4th Mar 2005 07:00
National Grid Transco PLC04 March 2005 4 March 2005 National Grid Transco plc International Financial Reporting Standards National Grid Transco plc ("NGT" or the "Group") is today holding a presentationto brief analysts and investors on its implementation of International FinancialReporting Standards ("IFRS"). NGT will begin to report its group consolidatedresults under IFRS from 1 April 2005. The adoption of IFRS will have a significant impact on NGT's future reportedfinancial results, and is expected to lead to an increase in reported operatingprofit, profit before tax and earnings per share and a reduction in reported netassets. The table below illustrates the impact that the adoption of IFRS wouldhave had on NGT's consolidated profit and loss account and net assets for theyear ended 31 March 2004 if IFRS had been adopted. Illustrative impacts of the adoption of IFRS by NGTfor the year ended 31 March 2004: Under Under IFRS UK GAAP** Change % ChangeUnderlying operatingprofit* (£m) 2,763 2,213 + 550 + 25Underlying profit beforetaxation* (£m) 1,935 1,391 + 544 + 39Underlying earnings pershare* (pence) 46.0 33.9 + 12.1 + 36 Statutory operating profit (£m) 2,476 1,837 + 639 + 35Statutory profit beforetaxation (£m) 1,874 1,337 + 537 + 40Statutory earnings pershare (pence) 47.0 35.0 + 12.0 + 34 Net assets at 31 March 2004 (£m) 1,014 1,271 - 257 - 20 The adjustments are unaudited, are included for illustrative purposes only andmay change as the Group finalises its analysis of the effect of IFRS. The most significant areas to be impacted by the adoption of IFRS are theaccounting treatments of replacement expenditure and regulatory assets. Otherkey areas that will be impacted include the treatments of pensions and otherpost retirement benefits, profits on disposal of properties, deferred taxationand goodwill. The adoption of IFRS represents an accounting change only, and will not affectthe operations, cashflows or distributable reserves of the Group. Similarly,there will be no impact on the regulated asset values or regulatory agreementsof any of the Group's businesses. Commenting today, Steve Lucas, Group Finance Director, said: "We regard these changes as positive in that they will enhance comparabilitywith other European companies in our sector, not least in relation to thebiggest change which concerns the treatment of replacement expenditure." An analyst presentation will be held at JPMorgan Cazenove, 20 Moorgate,London EC2A 6AD at 10:00am (UK time) today. * The Group's definition of "underlying" changes from UK GAAP to IFRS. UK GAAP"underlying" results exclude goodwill amortisation and exceptional items. UnderIFRS, there is no goodwill amortisation and hence no need to exclude it for thepurposes of showing "underlying" results. IFRS "underlying" results includeprofits or losses arising on the disposal of properties by SecondSite, theGroup's property management business, which is considered to be part of thenormal recurring operating activities of the Group. IFRS "underlying" resultsexclude other material, and significant non-recurring items or transactions thatare similar in concept to exceptional items under UK GAAP. ** During the current financial year, the Group has implemented FRS20 (Sharebased payment). The full year results for 2003/04 under UK GAAP were announcedin May 2004 before FRS20 had been implemented. Hence the figures for thefinancial year ended 2003/04 under UK GAAP shown in the table above are restatedfor the impact of FRS20. CONTACT DETAILS InvestorsAlexandra Lewis +44 (0) 20 7004 3170 +44 (0) 7768 554 879(m)Dave Campbell +44 (0) 20 7004 3171 +44 (0) 7799 131 783(m)Bob Seega (US) +1 508 389 2598 MediaClive Hawkins +44 (0) 20 7004 3147 +44 (0) 7836 357 173(m) Citigate Dewe Rogerson +44 (0) 20 7638 9571Anthony Carlisle +44 (0) 7973 611 888(m) Live telephone coverage of presentation - password National Grid Transco Dial in number +44 (0) 20 7081 9429 Telephone replay of presentation (available until 18 March 2005) Dial in number +44 (0) 20 7081 9440Account number 869448Recording number 445445 Live and archived webcast of the presentation will be availableat www.ngtgroup.com Notes to Editors: International Financial Reporting Standards Under European Union (EU) regulations all EU companies listed on an EU stockexchange are required to use 'endorsed' International Financial ReportingStandards (IFRS) published by the International Accounting Standards Board, indrawing up their financial statements for accounting periods beginning on orafter 1 January 2005. For NGT, IFRS will be adopted beginning with the financialyear commencing 1 April 2005. NGT is the first UK utility to quantify the impact that IFRS is likely to haveon its reported results. IFRS is expected to result in an increase in reportedunderlying and statutory operating profit of the Group. The main reason for thisis the change in accounting treatment for both replacement expenditure (repex)in NGT's UK gas distribution businesses and regulatory assets in NGT's USbusinesses. At the statutory level, the expected positive impact also reflectsthe fact that goodwill is no longer to be amortised. IFRS is expected to result in a reduction in reported net assets of the Group.The positive effect on the value of reported net assets from the fullcapitalisation of replacement expenditure is expected to be more than offset bythe negative adjustments from no longer recognising regulatory assets on thebalance sheet and from bringing pension liabilities onto the balance sheet. Further detail of the significant adjustments is below: Replacement expenditure Repex represents the cost of planned maintenance on gas mains and servicesassets, the vast majority of which relates to the Group's UK gas distributionbusiness. Under UK GAAP repex is written off to the profit and loss account asincurred. Under IFRS it will be capitalised and depreciated over its usefullife. There will be no change to the regulatory treatment of repex as 50% of thespend will continue to be added to the Regulatory Asset Value and 50% will berecovered in the year of spend. Had NGT adopted IFRS for 2003/04 underlyingearnings per share would have been 6.0p higher and net assets at 31 March 2004would have been £2.8 billion higher after tax. Regulatory assets Regulatory assets arise when a US based public utility, authorised by itsregulator, defers to its balance sheet certain costs or revenues which wouldotherwise be charged to expense or revenues. These assets are currently recordedon the balance sheet under UK GAAP. Under IFRS, regulatory assets are notpermitted to be recognised in the balance sheet. Instead, costs will be chargedto the income statement when incurred, and recoveries from customers will berecognised when receivable. Had NGT adopted IFRS for 2003/04 underlying earningsper share would have been 2.9p higher and net assets at 31 March 2004 would havebeen £1.9 billion lower after tax. Pensions and other post retirement benefits Under UK GAAP, the Group's pension and post retirement benefits are accountedfor under SSAP 24. Under IFRS these benefits will be accounted for under IAS 19.This will result in the Group recognising all of its net pension and other postretirement benefit obligations on the balance sheet at 1 April 2004. Had NGTadopted IFRS for 2003/04 underlying earnings per share would have been 1.1phigher and net assets at 31 March 2004 would have been £1.4 billion lower aftertax. Profits on disposal of properties Under UK GAAP, FRS 3 requires that certain items should be recorded as'non-operating exceptional items' below operating profit. Included within theseitems are profits and losses arising on the disposal of tangible fixed assets.There is no such requirement under IFRS. The Group will show these items withinits underlying results where property sales are a normal ongoing businessactivity of the Group. Had NGT adopted IFRS for 2003/04, this adjustment wouldhave increased underlying earnings per share by 2.3p after tax but would havehad no effect on the net assets of the Group. Goodwill Goodwill represents the difference between the fair value attributed to the netassets of an acquired business and the consideration paid for that business. Thegoodwill recorded in the Group's accounts at 31 March 2004 primarily arose fromthe acquisition of the US subsidiaries. Under UK GAAP goodwill is amortised over20 years. Under IFRS there is no longer a requirement for goodwill to beamortised, but it will be reviewed for impairment. Had NGT adopted IFRS for2003/04, this adjustment would have had no effect on underlying earnings pershare, as goodwill has always been excluded from the Group's UK GAAP measure ofunderlying earnings. There is no effect on net assets at 31 March 2004, asgoodwill is no longer amortised prospectively and no adjustment is required forpreviously charged goodwill amortisation. Cautionary statement This announcement contains certain statements that are neither reportedfinancial results nor other historical information. These statements areforward-looking statements within the meaning of Section 27A of the SecuritiesAct of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,as amended. Because these forward-looking statements are subject to assumptions,risks and uncertainties, actual future results may differ materially from thoseexpressed in or implied by such statements. Many of these assumptions, risks anduncertainties relate to factors that are beyond National Grid Transco's abilityto control or estimate precisely, such as delays in obtaining, or adverseconditions contained in, regulatory approvals, competition and industryrestructuring, changes in economic conditions, currency fluctuations, changes ininterest and tax rates, changes in energy market prices, changes in historicalweather patterns, changes in laws, regulations or regulatory policies,developments in legal or public policy doctrines, the impact of changes toaccounting standards, technological developments, the failure to retain keymanagement, the availability of new acquisition opportunities or the timing andsuccess of future acquisition opportunities. Other factors that could causeactual results to differ materially from those described in this announcementinclude the ability to integrate the US and UK businesses acquired by or mergedwith National Grid Transco or to continue to realise the expected synergies fromsuch integrations, the failure for any reason to achieve reductions in costs orto achieve operational efficiencies, unseasonable weather impacting on demandfor electricity and gas, the behaviour of UK electricity market participants onsystem balancing, the timing of amendments in prices to shippers in the UK gasmarket, the performance of National Grid Transco's pension schemes and theregulatory treatment of pension costs, the impact of the proposed disposal byNational Grid Transco of four of its UK gas distribution networks and anyadverse consequences arising from outages on or otherwise affecting energynetworks owned and/or operated by National Grid Transco. For a more detaileddescription of these assumptions, risks and uncertainties, together with anyother risk factors, please see National Grid Transco's filings with the UnitedStates 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 Transco does not undertake any obligation to releasepublicly any revisions to these forward-looking statements to reflect events orcircumstances after the date of this announcement. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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