RNS Number:8025H
NGG Finance 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 US stranded cost recoveries) 24.1 20.5 18
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 rate 574 494 16
Operating profit - constant currency 574 489 17
Operating profit by geographical segment Six months ended 30 September
(#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 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.
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 rate 166 100 66
Operating profit - constant currency 166 98 69
Operating profit by geographical segment Six months ended 30 September
(#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 rate 196 222 (12)
Operating profit - constant currency 196 206 (5)
Stranded cost recoveries - constant currency 190 187 2
Operating profit by principal activities Six months ended 30 September
(#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 activities Six months ended 30 September
(#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 stranded cost recoveries) 528 437 21
US stranded cost recoveries (after tax) 114 121 (6)
Business performance earnings (inc. US stranded cost recoveries) 642 558 15
Exceptional items (after tax) 127 (11) *
Remeasurements (after tax) 14 14 *
Statutory earnings from continuing operations 783 561 40
Discontinued operations
Profit before exceptional items & remeasurements (after tax) 21 33 *
Exceptional items & remeasurements (after tax) 1,592 - *
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 Laskaris +1 718 403 2526 +1 917 375 0989(m)
Richard Smith +44 (0)20 7004 3172 +44 (0)7747 006321(m)
James Waite +44 (0)20 7004 3171 +44 (0)7977 440902(m)
Media
Clive Hawkins +44 (0)20 7004 3147 +44 (0)7836 357173(m)
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.
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 Year ended
for the six months ended 30 September 31 March
2007
2007 2006 *
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 8 17.8p 15.9p 26.8p
period
Dividends per ordinary share: approved or proposed 11.7p 10.9p 28.7p
to be paid
=========== =========== ===========
* Comparatives have been adjusted to reclassify amounts relating to discontinued
operations. At 31 March
CONSOLIDATED BALANCE SHEET at 30 September 2007 2006 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 (1,537) (2,076) (1,282)
obligations
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 12 16,311 11,650 11,788
instruments) included above
------------------- ------------------- ---------------
----
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND Year ended
EXPENSE 31 March
for the six months ended 30 September 2007 2006 2007
#m #m #m
=========== =========== ===========
Exchange adjustments (73) (130) (179)
Actuarial gains/(losses) 561 (350) 365
Net (losses)/gains taken to equity in respect of (33) 3 47
cash flow hedges
Transferred to profit or loss on cash flow hedges (4) (10) (45)
Net gains/(losses) taken to equity on 2 (3) (3)
available-for-sale investments
Transferred to profit or loss on sale of - (1) (1)
available-for-sale investments
Tax on items taken directly to or transferred from (175) 118 (81)
equity
------------------- ------------------- ------------
------
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
=========== =========== ===========
Year ended
31 March
CONSOLIDATED CASH FLOW STATEMENT 2007 2006 * 2007
for the six months ended 30 September #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 (195) (98) (125)
benefit obligations
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) (3,513) (269) (269)
and other investments
Sale of investments in subsidiaries, joint ventures 18 - 19
and other investments
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 - (4,593) (1,856) (4,172)
investing activities
Cash flows relating to discontinued operations
- disposal proceeds 3,065 42 27
- other investing activities and acquisition of (2) (23) (132)
subsidiaries, net of cash acquired
------------------- ------------------- -------------------
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 (796) - (169)
treasury shares
------------------- ------------------- -------------------
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 1,587 1,449 1,449
(i)
--------------------- ------------------- -------------------
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 - UK Four of the eight regional networks of Great Britain's gas distribution
system
Gas Distribution - US Gas distribution in New York and New England
Electricity Distribution and Electricity distribution in New York and New England and electricity
Generation - US generation in New York
US stranded cost recoveries The recovery of stranded costs from 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
Year ended
31 March
Six months ended 30 September 2007 2006* 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 businesses (105) (123) (219)
------------- ------------- -------------
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.
2. Segmental analysis (continued)
Year ended
b) Operating profit - before exceptional items and remeasurements 31 March
Six months ended 30 September 2007 2006* 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 Year ended
31 March
2007 2006* 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.
2. Segmental analysis (continued)
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.
Year ended
31 March
Six months ended 30 September 2007 2006 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 (42) 32 59
operating profit
Exceptional items - debt restructuring costs (iv) - - (45)
Remeasurements - commodity contracts (iii) (6) (12) (19)
Remeasurements - net gains/(losses) on derivative 18 (66) (153)
financial instruments (v)
Total exceptional items and remeasurements included within 12 (78) (217)
finance costs
--------------------- --------------------- -----------------
Total exceptional items and remeasurements before taxation (30) (46) (158)
============ ============ ============
Exceptional item - deferred tax credit arising from 169 - -
reduction in UK tax rate (vi)
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 (10) (14) (25)
(iii)
Tax on remeasurements - derivative financial instruments (17) 58 169
(v)
--------------------- --------------------- -----------------
Exceptional tax item and tax on exceptional items and 171 49 170
remeasurements
============ ============ ============
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 1 (8) 16
taxation
--------------------- --------------------- -----------------
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.
3. Exceptional items and remeasurements (continued)
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
Year ended
31 March
Six months ended 30 September 2007 2006 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 12 (78) (172)
commodity contracts
------------------- ------------------- -----------------
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 (282) (253) (547)
remeasurements
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
Year ended
31 March
Six months ended 30 September 2007 2006 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 1,507 - -
operations
------------------- ------------------- -----------------
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
Year ended Year ended
31 March 31 March
Six months ended 30 September 2007 2007 2006 2006 2007 2007
Earnings Earnings per Earnings Earnings per Earnings Earnings
share share per share
#m pence #m pence #m pence
========== ========== ========== ========== ========== ==========
Adjusted - continuing 642 24.1 558 20.5 1,296 47.7
operations
Exceptional items after 127 4.8 (11) (0.4) (41) (1.5)
taxation
Commodity contract 13 0.5 22 0.8 37 1.3
remeasurements after
taxation
Derivative remeasurements 1 - (8) (0.3) 16 0.6
after taxation
------------- ------------- ------------- ----------- ----------- ------------
Continuing operations 783 29.4 561 20.6 1,308 48.1
========== ========== ========== ========== ========== ==========
Adjusted - discontinued 21 0.8 33 1.2 104 3.8
operations
Gains on disposal of 1,584 59.5 - - - -
operations after taxation
Other exceptional items 8 0.3 - - (18) (0.6)
after taxation ------------- ------------- ------------- ----------- ----------- ------------
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 2,663 2,721 2,719
shares - basic
========== ========== ==========
b) Diluted earnings per share
Year ended Year ended
31 March 31 March
Six months ended 30 September 2007 2007 2006 2006 2007 2007
Earnings Earnings per Earnings Earnings per Earnings Earnings
share share per share
#m pence #m pence #m pence
========== ========== ========== ========== ========== ==========
Adjusted diluted - 642 24.0 558 20.4 1,296 47.4
continuing operations
Exceptional items after 127 4.7 (11) (0.4) (41) (1.5)
taxation
Commodity contract 13 0.5 22 0.8 37 1.3
remeasurements after
taxation
Derivative remeasurements 1 - (8) (0.3) 16 0.6
after taxation
------------- ------------- ------------- ----------- ----------- ------------
Diluted - continuing 783 29.2 561 20.5 1,308 47.8
operations
========== ========== ========== ========== ========== ==========
Adjusted diluted - 21 0.8 33 1.2 104 3.8
discontinued operations
Gains on disposal of 1,584 59.1 - - - -
operations after taxation
Other exceptional items 8 0.3 - - (18) (0.7)
after taxation
------------- ------------- ------------- ----------- ----------- ------------
Diluted - discontinued 1,613 60.2 33 1.2 86 3.1
operations
========== ========== ========== ========== ========== ==========
Diluted 2,396 89.4 594 21.7 1,394 50.9
========== ========== ========== ========== ========== ==========
millions millions millions
========== ========== ==========
Weighted average number of 2,679 2,735 2,737
shares - diluted
========== ========== =========
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 #m pence #m pence #m
per ordinary per ordinary per ordinary
share share share
========== ========== ========== ========== ========= ==========
Ordinary dividends
Final dividend for the - - 15.9 433 15.9 433
year ended 31 March 2006
Interim dividend for the - - - - 10.9 297
year ended 31 March 2007
Final dividend for the 17.8 480 - - - -
year 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 fair
book value at value
acquisition
#m #m
=========== ===========
Intangible assets 44 159
Property, plant and equipment 3,166 3,160
Inventories 353 353
Trade and other receivables 998 998
Financial and other investments 34 34
Cash and cash equivalents 260 260
Financial and other investments 129 129
Assets of businesses held for sale 440 1,031
Borrowings - current (317) (317)
Trade and other payables (745) (745)
Borrowings - non-current (2,057) (2,138)
Other non-current liabilities (165) (165)
Deferred tax liabilities (309) (554)
Pensions and other post-retirement benefit obligations (438) (440)
Provisions (340) (340)
Liabilities of businesses held for sale (37) (37)
Minority interest (8) (8)
------------------- -------------------
Net assets acquired 1,008 1,380
Goodwill arising on acquisition 2,388
-------------------
Total consideration 3,768
===========
9. Acquisitions (continued)
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 Year ended
31 March
2007 2006 2007
#m #m #m
========== ========== ==========
Opening total equity 4,136 3,493 3,493
Changes in total equity for the period
Net income recognised directly in equity 278 (373) 103
Profit for the period 2,398 596 1,396
Equity dividends (480) (433) (730)
Issue of ordinary share capital 13 8 16
B shares converted to ordinary shares 27 - -
Repurchase of share capital and purchase of treasury shares (i) (808) - (169)
Other movements in minority interests 6 (1) (1)
Share-based payment 9 7 15
Tax on share-based payment (6) 5 13
------------------ ----------------- -----------------
Closing total equity 5,573 3,302 4,136
=========== ========== ==========
(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 equivalents (1,264) 869 175
(Decrease)/increase in financial investments (278) 432 1,725
Increase in borrowings and related derivatives (i) (647) (2,238) (3,019)
Net interest paid 249 291 597
------------------ ------------------ ------------------
Change in net debt resulting from cash flows (1,940) (646) (522)
Changes in fair value of financial assets and liabilities and 209 194 331
exchange movements
Net interest charge (358) (304) (655)
Acquisition of subsidiary undertaking (2,421) - (48)
Amounts related to businesses held for sale 17 - (42)
Other non-cash movements (30) (44) (2)
------------------- ------------------- -------------------
Movement in net debt (net of related derivative financial (4,523) (800) (938)
instruments) in the period
Net debt at start of period (11,788) (10,850) (10,850)
------------------- ------------------- -------------------
Net debt (net of related derivative financial instruments) at (16,311) (11,650) (11,788)
end of 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 31 March
2007 2006 2007
#m #m #m
=========== =========== ===========
Cash and cash equivalents 355 2,320 1,593
Bank overdrafts (16) (11) (6)
------------------- ------------------- -------------------
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 instruments) (16,311) (11,650) (11,788)
=========== =========== ===========
13. Commitments and contingencies
At 30 September 31 March
2007 2006 2007
#m #m #m
=========== =========== ===========
Future capital expenditure contracted for but not provided 1,160 1,343 1,554
Commitments under non-cancellable operating leases 758 800 800
Obligations to purchase energy under long-term contracts (i) 4,986 4,768 3,731
Guarantees (ii) 583 188 229
Other commitments and contingencies (iii) 333 205 308
=========== =========== ===========
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:
31 March
30 September 2007 2006 2007
=========== =========== ===========
Closing rate applied at period end 2.05 1.88 1.97
Average rate applied for the period 2.02 1.86 1.91
=========== =========== ===========
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:
Year ended
31 March
Six months ended 30 September 2007 2006 2007
#m #m #m
=========== =========== ===========
Profit for the period attributable to equity shareholders under IFRS 2,396 594 1,394
----------- ----------- -----------
Adjustments to conform with US GAAP
Purchase accounting (60) (57) (124)
US regulatory accounting (241) (266) (474)
Pensions and other post-retirement benefits (33) (39) (94)
Financial instruments 71 124 160
Severance costs and onerous lease costs 62 3 2
Revenue recognition 34 14 5
Discounting of provisions 8 (8) 3
Sale and leaseback (12) - (19)
Current tax - - 15
Deferred taxation 124 138 295
Other (16) (1) (17)
----------- ----------- -----------
(63) (92) (248)
----------- ----------- -----------
Net income under US GAAP 2,333 502 1,146
=========== =========== ===========
Basic earnings per share - US GAAP 87.6p 18.5p 42.2p
Diluted earnings per share - US GAAP 87.1p 18.4p 41.9p
=========== =========== ===========
16. Differences between IFRS and US generally accepted accounting principles ("
US GAAP") (continued)
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:
31 March
At 30 September 2007 2006 2007
#m #m #m
========== ========== ==========
Total shareholders' equity under IFRS 5,555 3,290 4,125
---------- ---------- ----------
Adjustments to conform with US GAAP
Purchase accounting - property, plant and equipment 1,978 2,105 2,038
Purchase accounting - goodwill 2,330 2,652 2,648
US regulatory accounting 2,502 2,291 2,209
Pensions and other post-retirement benefits 11 1,103 -
Financial instruments (5) 94 10
Revenue recognition (3) (28) (37)
Intangible assets - 28 26
Provisions (228) (158) (142)
Non-reversal of impairments (22) (37) (23)
Sale and leaseback (31) - (19)
Severance provisions 64 4 4
Current tax and interest on tax provisions (53) - -
Deferred taxation (1,520) (1,955) (1,477)
Other (30) (11) (32)
---------- ---------- ----------
4,993 6,088 5,205
---------- ---------- ----------
Shareholders' equity under US GAAP 10,548 9,378 9,330
========== ========== ==========
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
-------------------------
(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 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.
(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.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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