Final Results
National Grid Transco PLC
20 May 2004
20 May 2004
National Grid Transco plc
Results for the year ended 31 March 2004
Strong growth - underlying earnings per share up 23%
•underlying profit before tax up 14% to £1,416 million
•delivery of substantial cost savings
•strong underlying cashflow from operations of £3.1 billion
•net debt down to £12.6 billion
•recommended dividend for year up 15%; 7% pa growth targeted until March
2008
Financial highlights Years ended 31 March
£ million 2004 2003 % Change
Business results *
Underlying operating profit 2,238 2,185 2
Underlying pre-tax profit 1,416 1,246 14
Underlying earnings 1,064 870 22
Underlying earnings per share 34.7p 28.3p 23
Statutory results
Operating profit 1,862 1,736 7
Pre-tax profit 1,362 667 104
Earnings 1,099 391 181
Earnings per share 35.8p 12.7p 182
Dividend per share 19.78p 17.20p 15
Net debt (at 31 March) 12,632 13,878 (9)
* 'Business results' represent the primary measures used by management and are
presented before goodwill amortisation and exceptional items. Management
believes that exclusion of these items provides a better comparison of results.
Unless otherwise stated, all financial commentaries in this Announcement are on
a 'business results basis' and are preceded by the prefix 'underlying'.
Reconciliations of these measures to statutory measures are provided in the
Group Profit & Loss Account, notes 5a and 5b and the Group Cash Flow Statement.
Further detail is provided on our website (www.ngtgroup.com).
Expenditure on the replacement of UK gas mains ('repex') of £388m in the year
(£405m last year) is fully expensed for accounting purposes and is tax
deductible. However, for regulatory purposes, half the costs are recovered in
current revenues and half are added to the regulatory asset base. The effect of
removing half of the repex, net of tax, from earnings is equivalent to
increasing earnings per share by 4.4p and 4.6p for each of the annual results
shown above, respectively.
Sir John Parker, Chairman, said:
'These excellent results demonstrate the successful delivery of our strategy and
the quality of our operational performance in both the UK and US. We are
delighted to deliver over £1 billion in earnings for the first time.
'Our strong financial performance has been matched by our endeavours to operate
our business in a responsible manner and we were pleased to be ranked 1st in
Business in the Community's 2003 Corporate Responsibility Index.
'Safety and network reliability are, as always, top priorities, and we have
invested over £1.8 billion this year in our networks. We have achieved further
reductions in safety incidents across the Group, whilst maintaining high
standards of service. The power cuts in London and the West Midlands last
summer, which we very much regret, are isolated exceptions to an excellent
performance, and we are continuing to work with Ofgem on their investigation.
Despite these events, our UK electricity reliability performance remains at
world class levels - delivering 99.9997% of the energy demanded during the year.
'The sales process for five of our gas distribution networks is proceeding well
and we expect final bids this summer. As we made clear from the outset, we will
sell no more than four networks and will only proceed if those sales maximise
value.
'Our financial strength, as demonstrated by these results, combined with our
confidence in the future prospects of our businesses enable the Board to
recommend a 15% increase in the dividend this year and to target 7% per annum
dividend growth for each of the next four years to March 2008.'
NATIONAL GRID TRANSCO plc
Turnover from continuing activities was broadly unchanged at £8.9 billion.
Underlying operating profits rose by 2% from £2,185m to £2,238m, equivalent to
4% at constant USD/GBP exchange rates. We have delivered significant reductions
in controllable costs, improved the performance of Gridcom, and benefited from
exiting a number of non-core businesses. A particularly strong operating
performance and increased revenues in UK gas distribution more than offset the
adverse impact of year to year weather patterns in the US, increased UK pensions
costs, and lower profits from the recovery of US stranded costs.
Underlying net interest expense was £822m, down from £939m last year.
Underlying operating profit interest cover was 2.7 times, compared to 2.3 times
last year. Interest cover, based on our statutory results was 2.7 times,
compared to 1.7 times last year.
Underlying profit before tax was up 14% from £1,246m to £1,416m.
The tax charge on underlying profit for the year was £350m, representing an
effective tax rate of 25%.
Underlying earnings were £1,064m, up from £870m last year. Underlying earnings
per share were up 23% to 34.7p from 28.3p last year.
Expenditure on the replacement of old metallic gas mains in the UK ('repex')
totalled £388m in the year (£405m last year). For regulatory purposes, half the
costs are recovered in current revenues and half are added to the regulatory
asset base upon which we earn an allowed return. However, for accounting
purposes repex is fully expensed and is tax deductible. In 2004, the effect of
removing half of the repex, net of tax, from earnings is equivalent to
increasing earnings per share by 4.4p.
Our businesses remain strongly cash generative, with underlying cashflow from
operations for the year broadly unchanged at £3.1 billion.
Capital expenditure on continuing operations, including capitalised interest,
was maintained at £1.5 billion and included £136m for investments in our Isle of
Grain LNG and Basslink projects.
There were net exceptional gains (including both operating and non-operating
exceptional items) totalling £45m before tax, comprising:
•A credit of £226m (before and after tax) representing the realisation of
a deferred gain on Energis shares held to redeem the EPIC bond;
•Gains on sales of property and other tangible fixed assets of £96m
(before and after tax);
•Restructuring costs of £249m (£170m after tax), including £100m for US
distribution and transmission, £101m for UK distribution, £14m for UK
transmission, and £34m for other businesses; and
•Recognition of additional UK environmental costs of £28m (before and
after tax).
After exceptional gains and goodwill amortisation, basic earnings per share were
35.8p, up from 12.7p last year.
Group net debt was £12.6 billion at 31 March 2004, down £1.2 billion from last
year, with the weaker US dollar and EPIC bond redemption contributing £0.7
billion and £0.2 billion respectively to the overall decrease.
REVIEW OF OPERATIONS
We have delivered our previously promised merger savings and each of our
businesses has delivered improvements in operating efficiency, together
resulting in substantial cost savings across the Group compared to last year.
The quality of our earnings is underpinned by the length and stability of
regulatory frameworks in the US and the UK. In the UK, there have been a number
of recent positive developments. Ofgem has confirmed that where additional
capital expenditure is demonstrated to be efficiently incurred during the course
of a price control period, this will be added to the regulatory asset base and
be considered for a retroactive return allowance. In addition, Ofgem is moving
to a rolling 5-year cost savings mechanism, aligning the gas and electricity
transmission price control reviews in 2007, and moving the gas distribution
review to 2008.
UK GAS DISTRIBUTION
Underlying operating profits from UK gas distribution increased from £554m to
£729m, primarily as a result of a £103m reduction in controllable costs and an
£84m increase in revenues, somewhat offset by a £23m increase in pension deficit
accounting charges.
Over the past two years, the level of controllable costs within the business has
been reduced by 20% in real terms, more than half way to our targeted reduction.
The sales process for five of our gas distribution networks is proceeding well
and we expect final bids this summer. As we made clear from the outset, we will
sell no more than four of our networks and will only proceed if those sales
maximise value.
ELECTRICITY AND GAS TRANSMISSION
Underlying operating profit from UK electricity and gas transmission was £769m
compared to £820m last year.
We had strong performance from the UK transmission business during the year and
reduced controllable costs by 4% in real terms in line with our targets. The
strength of our performance, however, was masked by the implementation of a
charging reform (known as 'Plugs') which reduced underlying operating profit by
£22m. This charge will be more than offset by increased operating profits
arising from Plugs in future years. In addition, we incurred an increased
depreciation charge of £27m. Despite tougher regulatory targets in both the
electricity and the gas system operator (SO) incentive schemes, we delivered
operating profits of £52m (down £8m from last year) from these.
In the US, our transmission business delivered underlying operating profits of
£133m compared to £128m last year, with one-off benefits more than offsetting
the impact of a weaker US dollar.
GridAmerica, the first multi-system independent transmission company in the US,
added the operations of Ameren on 1 May 2004 to those already managed for
FirstEnergy and Northern Indiana Public Service Company, having received
regulatory approvals in March. Together, these assets comprise over 14,000 miles
of transmission lines, serving an area almost as large as England and Wales. In
addition, the FERC continues to take steps to encourage participation in
Regional Transmission Organisations (RTOs) and has recently approved key
elements of the New England RTO filing that we made last autumn.
US ELECTRICITY AND GAS DISTRIBUTION
Underlying operating profit from US electricity and gas distribution (excluding
stranded cost recovery) was £363m this year, down from £401m last year.
Weather adjusted electricity distribution volumes were up 0.8% (including a 4.6%
increase in the important domestic sales), contributing £22m to underlying
operating profit, and controllable costs were reduced by a further £12m.
Offsetting these benefits were the continued weakness of the dollar (£20m), a
return to more normal weather (£27m) and the adverse impact of bad debt (£9m)
and other one off items (£16m).
Savings from the integration of our operations in New York and New England
continue to be delivered in line with our targets. Over the past two years, we
have reduced controllable costs by 10% in real terms. Monthly costs as at March
2004 were running at an annualised reduction of 15%.
As expected, underlying operating profit from US stranded cost recovery declined
from £170m to £134m, including a £8m decrease due to the weaker dollar.
OTHER BUSINESSES
Across our other businesses, underlying operating profit for the year was £110m
as compared to £112m last year.
Gridcom has cut its costs in the UK while growing revenues in both the UK and US
allowing it to deliver underlying operating profits of £6m, a £29m improvement
on last year. The continued rapid expansion of the mobile telecoms industry
should create significant opportunities for growth.
Our metering business delivered underlying operating profits of £81m, down £24m
from last year. The key variances were an increase in the depreciation charge
and start-up losses relating to our competitive metering business. Looking
ahead, we have successfully secured long-term contracts including a new pricing
structure with gas suppliers, covering substantially all of Transco's domestic
meters, to secure a long-term revenue stream.
Last year, we had the benefit of the £10m pension credit and an £8m greater
contribution from our electricity joint ventures. Losses at Fulcrum connections
were £13m greater than in the previous year. Discontinued businesses, including
discontinued joint ventures, had no impact on underlying operating profits,
after a loss of £46m in the previous year.
We continue to make good progress on construction of our LNG import terminal at
the Isle of Grain and the Basslink project in Australia. As at 31 March 2004, we
had invested almost half of our £410m investment programme for these projects
which provide us with new growth opportunities in the area of infrastructure
development. We expect to complete these projects during 2005.
PENSIONS
As announced at our half-year results, the actuarial valuation of the Lattice
Group Pension Scheme as at 31 March 2003, covering current and former UK gas
employees and other former Lattice businesses (the 'Lattice Scheme'), has been
completed. This valuation resulted in an actuarial deficit of £879m before tax
(£615m after tax). Going forward, annual assessments of this scheme will be
carried out. It has been agreed that funding of this deficit will be deferred
until the results of the 2007 actuarial valuation are known. Meanwhile, the
Company's cash contributions for the ongoing cost of the Lattice Scheme are
being made at a rate of some 22% of pensionable payroll.
A new SSAP 24 actuarial valuation for the Lattice Scheme resulted in a SSAP 24
charge of £144m, compared to £70m last year.
FRS 17 has not yet been implemented and the 2004 accounts have been prepared
under SSAP 24. At 31 March 2004, the FRS 17 deficit (net of deferred tax) in
respect of all our Group pension schemes was £1,563m, down from £2,262m at 31
March 2003.
MANAGEMENT CHANGES
As previously announced, Rick Sergel will retire as Group Director, US
Distribution at our Annual General Meeting on 26 July 2004. Michael Jesanis,
currently Chief Operating Officer of our US distribution business, will then
join the NGT Board and assume Rick's responsibilities.
OUTLOOK AND DIVIDEND POLICY
With our businesses performing well, we are confident of the future prospects
for the Group.
This confidence and the Group's solid financial position reflected in these
results allows the Board to recommend a 15% increase in the full year dividend
to 19.78p per ordinary share and to target an increase in dividends per ordinary
share expressed in sterling of 7% in each financial year to 31 March 2008. A
final dividend of 11.87p per ordinary share ($1.0500 per American Depositary
Share (ADS)) will be paid on 23 August 2004 to shareholders on the register on 4
June 2004.
CONTACT DETAILS
National Grid Transco:
Investors
Marcy Reed/ +44 (0)20 7004 3170 +44 (0)7768 490807(m)
Alexandra Morton +44 (0)7768 554879(m)
Terry McCormick +44 (0)20 7004 3171 +44 (0)7768 045139(m)
Louise Clamp +44 (0)20 7004 3172 +44 (0)7768 555641(m)
Bob Seega +1 508 389 2598 (US)
Media
Clive Hawkins +44 (0)20 7004 3147 +44 (0) 7836 357173
Citigate Dewe
Rogerson +44 (0)20 7638 9571
Anthony Carlisle +44 (0)7973 611888 (m)
An analyst presentation will be held at Cazenove, 20 Moorgate, London EC2R 6DA
at 8:45 am (UK time) today.
Live telephone coverage of analyst presentation - password National Grid Transco
Dial in number +44 (0)20 7081 9429
US call in number +1 800 897 3158
Telephone replay of the analyst presentation (available until 3 June 2004)
Dial in number +44 (0)20 7081 9440
Account number 869448
Recording number 6542831
Live webcast of presentation will also be available at www.ngtgroup.com
Photographs are available on www.newscast.co.uk
Cautionary statement
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 Section 27A of the Securities
Act 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 those
expressed in or implied by such statements. Many of these assumptions, risks and
uncertainties relate to factors that are beyond National Grid Transco's ability
to control or estimate precisely, such as delays in obtaining or adverse
conditions contained in regulatory approvals, competition and industry
restructuring, changes in economic conditions, currency fluctuations, changes in
interest and tax rates, changes in energy market prices, changes in historical
weather patterns, changes in laws, regulations or regulatory policies,
developments in legal or public policy doctrines, technological developments,
the failure to retain key management, the availability of new acquisition
opportunities or the timing and success of future acquisition opportunities.
Other factors that could cause actual results to differ materially from those
described in this announcement include the ability to integrate the US and UK
businesses acquired by or merged with National Grid Transco or to continue to
realise the expected synergies from such integrations, the failure for any
reason to achieve reductions in costs or to achieve operational efficiencies,
unseasonable weather impacting on demand for electricity and gas, the behaviour
of UK electricity market participants on system balancing, the timing of
amendments in prices to shippers in the UK gas market, the performance of
National Grid Transco's pension schemes and the regulatory treatment of pension
costs, the impact of any potential separation and disposal by National Grid
Transco of any UK gas distribution network(s) and any adverse consequences
arising from outages on or otherwise affecting energy networks owned and/or
operated by National Grid Transco. For a more detailed description of these
assumptions, risks and uncertainties, together with any other risk factors,
please see National Grid Transco'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 20-F).
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
Transco 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.
GROUP PROFIT AND LOSS ACCOUNT FOR
THE YEARS 2004 2003
ENDED 31 MARCH
Notes £m £m
============ ============
Group turnover - continuing 2a 8,875 8,833
operations
Group turnover - discontinued 2a 158 567
operations
------------ ------------
Group turnover 9,033 9,400
Operating costs (7,178) (7,788)
------------ ------------
Operating profit of Group
undertakings -
continuing operations 2c 1,855 1,806
Operating loss of Group
undertakings -
discontinued operations 2c - (194)
------------ ------------
1,855 1,612
------------ ------------
Share of joint ventures' operating
profit -
continuing operations 2c 7 15
Share of joint ventures' and
associate's
operating profit - discontinued
operations 2c - 109
------------ ------------
7 124
Operating profit ------------ ------------
- Before exceptional items and
goodwill amortisation 2b 2,238 2,185
- Exceptional items 3a (277) (347)
- Goodwill amortisation (99) (102)
------------ ------------
Total operating profit 1,862 1,736
Non-operating exceptional items 3b 322 (99)
Net interest
- Excluding exceptional items 4 (822) (939)
- Exceptional items 4 - (31)
------------ ------------
(822) (970)
Profit on ordinary activities ------------ ------------
before taxation
- Before exceptional items and
goodwill amortisation 1,416 1,246
- Exceptional items and goodwill
amortisation (54) (579)
------------ ------------
1,362 667
Taxation
- Excluding exceptional items (350) (373)
- Exceptional items 3d 89 128
------------ ------------
(261) (245)
------------ ------------
Profit on ordinary activities
after taxation 1,101 422
Minority interests
- Excluding exceptional items (2) (3)
- Exceptional items 3e - (28)
------------ ------------
(2) (31)
Profit for the year ------------ ------------
- Before exceptional items and
goodwill amortisation 1,064 870
- Exceptional items and goodwill 35 (479)
amortisation
------------ ------------
1,099 391
Dividends 6 (609) (530)
------------ ------------
Profit/(loss) transferred to/
(from) profit
and loss account reserve 490 (139)
============ ============
EARNINGS AND DIVIDENDS PER ORDINARY
SHARE FOR THE YEAR ENDED 31 MARCH
2004 2003
Notes Pence Pence
=========== ===========
Basic (including exceptional items
and goodwill amortisation) 5a 35.8 12.7
Adjusted basic (excluding
exceptional items and
goodwill amortisation) 5a 34.7 28.3
=========== ===========
Dividends per ordinary share 6 19.78 17.20
=========== ===========
GROUP STATEMENT OF TOTAL RECOGNISED GAINS
AND LOSSES
FOR THE YEARS ENDED 31 MARCH 2004 2003
£m £m
============ ============
Profit for the year 1,099 391
Exchange adjustments (417) (322)
Tax on exchange adjustments (12) 12
Unrealised gain on transfer of fixed
assets to a
joint venture (net of tax) - 6
------------ ------------
Total recognised gains and losses 670 87
============ ============
GROUP BALANCE SHEET AT 31 MARCH 2004 2003
(restated)
£m £m
============ ============
Fixed assets
Intangible assets 1,537 1,893
Tangible assets 16,706 16,847
Investments in joint ventures 19 44
Other investments 132 170
------------ ------------
18,394 18,954
------------ ------------
Current assets
Stocks 91 126
Debtors (amounts falling due within one
year) 1,588 1,811
Debtors (amounts falling due after more
than one year) 2,708 3,395
Assets held for exchange - 17
Cash and investments 616 601
------------ ------------
5,003 5,950
Creditors (amounts falling due within one
year) (4,513) (5,046)
------------ ------------
Net current assets 490 904
------------ ------------
Total assets less current liabilities 18,884 19,858
Creditors (amounts falling due after more
than one year) (13,464) (14,255)
Provisions for liabilities and charges (4,157) (4,406)
------------ ------------
Net assets employed 1,263 1,197
============ ============
Capital and reserves
Called up share capital 309 308
Share premium account 1,280 1,247
Other reserves (5,131) (5,131)
Profit and loss account 4,755 4,689
------------ ------------
Equity shareholders' funds 1,213 1,113
Minority interests 50 84
------------ ------------
Total shareholders' funds 1,263 1,197
============ ============
Net debt included above 12,632 13,878
------------ ------------
GROUP CASH FLOW STATEMENT FOR THE
YEARS ENDED 31 MARCH 2004 2003
Notes £m £m
============ ============
Net cash inflow from operating
activities
before exceptional items 7 3,058 3,154
Expenditure relating to
exceptional items (248) (328)
------------ ------------
Net cash inflow from operating 2,810 2,826
activities
Dividends from joint ventures 8 11
Net cash outflow for returns on
investments
and servicing of finance (692) (912)
Taxation
Net corporate tax paid (18) (112)
Capital expenditure and financial
investment
Net payments to acquire intangible
and tangible fixed assets (1,400) (1,518)
Receipts from disposals of
tangible fixed assets 146 111
------------ ------------
Net cash outflow for capital
expenditure and financial
investment (1,254) (1,407)
Acquisitions and disposals
Payments to acquire investments (26) (165)
Receipts from disposals of
investments 33 328
------------ ------------
Net cash inflow from acquisitions
and disposals 7 163
Equity dividends paid (560) (571)
------------ ------------
Net cash inflow/(outflow) before
the management of
liquid resources and financing 301 (2)
Management of liquid resources
Decrease in short-term deposits 8 (48) (138)
------------ ------------
Net cash outflow for the
management of liquid resources (48) (138)
Financing
Issue of ordinary shares 38 4
Payments to repurchase ordinary
shares - (97)
Termination of cross-currency
swaps 8 148 -
(Decrease)/increase in borrowings 8 (426) 267
------------ ------------
Net cash (outflow)/inflow (for)/
from financing (240) 174
------------ ------------
Movement in cash and overdrafts 8 13 34
============ ============
NOTES TO THE ACCOUNTS
1. 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
2004, 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.
New accounting standards
During the year the company has adopted UITF 38 'Accounting for ESOP trusts'.
The adoption of the standard constitutes a change in accounting policy and
therefore the impact has been reflected as a prior year adjustment in accordance
with FRS 3. The effect of the adoption of the standard is as follows:
Adoption of UITF 38
At 31 March 2003, the Group reported £39m of own shares within fixed asset
investments. On adoption of UITF 38, the own shares have been moved out of fixed
asset investments and into the profit and loss reserve. The adoption has
therefore resulted in a decrease in net assets of £34m at 31 March 2004 and £39m
at 31 March 2003.
Change in composition of segments
The segmental disclosures for the year ended 31 March 2003 have been restated to
reflect the current management responsibilities. The change in segment
composition is described in note 2.
This preliminary results announcement was approved by the Board of Directors on
19 May 2004.
2. Segmental analysis
Segmental information is presented in accordance with the management
responsibilities and economic characteristics of the Group's business
activities. Management responsibilities changed during the year ended 31 March
2004, and as a result segmental reporting has been aligned to reflect these
changes in responsibilities, resulting in a restatement of segmental results for
the year ended 31 March 2003. The principal effect of this is to reclassify the
results of the UK Interconnectors and LNG Storage businesses from 'UK
electricity and gas transmission' to 'Other activities'.
a) Group turnover
Years ended 31 March 2004 2003
(restated)
£m £m
============ ============
Continuing operations
UK gas distribution 2,245 2,089
UK electricity and gas transmission 1,867 1,893
US electricity transmission 318 407
US electricity distribution 3,537 3,446
US gas distribution 464 446
Other activities 906 922
Sales between businesses (462) (370)
------------ ------------
8,875 8,833
Discontinued operations 158 586
Sales between businesses - (19)
------------ ------------
158 567
------------ ------------
9,033 9,400
============ ============
UK 4,736 5,096
US 4,297 4,304
------------ ------------
9,033 9,400
============ ============
b) Operating profit - before exceptional items and goodwill amortisation
Years ended 31 March 2004 2003
(restated)
£m £m
============ ============
Group undertakings - continuing
operations
UK gas distribution 729 554
UK electricity and gas transmission 769 820
US electricity transmission 133 128
US electricity distribution 449 513
US gas distribution 48 58
Other activities 103 143
------------ ------------
2,231 2,216
Discontinued operations - (26)
------------ ------------
Operating profit of Group undertakings 2,231 2,190
------------ ------------
Joint ventures -
Continuing operations 7 15
Discontinued operations - (20)
------------ ------------
Operating profit/(loss) of joint ventures 7 (5)
------------ ------------
2,238 2,185
============ ============
UK 1,600 1,481
US 632 704
Latin America - (7)
Rest of the World 6 7
------------ ------------
2,238 2,185
============ ============
c) Operating profit - after exceptional items and goodwill amortisation
Years ended 31 March 2004 2003
(restated)
£m £m
============ ============
Group undertakings - continuing
operations
UK gas distribution 640 443
UK electricity and gas transmission 755 774
US electricity transmission 105 103
US electricity distribution 294 413
US gas distribution 37 49
Other activities 24 24
------------ ------------
1,855 1,806
Discontinued operations - (194)
------------ ------------
Operating profit of Group undertakings 1,855 1,612
------------ ------------
Joint ventures -
Continuing operations 7 15
Discontinued operations - 109
------------ ------------
Operating profit of joint ventures 7 124
------------ ------------
1,862 1,736
============ ============
UK 1,440 1,051
US 416 549
Latin America - 128
Rest of the World 6 8
------------ ------------
1,862 1,736
============ ============
3. Exceptional items
a) Operating
Years ended 31 March 2004 2003
£m £m
============ ============
Continuing operations
Restructuring costs (i) 249 203
Environmental provision (ii) 28 -
Merger costs (iii) - 105
------------ ------------
277 308
------------ ------------
Discontinued operations
Restructuring costs (i) - 6
Impairment of investments in joint
ventures and associate (iv) - (135)
Impairment of business (v) - 168
------------ ------------
- 39
------------ ------------
Total operating exceptional items 277 347
============ ============
i. The 2004 restructuring costs consist of £24m of costs associated with the
proposed disposal of UK-based distribution networks and other charges of
£225m. The other charges primarily relate to planned cost reduction
programmes in the UK and US businesses. The 2003 charges primarily relate to
costs incurred in reorganisations in the UK and US businesses (2004: £170m
after tax; 2003: £165m after tax).
ii. Following completion of site investigations in the UK, the environmental
obligations in respect of those sites have been adjusted resulting in the
recognition of an additional charge of £28m (£28m after tax).
iii.Represents employee and property costs associated with the Merger in 2003
of National Grid and Lattice (£76m after tax).
iv. The 2003 credits relate to Intelig and other telecoms joint ventures (£155m
after tax). The exceptional credits arising in 2003 substantially represent
the reversal of the Group's share of retained losses incurred by these joint
ventures during the period from 1 April 2002 to the date of disposal or the
date that equity accounting ceased. £129m of the pre-tax exceptional credits
have been reflected in 'Share of joint ventures' and associate's operating
profit/(loss) - discontinued operations'.
v. In 2003, following a review of the carrying value of certain of the Group's
telecoms assets, the Group incurred impairment charges that resulted in the
write-down of those assets to their estimated recoverable amounts and the
recognition of other related costs (£143m after tax).
b) Non-operating
Years ended 31 March 2004 2003
£m £m
============ ============
Continuing operations
Profit on disposal of tangible fixed (96) (48)
assets (vi)
Merger costs (vii) - 79
------------ ------------
(96) 31
------------ ------------
Discontinued operations
Gain on assets held for (226) -
exchange (viii)
Loss on sale or termination of - 68
operations (ix)
------------ ------------
(226) 68
------------ ------------
Total non-operating exceptional items (322) 99
============ ============
vi. The after tax profit on disposal of tangible fixed assets was £96m (2003:
£50m).
vii.The after tax transaction cost of the Merger between National Grid and
Lattice in 2003 was £71m.
viii.The gain on assets held for exchange relates to the profit recognised on
Energis shares delivered to Equity Plus Income Convertible Securities
(EPICs) bondholders on 6 May 2003 in settlement of all EPICs outstanding at
that date that had a carrying value of £243m. This transaction represents
the culmination of a deferred sale arrangement entered into in February
1999. The after tax gain on assets held for exchange was £226m.
ix. The charges for 2003 relate to losses on the sale of The Leasing Group £45m
and loss on closure of 186k of £23m. The after tax loss relating to the 2003
sale and closure amounted to £68m.
c) Financing costs
For 2003, the exceptional net interest cost of £31m (£31m after tax) relates to
the Group's share of foreign exchange losses incurred on foreign currency
borrowings by joint ventures amounting to £98m, partially offset by the Group's
share of a gain on net monetary liabilities of £67m. The gain on the net
monetary liabilities related to Citelec, a joint venture operating in Argentina,
and reflected the net gain arising on net monetary liabilities that were
financing the operation in a hyper-inflationary economy.
d) Taxation
The exceptional tax credit for 2004 of £89m includes a net credit amounting to
£10m relating to investments disposed of in prior periods.
e) Minority interests
The 2003 exceptional minority interest charge of £28m related to the Group's
share of the minority interest in the after taxation exceptional items of
Citelec, a joint venture, and primarily reflected the minority interest's share
of the gain on net monetary liabilities referred to in note 3(c).
4. Net interest
Years ended 31 March 2004 2003
£m £m
============ ============
Interest payable and similar charges 920 981
Unwinding of discount on provisions 11 13
Interest capitalised (55) (28)
------------ ------------
Interest payable and similar charges net
of interest capitalised 876 966
Interest receivable and similar income (58) (55)
------------ ------------
818 911
Joint ventures (2003 includes exceptional
net interest of £31m net of interest
capitalised £1m) 4 59
------------ ------------
822 970
============ ============
Comprising:
Net interest, excluding exceptional net
interest 822 939
Exceptional net interest (note 3(c)) - 31
------------ ------------
Net interest, including exceptional net 822 970
interest
============ ============
5. Earnings per share and adjusted profit on ordinary activities before taxation
a) Earnings per share
Year ended 31 March 2004
Weighted
Earnings Profit average
per for the number
share year of shares
pence £m million
=========== =========== ===========
Basic, including
exceptional items and
goodwill amortisation 35.8 1,099 3,070
Exceptional operating items
(note 3(a)) 9.0 277 -
Exceptional non-operating
items(note 3(b) (10.4) (322) -
Exceptional tax credit
(note 3(d)) (2.9) (89) -
Goodwill amortisation 3.2 99 -
------------ ------------ ------------
Adjusted basic, excluding
exceptional items and
goodwill amortisation 34.7 1,064 3,070
Dilutive impact of employee
share options (0.1) - 7
------------ ------------ ------------
Adjusted diluted, excluding
exceptional items and
goodwill amortisation 34.6 1,064 3,077
Exceptional operating items
(note 3(a)) (9.0) (277) -
Exceptional non-operating
items (note 3(b)) 10.4 322 -
Exceptional tax credit
(note 3(d)) 2.9 89 -
Goodwill amortisation (3.2) (99) -
------------ ------------ ------------
Diluted, including
exceptional
items and goodwill
amortisation 35.7 1,099 3,077
=========== =========== ===========
Year ended 31 March 2003
Weighted
Earnings Profit average
per for the number
share year of shares
pence £m million
=========== =========== ===========
Basic, including
exceptional items and
goodwill amortisation 12.7 391 3,078
Exceptional operating items
(note 3(a)) 11.3 347 -
Exceptional non-operating
items (note 3(b)) 3.2 99 -
Exceptional financing
charge (note 3(c)) 1.0 31 -
Exceptional tax credit
(note 3(d)) (4.1) (128) -
Exceptional minority
interest (note 3(e)) 0.9 28 -
Goodwill amortisation 3.3 102 -
------------ ------------ ------------
Adjusted basic, excluding
exceptional items and
goodwill amortisation 28.3 870 3,078
Dilutive impact of employee
share options (0.1) - 10
Dilutive impact of 4.25%
Exchangeable Bonds (0.3) 22 110
------------ ------------ ------------
Adjusted diluted, excluding
exceptional items and
goodwill amortisation 27.9 892 3,198
Exceptional operating items
(note 3(a)) (10.9) (347) -
Exceptional non-operating
items (note 3(b)) (3.1) (99) -
Exceptional financing
charge (note 3(c)) (1.0) (31) -
Exceptional tax credit
(note 3(d)) 4.0 128 -
Exceptional minority
interest (note 3(e)) (0.9) (28) -
Goodwill amortisation (3.2) (102) -
------------ ------------ ------------
Diluted, including
exceptional
items and goodwill
amortisation 12.8 413 3,198
=========== =========== ===========
In respect of the year ended 31 March 2003, the potential ordinary shares
related to the 4.25% Exchangeable Bonds are dilutive, as they would decrease
earnings from continuing operations. Consequently, the diluted earnings per
share are higher than basic earnings per share because of the effect of losses
arising from discontinued operations.
b) Reconciliation of adjusted profit on ordinary activities before taxation to
basic profit on ordinary activities before taxation
Years ended 31 March 2004 2003
£m £m
============ ============
Profit on ordinary activities before
taxation 1,362 667
Exceptional operating items (note 3(a)) 277 347
Exceptional non-operating items
(note 3(b)) (322) 99
Exceptional financing charge (note 3(c)) - 31
Goodwill amortisation 99 102
------------ ------------
Adjusted profit on ordinary activities
before taxation 1,416 1,246
============ ============
6. Dividends
The National Grid Transco plc dividends for the year ended 31 March 2004 of
£609m (2003: £530m) have been calculated on the basis of the number of National
Grid Transco plc ordinary shares in issue and eligible for dividend, based on an
ordinary interim dividend per share of 7.91p (2003: 6.86p) and the proposed
final 2004 dividend per share of 11.87p (2003: 10.34p). Total dividend per share
for the year ended 31 March 2004 was 19.78p (2003: 17.20p).
7. Reconciliation of operating profit to net cash inflow from operating
activities before exceptional items
Years ended 31 March 2004 2003
£m £m
============ ============
Operating profit of Group undertakings 1,855 1,612
Group exceptional operating items 277 476
Depreciation and amortisation 1,117 1,088
Increase in working capital (96) (6)
Decrease in provisions (95) (16)
------------ ------------
Net cash inflow from operating activities
before exceptional items 3,058 3,154
============ ============
8. Reconciliation of net cash flow to movement in net debt
Years ended 31 March 2004 2003
£m £m
============ ============
Movement in cash and overdrafts 13 34
Net cash outflow from the management of
liquid resources 48 138
Decrease/(increase) in borrowings 426 (267)
------------ ------------
Change in net debt resulting from cash
flows 487 (95)
Disposal of Group undertaking - (62)
Exchange adjustments 534 593
Settlement of EPICs (note 3(b)) 243 -
Other non-cash movements (18) (15)
------------ ------------
Movement in net debt in the year 1,246 421
Net debt at start of year (13,878) (14,299)
------------ ------------
Net debt at end of year (12,632) (13,878)
============ ============
During the year ended 31 March 2004 certain cross-currency swaps were terminated
and £209m of cash was received. £61m of this cash flow has been reported in the
cash flow statement within the total of net cash outflow for returns on
investments and servicing of finance amounting to £(692)m and £148m has been
reported within net cash inflow from financing. Termination of these
cross-currency swaps also necessitated a retranslation of Euro denominated debt
at new swapped rates amounting to £(140)m, which is reported within the net
exchange adjustments of £534m reported above.
9. Cash flows from discontinued operations
Included in the Cash Flow Statement are cash flows from discontinued operations
as set out below:
2004 2003
£m £m
============ ============
Net cash inflow/(outflow) from/(for)
operating activities 5 (70)
Net cash outflow for returns on
investments and
servicing of finance (2) (14)
Net cash outflow for taxation - (1)
Net cash outflow for capital expenditure
and financial investment (1) (123)
Net cash outflow for acquisitions and
disposals - (3)
------------ ------------
Net cash inflow/(outflow) before the
management
of liquid resources and financing 2 (211)
============ ============
10. Net debt
At 31 March 2004 2003
£m £m
============ ============
Cash and investments 616 601
Short-term debt including bank overdrafts (1,706) (2,246)
Long-term debt (11,542) (12,233)
------------ ------------
(12,632) (13,878)
============ ============
11. Exchange rates
The Group's results are affected by the exchange rates used to translate the
results of its US operations and US dollar transactions. The US dollar to
sterling exchange rates applied were:
2004 2003
============ ============
Closing rate applied at year end 1.83 1.58
Average rate applied for the year 1.68 1.59
============ ============
12. Differences between UK and US Generally Accepted Accounting Principles
('GAAP')
Summarised financial statements on a US GAAP basis will be set out in the Annual
Report and Accounts, and details of the principal differences between UK 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 would
have been required if US GAAP had been applied instead of UK GAAP.
Years ended 31 March 2004 2003
£m £m
============ ============
Net income under UK GAAP 1,099 391
Adjustments to conform with US GAAP
Elimination of Lattice pre-acquisition
results, measured under UK GAAP - 293
Merger costs - 32
Deferred taxation (24) 7
Pensions 7 35
Share option schemes (25) (29)
Fixed assets - purchase of Lattice (364) (169)
Impairment of Advantica - goodwill and
other intangible assets (31) -
Replacement expenditure (net of
depreciation) 383 166
Financial instruments 82 40
Carrying value of EPICs liability (226) 2
Severance and integration costs - (110)
Recognition of income (9) 2
Goodwill 99 70
Restructuring - purchase of Lattice 2 46
Share of joint ventures' adjustments - (27)
Other 5 2
------------ ------------
Total US GAAP adjustments (101) 360
------------ ------------
Net income under US GAAP 998 751
============ ============
Basic earnings per share - US GAAP 32.5p 31.9p
Diluted earnings per share - US GAAP 32.4p 31.3p
============ ============
b) Reconciliation of equity shareholders' funds to US GAAP
The following is a summary of the material adjustments to equity shareholders'
funds that would have been required if US GAAP had been applied instead of UK
GAAP.
At 31 March 2004 2003
(restated)
£m £m
============ ============
Equity shareholders' funds under UK GAAP 1,213 1,113
Adjustments to conform with US GAAP
Deferred taxation (1,868) (1,593)
Pensions (1,069) (1,800)
Ordinary dividends 366 317
Tangible fixed assets - reversal of
partial release of impairment provision (32) (35)
Fixed assets - impact of Lattice purchase
accounting and replacement expenditure 7,318 7,243
Financial instruments (285) (253)
Carrying value of EPICs liability - 243
Severance liabilities 3 3
Recognition of income (35) (27)
Regulatory assets 128 241
Goodwill - purchase of Lattice 3,820 3,829
Goodwill - other acquisitions 245 179
Restructuring - purchase of Lattice (4) (6)
Share of joint ventures' adjustments - (17)
Other 21 (11)
------------ ------------
Total US GAAP adjustments 8,608 8,313
------------ ------------
Equity shareholders' funds under US GAAP 9,821 9,426
============ ============
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Friday, 22nd November 2024
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