Final Results
National Grid Group PLC
30 May 2002
Embargoed for 30 May 2002 at 0700
National Grid preliminary results for the year ended 31 March 2002
Another year of strong and improved operating performance
• Strong operating performance
• operating profit increased by 18% to £875 million, before exceptional
items and goodwill amortisation.
• operating cash flow increased by 55% to £1.26 billion.
• earnings per share, before exceptional items and goodwill amortisation,
increased by 61% to 32.1 pence.
• Joint ventures and associate exceptional items
• full write down and provision for all expected related liabilities for
telecoms investments in Latin America, Energis and Energis Polska.
• non-cash charge to reflect the impact in Argentina of the devaluation of
the peso.
• Key strategic steps
• Niagara Mohawk acquisition completed end January 2002, more than
doubling the size of the US business. Acquisition was immediately
earnings enhancing (before exceptional items and after goodwill
amortisation), with a contribution of £83 million to Group operating
profit.
• proposed merger with Lattice will enable us to strengthen profitability
of the UK businesses, be earnings enhancing (before exceptional items)in
first full financial year following the merger(1) and create an enhanced
platform for future growth.
• decision taken to withdraw from investments in alternative telecoms
network operations (altnets).
• Dividend
• increased to 16.04 pence per share for full year, in line with stated
aim of 5% real growth per year.
Financial highlights Year ended Year ended Change
31 March 2002 31 March 2001
(restated)**
Turnover £4.4bn £3.8bn up 16%
Operating profit *
Electricity & Gas £947m £859m up 10%
Telecoms* £(72)m £(120)m
Total £875m £739m up 18%
Pre-tax profit * £582m £484m up 20%
Profit after tax and minority interests * £491m £295m up 66%
Earnings per share * 32.1p 20.0p up 61%
Dividend per share 16.04p 15.08p up 6.4%
* Before exceptional items and goodwill amortisation, including National Grid's
share of Energis' results for 6 months to 30 September 2001, as Energis has not
yet released results for the year to 31 March 2002
** Prior year numbers restated to reflect the adoption of FRS 19
James Ross, Chairman of National Grid, said:
'National Grid has once again delivered a strong operating performance from its
core energy businesses and taken further strategic steps that will materially
reinforce and increase the growth potential of the company.
'The acquisition of Niagara Mohawk more than doubled the size of our US business
and was immediately earnings enhancing before exceptional items and after
goodwill amortisation. The integration is proceeding well, and we are confident
of achieving our target returns on our enlarged US energy business.
'Our decision to withdraw from the altnet sector has been accompanied by full
write downs of our investments in this sector. We signalled these in our half
year results and year end trading statement and today add the final element - a
full write down of our Energis Polska investment and provisions for all related
liabilities. Despite these disappointing exceptional charges, it is perhaps
worth recalling that, net of these and our cumulative share of losses in the
ventures, our overall investment in the altnet sector has generated over £1
billion of net value for shareholders. In the future, we will continue to
leverage our assets and expertise to provide infrastructure services to mobile
phone operators.
'Our proposed merger with Lattice will bring together two complementary
businesses and enable us to enhance the performance and returns of the combined
operations. In addition, the merged group's expertise in operating both gas and
electricity networks will significantly increase our growth potential.
'We enter the current financial year, therefore, with a stronger business, a
clear strategy and confidence in delivering increased value for our
shareholders. This is reflected in our dividend and our aim to deliver 5 per
cent real growth in dividends per share until 2006.'
(1) The statement that the merger will be earnings or earnings per share
enhancing should not, however, be interpreted to mean that earnings or earnings
per share in the first full financial year following the merger, or in any
subsequent period, will necessarily be greater than those for the relevant
preceding financial period.
This announcement contains certain statements that are neither reported
financial results nor other historical information. These statements are
forward-looking statements within the meaning of the safe-harbor provisions of
the federal securities laws of the United States. These forward-looking
statements rely on a number of assumptions and are subject to a number of risks
and uncertainties, many of which are outside the control of National Grid, that
could cause actual results to differ materially from those expressed in or
implied by such statements, such as future market conditions, currency
fluctuations, the behaviour of other market participants and the actions of
governmental regulators. Other factors that could cause actual results to differ
from those described in this announcement include the ability to integrate
Lattice Group plc successfully or to realise all of the synergies from such
integration or the failure to retain key management. For a more detailed
description of these assumptions, risks and uncertainties, please see National
Grid's filings with the United States Securities and Exchange Commission (and,
in particular, the 'Risk Factors' and 'Operating and Financial Review' sections
in its most recent annual report on Form 20F). Recipients are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
the date of this announcement. National Grid does not undertake any obligation
to publicly release any revisions to these forward-looking statements to reflect
events or circumstances after the date of this announcement.
Analyst presentation
Merrill Lynch, King Edward Hall, 2 King Edward Street, London EC1A 1HQ.
9:00am (UK time) today
Live telephone coverage of analyst presentation - password National Grid
Dial in number: + 44 (0) 20 8240 8241 & + 44 (0) 20 8240 8240
US call in number: + 1 703 925 2400
UK instant replay available until 30 June - passcode 619 262
Dial in number: + 44 (0) 20 8288 4459
Freephone number: 0500 637 880
US instant replay available until 30 June - passcode 619 262
Dial in number: + 1 703 736 7336
Live webcast of presentation will also be available on www.nationalgrid.com
Teleconference with Roger Urwin and Stephen Box
15.00 UK time (10.00 EST & 07.00 PST)
Dial in number: +44 (0) 20 8240 8243
US call in number: + 1 703 925 2400
UK instant replay available until 30 June - passcode 619 282
Dial in number: +44 (0) 20 8288 4459
Freephone number: 0500 637 880
US instant replay available until 30 June - passcode 619 282
Dial in number: + 1 703 736 7336
Photographs are available from midday on www.newscast.co.uk
Contact details
National Grid:
Investors
Marcy Reed +44 (0)20 7312 5779 +44 (0)7768 490807(m)
Terry McCormick +44 (0)20 7312 5785 +44 (0)7768 045139(m)
Louise Clamp +44 (0)20 7312 5783 +44 (0)7768 555641(m)
Bob Seega (US) +1 508 389 2598
Media
Clive Hawkins +44 (0)20 7312 5757 +44 (0)7836 357173(m)
Citigate Dewe Rogerson: +44 (0)20 7638 9571
Anthony Carlisle +44 (0)7973 611888(m)
Unless otherwise indicated, profit numbers are stated before exceptional items
and goodwill amortisation
GROUP RESULTS
National Grid Group increased its turnover by 16 per cent, or £0.6 billion, to
£4.4 billion. The majority of this increase was the first-time contribution from
the New York operation (formerly Niagara Mohawk) of National Grid USA, from 31
January 2002 to the year end.
Total operating profit for the year increased 18 per cent to £874.7 million,
representing strong performance from our regulated business in the UK and the
New England operation of National Grid USA, the first-time contribution of £83.1
million from the New York operation, and an £82.5 million reduction in our share
of losses from Intelig in Brazil. The operating profit includes our share of
Energis' results only for the 6 months ended 30 September 2001, as Energis has
not yet released results for the year ended 31 March 2002.
Profit before tax was up 20 per cent to £582.2 million (£484.3 million for the
year ended 31 March 2001).
The tax charge on the profit for the year, excluding exceptional items, was
£85.4 million after the release of £73.0 million of prior year tax provisions,
representing an effective tax rate of 17.4 per cent. In accordance with
Financial Reporting Standard (FRS) 19, the charge includes full provision for
deferred tax.
Profit after tax and minority interests was £490.5 million, up 66 per cent from
£295.3 million for the year ended 31 March 2001.
Earnings per share, excluding exceptional items and goodwill amortisation,
increased 12.1 pence to 32.1 pence. As a result of the exceptional charges noted
below, basic earnings per share fell 77.3 pence to a loss of 32.3 pence.
There have been substantial net post-tax exceptional charges of £893.4 million,
most of which were signalled at our half year results announcement and in our
year end trading statement. They comprise:
Write down of altnet joint ventures and associate (total £754.5 million):
• A £272.7 million charge (£290.4 million before tax) announced in November
2001 to write down fully the carrying value of our Latin American telecoms
investments and provide for all expected related liabilities.
• A net £372.0 million charge, before and after tax, relating to Energis. This
primarily represents the full write down of our 32.5 per cent shareholding.
• A £109.8 million charge, before and after tax, to write down fully the
carrying value of our investment in Energis Polska and provide for all
expected related liabilities, including a Euro125 million European Investment
Bank loan guarantee.
Organisational restructuring costs (total £72.9 million):
• US integration costs of £44.5 million (£74.8 million before tax).
• UK restructuring costs of £28.4 million (£40.5 million before tax).
Net financing and other costs (total £66.0 million):
• Exceptional profits of £32.6 million, before and after tax, arising
primarily from disposals of property and our interest in the Manx Cable
Company.
• A £92.5 million, before and after tax, non-cash charge in respect of our
share of the impact of the devaluation of the Argentine peso on Transener's
balance sheet.
• Other miscellaneous exceptional costs of £6.1 million, before and after tax.
Group net debt rose £4.3 billion to £8.2 billion. This increase was primarily
due to the acquisition of Niagara Mohawk. As a result, net interest, excluding
exceptional items, increased £37.4 million to £292.5 million. Interest cover,
excluding exceptional items, goodwill amortisation and the impact of
exchangeable bonds, was 3.6 times, compared to 3.5 times for the prior year.
Cash flow from operations for the year was £1.26 billion, up 55 per cent from
last year, largely as a result of improved operating profit and the recovery of
commodity costs incurred in prior periods. Capital expenditure, including
capitalised interest, increased to £593.3 million (£535.8 million for the year
ended 31 March 2001). The increase was primarily due to the continuing
implementation of the automated meter reading (AMR) programme in New England and
capital expenditure incurred by our operations in New York.
Final dividend
As announced on 22 April 2002, the Board is recommending a final dividend of
9.58 pence per ordinary share to be paid on 15 August to shareholders on the
register on 7 June. This brings the total dividend for the year to 16.04 pence
per ordinary share, a 6.4 per cent increase compared with last year, in line
with our aim to increase dividends by 5 per cent in real terms in each financial
year to 31 March 2006. This dividend per share is covered 2.0 times (2001: 1.3
times) by earnings per share excluding exceptional items and goodwill
amortisation.
REVIEW OF OPERATIONS
ELECTRICITY NETWORKS
UK Transmission
Since 1 April 2001, our transmission asset owner (TO) and system operator (SO)
functions have been separately regulated. TO revenues continue to be subject to
an RPI-x price control, effective until March 2006, while new annual incentive
scheme targets were agreed for our SO function as part of the New Electricity
Trading Arrangements (NETA).
UK Transmission achieved operating profits of £524.7 million, an increase of
£38.4 million, with our TO business contributing £467.4 million and the SO £57.3
million. This strong operating profit performance was driven by a reduction in
controllable costs and a much better than expected outcome under the new
Balancing Services Incentive Scheme (BSIS).
Following a review of our UK transmission operations, we have launched a series
of initiatives to deliver further savings across this business. These
initiatives resulted in a real reduction in our TO controllable costs of 8 per
cent during the year. We have already announced that we will be able to reduce
these costs by 30 per cent in real terms over the price control period, up from
our initial target to reduce costs by 20 per cent. Exceptional reorganisation
costs resulted primarily from the UK business review and amounted to £40.5
million before tax (£28.4 million after tax).
Following seven successive years of outperforming our targets under the
Transmission Services Scheme, we have performed well under the new BSIS. We
delivered incentivised costs £118.8 million below our target, contributing £46.3
million to SO operating profits, the remainder coming from a return on SO
assets. We have agreed a one-year extension of the BSIS scheme, with a lower
target for costs and higher sharing factors on gains and losses.
US Electricity and Gas
National Grid USA also performed strongly during the year, including an initial
operating profit contribution of £83.1 million from the New York operation
following the acquisition of Niagara Mohawk, completed on 31 January 2002.
Operating profits from energy delivery within our New England operation amounted
to £242.3 million, compared to £221.2 million last year.
Continued efficiency savings have resulted in a further 5 per cent underlying
reduction in real terms in distribution controllable costs, bringing the total
reduction to date to 16 per cent in real terms. This contributed to a £10.8
million increase in distribution profits. The remainder of the increase in
energy delivery profits was primarily driven by regulated returns on a higher
rate base in transmission.
As expected, operating profit from stranded cost recovery and generation in New
England continued its downward trend. The contribution from this and our New
England joint ventures was £49.4 million compared to £69.6 million the year
before, principally due to a one-off benefit of £15.2 million in Rhode Island
last year.
In New York, operating profits for the two months since acquisition amounted to
£83.1 million, including £66.8 million from our electricity business and £17.0
million from our gas business. These profits resulted in the acquisition of
Niagara Mohawk being immediately earnings enhancing after goodwill amortisation
but before exceptional integration costs. Exceptional integration costs were
£74.8 million before tax (£44.5 million after tax).
The pre-tax nominal return on our New England electricity business was 9.4 per
cent in the year to 31 March 2002, compared to 9.1 per cent in the prior year,
after adjusting for the £15.2 million one-time recovery of stranded costs in
Rhode Island. The improvement in return occurred notwithstanding the impact of a
sluggish economy (normalised kWh deliveries grew by just 0.25 per cent), service
quality penalties of £4.6 million, and costs associated with the acceleration of
AMR. We are on track to deliver our target of 10.5 per cent pre-tax nominal
return on our investment for the enlarged US business for the year to March
2005, largely through a further 20 per cent reduction in controllable costs.
These cost savings will result from the integration plan for our New York
operation, the introduction of AMR, and other performance improvements. Other
electricity operations
As expected, operating profit from UK Interconnectors was down £23.0 million to
£19.8 million. This reflects the replacement of the previous long-term contract
with EdF by a series of auctions of interconnector capacity combined with the
effect of low UK wholesale prices.
Our other electricity operations performed in line with last year, with our
overall share of operating profits from electricity joint ventures rising from
£35.3 million to £36.1 million. In Argentina, the devaluation of the peso
adversely affected Transener's balance sheet, since its borrowings are in US
dollars. As a result, we have accounted for our £92.5 million share of the joint
venture's non-cash exceptional foreign exchange losses.
TELECOMS
The Board has decided to withdraw from the altnet sector. Our focus going
forward will be on offering infrastructure services, primarily to mobile
telecommunications operators.
Energis and Energis Polska
These results include National Grid's share of Energis' unaudited results for
the six months ended 30 September 2001 only, as Energis has not yet released its
financial results for the year ended 31 March 2002. The collapse of the market
value of Energis has caused us to write-down fully the carrying value of our
32.5 per cent shareholding, contributing to a net exceptional charge of £372.0
million.
As Energis is withdrawing from operations in Continental Europe, we are seeking
either a new partner or a buyer for Energis Polska. We anticipate that the
future ownership of the joint venture will be resolved by the autumn. Given the
current market uncertainties, we have written down fully the carrying value of
our share of the joint venture and provided for all expected related
liabilities, including the full amount of the European Investment Bank (EIB)
loan guarantee. This resulted in an exceptional charge totalling £109.8 million.
Latin American telecoms businesses
Our share of operating losses related to our Latin American telecoms investments
fell sharply to £44.2 million, compared to £120.3 million for the previous year.
As announced in November 2001, we have reviewed these investments in the light
of sector and regional difficulties and have written down fully our investments
and provided for all expected related liabilities, a total of £290.4 million.
We continue to progress our exit from Intelig, Silica and Manquehue net. Given
the sector and regional difficulties, value recovery is uncertain but we are
confident that the outcome will be within the provisions we announced in
November.
INFRASTRUCTURE SERVICES
National Grid is well positioned to create shareholder value in the
infrastructure services business, targeted particularly at the mobile
telecommunications industry. This position will be strengthened by the proposed
addition of Lattice's SST business.
In the UK, GridCom signed a contract with Hutchison 3G to install 1,000 initial
sites, and discussions with other operators are at an advanced stage.
In the US, NEESCom continues to produce positive operating profits before
goodwill amortisation. Additionally, we believe that the US provides attractive
opportunities to replicate GridCom's successful model. We expect to launch this
business in the US during 2002.
PROPOSED MERGER WITH LATTICE
On 22 April 2002, we announced our intention to merge with Lattice to form
National Grid Transco. The merger will create a leading international energy
delivery company. Completion is targeted for the autumn of this year.
The merged group will utilise the complementary assets and skills of the
combined businesses of National Grid and Lattice to create value for
shareholders and benefits to our customers. We expect the merger to enhance
earnings per share, before exceptional integration costs, in the first full
financial year after completion(1).
The merger requires the approval of National Grid shareholders which will be
sought at an EGM, expected to be held on the same day as the National Grid AGM,
on 23 July 2002. In addition, the merger requires the approval of Lattice
shareholders and sanction of the High Court in relation to the Lattice scheme of
arrangement. Certain regulatory approvals are also required in the UK and these
are being progressed. The only US regulatory approval outstanding is that of the
Securities and Exchange Commission (under the Public Utility Holding Company Act
of 1935). We expect to have obtained all the necessary approvals by the autumn
of this year.
OUTLOOK
We are confident of delivering further improvements in operating performance
from our existing businesses. In addition, the proposed merger with Lattice will
enable us to strengthen profitability of the UK businesses and create a platform
for future growth.
In the UK, we continue to demonstrate our expertise in the operation of complex
regulated networks. This core business made excellent progress during the year
and will continue to add shareholder value and generate strong positive
cashflows in the future.
In the US, the acquisition of Niagara Mohawk represents an important step in the
continuing development of our US business. We will continue to take advantage of
opportunities provided by our rate plans and integration synergies to improve
performance and to achieve our target returns.
We also see opportunities to grow our infrastructure services businesses,
particularly for mobile telecommunications operators. The combination of GridCom
and Lattice's SST business will create the third largest independent provider of
communications towers and related services to mobile operators in the UK. We
have a similar opportunity to leverage our core business assets and skills in
the US.
Our confidence in the strength and prospects of our business allows us to
confirm our aim to deliver sustained real dividend growth, targeting an increase
in dividends per share by 5 per cent in real terms each year until 2006.
NATIONAL GRID GROUP plc
GROUP PROFIT AND LOSS ACCOUNT
Year ended 31 March 2002 2002 2001
(restated)
Notes £m £m
Group turnover
- Continuing operations 5(a) 3,921.9 3,799.7
- Acquisition 5(a) 479.1 -
---------- ----------
4,401.0 3,799.7
Operating costs (3,893.6) (3,094.2)
---------- ----------
Operating profit of Group undertakings
- Continuing operations 5(c) 505.7 705.5
- Acquisition 5(c) 1.7 -
Share of joint ventures' and associate's
operating loss (continuing operations) 5(c) (636.8) (96.0)
---------- ----------
Operating (loss)/profit
- Before exceptional items and goodwill
amortisation 5(b) 874.7 739.4
- Exceptional costs 6(a) (121.4) (45.3)
- Impairment of investments in joint
ventures and associate 6(b) (792.3) -
- Goodwill amortisation (90.4) (84.6)
---------- ----------
Total operating (loss)/profit - continuing
operations, including acquisition 5(c) (129.4) 609.5
Exceptional profit relating to
partial disposal of Energis 6(c) 20.1 243.3
Profit on disposal of investments 6(d) 10.6 20.1
Profit on disposal of tangible fixed assets 22.0 -
Net interest (excluding exceptional items) 7 (292.5) (255.1)
Net interest (exceptional items) 7 (92.5) -
---------- ----------
Net interest (total) 7 (385.0) (255.1)
(Loss)/profit on ordinary activities ---------- ----------
before taxation (461.7) 617.8
- Taxation (excluding exceptional items) 8 (85.4) (182.1)
- Taxation (exceptional items) 8 60.1 235.4
---------- ----------
Taxation (total) 8 (25.3) 53.3
---------- ----------
(Loss)/profit on ordinary activities after taxation (487.0) 671.1
Minority interests (6.3) (6.9)
---------- ----------
(Loss)/profit for the year (493.3) 664.2
Dividends 9 (264.6) (223.0)
---------- ----------
Retained (loss)/profit (757.9) 441.2
====== ======
NATIONAL GRID GROUP plc
GROUP PROFIT AND LOSS ACCOUNT (continued)
Year ended 31 March 2002
2002 2001
(Loss)/earnings per ordinary share Notes (restated)
Basic, on (loss)/profit for the year 10 (32.3)p 45.0p
Basic, on adjusted profit for the year* 10 32.1p 20.0p
Diluted, on (loss)/profit for the year 10 (32.3)p 43.0p
Diluted, on adjusted profit for the year* 10 32.1p 19.8p
* Adjusted profit excludes exceptional items
and goodwill amortisation
Dividends per ordinary share 9 16.04p 15.08p
GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
Year ended 31 March 2002
2002 2001
(restated)
Note £m £m
(Loss)/profit for the year (493.3) 664.2
Exchange adjustments (58.3) (14.7)
Tax on exchange adjustments 21.6 31.9
---------- ----------
Total recognised gains and losses relating
to the year (530.0) 681.4
---------- ======
Prior year adjustment 1 (802.3)
----------
Total gains and losses recognised since
last annual report (1,332.3)
======
NATIONAL GRID GROUP plc
SUMMARISED GROUP BALANCE SHEET
At 31 March 2002
2002 2001
(restated)
Note £m £m
Fixed assets
Intangible assets - goodwill 2,113.0 1,386.2
Tangible assets 9,121.7 5,617.3
Investments
- Joint ventures (net of impairment) 57.0 398.8
- Associate (net of impairment) - 401.9
- Other investments 241.3 145.1
---------- ----------
Total Investments 298.3 945.8
---------- ----------
11,533.0 7,949.3
---------- ----------
Current assets
Stocks 56.1 34.1
Debtors (due within one year) 1,527.9 880.4
Debtors (due after one year) 4,054.4 1,053.9
Assets held for exchange 16.6 16.6
Investment held for resale 15.4 -
Cash and deposits 212.6 271.2
---------- ----------
5,883.0 2,256.2
Creditors (due within one year) (2,969.3) (2,213.7)
---------- ----------
Net current assets 2,913.7 42.5
---------- ----------
Total assets less current liabilities 14,446.7 7,991.8
Creditors (due after one year) (8,118.0) (3,755.5)
Provisions for liabilities and charges (3,034.3) (1,521.0)
---------- ----------
Net assets employed 3,294.4 2,715.3
====== ======
Capital and reserves
Called up share capital 177.7 148.5
Share premium account 1,243.4 -
Merger reserve 359.5 303.1
Profit and loss account 1,416.0 2,221.9
---------- ----------
Equity shareholders' funds 11 3,196.6 2,673.5
Minority interests 97.8 41.8
---------- ----------
3,294.4 2,715.3
====== ======
NATIONAL GRID GROUP plc
SUMMARISED GROUP CASH FLOW STATEMENT
Year ended 31 March 2002
2002 2001
Note £m £m
Net cash inflow from operating activities 12 1,255.4 810.6
Dividends from joint ventures 12.8 20.3
Net cash outflow for returns on
investments and servicing of finance (357.5) (306.9)
Net corporate tax paid (7.3) (137.2)
Net cash outflow for capital
expenditure (464.4) (457.6)
Net cash outflow for
acquisitions and disposals (946.7) (582.2)
Equity dividends paid (229.5) (212.5)
---------- ----------
Net cash outflow before the management
of liquid resources and financing (737.2) (865.5)
Net cash inflow from the
management of liquid resources 336.2 775.2
Net cash inflow from financing 454.6 88.4
---------- ----------
Movement in cash and overdrafts 53.6 (1.9)
====== ======
NOTES
1. Prior year adjustments
The adoption of Financial Reporting Standard 19 'Deferred Tax' (FRS 19) has
resulted in a change in the method of accounting for deferred tax, from a
partial to a full provision basis. This change in accounting policy has been
reflected in the accounts as a prior year adjustment in accordance with
Financial Reporting Standard 3. As a result, equity shareholders' funds at 31
March 2001 have been reduced by £802.3m and the comparative amount of profit
after taxation for the year ended 31 March 2001 has been reduced by £104.8m.
Prior year numbers have also been revised for the presentation of the minority
interests' share of the results of associated undertakings. The minority
interests, which were previously reported within operating profit, net interest
and taxation, are now included within minority interests.
2. Acquisition of Niagara Mohawk Inc
On 31 January 2002, the acquisition of Niagara Mohawk was completed. The total
consideration of £2,186.5m was satisfied by the issue of shares of £1,269.9m and
cash, including acquisition costs, of £916.6m. The acquisition has been
accounted for using the acquisition method of accounting.
The provisional fair value attributed to the separately identifiable net assets
of Niagara Mohawk is £1,376.4m, resulting in goodwill of £810.1m being
recognised which is being amortised over 20 years. As a result of the
acquisition of Niagara Mohawk taking place late in the financial year, fair
values and goodwill are provisional and may be subject to revision during the
current financial year.
3. Group reconstruction
During the year, National Grid Group plc (formerly New National Grid plc) was
introduced as the new holding company of the National Grid Group by way of a
Scheme of Arrangement under section 425 of the Companies Act 1985. This
transaction has been accounted for as a group reconstruction and merger
accounting principles have been applied in the preparation of this statement.
The effect of this accounting treatment is to present the consolidated results
of National Grid Group plc as if National Grid Group plc had always been the
holding company of the Group.
4. Energis plc ('Energis')
In respect of the results included in the Group accounts for the year ended 31
March 2002 for the associate, Energis, the Group accounts only include the
Group's share of the unaudited results for the six month period ended 30
September 2001. The results of Energis for the year ended 31 March 2002 were not
available at the date of this announcement.
5. Segmental analysis
2002 2001
a) Turnover £m £m
Transmission - UK 1,241.8 1,315.6
Transmission - USA 208.2 194.7
Distribution - USA 1,678.5 1,519.0
Stranded costs recovery and generation-USA 251.5 334.9
Interconnectors - UK 63.1 83.6
Interconnectors - USA 45.5 47.9
Telecommunications 30.3 43.3
Other activities (i) 457.7 305.9
Sales between businesses (54.7) (45.2)
---------- ----------
3,921.9 3,799.7
Acquisition (Niagara Mohawk)
Electricity - USA 375.0 -
Gas - USA 104.1 -
---------- ----------
479.1 -
---------- ----------
Group turnover - continuing operations 4,401.0 3,799.7
====== ======
Europe 1,729.3 1,696.6
North America 2,671.7 2,103.1
---------- ----------
4,401.0 3,799.7
====== ======
(i) Turnover primarily comprises EnMo, which provides the On-the-day Commodity
Market for gas trading in Great Britain, and contracting activities.
Stranded costs recovery
Under settlement agreements reached as part of industry restructuring, National
Grid USA is allowed to recover its costs (net of sales proceeds) and, where
applicable, a return on those costs, associated with its ongoing efforts to exit
the generation business.
5. Segmental analysis (continued)
2002 2001
(restated)
b) Operating profit - before exceptional items and goodwill £m £m
amortisation
Transmission - UK 524.7 486.3
Transmission - USA 60.3 49.6
Distribution - USA 165.6 154.8
Stranded costs recovery and generation - USA 44.3 61.7
Interconnectors - UK 19.8 42.8
Interconnectors - USA 17.3 22.3
Interconnectors - Other - (0.1)
Telecommunications (17.2) (3.0)
Other activities (4.8) 6.7
---------- ----------
810.0 821.1
Acquisition (Niagara Mohawk)
Electricity - USA 66.8 -
Gas - USA 17.0 -
Other - USA (0.7) -
---------- ----------
83.1 -
---------- ----------
Group undertakings 893.1 821.1
---------- ----------
Telecommunications - Energis (3.7) 4.4
Telecommunications - Intelig (35.5) (118.0)
Telecommunications - Other (15.3) (3.4)
Other electricity activities 36.1 35.3
---------- ----------
Joint ventures and associate (18.4) (81.7)
---------- ----------
Total operating profit - before exceptional items and
goodwill amortisation 874.7 739.4
====== ======
Europe 511.3 545.0
North America 378.3 288.0
Latin America (19.3) (97.8)
Rest of the World 4.4 4.2
---------- ----------
874.7 739.4
====== ======
Electricity 931.2 860.4
Gas 15.2 (1.0)
Telecommunications (71.7) (120.0)
---------- ----------
874.7 739.4
====== ======
5. Segmental analysis (continued) 2002 2001
c) Operating profit - after exceptional items and goodwill (restated)
amortisation £m £m
Transmission - UK 484.9 486.3
Transmission - USA 48.0 37.6
Distribution - USA 110.5 101.8
Stranded costs recovery and generation - USA 44.3 61.7
Interconnectors - UK 19.8 42.8
Interconnectors - USA 17.3 22.3
Interconnectors - Other - (0.1)
Telecommunications (21.6) (7.3)
Other activities (11.5) 5.7
Impairment of investments in joint ventures and associate (186.0) -
Exceptional costs - USA - (45.3)
---------- ----------
505.7 705.5
Acquisition (Niagara Mohawk)
Electricity - USA 61.4 -
Gas - USA 15.8 -
Other - USA (0.7) -
Exceptional Costs - USA (74.8) -
---------- ----------
1.7 -
---------- ----------
Group undertakings 507.4 705.5
---------- ----------
Telecommunications - Energis (407.5) (9.4)
Telecommunications - Intelig (151.7) (118.0)
Telecommunications - Other (113.7) (3.9)
Other electricity activities 36.1 35.3
---------- ----------
Joint ventures and associate (636.8) (96.0)
---------- ----------
Total operating profit - after exceptional items and
goodwill amortisation (129.4) 609.5
====== ======
Europe (48.8) 531.2
North America 225.1 172.4
Latin America (310.1) (98.3)
Rest of the World 4.4 4.2
---------- ----------
(129.4) 609.5
====== ======
Electricity 811.9 749.1
Gas 14.0 (1.0)
Telecommunications (880.5) (138.6)
Exceptional costs - USA (74.8) -
---------- ----------
(129.4) 609.5
====== ======
6. Exceptional items
a) Exceptional costs
Exceptional costs incurred of £121.4m (£79.0m after tax) comprise restructuring
costs incurred as a result of the acquisition of Niagara Mohawk amounting to
£74.8m (£44.5m after tax), a business reorganisation within the UK amounting to
£40.5m (£28.4m after tax) and other exceptional costs of £6.1m (£6.1m after
tax).
b) Impairment of investments in joint ventures and associate
The exceptional charge of £792.3m (£774.6m after tax) relates to the write down
of the Group's investments in its telecoms joint ventures and associate. The
exceptional charge comprises a write-down of the carrying value of these
investments of £606.3m (£588.6m after tax) to their estimated recoverable
amounts, and the recognition of related liabilities of £186.0m (£186.0m after
tax).
c) Partial disposal of Energis
The exceptional profit of £20.1m (£20.1m after tax) relating to the partial
disposal of Energis arises from a reduction in the Group's interest in Energis
as a result of the issue of shares by Energis relating to the acquisition by
Energis of further shares in Ision.
d) Profit on disposal of investments
The exceptional profit of £10.6m (£10.6m after tax) relates to the net gain on
the disposal of a joint venture.
e) Exceptional net interest charge
As a result of the devaluation of the Argentinean Peso, the Group has recognised
its share of a joint venture's exceptional financing related foreign exchange
cost of £92.5m (£92.5m after tax).
7. Net interest
2002 2001
(restated)
£m £m
Interest payable and similar charges 346.4 350.1
Interest capitalised (25.7) (20.7)
Interest receivable and similar income (72.6) (112.9)
---------- ----------
248.1 216.5
Joint ventures and associate (including exceptional
charge) 136.9 38.6
---------- ----------
385.0 255.1
====== ======
Comprising:
Net interest, excluding exceptional net interest 292.5 255.1
Exceptional net interest (note 6 e) 92.5 -
---------- ----------
385.0 255.1
====== ======
8. Taxation
2002 2001
(restated)
£m £m
Tax on profit for the year 98.3 (51.3)
Adjustment in respect of prior years (73.0) (2.0)
---------- ----------
25.3 (53.3)
====== ======
Comprising:
Taxation - excluding exceptional items 85.4 182.1
Taxation - exceptional tax credit - (229.5)
Taxation - exceptional items (60.1) (5.9)
---------- ----------
25.3 (53.3)
====== ======
9. Dividends
2002 2001 2002 2001
pence pence £m £m
(per ordinary share)
Interim 6.46 6.05 95.6 89.5
Proposed final 9.58 9.03 169.0 133.5
---------- ---------- ---------- ----------
16.04 15.08 264.6 223.0
====== ====== ====== ======
The proposed final dividend of 9.58p per ordinary share will be paid on 15
August 2002 to shareholders on the register on 7 June 2002.
10. (Loss)/earnings per ordinary share
Basic loss per ordinary share for the year ended 31 March 2002 of 32.3p (2001:
earnings of 45.0p (restated)) is calculated based on a loss for the year of
£493.3m (2001: profit of £664.2m (restated)) and 1,526.8m (2001: 1,475.8m)
shares - being the weighted average number of shares in issue during the year,
excluding the shares held by employee share trusts.
Basic earnings per ordinary share on the adjusted profit for the year ended 31
March 2002 of 32.1p (2001: 20.0p (restated)), excludes exceptional items and
goodwill amortisation totalling £983.8m (2001: £368.9m (net credit and
restated)), and is based on earnings of £490.5m (2001: £295.3m (restated)).
For the purposes of calculating diluted loss/earnings per share, loss/earnings
and the weighted average number of shares have been adjusted for the effects of
all dilutive potential ordinary shares. In respect of 2002, there is no dilutive
impact.
11. Reconciliation of movement in equity shareholders' funds
2002 2001
(restated)
£m £m
(Loss)/profit for the year (493.3) 664.2
Dividends (264.6) (223.0)
---------- ----------
(757.9) 441.2
Issue of ordinary shares 1,317.7 0.9
Exchange adjustments (58.3) (14.7)
Tax on exchange adjustments 21.6 31.9
---------- ----------
Net increase in equity shareholders' funds 523.1 459.3
Equity shareholders' funds at start of year 2,673.5* 2,214.2*
---------- ----------
Equity shareholders' funds at end of year 3,196.6 2,673.5
====== ======
* originally £3,475.8m (2001: £2,909.0m) before deducting prior year adjustment
of £802.3m (2001 : £694.8m)
12. Net cash inflow from operating activities
2002 2001
(restated)
£m £m
Operating profit of Group undertakings 507.4 705.5
Depreciation and amortisation 436.9 380.0
Impairment of investments in joint ventures 186.0 -
Profit on disposal of tangible fixed assets - (6.6)
Decrease/(increase) in stocks 14.0 (7.9)
Decrease/(increase) in debtors 203.0 (189.8)
Decrease in creditors (108.6) (55.3)
Increase/(decrease) in provisions 10.5 (11.7)
Other 6.2 (3.6)
---------- ----------
1,255.4 810.6
====== ======
13. Movement in net debt
2002 2001
£m £m
Movement in cash and overdrafts 53.6 (1.9)
Cash inflow from the management of liquid resources (336.2) (775.2)
Increase in borrowings (442.4) (81.4)
---------- ----------
Change in net debt resulting from cash flows (725.0) (858.5)
Acquisition of Group undertakings (3,621.3) (162.2)
Certificates of tax deposit surrendered - (3.6)
Exchange adjustments 19.9 (218.0)
Other non-cash movements 3.9 (12.3)
---------- ----------
Movement in net debt in the year (4,322.5) (1,254.6)
Net debt at start of year (3,918.2) (2,663.6)
---------- ----------
Net debt at end of year (8,240.7) (3,918.2)
====== ======
14. Differences between UK and US Generally Accepted Accounting
principles ('GAAP')
The Group prepares its consolidated accounts in accordance with UK GAAP, which
differ in certain significant respects from US GAAP. The significant adjustments
necessary to restate net income and equity shareholders' funds in accordance
with US GAAP are set out below.
a) Net income
2002 2001
(restated)
£m £m
Profit for the year, excluding exceptional items 400.1 210.7
Exceptional items after taxation (893.4) 453.5
---------- ----------
Net (loss)/income under UK GAAP (493.3) 664.2
---------- ----------
Adjustments to conform with US GAAP
Deferred taxation 6.7 (27.2)
Pensions 29.4 18.9
Share option schemes (1.6) (5.3)
Tangible fixed assets 3.4 3.4
Financial instruments (82.8) (55.4)
Issue costs associated with EPICs (1.8) (1.8)
Carrying value of EPICs liability 203.1 152.5
Severance and integration costs 67.4 23.6
Recognition of income (4.7) (17.0)
Goodwill 78.4 (1.6)
Share of joint ventures' and associate's adjustments to
conform with US GAAP 37.0 56.0
Other (4.3) -
---------- ----------
Total US GAAP adjustments 330.2 146.1
---------- ----------
Net (loss)/income under US GAAP (163.1) 810.3
====== ======
Basic (loss)/earnings per share - US GAAP (10.7)p 54.9p
Diluted (loss)/earnings per share - US GAAP (10.7)p 52.1p
Net (loss)/income under US GAAP includes net losses of £892.9m (2001 net gains
of £527.9m) which are treated as exceptional items under UK GAAP.
14. Differences between UK and US Generally Accepted Accounting
Principles ('GAAP') (continued)
b) Equity shareholders' funds 2002 2001
(restated)
£m £m
Equity shareholders' funds under UK GAAP 3,196.6 2,673.5
---------- ----------
Adjustments to conform with US GAAP
Deferred taxation (51.7) (47.2)
Pensions 216.5 178.7
Shares held by employee share trusts (45.7) (10.2)
Ordinary dividends 169.0 133.5
Tangible fixed assets (38.2) (41.6)
Financial instruments (81.5) (45.5)
Issue costs associated with EPICs 1.9 3.7
Carrying value of EPICs liability 240.6 37.5
Severance liabilities 14.8 -
Recognition of income (21.7) (17.0)
Regulatory assets 34.4 -
Goodwill 105.1 34.1
Share of joint ventures' and associate's adjustments to
conform with US GAAP 20.7 21.3
Other adjustments (1.8) (0.8)
---------- ----------
Total US GAAP adjustments 562.4 246.5
---------- ----------
Equity shareholders' funds under US GAAP 3,759.0 2,920.0
====== ======
National Grid has adopted Statement of Financial Accounting Standards (SFAS) 133
'Accounting for Derivative Instruments and Hedging Activities' and SFAS 142
'Accounting for Goodwill and Other Intangible Assets' with effect from 1 April
2001. However, the associate has not applied SFAS 142 with effect from 1 April
2001, and consequently the US GAAP results reflect National Grid's share of the
associate's goodwill amortisation.
SFAS 133, as amended by SFAS 137 and 138, establishes accounting and reporting
standards for derivative instruments and hedging activities. The effect of
adopting SFAS 133 at 1 April 2001 has been to reduce US GAAP net income and
equity shareholders' funds by £13.9m (net of tax).
SFAS 142 requires that goodwill should no longer be amortised and that it must
be reviewed for impairment ('transitional goodwill impairment test') within six
months of adoption, and annually thereafter. The transitional goodwill
impairment test conducted at 1 April 2001, and the annual impairment test
conducted at 31 March 2002 revealed that National Grid had no impairment to
recognise. If SFAS 142 had been in effect for the year ended 31 March 2001,
reported net income under US GAAP would have been higher by £70.9m.
15. Basis of preparation
The financial information contained in this announcement, which does not
constitute statutory accounts as defined in Section 240 of the Companies Act
1985, has been derived from the statutory accounts for the year ended 31 March
2002, which will be filed with the Registrar of Companies in due course. The
auditors' report on these accounts is unqualified and did not contain a
statement under Section 237(2) or (3) of the Companies Act 1985.
This preliminary results announcement was approved by the Board of Directors on
29 May 2002.
This information is provided by RNS
The company news service from the London Stock Exchange
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