National Grid keeps dividend lights on despite coronavirus hit

There was a £117mln impact from coronavirus on earnings from increased provisions for US bad debts, with another £400mln expected to hit profits in the current year.

National Grid PLC (LON:NG.) has increased its dividend despite profits falling as it takes a hit from increased bad debts from the coronavirus (COVID-19) pandemic in its US business. 

The energy delivery company generated a £1.75bn profit before tax for the year to March 31, 2020, down 5% on the prior year, with earnings per share tumbling by 17% to 36.8p.

Operating profit increased strongly in the UK but was down in the US, while group capital investment rose 20% to £5.4bn.

There was a £117mln impact from COVID-19 on earnings from the increased provisions for US bad debts, with the outlook for the new financial year assuming around a £400mln underlying operating profit impact mostly from the US.

The impact from the virus in the current year includes extra costs in areas such as IT costs, cleaning, sequestering critical teams, PPE and health screening.

With a weaker economic backdrop, bad debt costs are expected to rise too, with a “slightly bigger” hit than taken for the past year, though the group anticipate recovering bad debts, above its regulatory allowances, through future rate plans.

A final dividend of 32p was recommended to bring the full-year payout to 48.57p, up 2.6%, in line with its policy to increase in line with the UK retail price index (RPI). 

National Grid chief executive John Pettigrew hailed continued regulatory progress in the UK, the response to the challenges in downstate New York and further developments of the group’s interconnector and renewable portfolios, including the Hinkley-Seabank project, where a final cost was agreed last month for a transmission link to connect the Hinkley Point C nuclear reactor to the grid by 2025.

“Looking ahead, whilst COVID-19 will impact our financial performance in FY21, we expect this to be largely recoverable over future years and therefore anticipate no material economic impact on the group in the long-term,” he said in the results statement.

The shares were down less than 1% to 943.76p in early trading on Thursday.

Helal Miah, investment research analyst at The Share Centre, said: “At times of crisis the utility sector is looked upon for some reassurance and stability and in National Grid’s full year years we do have a reflection of calmness.

“However the group hasn’t been immune to the effects of the pandemic and since the outbreak has seen increased demand from the residential sector more than offset by plunging demand from the industrial sector.”

He added: “However, investors’ focus with regards to a company like National Grid is always going to be on the dividend and here investors will take some encouragement as the dividends for the full year were raised by just over a penny.”

Source – Proactive Investor