RNS Number : 5686I
NGG Finance PLC
20 November 2008
20 November 2008
National Grid plc
Half year report for the six months ended 30 September 2008 (unaudited)
HIGHLIGHTS
* Outlook for 2008/09 positive, performing in line with our expectations
* Good first half performance
* * Operating profit1 up 4%
* �934m of operating cash flow2
* 8% increase in the interim dividend
* Delivering on strategy
* Good regulatory progress in the US
* Share repurchase programme for 2008/09 complete - �594m returned to shareholders
* Capital investment of �1.6bn, strong investment pipeline for organic growth
* Strong financial position, with growing annual operating cash flows
FINANCIAL RESULTS FOR CONTINUING OPERATIONS
Six months ended 30 September
(�m, at actual exchange rate) 2008 2007 % change
Business performance*
Operating profit 1,079 1,039 4
Pre-tax profit 558 757 (26)
Earnings 431 528 (18)
Earnings per share 17.4p 19.8p (12)
Statutory results
Operating profit 943 1,187 (21)
Pre-tax profit 564 917 (38)
Earnings 406 783 (48)
Earnings per share 16.4p 29.4p (44)
Dividend per share 12.64p 11.70p 8
Steve Holliday, Chief Executive, said:
"We have delivered a good operating and financial performance this period. Our first half earnings reflect the seasonality of the former
KeySpan businesses and we remain on track to deliver in line with our expectations for the full year.
"National Grid is well positioned to deliver low risk, organic growth. We have a strong investment pipeline that we continue to fund
successfully, and a secure, progressive, dividend policy. We remain focused on executing our strategy and have made good progress in this
period, benefiting both shareholders and customers."
CHIEF EXECUTIVE'S REVIEW
National Grid has continued to deliver its strategy on all fronts. We have again delivered a good operating performance with our financial
results now reflecting a full first half including the former KeySpan businesses. Our outlook for the year is positive, and we are
performing in line with our expectations.
During the period we completed our programme of planned disposals, with the sale of the Ravenswood generating station in New York City
to TransCanada for $2.9bn in cash, closing on 26 August - well within the three year period allowed by the New York Public Service
Commission (NYPSC). This sale price was significantly ahead of market expectations and rapidly crystallised shareholder value following the
completion of the KeySpan acquisition.
We are making good progress with the implementation of our global operating model, and are already seeing improvements in customer
service and reliability. We also maintain our continual focus on improving our safety and environmental performance. Over time, we expect
that this approach to running our business will create significant shareholder value. We are on track to achieve our target of $100m of
KeySpan synergy savings by March 2009, announced following the completion of the acquisition in August 2007 - at the end of September we had
delivered savings at a run rate of $56m.
Investment
Our organic investment pipeline remains strong. In the UK electricity and gas markets, investment is being driven by changes in sources
of gas supply and electricity generation, and the need for asset replacement. In the US electricity and gas markets, investment is being
driven by customer additions, the need for asset replacement, and the emerging need for renewable generation and system reinforcement.
In the first half we invested �1.6bn, in line with our plans to invest around �3.2bn for the year, which we project will grow our UK
regulatory asset base by over 6% and our US rate base this year by around 4%3. This will earn returns above our cost of capital, and grow
our future earnings. Our plans over the medium term to invest a total of around �3bn per year remain on track, and this investment is
expected to be financed from internal cash flow and borrowings, but will only be made when we have regulatory certainty that it will deliver
appropriate returns.
Financing
Our financial position remains strong. Our business generates strong and growing cash flows4, over �3.1bn on average over each of the
last three years, the majority of which is backed by our 20 main regulatory agreements with the remainder underpinned by long-term
contracts. Over the nine months to 30 September 2008, we have raised the equivalent of around �3bn5 of long term debt.
Our financial position is backed by around �3bn of committed bank facilities which more than cover our projected financing needs for the
remainder of this and much of the next financial year. We maintain five debt shelves across National Grid, enabling swift execution, and on
an opportunistic basis we have utilised these to access the long term markets - since 30 September 2008, we have raised an additional �141m
of long term debt.
Regulation
In March, Ofgem announced a review into the regulatory approach for energy networks in the UK, the 'RPI-X @ 20' project. We believe
that this review affords an opportunity to deliver a stable and reliable regulatory framework that meets the challenges of climate change
and security of supply, and encourages the necessary investment. Steve Holliday has been appointed as a member of Ofgem's 'RPI-X @ 20'
Advisory Panel, and we look forward to working closely with Ofgem through this review.
In the US we have made good progress, with positive outcomes in a number of recent regulatory decisions. We have established a plan that
responds to the changing regulatory and policy agenda, and significantly increases our regulatory engagement over the coming years. In our
upstate New York business, we have secured positive decisions from the New York Public Service Commission (NYPSC) on two key issues:
* Agreement on the recovery principles for the 2008 portion of our five year capital investment plans
* Approval of our upstate New York gas energy efficiency programmes for this winter.
Our upstate New York, Rhode Island, and New Hampshire gas rate cases are following the normal evidence and hearings processes as
scheduled. We are updating our evidence and analysis to reflect the implications of the current debt markets and cost of capital conditions
to ensure that regulatory policy makers are knowledgeable before taking decisions in each case. We expect new rates to be implemented in
these businesses in the first half of 2009.
In Massachusetts, we filed in August with the Massachusetts Department of Public Utilities, a 'notice of intent' setting out our plans
to file a new electricity distribution rate case during summer 2009; and a new gas distribution rate case during spring 2010.
DIVIDEND AND SHARE REPURCHASE
We are confident in our positive outlook for the year and reflecting this, the Board has approved an 8% increase in the interim dividend
to 12.64p per ordinary share ($0.9476 per American Depositary Share). This is in line with our policy to target growth in dividends per
ordinary share (expressed in sterling) by 8% in each of the four financial years through to 31 March 2012. The interim dividend is to be
paid on 21 January 2009 to shareholders on the register as at 5 December 2008.
We have completed the return of �1.8bn of proceeds from the sale of our Wireless business, and the US stranded asset post-tax cash flows
for 2008/09. Since 1 April 2008, we have repurchased 85.5m shares at a value of �594m.
OUTLOOK
Current performance remains in line with our expectations and our outlook for the year remains positive. We continue to expect a good
performance across the portfolio of our businesses, including higher second half profits in our Non-Regulated businesses offsetting timing
issues in Electricity Distribution and Generation. Net interest charges are expected to be higher in 2008/09 reflecting a full year of
ownership of KeySpan, compared to only seven months last year, and our full year effective tax rate is expected to be around 28%, lower than
the prior year, mainly due to the reduction in the UK corporation tax rate.
Overall we are well positioned to deliver another year of solid performance, supporting our progressive dividend policy.
BASIS OF PRESENTATION
Unless otherwise stated, all financial commentaries are given on a business performance basis at actual exchange rates. Business
performance represents the results for continuing operations before exceptional items, mark-to-market remeasurements of commodity contracts
and financial instruments that are held for economic hedging purposes but did not achieve hedge accounting, and US stranded cost recoveries.
Commentary provided in respect of results after exceptional items, mark-to-market remeasurements and US stranded cost recoveries is
described as 'statutory'.
REVIEW OF RESULTS AND FINANCIAL POSITION
Operating profit was �1,079m, up 4% on the prior period (up 2% on a constant currency basis6). This was primarily driven by a strong
result in our Gas Distribution business, despite our US gas revenues being significantly weighted to the second half of the year.
Net finance costs were �524m, 86% higher than the prior period, reflecting an additional five months of interest charges relating to the
acquisition of KeySpan, which increased average net debt levels and reduced interest income as cash held on deposit in the same period last
year was utilised in the transaction. As expected, this, together with the strongly seasonal nature of the former KeySpan gas business, has
resulted in a period on period negative impact on profit before tax, earnings, and earnings per share. Due to the timing of the acquisition,
this negative variance is a feature of this period only; it will be less evident at the full-year, and will not feature in future first half
to first half comparisons. Profit before tax was down 26% to �558m. The tax charge on profit was �125m, �102m lower than the prior period,
with the first half tax charge calculation under IAS34 reflecting the geographical and seasonal split of our earnings. For the full year we
expect our effective tax rate to be around 28%. Earnings were down 18% on the prior period at �431m. Earnings per share decreased 12% from 19.8p in the first half last year to
17.4p.
Exceptional items and remeasurements for continuing operations decreased statutory earnings by �118m after tax. Stranded cost
recoveries, after tax, added �93m to earnings. After these items and minority interests, statutory earnings for continuing operations
attributable to shareholders were �406m - statutory basic earnings per share from continuing operations were 16.4p. Profit from discontinued
operations was �17m after exceptional items and remeasurements, leading to statutory basic earnings per share of 17.0p.
Statutory pre-tax cash flows from continuing operations were �934m.
Organic investment in our continuing businesses was �1.6bn, in line with our plans for the year.
Our net debt rose to �19.8bn at 30 September 2008 compared with �17.6bn at 31 March 2008, reflecting increased net finance costs
associated with the acquisition of KeySpan, capital investment, the return of �594m through our share repurchase programme, proceeds from
the $2.9bn sale of our Ravenswood generating station in New York City, and non-cash movements relating to changes in US$ exchange rates7.
Further information about our principal risks and uncertainties for the next six months of the financial year is provided in Note 16 on
page 26.
REVIEW OF TRANSMISSION OPERATIONS
Summary results Six months ended 30 September
(�m) 2008 2007 % change
Revenue and other operating income 1,975 1,545 28
Operating costs (1,188) (765) 55
Depreciation and amortisation (196) (206) (5)
Operating profit - actual exchange rate 591 574 3
Operating profit - constant currency 591 578 2
Operating profit by geographical segment Six months ended 30 September
(�m, at constant currency) 2008 2007 % change
UK 508 501 1
US 83 77 8
Operating profit 591 578 2
Capital investment Six months ended 30 September
(�m, at actual exchange rate) 2008 2007 % change
UK 684 826 (17)
US 72 44 64
Capital investment 756 870 (13)
Transmission delivered a 3% increase in operating profit to �591m. We are performing well in the second year of our UK five-year
regulatory price control, which allows baseline revenue increases of RPI+2% and RPI in our electricity and gas transmission owner activities
respectively. While these allowances will be a significant driver of operating profit for the year, in the first half, operating profit from
our UK regulated activities was �11m lower than the prior period - mainly reflecting changes to our gas transmission billing profile which
now biases revenue towards the second half. Our French interconnector had a very strong first half, with higher than normal demand for
capacity increasing operating profit by �24m - we do not expect to repeat such a strong performance in the second half. The period on
period movement in exchange rates had a �4m positive benefit on operating profit.
Capital investment in Transmission decreased by 13% on the prior period to �756m, following the completion of our 316km South Wales gas
transmission pipeline project in January. However, we have continued to increase investment in our US transmission networks.
In July, the New York PSC agreed that the 2008 portion of our $1.47bn five year investment plans qualified for partial recovery under
our 'deferral account' - we expect to make further filings for partial recovery of investment in each of the next three years, recovering
the balance as part of our next rate plan from January 2012 at the latest. Around one third of this investment is in transmission assets.
On 17 November, the Federal Energy Regulatory Commission (FERC) approved a package of incentives in relation to the New England
East-West Solution (NEEWS) project - a series of inter-related transmission upgrades in Connecticut, Massachusetts and Rhode Island. We
expect that our investment in the NEEWS project will total around $650m over the medium term, and will earn an enhanced FERC return on
equity of 12.89%.
REVIEW OF GAS DISTRIBUTION OPERATIONS
Summary results Six months ended 30 September
(�m) 2008 2007 % change
Revenue and other operating income 1,863 849 119
Operating costs (1,432) (569) 152
Depreciation and amortisation (157) (114) 38
Operating profit - actual exchange rate 274 166 65
Operating profit - constant currency 274 166 65
Operating profit by geographical segment Six months ended 30 September
(�m, at constant currency) 2008 2007 % change
UK 264 167 58
US 10 (1) -
Operating profit 274 166 65
Capital investment Six months ended 30 September
(�m, at actual exchange rate) 2008 2007 % change
UK capex 72 74 (3)
UK repex 207 177 17
US 170 48 254
Capital investment 449 299 50
Following the acquisition of KeySpan on 24 August 2007, our Gas Distribution business has almost doubled in size. The profitability of
our US gas networks, including the former KeySpan gas businesses, is now heavily weighted to the second half of the year, reflecting the
highly seasonal nature of those operations. In the six months to 30 September 2008, operating profit from Gas Distribution was �274m, up
�108m, mainly as a result of the implementation of new regulatory agreements in the UK and US. These comprised:
* Our new UK five year price control, which came into effect on 1 April 2008. This provided for an above inflation increase in
allowed revenue for the year. It also included changes to our pricing formula, which removed any dependency on delivery volumes, and results
in a greater proportion of our allowed revenue being collected in the first half
* Our new gas rate plans in down-state New York, which came into effect on 1 January 2008.
Due to the geographical split of operating profit in the first half last year, the period on period movement in exchange rates had no
impact on operating profit in this business.
During the period, together with our gas distribution alliance partnerships in the UK, we have replaced around 1,000km of gas mains,
resulting in total replacement expenditure (repex) of �207m. In our US operations, we have an additional five months of investment from the
former KeySpan gas businesses in customer connections and network infrastructure projects, which together with new infrastructure in the UK,
resulted in total capital expenditure (including repex) of �449m.
Our upstate New York, Rhode Island, and New Hampshire gas rate cases are progressing as expected. Following the normal hearings
processes and subsequent decisions we expect new rates to be implemented in these businesses by late spring. In August, the New Hampshire
Public Utilities Commission approved a temporary rate increase, ahead of a final agreement, which is expected by the spring - final rates
will be implemented shortly thereafter. Also in August, we filed with the Massachusetts Department of Public Utilities a 'notice of intent'
setting out our plans to file a new consolidated gas distribution rate case during spring 2010 - in this rate case we intend to make a
consolidated filing, combining our Boston, Colonial and Essex gas businesses into a single rate plan, greatly simplifying and improving the
transparency of our Massachusetts gas regulatory arrangements. In September, the NYPSC approved our gas energy efficiency programmes for
upstate New York, these programmes began on 1 October 2008, ahead of the winter heating season.
REVIEW OF ELECTRICITY DISTRIBUTION AND GENERATION OPERATIONS
Summary results Six months ended 30 September
(�m) 2008 2007 % change
Revenue and other operating income* 1,854 1,446 28
Operating costs (1,639) (1,183) 39
Depreciation and amortisation (86) (67) 28
Operating profit - actual exchange rate 129 196 (34)
Operating profit - constant currency 129 206 (37)
Operating profit by principal activities Six months ended 30 September
(�m, at constant currency) 2008 2007 % change
Electricity distribution 109 199 (45)
Long Island transmission and distribution 7 5 -
services
Long Island generation 13 2 -
Operating profit 129 206 (37)
Capital investment Six months ended 30 September
(�m, at actual exchange rate) 2008 2007 % change
Electricity distribution 130 114 14
Long Island generation 13 1 -
Capital investment 143 115 24
* Excludes revenue from stranded cost recoveries.
During the period, operating profit from Electricity Distribution and Generation decreased by 34% to �129m. As expected, the main
factors affecting results were:
* The timing of rate adjustments for pass-through costs, which had a net �38m negative impact on results. Under-collected amounts
will be recovered through rates in future periods
* A non-cash one-off item relating to historic transmission charges, which impacted results by �15m.
We expect that both these items will continue to be major factors at the full year, resulting in operating profit lower than in 2007/08.
Service quality penalties, mainly relating to system reliability in upstate New York in 2007, reduced operating profit by �7m - however,
this year to date we have delivered a significant improvement in our upstate New York system reliability performance, consistently beating
our historic average. Higher bad debts reduced operating profit by �7m compared to the prior period, and other items further impacted
operating profit by �10m - these included higher storm costs and costs associated with our increased investment programme, which more than
offset a positive contribution from our generation and transmission and distribution services activities on Long Island. Period on period
movement in exchange rates benefited operating profit by �10m.
We have made good regulatory progress during the period, with positive outcomes in a number of areas. In July, the New York PSC took
positive steps in supporting our five year capital investment plans, agreeing in principle that the 2008 portion qualified for partial
recovery under our 'deferral account'. We expect to make further filings for partial recovery of investment in each of the next three
years, recovering the balance as part of our next rate plan from January 2012 at the latest.
In Massachusetts we have made two filings with the Massachusetts Department of Public Utilities (MA DPU), in response to the new
Massachusetts state energy bill which passed into law in July:
* In August we filed to expand our existing energy efficiency programme - offering us the opportunity to earn additional incentives,
while helping our customers make savings on their energy bills
* In October, we filed our plans to develop and own 5MW of new solar generation, the first utility in the state to do so. In the
coming months we expect to expand our programme up to 50MW - this offers an additional opportunity for growth and is a natural extension of
our existing renewable energy and energy efficiency programmes.
Also in August, we filed with the MA DPU a 'notice of intent' setting out our plans to file a new electricity distribution rate case
during summer 2009.
REVIEW OF NON-REGULATED AND OTHER ACTIVITIES
Summary results Six months ended 30 September
(�m) 2008 2007 % change
Revenue and other operating income 356 382 (7)
Operating costs (194) (201) (3)
Depreciation and amortisation (77) (78) (1)
Operating profit 85 103 (17)
Operating profit by principal activities Six months ended 30 September
(�m, at actual exchange rate) 2008 2007 % change
Metering 76 60 27
Grain LNG 4 6 (33)
Property 24 62 (61)
Sub-total operating profit 104 128 (19)
Corporate and other activities (19) (25) (24)
Operating profit 85 103 (17)
Capital investment* Six months ended 30 September
(�m, at actual exchange rate) 2008 2007 % change
Metering 76 72 6
Grain LNG 122 97 26
Property 3 5 (40)
Other 43 7 -
Capital investment 244 181 35
* Excludes investment in joint ventures.
Operating profit from our Non-regulated and other activities was 17% lower than the prior period at �85m. This reduction was mainly
driven by sales in our land and property business, which reported an unusual bias towards first half sales last year - this year we expect
sales will be biased towards the second half.
Metering operating profit was up �16m at �76m, mainly driven by lower costs and depreciation charges. During the period, capital
investment in this business was �76m, with around 300,000 new meters installed. In February 2008, the Gas and Electricity Markets
Authority's (GEMA) issued a decision that National Grid has infringed the Competition Act in relation to a number of domestic metering
contracts entered into with gas suppliers in 2004. We are convinced that the contracts do not infringe competition law and that the fine is
wholly inappropriate. In April 2008, we issued a notice of appeal, and the case is listed to be heard by the Competition Appeal Tribunal in
January.
Our Grain LNG business delivered an operating profit of �4m in the period. During the period capital investment in this business
increased by 26% to �122m, mainly reflecting the construction of our Phase II capacity extension, which completed in October. We are now in
the process of commissioning Phase II and are on track to be available for commercial operations ahead of the winter. Phase III construction
commenced in July and is planned to complete in 2010. This will add a further LNG tank and a second unloading jetty, increasing the total
annual capacity of the terminal to around 15 million tonnes, representing around 20% of total UK gas demand. These investments are
underpinned by long-term, take-or-pay contracts, which guarantee an index linked revenue stream.
PRO FORMA FINANCIAL RESULTS FOR CONTINUING OPERATIONS
On 24 August 2007, we completed the acquisition of KeySpan, significantly growing our footprint in North America and positioning
National Grid as the second largest energy delivery company in the US (by number of customers).
To provide a transparent view of the continuing underlying first half performance in our business, we have provided comparative results
in the table below that illustrate the impact of the KeySpan acquisition as if it had completed on 1 April 2007.
These adjustments are included for illustrative purposes only. They are prepared on a business performance basis, representing the
results for continuing operations before exceptional items, remeasurements, and US stranded cost recoveries. The pro forma adjustments
include amounts to increase net finance costs to reflect the finalisation of the acquisition fair value exercise on KeySpan. In addition,
the taxation adjustment reflects the Group's pro forma effective tax rate based on the geographical weighting of earnings during the six
month period.
Six months ended 30 September
Business performance 2007 2007 2008
(�m, at actual exchange rate) actual adjustment pro forma actual
Transmission 574 - 574 591
Gas Distribution 166 +4 170 274
Electricity Distribution & Generation 196 +19 215 129
Non-regulated & other activities 103 +7 110 85
Operating profit 1,039 +30 1,069 1,079
Net finance costs (282) (162) (444) (524)
Share of post-tax joint ventures - +3 3 3
Pre-tax profit 757 (129) 628 558
Taxation (227) +49 (178) (125)
Minority interests (2) - (2) (2)
Earnings 528 (80) 448 431
Earnings per share 19.8p (3.0)p 16.8p 17.4p
On a pro forma basis, first half operating profit would have been �30m higher in 2007/08 than actually reported had KeySpan been
acquired on 1 April 2007. The main adjustments are in our Gas Distribution and Electricity Distribution and Generation lines of business,
reflecting an additional five months of operations during the summer. In KeySpan's gas businesses, a seasonal bias towards the winter
heating period results in significantly lower revenue recovery during the summer, which only marginally offsets the operating costs incurred
during those months; this would have resulted in 2007/08 Gas Distribution operating profit being �4m higher on a pro forma basis, than
actually reported. Including the Long Island generation assets and transmission and distribution services activities, Electricity
Distribution and Generation operating profit would have been �19m higher on a pro forma basis, than actually reported. No adjustments have
been made in respect of the sale of the Ravenswood generating station in New York City, as this plant has been classified within discontinued operations since the completion of the acquisition.
Actual first half results for 2007/08 reflect one month of net finance costs associated with KeySpan related debt, together with
interest income from cash held on deposit due to the pre-funding of the acquisition. An additional five months of acquisition related debt
and the absence of the interest income would together have resulted in 2007/08 first half net finance costs being �162m higher on a pro
forma basis. The first half tax charge on a pro forma basis would have been �49m lower than actually reported, reflecting the net pro forma
reduction in profit before tax at the US marginal tax rate.
Together with other minor movements, these factors would have resulted in 2007/08 first half earnings per share being 3.0p lower than
actually reported, at 16.8p on a pro forma basis.
CONTACTS
National Grid:
Investors
David Rees +44 (0)20 7004 3170 +44 (0)7901 511322(m)
George Laskaris +1 718 403 2526 +1 917 375 0989(m)
Richard Smith +44 (0)20 7004 3172 +44 (0)7747 006321(m)
Victoria Davies +44 (0)20 7004 3171 +44 (0)7771 973447(m)
Media
Clive Hawkins +44 (0)20 7004 3147 +44 (0)7836 357173(m)
Chris Mostyn +1 718 403 2747 +1 347 702 3740(m)
Brunswick: Paul Scott +44 (0)20 7396 5333 +44 (0)7974 982333(m)
An analyst presentation will be held at the London Stock Exchange, 10 Paternoster Square, London EC4M 7LS at 9:15am (UK time) today.
Live telephone coverage of the analyst presentation - password 'National Grid'
UK dial in number +44 (0) 203 023 4488 US dial in number +1 866 966 5335
Telephone replay of the analyst presentation (available until 20 December 2008)
Dial in number +44 (0) 208 196 1998 Account number 682162�
A live web cast of the presentation will also be available at www.nationalgrid.com.
Photographs are available on www.newscast.co.uk.
You can view or download copies of our latest Annual Report or the Annual Review from our website at
www.nationalgrid.com/corporate/Investor+Relations/ or request a free printed copy by contacting investor.relations@ngrid.com.
CAUTIONARY STATEMENT
This announcement 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 announcement 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 Exchange Commission (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.
CONSOLIDATED INCOME STATEMENT 2008 2007* Year ended
for the six months ended 30 31 March
September 2008**
Notes �m �m �m
========= ========= =========
Revenue 2a 6,072 4,260 11,423
Other operating income 29 52 75
Operating costs (5,158) (3,125) (8,534)
---------------- ---------------- ----------------
Operating profit
- Before exceptional items, 2b 1,079 1,039 2,595
remeasurements and stranded
cost recoveries
- Exceptional items, 3 (136) 148 369
remeasurements and stranded
cost recoveries
Total operating profit 2c 943 1,187 2,964
Interest income and similar 4 640 663 1,275
income
Interest expense and other
finance costs
- Before exceptional items and (1,164) (945) (2,045)
remeasurements
- Exceptional items and 3 142 12 (16)
remeasurements
4 (1,022) (933) (2,061)
Share of post-tax results of 3 - 4
joint ventures and associates
---------------- ---------------- ----------------
Profit before taxation
- Before exceptional items, 558 757 1,829
remeasurements and stranded
cost recoveries
- Exceptional items, 3 6 160 353
remeasurements and stranded
cost recoveries
Total profit before taxation 564 917 2,182
Taxation
- Before exceptional items, 5 (125) (227) (579)
remeasurements and stranded
cost recoveries
- Exceptional items, 3 (31) 95 (28)
remeasurements and stranded
cost recoveries
Total taxation (156) (132) (607)
---------------- ---------------- ----------------
Profit from continuing
operations after taxation
- Before exceptional items, 433 530 1,250
remeasurements and stranded
cost recoveries
- Exceptional items, 3 (25) 255 325
remeasurements and stranded
cost recoveries
Profit for the period from 408 785 1,575
continuing operations
Profit for the period from
discontinued operations
- Before exceptional items and 6 6 21 28
remeasurements
- Exceptional items and 6 11 1,592 1,590
remeasurements
17 1,613 1,618
---------------- ---------------- ----------------
Profit for the period 425 2,398 3,193
========= ========= =========
Attributable to:
- Equity shareholders of the 423 2,396 3,190
parent
- Minority interests 2 2 3
---------------- ---------------- ----------------
425 2,398 3,193
========= ========= =========
Earnings per share from
continuing operations
- Basic 7a 16.4p 29.4p 60.3p
- Diluted 7b 16.3p 29.2p 59.9p
Earnings per share
- Basic 7a 17.0p 90.0p 122.3p
- Diluted 7b 16.9p 89.4p 121.6p
========= ========= =========
Dividends per ordinary share: 8 21.30p 17.80p 29.50p
paid during the period
Dividends per ordinary share: 12.64p 11.70p 33.00p
approved or proposed to be
paid
========= ========= =========
* 30 September 2007 comparatives have been adjusted to present items on a basis consistent with the current period classification (see
note 1b)
** 31 March 2008 comparatives have been restated for the finalisation of the fair value exercise on the acquisition of KeySpan
Corporation (see note 9)
CONSOLIDATED BALANCE SHEET at 2008 2007** At 31 March 2008**
30 September
Notes �m �m �m
=========== =========== ===========
Non-current assets
Goodwill 4,357 3,787 3,904
Other intangible assets 314 272 271
Property, plant and equipment 26,321 23,059 24,331
Pension asset 1,055 617 846
Other non-current assets 128 190 164
Financial and other 304 249 251
investments
Derivative financial assets 633 630 1,063
---------------- ---------------- ----------------
Total non-current assets 33,112 28,804 30,830
---------------- ---------------- ----------------
Current assets
Inventories and current 860 672 438
intangible assets
Trade and other receivables 2,085 1,558 2,265
Financial and other 1,265 1,848 2,095
investments
Derivative financial assets 291 220 463
Cash and cash equivalents 148 355 174
----------------- ----------------- -----------------
Total current assets 4,649 4,653 5,435
----------------- ----------------- -----------------
Assets of businesses held for - 1,471 1,506
sale
----------------- ----------------- -----------------
Total assets 37,761 34,928 37,771
----------------- ----------------- -----------------
Current liabilities
Borrowings (2,412) (3,046) (3,882)
Derivative financial (317) (59) (114)
liabilities
Trade and other payables (2,391) (2,237) (2,480)
Current tax liabilities (642) (188) (295)
Provisions (291) (150) (375)
----------------- ----------------- -----------------
Total current liabilities (6,053) (5,680) (7,146)
----------------- ----------------- -----------------
Non-current liabilities
Borrowings (19,092) (16,038) (17,121)
Derivative financial (272) (246) (319)
liabilities
Other non-current liabilities (1,948) (1,683) (1,721)
Deferred tax liabilities (2,883) (2,975) (3,259)
Pensions and other (1,664) (1,537) (1,746)
post-retirement benefit
obligations
Provisions (1,124) (1,124) (1,022)
----------------- ----------------- -----------------
Total non-current liabilities (26,983) (23,603) (25,188)
----------------- ----------------- -----------------
Liabilities of businesses held - (72) (63)
for sale
----------------- ----------------- -----------------
Total liabilities (33,036) (29,355) (32,397)
----------------- ----------------- -----------------
Net assets 4,725 5,573 5,374
=========== =========== ===========
Equity
Called up share capital 294 298 294
Share premium account 1,371 1,371 1,371
Retained earnings 8,171 9,156 8,943
Other equity reserves (5,124) (5,270) (5,252)
----------------- ----------------- -----------------
Total parent company 4,712 5,555 5,356
shareholders' equity
Minority interests 13 18 18
----------------- ----------------- -----------------
Total equity 10 4,725 5,573 5,374
========= ========= =========
** Comparatives have been restated for the finalisation of the fair value exercise on the acquisition of KeySpan Corporation (see note
9)
CONSOLIDATED STATEMENT OF 2008 2007 Year ended
RECOGNISED INCOME AND EXPENSE 31 March
for the six months ended 30 2008**
September
�m �m �m
========= ========= =========
Exchange adjustments 141 (73) (25)
Actuarial net (losses)/gains (113) 561 432
Deferred tax on actuarial net 29 (182) (98)
gains and losses
Net losses taken to equity in (12) (33) (32)
respect of cash flow hedges
Transferred to profit and loss 3 (4) (7)
on cash flow hedges
Deferred tax on cash flow 3 8 2
hedges
Net (losses)/gains taken to (7) 2 6
equity on available-for-sale
investments
Transferred to profit or loss (2) - -
on sale of available-for-sale
investments
Deferred tax on 1 (1) 2
available-for-sale investments
---------------- ---------------- ----------------
Net income recognised directly 43 278 280
in equity
Profit for the period 425 2,398 3,193
---------------- ---------------- ----------------
Total recognised income and 468 2,676 3,473
expense for the period
========= ========= =========
Attributable to:
- Equity shareholders of the 466 2,675 3,470
parent
- Minority interests 2 1 3
---------------- ---------------- ----------------
468 2,676 3,473
========= ========= =========
** 31 March 2008 comparatives have been restated for the finalisation of the fair value exercise on the acquisition of KeySpan
Corporation (see note 9)
CONSOLIDATED CASH FLOW 2008 2007* Year ended
STATEMENT 31 March
for the six months ended 30 2008
September
�m �m �m
========= ========= =========
Cash flows from operating
activities
Total operating profit 943 1,187 2,964
Adjustments for:
Exceptional items, 136 (148) (369)
remeasurements and stranded
cost recoveries
Depreciation and amortisation 511 461 994
Share-based payment charge 10 9 18
Changes in working capital and (193) (122) (155)
provisions
Changes in pensions and other (547) (195) (333)
post-retirement benefit
obligations
Cash flows relating to (39) (66) (132)
exceptional items
Cash flows relating to 113 130 278
stranded cost recoveries
---------------- ----------------- ------------------
Cash flows generated from 934 1,256 3,265
continuing operations
Cash flows relating to 1 11 10
discontinued operations
---------------- ----------------- ------------------
Cash generated from operations 935 1,267 3,275
Tax paid - continuing (223) (136) (110)
operations
Tax paid - discontinued (6) - -
operations
---------------- ----------------- ------------------
Net cash flow generated from 706 1,131 3,165
operating activities
---------------- ----------------- ------------------
Cash flows from investing
activities
Acquisition of subsidiaries (34) (3,513) (3,528)
(net of cash acquired) and
other investments
Sale of investments in 5 18 55
subsidiaries and other
investments
Purchases of intangible assets (56) (20) (45)
Purchases of property, plant (1,535) (1,369) (2,832)
and equipment
Disposals of property, plant 18 13 26
and equipment
Interest received 61 148 206
Net movements in financial 814 278 45
investments
---------------- ----------------- ------------------
Cash flows used in continuing (727) (4,445) (6,073)
operations - investing
activities
Cash flows relating to
discontinued operations
- disposal proceeds 1,600 3,065 3,064
- other investing activities (3) (2) (14)
---------------- ----------------- ------------------
Net cash flow generated 870 (1,382) (3,023)
from/(used in) investing
activities
---------------- ----------------- ------------------
Cash flows from financing
activities
Proceeds from issue of 8 13 23
ordinary share capital and
sale of treasury shares
Increase in borrowings and 17 647 1,563
related derivatives
Interest paid (468) (397) (900)
Dividends paid to shareholders (531) (480) (780)
Repurchase of share capital (623) (796) (1,498)
and purchase of treasury
shares
---------------- ----------------- ------------------
Net cash flow used in (1,597) (1,013) (1,592)
financing activities
---------------- ----------------- ------------------
Net decrease in cash and cash (21) (1,264) (1,450)
equivalents
Exchange movements 5 (7) 4
Cash included within assets of - 23 23
businesses held for sale
Net cash and cash equivalents 164 1,587 1,587
at start of period (i)
------------------ ----------------- ------------------
Net cash and cash equivalents 148 339 164
at end of period (i)
============ =========== =============
* 30 September 2007 comparatives have been adjusted to present items on a basis consistent with the current period classification (see
note 1b)
i) Net of bank overdrafts of �nil, (30September 2007: �16m; 31March 2008: �10m)
NOTES TO THE 2008/09 HALF YEAR FINANCIAL INFORMATION
1. Basis of preparation and new accounting standards, amendments and interpretations
a) Basis of preparation
The half year financial information covers the six month period ended 30 September 2008 and has been prepared under International
Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board (IASB) and IFRS as adopted by the European
Union, in accordance with International Accounting Standard 34 'Interim Financial Reporting' and the Disclosure and Transparency Rules of
the Financial Services Authority. It is unaudited but has been reviewed by the auditors and their report is attached to this document.
The following interpretations and amendment, issued by the International Financial Reporting Interpretations Committee (IFRIC) and the
IASB respectively, are effective for the year ending 31 March 2009:
� IFRIC 12 Service concession arrangements
� IFRIC 14 Defined benefit assets and minimum funding requirements
� Amendment to IAS 39 Financial Instruments: Recognition and measurement and IFRS 7 Financial Instruments: Disclosures:
Reclassification of Financial Assets
These interpretations and amendment have not yet been adopted by the European Union and have therefore not been adopted by the Company.
However our current accounting policies are already aligned with these interpretations. Therefore, irrespective of adoption, there is no
impact on the financial results or position of the Company and its subsidiary undertakings or on the presentation of financial statements
for the six months ended 30 September 2008 or for previous periods.
The half year financial information does not constitute statutory accounts as defined in Section 240 of the Companies Act 1985. It
should be read in conjunction with the statutory accounts for the year ended 31 March 2008, which were prepared in accordance with IFRS as
adopted by the European Union and have been filed with the Registrar of Companies. The auditors' report on these statutory accounts was
unqualified and did not contain a statement under Section 237(2) or (3) of the Companies Act 1985.
This half year financial information has been prepared on the basis of the accounting policies expected to be applicable for the year
ending 31 March 2009 and are consistent with those that applied in the preparation of our accounts for the year ended 31 March 2008.
Following a review of the useful economic lives of property, plant and equipment, the depreciation periods of certain assets within the
category Gas plant - mains, services and regulating equipment have been amended. This has resulted in a decrease in the depreciation charge
and a corresponding increase in operating profit for the six months ended 30 September 2008 of �19m.
b) Adjustment to business performance results for the six months ended 30 September 2007
Following a change in accounting policy during the year ended 31 March 2008, business performance now excludes stranded cost recoveries
and the amortisation of acquisition-related intangibles and cash flows from stranded cost recoveries are reported separately in the cash
flow statement. Stranded cost recoveries represent the recovery of historic generation-related costs in the US related to generation assets
that are no longer owned. Such costs are being recovered from customers as permitted by regulatory agreements. Business performance results
for the six months ended 30 September 2007 have been adjusted to reflect the exclusion of stranded cost recoveries of �190m (�114m net of
tax), consistent with the current year classification. No such adjustment was made for the amortisation of acquisition-related intangibles
as it was not material.
c) New accounting standards, amendments and interpretations
The following standards, amendments and interpretations have been issued by the IASB or by the IFRIC, but are not yet effective:
* IFRS 8 Operating segments
* Amendment to IAS 23 Borrowing costs
* Amendments to IAS 1 Presentation of financial statements
* IFRS 3R Business Combinations
* IAS 27R Consolidated and separate financial statements
* Amendment to IFRS 2 Share based payment: Vesting Conditions and Cancellations
* Amendments to IAS 32 Financial instruments: Presentation and IAS 1 Presentation of Financial Statements Puttable Financial
Instruments and Obligations Arising on Liquidation
* Amendment to IFRS 1 First-time Adoption of International Financial Reporting Standards and IAS 27 Consolidated and Separate
Financial Statements: Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate
* Improvements to IFRS
* IFRIC 13 Customer loyalty programmes
* IFRIC 15 Agreements for the construction of real estate
* IFRIC 16 Hedges of a net investment in a foreign operation
* Amendment to IAS 39 Financial Instruments: Recognition and measurement: Eligible Hedged Items
Date of approval
This announcement was approved by the Board of Directors on 19 November 2008.
2. Segmental analysis
The following segmental analysis is presented in accordance with the management responsibilities and economic characteristics, including
consideration of risks and returns, of business activities. The Company assesses the performance of its businesses principally on the basis
of operating profit before exceptional items, remeasurements and stranded cost recoveries. The primary reporting format is by business and
the secondary reporting format is by geographical area. The following table describes the main activities for each business segment:
Transmission - UK High voltage electricity transmission networks, the gas
transmission network in the UK,
UK liquefied natural gas (LNG) storage activities and the
French electricity interconnector
Transmission - US High voltage electricity transmission networks in New York and
New England
Gas Distribution - UK Four of the eight regional networks of Great Britain's gas
distribution system
Gas Distribution - US Gas distribution in New York and New England
Electricity Distribution and Electricity distribution in New York and New England and
Generation - US electricity generation in New York
Other activities primarily relate to non-regulated businesses and other commercial operations not included within the above segments,
including UK-based gas metering activities; UK property management; a UK LNG import terminal; other LNG operations; US unregulated
transmission pipelines; US home services; US gas fields; together with corporate activities, including business development.
Discontinued operations for the six months ended 30 September 2008 comprise the Ravenswood generation station in New York City, and the
engineering and communications operations in the US acquired as part of the KeySpan acquisition. The Ravenswood generation station was sold
on 26 August 2008, KeySpan Communications was sold on 25 July 2008 and one of our KeySpan engineering companies was sold on 11 July 2008.
For the comparative periods discontinued operations also included our wireless infrastructure and communication operations in the UK and
similar operations in the US, as well as an electricity interconnector in Australia. These operations were sold on 3 April 2007, 15 August
2007, and 31 August 2007 respectively. The results for discontinued operations are disclosed in note 6.
In line with our management structure, the recovery of stranded costs from US electricity distribution customers as permitted by
regulatory agreement is no longer presented as a separate segment but is reported within the Electricity Distribution & Generation - US
segment. Comparatives for the six month period ended 30 September 2007 have been adjusted to conform with the current period classification.
There is no change from the segments reported in the financial statements for the year ended 31 March 2008.
Sales between businesses are priced having regard to the regulatory and legal requirements to which the businesses are subject.
a) Revenue
Six months ended 30 September 2008 2007* Year ended
31 March 2008
�m �m �m
========= ========= ========
Business segments - continuing
operations
Transmission - UK 1,799 1,392 2,956
Transmission - US 176 153 299
Gas Distribution - UK 647 547 1,383
Gas Distribution - US 1,216 302 2,845
Electricity Distribution and 2,011 1,641 3,508
Generation - US
Other activities 327 330 642
Sales between businesses (104) (105) (210)
----------------- ----------------- -----------------
Revenue 6,072 4,260 11,423
========= ========= =========
Total excluding stranded cost 5,915 4,065 11,041
recoveries
Stranded cost recoveries 157 195 382
----------------- ----------------- -----------------
6,072 4,260 11,423
========= ========= =========
Geographical segments
UK 2,666 2,182 4,787
US 3,406 2,078 6,636
----------------- ----------------- -----------------
Revenue 6,072 4,260 11,423
========= ========= ========
* 30 September 2007 comparatives have been adjusted to present items on a basis consistent with the current period classification (see
note 1b)
2. Segmental analysis (continued)
b) Operating profit - before exceptional items, remeasurements and stranded cost recoveries
Six months ended 30 September 2008 2007*
Year ended
31 March
2008
�m �m �m
========== ========== ========
Business segments - continuing
operations
Transmission - UK 508 501 1,021
Transmission - US 83 73 128
Gas Distribution - UK 264 167 595
Gas Distribution - US 10 (1) 392
Electricity Distribution and 129 196 330
Generation - US
Other activities 85 103 129
----------------- ----------------- -----------------
Operating profit before 1,079 1,039 2,595
exceptional items,
remeasurements and stranded
cost recoveries
========== ========== ==========
Geographical segments
UK 855 773 1,752
US 224 266 843
----------------- ----------------- -----------------
Operating profit before 1,079 1,039 2,595
exceptional items
remeasurements and stranded
cost recoveries
========== ========== ==========
* 30 September 2007 comparatives have been adjusted to present items on a basis consistent with the current period classification (see
note 1b)
c) Operating profit - after exceptional items, remeasurements and stranded cost recoveries
Six months ended 30 September 2008 2007 Year ended
31 March
2008
�m �m �m
========== ========= ========
Business segments - continuing
operations
Transmission - UK 503 499 1,013
Transmission - US 82 67 122
Gas Distribution - UK 251 166 574
Gas Distribution - US (205) (20) 487
Electricity Distribution and 232 364 696
Generation - US
Other activities 80 111 72
----------------- --------------- ---------------
Operating profit after 943 1,187 2,964
exceptional items,
remeasurements and stranded
cost recoveries
========== ========= =========
Geographical segments
UK 843 779 1,667
US 100 408 1,297
----------------- --------------- ---------------
Operating profit after 943 1,187 2,964
exceptional items,
remeasurements and stranded
cost recoveries
========== ========= ========
d) Seasonality
The Gas Distribution - US segment experiences significant seasonal fluctuations owing to weather conditions and peak delivery volumes
occurring in the second half of the fiscal year. In the UK the pricing methodology for gas distribution has a higher capacity delivery
component and a lower volume component and so is not subject to such significant seasonal fluctuations.
3. Exceptional items, remeasurements and stranded cost recoveries
Exceptional items, remeasurements and stranded cost recoveries are items of income and expenditure that, in the judgment of management,
should be disclosed separately on the basis that they are material, either by their nature or their size, to an understanding of our
financial performance and significantly distort the comparability of financial performance between periods. Items of income or expense that
are considered by management for designation as exceptional items include such items as significant restructurings, write-downs or
impairments of non-current assets, material changes in environmental or decommissioning provisions, integration of acquired businesses and
gains or losses on disposals of businesses or investments.
Remeasurements comprise gains or losses recorded in the income statement arising from changes in the fair value of commodity contracts
and of derivative financial instruments to the extent that hedge accounting is not achieved or is not effective.
Stranded cost recoveries represent the recovery of historic generation related costs in the US related to generation assets that are no
longer owned. Such costs can be recovered from customers as permitted by regulatory agreements.
Six months ended 30 September 2008 2007* Year ended
31 March
2008
�m �m �m
========== ========== =========
Exceptional items - (39) (79) (133)
restructuring costs (i)
Exceptional items - (9) - (92)
environmental related
provisions (ii)
Exceptional items - gain on - 8 6
disposal of subsidiary (iii)
Exceptional items - other (iv) (3) - (23)
Remeasurements - commodity (239) 29 232
contracts (v)
Stranded cost recoveries (vi) 154 190 379
Total exceptional items, (136) 148 369
remeasurements and stranded
cost recoveries included
within operating profit
Remeasurements - commodity 2 (6) (9)
contracts (v)
Remeasurements - net 140 18 (7)
gains/(losses) on derivative
financial instruments (vii)
Total exceptional items and 142 12 (16)
remeasurements included within
finance costs
----------------- ----------------- -----------------
Total exceptional items, 6 160 353
remeasurements and stranded
cost recoveries before
taxation
========== ========== ==========
Exceptional tax item - - 169 170
deferred tax credit arising
from reduction in UK tax rate
(viii)
Exceptional tax item - (40) - -
deferred tax charge arising
from change in UK industrial
building allowance regime (ix)
Tax on exceptional items - 13 32 49
restructuring costs (i)
Tax on exceptional items - 4 - 20
environmental related
provisions (ii)
Tax on exceptional items - - (3) (4)
gain on disposal of subsidiary
(iii)
Tax on exceptional items - 1 - 5
other (iv)
Tax on remeasurements - 94 (10) (90)
commodity contracts (v)
Tax on remeasurements - (42) (17) (28)
derivative financial
instruments (vii)
Tax on stranded cost (61) (76) (150)
recoveries (vi)
----------------- ----------------- -----------------
Tax on exceptional items, (31) 95 (28)
remeasurements and stranded
cost recoveries
========== ========== ==========
Total exceptional items, (25) 255 325
remeasurements and stranded
cost recoveries after taxation
========== ========== ==========
Total exceptional items after (73) 127 (2)
taxation
Total commodity contract (143) 13 133
remeasurements after taxation
Total derivative financial 98 1 (35)
instrument remeasurements
after taxation
Total stranded cost recoveries 93 114 229
after taxation
----------------- ----------------- -----------------
Total exceptional items, (25) 255 325
remeasurements and stranded
cost recoveries after taxation
========== ========== =========
* 30 September 2007 comparatives have been adjusted to present items on a basis consistent with the current period classification (see
note 1b)
3. Exceptional items, remeasurements and stranded cost recoveries (continued)
* Restructuring costs relate to planned cost reduction programmes in our UK and US businesses. For the six month period ended 30
September 2008, restructuring costs included pension related costs of �4m arising as a result of redundancies (six months ended 30 September
2007: �77m; year ended 31 March 2008: �83m).
* For the six month period ended 30 September 2008 there was an additional environmental charge of �9m relating to legacy KeySpan
sites. For the year ended 31 March 2008, the revision of cost estimates for environmental provisions resulted in a charge in the UK of �44m
and a charge of �48m in the US. Costs incurred with respect to US environmental provisions are substantially recoverable from customers.
* The gain on disposal of subsidiary relates to the sale of Advantica.
* For the six month period ended 30 September 2008 the amortisation charge on acquisition-related intangibles amounted to �3m (six
months ended 30 September 2007: �nil; year ended 31 March 2008: �4m). For the year ended 31 March 2008 there was a cost of �15m incurred
relating to the potential disposal of National Grid's property business which we subsequently decided not to proceed with. In addition,
there was a �4m increase in nuclear decommissioning provisions.
* Remeasurements - commodity contracts represent mark-to-market movements on certain physical and financial commodity contract
obligations in the US. These primarily relate to the forward purchase of energy for supply to customers, or to the economic hedging thereof,
that are required to be measured at fair value and that do not qualify for hedge accounting. Under the existing rate plans in the US,
commodity costs are fully recoverable from customers although the timing of recovery may differ from the pattern of costs incurred. These
movements are comprised of those impacting operating profit which are based on the change in the commodity contract liability and those
impacting finance costs as a result of the time value of money.
* Stranded cost recoveries capture the recovery of some of our historic investments in generating plants that were divested as part
of the restructuring and wholesale power deregulation process in New England and New York during the 1990's. These recoveries are not
considered to be part of our core business. Stranded cost recoveries on a pre-tax basis consist of revenue of �157m (six months ended 30
September 2007: �195m; year ended 31 March 2008: �382m) and operating costs of �3m (six months ended 30 September 2007: �5m; year ended 31
March 2008: �3m).
* Remeasurements - net gains/(losses) on derivative financial instruments comprise gains/(losses) arising on derivative financial
instruments reported in the income statement. These exclude gains and losses for which hedge accounting has been effective, which have been
recognised directly in equity or offset by adjustments to the carrying value of debt. At 31 March 2008 these remeasurements included a loss
of �3m relating to pre-tax losses on investment related derivative financial instruments that offset on a post-tax basis. The tax charge in
the year ended 31 March 2008 includes an �11m adjustment in respect of prior years.
* The exceptional tax credit in the prior period arose from a reduction in the UK corporation tax rate from 30% to 28% included in
the Finance Act 2007. This resulted in a reduction in deferred tax liabilities.
* The exceptional tax charge in the period arose from a change in the UK industrial building allowance regime arising in the 2008
Finance Act. This resulted in an increase in deferred tax liabilities.
4. Finance income and costs
Six months ended 30 September 2008 2007 Year ended
31 March
2008**
�m �m �m
========== ========== =========
Interest income on financial 54 152 211
instruments
Expected return on pension and 586 511 1,064
other post-retirement benefit
plan assets (i)
------------------ ------------------ -----------------
Interest income and similar 640 663 1,275
income
========== ========== ==========
Interest expense on financial (621) (510) (1,118)
instruments
Interest on pension and other (588) (473) (1,001)
post-retirement benefit plan
liabilities (i)
Unwinding of discounts on (26) (12) (45)
provisions
Less: interest capitalised 71 50 119
------------------ ------------------ -----------------
Interest expense (1,164) (945) (2,045)
Net gains/(losses) on 142 12 (16)
derivative financial
instruments and commodity
contracts
------------------ ------------------ -----------------
Interest expense and other (1,022) (933) (2,061)
finance costs
========== ========== ==========
Net finance costs (382) (270) (786)
========== ========== ==========
Comprising:
Net finance costs excluding (524) (282) (770)
exceptional finance costs and
remeasurements
Exceptional items and 142 12 (16)
remeasurements (note 3)
------------------ ------------------ -----------------
(382) (270) (786)
========== ========== =========
** 31 March 2008 comparatives have been restated for the finalisation of the fair value exercise on the acquisition of KeySpan
Corporation (see note 9)
i) The difference between actual and expected investment return on pension assets is reported as an actuarial gain or loss within the
statement of recognised income and expense
5. Taxation
The tax charge for the period, excluding tax on exceptional items, remeasurements and stranded cost recoveries is �125m (six months
ended 30 September 2007: �227m; year ended 31 March 2008: �579m). The effective tax rate of 22.4% (six months ended 30 September 2007:
30.0%) for the half year is based on the best estimate of the weighted average annual income tax rate by jurisdiction expected for the full
year. The current period rate reflects a change in geographical weighting and seasonality of earnings due to the KeySpan acquisition. For
the full year we expect the group effective tax rate to be approximately 28%. The actual effective tax rate for the year ended 31 March 2008
was 31.7%.
6. Discontinued operations
Discontinued operations are businesses that have been sold, or which are held for sale. Discontinued operations comprise the Ravenswood
generation station in New York City, and the engineering and communications operations in the US acquired as part of the KeySpan
acquisition. The Ravenswood generation station was sold on 26 August 2008, KeySpan Communications was sold on 25 July 2008 and one of our
KeySpan engineering companies was sold on 11 July 2008. For the comparative periods discontinued operations also included our wireless
infrastructure and communication operations in the UK and similar operations in the US, as well as an electricity interconnector in
Australia (Basslink). These operations were sold on 3 April 2007, 15 August 2007, and 31 August 2007 respectively.
Results of discontinued operations
Six months ended 30 September 2008 2007 Year ended
31 March
2008
�m �m �m
========== ========== =========
Revenue 78 84 201
Operating costs (67) (58) (166)
------------------- ------------------- -------------------
Total operating profit from 11 26 35
discontinued operations
Remeasurement finance income - 8 8
----------------- ----------------- -----------------
Profit before tax from 11 34 43
discontinued operations
Taxation (5) (5) (7)
------------------- ------------------- -------------------
Profit after tax from 6 29 36
discontinued operations
------------------- ------------------- -------------------
Gain on disposal of Ravenswood 16 - -
electricity generation station
Gain on disposal of Basslink - 80 80
Gains on disposals of UK and - 1,507 1,506
US wireless infrastructure
operations
------------------- ------------------- -------------------
Gain on disposal of 16 1,587 1,586
discontinued operations before
tax
Taxation (5) (3) (4)
------------------- ------------------- -------------------
Gain on disposal of 11 1,584 1,582
discontinued operations
------------------- ------------------- -------------------
Total profit for the period
from discontinued operations
- Before exceptional items 6 21 28
and remeasurements
- Exceptional items and 11 1,592 1,590
remeasurements
17 1,613 1,618
========== ========== =========
7. Earnings per share
a) Basic earnings per share
Year ended Year ended
31 March 31 March
2008** 2008**
Six months ended 30 September 2008 2008 2007* 2007*
Earnings Earnings per share Earnings Earnings per share Earnings
�m pence �m pence Earnings per share
�m pence
======= ======= ======= ======= ======= ========
Adjusted - continuing 431 17.4 528 19.8 1,247 47.8
operations
Exceptional items after (73) (2.9) 127 4.8 (2) (0.1)
taxation
Commodity contract (143) (5.8) 13 0.5 133 5.1
remeasurements after taxation
Derivative remeasurements 98 4.0 1 - (35) (1.3)
after taxation
Stranded cost recoveries after 93 3.7 114 4.3 229 8.8
taxation
------------- ------------- ------------- ------------- ------------- --------------
Continuing operations 406 16.4 783 29.4 1,572 60.3
======= ======= ======= ======= ======= ========
Adjusted - discontinued 6 0.2 21 0.8 28 1.1
operations
Gains on disposal of 11 0.4 1,584 59.5 1,582 60.6
operations after taxation
Derivative remeasurements - - 8 0.3 8 0.3
after taxation
------------- ------------- ------------- ------------- ------------- --------------
Discontinued operations 17 0.6 1,613 60.6 1,618 62.0
======= ======= ======= ======= ======= ========
Basic 423 17.0 2,396 90.0 3,190 122.3
======= ======= ======= ======= ======= ========
millions millions millions
======= ======= ========
Weighted average number of 2,481 2,663 2,609
shares - basic
======== ======= ========
b) Diluted earnings per share
Year ended Year ended
31 March 31 March
2008** 2008**
Six months ended 30 September 2008 2008 2007* 2007*
Earnings Earnings per share Earnings Earnings per share Earnings
�m pence �m pence Earnings �m per share
pence
======= ======= ======= ======= ======= =======
Adjusted diluted - continuing 431 17.3 528 19.7 1,247 47.5
operations
Exceptional items after (73) (2.9) 127 4.7 (2) (0.1)
taxation
Commodity contract (143) (5.7) 13 0.5 133 5.1
remeasurements after taxation
Derivative remeasurements 98 3.9 1 - (35) (1.3)
after taxation
Stranded cost recoveries after 93 3.7 114 4.3 229 8.7
taxation
------------- ------------- ------------- ------------- ------------- -------------
Diluted - continuing 406 16.3 783 29.2 1,572 59.9
operations
======= ======= ======= ======= ======= =======
Adjusted diluted - 6 0.2 21 0.8 28 1.1
discontinued operations
Gains on disposal of 11 0.4 1,584 59.1 1,582 60.3
operations after taxation
Derivative remeasurements - - 8 0.3 8 0.3
after taxation
------------- ------------- ------------- ------------- ------------- -------------
Diluted - discontinued 17 0.6 1,613 60.2 1,618 61.7
operations
======= ======= ======= ======= ======= =======
Diluted 423 16.9 2,396 89.4 3,190 121.6
======= ======= ======= ======= ======= =======
millions millions millions
======= ======= =======
Weighted average number of 2,498 2,679 2,624
shares - diluted
======= ======= =======
* 30 September 2007 comparatives have been adjusted to present items on a basis consistent with the current period classification (see
note 1b)
** 31 March 2008 comparatives restated for the finalisation of the fair value exercise on the acquisition of KeySpan Corporation (see
note 9)
8. Dividends
The following table shows the dividends paid to equity shareholders:
Year ended Year ended
31 March 31 March
2008 2008
Six months ended 30 September 2008 2008 2007 2007
pence �m pence �m pence �m
per ordinary share per ordinary share per ordinary share
======= ======= ======= ======= ======= ========
Ordinary dividends
Final dividend for the year - - 17.80 480 17.80 480
ended 31 March 2007
Interim dividend for the year - - - - 11.70 300
ended 31 March 2008
Final dividend for the year 21.30 531 - - - -
ended 31 March 2008
------------- ------------- ------------- ------------- ------------- --------------
21.30 531 17.80 480 29.50 780
======= ======= ======= ======= ======= ========
The Directors have approved an interim dividend of 12.64p per share that will absorb approximately �307m of shareholders' equity to be
paid in respect of the period ended 30 September 2008.
9. Acquisitions
On 24 August 2007 the acquisition of KeySpan Corporation was completed with 100% of the shares acquired for total cash consideration of
�3.8bn including acquisition costs of �25m. The provisional amount of goodwill recorded on the acquisition was �2.3bn based on the
provisional fair values that were presented in our financial statements for the year ended 31 March 2008. The fair value exercise has now
been completed and the provisional fair values reported in our financial statements for the year ended 31 March 2008 have been updated and
are reported in the table below. As a result of the fair value adjustments the final goodwill arising on the acquisition was �2.4bn.
The Ravenswood merchant electricity generation business in New York City was sold on 26 August 2008 for consideration of $2.9bn, KeySpan
Communications was sold on 25 July 2008 for consideration of $35m, and one of our KeySpan engineering companies was sold on 11 July 2008.
The assets and liabilities related to these businesses are included in the 'Assets of businesses held for sale' category in the table below
and the results of these discontinued operations are reported in note 6.
Changes
Provisional fair to fair Final fair
values values values
(as previously
reported)
�m �m �m
========= ========= =========
Other intangible assets 135 (1) 134
Property, plant and equipment 3,282 (2) 3,280
Financial and other 129 - 129
investments - non-current
Other non-current assets 271 (91) 180
Inventories and current 505 (17) 488
intangibles
Trade and other receivables 477 (4) 473
Financial and other 33 - 33
investments - current
Cash and cash equivalents 260 - 260
Assets of businesses held for 1,487 (2) 1,485
sale
Borrowings - current (545) - (545)
Trade and other payables (654) (35) (689)
Current tax liabilities (95) (1) (96)
Borrowings - non-current (1,934) - (1,934)
Other non-current liabilities (169) - (169)
Deferred tax liabilities (591) 148 (443)
Pensions and other (440) - (440)
post-retirement benefit
obligations
Provisions (643) (61) (704)
Liabilities of businesses held (73) - (73)
for sale
Minority interest (8) - (8)
----------------- ----------------- -----------------
Net assets acquired 1,427 (66) 1,361
Goodwill arising on 2,335 66 2,401
acquisition
------------------- ------------------- -------------------
Total consideration 3,762 - 3,762
========= ========= ==========
9. Acquisitions (continued)
As required under IFRS 3 'Business Combinations' the comparative amounts presented within the half year financial information have been
restated for the finalisation of the fair values.
The significant changes made to the comparative balance sheets represent the movements between the provisional fair values in the
consolidated balance sheets at 30 September 2007 and at 31 March 2008 and final fair values, together with any associated reclassification
adjustments. In addition the consolidated income statement for the year ended 31 March 2008 has been adjusted to reflect an increase in
interest expense of �10m and a decrease in taxation of �4m resulting from the finalisation of the fair values. The impact on the
consolidated income statement for the six months ended 30 September 2007 was insignificant and these comparatives have not been restated.
10. Reconciliation of movements in total equity
Year ended
31 March
2008**
Six months ended 30 September 2008 2007
�m �m �m
========= ========= =========
Opening total equity 5,374 4,136 4,136
Changes in total equity for
the period
Total recognised income and 468 2,676 3,473
expense
Equity dividends (531) (480) (780)
Issue of ordinary share - 13 13
capital
B shares converted to ordinary - 27 27
shares
Repurchase of share capital (599) (808) (1,522)
and purchase of treasury
shares (i)
Other movements in minority (7) 6 4
interests
Share-based payment 10 9 18
Issue of treasury shares 8 - 10
Tax on share-based payment 2 (6) (5)
----------------- ----------------- -----------------
Closing total equity 4,725 5,573 5,374
========= ========= =========
** 31 March 2008 comparatives have been restated for the finalisation of the fair value exercise on the acquisition of KeySpan
Corporation (see note 9)
(i) From 1 April to 30 September 2008, the Company repurchased 85.5 million ordinary shares for an aggregate consideration of �597m (30
September 2007: �808m; 31 March 2008: �1,516m) including transaction costs of �3m. The shares repurchased have a nominal value of 11 17/43
pence each and represented 3% of the ordinary shares in issue as at 30 September 2008. Further purchases of shares relating to employee
share schemes were made for aggregate consideration of �2m (30 September 2007: �nil; 31 March 2008: �6m).
Included within total equity is a deduction of �1,159m for treasury shares (30 September 2007: �102m; 31 March 2008: �570m).
11. Reconciliation of net cash flow to movement in net debt
Year ended
31 March
2008
Six months ended 30 September 2008 2007**
�m �m �m
========== ========== ==========
Decrease in cash and cash (21) (1,264) (1,450)
equivalents
Decrease in financial (814) (278) (45)
investments
Increase in borrowings and (17) (647) (1,563)
related derivatives (i)
Net interest paid 407 249 694
----------------- ----------------- -----------------
Increase in net debt resulting (445) (1,940) (2,364)
from cash flows
Changes in fair value of (1,103) 209 (133)
financial assets and
liabilities and exchange
movements
Net interest charge (567) (358) (901)
Borrowings and financial - (2,446) (2,446)
investments of subsidiary
undertaking acquired
Amounts related to businesses - 17 17
held for sale
Other non-cash movements - (30) (26)
----------------- ----------------- -----------------
Movement in net debt (net of (2,115) (4,548) (5,853)
related derivative financial
instruments) in the period
Net debt at start of period (17,641) (11,788) (11,788)
----------------- ----------------- -----------------
Net debt (net of related (19,756) (16,336) (17,641)
derivative financial
instruments) at end of period
========== ========== ==========
i) The increase in borrowings and related derivatives for the six months ended 30 September 2008 comprises proceeds from loans received
of �2.1bn less payments to repay loans of �1.6bn and movement in short-term borrowings of �0.5bn
** 30 September 2007 comparatives have been restated for the finalisation of the fair value exercise on the acquisition of KeySpan
Corporation (see note 9)
12. Net debt
31 March
At 30 September 2008 2007** 2008
�m �m �m
========== ========== ==========
Cash and cash equivalents 148 355 174
Bank overdrafts - (16) (10)
----------------- ----------------- -----------------
Net cash and cash equivalents 148 339 164
Financial investments 1,265 1,848 2,095
Borrowings (excluding bank (21,504) (19,068) (20,993)
overdrafts)
----------------- ----------------- -----------------
(20,091) (16,881) (18,734)
Net debt related derivative 924 850 1,526
financial assets
Net debt related derivative (589) (305) (433)
financial liabilities
----------------- ----------------- -----------------
Net debt (net of related (19,756) (16,336) (17,641)
derivative financial
instruments)
========== ========== ==========
** 30 September 2007 comparatives have been restated for the finalisation of the fair value exercise on the acquisition of KeySpan
Corporation (see note 9)
13. Commitments and contingencies
31 March
At 30 September 2008 2007 2008
�m �m �m
========== ========== =========
Future capital expenditure contracted for 1,138 1,160 1,097
but not provided
Commitments under non-cancellable 818 758 737
operating leases
Energy purchase commitments (i) 6,672 5,296 5,136
Guarantees (ii) 603 583 925
Other commitments and contingencies (iii) 246 114 164
========== ========== =========
i) Commodity contracts that do not meet the normal purchase, sale or usage criteria and hence are accounted for as derivative
contracts are recorded at fair value and incorporated in trade and other payables and other non-current liabilities. At 30 September 2008
these amounted to �64m (30 September 2007: �94m; 31 March 2008: �124m).
ii) Details of the guarantees entered into by the Company or its subsidiary undertakings at 30 September 2008 are shown
below:
* a letter of support of obligations under a shareholders' agreement relating to the interconnector project between Britain and the
Netherlands amounting to approximately �226m. This expires in 2010;
* a guarantee amounting to approximately �104m of half of the obligations of the interconnector project between Britain and the
Netherlands. This expires in 2010;
* guarantees of certain obligations in respect of the UK Grain LNG Import Terminal amounting to �86m. These run for varying lengths
of time, expiring between 2019 and 2028;
* guarantees of the liabilities of a metering subsidiary under meter operating contracts amounting to �53m. These are ongoing;
* an uncapped guarantee, for which the maximum liability is estimated at �40m, to The Crown Estates in support of the transfer of
the interconnector between France and England to National Grid Interconnectors Limited as part of the Licence to Assign Lease. This is
ongoing;
* letters of credit in support of gas balancing obligations amounting to �25m, lasting for less than one year;
* guarantees of �18m relating to certain property obligations. The bulk of these expire by December 2025;
* collateral of �15m to secure syndicate insurance obligations which are evergreen;
* guarantees in respect of a former associate amounting to �14m, the bulk of which relates to its obligations to supply
telecommunications services. These are open-ended; and
* other guarantees amounting to �22m arising in the normal course of business and entered into on normal commercial terms. These
guarantees run for varying lengths of time.
iii) Includes commitments largely relating to gas purchasing and property remediation of �195m (30 September 2007: �83m; 31 March
2008: �134m).
For a portion of our customers in New England the Company has entered into fixed price electricity requirement contracts with various
counterparties. The contracts do not contain a determinable notional value as they are dependant on future customer demand. The contracts
range in term from 3 to 15 months with monthly prices per megawatt-hour ranging from $62 to $144.80. These do not represent onerous
contracts as actual prices incurred are recovered from our customers.
On 25 February 2008 the Gas and Electricity Markets Authority (GEMA) imposed a �41.6m fine on National Grid for infringement of the
Competition Act 1998 in relation to a number of metering contracts entered into with gas suppliers in 2004. We believe that the contracts do
not infringe competition law, they were entered into voluntarily by gas suppliers and Ofgem was consulted throughout the process of contract
development and negotiation. Therefore, we have lodged an appeal with the Competition Appeal Tribunal. GEMA has suspended the fine pending
the outcome of the appeal and no provision has been made in the accounts. We remain convinced that National Grid has not breached the
Competition Act 1998 and that our position will be upheld and the fine reversed on appeal.
In October 2008 our internal controls identified that operational data for an activity in our UK Gas Distribution business was
misreported as at 31 March 2008, and this is the subject of ongoing investigation. Based on this investigation we do not believe this has
resulted in misstatement of the Group's results. The matter has been reported to our regulators.
14. Exchange rates
The consolidated results are affected by the exchange rates used to translate the results of its US operations and US dollar
transactions. The US dollar to pound sterling exchange rates used were:
31 March
30 September 2008 2007 2008
========= ========= =========
Closing rate applied at period end 1.78 2.05 1.98
Average rate applied for the period 1.92 2.02 2.01
========= ========= =========
15. Related party transactions
There were no significant changes in the nature and size of related party transactions for the period to those disclosed in the
financial statements for the year ended 31 March 2008.
16. Principal risks and uncertainties
The principal risks and uncertainties which could affect National Grid for the remaining six months of the financial year are disclosed
in the Annual Report and Accounts 2007/08 ('Annual Report'). A list of the significant risks are provided on page 17 of the Annual Report,
which are then disclosed in more detail on pages 95 to 97, and pages 160 to 166. Our overall risk management process is designed to
identify, manage, and mitigate our business risks, including financial risks. Our assessment of the principal risks and uncertainties and
our risk management processes have not changed since the year end except as noted below.
The period to 30 September 2008 has seen significant volatility in commodity prices, turbulence in financial markets, and a continuing
shortage in available credit. As a result of these external market factors, National Grid is encountering an increase in commodity price
risk, credit risk and liquidity risk compared with that experienced during the previous financial year. Our risk management approach to
these specific risks is set out on pages 76 to 78, and pages 160 to 166 of the Annual Report and Accounts 2007/08.
Changes in inflation have the potential to affect the Group's future revenues and costs, in particular those elements specified in our
regulatory contracts.
Recent decreases in commodity prices have resulted in significant mark-to-market losses on certain forward gas/electricity contracts.
Our regulatory agreements in the US, enable recovery of our commodity costs, as prices charged to customers reflect the actual price paid.
Therefore, our exposure on commodity volatility is limited to timing issues and the associated financing needs.
Recent turmoil within the banking sector has potentially increased the risk of loss associated with a financial counterparty's inability
to discharge their obligations. We continue to monitor the credit limits set with counterparties, use master netting agreements in many
cases and, where possible, net settle payments to manage credit risk. We are proactively reducing credit limits assigned to certain
counterparties where we believe their risk is higher than their current credit rating might indicate.
The decrease in the availability of debt finance through the money markets, bank markets and the debt capital markets has made it
increasingly challenging and more expensive to raise finance for our operations. To counter this, we are accessing more sources of funding
than in previous years, including the bank markets.
We continue to determine our liquidity requirements by the use of both short and long term cash flow forecasts. These forecasts are
supplemented by a financial headroom analysis which is used to assess funding adequacy for at least a 12 month period. This analysis is
being updated more frequently under current conditions than would be the case under normal market conditions so as to provide the best
information possible on liquidity. Based on this analysis National Grid's current facilities are sufficient to meet its current projected
funding requirements for the next 12 months.
We continue to actively manage all of the above risks in accordance with our financial risk management processes and believe that these
adequately mitigate the identified risks.
Statement of Directors' Responsibilities
The half year report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the
half year report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
The Directors' confirm that the financial information has been prepared in accordance with IAS 34 as adopted by the European Union, and
that the half year report herein includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8.
The Directors of National Grid plc are listed in the National Grid plc Annual Report for the year ended 31 March 2008, with the
exception of Philip Aiken who was appointed to the board on 15th May 2008.
By order of the Board
********.. ********..
Steve Holliday Steve Lucas
19 November 2008 19 November 2008
Chief Executive Officer Chief Financial Officer
Independent review report to National Grid plc
Introduction
We have been engaged by the Company to review the financial information in the half year report for the six months ended 30 September
2008, which comprises the consolidated income statement, balance sheet, statement of recognised income and expense, cash flow statement and
related notes (together the 'condensed set of financial statements'). We have read the other information contained in the half year report
and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of
financial statements.
Directors' responsibilities
The half year report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the
half year report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
As disclosed in note 1, the annual financial statements of the group are prepared in accordance with International Financial Reporting
Standards (IFRSs) as issued by the International Accounting Standards Board and IFRSs as adopted by the European Union. The condensed set of
financial statements included in this half year report has been prepared in accordance with International Accounting Standard 34, "Interim
Financial Reporting", as adopted by the European Union.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half year report based
on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of the Disclosure and
Transparency Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume
responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where
expressly agreed by our prior consent in writing.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim
Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United
Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the financial information in the half year report
for the six months ended 30 September 2008 is not prepared, in all material respects, in accordance with International Accounting Standard
34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
PricewaterhouseCoopers LLP
Chartered Accountants
London
19 November 2008
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