FORM 6-K
=======================================================================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
_______________
FORM 6-K
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
Date: 20 November 2003
NATIONAL GRID TRANSCO plc
(Registrant's Name)
1-3 Strand
London
WC2N 5EH
(Registrant's Address)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F Form 40-F
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the
information to the Commission pursuant to Rule 12g3- 2(b) under the Securities Exchange Act of 1934.
Yes No
If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorised.
NATIONAL GRID TRANSCO plc
s/David C. Forward
By:_________________________
Name: David C Forward
Title: Assistant Secretary
Date: 20 November 2003
ANNEX 1 - SUMMARY
FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
Report of Foreign Issuer
Pursuant to Rule 13a - 16 or 15d - 16 of
The Securities Exchange Act of 1934
Announcement sent to the London Stock Exchange on 20 November 2003:
National Grid Transco plc ('NGT')
1-3 Strand
London
WC2N 5EH
United Kingdom
---------------------------------------------------------------------------------------------------------------------------------------
Announcement:
'National Grid Transco plc
-Results for the six months ended 30 September 2003'
Embargoed until 0700 20 November 2003
National Grid Transco plc
Results for the six months ended 30 September 2003
Strong Earnings Growth. Positive Outlook. Enhanced Dividend Policy.
o Strong business performance. Underlying PBT up 19%. Underlying EPS up 23%.
o Continued growth underpins enhanced dividend policy
- 15% increase this year with 7% nominal annual growth targeted until March 2008.
o Sales process for UK gas distribution networks to commence.
----------------------------------------------------------------------------------------------------------------------------
Financial highlights
Six months ended Six months ended
30 Sept 2003 30 Sept 2002 Change
----------------------- (GBP m) (%)
(GBP m)
Business Results *
--------------------------------------------- 815 802 2
Underlying operating profit
Underlying pre-tax profit 405 339 19
Underlying earnings per share 9.7p 7.9p 23
---------------------------------------------
Statutory Results
Operating profit 595 578 3
Pre-tax profit/(loss) 451 (39) NM**
Earnings/(loss) per share 13.0p (2.8)p NM**
Dividend per Share 7.91p 6.86p 15
---------------------------------------------- ------------------------ ------------------------- --------------------------
* "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 for the periods presented. Unless
otherwise stated, all financial commentaries in this Statement 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 and Loss Account, notes 6a and
6b and the Group Cash Flow Statement. There are further reconciliations on our website (www.ngtgroup.com).
**NM = Not Meaningful
NB. Expenditure on the replacement of UK gas mains ("repex") of 186m pounds in the period (216m pounds 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 2.1p and 2.5p for each of the half year results shown above, respectively.
Sir John Parker, Chairman, said:
"These excellent results show the strength of our business, and the great benefits of the mergers we have managed on both sides of
the Atlantic.
"We see further growth opportunities in our existing businesses and we are today increasing the target for cutting controllable costs
in our UK gas distribution business to 35% in real terms in the 5 years to March 2007.
"Notwithstanding our focus on efficiency, our top priorities always remain safety and network reliability. Despite the regrettable
power interruptions in the summer, our record speaks for itself with 99.9999% of power delivered successfully over the past 10 years
over our UK electricity network. Through our 2 billion pounds annual investment we are confident that our networks will continue to
deliver energy consistently, efficiently and reliably.
"With Ofgem providing clarity on its decision-making timetable and prospective buyers showing strong interest, we are commencing the
sales process for one or more of our regional gas distribution networks. However, we will only sell networks if it creates value for
customers and shareholders alike.
"Based on our very strong financial performance and the confidence in future prospects from our existing businesses, the Board will
recommend a 15% nominal increase in the dividend this year and target growth of 7% nominal per annum thereafter for the next 4 years."
NATIONAL GRID TRANSCO plc
Turnover was marginally down from 4.3 billion pounds to 4.2 billion pounds. This was largely as a result of our exit from non-core businesses
(68m pounds) and the impact of the weakening dollar (142m pounds).
Underlying operating profits were 815m pounds, up from 802m pounds. This represents an improvement of over 100m pounds over the same period last year,
taking into account the impact of weather patterns in the UK and US, UK pensions costs, last year's one-off connection-related fee
and the continuing weakness of the US dollar. This strong performance has largely been achieved by a combination of significant
reductions in controllable costs, the exit from non-core businesses and lower repex.
Underlying net interest was 410m pounds, down by 53m pounds from last year, due to the refinancing of debt of $1.3bn, lower short term interest
rates, the weaker US dollar and reductions in interest costs from former joint ventures. These more than offset an increase of 35m pounds
in pension interest costs.
Underlying EBIT interest cover was 2.0 times, compared to 1.7 times last year. The statutory interest cover was 2.1 times, compared
to 0.9 times last year. Funds From Operations ("FFO") interest cover, adjusted for repex, was 2.9 (2.9 last year). Full year ratios
are expected to improve due to the seasonality of profits and cashflow from our UK gas distribution operations.
Underlying profit before tax for the half year was up 19% from 339m pounds to 405m pounds.
The underlying tax charge on the profit for the period was 102m pounds, representing an effective tax rate of 25% (before goodwill
amortisation and exceptional items). There were no releases of prior year tax provisions during the period.
Underlying earnings were up 23% to 299m pounds, from 244m pounds last year.
Underlying earnings per share were also up 23% to 9.7p from 7.9p last year.
Expenditure on the replacement of UK metallic gas mains ("repex") totalled 186m pounds in the period (216m pounds last year). The full year
expenditure is expected to be similar to 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. The effect of removing half of the repex, net of tax, from earnings is equivalent to increasing
earnings per share by 2.1p and 2.5p for each of the half year results, respectively.
As expected, underlying cashflow from operations for the period was 932m pounds, down from 1,279m pounds last year, reflecting the planned
one-off pension contribution in the US and working capital movements associated with the timing of commodity payments, also in the US.
Capital expenditure on continuing operations, including capitalised interest, was 723m pounds in the period (652m pounds last year), including
84m pounds for growth investments in Grain LNG and Basslink.
There were substantial net exceptional gains totalling 96m pounds before tax, compared to 325m pounds exceptional losses before tax in the same
period last year. The exceptional items comprised:
o A credit of 226m pounds (before and after tax) representing the realisation of a deferred gain on Energis shares held to redeem
the EPIC bond;
o Gains on sales of property and businesses of 40m pounds (before and after tax);
o Restructuring costs related to the planned cost reduction programmes of 150m pounds (96m pounds after tax), including 93m pounds for US
distribution and transmission, 39m pounds for UK distribution, 8m pounds for UK transmission, and 10m pounds for other businesses; and
o Loss on disposal of other tangible fixed assets of 20m pounds (before and after tax).
After exceptional charges and goodwill amortisation, unadjusted earnings per share were 13.0p, 15.8p higher than last year.
Group net debt was 13.9 billion pounds at 30 September 2003, broadly unchanged from 31 March 2003, with the weaker US dollar and EPIC bond
redemption broadly offsetting the expected increase associated with the seasonality of our UK gas operations.
REVIEW OF OPERATIONS
Our business continues to deliver impressive improvements in operating efficiency and we have delivered 60m pounds of additional cost
savings over the same period last year.
We welcome the statements from Ofgem which clarify the principle that efficiently incurred pension costs, including deficit funding,
are a normal, allowable business expense. Additionally, Ofgem has stated its intention to align the gas and electricity transmission
price control reviews in 2007 and proposed to move the gas distribution review to 2008. These changes, together with the move to a
rolling 5-year cost savings mechanism, are positive changes to our UK regulatory framework.
UK GAS DISTRIBUTION
Underlying operating profits from UK gas distribution increased by 42m pounds to 50m pounds, primarily as a result of lower controllable costs
and timing effects of repex, more than offsetting the increased pension charges and the impact of warm weather. The level of
controllable costs within the business is now at the level assumed by Ofgem for 2006.
Following a fundamental review, the new management team in our UK gas distribution business has begun a business transformation
programme called "The WayAhead." Through this programme we will aim to enhance the operational performance of our distribution
networks whilst reducing controllable costs by 35% real from March 2002 levels by March 2007.
Since our full year results in May, we have continued to work closely with our regulators, Ofgem and the Health and Safety Executive,
to evaluate the possibility of separating and selling one or more of our regional gas distribution networks. We welcome Ofgem's
recent statement indicating it will reach a decision by April 2004 and committing significant resources to the process. With Ofgem's
commitment and the strong interest we have received from prospective buyers, we are commencing the sales process for certain of our
gas distribution networks. We are prepared to sell one or more networks if this maximises shareholder value. In addition, we will
work closely with Ofgem to demonstrate the delivery of material benefits to customers. We remain committed to gas distribution as a
core business of the Group and to remaining the largest gas distributor in the UK market.
ELECTRICITY AND GAS TRANSMISSION
The UK transmission business delivered underlying operating profit of 387m pounds compared to 396m pounds in the same period last year. Delivery
of our planned efficiency and merger savings has largely offset the one off connection-related fee we received last year.
We are well on track to reduce UK Transmission Owner controllable costs by 11% real over the three years to March 2006, representing
delivery of the Staying Ahead programme and merger benefits.
In the US, the development of regional electricity markets is continuing along with associated transmission restructuring.
GridAmerica, the first multi-system Independent Transmission Company in the US, began operations on 1 October 2003. It manages the
transmission assets of the Midwestern utilities, FirstEnergy and Northern Indiana Public Service Company, and will add the
transmission assets of Ameren once state approvals are received. These assets span over 14,000 miles of transmission lines, serving
an area almost as large as England and Wales.
US ELECTRICITY AND GAS
Underlying operating profit from the US businesses was 291m pounds, compared to 343m pounds in the same period last year. This includes 214m pounds
from electricity distribution (including 58m pounds from stranded cost recovery), 70m pounds from transmission and 7m pounds from the gas business. In
addition to the adverse effect from weather, as expected, underlying operating profit from our US businesses was impacted by the
expected reduction in the recovery of stranded costs and the continued weakness of the dollar, partially offset by continued
reductions in controllable costs.
Savings from the New York / New England integration continue to be delivered ahead of schedule, keeping us on track to deliver our
target of reducing our US controllable costs by 20% real in the three years to March 2005. Benefits from the new labour agreement in
New England and the recent early retirement programmes will begin to materialise in the coming months.
OTHER ACTIVITIES
We have continued to rationalise our portfolio of non-core businesses. Our exit from various non-core businesses has improved
underlying operating profit from other activities including joint ventures and discontinued businesses by 32m pounds to 87m pounds.
Gridcom UK has aggressively cut its overheads by 36% through a combination of merger and efficiency savings allowing it to break even
for the first time, a 9m pounds improvement in underlying operating profit.
As previously announced, we have started work on an LNG import terminal at the Isle of Grain and expect to complete the project by
early 2005. We expect to invest some 130m pounds in this project.
PENSIONS
The actuarial review 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 and has resulted in a post-tax funding deficit of 615m pounds. There
will be annual assessments of the Lattice Scheme with the next assessment at 31 March 2004. The deficit is expected to be funded
over the next 12 years and discussions with relevant parties continue on the timing of the payments to meet this. In addition, cash
contributions for the ongoing cost of the Lattice Scheme will be made at a rate of 22% of payroll.
The Lattice Scheme charge for the period reflects a new SSAP 24 actuarial valuation and amounted to 73m pounds in total, compared to 18m pounds
in the same period last year. Of this total charge, 41m pounds relates to the ongoing cost (45m pounds last year), 17m pounds relates to the deficit
(19m pounds credit last year), and 15m pounds is interest (8m pounds benefit last year). The ongoing SSAP 24 charge represents 23% of pensionable
payroll.
BOARD CHANGES
We have previously announced this month's retirement of John Wybrew and the succession of Michael Jesanis to the Board upon Rick
Sergel's retirement next summer. In addition, Maria Richter joined the Board in October as a non-executive director.
OUTLOOK AND DIVIDEND POLICY
Based on our very strong financial performance and confidence in the future prospects of our business, the Board will recommend an
increase for the full year dividend to 19.78p per ordinary share, representing a 15% nominal increase compared with that paid last
year. An interim dividend of 7.91p per ordinary share ($0.6690 per American Depositary Share (ADS)) will be paid on 21 January 2004
to shareholders on the register on 28 November 2003. Looking ahead, we will aim to increase dividends per ordinary share expressed
in sterling by 7% nominal in each financial year to 31 March 2008.
CONTACT DETAILS
National Grid Transco:
Investors
Marcy Reed +44 (0)20 7004 3170 +44 (0)7768 490807(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 (US) +1 508 389 2598
Media
Clive Hawkins +44 (0)20 7004 3147
Gillian Home +44 (0)20 7004 3150
Pager +44 (0)7659 117841 (out of hours)
Citigate Dewe Rogerson +44 (0)20 7638 9571
Anthony Carlisle +44 (0)7973 611888(m)
Analyst presentation
An analyst presentation will be held at JP Morgan, 10 Aldermanbury, London EC2V at 8:45 am (UK time) today.
Live telephone coverage of analyst presentation - password National Grid Transco
Dial in number +44 (0) 20 7162 0195
US call in number + 1 334 420 4950
Telephone replay of the analyst presentation (available until 5.12.03 - passcode 216642)
UK dial in number + 44 (0) 20 8288 4459
Freephone number 0500 637 880 (UK only)
US dial in number + 1 334 323 6222
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 the ability to integrate Niagara Mohawk and Lattice Group plc
successfully within National Grid Transco or to realise 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 effecting 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 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 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 Year ended 31
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2003 2002 March 2003
Notes (GBP)m (GBP)m (GBP)m
=========== =========== ===========
Group turnover - continuing operations 2a 4,029 4,104 8,833
Group turnover - discontinued operations 2a 158 226 567
------------------------------------------------
Group turnover 4,187 4,330 9,400
Operating costs (3,597) (3,864) (7,788)
------------------------------------------------
Operating profit of Group undertakings - continuing operations 2c 590 648 1,806
Operating loss of Group undertakings - discontinued operations 2c - (182) (194)
------------------------------------------------
590 466 1,612
------------------------------------------------
Share of joint ventures' operating profit - continuing operations 2c 5 7 15
Share of joint ventures' operating profit - discontinued operations 2c - 105 109
------------------------------------------------
5 112 124
Operating profit ------------------------------------------------
- Before exceptional items and goodwill amortisation 2b 815 802 2,185
- Operating exceptional items 3a (170) (171) (347)
- Goodwill amortisation (50) (53) (102)
------------------------------------------------
Total operating profit 595 578 1,736
Non-operating exceptional items 3b 266 (99) (99)
Net interest
- Excluding exceptional items 4 (410) (463) (939)
- Exceptional items 3c, 4 - (55) (31)
------------------------------------------------
(410) (518) (970)
Profit/(loss) on ordinary activities before taxation ------------------------------------------------
- Before exceptional items and goodwill amortisation 6a 405 339 1,246
- Exceptional items and goodwill amortisation 46 (378) (579)
------------------------------------------------
451 (39) 667
Taxation
- Excluding exceptional items 5 (102) (92) (373)
- Exceptional items 54 59 128
------------------------------------------------
(48) (33) (245)
------------------------------------------------
Profit/(loss) on ordinary activities after taxation 403 (72) 422
Minority interests
- Excluding exceptional items (4) (3) (3)
- Exceptional items 3d - (12) (28)
------------------------------------------------
(4) (15) (31)
Profit/(loss) for the period ------------------------------------------------
- Before exceptional items and goodwill amortisation 6b 299 244 870
- Exceptional items and goodwill amortisation 100 (331) (479)
------------------------------------------------
399 (87) 391
Dividends 7 (243) (212) (530)
------------------------------------------------
Profit/(loss) transferred to/(from) profit and loss account reserve 156 (299) (139)
=========== =========== ===========
EARNINGS/(LOSS) AND DIVIDENDS PER ORDINARY SHARE Year ended 31
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2003 2002 March 2003
Notes Pence Pence Pence
=========== =========== ===========
Basic (including exceptional items and goodwill amortisation) 6b 13.0 (2.8) 12.7
Adjusted basic (excluding exceptional items and goodwill amortisation) 6b 9.7 7.9 28.3
=========== =========== ===========
Dividends per ordinary share 7 7.91 6.86 17.2
=========== =========== ===========
Year ended 31
GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES March
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2003 2002 2003
(GBP)m (GBP)m (GBP)m
=========== =========== ===========
Profit/(loss) for the period 399 (87) 391
Exchange adjustments (171) (283) (322)
Tax on exchange adjustments - - 12
Unrealised gain on transfer of fixed assets to a joint venture (net of tax) - - 6
------------------------------------------------
Total recognised gains and losses 228 (370) 87
=========== =========== ===========
At 31 March
GROUP BALANCE SHEET AT 30 SEPTEMBER 2003 2002 2003
(GBP)m (GBP)m (GBP)m
=========== =========== ===========
Fixed assets
Intangible assets 1,745 1,899 1,893
Tangible assets 16,845 16,647 16,847
Investments in joint ventures 41 55 44
Other investments 194 219 209
------------------------------------------------
18,825 18,820 18,993
------------------------------------------------
Current assets
Stocks 190 147 126
Debtors (amounts falling due within one year) 1,729 1,754 1,811
Debtors (amounts falling due after more than one year) 3,040 3,582 3,395
Assets held for exchange - 17 17
Cash and investments 499 699 601
------------------------------------------------
5,458 6,199 5,950
Creditors (amounts falling due within one year) (4,688) (5,492) (5,046)
------------------------------------------------
Net current assets 770 707 904
------------------------------------------------
Total assets less current liabilities 19,595 19,527 19,897
Creditors (amounts falling due after more than one year) (14,146) (13,943) (14,255)
Provisions for liabilities and charges (4,252) (4,393) (4,406)
------------------------------------------------
Net assets employed 1,197 1,191 1,236
=========== =========== ===========
Capital and reserves
Called up share capital 308 310 308
Share premium account 1,247 1,244 1,247
Other reserves (5,131) (5,139) (5,131)
Profit and loss account 4,717 4,694 4,728
------------------------------------------------
Equity shareholders' funds 1,141 1,109 1,152
Minority interests 56 82 84
------------------------------------------------
Total shareholders' funds 1,197 1,191 1,236
=========== =========== ===========
Net debt included above 13,921 14,162 13,878
------------------------------------------------
GROUP CASH FLOW STATEMENT Year ended 31
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2003 2002 March 2003
Notes (GBP)m (GBP)m (GBP)m
=========== =========== ===========
Net cash inflow from operating activities before exceptional items 8 932 1,279 3,154
Expenditure relating to exceptional items (121) (97) (328)
------------------------------------------------
Net cash inflow from operating activities 811 1,182 2,826
Dividends from joint ventures 2 3 11
Net cash outflow for returns on investments and servicing of finance (335) (453) (912)
Taxation
Corporate tax received/(paid) 10 (41) (112)
Capital expenditure and financial investment
Net payments to acquire intangible and tangible fixed assets (752) (805) (1,518)
Receipts from disposals of tangible fixed assets 64 58 111
Other - 2 -
------------------------------------------------
Net cash outflow for capital expenditure and financial investment (688) (745) (1,407)
Acquisitions and disposals
Payments to acquire investments - (160) (165)
Receipts from disposals of investments 10 187 328
------------------------------------------------
Net cash inflow from acquisitions and disposals 10 27 163
Equity dividends paid (317) (358) (571)
------------------------------------------------
Net cash outflow before the management of
liquid resources and financing (507) (385) (2)
Management of liquid resources
Decrease/(increase) in short-term deposits 9 76 (193) (138)
------------------------------------------------
Net cash inflow/(outflow) from the management of liquid resources 76 (193) (138)
Financing
Issue of ordinary shares - 8 4
Payments to repurchase ordinary shares - - (97)
Purchase of non-equity minority interest (27) - -
Termination of cross currency swaps 9 148 - -
Net increase in borrowings 9 287 655 267
------------------------------------------------
Net cash inflow from financing 408 663 174
------------------------------------------------
Movement in cash and overdrafts 9 (23) 85 34
=========== =========== ===========
NOTES TO THE ACCOUNTS
1. Basis of preparation
The financial information contained in this announcement has been prepared on the basis of the accounting policies set out in the
National Grid Transco Annual Report and Accounts and Form-20F for the year ended 31 March 2003 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 2003
has been derived from the statutory accounts for the year ended 31 March 2003, which have been delivered to the Registrar of
Companies. The auditors' report on those 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 2003 is unaudited but has
been reviewed by the auditors and their report is attached to this document.
The business combination of National Grid Group plc and Lattice Group plc which was completed on 21 October 2002 met the merger
accounting criteria under UK GAAP and the Companies Act 1985. As a result the financial information of National Grid Transco plc for
the year ended 31 March 2003 and the six month period ended 30 September 2002 have been presented on the basis of merger accounting
principles as if National Grid and Lattice had always comprised the Group. The combined accounts of National Grid and Lattice have
been adjusted for the issue on merger of 1,323m shares with a nominal value of 132m pounds and the elimination of balances between the
former groups.
This interim results announcement was approved by the Board of Directors on 19 November 2003.
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 six months ended 30 September 2003, 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
Year ended 31
March 2003
Six months ended 30 September 2003 2002 (restated)
(GBP)m (GBP)m (GBP)m
=========== =========== ===========
Continuing operations
UK gas distribution 764 754 2,089
UK electricity and gas transmission 867 927 1,893
US electricity transmission 160 219 407
US electricity distribution 1,838 1,780 3,446
US gas 162 136 446
Other activities 424 466 922
Sales between businesses (186) (178) (370)
------------------------------------------------
8,833
Discontinued operations
Other activities 158 242 586
Sales between businesses - (16) (19)
------------------------------------------------
158 226 567
------------------------------------------------
4,187 4,330 9,400
=========== ========== ==========
Europe 2,033 2,185 5,096
North America 2,154 2,145 4,304
------------------------------------------------
4,330 9,400
=========== =========== ===========
b)
Operating profit - before exceptional items and goodwill amortisation
Year ended 31
March 2003
Six months ended 30 September 2003 2002 (restated)
(GBP)m (GBP)m (GBP)m
=========== =========== ===========
Group undertakings - continuing operations
UK gas distribution 50 8 554
UK electricity and gas transmission 387 396 820
US electricity transmission 70 74 128
US electricity distribution 214 261 513
US gas 7 8 58
Other activities 82 80 143
------------------------------------------------
810 827 2,216
Discontinued operations - (16) (26)
------------------------------------------------
Operating profit of Group undertakings 810 811 2,190
------------------------------------------------
Joint ventures - continuing operations
Electricity activities 5 7 15
Discontinued operations - (16) (20)
------------------------------------------------
Operating profit/(loss) of joint ventures 5 (9) (5)
------------------------------------------------
815 802 2,185
=========== =========== ===========
Europe 517 462 1,481
North America 293 344 704
Latin America 1 (7) (7)
Rest of the World 4 3 7
------------------------------------------------
815 802 2,185
=========== =========== ===========
c) Operating profit - after exceptional items and goodwill amortisation
Year ended 31
March 2003
Six months ended 30 September 2003 2002 (restated)
(GBP)m (GBP)m (GBP)m
=========== =========== ===========
Group undertakings - continuing operations
UK gas distribution 7 (60) 443
UK electricity and gas transmission 373 381 774
US electricity transmission 51 62 103
US electricity distribution 97 216 413
US gas 2 4 49
Other activities 60 45 24
------------------------------------------------
590 648 1,806
Discontinued operations - (182) (194)
------------------------------------------------
Operating profit of Group undertakings 590 466 1,612
------------------------------------------------
Joint ventures - continuing operations
Electricity activities 5 7 15
Discontinued operations - 105 109
------------------------------------------------
Operating profit of joint ventures 5 112 124
------------------------------------------------
595 578 1,736
=========== =========== ===========
Europe 442 181 1,051
North America 148 281 549
Latin America 1 113 128
Rest of the World 4 3 8
------------------------------------------------
595 578 1,736
=========== =========== ===========
3. Exceptional items
a) Operating
Year ended 31
Six months ended 30 September 2003 2002 March 2003
(GBP)m (GBP)m (GBP)m
=========== =========== ===========
Continuing operations
Restructuring costs (i) 150 100 203
Merger costs (ii) - 26 105
Loss on disposal of tangible fixed assets (iii) 20 - -
------------------------------------------------
170 126 308
------------------------------------------------
Discontinued operations
Restructuring costs (i) - 6 6
Impairment of business (iv) - 166 168
Impairment of investments in joint ventures (v) - (127) (135)
------------------------------------------------
- 45 39
------------------------------------------------
Total operating exceptional items 170 171 347
=========== =========== ===========
i) Relates to costs incurred in business reorganisations in the UK and US businesses (30 September 2003: 96m pounds after tax, 30
September 2002: 73m pounds after tax, 31 March 2003: 165m pounds after tax).
ii) Represents employee and property costs associated with the Merger (30 September 2002: 20m pounds after tax, 31 March 2003: 76m
pounds after tax).
iii) The after tax loss on disposal of tangible fixed assets was 20m pounds (30 September 2002: nil pounds, 31 March 2003: nil pounds).
iv) During the year ended 31 March 2003, following a review of the carrying value of certain of the Group's telecom assets, the
Group incurred impairment charges resulting in the write-down of those assets to their estimated recoverable amounts and the
recognition of other related costs (30 September 2002: 165m pounds after tax, 31 March 2003: 143m pounds after tax).
v) These credits relate to Intelig and other telecom joint ventures (30 September 2002: 145m pounds after tax, 31 March 2003: 155m pounds
after tax). The exceptional credits 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 pounds in the
year ended 31 March 2003 and 121m pounds in the period ended 30 September 2002 of the pre-tax exceptional credits have been reflected in
"Share of joint ventures' operating profit - discontinued operations".
b) Non-operating
Year ended 31
Six months ended 30 September 2003 2002 March 2003
(GBP)m (GBP)m (GBP)m
=========== =========== ===========
Continuing operations
Merger costs (vi) - 79 79
Profit on disposal of tangible fixed assets (vii) (38) (12) (48)
------------------------------------------------
(38) 67 31
------------------------------------------------
Discontinued operations
(Profit)/loss on sale or termination of operations (viii) (2) 32 68
Gain on assets held for exchange (ix) (226) - -
------------------------------------------------
(228) 32 68
------------------------------------------------
Total non-operating exceptional items (266) 99 99
=========== =========== ===========
vi) The after tax transaction cost of the Merger was nil pounds (30 September 2002: 79m pounds, 31 March 2003: 71m pounds).
vii) The after tax profit on disposal of tangible fixed assets was 38m pounds (30 September 2002: 13m pounds, 31 March 2003: 50m pounds).
viii) The credit for the six months ended 30 September 2003 relates to the profit on sale of EnMO (2m pounds after tax). The charges for
the six months ended 30 September 2002 and year ended 31 March 2003 relate to the loss on sale of The Leasing Group (30 September
2002: 32m pounds (32m pounds after tax), 31 March 2003: 45m pounds (45m pounds after tax)) and loss on closure of 186k (30 September 2002: nil pounds
(nil pounds after tax), 31 March 2003: 23m pounds (23m pounds after tax)).
ix) 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 pounds. 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 pounds.
c) Financing costs
The exceptional net interest cost before and after tax of 55m pounds in the six months ended 30 September 2002 and 31m pounds in the year ended
31 March 2003 relate to the Group's share of foreign exchange losses incurred on foreign currency borrowings by joint ventures
amounting to 124m pounds in the six months ended 30 September 2002 and 98m pounds in the year ended 31 March 2003, partially offset by the
Group's share of a gain on net monetary liabilities of 69m pounds and 67m pounds respectively. The gain on the net monetary liabilities relates
to Citelec, a joint venture operating in Argentina, and reflects the net gain arising on net monetary liabilities that are financing
the operation in a hyper-inflationary economy.
d) Minority interests
The exceptional minority interest charge of 12m pounds in the six months ended 30 September 2002 and 28m pounds in the year ended 31 March 2003
relate to the Group's share of the minority interest in the after taxation exceptional items of Citelec, a joint venture, and
primarily reflects the minority interest's share of the gain on net monetary liabilities referred to above (note 3c).
4. Net interest
Year ended 31
Six months ended 30 September 2003 2002 March 2003
(GBP)m (GBP)m (GBP)m
=========== =========== ===========
Interest payable and similar charges 460 490 981
Unwinding of discount on provisions 6 6 13
Interest capitalised (26) (14) (28)
------------------------------------------------
Interest payable and similar charges net of interest capitalised 440 482 966
Interest receivable and similar income (37) (38) (55)
------------------------------------------------
403 444 911
Joint ventures 7 74 59
------------------------------------------------
410 518 970
=========== =========== ===========
Comprising:
Net interest, excluding exceptional net interest 410 463 939
Exceptional net interest (note 3(c)) - 55 31
------------------------------------------------
Net interest, including exceptional net interest 410 518 970
=========== =========== ===========
5. Taxation
The tax charge of 102m pounds (30 September 2002: 92m pounds) on profit before taxation, excluding exceptional items and goodwill amortisation,
for the six months ended 30 September 2003, is based on the estimated effective tax rate for the year ended 31 March 2004 of 25% (30
September 2002: 27%).
6. Adjusted profit on ordinary activities before taxation and earnings per ordinary share
a) Reconciliation of adjusted profit on ordinary activities before taxation to basic profit on ordinary activities before taxation
Year ended 31
Six months ended 30 September 2003 2002 March 2003
(GBP)m (GBP)m (GBP)m
=========== =========== ===========
Profit/(loss) on ordinary activities before taxation 451 (39) 667
Exceptional operating items (note 3(a)) 170 171 347
Exceptional non-operating items (note 3(b)) (266) 99 99
Exceptional financing charge (note 3(c)) - 55 31
Goodwill amortisation 50 53 102
------------------------------------------------
Adjusted profit on ordinary activities before taxation 405 339 1,246
=========== =========== ===========
b) Earnings per share
Six months ended 30 September 2003
Weighted
Earnings Profit average
per for the number
share period of shares
pence (GBP)m million
=========== =========== ===========
Basic, including exceptional items and goodwill amortisation 13.0 399 3,068
Exceptional operating items (note 3(a)) 5.6 170 -
Exceptional non-operating items (note 3(b)) (8.7) (266) -
Exceptional tax credit (1.8) (54) -
Goodwill amortisation 1.6 50 -
--------------------------------------------------
Adjusted basic, excluding exceptional items and goodwill amortisation 9.7 299 3,068
=========== =========== ===========
There is no difference between basic and diluted earnings per share for the period ended 30 September 2003.
Six months ended 30 September 2002
Weighted
(Loss)/ (Loss)/ average
earnings per profit for number
share the period of shares
pence (GBP)m million
=========== =========== ===========
Basic, including exceptional items and goodwill amortisation (2.8) (87) 3,078
Exceptional operating items (note 3(a)) 5.5 171 -
Exceptional non-operating items (note 3(b)) 3.2 99 -
Exceptional financing charge (note 3(c)) 1.8 55 -
Exceptional tax credit (1.9) (59) -
Exceptional minority interest (note 3(d)) 0.4 12 -
Goodwill amortisation 1.7 53 -
--------------------------------------------------
Adjusted basic, excluding exceptional items and goodwill amortisation 7.9 244 3,078
=========== =========== ===========
There is no difference between basic and diluted earnings per share for the period ended 30 September 2002.
b) Earnings per share (continued)
Year ended 31 March 2003
Weighted
Earnings Profit average
per for the number
share year of shares
pence (GBP)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 (4.1) (128) -
Exceptional minority interest (note 3(d)) 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 4.0 128 -
Exceptional minority interest (note 3(d)) (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.
7. Dividends
The interim dividend of 7.91p per ordinary share (six months ended 30 September 2002: 6.86p) will be paid on 21 January 2004 to
shareholders on the register on 28 November 2003.
8. Reconciliation of operating profit to net cash inflow from operating activities before exceptional items
Year ended 31
Six months ended 30 September 2003 2002 March 2003
(GBP)m (GBP)m (GBP)m
=========== =========== ===========
Operating profit of Group undertakings 590 466 1,612
Group exceptional operating items 170 292 476
Depreciation and amortisation 533 556 1,088
Increase in working capital (254) (62) (6)
Decrease in provisions (107) 27 (16)
------------------------------------------------
Net cash inflow from operating activities before exceptional items 932 1,279 3,154
=========== =========== ===========
9. Reconciliation of net cash flow to movement in net debt
Year ended 31
Six months ended 30 September 2003 2002 March 2003
(GBP)m (GBP)m (GBP)m
=========== =========== ===========
Movement in cash and overdrafts (23) 85 34
Net cash (inflow)/outflow from the management of liquid resources (76) 193 138
Increase in borrowings (287) (655) (267)
------------------------------------------------
Change in net debt resulting from cash flows (386) (377) (95)
Disposal of Group undertaking - - (62)
Exchange adjustments 111 525 593
Settlement of EPICs (see note 3(b)(ix)) 243 - -
Other non-cash movements (11) (11) (15)
------------------------------------------------
Movement in net debt in the period (43) 137 421
Net debt at start of period (13,878) (14,299) (14,299)
------------------------------------------------
Net debt at end of period (13,921) (14,162) (13,878)
=========== =========== ===========
During the six months ended 30 September 2003 certain cross-currency swaps were terminated and 209m pounds of cash was received. 61m pounds
of this cash flow has been reported within the total of net cash outflow for returns on investments and servicing of finance amounting
to (335)m pounds and 148m pounds 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 pounds, which is reported within the net
exchange adjustments of 111m pounds reported above.
10. Cash flows from discontinued operations
Included in the cash flow statement are cash flows from discontinued operations as set out below:
Year ended 31
Six months ended 30 September 2003 2002 March 2003
(GBP)m (GBP)m (GBP)m
=========== =========== ===========
Net cash inflow/(outflow) from operating activities 4 12 (70)
Net cash outflow for returns on investments and servicing of finance (2) (6) (14)
Net cash outflow for taxation - (1) (1)
Net cash outflow for capital expenditure and financial investment (1) (94) (123)
Net cash outflow for acquisitions and disposals - (1) (3)
------------------------------------------------
Net cash inflow/(outflow) before the management of liquid resources and financing 1 (90) (211)
=========== =========== ===========
11. Net debt comprises
At 31 March
At 30 September 2003 2002 2003
(GBP)m (GBP)m (GBP)m
=========== =========== ===========
Cash and investments 499 699 601
Short-term debt including bank overdrafts (2,289) (2,944) (2,246)
Long-term debt (12,131) (11,917) (12,233)
------------------------------------------------
(13,921) (14,162) (13,878)
=========== =========== ===========
12. Exchange rates
The Group's results are affected by the exchange rates used to translate the results of its US operations. The US dollar to sterling
exchange rates used were:
Year ended
Six months ended 30 September 2003 2002 31 March 2003
=========== =========== ===========
Closing rate applied at period end 1.67 1.56 1.58
Average rate applied for the period 1.62 1.52 1.59
=========== =========== ===========
13. Differences between UK and US Generally Accepted Accounting Principles ("GAAP")
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.
Year ended 31
Six months ended 30 September 2003 2002 March 2003
(GBP)m (GBP)m (GBP)m
=========== =========== ===========
Net income under UK GAAP 399 (87) 391
------------------------------------------------
Adjustments to conform with US GAAP
Elimination of Lattice pre-acquisition results, measured under UK GAAP - 312 293
Merger costs - 32 32
Deferred taxation (11) 26 7
Pensions 3 5 35
Share option schemes (5) (1) (29)
Fixed assets - purchase of Lattice (181) - (169)
Replacement expenditure 186 - 166
Financial instruments (87) (89) 40
Gain on assets held for exchange (226) - -
Severance and integration costs 80 (13) (110)
Recognition of income 15 - 2
Goodwill 50 54 70
Restructuring - purchase of Lattice - - 46
Share of joint ventures' adjustments (7) (22) (27)
Other - (6) 4
------------------------------------------------
Total US GAAP adjustments (183) 298 360
------------------------------------------------
Net income under US GAAP 216 211 751
=========== =========== ===========
Basic earnings per share - US GAAP 7.0p 12.0p 31.9p
Diluted earnings per share - US GAAP 7.0p 11.8p 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 30 At 31 March
September 2003 2003
(GBP)m (GBP)m
=========== ===========
Equity shareholders' funds under UK GAAP 1,141 1,152
------------------- -------------------
Adjustments to conform with US GAAP
Deferred taxation (1,621) (1,593)
Pensions (1,693) (1,800)
Shares held by employee share trusts (39) (39)
Ordinary dividends 243 317
Tangible fixed assets - reversal of partial release of impairment provision (33) (35)
Fixed assets - impact of Lattice purchase accounting and replacement expenditure 7,315 7,243
Financial instruments (369) (253)
Carrying value of EPICs liability - 243
Severance liabilities 3 3
Recognition of income (12) (27)
Regulatory assets 224 241
Goodwill - purchase of Lattice 3,782 3,829
Goodwill - other acquisitions 218 179
Restructuring - purchase of Lattice (6) (6)
Share of joint ventures' adjustments - (17)
Other (8) (11)
------------------- -------------------
Total US GAAP adjustments 8,004 8,274
------------------- -------------------
Equity shareholders' funds under US GAAP 9,145 9,426
=========== ===========
Independent review report to National Grid Transco plc
Introduction
We have been instructed by the Company to review the financial information which comprises the Group Profit and Loss Account, Group
Balance Sheet, Group Cash Flow Statement, Group Statement of Total Recognised Gains and Losses, comparative information and notes 1
to 13. We have read the other information contained in the interim results statement and considered whether it contains any apparent
misstatements or material inconsistencies with the financial information.
Directors' responsibilities
The interim results statement, including the financial information contained therein, is the responsibility of, and has been approved
by, the directors. The directors are responsible for preparing the interim results statement in accordance with the Listing Rules of
the Financial Services Authority which 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 for use in
the United Kingdom. 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
United Kingdom 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. This report, including the conclusion, has been prepared for and only for the company for
the purpose of the Listing Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report,
accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may
come save where expressly agreed by our prior consent in writing.
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 2003.
PricewaterhouseCoopers LLP
Chartered Accountants
London
19 November 2003