National Grid plc: Half-Year Report Summary (Six Months Ended 30 September 2009)
Business Context and Reporting Period
This Form 6-K summarizes the unaudited half-year results for National Grid plc for the six months ended 30 September 2009. The company operates regulated electricity and gas transmission and distribution networks in the UK and US, alongside non-regulated activities including metering and LNG operations. The reporting period reflects a strong operational start despite prevailing economic conditions, with a focus on disciplined investment, regulatory progress in the US, and efficiency improvements.
Key Financial Metrics
| Metric | 2009 (6 Months) | 2008 (6 Months) | Change |
|---|---|---|---|
| Revenue (Continuing Operations) | £6,044m | £6,072m | (0.5%) |
| Operating Profit (Business Performance) | £1,149m | £1,079m | +6% |
| Pre-Tax Profit (Business Performance) | £649m | £558m | +16% |
| Earnings (Business Performance) | £554m | £431m | +29% |
| Earnings Per Share (Basic, Business Performance) | 22.5p | 17.2p | +31% |
| Operating Cash Flow (Continuing Ops) | £1,607m | £860m | +87% |
| Net Debt | £21.98bn | £22.67bn (Mar 2009) | Down £693m |
| Capital Investment | £1.5bn | £1.5bn (approx) | In line with plan |
| Interim Dividend | 13.65p | 12.64p | +8% |
Note: "Business Performance" excludes exceptional items, remeasurements, and stranded cost recoveries. Statutory results show higher growth due to favorable remeasurements and stranded cost recoveries.
Material Changes vs. Prior Period
- Profit Growth: Pre-tax profit increased by 16% primarily driven by lower financing costs (£20m reduction to £504m) due to lower interest rates and UK deflation affecting index-linked debt.
- Cash Flow: Operating cash flow surged by £747m compared to the prior period, largely due to favorable working capital movements.
- Segment Performance:
- Transmission: Operating profit up 8% (£637m), driven by UK regulated revenue increases, partially offset by US timing differences.
- Gas Distribution: Operating profit down 8% (£253m). UK performance was strong (+46%), but US results were negatively impacted by timing differences and increased bad debts due to the recession.
- Electricity Distribution & Generation: Operating profit up 31% (£169m), supported by higher generation contract revenues.
- Debt Reduction: Net debt decreased by £693m to £21.98bn, influenced by the weakening US dollar against the pound.
Outlook, Guidance, and Risks
Management Commentary & Outlook:
- Management expects a strong full-year performance in line with current expectations.
- Full-year capital investment is targeted at £3.4bn, financed through internal cash flows and borrowings.
- Regulatory progress continues in the US, with filings completed or on track for Massachusetts, Rhode Island, and New York.
- Net interest charges are expected to benefit from low inflation and fixed low interest rates on variable debt.
- The effective tax rate for the full year is expected to be approximately 29%.
Risks and Contingencies:
- Legal/Regulatory: An ongoing appeal regarding a reduced fine of £30m for a breach of the UK Competition Act 1998 (metering services). No provision has been made as an outflow is not considered probable.
- Investigation: An investigation by Ofgem and Ernst & Young regarding potential misreporting of mains replacement activity in the UK West Midlands Alliance.
- US Antitrust: Ongoing discussions with the US Department of Justice regarding a civil investigative demand related to KeySpan's activities in the New York City electricity capacity market.
- Market Risks: Exposure to currency fluctuations, changes in energy market prices, and regulatory approval delays.
Key Facts for Investor Verification
- Dividend Increase: Verify the payment of the 8% increased interim dividend of 13.65p per share, payable in January 2010.
- US Regulatory Filings: Monitor the outcomes of pending rate case filings in Massachusetts, Rhode Island, and the upcoming Niagara Mohawk electric rate case.
- Debt Management: Confirm the stability of credit ratings (reaffirmed by Moody's, Fitch, and S&P) and the execution of the debt reallocation program to US operating companies.
- Legal Contingencies: Track the status of the UK Competition Act appeal and the US Department of Justice investigation to assess potential financial impacts.
- Investment Pipeline: Verify progress on the £3.4bn full-year capital investment program, particularly in renewable generation and asset replacement.