Chief Executive's review
“We continue to create a more focused business and to run it in a more integrated way.”
- Planned investment in 2009/10 £3.4bn
- Response rate to our employee survey 91.8%
We received the Emergency Recovery Award from the Edison Electric Institute for our work during the December ice storm that affected New England and upstate New York. The award recognises outstanding efforts in restoring electricity service disrupted by severe weather conditions or other natural events across the US.
In a very difficult economic climate, the robust nature of our strategy has been demonstrated by a very successful year for National Grid, reflected in a strong set of results.
I am pleased to be reporting to you on our 2008/09 results. In a very difficult economic climate, the robust nature of our strategy has been demonstrated by a very successful year for National Grid, reflected in a strong set of results. It is because of this performance that I am delighted to report that we have met our target to deliver 8% dividend growth.
At National Grid, we delivered on all fronts in 2008/09 – safety, reliability and financial – and ensured that we are well positioned for the future. The outlook for 2009/10 is very positive.
Financials
We have delivered another strong financial and operational performance this year. Cash generated from operations was more than £3.5 billion, revenue was more than £15.6 billion while adjusted operating profit and adjusted earnings per share (on a pro forma basis)* were higher by 12% and 14% respectively. Our continuing objective is to deliver 8% per annum growth in our dividend until 2012 for our shareholders while also delivering gas and electricity to our customers in a safe, reliable and efficient manner.
When we acquired KeySpan in 2007, we promised a $100 million run rate in synergy savings by the end of this fiscal year. I am delighted to report that we have exceeded our promise. We have also issued £6 billion of debt between 1 January 2008 and 31 March 2009 and our overall effective interest rate has fallen.
Investing for growth
As I told you last year, a major part of our plans is to invest by growing our asset value at what is a record rate for National Grid. These investments, necessary for society, communities and customers are made in response to the changing energy requirements in our operating territories and the need to replace end of life assets. The returns on our investments are underpinned by our regulatory arrangements or by long-term contracts. During the last year, £3.2 billion has been invested across the Company. Going forward, we plan a similar level of investment each year until 2012.
Strategy
We continue to create a more focused business and to run it in a more integrated way. This year, we have re-articulated our strategy to give better clarity to our employees on the direction of our business. Our eight Company objectives provide the framework for the first step in achieving this clarity (see our vision and objectives in action).
Our strategy sets out what we plan to achieve in the next three to five years; we want to build on our core UK and US, electricity and gas, regulated business base to deliver sustainable growth and superior financial performance. This year, we have also introduced a line of sight concept that should connect each employee with the strategic vision and overall objectives of our Company, allowing everyone to see how what they do contributes to the success of their team, their line of business and the Company.
Our operating model
We continue to believe that owning and operating complementary businesses in the UK and US provides us with a great opportunity to create value for our shareholders and superior service for our customers. Achieving this standardisation and applying our operating model will be an ongoing theme for the next few years and we have already made a good start.
As with nearly every business in this economic environment, controlling our costs over time is important to our success. We recognised early in these difficult economic times that changes in the way we operated our business were required and actively took steps to accelerate existing plans. Over the course of 2008/09, we have experienced normal employee turnover, but have not had significant redundancies in any part of our Company.
In October 2008, we announced our cumulative global procurement operating and capital expenditure savings target of between £170 and £350 million over a three year period. We were ahead of our annualised savings target in 2008/09 and now expect to be at the upper end of the range for the three year period.
Safety
The safety of our people, including our contractors and the communities we serve, will always be a priority for National Grid. However, it is with sadness that we have to report the death of three contractors and one member of the public as a direct result of our operations.
On a like-for-like basis, with the safety performance of KeySpan employees included in both years, I am pleased to report that this year we have seen a 10.8% reduction in employee lost time injuries compared with 2007/08 and an improvement in the injury frequency rate. During the year, we have targeted such improvements with further impetus on our trusted to work responsibly programme, together with a series of safety leadership workshops for directors, senior managers and safety representatives. Investigation and analysis continue to indicate that the majority of our lost time injuries are due to behavioural causes rather than inadequate procedures, working conditions or equipment. We have also introduced a health and well-being strategy in the year, helping our workforce to be fit and healthy, which I believe will deliver benefits for employees, the Company and wider society.
Climate change
Another area in which we have a long standing reputation is our commitment to the environment. As a company involved in the transmission and distribution of energy, we continue to work with governments and our regulators to ensure that we are part of the solution to the global issue of climate change. Our goal remains the same, an 80% reduction in greenhouse gas emissions by 2050; and we have recently set an interim target of 45% by 2020 to help measure our progress. During 2009/10, we will implement carbon budgets setting a maximum level of greenhouse emissions per business per financial year.
In view of our internal goals, National Grid has taken on a leadership and advocacy role in this and other related areas by working with governments in the UK and US with a focus on expanded utilisation of energy efficiency, climate change legislation, expansion and efficient utilisation of transmission networks in connecting renewables, and renewable gas.
We remain focused on climate change and security of supply, and playing a leading role in addressing the longer term issues facing the energy industry. We continue to work closely with regulators and policy makers to deliver the energy networks of the future.
People and talent
One of my personal priorities is to ensure that National Grid is a place where our employees are able to perform and grow to the best of their potential. I have been very clear with our employees that, even in these times of economic uncertainty, we simply will not compromise on our promise to invest in people. This year, we introduced new programmes including inclusion and diversity training for our employees, a first line supervisor’s course and an inclusive leadership training workshop for senior managers to help us attain the high performance culture we are continually striving to achieve.
This year, I am pleased that we had a very positive response rate of 91.8% to the 2009 employee opinion survey. Also, our employee engagement index has increased from 60% to 70%. The results show improvement in our 2008 focus areas. While there are some areas of concern, we will continue to take targeted actions to ensure that we make National Grid a better place to work, and a stronger company for our customers and shareholders.
Along with all of the Executive team, I am immensely proud of our employees. Their dedication often goes unnoticed by the general public. Occasionally, usually in very challenging circumstances, such as the gas emergency in Rossendale in the UK or the ice storm in the US, which both occurred near Christmas, they come to the public’s attention for their incredible professionalism under very difficult conditions.
Looking forward
The next year will be busy as we continue to:
- grow our business;
- deliver our capital investment programme;
- advance our leadership role in key UK and US policy areas, such as climate change, and begin to embed our carbon budgets;
- grow awareness of our brand in the UK and US; and
- invest in our people.
Steve Holliday Chief Executive
- *
- Earnings per share growth stated on a pro forma basis, see note 28