Half year report

15th Nov 2007 07:02

National Grid PLC15 November 2007 15 November 2007 National Grid plc Half year report for the six months ended 30 September 2007 (unaudited) HIGHLIGHTS • Very strong first half performance • Operating profit, excluding US stranded cost recoveries, up 19% • Earnings per share, excluding US stranded cost recoveries, up 23% • Interim dividend 11.7p, dividend policy update early 2008 • Outlook for the full year remains in line with our expectations• Delivering on strategy • Acquisition of KeySpan and disposals of Wireless and Basslink completed • £1,042m returned to shareholders via buy-back programme to date • Capital investment up 39% on prior period, strong investment pipeline for organic growth FINANCIAL RESULTS FOR CONTINUING OPERATIONS (£m, at actual exchange rate) Six months ended 30 September 2007 2006 % change---------------------------------- -------- -------- --------Business performance(1) (excluding US stranded cost recoveries) Operating profit 1,039 876 19 Pre-tax profit 757 625 21 Earnings 528 437 21 Earnings per share 19.8 16.1 23 Earnings per share (including 24.1 20.5 18 US stranded cost recoveries)---------------------------------- -------- -------- --------Statutory results Operating profit 1,187 1,110 7 Pre-tax profit 917 781 17 Earnings 783 561 40 Earnings per share 29.4 20.6 43---------------------------------- -------- -------- --------Dividend per share 11.7 10.9 7---------------------------------- -------- -------- -------- Steve Holliday, Chief Executive, said: "National Grid continues to make significantprogress. We are delivering on all fronts of ourstrategy and have produced an excellentfinancial performance in this period. We have inplace a strong management team that isdeveloping a unique global operating model. "Our growth prospects are positive, given thediversity of our regulatory settlements and ourplans for investment in our current business. Ibelieve we have a great platform to deliverfurther improvements in customer service,reliability, safety and environmentalperformance and continue to deliver value forour shareholders." CHIEF EXECUTIVE'S REVIEW National Grid has continued to deliver itsstrategy on all fronts. We have again delivereda very strong financial performance, growingoperating profit - particularly in ourTransmission and Gas Distribution businesses -growing earnings per share, and increasing theinterim dividend. During the period we completed the planneddisposals of non-core businesses. In April, weannounced that we had sold our UK Wirelessbusiness and we completed the sale of our USWireless business in August. Also in August, wecompleted the sale of Basslink, ourinterconnector in Australia. Together thesedisposals have generated total proceeds of£3.1bn, almost double our invested capital. On 24 August, we completed the acquisition ofKeySpan, significantly growing our footprint inNorth America and positioning National Grid asthe second largest energy delivery company inthe US (by customer numbers). We are making goodprogress with the implementation of our globaloperating model and the integration of KeySpan.We believe that around 75% of our activities canbe managed on either a global or lines ofbusiness basis, while only 25% need to betailored to meet specific local requirements. Toachieve this aim, we are developing anddeploying standardised procedures and processesfor customer service, asset management, and workdelivery. In support of these 'front-line'activities, we have established UK and US SharedServices, Global IS and Global Financeorganisations. We believe that this approach torunning our business will yield significantsavings in our regulated controllable cost base,which is around £2bn annually. This frameworkprovides an excellent platform for improvingcustomer service, reliability, safety andenvironmental performance, and is, over time,expected to create significant shareholdervalue. As part of our continuing focus on electricityand gas operations we are currently assessing apotential sale of our National Grid UK Propertybusiness. In September, we issued an informationmemorandum to potential buyers, and expect totake a decision on a sale option later thisyear. In October, we announced our intention to pursuethe sale of Ravenswood, our generating stationin New York City. Sale of the plant is acondition of the New York Public ServiceCommission (NYPSC) order approving theacquisition of KeySpan. Our timetable is well inadvance of the three year period allowed by theNYPSC and we expect to announce an agreed saleby the end of the first quarter of 2008. Investment We have a strong investment pipeline for organicgrowth and plan to invest a total of around£16bn in our priority markets over the six yearsto March 2012. This is expected to be financedfrom internal cashflow and borrowings. Our plansare on track and since April 2006, we haveinvested £3.8bn. In the UK electricity and gas markets,investment is being driven by changes in sourcesof gas supply, the development of the UKGovernment's energy policy and the need forasset replacement. In Transmission, our UKinvestment for the five years to 2012 has beenagreed with Ofgem and will be remunerated underthe regulatory price control that came intoeffect on 1 April 2007. In Gas Distribution, weare currently discussing with Ofgem our UKinvestment requirements for the five years to2013 as part of the regulatory price controlbeginning 1 April 2008, and we project capitalinvestment of £3.6bn (including replacementexpenditure of £2.4bn) over the five-yearperiod. By March 2012 we project that the valueof our total UK regulatory asset base will havegrown 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 needfor asset replacement. On 22 October, as agreedwith the NYPSC, we filed a detailed five-yearcapital investment plan for electricitytransmission and distribution in upstate NewYork. This plan calls for a minimum investmentof $1.47bn and the potential to invest up toaround $2.4bn. We will be filing with the NYPSCshortly to recover a portion of this investmentunder our existing rate plan and expect torecover the balance as part of our next rateplan from 1 January 2012. These investments arelargely targeted at enhancing customer serviceby improving the reliability of our electricitysystem. Our enlarged US gas networks offer asignificant opportunity for growth through newgas connections - we aim to connect around60,000 new customers to our networks each year- and together with asset replacement, we expectthis will drive annual investment of around$600m on average. By March 2012, we project thatthe value of our US rate base will have grown byover 25% from its March 2007 level. Regulation National Grid operates under 20 main regulatorycontrols and we believe that this regulatoryportfolio leads to greater stability in ouroperating profit. While rate plans are currentlyin place for the majority of our activities, inthe UK, we are in discussion with Ofgem on theregulatory price control for our gasdistribution networks for the five years toMarch 2013. In September, we received Ofgem'supdated proposals and although progress has beenmade in some areas since Ofgem published itsinitial proposals in May, we believe thatOfgem's proposed operating cost allowances willonly deliver 'bare-minimum' networks. Overall,we believe that National Grid is the mostefficient UK gas network manager, offering thelowest cash cost per customer. We continue towork closely with Ofgem ahead of the publicationof its final proposals, expected on 3 December2007, to ensure that this business earnsacceptable returns. In the US, we are currently preparing three gasrate plan filings for our upstate New York gasnetwork, our Rhode Island gas network, and ourNew Hampshire gas network (together representingaround 20% of our US gas rate base). Thesenetworks are not currently earning their allowedreturns and we expect to make filings with therelevant state regulators within the next six tonine months. Financing We are committed to financing our business in amanner consistent with maintaining an efficientbalance sheet and optimising our cost ofcapital. Today, we are providing an interestcover metric that gives greater transparency onthis commitment and we will report it annuallyat our full year results. This metric is basedon adjusted funds from operations divided byadjusted interest expense: detailed definitionsand worked examples will be available atwww.nationalgrid.com. Taking into account theKeySpan acquisition, the sale of Wireless andBasslink, the return of £1.8bn to shareholders,and our future capital investment requirements,we expect to reduce interest cover and we aim tomanage the long-term trend within a range ofaround 3.0 - 3.5 times. DIVIDEND AND SHARE BUY-BACK The Board has approved an interim dividend of11.7p per ordinary share ($1.2153 per AmericanDepository share (ADS)), representing a 7%increase in the half-year dividend, in sterling.The interim dividend is to be paid on 23 January2008 to shareholders on the register as at 30November 2007. Under our US rate plans, cash flows fromstranded assets in our Electricity Distributionbusiness are scheduled to end in 2011 and do notform part of our core on-going business. We arereturning these cashflows to shareholders andtherefore exclude them from our dividend policy.In May 2007, we extended this programme toreturn £1.8bn of proceeds from the sale of ourWireless businesses. To date we have repurchased 140.8m shares at a costof £1,042m (as at 30 September 2007 110.6m shareshad been repurchased, at a cost of £805m). Thiscompletes the return of the US stranded assetpost-tax cash flows for 2007/08. We are on trackto return around a further £900m over the next six totwelve months, completing the return of £1.8bnfollowing the sale of our Wireless businesses.The balance of stranded asset post-tax cashflows for 2008 to 2011 is estimated at around$1.4bn and will be returned via the buy-backprogramme in future years, as they arise. Infuture we intend to hold repurchased shares astreasury shares, up to a limit of 5% of issuedshare capital. We maintain our aim to increase dividends perordinary share expressed in sterling by 7% ineach financial year through to 31 March 2008. Wewill be announcing our updated dividend policylater in the financial year, which will reflectthe strong outlook for the earnings of theenlarged business. OUTLOOK National Grid's outlook for the full yearremains in line with our expectations. In Transmission, we expect that the increase inUK regulated revenue will continue to be a majordriver of performance; however, this benefitwill be partially offset by timing of thecollection of income resulting in a lowerproportion of UK gas transmission allowedrevenue falling in the second-half of thisyear, compared to the same period last year. Wealso expect US revenue to be higher at the fullyear, and together, these benefits will morethan offset lower revenues from our Frenchinterconnector and LNG storage businesses, andcontinued higher depreciation charges. Gas Distribution operating profit for the fullyear is expected to be driven by the increasedUK allowed revenue following the one-yearregulatory price control which came into effecton 1 April 2007, allowed revenue under recoveredin 2006/07, and a full second half contributionfrom KeySpan's gas businesses. Together, theseitems are expected to more than offset continuedincreases in workload related and pass-throughcosts. In Electricity Distribution and Generation, weexpect the timing of rate adjustments for passthrough items to result in a negative variancecompared to the prior year. This, together withcontinued increases in operating expenditureunder our reliability enhancement plan, and theabsence of a one-off pensions related benefit in2006/07, is expected to more than offset apositive year-on-year variance arising from theabsence of costs associated with major snow andice storms in the Buffalo and Albany areas in2006/07. Our principal risks over the next six monthsremain as stated in our 2006/07 Annual Reportand Accounts on pages 27, 84 and 85. BASIS OF PRESENTATION Unless otherwise stated, all financialcommentaries are given on a business performancebasis, at actual exchange rates. Businessperformance represents the results forcontinuing operations before exceptional itemsand mark-to-market remeasurements of commoditycontracts and financial instruments that areheld for economic hedging purposes but did notachieve hedge accounting. Commentary provided inrespect of results after exceptional items andcertain mark-to-market remeasurements isdescribed as 'statutory'. REVIEW OF RESULTS AND FINANCIAL POSITION Operating profit, excluding US stranded costrecoveries, was £1,039m, up 19% on the prioryear (up 22% on a constant currency basis(2)).This was primarily driven by strong results inour Transmission and Gas Distributionbusinesses. Net finance costs were £282m, 11% higher thanthe prior period, mainly as a result of a highereffective interest rate on net debt for theperiod and increased average net debt levelscompared to the prior period. Profit before tax,excluding US stranded cost recoveries, was up21% to £757m. The tax charge on profit,excluding US stranded cost recoveries, was£227m, £41m higher than the prior period. Theeffective tax rate for the period, including USstranded cost recoveries, was 32%. Earnings, excluding US stranded cost recoveries,were up 21% on the prior period at £528m. On thesame basis, earnings per share increased 23%from 16.1p in the first half of last year to19.8p, reflecting our strong operatingperformance and the benefit of our share buy-backprogramme. US stranded cost recoveries added 4.3p toearnings per share, with an operating profit of£190m (£114m after tax). Including thiscontribution, earnings per share for the periodwere 24.1p. Exceptional items and remeasurements forcontinuing operations increased earnings by£141m after tax. These comprised a £169mdeferred tax credit arising from a reduction inthe UK corporation tax rate, restructuring costsof £79m (£47m after tax), a gain on disposal ofa subsidiary of £8m (£5m after tax), a commodityremeasurement gain of £23m (£13m after tax), anda net financial instrument remeasurement gain of£18m (£1m gain after tax). After these items andminority interests, statutory earnings forcontinuing operations attributable toshareholders were £783m. Statutory basicearnings per share from continuing operationsincreased 43% to 29.4p, up from 20.6p in theprior period. Profit from discontinuedoperations was £1,613m after exceptional itemsand remeasurements, leading to statutory basicearnings per share of 90.0p. National Grid's operating cash flows fromcontinuing operations, before exceptional itemsand taxation, were £27m lower than the priorperiod at £1,322m. Organic investment in our continuing businessesincreased by 39% to £1.5bn, primarily due toincreased capital expenditure on new electricityand gas transmission infrastructure in the UK. Our net debt rose to £16.3bn at 30 September2007 compared with £11.8bn at 31 March 2007,mainly reflecting the acquisition of KeySpan,the sale of our Wireless and Basslinkbusinesses, the return of £805m through ourshare buy-back programme, and the increased levelof 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 5Operating costs (765) (794) 4Depreciation and amortisation (206) (186) (11)Operating profit - actual exchange 574 494 16rateOperating profit - constant 574 489 17currency ---------------------------------- -------- -------- -------- Operating profit by geographical Six months ended 30 Septembersegment(£m, at constant currency) 2007 2006 % change---------------------------------- -------- -------- --------UK 501 427 17US 73 62 18Operating profit 574 489 17---------------------------------- -------- -------- -------- Capital investment Six months ended 30 September(£m, at actual exchange rate) 2007 2006 % change---------------------------------- -------- -------- --------UK 826 534 55US 44 44 -Capital investment 870 578 51---------------------------------- -------- -------- -------- Transmission delivered a very strong performancein this period. Operating profit increased to£574m, up 16%. This was primarily driven by astep up in UK regulated revenue following thefive-year transmission price controls which cameinto effect on 1 April. Pricing changes in Aprilresulted in a higher than normal proportion ofour UK gas transmission allowed revenue beingcollected in the first half, and together, thesebenefits resulted in a £108m increase inoperating profit compared to the prior period.As expected, demand for French interconnectorand LNG storage capacity returned closer tohistorical normal levels this period, resultingin a £36m decrease in revenues from thosebusinesses. Depreciation charges were higherthan in the prior period by £20m as a result ofincreasing capital investment. Other itemsincreased operating profit by a net £33mcompared to the prior period, with lowershrinkage gas costs more than offsetting higher'quasi-capex'(3) and pass through costs.Movement in exchange rates had a £5mperiod-on-period negative impact on operatingprofit. Capital investment in Transmission increased by51% on the prior period to £870m, mainly drivenby new electricity and gas transmissionload-related infrastructure in the UK. On 9November, we completed commissioning of the120km Milford Haven to Aberdulais gastransmission pipeline, making it available forcommercial operation. The pipeline connects thetwo LNG terminals under construction at MilfordHaven to the UK national gas transmission systemand provides around 220GWh/day of capacity,which will rise to around 570GWh/day when the196km second stage pipeline from Felindre inWales to Tirley in Gloucestershire is completed.This second stage is on schedule for commercialoperation in mid December 2007. Looking ahead to the full year, we expect thatthe increase in UK regulated revenue willcontinue to be a major driver of performance;however, this benefit will be partially offsetby timing of the collection of income resultingin a lower proportion of UK gas transmissionallowed revenue collection in the second half ofthis year, compared to the same period lastyear. We also expect US revenue to be higher atthe full year, and together, these benefits willmore than offset lower revenues from our Frenchinterconnector and LNG storage businesses, andcontinued 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 40Operating costs (569) (414) (37)Depreciation and amortisation (114) (94) (21)Operating profit - actual exchange 166 100 66rateOperating profit - constant 166 98 69currency---------------------------------- -------- -------- -------- Operating profit by geographical Six months ended 30 Septembersegment(£m, at constant currency) 2007 2006 % change---------------------------------- -------- -------- --------UK 167 71 135US (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 15US 48 18 167Capital investment 299 236 27---------------------------------- -------- -------- --------* Not meaningful. Operating profit from Gas Distribution was up66%, at £166m. Net formula income in the UK wasup £121m. Of this, £75m related to changes inour pricing formula, which this year is lessdependent on delivery volumes, and results in agreater proportion of our allowed revenue beingcollected in the first half. The remaining £46mmainly related to the 9% (average) priceincrease in October 2006. Revenue in our US gasbusiness is linked to delivery volumes, and thisresults in a seasonal bias with lower revenuerecovery in the first half of the year. Thisperiod, we have a full first half of operationsin our Rhode Island gas business (following itsacquisition in August 2006) and one month ofoperations from KeySpan's gas businesses, which,with revenue weighted to the second half,resulted in a £17m negative impact on operatingprofit compared to the prior period. Otheritems, mainly increased pass-through costs anddepreciation charges, resulted in a net negativeimpact of £36m on operating profit.Period-on-period movement in exchange ratesreduced operating profit by £2m. During the period our gas distribution alliancepartnerships in the UK have replaced 992km ofgas mains, resulting in total replacementexpenditure (repex) of £177m. We have alsocontinued to invest in network infrastructureprojects in the UK and US, resulting in totalcapital expenditure (including repex) of £299m. Operating profit for the full year is expectedto be driven by the increased UK allowed revenuefollowing the one-year regulatory price controlwhich came into effect on 1 April 2007, allowedrevenue under recovered in 2006/07, and a fullsecond-half contribution from KeySpan's gasbusinesses. Together, these items are expectedto more than offset continued increases inworkload related and pass-through costs. In the UK, we are in the final stages ofdiscussion with Ofgem on the regulatory pricecontrol for our gas distribution networks forthe five years to March 2013. In September, wereceived Ofgem's updated proposals, and whileprogress has been made in some areas since Ofgempublished its initial proposals in May, webelieve that Ofgem's proposed operating costallowances will only deliver 'bare-minimum'networks. We continue to work closely with Ofgemahead of the publication of its finalproposals, expected on 3 December 2007, toensure that this business earns acceptablereturns. In the US, we are currently preparingthree gas rate plan filings for our upstate NewYork 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) 5Depreciation and amortisation (68) (65) (5)Operating profit - actual exchange 196 222 (12)rateOperating profit - constant 196 206 (5)currency ---------------------------------- -------- -------- --------Stranded cost recoveries - 190 187 2constant currency ---------------------------------- -------- -------- -------- Operating profit by principal Six months ended 30 Septemberactivities(£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 1Long Island Generation 1 - -Capital investment 115 113 2---------------------------------- -------- -------- -------- Operating profit from Electricity Distributionand Generation decreased by 12% during theperiod to £196m. Electricity distributionrevenues, excluding pass-through commoditycosts, increased by £11m compared to the prioryear driven by indexing in our Massachusettsrate plan and increased demand, with weathernormalised residential volumes up 0.2% on theprior period. Timing of rate adjustments forpass-through items led to a period-on-periodbenefit of £8m. Other items, including theabsence of a one-off benefit in 2006/07, higherstorm costs, a rise in bad debts, and increasedreliability enhancement expense, more thanoffset a one-month contribution from KeySpan'sGeneration and T&D services activities on LongIsland, resulting in a net £29m decrease inoperating profit. Movement in exchange rates hada £16m period-on-period negative impact onoperating profit. For the full year, we expect the timing of rateadjustments for pass through items to result ina negative variance compared to the prior year.This, together with continued increases inoperating expenditure under our reliabilityenhancement plan, and the absence of a one-offbenefit in 2006/07, is expected to more thanoffset a positive year-on-year variance arisingfrom the non recurrence of costs associated withmajor snow and ice storms in the Buffalo andAlbany areas in 2006/07. In accordance with ourNew York rate plan we make biannual filings torecover amounts recorded in the 'deferralaccount', and in August filed a forecastrecoverable balance of around $270m as at 31December 2009. Our US stranded cost recoveries delivered £190mof operating profit. This was lower than theprior period, mainly reflecting the impact ofthe weaker dollar which had a £16m year-on-yearnegative impact. US stranded cost recoveriesinclude certain contract settlements that haveno net impact on cashflow. Post tax cashflow forthe full year is expected to be around £150m -this has already been returned to shareholdersas part of our share buy-back programme. Capital expenditure was up slightly on the priorperiod at £115m. On 22 October, as agreed withthe NYPSC, we filed a detailed five-year capitalinvestment plan for electricity transmission anddistribution in upstate New York. This plancalls for a minimum investment of $1.47bn andthe potential to invest up to around $2.4bn.These investments are largely targeted atenhancing customer service by improving thereliability 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 21Operating costs (201) (176) (14)Depreciation and amortisation (78) (79) 1Operating profit 103 60 72---------------------------------- -------- -------- -------- Operating profit by principal Six months ended 30 Septemberactivities(£m, at actual exchange rate) 2007 2006 % change---------------------------------- -------- -------- --------Metering 60 54 11Grain LNG 6 5 20Property 62 32 94Sub-total operating profit 128 91 41---------------------------------- -------- -------- --------Corporate and other activities (25) (31) 19Operating 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 116Property 5 3 67Other 12 - -Capital investment 186 128 45---------------------------------- -------- -------- -------- Operating profit from our Non-regulated andother activities was 72% higher than the priorperiod at £103m, mainly reflecting higher thanexpected sales of land and property in thefirst half. Metering operating profit was up 11% at £60m,mainly driven by growth in our competitivemetering business. During the period, capitalinvestment in this business decreased to £72m,with around 400,000 new meters installed,broadly in line with the prior period. In June2005, Ofgem initiated an investigation under theCompetition Act into certain aspects of ourdomestic gas metering business. In May 2006 andApril 2007, Ofgem issued Statements ofObjections detailing why it believed our conductamounted to a breach under the Act. In October2007, Ofgem issued a third document and theircase against us has narrowed considerably - adecision from the Gas and Electricity MarketsAuthority is expected shortly. We remainconfident that we have not infringed competitionlaw. Our Grain LNG business delivered an operatingprofit of £6m in the period. During the periodcapital investment in this business more thandoubled to £97m, mainly reflecting constructionof our Phase II capacity extension, whichremains on track to be operational in late 2008.Phase III construction commenced in July, andwill add a further LNG tank and a secondunloading jetty, with completion planned in2010. These investments are underpinned bylong-term, take-or-pay contracts. We are currently in discussions with therelevant regulatory bodies for consents forBritNed, a 50/50 joint venture with TenneT, theDutch electricity transmission owner, toconstruct an electricity interconnector betweenthe electricity transmission systems in the UKand the Netherlands. We expect to invest around£200m, with completion of the link planned in2010. Looking ahead, we will continue to focus onimproving operational efficiency in thesebusinesses, and capital investment in theseniche areas within the UK and US electricity andgas markets will continue to be a key profitdriver. In total, capital investment in ournon-regulated activities is expected to reacharound £1.9bn over the six years to March 2012. STATUTORY EARNINGS AND BUSINESS PERFORMANCE £m, at actual exchange rate) Six months ended 30 September 2007 2006 % change---------------------------------- -------- -------- --------Business performance earnings (exc.US 528 437 21stranded cost recoveries)US stranded cost recoveries (after 114 121 (6)tax)Business performance earnings (inc.US 642 558 15stranded cost recoveries) ---------------------------------- -------- -------- --------Exceptional items (after tax) 127 (11) *Remeasurements (after tax) 14 14 *Statutory earnings from continuing 783 561 40operations ---------------------------------- -------- -------- -------- Discontinued operationsProfit before exceptional items &remeasurements (after tax) 21 33 *Exceptional items & remeasurements 1,592 - *(after tax)Statutory earnings 2,396 594 *---------------------------------- -------- -------- -------- * Not meaningful Exceptional items in the period comprised a£169m deferred tax credit arising from areduction in the UK corporation tax rate,partially offset by £71m (£42m after tax) ofother items, mainly restructuring costs. In theprior period, exceptional items comprisedrestructuring costs of £16m (£11m after tax). Remeasurements in the period comprised commodityremeasurement gains of £23m (£13m after tax)reflecting changes in the carrying value ofcertain commodity contract obligations,primarily index-linked swap contracts in the US,and a net financial instrument remeasurementgain of £18m (£1m after tax) reflectingmovements in the carrying value of financialinstruments, primarily derivatives, that arisefrom changes in mark-to-market values or inexchange rates and are reflected in the incomestatement to the extent that hedge accounting isnot achieved or is not fully effective. In theprior period, remeasurements comprised commodityremeasurement gains of £36m (£22m after tax) andfinancial instrument remeasurement losses of£66m (£8m after tax). After including exceptional items andremeasurements, statutory earnings fromcontinuing operations in the period were £783m,compared with £561m for the same period lastyear, giving statutory earnings per share fromcontinuing operations of 29.4p (2006: 20.6p). Further details of exceptional items andremeasurements are given in Note 3 on page 19. Areconciliation of business performance(including US stranded cost recoveries of £190m,£114m after tax) to statutory results isprovided in the consolidated income statement onpage 12, and the impact of exceptional items andremeasurements on operating profit by businesssegment is provided in Note 2 on page 17. Discontinued operations in the six months ended30 September 2007 represented the results of ourRavenswood generating station (held for sale)and the results up to and profit on disposal ofour Wireless infrastructure and Basslinkbusinesses. After including these, statutoryearnings for the period were £2,396m andearnings per share were 90.0p. Further detailsof discontinued operations are given in Note 6on page 21. BOARD CHANGES During the period we announced three Boardchanges. Robert B. Catell joined the Board on 25September, as Executive Director and DeputyChairman. Robert was previously Chairman andChief Executive Officer of KeySpan Corporation. Tom King joined the Board on 13 August as anExecutive Director. Tom is based in the US andhas responsibility for the ElectricityDistribution and Generation business. Paul Joskow, one of our Non-executive Directors,stepped down from the Board on 31 July 2007. CONTACTS National Grid: Investors David Rees +44 (0)20 7004 3170 +44 (0)7901 511322(m)George +1 718 403 2526 +1 917 375 0989(m)Laskaris Richard Smith +44 (0)20 7004 3172 +44 (0)7747 006321(m) James Waite +44 (0)20 7004 3171 +44 (0)7977 440902(m) Media Clive +44 (0)20 7004 3147 +44 (0)7836 357173(m)Hawkins Brunswick: Paul Scott +44 (0)20 7404 5959 An analyst presentation will be held at DeutscheBank AG, 1 Great Winchester Street, London EC2N2DB at 9:00am (UK time) today. Live telephone coverage of the analystpresentation - password National GridDial in number +44 (0)20 7081 9429US 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 1998US dial in number +1 866 583 1039Account number 527949 A live web cast of the presentation will also beavailable at www.nationalgrid.com Photographs are available on www.newscast.co.uk You can view or download copies of our latestAnnual Report or the Annual Review from ourwebsite at www.nationalgrid.com/corporate/Investor+Relations/ or request a free printedcopy by contacting [email protected]. (1) Business performance results are the primaryfinancial performance measure used by NationalGrid, being the results for continuingoperations before exceptional items andremeasurements. Remeasurements are movements inthe carrying value of financial instruments andof commodity contracts that arise from changesin mark-to-market values or in exchange ratesand are reflected in the income statement to theextent that hedge accounting is not achieved oris not fully effective. Further details areprovided in Note 3. A reconciliationof Business performance (including US strandedcost recoveries of £190m, £114m after tax) toStatutory results is provided in theconsolidated income statement. (2) 'Constant currency basis' refers to thereporting of the actual results against theprior period results which, in respect of anyUS$ currency denominated activity, have beentranslated using the average US$ exchange ratefor the six months ended 30 September 2007,which was $2.02 to £1.00. The average rate forthe six months ended 30 September 2006 was $1.86to £1.00. (3) 'Quasi-capex' is operating expenditureassociated with the increased capital investmentprogramme. 'Quasi-capex' is explicitlyrecognised by Ofgem in the new price controlperiod and it is treated as investment forregulatory purposes and is added to theregulatory asset base. CAUTIONARY STATEMENT This announcement contains certain statementsthat are neither reported financial results norother historical information. These statementsare forward-looking statements within themeaning of Section 27A of the Securities Act of1933, as amended, and Section 21E of theSecurities Exchange Act of 1934, as amended.These statements include information withrespect to National Grid's financial condition,National Grid's results of operations andbusinesses, strategy, plans and objectives.Words such as "anticipates", "expects","intends", "plans", "believes", "seeks","estimates", "may", "will", "continue","project" and similar expressions, as well asstatements in the future tense, identifyforward-looking statements. Theseforward-looking statements are not guarantees ofNational Grid's future performance and aresubject to assumptions, risks and uncertaintiesthat could cause actual future results to differmaterially from those expressed in or implied bysuch forward-looking statements. Many of theseassumptions, risks and uncertainties relate tofactors that are beyond National Grid's abilityto control or estimate precisely, such as delaysin obtaining, or adverse conditions containedin, regulatory approvals and contractualconsents, unseasonable weather affecting thedemand for electricity and gas, competition andindustry restructuring, changes in economicconditions, currency fluctuations, changes ininterest and tax rates, changes in energy marketprices, changes in historical weather patterns,changes in laws, regulations or regulatorypolicies, developments in legal or public policydoctrines, the impact of changes to accountingstandards and technological developments. Otherfactors that could cause actual results todiffer materially from those described in thisannouncement include the ability to integratethe businesses relating to announced or recentlycompleted acquisitions with National Grid'sexisting business to realise the expectedsynergies from such integration, theavailability of new acquisition opportunitiesand the timing and success of future acquisitionopportunities, the timing and success or otherimpact of the sales of National Grid's non-corebusinesses, the failure for any reason toachieve reductions in costs or to achieveoperational efficiencies, the failure to retainkey management, the behaviour of UK electricitymarket participants on system balancing, thetiming of amendments in prices to shippers inthe UK gas market, the performance of NationalGrid's pension schemes and the regulatorytreatment of pension costs, and any adverseconsequences arising from outages on orotherwise affecting energy networks, includinggas pipelines owned or operated by NationalGrid. For a more detailed description of some ofthese assumptions, risks and uncertainties,together with any other risk factors, please seeNational Grid's filings with and submissions tothe US Securities and Exchange Commission (the"SEC") (and in particular the "Risk Factors" and"Operating and Financial Review" sections in itsmost recent Annual Report on Form 20-F). Exceptas may be required by law or regulation,National Grid undertakes no obligation to updateany of its forward-looking statements. Theeffects of these factors are difficult topredict. New factors emerge from time to timeand National Grid cannot assess the potentialimpact of any such factor on its activities orthe extent to which any factor, or combinationof factors, may cause results to differmaterially from those contained in anyforward-looking statement. CONSOLIDATEDINCOMESTATEMENT 2007 2006 * Year endedfor the six 31 Marchmonths ended 30September 2007 Notes £m £m £m =========== =========== ===========Revenue 2a 4,260 3,982 8,695Other operating income 52 27 83Operating 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 59Total operating profit 2c 1,187 1,110 2,513 Interest income and similar income 4 663 569 1,144Interest 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 170Total 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 12Profit for the period from continuing operations 785 563 1,310 Profit for the period from discontinued operations after taxation - Before exceptional items and remeasurements 6 21 33 104 - Exceptional items and remeasurements 6 1,592 - (18)Profit for the period from discontinued operations 1,613 33 86 ----------- ----------- -----------Profit for the period 2,398 596 1,396 =========== =========== ===========Attributable to: - Equity shareholders of the parent 2,396 594 1,394 - Minority interests 2 2 2 ----------- ----------- ----------- 2,398 596 1,396 =========== =========== =========== Earnings per share from continuing operations - Basic 7a 29.4p 20.6p 48.1p - Diluted 7b 29.2p 20.5p 47.8p Earnings per share - Basic 7a 90.0p 21.8p 51.3p - Diluted 7b 89.4p 21.7p 50.9p =========== =========== ===========Dividends per ordinary share: paid during the period 8 17.8p 15.9p 26.8pDividends per ordinary share: approved or proposed to be paid 11.7p 10.9p 28.7p =========== =========== =========== * Comparatives have been adjusted to reclassify amounts relating to discontinued operations. CONSOLIDATED BALANCE SHEET at 30 September 2007 2006 At 31 March 2007 Notes £m £m £m =========== =========== ===========Non-current assetsGoodwill 3,774 2,170 1,480Other intangible assets 297 319 144Property, plant and equipment 22,939 19,308 18,895Investments in joint ventures 7 9 5Deferred tax assets - 56 -Other receivables 486 51 36Pension asset 617 - 37Financial and other investments 249 137 132Derivative financial assets 630 333 380 ------------ ------------- ------------Total non-current assets 28,999 22,383 21,109 ------------ ------------- ------------Current assetsOther intangible assets 2 24 2Inventories 535 165 106Trade and other receivables 1,600 1,186 1,236Financial and other investments 1,849 806 2,098Derivative financial assets 220 301 277Cash 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 liabilitiesBank 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 liabilitiesBorrowings (16,242) (13,415) (14,686)Derivativefinancialliabilities (246) (177) (184)Othernon-currentliabilities (1,679) (1,630) (1,475)Deferred taxliabilities (3,086) (2,042) (2,389)Pensions andotherpost-retirementbenefitobligations (1,537) (2,076) (1,282)Provisions (746) (511) (427) --------------- --------------- ---------------Totalnon-currentliabilities (23,536) (19,851) (20,443) --------------- --------------- ---------------Liabilities ofbusinessesheld for sale (36) - (450) --------------- --------------- ---------------Totalliabilities (29,004) (23,883) (24,253) --------------- --------------- ---------------Net assets 5,573 3,302 4,136 =========== =========== ===========EquityCalled upshare capital 298 310 308Share premiumaccount 1,371 1,324 1,332Retainedearnings 9,156 6,753 7,635Other reserves (5,270) (5,097) (5,150) --------------- --------------- ---------------Total parentcompanyshareholders'equity 5,555 3,290 4,125Minorityinterests 18 12 11 --------------- --------------- ---------------Total equity 10 5,573 3,302 4,136 =========== =========== ===========Net debt (netof relatedderivativefinancialinstruments)included above 12 16,311 11,650 11,788 --------------- --------------- --------------- CONSOLIDATED STATEMENT OFRECOGNISEDINCOME ANDEXPENSE 2007 2006 Year endedfor the six months ended 31 March30 September 2007 £m £m £m =========== =========== ===========Exchangeadjustments (73) (130) (179)Actuarialgains/(losses) 561 (350) 365Net (losses)/gainstaken to equity inrespect of cash flowhedges (33) 3 47Transferred toprofit or losson cash flowhedges (4) (10) (45)Net gains/(losses)taken to equity onavailable-for-sale investments 2 (3) (3)Transferred toprofit or losson sale ofavailable-for-sale investments - (1) (1)Tax on itemstaken directlyto ortransferredfrom equity (175) 118 (81) --------------- --------------- ---------------Net income/(expense) recognised directly inequity 278 (373) 103Profit for theperiod 2,398 596 1,396 --------------- --------------- ---------------Total recognisedincome and expense forthe period 2,676 223 1,499 =========== =========== ===========Attributable to:- Equity shareholdersof the parent 2,675 222 1,498- Minority interests 1 1 1 --------------- --------------- --------------- 2,676 223 1,499 =========== =========== =========== CONSOLIDATED CASH FLOWSTATEMENT 31 Marchfor the six 2007 2006 * Year endedmonths ended30 September 2007 £m £m £m =========== =========== ===========Cash flowsfrom operatingactivitiesTotal operatingprofit 1,187 1,110 2,513Adjustmentsfor:Exceptionalitems andremeasurements 42 (32) (59)Depreciationandamortisation 461 424 871Share-basedpayment charge 9 7 15Changes inworkingcapital andprovisions (182) (62) (39)Changes inpensions andotherpost-retirementbenefitobligations (195) (98) (125)Cash flowsrelating toexceptionalitems (66) (36) (86) --------------- --------------- ---------------Cash flowsgenerated fromcontinuingoperations 1,256 1,313 3,090Cash flowsrelating todiscontinuedoperations 11 69 181 --------------- --------------- ---------------Cash generatedfromoperations 1,267 1,382 3,271Tax paid -continuingoperations (136) (198) (310)Tax paid -discontinuedoperations - - (3) --------------- --------------- ---------------Net cashinflow fromoperatingactivities 1,131 1,184 2,958 --------------- --------------- ---------------Cash flowsfrom investingactivitiesAcquisition ofsubsidiaries(net of cashacquired) andotherinvestments (3,513) (269) (269)Sale ofinvestments insubsidiaries,joint venturesand otherinvestments 18 - 19Purchases ofintangibleassets (20) (5) (33)Purchases ofproperty,plant andequipment (1,369) (1,156) (2,185)Disposals ofproperty,plant andequipment 13 6 21Net movementsin financialinvestments 278 (432) (1,725) --------------- --------------- ---------------Cash flowsused incontinuingoperations -investingactivities (4,593) (1,856) (4,172)Cash flowsrelating todiscontinuedoperations- disposalproceeds 3,065 42 27- otherinvestingactivities andacquisition ofsubsidiaries,net of cashacquired (2) (23) (132) --------------- --------------- ---------------Net cash flowused ininvestingactivities (1,530) (1,837) (4,277) -------------- --------------- ---------------Cash flowsfrom financingactivitiesProceeds fromissue ofordinary sharecapital 13 8 16Increase inborrowings andrelatedderivatives 647 2,238 3,019Net interestpaid (249) (291) (597)Exceptionalfinance costson therepayment ofdebt - - (45)Dividends paidtoshareholders (480) (433) (730)Repurchase ofshare capitaland purchaseof treasuryshares (796) - (169) --------------- --------------- ---------------Net cash flow(used in)/fromfinancingactivities (865) 1,522 1,494 --------------- --------------- --------------- Net movementin cash andcashequivalents (1,264) 869 175Exchangemovements (7) (9) (14)Amountsrelated tobusinessesheld for sale 23 - (23)Net cash andcashequivalents atstart ofperiod (i) 1,587 1,449 1,449 --------------- --------------- ---------------Net cash andcashequivalents atend of period(i) 339 2,309 1,587 ============ =========== =========== * Comparatives have been adjusted to reclassifyamounts relating to discontinued operations. i) Net of bank overdrafts. NOTES TO THE 2007/08 HALF YEAR FINANCIALINFORMATION 1. Basis of preparation The half year financial information covers thesix month period ended 30 September 2007 and hasbeen prepared under International FinancialReporting Standards ("IFRS") as adopted by theEuropean Union, in accordance with InternationalAccounting Standard 34 'Interim FinancialReporting' and the Disclosure and TransparencyRules of the Financial Services Authority. It isunaudited but has been reviewed by the auditorsand their report is attached to this document. The half year financial information does notconstitute statutory accounts as defined inSection 240 of the Companies Act 1985. It shouldbe read in conjunction with the statutoryaccounts for the year ended 31 March 2007, whichwere prepared in accordance with IFRS as adoptedby the European Union and have been filed withthe Registrar of Companies. The auditors' reporton these statutory accounts was unqualified anddid not contain a statement under Section 237(2)or (3) of the Companies Act 1985. Accounting policies This half year financial information has beenprepared on the basis of the accounting policiesapplicable for the year ending 31 March 2008.These accounting policies are consistent withthose that applied in the preparation of ouraccounts for the year ended 31 March 2007,except as set out below: a) Following the acquisition of KeySpan, ouractivities now include electricity generationand our accounting policies have been expandedto cover these activities. The primary change isto include an accounting policy for revenue fromelectricity generation, which represents thesales value of energy and related servicessupplied to customers. b) Interpretations issued by the InternationalFinancial Reporting Interpretations Committee("IFRIC") that have been adopted during theperiod, are as follows: -- • IFRIC 8 Scope of IFRS 2 'Share-BasedPayment'-- • IFRIC 9 Reassessment of embeddedderivatives-- • IFRIC 10 Interim financial reporting andimpairments-- • IFRIC 11 Group and treasury sharetransactions The adoption of these interpretations had nosignificant impact on the financial results orposition of the Company and its subsidiaryundertakings for the six months ended 30September 2007 or for previous periods. The following standards, amendments andinterpretations have been issued by theInternational Accounting Standards Board or bythe IFRIC, but have not yet been adopted.Subject to endorsement by the European Union, weexpect to adopt them in future periods. -- • IFRS 8 Operating segments-- • Amendment to IAS 23 Borrowing costs-- • Amendments to IAS 1 Presentation offinancial statements-- • IFRIC 12 Service concession arrangements-- • IFRIC 13 Customer loyalty programmes-- • IFRIC 14 Defined benefit assets andminimum funding requirements Changes in comparative presentation as aconsequence of discontinued operations During the second half of the year ended 31March 2007 our then wireless infrastructureoperations in the UK and the US and the BasslinkInterconnector in Australia met the necessarycriteria to be classified as businesses held forsale and as discontinued operations. As aconsequence, the comparative income statementfor the six months ended 30 September 2006 hasbeen amended to reflect the classification ofthese operations as discontinued. Date of approval This announcement was approved by the Board ofDirectors on 14 November 2007. 2. Segmental analysis Segmental information is presented in accordancewith the management responsibilities andeconomic characteristics, includingconsideration of risks and returns, of businessactivities. The Company assesses the performanceof its businesses principally on the basis ofoperating profit before exceptional items andremeasurements. The primary reporting format isby business and the secondary reporting formatis by geographical area. The following tabledescribes the main activities for each businesssegment: Transmission - UK High voltage electricitytransmission networks, the gastransmission network in the UK,UK liquefied natural gas (LNG)storage activities and the Frenchelectricity interconnectorTransmission - US High voltage electricitytransmission networks in New Yorkand New EnglandGas Distribution - Four of the eight regional networksUK of Great Britain's gas distribution systemGas Distribution - Gas distribution in New York andUS New EnglandElectricity Electricity distribution in NewDistribution and York and New England andGeneration - US electricity generation in New YorkUS stranded cost The recovery of stranded costs fromrecoveries US electricity distribution customers as permitted by regulatory agreements----------------------------------- Other activities primarily relate tonon-regulated businesses and other commercialoperations not included within the abovesegments, including UK-based gas meteringactivities; UK property management; a UK LNGimport terminal; a British-Netherlandselectricity interconnector under construction;other LNG operations; unregulated transmissionpipelines; engineering and home services;together with corporate activities, includingbusiness development. Discontinued operations comprise wirelessinfrastructure and communications operations inthe UK and the US, an electricity interconnectorin Australia, and merchant electricitygeneration operations in New York City. Thewireless infrastructure operations in the UKwere sold on 3 April 2007; the US wirelessoperations were sold on 15 August 2007; and theBasslink electricity interconnector in Australiawas sold on 31 August 2007. Results ofdiscontinued operations are disclosed in note 6. Our segments are unchanged from those reportedin the financial statements for the year ended31 March 2007, except for our US ElectricityDistribution segment, which as a consequence ofthe acquisition of KeySpan on 24 August 2007 hasbeen expanded to incorporate the operations ofKeySpan's generation business and is nowreported as 'Electricity Distribution andGeneration - US'. The comparative segment results for the sixmonth period ended 30 September 2006 have beenamended to reflect changes to reportablesegments that were made in the second half ofthe year ended 31 March 2007 resulting from anew organisational and management structure. Themain changes were the elimination of thewireless infrastructure segment and the divisionof our former US electricity and gasdistribution segment in two separate segments. Sales between businesses are priced havingregard to the regulatory and legal requirementsto which the businesses are subject. a) RevenueSix monthsended 30September 2007 2006* Year ended 31 March 2007 £m £m £m =========== =========== ===========Businesssegments -continuingoperationsTransmission- UK 1,392 1,323 2,816Transmission- US 153 151 270GasDistribution- UK 547 447 1,193GasDistribution- US 302 157 638ElectricityDistributionand Generation - US 1,446 1,530 3,004US strandedcostrecoveries 195 205 426Otheractivities 330 292 567Salesbetween (105) (123) (219)businesses --------------- --------------- ---------------Revenue 4,260 3,982 8,695 =========== =========== =========== Totalexcluding USstrandedcost recoveries 4,065 3,777 8,269US strandedcostrecoveries 195 205 426 --------------- --------------- --------------- 4,260 3,982 8,695 =========== =========== ===========GeographicalsegmentsUK 2,182 1,962 4,397US 2,078 2,020 4,298 --------------- --------------- ---------------Revenue 4,260 3,982 8,695 =========== =========== =========== * Comparatives have been adjusted to reclassifyamounts relating to discontinued operations. b) Operating profit - before exceptionalitems and remeasurementsSix monthsended 30September 2007 2006* Year ended 31 March 2007 £m £m £m =========== =========== ===========Businesssegments -continuingoperationsTransmission -UK 501 427 946Transmission -US 73 67 108GasDistribution -UK 167 71 409GasDistribution -US (1) 29 71ElectricityDistributionand Generation- US 196 222 364US strandedcostrecoveries 190 202 423Otheractivities 103 60 133 --------------- --------------- ---------------Operatingprofit beforeexceptionalitems andremeasurements 1,229 1,078 2,454 =========== =========== ===========Totalexcluding USstranded costrecoveries 1,039 876 2,031US strandedcostrecoveries 190 202 423 --------------- --------------- --------------- 1,229 1,078 2,454 =========== =========== ===========GeographicalsegmentsUK 773 559 1,491US 456 519 963 --------------- --------------- ---------------Operatingprofit beforeexceptionalitems andremeasurements 1,229 1,078 2,454 =========== =========== =========== c) Operating profit - after exceptional itemsand remeasurements Six monthsended 30September 2007 2006* Year ended 31 March 2007 £m £m £m =========== =========== ===========Businesssegments -continuingoperationsTransmission -UK 499 420 936Transmission -US 67 67 107GasDistribution -UK 166 66 412GasDistribution -US (20) 27 67ElectricityDistributionand Generation- US 155 221 355US strandedcostrecoveries 209 250 504Otheractivities 111 59 132 --------------- --------------- ---------------Operatingprofit afterexceptionalitems andremeasurements 1,187 1,110 2,513 =========== =========== ===========Totalexcluding USstranded costrecoveries 978 860 2,009US strandedcostrecoveries 209 250 504 --------------- --------------- --------------- 1,187 1,110 2,513 =========== =========== ===========GeographicalsegmentsUK 779 546 1,482US 408 564 1,031 --------------- --------------- ---------------Operatingprofit afterexceptionalitems andremeasurements 1,187 1,110 2,513 =========== =========== =========== * Comparatives have been adjusted to reclassifyamounts relating to discontinued operations. d) Seasonality The gas distribution segment experiencesseasonal fluctuations owing to weatherconditions and peak delivery volumes occurringin the third and fourth quarters of the year. Inthe UK an adjustment to our pricing methodologyhas increased the capacity delivery component inour pricing and has decreased this seasonalbias. This resulted in an increase in revenueand operating profit in the Gas Distribution -UK segment for the six months ended 30 September2007 compared with 2006. 3. Exceptional items and remeasurements Exceptional items and remeasurements are itemsof income and expenditure that, in the judgmentof management, should be disclosed separately onthe basis that they are material, either bytheir nature or their size, to an understandingof our financial performance and significantlydistort the comparability of financialperformance between periods. Items of income orexpense that are considered by management fordesignation as exceptional items include suchitems as significant restructurings, write-downsor impairments of non-current assets, materialchanges in environmental or decommissioningprovisions, integration of acquired businessesand gains or losses on disposals of businessesor investments. Remeasurements comprise gains orlosses recorded in the income statement arisingfrom changes in the fair value of commoditycontracts and of derivative financialinstruments to the extent that hedge accountingis not achieved or is not effective. Six monthsended 30September 2007 2006 Year ended 31 March 2007 £m £m £m ============ ============ ============Exceptionalitems -restructuringcosts (i) (79) (16) (22)Exceptionalitems - gainon disposal ofsubsidiary(ii) 8 - -Remeasurements- commoditycontracts(iii) 29 48 81Totalexceptionalitems andremeasurementsincludedwithinoperatingprofit (42) 32 59 Exceptionalitems - debtrestructuringcosts (iv) - - (45)Remeasurements- commoditycontracts(iii) (6) (12) (19)Remeasurements- netgains/(losses)on derivativefinancialinstruments(v) 18 (66) (153)Totalexceptionalitems andremeasurementsincludedwithin financecosts 12 (78) (217) --------------- --------------- ---------------Totalexceptionalitems andremeasurementsbeforetaxation (30) (46) (158) ============ ============ ============ Exceptionalitem -deferred taxcredit arisingfrom reductionin UK tax rate(vi) 169 - -Tax onexceptionalitems -restructuringcosts (i) 32 5 12Tax onexceptionalitems -disposal ofsubsidiary(ii) (3) - -Tax onexceptionalitems - debtrestructuringcosts (iv) - - 14Tax onremeasurements- commoditycontractremeasurements(iii) (10) (14) (25)Tax onremeasurements- derivativefinancialinstruments(v) (17) 58 169 --------------- --------------- ---------------Exceptionaltax item andtax onexceptionalitems andremeasurements 171 49 170 ============ ============ ============Totalexceptionalitems andremeasurementsafter taxation 141 3 12 ============ ============ ============ Totalexceptionalitems aftertaxation 127 (11) (41)Totalcommoditycontractremeasurementsafter taxation 13 22 37Totalderivativefinancialinstrumentremeasurementsafter taxation 1 (8) 16 --------------- --------------- ---------------Totalexceptionalitems andremeasurementsafter taxation 141 3 12 ============ ============ ============ i) Restructuring costs relate to plannedcost reduction programmes in our UK and USoperations, including costs with respect to theintegration of our existing operations in the USwith those of KeySpan. For the six month periodended 30 September 2007, restructuring costsincluded pension related costs of £77m arisingas a result of redundancies (six months ended 30September 2006: £5m; year ended 31 March 2007:£10m) ii) The gain on disposal of subsidiaryrelates to the sale of Advantica. iii) Commodity contract remeasurementsrepresent mark-to-market movements on certaincommodity contract obligations, primarilyindexed-linked swap contracts, in the US. Underthe existing rate plans in the US, commoditycosts are fully recovered from customers,although the pattern of recovery may differ fromthe pattern of costs incurred. These movementsare comprised of those impacting operatingprofit which are based on the change in thecommodity contract liability and those impactingfinance costs as a result of changing discountrates due to market fluctuations. iv) Debt restructuring costs incurred duringthe year ended 31 March 2007 represented debtredemption costs arising from a restructuring ofour debt portfolio. v) Net gains/(losses) on derivativefinancial instruments comprise losses and gainsarising on derivative financial instrumentsreported in the income statement. These excludegains and losses for which hedge accounting hasbeen effective, which have been recogniseddirectly in equity or offset by adjustments tothe carrying value of debt. These remeasurementsinclude a loss of £3m relating to pre-tax losseson investment related derivative financialinstruments that offset on a post-tax basis (sixmonths ended 30 September 2006: £76m; year ended31 March 2007: £126m). The tax credit in theyear ended 31 March 2007 includes a £56madjustment in respect of prior years. vi) The exceptional tax credit in the periodof £169m arose from a reduction in the UKcorporation tax rate from 30% to 28% included inthe Finance Act 2007. This resulted in areduction in deferred tax liabilities. 4. Finance income and costs Six monthsended 30September 2007 2006 Year ended 31 March 2007 £m £m £m =========== =========== ===========Interestincome onfinancialinstruments 152 104 218Investmentreturn onpension assets(i) 511 465 926 --------------- --------------- ---------------Interestincome andsimilar income 663 569 1,144 =========== =========== =========== Interestexpense onfinancialinstruments (510) (406) (871)Exceptionalitems - debtrestructuringcosts - - (45)Interest onpensionliabilities(i) (473) (435) (869)Unwinding ofdiscounts onprovisions (12) (11) (21)Less: interestcapitalised 50 30 70 --------------- --------------- ---------------Interestexpense (945) (822) (1,736) Netgains/(losses)on derivativefinancialinstrumentsand commoditycontracts 12 (78) (172) --------------- --------------- ---------------Interestexpense andother financecosts (933) (900) (1,908) =========== =========== ===========Net financecosts (270) (331) (764) =========== =========== ===========Comprising:Net financecostsexcludingexceptionalfinance costsandremeasurements (282) (253) (547)Exceptionalitems andremeasurements(note 3) 12 (78) (217) --------------- --------------- --------------- (270) (331) (764) =========== =========== =========== i) The difference between actual and expectedinvestment return on pension assets and intereston pension liabilities is reported as anactuarial gain or loss within the statement ofrecognised income and expense. 5. Taxation The tax charge, excluding the exceptional taxitem and tax on exceptional items andremeasurements, for the six months ended 30September 2007, is based on an estimatedeffective rate for the year ending 31 March 2008of 32.0% (six months ended 30 September 2006:32.3%). 6. Discontinued operations Discontinued operations comprise our formerwireless infrastructure operations in the UK andUS, and the Basslink electricity interconnectorin Australia, that were classified as businessesheld for sale during the year ended 31 March2007, together with the merchant electricitygeneration business in New York City and thecommunications operations that were acquiredwith KeySpan on 24 August 2007. The wireless infrastructure businesses in the UKand US were sold on 3 April 2007 and 15 August2007 respectively, while the Basslinkelectricity interconnector business was sold on31 August 2007. We anticipate completing thedisposals of the merchant electricity generationbusiness and the KeySpan communicationsoperations within a year from the date of theacquisition. Results of discontinued operations Six monthsended 30September 2007 2006 Year ended 31 March 2007 £m £m £m =========== =========== ===========Revenue 84 182 383Operating costs (58) (135) (321) --------------- --------------- ---------------- Operatingprofit beforeexceptionalitems 26 47 117- Exceptionalitems (i) - - (55)Totaloperatingprofit fromdiscontinuedoperations 26 47 62 Net financecosts beforeremeasurementfinance income - (2) (2)Remeasurementfinance income(ii) 8 - 37 --------------- --------------- ---------------Profit beforetax fromdiscontinuedoperations 34 45 97 Taxation (5) (12) (11) --------------- --------------- ---------------Profit aftertax fromdiscontinuedoperations 29 33 86 --------------- --------------- --------------- Gain ondisposal ofBasslink 80 - -Gains ondisposals ofUK and USwirelessinfrastructureoperations 1,507 - - --------------- --------------- ---------------Gain ondisposal ofdiscontinuedoperationsbefore tax 1,587 - - Taxation (3) - - --------------- --------------- ---------------Gain ondisposal ofdiscontinuedoperations 1,584 - - --------------- --------------- ---------------Total profitfor the yearfromdiscontinuedoperations- Beforeexceptionalitems andremeasurements 21 33 104- Exceptionalitems andremeasurements 1,592 - (18) =========== =========== =========== 1,613 33 86 =========== =========== =========== i) The operating exceptional item for theyear ended 31 March 2007 related to animpairment of goodwill relating to US wirelessinfrastructure operations. ii) Remeasurement finance income for thesix months ended 30 September 2007 comprised £8mof mark-to-market gains on financial instruments(31 March 2007: £13m) and for the year ended 31March 2007 an additional £24m relating to therecognition of gains on the termination of ahedging arrangement. 7. Earnings per share a) Basic earnings per share Six monthsended 30September Year ended Year ended 31 March 31 March 2007 2007 2006 2006 2007 2007 Earnings Earnings Earnings Earnings per share Earnings per share Earnings per share £m pence £m pence £m pence ========== ========== ========== ========== ========== ==========Adjusted -continuingoperations 642 24.1 558 20.5 1,296 47.7Exceptionalitems aftertaxation 127 4.8 (11) (0.4) (41) (1.5)Commoditycontractremeasurementsafter taxation 13 0.5 22 0.8 37 1.3Derivativeremeasurementsafter taxation 1 - (8) (0.3) 16 0.6 --------- ---------- ---------- ------------ ---------- --------Continuingoperations 783 29.4 561 20.6 1,308 48.1 ========= ========= ========== ========== ========== ========Adjusted -discontinuedoperations 21 0.8 33 1.2 104 3.8Gains ondisposal ofoperationsafter taxation 1,584 59.5 - - - -Otherexceptionalitems aftertaxation 8 0.3 - - (18) (0.6) ---------- --------- ----------- ----------- ----------- --------Discontinuedoperations 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 ========== ========== =========Weightedaverage numberof shares -basic 2,663 2,721 2,719 ========== ========== ========== b) Diluted earnings per share Six monthsended 30September Year ended Year ended 31 March 31 March 2007 2007 2006 2006 2007 2007 Earnings Earnings Earnings Earnings per share Earnings per share Earnings per share £m pence £m pence £m pence ========== ========== ========== ========== ========== ==========Adjusted diluted -continuingoperations 642 24.0 558 20.4 1,296 47.4Exceptionalitems aftertaxation 127 4.7 (11) (0.4) (41) (1.5)Commoditycontractremeasurementsafter taxation 13 0.5 22 0.8 37 1.3Derivativeremeasurementsafter taxation 1 - (8) (0.3) 16 0.6 --------- ---------- ---------- ------------ ---------- --------Diluted - continuingoperations 783 29.2 561 20.5 1,308 47.8 ========= ========= ========== ========== ========== ========Adjusted diluted -discontinuedoperations 21 0.8 33 1.2 104 3.8Gains ondisposal ofoperationsafter taxation 1,584 59.1 - - - -Otherexceptionalitems aftertaxation 8 0.3 - - (18) (0.7) ---------- --------- ----------- ----------- ----------- --------Diluted - discontinuedoperations 1,613 60.2 33 1.2 86 3.1 ========== ========== ========== ========== ========== =========Diluted 2,396 89.4 594 21.7 1,394 50.9 ========== ========== ========== ========== ========== ========= millions millions millions ========== ========== =========Weightedaverage numberof shares -diluted 2,697 2,735 2,737 ========== ========== ========== 8. Dividends The following table shows the dividends paid toequity shareholders: Six monthsended 30September Year ended Year ended 31 March 31 March 2007 2007 2006 2006 2007 2007 pence per pence per pence per ordinary ordinary ordinary share £m share £m share £m ========== ========== ========== ========== ========== ==========OrdinarydividendsFinaldividendfor theyear - - 15.9 433 15.9 433ended 31March2006Interimdividendforthe year - - - - 10.9 297ended31 March2007Finaldividendfor theyear 17.8 480 - - - -ended 31March2007 -------- ----------- ---------- ---------- ---------- --------- 17.8 480 15.9 433 26.8 730 ======== ========== ========== ========== ========= ========== The Directors have approved an interim dividendof 11.7p per share that will absorb £299m ofshareholders' equity to be paid in respect ofthe period ended 30 September 2007. 9. Acquisitions On 24 August 2007, the acquisition of KeySpanCorporation ('KeySpan') was completed, with 100%of the shares acquired for total considerationof £3.8bn, including acquisition costs of £31m.The provisional amount of goodwill that arose onthe acquisition was £2.4bn, however this issubject to change as the exercise ofestablishing fair values of the assets andliabilities acquired is not final at this stage.Provisional goodwill principally relates to themarket and regulatory position and retailcustomer relationships of the acquiredoperations, the opportunity to make futurecapital investment, expected synergies andopportunities for further cost improvements inthe future, to the assembled workforce and tothe potential for future growth. The majority of the acquired operations relateto gas distribution and electricity distributionand generation activities and so are presentedwithin the 'Gas Distribution - US' and'Electricity Distribution and Generation - US'segments. Certain acquired activities,principally the Ravenswood merchant electricitygeneration business in New York City andKeySpan's communications operations aredisclosed as discontinued operations in theincome statement as we plan and expect todispose of these activities within one year ofthe acquisition date. IFRS Provisional book value at fair value acquisition £m £m =========== ===========Intangible 44 159assetsProperty, plant 3,166 3,160and equipmentInventories 353 353Trade and other 998 998receivablesFinancial and 34 34otherinvestmentsCash and cash 260 260equivalentsFinancial and 129 129otherinvestmentsAssets of 440 1,031businesses heldfor saleBorrowings - (317) (317)currentTrade and other (745) (745)payablesBorrowings - (2,057) (2,138)non-currentOther (165) (165)non-currentliabilitiesDeferred tax (309) (554)liabilitiesPensions andother (438) (440)post-retirementbenefitobligationsProvisions (340) (340)Liabilities ofbusinesses held (37) (37)forsaleMinority (8) (8)interest --------------- ---------------Net assets 1,008 1,380acquired Goodwill arising 2,388on acquisition ---------------Total 3,768consideration =========== As the acquisition occurred close to the end ofthe half year period the fair values andgoodwill presented are provisional. Specificallythe fair value assessment of intangible assets;property, plant and equipment; trade and otherreceivables; financial and otherinvestments; deferred tax liabilities; currentliabilities; borrowings; pension obligations;and provisions and contingent liabilities isongoing and subject to adjustment. In addition,the carrying value of businesses held for saleis based on the anticipated outcome of the salesprocess and will be updated on completion. Anupdate on the fair values assigned to assets andliabilities acquired and the consequentialimpact on the amount of goodwill recorded willbe reflected in the financial statements for theyear ending 31 March 2008. The KeySpan acquired activities contributedrevenue of £162m to our continuing operations;incurred a loss from continuing operations aftertaxation 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 30September 2007. The reported loss for the periodwas principally due to the seasonality of thegas distribution business. Exceptionals andremeasurements included pre-tax costs of £39mrelating to voluntary early retirement and otherintegration costs. Pro forma half-year information The following summary presents the consolidatedresults as if KeySpan had been acquired on 1April 2007. The pro forma amounts include theresults of KeySpan for the period 1 April to 30September 2007 as adjusted for the estimatedeffect of accounting policies adopted byNational Grid and the impact of provisional fairvalue accounting adjustments (e.g. amortisationof intangible assets) together with therecognition of the impact on pro forma netinterest expense as a result of the acquisition.All of the pre-tax pro forma adjustments havebeen taxed (where appropriate) at the rate oftax pertaining to the jurisdiction in which thepro forma adjustment arose. The pro formainformation is provided for comparative purposesonly and does not necessarily reflect the actualresults that would have occurred, nor is itnecessarily indicative of future results ofoperations of the combined companies. 2007 £m ===========Revenue 5,399 Profit for the period 2,347 ========== 10. Reconciliation of movements in total equity Six monthsended 30 September 2007 2006 Year ended 31 March 2007 £m £m £m ========== ========== ==========Openingtotal 4,136 3,493 3,493equity Changes intotalequity forthe periodNet incomerecogniseddirectly inequity 278 (373) 103Profit forthe 2,398 596 1,396periodEquity (480) (433) (730)dividendsIssue ofordinary 13 8 16sharecapitalB sharesconvertedto 27 - -ordinarysharesRepurchaseofsharecapital andpurchase of (808) - (169)treasuryshares(i)Othermovementsin minority 6 (1) (1)interestsShare-basedpayment 9 7 15Tax onshare-basedpayment (6) 5 13 --------------- --------------- ---------------Closingtotal 5,573 3,302 4,136equity =========== ========== ========== (i) From 18 May to 28 September 2007, theCompany repurchased under its share buy-backprogramme 110.6 million ordinary shares foraggregate consideration of £808m includingtransaction costs. The shares repurchased have anominal value of 11 17/43 pence each andrepresented 4% of the ordinary shares in issueas at 30 September 2007. Included within total equity is a deduction of£102m for treasury shares (31 March 2007 and 30September 2006: £nil). 11. Reconciliation of net cash flow to movementin net debt Six monthsended 30 September 2007 2006 Year ended 31 March 2007 £m £m £m ========== ========== ==========Movement incash andcash (1,264) 869 175equivalents(Decrease)/increase infinancial (278) 432 1,725investmentsIncrease inborrowingsandrelatedderivatives (647) (2,238) (3,019)(i)Net interestpaid 249 291 597 --------------- --------------- ---------------Change innet debtresulting (1,940) (646) (522)from cashflowsChanges infair valueoffinancialassets andliabilitiesand exchange 209 194 331movementsNet interestcharge (358) (304) (655)Acquisitionofsubsidiary (2,421) - (48)undertakingAmountsrelated tobusinessesheld for 17 - (42)saleOthernon-cash (30) (44) (2)movements --------------- --------------- ---------------Movement innet debt(netof relatedderivativefinancialinstruments) (4,523) (800) (938)in theperiodNet debt atstart ofperiod (11,788) (10,850) (10,850) --------------- --------------- ---------------Net debt(netof relatedderivativefinancialinstruments)at end of (16,311) (11,650) (11,788)period =========== =========== =========== i) The increase in borrowings and relatedderivatives for the six months ended 30September 2007 comprises proceeds from loansreceived of £0.7bn less payments to repay loansof £0.1bn. 12. Net debt At 30 September 2007 2006 31 March 2007 £m £m £m ========== ========== ==========Cash andcash 355 2,320 1,593equivalentsBank (16) (11) (6)overdrafts --------------- --------------- ---------------Net cash andcashequivalents 339 2,309 1,587Financialinvestments 1,849 806 2,098Borrowings (19,044) (14,894) (15,711) --------------- --------------- --------------- (16,856) (11,779) (12,026)Net debtrelatedderivativefinancialassets 850 634 657Net debtrelatedderivativefinancialliabilities (305) (505) (419) --------------- --------------- ---------------Net debt(netof relatedderivativefinancial (16,311) (11,650) (11,788)instruments) =========== =========== =========== 13. Commitments and contingencies At 30 September 2007 2006 31 March 2007 £m £m £m ========== ========== ==========Future capitalexpenditure 1,160 1,343 1,554contracted forbut notprovidedCommitmentsunder 758 800 800non-cancellableoperatingleasesObligations topurchase energy 4,986 4,768 3,731underlong-termcontracts (i)Guarantees (ii) 583 188 229Othercommitments and 333 205 308contingencies(iii) =========== =========== =========== i) In addition, power commitments undercommodity contracts recorded at fair value andincorporated in trade and other payables andother non-current liabilities were £94m (31March 2007: £389m). ii) Details of the guarantees entered into bythe Company or its subsidiary undertakings at 30September 2007 are shown below: a) a letter of support of obligationsunder a shareholders' agreement relating to theinterconnector project between Britain and theNetherlands amounting to approximately £199m.This expires in 2010; b) guarantees of certain obligations inrespect of the UK Grain LNG Import Terminalamounting to £107m. These run for varyinglengths of time, expiring between 2019 and 2028; c) a guarantee amounting to approximately£92m of half of the obligations of theinterconnector project between Britain and theNetherlands. This expires in 2010; d) a guarantee of £50m in respect ofliabilities under a meter operating contractthat runs until May 2008; e) an uncapped guarantee, for which themaximum liability is estimated at £40m, to TheCrown Estates in support of the transfer of theinterconnector between France and England toNational Grid Interconnectors Limited as part ofthe Licence to Assign Lease. This is ongoing; f) letters of credit in support of gasbalancing obligations amounting to £25m, lastingfor less than one year; g) guarantees of £20m relating to certainproperty obligations. The bulk of these expireby December 2025; h) indemnities estimated to be up to amaximum of £14m given to the trustees of adefined contribution pension scheme. These areopen ended; i) guarantees in respect of a formerassociate amounting to £14m, the bulk of whichrelates to its obligations to supplytelecommunications services. These areopen-ended; and j) other guarantees amounting to £22marising in the normal course of business andentered into on normal commercial terms. Theseguarantees run for varying lengths of time. iii) Includes commitments largely relating togas purchasing of £285m (31 March 2007: £180m). The Company has entered into an agreement with astockbroker to repurchase the Company's shares,which is cancellable at any time other thanduring a close period. The Company entered aclose period on 1 October 2007, at which pointauthority existed for the repurchase of sharesup to a maximum value of £0.85bn. The closeperiod ends following the half year resultsannouncement on 15 November 2007. During theperiod between 1 October and 15 November 2007share repurchases amounted to £0.2bn. 14. Exchange rates The consolidated results are affected by theexchange rates used to translate the results ofits US operations and US dollar transactions.The US dollar to sterling exchange rates usedwere: 30 September 2007 2006 31 March 2007 ========== ========== ==========Closing 2.05 1.88 1.97rateappliedat periodendAverage 2.02 1.86 1.91rateappliedfor theperiod =========== =========== =========== 15. Related party transactions There were no significant changes in the natureand size of related party transactions for theperiod to those disclosed in the financialstatements for the year ended 31 March 2007. 16. Differences between IFRS and US generallyaccepted accounting principles ("US GAAP") Summarised financial statements on a US GAAPbasis and an explanation of the differencesbetween IFRS and US GAAP as applied in preparingthe consolidated accounts are set out in theAnnual Report and Accounts. Details of theprincipal differences between IFRS and US GAAPare shown below. a) Reconciliation of profit from IFRS to US GAAP The following is a summary of the materialadjustments to net income that would have beenrequired if US GAAP had been applied instead ofIFRS: Six monthsended 30 September 2007 2006 Year ended 31 March 2007 £m £m £m =========== =========== ===========Profit for theperiod 2,396 594 1,394attributableto equityshareholdersunder IFRS ----------- ----------- -----------Adjustments toconform with USGAAPPurchase (60) (57) (124)accountingUS regulatory (241) (266) (474)accountingPensions andother (33) (39) (94)post-retirementbenefitsFinancial 71 124 160instrumentsSeverance costsand onerous 62 3 2leasecostsRevenue 34 14 5recognitionDiscounting of 8 (8) 3provisionsSale and (12) - (19)leasebackCurrent tax - - 15Deferred 124 138 295taxationOther (16) (1) (17) ----------- ----------- ----------- (63) (92) (248) ----------- ----------- -----------Net income 2,333 502 1,146under US GAAP =========== =========== ===========Basic earnings 87.6p 18.5p 42.2pper share - USGAAPDiluted 87.1p 18.4p 41.9pearnings pershare - US GAAP =========== =========== =========== b) Reconciliation of shareholders' equity fromIFRS to US GAAP The following is a summary of the materialadjustments to shareholders' equity that wouldhave been required if US GAAP had been appliedinstead of IFRS: At 30 September 2007 2006 31 March 2007 £m £m £m ========== ========== ==========Total 5,555 3,290 4,125shareholders'equity underIFRS ---------- ---------- ----------Adjustments toconform with USGAAPPurchaseaccounting - 1,978 2,105 2,038property, plantand equipmentPurchase 2,330 2,652 2,648accounting -goodwillUS regulatory 2,502 2,291 2,209accountingPensions andother 11 1,103 -post-retirementbenefitsFinancial (5) 94 10instrumentsRevenue (3) (28) (37)recognitionIntangible - 28 26assetsProvisions (228) (158) (142)Non-reversal of (22) (37) (23)impairmentsSale and (31) - (19)leasebackSeverance 64 4 4provisionsCurrent tax andinterest on tax (53) - -provisionsDeferred (1,520) (1,955) (1,477)taxationOther (30) (11) (32) ---------- ---------- ---------- 4,993 6,088 5,205 ---------- ---------- ----------Shareholders' 10,548 9,378 9,330equity under USGAAP ========== ========== ========== c) Accounting policies under US GAAP and new USaccounting standards and interpretations The accounting policies under US GAAP appliedare those applicable for the year ending 31March 2008. They are consistent with those thatwere applied in the preparation of the US GAAPfinancial information for the year ended 31March 2007, as amended to reflect any newstandards or interpretations applicable in theperiod. With the exception of FinancialInterpretation Number 48 ('FIN 48') on taxprovisioning, there was no impact on thereported US GAAP financial information. Theadoption of FIN 48 on 1 April 2007 resulted in areduction to shareholders' equity of £21m. Further information on new US accountingstandards and interpretations applicable to thisfinancial year will be included in the financialstatements for the year ending 31 March 2008. Statement of Directors' Responsibilities The half-yearly financial report is theresponsibility of, and has been approved by, theDirectors. The Directors are responsible forpreparing the half-yearly financial report inaccordance with the Disclosure and TransparencyRules of the United Kingdom's Financial ServicesAuthority. The Disclosure and Transparency Rulesrequire that the accounting policies andpresentation applied to the half-yearly figuresmust be consistent with those applied in thelatest published annual accounts except wherethe accounting policies and presentation are tobe changed in the subsequent annual financialstatements, in which case the new accountingpolicies and presentation should be followed,and the changes and the reasons for the changesshould be disclosed in the half-yearly financialreport, or the United Kingdom Financial ServicesAuthority otherwise agrees. The Directors confirm that this condensed setof financial statements has been prepared inaccordance with IAS 34 as adopted by theEuropean Union, and that the interim managementreport herein includes a fair review of theinformation required by DTR 4.2.7 and DTR 4.2.8. The Directors of National Grid plc are listed inthe National Grid plc Annual Report for the yearended 31 March 2007, with the exception of thefollowing changes that took place during the sixmonths ended 30 September 2007: Paul Joskow - retired from the Board on 31 July2007 Tom King - appointed to the Board on 13 August2007 Robert Catell - appointed to the Board on 25September 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 reviewthe condensed set of financial statements in thehalf-yearly financial report for the six monthsended 30 September 2007, which comprises theconsolidated income statement, balance sheet,statement of recognised income and expense, cashflow statement and related notes. We have readthe other information contained in thehalf-yearly financial report and consideredwhether it contains any apparent misstatementsor material inconsistencies with the informationin the condensed set of financial statements. Directors' responsibilities The half-yearly financial report is theresponsibility of, and has been approved by, thedirectors. The directors are responsible forpreparing the half-yearly financial report inaccordance with the Disclosure and TransparencyRules of the United Kingdom's Financial ServicesAuthority. As disclosed in note 1, the annual financialstatements of the group are prepared inaccordance with IFRSs as adopted by the EuropeanUnion. The condensed set of financial statementsincluded in this half-yearly financial reporthas been prepared in accordance withInternational Accounting Standard 34, "InterimFinancial Reporting", as adopted by the EuropeanUnion. Our responsibility Our responsibility is to express to the companya conclusion on the condensed set of financialstatements in the half-yearly financial reportbased on our review. This report, including theconclusion, has been prepared for and only forthe company for the purpose of the Disclosureand Transparency Rules of the Financial ServicesAuthority and for no other purpose. We do not,in producing this report, accept or assumeresponsibility for any other purpose or to anyother person to whom this report is shown orinto whose hands it may come save whereexpressly agreed by our prior consent inwriting. Scope of review We conducted our review in accordance withInternational Standard on Review Engagements (UKand Ireland) 2410, 'Review of Interim FinancialInformation Performed by the Independent Auditorof the Entity' issued by the Auditing PracticesBoard for use in the United Kingdom. A review ofinterim financial information consists of makingenquiries, primarily of persons responsible forfinancial and accounting matters, and applyinganalytical and other review procedures. A reviewis substantially less in scope than an auditconducted in accordance with InternationalStandards on Auditing (UK and Ireland) andconsequently does not enable us to obtainassurance that we would become aware of allsignificant matters that might be identified inan audit. Accordingly, we do not express anaudit opinion. Conclusion Based on our review, nothing has come to ourattention that causes us to believe that thecondensed set of financial statements in thehalf-yearly financial report for the six monthsended 30 September 2007 is not prepared, in allmaterial respects, in accordance withInternational Accounting Standard 34 as adoptedby the European Union and the Disclosure andTransparency Rules of the United Kingdom'sFinancial Services Authority. PricewaterhouseCoopers LLP Chartered Accountants London 14 November 2007 -------------------------- This information is provided by RNS The company news service from the London Stock Exchange

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