Business Context and Reporting Period
Company: National Grid Group plc
Filing Type: Form 6-K (Preliminary Results Announcement)
Reporting Period: Year ended 31 March 2002
Announcement Date: 30 May 2002
National Grid reported strong operating performance from its core energy businesses, offset by significant exceptional charges related to the withdrawal from alternative telecommunications network (altnet) investments. The period included the acquisition of Niagara Mohawk in the US, which more than doubled the size of the US business.
Key Financial Metrics
| Metric | Year Ended 31 Mar 2002 | Year Ended 31 Mar 2001 (Restated) | Change |
|---|---|---|---|
| Turnover | £4.4 billion | £3.8 billion | Up 16% |
| Operating Profit (excl. exceptional items & goodwill) | £875 million | £739 million | Up 18% |
| Profit Before Tax (excl. exceptional items) | £582 million | £484 million | Up 20% |
| Profit After Tax (excl. exceptional items) | £491 million | £295 million | Up 66% |
| Reported Profit/Loss for the Year (incl. exceptional items) | (£493 million) Loss | £664 million Profit | N/A |
| EPS (excl. exceptional items & goodwill) | 32.1 pence | 20.0 pence | Up 61% |
| Basic EPS (reported) | (32.3) pence | 45.0 pence | N/A |
| Operating Cash Flow | £1.26 billion | £0.81 billion | Up 55% |
| Net Debt | £8.2 billion | £3.9 billion | Increased £4.3 billion |
| Dividend Per Share | 16.04 pence | 15.08 pence | Up 6.4% |
Material Changes vs. Prior Period
- Acquisition Impact: The acquisition of Niagara Mohawk (completed 31 Jan 2002) contributed £83.1 million to operating profit and was immediately earnings-enhancing before exceptional items. It drove the 16% increase in turnover.
- Exceptional Charges: The company recorded net post-tax exceptional charges of £893.4 million, turning a reported profit into a loss. Key components included:
- Telecoms Write-downs: Full write-down of Latin American telecoms investments (£290.4m pre-tax), Energis (£372.0m net), and Energis Polska (£109.8m net).
- Argentina Devaluation: A £92.5 million non-cash charge due to the devaluation of the Argentine peso affecting Transener.
- Restructuring: £72.9 million in costs related to US integration and UK reorganization.
- Debt Increase: Net debt rose to £8.2 billion, primarily due to the cash portion of the Niagara Mohawk acquisition (£916.6 million) and the consolidation of its balance sheet.
- Accounting Changes: Prior year figures were restated to reflect the adoption of FRS 19 (Deferred Tax), reducing prior year equity by £802.3 million.
Guidance, Outlook, and Risks
- Dividend Policy: The Board confirmed its aim to deliver 5% real growth in dividends per share annually until 2006. The total dividend for the year was increased to 16.04 pence.
- Strategic Merger: A proposed merger with Lattice Group plc is targeted for completion in autumn 2002. Management expects the merger to be earnings-enhancing in the first full financial year following completion (before exceptional integration costs).
- US Growth Targets: The company aims to achieve a 10.5% pre-tax nominal return on its enlarged US business by March 2005, driven by cost reductions and integration synergies.
- Risks and Contingencies:
- Forward-Looking Statements: Results depend on successful integration of Lattice and Niagara Mohawk, regulatory approvals, and market conditions.
- Telecoms Exit: Value recovery from remaining telecoms investments (Intelig, Silica, Manquehue) is uncertain, though management believes outcomes will be within existing provisions.
- Regulatory: The merger requires shareholder approval and regulatory sanctions in the UK and US (SEC).
Investor Verification Checklist
- Exceptional Item Classification: Verify the treatment of the £893.4 million in exceptional charges under US GAAP vs. UK GAAP, as US GAAP net loss is reported as (£163.1 million) compared to the UK GAAP loss of (£493.3 million).
- Merger Synergies: Monitor the progress of the Lattice merger and the realization of projected earnings enhancements, noting the disclaimer that future earnings are not guaranteed to exceed prior periods.
- Debt Servicing: Assess the impact of the increased net debt (£8.2 billion) on interest cover, which stood at 3.6 times (excluding exceptional items and exchangeable bonds).
- Telecoms Provisions: Track the resolution of the Energis Polska ownership and the final exit from Latin American telecoms ventures to ensure no further provisions are required.
- US Integration Costs: Review future periods for the impact of the £74.8 million pre-tax integration costs associated with Niagara Mohawk.