NGG

Business Context and Reporting Period

Company: National Grid plc (formerly National Grid Transco plc)

Filing Type: Form 6-K (Report of Foreign Issuer)

Reporting Period: Announcements for July 2005 and 1 August 2005.

Key Context: The filing documents the company's transition to International Financial Reporting Standards (IFRS) effective 1 April 2005, the completion of a "Return of Cash" to shareholders via the issuance of B Shares, and the sale of four regional UK gas distribution networks (classified as discontinued operations).

Key Financial Metrics (Year Ended 31 March 2005)

The filing includes an IFRS conversion statement reconciling UK GAAP to IFRS for the year ended 31 March 2005.

Note: The significant increase in profit and net assets under IFRS is primarily due to the capitalization of replacement expenditure (repex), the cessation of goodwill amortization, and the derecognition of regulatory assets.

Material Changes and Corporate Actions

• Return of Cash Implementation: On 1 August 2005, the company listed New Ordinary Shares and B Shares on the London Stock Exchange to implement a return of cash to shareholders. Approximately 2.7 billion New Ordinary Shares and 3.1 billion B Shares were issued.
• Discontinued Operations: The four regional UK gas distribution networks sold on 1 June 2005 are presented as discontinued operations. Under IFRS, these contributed £304 million to the profit for the year.
• Accounting Standards Transition: The company adopted IFRS on 1 April 2005. Key adjustments included:
  • Capitalizing replacement expenditure (repex) rather than expensing it immediately.
  • Stopping goodwill amortization (replaced by impairment testing).
  • Derecognizing regulatory assets previously recognized under UK GAAP.
  • Recognizing full pension obligations under IAS 19.
• Shareholder Interests:
  • Barclays PLC increased its interest to 4.60% (142,293,508 shares).
  • Deutsche Bank AG held a 3.05% interest (94,329,597 shares).
  • The Capital Group Companies, Inc. reduced its interest to 6.97%.

Guidance, Outlook, and Risks

Management Commentary: The filing focuses on the technical execution of the IFRS transition and the Return of Cash. No specific forward-looking financial guidance (e.g., revenue or profit forecasts) is provided in this document.

Risks and Contingencies:

• IFRS Interpretation Risk: The company notes that IFRS is subject to interpretation by the International Financial Reporting Interpretations Committee. Future standards or interpretations could alter the comparative figures presented for the year ending 31 March 2006.
• Adoption of IAS 39: The adoption of IAS 39 (Financial Instruments) on 1 April 2005 requires derivatives and available-for-sale investments to be recorded at fair value, introducing volatility to the balance sheet not previously present under UK GAAP.
• Discontinued Operations: The results of the sold gas networks are separated, meaning future performance will rely solely on continuing operations (UK/US transmission, distribution, and wireless infrastructure).

Key Facts for Investor Verification

• IFRS Impact: Verify the sustainability of the reported profit increase (£517m jump from UK GAAP to IFRS) by reviewing the capitalization of repex and the cessation of goodwill amortization.
• Net Debt Position: Confirm the impact of IAS 39 adoption on the net debt figure, which increased to £13.9 billion post-adoption due to fair value adjustments on derivatives.
• Share Structure: Note the new dual-class share structure (Ordinary and B Shares) resulting from the Return of Cash and its implications for voting rights and dividends.
• Discontinued Operations: Ensure future earnings comparisons exclude the £304m profit from the sold UK gas distribution networks.
• Major Shareholders: Monitor the concentration of ownership, particularly the interests of Barclays (4.6%) and The Capital Group (6.97%).