16th Nov 2006 07:02
National Grid PLC16 November 2006 Embargoed until 7:00am 16 November 2006 National Grid plc Results for the six months ended 30 September 2006 HIGHLIGHTS • Good first half performance • Profit before tax and earnings both up 12% • Interim dividend up 7% • Well positioned for growth • Capital investment in existing businesses up 30% • Acquisition of Rhode Island gas distribution assets completed • Significant progress towards completion of the agreed acquisition of KeySpan • Comprehensive strategic review completed • Focus on electricity and gas markets in the UK and US • Exit from Wireless infrastructure and Basslink • Share buy-back utilising $1.9bn US stranded asset cash flow FINANCIAL RESULTS Six months ended 30 September(£million except where indicated) 2006 2005 % change-------------------------------- ---------- --------- ---------Business performance Note AOperating profit - actual exchange rate 1,125 1,091 3Operating profit - constant currency basisNote B 1,125 1,088 3Pre-tax profit 872 776 12Earnings 591 528 12Earnings per share 21.7p 17.9p 21-------------------------------- ---------- --------- ---------Statutory resultsOperating profit from continuing operations 1,157 1,044 11Pre-tax profit from continuing operations 826 736 12Earnings from continuing operations 594 499 19Earnings per share from continuing operations 21.8p 16.9p 29-------------------------------- ---------- --------- ---------Dividend per share 10.9p 10.2p 7-------------------------------- ---------- --------- --------- Sir John Parker, Chairman, said: "Over the last five years National Grid has consistently delivered good resultsand today's announcement is no exception - this performance is to the credit ofour employees, our management and the leadership of Roger Urwin. Roger has anoutstanding track record, having led National Grid through transformationalchange, and leaves our business in very good shape. "National Grid is now entering the next stage of its development. We continue toinvest heavily in our businesses. We have made significant progress towardscompletion of the KeySpan acquisition. We have reviewed and refocused ourstrategy. These developments reinforce our confidence in delivering continuedgood results and sustained growth." --------------------------Note A: Business performance results are the primary financial performancemeasure used by National Grid, being the results for continuing operationsbefore exceptional items and remeasurements. Remeasurements are non-cashmovements in the carrying value of financial instruments and of certaincommodity contracts that arise from changes in mark-to-market values or inexchange rates and are reflected in the income statement to the extent thathedge accounting is not achieved or is not fully effective. Further details areprovided in Note 3. A reconciliation of Business performance toStatutory results is provided in the Condensed Group Income Statement. Note B: "Constant currency basis" refers to the reporting of the actual resultsagainst the prior period results which, in respect of any US$ currencydenominated activity, have been translated using the average US$ exchange ratefor the six months ended 30 September 2006, which was $1.86 to £1.00. Theaverage rate for the six months ended 30 September 2005 was $1.85 to £1.00. OPERATING REVIEW Over the last six months we have delivered a good performance driven by our UKtransmission and US electricity and gas distribution businesses. We have also made significant progress in positioning National Grid forcontinued growth. Organic investment has increased by 30% this period to £1.1bnand we continue to project organic investment of around £2.5bn per year over themedium term. In August, we announced the completion of our $575m acquisition of the RhodeIsland assets of New England Gas. This has added 245,000 natural gas customersto our business and is expected to make a positive contribution to earnings thisyear. We have made significant progress towards completion of the agreed acquisitionof KeySpan. We have achieved several important milestones: clearances from theFederal Trade Commission in respect of the Hart-Scott-Rodino AntitrustImprovements Act and from the Committee on Foreign Investment in the US,approval from the US Federal Energy Regulatory Commission (the FERC) andapprovals from both National Grid and KeySpan shareholders. We have also madefilings with the state public utility regulatory commissions in New York and NewHampshire. The process of reviewing these filings is underway and we are ontrack to complete the transaction in mid 2007. In the UK we are currently in discussion with Ofgem on regulatory price controlsfor our gas and electricity businesses; in particular, in September we receivedOfgem's updated proposals for the Transmission Price Control Review for the fiveyears to March 2012. Progress has been made in some key areas since Ofgempublished its initial proposals in June, but, as we have previously stated, weneed to make further progress if the outcome is to be acceptable. We continue towork closely with Ofgem ahead of the publication of its final proposals in earlyDecember 2006. OUR STRATEGY National Grid is now entering the next stage of its development. The completionof the KeySpan acquisition will take us a further step by virtually doubling thesize of our US business. To take full advantage of both the changes in the scaleand profile of National Grid's operations and the opportunities ahead, we haveconducted a thorough strategic review of our business and the externalenvironment in which we operate. We will continue to drive shareholder valuewith a simple and highly focused strategy. We will • Focus on the electricity and gas sector • Focus on our priority markets in the UK and US • Continue to focus on ownership and operation of large scale asset-intensive businesses We will drive performance and value by fully integrating our operations,deploying best practice and common processes across the organisation andstrengthening our financial discipline. We will continue to focus on theprovision of a safe, reliable, efficient and responsible service to ourcustomers. LOOKING AHEAD In the UK electricity and gas market we see significant opportunities forgrowth. The decline of North Sea gas production, the UK Government's renewableenergy policy and the need for asset replacement are driving investment in thisarea. As a result, we are increasing our capital expenditure substantially andover the five years to March 2011 expect to invest around £9bn in this market.Over this period, our UK regulatory asset base is projected to grow by almost40%. We believe that the US electricity and gas market has significant growthpotential for National Grid through continuing consolidation and majorinvestment requirements, driven by demand growth, population moves and the needfor increased reliability. In the northeast we see opportunities for organicgrowth through gas customer additions and network extensions, and assetreplacement for both electricity and gas networks, and over the five years toMarch 2011 we are projecting capital investment of around £2bn in our existingbusinesses in the northeast US. In addition to growth through investment, we continue to target growth throughimproving operational performance in our existing electricity and gasbusinesses. Earlier this year we reached our target of reducing controllablecosts in UK gas distribution by 35% in real terms since March 2002, and lastyear we announced that we had reduced controllable costs in US distribution by20% in real terms since March 2002. There is more to do and we will continue toseek further opportunities to operate our businesses more efficiently. To unlock further value, we are reorganising our activities around global linesof business for Transmission, Gas Distribution, Electricity Distribution andGeneration, and Non-regulated businesses. The management team for this newoperating model is substantially in place and we will begin reporting alongthese business lines from 1 April 2007. Within each line of business we willdeploy proven processes, common systems and best practices, while at a globallevel we will rigorously apply common operating principles, safety andenvironmental standards, and support processes and systems across all ourbusinesses. Given our focus on UK and US electricity and gas markets, today we areannouncing our plans to demerge our Wireless infrastructure business and to sellBasslink, our electricity interconnector in Australia. Following completion of the acquisition of KeySpan, National Grid will have amore efficient capital structure. Going forward the financing of our businesseswill be consistent with maintaining an efficient balance sheet. We will not holdsurplus cash, either through surplus assets or an under-geared balance sheet,but will return this to shareholders. We believe that these plans will further enhance value and position the businessto continue to deliver strong growth for shareholders. DIVIDEND AND SHARE BUY-BACK The Board has approved an interim dividend of 10.9p per ordinary share ($1.0279per American Depository Share (ADS)), representing a 7% increase in sterling inthe half-year dividend. The interim dividend is to be paid on 24 January 2007 toshareholders on the register as at 1 December 2006. We maintain our aim to increase dividends per ordinary share expressed insterling by 7% in each financial year through to 31 March 2008. Under our US rate plans, cash flows from stranded assets are scheduled to end in2011 and so do not form part of our dividend policy. We are today announcing ashare buy-back programme that will return this cash - currently estimated to bearound $1.9bn - to shareholders as it arises. FINANCIAL RESULTS PRESENTATION 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 that are heldfor economic hedging purposes but did not achieve hedge accounting. Commentaryprovided in respect of results after exceptional items and certain non-cashmark-to-market remeasurements is described as 'statutory'. REVIEW OF RESULTS Revenue from continuing activities for the period was £4.2bn, up £0.3bn. Operating profit was higher than the prior period at £1,125m, up £37m on aconstant currency basis. This was primarily driven by strong results in our UKtransmission and US electricity and gas distribution segments, which werepartially offset by lower operating profit in UK gas distribution and theexpected decline in US stranded cost recoveries. Net finance costs decreased 20% from £317m to £255m, mainly as a result offavourable short-term cash investments and an increased pension credit. Theeffective interest rate for the period was 5.5%. Profit before tax was up 12% to £872m from £776m. The tax charge on profit for the period was £279m, £33m higher than the priorperiod due to increased profit before tax. The effective tax rate for the periodwas 32%. Earnings increased 12% on the prior period to £591m from £528m. Earnings pershare increased 21% from 17.9p last year to 21.7p, reflecting theperiod-on-period impact of share consolidation following the return of £2bn toshareholders in August 2005. Exceptional items and remeasurements for continuing operations increasedearnings by £3m after tax. These comprised restructuring costs of £16m (£11mafter tax), commodity remeasurement gains of £36m (£22m after tax) and a netfinancial instrument remeasurement impact of £66m (£8m after tax). After theseitems and minority interests, statutory earnings for continuing operationsattributable to shareholders were £594m. Statutory basic earnings per share fromcontinuing operations increased 29% to 21.8p, up from 16.9p in the prior period. National Grid's operating cash flows from continuing operations were £70m higherthan the prior period, at £1,382m. Organic investment increased by 30% to £1.1bn, primarily due to increasedcapital expenditure on new UK gas transmission infrastructure. Our net debt rose to £11.7bn at 30 September 2006 compared with £10.9bn at 31March 2006, mainly due to the increased level of capital spend and theacquisition of the Rhode Island assets of New England Gas. REVIEW OF OPERATIONS TRANSMISSION Six months ended 30 SeptemberOperating profit (£m) 2006 2005 % change---------------------------- ----------- ----------- -----------UK electricity transmission 298 275 8UK gas transmission 77 86 (10)Other * 52 36 44UK electricity and gas transmission 427 397 8---------------------------- ----------- ----------- -----------US electricity transmission- actual exchange rate 67 68 (1)- constant currency basis 67 68 (1)---------------------------- ----------- ----------- ----------- * Other includes LNG storage and the French interconnector in both periods. UK electricity and gas transmission operating profit was up 8% at £427m comparedwith £397m in the prior period. This was primarily driven by a 9% increase in UKelectricity transmission allowed revenue following the one-year price controlextension, which came into effect on 1 April. In addition, market demand forFrench interconnector capacity remained strong, delivering increased auctionincome. These benefits were partially offset by an under-recovery of gastransmission owner formula income and a rise in operating costs during theperiod, principally driven by higher workload, including operating expenditureassociated with the increased capital investment programme. For the full year, the increase in UK electricity transmission allowed revenuewill be a significant driver and we expect a lower level of accelerateddepreciation charges than seen in the second half last year. These benefits areexpected to be partially offset by higher operating costs driven by continuingincreases in workload and a projected under recovery of allowed revenue comparedto last year. US electricity transmission operating profit was in line with the prior periodat £67m. At the full year we expect operating profit to be slightly lower thanthe prior year. In October, the FERC approved increases in allowed returns onequity to incentivise transmission investment in New England that will bereflected in future financial performance. We are currently in discussion with Ofgem on a five-year UK transmission pricecontrol to March 2012 and in September we received Ofgem's updated proposals.Since the initial proposals in June, progress has been made in some areas, butas we have previously stated, further progress is needed if the outcome is to beacceptable. The four key issues that were outstanding when we received theupdated proposals were the allowed rate of return, capital expenditure,incentives and adjustments, and operating costs. We continue to work closelywith Ofgem ahead of the release of its final proposals in early December 2006. Investment in UK transmission increased by 63% to £534m. Capital expenditure inthe period included: • £144m on Milford Haven and associated projects to deliver new gastransmission entry capacity in South Wales • £78m on projects in support of new UK gas transmission entry capacityat Easington • £115m on UK electricity asset replacement • £94m on UK electricity demand connections and other load relatedinfrastructure Other smaller projects together accounted for a further £103m of investment. In October, we announced the preferred partners for new five-year contracts thatwill be a significant part of the overall projected capital investment in ourelectricity transmission network. Contracts have been awarded to fourteenconstruction firms, split into six geographic alliances. We believe that thisdevelopment will improve system access planning and support the safe, reliableand efficient delivery of our investment programme. UK GAS DISTRIBUTION Six months ended 30 SeptemberOperating profit (£m) 2006 2005 % change---------------------------- ----------- ----------- -----------UK gas distribution 71 94 (24)---------------------------- ----------- ----------- ----------- Operating profit from UK gas distribution was down to £71m compared with £94m inthe prior period. Formula income increased as a result of price rises in October2005, but this was more than offset by volumes being 10% lower than in the sameperiod last year, reflecting both the impact of warmer weather and higher gasprices in the market. In addition, non-controllable costs were higher than theprior period, principally due to an increase in business rates and higherpension and shrinkage gas costs. Looking to the full-year results, in October 2006 we implemented an averageprice increase of around 9% and through this we will begin to recover increasesin pass-through costs, including higher business rates. This is expected to bemore than offset by higher operating costs, driven principally by an increase inworkload in the second half. These costs, together with the continued impact ofrecord warm weather into October, are expected to lead to lower full-yearresults for this segment than the prior year. During the period, our gas distribution alliances have continued to deliver ourmains replacement programme, with over 900km of mains laid, some 130km more thanthe first half of last year, resulting in total replacement expenditure of£159m. We have continued to invest in network infrastructure projects, resultingin total capital expenditure (including replacement expenditure) of £218m. We are currently in discussion with Ofgem on a one-year extension of the UK gasdistribution price control to March 2008 and in September we received itsinitial proposals. We view these proposals as disappointing, particularly inrelation to the scale of disallowance of efficiently incurred customer driveninvestment and the impact of a move to a post-tax allowed return which willreduce the cash return on our asset base significantly without providing anycompensating factors elsewhere. We are working closely with Ofgem and hope tomake further progress towards an acceptable outcome between now and when Ofgemmakes its final proposals in December. Following this one-year review we willwork with Ofgem on a five-year price control for UK gas distribution. US DISTRIBUTION Six months ended 30 SeptemberOperating profit (£m) 2006 2005 % change---------------------------- ----------- ----------- ------------ actual exchange rateUS electricity and gas distribution 251 170 48US stranded cost recoveries 202 251 (20)US distribution 453 421 8---------------------------- ----------- ----------- ------------ constant currency basisUS electricity and gas distribution 251 169 49US stranded cost recoveries 202 249 (19)US distribution 453 418 8---------------------------- ----------- ----------- ----------- Operating profit from US gas and electricity distribution was £251m, up 49% atconstant currency. This strong result was principally driven by the recovery ofcosts incurred in previous periods from our New York deferral account. We willrecover $150m during the current financial year, of which £37m is included inthese results. The timing on recovery of certain pass-through costs, primarilycommodity costs, has also led to a period-on-period benefit of £56m, due to thecombination of a £31m over-recovery this period and a £25m under-recovery in thesame period last year. These benefits have more than offset the impact of otherfactors including increased reliability and maintenance spending and lowerdelivery volumes primarily due to cooler summer weather and higher commodityprices. Recoveries from the New York deferral account will continue in the second halfof the year, as noted above. A regulatory audit of the deferral account ison-going. The majority of the over-recovery of pass-through costs in this periodis expected to unwind in the second half of this year. In August we completedour acquisition of gas distribution assets in Rhode Island and in the secondhalf we expect to report a positive contribution from this business. We expectto see an increase in storm costs in the second half, following a snow storm inthe Buffalo area in October estimated to have cost around $70m. Under our NewYork rate plan, incremental operating costs associated with major storms arerecovered through the deferral account in future periods. In the second half wealso expect to increase maintenance spending in our reliability enhancementprogramme. Capital expenditure in the period increased by £25m to £131m compared with theprior period. We are also expecting higher capital expenditure for the fullyear, compared with the prior year, mainly due to increased investment under ourreliability enhancement programme. US stranded cost recoveries delivered £202m of operating profit. This comprisedthe ongoing recovery of and return on the stranded asset base amounting to £143mand £59m primarily related to the recovery of contract settlements made undercertain long-term purchased power arrangements. As expected, this operatingprofit is lower than the prior period, which included the settlement benefitreceived from USGen New England Inc. following its bankruptcy filing. WIRELESS INFRASTRUCTURE Six months ended 30 SeptemberOperating profit (£m) 2006 2005 % change---------------------------- ----------- ----------- -----------Wireless infrastructure 42 36 17---------------------------- ----------- ----------- ----------- Operating profit from Wireless infrastructure was up 17% at £42m compared with£36m in the prior period. This performance was principally driven by additionalbroadcast channel revenues following sales of capacity to ITV and Channel 4 inthe second half of last year. There was also continued growth in our mobiletenancies. The business remains well positioned for double digit profit growth. Investment in this segment was unchanged against the prior period, at £15m. OTHER ACTIVITIES Six months ended 30 SeptemberOperating profit (£m) 2006 2005 % change---------------------------- ----------- ----------- -----------Metering 54 52 4Isle of Grain LNG 5 1 *Property 32 31 3Other (26) (9) (189)Other activities 65 75 (13)---------------------------- ----------- ----------- ----------- * Not meaningful - Isle of Grain LNG Phase 1 became operational on 15 July 2005. Operating profit from our other activities was down 13% at £65m compared with£75m in the prior period. National Grid Metering performance was slightly better than the same period lastyear, with growth in our competitive metering business more than offsetting adecline in regulated metering revenue. In this period we saw full first-half contributions from Phase I of the Isle ofGrain, which commenced operations in July 2005, and our Basslink interconnectorwhich commenced operations in April 2006. Both of these investments areunderpinned by long-term take or pay contracts. Sales of land and property surplus to our operational requirements were in linewith the prior period. At the full year we expect profits from this segment toremain in line with the prior year, although by their nature these sales canvary from period to period depending on the mix of properties sold. These favourable items were more than offset by higher net insurance charges andloss of income from connections services. Investment in our other activities was in line with the prior period at £130m.Increased capital expenditure in both regulated and non-regulated meters was£27m ahead of the prior period. This was mainly offset by significantly lowerinvestment in Australia following the completion of our Basslink interconnector.Investment in our Isle of Grain LNG terminal was broadly similarperiod-on-period at £45m. BOARD CHANGES In January, we announced that Roger Urwin will retire as Chief Executive Officerat the end of 2006 and that Steve Holliday will assume the role of ChiefExecutive Officer upon Roger's retirement on 31 December 2006. In October we announced three further Board changes. Mark Fairbairn, currentlyChief Operating Officer of UK Gas Distribution has been appointed to the Boardfrom 1 January 2007 and will be responsible for Gas Distribution. Linda Adamanyjoined the Board as a non-executive director on 1 November 2006. Linda is aGroup Vice President of BP Refining and Marketing and has over 25 yearsexperience in the energy sector. Mike Jesanis, currently Group Directorresponsible for US Distribution, will be leaving the Board on 31 December 2006. STATUTORY EARNINGS AND BUSINESS PERFORMANCE Six months ended 30 September(£m) 2006 2005 % change---------------------------- ----------- ----------- -----------Business performance earnings 591 528 12Exceptional items (after tax) (11) (45) 76Remeasurements (after tax) 14 16 (13)Statutory earnings from continuingoperations 594 499 19---------------------------- ----------- ----------- -----------Discontinued operations profit (after tax) - 29 *Discontinued operations profit on disposal - 2,534 *Statutory earnings 594 3,062 *---------------------------- ----------- ----------- ----------- * Not meaningful Exceptional items in the period comprised restructuring costs of £16m (£11mafter tax). In the prior period, exceptional items comprised restructuring costsof £25m (£18m after tax) and finance charges of £35m (£27m after tax). Remeasurements in the period comprised commodity remeasurement gains of £36m(£22m after tax) reflecting changes in the carrying value of certain commoditycontract obligations, primarily index-linked swap contracts in the US, and a netfinancial instrument remeasurement impact of £66m (£8m after tax) reflectingmovements in the carrying value of financial instruments, primarily derivatives,that arise from changes in mark-to-market values or in exchange rates and arereflected in the income statement to the extent that hedge accounting is notachieved or is not fully effective. In the prior period, remeasurementscomprised commodity remeasurement gains of £22m (£13m after tax) and financialinstrument remeasurement losses of £42m (£29m after tax). After including exceptional items and remeasurements, statutory earnings fromcontinuing operations in the period were £594m, compared with £499m for the sameperiod last year, giving a statutory earnings per share from continuingoperations of 21.8p (2005: 16.9p). Further details of exceptional items and remeasurements are given in Note 3 onpage 18. A reconciliation of business performance to statutory results isprovided in the Condensed Group Income Statement, and the impact ofexceptional items and remeasurements on operating profit by business segment isprovided in Note 2. Discontinued operations in the six months ended 30 September 2005 representedthe results up to and profit on disposal of the four UK gas distributionnetworks sold on 1 June 2005. After including these, statutory earnings for thesix months ended 30 September 2005 were £3,062m and earnings per share were103.7p. Further details of discontinued operations are given in Note 6. CONTACT DETAILS National Grid: InvestorsDavid Rees +44 (0)20 7004 3170 +44 (0)7901 511322(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 9:00am (UK time) today. Live telephone coverage of the analyst presentation - password National Grid Dial in number +44 (0)20 7081 9429US dial in number +1 866 432 7186 Telephone replay of the analyst presentation (available until 30 November 2006) Dial in number +44 (0)20 8196 1998US dial in number +1 866 583 1035Account number 682949 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. These statements include information with respect to National Grid'sfinancial condition, National Grid's results of operations and businesses,strategy, plans and objectives. Words such as "anticipates", "expects","intends", "plans", "believes", "seeks", "estimates", "may", "will", "continue","project" and similar expressions, as well as statements in the future tense,identify forward-looking statements. These forward-looking statements are notguarantees of National Grid's future performance and are subject to assumptions,risks and uncertainties that could cause actual future results to differmaterially from those expressed in or implied by the forward-looking statements.Many of these assumptions, risks and uncertainties relate to factors that arebeyond National Grid's ability to control or estimate precisely, such as delaysin obtaining, or adverse conditions contained in, regulatory approvals andcontractual consents, including those required to complete the proposedacquisition of KeySpan when or as planned, unseasonable weather affecting thedemand for electricity and gas, competition and industry restructuring, changesin economic conditions, currency fluctuations, changes in interest and taxrates, changes in energy market prices, changes in historical weather patterns,changes in laws, regulations or regulatory policies, developments in legal orpublic policy doctrines, the impact of changes to accounting standards andtechnological developments. Other factors that could cause actual results todiffer materially from those described in this announcement include the abilityto integrate the businesses relating to announced acquisitions with our existingbusiness and realise the expected synergies from such integration, theavailability of new acquisition opportunities and the timing and success offuture acquisition opportunities, the impact of the sales of businesses byNational Grid, the failure for any reason to achieve reductions in costs or toachieve operational efficiencies, the failure to retain key management, thebehaviour of UK electricity market participants on system balancing, the timingof amendments in prices to shippers in the UK gas market, the performance ofNational Grid's pension schemes and the regulatory treatment of pension costs,and any adverse consequences arising from outages on or otherwise affectingenergy networks, including gas pipelines, owned or operated by National Grid.For a more detailed description of some of these assumptions, risks anduncertainties, together with any other risk factors, please see National Grid'sfilings with and submissions to the US Securities and Exchange Commission (the"SEC") (and in particular the "Risk Factors" and "Operating and FinancialReview" sections in its most recent Annual Report on Form 20-F and the "RiskFactors" section in its Registration Statement on Form F-3 filed with the SEC on28 June 2006). Except as may be required by law or regulation, National Gridundertakes no obligation to update any of its forward-looking statements. Theeffects of these factors are difficult to predict. New factors emerge from timeto time and National Grid cannot assess the potential impact of any such factoron its activities or the extent to which any factor, or combination of factors,may cause results to differ materially from those contained in anyforward-looking statement. CONDENSED GROUP INCOME STATEMENTFOR THE SIX MONTHS ENDED 30 SEPTEMBER 2006 2005 Year ended 31 March 2006 Notes £m £m £m =========== =========== ===========Group revenue 2a 4,164 3,891 9,193Other operating income 27 23 80Operating costs (3,034) (2,870) (6,834) --------------- --------------- ---------------Operating profit- Before exceptional items and remeasurements 2b 1,125 1,091 2,527- Exceptional items and remeasurements 3 32 (47) (88)Total operating profit 2c 1,157 1,044 2,439 Interest income andsimilar income 4 570 490 1,038Interest expense and otherfinance costs- Before exceptional items and remeasurements (825) (807) (1,644)- Exceptional items and remeasurements 3 (78) 7 (57) 4 (903) (800) (1,701) Share of post-tax results of joint ventures 2 2 3 --------------- --------------- ---------------Profit before taxation- Before exceptional items and remeasurements 872 776 1,924- Exceptional items and remeasurements (46) (40) (145) 826 736 1,779Taxation- Before exceptional items and remeasurements 5 (279) (246) (597)- Exceptional items and remeasurements 3 49 11 35 (230) (235) (562) --------------- --------------- ---------------Profit from continuingoperations after taxation- Before exceptional items and remeasurements 593 530 1,327- Exceptional items and remeasurements 3 (29) (110)Profit for the period fromcontinuing operations 596 501 1,217 Profit for the period fromdiscontinued operations- Before exceptional items 6 - 44 43- Exceptional items 6 - 2,519 2,590 - 2,563 2,633 --------------- --------------- ---------------Profit for the period 596 3,064 3,850 =========== =========== ===========Attributable to:- Equity shareholders 594 3,062 3,848- Minority interests 2 2 2 --------------- --------------- --------------- 596 3,064 3,850 =========== =========== =========== Earnings per share- Basic 7a 21.8p 103.7p 135.6p- Diluted 7b 21.7p 103.1p 135.0pEarnings per share fromcontinuing operations- Basic 7a 21.8p 16.9p 42.8p- Diluted 7b 21.7p 16.8p 42.6p =========== =========== ===========Dividends per ordinaryshare: paid during theperiod 8 15.9p 15.2p 25.4pDividends per ordinaryshare:approved orproposed to be paid 10.9p 10.2p 26.1p =========== =========== =========== CONDENSED GROUP BALANCESHEET AT 30 SEPTEMBER 2006 2005 At 31 March 2006 Note £m £m £m =========== =========== ===========Non-current assetsGoodwill 2,170 2,140 2,142Other intangible assets 319 357 321Property, plant andequipment 19,308 18,175 18,935Investments in joint ventures 9 18 12Deferred tax assets 56 280 159Other receivables 51 32 38Investments 137 147 148Derivative financialassets 333 405 351 --------------- --------------- ---------------Total non-currentassets 22,383 21,554 22,106 --------------- --------------- ---------------Current assetsOther intangibleassets 24 - 41Inventories 165 164 108Trade and otherreceivables 1,186 1,252 1,519Financial investments 806 2,158 384Derivative financialassets 301 359 314Cash and cashequivalents 2,320 547 1,452 --------------- --------------- ---------------Total current assets 4,802 4,480 3,818 --------------- --------------- ---------------Total assets 27,185 26,034 25,924 --------------- --------------- ---------------Current liabilitiesBank overdrafts (11) (23) (3)Borrowings (1,479) (3,858) (2,839)Derivative financialliabilities (328) (167) (92)Trade and other payables (1,709) (1,660) (2,095)Current tax liabilities (303) (97) (419)Provisions (202) (201) (235) --------------- --------------- ---------------Total currentliabilities (4,032) (6,006) (5,683) --------------- --------------- ---------------Non-current liabilitiesBorrowings (13,415) (10,358) (10,287)Derivative financialliabilities (177) (118) (130)Other non-currentliabilities (1,630) (1,833) (1,719)Deferred taxliabilities (2,042) (2,170) (2,161)Pensions and otherpost-retirementbenefit obligations (2,076) (2,283) (1,915)Provisions (511) (551) (536) --------------- --------------- ---------------Total non-currentliabilities (19,851) (17,313) (16,748) --------------- --------------- ---------------Total liabilities (23,883) (23,319) (22,431) --------------- --------------- ---------------Net assets employed 3,302 2,715 3,493 =========== =========== ===========Capital and reservesCalled up share capital 310 309 310Share premium account 1,324 1,293 1,316Retained earnings 6,753 6,085 6,817Other reserves (5,097) (4,984) (4,961) --------------- --------------- ---------------Total shareholders'equity 3,290 2,703 3,482Minority interests 12 12 11 --------------- --------------- ---------------Total equity 10 3,302 2,715 3,493 =========== =========== =========== Net debt (net of relatedderivative financialinstruments)included above 12 11,650 11,055 10,850 --------------- --------------- --------------- CONDENSED GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE Year endedFOR THE SIX MONTHS ENDED 30 31 MarchSEPTEMBER 2006 2005 2006 £m £m £m =========== =========== ===========Exchange adjustments (130) 100 141Actuarial (losses)/gains (350) (146) 181Net gains/(losses)taken to equity inrespect of cash flowhedges 3 44 (12)Transferred toprofit or losson cash flowhedges (10) (10) (20)Net(losses)/gainstaken to equity onavailable-for-saleinvestments (3) 5 4Transferred toprofit or losson sale ofavailable-for-sale investments (1) - (1)Tax on itemstaken directlyto or transferredfrom equity 118 29 (43) --------------- --------------- ---------------Net (expense)/incomerecognised directly inequity (373) 22 250Profit for theperiod 596 3,064 3,850 --------------- --------------- ---------------Total recognisedincome and expense for the period 223 3,086 4,100 =========== =========== ===========Attributable to:- Equity shareholders 222 3,084 4,097- Minority interests 1 2 3 --------------- --------------- --------------- 223 3,086 4,100 =========== =========== =========== Effect of change inaccounting policy - IAS 39 (i) - (43) (43) =========== =========== =========== i) The Group adopted IAS 32 'Financial Instruments: Disclosure andPresentation' and IAS 39 'Financial Instruments: Recognition and Measurement'prospectively with effect from 1 April 2005. CONDENSED GROUP CASH FLOW STATEMENT Year endedFOR THE SIX MONTHS ENDED 30 31 MarchSEPTEMBER 2006 2005 2006 £m £m £m =========== =========== ===========Cash flows from operatingactivitiesOperating profit 1,157 1,044 2,439Adjustments for:Exceptional items andremeasurements (32) 47 88Depreciation andamortisation 460 439 952Share basedpayment charge 7 6 15Changes in workingcapital (56) (105) (212)Changes in provisions (20) (22) 9Changes in post-retirement benefitobligations (98) (34) (42)Cash flows relating toexceptional items (36) (63) (118) --------------- --------------- ---------------Cash flows generated fromcontinuing operations 1,382 1,312 3,131Cash flows relating todiscontinued operations - (1) (20) --------------- --------------- ---------------Cash generated fromoperations 1,382 1,311 3,111Tax paid - continuingoperations (198) (83) (103)Tax paid - discontinuedoperations - (41) (37) --------------- --------------- ---------------Net cash inflow fromoperating activities 1,184 1,187 2,971 --------------- --------------- ---------------Cash flows from investingactivitiesAcquisition of subsidiaries,net of cash acquired (269) - -Sale of investments injoint ventures - - 8Purchases of intangibleassets (5) (6) (16)Purchases of property,plant and equipment (1,179) (804) (1,750)Disposals of property,plant and equipment 6 5 18Net movements infinancial investments (432) (1,758) 25Dividends received fromjoint ventures - 2 2 --------------- --------------- ---------------Cash flows used incontinuing operationsinvesting activities (1,879) (2,561) (1,713)Cash flows relating todiscontinued operations -disposal proceeds 42 5,754 5,750Cash flows relating todiscontinued operations -other investingactivities - (115) (115) --------------- --------------- ---------------Net cash (used in)/frominvesting activities (1,837) 3,078 3,922 --------------- --------------- ---------------Cash flows from financingactivitiesProceeds from issueof share capital 8 17 54Increase/(decrease)in borrowings andrelated derivatives 2,264 (1,197) (2,304)Net interest paid (291) (368) (704)Exceptional finance costson the repayment ofdebt - (35) (49)Dividends paid toshareholders (433) (469) (745)Cash paid to shareholdersunder B share scheme (26) (1,957) (1,957)Purchase of treasuryshares - - (7) --------------- --------------- ---------------Net cash from/(used in)financing activities 1,522 (4,009) (5,712) --------------- --------------- ---------------Net increase in cash andcash equivalents 869 256 1,181Exchange movements (9) 14 14Cash and cashequivalents atstart of period (i) 1,449 254 254 --------------- --------------- ---------------Cash and cashequivalents atend of period (i) 2,309 524 1,449 =========== =========== =========== i) Net of bank overdrafts. NOTES TO THE INTERIM ANNOUNCEMENT 1. 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 2006 were prepared underInternational Financial Reporting Standards (IFRS), as endorsed by the EuropeanUnion and have been delivered to the Registrar of Companies. The auditors'report on those statutory accounts was unqualified and did not contain astatement under Section 237(2) or (3) of the Companies Act 1985. The financial information in respect of the six months ended 30 September 2006included in this interim announcement has been prepared in accordance withInternational Accounting Standard (IAS) 34 'Interim Financial Reporting' 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 accounting policiesapplicable for the year ending 31 March 2007 as set out in the Group's mostrecent Annual Report and Accounts as amended to reflect new accounting standardsand interpretations applicable to this period. The standards and interpretations which have been adopted by the Group for theyear ending 31 March 2007 are as follows: • International Financial Reporting Interpretations Committee (IFRIC) 4- Determining whether an arrangement contains a lease • IFRIC 5 - Rights to Interests arising from Decommissioning,Restoration and Environmental Rehabilitation Funds • Amendment to IAS 39 - Financial Instruments: Recognition andMeasurement: The Fair Value Option • Amendment to IAS 39 - Financial Instruments: Recognition andMeasurement, and IFRS 4 Insurance Contracts: Financial Guarantee Contracts • Amendment to IAS 21 - The Effect of Changes in Foreign Exchange Rates • IFRIC 6 - Liabilities Arising from Participating in a Specific Market- Waste Electrical and Electronic Equipment • IFRIC 7 - Applying the Restatement Approach under IAS 29 'FinancialReporting in Hyperinflationary Economies' The adoption of new accounting standards and interpretations did not have amaterial impact on the financial results or position of the Group in the sixmonths ended 30 September 2006 or in the year ended 31 March 2006. The following interpretations have not been adopted for the year ended 31 March2007: • IFRIC 8 - Scope of IFRS 2 • IFRIC 9 - Reassessment of Embedded Derivatives • IFRIC 10 - Interim Financial Reporting and Impairment • IFRIC 11 - Group and Treasury Share Transactions This announcement was approved by the Board of Directors on 16 November 2006. 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 interconnectors US electricity High-voltage electricity transmission networks and managementtransmission of electricity transmission operations for other utilities in the US UK gas Four of the eight regional networks of Britain's gasdistribution distribution system US electricity and Electricity and gas distribution in New York and New Englandgas distribution US stranded cost The recovery of stranded costs from US customers as permittedrecoveries by regulatory agreements Wireless 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. Discontinued operations comprised the operations of the four gas distributionnetworks that the Group sold on 1 June 2005. Certain of our businesses are affected by seasonality. Revenues from our gasdistribution networks in the UK and the US and our gas transmission network inthe UK are weighted towards the end of the financial year, as gas demand istypically higher during the winter months. Otherwise, seasonality does not havea significant impact on revenues. With the exception of commodity costs passedthrough to customers, our operating costs are generally not seasonal. 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 2006 2005 Year ended 31 March 2006 £m £m £m =========== =========== ===========Continuing operations - businesssegmentsUK electricity andgas transmission 1,323 1,154 2,710US electricity transmission 151 152 310UK gas distribution 447 439 1,222US electricity and gasdistribution 1,770 1,539 3,711US stranded cost recoveries 205 244 511Wireless infrastructure 171 155 325Other activities 303 359 701Sales between businesses (206) (151) (297) --------------- --------------- ---------------Group revenue 4,164 3,891 9,193 =========== =========== ===========Continuing operations -geographical segmentsUK 2,116 1,960 4,671US 2,037 1,931 4,522Rest of the World 11 - - --------------- --------------- ---------------Group revenue 4,164 3,891 9,193 =========== =========== =========== b) Operating profit - before exceptional items and remeasurementsSix monthsended 30September 2006 2005 Year ended 31 March 2006 £m £m £m =========== =========== ===========Continuing operations - businesssegmentsUK electricity and gas transmission 427 397 844US electricity transmission 67 68 127UK gas distribution 71 94 483US electricity and gasdistribution 251 170 364US stranded cost recoveries 202 251 489Wireless infrastructure 42 36 75Other activities 65 75 145 --------------- --------------- ---------------Operating profit beforeexceptional items andremeasurements 1,125 1,091 2,527 =========== =========== =========== Continuing operations -geographical segmentsUK 599 600 1,549US 521 491 983Rest of the World 5 - (5) --------------- --------------- ---------------Operating profit beforeexceptional items andremeasurements 1,125 1,091 2,527 =========== =========== =========== c) Operating profit - after exceptional items and remeasurementsSix monthsended 30September 2006 2005 Year ended 31 March 2006 £m £m £m =========== =========== ===========Continuing operations - businesssegmentsUK electricity and gas transmission 420 396 843US electricity transmission 67 68 127UK gas distribution 66 69 432US electricity and gasdistribution 248 170 364US stranded cost recoveries 250 229 440Wireless infrastructure 42 35 70Other activities 64 77 163 --------------- --------------- ---------------Operating profit afterexceptional items andremeasurements 1,157 1,044 2,439 =========== =========== =========== Continuing operations -geographical segmentsUK 586 575 1,489US 566 469 934Rest of the World 5 - 16 --------------- --------------- ---------------Operating profit afterexceptional items andremeasurements 1,157 1,044 2,439 =========== =========== =========== 3. Exceptional items and remeasurements The Group separately discloses items of income and expenditure relating totransactions that are material, either by their nature or size, that arerelevant to an understanding of the Group's financial performance. These includenon-recurring exceptional income or charges that do not relate to the underlyingfinancial performance of the Group. Remeasurements are non-cash movements in thecarrying value of financial instruments and of certain commodity contracts thatarise from changes in mark-to-market values or in exchange rates, that arereflected in the income statement to the extent hedge accounting is not achievedor is not effective. Six monthsended 30September 2006 2005 Year ended 31 March 2006 £m £m £m ============ ============ ============Continuing operationsExceptional items -restructuring costs (i) 16 25 60Exceptional items - profit on sale andreversal ofimpairment (ii) - - (21)Remeasurements- commodity contracts(iii) (48) 22 49Total exceptional items and remeasurementsincluded withinoperating profit (32) 47 88 Exceptional finance costs (iv) - 35 49Remeasurements- commodity contracts(iii) 12 - 14Remeasurements- net losses/(gains)on derivative financialinstruments (v) 66 (42) (6)Total exceptionalitems andremeasurementsincluded within netfinance costs 78 (7) 57 --------------- --------------- ---------------Total exceptionalitems andremeasurementsbefore taxation 46 40 145 ============ ============ ============ Tax on restructuringcosts (i) (5) (7) (12)Tax on commoditycontract remeasurements (iii) 14 (9) (25)Tax on exceptionalfinance costs (iv) - (8) (15)Tax on derivativefinancial instrumentremeasurements (v) (58) 13 17 --------------- --------------- ---------------Tax on exceptionalitems and remeasurements (49) (11) (35) ============ ============ ============ Total exceptionalitems after taxation 11 45 61Total commoditycontract remeasurementsafter taxation (22) 13 38Total derivative financialinstrument remeasurementsafter taxation 8 (29) 11 --------------- --------------- ---------------Total exceptional itemsand remeasurementsafter taxation (3) 29 110 ============ ============ ============ i) Restructuring costs relate to planned cost reduction programmes in theUK and US businesses. For the six months ended 30 September 2006, restructuringcosts included pension costs of £5m arising as a result of redundancies (sixmonths ended 30 September 2005: £19m; year ended 31 March 2006: £25m). ii) Reversal of prior period impairment of £13m related to National Grid'sinvestment in Copperbelt Energy Corporation and gain on disposal of aninvestment in Energis Polska of £8m. iii) Commodity contract remeasurements represent mark-to-market movements oncertain commodity contract obligations, primarily indexed-linked swap contracts,in the US. Under the Group's existing rate plans in the US, commodity costs arefully recovered from customers, although the pattern of recovery may differ fromthe pattern of costs incurred. These movements are comprised of those impactingoperating profit which is based on the change in the commodity contractliability and those impacting finance costs as a result of discounting. iv) Exceptional finance costs in 2005 represent costs incurred on the earlyredemption of debt following the disposal of the four gas distribution networks,together with issue costs associated with the B share scheme. v) Remeasurement (gains)/losses on derivative financial instruments comprisenon-cash gains and losses arising on derivative financial instruments reportedin the income statement, net of related exchange gains or losses on relatedfinancial instruments. These exclude gains and losses for which hedge accountinghas been effective, which are recognised directly in equity or offset byadjustments to the carrying value of debt. 4. Finance income and costs Six months ended30 September 2006 2005 Year ended 31 March 2006 £m £m £m =========== =========== ===========Expected return onpension schemeassets 466 458 903Interest andsimilar incomeon financialassets 104 32 135 --------------- --------------- ---------------Interestincome andsimilar income 570 490 1,038 =========== =========== =========== Interest onpension schemeliabilities (436) (451) (891)Interest payable onborrowings (net ofrelated derivatives) (408) (383) (795)Unwinding ofdiscount onprovisions (11) (6) (18)Less: interestcapitalised 30 33 60 --------------- --------------- --------------- (825) (807) (1,644)Finance charges on theearly redemption ofdebt and B share scheme - (35) (49)Net (losses)/gainson derivativefinancial instrumentsand commoditycontracts (78) 42 (8) --------------- --------------- ---------------Interest expense andother finance costs (903) (800) (1,701) =========== =========== ===========Net financecosts (333) (310) (663) =========== =========== ===========Comprising:Net financecosts excludingexceptional financecosts andremeasurements (255) (317) (606)Exceptionalfinance costs andremeasurements(note 3) (78) 7 (57) --------------- --------------- --------------- (333) (310) (663) =========== =========== =========== 5. Taxation Six months ended 30 September 2006 2005 Year ended 31 March 2006 £m £m £m =========== =========== ===========Taxation -excludingexceptionalitems andremeasurements 279 246 597Taxation -exceptionalitems andremeasurements(note 3) (49) (11) (35) --------------- --------------- ---------------Taxation 230 235 562 =========== =========== =========== The tax charge, excluding tax on exceptional items and remeasurements, for thesix months ended 30 September 2006, is based on the estimated effective tax ratefor the year ending 31 March 2007 of 32.0% (30 September 2005: 31.7%). 6. 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. Results of discontinued operationsSix months ended 30 September 2006 2005 Year ended 31 March 2006 £m £m £m =========== =========== ===========Revenue - 168 168Operating costs - (120) (122) --------------- --------------- ---------------Operating profit beforeexceptional item - 63 61Exceptional item (i) - (15) (15)Total operatingprofit fromdiscontinued operations - 48 46 Taxation - (19) (18) --------------- --------------- ---------------Profit fromdiscontinuedoperations - 29 28 --------------- --------------- ---------------Gain on disposal ofdiscontinued operationsbefore taxation - 2,557 2,636Taxation - (23) (31) --------------- --------------- --------------- Gain on disposal ofdiscontinued operations - 2,534 2,605 --------------- --------------- ---------------Total profit for the period- Before exceptional items - 44 43- Exceptional items including gain on disposal - 2,519 2,590Total profitfor the periodfrom discontinuedoperations - 2,563 2,633 =========== =========== =========== i) The operating exceptional item in the comparative period related to afine incurred in respect of a breach of the Health and Safety at Work Act. 7. Earnings per share a) Basic earnings per share Year ended Year ended 31 March 31 MarchSix months ended 30 September 2006 2006 2005 2005 2006 2006 £m pence £m pence £m pence ========= ========== ========== ========= ========== ==========Adjustedearnings pershare - continuingoperations 591 21.7p 528 17.9p 1,325 46.7pExceptionaloperatingitems (16) (0.6)p (25) (0.9)p (39) (1.4)pExceptionalfinance costs - - (35) (1.2)p (49) (1.7)pRemeasurements (30) (1.1)p 20 0.7p (57) (2.0)pTax onexceptionalitems 5 0.2p 15 0.5p 27 0.9pTax onremeasurements 44 1.6p (4) (0.1)p 8 0.3p --------------- --------------- --------------- ---------------- Earnings pershare -continuingoperations 594 21.8p 499 16.9p 1,215 42.8p ========= ========== ========= ========= ========= ========== Adjustedearnings pershare - discontinuedoperations - - 44 1.5p 43 1.5pGain ondisposal ofgasdistributionnetworks (netof tax) - - 2,534 85.8p 2,605 91.8pOtherexceptionalitems (net oftax) - - (15) (0.5)p (15) (0.5)p --------------- --------------- --------------- ----------------Earnings pershare -discontinuedoperations - - 2,563 86.8p 2,633 92.8p ========= ========= ========= ========= ========= ========== Earnings pershare 594 21.8p 3,062 103.7p 3,848 135.6p ========= ========= ========= ========= ========== ========== millions millions millions ========== ========= ==========Weighted average numberof shares - basic (i) 2,721 2,953 2,837 ========== ========= ========== i) The Group completed a 43 for 49 share consolidation on 1 August 2005. b) Diluted earnings per share Year ended Year ended 31 March 31 MarchSix months ended 30 September 2006 2006 2005 2005 2006 2006 £m pence £m pence £m pence ========= ========== ========== ========= ========== ==========Adjusteddilutedearnings pershare - continuingoperations 591 21.6p 528 17.8p 1,325 46.5pExceptionaloperatingitems (16) (0.6)p (25) (0.9)p (39) (1.4)pExceptionalfinance costs - - (35) (1.2)p (49) (1.7)pRemeasurements (30) (1.1)p 20 0.7p (57) (2.0)pTax onexceptionalitems 5 0.2p 15 0.5p 27 0.9pTax onremeasurements 44 1.6p (4) (0.1)p 8 0.3p --------------- --------------- --------------- ---------------Dilutedearnings pershare -continuingoperations 594 21.7p 499 16.8p 1,215 42.6p ========= ========== ========= ========== ========= ========= Adjusteddilutedearnings pershare - discontinuedoperations - - 44 1.5p 43 1.5pGain ondisposal ofgasdistributionnetworks (netof tax) - - 2,534 85.3p 2,605 91.4pOtherexceptionalitems (net oftax) - - (15) (0.5)p (15) (0.5)p --------------- --------------- --------------- ---------------Dilutedearnings pershare -discontinuedoperations - - 2,563 86.3p 2,633 92.4p ========= ========== ========== ========== ========= ========= Dilutedearnings pershare 594 21.7p 3,062 103.1p 3,848 135.0p ========= ========== ========== ========== ========= ========= millions millions millions ========== ========== =========Weightedaverage numberof shares -diluted 2,735 2,970 2,851 ========== ========== ========= The difference between the basic and diluted weighted average number of sharesis the effect of dilutive potential shares relating to employee share options. 8. Dividends The following table shows the dividends paid to equity shareholders:Sixmonthsended 30 Year ended Year ended September 31 March 31 March 2006 2006 2005 2005 2006 2006 pence £m pence £m pence £m per share per share per share ========== ========= ========= ========= ========= =========OrdinarydividendsFinaldividendfor theyear ended31 March 2006 15.9p 433 - - - -Interimdividendfor the year ended31 March 2006 - - - - 10.2p 276Finaldividendfor theyear ended 31 March 2005 - - 15.2p 469 15.2p 469 --------------- --------------- --------------- --------------- ------ 15.9p 433 15.2p 469 25.4p 745 ========== ========= ========== ======== ========== ========== The Board has approved an interim dividend of 10.9p per share (total dividenddistribution of £297m) to be paid in respect of the period ended 30 September2006. 9. Acquisitions On 24 August 2006, the Group acquired New England Gas Company's Rhode Islandassets ('New England Gas') for total consideration of £269m, includingacquisition costs of £3m. The goodwill arising on the acquisition was £146m.Goodwill principally relates to synergies, cost improvements, market position,the assembled workforce and the potential for future growth. Because theacquisition occurred late in the financial period, fair values and goodwillarising on the acquisition are provisional and may be subject to revision. The acquired business is reported within the US electricity and gas distributionsegment. Book value at Provisional acquisition fair value under IFRS £m £m =========== ===========Intangibles 15 16Property, plant and equipment 134 135Inventories 19 19Trade and other receivables 37 37Trade and other payables (19) (19)Deferred tax 9 10Provisions (9) (9)Pensions and otherpost-retirement benefits (18) (18)Borrowings (42) (48) --------------- ---------------Net assets acquired 126 123 ===========Goodwill 146 ---------------Consideration 269 =========== In the Group's consolidated income statement for the six months to 30 September2006, £2m of operating loss before exceptional items and remeasurements, and £3mof operating loss after exceptional items and remeasurements has been included,representing the post-acquisition results of New England Gas. If New England Gashad been acquired on 1 April 2006, the results for the Group would not have beenmaterially different. 10. Reconciliation of movements in total equity Six months ended30 September Year ended 2006 2005 31 March 2006 £m £m £m ========== ========== ==========Opening total equity 3,493 2,078 2,078 Changes in total equity for theperiodNet income recogniseddirectly in equity (373) 22 250Profit for the period 596 3,064 3,850Equity dividends (433) (469) (745)Return of capital to shareholdersthrough B share scheme - (2,009) (2,009)Issue of ordinary share capital 8 4 28Other movements in minority interests (1) - (2)Movement in shares held in employeeshare trusts - 13 19Employee share option scheme issues 7 7 17Tax on employee share optionscheme issues 5 5 7 --------------- --------------- ---------------Closing total equity 3,302 2,715 3,493 ========== ========== ========== 11. Reconciliation of net cash flow to movement in net debt Six monthsended 30September Year ended 31 March 2006 2005 2006 £m £m £m =========== =========== ===========Movement in cash and cash equivalents 869 256 1,181Increase/(decrease)in financialinvestments 432 1,758 (25)(Increase)/decrease in borrowings andrelated derivatives(i) (2,264) 1,197 2,304Cash paid to shareholders underB share scheme 26 1,957 1,957Net interest paid 291 368 704 --------------- --------------- ---------------Change in netdebt resultingfrom cash flows (646) 5,536 6,121Changes in fairvalue of financialassets andliabilitiesand exchangemovements 194 (254) (299)Issue of B shares - (2,009) (2,009)Net interest charge (304) (351) (660)Other non-cashmovements (44) 9 (17) --------------- --------------- ---------------Movement in netdebt (net ofrelated derivativefinancial instruments)inthe period (800) 2,931 3,136Net debt atstart of period (10,850) (13,986) (13,986) --------------- --------------- ---------------Net debt (net ofrelated derivativefinancial instruments) at endof period (11,650) (11,055) (10,850) =========== =========== =========== i) Increase in borrowings and related derivatives for the six months ended 30September 2006 comprises proceeds from loans received of £3.5 billion lesspayments to repay loans of £1.2 billion. 12. Net debt At 30 September 31 March 2006 2005 2006 £m £m £m =========== =========== ===========Cash and cashequivalents 2,320 547 1,452Bank overdrafts (11) (23) (3) --------------- --------------- ---------------Net cash andcash equivalents 2,309 524 1,449Financial investments 806 2,158 384Borrowings (14,894) (14,216) (13,126) --------------- --------------- --------------- (11,779) (11,534) (11,293) Net debt relatedderivative financialassets 634 764 665Net debt relatedderivative financialliabilities (505) (285) (222) --------------- --------------- ---------------Net debt (net ofrelated derivativefinancial instruments) (11,650) (11,055) (10,850) =========== =========== =========== 13. Commitments and contingencies At 30 September 2006 2005 31 March 2006 £m £m £m =========== =========== ===========Future capital expenditurecontracted for but not provided 1,343 1,075 1,343Group commitments undernon-cancellable operating leases 800 889 831Obligations to purchase energy underlong-term contracts 4,768 5,677 5,453Guarantees (i) 188 181 149Other commitments and contingencies 205 202 185 =========== =========== =========== i) Details of the guarantees entered into by the Group at 30 September 2006 areas follows: a) performance guarantees of £21m relating to certain property obligationsof Group undertakings. The bulk of these expire by December 2025; b) a guarantee of £50m of the obligations of a Group undertaking to makepayments in respect of liabilities under a meter operating contract that runsuntil May 2008; c) a performance guarantee relating to the construction of the Victoria toTasmania Interconnector of 24m Australian dollars (AU$24m) (£10m). This expiresat the end of November 2006; d) a guarantee of the payment obligations of a Group undertaking inrespect of a Power Connection Agreement amounting to an annual maximum of AU$7m,reducing over the term of the contract. This runs until June 2051, but themaximum potential payout is estimated at £5m; e) a guarantee of the payment obligations of a Group undertaking inrespect of a Nitrogen Supply Agreement amounting to a maximum potential payoutof £13m subject to a cap of £1m per annum. This runs until November 2019; f) a guarantee of the payment obligations of a Group undertaking inrespect of a Power Connection Agreement amounting to a maximum potential payoutof £14m subject to a cap of £7m per annum. This runs until December 2024; g) guarantees in respect of a former associate amounting to £14m, the bulkof which relates to its obligation to supply telecommunications services. Thisis open-ended; h) a guarantee in support of the transfer of the French Interconnector toNG Interconnectors as part of the Licence to Assign Lease. This is unlimited andopen-ended but the maximum liability is estimated at £40m; i) guarantees in support of Group undertakings to enable them to tradeon the Amsterdam Power Exchange. These amount to £6m and mainly expire bySeptember 2007; and j) other guarantees amounting to £15m arising in the normal course ofbusiness and entered into on normal commercial terms. These guarantees run forvarying lengths of time. 14. Events after the balance sheet date On 2 October 2006, the Group completed the purchase of ClearShot CommunicationsLLC for US$133m. The key operations of ClearShot Communications are theconstruction and ownership of wireless telecommunications towers across severalsouthern US states. On 16 November 2006, the Group announced its plans to demerge the Wirelessinfrastructure business, and to sell Basslink, the electricity interconnector inAustralia. 15. 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 2006 2005 31 March 2006 =========== =========== ===========Closing rate applied at period end 1.88 1.76 1.74Average rate applied for the period 1.86 1.85 1.79 =========== =========== =========== 16. Differences between IFRS and US generally accepted accounting principles('US GAAP') Summarised financial statements on a US GAAP basis and an explanation of thedifferences between IFRS and US GAAP as applied in preparing the Group accountsare set out in the Annual Report and Accounts. Details of the principaldifferences between IFRS and US GAAP are shown below. a) Reconciliation of net income to US GAAP The following is a summary of the material adjustments to net income that wouldhave been required if US GAAP had been applied instead of IFRS: Six monthsended 30September 2006 2005 Year ended 31 March 2006 £m £m £m =========== ========== ===========Profit for the periodattributable to equityshareholders under IFRS 594 3,062 3,848 --------------- ----------------- -------------------Adjustments toconform with US GAAPDepreciation ofproperty, plantand equipment ('PP&E') (57) (65) (127)US regulatory accounting (266) (145) (269)Pensions andother post-retirementbenefits (39) - (56)Financial instruments 124 2 (130)Severance costs 3 (44) (63)Revenue recognition 14 (1) (48)Amortisation ofintangibles - (1) (2)Interest on discountedprovisions (8) 11 (14)Deferred taxation 138 94 208Other (1) (8) (3)Discontinued operations - gain on disposal of business - (2,196) (2,196)Discontinued operations - pensions and other post-retirement benefits - (127) (127)Discontinued operations- deferred taxation - 286 286 --------------- ----------------- ------------------- (92) (2,194) (2,541) --------------- ----------------- -------------------Net income underUS GAAP 502 868 1,307 =========== ========== ===========Basic earningsper share - US GAAP 18.5p 32.1p 48.2pDiluted earnings pershare - US GAAP 18.4p 32.0p 48.0p =========== ========== =========== b) Reconciliation of shareholders' equity from IFRS to US GAAP The following is a summary of the material adjustments to shareholders' equitythat would have been required if US GAAP had been applied instead of IFRS: At 30 September 2006 2005 31 March 2006 £m £m £m ========== ========== ==========Total shareholders'equity under IFRS 3,290 2,703 3,482 --------------- ---------------- ----------------Adjustments to conformwith US GAAPPP&E fair valueadjustments 2,105 2,224 2,162Goodwill 2,652 2,686 2,689US regulatory accounting 2,291 2,809 2,702Pensions and otherpost-retirement benefits 1,103 990 886Financial instruments 94 205 119Severance liabilities 5 21 2Revenue recognition (28) 5 (42)Intangible assets 28 29 28Provisions (158) (127) (154)Non-reversal of impairments (37) (28) (39)Deferred taxation (1,955) (2,203) (2,090)Other (12) 2 2 --------------- ---------------- ---------------- 6,088 6,613 6,265 --------------- ---------------- ----------------Shareholders' equityunder US GAAP 9,378 9,316 9,747 ========== ========== ========== c) New US accounting standards In July 2006, the Financial Accounting Standards Board (FASB) issued FinancialInterpretation No. 48 'Accounting for Uncertainty in Income Taxes - aninterpretation of FASB Statement No. 109' (FIN 48), which specifies how taxbenefits for uncertain tax positions are to be recognised, measured andderecognised in financial statements. FIN 48 requires certain disclosures ofuncertain tax matters, specifies how reserves for uncertain tax provisionsshould be classified in the balance sheet and provides transition andinterim-period guidance. FIN 48 is effective for years beginning after 15December 2006. We are currently assessing the impact that the adoption of FIN 48will have on the Group financial statements. In September 2006, the FASB issued Statement of Financial Accounting StandardNo. 158 'Employers' Accounting for Defined Benefit Pension and OtherPostretirement Plans, an amendment of FASB statements No. 87, 106 and 132(R)'(SFAS No. 158). This standard requires recognition of a net liability or assetand an offsetting adjustment to accumulated other comprehensive income to reportthe funded status of defined benefit pension and other post-retirement benefitplans. SFAS No. 158 requires prospective application, recognition and disclosurerequirements effective for the year ending 31 March 2007. We intend to adoptSFAS No. 158 on 31 March 2007, which should have the effect of substantiallyreducing (but not completely eliminating) the difference in shareholders' equitybetween IFRS and US GAAP. The difference in net income between IFRS and US GAAPis likely to remain substantially unchanged. The Group has adopted SFAS No. 123(R) 'Share-Based Payment '. The adoption ofthis standard has had no material impact on the results from operations or theGroup's financial position. 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 2006 which comprises the consolidated interimbalance sheet as at 30 September 2006 and the related consolidated interimstatements of income, cash flows and recognised income and expense for the sixmonths then ended and related notes. We have read the other informationcontained in the interim report and considered whether it contains any apparentmisstatements or material inconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The Listing Rulesof the Financial Services Authority require that the accounting policies andpresentation applied to the interim figures should be consistent with thoseapplied in preparing the preceding annual accounts except where any changes, andthe reasons for them, are disclosed. This interim report has been prepared in accordance with InternationalAccounting Standard 34 'Interim Financial Reporting'. 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 2006. PricewaterhouseCoopers LLP Chartered Accountants London 16 November 2006 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:
National Grid