National Grid PLC (NGG) CEO John Pettigrew on Q4 2019 Results - Earnings Call Transcript

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About: National Grid plc (NGG)
by: SA Transcripts
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Earning Call Audio

National Grid PLC (NYSE:NGG) Q4 2019 Earnings Conference Call May 16, 2019 4:15 AM ET

Company Participants

Aarti Singhal - Director, IR

John Pettigrew - CEO & Executive Director

Andy Agg - Interim CFO, Group Tax & Treasury Director

Nicola Shaw - Executive Director, UK

Dean Seavers - Executive Director, US

Conference Call Participants

Chris Laybutt - JP Morgan

Jenny Ping - Citi

Fraser McLaren - Bank of America Merrill Lynch

Dominic Nash - Barclays

James Brand - Deutsche Bank

Sam Arie - UBS

Martin Young - Investec

Simon Virley - KPMG

Aarti Singhal

Welcome to our full year results presentation and a special welcome also to everybody who's watching this online. As always, we're going to start with safety. There are no planned fire alarm tests this morning so if you hear an alarm, we do need to leave the building through these doors and then out from reception. And I would also like to draw your attention to the cautionary statement that's included in your packs. And as always, there will be a Q&A at the end of this presentation.

So with that, I'd like to hand over to John Pettigrew.

John Pettigrew

So thank you, Aarti, and good morning, everyone. I'm joined this morning by Andy Agg, our CFO. And as usual, Nicola Shaw and Dean Seavers are also here to assist with any questions at the end of the presentation.

So let me begin with the financial highlights from last year. On an underlying basis, that is excluding the impact of timing, major storms and exceptional items, operating profit of £3.4 billion was down 4%. This reflects the expected reduction in U.K. cash transmission allowances as well as the impact of U.S. tax reform and slightly higher-than-anticipated costs.

Underlying earnings per share was up 5% to 58.9 pence. This was driven by a lower share count and good performance from our other businesses. We also incurred some significant exceptional charges in the last year that are excluded from our underlying results, and I'll expand on these shortly. We achieved a group return on equity of 11.8%, delivering ongoing sustainable returns for our shareholders.

We invested heavily in network safety, reliability and modernization with our CapEx increasing to £4.5 billion, driving asset growth of 7.2%. And in accordance with our policy, we proposed a final dividend of 31.26 pence, taking the total dividend for the year to 47.34 pence. This represents a 3.1% increase on last year, in line with U.K. inflation. So as you can see, it's been a solid year of financial performance.

As you know, our safety, reliability and customer performance are key to our success. During the year, we continued our campaign to make safe working second nature for all our employees and contractors. And as a result of our efforts, we've maintained an injury frequency rate of 0.1, which is comparable to world-class safety performance. We also maintained excellent reliability across our networks despite significant winter storms in the U.S. Customer performance has also been a major priority, and I'm pleased that our customer satisfaction has increased for both our U.K. and our U.S. businesses.

Now before I turn to the detail, let me outline the strategic highlights for the year, starting with capital investment. As I just mentioned, we had another strong year of organic growth, investing £4.5 billion and delivering asset growth of 7.2%. As I announced last November, we exercised our option over our final stake in Cadent with £2 billion of cash proceeds expected in June.

In addition, we made good regulated progress in the U.S. with all of our distribution companies now operating under refreshed rates, and we continued our regulatory engagement on RIIO-T2 in the U.K. We also made good progress with our cost efficiency program in the U.K., taken action to remove cost to make us a more efficient and agile organization, and we're also taking -- undertaking a similar exercise in the U.S.

With regards to our interconnected developments, they continued at pace with the commissioning of Nemo and the decision to proceed with Viking. And we also completed on Fulham property site, transferring it into the St William joint venture with the Berkeley Group. So I'm pleased with the significant progress and continued momentum that we've made, underpinned by strong organic growth. So let me now look at the key achievements and developments across the group. I'll start with operational performance in the U.S. We've achieved a return on equity of 8.8%, representing 93% of our allowed returns.

We had good performance in most of our operating companies. However, we incurred some higher costs as a result of additional compliance work in New York and restoration work following gas interruption in Rhode Island. Our U.S. business invested $3.5 billion in the year, resulting in asset growth of 9.2%, up 180 basis points on last year.

The focus of our investment's been to maintain the safety of our networks whilst also modernizing them, providing better reliability and resilience. In addition, our new U.S. cost efficiency initiative is vital in ensuring we deliver our capital investment program as efficiently as possible. This is in the context of a business that's more than doubled its capital investment in the last seven years.

In summary, we're streamlining our operations, we're simplifying our supply chain, and we're rationalizing our property portfolio. Whilst early in the process, this program should deliver cost savings of around $30 million this year and $50 million in 2021. I'm also pleased to say that in January, we reached a satisfactory agreement on union negotiations with members of our Massachusetts Gas workforce. As a reminder, we entered into contingency workforce plans in June, which affected about 1,250 union members.

We did this to seek agreement on the terms and conditions in line with what we'd already agreed with many other unions, representing approximately 8,000 of our employees. During the protracted labor disputes, we had to bring in contractors and additional supervision in order to complete almost 65,000 jobs. As a result of the contingency plans, we incurred exceptional charge of £283 million. While significant, this reflects our commitment to safety and implementing the right contracts for the future. And I'm pleased that since January, we also reached agreement with a further two unions on similar terms to those agreed in Massachusetts.

I'm now going to move on to our regulatory progress in the U.S. During the year, we agreed new rates for Rhode Island and Massachusetts Gas. This completed the full refresh of rates for all of our distribution businesses, which is a significant milestone for us. On Rhode Island, we've agreed a 3-year settlement from September 2018, which allows us a return on equity of 9.3% and an increase in our annual CapEx allowance to $214 million.

On Massachusetts Gas, we were awarded an allowed return of 9.5% and annual CapEx allowance of $413 million. This ensures that we can continue the vital pipeline replacement and other safety works that we're doing. We're also seeking to support New York's Clean Energy goals with the filing in November for smart meter infrastructure. We've requested $650 million to install over 2.3 million gas and electric meters between 2021 and 2024. And finally, we submitted new rate filings for Massachusetts Electric in KEDLI and KEDNY, and I'll provide more detail on these later.

I'll now turn to the U.K. but before I talk about the key developments in the year, I want to quickly remind you about what we've achieved over the first six years of RIIO. Since 2013, the majority of our capital investment has been focused on maintaining our existing networks whilst facilitating the rapid changes we're seeing in the way energy is generated. Some of our flagship projects have included the London power tunnels, the rebuild of Wimbledon substation and the Aylesbury catalytic converter project. And we've delivered these with innovative solutions, allowing cost efficiency to be shared with customers.

We've also replaced over 1,000 kilometers of overhead lines and upgraded almost 700 circuit breakers whilst delivering critical asset health work across our gas network. All of this added together means we've invested £10 billion since the start of RIIO whilst generating almost £640 million of savings for customers. This clearly demonstrates the benefits to all our stakeholders of our regulatory framework that incentivizes both efficient delivery and innovation.

I'll now move on to the key developments for the U.K. during the year where our transmission networks have continued to deliver, with another £1.2 billion of investment. This includes two projects that I'm particularly proud of. We completed the first new electricity overhead line in England and Wales since in 16 years. This Canterbury to Richborough connection is a 21-kilometer route that was built in only 15 months, enabling the connection of the Nemo interconnector. And secondly, our tunnel into the Humber for our Feeder nine replacement project is now 75% complete, and this represents the largest single investment in our gas infrastructure in a decade. It will also be the world's longest tunnel pipeline river crossing.

I'll now focus on U.K. operational performance. Here, we delivered another good year of returns with a return on equity of 12.4%, within the range of 200 to 300 basis points of our performance that we've committed to under RIIO-T1. As I announced in November, our cost efficiency program is well underway and this will make us more agile while strengthening our position ahead of RIIO-T2. As a result, we're on track to become a flatter and leaner organization with a simplified way of working and more efficient IT and back office activities.

We've incurred £136 million of restructuring costs for this and expect to deliver cost savings of £50 million this financial year and £100 million from 2021. In September, Ofgem reached the final decision on funding for certain projects, which are subject to reopeners as we entered into RIIO-T1. And as I said November, we were pleased that Ofgem allowed the necessary funding for physical and cyber security. However, we were disappointed not to get the full funding for our compressor works.

In addition, we also reached another milestone on operation performance with the legal separation of the Electricity System Operator from the 1st of April 2019. And finally, as you will have seen in the press recently, both the NuGen and the Horizon nuclear projects have been canceled along with the proposed connection agreements with us. Under IFRS, we've recognized an exceptional charge of £137 million for the development cost. However, the regulatory arrangements we have in place have substantially mitigated the economic impact of these cancellations.

So let me now turn to National Grid Ventures, where we continue to make significant progress on our interconnected portfolio. The Nemo project, which is a £265 million investment and a 1 gigawatt 140-kilometer link with Belgium was commissioned two months early and under budget. Progress on our new interconnector to France and Norway, which is IFA2 and NSL have continued on track. The construction of the converter stations on IFA2 is going well, and we've now laid over 270 kilometers of the cable for our link to Norway.

During the year, we made final investment decisions of Viking, our interconnector to Denmark, and we already have all the planning approvals needed, and we'll start construction early next year. In March, we also announced our proposed acquisition of Geronimo Energy on a joint venture with the Washington State Investment Board, and we expect to complete on this in June subject to the usual approvals.

This is our first meaningful step into renewable generation in the U.S., providing us with a pipeline of over 6 gigawatts of solar and wind projects at different stages of development. On the joint venture, we'll hold the renewable assets that are developed by Geronimo. I'll now turn to the Property business and in particular, the sale of the Fulham Gas Works. Having completed significant infrastructure work including demolishing redundant gas holders, we successfully transferred the 17-acre site to Saint William. The site will now be developed over the next decade and we'll recognize further profit on the land as well as our share of development profits as the apartments are sold. And I'm pleased that of the 1,850 apartments, 650 of them will be affordable homes in the center of London.

So in summary, I'm pleased to report that we made good progress over the last year with high levels of organic growth across the group. We delivered against our priorities to date, and we're well set for the coming year. More on this shortly, but first, let me hand over to Andy to discuss the financial performance in more detail.

Andy Agg

Thank you, John, and good morning, everyone. As we go through this morning's presentation, you'll see we've refreshed the slides and we're providing additional granularity on our performance measures.

Turning to results. At constant currency, underlying operating profit was down 4%, reflecting the expected return of Avonmouth revenues, the impact of U.S. tax reform, partly offset by higher property profits and favorable U.S. legal settlements.

EPS was up 5%, reflecting a lower interest count -- sorry, lower interest charge and tax rate as well as a reduced share count. Our good operational performance was reflected in the 11.8% return on equity and the 6% improvement in value added per share. Our asset base grew strongly by 7.2%, reflecting higher capital investment and the benefit of tax reform in the U.S. The dividend of 47.34 pence per share is 3.0% higher, in line with our policy.

Let's look at the performance of each of our segments. U.K. electricity transmission delivered another year of strong operational performance, achieving a 13.7% return on equity. This included TOTEX outperformance of 230 basis points, an improvement on the prior year. Our TOTEX outperformance was due to continued focus on innovation and efficiency as well as the additional cyber and physical security allowances from September's reopener filings.

Other incentive performance of 50 basis points was also higher than last year due to improved customer, stakeholder, reliability and system operator performance. Additional allowances contributed 70 basis points, in line with last year.

Underlying operating profit of £1.1 billion was up 4%, largely due to higher net revenues. This was partially offset by costs associated with ESO separation, higher depreciation and other costs. Capital investments at £925 million was lower than last year, primarily due to lower load-related spend. These investments, along with the inflation linked growth in the RAV increased year-end regulated asset value by 3.8% to £13.5 billion.

As John mentioned earlier, we've recognized a one-off charge of £137 million associated with the NuGen and Horizon nuclear projects. Existing price control arrangements covered the substantial majority of these costs.

As you know, we also recognized an exceptional charge relating to our U.K. efficiency program. We're already seeing early benefits from this work. And excluding the ESO separation costs I mentioned earlier, there are almost no cost increases in the underlying business.

Moving now to U.K. gas transmission, which delivered a return on equity of 9.5%, slightly lower than last year. This reflects the lower compressor allowances from the reopeners. Other incentive performance is strong as our network continues to benefit from our investment program.

Operating profit was down, primarily due to the expected return of Avonmouth allowances. Controllable costs were slightly lower as we began to see the benefits of the U.K. cost efficiency program and depreciation decreased. However, these were more than offset by an increase in other costs relating to the non-recurrence of one-off provision releases last year. Capital investment was £308 million, in line with last year, and the regulated asset value grew by 3.3% to £6.2 billion.

Turning now to our U.S. business where the return on equity was 8.8%, 93% of the allowed. Underlying operating profit decreased 10% to £1.6 billion at constant currency. Net revenues were up £99 million, reflecting significant rate increases, partially offset by tax reform and the impact of adopting IFRS 15.

As you know, the effect of tax reform reverses the net income level and is economically neutral for utilities over the longer term. Controllable costs increased due to the Rhode Island gas interruption and additional safety compliance work in New York. Depreciation increased due to growth in the rate base and other cost increases included higher minor storm activity, additional decommissioning costs in New York and bad debt.

Of the cost increases I've mentioned, around £80 million are not expected to recur next year. We increased the investment in our U.S. networks to £2.7 billion or $3.5 billion. This meant rate base grew by 9% to $22.9 billion. Assets outside rate base were $2.5 billion, and these largely relate to capital work in progress.

Finally, as John mentioned, we recognized an $88 million exceptional charge relating to our efficiency program. In the context of fast-growing business, we expect to generate savings of $30 million in FY '20 and $50 million of annual savings from FY '21 onwards. Today, I'm pleased to provide additional U.S. GAAP disclosure to better rate comparison with other U.S. utilities who report under this standard.

I'll start with a bridge between the IFRS performance I've just discussed and U.S. GAAP. As you know, IFRS accounting rules don't always fully reflect the regulatory performance of the U.S. business. U.S. GAAP tends to be a better measure of this performance.

For us, the largest adjustments between IFRS and U.S. GAAP are from the accounting treatment of the regulated recovery for environmental and storm costs. Under U.S. GAAP, these costs are deferred to the balance sheet until we receive the associated revenue. Whereas under IFRS, costs are immediately expensed. Other adjustments include differences in treatment for items such as depreciation and asset decommissioning costs. You can see on the slide how we go from IFRS profit this year to U.S. GAAP profit. The final item relates to levelization. This is simply a regulatory mechanism to defer agreed regulatory revenues so that bill increases for customers can be phased in over time.

Now let's look at how our U.S. business performs under U.S. GAAP. We already provide asset growth and return on equity numbers for each regulated business so you can track how our capital investments translate into asset growth and ultimately into returns for shareholders. To supplement this from today, we're reporting adjusted U.S. GAAP earnings for the U.S. business. This represents the achieved return on equity multiplied by the equity portion of the rate base, capturing performance against rate plans and rate base growth.

For FY '19, adjusted U.S. capital earnings on rate base were $967 million, assuming a 50-50 regulatory capital structure. To aid comparisons of earnings of other U.S. utilities, you would need to also take into account the $75 million of noncash interest on assets currently outside of rate base, which would increase earnings to around $1.04 billion. And as the group is geared at around 65%, if we were to apply the group gearing to the U.S. business, this would increase post-tax interest costs by around $100 million.

Let's turn to the recent performance of our adjusted U.S. GAAP earnings. Over the last two years, they've increased by 12.5% per year on average. This was driven by average asset growth of 8% plus the 60 basis points increase in our achieved return on equity since FY '17. Looking ahead, adjusted U.S. GAAP earnings growth is supported by future rate base growth and the achieved return on equity, which next year, we expect will be at least 95% of the allowed return. Over the medium term, we can expect adjusted U.S. GAAP earnings to increase broadly in line with our rate based growth.

Turning now to National Grid Ventures which contributed £316 million to the group. This is an increase of 10% on last year, mainly due to reduced business development costs. Metering, Grain LNG and interconnected profits were broadly consistent with last year. Capital investment increased again to £444 million with the first of our four new interconnected projects, Nemo, completing towards the end of the year. As we said before, we expect around £250 million of EBITDA contribution from our new interconnectors from FY '25 onwards.

Moving to our other activities where the total contribution to group profit was £124 million compared to a small net charge in the prior year. This reflects the sale of the Fulham site and the £95 million in legal settlements, partially offset by a one-off pension charge. Our venture capital business, National Grid Partners, increased its investments in innovative technology startups, which will provide benefits in the future to the core business.

Financing costs decreased by 1% to £993 million despite an increase in average net debt. This was primarily due to lower U.K. RPI. The effective interest rate also decreased from 4.6% to 4.3%. The underlying effective tax rate was 19.6%. This is 420 basis points lower, primarily as a result of a full year impact from U.S. tax reform.

Underlying earnings increased to £2 billion, and as you've heard, underlying earnings per share increased to 58.9 pence per share.

Operating cash flow was £4.5 billion, £238 million lower than last year. Higher underlying operating cash flows were more than offset by the cash cost of the exceptional charges we've discussed earlier. During the year, we raised nearly £3 billion of new long-term financing, largely in the U.S.

Closing that debt was £26.5 billion with a £1.5 billion adverse movement in exchange rates and a further £2 billion underlying increase. This was slightly below our expectations of £2.5 billion, partly due to timing over-recoveries in the U.S., helping to offset the cash impact of the exceptional items. Our credit metrics benefited from the over-recoveries in the U.S. The RCF to debt ratio was 9.4% or 10.8% excluding exceptional items. S&P's FFO to debt metric was at 12.6% or 14.7% excluding exceptionals.

During the year, we also reduced the level of the balance sheet hedged by our U.S. assets to around 80%. This better aligns our debt portfolio with the currency mix of our retained cash flow. As a result, our U.S. dollar-denominated currency balance stood at $21 billion, down from $25 billion last year.

As we look ahead to next year, we expect capital investment to increase close to £5 billion and to remain at around that level in FY '21. In our U.S. regulated business, we continue to invest to update and to modernize our networks. This is supported by our recent regulatory filings for Massachusetts Electric and Downstate New York Gas. Investment in the U.K. regulated business will increase, primarily driven by asset health spend comprising around 2/3 of the capital program and by undergrounding of transmission lines in Dorset. In our National Grid Ventures and other activities segment, we expect to see a significant increase in our interconnector capital spend together with the initial investments in Geronimo Energy. As a result, we expect continued high-quality asset growth of around 7% in FY '20 and FY '21.

Our objective is to maintain an efficient balance sheet. For our current rating, this means regulated gearing in the mid-60% range. We do this by maintaining a balance between cash generation and capital investments while delivering dividend growth. As expected, our regulated gearing at March 2019 was 66%, which will reduce in June when we receive the final Cadent sale proceeds.

With capital investments expected to rise to close to £5 billion in FY '20, we'll continue to fund the group through issuing new debt at attractive rates, internally generated capital delivered through strong financial performance and additional capital from the scrip dividend option, which was put in place to support the business during higher-growth periods. We therefore expect to continue to utilize the scrip dividend in FY '20 and FY '21. As a result, we expect gearing to remain around the mid-60% level through to FY '21.

Value added was £2.1 billion or 61.20 pence per share. This comprised the growth in group assets of £3 billion, driven by increased CapEx, cash dividends paid of £1.2 billion, and this year's underlying growth in net debt of £2.1 billion. Finally, in line with our dividend policy, the Board has recommended a final dividend of 31.26 pence per share, bringing the proposed full year dividend to 47.34 pence.

I'd now like to summarize our technical guidance for FY '20 and as ever, you can find more details in our full year results statement. Overall, we expect our combined U.K. regulated businesses to continue to deliver 200 to 300 basis points of outperformance including the benefits of the £50 million of efficiency savings. In the U.S., returns are expected to increase to at least 95% of the allowed return, benefiting from updated rates, the nonrepeat of this year's cost headwinds as well as the cost efficiencies we expect to deliver.

National Grid Ventures and other activities will reflect the nonrecurrence of the significant Fulham transaction and the legal settlements that benefited FY '19. We will see a first full year of Nemo in operation and the first year of development profits in our property joint venture. Our interest charge will increase reflecting an increase in average net debt and the nonrepeat of one-off gains, and we expect a tax rate of around 21%.

In FY '20, net debt is expected to increase by around £1 billion, including the benefit of the £2 billion of Cadent proceeds expected in June and £0.4 billion increase from the impact of IFRS 16.

So to summarize, we have efficiently delivered on our £4.5 billion capital program. We have maintained good returns performance and the balance sheet remains strong, funding 7% asset growth in the near term and reflecting our continued commitment to our progressive dividend policy.

Now, John will take you through the priorities and outlook for the coming year.

John Pettigrew

So thank you, Andy. So let me now turn to our longer-term objectives and priorities for the year ahead. I strongly believe that National Grid has a critical role to play in enabling the energy transition to a low-carbon future. Power and heat networks sit right at the heart of the energy system. Therefore, it's our responsibility to continue to create value for our customers and society more broadly whilst anticipating and responding to their changing needs.

To deliver a service that meets those changing requirements, we need to build and maintain world-class networks that are safe, reliable, resilient and smart. And whilst we're already investing in these areas today, we recognize that we need to go further innovating, evolving and developing new tools and systems. We also recognize that we have a role to play in helping to drive the decarbonization of the economy. This role includes enabling the connection of renewables, ensuring we take on a whole system approach, facilitating the growth in the electrification of transport and developing solutions to decarbonize heat. By undertaking this role, we will deliver stronger returns for our shareholders over the long term, and it's with this in mind that I now turn to look at our priorities and outlook for the year ahead.

I'll start with the U.S. where we have three key focus areas: firstly, a continued focus on improving our customer experience; secondly, the efficient and safe delivery of our services; and thirdly, reaching fair and progressive regulatory settlements.

On customer experience, we've already invested significantly in digital solutions such as our customer e-billing portal, and we'll continue to invest this year working towards our longer-term ambition of paperless billing for everyone. On the terms of the efficient and safe delivery of our services, we're making significant investments in our IT systems for our gas business. These systems will enable a more efficient management of our field force, a more responsive service for our customers and further cost improvements.

On regulation, we filed for new rates for Massachusetts Electric in November last year and for and for KEDNY and KEDLI this April. Our regulatory structure across the U.S. is to move rates to be more forward-looking, incentive-based and multi-year, and this will allow us to plan our works in the most cost-effective way. By introducing more incentive opportunities, regulation will drive more efficient outcomes, which will benefit customers and drive higher returns for shareholders.

For Massachusetts Electric, we submitted proposals to allow for up to a 5-year settlement. This will give us good visibility in the funding of our investment plans and allow for annual inflationary cost increases offset by efficiency savings. As part of this filing, we've also taken the opportunity to advance the state's carbonization goals. This included a request for funding for over 17,000 electric vehicle charging points and the installation of a 14-megawatt battery storage system. Separately, we're asking for return on equity of 10.5%. This filing will support annual investment of $300 million, an increase of $50 million on the existing rate plan, and we expect to view the outcome for this filing in September.

For KEDNY and KEDLI, we submitted a request for a combined annual CapEx allowance of $1.5 billion. This is a 50% step-up from our existing allowances. This increase in CapEx has been driven by a number of factors including the need for increased pipeline replacement, enhancements to pipeline safety, improved system resilience and modernization of our LNG facilities. Importantly, the filing also includes proposals to support a low-carbon energy future. This includes developing a green gas tariff and projects to facilitate the increased use of renewable natural gas. Our full year proposal includes return on equity of 9.65%, and we expect rates to come into effect from April 2020.

I'll now turn to the U.K. outlook where we also have three focus areas: firstly, embedding the cost efficiency program; secondly, delivering our capital investment as efficiently as possible; and thirdly, continuing to help to shape the regulatory framework for the benefit of customers and all stakeholders. Starting with the cost efficiency program where this year we'll be going live with new IT systems, which will provide better data to improve decision-making and simplify our processes further across the organization.

On capital investment, our key priorities will include completing the tunneling for Feeder 9, starting work on the second London power tunnel, which will provide additional capacity and resilience to our networks across South London, and initiating the works on the undergrounding of our power lines through Dorset as part of our Visual Impact program.

With regards to the regulatory frameworks, it's critical that we continue to enable the necessary the investments to maintain the excellence, safety and reliability we've all come to expect from our networks. It's also important that we continue to ensure the rapid decarbonization of the U.K. energy system and encourage innovation to the benefit of all customers. More specifically, as you're aware, Ofgem's RIIO-T2 sector-specific consultation was published last December.

As you have seen in our response in March, whilst the initial proposals are a step in the right direction, we don't think they'll bring about the right changes for consumers for the long term. We provided feedback on three areas of concern: the level of allowed returns, the outperformance wedge and the approach to incentivization. As you know, the overall financial package is key, balancing both a fair return and appropriate cash flows. Taking a balanced approach to risk and correcting for the errors in the calculation that we see, we believe the fair, real RPI return on equity is 5.5%.

With regards to the process, we expect Ofgem to publish its decision on the consultation next week. We'll be submitting our initial business plans in July for further stakeholder comments before sharing our final plans in December. And we're continuing to work constructively with Ofgem to seek a framework that puts customers at the center of this price control, enables the NG networks of the future and allows for a fair return for our investors.

So staying with the regulatory matters, let me now turn to Hinkley. As you know, we've already started the construction of the project in accordance with our contract with EDF. Ofgem continue to develop the necessary license modifications to introduce the competition proxy model, and as we set out previously, we continue to believe this mechanism is not in the long-term interest of customers. We'll wait to see what the final modification to our license looks like later this summer before taking a decision on the appropriate next steps.

So finally, turning to National Grid Ventures where the major focus will be the continued investment we're making in our European interconnectors. We continue to see interconnectors as a very cost-effective way of widening the sources of electricity for the U.K. as well as connecting to low carbon and renewable options. In fact, when the three interconnectors we have under construction are completed, our total interconnected capacity will be 7.8 gigawatts.

And almost 90% of that will come from low-carbon sources. And by the end of this year, we'll have made real progress in the completion of most of the construction works in IFA2. We're aiming to be halfway through the cabling on our Norwegian link, and on Viking, we'll have started the manufacture of the cable and the converter stations. And with regards to Geronimo, the deal should close next month, and we plan to complete the construction of the Crocker Wind Farm in South Dakota this autumn.

So having set out our priorities for the coming year, I now want to focus on how these priorities continue to integrate and reflect our environmental and sustainability goals. And we're making good progress here. For example, in U.K. electricity transmission in our trial project at Sandwich in Kent, we were the first utility in the world to use low-carbon emissions insulating gas at 400,000 volts. On climate change, we set ourselves ambitious decarbonization targets, and I'm proud to say that we've already reduced our emissions by 68%. And of course, we'll be reviewing our existing target of 80% by 2050 following the recent recommendation from the Committee on Climate Change to reach net zero emissions by 2050.

And on sustainability, our business activities enable us to make significant contributions to a number of the UN Sustainability Developing Goals, in particular, the affordable and clean energy and climate action goals, but we also want to contribute to others. We've taken action on life on land where we set ourselves a target to recognize and enhance the value of the natural environment of at least 50 of our sites. We've worked with multiple partners and community organizations across the U.K. to deliver enhancements to 38 sites so far. This cover more than 400 hectares of land and consist a wide variety of habitats and species. And we're also addressing good health and well-being. This commitment includes access for all our employees to help the well-being services, including mental health services such as counseling and psychological therapies.

We're also one of a small number of organizations that supports the government's Inclusive Economy Partnership. This has included us playing a key role in developing a framework that supports employers to voluntarily report on disability, mental health and well-being in the workplace. This is a long-term priority and we'll continue to update you on our future progress.

So as you can see, we've a large number of priorities across the group this year, including continuing to focus on our customers, embedding cost savings and efficiently delivering investment plans. And as Andy has outlined earlier, based on our current investment plans, we expect to see another step up this year to nearly £5 billion. And this elevates the level of investments expected to continue into 2021, delivering many benefits for our customers.

In total, our asset base is expected to grow strongly by around 7% in 1920 and 2021, and the vast majority of this critical investment is covered by existing regulatory arrangements, and it's our responsibility to deliver that investment efficiently, which in turn generates long-term value for our shareholders.

So in summary, as I mentioned, power and heat networks sit at the heart of the energy system, and we create value for our customers by delivering world-class networks and driving decarbonization. In the last year, we've invested £4.5 billion in an efficient and disciplined way delivering strong organic growth. We made good progress on our strategic priorities, helping to underpin our total return proposition, and we've delivered significant customer benefits so far. We've also taken positive steps in evolving our regulatory frameworks in the U.S. and contributed to the shape of RIIO-T2 in the U.K. And all of these have been achieved whilst maintaining a strong balance sheet and a continued commitment to our progressive dividend policy.

Now just before we move on to your questions, I'm pleased to announce that we'll be hosting an investor seminar on our U.S. business in September where Dean and his leadership team will provide a deep dive into the business and our outlook for the future. The event will take place in the 20th of September in London and on the 23rd of September in New York.

So thank you very much for your attention this morning. Andy, Dean, Nick and I will be happy to answer any of your questions.

Question-and-Answer Session

Q - Chris Laybutt

Chris Laybutt, JPMorgan. Two questions for me. Slide 20, Andy, could you please step through the bridge from the asset level gap to the $1.04 billion figure again just for my benefit. And are we to assume that, that figure is a pretty decent representation of your GAAP earnings for the holdco? So I guess that's question one. And then question two, in terms of the 65% gearing level, given RIIO-2 brings with it some uncertainties, is that still the right level for National Grid? And is the Board and are you, as a management team, still comfortable with that level?

Andy Agg

So on the first one, so as I defined on Slide 20, yes. So yes, so the -- what the chart is presenting is an addition to the U.S. GAAP earnings of the rate base business, which is the U.S. segment, operating segment. The additional $75 million that we've called out there and added in the -- which is the accrued earnings and assets outside the rate base, includes things at either the serveco or holdco level as well as some of the capital work in progress but hasn't yet gone into the rate base. So it's trying to represent the overall earnings, GAAP earnings from the U.S. business.

The second piece on gearing, I think we've guided this morning through to -- balance sheet leverage through to FY '21 and set out again the key tools that we use to manage the balance sheet. I think it's early when we think about what '21 onwards or '22 onwards might look like with RIIO-2 still working through the rate cases we filed in the U.S., working through what those will look like. But we're confident today the leverage is in the right place. We have the right tools, and we're confident with where the balance sheet is.

Jenny Ping

It's Jenny Ping from Citi. Just following on from Chris' question back to Page 20, Andy. Just to confirm the interest cost that you've got there, $457 million, does that include the intercompany loan charges of the $1.7 billion that you've got? And what would that number look like with that intercompany loan and therefore, impact on earnings?

Andy Agg

So what we've tried doing there is effectively a notional regulatory interest charge. So based on allowed cost of debt, on a 50 -- assume 50-50 regulatory capital structure, as with our U.K. opco is exactly how we fund and how we move cash around is a fungible part of how we manage our debt book.

Jenny Ping

So that would come in, in the $100 million additional that you talked about, if -- assuming a gearing of 65%.

Andy Agg

So the $100 million on the left is purely going from 50-50 to take gearing up to 65%, the additional cost of that debt.

Jenny Ping

Fine. And also just on that, have you -- can you give us the year-end net debt number for the U.S. business with or without that $1.7 billion intercompany loan?

Andy Agg

I think we'll get back to -- how we think about gearing from a group level and then we have opportunities to raise debt, both as an opco, a holdco level, U.K. and U.S. So what we tried to guide here is if you took group gearing and applied it to the U.S. level, the actual level of gearing within our U.S. holdco will be slightly higher, as you said, there's intercompany debt involved in that. We've tried to give you what an external view of our U.S. business would look like.

Jenny Ping

And one last one, big picture-wise in terms of energy transition. I just wondered what your latest thoughts are on your Gas Transmission networks in the U.K. specifically, given that there is the push for decarbonization, given the works have been done or started at least on hydrogen? And what your thoughts are on that asset, whether it should belong to the group longer term?

John Pettigrew

In terms of Gas Transition, I think everyone recognizes that gas has got an incredibly important role to play as part of decarbonization journey. 80% of U.K. heat comes from natural gas, and 40% of U.K. electricity generation comes from natural gas. I think there's a lot of work to be done over the next few years in really understanding what's the optimal way to look to decarbonize the gas network.

We have a number of projects underway looking at, one, how much hydrogen could you inject into the network without having to require people to change their appliances. We're also looking at whether the network can be converted to hydrogen, for example, in the long term, and what's the interaction between hydrogen molecules and the steel networks that we've got. And we are also looking at opportunities around sort of how you inject more green gas into the network as well.

So there's a lot of work to be done, I think, over the next few years to find out what's the optimum route. What is clear is the gas networks have a very -- an important role to play for many, many years to come, and you'll see in our draft business plans that we'll be submitting to Ofgem quite soon that actually the levels of investment that are needed in the gas networks will continue for many years to come as well.

Unidentified Analyst

Arjan Zany [ph] from Credit Suisse. I had two questions, please. Firstly, with Labour's policy to create a national energy agency, would you consider splitting the business into two in the U.K. and the U.S. to protect the value in the U.S.? And secondly, would you also consider adopting measures in your Labour documents such as being civil society members on board to reach Labour's objectives without getting an asset expropriated?

John Pettigrew

Sure. The second, I didn't quite catch it.

Unidentified Analyst

So would you consider adopting measures in the Labour documents to reach Labour's objectives without getting an asset expropriated?

John Pettigrew

Let me just talk about nationalization as it's the topic of the day. To make sure people understand where we're coming from. So our position very clearly is that we don't believe that the proposal the Labour has set out are in the interest of consumers in the U.K. The key question I think to be asked is what's the problem that the state ownership is trying to solve. And from our perspective, when we look at the proposals, it's not clear to us. So the U.K. has one of the world's most reliable and safe networks, as you know. We're investing massively in the networks, the National Grid invested £10 billion over the last six years, as I said this morning. We're very conscious of the affordability agenda as well and we've returned £640 million to customers over the first six years of RIIO-T2.

When you look at the decarbonization agenda, there needs to be a recognition that, actually, there's a huge amount of progress that's already happened, and National Grid is the key enabler of that. So last year, 49.6% of all the generation in the U.K. came from zero carbon sources. We all celebrated last week the week where there was -- first time we had generation without any coals, first time since Queen Victoria was on the throne.

And National Grid is investing in things like interconnectors, as I said this morning, which will be 90% clean energy. There's still a huge amount to do, but when we look at the Labour proposals, it's very clear that, that will not either accelerate the decarbonization agenda in the U.K. nor will it result in lower cost for customers. All there is, it will be a huge distraction and it will be -- actually it will delay the decarbonization in the U.K. and potentially increase cost to customers.

So our position at the moment is to make sure that people understand that, and we engage with Labour on a regular basis. And within the Labour Party there are people who have an ideology and to be blunt, I'm never going to convince, and there are people actually who don't have the view that state ownership is the right route and we will continue to engage with them, as we do more generally the general public.

So they understand the role that National Grid is playing and actually, where the U.K. economy is in terms of decarbonization, which is we made great progress. There's a long way to go, and the Committee on Climate Change has, if anything, said, "We need to accelerate." To deliver that, you want companies like National Grid to be agile, to be embracing new technology and to be innovative and to meet the needs of -- the changing needs of customers. So that's the position we come from in terms of that.

In terms of splitting the Company, the Board has a duty to consider valuation of the business, and it does that, as you'd expect, on a regular basis, but we don't see splitting National Grid as a response to what is currently a proposal by the Labour Party. In terms of Board, more broadly, actually, National Grid, under Section 172, its obligations, always wants to ensure that it's got a broad set of inputs in terms of the key stakeholders, and any decision that the Board of National Grid makes, it's always considering the broad stakeholders, whether it's customers, whether it's regulators or other broader key stakeholders.

Fraser McLaren

It's Fraser McLaren from Bank of America Merrill Lynch. Just three questions for me, please. First of all, can you elaborate on the issues that you've had with the Western Link, please. Where is the problem now? And is there any liability for National Grid or implications for the other links that you're working on? The second question is about the £400 million increase in net debt by virtue of IFRS adoption. To what extent does that put pressure on the actual credit metrics? And then lastly, the Hinkley license mods are just moving back farther and farther. Why is that? And what's the revised scale of time for making a decision on any appeal?

John Pettigrew

Why don't I do the first and the third, and I'll give Andy the second. So in terms of Western Link, I mean if we just step back, so Western Link as a project is going to deliver significant benefits for customers going forward. And when we've begun through the finishing phase, we've seen, when it's operating, that it's going to deliver those benefits to customers. It is an innovative project in that this is the longest deep-sea cable in the world that's operating at 600 Kv.

And inevitably, when you're doing innovative projects, you sometimes see teething problems. It is clearly a frustration to us to have the latest fault. It was a cable fault. Our contractors, which are Siemens and Prysmian, are working full tilt to get it resolved, and we're hopeful actually that this fault will be fixed by around about the end of this month. So that's where we are with it.

In terms of liabilities, National Grid has very robust contracts around Western Link. So for late delivery, there will be penalties to our contractors, and we continue to engage with Ofgem, as you'd expect, on a regular basis to make sure they're understanding all the activities and all the things that we're doing to make sure we commission it as quickly as possible.

In terms of Hinkley, I agree, it has slipped back. Our position is we're waiting to see the license from Ofgem. Until we can see that license, it's difficult for us to make a decision on how we move forward. We're hopeful that we'll see it in the next couple of months. We engage with Ofgem on a regular basis, and we're encouraging them to give us the final license so that we can make that decision. But at the moment, we're waiting to see when Ofgem are going to do that.

Andy Agg

And on the IFRS 16 question, lease accounting. Although that adds into our net debt position, it's already taken account of in the credit metric calculations elsewhere, so there'll be no overall impact on our credit metrics.

Dominic Nash

It's Dominic Nash from Barclays. A couple of questions, please, in the U.S. So firstly, what you're guiding for group asset growth at the high end at 7%, can you just give a quick breakdown again what your medium-term U.S. growth will be, please? And following on from that, so it's like a 1b rather than a second question, you say that -- you say that U.S. net income will be rising in line with asset growth going forward. Is that basically any way that can work is that you assume that your 9% ROE is sustainable going forward on those maths? My second question is on KEDNY-KEDLI, massive increase in potential earnings base there and CapEx on the RAPEX program there. Could you remind us what percentage of your network is going to get replaced in that 4-year period? And so how many years of investment can we look forward to in that division, please?

John Pettigrew

Okay. So why don't I start with KEDLI and KEDNY, and I'll come back to the first question, 1a and 1b. So with regards to KEDLI and KEDNY, we've been in significant dialogue with the New York State regulator as we prepared to put this filing in. So as you know, we've come into the end of the 3-year filing where we're spending around about $1 billion a year. I set out this morning some of the key drivers as to why we think that needs to increase. Importantly, when we did the filing a few weeks ago, the feedback from the regulator was it was as expected.

Now the utilities in the U.S. have seen press releases from the regulator following a filing because they were surprised. So I'm quite pleased that at least it's in line with the expectations. We now go through a very long process with KEDLI and KEDNY. As you know, it would be probably towards the end of this year, if we get to a settlement, before we get an outcome, and that includes four months of discovery and Q&A.

What we tried to do in the filing, as we always do now with rate filings in the U.S., is to create some optionality for the regulators. So we're very clear about what the things that we believe must be done from a safety perspective and what things there is opportunity to do in, either slightly longer or to defer depending what the impact is on customer bills. We do have some opportunity, I think, in New York because with the tax reform in commodity prices, there is some headroom to actually for -- to be able to take forward some of the policy agenda items in New York without having a significant impact on bills. But at this level of rate filing, it will impacting customer bills. So we'll work through that.

What percentage? I'll come back to you. I can't remember what the percentage is. What I would say is we're at the early stages of what effectively is the -- we call it lead from pipe replacement program in the U.S., a major replacement program is what you'd call it in the U.K., if you remember that program. We're at the very early stages so this will be a multiyear program. How quickly we do it, we will work with the regulator to make sure we get the balance right between doing what's right from a safety perspective, recognizing the impact on customers. I forgot what your first question was.

Dominic Nash

Basically the split between the U.S. and U.K. within that 7% asset growth and the implied, does that -- they are very -- remain constant in the U.S.?

John Pettigrew

Yes. So in terms of the U.S. This year, we were at $3.5 billion. The spend is on 9.2%. We're expecting for the next couple of years for it to stay at that or slightly above that level. So we're expecting continued strong growth well above 7% in the U.S. And that, when you apply that to the group with pretty constant investment in the U.K. so we're expecting 1.2 billion, 1.3 billion for the next couple years, and with the interconnectors, get you to the top end of our 7% range. So in terms of returns, we've guided today. So this year, U.S. entered 93% of the allowed returns. We're expecting to be above 95% next year.

James Brand

James Brand from Deutsche Bank. Three questions, please. The first is on U.K. investment and obviously, the initial proposals from Ofgem have been very tough in terms of the allowed rate of return, which you've obviously highlighted. Often when utilities are going through challenging regulatory settlements, they often say that this could be a threat to investment. And you're obviously thinking pretty carefully about what you might want to propose in investment given that you said you're going to be presenting your initial business plan in July. So just wondering how you approach that. Do you try and scale back investment? Or do you pay it very straight and you work out exactly what needs to be done and the return budget maybe doesn't affect that decision that much. Second question is just on the U.S. IT spend for the gas business. I'm just wondering whether all of that was recoverable under the regulatory assessment, i.e., whether the investment there goes into the RAV or not?

And then thirdly, I think it was a year ago and it was Andy Bonfield that kind of suggested that there may be changes implemented around the dollar hedging that you have in place that you'd already -- you try to hedge both the equity and the debt value in the U.S. by having a dollar debt. So just wondering whether that ended up see -- with Andy coming in, whether there ended up being any changes around that or not, whether there are any changes planned.

John Pettigrew

So let me do the first, then Andy the third. So in terms of the regulatory process in the U.K. and where we're at on returns and investment, so I think that we in this room, we've been very clear in our response in March that we don't think a 3% return provides a fair balance between the risk and reward that we perceive in RIIO-T2, and our response are set out very quickly where we think Ofgem have made some errors in their calculation but also what's an appropriate return based on where current interest rates are and our perception of the relative risk of a transmission business relative to the market.

So we're setting that out where we're hopeful that the arguments that we've made have been listened to and we'll see what Ofgem says next 23rd of May, when is that? Next Thursday, I think it is, when the document comes out. In terms of the investment profile, I mean we're at a very early stage. One of the things we were pleased about in terms of Ofgem's proposal was this is a price control. It's very much driven by the needs of customers and stakeholders, so we're in quite intensive discussions with stakeholders about what are the needs of the -- or what are their needs going forward from us as a utility and as a network.

What will come out at the beginning of July is an early indication what our stakeholders are telling us, and we're taking that requirement and converting it into what that might mean for CapEx. We've got a long process to go through that will run in parallel between getting the right return and the right overall financial package and making sure that we've got the right investments to meet our obligations, but also to support the decarbonization agenda. So you'll see that evolve, I think, over the next 6 to 9 months as we go forward.

In terms of the IT spend, the vast majority is actually recovered through the rate base. We actually -- it's a huge investment right across our U.S. business to enable our gas workforce. It's been needed for some time, but we actually aligned the rollout of that investment to reflect the rate cases that we were doing so that we can maximize the recovery and make sure it's part of the rate base. Andrew?

Andy Agg

Yes. On the dollar hedge question, actually, and so you mentioned that at a speech last year, so some work had started with Andrew in my previous role as Treasurer. I mentioned this morning in the speech that we brought the overall level of dollar hedging down to around 80% of the total U.S. asset value. That's slightly lower than it was previously. It's about a $4 billion reduction in the mix of dollar debt in the portfolio. And the rationale for that is, effectively, when we looked at it -- we -- the top up was to do with goodwill. And if you look at the currency flows, you don't get cash coming out of the goodwill balance, so we brought the level of hedge down to reflect more of the rate base balance.

Samuel Arie

Sam Arie from UBS. I had a follow-up question on Ofgem and the price control and then one, apologies again, on the nationalization topic. But on Ofgem, so you've mentioned your consultation response, which was pretty directly worded and you think that Ofgem has got their math wrong. And I'm just wondering, can remind us, what are your options if Ofgem come back with no change? Can you appeal only sort of within the Ofgem tribunal under your license condition? Or is this something that ends up in the court system?

John Pettigrew

So you're right, we were very clear, I'd say, in terms of our response to the consultation. Also, I think we were very helpful and we've had some feedback from Ofgem staff that we were. So not only did we say what we didn't like, but we put forward some proposals and what we thought was sensible to get the right regulatory regime going forward. And we continue to have constructive dialogue with Ofgem. This has still got a very long way to go.

So we're publishing effectively a draft business plan in July, which will then be critiqued by the challenge group and stakeholder group. We don't actually submit our business plan until December this year and then ultimately, Ofgem will make a decision until the end of 2020. In the event that the proposals and the final decision by Ofgem are not acceptable, then National Grid, as other networks, has the option to refer it to the CMA. And in the energy sector, you can refer the whole package or you can refer single items within the package. So that is the sort of the route that would be followed in the event that we couldn't get a sensible outcome.

Samuel Arie

Very helpful. And can I -- could I ask my follow-up on the nationalization topic, too? So -- and I think you set out your views on that policy very clearly. What I think was new in this week's document from the Labour Party was I suppose a confirmation in writing that although the nationalization price that they think about would be set in Parliament, it could include deductions relating to a whole list of other topics like the pension deficit, asset sales, the state of the assets in the business and so on. I'm sure you've looked at this, but can you comment at all on what you think the legal protections might be against that kind of approach?

John Pettigrew

Yes. So as you'd expect, we look very carefully at the party's proposals. And we'll go through, we still don't believe it's the right thing to actually go to state ownership. But the government has an obligation to pay fair value for the assets. There's lots of debate and lots of narrative across the industry about how you define fair value, but in the event that the Labour Party go forward and tries to pay less than fair value, then there are several legal routes available, including the European courts in terms of human rights and a whole host of other areas in terms of treaties.

So we understand the legal mechanisms that would have to be applied by our investors in the event that was to happen. Clearly, we continue to focus on making sure that people understand that we don't think state ownership will solve the problems that Labour has been setting out.

Martin Young

Martin Young from Investec. Just one question continuing on the -- this nationalization debate. If we take a -- step back a number of years when Miliband came out with the idea for capping retail prices in the U.K. You can imagine it was such as best as a Labour policy at the time. Skip forward a number of years, parts of that we're picked up by different political parties, and we've ended up where we are today with the price cap on parts of the markets. If you look at what Labour here put out, scrap out the bits that you think are a bit crazy on ideological grounds, you can probably find bits in it that resonate with the public. Is there a clear risk that those are picked up by political parties of all colors?

And that going forward, we have a considerably tighter regulatory settlement than we've ever had before and quite clearly, there are differences between what you feel is fair and what Ofgem currently has on the table, and you can probably say that some of the things that Ofgem are trying to push through are indeed responding to some of the underlying points that have been picked up by various people out there. So just wondered if you could give a few thoughts on how tight you feel regulation could land.

John Pettigrew

Yes. I mean there's one thing we do agree with Labour on, which is the aspiration to decarbonize the economy. The fundamental difference we have is the approach to achieve that, which will minimize cost for customers and will do it in a sensible and timely way. In terms of regulation, I think we've set out quite clearly what we believe is an appropriate regulatory framework to encourage and deliver the infrastructure investment that's going to be needed over the next five years. It is quite clear from Ofgem's document, and actually we acknowledged this in our response, that it is going to be a tighter price control than RIIO-T1.

What we keep emphasizing as we understand that, but you also need to make sure that you get the balance right between risk and reward. But as importantly I think is that you continue to incentivize companies to drive innovation and efficiency. So you'll hear us talk all the time that it's important we get the overall package right, and that's the focus for us. Make sure you get a sensible return, and we've set out our views on 5.5%., but also that we do get incentivization to drive innovation and technology change. And our concern with the current regulatory proposals is it tries to address many I think of the efficiencies that they saw in RIIO-T1 but doesn't yet create a framework for RIIO-T2.

So I think it will be tighter. It will require great performance to deliver the returns that we would want to deliver. But as a company, we're very confident about that. When National Grid has been incentivized in the past, we've been able to drive performance for the benefit of customers and for our investors. So we'll continue on that line with our discussions with Ofgem.

Simon Virley

Simon Virley, KPMG. John, given the challenging regulatory and political environment in the U.K., to what extent you're looking for opportunities beyond the U.K. and the U.S. for future growth?

John Pettigrew

So as you saw today, I think we look forward over the next couple of years, we've got a very strong growth opportunity to some extent right at the top of our range in the U.S. All regulated businesses are growing 9% plus. So within our core businesses, we've got strong growth, and we will continue to work with the regulators to deliver that. Outside of that, we will look for opportunities, which are in adjacent markets that allow us to use the capabilities and skills that we've got and have got sort of regulatory characteristics in terms of their revenue streams.

So the most significant one we've announced recently is Geronimo Energy. So we do see large scale renewable generation as an opportunity for National Grid. It is in an adjacent market and allows us to use many of our capabilities. And over the last three years, we've done some relatively modest investment in renewable -- large-scale renewable generation in our geography, and we see that as a useful platform.

So where there is opportunity and those investments pass the hurdle rates that we set, then we will take that forward. If you look at Geronimo Energy, particularly, they have developed about 400 megawatts a year. Over the last few years, they successfully developed about 2.2 gigawatts, and they've got a pipeline of six gigawatts of solar and wind. If we were to continue to develop it at that rate, it would be an incremental investment of about $150 million per annum, so not huge in the scheme of the group, but an opportunity for us that we can take forward.

Any other questions?

John Pettigrew

Okay. In which case, I'm going to say, thank you for attending today. I appreciate all your questions and we'll see you all very soon.