equity and our value added per share was 58.9 pence, down slightly compared to last year. Our asset base grew strongly by 9%, reflecting significantly higher capital investment of £5.4 billion, including over £200 million of investment in Geronimo. The full year dividend of 48.5 pence per share is up 2.6% in line with our policy. Let's look at the performance of each of our segments. UK Electricity Transmission delivered another year of strong operational performance achieving a 13.5% return on equity, 330 basis points above the allowed. Totex incentives contributed over 250 basis points from efficiency savings across our asset health programs and high performing load related schemes. This outperformance was driven…

Thank you, Andy. So let me now to turn to our longer term objectives and priorities for the year ahead. National Grid has a critical role to play in enabling the energy transition. This is why our vision is to be at the heart of a clean, fair and affordable energy future. Supporting that vision, our four strategic priorities are to enable the energy transition for all to deliver for our customers efficiently, to grow our organizational capabilities and to empower our people for great performance, and these strategic priorities will underpin where we focus this year. In the US, we have two focus areas, to ensure we have the right rate plans in place for a post-COVID world and the efficient delivery of our significant investment program. In the UK, our two focus areas will be to agree the RIIO-T2 regulatory framework and to drive innovation and efficiencies for our customers. And our National Grid Ventures business we will continue to focus on our interconnector program and delivering our Geronimo investment pipeline. Let me talk you through each of these in more detail, before I come back to our clean energy ambitions. I'll start with our US rate plans. Whilst the long term investment requirements across our jurisdictions have not changed, the current backdrop means we'll have to adjust our short term priorities. As Andy has set out, we'll see revenue and cost impacts from COVID in the near term. This means that our immediate focus will be on working with our regulators to agree the appropriate rate plans for the medium term and to achieve the time and recovery of increased costs. These must recognize both the need for critical infrastructure investments and the economic environment that we're likely to be operating within. So with that context in…

[Operator Instructions] The first question comes from Martin Young from Investec. Please go ahead, Martin. Your line is open.

Thank you and good morning to everybody. Just a few quick questions. Hopefully and the first one relates to the ESO, obviously they've done an absolutely fantastic job adjusting to the current demand and supply balance that we have in the country at the moment. That's got a considerably higher proportion of non-programmable renewables in the mix. And you could argue that we are currently in a sort of generation mix situation that we didn't expect for a number of years. Now given what you've learned from that, do you think the ESO should be more vociferous [ph] around what the longer term generation mix in this country should be. And if so, should we be thinking about moving away from new nuclear builds and making sure that we had more responsive generation that can provide flexibility and inertia [ph] services in that mix? The second question relates to the £1 billion cash flow impact from COVID-19. Obviously, we've got the £400 million underlying operating income capacity – that you've talked about. I guess there's probably about £100 million or so on volume timing differences in the UK. Is the balance coming from the possibility of deferring to new ops and the sewer [ph] ops charges beyond the year end? And then my third question, you've alluded to the fact that there's a regulatory precedent in terms of recovering these costs. That's a lot different from actually getting it over the line. What's your sort of best estimate on recovery in the US of the cost and revenue impact that you are undoubtedly going to experience in FY ’21? Thank you.

Okay. Thank you, Martin. Why don't I take the first, I'll ask Andy to do the second, and then I'll do the third. So in terms of the Electricity System Operator, I mean, you're absolutely right, it's been a unique set of circumstances this summer. We've seen demand levels of 17% to 20% below what you'd typically expect during the summer. And as a result of that, the system operators had to take significant action to be able to balance the network. I have to say, we're incredibly proud of the way that they've responded to that. They've developed new tools, which you would have seen, including a contract with sizeable d [ph] but also developed new contracts for downward flexibility with about 3.5 gigawatts of providers who typically wouldn't be providing those services, the Electricity System Operator. So in terms of your forward looking part of the question, you would have seen hopefully recently the system operators set out an ambition to be able to operate the system on the basis of zero carbon generation by 2025. So we've seen some of the challenges that will give rise to during this COVID crisis, but actually we have a very clear plan in place to be able to be in a position to do that by 2025. So ultimately, we feel very comfortable that we can develop those two. Whatever the makeup is, I think fundamentally there are capacity auctions that run on a regular basis that are facilitated by the governments and who bids into those capacity auctions is obviously a market for the market. From our perspective, we need to ensure that we have the tools to be able to balance the system you know, minute-by-minute, second-by-second and we're comfortable we have them today and we're comfortable we can develop them going forward for 2025. I’ll ask Andy just to pick up on the second question around the cash inflection.

Thanks, John. So Martin, as you said at the start, so if you’ll stand back a moment. So within the 400, you've got the three broad buckets in the US, that I described in my presentation and obviously we do see a smaller impact in the UK within that as well. So that is then part of as we build up towards the £1 billion and you know, being clear we've guided up to a £1 billion. And I think that reflects that there is some uncertainty, ultimately in what makeup of that. I think you touched on some of the key elements, so yes. So we see demand impacts on both sides of the Atlantic. So cook [ph] flowing through our normal timing mechanisms. As you know, if we under collect, allowed revenues in any period that feeds straight through into the normal mechanisms and gets collected again 1 to 2 years out. There's also elements of while we've recorded the bad debt expense within the 400, as the underlying cash impacts and working capital impacts of the delays in collecting those US receivables and estimating what will still be on the balance sheet as at 31st of March ‘21. So there's a bigger cash impact of the £1 billion, even though the bad debt impact is included within the 400. And then finally, as you said, there remains some uncertainty about the final sort of industry support schemes that you referenced in the UK, around both network charges to also the balancing costs as well, where we're very much still waiting for Ofgem's and final conclusion on that consultation. So those are absolutely the elements that build up towards the billing.

And to your final question, Martin. You know, historically there have been circumstances in the past where there have been issues around higher bad debts against the allowances that have been allowed through rate filings and other costs as well. And typically there are processes in place for either recovering those costs directly or recovering them through our rate filings. So each of the states in the last few weeks has already raised in order to understand what those costs are associated with COVID and that will be an ongoing discussion about how exactly they will be recovered going forward. Some of them will be through rate filings and the timing of that will then be influenced by when we're due to do another rate filing and the recovery of those costs will also be influenced by the duration of any rate agreement that we have with each of the individual states. But there is plenty of precedent and mechanisms in place which give us the confidence to articulate why we think it's a short term impact and not a long term economic impact to National Grid.

Okay.

Should we – I’ve just got a list in front of me. Should we take Rob from Morgan Stanley next.

Rob. Your line is open. Please go ahead.

Thank you. Thank you, gentlemen. I think Martin beat me to the first two questions. So I will ask a couple of different ones. The first one is, do you have any views on the future US storm risk. Do you see it increasing and therefore do you expect there will be a change in mechanisms for recovery as this becomes sort of more regular and more dramatic? A second question if I may, I was just on the scrip buyback. I noticed, obviously, you mentioned that you won't be buying back any scrip dilution this year. Can we assume that that will resume the year after or is this sort of ongoing situation that you won't be buying back? Thank you very much.

Thanks, Rob. Let me do the first, and I’ll ask Andy do the second. So in terms of storm cost recovery, I mean, we have different mechanisms in different states, quite a few of our regulatory rate cases allow for the recovery of some costs on an ongoing basis. And then quiet often, there's a logging up mechanism for any excess cost. It is something that we discuss with the regulators on a regular basis when we do rate filings. And I do anticipate it will form part of that discussion going forward to make sure we've got the right allowances upfront, but then we've got the right recovery mechanisms going forward. So as we see more storms over recent years, it is part of the discussion that we have with each of our regulators. But again, the economics of it are pretty straightforward as we either get upfront recovery or we're able to log it up and then get recovery as part of the future rate filing. Andy?

Yeah. And Rob, just on a scrip point, you may remember that a year ago we guided to not looking to buy back the scrip, so FY ’20 and FY ’21, so we reaffirm that message for the remainder FY ‘21. We haven't guided beyond that and you know, we'll continue to look at that as part of our normal annual review and that will depend on as we've always said you know, the levels of growth, the levels of performance across the business, and we'll guide further at that point.

Marvellous. Thank you very much. And if I can just ask one quick extra one just on RAV growth, obviously, noting the step down year-over-year, but still very impressive rate. Could you just maybe talk about the visibility on the US side to this RAV growth, is there - sort of very simply is it a capital constraint issue or an opportunity constraint? It seems like it's a high quality problem to have, but just seeing sort of how long this RAV growth in the US you think could continue? Thank you.

Yeah. Thanks, Rob. I mean, over the last few years what we've been focused on doing is making sure that we've got rate cases in place that support the capital investment. The three drivers of the capital investment fundamentally are on the electricity side, it is all around resilience and asset health. On the gas side, it's predominantly around safety with our leak prone pipe program. And then, of course, there is incremental investment needed as we move into the energy transition with decarbonisation and supporting that. Those fundamentalists aren't changing. And therefore it is driving the CapEx that you've seen over the last few years and the rate base growth with it. We're expecting in the coming year to see similar levels of CapEx that we've seen this year in the US, it might be slightly off, and that's because we are seeing some impact on COVID, particularly with the interface with our customers where you can't get access obviously with social separation. So - but fundamentally we're expecting, I think we're at £3.2 billion this year for CapEx for the US. It is going to be a similar order magnitude next year. But the fundamentals aren’t [ph] changing, so we continue to expect to see strong growth going forward.

Excellent. Thank you. Well, I’ll turn it over.

Okay, thank you. Should we - I see John Musk [RBC Capital Markets] has got a question. So we go to John.

John, your line is open.

Sorry. Thank you, everyone. Probably three questions from me as well. Actually, I just want to come back to the £400 million and the timing of the recovery, probably an impossible question. But how quickly would you expect to see that coming back. Are we talking one, two, three, four years roughly what sort of timeframe should we think about before those three buckets? Secondly, on the balance sheet with the guidance on the £31.5 billion, with the lower earnings and lower cash flow, as you indicated that's going to put further pressure on the credit metrics. I haven't done the sums, but I assume you may well drop below the 9% threshold on the RCF to net debt. How much of a worry is that for you, particularly as we're coming into a RIIO-2 reset, which you could also see a further fall in cash flows? And then finally slightly separate. On the legacy gas meters, can you just remind me how many meters you still manage there? And how long you expect that tail to continue to be delivering a sizable EBIT number?

Okay. Thanks, John. I'll do the first and the third, and then I'll hand over to Andy to do the second on the balance sheet. So in terms of the timing recovery, I think it's fair to say, it's a difficult question to answer at this point because it will be unique to each state and potentially unique to what the timing of the rate filings are. So what we have seen as I said is, we've seen each of our states put an order out to make sure that they can capture what those costs are. So that is the start of the dialogue that we will have with the regulators. But then ultimately it could be a separate mechanism for recovery or it could be part of the rate filings. So it is likely to be different in each state and it may be over a year or two or a bit longer if we've got a long outstanding rate filing rate case. So it is a difficult one to answer. As I said, what we do have is those precedents and there's mechanisms to be able to have those discussions with the regulator. In terms of the legacy gas meters, we have 8.9 million meters at the current time at the end of the last fiscal year. In terms of the rollout, as you are aware, the most recent announcements it terms of the rollout of smart meters was that 85% of all customers should have a smart meter by 2024. So we're expecting that the sort of displacement of our meters will be over that time period, which is a much longer period than, of course, originally anticipated when I think the original target was 2020. Andy?

Yeah, thanks. So on the net debt credit metrics question, John. So as you said, guided to 31.5 that includes, you know, obviously the £1 billion that we refer to in the previous question. And yes, in the coming year, given the sort of reduced underlying profits and higher cash short term impact, we would expect reported metrics still to fall below threshold. I think the critical thing though is as always and we're in regular dialogue with all three agencies. We would expect the agencies to take a longer term view, as they usually do on issues like this and understand the route to recovery as John has just mentioned, rather than sort of taken a one-off view of any particular point in time. I think I'd also say, just in terms of the reported metrics, we report those all in, so the 9.2 and 12.3 if you add back some of the adverse timing that we've seen in some of the other exceptionals and the bad debt sort of RCF is right in the 10.5 range. So I think as we go into the COVID situation, we're in a robust place too.

Thanks, John.

Okay. Thank you.

I could see that Dominic [Nash] has got a question from Barclays.

Yeah, good morning. Two questions for me please. First one ROEs Oro is in the US and I think going to page 58 of your presentation, you come up with a US GAAP net income, which is up 18% year-on-year, which is obviously impressive. But what the expectations have you got for the growth or north of that next year as you start to move into the COVID world, and I presume that the £400 million COVID operating profit is not going to be in that. And where do you think the ROE of – we should sort of like model that one in our numbers going forward? And secondly, on your energy strategy, you talk about the energy transition, story of power, heat and transport. But what are your thoughts on your gas business overall on, what the threat, opportunities we see? Is it going to be a move to hydrogen or we're going to move more electrification or biogas or even CCS? Where do you see particular Gas Transmission opportunities there in the UK please?

Yeah. So if I start with the second, then I’ll ask Andy to talk about the ROEs. So I think in terms of gas, I think everybody recognizes is that decarbonisation of gas and heat in particular is probably the most challenging element of the net zero targets by 2050. Clearly, if you look at the UK, then over 80% of all heat comes from natural gas. And if you look at what the Committee on Climate Change that recently - they're still expecting around 68% [ph] of the current gas volumes to persist even in the net zero world, with an expectation probably less gas going into buildings, but more being used for things like hydrogen. I think at this point Dominic, we're of the view that, the solution to decarbonisation of gas is likely to be mosaic solutions. So there is the potential for increased bio gas that could potentially provide up to 10% or 15% of the UK needs for example. But clearly things like hydrogen have a role to play, as does CCUS. So you would have seen that National Grid is partnering with Drax and Equinor, looking at the development of a zero carbon cluster in the Humber side, which is effectively taking natural gas, taking the CO2 out of it, using it for industry and potentially generation and then taking that carbon emissions back into old carbons in the North Sea. And similarly, we are exploring working with the industry, a number of projects looking at the role that a gas transmission network could use, could be with hydrogen. So we're looking at options with 20% blending, 40% and up to 100% on what impact that will have on the network. So we currently developing a piece of work to use some transmission pipeline to test that to see what the impact would be. And then ultimately to link that to some of the work that's going on in the northwest with the distribution gas companies to test out hydrogen from beach to meter. So that's work that's going to go on over the next few years, you know, ultimately to try and develop what that road map will look like. But we remain very positive. The gas has got a really important role to play in the transition to net zero over the next few years. Andy?

Yeah. So Dominic, on US ROEs, as you know, this year 9.3%, 99% of allowed. And if you relate that through to the 18% increase in US net income you referenced you know, that that's really driven by the 12% increase in rate base and the 50 basis points improvement in achieved return. So the combination of those two gets you know to around to the 18% increase in US net income or US-GAAP net income. I think as I look forward, as you say, we haven't guided specifically. We've indicated and as John mentioned, just in the answer to a couple of previous questions, as we work through the recovery mechanisms and the timing of those, obviously, that will feed through. And also, as you know, we're particularly in New York with the downstate rate cases still under discussion, obviously, that will be a driver of the outturn in terms of ROE as well. I think what I would say though is having delivered 99% of the allowed, this year we see no reason why we shouldn't be able to deliver a strong performance on an underlying basis, against whatever that allow return is next year.

Thanks, Dominic. Deepa Venkateswaran [Sanford], I can see that Deepa has got a question.

Hi. Thank you. I have three questions. First, starting with what are your expectations from Ofgem for the July 9 draft determinations? I think in the past you've said that the 4.3% cost of equity was low and then you have proposed 6.5% in your business plan. So just your thoughts, particularly given the acceleration of investment needed for net zero. And then also the impact of COVID and the uncertainty that's created in the capital markets? So that's the first question. I think second one, just on the balance sheet. Just wanted to check, if things got tight, would you be open to, for instance, looking at divestments some of your interconnectors? I mean that buildout program is now quite advanced. So would you be looking - I mean, if it came to it would you be open to looking at some changes in the portfolio, maybe minority stakes, et cetera, if it came to it? And lastly, just a clarification to your previous answer to Dominic’s question on the US-GAAP numbers the - could you clarify whether you've included the bad debt adjustment in that or is that pre-bad debt that you've booked on those US-GAAP earnings? Thank you.

Okay, let me take the first and then I’ll ask Andy to take us through the second, third. So in terms of expectations for the draft determination, I mean, we remain hopeful that Ofgem will recognize some the arguments that we've made Deepa in terms of the overall financial package. As you know, in our draft business plans we set out a proposal, including a return on equity of 6.5%. OFGEM in their initial, was at 4.3% to 4.8%. So we continue the dialogue with Ofgem on that and we're hopeful that we will see some progress to get to what we believe is a reasonable return. As I said several times, as you know, fundamentally its the overall financial package that’s going to be really important. So returns clearly are important, but we also want to see what the overall package looks like, including what incentives there are going to be to innovate and to drive efficiency and how that's going to be shared between customers and ourselves going forward. I actually think that you know, the implications of COVID and the impact it's having on the economy, aligned to the fact that there is a real opportunity I think to use the green agenda and green investment to really stimulate the economy. So that is something that I hope often will be bearing in mind as they think about their draft determination. National Grid did a report earlier in the year you may have seen it that showed that investment to meet net zero could potentially create 400,000 jobs in the UK and 100,000 in the next decade. So I think there is a real opportunity to think about post-COVID, how you stimulate the economy and what does that mean for investment towards net zero. And I would be hopeful that Ofgem would be thinking about that as part of the draft determination. Clearly once we get through that there's still a fair way to go. Obviously, this is important milestones, including the water companies have got the initial outcome from the CMA in September. I'm sure Ofgem will be mindful of that as well. And then ultimately the final decision in December. But I think you know, we're hopeful that some of the opportunities that I think the green agenda presents will be reflected in the draft determination. Andy?

Thanks. So Deepa on - two points. I mean, in terms of the balance sheet, I think as alluded to in one of the earlier questions, as we look forward, you know, very much seeing COVID as a timing issue with the - sort of the regulatory recovery routes that we have. We don't see it as a significant sort of economic impact. And I think then you know, we will always therefore focus on sort of the breadth of our regulatory arrangements, the diversification of those, the performance that would enable to drive against those, which we've done consistently. And as you probably heard us say, as we look at the RIIO-2 outcome, in particular, looking for the broader financial package and not just the headline return that’s been reference. And clearly, as we've said consistently you know, we always look at our portfolio. We also look at the relative contribution of all elements of the portfolio, we'll continue to do that. But you know, we don't have anything in mind. The third point, sorry on the bad debts. So the 9.3 that we're reporting that does assume recovery ultimately of the bad debt charge, yes.

Okay. So it excludes basically the bad debt both in the US-GAAP earnings and in the 9.3?

Well, it assumes recovery of it, yes.

Okay.

Thanks, Deepa. I could see Fraser [McLaren] from Bank of America is on. So, Fraser.

Three questions from me as well please. So back in April I recall you were worried about not being able to recover additional costs and lost revenues in the US and that I think was part of your remarks around dividend. What has changed to make you feel happier about recovery now? Number two is on inflation. And do you see pressure on the UK business in the event of a period of low inflation. And do you plan to move the asset base growth targets and the actual dividend benchmarks to CPIH at some point? And then lastly on into connectors and how dependent is that £250 million EBITDA on the outcome of the UKs deliberations on the carbon price, particularly the £18 a tonne tax? Thanks.

So I'll let Andy do the first two and then I’ll do the interconnectors. Andy?

So Fraser, I think you're referring to on the first one, back to our pre-close statement where you know, understandably right at the end of March, beginning of April, we - I think we said actually at the time that it was appropriate the Board will take into account everything included in its normal considerations of business performance, regulatory arrangements, but particularly the impact of COVID. And at that point you know, a lot of uncertainty around the impacts of COVID. And as you'll have seen this morning, I think we've got a lot more clarity where and how that's impacting us. And as John said you know, the regulatory arrangements that we expect to be able to pursue recovery through. So that's why we're able to give the messages we have this morning. In terms of inflation, just a quick reminder, so the 5 to 7 which has been our medium term growth guidance, that's always assuming 3% indexation or RPI in the UK. So obviously, if RPI does move around, it will move the actual growth rate, but that 5 to 7 it is driven by that long term assumption. And I think in terms of you know, the broader risks around inflation, yes, of course, with still half our group linked to RPI, potentially CPI, obviously under T2. But remember that today we have around a quarter of our debt book which is index linked providing you know, still a very good natural hedge for us. So yeah, like every utility you know, many years of sustained levels of negative inflation would be something we would look carefully at. But at the moment we don't see it as a significant risk in the short term.

Yeah, in terms of interconnector. I mean, we've taken a central view in terms of the 250 EBITDA. So both in terms of expectations in terms of carbon pricing and how that might evolve in whether we have a hard exit from Brexit or not, but also how we see the market developing both in the UK and in Mainland Europe and what we see as the potential sort of view on the arbitrage between the two markets. So its a central view that we're reasonably comfortable with. Okay. Thanks, Fraser. I'm going to move on to a quite a few questions to still get through. Olivier.

Good morning. This is Olivier from Exane. Thank you for taking our questions this morning. I just have three also follow up questions, if I may. Can you hear me?

Yes.

Okay, perfect. So one is the follow up question on hydrogen actually, you already touched on that one. It seems that you are working at a fairly early stage. Now I'm thinking of what the possibility might be for hydrogen for your business. But we are clearly seeing some political momentum rising quite a lot at the European level and potentially also at the UK level. On the topic of hydrogen, I was just wondering if you could already give us a feel in terms of how hydrogen - your gas network is for the UK and maybe also for the US. Should the ambition be over the long run to switch fully to 100% hydrogen networks? Would you require another replacement or would your pipeline be officially able to capture that? The second one is on the discussions around KEDLY and KEDNI rate cases. In New York, I think in a press release you mentioned that potentially this may be actually a more legal and courts route. I just wonder if you would give us a bit more color on effectively I guess, the more discussion between you and local authorities and to what extent you think you will get an agreement this year or is it has to be through the courts. Do you have any precedents to see how long this might actually take before if an outcome might be reached? And then the final question is on the on the tax rate, so guided 22% tax rate for the coming year. In the last couple of years we were more at around 20%. So I wonder if you could give us an indication on what you see the more medium term tax rate exactly to be for your company? Thank you.

Yes. So thank you. I'll take the first two and then I'll Andy to talk about the tax rate. So in terms of hydrogen, I mean there's a huge amount of work going on across the industry, much of it coordinated by either the states in the US or by the government in the UK to make sure that the industry is exploring the potential for hydrogen in a sort of coordinated way. I mean, at this point it is unclear what exactly will be required to the existing network in order to modify it or whether it needs to be modified to tools be able to support hydrogen. That's exactly the pilot projects that are being developed and are being run at the moment, it is to really understand what it would take to either increase the amount of hydrogen that sits within a blended solution in the network or actually potentially moving to clusters of full hydrogen networks. So that's the work that's going to go on over the next few years, both in the work we're doing in the US and in the UK to really understand what that road map will look like and what the investment around it will be. In terms of KEDLY and KEDNI. So we - generally in New York there are two mechanisms by which you agree a rate filing. One is through litigation where you ultimately end up with a one year rate case and the other is through settlement and through settlement there is always the opportunity to do a multi-year settlement. I was quite pleased actually the PSC reinitiated discussions with National Grid beginning this month to see if we could find a settlement for KEDLY and KEDNI. They've extended the period by which we can have those discussions by 90 days. So we will know the outcome in the next quarter. In the event that you can't agree a settlement then the natural default is to litigate for one year. In the event that we do that, we would probably put another filing in relatively quickly to cover the fact that its only a one year rate case, but we remain hopeful that we can find a settlement over the next 90 days.

And just on your third question on the tax rate as you say, 19.9 this year we’re guiding to around 22 next. Over the last couple of years we've had the benefit of some one-offs and some couple of settlements across our jurisdictions. So I think 22 probably reflects a more normal rate based on the profit mix. But we don’t see as US and UK profits vary in the years ahead. They'll be subject to that change as well, but that's the driver for the increase next year.

Should we go to James [Brand] from Deutsche.

Hi. I have two questions. First is on the dividend. And you obviously come out with quite clear reiteration of your dividend policy and that - although, it's reviewed from time to time. This is the policy, you think, is sustainable over the medium term. Should we judge from that, that you see the dividend sustainable through the RIIO-2 regulatory in the UK under obviously not necessarily all scenarios, but under most scenarios? Question number one. And then second question is just to get as a two parter, but just to check on a couple of areas of recovery, you booked about £400 million increase in environmental provisions, including a new provision related to gas legacy, kind of gas plant facilities. Can I just check whether you think that will be recoverable under - not sure with the UK or the US, I guess is probably the UK, whether that's recoverable or not? And secondly, you've on Slide 18 highlighted that you've moved to US IT investments into the regulated segment, which I think you said is £90 million last year. Can I check whether that's recoverable? Thanks.

Okay. Starting with the dividend policy, so yesterday we reaffirmed the dividend - that the dividend policy has been in place since 2013, which is to - we aim to increase the dividend by at least UK inflation foreseeable future and quite rightly James as you say said, that’s something as you'd expect the board reviews on a regular basis taking into account business performance, as well as regulatory outcomes. So we understand the importance of sustainability of dividend to our shareholders and that dividend policy of course is underpinned by sensible regulatory outcomes. Today what we talked about is COVID, which as you've seen has got an impact in the short term, but actually doesn't change the fundamental economics of the business in the medium. And whilst we're still in discussions with regards to RIIO-T2, so we're still hopeful that we can get to a sensible regulatory outcome on that. So that's why the board has reaffirmed the policy today. In terms of the environmental charge that you saw, it predominantly relates to the US under canal called Gowanus Canal in Brooklyn. This is the cost of a cleanup operation on that canal which is – it goes back actually over 100 years. But we are one of several companies who are the legacy companies that are responsible for that cleanup operation. Those costs are typically recovered as part of our rate filings with the PSC in New York. They have been done historically and our expectation is they will continue to be recovered. And similarly with regards to IT investment, IT investment is no different to any other investment that we make on the network and therefore it is part of our rate filings and is recovered through our rate cases.

Great. Thank you.

Thanks, James. Should I go to Mark. Mark Freshney, Credit Suisse.

Hi. Hello, can you hear me?

Yeah, Mark.

Perfect. So I have three questions. Firstly, a question for Andy on taking off some of the US dollar swaps. I think the strategy a couple of years ago under your previous finance director was to only take the goodwill off. Now if you – I think you've mentioned you've only got the US 70% hedged, so I was just wondering what's behind that and basically closing out your…

Mark, we lost you.

My second question was on EV charging [ph] and the policy is that you've got there or the [Technical Difficulty] charges by the motorway. And just thirdly, can we expect you to reaffirm that dividend policy will lay out in your dividend policy post RIIO-2 outcome, which would hopefully come next year?

Okay. So let me deal with the second and third. But I’ll ask Andy to do with the dollar swap. You broke up slightly Mark. But I think the question was around EV charging and our proposals that we've been discussing with industry and government around an ultrafast charging network. So I think at the highest level, we were pleased to see the announcement of the budget that the government has set aside £500 million to actually start to build out the ultrafast charging network. At the current time, the task was put to OLEV to work out how exactly that would be used. My understanding is their aspiration is to have around 650 kilowatt plus charges at each of the strategic service stations by 2025, increasing to a total I think of around 6000 of plus charging by 2035. So at the moment, we're working with OLEV, with others in the industry about exactly how that £500 million will be used to support the connections that are going to be needed and the connection infrastructure investments going to be needed to put the capacity into a strategic service stations. In terms of dividend policy, as I said Mark, dividend policy remains the same. It remains the same as it's been since 2013. And as I said earlier, it is underpinned by sensible regulatory outcomes. And the board reviews it on a regular basis taking into account things like business performance and regulatory developments. But as of today, but the dividend policy remains exactly the same.

And Mark, on the US hedge question, it's actually something we've looked at each year and we do that periodically anyway. So we've probably been moving it quite readily for the last few years. But the shift this year was - again we looked at it against this impact on all our metrics, not just from a total asset perspective, but impact on earnings, but particularly impacts on cash and credit as part of that and the view was that bringing it down more closely matched dollar cash flows and provides a closer hedge for us in terms of the impact on credit metrics in particular. And I think you'll see that if you look at our overall FX impact this year with the dollar rate moving 130 to around 124 at close, the net impact on our earnings was about $11 million – sorry, £11 million, I am sorry.

Thanks, Mark. I can see Verity [Mitchell] from HSBC has got a question.

Hey, everybody. I just got a couple of questions. I think first one is on the pension with deficit which has gone up quite a bit in the current year, which is a slightly different story from say some UK water companies that said they benefited from very favourable discount rates on the 31st of March. And perhaps if you could remind us when your next triennial [ph] valuation is? And then just secondly a question on CWIP, actually, you've had a big rate where 1% rate base increased because the transfer of assets. Can you just talk us through how that profile continues for the next couple of years in terms of regulation in the US? Thanks.

Thanks, Verity. So Verity yes, I am going to take pensions first, so it's very much a UK, US split this time, so as you compare us to other UK utilities and on our UK schemes we have actually seen a small improvement. It's not as large as some, as you may remember earlier in the year we executed the two buy-ins, partial buy-ins for our gas scheme, which has held back the improvement, but otherwise we have actually seen a slightly larger pension asset under IFRS. The downside is in the US where because of a big drop in the nominal discount rate we've increased the US pension and healthcare liability by about a billion year on year. So that's why we're seeing a net worsening across the group. I think the important thing is those are IFRS numbers, but as always we look at the underlying fundamental valuations. The triennial was as of March 2019. We're just in the final stages of that, but we expect that to continue to show sort of very, very good levels of funding for this UK schemes. And apologies, the second question? Sorry, CWIP, yes. So you've seen this morning, this year, we've seen $380 million move from CWIP into rate base. There's a variety of projects that go through CWIP. And it's hard to forecast precisely because of the different longevities and different scales. I suspect next year we wouldn't expect to see such a large movement from CWIP wet through to rate base. But that's encompassed in our sort of overall guidance - the overall asset growth will be backward in the 5% to 7% range this year.

Okay.

Thanks, Verity. Gus. I can see you've got a question.

John, Andy, great many thanks. One question if I may and that is with regards to the potential impact of COIVD on the current year. And my question really revolves around the potential of this [Technical Difficulty]

… is common at the headline is that we are seeing low demands in the US, we are seeing lower demand in the UK and that does impact on the headline figure and on the cash implications. So in the UK we would expect to see essentially a lower revenue recovery this year because the demands are lower than they typically would expect when we set the tariffs.

Great. Great many, thanks.

Thanks, Gus. We got a couple more questions to go and we've got a couple more minutes. So Sam from UBS.

Hi. Good morning, John, Andy and everyone. Thank you for the presentation today and all your answers so far. Yes, you said, then, I'm kind of way down the betting order today. And I think a lot of the companies that we want to think about have been touched on already. But do you mind if I try not here to the high level question that may give you a chance to bring a few of these different - different points together. And I think what I want to ask is, how do we how do we square this exciting, I mean, confident, very positive view of the business that you gave and you talked about the potential contribution to the energy transition and so on. What's the outlook for earnings, which if you look at consensus before today is already sort of flattish for the next few years and probably maybe now that is down slightly after your guidance today. And I think if I ask I guess, that sort of break it into two parts. I think the first part is, there anything you could do to sort of cheer up the earnings outlook this year and next, so we're basically stuck with that view for two years. I mean, I know we've got the mini budget from the Chancellor in July and that includes a massive input plan and that the US input plan is in the pipe and I'm certainly very interested in your thoughts on both of those, but I assume that they wouldn't really impact earnings or CapEx you know, straight away or in the next couple of years. So then my for the second part of the question it's kind of like a portfolio and I know Deepa asked the question about disposals early. And I think Andy you said you don't have anything in mind right now. But that SSE yesterday announced a new round of disposal plans, including power network and I think they basically said they wouldn't mind running a payout ratio that is more than 100% percent, they wouldn't mind taking a credit downgrade and even selling stakes in those [indiscernible] as long as they keep paying out and growing the dividend. So I guess I guess some of those thoughts must have been crossing your minds as well and you've proposed gas distribution in the past and you still got £6billion of RAV in the Gas Transmission business. And I'm just interested in generally you think disposals is going to be a feature of things going forward. Do you think its good time for disposals. How would you - how would you feel about that kind of strategy where you're basically disposing stakes and paying a dividend that's at the proceeds. Those were my three part very, very long question, really interested if you could tie that together for us? Thank you.

Thanks, Sam. I'll try and give you [indiscernible] because they are quite big questions. I'll ask Andy to pick up on the second. In terms of the first, I do think we are in an exciting time for National Grid and in the energy sector. So in the UK you would have seen that we submitted our draft business plans that sets out the investment that we believe is necessary over the next five years. And in the US we've continued to submit rate filings on a regular drumbeat to support the capital investment that's needed. Ultimately those investments through those regulatory mechanisms will drive earnings and we have seen that in our U.S. business most recently over the last few years, as we've invested more. You would have seen earnings on a GAAP basis increase in line with our asset growth. In the short term as we set out today, we are expecting a short term impact, as a result of COVID, but as we've also set up we don't see that having a long term economic impact on the business. So it is an opportunity for us in terms of both maintaining the networks that we have in terms of assets health and resilience, but also in involving ourselves in the opportunities for the green agenda and decarbonisation. And ultimately as long as you get the regulatory mechanisms right, the earnings will flow through from those investments. In terms of the overall portfolio and the sort of credit and so on. Andy?

Yeah. So Sam, thanks. Thanks for the question. I guess firstly I'm not going to comment on what SSE said or why they may have said it. But I will give you our view and how I think about the balance sheet and credit in the dividend. And I think as you can said consistently why the 5% to 7% is a growth rate that we believe sits well with our balance sheet strength, the A minus credit rating across the group and also we are continuing to underpin the progressive dividend policy, at least in line with UK RPI. So I think your question sort of implies why we don't we need to go and do other things to do that and at the moment we be very much viewing the impact of COVID as we said today, as a short term timing challenge for us. We're not having significant economic impact in the medium to long term as John has described a few times. So you know we're comfortable and uncomfortable with where the balance sheet is, where the ratings are the medium term robustness of the group.

Thanks, Sam. I've got two quick questions left in about two minutes to go. So why don’t we take Ahmed [Farman] from Jefferies.

Hi and thank you. Thanks for taking my question and thanks for the presentation. Just a few from my side, and mainly follow up questions. I was just hoping if you could provide us a little bit of context for bad debt if possible both in sort of in terms of absolute numbers and maybe percentage of revenues, so what's been the typical historical run rate. What have you seen in the fiscal year that you just reported? And then what are you sort of - as you've put that into context or what's assumed in the £400 million. And then I guess second question is I mean, it does seem obvious you sort of quite confident about this recovering most or all of the parts of the £400 million impact that you've highlighted. Could you maybe provide us some context as to how long such effects or recovery period was after the sort of financial crisis. I know it's very different, but I thought maybe that sort of context could be helpful for us. And just my final question is the difference between the £400 million and £1 billion, I think you mentioned a couple of buckets there. I was hoping if you could sort of give us more granularity around how significant each of those effects, I think you mentioned timing differences related to volume and then differences between bill deferrals and bad debts? So thank you.

I will go through the first two and I’ll hand to Andy to the last one. So in terms of bad debt, I mean typically I think across our business, but that's we're running about 1% to 1.5% of our total revenues, our total revenues in the U.S. probably about $13 billion. So the additional provision that we took in ‘19/‘20 of 117 million is nearly or probably doubling of what that is. And then as we - as you hear today with regard to the 400 million, we'd expect to be taking another charge of similar magnitude of what we took if not slightly higher than what we took at the end of ‘19/ ‘20, so hopefully that gives you a sense of the impact that we're considering as part of bad debts relative to the sort of normal run rate. In terms of recovery, as I said earlier on I mean, it is very difficult to determine because it is directly influenced by how the states want to approach it, where they wanted separate order, where they want to do the rate filings and where you are in your rate defining cycle if it's chosen to go down the rate filing. So it's difficult to say. But typically would be over a 2 or 3 years I guess, if I look back historically, but it will depend on when you're doing your rate filings and how the state wants to approach it. And with regards to the third question Andy?

Yes. So I'm probably going to refer some of the answers I gave earlier on this point which is if you understand the buckets within the 400 million, which is what will flow through underlying earnings, you've really got that three extra areas which will be cash and potentially headline earnings because of the mechanisms we have from a timing perspective. So one is demand, where we expect lower demand on both sides of the Atlantic to flow through some of our collections and where we collect less than our allowed revenue in a year, that goes through our headline earnings and we automatically get to recover that either in the following year or the subsequent year to that. And it's very hard to be precise about the scale of these buckets because demand is clearly something that is very hard to forecast, particularly when those peaks and troughs are. The second element of the billion is the U.S. customer collections. So the amount that ultimately we make an assessment of what will finally be uncollectible which feeds into the bad debts. But assuming that as of 31st of March next year we will still have higher levels of receivables, doesn't necessarily mean that all those receivables won't be ultimately collectible and that's how we make our bad debt assessment. And the third one is as we've mentioned I think right at the start and as we work with the industry particularly in the UK around extending credit and whether some of that may ultimately fall outside of collection this year as well. Once those schemes are fully in place there is again very hard to be specific but those are the three broad buckets.

Last but no means least. Thank you for your patience Elchin from Bloomberg. We take the last question.

Hello, everyone. Yeah, I have a couple of questions. The first one is on demand. I know it's very - a lot of uncertainty and hard to predict. But how long do you reckon it's going to take for the demand to recover to pre-COVID levels both in Britain and in the U.S. And the second question is on cost recovery. Again very hard to predict, but if I had to play a haircut how confident are you getting either not 80% or 90% of the recoverable COVID related costs and bad debt and what not. So that's all for me. Thank you.

Okay I'll take the first and give Andy the second. So in terms of demand and certainly is incredibly difficult question to answer. There are two factors that are really influencing you know, the rate at which we'll see demand recover back to normal levels. One is just the depth of the economic impact that COVID will have and that will in itself vary between states and between the UK and the U.S. I'm sure. And the other is the speed at which each of individual states in the UK lifts restrictions. Those two things directly will impact on the levels of demand that we see on our network. What we have seen in COVID if I use the UK as an example is demand's as low as 17% lower than we would have typically expected during this time of year. I would also say that we are just seeing perhaps the early signs of demand recovering as we're seeing some of the restrictions in terms of movement lifting, it is still very early, but demands are not quite as low as they were in the early days of COVID. So, we are starting to see that recovery, but exactly when it will get back to normal, it's you know it's very difficult to forecast. Andy?

Yeah. And I think as we said a couple times you know, the route to recovery - these extra costs varied and they vary by state in terms of existing mechanisms, future filings and using precedent in terms of other sort of crisis where we've had significant spend. And so you know we're confident as we said several times this morning that we expect to get the vast majority back. But we’re not able at this point to be precise about exactly a percentage of that but we remain confident that it won't have a significant impact on us.

So let me just close with you. Thank you, ladies gentlemen for all your questions. What you hear this morning is the performance in 1920, underlying performance is very strong, there was a small impact of COVID at the back end. The business continues to deliver despite that new challenge. We have - we are seeing a short-term impact as results COVID, but we expect there not to be a significant economic impact on the business longer term. We remain well-placed, continues great long-term value for our shareholders and to meet the needs of our customers. So thank you everybody for joining the call and I hope to see you all very soon in more normal circumstances.

Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect your lines.