Business Context and Reporting Period
Company: National Grid Transco plc (NGT)
Reporting Period: Six months ended 30 September 2002
Filing Date: 26 November 2002
Key Event: The merger of National Grid Group plc and Lattice Group plc was completed on 21 October 2002. Financial results are presented on a pro forma basis as if the merger occurred on 1 April 2001. The Group operates regulated electricity and gas networks in the UK and US, alongside non-regulated businesses.
Key Financial Metrics
| Metric | Six Months Ended 30 Sep 2002 | Six Months Ended 30 Sep 2001 | Change |
|---|---|---|---|
| Turnover | £4,309m | £3,221m | +34% |
| Operating Profit (excl. exceptionals) | £802m | £590m | +36% |
| Profit Before Tax (excl. exceptionals) | £339m | £273m | +24% |
| Profit After Tax (excl. exceptionals) | £244m | £232m | +5% |
| Operating Cash Flow | £1,197m | £845m | +42% |
| Net Debt (at 30 Sep 2002) | £14,162m | £9,317m | N/A |
| Interim Dividend | 6.86p per share | 6.46p per share | +6.2% |
Note: Figures are presented before exceptional items, goodwill amortisation, and additional NTS auction income where applicable, to reflect underlying performance.
Material Changes vs. Prior Period
- US Expansion: The first full period contribution from the New York operation (formerly Niagara Mohawk) added £206m to operating profit. US electricity turnover increased significantly due to this acquisition.
- Merger Synergies: The merger with Lattice Group is on track to deliver over £100m in annualised synergy savings by March 2004. Integration of the New York operation is ahead of schedule.
- Cost Performance: UK businesses are outperforming regulatory targets for controllable costs. The US operation is on track to achieve a further 20% reduction in controllable costs by March 2005.
- Non-Regulated Exit: The Group is nearing completion of its exit from "altnet" (alternative network) investments, including a £166m write-down of Lattice's altnet assets.
- Net Debt: Group net debt increased to £14,162m, driven by the inclusion of Lattice's debt and borrowings related to the New York operation, partially offset by the depreciation of the US Dollar.
Guidance, Outlook, and Risks
Management Commentary and Outlook
Management describes the results as "strong" and "fully in line with expectations." The Group remains confident in delivering shareholder value through its enlarged scale. The dividend policy aims for 5% real growth per year in sterling until 2006.
Key Risks and Contingencies
- Regulatory and Political: Risks include delays in regulatory approvals, changes in energy market prices, and changes in laws or regulatory policies in both the UK and US.
- Integration Risk: Success depends on the ability to integrate Niagara Mohawk and Lattice Group successfully and realize projected synergies.
- Market Conditions: Exposure to currency fluctuations, unseasonal weather impacting demand, and the behavior of market participants in system balancing.
- Pension Schemes: Potential volatility in pension costs under proposed FRS 17 accounting standards, though current costs are generally recoverable through customer rates.
- Telecoms Exit: Difficulty in effecting a sale of the remaining stake in Intelig, though no further funding is planned.
Investor Verification Checklist
- Merger Accounting: Verify the pro forma adjustments made to align National Grid and Lattice results as if the merger occurred on 1 April 2001.
- Exceptional Items: Review the £337m net exceptional charges, specifically the £166m write-down of altnet assets and the £127m credit from telecom joint ventures.
- Currency Impact: Assess the impact of the US Dollar depreciation on reported net debt and US operating profits.
- Regulatory Targets: Confirm the progress of UK businesses against Ofgem targets for controllable costs and safety.
- Pension Liabilities: Monitor the potential impact of FRS 17 implementation on future reported deficits, particularly for the Lattice and US schemes.