cautionary statement/media/files/n/national-grid-ir-v… · financing metric 15 interest cover...

Cautionary statement

1

Unless otherwise stated, all financial data of National Grid contained in this presentation is as reported under IFRS.This presentation contains certain statements that are neither reported financial results nor other historical information. These statements are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include information with respect to National Grid’s financial condition, National Grid’s results of operations and businesses, strategy, plans and objectives. Words such as “anticipates”, “expects”, “intends”, “plans”, “believes”, “seeks”, “estimates”, “may”, “will”, “continue”, “project” and similar expressions, as well as statements in the future tense, identify forward-looking statements. These forward-looking statements are not guarantees of National Grid’s future performance and are subject to assumptions, risks and uncertainties that could cause actual future results to differ materially from those expressed in or implied by such forward-looking statements. Many of these assumptions, risks and uncertainties relate to factors that are beyond National Grid’s ability to control or estimate precisely, such as delays in obtaining, or adverse conditions contained in, regulatory approvals and contractual consents, unseasonable weather affecting the demand for electricity and gas, competition and industry restructuring, changes in economic conditions, currency fluctuations, changes in interest and tax rates, changes in energy market prices, changes in historical weather patterns, changes in laws, regulations or regulatory policies, developments in legal or public policy doctrines, the impact of changes to accounting standards and technological developments. Other factors that could cause actual results to differ materially from those described in this presentation include the ability to integrate the businesses relating to announced or recently completed acquisitions with National Grid’s existing business to realise the expected synergies from such integration, the availability of new acquisition opportunities and the timing and success of future acquisition opportunities, the timing and success or other impact of the sales of National Grid’s non-core businesses, the failure for any reason to achieve reductions in costs or to achieve operational efficiencies, the failure to retain key management, the behaviour of UK electricity market participants on system balancing, the timing of amendments in prices to shippers in the UK gas market, the performance of National Grid’s pension schemes and the regulatory treatment of pension costs, and any adverse consequences arising from outages on or otherwise affecting energy networks, including gas pipelines owned or operated by National Grid. For a more detailed description of some of these assumptions, risks and uncertainties, together with any other risk factors, please see National Grid’s filings with and submissions to the US Securities and ExchangeCommission (the “SEC”) (and in particular the "Risk Factors" and "Operating and Financial Review" sections in its most recent Annual Report on Form 20-F). Except as may be required by law or regulation, National Grid undertakes no obligation to update any of its forward-looking statements. The effects of these factors are difficult to predict. New factors emerge from time to time and National Grid cannot assess the potential impact of any such factor on its activities or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement.

Sir John Parker

Chairman

Steve Lucas

Finance Director

Financial headlines

4

Very strong results

Operating profit up 22%

EPS up 23%*

Improved balance sheet efficiency

Positive outlook

Full-year operating profit and EPS in-line with our expectations

* At actual currencyContinuing business performance, excluding exceptional items, discontinued businesses, stranded costs recoveries and certain mark-to-market remeasurements2007 constant currency figures calculated by applying average 2007 rate ($2.02/£) to 2006 results (when average rate was $1.86/£)

GroupOperating profit

5

£852m£1,039m

US Stranded

US Stranded

2006 2007

£1,039m

£1,229m

55%

16%

19%

10%

Transmission Gas Distribution

Electricity Distribution & Generation

Non-regulated

(excludes US stranded cost recoveries)

• Continuing business performance, excluding exceptional items, discontinued businesses and certain mark-to-market remeasurements• 2007 constant currency figures calculated by applying average 2007 rate ($2.02/£) to 2006 results (when average rate was $1.86/£)

TransmissionOperating profit

6

£489m£574m

2006 2007

Increase in UK allowed revenues

Lower auction revenues on the French interconnector and LNG storage

Increased depreciation charge

Other items net positive17% up


Gas DistributionOperating profit

7

£98m

£166m

2006 20079% UK price increase in October 2006

Re-profiling of UK allowed revenue recovery

US seasonal bias

Other items net negative69% up


Electricity Distribution & GenerationOperating profit

8

£206m £196m

2006 2007

Increased electricity distribution revenues*

Timing benefit for pass-through items

Other items net negative – included:Storm costs

Bad debts

Increased reliability expenditure

Absence of one-off benefit in 2006/075% down

* Excluding pass-through commodity costs• Continuing business performance, excluding exceptional items, discontinued businesses and certain mark-to-market remeasurements• 2007 constant currency figures calculated by applying average 2007 rate ($2.02/£) to 2006 results (when average rate was $1.86/£)

Non-regulated & other businessesOperating profit

9

£60m

£103m

2006 2007Property up on timing of sales

Metering income up

Grain LNG income up

Net reduction in corporate and other costs72% up


GroupOperating profit

10

£852m£1,039m

US Stranded

US Stranded

2006 2007

£1,039m

£1,229m

55%

16%

19%

10%

Transmission Gas Distribution


Non-regulated

(excludes US stranded cost recoveries)

22% up** Excluding US stranded cost recoveries• Continuing business performance, excluding exceptional items, discontinued businesses and certain mark-to-market remeasurements• 2007 constant currency figures calculated by applying average 2007 rate ($2.02/£) to 2006 results (when average rate was $1.86/£)

Exchange rates

11

For the 6 months ended 30 September 2007 2006

Closing $ / £ rate 2.05 1.88

Average $ / £ rate for the period 2.02 1.86

(2)%Net currency impact on earnings

For the 6 months ended 30 September (£m) 2007

Impact on total operating profit (24)

Impact on interest 11

Impact on tax and minority interests 3

Net impact on earnings (10)

• Continuing business performance, excluding US stranded cost recoveries, discontinued businesses, exceptional items and certain mark-to-market remeasurements

Interest, tax, earnings and dividend

12

For the 6 months ended 30 September (£m) 2007 2006

Net finance cost (actual FX) (282) (253)Effective tax rate* 32% 32%EPS** 19.8p 16.1p


DPS - ordinary 11.7p 10.9pDividend per American Depository Share $1.2153 $1.0279

Continuing business performance, excluding exceptional items, discontinued businesses and certain mark-to-market remeasurements*Expressed as a % of profits before exceptional and remeasurement adjustment, including US stranded costs **Excluding stranded costsNumber of shares: 2,663m (2007), 2,721m (2006)

Capital investment

13

£578m

£870m

£236m

£299m

£113m

£115m

£128m

£186m

2006 2007

Gas Distribution Non-regulated

Electricity Distribution & GenerationTransmission

£1,055m

£1,470m

• Continuing business capital investment at actual FX• Excludes Transmission capitalised expenditure relating to emissions trading in the UK• 2007 Gas Distribution includes £177m of replacement expenditure (repex) in the UK (2006: £159m)

Net debt and cashflow

14

01-Apr-07 Continuingoperatingcashflow*

Continuinginterest & tax

Investment Proceedsfrom

disposals

Acquisition ofKeySpan

Dividends &share buy

back

Other** 30-Sep-07

£(11.8)bn

£3.1bn

£(16.3)bn

£1.3bn

£0.1bn

£(0.4)bn

£(1.4)bn

£(5.9)bn

£(1.3)bn

*Includes exceptional spend of £(66)m, and excludes tax ** Other items also includes cashflows related to discontinued operations

Financing Metric

15

Interest cover (times)

2.75

3.00

3.25

3.50

3.75

4.00

4.25

2004/05 2005/06 2006/07 Future2.75

3.00

3.25

3.50

3.75

4.00

4.25

Target range Interest cover

Providing metric for the first time

Indicator of balance sheet efficiency

Annual reporting at each full-year results

Interest cover

Reflects the calculation used by our credit rating agencies

3.8x as at 31 March 2007

Aim to manage the long term trend in a range of 3.0 – 3.5x

Financial headlines

16

Very strong results

Operating profit up 22%

EPS up 23%*

Improved balance sheet efficiency

Positive outlook

Full-year operating profit and EPS in-line with our expectations


Steve Holliday

Chief Executive

National Grid……clear and simple strategy

18

More focused

More integrated

More disciplined

Our achievements…

19

More focused

UK and US Wireless sold

Basslink sold

KeySpan acquisition completed

Our achievements…

20

More integrated

KeySpan integration

Global operating model

Support organisations:

Shared services established

Global Finance established

Global IS established

Implementing the operating model…

21

More integrated Rate plan controllableoperating costs ~£2bn…

Assetmgmt

Customer mgmt

Workdelivery

Market operation Global IS Shared

services

~45% Global

~30% Lines of Business

~25% Local


22


Global IS Customer mgmt

Workdelivery

Market operation

Shared services

Assetmgmt

Global ~80%

Lines of Business ~5%

Local ~15%


23


Workdelivery

Customer mgmt


servicesAssetmgmt

Global ~10%

Lines of Business ~80%

Local ~10%


24


Customer mgmt

Workdelivery


servicesAssetmgmt

Global ~50%

Lines of Business

Local ~50%

Our achievements…

25

More disciplined

Return surplus cash

£1,042m returned under share buy-back programme

Interest cover metric

Investment discipline

Investment for growth……discipline in delivery

26

£1.5bn investment, up 39%

£870m£299m

£186m£115m

Electricity Distributionand Generation

Gas Distribution

Non-regulated

Transmission


27

Transmission

£142m

£410m

£215m

£44m£44m £15m

UKelectricity

UK gas USelectricity

Other

US transmission

Asset replacement

Other

Customer connections & network reinforcement

£870m


28

Gas Distribution

£41m

£187m

£11m£31m

£23m

£6m

UK gas US gas OtherKeySpan

Asset replacement

Other


£299m


29


£56m

£56m

£1m £2m

US electricity Generation OtherAsset replacement

Other


£115m


30

Non-regulated

£72m

£97m

£12m

£5m

Metering Grain LNG Property OtherProperty Other

Metering

£186m

Grain LNG

Investment for growth……~£16bn* capital investment through to 2012

31

£ billion

0

2

4

6

8

10

12

14

16

2006 - 2012

£2.3bn

£12.0bn

Delivered in 2006/07

Expected balance to 2011/12

Electricity Distributionand Generation

£1.4bn

Gas Distribution

£4.9bn

Non-regulated

£1.6bn

Transmission

£5.6bn

£1.5bn

Delivered in H1 2007/08

* National Grid is currently working with Ofgem on the Gas Distribution Price Control Review for 2008-13. The projections set out above are central to the review with respect to assumptions about the level of investment and how investment, including repex, will be treated for regulatory purposes.

Regulatory settlements…staggered rate plans

32

2007 2008 2009 2010 2011 2012 2013 2014Transmission (2)

Gas Distribution (4)

NiMo (electric)

NiMo (gas)

KEDNY

KEDLI

MECO

Boston Gas

Essex Gas

Colonial Gas

Narrangansett (elec.)

Narragansett (gas)

GSE

Energy North

LI Generation

NEP Formula transmission rates

Preparing rate filing



FER

CN

HR

hode

Is

land

Mas

sach

uset

tsN

ew Y

ork

Ofg

em

Investment for growth……electricity distribution capital investment

33

$1.47bnUpstate New York filing

$0m

$100m

$200m

$300m

$400m

$500m

$600m

2007 2008 2009 2010 2011

Transmission Distribution

Note: US GAAP


34

$1.47bnUpstate New York filing

$0m

$100m

$200m

$300m

$400m

$500m

$600m

2007 2008 2009 2010 2011Customer connections & network reinforcementAsset replacement & reliability

Note: US GAAP


35

$2.4bnUpstate New York - potential increase to around

$0m

$100m

$200m

$300m

$400m

$500m

$600m

2007 2008 2009 2010 2011Sustainable reliabilityCustomer connections & network reinforcementAsset replacement & reliability

Note: US GAAP

Strong first-half, delivering our strategy on all fronts…next steps

36

More focused More integrated More disciplined

Decision on sale of National Grid Property

Sale of Ravenswood

UK gas distribution price control review

US gas rate plan filings

$200m+ KeySpan synergy savings

Operating model implementation

£2bn regulated annual controllable cost base

Deliver capital investment plans and rate base growth

Share buy-back

Dividend policy beyond 2008

Positive outlook… and a lot to do…

Appendix

IFRS – technical details

38

This presentation is based on continuing business performance, so it excludes exceptional items and remeasurements.

These remeasurements relate to movements in the carrying value of financial instruments and of commodity contracts. They arise from changes in mark-to-market values or exchange rates and are reflected in the income statement to the extent that hedge accounting is not achieved or is not fully effective.

Further details can be found in Note 3 of National Grid’s half-year report at www.nationalgrid.com

Business results

39

For the 6 months ended 30 September (£m) 2007 2006 change

Operating profit (actual FX) 1,2291,229

94724.1p

11.7p

1,078 14%

Operating profit (constant FX) 1,039 18%

Profit before tax (actual FX) 827 15%

Earnings per share 20.5p 18%

Dividend per share 10.9p 7%


Business results and statutory results*

40


Operating profit ** 1,229 1,078Exceptional operating items and remeasurements (42) 32Net finance costs (including exceptional items and remeasurements) (270) (331)

Share of post tax results of joint ventures - 2Statutory profit before tax (continuing businesses) 917 781Tax (132) (218)Statutory earnings (continuing businesses) 785 563Statutory earnings (discontinued operations) 1,613 33Statutory earnings 2,398 596Minority interests (2) (2)Statutory earnings attributable to equity shareholders 2,396 594Earnings per share 90.0p 21.8p

*At actual currency**excluding exceptional items, discontinued businesses and certain mark-to-market remeasurements

Revenue and other operating income*

41


Transmission – UK 1,392 1,323

Transmission – US 153 151

Gas distribution – UK 547 447

Gas distribution – US 302 157

Electricity distribution and generation 1,446 1,530

Non-regulated businesses and other 330 292

US Stranded Costs 195 205

(Sales eliminations) (105) (123)

Total revenue and other operating income 4,260 3,982

*At actual currencyContinuing business performance, excluding exceptional items, discontinued businesses and certain mark-to-market remeasurements

Transmission* Depreciation & Amortisation

42

For the 6 months ended 30 September (£m) 2007 2006Electricity Transmission Owner* 118 104

Electricity System Operator 10 9

Sub-total – Electricity transmission – US 20 21Interconnectors – UK 2 2

LNG 3 3

Sub total – other 5 5Total Transmission depreciation & amortisation 206 186

Other Electricity 1 1

Sub total – Electricity transmission - UK 129 114Gas Transmission Owner** 44 36

Gas System Owner*** 8 10

Other Gas - -

Sub total – Gas transmission - UK 52 46New England Transmission 6 6

New York Transmission 10 11

Interconnectors 4 4

*At actual currency** Excludes profit on sale of fixed assets £[X]m in 2006/07 and capital contributions released of £4[X]m in 2006/07*** Excludes emissions trading amortisation of £[X]m in 2006/07 and excludes capital contributions released of £[X]m in 2006/07

Transmission* Operating costs

43

For the 6 months ended 30 September (£m) 2007 2006Electricity Transmission Owner** 140 148

Electricity System Operator 415 406


LNG 17 19

Internal eliminations (9) (8)

Sub total – other 11 15Total Transmission operating costs 765 794


Sub total – Electricity transmission - UK 563 561Gas Transmission Owner 75 68

Gas System Owner 52 82

Other gas 4 5


New York Transmission 31] 29

Interconnectors 4 5

*At actual currency** Includes transfer of Scottish network owner income (£[X]m in 2006/07); hydro benefit costs (£[X]m in 2006/07); and BSIS costs (£[X]m

2006/07)

Transmission* Operating profit

44

For the 6 months ended 30 September (£m) 2007 2006Electricity Transmission Owner* 313 270

Electricity System Operator 19] 26


LNG 5 23

Sub total – other 20 53Total Transmission operating profit 574 494


Sub total – Electricity transmission - UK 336] 297Gas Transmission Owner 94 52

Gas System Owner 51 25

Other gas - -


New York Transmission 31 31

Interconnectors 4 4

*At actual currency**Includes transfer from ESO to ETO of Electricity TO core revenue collected in GBSO

TransmissionPrincipal operating profit movements

45

2006 Currencyimpact

2006(constant FX)

UK regulatedrevenue

Frenchlink &LNG storage

Depreciation Other 2007

£108m

£(5)m

£(36)m £(20)m

£33m

£494m

£574m

£489m

Continuing business performance, excluding exceptional items, discontinued businesses, stranded costs recoveries and certain mark-to-market remeasurements2007 constant currency figures calculated by applying average 2007 rate ($2.02/£) to 2006 results (when average rate was $1.86/£)

Gas distribution* Operating profit

46


Depreciation and amortisation – UK (89) (84)Depreciation and amortisation – US (25) (10)

Total Gas distribution operating profit 166 100

Total depreciation and amortisation costs (114) (94)Operating costs – UK (291) (296)Operating costs – US (278) (118)Total operating costs (569) (414)Operating profit – UK 167 71Operating profit – US (1) 29

*At actual currency

Gas distributionPrincipal operating profit movements

47

2006 Currencyimpact

2006(constant FX)

UK pricingformulachanges

UK underlyingnet formula

income

USseasonality

Other 2007

£46m

£(2)m

£(36)m

£(17)m

£75m

£100m

£166m

£98m


Electricity distribution and generation*Operating profit

48


Operating costs (1,182) (1,243)

Depreciation and amortisation (68) (65)

Total Electricity distribution operating profit (actual FX) 196 222

* At actual currency

Electricity distribution and generationPrincipal operating profit movements

49

2006 Currencyimpact

2006 (constant FX)

Net margin Timing Other 2007

£11m

£(16)m £(29)m

£8m£222m

£196m £206m


Non-regulated and other activitiesOperating profit

50

For the 6 months ended 30 September (£m) 2007 2006Revenue and other operating income 20 19

Revenue and other operating income 197 186

Revenue and other operating income 81 47

Operating costs (18) (12)



Sub total – Other (25) (31)Total Non-regulated and other businesses operating profit 103 60

Sub total – Grain LNG 6 5



Sub total – Metering 60 54


Sub-total – Property 62 32

Operating cashflow

51

For the 6 months ended 30 September 2007

Operating profit* 1,229Depreciation and amortisation 461Working capital and other (368)Operating cashflow** 1,322

£m

* Excluding exceptional items and certain mark-to-market remeasurements** Includes exceptional spend of £66m, and excludes tax

Cashflow and net debt

52

£m

Net debt at 1 April 2007 (11,788)

Sale of Wireless & Basslink 3,065

Share buy-back programme (796)

Operating cashflow from continuing operations* 1,256Net interest (249)Tax – continuing operations (136)

Acquisition of KeySpan (including debt acquired) (5,929)Cash payments for capital expenditure (1,376)Equity dividends paid (480)

Other cash flows** 35Change in net debt from cashflow in year (4,610)Total non cash movements in year 87Net debt at 30 September 2007 (16,311)

*Includes exceptional spend of £[X]m, and excludes tax ** Other items also includes cashflows related to discontinued businesses including the sold gas networks

Interest coverDetailed calculation

53

(£m) 2004/05 2005/06 2006/07Interest expense (P&L) 1,652 1,693 1,736

Interest income on financial instruments 64 135 218

Current pension service cost (134) (119) (113)

add back interest on pensions debt adjustment 97 71 41add back interest on decommissioning liabilities adjustment 6 6 4add back lease rentals 83 120 84

Capitalised interest 63 60 70Interest on pensions debt adjustment 97 71 41Interest on decommissioning liabilities adjustment 6 6 4Interest on lease rentals adjustment 28 40 28Pensions interest on scheme liabilities (881) (891) (869)Unwinding of discounts on provisions (14) (18) (21)Exceptional debt redemption costs - (49) (45)Adjusted interest expense 951 912 944

Net cash inflow from operating activities 3,308 2,971 2,958

Dividends received 5 2 -Working capital adjustment 105 212 (18)

add back employer pension contributions 184 191 276

Corporation tax (64) (415) (175)Prior year adjustment (if negative) - (17) -add back cash tax paid (for continuing operations) 52 103 310Adjusted net cash inflow from operating activities 3,276 3,260 3,586

Interest cover (adjusted funds from operations ÷ adjusted interest expense) 3.9 3.6 3.8

Source: NG plc statutory accounts and National Grid estimates

Exceptional items and remeasurements

54

For the 6 months ended 30 September 2007 £m

Restructuring costs (71)Remeasurements – commodity contracts 23Impact on operating profit (48)Exceptional finance remeasurement gain 18Total pre-tax exceptional items and remeasurements (30)

Pensions – IAS19 data

55

£m ESPS (mainly NGET) NGUK PS US NG total

At 30 September 2007Market value of assets 1,377 12,962 3,505 17,844Present value of liabilities (1,797) (12,446) (4,521) (18,764)(Deficit) / surplus (420) 516 (1,016) (920)Deferred tax 118 (144) 406 380(Deficit) / surplus net of deferred tax (302) 372 (610) (540)Discount rates 5.8% 5.8% 6.3%

At 31 March 2007Market value of assets 1,336 12,865 1,798 15,999Present value of liabilities (1,824) (12,828) (2,592) (17,244)(Deficit) / surplus (488) 37 (794) (1,245)Deferred tax 146 (11) 318 453Deficit net of deferred tax (342) 26 (476) (792)Discount rates 5.4% 5.4% 5.8%

Note – in 2007, Wireless pension liabilities are classified as liabilities of business held for sale.

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