17th Nov 2005 07:03
National Grid PLC17 November 2005 National Grid plc Results for the six months ended 30 September 2005 Strong earnings growth. Positive outlook. o Earnings per share up 12%o Strong operating performanceo Successful completion of gas network saleso £2.5bn profit on disposalo £2bn return of value to shareholderso Capital investment on track to increase from £1.5bn to £2bn per annum Financial highlights - £ million (except where indicated)Six months ended 30 September 2005 2004 % changeBusiness performance (Note A)Operating profit - constant currency basis 1,091 1,017 7(Note B)Operating profit - actual exchange rate 1,091 1,030 6Pre-tax profit 776 697 11Earnings 528 493 7Earnings per share 17.9p 16.0p 12 Statutory results from continuing operationsOperating profit 1,044 958 9Pre-tax profit 736 625 18Earnings 499 448 11Earnings per share 16.9p 14.5p 17 Statutory resultsGain on disposal of discontinued operations 2,534 13 *Earnings 3,062 504 * Interim dividend per share 10.2p 8.5p 20 * Not meaningful. Sir John Parker, Chairman, said: "National Grid continues to deliver strong operating performance, strongearnings growth and strong cash flows. This has been accompanied by our constantfocus on safety and security of delivery. In addition, we are significantlyincreasing our level of investment over the medium term, which will support theGroup's future profit and dividend growth. "In August, the Group returned £2bn to shareholders, one of the largest returnsof value seen in the UK, following the successful completion of our UK gasdistribution network sales. "The Board has approved an interim dividend of 10.2p per ordinary share andviews National Grid's prospects with confidence and, accordingly, in line withour stated dividend policy, targets a 7% increase in the full 2005/06 dividend.With this increase, the dividend per share will have grown by almost 60% sincethe merger with Lattice." Note A: Business performance results are the primary financial performancemeasure used by the Group, being the results for continuing operations beforeexceptional items and certain non-cash mark-to-market remeasurements ofcommodity contracts and financial instruments that are held for economic hedgingpurposes but which did not achieve hedge accounting. Further details areprovided in 'Statutory Results and Business Performance' on page 7. Note B: "Constant currency basis" refers to the reporting of the actual firsthalf results against the prior year first half results which, in respect of anyUS$ currency denominated activity, have been retranslated using the average US$exchange rate for the six months ended 30 September 2005, which was $1.85 to£1.00. The average rate for the six months ended 30 September 2004 was $1.80to £1.00. FINANCIAL RESULTS PRESENTATION National Grid is reporting its results for the first time under IFRS. Thecomparative results for the six months ended 30 September 2004 and for thefiscal year ended 31 March 2005 have also been presented on an IFRS basis andtherefore differ from the UK GAAP results that have previously been published. Unless otherwise stated, all financial commentaries are given on a businessperformance basis. Business performance represents the results for continuingoperations before exceptional items and certain non-cash mark-to-marketremeasurements of commodity contracts and financial instruments which do notrelate to the Group's underlying business performance. Commentary provided inrespect of results after exceptional items and certain non-cash mark-to-marketremeasurements are described as 'statutory'. OVERVIEW National Grid continues to deliver strong operating performance, producinggrowth in operating profit of 7% at constant currency, a 32% growth incontinuing operating cash flows to £1.3bn and a 12% increase in basic earningsper share. This underpins the Group's strongly progressive dividend policy of 7%increases each year through to March 2008. The half-year results have been driven by continued residential volume growth inthe US, a continued focus on efficiencies, particularly in UK gas distribution,favourable results from UK capacity auctions in liquefied natural gas (LNG)storage and the French interconnector, and a full-period contribution, in linewith expectations, from Crown Castle UK(1). The strong performance, aided byweather effects, more than offset an under recovery of commodity costs in the US(which will be recovered in full in future periods), a higher effective tax ratefollowing the impact of changes to the UK tax environment, a weaker US dollarand the absence in the current period of certain one-off benefits recognised inthe prior period. In June, the Group successfully completed the sales of four of its UK gasdistribution networks (network sales), receiving cash proceeds of £5.8bn, and inAugust returned £2bn of value to shareholders. The retained UK gas distributionbusiness remains the largest in the UK, and its configuration is enabling therapid and effective implementation of the 'Way Ahead' programme. National Grid's future profit growth is expected to be driven by achievingfurther efficiency gains, volume growth in the US and the returns on plannedinvestment in its current businesses. The Group's total annual investment isprojected to grow by one-third, from £1.5bn to £2bn this year and remain at thatlevel over the medium term. In particular, this reflects changing energyinfrastructure requirements as the UK's dependency on gas imports and its focuson renewable energy sources both increase along with the need to increase therate of asset replacement in UK electricity transmission. As planned, UK gasdistribution replacement expenditure, half of which is added to the regulatoryasset base, has increased 10% over the same period last year. Investment for future growth is also expected in other Group operations. Theswitchover to digital television is projected to require around £350m to £450mof industry investment between 2008 and 2012. The Group believes National GridWireless is well placed to secure a significant portion of this investment. By2008, the Group will have invested £500m in the Isle of Grain LNG importationterminal. Market appetite for further expansion at the Isle of Grain iscurrently being explored. (1) National Grid acquired the UK assets of Crown Castle International Corp. on31 August 2004. For the six months ended 30 September 2004 there was a one monthcontribution from this business. REVIEW OF GROUP RESULTS National Grid's operating profit increased by 7% to £1,091m, up £74m from£1,017m, on a constant currency basis. This was driven by continued volumegrowth in the US, a sustained focus on efficiencies throughout the Group,particularly in UK gas distribution, favourable results from UK capacityauctions in LNG storage and the French interconnector and a full-periodcontribution from Crown Castle UK that was in line with expectations. Beneficialweather effects, primarily in the US, also increased operating profit. Thesefactors more than offset a significant under recovery of commodity costs in theUS and the absence in the current period of certain one-off benefits recognisedin the same period last year. Net finance costs decreased 5% from £334m to £317m. This was primarily theresult of a decrease in average net borrowings following the network sales,which completed on 1 June 2005, partially offset by higher interest rates. Profit before tax was up 11% to £776m from £697m. The tax charge on profit for the period was £246m, £42m higher than the priorperiod due to increased profit before tax and a higher effective tax rate of32%. This rate reflected the change in the mix of Group profit following thenetwork sales and the impact of changes to the UK tax environment. The weaker US dollar reduced operating profit by £13m, but the net exchange rateimpact on earnings, after interest, tax and minority interests, was £7m. Earnings increased 7% from the same period last year to £528m from £493m, whileearnings per share, which benefited from the share consolidation which tookplace on 1 August, increased 12% from 16.0p last year to 17.9p. The Group'sseasonally more significant second half, due to increased winter gas usage inthe UK, will reflect in full the share consolidation with a consequential impacton EPS. Exceptional items and remeasurements comprised restructuring costs of £25m (£18mnet of tax), exceptional finance charges of £35m (£27m net of tax), commodityremeasurements of £22m (£13m net of tax) and financial instrument remeasurementgains of £42m (£29m gain net of tax). After these items, and minority interestsof £2m, statutory earnings for the period for continuing operations were £499m. Statutory basic earnings per share from continuing operations increased 17% to16.9p, up from 14.5p last year. The Group's cash flows grew very strongly with operating cash flow fromcontinuing operations up 32% to £1.3bn from £1.0bn. National Grid's investment in continuing operations increased significantly(15%) to £827m from £722m compared with the same period last year. Investment inUK electricity transmission increased by £51m, primarily due to overhead linereplacement. Work has commenced on the Milford Haven gas transmission projectwhere the Group expects to invest around £450m through to 2008. As planned, UKgas distribution replacement expenditure, capitalised under IFRS, alsoincreased, up from £126m to £139m. Investment in the Group's Other businessesdecreased in this period as the Basslink project undertaken by National GridAustralia nears completion; however, investment is expected to increase by yearend as the Isle of Grain Phase II spend increases in the second half. Thefull-year level of investment for the Group is projected to be around £2bn. Group net debt was £11.1bn as compared with £14.0bn at 1 April 2005. Thisreflected the receipt of £5.8bn upon completion of the network sales in June2005, the £2bn return of value to shareholders in August 2005, the increase incapital investment and normal seasonal factors. Net debt, excluding theremeasurement effects of IAS 39, is expected to remain around this level for theremainder of the year as the increased capital investment programme is expectedto offset normal seasonal cash inflow. An interim dividend of 10.2p per ordinary share ($0.8816 per American DepositaryShare (ADS)) will be paid on 25 January 2006 to shareholders on the register asat 2 December 2005. REVIEW OF OPERATIONS A segmental analysis of the Group's business performance is presented below: Six months ended 30 September 2005 (£m) 2004 (£m) % ChangeOperating profit (at constant currency)UK electricity and gas transmission 397 388 2US electricity transmission 68 68 -UK gas distribution 94 78 21US electricity and gas distribution 170 166 2US stranded cost recoveries 251 240 5Wireless infrastructure 36 8 *Other businesses 75 69 9Total 1,091 1,017 7 *Not meaningful. TRANSMISSION Six months ended 30 September 2005 (£m) 2004 (£m) % ChangeOperating profitUK electricity transmission 275 298 (8)UK gas transmission 86 80 8Other* 36 10 **UK electricity and gas transmission 397 388 2 US electricity transmission- constant currency basis 68 68 -- actual exchange rate 68 70 (3) *Other includes LNG storage and the French interconnector. The Scottishinterconnector is included in 'UK electricity transmission' in both periods.** Not meaningful. Operating profit from UK electricity and gas transmission was up 2% at £397mcompared with £388m last year. This increase reflected higher gas TransmissionOwner income, up £16m primarily from capacity auctions, as well as highercapacity auction income earned from both the Group's LNG storage business andits French interconnector which are up a combined £26m from last year. Thisreflected the high demand from market participants for both LNG storage andinterconnector capacity. The higher auction income was partially offset by anincreased Transmission Owner depreciation charge of £11m, a non-recurringone-off benefit to the same period last year of £15m, and lower revenues underthe connections charging reform ('Plugs'), the benefit of which decreased by£8m. The Group is currently working with Ofgem on the extension of the UK electricitytransmission price control by one year to April 2007. In September, Ofgempublished its initial proposals for the mini review to which the Group respondedin October. Final proposals from Ofgem are expected later this month. Over thenext twelve months, the Group will continue to work with Ofgem on the five-yearelectricity and gas transmission price control review. In the US, operating profit from US electricity transmission was stable atconstant currency. In August, the US Congress passed the Energy Policy Act of 2005. While the newlaw is not expected to have any immediate effect on the Group's business,certain provisions, including transmission pricing incentives and the creationof National Interest Transmission Corridors, may benefit National Grid'slong-term US strategy. UK GAS DISTRIBUTION Six months ended 30 September 2005 (£m) 2004 (£m) % Change Operating profit 94 78 21 Operating profit from the continuing UK gas distribution business was up 21% at£94m compared with £78m last year. This reflected a very strong performance oncosts, with operating expenditure (excluding shrinkage) reduced by £19m throughrealisation of the benefits of the Way Ahead programme. Business rates were £11mhigher than last year but are now being recovered as part of an average priceincrease of 4.6% implemented on 1 October 2005. Shrinkage gas costs, which inthis period increased by £2m, are forecast to increase further during the winterdue to higher commodity costs. The business remains on track to meet its cost reduction target by March 2007.Controllable costs for the four retained networks, excluding increases inongoing pension costs and shrinkage gas commodity prices, have decreased by 4%in real terms since March 2005 and have now decreased 24% in real terms sinceMarch 2002. This is equivalent to cumulative savings in excess of £110m. US DISTRIBUTION Six months ended 30 September 2005 (£m) 2004 (£m) % Change Operating profit (constant currency basis)US electricity and gas distribution 170 166 2US stranded cost recoveries(2) 251 240 5 421 406 4 Operating profit (actual exchange rate)US electricity and gas distribution 170 170 -US stranded cost recoveries 251 247 2 421 417 1 The strength of US electricity and gas distribution's performance was partiallymasked by an under recovery of commodity costs. Operating profit for USelectricity and gas distribution was up 2% at £170m on a constant currency basiscompared with £166m last year. This good performance, which more than offset theunder recoveries of £25m for the first six months of the year (compared to anunder recovery of £5m last year), was primarily driven by volume growth and acontinued focus on cost efficiencies. Under National Grid's existing rate plans in the US, commodity costs arerecovered in full from customers, although the profile of recovery may differfrom the pattern of costs incurred. Substantial rate increases were approved inSeptember in both Massachusetts and Rhode Island to recover the higher commoditycost of electricity. These rate increases have already been implemented. In NewYork, commodity cost adjustments are made each month. The operating profit contribution from US stranded cost recoveries for thisperiod was £251m. This comprises the ongoing recovery of and return on thestranded cost base amounting to £173m, as well as £57m primarily related to therecovery of payments made under certain long term purchased power arrangements.This segment has also benefited from a settlement reached with USGen NewEngland, Inc. following the resolution of that company's bankruptcy filing whichresulted in £21m of operating profit. Across the US Distribution business, electricity delivery volumes increased 4.8%compared to the prior year. Excluding the effects of weather, higher marginresidential sales deliveries increased by 2%, contributing to a £10m increase inoperating profit. The period-on-period weather effect increased operating profitby some £21m, primarily due to a warmer summer than last year. US controllable costs were reduced by 2% in real terms since March 2005 as thebusiness has continued its focus on cost efficiencies. (2) Stranded cost recoveries relate to costs incurred by the former generationbusinesses that National Grid sold during industry restrcuturing in the US.These cost are recovered in accordance with the Group's US rate plans. WIRELESS INFRASTRUCTURE Six months ended 30 September 2005 (£m) 2004 (£m) % Change Operating profit 36 8 * *Not meaningful Operating profit for Wireless infrastructure was £36m, up from £8m and reflecteda full period contribution from the enlarged business. These results are in linewith expectations. Strong performance in broadcast and the realisation ofintegration savings more than offset a softening in demand for mobileinfrastructure. Continuing advances in digital compression technology haveenabled the business to create additional channel capacity. Two channels havebeen sold to ITV and Channel 4 respectively and an auction for a third channelis currently underway. National Grid Wireless has agreed to the continuation, on broadly similar terms,of its largest broadcast contract to deliver analogue television and radioservices to the BBC. This will run through to switchover in 2012 for televisionand 2013 for AM and FM radio. OTHER BUSINESSES Six months ended 30 September 2005 (£m) 2004 (£m) % Change Operating profit 75 69 9 Operating profit from the Group's Other businesses, was up 9% at £75m comparedwith £69m last year. Strong performance by National Grid Metering, primarilyfrom cost efficiency gains made in the period, was largely offset by theexpected lower profits from National Grid Property. By their nature, propertysales can vary from period to period depending on the number and mix ofproperties sold. The Group nevertheless expects full year results for NationalGrid Property to be in line with its expectations as its portfolio of propertiesremains robust. Phase I at the Isle of Grain was commissioned in July and work on Phase II iswell underway. The return on investment is expected to be comfortably ahead ofthe Group's weighted average cost of capital. Cumulative investment has nowreached £160m out of an expected £500m total spend, all of which is underpinnedby 20-year contracts signed with BP, Centrica, Gaz de France and Sonatrach. TheGroup is currently assessing further development at the Isle of Grain. The Group's Basslink project in Australia, an interconnector project linkingVictoria and Tasmania, supported by a long-term contract with Hydro Tasmania, isexpected to commission in the second quarter of 2006. STATUTORY EARNINGS AND BUSINESS PERFORMANCE A reconciliation of business performance earnings to statutory earnings ispresented below: Six months ended 30 September 2005 (£m) 2004 (£m) % Change Business performance earnings 528 493 7Exceptional items (after tax) (45) (25) (80)Remeasurements (after tax) 16 (20) *Statutory earnings from continuingoperations 499 448 11Discontinued operations profit after tax 29 43 (33)Discontinued operations profit on disposal 2,534 13 *Statutory earnings 3,062 504 * *Not meaningful Exceptional items in the period comprised exceptional restructuring costs of£25m (£18m net of tax) and exceptional finance costs on the early redemption ofdebt and on the B share scheme of £35m (£27m net of tax). Remeasurements comprised £22m (£13m net of tax) of negative non-cashmark-to-market movements in the carrying value of certain legacy commoditycontract obligations, primarily index-linked swap contracts in the US, and £42m(£29m net of tax) of positive non-cash mark-to-market movements in the carryingvalue of financial instruments, primarily derivatives, that are held foreconomic hedging purposes, but which did not achieve hedge accounting. The results of discontinued operations include two months of contribution fromthe four regional gas distribution networks that were sold on 1 June 2005. Again on disposal of £2.5bn was recorded in the first half in respect of thesesales. Further details of 'discontinued operations' and 'exceptional items andremeasurements' are given in Note 3 and Note 4 respectively in the 'Notes to theInterim Announcement' section. OUTLOOK AND DIVIDEND POLICY The Board continues to have high confidence in the Group's ability to generatefuture profit growth, given its opportunities for capital investment andcontinuing cost efficiencies. The Group will continue to maintain itsdisciplined approach to both organic and strategic investment. The Board has approved an interim dividend of 10.2p per ordinary share ($0.8816per American Depositary Share (ADS)). The interim dividend will be paid on 25January 2006 to shareholders on the register as at 2 December 2005. NationalGrid expects the total dividend for 2005/06 to be 7% higher than last year and,looking ahead, continues to aim to increase dividends per ordinary shareexpressed in sterling by 7% in each financial year through to 31 March 2008. A7% increase to the 2005/06 total dividend would deliver growth of almost 60%since the merger with Lattice. CONTACT DETAILS National Grid: InvestorsDavid Campbell +44 (0)20 7004 3170 +44 (0)7799 131783(m)Richard Smith +44 (0)20 7004 3172 +44 (0)7747 006321(m)James Waite +44 (0)20 7004 3171 +44 (0)7977 440902(m) 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 Deutsche Bank AG, 75 London Wall, LondonEC2N 2DB at 9:00 am (UK time) today. Live telephone coverage of the analyst presentation - password National Grid Dial in number +44 (0)20 7081 9429US call in number +1 866 432 7186 Telephone replay of the analyst presentation (available until 1 December 2005) Dial in number +44 (0)20 7081 9440Account number 869448Recording number 355761 A live web cast of the presentation will also be available atwww.nationalgrid.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's ability tocontrol 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, 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's pensionschemes and the regulatory treatment of pension costs, the impact of theseparation and sale by National Grid of four of its UK gas distribution networksand any adverse consequences arising from outages on or otherwise affectingenergy networks owned and/or operated by National Grid. For a more detailed description of these assumptions, risks and uncertainties,together with any other risk factors, please see National Grid's filings withthe US Securities and Exchange Commission (and in particular the "Risk Factors"and "Operating and Financial Review" sections in its most recent annual reporton Form 20-F). Recipients are cautioned not to place undue reliance on theseforward-looking statements, which speak only as of the date of thisannouncement. National Grid does not undertake any obligation to releasepublicly any revisions to these forward-looking statements to reflect events orcircumstances after the date of this announcement. GROUP INCOME STATEMENT Year ended 31 MarchFOR THE SIX 2005 2004 (i) 2005 (i)MONTHS ENDED30 SEPTEMBER Notes £m £m £m =================== ================ ===========Group 2a 3,891 3,378 7,382revenueOtheroperatingincome 23 20 70Operatingcosts (2,870) (2,440) (5,310) ------------------- ---------------- -----------Operatingprofit- Beforeexceptionalitems andremeasurements 2b 1,091 1,030 2,443- Exceptionalitems andremeasurements 4 (47) (72) (301)Totaloperatingprofit 2c 1,044 958 2,142 Net financecosts- Beforeexceptionalitems andremeasurements (317) (334) (706)- Exceptionalitems andremeasurements 4 7 - - 5 (310) (334) (706) Share ofpost-taxresults ofjoint ventures 2 1 3 ------------------- ---------------- -----------Profit beforetaxation- Beforeexceptionalitems andremeasurements 776 697 1,740- Exceptionalitems andremeasurements (40) (72) (301) 736 625 1,439Taxation- Beforeexceptionalitems andremeasurements 6 (246) (204) (437)- Exceptionalitems andremeasurements 4 11 27 118 (235) (177) (319) ------------------- ----------------- -----------Profit fromcontinuingoperationsaftertaxation- Beforeexceptionalitems andremeasurements 530 493 1,303- Exceptionalitems andremeasurements (29) (45) (183)Profit for theperiod fromcontinuingoperations 501 448 1,120 Profit for theperiod fromdiscontinuedoperations- Beforeexceptionalitems 3 44 82 352- Exceptionalitems 3 2,519 (26) (48) 2,563 56 304 ------------------- ----------------- ------------Profit for theperiod 3,064 504 1,424 =================== ================= ============Attributableto:- Equityshareholders 3,062 504 1,424- Minorityinterests 2 - - ------------------- ----------------- ------------ 3,064 504 1,424 =================== ================= ============ Earnings pershare- Basic 7a 103.7p 16.4p 46.2p- Diluted 7b 103.1p 16.4p 46.0pEarnings pershare fromcontinuingoperations- Basic 7a 16.9p 14.5p 36.3p- Diluted 7b 16.8p 14.5p 36.2p =================== ================ =============Dividends perordinaryshare: paidduring theperiod 8 15.2p 11.9p 20.4pDividends perordinaryshare:approved orproposed to bepaid 10.2p 8.5p 23.7p =================== ================ ============= i) Refer to note 1 for the basis of preparation of the comparativespresented under International Financial Reporting Standards. GROUP BALANCESHEET AT 30SEPTEMBER 2005 2004 (i) At 31 March 2005 (i) Note £m £m £m ============== ============ ===========Non-currentassetsGoodwill 2,140 2,107 2,031Otherintangibleassets 357 337 358Property,plant andequipment 18,175 22,395 22,645Investments injoint ventures 18 19 17Deferred taxassets 280 419 318Otherreceivables 32 108 96Investments 147 135 131Derivativeassets 405 - - -------------- -------------- ------------Totalnon-currentassets 21,554 25,520 25,596 -------------- -------------- ------------CurrentassetsInventories 164 158 101Trade andotherreceivables 1,252 1,142 1,193Financialinvestmentsand derivativeassets 2,517 307 398Cash and cashequivalents 547 381 272 -------------- -------------- ------------Total currentassets 4,480 1,988 1,964 -------------- -------------- ------------Total assets 26,034 27,508 27,560 -------------- -------------- ------------CurrentliabilitiesBankoverdrafts (23) (28) (18)Borrowings andderivativeliabilities (4,025) (3,310) (3,243)Trade andother payables (1,660) (2,029) (2,337)Current taxliabilities (97) (110) (103)Provisions (201) (229) (273) --------------- --------------- -------------Total currentliabilities (6,006) (5,706) (5,974) --------------- --------------- -------------Non-currentliabilitiesBorrowings andderivativeliabilities (10,476) (11,941) (11,047)Othernon-currentliabilities (1,833) (2,551) (2,429)Deferred taxliabilities (2,170) (3,045) (3,189)Pensions andotherpost-retirementbenefitobligations (2,283) (2,493) (2,282)Provisions (551) (453) (518) --------------- --------------- -------------Totalnon-currentliabilities (17,313) (20,483) (19,465) --------------- --------------- -------------Totalliabilities (23,319) (26,189) (25,439) --------------- --------------- -------------Net assetsemployed 2,715 1,319 2,121 ============== =============== =============Capital andreservesCalled upshare capital 309 309 309Share premiumaccount 1,293 1,283 1,289Retainedearnings 6,085 4,830 5,650Other reserves (4,984) (5,114) (5,137) -------------- -------------- -------------Totalshareholders'equity 2,703 1,308 2,111Minorityinterests 12 11 10 -------------- -------------- -------------Total equity 2,715 1,319 2,121 ============== ============== ============= Net debt (netof relatedderivativefinancialinstruments)included above 10 11,055 14,591 13,638 -------------- ------------- ------------- i) Refer to note 1 for the basis of preparation of the comparativespresented under International Financial Reporting Standards. Net debt at 30 September 2004 and 31 March 2005 has not been adjusted to reflectthe impact of IAS 39, which has been adopted from 1 April 2005 onwards. GROUP STATEMENT OFRECOGNISEDINCOME ANDEXPENSEFOR THE SIX Year endedMONTHS ENDED 31 March30 SEPTEMBER 2005 2004 (i) 2005 (i) £m £m £m =========== =========== ===========Exchangeadjustmentsontranslationofforeign 100 17 (6)operations(net of tax)Actuarial(losses)/gains (98) 38 187(net of tax)Net gainstaken toequity inrespect ofcash flowhedges (netof 17 - -tax)Net gainstaken toequity onavailableforsaleinvestments 3 - -(net of tax) ------------------- ------------------- -------------------Net incomerecogniseddirectly inequity 22 55 181Profit forthe 3,064 504 1,424periodEffect ofchange inaccountingpolicy - IAS39 (ii) (43) - - ------------------- ------------------- -------------------Totalrecognisedincome andexpense forthe period 3,043 559 1,605 =========== =========== ===========Attributableto:- Equityshareholders 3,041 559 1,605- Minorityinterests 2 - - ------------------- ------------------- ------------------- 3,043 559 1,605 =========== =========== =========== GROUP MOVEMENT INTOTALEQUITY FOR THE SIX Year endedMONTHS ENDED 31 March30 SEPTEMBER 2005 2004 (i) 2005 (i) £m £m £m =========== =========== ===========Openingtotal 2,121 1,110 1,110equityEffect ofchange inaccountingpolicy - IAS39 (ii) (43) - - ------------------- ------------------- -------------------Restated at1 2,078 1,110 1,110April 2005 Changes intotal equityfor theperiodNet incomerecogniseddirectly inequity 22 55 181Profit forthe 3,064 504 1,424periodEquitydividends (469) (366) (628)Return ofcapital toshareholdersthrough 'B'share scheme (2,009) - -Issue ofordinaryshare 4 3 9capitalMovement inshares heldinemployee 13 4 5sharetrustsEmployeeshareoptionscheme 12 9 20issues (netoftax) ------------------- ------------------- -------------------Closingtotal 2,715 1,319 2,121equity =========== =========== =========== i) Refer to note 1 for the basis of preparation of the comparativespresented under International Financial Reporting Standards.ii) The Group has adopted IAS 32 "Financial Instruments: Disclosure andPresentation" and IAS 39 "Financial Instruments: Recognition and Measurement"prospectively with effect from 1 April 2005, in accordance with the transitionprovisions of IFRS 1. As a result, the balance sheet at 31 March 2005 and 30September 2004 and the income statement for the periods ended 31 March 2005 and30 September 2004 exclude the effect of IAS 32 and IAS 39. GROUP CASH Year endedFLOW STATEMENT 31 March 2005 2004 (i) 2005 (i)FOR THE SIX MONTHS ENDED30 SEPTEMBER £m £m £m =========== =========== ===========Cash flowsfrom operatingactivitiesOperatingprofit 1,044 958 2,142Adjustmentsfor:Exceptionalitems andremeasurements 47 72 301Depreciationandamortisation 439 394 819Share basedpayment charge 6 9 12Changes inworkingcapital (105) (365) (105)Changes inprovisions (22) (4) (119)Changes inpost-retirement benefitobligations (34) (20) (19) ------------------- ------------------- -----------------Cash flowsbeforeexceptionalitems -continuingoperations 1,375 1,044 3,031Cash flowsrelating toexceptionalitems (63) (76) (120)Cash flowsrelating todiscontinuedoperations (1) 149 547 ------------------- ------------------- -----------------Cash generatedfromoperations 1,311 1,117 3,458Tax paid -continuingoperations (83) (67) (52)Tax paid -discontinuedoperations (41) (58) (98) ------------------- ------------------- -----------------Net cashinflow fromoperatingactivities 1,187 992 3,308 ------------------- ------------------- -----------------Cash flowsfrom investingactivitiesAcquisition ofsubsidiaries,net of cashacquired - (1,104) (1,122)Sale ofinvestments - 7 8Purchases ofintangibleassets (6) (25) (79)Purchases ofproperty,plant andequipment (804) (717) (1,427)Disposals ofproperty,plant andequipment 5 8 22Net movementsin financialinvestments (1,758) 25 (59)Dividendsreceived fromjoint ventures 2 3 5 ------------------- ------------------- -----------------Cash flowsused incontinuingoperationsinvestingactivities (2,561) (1,803) (2,652)Cash flowsrelating todiscontinuedoperations -disposalproceeds 5,754 - -Cash flowsrelating todiscontinuedoperations -other (115) (201) (323) ------------------- ------------------- -----------------Net cashfrom/(used in)investingactivities 3,078 (2,004) (2,975) ------------------- ------------------- -----------------Cash flowsfrom financingactivitiesProceeds fromissue of sharecapital 17 7 13(Decrease)/increase inborrowings (1,197) 1,860 1,052Net interestpaid (403) (383) (762)Dividends paidtoshareholders (469) (366) (628)Cash paid toshareholdersunder 'B'share scheme (1,957) - - ------------------- ------------------- -----------------Net cash (usedin)/fromfinancingactivities (4,009) 1,118 (325) ------------------- ------------------- -----------------Net increasein cash andcashequivalents 256 106 8Exchangemovements 14 - (1)Cash and cashequivalents atstart ofperiod (ii) 254 247 247 ------------------- ------------------- -----------------Cash and cashequivalents atend of period(ii) 524 353 254 =========== =========== =========== i) Refer to note 1 for the basis of preparation of the comparativespresented under International Financial Reporting Standards.ii) Net of bank overdrafts. NOTES TO THE INTERIM ANNOUNCEMENT 1. Basis of preparation and reconciliations of UK GAAP to IFRS Basis of preparation The financial information contained in this announcement does not constitutestatutory accounts as defined in Section 240 of the Companies Act 1985. Thestatutory accounts for the year ended 31 March 2005 were prepared under UKGenerally Accepted Accounting Principles (UK GAAP), which have been delivered tothe Registrar of Companies. The auditors' report on those statutory accounts wasunqualified and did not contain a statement under Section 237(2) or (3) of theCompanies Act 1985. The financial information in respect of the six months ended 30 September 2005included in this interim announcement has been prepared in accordance with theprinciples of International Financial Reporting Standards (IFRS) and isunaudited but has been reviewed by the auditors and their report is attached tothis document. It has been prepared on the basis of the provisional accountingpolicies applicable for the year ending 31 March 2006 as set out in the Group'sIFRS conversion statement for the year ended 31 March 2005, which was publishedon 29 July 2005. This interim announcement should be read in conjunction withthe IFRS conversion statement which is available from the Group's website onwww.nationalgrid.com. All descriptions used in the Group's IFRS conversionstatement have the same meaning when used in this announcement unless statedotherwise. The financial information in respect of the year ended 31 March 2005 has beenderived from the Group's IFRS conversion statement for the year ended 31 March2005. The Group's results for the six months ended 30 September 2004 werepreviously published on 30 September 2005 and are unaudited. As noted in the IFRS conversion statement, the comparative results and financialposition under IFRS are subject to change as there is not yet a significantestablished practice from which to draw conclusions on the application andinterpretation of IFRS. Further standards may be issued by the InternationalAccounting Standards Board that could be adopted for financial years beginningafter 1 April 2005. In addition, standards currently in issue and adopted by theEuropean Union (EU) are subject to interpretation issued from time to time bythe International Financial Reporting Interpretations Committee. In particular,the amended version of IAS 19 "Employee Benefits" permitting the recognition ofactuarial gains and losses in the statement of recognised income and expense hasnot yet been endorsed by the EU. The Group has adopted IAS 32 and IAS 39 on financial instruments prospectivelywith effect from 1 April 2005, in accordance with the transition provisions ofIFRS 1. As a result, the balance sheet at 31 March 2005 and 30 September 2004and the income statement for the periods ended 31 March 2005 and 30 September2004 exclude the effect of IAS 32 and IAS 39. The adoption of IAS 39 had theeffect of increasing net debt by £348m and reducing net assets by £43m. Theincrease in net debt and reduction in net assets was £41m and £29m respectivelyhigher than the amounts presented in the IFRS conversion statement, arising froma reassessment of the accounting treatment of certain financial instruments onthe transition to IAS 39. A reassessment of the IFRS adjustment for regulatory assets has resulted in anincrease in net assets under IFRS at 1 April 2004 and 31 March 2005 of £26mcompared to the value attributed to net assets as presented in the IFRSconversion statement. There was no impact on the income statement for the sixmonths ended 30 September 2004, nor for the year ended 31 March 2005. In August 2005, the provisional fair values applied on the acquisition of the UKoperations of Crown Castle International Corp. were reviewed and a number ofadjustments were made to those provisional fair values as a result of betterinformation becoming available. As required by IFRS 3 "Business Combinations",the balance sheets presented for September 2004 and March 2005 have beenre-presented to reflect these fair value adjustments. The overall impact on thecarrying value of net assets was £nil: goodwill increased by £10m; property,plant and equipment decreased by £8m; deferred tax liabilities decreased by £4m;and non-current provisions increased by £6m. There was no impact on the incomestatement for the six months ended 30 September 2004, nor for the year ended 31March 2005. A past service pension cost of £41m (£24m net of tax) that arose in the secondhalf of 2004/05, which was previously included in operating profit beforeexceptional items and remeasurements, has been reclassified as an exceptionalitem as reported in note 4. This announcement was approved by the Board of Directors on 16 November 2005. Reconciliations from UK GAAP to IFRS a) Reconciliation of UK GAAP to IFRS profit The following tables show the effect of IFRS measurement and presentationadjustments on profit for the year and net assets measured under UK GAAP as aconsequence of applying IFRS measurement principles as compared with UK GAAP: Six months ended Year ended 30 Sept 31 March 2004 2005 £m £m =========== ===========Profit for the period beforeminority interests under UK GAAP 213 907 IFRS measurement adjustmentsReplacement expenditure 118 236Derecognition of regulatory assets 98 151Goodwill amortisation 47 109Amortisation of intangible assetsother than goodwill (1) (4)Pensions and other post-retirementbenefits 32 41Deferred taxation (4) (11)Other adjustments (1) (6) ------------------- ------------------- 289 516IFRS presentation adjustmentsNon-equity minority interests (1) (2)Share of results of joint ventures 3 3 ------------------- ------------------- 2 1 ------------------- -------------------Profit for the period under IFRS 504 1,424Less: profit for the period underIFRS - discontinued operations (56) (304) ------------------- -------------------Profit for the period under IFRS -continuing operations 448 1,120 =========== =========== b) Reconciliation of UK GAAP to IFRS net assets At 30 Sept At 31 March 2004 2005 £m £m =========== ===========Net assets under UK GAAP 1,295 1,391 IFRS measurement adjustmentsReplacement expenditure 2,896 3,014Derecognition of regulatory assets (1,725) (1,587)Goodwill (32) 28Intangible assets other thangoodwill 97 99Pensions and other post-retirementbenefits (1,328) (1,149)Deferred taxation (88) (95)Dividends 262 469Other adjustments (19) (27) ------------------- ------------------- 63 752IFRS presentation adjustmentsNon-equity minority interests (39) (22) ------------------- -------------------Net assets under IFRS 1,319 2,121 =========== =========== Amounts shown above are net of any related deferred tax on the underlying IFRSadjustment. Explanations of the UK GAAP to IFRS adjustments have been provided in the IFRSconversion statement, available on the Group's website on www.nationalgrid.com. 2. Segmental analysis Segmental information is presented in accordance with the managementresponsibilities and economic characteristics, including consideration of risksand returns, of the Group's business activities. The following table describesthe main activities for each business segment: ---------------- ------------------------------------------------------------UK electricity and High-voltage electricity transmission networks, the gasgas transmission National Transmission System in the UK, UK liquefied natural gas storage activities and the Scottish and French electricity interconnectorsUS electricity High-voltage electricity transmission networks andtransmission management of electricity transmission operations for other utilities in the USUK gas Four of the eight regional networks of Britain's gasdistribution distribution systemUS electricity and Electricity and gas distribution in New York and electricitygas distribution distribution in New EnglandUS stranded cost The recovery of stranded costs from US customers asrecoveries permitted by regulatory agreementsWireless Broadcast and mobile telephony infrastructure in the UK andinfrastructure US---------------- ------------------------------------------------------------ Other activities primarily relate to UK based gas metering activities, UKproperty services and the Group's energy technology and systems solutionsbusiness. UK liquefied natural gas storage activities and the Scottish and Frenchelectricity interconnectors are included within UK electricity and gastransmission, having previously been reported within other activities. Thischange in segmental presentation follows a change in the organisational andmanagement structure within the Group and the change in regulatory arrangementsfor the Scottish interconnector following the introduction of BritishElectricity Trading and Transmission Arrangements (BETTA). The segmental resultsfor the six months ended 30 September 2004 and for the year ended 31 March 2005have been amended to reflect this change. The impact of this change on thesegment results for the six months ended 30 September 2004 was to increase UKelectricity and gas transmission revenue by £30m and operating profit by £19m,to reduce other activities revenue by £51m and operating profit by £19m and toreduce intra-group revenue eliminations by £21m. The impact of this change onsegment results for the year ended 31 March 2005 was to increase UK electricityand gas transmission revenue by £65m and operating profit by £42m, to reduceother activities revenue by £110m and operating profit by £42m and to reduceintra-group revenue eliminations by £45m. There was no difference between theimpact on operating profit before exceptional items and remeasurements and thatfor operating profit after exceptional items and remeasurements. Discontinued operations comprise the operations of the four gas distributionnetworks that the Group sold on 1 June 2005 and the results of Citelec, anArgentinian joint venture sold in August 2004. The Group assesses the performance of its businesses principally on the basis ofoperating profit before exceptional items and remeasurements. The Group'sprimary reporting format is by business and the secondary reporting format is bygeographical area. a) Group revenue Six monthsended 30September 2005 2004 Year ended 31 March 2005 £m £m £m =========== =========== ===========Continuingoperations -businesssegmentsUK electricityand gastransmission 1,154 900 1,995US electricitytransmission 152 149 284UK gasdistribution 439 405 1,113US electricityand gasdistribution 1,539 1,449 3,087US strandedcostrecoveries 244 257 409Wirelessinfrastructure 155 52 208Otheractivities 359 379 734Sales betweenbusinesses (151) (213) (448) ------------------- ------------------- -------------------Group 3,891 3,378 7,382revenue =========== =========== ===========Continuingoperations -geographicalsegmentsUK 1,960 1,529 3,621US 1,931 1,849 3,761 ------------------- ------------------- -------------------Group 3,891 3,378 7,382revenue =========== =========== =========== b) Operating profit - before exceptional items and remeasurementsSix monthsended 30September 2005 2004 Year ended 31 March 2005 £m £m £m =========== =========== ===========Continuingoperations -businesssegmentsUK electricityand gastransmission 397 388 859US electricitytransmission 68 70 126UK gasdistribution 94 78 424US electricityand gasdistribution 170 170 375US strandedcostrecoveries 251 247 465Wirelessinfrastructure 36 8 42Otheractivities 75 69 152 ------------------- ------------------- -------------------Operatingprofit beforeexceptionalitems andremeasurements 1,091 1,030 2,443 =========== =========== =========== Continuingoperations -geographicalsegmentsUK 600 541 1,473US 491 489 970 ------------------- ------------------- -------------------Operatingprofit beforeexceptionalitems andremeasurements 1,091 1,030 2,443 =========== =========== =========== c) Operating profit - after exceptional items and remeasurementsSix monthsended 30September 2005 2004 Year ended 31 March 2005 £m £m £m =========== =========== ===========Continuingoperations -businesssegmentsUK electricityand gastransmission 396 388 857US electricitytransmission 68 68 119UK gasdistribution 69 60 333US electricityand gasdistribution 170 156 258US strandedcostrecoveries 229 215 427Wirelessinfrastructure 35 2 29Otheractivities 77 69 119 ------------------- ------------------- -------------------Operatingprofit afterexceptionalitems andremeasurements 1,044 958 2,142 =========== =========== =========== Continuingoperations -geographicalsegmentsUK 575 517 1,335US 469 441 807 ------------------- ------------------- -------------------Operatingprofit afterexceptionalitems andremeasurements 1,044 958 2,142 =========== =========== =========== 3. Discontinued operations On 1 June 2005, the Group disposed of its holding in four of the eight regionalgas distribution networks. The results of these operations were previouslyincluded within the UK gas distribution segment. The Group disposed of itsinterest in Citelec, an Argentinian joint venture in August 2004. Results of discontinued operationsSix monthsended 30September 2005 2004 Year ended 31 March 2005 £m £m £m =========== =========== ===========Revenue 168 407 1,102Operatingcosts (120) (329) (666) ------------------- ------------------- -------------------Operatingprofit beforeexceptionalitems 63 125 510Exceptionalitems (i) (15) (47) (74) ------------------- ------------------- -------------------Totaloperatingprofit fromdiscontinuedoperations 48 78 436Share ofpost-taxresults ofjoint venture - (5) (5) ------------------- ------------------- -------------------Profit beforetaxation fromdiscontinuedoperations 48 73 431Taxation (19) (30) (140) ------------------- ------------------- -------------------Profit fromdiscontinuedoperations 29 43 291 ------------------- ------------------- ------------------- Gain ondisposal ofgasdistributionnetworks 2,557 - -Gain ondisposal ofjoint venture - 13 13 ------------------- ------------------- -------------------Gains ondisposal ofdiscontinuedoperationsbefore tax 2,557 13 13Taxation (23) - - ------------------- ------------------- -------------------Gain ondisposal ofdiscontinuedoperations 2,534 13 13 ------------------- ------------------- -------------------Total profitfor theperiod- Beforeexceptionalitems 44 82 352- Exceptionalitemsincluding gainon disposal 2,519 (26) (48) ------------------- ------------------- -------------------Total profitfor the periodfromdiscontinuedoperations 2,563 56 304 =========== =========== =========== i) The operating exceptional item in the six months ended 30 September2005 related to a fine incurred in respect of a breach of the Health and Safetyat Work Act arising from a gas explosion in Scotland in December 1999.Exceptional items for the six months ended 30 September 2004 related torestructuring costs. Exceptional items for the year ended 31 March 2005 relatedto restructuring costs (£70m) and environmental costs (£4m). 4. Exceptional items and remeasurements The Group separately discloses items of income and expenditure that arematerial, either by their nature or their size, that are relevant to anunderstanding of the Group's financial performance. These include exceptionalincome or charges that do not relate to the underlying financial performance ofthe Group and certain remeasurement gains or losses arising from movements inthe carrying value of commodity contracts and of financial instruments,principally derivatives, that do not achieve hedge accounting. Six monthsended 30September 2005 2004 Year ended 31 March 2005 £m £m £m ============ ============ ============ContinuingoperationsExceptionalitems -restructuringcosts (i) 25 40 121Exceptionalitems - pastservicepension costs(ii) - - 41Exceptionalitems -environmentalrelatedprovisions(iii) - - 101Remeasurements- commoditycontracts (iv) 22 32 38 --------------------- --------------------- -----------------Totalexceptionalitems andremeasurementsincludedwithinoperatingprofit 47 72 301 --------------------- --------------------- -----------------Exceptionalfinance costs(v) 35 - -Remeasurements- net gains onfinancialinstruments(vi) (42) - - --------------------- --------------------- -----------------Totalexceptionalitems andremeasurementsincludedwithin netfinance costs (7) - - --------------------- --------------------- -----------------Totalexceptionalitems andremeasurementsbeforetaxation 40 72 301 ============ ============ ============ Tax onrestructuringcosts (i) (7) (15) (34)Tax onexceptionalpast servicepension costs(ii) - - (17)Tax onenvironmentalprovision(iii) - - (39)Otherexceptionaltax credits - - (13)Tax oncommoditycontractremeasurements(iv) (9) (12) (15)Tax onexceptionalfinance costs(v) (8) - -Tax onfinancialinstrumentremeasurements(vi) 13 - - --------------------- --------------------- -----------------Tax credit onexceptionalitems andremeasurements (11) (27) (118) ============ ============ ============ i) Restructuring costs relate to planned cost reduction programmes in theUK and US businesses. For the six months ended 30 September 2005, restructuringcosts included pension curtailment costs of £19m arising as a result ofredundancies.ii) Past service pension costs arose from the renegotiation of terms andconditions of service with certain employees in the US.iii) During the year ended 31 March 2005, a review of the environmentalprovisions was undertaken to take into account the impact of recent changes toUK regulations on waste disposal. This review, together with related revisionsto the expected UK expenditure profile, resulted in a charge of £41m in 2005.Following a similar review in the US of its environmental provision, anadditional exceptional charge of £60m was made for site restoration, whichreflected the experience of restoring similar sites.iv) Remeasurements - commodity contracts represent mark-to-market movementson certain commodity contract obligations, primarily indexed-linked swapcontracts, in the US. Under the Group's existing rate plans in the US, commoditycosts are fully recovered from customers, although the pattern of recovery maydiffer from the pattern of costs incurred.v) Exceptional finance costs in 2005 represent costs incurred on the earlyredemption of debt following the disposal of the four gas distribution networks(£26m), together with issue costs associated with the 'B' share scheme (£9m).vi) Remeasurements - net gains on financial instruments representmark-to-market movements in the fair value of financial instruments, primarilyderivatives, that are mainly held for economic hedging purposes, but which donot achieve hedge accounting or are partly ineffective under IAS 39. 5. Finance costs Six monthsended 30September 2005 2004 Year ended 31 March 2005 £m £m £m =========== =========== ===========Interestincome 32 34 64Pensions -expectedreturn onscheme assets 458 443 882 ------------------- ------------------- -------------------Interestincome andsimilar income 490 477 946 =========== =========== =========== Interestpayable (383) (395) (827)Financecharges on theearlyredemption ofdebt and 'B'share scheme (35) - -Pensions -interest onschemeliabilities (451) (444) (881)Unwinding ofdiscount onprovisions (6) (3) (7)Less: interestcapitalised 33 31 63 ------------------- ------------------- ------------------- (842) (811) (1,652)Net gains onderivativefinancialinstruments 36 - -Net gains onfinancialinvestments 6 - - ------------------- ------------------- -------------------Interestpayable andother financecosts (800) (811) (1,652) =========== =========== ===========Net financecosts (310) (334) (706) =========== =========== ===========Comprising:Net financecostsexcludingexceptionalfinance costsandremeasurements (317) (334) (706)Exceptionalfinance costsandremeasurements(note 4) 7 - - ------------------- ------------------- ------------------- (310) (334) (706) =========== =========== =========== 6. Taxation The tax charge of £246m (30 September 2004: £204m) on profit before taxation,excluding exceptional items and remeasurements, for the six months ended 30September 2005, is based on the estimated effective tax rate for the year ending31 March 2006 of 31.8% (30 September 2004: 29.3%) excluding exceptional itemsand remeasurements. 7. Earnings per share a) Basic earnings per share Six months Year ended Year endedended 30 31 March 31 MarchSeptember 2005 2005 2004 2004 2005 2005 £m pence £m pence £m pence ========== ========== =========== ========== ========= ==========Adjustedearnings pershare- continuingoperations 528 17.9p 493 16.0p 1,303 42.3pExceptionaloperatingitems (25) (0.9)p (40) (1.3)p (263) (8.5)pExceptionalfinance costs (35) (1.2)p - - - -Tax onexceptionalitems 15 0.5p 15 0.5p 103 3.3pRemeasurements 20 0.7p (32) (1.1)p (38) (1.2)pTax onremeasurements (4) (0.1)p 12 0.4p 15 0.4p ------------ ---------- ---------- ---------- --------- -----------Earnings pershare -continuingoperations 499 16.9p 448 14.5p 1,120 36.3p ========== ========== ========== ========= ========= ========== Adjustedearnings pershare- discontinuedoperations 44 1.5p 82 2.7p 352 11.4pGain ondisposal ofgasdistributionnetworks (netof tax) 2,534 85.8p - - - -Otherexceptionalitems (net oftax) (15) (0.5)p (26) (0.8)p (48) (1.5)p ------------ --------- ---------- ----------- -------- -----------Earnings pershare -discontinuedoperations 2,563 86.8p 56 1.9p 304 9.9p ========== ========== ========= ========== ========= =========== Earnings pershare 3,062 103.7p 504 16.4p 1,424 46.2p ========== ========== ========= ========== ========= =========== millions millions millions ========== ========== ==========Weightedaverage numberof shares -basic (i) 2,953 3,080 3,082 ========== ========== ========== i) The Group completed a 43 for 49 share consolidation on 1 August 2005,which has reduced the weighted average number of shares for the six months ended30 September 2005. This consolidation will have a greater impact on earnings pershare in the second half of the year. b) Diluted earnings per share Six months Year ended Year endedended 30 31 March 31 MarchSeptember 2005 2005 2004 2004 2005 2005 £m pence £m pence £m pence ========== ========== =========== ========== ========= ==========Adjusteddilutedearnings pershare- continuingoperations 528 17.8p 493 16.0p 1,303 42.1pExceptionaloperatingitems (25) (0.9)p (40) (1.3)p (263) (8.5)pExceptionalfinance costs (35) (1.2)p - - - -Tax onexceptionalitems 15 0.5p 15 0.5p 103 3.3pRemeasurements 20 0.7p (32) (1.1)p (38) (1.2)pTax onremeasurements (4) (0.1)p 12 0.4p 15 0.5p ----------- --------- ------------ ---------- --------- ----------Dilutedearnings pershare -continuingoperations 499 16.8p 448 14.5p 1,120 36.2p ========== ========== ========== ========== ========= ========== Adjusteddilutedearnings pershare- discontinuedoperations 44 1.5p 82 2.7p 352 11.4pGain ondisposal ofgasdistributionnetworks (netof tax) 2,534 85.3p - - - -Otherexceptionalitems (net oftax) (15) (0.5)p (26) (0.8)p (48) (1.6)p ----------- ---------- ----------- ---------- --------- -----------Dilutedearnings pershare -discontinuedoperations 2,563 86.3p 56 1.9p 304 9.8p ========== ========== ========== ========== ========= ========== Dilutedearnings pershare 3,062 103.1p 504 16.4p 1,424 46.0p ========== ========== ========== ========== ========== ========== millions millions millions ========== ========== ==========Weightedaverage numberof shares -diluted 2,970 3,093 3,096 ========== ========== ========== 8. Dividends The following table shows the dividends paid to equity shareholders: Sixmonthsended 2005 2005 2004 2004 Year ended Year ended30 September 31 March 31 March 2005 2005 pence £m pence £m pence £m per share per share per share =========== ========= ========== ========== ============ ============Final 2004/05 15.2p 469 - - - -Interim 2004/05 - - - - 8.5p 262Final 2003/04 - - 11.9p 366 11.9p 366 ----------- --------- ---------- ---------- ------------ ------------ 15.2p 469 11.9p 366 20.4p 628 =========== ========= ========== ========== ============ ============ The Board has approved an interim dividend of 10.2p (£276m) to be paid inrespect of the period ended 30 September 2005. 9. Reconciliation of net cash flow to movement in net debt Six monthsended 30September 2005 2004 Year ended 31 March 2005 £m £m £m =========== =========== ===========Movement incash and cashequivalents 256 106 8Increase/(decrease) infinancialinvestments 1,758 (25) 59Decrease/(increase) inborrowings andderivatives 1,197 (1,860) (1,052)Cash paid toshareholdersunder 'B'share scheme 1,957 - -Net interestpaid (i) 403 n/a n/a ------------------ ------------------- -------------------Change in netdebt resultingfrom cashflows 5,571 (1,779) (985)Exchangeadjustments (i) n/a (73) 112Changes infair value offinancialassets andliabilitiesand exchangemovements (i) (254) n/a n/aIssue of 'B'shares (2,009) - -Net interestcharge (i) (386) n/a n/aOther non-cashmovements 9 (2) (28) ------------------- ------------------- -------------------Movement innet debt (netof relatedderivativefinancialinstruments)in the period 2,931 (1,854) (901)Net debt atstart ofperiod (13,638) (12,737) (12,737)Impact ofadoption ofIAS 32 and IAS39 (i) (348) - -Revised netdebt (net ofrelatedderivativefinancialinstruments)at start ofperiod (13,986) (12,737) (12,737) ------------------- ------------------- -------------------Net debt (netof relatedderivativefinancialinstruments)at end ofperiod (11,055) (14,591) (13,638) =================== =================== =================== i) The adoption of IAS 39 resulted in changes to the carrying value ofborrowings and financial investments as at 1 April 2005. As described in note 1,details relating to the effect of the adoption of IAS 39 on net debt at 1 April2005 are contained within the Group's 'IFRS conversion statement' issued on 29July 2005. Consequently, changes in fair value of financial assets andliabilities are reported in 2005. Amounts previously reported as exchangeadjustments are included within changes in fair value of financial assets andliabilities and exchange movements. In addition net interest is reported as partof net debt at 30 September 2005. 10. Net debt At 30 September 2005 2004 31 March 2005 £m £m £m =========== =========== ===========Cash and cashequivalents 547 381 272Bankoverdrafts (23) (28) (18) ------------------- ------------------- -------------------Net cash andcashequivalents 524 353 254Financialinvestments 2,158 307 398Borrowings (14,216) (15,251) (14,290) ------------------- ------------------- ------------------- (11,534) (14,591) (13,638) =========== ===========Net debtrelatedderivativefinancialassets (i) 764Net debtrelatedderivativefinancialliabilities (i) (285) -------------------Net debt (netof relatedderivativefinancialinstruments) (11,055) =========== i) As measured in accordance with the requirement of IAS 39. There are no comparatives for net debt related derivative assets and liabilitiesas the Group adopted IAS 39 with effect from 1 April 2005 consistent with therequirements of IFRS 1. The adoption of IAS 39 also resulted in changes to thecarrying value of borrowings and financial investments as at 1 April 2005. Asdescribed in note 1, details relating to the effect of the adoption of IAS 39 onnet debt at 1 April 2005 are contained within the Group's 'IFRS conversionstatement' issued on 29 July 2005. 11. Exchange rates The Group's results are affected by the exchange rates used to translate theresults of its US operations and US dollar transactions. The US dollar tosterling exchange rates used were: 30 September 2005 2004 31 March 2005 =========== =========== ===========Closing rate applied at period end 1.76 1.80 1.89Average rate applied for the period 1.85 1.80 1.87 =========== =========== =========== Independent review report to National Grid plc Introduction We have been instructed by the company to review the financial information forthe six months ended 30 September 2005 which comprises the Group interim balancesheet as at 30 September 2005 and the related Group interim statements ofincome, cash flows, recognised income and expense and movement in shareholders'equity for the six months then ended and related notes. We have read the otherinformation contained in the interim report and considered whether it containsany apparent misstatements or material inconsistencies with the financialinformation. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The directors areresponsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority. As disclosed in note 1, the next annual financial statements of the Group willbe prepared in accordance with accounting standards adopted for use in theEuropean Union. This interim report has been prepared in accordance with thebasis set out in note 1. The accounting policies are consistent with those that the directors intend touse in the next annual financial statements. As explained in note 1, there is,however, a possibility that the directors may determine that some changes arenecessary when preparing the full annual financial statements for the first timein accordance with accounting standards adopted for use in the European Union.The IFRS standards and IFRIC interpretations that will be applicable and adoptedfor use in the European Union at 31 March 2006, are not known with certainty atthe time of preparing this interim financial information. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom. A reviewconsists principally of making enquiries of group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the disclosed accounting policies havebeen applied. A review excludes audit procedures such as tests of controls andverification of assets, liabilities and transactions. It is substantially lessin scope than an audit and therefore provides a lower level of assurance.Accordingly we do not express an audit opinion on the financial information.This report, including the conclusion, has been prepared for and only for thecompany for the purpose of the Listing Rules of the Financial Services Authorityand for no other purpose. We do not, in producing this report, accept or assumeresponsibility for any other purpose or to any other person to whom this reportis shown or into whose hands it may come save where expressly agreed by ourprior consent in writing. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 September 2005. PricewaterhouseCoopers LLPChartered AccountantsLondon16 November 2005 Notes: (a) The maintenance and integrity of the National Grid plc web site is theresponsibility of the directors; the work carried out by the auditors does notinvolve consideration of these matters and, accordingly, the auditors accept noresponsibility for any changes that may have occurred to the interim reportsince it was initially presented on the web site.(b) Legislation in the United Kingdom governing the preparation anddissemination of financial information may differ from legislation in otherjurisdictions. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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