RNS Number:1712M
National Grid PLC
16 November 2006
Embargoed until 7:00am 16 November 2006
National Grid plc
Results for the six months ended 30 September 2006
HIGHLIGHTS
* Good first half performance
* Profit before tax and earnings both up 12%
* Interim dividend up 7%
* Well positioned for growth
* Capital investment in existing businesses up 30%
* Acquisition of Rhode Island gas distribution assets completed
* Significant progress towards completion of the agreed acquisition of
KeySpan
* Comprehensive strategic review completed
* Focus on electricity and gas markets in the UK and US
* Exit from Wireless infrastructure and Basslink
* Share buy-back utilising $1.9bn US stranded asset cash flow
FINANCIAL RESULTS
Six months ended 30 September
(#million except where indicated) 2006 2005 % change
-------------------------------- ---------- --------- ---------
Business performance Note A
Operating profit - actual exchange rate 1,125 1,091 3
Operating profit - constant currency basis
Note B 1,125 1,088 3
Pre-tax profit 872 776 12
Earnings 591 528 12
Earnings per share 21.7p 17.9p 21
-------------------------------- ---------- --------- ---------
Statutory results
Operating profit from continuing operations 1,157 1,044 11
Pre-tax profit from continuing operations 826 736 12
Earnings from continuing operations 594 499 19
Earnings per share from continuing operations 21.8p 16.9p 29
-------------------------------- ---------- --------- ---------
Dividend per share 10.9p 10.2p 7
-------------------------------- ---------- --------- ---------
Sir John Parker, Chairman, said:
"Over the last five years National Grid has consistently delivered good results
and today's announcement is no exception - this performance is to the credit of
our employees, our management and the leadership of Roger Urwin. Roger has an
outstanding track record, having led National Grid through transformational
change, and leaves our business in very good shape.
"National Grid is now entering the next stage of its development. We continue to
invest heavily in our businesses. We have made significant progress towards
completion of the KeySpan acquisition. We have reviewed and refocused our
strategy. These developments reinforce our confidence in delivering continued
good results and sustained growth."
--------------------------
Note A: Business performance results are the primary financial performance
measure used by National Grid, being the results for continuing operations
before exceptional items and remeasurements. Remeasurements are non-cash
movements in the carrying value of financial instruments and of certain
commodity contracts that arise from changes in mark-to-market values or in
exchange rates and are reflected in the income statement to the extent that
hedge accounting is not achieved or is not fully effective. Further details are
provided in Note 3. A reconciliation of Business performance to
Statutory results is provided in the Condensed Group Income Statement.
Note B: "Constant currency basis" refers to the reporting of the actual results
against the prior period results which, in respect of any US$ currency
denominated activity, have been translated using the average US$ exchange rate
for the six months ended 30 September 2006, which was $1.86 to #1.00. The
average rate for the six months ended 30 September 2005 was $1.85 to #1.00.
OPERATING REVIEW
Over the last six months we have delivered a good performance driven by our UK
transmission and US electricity and gas distribution businesses.
We have also made significant progress in positioning National Grid for
continued growth. Organic investment has increased by 30% this period to #1.1bn
and we continue to project organic investment of around #2.5bn per year over the
medium term.
In August, we announced the completion of our $575m acquisition of the Rhode
Island assets of New England Gas. This has added 245,000 natural gas customers
to our business and is expected to make a positive contribution to earnings this
year.
We have made significant progress towards completion of the agreed acquisition
of KeySpan. We have achieved several important milestones: clearances from the
Federal Trade Commission in respect of the Hart-Scott-Rodino Antitrust
Improvements Act and from the Committee on Foreign Investment in the US,
approval from the US Federal Energy Regulatory Commission (the FERC) and
approvals from both National Grid and KeySpan shareholders. We have also made
filings with the state public utility regulatory commissions in New York and New
Hampshire. The process of reviewing these filings is underway and we are on
track to complete the transaction in mid 2007.
In the UK we are currently in discussion with Ofgem on regulatory price controls
for our gas and electricity businesses; in particular, in September we received
Ofgem's updated proposals for the Transmission Price Control Review for the five
years to March 2012. Progress has been made in some key areas since Ofgem
published its initial proposals in June, but, as we have previously stated, we
need to make further progress if the outcome is to be acceptable. We continue to
work closely with Ofgem ahead of the publication of its final proposals in early
December 2006.
OUR STRATEGY
National Grid is now entering the next stage of its development. The completion
of the KeySpan acquisition will take us a further step by virtually doubling the
size of our US business. To take full advantage of both the changes in the scale
and profile of National Grid's operations and the opportunities ahead, we have
conducted a thorough strategic review of our business and the external
environment in which we operate. We will continue to drive shareholder value
with a simple and highly focused strategy. We will
* Focus on the electricity and gas sector
* Focus on our priority markets in the UK and US
* Continue to focus on ownership and operation of large scale
asset-intensive businesses
We will drive performance and value by fully integrating our operations,
deploying best practice and common processes across the organisation and
strengthening our financial discipline. We will continue to focus on the
provision of a safe, reliable, efficient and responsible service to our
customers.
LOOKING AHEAD
In the UK electricity and gas market we see significant opportunities for
growth. The decline of North Sea gas production, the UK Government's renewable
energy policy and the need for asset replacement are driving investment in this
area. As a result, we are increasing our capital expenditure substantially and
over the five years to March 2011 expect to invest around #9bn in this market.
Over this period, our UK regulatory asset base is projected to grow by almost
40%.
We believe that the US electricity and gas market has significant growth
potential for National Grid through continuing consolidation and major
investment requirements, driven by demand growth, population moves and the need
for increased reliability. In the northeast we see opportunities for organic
growth through gas customer additions and network extensions, and asset
replacement for both electricity and gas networks, and over the five years to
March 2011 we are projecting capital investment of around #2bn in our existing
businesses in the northeast US.
In addition to growth through investment, we continue to target growth through
improving operational performance in our existing electricity and gas
businesses. Earlier this year we reached our target of reducing controllable
costs in UK gas distribution by 35% in real terms since March 2002, and last
year we announced that we had reduced controllable costs in US distribution by
20% in real terms since March 2002. There is more to do and we will continue to
seek further opportunities to operate our businesses more efficiently.
To unlock further value, we are reorganising our activities around global lines
of business for Transmission, Gas Distribution, Electricity Distribution and
Generation, and Non-regulated businesses. The management team for this new
operating model is substantially in place and we will begin reporting along
these business lines from 1 April 2007. Within each line of business we will
deploy proven processes, common systems and best practices, while at a global
level we will rigorously apply common operating principles, safety and
environmental standards, and support processes and systems across all our
businesses.
Given our focus on UK and US electricity and gas markets, today we are
announcing our plans to demerge our Wireless infrastructure business and to sell
Basslink, our electricity interconnector in Australia.
Following completion of the acquisition of KeySpan, National Grid will have a
more efficient capital structure. Going forward the financing of our businesses
will be consistent with maintaining an efficient balance sheet. We will not hold
surplus cash, either through surplus assets or an under-geared balance sheet,
but will return this to shareholders.
We believe that these plans will further enhance value and position the business
to continue to deliver strong growth for shareholders.
DIVIDEND AND SHARE BUY-BACK
The Board has approved an interim dividend of 10.9p per ordinary share ($1.0279
per American Depository Share (ADS)), representing a 7% increase in sterling in
the half-year dividend. The interim dividend is to be paid on 24 January 2007 to
shareholders on the register as at 1 December 2006.
We maintain our aim to increase dividends per ordinary share expressed in
sterling by 7% in each financial year through to 31 March 2008.
Under our US rate plans, cash flows from stranded assets are scheduled to end in
2011 and so do not form part of our dividend policy. We are today announcing a
share buy-back programme that will return this cash - currently estimated to be
around $1.9bn - to shareholders as it arises.
FINANCIAL RESULTS PRESENTATION
Unless otherwise stated, all financial commentaries are given on a business
performance basis. Business performance represents the results for continuing
operations before exceptional items and certain non-cash mark-to-market
remeasurements of commodity contracts and financial instruments that are held
for economic hedging purposes but did not achieve hedge accounting. Commentary
provided in respect of results after exceptional items and certain non-cash
mark-to-market remeasurements is described as 'statutory'.
REVIEW OF RESULTS
Revenue from continuing activities for the period was #4.2bn, up #0.3bn.
Operating profit was higher than the prior period at #1,125m, up #37m on a
constant currency basis. This was primarily driven by strong results in our UK
transmission and US electricity and gas distribution segments, which were
partially offset by lower operating profit in UK gas distribution and the
expected decline in US stranded cost recoveries.
Net finance costs decreased 20% from #317m to #255m, mainly as a result of
favourable short-term cash investments and an increased pension credit. The
effective interest rate for the period was 5.5%.
Profit before tax was up 12% to #872m from #776m.
The tax charge on profit for the period was #279m, #33m higher than the prior
period due to increased profit before tax. The effective tax rate for the period
was 32%.
Earnings increased 12% on the prior period to #591m from #528m. Earnings per
share increased 21% from 17.9p last year to 21.7p, reflecting the
period-on-period impact of share consolidation following the return of #2bn to
shareholders in August 2005.
Exceptional items and remeasurements for continuing operations increased
earnings by #3m after tax. These comprised restructuring costs of #16m (#11m
after tax), commodity remeasurement gains of #36m (#22m after tax) and a net
financial instrument remeasurement impact of #66m (#8m after tax). After these
items and minority interests, statutory earnings for continuing operations
attributable to shareholders were #594m. Statutory basic earnings per share from
continuing operations increased 29% to 21.8p, up from 16.9p in the prior period.
National Grid's operating cash flows from continuing operations were #70m higher
than the prior period, at #1,382m.
Organic investment increased by 30% to #1.1bn, primarily due to increased
capital expenditure on new UK gas transmission infrastructure.
Our net debt rose to #11.7bn at 30 September 2006 compared with #10.9bn at 31
March 2006, mainly due to the increased level of capital spend and the
acquisition of the Rhode Island assets of New England Gas.
REVIEW OF OPERATIONS
TRANSMISSION
Six months ended 30 September
Operating profit (#m) 2006 2005 % change
---------------------------- ----------- ----------- -----------
UK electricity transmission 298 275 8
UK gas transmission 77 86 (10)
Other * 52 36 44
UK electricity and gas transmission 427 397 8
---------------------------- ----------- ----------- -----------
US electricity transmission
- actual exchange rate 67 68 (1)
- constant currency basis 67 68 (1)
---------------------------- ----------- ----------- -----------
* Other includes LNG storage and the French interconnector in both periods.
UK electricity and gas transmission operating profit was up 8% at #427m compared
with #397m in the prior period. This was primarily driven by a 9% increase in UK
electricity transmission allowed revenue following the one-year price control
extension, which came into effect on 1 April. In addition, market demand for
French interconnector capacity remained strong, delivering increased auction
income. These benefits were partially offset by an under-recovery of gas
transmission owner formula income and a rise in operating costs during the
period, principally driven by higher workload, including operating expenditure
associated with the increased capital investment programme.
For the full year, the increase in UK electricity transmission allowed revenue
will be a significant driver and we expect a lower level of accelerated
depreciation charges than seen in the second half last year. These benefits are
expected to be partially offset by higher operating costs driven by continuing
increases in workload and a projected under recovery of allowed revenue compared
to last year.
US electricity transmission operating profit was in line with the prior period
at #67m. At the full year we expect operating profit to be slightly lower than
the prior year. In October, the FERC approved increases in allowed returns on
equity to incentivise transmission investment in New England that will be
reflected in future financial performance.
We are currently in discussion with Ofgem on a five-year UK transmission price
control to March 2012 and in September we received Ofgem's updated proposals.
Since the initial proposals in June, progress has been made in some areas, but
as we have previously stated, further progress is needed if the outcome is to be
acceptable. The four key issues that were outstanding when we received the
updated proposals were the allowed rate of return, capital expenditure,
incentives and adjustments, and operating costs. We continue to work closely
with Ofgem ahead of the release of its final proposals in early December 2006.
Investment in UK transmission increased by 63% to #534m. Capital expenditure in
the period included:
* #144m on Milford Haven and associated projects to deliver new gas
transmission entry capacity in South Wales
* #78m on projects in support of new UK gas transmission entry capacity
at Easington
* #115m on UK electricity asset replacement
* #94m on UK electricity demand connections and other load related
infrastructure
Other smaller projects together accounted for a further #103m of investment.
In October, we announced the preferred partners for new five-year contracts that
will be a significant part of the overall projected capital investment in our
electricity transmission network. Contracts have been awarded to fourteen
construction firms, split into six geographic alliances. We believe that this
development will improve system access planning and support the safe, reliable
and efficient delivery of our investment programme.
UK GAS DISTRIBUTION
Six months ended 30 September
Operating profit (#m) 2006 2005 % change
---------------------------- ----------- ----------- -----------
UK gas distribution 71 94 (24)
---------------------------- ----------- ----------- -----------
Operating profit from UK gas distribution was down to #71m compared with #94m in
the prior period. Formula income increased as a result of price rises in October
2005, but this was more than offset by volumes being 10% lower than in the same
period last year, reflecting both the impact of warmer weather and higher gas
prices in the market. In addition, non-controllable costs were higher than the
prior period, principally due to an increase in business rates and higher
pension and shrinkage gas costs.
Looking to the full-year results, in October 2006 we implemented an average
price increase of around 9% and through this we will begin to recover increases
in pass-through costs, including higher business rates. This is expected to be
more than offset by higher operating costs, driven principally by an increase in
workload in the second half. These costs, together with the continued impact of
record warm weather into October, are expected to lead to lower full-year
results for this segment than the prior year.
During the period, our gas distribution alliances have continued to deliver our
mains replacement programme, with over 900km of mains laid, some 130km more than
the first half of last year, resulting in total replacement expenditure of
#159m. We have continued to invest in network infrastructure projects, resulting
in total capital expenditure (including replacement expenditure) of #218m.
We are currently in discussion with Ofgem on a one-year extension of the UK gas
distribution price control to March 2008 and in September we received its
initial proposals. We view these proposals as disappointing, particularly in
relation to the scale of disallowance of efficiently incurred customer driven
investment and the impact of a move to a post-tax allowed return which will
reduce the cash return on our asset base significantly without providing any
compensating factors elsewhere. We are working closely with Ofgem and hope to
make further progress towards an acceptable outcome between now and when Ofgem
makes its final proposals in December. Following this one-year review we will
work with Ofgem on a five-year price control for UK gas distribution.
US DISTRIBUTION
Six months ended 30 September
Operating profit (#m) 2006 2005 % change
---------------------------- ----------- ----------- -----------
- actual exchange rate
US electricity and gas distribution 251 170 48
US stranded cost recoveries 202 251 (20)
US distribution 453 421 8
---------------------------- ----------- ----------- -----------
- constant currency basis
US electricity and gas distribution 251 169 49
US stranded cost recoveries 202 249 (19)
US distribution 453 418 8
---------------------------- ----------- ----------- -----------
Operating profit from US gas and electricity distribution was #251m, up 49% at
constant currency. This strong result was principally driven by the recovery of
costs incurred in previous periods from our New York deferral account. We will
recover $150m during the current financial year, of which #37m is included in
these results. The timing on recovery of certain pass-through costs, primarily
commodity costs, has also led to a period-on-period benefit of #56m, due to the
combination of a #31m over-recovery this period and a #25m under-recovery in the
same period last year. These benefits have more than offset the impact of other
factors including increased reliability and maintenance spending and lower
delivery volumes primarily due to cooler summer weather and higher commodity
prices.
Recoveries from the New York deferral account will continue in the second half
of the year, as noted above. A regulatory audit of the deferral account is
on-going. The majority of the over-recovery of pass-through costs in this period
is expected to unwind in the second half of this year. In August we completed
our acquisition of gas distribution assets in Rhode Island and in the second
half we expect to report a positive contribution from this business. We expect
to see an increase in storm costs in the second half, following a snow storm in
the Buffalo area in October estimated to have cost around $70m. Under our New
York rate plan, incremental operating costs associated with major storms are
recovered through the deferral account in future periods. In the second half we
also expect to increase maintenance spending in our reliability enhancement
programme.
Capital expenditure in the period increased by #25m to #131m compared with the
prior period. We are also expecting higher capital expenditure for the full
year, compared with the prior year, mainly due to increased investment under our
reliability enhancement programme.
US stranded cost recoveries delivered #202m of operating profit. This comprised
the ongoing recovery of and return on the stranded asset base amounting to #143m
and #59m primarily related to the recovery of contract settlements made under
certain long-term purchased power arrangements. As expected, this operating
profit is lower than the prior period, which included the settlement benefit
received from USGen New England Inc. following its bankruptcy filing.
WIRELESS INFRASTRUCTURE
Six months ended 30 September
Operating profit (#m) 2006 2005 % change
---------------------------- ----------- ----------- -----------
Wireless infrastructure 42 36 17
---------------------------- ----------- ----------- -----------
Operating profit from Wireless infrastructure was up 17% at #42m compared with
#36m in the prior period. This performance was principally driven by additional
broadcast channel revenues following sales of capacity to ITV and Channel 4 in
the second half of last year. There was also continued growth in our mobile
tenancies. The business remains well positioned for double digit profit growth.
Investment in this segment was unchanged against the prior period, at #15m.
OTHER ACTIVITIES
Six months ended 30 September
Operating profit (#m) 2006 2005 % change
---------------------------- ----------- ----------- -----------
Metering 54 52 4
Isle of Grain LNG 5 1 *
Property 32 31 3
Other (26) (9) (189)
Other activities 65 75 (13)
---------------------------- ----------- ----------- -----------
* Not meaningful - Isle of Grain LNG Phase 1 became operational on 15 July 2005.
Operating profit from our other activities was down 13% at #65m compared with
#75m in the prior period.
National Grid Metering performance was slightly better than the same period last
year, with growth in our competitive metering business more than offsetting a
decline in regulated metering revenue.
In this period we saw full first-half contributions from Phase I of the Isle of
Grain, which commenced operations in July 2005, and our Basslink interconnector
which commenced operations in April 2006. Both of these investments are
underpinned by long-term take or pay contracts.
Sales of land and property surplus to our operational requirements were in line
with the prior period. At the full year we expect profits from this segment to
remain in line with the prior year, although by their nature these sales can
vary from period to period depending on the mix of properties sold.
These favourable items were more than offset by higher net insurance charges and
loss of income from connections services.
Investment in our other activities was in line with the prior period at #130m.
Increased capital expenditure in both regulated and non-regulated meters was
#27m ahead of the prior period. This was mainly offset by significantly lower
investment in Australia following the completion of our Basslink interconnector.
Investment in our Isle of Grain LNG terminal was broadly similar
period-on-period at #45m.
BOARD CHANGES
In January, we announced that Roger Urwin will retire as Chief Executive Officer
at the end of 2006 and that Steve Holliday will assume the role of Chief
Executive Officer upon Roger's retirement on 31 December 2006.
In October we announced three further Board changes. Mark Fairbairn, currently
Chief Operating Officer of UK Gas Distribution has been appointed to the Board
from 1 January 2007 and will be responsible for Gas Distribution. Linda Adamany
joined the Board as a non-executive director on 1 November 2006. Linda is a
Group Vice President of BP Refining and Marketing and has over 25 years
experience in the energy sector. Mike Jesanis, currently Group Director
responsible for US Distribution, will be leaving the Board on 31 December 2006.
STATUTORY EARNINGS AND BUSINESS PERFORMANCE
Six months ended 30 September
(#m) 2006 2005 % change
---------------------------- ----------- ----------- -----------
Business performance earnings 591 528 12
Exceptional items (after tax) (11) (45) 76
Remeasurements (after tax) 14 16 (13)
Statutory earnings from continuing
operations 594 499 19
---------------------------- ----------- ----------- -----------
Discontinued operations profit (after tax) - 29 *
Discontinued operations profit on disposal - 2,534 *
Statutory earnings 594 3,062 *
---------------------------- ----------- ----------- -----------
* Not meaningful
Exceptional items in the period comprised restructuring costs of #16m (#11m
after tax). In the prior period, exceptional items comprised restructuring costs
of #25m (#18m after tax) and finance charges of #35m (#27m after tax).
Remeasurements in the period comprised commodity remeasurement gains of #36m
(#22m after tax) reflecting changes in the carrying value of certain commodity
contract obligations, primarily index-linked swap contracts in the US, and a net
financial instrument remeasurement impact of #66m (#8m after tax) reflecting
movements in the carrying value of financial instruments, primarily derivatives,
that arise from changes in mark-to-market values or in exchange rates and are
reflected in the income statement to the extent that hedge accounting is not
achieved or is not fully effective. In the prior period, remeasurements
comprised commodity remeasurement gains of #22m (#13m after tax) and financial
instrument remeasurement losses of #42m (#29m after tax).
After including exceptional items and remeasurements, statutory earnings from
continuing operations in the period were #594m, compared with #499m for the same
period last year, giving a statutory earnings per share from continuing
operations of 21.8p (2005: 16.9p).
Further details of exceptional items and remeasurements are given in Note 3 on
page 18. A reconciliation of business performance to statutory results is
provided in the Condensed Group Income Statement, and the impact of
exceptional items and remeasurements on operating profit by business segment is
provided in Note 2.
Discontinued operations in the six months ended 30 September 2005 represented
the results up to and profit on disposal of the four UK gas distribution
networks sold on 1 June 2005. After including these, statutory earnings for the
six months ended 30 September 2005 were #3,062m and earnings per share were
103.7p. Further details of discontinued operations are given in Note 6.
CONTACT DETAILS
National Grid:
Investors
David Rees +44 (0)20 7004 3170 +44 (0)7901 511322(m)
Richard Smith +44 (0)20 7004 3172 +44 (0)7747 006321(m)
James Waite +44 (0)20 7004 3171 +44 (0)7977 440902(m)
Media
Clive Hawkins +44 (0)20 7004 3147 +44 (0)7836 357173(m)
Citigate Dewe Rogerson +44 (0)20 7638 9571
Anthony Carlisle +44 (0)7973 611888(m)
An analyst presentation will be held at Deutsche Bank AG, 75 London Wall, London
EC2N 2DB at 9:00am (UK time) today.
Live telephone coverage of the analyst presentation - password National Grid
Dial in number +44 (0)20 7081 9429
US dial in number +1 866 432 7186
Telephone replay of the analyst presentation (available until 30 November 2006)
Dial in number +44 (0)20 8196 1998
US dial in number +1 866 583 1035
Account number 682949
A live web cast of the presentation will also be available at
www.nationalgrid.com
Photographs are available on www.newscast.co.uk
Cautionary statement
This announcement contains certain statements that are neither reported
financial results nor other historical information. These statements are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. These statements include information with respect to National Grid's
financial condition, National Grid's results of operations and businesses,
strategy, plans and objectives. Words such as "anticipates", "expects",
"intends", "plans", "believes", "seeks", "estimates", "may", "will", "continue",
"project" and similar expressions, as well as statements in the future tense,
identify forward-looking statements. These forward-looking statements are not
guarantees of National Grid's future performance and are subject to assumptions,
risks and uncertainties that could cause actual future results to differ
materially from those expressed in or implied by the forward-looking statements.
Many of these assumptions, risks and uncertainties relate to factors that are
beyond National Grid's ability to control or estimate precisely, such as delays
in obtaining, or adverse conditions contained in, regulatory approvals and
contractual consents, including those required to complete the proposed
acquisition of KeySpan when or as planned, unseasonable weather affecting the
demand for electricity and gas, competition and industry restructuring, changes
in economic conditions, currency fluctuations, changes in interest and tax
rates, changes in energy market prices, changes in historical weather patterns,
changes in laws, regulations or regulatory policies, developments in legal or
public policy doctrines, the impact of changes to accounting standards and
technological developments. Other factors that could cause actual results to
differ materially from those described in this announcement include the ability
to integrate the businesses relating to announced acquisitions with our existing
business and realise the expected synergies from such integration, the
availability of new acquisition opportunities and the timing and success of
future acquisition opportunities, the impact of the sales of businesses by
National Grid, the failure for any reason to achieve reductions in costs or to
achieve operational efficiencies, the failure to retain key management, the
behaviour of UK electricity market participants on system balancing, the timing
of amendments in prices to shippers in the UK gas market, the performance of
National Grid's pension schemes and the regulatory treatment of pension costs,
and any adverse consequences arising from outages on or otherwise affecting
energy networks, including gas pipelines, owned or operated by National Grid.
For a more detailed description of some of these assumptions, risks and
uncertainties, together with any other risk factors, please see National Grid's
filings with and submissions to the US Securities and Exchange Commission (the
"SEC") (and in particular the "Risk Factors" and "Operating and Financial
Review" sections in its most recent Annual Report on Form 20-F and the "Risk
Factors" section in its Registration Statement on Form F-3 filed with the SEC on
28 June 2006). Except as may be required by law or regulation, National Grid
undertakes no obligation to update any of its forward-looking statements. The
effects of these factors are difficult to predict. New factors emerge from time
to time and National Grid cannot assess the potential impact of any such factor
on its activities or the extent to which any factor, or combination of factors,
may cause results to differ materially from those contained in any
forward-looking statement.
CONDENSED GROUP INCOME STATEMENT
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2006 2005 Year ended
31 March
2006
Notes #m #m #m
=========== =========== ===========
Group revenue 2a 4,164 3,891 9,193
Other operating income 27 23 80
Operating costs (3,034) (2,870) (6,834)
--------------- --------------- ---------------
Operating profit
- Before exceptional
items and remeasurements 2b 1,125 1,091 2,527
- Exceptional items and
remeasurements 3 32 (47) (88)
Total operating profit 2c 1,157 1,044 2,439
Interest income and
similar income 4 570 490 1,038
Interest expense and other
finance costs
- Before exceptional items
and remeasurements (825) (807) (1,644)
- Exceptional items and
remeasurements 3 (78) 7 (57)
4 (903) (800) (1,701)
Share of post-tax results
of joint ventures 2 2 3
--------------- --------------- ---------------
Profit before taxation
- Before exceptional
items and remeasurements 872 776 1,924
- Exceptional items and
remeasurements (46) (40) (145)
826 736 1,779
Taxation
- Before exceptional
items and remeasurements 5 (279) (246) (597)
- Exceptional items and
remeasurements 3 49 11 35
(230) (235) (562)
--------------- --------------- ---------------
Profit from continuing
operations after taxation
- Before exceptional
items and remeasurements 593 530 1,327
- Exceptional items and
remeasurements 3 (29) (110)
Profit for the period from
continuing operations 596 501 1,217
Profit for the period from
discontinued operations
- Before exceptional items 6 - 44 43
- Exceptional items 6 - 2,519 2,590
- 2,563 2,633
--------------- --------------- ---------------
Profit for the period 596 3,064 3,850
=========== =========== ===========
Attributable to:
- Equity shareholders 594 3,062 3,848
- Minority interests 2 2 2
--------------- --------------- ---------------
596 3,064 3,850
=========== =========== ===========
Earnings per share
- Basic 7a 21.8p 103.7p 135.6p
- Diluted 7b 21.7p 103.1p 135.0p
Earnings per share from
continuing operations
- Basic 7a 21.8p 16.9p 42.8p
- Diluted 7b 21.7p 16.8p 42.6p
=========== =========== ===========
Dividends per ordinary
share: paid during the
period 8 15.9p 15.2p 25.4p
Dividends per ordinary
share:approved or
proposed to be paid 10.9p 10.2p 26.1p
=========== =========== ===========
CONDENSED GROUP BALANCE
SHEET AT 30 SEPTEMBER 2006 2005 At 31 March
2006
Note #m #m #m
=========== =========== ===========
Non-current assets
Goodwill 2,170 2,140 2,142
Other intangible assets 319 357 321
Property, plant and
equipment 19,308 18,175 18,935
Investments in
joint ventures 9 18 12
Deferred tax assets 56 280 159
Other receivables 51 32 38
Investments 137 147 148
Derivative financial
assets 333 405 351
--------------- --------------- ---------------
Total non-current
assets 22,383 21,554 22,106
--------------- --------------- ---------------
Current assets
Other intangible
assets 24 - 41
Inventories 165 164 108
Trade and other
receivables 1,186 1,252 1,519
Financial investments 806 2,158 384
Derivative financial
assets 301 359 314
Cash and cash
equivalents 2,320 547 1,452
--------------- --------------- ---------------
Total current assets 4,802 4,480 3,818
--------------- --------------- ---------------
Total assets 27,185 26,034 25,924
--------------- --------------- ---------------
Current liabilities
Bank overdrafts (11) (23) (3)
Borrowings (1,479) (3,858) (2,839)
Derivative financial
liabilities (328) (167) (92)
Trade and other payables (1,709) (1,660) (2,095)
Current tax liabilities (303) (97) (419)
Provisions (202) (201) (235)
--------------- --------------- ---------------
Total current
liabilities (4,032) (6,006) (5,683)
--------------- --------------- ---------------
Non-current liabilities
Borrowings (13,415) (10,358) (10,287)
Derivative financial
liabilities (177) (118) (130)
Other non-current
liabilities (1,630) (1,833) (1,719)
Deferred tax
liabilities (2,042) (2,170) (2,161)
Pensions and other
post-retirement
benefit obligations (2,076) (2,283) (1,915)
Provisions (511) (551) (536)
--------------- --------------- ---------------
Total non-current
liabilities (19,851) (17,313) (16,748)
--------------- --------------- ---------------
Total liabilities (23,883) (23,319) (22,431)
--------------- --------------- ---------------
Net assets employed 3,302 2,715 3,493
=========== =========== ===========
Capital and reserves
Called up share capital 310 309 310
Share premium account 1,324 1,293 1,316
Retained earnings 6,753 6,085 6,817
Other reserves (5,097) (4,984) (4,961)
--------------- --------------- ---------------
Total shareholders'
equity 3,290 2,703 3,482
Minority interests 12 12 11
--------------- --------------- ---------------
Total equity 10 3,302 2,715 3,493
=========== =========== ===========
Net debt (net of related
derivative financial
instruments)
included above 12 11,650 11,055 10,850
--------------- --------------- ---------------
CONDENSED GROUP STATEMENT OF
RECOGNISED INCOME AND EXPENSE Year ended
FOR THE SIX MONTHS ENDED 30 31 March
SEPTEMBER 2006 2005 2006
#m #m #m
=========== =========== ===========
Exchange adjustments (130) 100 141
Actuarial (losses)/gains (350) (146) 181
Net gains/(losses)
taken to equity in
respect of cash flow
hedges 3 44 (12)
Transferred to
profit or loss
on cash flow
hedges (10) (10) (20)
Net(losses)/gains
taken to equity on
available-for-sale
investments (3) 5 4
Transferred to
profit or loss
on sale of
available-for-
sale investments (1) - (1)
Tax on items
taken directly
to or transferred
from equity 118 29 (43)
--------------- --------------- ---------------
Net (expense)/income
recognised directly in
equity (373) 22 250
Profit for the
period 596 3,064 3,850
--------------- --------------- ---------------
Total recognised
income and expense
for the period 223 3,086 4,100
=========== =========== ===========
Attributable to:
- Equity shareholders 222 3,084 4,097
- Minority interests 1 2 3
--------------- --------------- ---------------
223 3,086 4,100
=========== =========== ===========
Effect of change in
accounting policy
- IAS 39 (i) - (43) (43)
=========== =========== ===========
i) The Group adopted IAS 32 'Financial Instruments: Disclosure and
Presentation' and IAS 39 'Financial Instruments: Recognition and Measurement'
prospectively with effect from 1 April 2005.
CONDENSED GROUP CASH FLOW STATEMENT Year ended
FOR THE SIX MONTHS ENDED 30 31 March
SEPTEMBER 2006 2005 2006
#m #m #m
=========== =========== ===========
Cash flows from operating
activities
Operating profit 1,157 1,044 2,439
Adjustments for:
Exceptional items and
remeasurements (32) 47 88
Depreciation and
amortisation 460 439 952
Share based
payment charge 7 6 15
Changes in working
capital (56) (105) (212)
Changes in provisions (20) (22) 9
Changes in post
-retirement benefit
obligations (98) (34) (42)
Cash flows relating to
exceptional items (36) (63) (118)
--------------- --------------- ---------------
Cash flows generated from
continuing operations 1,382 1,312 3,131
Cash flows relating to
discontinued operations - (1) (20)
--------------- --------------- ---------------
Cash generated from
operations 1,382 1,311 3,111
Tax paid - continuing
operations (198) (83) (103)
Tax paid - discontinued
operations - (41) (37)
--------------- --------------- ---------------
Net cash inflow from
operating activities 1,184 1,187 2,971
--------------- --------------- ---------------
Cash flows from investing
activities
Acquisition of subsidiaries,
net of cash acquired (269) - -
Sale of investments in
joint ventures - - 8
Purchases of intangible
assets (5) (6) (16)
Purchases of property,
plant and equipment (1,179) (804) (1,750)
Disposals of property,
plant and equipment 6 5 18
Net movements in
financial investments (432) (1,758) 25
Dividends received from
joint ventures - 2 2
--------------- --------------- ---------------
Cash flows used in
continuing operations
investing activities (1,879) (2,561) (1,713)
Cash flows relating to
discontinued operations -
disposal proceeds 42 5,754 5,750
Cash flows relating to
discontinued operations -
other investing
activities - (115) (115)
--------------- --------------- ---------------
Net cash (used in)/from
investing activities (1,837) 3,078 3,922
--------------- --------------- ---------------
Cash flows from financing
activities
Proceeds from issue
of share capital 8 17 54
Increase/(decrease)
in borrowings and
related derivatives 2,264 (1,197) (2,304)
Net interest paid (291) (368) (704)
Exceptional finance costs
on the repayment of
debt - (35) (49)
Dividends paid to
shareholders (433) (469) (745)
Cash paid to shareholders
under B share scheme (26) (1,957) (1,957)
Purchase of treasury
shares - - (7)
--------------- --------------- ---------------
Net cash from/(used in)
financing activities 1,522 (4,009) (5,712)
--------------- --------------- ---------------
Net increase in cash and
cash equivalents 869 256 1,181
Exchange movements (9) 14 14
Cash and cash
equivalents at
start of period (i) 1,449 254 254
--------------- --------------- ---------------
Cash and cash
equivalents at
end of period (i) 2,309 524 1,449
=========== =========== ===========
i) Net of bank overdrafts.
NOTES TO THE INTERIM ANNOUNCEMENT
1. Basis of preparation
The financial information contained in this announcement does not constitute
statutory accounts as defined in Section 240 of the Companies Act 1985. The
statutory accounts for the year ended 31 March 2006 were prepared under
International Financial Reporting Standards (IFRS), as endorsed by the European
Union and have been delivered to the Registrar of Companies. The auditors'
report on those statutory accounts was unqualified and did not contain a
statement under Section 237(2) or (3) of the Companies Act 1985.
The financial information in respect of the six months ended 30 September 2006
included in this interim announcement has been prepared in accordance with
International Accounting Standard (IAS) 34 'Interim Financial Reporting' and is
unaudited but has been reviewed by the auditors and their report is attached to
this document. It has been prepared on the basis of the accounting policies
applicable for the year ending 31 March 2007 as set out in the Group's most
recent Annual Report and Accounts as amended to reflect new accounting standards
and interpretations applicable to this period.
The standards and interpretations which have been adopted by the Group for the
year ending 31 March 2007 are as follows:
* International Financial Reporting Interpretations Committee (IFRIC) 4
- Determining whether an arrangement contains a lease
* IFRIC 5 - Rights to Interests arising from Decommissioning,
Restoration and Environmental Rehabilitation Funds
* Amendment to IAS 39 - Financial Instruments: Recognition and
Measurement: The Fair Value Option
* Amendment to IAS 39 - Financial Instruments: Recognition and
Measurement, and IFRS 4 Insurance Contracts: Financial Guarantee Contracts
* Amendment to IAS 21 - The Effect of Changes in Foreign Exchange Rates
* IFRIC 6 - Liabilities Arising from Participating in a Specific Market
- Waste Electrical and Electronic Equipment
* IFRIC 7 - Applying the Restatement Approach under IAS 29 'Financial
Reporting in Hyperinflationary Economies'
The adoption of new accounting standards and interpretations did not have a
material impact on the financial results or position of the Group in the six
months ended 30 September 2006 or in the year ended 31 March 2006.
The following interpretations have not been adopted for the year ended 31 March
2007:
* IFRIC 8 - Scope of IFRS 2
* IFRIC 9 - Reassessment of Embedded Derivatives
* IFRIC 10 - Interim Financial Reporting and Impairment
* IFRIC 11 - Group and Treasury Share Transactions
This announcement was approved by the Board of Directors on 16 November 2006.
2. Segmental analysis
Segmental information is presented in accordance with the management
responsibilities and economic characteristics, including consideration of risks
and returns, of the Group's business activities. The following table describes
the main activities for each business segment:
---------------- ---------------------------------------
UK electricity and High-voltage electricity transmission networks, the gas
gas transmission National Transmission System in the UK,
UK liquefied natural gas storage activities and the Scottish
and French electricity interconnectors
US electricity High-voltage electricity transmission networks and management
transmission of electricity transmission operations for other utilities in
the US
UK gas Four of the eight regional networks of Britain's gas
distribution distribution system
US electricity and Electricity and gas distribution in New York and New England
gas distribution
US stranded cost The recovery of stranded costs from US customers as permitted
recoveries by regulatory agreements
Wireless Broadcast and mobile telephony infrastructure in the UK and
infrastructure US
---------------- ---------------------------------------
Other activities primarily relate to UK based gas metering activities, UK
property services and the Group's energy technology and systems solutions
business.
Discontinued operations comprised the operations of the four gas distribution
networks that the Group sold on 1 June 2005.
Certain of our businesses are affected by seasonality. Revenues from our gas
distribution networks in the UK and the US and our gas transmission network in
the UK are weighted towards the end of the financial year, as gas demand is
typically higher during the winter months. Otherwise, seasonality does not have
a significant impact on revenues. With the exception of commodity costs passed
through to customers, our operating costs are generally not seasonal.
The Group assesses the performance of its businesses principally on the basis of
operating profit before exceptional items and remeasurements. The Group's
primary reporting format is by business and the secondary reporting format is by
geographical area.
a) Group revenue
Six months
ended 30
September 2006 2005 Year ended
31 March
2006
#m #m #m
=========== =========== ===========
Continuing operations - business
segments
UK electricity and
gas transmission 1,323 1,154 2,710
US electricity transmission 151 152 310
UK gas distribution 447 439 1,222
US electricity and gas
distribution 1,770 1,539 3,711
US stranded cost recoveries 205 244 511
Wireless infrastructure 171 155 325
Other activities 303 359 701
Sales between businesses (206) (151) (297)
--------------- --------------- ---------------
Group revenue 4,164 3,891 9,193
=========== =========== ===========
Continuing operations -
geographical segments
UK 2,116 1,960 4,671
US 2,037 1,931 4,522
Rest of the World 11 - -
--------------- --------------- ---------------
Group revenue 4,164 3,891 9,193
=========== =========== ===========
b) Operating profit - before exceptional items and remeasurements
Six months
ended 30
September 2006 2005 Year ended
31 March
2006
#m #m #m
=========== =========== ===========
Continuing operations - business
segments
UK electricity and
gas transmission 427 397 844
US electricity transmission 67 68 127
UK gas distribution 71 94 483
US electricity and gas
distribution 251 170 364
US stranded cost recoveries 202 251 489
Wireless infrastructure 42 36 75
Other activities 65 75 145
--------------- --------------- ---------------
Operating profit before
exceptional items and
remeasurements 1,125 1,091 2,527
=========== =========== ===========
Continuing operations -
geographical segments
UK 599 600 1,549
US 521 491 983
Rest of the World 5 - (5)
--------------- --------------- ---------------
Operating profit before
exceptional items and
remeasurements 1,125 1,091 2,527
=========== =========== ===========
c) Operating profit - after exceptional items and remeasurements
Six months
ended 30
September 2006 2005 Year ended
31 March
2006
#m #m #m
=========== =========== ===========
Continuing operations - business
segments
UK electricity and
gas transmission 420 396 843
US electricity transmission 67 68 127
UK gas distribution 66 69 432
US electricity and gas
distribution 248 170 364
US stranded cost recoveries 250 229 440
Wireless infrastructure 42 35 70
Other activities 64 77 163
--------------- --------------- ---------------
Operating profit after
exceptional items and
remeasurements 1,157 1,044 2,439
=========== =========== ===========
Continuing operations -
geographical segments
UK 586 575 1,489
US 566 469 934
Rest of the World 5 - 16
--------------- --------------- ---------------
Operating profit after
exceptional items and
remeasurements 1,157 1,044 2,439
=========== =========== ===========
3. Exceptional items and remeasurements
The Group separately discloses items of income and expenditure relating to
transactions that are material, either by their nature or size, that are
relevant to an understanding of the Group's financial performance. These include
non-recurring exceptional income or charges that do not relate to the underlying
financial performance of the Group. Remeasurements are non-cash movements in the
carrying value of financial instruments and of certain commodity contracts that
arise from changes in mark-to-market values or in exchange rates, that are
reflected in the income statement to the extent hedge accounting is not achieved
or is not effective.
Six months
ended 30
September 2006 2005 Year ended
31 March
2006
#m #m #m
============ ============ ============
Continuing operations
Exceptional items -
restructuring costs (i) 16 25 60
Exceptional items -
profit on sale and
reversal of
impairment (ii) - - (21)
Remeasurements
- commodity contracts(iii) (48) 22 49
Total exceptional items
and remeasurements
included within
operating profit (32) 47 88
Exceptional finance
costs (iv) - 35 49
Remeasurements
- commodity contracts(iii) 12 - 14
Remeasurements
- net losses/(gains)
on derivative financial
instruments (v) 66 (42) (6)
Total exceptional
items and
remeasurements
included within net
finance costs 78 (7) 57
--------------- --------------- ---------------
Total exceptional
items and
remeasurements
before taxation 46 40 145
============ ============ ============
Tax on restructuring
costs (i) (5) (7) (12)
Tax on commodity
contract remeasurements (iii) 14 (9) (25)
Tax on exceptional
finance costs (iv) - (8) (15)
Tax on derivative
financial instrument
remeasurements (v) (58) 13 17
--------------- --------------- ---------------
Tax on exceptional
items and remeasurements (49) (11) (35)
============ ============ ============
Total exceptional
items after taxation 11 45 61
Total commodity
contract remeasurements
after taxation (22) 13 38
Total derivative financial
instrument remeasurements
after taxation 8 (29) 11
--------------- --------------- ---------------
Total exceptional items
and remeasurements
after taxation (3) 29 110
============ ============ ============
i) Restructuring costs relate to planned cost reduction programmes in the
UK and US businesses. For the six months ended 30 September 2006, restructuring
costs included pension costs of #5m arising as a result of redundancies (six
months ended 30 September 2005: #19m; year ended 31 March 2006: #25m).
ii) Reversal of prior period impairment of #13m related to National Grid's
investment in Copperbelt Energy Corporation and gain on disposal of an
investment in Energis Polska of #8m.
iii) Commodity contract remeasurements represent mark-to-market movements on
certain commodity contract obligations, primarily indexed-linked swap contracts,
in the US. Under the Group's existing rate plans in the US, commodity costs are
fully recovered from customers, although the pattern of recovery may differ from
the pattern of costs incurred. These movements are comprised of those impacting
operating profit which is based on the change in the commodity contract
liability and those impacting finance costs as a result of discounting.
iv) Exceptional finance costs in 2005 represent costs incurred on the early
redemption of debt following the disposal of the four gas distribution networks,
together with issue costs associated with the B share scheme.
v) Remeasurement (gains)/losses on derivative financial instruments comprise
non-cash gains and losses arising on derivative financial instruments reported
in the income statement, net of related exchange gains or losses on related
financial instruments. These exclude gains and losses for which hedge accounting
has been effective, which are recognised directly in equity or offset by
adjustments to the carrying value of debt.
4. Finance income and costs
Six months ended
30 September 2006 2005 Year ended
31 March
2006
#m #m #m
=========== =========== ===========
Expected return on
pension scheme
assets 466 458 903
Interest and
similar income
on financial
assets 104 32 135
--------------- --------------- ---------------
Interest
income and
similar income 570 490 1,038
=========== =========== ===========
Interest on
pension scheme
liabilities (436) (451) (891)
Interest payable on
borrowings (net of
related derivatives) (408) (383) (795)
Unwinding of
discount on
provisions (11) (6) (18)
Less: interest
capitalised 30 33 60
--------------- --------------- ---------------
(825) (807) (1,644)
Finance charges on the
early redemption of
debt and B share scheme - (35) (49)
Net (losses)/gains
on derivative
financial instruments
and commodity
contracts (78) 42 (8)
--------------- --------------- ---------------
Interest expense and
other finance costs (903) (800) (1,701)
=========== =========== ===========
Net finance
costs (333) (310) (663)
=========== =========== ===========
Comprising:
Net finance
costs excluding
exceptional finance
costs and
remeasurements (255) (317) (606)
Exceptional
finance costs and
remeasurements
(note 3) (78) 7 (57)
--------------- --------------- ---------------
(333) (310) (663)
=========== =========== ===========
5. Taxation
Six months ended
30 September 2006 2005 Year ended
31 March
2006
#m #m #m
=========== =========== ===========
Taxation -
excluding
exceptional
items and
remeasurements 279 246 597
Taxation -
exceptional
items and
remeasurements
(note 3) (49) (11) (35)
--------------- --------------- ---------------
Taxation 230 235 562
=========== =========== ===========
The tax charge, excluding tax on exceptional items and remeasurements, for the
six months ended 30 September 2006, is based on the estimated effective tax rate
for the year ending 31 March 2007 of 32.0% (30 September 2005: 31.7%).
6. Discontinued operations
On 1 June 2005, the Group disposed of its holding in four of the eight regional
gas distribution networks. The results of these operations were previously
included within the UK gas distribution segment.
Results of discontinued operations
Six months ended
30 September 2006 2005 Year ended
31 March
2006
#m #m #m
=========== =========== ===========
Revenue - 168 168
Operating costs - (120) (122)
--------------- --------------- ---------------
Operating profit before
exceptional item - 63 61
Exceptional item (i) - (15) (15)
Total operating
profit from
discontinued operations - 48 46
Taxation - (19) (18)
--------------- --------------- ---------------
Profit from
discontinued
operations - 29 28
--------------- --------------- ---------------
Gain on disposal of
discontinued operations
before taxation - 2,557 2,636
Taxation - (23) (31)
--------------- --------------- ---------------
Gain on disposal of
discontinued operations - 2,534 2,605
--------------- --------------- ---------------
Total profit for the period
- Before exceptional items - 44 43
- Exceptional items including
gain on disposal - 2,519 2,590
Total profit
for the period
from discontinued
operations - 2,563 2,633
=========== =========== ===========
i) The operating exceptional item in the comparative period related to a
fine incurred in respect of a breach of the Health and Safety at Work Act.
7. Earnings per share
a) Basic earnings per share
Year ended Year ended
31 March 31 March
Six months ended
30 September 2006 2006 2005 2005 2006 2006
#m pence #m pence #m pence
========= ========== ========== ========= ========== ==========
Adjusted
earnings per
share
- continuing
operations 591 21.7p 528 17.9p 1,325 46.7p
Exceptional
operating
items (16) (0.6)p (25) (0.9)p (39) (1.4)p
Exceptional
finance costs - - (35) (1.2)p (49) (1.7)p
Remeasurements (30) (1.1)p 20 0.7p (57) (2.0)p
Tax on
exceptional
items 5 0.2p 15 0.5p 27 0.9p
Tax on
remeasurements 44 1.6p (4) (0.1)p 8 0.3p
--------------- --------------- --------------- ----------------
Earnings per
share -
continuing
operations 594 21.8p 499 16.9p 1,215 42.8p
========= ========== ========= ========= ========= ==========
Adjusted
earnings per
share
- discontinued
operations - - 44 1.5p 43 1.5p
Gain on
disposal of
gas
distribution
networks (net
of tax) - - 2,534 85.8p 2,605 91.8p
Other
exceptional
items (net of
tax) - - (15) (0.5)p (15) (0.5)p
--------------- --------------- --------------- ----------------
Earnings per
share -
discontinued
operations - - 2,563 86.8p 2,633 92.8p
========= ========= ========= ========= ========= ==========
Earnings per
share 594 21.8p 3,062 103.7p 3,848 135.6p
========= ========= ========= ========= ========== ==========
millions millions millions
========== ========= ==========
Weighted average number
of shares - basic (i) 2,721 2,953 2,837
========== ========= ==========
i) The Group completed a 43 for 49 share consolidation on 1 August 2005.
b) Diluted earnings per share
Year ended Year ended
31 March 31 March
Six months ended
30 September 2006 2006 2005 2005 2006 2006
#m pence #m pence #m pence
========= ========== ========== ========= ========== ==========
Adjusted
diluted
earnings per
share
- continuing
operations 591 21.6p 528 17.8p 1,325 46.5p
Exceptional
operating
items (16) (0.6)p (25) (0.9)p (39) (1.4)p
Exceptional
finance costs - - (35) (1.2)p (49) (1.7)p
Remeasurements (30) (1.1)p 20 0.7p (57) (2.0)p
Tax on
exceptional
items 5 0.2p 15 0.5p 27 0.9p
Tax on
remeasurements 44 1.6p (4) (0.1)p 8 0.3p
--------------- --------------- --------------- ---------------
Diluted
earnings per
share -
continuing
operations 594 21.7p 499 16.8p 1,215 42.6p
========= ========== ========= ========== ========= =========
Adjusted
diluted
earnings per
share
- discontinued
operations - - 44 1.5p 43 1.5p
Gain on
disposal of
gas
distribution
networks (net
of tax) - - 2,534 85.3p 2,605 91.4p
Other
exceptional
items (net of
tax) - - (15) (0.5)p (15) (0.5)p
--------------- --------------- --------------- ---------------
Diluted
earnings per
share -
discontinued
operations - - 2,563 86.3p 2,633 92.4p
========= ========== ========== ========== ========= =========
Diluted
earnings per
share 594 21.7p 3,062 103.1p 3,848 135.0p
========= ========== ========== ========== ========= =========
millions millions millions
========== ========== =========
Weighted
average number
of shares -
diluted 2,735 2,970 2,851
========== ========== =========
The difference between the basic and diluted weighted average number of shares
is the effect of dilutive potential shares relating to employee share options.
8. Dividends
The following table shows the dividends paid to equity shareholders:
Six
months
ended 30 Year ended Year ended
September 31 March 31 March
2006 2006 2005 2005 2006 2006
pence #m pence #m pence #m
per share per share per share
========== ========= ========= ========= ========= =========
Ordinary
dividends
Final
dividend
for the
year ended
31 March 2006 15.9p 433 - - - -
Interim
dividend
for the
year ended
31 March 2006 - - - - 10.2p 276
Final
dividend
for the
year ended
31 March 2005 - - 15.2p 469 15.2p 469
--------------- --------------- --------------- --------------- ------
15.9p 433 15.2p 469 25.4p 745
========== ========= ========== ======== ========== ==========
The Board has approved an interim dividend of 10.9p per share (total dividend
distribution of #297m) to be paid in respect of the period ended 30 September
2006.
9. Acquisitions
On 24 August 2006, the Group acquired New England Gas Company's Rhode Island
assets ('New England Gas') for total consideration of #269m, including
acquisition costs of #3m. The goodwill arising on the acquisition was #146m.
Goodwill principally relates to synergies, cost improvements, market position,
the assembled workforce and the potential for future growth. Because the
acquisition occurred late in the financial period, fair values and goodwill
arising on the acquisition are provisional and may be subject to revision.
The acquired business is reported within the US electricity and gas distribution
segment.
Book value at Provisional
acquisition fair value
under IFRS
#m #m
=========== ===========
Intangibles 15 16
Property, plant and equipment 134 135
Inventories 19 19
Trade and other receivables 37 37
Trade and other payables (19) (19)
Deferred tax 9 10
Provisions (9) (9)
Pensions and other
post-retirement benefits (18) (18)
Borrowings (42) (48)
--------------- ---------------
Net assets acquired 126 123
===========
Goodwill 146
---------------
Consideration 269
===========
In the Group's consolidated income statement for the six months to 30 September
2006, #2m of operating loss before exceptional items and remeasurements, and #3m
of operating loss after exceptional items and remeasurements has been included,
representing the post-acquisition results of New England Gas. If New England Gas
had been acquired on 1 April 2006, the results for the Group would not have been
materially different.
10. Reconciliation of movements in total equity
Six months ended
30 September Year ended
2006 2005 31 March 2006
#m #m #m
========== ========== ==========
Opening total equity 3,493 2,078 2,078
Changes in total equity for the
period
Net income recognised
directly in equity (373) 22 250
Profit for the period 596 3,064 3,850
Equity dividends (433) (469) (745)
Return of capital to shareholders
through B share scheme - (2,009) (2,009)
Issue of ordinary share capital 8 4 28
Other movements in minority interests (1) - (2)
Movement in shares held in employee
share trusts - 13 19
Employee share option scheme issues 7 7 17
Tax on employee share option
scheme issues 5 5 7
--------------- --------------- ---------------
Closing total equity 3,302 2,715 3,493
========== ========== ==========
11. Reconciliation of net cash flow to movement in net debt
Six months
ended 30
September Year ended
31 March
2006 2005 2006
#m #m #m
=========== =========== ===========
Movement in cash and
cash equivalents 869 256 1,181
Increase/(decrease)
in financial
investments 432 1,758 (25)
(Increase)/decrease
in borrowings and
related derivatives(i) (2,264) 1,197 2,304
Cash paid to
shareholders under
B share scheme 26 1,957 1,957
Net interest paid 291 368 704
--------------- --------------- ---------------
Change in net
debt resulting
from cash flows (646) 5,536 6,121
Changes in fair
value of financial
assets and
liabilities
and exchange
movements 194 (254) (299)
Issue of B shares - (2,009) (2,009)
Net interest
charge (304) (351) (660)
Other non-cash
movements (44) 9 (17)
--------------- --------------- ---------------
Movement in net
debt (net of
related derivative
financial
instruments)in
the period (800) 2,931 3,136
Net debt at
start of period (10,850) (13,986) (13,986)
--------------- --------------- ---------------
Net debt (net of
related derivative
financial
instruments) at end
of period (11,650) (11,055) (10,850)
=========== =========== ===========
i) Increase in borrowings and related derivatives for the six months ended 30
September 2006 comprises proceeds from loans received of #3.5 billion less
payments to repay loans of #1.2 billion.
12. Net debt
At 30 September 31 March
2006 2005 2006
#m #m #m
=========== =========== ===========
Cash and cash
equivalents 2,320 547 1,452
Bank overdrafts (11) (23) (3)
--------------- --------------- ---------------
Net cash and
cash equivalents 2,309 524 1,449
Financial investments 806 2,158 384
Borrowings (14,894) (14,216) (13,126)
--------------- --------------- ---------------
(11,779) (11,534) (11,293)
Net debt related
derivative financial
assets 634 764 665
Net debt related
derivative financial
liabilities (505) (285) (222)
--------------- --------------- ---------------
Net debt (net of
related derivative
financial instruments) (11,650) (11,055) (10,850)
=========== =========== ===========
13. Commitments and contingencies
At 30 September 2006 2005 31 March
2006
#m #m #m
=========== =========== ===========
Future capital expenditure
contracted for but not provided 1,343 1,075 1,343
Group commitments under
non-cancellable operating leases 800 889 831
Obligations to purchase energy under
long-term contracts 4,768 5,677 5,453
Guarantees (i) 188 181 149
Other commitments and contingencies 205 202 185
=========== =========== ===========
i) Details of the guarantees entered into by the Group at 30 September 2006 are
as follows:
a) performance guarantees of #21m relating to certain property obligations
of Group undertakings. The bulk of these expire by December 2025;
b) a guarantee of #50m of the obligations of a Group undertaking to make
payments in respect of liabilities under a meter operating contract that runs
until May 2008;
c) a performance guarantee relating to the construction of the Victoria to
Tasmania Interconnector of 24m Australian dollars (AU$24m) (#10m). This expires
at the end of November 2006;
d) a guarantee of the payment obligations of a Group undertaking in
respect of a Power Connection Agreement amounting to an annual maximum of AU$7m,
reducing over the term of the contract. This runs until June 2051, but the
maximum potential payout is estimated at #5m;
e) a guarantee of the payment obligations of a Group undertaking in
respect of a Nitrogen Supply Agreement amounting to a maximum potential payout
of #13m subject to a cap of #1m per annum. This runs until November 2019;
f) a guarantee of the payment obligations of a Group undertaking in
respect of a Power Connection Agreement amounting to a maximum potential payout
of #14m subject to a cap of #7m per annum. This runs until December 2024;
g) guarantees in respect of a former associate amounting to #14m, the bulk
of which relates to its obligation to supply telecommunications services. This
is open-ended;
h) a guarantee in support of the transfer of the French Interconnector to
NG Interconnectors as part of the Licence to Assign Lease. This is unlimited and
open-ended but the maximum liability is estimated at #40m;
i) guarantees in support of Group undertakings to enable them to trade
on the Amsterdam Power Exchange. These amount to #6m and mainly expire by
September 2007; and
j) other guarantees amounting to #15m arising in the normal course of
business and entered into on normal commercial terms. These guarantees run for
varying lengths of time.
14. Events after the balance sheet date
On 2 October 2006, the Group completed the purchase of ClearShot Communications
LLC for US$133m. The key operations of ClearShot Communications are the
construction and ownership of wireless telecommunications towers across several
southern US states.
On 16 November 2006, the Group announced its plans to demerge the Wireless
infrastructure business, and to sell Basslink, the electricity interconnector in
Australia.
15. Exchange rates
The Group's results are affected by the exchange rates used to translate the
results of its US operations and US dollar transactions. The US dollar to
sterling exchange rates used were:
30 September 2006 2005 31 March
2006
=========== =========== ===========
Closing rate applied at period end 1.88 1.76 1.74
Average rate applied for the period 1.86 1.85 1.79
=========== =========== ===========
16. Differences between IFRS and US generally accepted accounting principles
('US GAAP')
Summarised financial statements on a US GAAP basis and an explanation of the
differences between IFRS and US GAAP as applied in preparing the Group accounts
are set out in the Annual Report and Accounts. Details of the principal
differences between IFRS and US GAAP are shown below.
a) Reconciliation of net income to US GAAP
The following is a summary of the material adjustments to net income that would
have been required if US GAAP had been applied instead of IFRS:
Six months
ended 30
September 2006 2005 Year ended
31 March
2006
#m #m #m
=========== ========== ===========
Profit for the period
attributable to equity
shareholders under IFRS 594 3,062 3,848
--------------- ----------------- -------------------
Adjustments to
conform with US GAAP
Depreciation of
property, plant
and equipment ('PP&E') (57) (65) (127)
US regulatory
accounting (266) (145) (269)
Pensions and
other post-retirement
benefits (39) - (56)
Financial instruments 124 2 (130)
Severance costs 3 (44) (63)
Revenue recognition 14 (1) (48)
Amortisation of
intangibles - (1) (2)
Interest on discounted
provisions (8) 11 (14)
Deferred taxation 138 94 208
Other (1) (8) (3)
Discontinued operations
- gain on disposal of
business - (2,196) (2,196)
Discontinued operations
- pensions and other
post-retirement benefits - (127) (127)
Discontinued operations
- deferred taxation - 286 286
--------------- ----------------- -------------------
(92) (2,194) (2,541)
--------------- ----------------- -------------------
Net income under
US GAAP 502 868 1,307
=========== ========== ===========
Basic earnings
per share - US GAAP 18.5p 32.1p 48.2p
Diluted earnings per
share - US GAAP 18.4p 32.0p 48.0p
=========== ========== ===========
b) Reconciliation of shareholders' equity from IFRS to US GAAP
The following is a summary of the material adjustments to shareholders' equity
that would have been required if US GAAP had been applied instead of IFRS:
At 30 September 2006 2005 31 March
2006
#m #m #m
========== ========== ==========
Total shareholders'
equity under IFRS 3,290 2,703 3,482
--------------- ---------------- ----------------
Adjustments to conform
with US GAAP
PP&E fair value
adjustments 2,105 2,224 2,162
Goodwill 2,652 2,686 2,689
US regulatory accounting 2,291 2,809 2,702
Pensions and other
post-retirement benefits 1,103 990 886
Financial instruments 94 205 119
Severance liabilities 5 21 2
Revenue recognition (28) 5 (42)
Intangible assets 28 29 28
Provisions (158) (127) (154)
Non-reversal of impairments (37) (28) (39)
Deferred taxation (1,955) (2,203) (2,090)
Other (12) 2 2
--------------- ---------------- ----------------
6,088 6,613 6,265
--------------- ---------------- ----------------
Shareholders' equity
under US GAAP 9,378 9,316 9,747
========== ========== ==========
c) New US accounting standards
In July 2006, the Financial Accounting Standards Board (FASB) issued Financial
Interpretation No. 48 'Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement No. 109' (FIN 48), which specifies how tax
benefits for uncertain tax positions are to be recognised, measured and
derecognised in financial statements. FIN 48 requires certain disclosures of
uncertain tax matters, specifies how reserves for uncertain tax provisions
should be classified in the balance sheet and provides transition and
interim-period guidance. FIN 48 is effective for years beginning after 15
December 2006. We are currently assessing the impact that the adoption of FIN 48
will have on the Group financial statements.
In September 2006, the FASB issued Statement of Financial Accounting Standard
No. 158 'Employers' Accounting for Defined Benefit Pension and Other
Postretirement Plans, an amendment of FASB statements No. 87, 106 and 132(R)'
(SFAS No. 158). This standard requires recognition of a net liability or asset
and an offsetting adjustment to accumulated other comprehensive income to report
the funded status of defined benefit pension and other post-retirement benefit
plans. SFAS No. 158 requires prospective application, recognition and disclosure
requirements effective for the year ending 31 March 2007. We intend to adopt
SFAS No. 158 on 31 March 2007, which should have the effect of substantially
reducing (but not completely eliminating) the difference in shareholders' equity
between IFRS and US GAAP. The difference in net income between IFRS and US GAAP
is likely to remain substantially unchanged.
The Group has adopted SFAS No. 123(R) 'Share-Based Payment '. The adoption of
this standard has had no material impact on the results from operations or the
Group's financial position.
Independent review report to National Grid plc
Introduction
We have been instructed by the company to review the financial information for
the six months ended 30 September 2006 which comprises the consolidated interim
balance sheet as at 30 September 2006 and the related consolidated interim
statements of income, cash flows and recognised income and expense for the six
months then ended and related notes. We have read the other information
contained in the interim report and considered whether it contains any apparent
misstatements or material inconsistencies with the financial information.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by the directors. The Listing Rules
of the Financial Services Authority require that the accounting policies and
presentation applied to the interim figures should be consistent with those
applied in preparing the preceding annual accounts except where any changes, and
the reasons for them, are disclosed.
This interim report has been prepared in accordance with International
Accounting Standard 34 'Interim Financial Reporting'.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board for use in the United Kingdom. A review
consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the disclosed accounting policies have
been applied. A review excludes audit procedures such as tests of controls and
verification of assets, liabilities and transactions. It is substantially less
in scope than an audit and therefore provides a lower level of assurance.
Accordingly we do not express an audit opinion on the financial information.
This report, including the conclusion, has been prepared for and only for the
company for the purpose of the Listing Rules of the Financial Services Authority
and for no other purpose. We do not, in producing this report, accept or assume
responsibility for any other purpose or to any other person to whom this report
is shown or into whose hands it may come save where expressly agreed by our
prior consent in writing.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 September 2006.
PricewaterhouseCoopers LLP
Chartered Accountants
London
16 November 2006
Notes:
(a) The maintenance and integrity of the National Grid plc web site is the
responsibility of the directors; the work carried out by the auditors does not
involve consideration of these matters and, accordingly, the auditors accept no
responsibility for any changes that may have occurred to the interim report
since it was initially presented on the web site.
(b) Legislation in the United Kingdom governing the preparation and
dissemination of financial information may differ from legislation in other
jurisdictions.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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