National Grid plc: Form 6-K Summary (Year Ended 31 March 2007)
Business Context and Reporting Period
This Form 6-K reports the full-year financial results for National Grid plc for the period ended 31 March 2007. The company operates as a utility provider focused on electricity and gas transmission and distribution in the UK and US. The reporting period includes the reclassification of wireless infrastructure and Australian interconnector businesses as discontinued operations, pending sale.
Key Financial Metrics
| Metric | 2007 (£m) | 2006 (£m) | % Change |
|---|---|---|---|
| Revenue | 8,695 | 8,868 | (2%) |
| Operating Profit (Statutory) | 2,513 | 2,374 | 6% |
| Operating Profit (Business Performance) | 2,031 | 1,968 | 3% |
| Profit Before Tax (Statutory) | 1,751 | 1,718 | 2% |
| Profit Before Tax (Business Performance) | 1,486 | 1,369 | 9% |
| Net Earnings (Continuing Ops) | 1,308 | 1,181 | 11% |
| Earnings Per Share (Basic) | 48.1p | 41.6p | 16% |
| Operating Cash Flow | 3,176 | 3,088 | 3% |
| Net Debt | 11,788 | 10,850 | 9% |
| Dividend Per Share | 28.7p | 26.1p | 10% |
Note: "Business Performance" excludes US stranded cost recoveries and exceptional items. "Statutory" includes all items.
Material Changes vs. Prior Period
- Wireless Divestiture: The UK and US wireless infrastructure businesses were sold in April 2007 for a total of approximately £2.7 billion. These operations are now classified as discontinued.
- Acquisitions: Completed the £269 million acquisition of Rhode Island gas distribution assets from New England Gas in August 2006, adding 245,000 customers.
- Profitability Drivers: Statutory earnings per share rose 16% to 48.1p. On a business performance basis (excluding US stranded costs), EPS grew 9% to 38.3p. The increase was driven by strong performance in Transmission and Electricity Distribution, offsetting lower profits in Gas Distribution due to warm weather reducing UK gas demand.
- Debt Position: Net debt increased to £11.8 billion from £10.9 billion, primarily due to higher capital expenditure (£2.3 billion) and the Rhode Island acquisition.
Guidance, Outlook, and Management Commentary
- KeySpan Acquisition: Significant progress has been made toward the $7.3 billion acquisition of KeySpan. Regulatory approvals from New Hampshire and Long Island Power Authority (LIPA) have been secured. The final approval from the New York Public Service Commission is expected in the autumn of 2007.
- Capital Investment: The company invested £2.3 billion in 2006/07. Total investment in electricity and gas infrastructure is projected to exceed £14 billion over the six years to March 2012.
- Shareholder Returns: A £1.8 billion share buy-back program was announced using proceeds from the wireless sale. The full-year dividend increased 10% to 28.7p per share.
- Climate Change: National Grid aims to reduce greenhouse gas emissions from operations by 60% well before 2050 and plans to use renewable sources for all own-use electricity by 2010.
- Future Gearing: Following the KeySpan acquisition and wireless sales, the company expects net debt to rise to approximately £18 billion.
Investor Verification Checklist
- KeySpan Regulatory Approval: Verify the status of the final New York Public Service Commission approval required to close the KeySpan deal.
- Wireless Sale Completion: Confirm the closing of the US wireless sale (expected summer 2007) and the receipt of proceeds.
- UK Gas Demand: Monitor the impact of weather patterns on UK gas distribution volumes and revenue recovery mechanisms.
- Regulatory Price Controls: Track the outcome of Ofgem's final proposals for the UK Gas Distribution price control (expected December 2007).
- US Stranded Costs: Note that US stranded cost recoveries (£423m operating profit) are non-recurring and scheduled to end in 2011; verify the sustainability of core earnings excluding these items.