NGG

Business Context and Reporting Period

Company: National Grid plc
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal year ended March 31, 2007
Jurisdiction: England and Wales
Business Overview: National Grid operates regulated electricity and gas transmission and distribution networks in the United Kingdom and the United States. The company also held wireless infrastructure operations in the UK until their sale in April 2007.

Key Financial Metrics (IFRS Basis)

Note: The filing text does not provide specific values for cash flow, debt levels, or liquidity ratios in the summary tables. These are incorporated by reference from the full Annual Report and Accounts.

Material Changes vs. Prior Period

• Profit Volatility: Total profit for the year dropped significantly from £3,850 million in 2006 to £1,396 million in 2007. This decrease is primarily due to the reclassification of amounts relating to discontinued operations (specifically the sale of UK gas distribution networks in 2005 and UK wireless in 2007) and the absence of one-off gains present in the prior year.
• Continuing Operations Growth: Despite the drop in total profit, profit from continuing operations increased by approximately 11% (from £1,183 million to £1,310 million), and operating profit rose by 6% (from £2,374 million to £2,513 million).
• Revenue Decline: Revenue decreased by 2% to £8,695 million, largely reflecting the disposal of the UK wireless business and the prior year's inclusion of certain discontinued operations.
• Share Capital: The number of basic shares outstanding decreased from 2,837 million in 2006 to 2,719 million in 2007, reflecting ongoing share buyback programs.

Guidance, Outlook, and Risks

Acquisitions and Disposals:

• KeySpan Acquisition: The company is pursuing the acquisition of KeySpan Corporation for $42.00 per share in cash. The termination date for the merger agreement was extended to August 25, 2007. Completion is subject to regulatory and shareholder approvals.
• UK Wireless Sale: The UK wireless infrastructure operations were sold on April 3, 2007. Proceeds of approximately £1.8 billion are expected to be returned to shareholders via an extension of the share buyback program.

Shareholder Returns:

• The company announced a share buyback program to return approximately $1.9 billion (£1 billion) based on cash flows from stranded assets under US rate plans.
• Following the wireless sale, an additional £1.8 billion is to be returned via buybacks over the next 12 to 18 months.
• Dividends approved for the year were 28.7 pence per share.

Risk Factors:

• Regulatory and Approval Risks: Delays or adverse conditions in regulatory approvals for the KeySpan acquisition.
• Market and Operational Risks: Unseasonable weather affecting demand, competition, industry restructuring, and changes in energy market prices.
• Financial Risks: Currency fluctuations (GBP/USD), changes in interest and tax rates, and the performance of pension schemes.
• Integration Risks: Challenges in integrating acquired businesses to realize expected synergies.

Investor Verification Checklist

• Discontinued Operations Impact: Verify the specific financial impact of the UK wireless sale and the prior year's UK gas distribution sales to understand the true underlying performance of continuing operations.
• KeySpan Acquisition Status: Confirm the current status of regulatory approvals and the likelihood of closing the KeySpan deal by the August 2007 deadline.
• Share Buyback Execution: Monitor the execution of the announced £2.8 billion total return of capital (combining stranded asset proceeds and wireless sale proceeds) and its impact on share count and EPS.
• Debt and Liquidity: Review the full Annual Report (Exhibit 15.1) for detailed debt maturities, interest coverage ratios, and liquidity positions, as these are not explicitly detailed in the summary tables.
• Pension Obligations: Assess the sensitivity of the company's financial results to changes in pension scheme performance and regulatory treatment of pension costs.