National Grid returns £70m to customers on solid financial results

National Grid will pass on £70 million of efficiency savings to UK customers in 2015/16 following a “solid year” of financial performance, it reported on Thursday.

In its UK regulated businesses, the company outperformed its first year of the RIIO price control despite extreme winter weather and flooding, which it said showed the value of recent investment in resilience. Some of those gains will be shared with customers.

Across the group, National Grid posted pre-tax profits of £2.6 billion in the twelve months ending 31 March 2014, a 2 per cent increase on the previous year. It invested £3.4 billion in infrastructure and delivered a return on equity of 11.4 per cent.

Steve Holliday, chief executive, said: “National Grid delivered a solid year of financial performance, led by a good start to our eight-year price controls in the UK and consolidation of underlying operational improvements in our US operations. During the year we invested over £3.4bn in essential infrastructure while delivering one of our best years ever in terms of network reliability and resilience. At the same time, we delivered strong cost efficiencies, particularly in the UK where around £70m of the savings will benefit customer bills starting in 2015/16.”

Analysts were divided on the merits of National Grid for investors. John Musk of RBC Capital Markets named National Grid as his “top pick” in the regulated utility sector, while Martin Brough of Deutsche Bank said UK water companies offered better value.

Brough said: “The company is making an impressive 11.4% return on group equity but the high market value of the equity means that the return on share price is 6.7%. This only looks fair value in our view if you assume it lasts forever, which we think is too optimistic.”

Musk said that while today’s results were slightly below expectations, “the focus should be on regulated returns, which are healthy”.