Results Presentation for or the the six mo month per perio iod end ended 30 Sep September 2018 Mark Horsley David Waite
In Introduction NGN aim to be the best Gas Distribution Network (GDN) in: • customer service, • safety, • and efficiency. 2
Customer Satisfaction Performance During the 2018/19 regulatory year to date: Customer Satisfaction Scores - NGN • NGN were ranked 3rd within GDNs by Ofgem for customer service, 9.17 9.17 9.17 • have had strong customer survey scores: planned 8.9; emergency 9.5 9.01 and connections 9.0 (out of 10), 8.75 13/14 14/15 15/16 16/17 17/18 • have currently resolved 71% of complaints within 60 minutes. GDN Performance 2013 - During the 2013-2018 period, NGN has been the greatest performing GDN overall. 2018 9.03 8.98 8.97 8.76 8.47 8.48 8.26 7.91 EOE LON NW WM NGN SC SO WWU 3
Safety In Initiatives Training and development of new procedures Management of Better use of deep excavations technology to Ensuring consistency manage higher of knowledge and risk activities understanding Safety improvements/ initiatives Mental health Industry leading awareness and in safety wellbeing accident frequency workshops rate of just 0.04 Engaging with other CKI companies to review methods of avoiding buried services 4
Safety Perf rformance - (6 (6 months to 30 September) Lost Time Injuries Injury to Members of the Public 1 0 0 0 2017 2018 2017 2018 Road Traffic Collisions Cable Damages 21 16 23 21 5 2017 2018 2017 2018
Efficiency In Initiatives NGN has already taken significant efficiency steps in the current price control period which position us well for the start of the RIIO-GD2 environment, and we continue to push this efficiency challenge. • Introduction of modern T&Cs to replenish the workforce and ongoing ONGOING : implementation of an over-55s release programme Adopting a totex approach to operations: to INDUSTRY FIRST deliver a joined-up approach to operations, give autonomy to empowered leaders and provide • The transition of all repex work from large tier 1 contractors to direct service superior flexibility to tackle severe winter providers (small local businesses) conditions and major incidents INDUSTRY FIRST DONE : Optimising direct labour operations to improve • Outsourcing of functions where it has been efficient to do so (maintenance) working methods, drive down costs and ONLY GDN TO EXECUTE increase outputs, notably the number of jobs completed per team per week • Movement of much IT activity from large external contractors to small contractors and in-house solutions INDUSTRY FIRST Future Ways of Working: new processes and IS technology (notably SAP4 HANA) to deliver one • Capital IT project delivery brought in house and moved to an agile delivery simple way of working to evolve the business so model that it is fully prepared for the operational INDUSTRY FIRST challenges ahead INDUSTRY FIRST 6 • Upgrading & refurbishment of depots and offices to provide great places to work
Efficiency Through In Innovation • Innovation is embedded throughout NGN’s operations delivery efficiency savings of around £2.0million achieved in 2017/18. • Vehicle journeys, days spent in the highway, amount of spoil sent to landfill and excavations dug have all dramatically reduced. • Successfully implemented innovation projects include: • Core & vac technology, • Back blade protector, • Use of sniffer dogs to detect gas leaks, • Use of innovative devices to locate and remove water from pipes. 7
Profit Performance - Revenue, , EBITDA and PAT 250.0 6 mo months end ended 30 Sep September There has been a slight decrease in revenue in the first • six months of 2018 compared with 2017 based on 200.0 202.1 201.5 Ofgem revenue modelling in the current price control period. 150.0 129.3 124.1 EBITDA growth of £5.2m despite this reduction to • 100.0 revenue, due to tight cost control management. 50.0 PAT has had a steady increase of £0.7m. • 47.0 46.3 0.0 2018 2017 PAT (£m) EBITDA (£m) Revenue (£m) 8
Cash Flo low Performance - Operating Cash and Div ivid idends 6 mo months end ended 30 Sep September 35.0 2018 has seen an increase in operating cash flow after tax • 30.0 32.2 and interest of £1.3m which has been a result of: 30.9 £7m increase in UK corporation tax paid, • 25.0 £3m increase in operating profit, • £5m decrease in working capital. • 20.0 17.8 15.0 17.3 Dividend payments at 30 September 2018 are in line with • 10.0 expectations at £17.8m. 5.0 0.0 2018 2017 Dividends (£m) Operating Cash (after int. and tax) (£m) 9
Treasury ry 10
Debt interest mix (a (as at 3 30 September 2018) • £400m fixed rate bonds 2019/2040. • £40m fixed rate EIB loan maturing 2024. • £50m floating rate EIB loan swapped to fixed rate to 2020. • £505m fixed rate bonds 2027/2035 swapped to floating rate for life and re-fixed for periods from March 2019 to September 2028 under RIIO hedging strategy. • £339.5m floating rate EIB loans swapped to fixed rate for periods from June 2023 to June 2028 under RIIO hedging strategy. • £50.0m unhedged drawings on syndicated Revolving Credit Facility. 11
Strong Credit Ratings NGN has a conservative financial policy and predictable cash flows. NGN's financial policy is to maintain debt to regulatory asset value within 70%, below its bank loans' event of default covenants, which limit debt to RAV to below 75% and post-maintenance interest coverage ratio to above 1.3x. This prudent financial approach and strong operations performance has been well received by rating agencies. • Baa1 rating wit Baa ith stable ou outlook con onfirmed in in Mar arch 2018 2018. • ‘NGN remained one of the best-performing networks on all measures of safety and customer service in 2016-17, and the company's controllable costs were 13% below regulatory allowances in the first four years of RIIO-GD1, which we believe reflects efficiency rather than phasing of spend’ • ‘Strong results in the first four years of the regulatory period’ which ‘imply potential for continuing regulatory outperformance’ • BBB+ rating with ith stab able outl outlook con onfi firmed in in Mar arch 2018 2018. • ‘strong performance across most of the key regulatory requirements including cost efficiency, service level, customer service, and stakeholder engagement’ • The commitment to an investment grade profile is further underpinned by the Licence condition requiring licensees to maintain at all times an investment grade issuer credit rating 12
Looking forward - Energy Futures We are also engaged in a number of exciting initiatives around energy futures: H21 – a project designed to support the InTEGReL – a newly integrated energy facility, HyDeploy – a ground breaking energy viability of converting the UK gas seeing academics and engineers working to trial in partnership with Keele University distribution networks to 100% hydrogen. deliver breakthroughs in the decarbonisation which could help Britain dramatically of heat, energy storage and transport. reduce its carbon emissions. ( https://www.northerngasnetworks.co.uk/ wp-content/uploads/2017/08/H21- ( https://www.northerngasnetworks.co.uk/ng ( https://hydeploy.co.uk/ ) Network-Innovation-Competition-1.pdf ) n-you/the-future/integrel/ ) 13
Looking forward - RII IIO-GD2 • To ensure that the company is in good shape to meet the financial challenges of GD2, NGN has chosen to implement a number of significant efficiency initiatives early in the process including: Modernising Terms and Contracting Models Conditions Workforce Refresh Technology and Innovation • Key initiatives that have been progressed during RIIO-GD1 that will transform the business include: • Adopting a “ totex ” approach to operations to deliver a ‘Joined - up’ approach to operations, give autonomy to empowered leaders and provide superior flexibility to tackle severe winter conditions and major incidents, • Optimising direct labour operations to improve working methods, drive down costs and increase outputs, notably the number of jobs completed per team per week, • “Future Ways of Working” - harnessing new IS technology (notably SAP4 HANA) to deliver one simple way of working to evolve the business so that it is fully prepared for the operational challenges ahead. 14
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