RNS Number:7708H
National Grid PLC
15 November 2007
15 November 2007
National Grid plc
Half year report for the six months ended 30 September 2007 (unaudited)
HIGHLIGHTS
* Very strong first half performance
* Operating profit, excluding US stranded cost recoveries, up 19%
* Earnings per share, excluding US stranded cost recoveries, up 23%
* Interim dividend 11.7p, dividend policy update early 2008
* Outlook for the full year remains in line with our expectations
* Delivering on strategy
* Acquisition of KeySpan and disposals of Wireless and Basslink completed
* #1,042m returned to shareholders via buy-back programme to date
* Capital investment up 39% on prior period, strong investment pipeline for
organic growth
FINANCIAL RESULTS FOR CONTINUING OPERATIONS
(#m, at actual exchange rate) Six months ended 30 September
2007 2006 % change
---------------------------------- -------- -------- --------
Business performance(1) (excluding US stranded cost recoveries)
Operating profit 1,039 876 19
Pre-tax profit 757 625 21
Earnings 528 437 21
Earnings per share 19.8 16.1 23
Earnings per share (including 24.1 20.5 18
US stranded cost recoveries)
---------------------------------- -------- -------- --------
Statutory results
Operating profit 1,187 1,110 7
Pre-tax profit 917 781 17
Earnings 783 561 40
Earnings per share 29.4 20.6 43
---------------------------------- -------- -------- --------
Dividend per share 11.7 10.9 7
---------------------------------- -------- -------- --------
Steve Holliday, Chief Executive, said:
"National Grid continues to make significant
progress. We are delivering on all fronts of our
strategy and have produced an excellent
financial performance in this period. We have in
place a strong management team that is
developing a unique global operating model.
"Our growth prospects are positive, given the
diversity of our regulatory settlements and our
plans for investment in our current business. I
believe we have a great platform to deliver
further improvements in customer service,
reliability, safety and environmental
performance and continue to deliver value for
our shareholders."
CHIEF EXECUTIVE'S REVIEW
National Grid has continued to deliver its
strategy on all fronts. We have again delivered
a very strong financial performance, growing
operating profit - particularly in our
Transmission and Gas Distribution businesses -
growing earnings per share, and increasing the
interim dividend.
During the period we completed the planned
disposals of non-core businesses. In April, we
announced that we had sold our UK Wireless
business and we completed the sale of our US
Wireless business in August. Also in August, we
completed the sale of Basslink, our
interconnector in Australia. Together these
disposals have generated total proceeds of
#3.1bn, almost double our invested capital.
On 24 August, we completed the acquisition of
KeySpan, significantly growing our footprint in
North America and positioning National Grid as
the second largest energy delivery company in
the US (by customer numbers). We are making good
progress with the implementation of our global
operating model and the integration of KeySpan.
We believe that around 75% of our activities can
be managed on either a global or lines of
business basis, while only 25% need to be
tailored to meet specific local requirements. To
achieve this aim, we are developing and
deploying standardised procedures and processes
for customer service, asset management, and work
delivery. In support of these 'front-line'
activities, we have established UK and US Shared
Services, Global IS and Global Finance
organisations. We believe that this approach to
running our business will yield significant
savings in our regulated controllable cost base,
which is around #2bn annually. This framework
provides an excellent platform for improving
customer service, reliability, safety and
environmental performance, and is, over time,
expected to create significant shareholder
value.
As part of our continuing focus on electricity
and gas operations we are currently assessing a
potential sale of our National Grid UK Property
business. In September, we issued an information
memorandum to potential buyers, and expect to
take a decision on a sale option later this
year.
In October, we announced our intention to pursue
the sale of Ravenswood, our generating station
in New York City. Sale of the plant is a
condition of the New York Public Service
Commission (NYPSC) order approving the
acquisition of KeySpan. Our timetable is well in
advance of the three year period allowed by the
NYPSC and we expect to announce an agreed sale
by the end of the first quarter of 2008.
Investment
We have a strong investment pipeline for organic
growth and plan to invest a total of around
#16bn in our priority markets over the six years
to March 2012. This is expected to be financed
from internal cashflow and borrowings. Our plans
are on track and since April 2006, we have
invested #3.8bn.
In the UK electricity and gas markets,
investment is being driven by changes in sources
of gas supply, the development of the UK
Government's energy policy and the need for
asset replacement. In Transmission, our UK
investment for the five years to 2012 has been
agreed with Ofgem and will be remunerated under
the regulatory price control that came into
effect on 1 April 2007. In Gas Distribution, we
are currently discussing with Ofgem our UK
investment requirements for the five years to
2013 as part of the regulatory price control
beginning 1 April 2008, and we project capital
investment of #3.6bn (including replacement
expenditure of #2.4bn) over the five-year
period. By March 2012 we project that the value
of our total UK regulatory asset base will have
grown by over 35% from its March 2007 level.
In the US electricity and gas markets,
investment is being driven by demand growth,
customer additions, reliability, and the need
for asset replacement. On 22 October, as agreed
with the NYPSC, we filed a detailed five-year
capital investment plan for electricity
transmission and distribution in upstate New
York. This plan calls for a minimum investment
of $1.47bn and the potential to invest up to
around $2.4bn. We will be filing with the NYPSC
shortly to recover a portion of this investment
under our existing rate plan and expect to
recover the balance as part of our next rate
plan from 1 January 2012. These investments are
largely targeted at enhancing customer service
by improving the reliability of our electricity
system. Our enlarged US gas networks offer a
significant opportunity for growth through new
gas connections - we aim to connect around
60,000 new customers to our networks each year
- and together with asset replacement, we expect
this will drive annual investment of around
$600m on average. By March 2012, we project that
the value of our US rate base will have grown by
over 25% from its March 2007 level.
Regulation
National Grid operates under 20 main regulatory
controls and we believe that this regulatory
portfolio leads to greater stability in our
operating profit. While rate plans are currently
in place for the majority of our activities, in
the UK, we are in discussion with Ofgem on the
regulatory price control for our gas
distribution networks for the five years to
March 2013. In September, we received Ofgem's
updated proposals and although progress has been
made in some areas since Ofgem published its
initial proposals in May, we believe that
Ofgem's proposed operating cost allowances will
only deliver 'bare-minimum' networks. Overall,
we believe that National Grid is the most
efficient UK gas network manager, offering the
lowest cash cost per customer. We continue to
work closely with Ofgem ahead of the publication
of its final proposals, expected on 3 December
2007, to ensure that this business earns
acceptable returns.
In the US, we are currently preparing three gas
rate plan filings for our upstate New York gas
network, our Rhode Island gas network, and our
New Hampshire gas network (together representing
around 20% of our US gas rate base). These
networks are not currently earning their allowed
returns and we expect to make filings with the
relevant state regulators within the next six to
nine months.
Financing
We are committed to financing our business in a
manner consistent with maintaining an efficient
balance sheet and optimising our cost of
capital. Today, we are providing an interest
cover metric that gives greater transparency on
this commitment and we will report it annually
at our full year results. This metric is based
on adjusted funds from operations divided by
adjusted interest expense: detailed definitions
and worked examples will be available at
www.nationalgrid.com. Taking into account the
KeySpan acquisition, the sale of Wireless and
Basslink, the return of #1.8bn to shareholders,
and our future capital investment requirements,
we expect to reduce interest cover and we aim to
manage the long-term trend within a range of
around 3.0 - 3.5 times.
DIVIDEND AND SHARE BUY-BACK
The Board has approved an interim dividend of
11.7p per ordinary share ($1.2153 per American
Depository share (ADS)), representing a 7%
increase in the half-year dividend, in sterling.
The interim dividend is to be paid on 23 January
2008 to shareholders on the register as at 30
November 2007.
Under our US rate plans, cash flows from
stranded assets in our Electricity Distribution
business are scheduled to end in 2011 and do not
form part of our core on-going business. We are
returning these cashflows to shareholders and
therefore exclude them from our dividend policy.
In May 2007, we extended this programme to
return #1.8bn of proceeds from the sale of our
Wireless businesses.
To date we have repurchased 140.8m shares at a cost
of #1,042m (as at 30 September 2007 110.6m shares
had been repurchased, at a cost of #805m). This
completes the return of the US stranded asset
post-tax cash flows for 2007/08. We are on track
to return around a further #900m over the next six to
twelve months, completing the return of #1.8bn
following the sale of our Wireless businesses.
The balance of stranded asset post-tax cash
flows for 2008 to 2011 is estimated at around
$1.4bn and will be returned via the buy-back
programme in future years, as they arise. In
future we intend to hold repurchased shares as
treasury shares, up to a limit of 5% of issued
share capital.
We maintain our aim to increase dividends per
ordinary share expressed in sterling by 7% in
each financial year through to 31 March 2008. We
will be announcing our updated dividend policy
later in the financial year, which will reflect
the strong outlook for the earnings of the
enlarged business.
OUTLOOK
National Grid's outlook for the full year
remains in line with our expectations.
In Transmission, we expect that the increase in
UK regulated revenue will continue to be a major
driver of performance; however, this benefit
will be partially offset by timing of the
collection of income resulting in a lower
proportion of UK gas transmission allowed
revenue falling in the second-half of this
year, compared to the same period last year. We
also expect US revenue to be higher at the full
year, and together, these benefits will more
than offset lower revenues from our French
interconnector and LNG storage businesses, and
continued higher depreciation charges.
Gas Distribution operating profit for the full
year is expected to be driven by the increased
UK allowed revenue following the one-year
regulatory price control which came into effect
on 1 April 2007, allowed revenue under recovered
in 2006/07, and a full second half contribution
from KeySpan's gas businesses. Together, these
items are expected to more than offset continued
increases in workload related and pass-through
costs.
In Electricity Distribution and Generation, we
expect the timing of rate adjustments for pass
through items to result in a negative variance
compared to the prior year. This, together with
continued increases in operating expenditure
under our reliability enhancement plan, and the
absence of a one-off pensions related benefit in
2006/07, is expected to more than offset a
positive year-on-year variance arising from the
absence of costs associated with major snow and
ice storms in the Buffalo and Albany areas in
2006/07.
Our principal risks over the next six months
remain as stated in our 2006/07 Annual Report
and Accounts on pages 27, 84 and 85.
BASIS OF PRESENTATION
Unless otherwise stated, all financial
commentaries are given on a business performance
basis, at actual exchange rates. Business
performance represents the results for
continuing operations before exceptional items
and 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 mark-to-market remeasurements is
described as 'statutory'.
REVIEW OF RESULTS AND FINANCIAL POSITION
Operating profit, excluding US stranded cost
recoveries, was #1,039m, up 19% on the prior
year (up 22% on a constant currency basis(2)).
This was primarily driven by strong results in
our Transmission and Gas Distribution
businesses.
Net finance costs were #282m, 11% higher than
the prior period, mainly as a result of a higher
effective interest rate on net debt for the
period and increased average net debt levels
compared to the prior period. Profit before tax,
excluding US stranded cost recoveries, was up
21% to #757m. The tax charge on profit,
excluding US stranded cost recoveries, was
#227m, #41m higher than the prior period. The
effective tax rate for the period, including US
stranded cost recoveries, was 32%.
Earnings, excluding US stranded cost recoveries,
were up 21% on the prior period at #528m. On the
same basis, earnings per share increased 23%
from 16.1p in the first half of last year to
19.8p, reflecting our strong operating
performance and the benefit of our share buy-back
programme.
US stranded cost recoveries added 4.3p to
earnings per share, with an operating profit of
#190m (#114m after tax). Including this
contribution, earnings per share for the period
were 24.1p.
Exceptional items and remeasurements for
continuing operations increased earnings by
#141m after tax. These comprised a #169m
deferred tax credit arising from a reduction in
the UK corporation tax rate, restructuring costs
of #79m (#47m after tax), a gain on disposal of
a subsidiary of #8m (#5m after tax), a commodity
remeasurement gain of #23m (#13m after tax), and
a net financial instrument remeasurement gain of
#18m (#1m gain after tax). After these items and
minority interests, statutory earnings for
continuing operations attributable to
shareholders were #783m. Statutory basic
earnings per share from continuing operations
increased 43% to 29.4p, up from 20.6p in the
prior period. Profit from discontinued
operations was #1,613m after exceptional items
and remeasurements, leading to statutory basic
earnings per share of 90.0p.
National Grid's operating cash flows from
continuing operations, before exceptional items
and taxation, were #27m lower than the prior
period at #1,322m.
Organic investment in our continuing businesses
increased by 39% to #1.5bn, primarily due to
increased capital expenditure on new electricity
and gas transmission infrastructure in the UK.
Our net debt rose to #16.3bn at 30 September
2007 compared with #11.8bn at 31 March 2007,
mainly reflecting the acquisition of KeySpan,
the sale of our Wireless and Basslink
businesses, the return of #805m through our
share buy-back programme, and the increased level
of capital investment.
REVIEW OF TRANSMISSION OPERATIONS
Summary results Six months ended 30 September
(#m) 2007 2006 % change
---------------------------------- -------- -------- --------
Revenue and other operating income 1,545 1,474 5
Operating costs (765) (794) 4
Depreciation and amortisation (206) (186) (11)
Operating profit - actual exchange 574 494 16
rate
Operating profit - constant 574 489 17
currency
---------------------------------- -------- -------- --------
Operating profit by geographical Six months ended 30 September
segment
(#m, at constant currency) 2007 2006 % change
---------------------------------- -------- -------- --------
UK 501 427 17
US 73 62 18
Operating profit 574 489 17
---------------------------------- -------- -------- --------
Capital investment Six months ended 30 September
(#m, at actual exchange rate) 2007 2006 % change
---------------------------------- -------- -------- --------
UK 826 534 55
US 44 44 -
Capital investment 870 578 51
---------------------------------- -------- -------- --------
Transmission delivered a very strong performance
in this period. Operating profit increased to
#574m, up 16%. This was primarily driven by a
step up in UK regulated revenue following the
five-year transmission price controls which came
into effect on 1 April. Pricing changes in April
resulted in a higher than normal proportion of
our UK gas transmission allowed revenue being
collected in the first half, and together, these
benefits resulted in a #108m increase in
operating profit compared to the prior period.
As expected, demand for French interconnector
and LNG storage capacity returned closer to
historical normal levels this period, resulting
in a #36m decrease in revenues from those
businesses. Depreciation charges were higher
than in the prior period by #20m as a result of
increasing capital investment. Other items
increased operating profit by a net #33m
compared to the prior period, with lower
shrinkage gas costs more than offsetting higher
'quasi-capex'(3) and pass through costs.
Movement in exchange rates had a #5m
period-on-period negative impact on operating
profit.
Capital investment in Transmission increased by
51% on the prior period to #870m, mainly driven
by new electricity and gas transmission
load-related infrastructure in the UK. On 9
November, we completed commissioning of the
120km Milford Haven to Aberdulais gas
transmission pipeline, making it available for
commercial operation. The pipeline connects the
two LNG terminals under construction at Milford
Haven to the UK national gas transmission system
and provides around 220GWh/day of capacity,
which will rise to around 570GWh/day when the
196km second stage pipeline from Felindre in
Wales to Tirley in Gloucestershire is completed.
This second stage is on schedule for commercial
operation in mid December 2007.
Looking ahead to the full year, we expect that
the increase in UK regulated revenue will
continue to be a major driver of performance;
however, this benefit will be partially offset
by timing of the collection of income resulting
in a lower proportion of UK gas transmission
allowed revenue collection in the second half of
this year, compared to the same period last
year. We also expect US revenue to be higher at
the full year, and together, these benefits will
more than offset lower revenues from our French
interconnector and LNG storage businesses, and
continued higher depreciation charges.
REVIEW OF GAS DISTRIBUTION OPERATIONS
Summary results Six months ended 30 September
(#m) 2007 2006 % change
---------------------------------- -------- -------- --------
Revenue and other operating income 849 608 40
Operating costs (569) (414) (37)
Depreciation and amortisation (114) (94) (21)
Operating profit - actual exchange 166 100 66
rate
Operating profit - constant 166 98 69
currency
---------------------------------- -------- -------- --------
Operating profit by geographical Six months ended 30 September
segment
(#m, at constant currency) 2007 2006 % change
---------------------------------- -------- -------- --------
UK 167 71 135
US (1) 27 *
Operating profit 166 98 69
---------------------------------- -------- -------- --------
Capital investment Six months ended 30 September
(#m, at actual exchange rate) 2007 2006 % change
---------------------------------- -------- -------- --------
UK 251 218 15
US 48 18 167
Capital investment 299 236 27
---------------------------------- -------- -------- --------
* Not meaningful.
Operating profit from Gas Distribution was up
66%, at #166m. Net formula income in the UK was
up #121m. Of this, #75m related to changes in
our pricing formula, which this year is less
dependent on delivery volumes, and results in a
greater proportion of our allowed revenue being
collected in the first half. The remaining #46m
mainly related to the 9% (average) price
increase in October 2006. Revenue in our US gas
business is linked to delivery volumes, and this
results in a seasonal bias with lower revenue
recovery in the first half of the year. This
period, we have a full first half of operations
in our Rhode Island gas business (following its
acquisition in August 2006) and one month of
operations from KeySpan's gas businesses, which,
with revenue weighted to the second half,
resulted in a #17m negative impact on operating
profit compared to the prior period. Other
items, mainly increased pass-through costs and
depreciation charges, resulted in a net negative
impact of #36m on operating profit.
Period-on-period movement in exchange rates
reduced operating profit by #2m.
During the period our gas distribution alliance
partnerships in the UK have replaced 992km of
gas mains, resulting in total replacement
expenditure (repex) of #177m. We have also
continued to invest in network infrastructure
projects in the UK and US, resulting in total
capital expenditure (including repex) of #299m.
Operating profit for the full year is expected
to be driven by the increased UK allowed revenue
following the one-year regulatory price control
which came into effect on 1 April 2007, allowed
revenue under recovered in 2006/07, and a full
second-half contribution from KeySpan's gas
businesses. Together, these items are expected
to more than offset continued increases in
workload related and pass-through costs.
In the UK, we are in the final stages of
discussion with Ofgem on the regulatory price
control for our gas distribution networks for
the five years to March 2013. In September, we
received Ofgem's updated proposals, and while
progress has been made in some areas since Ofgem
published its initial proposals in May, we
believe that Ofgem's proposed operating cost
allowances will only deliver 'bare-minimum'
networks. We continue to work closely with Ofgem
ahead of the publication of its final
proposals, expected on 3 December 2007, to
ensure that this business earns acceptable
returns. In the US, we are currently preparing
three gas rate plan filings for our upstate New
York gas network, our Rhode Island gas network,
and our New Hampshire gas network.
REVIEW OF ELECTRICITY DISTRIBUTION AND GENERATION OPERATIONS
Summary results Six months ended 30 September
(#m) 2007 2006 % change
---------------------------------- -------- -------- --------
Revenue and other operating income 1,446 1,530 (5)
Operating costs (1,182) (1,243) 5
Depreciation and amortisation (68) (65) (5)
Operating profit - actual exchange 196 222 (12)
rate
Operating profit - constant 196 206 (5)
currency
---------------------------------- -------- -------- --------
Stranded cost recoveries - 190 187 2
constant currency
---------------------------------- -------- -------- --------
Operating profit by principal Six months ended 30 September
activities
(#m, at constant currency) 2007 2006 % change
---------------------------------- -------- -------- --------
Electricity distribution 189 206 (8)
Long Island T&D services 5 - -
Long Island Generation 2 - -
Operating profit 196 206 (5)
---------------------------------- -------- -------- --------
---------------------------------- ---------------------
Capital investment Six months ended 30 September
(#m, at actual exchange rate) 2007 2006 % change
---------------------------------- -------- -------- --------
Electricity distribution 114 113 1
Long Island Generation 1 - -
Capital investment 115 113 2
---------------------------------- -------- -------- --------
Operating profit from Electricity Distribution
and Generation decreased by 12% during the
period to #196m. Electricity distribution
revenues, excluding pass-through commodity
costs, increased by #11m compared to the prior
year driven by indexing in our Massachusetts
rate plan and increased demand, with weather
normalised residential volumes up 0.2% on the
prior period. Timing of rate adjustments for
pass-through items led to a period-on-period
benefit of #8m. Other items, including the
absence of a one-off benefit in 2006/07, higher
storm costs, a rise in bad debts, and increased
reliability enhancement expense, more than
offset a one-month contribution from KeySpan's
Generation and T&D services activities on Long
Island, resulting in a net #29m decrease in
operating profit. Movement in exchange rates had
a #16m period-on-period negative impact on
operating profit.
For the full year, we expect the timing of rate
adjustments for pass through items to result in
a negative variance compared to the prior year.
This, together with continued increases in
operating expenditure under our reliability
enhancement plan, and the absence of a one-off
benefit in 2006/07, is expected to more than
offset a positive year-on-year variance arising
from the non recurrence of costs associated with
major snow and ice storms in the Buffalo and
Albany areas in 2006/07. In accordance with our
New York rate plan we make biannual filings to
recover amounts recorded in the 'deferral
account', and in August filed a forecast
recoverable balance of around $270m as at 31
December 2009.
Our US stranded cost recoveries delivered #190m
of operating profit. This was lower than the
prior period, mainly reflecting the impact of
the weaker dollar which had a #16m year-on-year
negative impact. US stranded cost recoveries
include certain contract settlements that have
no net impact on cashflow. Post tax cashflow for
the full year is expected to be around #150m -
this has already been returned to shareholders
as part of our share buy-back programme.
Capital expenditure was up slightly on the prior
period at #115m. On 22 October, as agreed with
the NYPSC, we filed a detailed five-year capital
investment plan for electricity transmission and
distribution in upstate New York. This plan
calls for a minimum investment of $1.47bn and
the potential to invest up to around $2.4bn.
These investments are largely targeted at
enhancing customer service by improving the
reliability of our electricity system.
REVIEW OF NON-REGULATED AND OTHER ACTIVITIES
Summary results Six months ended 30 September
(#m) 2007 2006 % change
---------------------------------- -------- -------- --------
Revenue and other operating income 382 315 21
Operating costs (201) (176) (14)
Depreciation and amortisation (78) (79) 1
Operating profit 103 60 72
---------------------------------- -------- -------- --------
Operating profit by principal Six months ended 30 September
activities
(#m, at actual exchange rate) 2007 2006 % change
---------------------------------- -------- -------- --------
Metering 60 54 11
Grain LNG 6 5 20
Property 62 32 94
Sub-total operating profit 128 91 41
---------------------------------- -------- -------- --------
Corporate and other activities (25) (31) 19
Operating profit 103 60 72
---------------------------------- -------- -------- --------
Capital investment Six months ended 30 September
(#m, at actual exchange rate) 2007 2006 % change
---------------------------------- -------- -------- --------
Metering 72 80 (10)
Grain LNG 97 45 116
Property 5 3 67
Other 12 - -
Capital investment 186 128 45
---------------------------------- -------- -------- --------
Operating profit from our Non-regulated and
other activities was 72% higher than the prior
period at #103m, mainly reflecting higher than
expected sales of land and property in the
first half.
Metering operating profit was up 11% at #60m,
mainly driven by growth in our competitive
metering business. During the period, capital
investment in this business decreased to #72m,
with around 400,000 new meters installed,
broadly in line with the prior period. In June
2005, Ofgem initiated an investigation under the
Competition Act into certain aspects of our
domestic gas metering business. In May 2006 and
April 2007, Ofgem issued Statements of
Objections detailing why it believed our conduct
amounted to a breach under the Act. In October
2007, Ofgem issued a third document and their
case against us has narrowed considerably - a
decision from the Gas and Electricity Markets
Authority is expected shortly. We remain
confident that we have not infringed competition
law.
Our Grain LNG business delivered an operating
profit of #6m in the period. During the period
capital investment in this business more than
doubled to #97m, mainly reflecting construction
of our Phase II capacity extension, which
remains on track to be operational in late 2008.
Phase III construction commenced in July, and
will add a further LNG tank and a second
unloading jetty, with completion planned in
2010. These investments are underpinned by
long-term, take-or-pay contracts.
We are currently in discussions with the
relevant regulatory bodies for consents for
BritNed, a 50/50 joint venture with TenneT, the
Dutch electricity transmission owner, to
construct an electricity interconnector between
the electricity transmission systems in the UK
and the Netherlands. We expect to invest around
#200m, with completion of the link planned in
2010.
Looking ahead, we will continue to focus on
improving operational efficiency in these
businesses, and capital investment in these
niche areas within the UK and US electricity and
gas markets will continue to be a key profit
driver. In total, capital investment in our
non-regulated activities is expected to reach
around #1.9bn over the six years to March 2012.
STATUTORY EARNINGS AND BUSINESS PERFORMANCE
#m, at actual exchange rate) Six months ended 30 September
2007 2006 % change
---------------------------------- -------- -------- --------
Business performance earnings (exc.
US 528 437 21
stranded cost recoveries)
US stranded cost recoveries (after 114 121 (6)
tax)
Business performance earnings (inc.
US 642 558 15
stranded cost recoveries)
---------------------------------- -------- -------- --------
Exceptional items (after tax) 127 (11) *
Remeasurements (after tax) 14 14 *
Statutory earnings from continuing 783 561 40
operations
---------------------------------- -------- -------- --------
Discontinued operations
Profit before exceptional items &
remeasurements (after tax) 21 33 *
Exceptional items & remeasurements 1,592 - *
(after tax)
Statutory earnings 2,396 594 *
---------------------------------- -------- -------- --------
* Not meaningful
Exceptional items in the period comprised a
#169m deferred tax credit arising from a
reduction in the UK corporation tax rate,
partially offset by #71m (#42m after tax) of
other items, mainly restructuring costs. In the
prior period, exceptional items comprised
restructuring costs of #16m (#11m after tax).
Remeasurements in the period comprised commodity
remeasurement gains of #23m (#13m 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
gain of #18m (#1m 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 #36m (#22m after tax) and
financial instrument remeasurement losses of
#66m (#8m after tax).
After including exceptional items and
remeasurements, statutory earnings from
continuing operations in the period were #783m,
compared with #561m for the same period last
year, giving statutory earnings per share from
continuing operations of 29.4p (2006: 20.6p).
Further details of exceptional items and
remeasurements are given in Note 3 on page 19. A
reconciliation of business performance
(including US stranded cost recoveries of #190m,
#114m after tax) to statutory results is
provided in the consolidated income statement on
page 12, and the impact of exceptional items and
remeasurements on operating profit by business
segment is provided in Note 2 on page 17.
Discontinued operations in the six months ended
30 September 2007 represented the results of our
Ravenswood generating station (held for sale)
and the results up to and profit on disposal of
our Wireless infrastructure and Basslink
businesses. After including these, statutory
earnings for the period were #2,396m and
earnings per share were 90.0p. Further details
of discontinued operations are given in Note 6
on page 21.
BOARD CHANGES
During the period we announced three Board
changes. Robert B. Catell joined the Board on 25
September, as Executive Director and Deputy
Chairman. Robert was previously Chairman and
Chief Executive Officer of KeySpan Corporation.
Tom King joined the Board on 13 August as an
Executive Director. Tom is based in the US and
has responsibility for the Electricity
Distribution and Generation business.
Paul Joskow, one of our Non-executive Directors,
stepped down from the Board on 31 July 2007.
CONTACTS
National Grid:
Investors
David Rees +44 (0)20 7004 3170 +44 (0)7901 511322(m)
George +1 718 403 2526 +1 917 375 0989(m)
Laskaris
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 +44 (0)20 7004 3147 +44 (0)7836 357173(m)
Hawkins
Brunswick: Paul Scott +44 (0)20 7404 5959
An analyst presentation will be held at Deutsche
Bank AG, 1 Great Winchester Street, 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 2007)
Dial in number +44 (0)20 8196 1998
US dial in number +1 866 583 1039
Account number 527949
A live web cast of the presentation will also be
available at www.nationalgrid.com
Photographs are available on www.newscast.co.uk
You can view or download copies of our latest
Annual Report or the Annual Review from our
website at www.nationalgrid.com/corporate/
Investor+Relations/ or request a free printed
copy by contacting investor.relations@ngrid.com.
(1) 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 movements in
the carrying value of financial instruments and
of 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 (including US stranded
cost recoveries of #190m, #114m after tax) to
Statutory results is provided in the
consolidated income statement.
(2) '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 2007,
which was $2.02 to #1.00. The average rate for
the six months ended 30 September 2006 was $1.86
to #1.00.
(3) 'Quasi-capex' is operating expenditure
associated with the increased capital investment
programme. 'Quasi-capex' is explicitly
recognised by Ofgem in the new price control
period and it is treated as investment for
regulatory purposes and is added to the
regulatory asset base.
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
such 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, 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 or recently
completed acquisitions with National Grid's
existing business to realise the expected
synergies from such integration, the
availability of new acquisition opportunities
and the timing and success of future acquisition
opportunities, the timing and success or other
impact of the sales of National Grid's non-core
businesses, 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). 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.
CONSOLIDATED
INCOME
STATEMENT 2007 2006 * Year ended
for the six 31 March
months ended 30
September
2007
Notes #m #m #m
=========== =========== ===========
Revenue 2a 4,260 3,982 8,695
Other operating
income 52 27 83
Operating costs (3,125) (2,899) (6,265)
----------- ----------- -----------
Operating profit
- Before exceptional
items and
remeasurements 2b 1,229 1,078 2,454
- Exceptional items
and remeasurements 3 (42) 32 59
Total operating
profit 2c 1,187 1,110 2,513
Interest income and
similar income 4 663 569 1,144
Interest expense
and other finance costs
- Before exceptional
items and remeasurements (945) (822) (1,691)
- Exceptional items and
remeasurements 3 12 (78) (217)
4 (933) (900) (1,908)
Share of post-tax
results of joint ventures - 2 2
--------- ---------- -----------
Profit before taxation
- Before exceptional items
and remeasurements 947 827 1,909
- Exceptional items and
remeasurements 3 (30) (46) (158)
Total profit before
taxation 917 781 1,751
Taxation
- Before exceptional
items and
remeasurements 5 (303) (267) (611)
- Exceptional items
and remeasurements 3 171 49 170
Total taxation (132) (218) (441)
---------- ----------- -----------
Profit from continuing
operations after taxation
- Before exceptional
items and remeasurements 644 560 1,298
- Exceptional items and
remeasurements 3 141 3 12
Profit for the period
from continuing operations 785 563 1,310
Profit for the period from
discontinued operations
after taxation
- Before exceptional
items and
remeasurements 6 21 33 104
- Exceptional items and
remeasurements 6 1,592 - (18)
Profit for the period from
discontinued operations 1,613 33 86
----------- ----------- -----------
Profit for the period 2,398 596 1,396
=========== =========== ===========
Attributable to:
- Equity shareholders
of the parent 2,396 594 1,394
- Minority interests 2 2 2
----------- ----------- -----------
2,398 596 1,396
=========== =========== ===========
Earnings per share from
continuing operations
- Basic 7a 29.4p 20.6p 48.1p
- Diluted 7b 29.2p 20.5p 47.8p
Earnings per share
- Basic 7a 90.0p 21.8p 51.3p
- Diluted 7b 89.4p 21.7p 50.9p
=========== =========== ===========
Dividends per ordinary
share: paid during the
period 8 17.8p 15.9p 26.8p
Dividends per ordinary
share: approved or
proposed to be paid 11.7p 10.9p 28.7p
=========== =========== ===========
* Comparatives have been adjusted to reclassify amounts relating to
discontinued operations.
CONSOLIDATED BALANCE SHEET
at 30 September 2007 2006 At 31 March
2007
Notes #m #m #m
=========== =========== ===========
Non-current assets
Goodwill 3,774 2,170 1,480
Other intangible assets 297 319 144
Property, plant and
equipment 22,939 19,308 18,895
Investments in
joint ventures 7 9 5
Deferred tax assets - 56 -
Other receivables 486 51 36
Pension asset 617 - 37
Financial and other
investments 249 137 132
Derivative financial
assets 630 333 380
------------ ------------- ------------
Total non-current assets 28,999 22,383 21,109
------------ ------------- ------------
Current assets
Other intangible assets 2 24 2
Inventories 535 165 106
Trade and other receivables 1,600 1,186 1,236
Financial and other
investments 1,849 806 2,098
Derivative financial assets 220 301 277
Cash and cash equivalents 355 2,320 1,593
------------ ------------- -------------
Total current assets 4,561 4,802 5,312
------------ ------------- -------------
Assets of businesses
held for sale 1,017 - 1,968
------------ ------------- -------------
Total assets 34,577 27,185 28,389
------------ ------------- -------------
Current liabilities
Bank overdrafts (16) (11) (6)
Borrowings (2,802) (1,479) (1,025)
Derivative financial
liabilities (59) (328) (235)
Trade and other payables (2,225) (1,709) (1,852)
Current tax liabilities (166) (303) (75)
Provisions (164) (202) (167)
------------ ------------- --------------
Total current liabilities (5,432) (4,032) (3,360)
------------ -------------- --------------
Non-current liabilities
Borrowings (16,242) (13,415) (14,686)
Derivative
financial
liabilities (246) (177) (184)
Other
non-current
liabilities (1,679) (1,630) (1,475)
Deferred tax
liabilities (3,086) (2,042) (2,389)
Pensions and
other
post-retirement
benefit
obligations (1,537) (2,076) (1,282)
Provisions (746) (511) (427)
--------------- --------------- ---------------
Total
non-current
liabilities (23,536) (19,851) (20,443)
--------------- --------------- ---------------
Liabilities of
businesses
held for sale (36) - (450)
--------------- --------------- ---------------
Total
liabilities (29,004) (23,883) (24,253)
--------------- --------------- ---------------
Net assets 5,573 3,302 4,136
=========== =========== ===========
Equity
Called up
share capital 298 310 308
Share premium
account 1,371 1,324 1,332
Retained
earnings 9,156 6,753 7,635
Other reserves (5,270) (5,097) (5,150)
--------------- --------------- ---------------
Total parent
company
shareholders'
equity 5,555 3,290 4,125
Minority
interests 18 12 11
--------------- --------------- ---------------
Total equity 10 5,573 3,302 4,136
=========== =========== ===========
Net debt (net
of related
derivative
financial
instruments)
included above 12 16,311 11,650 11,788
--------------- --------------- ---------------
CONSOLIDATED STATEMENT OF
RECOGNISED
INCOME AND
EXPENSE 2007 2006 Year ended
for the six months ended 31 March
30 September 2007
#m #m #m
=========== =========== ===========
Exchange
adjustments (73) (130) (179)
Actuarial
gains/(losses) 561 (350) 365
Net (losses)/gains
taken to equity in
respect of cash flow
hedges (33) 3 47
Transferred to
profit or loss
on cash flow
hedges (4) (10) (45)
Net gains/(losses)
taken to equity on
available-for-
sale investments 2 (3) (3)
Transferred to
profit or loss
on sale of
available-for-
sale investments - (1) (1)
Tax on items
taken directly
to or
transferred
from equity (175) 118 (81)
--------------- --------------- ---------------
Net income/(expense)
recognised directly in
equity 278 (373) 103
Profit for the
period 2,398 596 1,396
--------------- --------------- ---------------
Total recognised
income and expense for
the period 2,676 223 1,499
=========== =========== ===========
Attributable to:
- Equity shareholders
of the parent 2,675 222 1,498
- Minority interests 1 1 1
--------------- --------------- ---------------
2,676 223 1,499
=========== =========== ===========
CONSOLIDATED CASH FLOW
STATEMENT 31 March
for the six 2007 2006 * Year ended
months ended
30 September 2007
#m #m #m
=========== =========== ===========
Cash flows
from operating
activities
Total operating
profit 1,187 1,110 2,513
Adjustments
for:
Exceptional
items and
remeasurements 42 (32) (59)
Depreciation
and
amortisation 461 424 871
Share-based
payment charge 9 7 15
Changes in
working
capital and
provisions (182) (62) (39)
Changes in
pensions and
other
post-retirement
benefit
obligations (195) (98) (125)
Cash flows
relating to
exceptional
items (66) (36) (86)
--------------- --------------- ---------------
Cash flows
generated from
continuing
operations 1,256 1,313 3,090
Cash flows
relating to
discontinued
operations 11 69 181
--------------- --------------- ---------------
Cash generated
from
operations 1,267 1,382 3,271
Tax paid -
continuing
operations (136) (198) (310)
Tax paid -
discontinued
operations - - (3)
--------------- --------------- ---------------
Net cash
inflow from
operating
activities 1,131 1,184 2,958
--------------- --------------- ---------------
Cash flows
from investing
activities
Acquisition of
subsidiaries
(net of cash
acquired) and
other
investments (3,513) (269) (269)
Sale of
investments in
subsidiaries,
joint ventures
and other
investments 18 - 19
Purchases of
intangible
assets (20) (5) (33)
Purchases of
property,
plant and
equipment (1,369) (1,156) (2,185)
Disposals of
property,
plant and
equipment 13 6 21
Net movements
in financial
investments 278 (432) (1,725)
--------------- --------------- ---------------
Cash flows
used in
continuing
operations -
investing
activities (4,593) (1,856) (4,172)
Cash flows
relating to
discontinued
operations
- disposal
proceeds 3,065 42 27
- other
investing
activities and
acquisition of
subsidiaries,
net of cash
acquired (2) (23) (132)
--------------- --------------- ---------------
Net cash flow
used in
investing
activities (1,530) (1,837) (4,277)
-------------- --------------- ---------------
Cash flows
from financing
activities
Proceeds from
issue of
ordinary share
capital 13 8 16
Increase in
borrowings and
related
derivatives 647 2,238 3,019
Net interest
paid (249) (291) (597)
Exceptional
finance costs
on the
repayment of
debt - - (45)
Dividends paid
to
shareholders (480) (433) (730)
Repurchase of
share capital
and purchase
of treasury
shares (796) - (169)
--------------- --------------- ---------------
Net cash flow
(used in)/from
financing
activities (865) 1,522 1,494
--------------- --------------- ---------------
Net movement
in cash and
cash
equivalents (1,264) 869 175
Exchange
movements (7) (9) (14)
Amounts
related to
businesses
held for sale 23 - (23)
Net cash and
cash
equivalents at
start of
period (i) 1,587 1,449 1,449
--------------- --------------- ---------------
Net cash and
cash
equivalents at
end of period
(i) 339 2,309 1,587
============ =========== ===========
* Comparatives have been adjusted to reclassify
amounts relating to discontinued operations.
i) Net of bank overdrafts.
NOTES TO THE 2007/08 HALF YEAR FINANCIAL
INFORMATION
1. Basis of preparation
The half year financial information covers the
six month period ended 30 September 2007 and has
been prepared under International Financial
Reporting Standards ("IFRS") as adopted by the
European Union, in accordance with International
Accounting Standard 34 'Interim Financial
Reporting' and the Disclosure and Transparency
Rules of the Financial Services Authority. It is
unaudited but has been reviewed by the auditors
and their report is attached to this document.
The half year financial information does not
constitute statutory accounts as defined in
Section 240 of the Companies Act 1985. It should
be read in conjunction with the statutory
accounts for the year ended 31 March 2007, which
were prepared in accordance with IFRS as adopted
by the European Union and have been filed with
the Registrar of Companies. The auditors' report
on these statutory accounts was unqualified and
did not contain a statement under Section 237(2)
or (3) of the Companies Act 1985.
Accounting policies
This half year financial information has been
prepared on the basis of the accounting policies
applicable for the year ending 31 March 2008.
These accounting policies are consistent with
those that applied in the preparation of our
accounts for the year ended 31 March 2007,
except as set out below:
a) Following the acquisition of KeySpan, our
activities now include electricity generation
and our accounting policies have been expanded
to cover these activities. The primary change is
to include an accounting policy for revenue from
electricity generation, which represents the
sales value of energy and related services
supplied to customers.
b) Interpretations issued by the International
Financial Reporting Interpretations Committee
("IFRIC") that have been adopted during the
period, are as follows:
-- * IFRIC 8 Scope of IFRS 2 'Share-Based
Payment'
-- * IFRIC 9 Reassessment of embedded
derivatives
-- * IFRIC 10 Interim financial reporting and
impairments
-- * IFRIC 11 Group and treasury share
transactions
The adoption of these interpretations had no
significant impact on the financial results or
position of the Company and its subsidiary
undertakings for the six months ended 30
September 2007 or for previous periods.
The following standards, amendments and
interpretations have been issued by the
International Accounting Standards Board or by
the IFRIC, but have not yet been adopted.
Subject to endorsement by the European Union, we
expect to adopt them in future periods.
-- * IFRS 8 Operating segments
-- * Amendment to IAS 23 Borrowing costs
-- * Amendments to IAS 1 Presentation of
financial statements
-- * IFRIC 12 Service concession arrangements
-- * IFRIC 13 Customer loyalty programmes
-- * IFRIC 14 Defined benefit assets and
minimum funding requirements
Changes in comparative presentation as a
consequence of discontinued operations
During the second half of the year ended 31
March 2007 our then wireless infrastructure
operations in the UK and the US and the Basslink
Interconnector in Australia met the necessary
criteria to be classified as businesses held for
sale and as discontinued operations. As a
consequence, the comparative income statement
for the six months ended 30 September 2006 has
been amended to reflect the classification of
these operations as discontinued.
Date of approval
This announcement was approved by the Board of
Directors on 14 November 2007.
2. Segmental analysis
Segmental information is presented in accordance
with the management responsibilities and
economic characteristics, including
consideration of risks and returns, of business
activities. The Company assesses the performance
of its businesses principally on the basis of
operating profit before exceptional items and
remeasurements. The primary reporting format is
by business and the secondary reporting format
is by geographical area. The following table
describes the main activities for each business
segment:
Transmission - UK High voltage electricity
transmission networks, the gas
transmission network in the UK,
UK liquefied natural gas (LNG)
storage activities and the French
electricity interconnector
Transmission - US High voltage electricity
transmission networks in New York
and New England
Gas Distribution - Four of the eight regional networks
UK of Great Britain's gas distribution system
Gas Distribution - Gas distribution in New York and
US New England
Electricity Electricity distribution in New
Distribution and York and New England and
Generation - US electricity generation in New York
US stranded cost The recovery of stranded costs from
recoveries US electricity distribution
customers as permitted by
regulatory agreements
-----------------------------------
Other activities primarily relate to
non-regulated businesses and other commercial
operations not included within the above
segments, including UK-based gas metering
activities; UK property management; a UK LNG
import terminal; a British-Netherlands
electricity interconnector under construction;
other LNG operations; unregulated transmission
pipelines; engineering and home services;
together with corporate activities, including
business development.
Discontinued operations comprise wireless
infrastructure and communications operations in
the UK and the US, an electricity interconnector
in Australia, and merchant electricity
generation operations in New York City. The
wireless infrastructure operations in the UK
were sold on 3 April 2007; the US wireless
operations were sold on 15 August 2007; and the
Basslink electricity interconnector in Australia
was sold on 31 August 2007. Results of
discontinued operations are disclosed in note 6.
Our segments are unchanged from those reported
in the financial statements for the year ended
31 March 2007, except for our US Electricity
Distribution segment, which as a consequence of
the acquisition of KeySpan on 24 August 2007 has
been expanded to incorporate the operations of
KeySpan's generation business and is now
reported as 'Electricity Distribution and
Generation - US'.
The comparative segment results for the six
month period ended 30 September 2006 have been
amended to reflect changes to reportable
segments that were made in the second half of
the year ended 31 March 2007 resulting from a
new organisational and management structure. The
main changes were the elimination of the
wireless infrastructure segment and the division
of our former US electricity and gas
distribution segment in two separate segments.
Sales between businesses are priced having
regard to the regulatory and legal requirements
to which the businesses are subject.
a) Revenue
Six months
ended 30
September 2007 2006* Year ended
31 March 2007
#m #m #m
=========== =========== ===========
Business
segments -
continuing
operations
Transmission
- UK 1,392 1,323 2,816
Transmission
- US 153 151 270
Gas
Distribution
- UK 547 447 1,193
Gas
Distribution
- US 302 157 638
Electricity
Distribution
and Generation
- US 1,446 1,530 3,004
US stranded
cost
recoveries 195 205 426
Other
activities 330 292 567
Sales
between (105) (123) (219)
businesses
--------------- --------------- ---------------
Revenue 4,260 3,982 8,695
=========== =========== ===========
Total
excluding US
stranded
cost recoveries 4,065 3,777 8,269
US stranded
cost
recoveries 195 205 426
--------------- --------------- ---------------
4,260 3,982 8,695
=========== =========== ===========
Geographical
segments
UK 2,182 1,962 4,397
US 2,078 2,020 4,298
--------------- --------------- ---------------
Revenue 4,260 3,982 8,695
=========== =========== ===========
* Comparatives have been adjusted to reclassify
amounts relating to discontinued operations.
b) Operating profit - before exceptional
items and remeasurements
Six months
ended 30
September 2007 2006* Year ended
31 March 2007
#m #m #m
=========== =========== ===========
Business
segments -
continuing
operations
Transmission -
UK 501 427 946
Transmission -
US 73 67 108
Gas
Distribution -
UK 167 71 409
Gas
Distribution -
US (1) 29 71
Electricity
Distribution
and Generation
- US 196 222 364
US stranded
cost
recoveries 190 202 423
Other
activities 103 60 133
--------------- --------------- ---------------
Operating
profit before
exceptional
items and
remeasurements 1,229 1,078 2,454
=========== =========== ===========
Total
excluding US
stranded cost
recoveries 1,039 876 2,031
US stranded
cost
recoveries 190 202 423
--------------- --------------- ---------------
1,229 1,078 2,454
=========== =========== ===========
Geographical
segments
UK 773 559 1,491
US 456 519 963
--------------- --------------- ---------------
Operating
profit before
exceptional
items and
remeasurements 1,229 1,078 2,454
=========== =========== ===========
c) Operating profit - after exceptional items
and remeasurements
Six months
ended 30
September 2007 2006* Year ended
31 March 2007
#m #m #m
=========== =========== ===========
Business
segments -
continuing
operations
Transmission -
UK 499 420 936
Transmission -
US 67 67 107
Gas
Distribution -
UK 166 66 412
Gas
Distribution -
US (20) 27 67
Electricity
Distribution
and Generation
- US 155 221 355
US stranded
cost
recoveries 209 250 504
Other
activities 111 59 132
--------------- --------------- ---------------
Operating
profit after
exceptional
items and
remeasurements 1,187 1,110 2,513
=========== =========== ===========
Total
excluding US
stranded cost
recoveries 978 860 2,009
US stranded
cost
recoveries 209 250 504
--------------- --------------- ---------------
1,187 1,110 2,513
=========== =========== ===========
Geographical
segments
UK 779 546 1,482
US 408 564 1,031
--------------- --------------- ---------------
Operating
profit after
exceptional
items and
remeasurements 1,187 1,110 2,513
=========== =========== ===========
* Comparatives have been adjusted to reclassify
amounts relating to discontinued operations.
d) Seasonality
The gas distribution segment experiences
seasonal fluctuations owing to weather
conditions and peak delivery volumes occurring
in the third and fourth quarters of the year. In
the UK an adjustment to our pricing methodology
has increased the capacity delivery component in
our pricing and has decreased this seasonal
bias. This resulted in an increase in revenue
and operating profit in the Gas Distribution -
UK segment for the six months ended 30 September
2007 compared with 2006.
3. Exceptional items and remeasurements
Exceptional items and remeasurements are items
of income and expenditure that, in the judgment
of management, should be disclosed separately on
the basis that they are material, either by
their nature or their size, to an understanding
of our financial performance and significantly
distort the comparability of financial
performance between periods. Items of income or
expense that are considered by management for
designation as exceptional items include such
items as significant restructurings, write-downs
or impairments of non-current assets, material
changes in environmental or decommissioning
provisions, integration of acquired businesses
and gains or losses on disposals of businesses
or investments. Remeasurements comprise gains or
losses recorded in the income statement arising
from changes in the fair value of commodity
contracts and of derivative financial
instruments to the extent that hedge accounting
is not achieved or is not effective.
Six months
ended 30
September 2007 2006 Year ended
31 March 2007
#m #m #m
============ ============ ============
Exceptional
items -
restructuring
costs (i) (79) (16) (22)
Exceptional
items - gain
on disposal of
subsidiary
(ii) 8 - -
Remeasurements
- commodity
contracts
(iii) 29 48 81
Total
exceptional
items and
remeasurements
included
within
operating
profit (42) 32 59
Exceptional
items - debt
restructuring
costs (iv) - - (45)
Remeasurements
- commodity
contracts
(iii) (6) (12) (19)
Remeasurements
- net
gains/(losses)
on derivative
financial
instruments
(v) 18 (66) (153)
Total
exceptional
items and
remeasurements
included
within finance
costs 12 (78) (217)
--------------- --------------- ---------------
Total
exceptional
items and
remeasurements
before
taxation (30) (46) (158)
============ ============ ============
Exceptional
item -
deferred tax
credit arising
from reduction
in UK tax rate
(vi) 169 - -
Tax on
exceptional
items -
restructuring
costs (i) 32 5 12
Tax on
exceptional
items -
disposal of
subsidiary
(ii) (3) - -
Tax on
exceptional
items - debt
restructuring
costs (iv) - - 14
Tax on
remeasurements
- commodity
contract
remeasurements
(iii) (10) (14) (25)
Tax on
remeasurements
- derivative
financial
instruments
(v) (17) 58 169
--------------- --------------- ---------------
Exceptional
tax item and
tax on
exceptional
items and
remeasurements 171 49 170
============ ============ ============
Total
exceptional
items and
remeasurements
after taxation 141 3 12
============ ============ ============
Total
exceptional
items after
taxation 127 (11) (41)
Total
commodity
contract
remeasurements
after taxation 13 22 37
Total
derivative
financial
instrument
remeasurements
after taxation 1 (8) 16
--------------- --------------- ---------------
Total
exceptional
items and
remeasurements
after taxation 141 3 12
============ ============ ============
i) Restructuring costs relate to planned
cost reduction programmes in our UK and US
operations, including costs with respect to the
integration of our existing operations in the US
with those of KeySpan. For the six month period
ended 30 September 2007, restructuring costs
included pension related costs of #77m arising
as a result of redundancies (six months ended 30
September 2006: #5m; year ended 31 March 2007:
#10m)
ii) The gain on disposal of subsidiary
relates to the sale of Advantica.
iii) Commodity contract remeasurements
represent mark-to-market movements on certain
commodity contract obligations, primarily
indexed-linked swap contracts, in the US. Under
the 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 are based on the change in the
commodity contract liability and those impacting
finance costs as a result of changing discount
rates due to market fluctuations.
iv) Debt restructuring costs incurred during
the year ended 31 March 2007 represented debt
redemption costs arising from a restructuring of
our debt portfolio.
v) Net gains/(losses) on derivative
financial instruments comprise losses and gains
arising on derivative financial instruments
reported in the income statement. These exclude
gains and losses for which hedge accounting has
been effective, which have been recognised
directly in equity or offset by adjustments to
the carrying value of debt. These remeasurements
include a loss of #3m relating to pre-tax losses
on investment related derivative financial
instruments that offset on a post-tax basis (six
months ended 30 September 2006: #76m; year ended
31 March 2007: #126m). The tax credit in the
year ended 31 March 2007 includes a #56m
adjustment in respect of prior years.
vi) The exceptional tax credit in the period
of #169m arose from a reduction in the UK
corporation tax rate from 30% to 28% included in
the Finance Act 2007. This resulted in a
reduction in deferred tax liabilities.
4. Finance income and costs
Six months
ended 30
September 2007 2006 Year ended
31 March 2007
#m #m #m
=========== =========== ===========
Interest
income on
financial
instruments 152 104 218
Investment
return on
pension assets
(i) 511 465 926
--------------- --------------- ---------------
Interest
income and
similar income 663 569 1,144
=========== =========== ===========
Interest
expense on
financial
instruments (510) (406) (871)
Exceptional
items - debt
restructuring
costs - - (45)
Interest on
pension
liabilities
(i) (473) (435) (869)
Unwinding of
discounts on
provisions (12) (11) (21)
Less: interest
capitalised 50 30 70
--------------- --------------- ---------------
Interest
expense (945) (822) (1,736)
Net
gains/(losses)
on derivative
financial
instruments
and commodity
contracts 12 (78) (172)
--------------- --------------- ---------------
Interest
expense and
other finance
costs (933) (900) (1,908)
=========== =========== ===========
Net finance
costs (270) (331) (764)
=========== =========== ===========
Comprising:
Net finance
costs
excluding
exceptional
finance costs
and
remeasurements (282) (253) (547)
Exceptional
items and
remeasurements
(note 3) 12 (78) (217)
--------------- --------------- ---------------
(270) (331) (764)
=========== =========== ===========
i) The difference between actual and expected
investment return on pension assets and interest
on pension liabilities is reported as an
actuarial gain or loss within the statement of
recognised income and expense.
5. Taxation
The tax charge, excluding the exceptional tax
item and tax on exceptional items and
remeasurements, for the six months ended 30
September 2007, is based on an estimated
effective rate for the year ending 31 March 2008
of 32.0% (six months ended 30 September 2006:
32.3%).
6. Discontinued operations
Discontinued operations comprise our former
wireless infrastructure operations in the UK and
US, and the Basslink electricity interconnector
in Australia, that were classified as businesses
held for sale during the year ended 31 March
2007, together with the merchant electricity
generation business in New York City and the
communications operations that were acquired
with KeySpan on 24 August 2007.
The wireless infrastructure businesses in the UK
and US were sold on 3 April 2007 and 15 August
2007 respectively, while the Basslink
electricity interconnector business was sold on
31 August 2007. We anticipate completing the
disposals of the merchant electricity generation
business and the KeySpan communications
operations within a year from the date of the
acquisition.
Results of discontinued operations
Six months
ended 30
September 2007 2006 Year ended
31 March 2007
#m #m #m
=========== =========== ===========
Revenue 84 182 383
Operating costs (58) (135) (321)
--------------- --------------- ---------------
- Operating
profit before
exceptional
items 26 47 117
- Exceptional
items (i) - - (55)
Total
operating
profit from
discontinued
operations 26 47 62
Net finance
costs before
remeasurement
finance income - (2) (2)
Remeasurement
finance income
(ii) 8 - 37
--------------- --------------- ---------------
Profit before
tax from
discontinued
operations 34 45 97
Taxation (5) (12) (11)
--------------- --------------- ---------------
Profit after
tax from
discontinued
operations 29 33 86
--------------- --------------- ---------------
Gain on
disposal of
Basslink 80 - -
Gains on
disposals of
UK and US
wireless
infrastructure
operations 1,507 - -
--------------- --------------- ---------------
Gain on
disposal of
discontinued
operations
before tax 1,587 - -
Taxation (3) - -
--------------- --------------- ---------------
Gain on
disposal of
discontinued
operations 1,584 - -
--------------- --------------- ---------------
Total profit
for the year
from
discontinued
operations
- Before
exceptional
items and
remeasurements 21 33 104
- Exceptional
items and
remeasurements 1,592 - (18)
=========== =========== ===========
1,613 33 86
=========== =========== ===========
i) The operating exceptional item for the
year ended 31 March 2007 related to an
impairment of goodwill relating to US wireless
infrastructure operations.
ii) Remeasurement finance income for the
six months ended 30 September 2007 comprised #8m
of mark-to-market gains on financial instruments
(31 March 2007: #13m) and for the year ended 31
March 2007 an additional #24m relating to the
recognition of gains on the termination of a
hedging arrangement.
7. Earnings per share
a) Basic earnings per share
Six months
ended 30
September
Year ended Year ended
31 March 31 March
2007 2007 2006 2006 2007 2007
Earnings Earnings Earnings
Earnings per share Earnings per share Earnings per share
#m pence #m pence #m pence
========== ========== ========== ========== ========== ==========
Adjusted -
continuing
operations 642 24.1 558 20.5 1,296 47.7
Exceptional
items after
taxation 127 4.8 (11) (0.4) (41) (1.5)
Commodity
contract
remeasurements
after taxation 13 0.5 22 0.8 37 1.3
Derivative
remeasurements
after taxation 1 - (8) (0.3) 16 0.6
--------- ---------- ---------- ------------ ---------- --------
Continuing
operations 783 29.4 561 20.6 1,308 48.1
========= ========= ========== ========== ========== ========
Adjusted -
discontinued
operations 21 0.8 33 1.2 104 3.8
Gains on
disposal of
operations
after taxation 1,584 59.5 - - - -
Other
exceptional
items after
taxation 8 0.3 - - (18) (0.6)
---------- --------- ----------- ----------- ----------- --------
Discontinued
operations 1,613 60.6 33 1.2 86 3.2
========== ========== ========== ========== ========== =========
Basic 2,396 90.0 594 21.8 1,394 51.3
========== ========== ========== ========== ========== =========
millions millions millions
========== ========== =========
Weighted
average number
of shares -
basic 2,663 2,721 2,719
========== ========== ==========
b) Diluted earnings per share
Six months
ended 30
September
Year ended Year ended
31 March 31 March
2007 2007 2006 2006 2007 2007
Earnings Earnings Earnings
Earnings per share Earnings per share Earnings per share
#m pence #m pence #m pence
========== ========== ========== ========== ========== ==========
Adjusted diluted -
continuing
operations 642 24.0 558 20.4 1,296 47.4
Exceptional
items after
taxation 127 4.7 (11) (0.4) (41) (1.5)
Commodity
contract
remeasurements
after taxation 13 0.5 22 0.8 37 1.3
Derivative
remeasurements
after taxation 1 - (8) (0.3) 16 0.6
--------- ---------- ---------- ------------ ---------- --------
Diluted - continuing
operations 783 29.2 561 20.5 1,308 47.8
========= ========= ========== ========== ========== ========
Adjusted diluted -
discontinued
operations 21 0.8 33 1.2 104 3.8
Gains on
disposal of
operations
after taxation 1,584 59.1 - - - -
Other
exceptional
items after
taxation 8 0.3 - - (18) (0.7)
---------- --------- ----------- ----------- ----------- --------
Diluted - discontinued
operations 1,613 60.2 33 1.2 86 3.1
========== ========== ========== ========== ========== =========
Diluted 2,396 89.4 594 21.7 1,394 50.9
========== ========== ========== ========== ========== =========
millions millions millions
========== ========== =========
Weighted
average number
of shares -
diluted 2,697 2,735 2,737
========== ========== ==========
8. Dividends
The following table shows the dividends paid to
equity shareholders:
Six months
ended 30
September
Year ended Year ended
31 March 31 March
2007 2007 2006 2006 2007 2007
pence per pence per pence per
ordinary ordinary ordinary
share #m share #m share #m
========== ========== ========== ========== ========== ==========
Ordinary
dividends
Final
dividend
for the
year - - 15.9 433 15.9 433
ended 31
March
2006
Interim
dividend
for
the year - - - - 10.9 297
ended
31 March
2007
Final
dividend
for the
year 17.8 480 - - - -
ended 31
March
2007
-------- ----------- ---------- ---------- ---------- ---------
17.8 480 15.9 433 26.8 730
======== ========== ========== ========== ========= ==========
The Directors have approved an interim dividend
of 11.7p per share that will absorb #299m of
shareholders' equity to be paid in respect of
the period ended 30 September 2007.
9. Acquisitions
On 24 August 2007, the acquisition of KeySpan
Corporation ('KeySpan') was completed, with 100%
of the shares acquired for total consideration
of #3.8bn, including acquisition costs of #31m.
The provisional amount of goodwill that arose on
the acquisition was #2.4bn, however this is
subject to change as the exercise of
establishing fair values of the assets and
liabilities acquired is not final at this stage.
Provisional goodwill principally relates to the
market and regulatory position and retail
customer relationships of the acquired
operations, the opportunity to make future
capital investment, expected synergies and
opportunities for further cost improvements in
the future, to the assembled workforce and to
the potential for future growth.
The majority of the acquired operations relate
to gas distribution and electricity distribution
and generation activities and so are presented
within the 'Gas Distribution - US' and
'Electricity Distribution and Generation - US'
segments. Certain acquired activities,
principally the Ravenswood merchant electricity
generation business in New York City and
KeySpan's communications operations are
disclosed as discontinued operations in the
income statement as we plan and expect to
dispose of these activities within one year of
the acquisition date.
IFRS Provisional
book value at fair value
acquisition
#m #m
=========== ===========
Intangible 44 159
assets
Property, plant 3,166 3,160
and equipment
Inventories 353 353
Trade and other 998 998
receivables
Financial and 34 34
other
investments
Cash and cash 260 260
equivalents
Financial and 129 129
other
investments
Assets of 440 1,031
businesses held
for sale
Borrowings - (317) (317)
current
Trade and other (745) (745)
payables
Borrowings - (2,057) (2,138)
non-current
Other (165) (165)
non-current
liabilities
Deferred tax (309) (554)
liabilities
Pensions and
other (438) (440)
post-retirement
benefit
obligations
Provisions (340) (340)
Liabilities of
businesses held (37) (37)
for
sale
Minority (8) (8)
interest
--------------- ---------------
Net assets 1,008 1,380
acquired
Goodwill arising 2,388
on acquisition
---------------
Total 3,768
consideration
===========
As the acquisition occurred close to the end of
the half year period the fair values and
goodwill presented are provisional. Specifically
the fair value assessment of intangible assets;
property, plant and equipment; trade and other
receivables; financial and other
investments; deferred tax liabilities; current
liabilities; borrowings; pension obligations;
and provisions and contingent liabilities is
ongoing and subject to adjustment. In addition,
the carrying value of businesses held for sale
is based on the anticipated outcome of the sales
process and will be updated on completion. An
update on the fair values assigned to assets and
liabilities acquired and the consequential
impact on the amount of goodwill recorded will
be reflected in the financial statements for the
year ending 31 March 2008.
The KeySpan acquired activities contributed
revenue of #162m to our continuing operations;
incurred a loss from continuing operations after
taxation of #31m; and reported an adjusted loss
(before exceptional items and remeasurements)
from continuing operations after taxation of
#14m for the period from 24 August to 30
September 2007. The reported loss for the period
was principally due to the seasonality of the
gas distribution business. Exceptionals and
remeasurements included pre-tax costs of #39m
relating to voluntary early retirement and other
integration costs.
Pro forma half-year information
The following summary presents the consolidated
results as if KeySpan had been acquired on 1
April 2007. The pro forma amounts include the
results of KeySpan for the period 1 April to 30
September 2007 as adjusted for the estimated
effect of accounting policies adopted by
National Grid and the impact of provisional fair
value accounting adjustments (e.g. amortisation
of intangible assets) together with the
recognition of the impact on pro forma net
interest expense as a result of the acquisition.
All of the pre-tax pro forma adjustments have
been taxed (where appropriate) at the rate of
tax pertaining to the jurisdiction in which the
pro forma adjustment arose. The pro forma
information is provided for comparative purposes
only and does not necessarily reflect the actual
results that would have occurred, nor is it
necessarily indicative of future results of
operations of the combined companies.
2007
#m
===========
Revenue 5,399
Profit for the period 2,347
==========
10. Reconciliation of movements in total equity
Six months
ended
30 September 2007 2006 Year ended
31 March 2007
#m #m #m
========== ========== ==========
Opening
total 4,136 3,493 3,493
equity
Changes in
total
equity for
the period
Net income
recognised
directly in
equity 278 (373) 103
Profit for
the 2,398 596 1,396
period
Equity (480) (433) (730)
dividends
Issue of
ordinary 13 8 16
share
capital
B shares
converted
to 27 - -
ordinary
shares
Repurchase
of
share
capital and
purchase of (808) - (169)
treasury
shares
(i)
Other
movements
in minority 6 (1) (1)
interests
Share-based
payment 9 7 15
Tax on
share-based
payment (6) 5 13
--------------- --------------- ---------------
Closing
total 5,573 3,302 4,136
equity
=========== ========== ==========
(i) From 18 May to 28 September 2007, the
Company repurchased under its share buy-back
programme 110.6 million ordinary shares for
aggregate consideration of #808m including
transaction costs. The shares repurchased have a
nominal value of 11 17/43 pence each and
represented 4% of the ordinary shares in issue
as at 30 September 2007.
Included within total equity is a deduction of
#102m for treasury shares (31 March 2007 and 30
September 2006: #nil).
11. Reconciliation of net cash flow to movement
in net debt
Six months
ended
30 September 2007 2006 Year ended
31 March 2007
#m #m #m
========== ========== ==========
Movement in
cash and
cash (1,264) 869 175
equivalents
(Decrease)/
increase in
financial (278) 432 1,725
investments
Increase in
borrowings
and
related
derivatives (647) (2,238) (3,019)
(i)
Net interest
paid 249 291 597
--------------- --------------- ---------------
Change in
net debt
resulting (1,940) (646) (522)
from cash
flows
Changes in
fair value
of
financial
assets and
liabilities
and exchange 209 194 331
movements
Net interest
charge (358) (304) (655)
Acquisition
of
subsidiary (2,421) - (48)
undertaking
Amounts
related to
businesses
held for 17 - (42)
sale
Other
non-cash (30) (44) (2)
movements
--------------- --------------- ---------------
Movement in
net debt
(net
of related
derivative
financial
instruments) (4,523) (800) (938)
in the
period
Net debt at
start of
period (11,788) (10,850) (10,850)
--------------- --------------- ---------------
Net debt
(net
of related
derivative
financial
instruments)
at end of (16,311) (11,650) (11,788)
period
=========== =========== ===========
i) The increase in borrowings and related
derivatives for the six months ended 30
September 2007 comprises proceeds from loans
received of #0.7bn less payments to repay loans
of #0.1bn.
12. Net debt
At 30 September 2007 2006 31 March 2007
#m #m #m
========== ========== ==========
Cash and
cash 355 2,320 1,593
equivalents
Bank (16) (11) (6)
overdrafts
--------------- --------------- ---------------
Net cash and
cash
equivalents 339 2,309 1,587
Financial
investments 1,849 806 2,098
Borrowings (19,044) (14,894) (15,711)
--------------- --------------- ---------------
(16,856) (11,779) (12,026)
Net debt
related
derivative
financial
assets 850 634 657
Net debt
related
derivative
financial
liabilities (305) (505) (419)
--------------- --------------- ---------------
Net debt
(net
of related
derivative
financial (16,311) (11,650) (11,788)
instruments)
=========== =========== ===========
13. Commitments and contingencies
At 30 September 2007 2006 31 March 2007
#m #m #m
========== ========== ==========
Future capital
expenditure 1,160 1,343 1,554
contracted for
but not
provided
Commitments
under 758 800 800
non-cancellable
operating
leases
Obligations to
purchase energy 4,986 4,768 3,731
under
long-term
contracts (i)
Guarantees (ii) 583 188 229
Other
commitments and 333 205 308
contingencies
(iii)
=========== =========== ===========
i) In addition, power commitments under
commodity contracts recorded at fair value and
incorporated in trade and other payables and
other non-current liabilities were #94m (31
March 2007: #389m).
ii) Details of the guarantees entered into by
the Company or its subsidiary undertakings at 30
September 2007 are shown below:
a) a letter of support of obligations
under a shareholders' agreement relating to the
interconnector project between Britain and the
Netherlands amounting to approximately #199m.
This expires in 2010;
b) guarantees of certain obligations in
respect of the UK Grain LNG Import Terminal
amounting to #107m. These run for varying
lengths of time, expiring between 2019 and 2028;
c) a guarantee amounting to approximately
#92m of half of the obligations of the
interconnector project between Britain and the
Netherlands. This expires in 2010;
d) a guarantee of #50m in respect of
liabilities under a meter operating contract
that runs until May 2008;
e) an uncapped guarantee, for which the
maximum liability is estimated at #40m, to The
Crown Estates in support of the transfer of the
interconnector between France and England to
National Grid Interconnectors Limited as part of
the Licence to Assign Lease. This is ongoing;
f) letters of credit in support of gas
balancing obligations amounting to #25m, lasting
for less than one year;
g) guarantees of #20m relating to certain
property obligations. The bulk of these expire
by December 2025;
h) indemnities estimated to be up to a
maximum of #14m given to the trustees of a
defined contribution pension scheme. These are
open ended;
i) guarantees in respect of a former
associate amounting to #14m, the bulk of which
relates to its obligations to supply
telecommunications services. These are
open-ended; and
j) other guarantees amounting to #22m
arising in the normal course of business and
entered into on normal commercial terms. These
guarantees run for varying lengths of time.
iii) Includes commitments largely relating to
gas purchasing of #285m (31 March 2007: #180m).
The Company has entered into an agreement with a
stockbroker to repurchase the Company's shares,
which is cancellable at any time other than
during a close period. The Company entered a
close period on 1 October 2007, at which point
authority existed for the repurchase of shares
up to a maximum value of #0.85bn. The close
period ends following the half year results
announcement on 15 November 2007. During the
period between 1 October and 15 November 2007
share repurchases amounted to #0.2bn.
14. Exchange rates
The consolidated 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 2007 2006 31 March 2007
========== ========== ==========
Closing 2.05 1.88 1.97
rate
applied
at period
end
Average 2.02 1.86 1.91
rate
applied
for the
period
=========== =========== ===========
15. Related party transactions
There were no significant changes in the nature
and size of related party transactions for the
period to those disclosed in the financial
statements for the year ended 31 March 2007.
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 consolidated 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 profit from IFRS 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 2007 2006 Year ended
31 March 2007
#m #m #m
=========== =========== ===========
Profit for the
period 2,396 594 1,394
attributable
to equity
shareholders
under IFRS
----------- ----------- -----------
Adjustments to
conform with US
GAAP
Purchase (60) (57) (124)
accounting
US regulatory (241) (266) (474)
accounting
Pensions and
other (33) (39) (94)
post-retirement
benefits
Financial 71 124 160
instruments
Severance costs
and onerous 62 3 2
lease
costs
Revenue 34 14 5
recognition
Discounting of 8 (8) 3
provisions
Sale and (12) - (19)
leaseback
Current tax - - 15
Deferred 124 138 295
taxation
Other (16) (1) (17)
----------- ----------- -----------
(63) (92) (248)
----------- ----------- -----------
Net income 2,333 502 1,146
under US GAAP
=========== =========== ===========
Basic earnings 87.6p 18.5p 42.2p
per share - US
GAAP
Diluted 87.1p 18.4p 41.9p
earnings per
share - US GAAP
=========== =========== ===========
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 2007 2006 31 March 2007
#m #m #m
========== ========== ==========
Total 5,555 3,290 4,125
shareholders'
equity under
IFRS
---------- ---------- ----------
Adjustments to
conform with US
GAAP
Purchase
accounting - 1,978 2,105 2,038
property, plant
and equipment
Purchase 2,330 2,652 2,648
accounting -
goodwill
US regulatory 2,502 2,291 2,209
accounting
Pensions and
other 11 1,103 -
post-retirement
benefits
Financial (5) 94 10
instruments
Revenue (3) (28) (37)
recognition
Intangible - 28 26
assets
Provisions (228) (158) (142)
Non-reversal of (22) (37) (23)
impairments
Sale and (31) - (19)
leaseback
Severance 64 4 4
provisions
Current tax and
interest on tax (53) - -
provisions
Deferred (1,520) (1,955) (1,477)
taxation
Other (30) (11) (32)
---------- ---------- ----------
4,993 6,088 5,205
---------- ---------- ----------
Shareholders' 10,548 9,378 9,330
equity under US
GAAP
========== ========== ==========
c) Accounting policies under US GAAP and new US
accounting standards and interpretations
The accounting policies under US GAAP applied
are those applicable for the year ending 31
March 2008. They are consistent with those that
were applied in the preparation of the US GAAP
financial information for the year ended 31
March 2007, as amended to reflect any new
standards or interpretations applicable in the
period. With the exception of Financial
Interpretation Number 48 ('FIN 48') on tax
provisioning, there was no impact on the
reported US GAAP financial information. The
adoption of FIN 48 on 1 April 2007 resulted in a
reduction to shareholders' equity of #21m.
Further information on new US accounting
standards and interpretations applicable to this
financial year will be included in the financial
statements for the year ending 31 March 2008.
Statement of Directors' Responsibilities
The half-yearly financial report is the
responsibility of, and has been approved by, the
Directors. The Directors are responsible for
preparing the half-yearly financial report in
accordance with the Disclosure and Transparency
Rules of the United Kingdom's Financial Services
Authority. The Disclosure and Transparency Rules
require that the accounting policies and
presentation applied to the half-yearly figures
must be consistent with those applied in the
latest published annual accounts except where
the accounting policies and presentation are to
be changed in the subsequent annual financial
statements, in which case the new accounting
policies and presentation should be followed,
and the changes and the reasons for the changes
should be disclosed in the half-yearly financial
report, or the United Kingdom Financial Services
Authority otherwise agrees.
The Directors confirm that this condensed set
of financial statements has been prepared in
accordance with IAS 34 as adopted by the
European Union, and that the interim management
report herein includes a fair review of the
information required by DTR 4.2.7 and DTR 4.2.8.
The Directors of National Grid plc are listed in
the National Grid plc Annual Report for the year
ended 31 March 2007, with the exception of the
following changes that took place during the six
months ended 30 September 2007:
Paul Joskow - retired from the Board on 31 July
2007
Tom King - appointed to the Board on 13 August
2007
Robert Catell - appointed to the Board on 25
September 2007
By order of the Board
Steve Holliday Steve Lucas
14 November 2007 14 November 2007
Chief Executive Officer Chief Financial Officer
Independent review report to National Grid plc
Introduction
We have been engaged by the Company to review
the condensed set of financial statements in the
half-yearly financial report for the six months
ended 30 September 2007, which comprises the
consolidated income statement, balance sheet,
statement of recognised income and expense, cash
flow statement and related notes. We have read
the other information contained in the
half-yearly financial report and considered
whether it contains any apparent misstatements
or material inconsistencies with the information
in the condensed set of financial statements.
Directors' responsibilities
The half-yearly financial report is the
responsibility of, and has been approved by, the
directors. The directors are responsible for
preparing the half-yearly financial report in
accordance with the Disclosure and Transparency
Rules of the United Kingdom's Financial Services
Authority.
As disclosed in note 1, the annual financial
statements of the group are prepared in
accordance with IFRSs as adopted by the European
Union. The condensed set of financial statements
included in this half-yearly financial report
has been prepared in accordance with
International Accounting Standard 34, "Interim
Financial Reporting", as adopted by the European
Union.
Our responsibility
Our responsibility is to express to the company
a conclusion on the condensed set of financial
statements in the half-yearly financial report
based on our review. This report, including the
conclusion, has been prepared for and only for
the company for the purpose of the Disclosure
and Transparency 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.
Scope of review
We conducted our review in accordance with
International Standard on Review Engagements (UK
and Ireland) 2410, 'Review of Interim Financial
Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices
Board for use in the United Kingdom. A review of
interim financial information consists of making
enquiries, primarily of persons responsible for
financial and accounting matters, and applying
analytical and other review procedures. A review
is substantially less in scope than an audit
conducted in accordance with International
Standards on Auditing (UK and Ireland) and
consequently does not enable us to obtain
assurance that we would become aware of all
significant matters that might be identified in
an audit. Accordingly, we do not express an
audit opinion.
Conclusion
Based on our review, nothing has come to our
attention that causes us to believe that the
condensed set of financial statements in the
half-yearly financial report for the six months
ended 30 September 2007 is not prepared, in all
material respects, in accordance with
International Accounting Standard 34 as adopted
by the European Union and the Disclosure and
Transparency Rules of the United Kingdom's
Financial Services Authority.
PricewaterhouseCoopers LLP
Chartered Accountants
London
14 November 2007
--------------------------
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The company news service from the London Stock Exchange
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