19th May 2005 07:03
National Grid Transco PLC19 May 2005 19 May 2005 National Grid Transco plcResults for the year ended 31 March 2005 Sustained earnings growth. Key strategic transactions. Positive outlook. • Good operating performance, especially in the US• A year of significant strategic achievement - Gas distribution network sales completion expected 1 June 2005 - Acquisition of Crown Castle UK - performance in line with expectations• 20% increase in full year dividend• Positive outlook for medium term growth through organic investment Financial highlights - £ million (except where indicated) Years ended 31 March 2005 2004 - restated % change (Note A)Underlying business results (Note B)Operating profit - constantcurrency basis (Note C) 2,212 2,148 3Operating profit - actualexchange rate 2,212 2,213 0Pre-tax profit 1,429 1,391 3Earnings 1,106 1,039 6Earnings per share 35.9p 33.9p 6 Statutory resultsOperating profit 1,852 1,837 1Pre-tax profit 1,152 1,337 (14)Earnings 908 1,074 (15)Earnings per share * 29.5p 35.0p (16) Dividend per share 23.7p 19.78p 20 Underlying business results exclude goodwill amortisation and exceptional items.For notes A, B and C - see REVIEW OF GROUP RESULTS below.* Statutory EPS last year included a 7.4p exceptional gain related to theEnergis EPICs bond. Sir John Parker, Chairman, said: "Once again the Group has had a good year. This set of financial resultsdemonstrates the strength of the Group's strategy aimed at delivering premiumreturns. The business is performing well. Our safety record has improved on ouralready very high standards and we were pleased to be ranked 2nd in theprestigious Business in the Community's 2004 Corporate Responsibility Index. "Investment in our businesses, including acquisitions, has reached £3.0bn thisyear. Our organic and strategic investments are set to deliver furthersignificant medium-term growth for shareholders. The process to obtain the finalregulatory approvals required to complete the planned sales of four of our UKgas distribution networks is nearing completion, enabling us to return £2bn toshareholders. "All of these achievements are to the credit of our management and employees. "The Board is recommending a 28% increase in the final dividend, leading to a20% increase in the full year dividend and an almost 40% increase in the last 2years. Reflecting the Group's financial strength and future prospects, we arealso retaining our 7% per annum dividend growth target for the three years toMarch 2008." OVERVIEW The Group's strategy is based on driving strong operational performance,effective management of regulation and disciplined capital management. Thisstrategy has delivered another good set of financial results, with underlyingearnings per share increasing 6% since last year, resulting in a total increaseof 32% since the merger of National Grid Group and Lattice Group. Underlying operating profit on a constant currency basis was up 3%. Thisprimarily reflected the increases in underlying operating profit fromTransmission and US Distribution, and the contribution from Crown Castle UK.These factors have more than offset the expected reduction in profits from UKGas Distribution, caused largely by the planned increase in expenditure in theiron mains replacement programme (£86m) and the year-on-year reduction intransportation prices. The Group is making good progress towards obtaining the required regulatoryapprovals to complete the sales of four of its UK gas networks, which are nowexpected to complete on 1 June 2005. With cash proceeds of £5.8bn, the salesrepresent a major step in value creation. Completion will enable both a £2.0bnreturn of value to the Group's shareholders and the repayment of around £2.3bnof debt. The return of value will be by way of a B share scheme under which shareholdersmay opt to receive the return either as income or capital. It is planned thatthe Extraordinary General Meeting seeking shareholder approval for the B sharescheme and the associated ordinary share capital consolidation will be held onthe same day as the Annual General Meeting, 25 July 2005, with the return ofvalue occurring during August. REVIEW OF GROUP RESULTS Turnover from continuing activities was £8.5bn, up £0.1bn, on a constantcurrency basis. Underlying operating profit was £2,212m, up £64m from £2,148m, on a constantcurrency basis. Despite the increases in interest rates during the year, the Group's netinterest expense decreased by £7m to £783m on a constant currency basis. Underlying profit before tax was up 5% from £1,358m to £1,429m on a constantcurrency basis. The tax charge on underlying profit for the year was £324m and includes a creditin respect of prior years of £30m. The effective tax rate on underlying profitsbefore the prior year tax credit was 25% while the effective tax rate, includingthe credit in respect of prior years, was 23%. The weaker US dollar reduced underlying operating profit by £65m but, the netexchange rate impact on underlying earnings, after interest, tax, and minorityinterests, was £21m. Underlying earnings and underlying earnings per share were both up 6% from lastyear, underlying earnings to £1,106m, up from £1,039m last year, and underlyingearnings per share to 35.9p, up from 33.9p last year. There were net exceptional charges (including both operating and non-operatingexceptional items) totalling £168m before tax, comprising: • Restructuring costs of £210m (£158m after tax), primarily in UK gas distribution, relating to both planned cost reduction programmes and the gas distribution network sales process• Environmental charges of £41m (£26m after tax)• Gains on sales of tangible fixed assets and businesses of £83m (£82m after tax) After exceptional items and goodwill amortisation, basic earnings per share were29.5p, down from 35.0p last year, when the Group had a significant netexceptional gain arising from the settlement of the Energis-related EPICs bond,which enhanced last year's earnings per share by 7.4p. The Group generates strong cash flows and underlying cash flow from operationsof £3.1bn was over £3bn for the third consecutive year since the completion ofthe merger between National Grid Group and Lattice Group. The Group maintained its high levels of investment, with capital expenditure forthe year of £1.4bn, including £187m relating to the Isle of Grain and Basslinkprojects. In addition, the Group invested £474m in replacement expenditure in UKgas distribution. With the Group's acquisition of the UK operations of CrownCastle International Corp. of £1.1bn, total investment was £3.0bn for the year. Group net debt was up £0.9bn to £13.5bn at 31 March 2005. This mainly reflectsthe £1.1bn acquisition of the UK operations of Crown Castle International Corp. A final dividend of 15.2p per ordinary share ($1.3869 per American DepositaryShare (ADS)) will be paid on 24 August 2005 to shareholders on the register asat 10 June 2005. Note A: During 2004/05 the Group implemented FRS 20 (Share-based Payment). Thefigures for 2003/04 shown in the table have been restated for the impact of FRS20. Note B: "Underlying business results" represent the primary measures used by theBoard and are presented before goodwill amortisation and exceptional items. TheBoard believes that exclusion of these items provides a better comparison ofresults from year to year as well as with other UK companies where it iscustomary to exclude goodwill amortisation. Unless otherwise stated, allfinancial commentaries in this announcement are on an "underlying businessresults" basis and are preceded by the word "underlying". Reconciliations ofthese measures to statutory measures are provided in the Group Profit & LossAccount, Notes 5(a) and 5(b), and the Group Cash Flow Statement. Note C: "Constant currency basis" refers to the reporting of the actual currentyear results against the prior year analogous results which, in respect of anyUS$ currency denominated activity, have been retranslated using the average US$exchange rate for the year ended 31 March 2005, which was $1.87 to £1.00. Theaverage rate for the year ended 31 March 2004 was $1.68 to £1.00. REVIEW OF OPERATIONS TRANSMISSION Year ended 31 March 2005 (£m) 2004 (£m) (restated) % ChangeUnderlying operating profitUK electricity transmission 538 478 13UK gas transmission 271 281 (4)UK electricity and gastransmission 809 759 7 US electricity transmission- constant currency basis 123 119 3- actual exchange rate 123 133 (8) Underlying operating profit from UK electricity and gas transmission was up 7%at £809m compared with £759m last year. This reflected the beneficial timingimpacts from the connections charging reform ("Plugs") of £54m and thecollection of the under-recovery of electricity transmission owner revenue of£26m. These increases were partially offset by pension deficit charges, higherby £11m, and incentive profits, lower by £16m, against the backdrop of tougherregulatory targets in both the electricity and gas system operator incentiveschemes. Transmission operator controllable costs, which exclude increases inongoing pension costs, were reduced by 1% in real terms during the year. The British Electricity Transmission and Trading Arrangements were successfullyintroduced on 1 April 2005. These extend the Group's System Operator role intoScotland. A new incentive scheme for network reliability was introduced on 1January 2005, the initial period of which covers the 15 months through to 31March 2006. Reliability performance since this scheme began has beenencouraging. The Group is working closely with Ofgem on the mini-review to extend theelectricity transmission price control by one year to April 2007, with finalproposals expected this autumn. It is anticipated that this review and the main5-year review next year, will recognise the increased levels of investment thathave already been committed and which will be necessary in the future on bothasset replacement and new infrastructure. The Group also anticipates gastransmission investment rising sharply, with several major gas transmissionpipelines over the next few years, reflecting required infrastructure changes asthe UK increases imports of gas. In the US, underlying operating profit from US electricity transmission was up£4m to £123m on a constant currency basis. This was primarily due to reducedcosts. The Group continues to support the recently created New England regionaltransmission organisation and has filed with FERC requesting an increased returnon equity for both existing operations and new transmission investment. In April2005, following a strategic review, GridAmerica announced that it would ceaseoperations with effect from 1 November 2005. The Group will be looking toreapply the skills and knowledge brought to its participation in GridAmerica asit seeks to develop transmission interests in North America. GridAmericacontributed £2m of underlying operating profit during the year. UK GAS DISTRIBUTION Year ended 31 March 2005 (£m) 2004 (£m) (restated) % Change Underlying operating profit 570 716 (20)Replacement expenditure 474 388 22 Underlying operating profit from UK gas distribution was down £146m at £570mcompared with £716m last year. Formula income declined £53m, primarily fromreduced transportation prices, due to the timing of allowed revenue recoveries,exacerbated by a very mild winter. Revenues would have been some £70m higher ifseasonal normal temperatures had occurred. The planned increase of replacementexpenditure (repex), which is fully expensed, was £86m. The remainder of theyear-on-year variance was due to a £17m increase in charges relating to gascommodity prices and a reduction in pension costs of £9m primarily due todeficit charges. Further cost efficiencies have been achieved against the backdrop of substantialorganisational change and the significant volume of work required to design andimplement a new industry structure as a result of the planned network sales.Controllable costs, which exclude increases in ongoing pension costs andshrinkage gas commodity prices, decreased by 3% in real terms during the yearand have now decreased 23% in real terms since March 2002. The restructuring programme in the four retained networks is well advanced. Thiscentralises many business processes on two key centres in the Midlands and isintended to facilitate improvements in efficiency and reduce controllable costs.This is particularly focused on bringing overheads into line with the smallersize of the retained business. The Group has also entered into 8-year allianceswith key contractors to enhance the safe, efficient and sustainable delivery ofthe repex programme. US DISTRIBUTION Year ended 31 March 2005 (£m) 2004 (£m) (restated) % Change Underlying operating profit (constant currency basis)US electricity and gasdistribution 374 325 15US stranded cost recoveries 121 121 - ----------------------------------- 495 446 11 Underlying operating profit (actual exchange rate)US electricity and gasdistribution 374 362 3US stranded cost recoveries 121 134 (10) ----------------------------------- 495 496 - The performance of US electricity and gas distribution was particularly strong.Underlying operating profit was up 15% at £374m on a constant currency basiscompared with £325m last year. Electricity delivery volumes increased 0.5% compared to the prior year. On aweather adjusted basis, total electricity delivery volumes increased by 1.4% andby 1.7% in the important domestic sales category, adding £17m to underlyingoperating profit. The year-on-year weather effect reduced underlying operatingprofit by some £9m, primarily due to a cooler than normal summer. US controllable costs have been reduced by 20% in real terms since 2001/02,including a £35m reduction since last year, due primarily to staffing reductionsand the improved management of bad debts. Good progress has been made on implementing a new contract reached last autumnwith the labour union in New York. Together with the 2003 agreement with the NewEngland unions, this will enable the business to increase productivity stillfurther through more efficient working practices alongside additional benefitsin terms of safety and service standards. The Group's US operations generated very strong cash flow of £902m, almost £300mmore than in 2003/04 due to lower pension and post retirement funding and therecovery of commodity costs. WIRELESS INFRASTRUCTURE Year ended 31 March 2005 (£m) 2004 (£m) (restated) % Change Underlying operating profit 46 6 667 Underlying operating profit for the Group's Wireless Infrastructure business wasup £40m at £46m due to the acquisition of the UK operations of Crown CastleInternational Corp. on 31 August 2004. The business is performing in line withthe Group's expectations and the integration with the Group's existing business,Gridcom UK, is on schedule. More than half of the £18m annualised cash savingstargeted for March 2006 have already been realised. With continued demand fornew mobile tenancies and attractive prospects in broadcast, the business is ontrack to deliver strong profit growth. OTHER ACTIVITIES Year ended 31 March 2005 (£m) 2004 (£m) (restated) % Change Underlying operating profit 169 103 64 Underlying operating profit from the Group's Other activities (including jointventures), was up £66m at £169m compared with £103m last year. This reflectsincreased property stock sales by SecondSite, the elimination of losses atFulcrum Connections and items relating to insurance. These were only partiallyoffset by the expected impact of lower prices charged by the Group's Meteringbusiness under new contracts signed with its gas supply customers. The first phase of the Group's Liquefied Natural Gas (LNG) import terminal atthe Isle of Grain is targeted to commence commissioning next month. Cumulativeinvestment has now reached £111m. In March, the Group announced a £355minvestment to expand the terminal. This will see capacity triple by the end of2008, providing around 12% of the UK's expected annual gas demand. Theseinvestments are underpinned by 20-year contracts signed with BP, Centrica, Gazde France and Sonatrach. Completion of the Group's Basslink project in Australia, supported by a long term contract with Hydro Tasmania, has been delayed due toseveral transformers being damaged en route to Australia. Commissioning is nowexpected in the second quarter of 2006, but this delay will not impact theexpected returns of the project. INTERNATIONAL FINANCIAL REPORTING STANDARDS These are the final set of results the Group will report under UK GAAP as nextyear's results will be reported under International Financial ReportingStandards (IFRS). To aid understanding of the Group's transition to IFRS,summary results under UK GAAP and IFRS are presented here. The IFRS figures areunaudited and may change as the Group finalises its analysis of the effects ofIFRS. The adoption of IFRS in the Group accounts represents an accounting change only,and will not affect the operations, cash flows or distributable reserves of theGroup. Similarly, there will be no impact on the regulatory asset values orregulatory agreements of any of the Group's businesses. The Group has adopted IAS 39 (Financial Instruments: Recognition andMeasurement) from 1 April 2005 and therefore, the results presented under IFRSdo not include any effects of that standard. Unaudited impacts of IFRS adoption for the year ended 31 March 2005£ million (except where indicated) UK GAAP IFRS (unaudited) % change Underlying business results (Note B)Operating profit 2,212 2,866 30Pre-tax profit 1,429 2,155 51Earnings 1,106 1,601 45Earnings per share 35.9p 51.9p 45 Statutory resultsOperating profit 1,852 2,570 39Pre-tax profit 1,152 1,880 63Earnings 908 1,424 57Earnings per share 29.5p 46.2p 57 As set out in the Group's presentation and announcement earlier this year, themost significant impacts from the adoption of IFRS arise from the change inaccounting treatments for repex and regulatory assets. Other key areas that areaffected include the treatment of pensions and other post-retirement benefits,profits on disposals of properties, deferred taxation and goodwill. Theseadjustments would have resulted in a higher underlying operating profit thanthat reported under UK GAAP in 2004/05 by some £654m and higher underlyingearnings per share by around 16.0p. The underlying effective tax rate under IFRS in 2004/05 would have been 27%.Going forward, the increase in underlying pre-tax profit from IFRS and thechange in the mix of Group pre-tax profits following the sales of the gasdistribution networks will result in an increase to the Group's underlyingeffective tax rate to around 30%. Draft legislation proposed by the UKgovernment before the election but not due to be enacted until July may furtherimpact the Group's effective tax rate. Further detail on the Group's 2004/05 results under IFRS is included in appendixA to this release. BOARD CHANGES Following James Ross's retirement on 21 October 2004, the Board is delighted towelcome John Allan, Chief Executive of Exel plc, who has been appointed to theBoard as a Non-Executive Director with effect from 1 May 2005. OUTLOOK AND DIVIDEND POLICY The Board remains confident in the Group's future prospects based upon thefundamental strengths of its businesses and the delivery of value from itsstrategy. The Group has strong medium term prospects with specific growthfactors in each of the businesses, including revenue growth, capital investmentopportunities and continued cost efficiencies. The Group will continue tomaintain its disciplined approach to both organic and strategic investment. With this confidence in future growth prospects, coupled with the Group's strongfinancial position and the planned network sales, the Board is recommending a28% increase in the final dividend to 15.2p per ordinary share, ($1.3869 perAmerican Depositary Share (ADS)). The final dividend will be paid on 24 August2005 to shareholders on the register as at 10 June 2005. Looking ahead, theGroup retains its target to increase dividends per ordinary share expressed insterling by 7% in each financial year up to 31 March 2008. CONTACT DETAILS National Grid Transco: InvestorsAlexandra Lewis +44 (0)20 7004 3170 +44 (0)7768 554879(m)David Campbell +44 (0)20 7004 3171 +44 (0)7799 131783(m)Richard Smith +44 (0)20 7004 3172 +44 (0)7747 006321(m)Bob Seega (US) +1 508 389 2598 MediaClive Hawkins +44 (0)20 7004 3147 +44 (0)7836 357173(m) Citigate Dewe Rogerson +44 (0)20 7638 9571Anthony Carlisle +44 (0)7973 611888(m) An analyst presentation will be held at City Presentation Centre, 4 ChiswellStreet, London EC1Y 4UP at 9:00 am (UK time) today. Live telephone coverage of the analyst presentation - password National GridTransco Dial in number +44 (0)20 7081 9429US call in number +1 866 432 7186 Telephone replay of the analyst presentation (available until 2 June 2005) Dial in number +44 (0)20 7081 9440Account number 869448Recording number 452121 A live web cast of the presentation will also be available at www.ngtgroup.com Photographs are available on www.newscast.co.uk Cautionary statement This announcement contains certain statements that are neither reportedfinancial results nor other historical information. These statements areforward-looking statements within the meaning of Section 27A of the SecuritiesAct of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,as amended. Because these forward-looking statements are subject to assumptions,risks and uncertainties, actual future results may differ materially from thoseexpressed in or implied by such statements. Many of these assumptions, risks anduncertainties relate to factors that are beyond National Grid Transco's abilityto control or estimate precisely, such as delays in obtaining, or adverseconditions contained in, regulatory approvals, competition and industryrestructuring, changes in economic conditions, currency fluctuations, changes ininterest and tax rates, changes in energy market prices, changes in historicalweather patterns, changes in laws, regulations or regulatory policies,developments in legal or public policy doctrines, the impact of changes toaccounting standards, technological developments, the failure to retain keymanagement, the availability of new acquisition opportunities or the timing andsuccess of future acquisition opportunities. Other factors that could causeactual results to differ materially from those described in this announcementinclude the ability to continue to integrate the US and UK businesses acquiredby or merged with National Grid Transco, the failure for any reason to achievereductions in costs or to achieve operational efficiencies, unseasonable weatherimpacting on demand for electricity and gas, the behaviour of UK electricitymarket participants on system balancing, the timing of amendments in prices toshippers in the UK gas market, the performance of National Grid Transco'spension schemes and the regulatory treatment of pension costs, the impact of theseparation and planned sales by National Grid Transco of four of its UK gasdistribution networks and any adverse consequences arising from outages on orotherwise affecting energy networks owned and/or operated by National GridTransco. For a more detailed description of these assumptions, risks anduncertainties, together with any other risk factors, please see National GridTransco's filings with the US Securities and Exchange Commission (and inparticular the "Risk Factors" and "Operating and Financial Review" sections inits most recent annual report on Form 20-F). Recipients are cautioned not toplace undue reliance on these forward-looking statements, which speak only as ofthe date of this announcement. National Grid Transco does not undertake anyobligation to release publicly any revisions to these forward-looking statementsto reflect events or circumstances after the date of this announcement. GROUP PROFIT AND LOSS ACCOUNT FOR THEYEARS ENDED 31 MARCH 2005 2004 (restated) Notes £m £m ============ ============Group turnover - continuing operationsbefore acquisition 8,373 8,875Group turnover - acquisition 2a 148 - ------------ ------------Group turnover - continuing operations 2a 8,521 8,875Group turnover - discontinued operations 2a - 158 ------------ ------------Group turnover 8,521 9,033Operating costs (6,676) (7,203) ------------ ------------Operating profit of Group undertakings -continuing operations before acquisition 1,829 1,830Operating profit of Group undertakings -acquisition 2c 16 - ------------ ------------Operating profit of Group undertakings -continuing operations 2c 1,845 1,830 ------------ ------------ Share of joint ventures' operating profit- continuing operations 2c 6 7Share of joint ventures' operating profit- discontinued operations 2c 1 - ------------ ------------Share of joint ventures' operating profit 7 7 ------------ ------------Operating profit- Before exceptional items and goodwill amortisation 2b 2,212 2,213- Exceptional items 3a (251) (277)- Goodwill amortisation (109) (99) ------------ ------------Total operating profit 1,852 1,837 Non-operating exceptional items 3b 83 322 Net interest 4 (783) (822) ------------ ------------Profit on ordinary activities before taxation- Before exceptional items and goodwill amortisation 1,429 1,391- Exceptional items and (277) (54) goodwill amortisation ------------ ------------ 1,152 1,337Taxation- Excluding exceptional items (324) (350)- Exceptional items 3c 79 89 ------------ ------------ (245) (261) ------------ ------------Profit on ordinary activities 907 1,076after taxationMinority interests 1 (2) ------------ ------------Profit for the year- Before exceptional items and goodwill amortisation 1,106 1,039- Exceptional items and goodwill (198) 35 goodwill amortisation ------------ ------------ 908 1,074Dividends 6 (731) (609) ------------ ------------Profit transferred to profit and lossaccount reserve 177 465 ============ ============ EARNINGS AND DIVIDENDS PER ORDINARY SHARE 2005 2004FOR THE YEARS ENDED 31 MARCH (restated) Notes Pence Pence =========== =========== Basic earnings (including exceptional itemsand goodwill amortisation) 5a 29.5 35.0Adjusted basic earnings (excludingexceptional items and 5a 35.9 33.9goodwill amortisation) =========== =========== Dividends per ordinary share 6 23.7 19.78 =========== =========== GROUP STATEMENT OF TOTAL RECOGNISED GAINS ANDLOSSES FOR THE YEARS ENDED 31 MARCH 2005 2004 (restated) £m £m ============ ============Profit for the year 908 1,074Exchange adjustments (73) (417)Tax on exchange adjustments - (12) ------------ ------------Total recognised gains and losses relating tothe year 835 645 ------------ ------------Prior year adjustment (i) (140) ------------Total recognised gains and losses since lastannual report 695 ============ i) During the year ended 31 March 2005, the Group adopted Financial ReportingStandard (FRS) 20 "Share-based Payment" - see note 1. GROUP BALANCE SHEET AT 31 MARCH 2005 2004 (restated) £m £m ============ ============Fixed assetsIntangible assets 2,003 1,537Tangible assets 17,746 16,706Investments in joint ventures 17 19Other investments 131 132 ------------ ------------ 19,897 18,394 ------------ ------------ Current assetsStocks 101 91Debtors (amounts falling due within one year) 1,545 1,588Debtors (amounts falling due after more thanone year) 2,498 2,708Cash and investments 670 616 ------------ ------------ 4,814 5,003Creditors (amounts falling due within one year) (6,148) (4,513) ------------ ------------Net current (liabilities)/assets (1,334) 490 ------------ ------------Total assets less current liabilities 18,563 18,884Creditors (amounts falling due after more thanone year) (12,800) (13,464)Provisions for liabilities and charges (4,372) (4,149) ------------ ------------Net assets employed 1,391 1,271 ============ ============ Capital and reservesCalled up share capital 309 309Share premium account 1,289 1,280Other reserves (5,131) (5,131)Profit and loss account 4,892 4,763 ------------ ------------Equity shareholders' funds 1,359 1,221Minority interests 32 50 ------------ ------------Total shareholders' funds 1,391 1,271 ============ ============ Net debt included above 13,549 12,632 ------------ ------------ RECONCILIATION OF MOVEMENT IN EQUITY SHAREHOLDERS'FUNDS FOR THE YEARS ENDED 31 MARCH 2005 2004 (restated) £m £m ============ ============Profit for the year 908 1,074Dividends (731) (609) ------------ ------------ 177 465Issue of ordinary shares 9 34Movement in shares held by employee share trust 5 5Employee option scheme issues 16 25Deferred tax on employee option schemes 4 -Exchange adjustments (73) (417)Tax on exchange adjustments - (12) ------------ ------------Net increase in equity shareholders' funds 138 100 ------------ ------------Opening shareholders' funds as previouslyreported 1,213 1,113Restatement of opening equity shareholders'funds on adoption of FRS 20 (i) 8 8 ------------ ------------Opening equity shareholders' funds as restated 1,221 1,121 ------------ ------------Closing equity shareholders' funds 1,359 1,221 ============ ============ i) During the year ended 31 March 2005, the Group adopted Financial ReportingStandard (FRS) 20 "Share-based Payment" - see note 1. GROUP CASH FLOW STATEMENT FOR THE YEARSENDED 31 MARCH 2005 2004 Notes £m £m ============ ============Net cash inflow from operating activitiesbefore exceptional items 8 3,103 3,058Expenditure relating to exceptional items (194) (248) ------------ ------------Net cash inflow from operating activities 2,909 2,810 Dividends from joint ventures 5 8 Net cash outflow for returns oninvestments and servicing of finance (758) (692) TaxationNet corporate tax paid (150) (18) Capital expenditure and financial investmentNet payments to acquire intangible andtangible fixed assets (1,354) (1,400)Receipts from disposals of tangible fixedassets 92 146 ------------ ------------Net cash outflow for capital expenditureand financial investment (1,262) (1,254) Acquisitions and disposalsPayments to acquire Group undertakings 7 (1,151) -Less: Cash acquired with Group undertaking 29 - ------------ ------------ (1,122) -Payments to acquire investments (16) (26)Receipts from disposal of investments 8 33 ------------ ------------Net cash (outflow)/inflow for acquisitionsand disposals (1,130) 7 Equity dividends paid (628) (560) ------------ ------------Net cash (outflow)/inflow before themanagement of liquid resources and financing (1,014) 301 Net cash outflow from the management ofliquid resources 9 (54) (48) FinancingIssue of ordinary shares 13 38Termination of cross-currency swaps 9 - 148Increase/(decrease) in borrowings 9 1,068 (426) ------------ ------------Net cash inflow/(outflow) from financing 1,081 (240) ------------ ------------Movement in cash and overdrafts 9 13 13 ============ ============ NOTES TO THE PRELIMINARY ANNOUNCEMENT 1. Basis of preparation The financial information contained in this announcement, which does notconstitute statutory accounts as defined in Section 240 of the Companies Act1985, has been derived from the statutory accounts for the year ended 31 March2005, which will be filed with the Registrar of Companies in due course. Theauditors' report on these accounts is unqualified and did not contain astatement under Section 237(2) or (3) of the Companies Act 1985. New accounting standards Adoption of Financial Reporting Standard (FRS) 20 During the year the Group adopted FRS 20 "Share-based Payment". The adoption ofthis standard constitutes a change in accounting policy. Therefore, the impacthas been reflected as a prior year adjustment in accordance with FRS 3"Reporting Financial Performance". The standard requires that where shares or rights to shares are granted to thirdparties, including employees, a charge should be recognised in the profit andloss account based on the fair value of the shares at the date the grant ofshares or right to shares is made. For the year ended 31 March 2005, the adoption of FRS 20 has reduced both basicand adjusted operating profit by £16m, reduced basic and adjusted profit for theyear by £9m and increased net assets employed by £19m. Adjusted profit isreported before including the impact of exceptional items and amortisation ofgoodwill. The effect of the adoption of FRS 20 on prior year comparatives is as follows: At 31 March Year ended 31 March 2004 2004 --------------------------------------------------- --------- Net assets Operating profit Profit for the year employed ---------------------- ---------------------- --------- Before After Before After exceptional exceptional exceptional exceptional items and items and items and items and goodwill goodwill goodwill goodwill amortisation amortisation amortisation amortisation £m £m £m £m £m -------- -------- -------- -------- --------As previouslyreported 2,238 1,862 1,064 1,099 1,263Impact of FRS20 (25) (25) (25) (25) 8 -------- -------- -------- -------- --------As restated 2,213 1,837 1,039 1,074 1,271 ======== ======== ======== ======== ======== The prior year adjustment recorded in the Group Statement of Total RecognisedGains and Losses reflects the cumulative profit and loss impact of FRS 20 at 31March 2004 of £140m after deferred tax (£148m before deferred tax). Thecorresponding entry to the pre-tax FRS 20 charge is recorded through the profitand loss account reserve. Therefore, the impact of restatements for FRS 20 onthe profit and loss account reserve at 31 March 2004 represents only thedeferred tax credit of £8m. This preliminary results announcement was approved by the Board of Directors on18 May 2005. 2. Segmental analysis Segmental information is presented in accordance with the managementresponsibilities and economic characteristics of the Group's businessactivities. As a result of the acquisition of the UK operations of Crown CastleInternational Corp. (Crown Castle UK), as described in note 7, a new businesssegment has been presented for the first time. The results of Crown Castle UKhave been combined with similar activities of the existing operations of theGroup and presented as a new segment, "Wireless infrastructure", below. Therelated comparative numbers of this segment were previously included within"Other activities". We have changed the segments in our US operations, combining our US electricitydistribution and US gas distribution activities to form a new segment, "USelectricity and gas distribution". The Directors believe that their economiccharacteristics are similar as they receive revenues under similar regulatoryschemes. We have also created a new segment, "US stranded cost recoveries", inorder to enhance the visibility of this activity. Included within the continuing operations of the UK gas distribution activityare amounts relating to four gas distribution networks that the Group has agreedto sell. These amounts have been disclosed in the analyses of continuingoperations of Group undertakings below as "Existing businesses - businesses tobe disposed". a) Group turnover Years ended 31 March 2005 2004 (restated) £m £m ============ ============Continuing operationsUK electricity and gas transmission 1,930 1,867US electricity transmission 283 318UK gas distribution 2,215 2,245US electricity and gas distribution 3,114 3,494US stranded cost recoveries 420 507Wireless infrastructure 208 72Other activities 844 834Sales between businesses (493) (462) ------------ ------------ 8,521 8,875 Discontinued operations - 158 ------------ ------------ 8,521 9,033 ============ ============Geographical analysisUK 4,723 4,736US 3,798 4,297 ------------ ------------ 8,521 9,033 ============ ============Continuing operations of Group undertakingscomprise:Existing businesses - businesses to be disposed 1,102 1,115Existing businesses - other 7,271 7,760Acquisition (Crown Castle UK) 148 - ------------ ------------ 8,521 8,875 ============ ============ 2. Segmental analysis (continued) b) Operating profit - before exceptional items and goodwill amortisation Years ended 31 March 2005 2004 (restated) £m £m ============ ============Group undertakings - continuing operationsUK electricity and gas transmission 809 759US electricity transmission 123 133UK gas distribution 570 716US electricity and gas distribution 374 362US stranded cost recoveries 121 134Wireless infrastructure 46 6Other activities 162 96 ------------ ------------Operating profit of Group undertakings 2,205 2,206 ------------ ------------Joint ventures - continuing operationsElectricity activities 6 7 Joint ventures - discontinued operations 1 - ------------ ------------Operating profit of joint ventures 7 7 ------------ ------------Total operating profit 2,212 2,213 ============ ============Geographical analysisUK 1,583 1,576US 623 631Latin America 1 -Rest of the World 5 6 ------------ ------------ 2,212 2,213 ============ ============Continuing operations of Group undertakingscomprise:Existing businesses - businesses to be disposed 345 407Existing businesses - other 1,821 1,799Acquisition (Crown Castle UK) 39 - ------------ ------------ 2,205 2,206 ============ ============ 2. Segmental analysis (continued) c) Operating profit - after exceptional items and goodwill amortisation Years ended 31 March 2005 2004 (restated) £m £m ============ ============Group undertakings - continuing operationsUK electricity and gas transmission 807 745US electricity transmission 102 105UK gas distribution 390 627US electricity and gas distribution 286 194US stranded cost recoveries 121 136Wireless infrastructure 10 (6)Other activities 129 29 ------------ ------------Operating profit of Group undertakings 1,845 1,830 ------------ ------------Joint ventures - continuing operationsElectricity activities 6 7 Joint ventures - discontinued operations 1 - ------------ ------------Operating profit of joint ventures 7 7 ------------ ------------Total operating profit 1,852 1,837 ============ ============Geographical analysisUK 1,336 1,416US 510 415Latin America 1 -Rest of the World 5 6 ------------ ------------ 1,852 1,837 ============ ============Continuing operations of Group undertakingscomprise:Existing businesses - businesses to be disposed 271 351Existing businesses - other 1,558 1,479Acquisition (Crown Castle UK) 16 - ------------ ------------ 1,845 1,830 ============ ============ 3. Exceptional items a) Operating Years ended 31 March 2005 2004 £m £m ============ ============Continuing operationsRestructuring costs (i) 210 249Environmental provision (ii) 41 28 ------------ ------------Total operating exceptional items 251 277 ============ ============ i) Restructuring costs relate to costs incurred in cost reduction programmes in the UK and US businesses (2005: £158m after tax, 2004: £170m after tax). Restructuring costs include £62m of costs associated with the proposed disposal of UK-based distribution networks (2004: £24m).ii) During the year ended 31 March 2005, a review of the environmental provision was undertaken to take into account the impact of recent changes to UK regulations on waste disposal. This review together with related revisions to the expected expenditure profile has resulted in a charge of £41m (26m after tax). The 2004 charge of £28m resulted from the completion of site investigations in the UK during that year (£28m after tax). b) Non-operating Years ended 31 March 2005 2004 £m £m ============ ============Continuing operationsProfit on disposal of tangible fixed assets(iii) (70) (96) ------------ ------------ Discontinued operationsGain on assets held for exchange (iv) - (226)Profit on sale or termination of operations (v) (13) - ------------ ------------ (13) (226) ------------ ------------Total non-operating exceptional items (83) (322) ============ ============ iii) The after tax profit on disposal of tangible fixed assets was £69m (2004: £96m).iv) The gain on assets held for exchange related to the profit recognised on Energis shares delivered to Equity Plus Income Convertible Securities (EPICs) bondholders on 6 May 2003 in settlement of all EPICs outstanding at that date that had a carrying value of £243m. This transaction represented the culmination of a deferred sale arrangement entered into in February 1999. The after tax gain on assets held for exchange was £226m.v) The credit for 2005 represents the profit on sale of the joint venture investment in Compania Inversora En Transmicion Electrica S.A. (Citelec) (£13m after tax). c) Taxation The exceptional tax credit for 2005 of £79m includes a credit amounting to £22massociated with the prior period disposal of Energis, a former associatecompany; a £3m credit associated with the prior period write down ofinvestments; and a £12m charge relating to the settlement of the liabilitiesarising from operating the Group's Qualifying Employee Share Ownership Trust. In 2004, the exceptional tax credit of £89m included a credit amounting to £10mrelating to investments disposed of in prior periods. 4. Net interest Years ended 31 March 2005 2004 £m £m =========== ============Interest payable and similar charges 891 920Unwinding of discount on provisions 7 11Interest capitalised (63) (55) ----------- ------------Interest payable and similar charges net ofinterest capitalised 835 876Interest receivable and similar income (62) (58) ----------- ------------ 773 818Joint ventures 10 4 ----------- ------------ 783 822 =========== ============ 5. Earnings per share and adjusted profit on ordinary activities before taxation a) Earnings per shareRelated Shares:
National Grid