Interim Results - 6 Months to 30 September 1999

National Grid Group PLC 30 November 1999 THE NATIONAL GRID GROUP plc INTERIM RESULTS For the six months ended 30 September 1999 Highlights * Profit before tax up £20.6 million to £248.2 million and profit after tax up £15.6 million to £183.6 million * Basic EPS before the amortisation of goodwill up 9.6% to 12.6 pence * Interim dividend per share up 6.5% to 5.59 pence, a 5% real increase * Completion of the acquisition of NEES expected by early 2000 * Long term, incentive-based regulatory rate plan in Massachusetts announced separately today * NEES/EUA integration cost savings estimated at around $40 million per annum * Energis sales up 66%; EBITDA doubled; the acquisition of EnerTel by Energis and associated share placing results in approximately £130 million exceptional profit to be included in NGG full year results * NGG's 46% holding in Energis now worth £3.8 billion; IRR of 90% * Commercial launch of telecoms services in Brazil expected January 2000 Commenting on the results, James Ross, Chairman said: 'Our balanced strategy of investment in electricity and in alternative telecom networks delivers a combination of cash generation to support a progressive dividend policy and the potential for substantial capital appreciation. Our UK Transmission business continues to perform strongly. Its efficiency and productivity improvements position it well for the next regulatory review. All systems to ensure the secure operation and control of the transmission system are ready for the millennium date change. We are already positioned to deliver on two of the upsides associated with the NEES and EUA acquisitions. The introduction of regulatory incentivisation in Massachusetts which we announced today, and the significant savings that we anticipate the integration of NEES and EUA to achieve, underscore the rationale behind our strategy. We expect to complete the acquisition of NEES by early 2000, with EUA following soon after. Energis has made continued strong progress both operationally and strategically, and this is reflected in the value of our 46% stake. As we have made clear, we intend to realise the value of this investment within the next three years. In Brazil we are exploiting our telecoms network experience, where Intelig's long distance network is being put in place and its commercial launch is scheduled for January 2000. We view the future with confidence and see good opportunities to further our growth strategy. The changing profile of our Group is reflected in the new board structure we will introduce following the completion of the NEES acquisition.' Analysts' presentation At Trinity House, Tower Hill, London, EC3 at 9:30 am (UK time) today Contact National Grid +44 (0) 171 620 9191 David Jones (mobile: +44 (0) 468 490807) Stephen Box Jill Sherratt Citigate Dewe Rogerson +44 (0) 171 638 9571 Anthony Carlisle Sue Pemberton GROUP RESULTS The Group performed well with profit before tax up £20.6 million to £248.2 million and profit after tax up £15.6 million at £183.6 million. Total operating profit was down £2.8 million to £278.5 million. This reduction reflects the release of £15.2 million of provisions to last year's profit and loss account following the introduction of FRS 12, partially offset by higher Transmission and Interconnector profits and a reduction in our share of Energis' losses. Net interest charge was down £23.4 million to £30.3 million, reflecting the reduction in net debt resulting from the partial disposal of Energis in February 1999. The effective tax rate for the period, based on the expected effective tax rate for the financial year, was 26 per cent, down from 26.2 per cent for the previous financial year. Basic earnings per share were up 8.7 per cent to 12.5 pence and up 9.6 per cent to 12.6 pence before the amortisation of goodwill. The Group results have been affected by a change in accounting policy with regard to the capitalisation of interest. The Group now capitalises interest that is directly attributable to the construction of tangible fixed assets. This change in accounting policy has resulted in the restatement of prior period results and is more fully explained in note 1 to this announcement. Interim dividend The Board has declared an interim dividend of 5.59 pence per share to be paid on 17 January 2000 to shareholders on the register at 10 December 1999. This is an increase of 6.5 per cent (5 per cent real) over last year's interim dividend. REVIEW OF OPERATIONS UK Transmission Transmission turnover increased by £2.9 million to £590.9 million. Price capped transmission revenues increased by £19.9 million to £438.0 million as a result of setting transmission network use of system charges to recoup under- recoveries from previous years. An improvement in our management of costs under the Transmission Services Scheme (TSS) had the effect of reducing turnover by £21.2 million to £106.6 million, while producing an increase in the profit margin from £4.0 million to £5.1 million. During this half year, Transmission controllable costs were reduced by 2 per cent in real terms. Following our real reductions totalling 18 per cent in the two previous financial years, we remain on target to achieve an average real reduction of 6 per cent per year over the current regulatory period. Transmission operating profit rose £7.9 million to £253.7 million. Interconnectors Operating profit from Interconnectors was up £13.3 million to £24.5 million. This improvement was due to two main reasons. First, the higher transfers from France, which increased from 4.9TWh to 7.3TWh following last year's reduced transfers over the summer, and secondly, the higher level of LOLP (capacity payments) experienced in the first half of this year. Other activities The contribution to operating profit from other activities fell from £25.4 million to £1.4 million. This reduction is principally due to the £15.2 million provisions release credited to the profit and loss account last year. Last year also benefited from £2.1 million higher profits from sales of surplus properties. This year reflects £4.8 million lower profits from our Market Services businesses, including £2.6 million losses at Teldata, the US metering business we acquired in January. Energis Energis continues to perform strongly with turnover up 66% to £202.2 million, and EBITDA doubled to £37.9 million. Our share of its operating loss for the period, before goodwill amortisation, reduced by £6.8 million to £0.8 million. Energis is advancing its European strategy with the acquisition of EnerTel announced in November 1999. The acquisition is being funded mainly by the recent placing by Energis of 14.7 million shares, which reduced our holding from 48.3 per cent to 46 per cent. This transaction resulted in an exceptional profit of approximately £130 million (before and after taxation) which will be included in our full year results. The market value of our holding in Energis is £3.8 billion at yesterday's closing price. The internal rate of return (IRR) to date on our investment in Energis is 90%. International joint ventures Intelig, our start-up joint venture in Brazil, incurred operating losses of which our share was £5.9 million. We are making good progress and expect to launch commercial services in January 2000. Our share of operating losses for the financial year is expected to be between £50 and £60 million, in line with expectations for a rapid start-up operation of this size. Over this same period, our investment in this joint venture is expected to total some £120 million. Our share of operating profit from our joint venture in the principal Argentine transmission system, Transener, increased £1.1 million to £5.5 million. The construction of the fourth line is complete and this new line is being officially opened tomorrow. Copperbelt Energy Corporation (CEC), our joint venture in Zambia, is continuing to perform steadily, and our share of its operating profit before the amortisation of goodwill for the half year increased £0.2 million to £2.4 million. USA - proposed acquisitions of NEES and EUA Our acquisition of New England Electric System (NEES) in the Northeast of the USA has approvals outstanding from the Securities and Exchange Commission and the Nuclear Regulatory Commission. We expect to complete by early 2000. The approval of NEES's acquisition of Eastern Utilities Associates (EUA) should follow soon afterwards. We have made significant progress in delivering on two of the three upsides we have always associated with the acquisition of NEES. These are the move towards performance based regulation in distribution and consolidation opportunities in the fragmented electricity industry in the Northeast of the USA. We have announced today that NEES and EUA have reached a 20- year rate agreement that provides incentive-based regulation for their distribution operations in Massachusetts. This settlement is a major step in fulfilling the potential we recognised in NEES and EUA and ensures strong, long-term incentives to enable NEES's and EUA's efficiency to benefit both customers and shareholders. The acquisition of EUA gives early evidence of the consolidation opportunities in the Northeast of the USA. We recently announced that the savings resulting from the integration of NEES's and EUA's operations are expected to be around $40 million per annum, an increase on the initial estimates that were in the region of $25 million per annum. Consequently, as announced in October, we have increased our expectations for earnings enhancement. We expect that the acquisitions will be earnings neutral after goodwill amortisation in the first full year and enhance earnings after goodwill amortisation thereafter. (We had previously indicated that the acquisitions would enhance earnings only before the amortisation of goodwill). YEAR 2000 We have given the year 2000 issue the highest priority, and all systems to ensure the secure operation and control of the transmission system are ready for the millennium date change. Monitoring of year 2000 preparations in the UK electricity industry as a whole is being carried out by independent assessors on behalf of OFGEM. OFGEM has reported that the electricity industry's operations for the year 2000 are well advanced and that, in its view, the date change will pose no threat to electricity supplies. The overall costs of our UK year 2000 programme will be around £15 million, £1 million less than we estimated in our 1999 Annual Report. Our overseas operations are also expected to be millennium ready. BOARD STRUCTURE We will introduce a new board structure upon completion of the NEES acquisition. Roger Urwin will become Group Director Europe and Wob Gerretsen Group Director Latin America. When NEES joins the Group, Rick Sergel, President and CEO of NEES, will join the Board as Group Director North America. Professor Paul Joskow, currently a non-executive director of NEES, will also join the Board as a non-executive director. USA LISTING National Grid's shares were listed on the New York Stock Exchange on 7 October 1999. OUTLOOK Our UK Transmission business has a strong track record with which to enter its third regulatory review. The review process is now underway and the new transmission price control is due to come into effect on 1 April 2001. We look forward to the benefits which NEES and EUA will bring to the Group as they take advantage of the changing regulatory environment in the Northeast of the USA. In addition, the integration skills which we are developing through the merging of NEES's and EUA's operations will benefit the Group as we seek further consolidation opportunities in that fragmented market. The start-up phase of Intelig will give rise to operating losses normally associated with this type of venture. We are confident that Intelig has great potential, bearing in mind the growth of demand for telecoms in Brazil. The experience we are gaining in Brazil will enhance the skills we can use in other countries, where building telecoms networks can generate further value for shareholders. Energis continues to be an outstanding success and we intend to realise the value of our investment within the next three years. Our investment in electricity and telecoms networks around the world creates a powerful combination of cash generation which supports a progressive dividend policy and the potential for delivering substantial capital appreciation. We view the future with confidence and see good opportunities to further our growth strategy. THE NATIONAL GRID GROUP plc GROUP PROFIT AND LOSS ACCOUNT Six months ended 30 September 1999 Six months ended Year 30 September ended 1999 1998 31 March 1999 (restated) (restated) Notes £m £m £m Group turnover - continuing 3 741.7 748.6 1,514.2 operations Operating costs - continuing (462.6) (466.1) (937.5) operations ------- ------- ------- Operating profit of Group 3 279.1 282.5 576.7 undertakings Share of joint ventures' and associate's operating (loss)/profit (0.6) (1.2) 0.7 ------- ------- ------- Total operating profit - Before goodwill 281.0 281.5 579.9 amortisation - Goodwill amortisation (2.5) (0.2) (2.5) ------- ------- ------- 3 278.5 281.3 577.4 Exceptional profit relating - - 891.8 to Energis Net interest 4 (30.3) (53.7) (118.5) Exceptional cost of closing out - - (52.6) interest rate swaps ------- ------- ------- Profit on ordinary activities 248.2 227.6 1,298.1 before taxation Taxation - excluding (64.6) (59.6) (120.3) exceptional items - exceptional - - (162.8) items ------- ------- ------- 5 (64.6) (59.6) (283.1) ------- ------- ------- Profit on ordinary activities 183.6 168.0 1,015.0 after taxation Dividends 6 (82.4) (76.9) (192.0) ------- ------- ------- Retained profit 101.2 91.1 823.0 ======= ======= ======= Earnings per ordinary share - Basic, on profit for the 7 12.5p 11.5p 69.2p period - Basic, on adjusted 7 12.6p 11.5p 23.3p profit* - Diluted, on profit for 7 12.2p 11.2p 65.2p the period - Diluted, on adjusted 7 12.3p 11.2p 22.7p profit* *Adjusted profit excludes exceptional items and goodwill amortisation Dividends per ordinary share 6 5.59p 5.25p 13.07p THE NATIONAL GRID GROUP plc GROUP BALANCE SHEET At 30 September 1999 At 30 September At 31 March 1999 1998 1999 (restated) (restated) £m £m £m Fixed assets Intangible assets - goodwill 14.0 - 15.1 Tangible assets 3,156.5 2,986.5 3,099.4 Investments 260.7 313.5 233.1 ------- ------- ------- 3,431.2 3,300.0 3,347.6 ------- ------- ------- Current assets Stocks 14.5 14.2 12.7 Debtors 193.2 186.5 192.5 Assets held for exchange 16.6 - 16.6 Cash and deposits 1,519.8 54.4 1,524.5 ------- ------- ------- 1,744.1 255.1 1,746.3 Creditors (due within one (1,436.4) (955.0) (1,414.9) year) ------- ------- ------- Net current 307.7 (699.9) 331.4 assets/(liabilities) ------- ------- ------- Total assets less current 3,738.9 2,600.1 3,679.0 liabilities Creditors (due after more than (1,635.8) (1,328.0) (1,680.9) one year) Provisions for liabilities and (44.7) (56.6) (45.6) charges ------- ------- ------- Net assets employed 2,058.4 1,215.5 1,952.5 ======= ======= ======= Capital and reserves Called up share capital 174.5 173.5 173.9 Share premium account 266.7 232.7 246.5 Profit and loss account 1,616.4 809.3 1,532.1 ------- ------- ------- Shareholders' funds 2,057.6 1,215.5 1,952.5 Minority interest 0.8 - - ------- ------- ------- Capital employed 2,058.4 1,215.5 1,952.5 ======= ======= ======= Net debt 722.7 1,507.4 703.4 THE NATIONAL GRID GROUP plc SUMMARISED GROUP CASH FLOW STATEMENT Six months ended 30 September 1999 Six months ended Year 30 September ended 31 March 1999 1998 1999 Note £m £m £m Net cash inflow from 8 309.1 261.9 605.9 operating activities Dividends from joint ventures 0.3 - 3.1 Net cash outflow for returns on investments and servicing (35.7) (59.6) (119.7) of finance Corporate tax paid (0.6) (78.2) (154.9) Net cash outflow for capital (135.0) (161.6) (312.5) expenditure Net cash (outflow)/inflow for acquisitions and disposals (42.1) - 934.1 Equity dividends paid (115.1) - (183.1) ------- ------- ------- Net cash (outflow)/inflow before (19.1) (37.5) 772.9 management of liquid resources and financing Net cash inflow/(outflow) from the management of liquid resources 5.9 (5.3) (1,482.3) Issue of ordinary shares 4.4 0.6 5.4 New borrowings 82.4 138.3 717.7 Borrowings repaid (57.3) (111.2) (35.5) ------- ------- ------- Increase in borrowings 25.1 27.1 682.2 ------- ------- ------- Net cash inflow from 29.5 27.7 687.6 financing ------- ------- ------- Movement in cash and 16.3 (15.1) (21.8) overdrafts ======= ======= ======= THE NATIONAL GRID GROUP plc GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES Six months ended 30 September 1999 Six months ended Year 30 September ended 31 March 1999 1998 1999 (restated) (restated) Note £m £m £m Profit after taxation 183.6 168.0 1,015.0 Exchange adjustments (4.8) - (0.8) ------- ------- ------- Total recognised gains and losses relating to the period 178.8 168.0 1,014.2 ======= ======= Prior period adjustment 1 208.5 ------- Total gains and losses recognised since last annual report 387.3 ======= RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS Six months ended 30 September 1999 Six months ended Year 30 September ended 31 March 1999 1998 1999 (restated) (restated) £m £m £m Profit after taxation 183.6 168.0 1,015.0 Dividends (82.4) (76.9) (192.0) ------- ------- ------- 101.2 91.1 823.0 Issue of ordinary shares 8.7 - 5.9 Exchange adjustments (4.8) - (0.8) ------- ------- ------- Net increase in shareholders' 105.1 91.1 828.1 funds Shareholders' funds at start of 1,952.5* 1,124.4 1,124.4 period ------- ------- ------- Shareholders' funds at end of 2,057.6 1,215.5 1,952.5 period ======= ======= ======= * originally £1,744.0m before adding prior period adjustment of £208.5m THE NATIONAL GRID GROUP plc NOTES 1. Prior period adjustment The Group has adopted the policy of capitalising interest costs that are directly attributable to the construction of tangible fixed assets as part of the cost of those assets, in line with Financial Reporting Standard 15 'Tangible Fixed Assets' ('FRS 15'). The interest capitalised is being depreciated over the estimated useful economic lives of the related tangible fixed assets. This change in accounting policy, which has the effect of reducing total operating profit and net interest charge for the six months ended 30 September 1999 by £3.3m and £13.4m respectively, has been reflected in the accounts as a prior period adjustment in accordance with Financial Reporting Standard 3. As a result, shareholders' funds at 30 September 1998 and 31 March 1999 have been increased by £201.7m and £208.5m respectively. The comparative amounts of total operating profit and net interest charge for the six months ended 30 September 1998 have been reduced by £3.0m and £9.7m respectively (£5.9m and £19.4m respectively, in respect of the year ended 31 March 1999). 2. Basis of preparation The financial information contained in this announcement has, with the exception of the change in accounting policy relating to capitalising interest costs (see note 1), been prepared on the basis of the accounting policies set out in the Annual Report and Accounts for the year ended 31 March 1999 and does not constitute statutory accounts as defined in Section 240 of the Companies Act 1985. The financial information in respect of the year ended 31 March 1999 has been derived from the statutory accounts for the year ended 31 March 1999, which have been delivered to the Registrar of Companies. The auditors' report on these statutory accounts was unqualified and did not contain a statement under Section 237(2) or (3) of the Companies Act 1985. The financial information in respect of the six months ended 30 September 1999 is unaudited but has been reviewed by the auditors and their report is set out on page 17. This interim results announcement was approved by the Board of Directors on 29 November 1999. 3. Segmental analysis Six months ended Year 30 September ended 31 March 1999 1998 1999 a) Turnover: £m £m £m Transmission 590.9 588.0 1,194.6 Interconnectors 44.8 29.9 75.8 Ancillary services 59.3 58.4 116.6 Other activities 64.8 90.6 161.9 Sales between businesses (18.1) (18.3) (34.7) ------- ------- ------- Group turnover - continuing 741.7 748.6 1,514.2 operations ======= ======= ======= Six months ended Year 30 September ended 31 March 1999 1998 1999 (restated) (restated) b) Operating profit: £m £m £m Transmission 253.7 245.8 507.9 Interconnectors 24.5 11.2 39.5 Ancillary services 0.2 0.1 0.2 Other activities 1.4 25.4* 29.3* Goodwill amortisation (0.7) - (0.2) ------- ------- ------- Operating profit of Group 279.1 282.5 576.7 undertakings ------- ------- ------- Joint ventures 2.0 6.6 12.6 Associate - Energis (0.8) (7.6) (9.6) Goodwill amortisation (1.8) (0.2) (2.3) ------- ------- ------- Share of joint ventures' and associate's operating (loss)/profit (0.6) (1.2) 0.7 ------- ------- ------- Total operating profit 278.5 281.3 577.4 ======= ======= ======= *Includes £15.2m relating to a revision of accounting estimates of provisions resulting from the implementation of FRS 12. 4. Net interest Six months ended Year 30 September ended 31 March 1999 1998 1999 (restated) (restated) £m £m £m Interest payable and similar 63.9 50.1 129.0 charges Interest receivable and similar (44.3) (4.3) (28.1) income ------- ------- ------- 19.6 45.8 100.9 Joint ventures and associate 10.7 7.9 17.6 ------- ------- ------- 30.3 53.7 118.5 ======= ======= ======= 5. Taxation The tax charge for the six months ended 30 September 1999 is based on the estimated effective tax rate for the year ending 31 March 2000 of 26%. 6. Dividends The interim dividend of 5.59p per ordinary share (1998: 5.25p) will be paid on 17 January 2000 to shareholders on the register on 10 December 1999. 7. Earnings per ordinary share Basic earnings per ordinary share for the six months ended 30 September 1999 of 12.5p (1998: 11.5p) is calculated based on profit after taxation of £183.6m (1998: £168.0m) and 1,471.6m (1998: 1,466.0m) shares - being the weighted average number of shares in issue during the period, excluding the shares held by a Qualifying Employee Share Trust. Basic earnings per ordinary share on the adjusted profit for the six months ended 30 September 1999 of 12.6p (1998: 11.5p) excludes goodwill amortisation of £2.5m (1998: £0.2m), and is based on earnings of £186.1m (1998: £168.2m). For the purposes of calculating diluted earnings per share, earnings and the weighted average number of shares have been adjusted for the effects of all dilutive potential ordinary shares. 8. Net cash inflow from operating activities Six months ended Year 30 September ended 31 March 1999 1998 1999 (restated) (restated) £m £m £m Operating profit of Group 279.1 282.5 576.7 undertakings Depreciation charge 74.2 66.0 133.8 Profit on disposal of tangible (0.7) (3.1) (2.5) fixed assets (Increase)/decrease in stocks (1.8) (1.7) 0.2 Decrease/(increase) in debtors 13.3 (4.2) (13.0) Decrease in creditors (55.1) (60.1) (60.6) Decrease in provisions (0.9) (18.6) (29.6) Other 1.0 1.1 0.9 ------- ------- ------- 30.0 (20.6) 29.2 ------- ------- ------- 309.1 261.9 605.9 ======= ======= ======= 9. Movement in net debt Six months ended Year 30 September ended 31 March 1999 1998 1999 £m £m £m Movement in cash and overdrafts 16.3 (15.1) (21.8) Cash (inflow)/outflow from management of liquid resources (5.9) 5.3 1,482.3 Increase in borrowings (25.1) (27.1) (675.2)* ------- ------- ------- Change in net debt resulting from (14.7) (36.9) 785.3 cash flows Certificates of tax deposit - (1.9) (8.7) surrendered Net debt acquired on acquisition of Group undertaking - - (4.2) Other non-cash movements (4.6) (3.3) (10.5) ------- ------- ------- Movement in net debt in the period (19.3) (42.1) 761.9 Net debt at start of period (703.4) (1,465.3) (1,465.3) ------- ------- ------- Net debt at end of period (722.7) (1,507.4) (703.4) ======= ======= ======= * Net of £7.0m costs relating to the issue of long term debt. 10. 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 respects from US GAAP. The significant adjustments necessary to restate net income and shareholders' funds in accordance with US GAAP are set out below. a) Net income Six months ended Year 30 September ended 31 March 1999 1998 1999 (restated) (restated) £m £m £m Profit after taxation, excluding 183.6 168.0 338.6 exceptional items Exceptional items after taxation - - 676.4 ------- ------- ------- Net income under UK GAAP 183.6 168.0 1,015.0 ------- ------- ------- Adjustments to conform with US GAAP: Deferred taxation (17.9) (13.5) (40.5) Pensions 1.8 9.5 14.9 Share option schemes (1.3) (2.2) (4.5) Tangible fixed assets 1.7 1.7 3.4 Interest rate and currency swaps (15.2) (3.5) 25.5 Issue costs associated with EPICs (0.9) - 7.3 EPICs liability 31.9 - - Severance costs (3.3) (6.9) (12.2) Share of associate's adjustments to conform with US GAAP 2.8 (5.5) (6.1) ------- ------- ------- Total US GAAP adjustments (0.4) (20.4) (12.2) ------- ------- ------- Net income under US GAAP 183.2 147.6 1,002.8 ======= ======= ======= Basic earnings per share - US GAAP 12.4p 10.1p 68.4p Diluted earnings per share - US 12.2p 9.9p 64.4p GAAP Net income under US GAAP for the year ended 31 March 1999 includes £718.6m relating to the profit arising on the sale of Energis plc shares which is treated as an exceptional item under UK GAAP. b) Shareholders' funds At 30 September At 31 March 1999 1998 1999 (restated) (restated) £m £m £m Shareholders' funds under UK GAAP 2,057.6 1,215.5 1,952.5 ------- ------- ------- Adjustments to conform with US GAAP: Deferred taxation (722.4) (677.5) (704.5) Pensions 164.8 157.2 163.0 Shares held by QUEST (15.3) (9.9) (11.0) Ordinary dividends 82.4 76.9 115.1 Tangible fixed assets (46.7) (50.1) (48.4) Interest rate and currency swaps (20.9) (34.7) (5.7) Issues costs associated with 6.4 - 7.3 EPICs EPICs liability 31.9 - - Severance liabilities 7.6 16.6 10.9 Share of associate's adjustments to conform with US GAAP (11.5) (27.3) (15.1) ------- ------- ------- Total US GAAP adjustments (523.7) (548.8) (488.4) ------- ------- ------- Shareholders' funds under US GAAP 1,533.9 666.7 1,464.1 ======= ======= ======= Independent review report to The National Grid Group plc Introduction We have been instructed by the Company (The National Grid Group plc) to review the financial information set out on pages 7 to 16 and we have read the other information contained in the interim report for any apparent misstatements or material inconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has been approved by, the directors. The Listing Rules of the London Stock Exchange require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual accounts, except where any changes and the reasons for them are disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board. A review consists principally of making enquiries of group management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with Auditing Standards and, therefore, provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the financial information. Review conclusion On the basis of our review, we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30 September 1999. PricewaterhouseCoopers Chartered Accountants London 29 November 1999 Cautionary statement In order to utilise the safe harbour provisions of the United States Private Securities Litigation Reform Act of 1995, The National Grid Group plc (NGG) is providing the following cautionary statement: this document contains certain forward-looking statements with respect to the financial condition, results of operations and business of NGG and certain of the plans and objectives of NGG with respect to these items. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. Actual results and developments could differ materially from those expressed or implied by these forward-looking statements.

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