National Grid’s full-year revenue fell by 7% to £18.4bn. The decline was largely due to the sale of its UK Electricity System Operator business to the UK Government back in October 2024.
Underlying operating profit rose 12% to £5.4bn, ignoring currency impacts. Performance was driven by higher rates in the US, increased inflation-linked revenues in the UK, and a strong cost efficiency drive.
Free cash flow fell from an inflow of £0.1bn to an outflow of £1.9bn, due to increased levels of investment. Net debt fell by £2.2bn to £41.1bn, helped by £6.8bn of net proceeds from the rights issue and £1.8bn worth of divestments.
For the year ahead, earnings per share (EPS) is expected to grow by 6-8%.
A final dividend of 30.88p per share has been announced, taking the rebased full-year total to 46.72p, up 3.21%.
The shares rose 1.9% in early trading.
Our view
National Grid managed to squeeze out slightly better-than-expected profits, despite revenue falling as it sold its Electricity System Operator business to the UK Government back in October 2024.
Work is well underway for National Grid to plant itself at the heart of the electric revolution. Infrastructure investment is set to rise sharply to around £60bn over the five years to March 2029 - nearly double the previous five-year total. Record levels of investment last year, up 20%, highlight the group's commitment to being a key part of the rapidly evolving energy landscape.
Alongside this, the portfolio is being streamlined, with a few non-core assets, including the renewables arm, set to be sold. These deals will free up cash for reinvestment and allow management to focus more fully on expanding energy infrastructure.
The dividend was also rebased lower to help fund these growth plans and prevent pressure on the balance sheet. We have no concerns about balance sheet health, but this all points towards more of a focus on long-term growth rather than short-term returns, which we’re supportive of.
In return for investing those billions to maintain and upgrade its infrastructure, regulators allow National Grid to earn a reasonable profit, with the potential to earn more if it exceeds targets. That translates into predictable revenues, low borrowing costs, and relatively resilient growth.
The regulatory environment can be a double-edged sword, though, as regulators have the final say over National Grid's profit potential. Tight consumer budgets and high energy costs mean many consumers are struggling to pay their bills. That's put pressure on regulators to start slicing into utilities' profits which could potentially hold back future growth.
Given the group's significant investment in this current high-rate environment, we've been keeping a close eye on the cost of funding it all. Finance costs are expected to rise by around £40mn this year as a result of the increased levels of debt, but that looks well covered for now.
We commend National Grid’s willingness to pounce on shifting energy trends. The sheer scale of the investment plans brings with it increased execution risk, but should management pull it off, investors will likely be rewarded for their patience. As always though, nothing is guaranteed and there’s likely to be some volatility along the way as the group executes its strategy.
Environmental, social and governance (ESG) risk
The utilities industry is high-risk in terms of ESG. Management of these risks tends to be strong, with European firms outperforming their overseas counterparts. Environmental risks like carbon emissions, resource use and non-carbon emissions and spills tend to be the most significant risks for this industry. Employee health and safety and community relations are also key risks to monitor.
According to Sustainalytics, National Grid’s management of ESG risk is strong.
Its reporting of ESG issues is strong. There is a robust health and safety management system in place that includes regular employee training and system audits, with a strong contractor safety track record. While the group has maintained high levels of reliability on all its networks in the UK and US, there have been instances of outages leading to regulatory investigations and fines.
National Grid key facts
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