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 May 2004
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 May 2004
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 May 2004:
National Grid Transco plc ('NGT')
1-3 Strand
London
WC2N 5EH
United Kingdom
---------------------------------------------------------------------------------------------------------------------------------------
Announcement:
'National Grid Transco plc
-Results for the year ended 31 March 2004'
20 May 2004
National Grid Transco plc
Results for the year ended 31 March 2004
Strong growth - underlying earnings per share up 23%
|X| underlying profit before tax up 14% to 1,416 million pounds
|X| delivery of substantial cost savings
|X| strong underlying cashflow from operations of 3.1 billion pounds
|X| net debt down to 12.6 billion pounds
|X| recommended dividend for year up 15%; 7% pa growth targeted until March 2008
-------------------------------------------------------------------------------------------------------------------------------
Financial highlights Years ended 31 March
million pounds 2004 2003 % Change
Business results *
---------------------------------------------------- 2,238 2,185 2
Underlying operating profit
----------------------------------------------------
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
---------------------------------------------------- 19.78p 17.20p 15
Dividend per share
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 and 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 pounds in the year (405m 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 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 pounds 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 pounds 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 pounds.
Underlying operating profits rose by 2% from 2,185m pounds to 2,238m pounds, 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 pounds, down from 939m pounds 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 pounds to 1,416m pounds.
The tax charge on underlying profit for the year was 350m pounds, representing an effective tax rate of 25%.
Underlying earnings were 1,064m pounds, up from 870m pounds 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 pounds in the year (405m pounds 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 pounds.
Capital expenditure on continuing operations, including capitalised interest, was maintained at 1.5 billion pounds and included 136m pounds 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 pounds before tax, comprising:
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 other tangible fixed assets of 96m pounds (before and after tax);
o Restructuring costs of 249m pounds (170m pounds after tax), including 100m pounds for US distribution and transmission, 101m pounds for UK
distribution, 14m pounds for UK transmission, and 34m pounds for other businesses; and
o Recognition of additional UK environmental costs of 28m pounds (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 pounds at 31 March 2004, down 1.2 billion pounds from last year, with the weaker US dollar and EPIC bond
redemption contributing 0.7 billion pounds and 0.2 billion pounds 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 pounds to 729m pounds, primarily as a result of a 103m pounds
reduction in controllable costs and an 84m pounds increase in revenues, somewhat offset by a 23m pounds 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 pounds compared to 820m pounds 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 pounds. 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 pounds. Despite tougher regulatory
targets in both the electricity and the gas system operator (SO) incentive schemes, we delivered operating profits of 52m pounds (down 8m pounds
from last year) from these.
In the US, our transmission business delivered underlying operating profits of 133m pounds compared to 128m pounds 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 pounds this year, down
from 401m pounds last year.
Weather adjusted electricity distribution volumes were up 0.8% (including a 4.6% increase in the important domestic sales),
contributing 22m pounds to underlying operating profit, and controllable costs were reduced by a further 12m pounds. Offsetting these benefits
were the continued weakness of the dollar (20m pounds), a return to more normal weather (27m pounds) and the adverse impact of bad debt (9m pounds) and
other one off items (16m pounds).
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 pounds to 134m pounds, including a 8m pounds decrease due to
the weaker dollar.
OTHER BUSINESSES
Across our other businesses, underlying operating profit for the year was 110m pounds as compared to 112m pounds 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 pounds, a 29m pounds 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 pounds, down 24m pounds 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 pounds pension credit and an 8m pounds greater contribution from our electricity joint ventures. Losses
at Fulcrum connections were 13m pounds greater than in the previous year. Discontinued businesses, including discontinued joint ventures,
had no impact on underlying operating profits, after a loss of 46m pounds 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 pounds 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 pounds before tax (615m pounds 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 pounds, compared to 70m pounds 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 pounds, down from 2,262m pounds 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/Alexandra Morton +44 (0)20 7004 3170 +44 (0)7768 490807/+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 (US) +1 508 389 2598
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 ENDED 31 MARCH 2004 2003
Notes (GBP)m (GBP)m
============ ============
Group turnover - continuing operations 2a 8,875 8,833
Group turnover - discontinued operations 2a 158 567
------------ ------------
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 amortisation 35 (479)
------------ ------------
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
(GBP)m (GBP)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)
(GBP)m (GBP)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 (GBP)m (GBP)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 activities 2,810 2,826
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 pounds 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 pounds at 31 March 2004 and 39m pounds 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)
(GBP)m (GBP)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)
------------ ------------
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
============ ============
2. Segmental analysis (continued)
b) Operating profit - before exceptional items and goodwill amortisation
Years ended 31 March 2004 2003
(restated)
(GBP)m (GBP)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
------------ ------------
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
============ ============
2. Segmental analysis (continued)
c) Operating profit - after exceptional items and goodwill amortisation
Years ended 31 March 2004 2003
(restated)
(GBP)m (GBP)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
------------ ------------
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
(GBP)m (GBP)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 pounds of costs associated with the proposed disposal of UK-based distribution
networks and other charges of 225m pounds. 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 pounds after
tax; 2003: 165m pounds 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 pounds (28m pounds after tax).
iii) Represents employee and property costs associated with the Merger in 2003 of National Grid and Lattice (76m pounds after tax).
iv) The 2003 credits relate to Intelig and other telecoms joint ventures (155m pounds 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 pounds 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 pounds after tax).
b) Non-operating
Years ended 31 March 2004 2003
(GBP)m (GBP)m
============ ============
Continuing operations
Profit on disposal of tangible fixed assets (vi) (96) (48)
Merger costs (vii) - 79
------------ ------------
(96) 31
------------ ------------
Discontinued operations
Gain on assets held for exchange (viii) (226) -
Loss on sale or termination of operations (ix) - 68
------------ ------------
(226) 68
------------ ------------
Total non-operating exceptional items (322) 99
============ ============
vi) The after tax profit on disposal of tangible fixed assets was 96m pounds (2003: 50m pounds).
vii) The after tax transaction cost of the Merger between National Grid and Lattice in 2003 was 71m pounds.
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 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.
ix) The charges for 2003 relate to losses on the sale of The Leasing Group 45m pounds and loss on closure of 186k of 23m pounds. The after
tax loss relating to the 2003 sale and closure amounted to 68m pounds.
3. Exceptional items (continued)
c) Financing costs
For 2003, the exceptional net interest cost of 31m pounds (31m pounds after tax) relates to the Group's share of foreign exchange losses incurred
on foreign currency borrowings by joint ventures amounting to 98m pounds, partially offset by the Group's share of a gain on net monetary
liabilities of 67m pounds. 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 pounds includes a net credit amounting to 10m pounds relating to investments disposed of in prior
periods.
e) Minority interests
The 2003 exceptional minority interest charge of 28m pounds 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
(GBP)m (GBP)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 pounds net of interest
capitalised 1m pounds) 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 interest 822 970
============ ============
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 (GBP)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 (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 (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.
5. Earnings per share and adjusted profit on ordinary activities before taxation (continued)
b) Reconciliation of adjusted profit on ordinary activities before taxation to basic profit on ordinary activities before taxation
Years ended 31 March 2004 2003
(GBP)m (GBP)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 pounds (2003: 530m pounds) 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
(GBP)m (GBP)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
(GBP)m (GBP)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 pounds of cash was received. 61m pounds 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 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 534m pounds 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
(GBP)m (GBP)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
(GBP)m (GBP)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
(GBP)m (GBP)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
============ ============
12. Differences between UK and US Generally Accepted Accounting Principles ("GAAP") (continued)
(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)
(GBP)m (GBP)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
============ ============