NG Prelim Results Presentation FINAL PRINT (returns updated)/media/Files/N/... · £480m £527m 2006 2007 Gas distribution Operating profit Impact of warm weather and higher prices

Cautionary statement

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, including those required to complete the proposed acquisition of KeySpan when or as planned, 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 acquisitions with our 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 and the “Risk Factors” section in its Registration Statement on Form F-3 filed with the SEC on 28 June 2006). 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.

Steve Lucas

Finance Director

Reporting by lines of business

TransmissionElectricity transmission in the UK and US

Gas transmission in the UK

Gas DistributionGas distribution in the UK and US

Electricity DistributionElectricity distribution in the US

Non-regulated businessesMetering

Grain LNG

Property

Financial headlines

Operating profit up £94m

Profit before tax up 9%*

EPS up 9%*

Full year dividend increased by 10%

Above 7% targeted increase

* At actual currencyContinuing business performance, excluding exceptional items, discontinued businesses, stranded costs recoveries and certain mark-to-market remeasurement and stranded costs2006 constant FX figures calculated by applying average 2007 rate ($1.91/£) to 2006 results (when average rate was $1.79/£)

£1,937m £2,031m

US Stranded

US Stranded

2006 2007

GroupOperating profit

£2,454m £2,394m

Continuing business performance, excluding exceptional items, discontinued businesses and certain mark-to-market remeasurements2006 constant FX figures calculated by applying average 2007 rate ($1.91/£) to 2006 results (when average rate was $1.79/£)

24%

18%

6%

52%

Transmission Gas distribution

Electricity distribution Non-regulated

£963m£1,054m

2006 2007

TransmissionOperating profit


Electricity transmission 9% revenue increase

Lower UK electricity depreciation charge

Under-recovery of gas transmission system operator income – a timing issue

£480m£527m

2006 2007

Gas distributionOperating profit

Impact of warm weather and higher pricesUnder recovery of allowed revenue Rhode Island gas contributionHigher depreciation chargeIncreased costs principally due to

Maintenance work and service cut-offs


£364m

£297m

2006 2007

Electricity distributionOperating profit

New York deferral account recoveryTiming for pass-through itemsHigher controllable costs

Increased reliability and maintenance spendIncreased bad debt expense

US storm costsHigher depreciation


£133m£150m

2006 2007

Non-regulated businesses Operating profit

Metering income up

Grain LNG, full year contribution

Property income slightly down

Lower connections work

Higher corporate costs

Continuing business performance, excluding exceptional items, discontinued businesses and certain mark-to-market remeasurements

GroupOperating profit


24%

18%

6%

52%

Transmission Gas distribution

Electricity distribution Non-regulated

£1,937m £2,031m

US Stranded

US Stranded

2006 2007

£2,454m £2,394m

US stranded assets cashflow and share buy-back programme

£423m

Post-tax base

Pre-tax base

Contracts

2007

£169m of post tax cashflow used for buy-back programme

22m of shares repurchased

Average share price of 754 pence

Around $300m post tax cashflow for 2008 buy-back programme

Interest, tax, earnings and dividend

26.1p28.7pDPS - ordinary$2.3931$2.7917Dividend per American Depository Share

31%32%Effective Tax Rate*(602)(547)Net Finance Cost (actual FX)

35.2p38.3pEPS**

20062007For the 12 months ended 31 March (£m)

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: 2,719m (2007), 2,837m (2006)

£1,907m

£2,345m

2006 2007

Capital investment

Gas distribution*

Non-regulated

Electricity distribution*

Transmission*

*At actual currencyContinuing business capital investment only2007 UK gas distribution includes £333m (2006: £295m) of replacement expenditure (repex)Excludes Transmission capital expenditure in relation to emission trading in the UK

01-Apr-06 Continuingoperatingcashflow*

Continuinginterest & tax

Investment Dividends &share buy

back

Other** 31-Mar-07

Net debt and cashflow

£(10.9)bn£(0.9)bn

*Includes exceptional spend of £(86)m, and excludes tax ** Other items also includes cashflows related to discontinued businesses including Wireless infrastructure and Basslink interconnector

£(11.8)bn£3.1bn

£0.3bn

£(0.9)bn £(2.5)bn

Financial Performance – Returns

Providing returns for the first timeClear and transparent metrics

Two return metricsPerformance against regulatory contracts in UK and US

Group return on equity

Report on returns at full year

Financial Performance – UK Regulated Businesses

Measures operating performance against our main UK regulatory contractsElectricity transmission

Gas transmission

Gas distribution

Operational returnBenchmarked against transmission vanilla return of 5.05% real

Pre tax cost of debt / post tax cost of equity

60% gearing assumption

CalculationOperating profit minus cash tax adjusted for

Regulatory depreciationRegulatory capexInterest for assumed 60% gearing

Divided by RAV

Financial Performance – Regulated BusinessesElectricity Transmission in the UK

4.7%4.5%5.2%

2004/05 2005/06 2006/07

Average return of 4.8% real over three years

Increased investment programme prior to the price control review outcome


Financial Performance – Regulated BusinessesGas transmission and distribution in UK

6.4% 6.3%5.5%

2004/05 2005/06 2006/07

Combined transmission and distribution return of 6.1% real over three years

Gas transmission return (2006/07)Lower operating costs

Out-performance on capex.

Gas distribution return (2006/07)Profile of regulated revenues

Weather and volumes impact

Higher pensions and shrinkage gas costs.

7.8%

4.4%

2006/07 2006/07

Gas transmission and distribution


Tx

Dx

Financial Performance – US Regulated Businesses

Performance against US regulatory contracts

Upstate New York business (NIMO) 10.6% base return

Massachusetts DistributionRevenue allowance indexed to a peer group

New England Power10.9% base return

Regulatory returnUS GAAP reporting - nominal

Different reporting periods

CalculationNet income divided by equity base*

* New England Power - common equity base including stranded costs but excluding goodwill

58%

11%

14%

8%6% 3%

NMO - Electric NMO - Gas

Mass Electric New England Power*

Rhode Island Electric Rhode Island Gas

Financial Performance – US Regulated Businesses

9.6%10.6% 11%

Oct 2004 Oct 2005 Oct 2006

12.3%12.6%10.5%

CY 2004 CY 2005 CY 2006

Upstate New York Massachusetts Distribution New England Power

•Achieved* – 10.4% RoE

•Base RoE – 10.6% RoE

* Average RoE over last three years


•Base RoE – N/A


•Base RoE – 10.9%

12.8%

9.5%

12.4%

FY 2005 FY 2006 FY 2007

Financial Performance – Group returns

A Group return on equity (RoE)Adjusted net income divided by equity base

Group net income adjusted forRegulatory and accounting treatments of depreciation and capex

UK RAV indexation

US stranded costs

Invested capitalUK regulatory asset base

US invested capital

Unregulated businesses’ net asset value

Minus net debt

Financial PerformanceReturn on Equity (nominal)

2004/05 2005/06 2006/07

Return Inflation

Average 12.4% return over three years

RAV Indexation causes significant movements so returns a rolling average

Reduced gearing following proceeds from network sales reduced return in 2006

Financial summary

Good results

EPS up 9%*

Full year dividend increased by 10%Above 7% targeted increase

Investment up 23%*

Average Group RoE 12.4%

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

Steve Holliday

Chief Executive

Delivering on our strategy……More focused

Focused on our principal growth markets in the UK and US

Exit Wireless infrastructure

Exit Basslink

UK wireless infrastructure sold for £2.5bn

US wireless infrastructure sale agreedCompletion expected in autumn 2007

Basslink sale well progressedCompletion expected in latesummer 2007

Our commitments Our delivery

Delivering on our strategy……More integrated

Lines of business operating model

Global IS

Shared services

Organisation design complete

Operating model implementation underwayGlobal IS in placeUK Shared Services in place

US top 85 managers appointed

KeySpan integration plans well advanced


Delivering on our strategy……More disciplined

Maintain an efficient balance sheet

Return US stranded asset cashflow via a share buy-back

7% annual dividend increase targeted through to March 2008

£169m cash returned in 2006/07

Continued balance sheet optimisation

£1.8bn of proceeds from sale of UK wireless businesses to be returned via share buy-back

10% dividend increase in 2006/07


…investment plans updated, over £14bn* investment by 2012Growth through investment…

Plans rolled forward one-year to 2012Transmission Price Control outcome

Wireless sale

New projectsGrain III ~£310m

BritNed ~£200m

0

2

4

6

8

10

12

14

2006-2011 2006-2012

Old Plan New Plan Delivered

*Over £14bn investment projected 2006-2012, excluding KeyspanNational 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.

£ billion

…investment plans updated, over £14bn* investment by 2012Growth through investment…

0

2

4

6

8

10

12

14

2006-2011 2006-2012


0

2

4

6

8

10

12

14

2006-2011 2006-2012


*Over £14bn investment projected 2006-2012, excluding KeyspanNational 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.

£ billion

Plans rolled forward one-year to 2012Transmission Price Control outcome

Wireless sale

New projectsGrain III ~£310m

BritNed ~£200m

On-track£2.3bn delivered in 2006/07

Transmission

Gas Distribution

Electricity Distribution

Non-regulated

Growth through investment ……growing our asset base

0

2

4

6

8

10

12

14

2006-2012

£6.9bn

£4.2bn

£1.4bn

£1.8bn

£ billion

UK regulated

Non-regulated

Transmission

Gas Distribution

Electricity Distribution

Growth through investment ……growing our asset base

0

2

4

6

8

10

12

14

2006-2012

KeySpan

US regulated

0

2

4

6

8

10

12

14

16

2006-2012

£6.9bn

£4.2bn

£1.4bn

£1.8bn

£9.8bn

£2.7bn

£1.8bn

~£1.5bn

£ billion £ billion

New Hampshire Public Utilities Commission (agreed in principle)

Federal Trade Commission (Hart-Scot-Rodino anti trust improvements Act)

Committee on Foreign Investment in the US (CFIUS)

National Grid shareholders

KeySpan stockholders

Federal Energy Regulatory Commission (FERC)

Long Island Power Authority (LIPA) T&D services contract (agreed in principle)

Growth through investment ……the KeySpan acquisition – well progressed

Clearances/approvals

New Hampshire Public Utilities Commission (agreed in principle)

Federal Trade Commission (Hart-Scot-Rodino anti trust improvements act)

Committee on Foreign Investment in the US (CFIUS)

National Grid shareholders

KeySpan stockholders

Federal Energy Regulatory Commission (FERC)

Long Island Power Authority (LIPA) T&D services contract (agreed in principle)

Growth through investment ……the KeySpan acquisition – well progressed

Clearances/approvals New York Public Service Commission (NYPSC)

Settlement discussions mid-March to mid-May

Parallel process

KeySpan stand alone rate case

Merger case

Completion expected in autumn 2007

~$800m savings for customers in New York state

Driving performance……we understand our value drivers

Regulation

Opex & synergies

From best practices

From scale economies

Managing and financing investment

Majority of value from regulatory settlements

Financial discipline

Driving performance……a disciplined framework for improvement

Ben

efits

Small

Large

Cost / difficulty of implementation

High Low


Ben

efits

Small

Large


High Low

Driving performance……sharing best practice in Gas DistributionDriving performance……sharing best practice in Gas Distribution

Driving performance……sharing best practice in Gas DistributionDriving performance……sharing best practice in Gas Distribution

Driving performance……sharing best practice in Gas Distribution




Ben

efits

Small

Large


High Low

‘Top 20’ improvements

Driving performance……KeySpan integration

Significant progress…$200m synergy savings confirmed

Top 85 managers

~50:50 National Grid:KeySpan

Budgets confirmed

Integration responsibility transferred to line managers

Sources of $200m synergy savings

Finance5%

Information systems (IS)

20%Shared Services & Corporate consolidation50% Process

alignment25%

National Grid……next steps

Gas Distribution regulatory contracts

Basslink sale

More focused

KeySpan completion

Progress ‘Top 20’performance improvements

More integrated

Return £1.8bn Wireless sale proceeds

Return remaining ~$1.7bn US stranded asset cashflow

Dividend policy beyond 2008

More disciplined

National Grid……delivering our strategy on all fronts

Good results

Successful sale of Wireless

£14bn investment

New metrics

KeySpan

9% growth in earnings per share10% growth in dividend

£2.7bn total proceeds£1.8bn return to shareholders

23% increase in 2006/07Six year plan to March 2012

Transparency for investorsFocus on returns –12.4% average over 3 years

Completion expected in the autumnReady to hit the ground running

Appendix 1

IFRS – technical details

This presentation is based on continuing business performance, so it excludes exceptional items and certain mark-to-market remeasurements.

These remeasurements relate to certain commodity contracts and financial instruments.

They are for economic hedging purposes, but did not achieve hedge accounting under IAS-39.

Business results

28.7p

47.7p1,9092,4542,4542007

10%26.1pDividend per share

5%45.5pEarnings per share3%1,858Profit before tax (actual FX)3%2,394Operating profit (constant FX) 0%2,457Operating profit (actual FX)

change2006For the 12 months ended 31 March (£m)


Business results and statutory results*

(83)59Exceptional operating items and remeasurements2,4572,454Operating profit **

1,1831,310Statutory earnings (continuing businesses)(535)(441)Tax1,7181,751Statutory profit before tax (continuing businesses)

32Share of post tax results of joint ventures

(659)(764)Net finance costs (including exceptional items and remeasurements)

135.6p51.3pEarnings per share3,8481,394Statutory earnings attributable to equity shareholders

(2)(2)Minority interests3,8501,396Statutory earnings2,66786Statutory earnings (discontinued operations)


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

Revenue and other operating income*

310270Transmission - US

2,7102,821Transmission - UK

517426US Stranded Costs775638Non-regulated businesses and other

3,1363,005Electricity distribution

571638Gas distribution - US1,2261,199Gas distribution - UK

8,9488,778Total revenue and other operating income(297)(219)(Sales eliminations)


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

Transmission* Depreciation & Amortisation

54Interconnectors – UK

97LNG

1411Sub total – other

422393Total Transmission depreciation & amortisation

--GridAmerica

4541Sub-total – Electricity transmission – US

1919Electricity System Operator

241228Electricity Transmission Owner*

--Other Gas

1819Gas System Owner***

8373Gas Transmission Owner**

262249Sub total – Electricity transmission - UK22Other Electricity

118Interconnectors

2221New York Transmission

1212New England Transmission

10192Sub total – Gas transmission - UK


*At actual currency** Excludes profit on sale of fixed assets £5m in 2006/07 and capital contributions released of -£4m in 2006/07 and -£4m in 2005/06 *** Excludes emissions trading amortisation of £23m in 2006/07 and excludes capital contributions released of -£3m in 2006/07 and -£4m in 2005/06

Transmission* Operating costs


1631LNG


1,6271,644Total Transmission operating costs

4-GridAmerica



265290Electricity Transmission Owner**

79Other gas

178143Gas System Owner

153142Gas Transmission Owner

1,1261,191Sub total – Electricity transmission - UK1220Other Electricity

1010Interconnectors





*At actual currency** Includes transfer of Scottish network owner income (£236m in 2006/07, £232m in 2005/06); hydro benefit costs (£43m in 2006/07, £44m in

2005/06); and BSIS costs (£550m 2006/07, £468m 2005/06)

Transmission* Operating profit


3635LNG


9711,054Total Transmission operating costs

1-GridAmerica




1-Other gas




98Interconnectors





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

TransmissionPrincipal operating profit movements

2006 ETO PriceIncrease

Timing ETODepreciation

Other 2007

£103m

£(64)m

£27m £25m £963m

£1,054m


Transmission Operating profit – constant FX


3635LNG


9631,054Total Transmission operating profit

1-GridAmerica




1-Other gas




98Interconnectors





*Includes transfer from ESO to ETO of Electricity TO Core Revenue collected in GBSOContinuing business performance, excluding exceptional items, discontinued businesses and certain mark-to-market remeasurements2006 constant FX figures calculated by applying average 2007 rate ($1.91/£) to 2006 results (when average rate was $1.79/£)

Gas distribution Operating profit

527480Total Gas distribution operating profit (constant FX)530480Total Gas distribution operating profit (actual FX)

(19)(24)Depreciation and amortisation – US*(161)(170)Depreciation and amortisation – UK

(505)(543)Operating costs – US*(582)(620)Operating costs – UK(180)(194)Total depreciation and amortisation costs (actual FX)

4771Operating profit – US*483409Operating profit – UK

(1,087)(1,163)Total operating costs (actual FX)


*At actual currencyContinuing business performance, excluding exceptional items, discontinued businesses and certain mark-to-market remeasurements2006 constant FX figures calculated by applying average 2007 rate ($1.91/£) to 2006 results (when average rate was $1.79/£)

Gas distribution Principal operating profit movements

2006 FormulaIncome

RhodeIsland gas

Timing Depreciation Workload Passthroughcosts

Other 2007

£4m

£(32)m

£17m

£(9)m £(16)m £(23)m

£12m£527m

£480m


Electricity distributionOperating profit

(2,693)(2,514)Operating costs*

297364Total Electricity distribution operating profit (constant FX)

317364Total Electricity distribution operating profit (actual FX)

(126)(127)Depreciation and amortisation*


* At actual currencyContinuing business performance, excluding exceptional items, discontinued businesses and certain mark-to-market remeasurements2006 constant FX figures calculated by applying average 2007 rate ($1.91/£) to 2006 results (when average rate was $1.79/£)

Electricity distributionPrincipal operating profit movements

2006 Margins* Timing Depreciation Costpressures

Storm costs Other 2007

*Margins exclude pass through costsContinuing business performance, excluding exceptional items, discontinued businesses and certain certain mark-to-market remeasurements2006 constant FX figures calculated by applying average 2007 rate ($1.91/£) to 2005 results (when average rate was $1.79/£)

£91m£(9)m

£23m

£(19)m

£(43)m

£24m

£297m

£364m

Non-regulated and other activitiesOperating profit

6445Revenue

7372Other operating income

(47)(29)Operating costs

355374Revenue

-(1)Other operating income

2739Revenue

150133Total Non-regulated and other businesses operating profit(41)(65)Sub total – Other

(5)(7)Depreciation and amortisation


(147)(146)Depreciation and amortisation


69Sub total – Grain LNG

8886Sub-total – Property(2)(2)Depreciation and amortisation

97103Sub total – Metering


Cashflow and net debt

(10,850)Net debt at 1 April 20063,090Operating cashflow from continuing operations*(642)Net interest(310)Tax – continuing operations(269)Acquisition

(2,197)Cash payments for capital expenditure(730)Equity dividends paid(61)Other cash flows**

(1,119)Change in net debt from cashflow in year181Total non cash movements in year

(11,788)Net debt at 31 March 2007

£m

*Includes exceptional spend of £(86)m, and excludes tax ** Other items also includes cashflows related to discontinued businesses including the sold gas networks

Operating cashflow

2,454Operating profit *871Depreciation and amortisation

(235)Working capital and other3,090Operating cashflow **

For the 12 months ended 31 March 2007

* Excluding exceptional items and certain mark-to-market remeasurements** Includes exceptional spend of £86m, and excludes tax

£m

Exceptional items and remeasurements

59Impact on operating profit81Remeasurements – commodity contracts

(22)Restructuring costs

(19)Remeasurements – commodity contracts(153)Remeasurements – net losses on financial instruments(45)Exceptional finance costs

(217)Impact on net finance costs(158)Total pre-tax exceptional items and remeasurements

£mFor the 12 months ended 31 March 2007

Exchange rates

(29)Net impact on earnings *

15Impact on tax and minority interests *

19Impact on interest*

(63)Impact on total operating profit *

£m

1.791.91Average $ / £ rate for the period

1.741.97Closing $ / £ rate


* Excluding exceptional items and certain mark-to-market remeasurements

US electricity deliveries

(1.1)%(2.4)%Total deliveries

(1.5)%(2.4)%Non residential

(0.3)%(2.6)%Residential

Combined New England and New York

weather normalisedactual

% change on prior year

Pensions – IAS19 data

6.0%4.9%4.9%Discount rates(1,235)(592)(370)(273)Deficit net of deferred tax

669394158117Deferred tax(1,904)(986)(528)(390)Deficit

(17,780)(2,789)(13,267)(1,724)Present value of liabilities15,8761,80312,7391,334Market value of assets

At 31 March 2006

5.8%5.4%5.4%Discount rates(792)(476)26(342)(Deficit) / surplus net of deferred tax

453318(11)146Deferred tax(1,245)(794)37(488)(Deficit) / surplus

(17,244)(2,592)(12,828)(1,824)Present value of liabilities15,9991,79812,8651,336Market value of assets

At 31 March 2007NG totalUSNGUK PS

ESPS (mainly NGET)£m

Note – in 2007, Wireless pension liabilities are classified as liabilities of business held for sale. The sale of the UK Wireless business was agreed on 3 April 2007. The sale of the US Wireless business was agreed on 30 April 2007.

Capital investmentPrincipal movements between plans

2006 UKTransmissionPCR outcome

Exit Wireless Update plans Extend plans1 year

New Non-regulated

investment

2007


£2.4bn

£(1.7)bn £(0.5)bn

£1.2bn£12.4bn

£14.3bn £0.5bn

Appendix 2

Equity based - Total invested capital minus net debt

Invested CapitalTotal UK RAV

US invested capital

Other businesses (net assets)

Adjusted net incomeRegulatory and accounting depreciation

Regulatory capitalisation adjustments

RPI indexation

US stranded costs excluded

Group RoE (nominal)Explanation

Group RoE (nominal)Detailed Calculation

4.4%2.7%3.2%Weighted inflation rate4.8%2.4%3.2%UK inflation rate

(2)(2)0Minority interests(12)110183Exceptional items - continuing

18(2,590)48Exceptional items - discontinued

1,3741,4841,447Wireless and Basslink174284427Unregulated businesses (Net assets)

(167)(122)(139)Regulatory and accounting depreciation adjustment(107)(95)(95)Regulatory and accounting capitalisation

14.1%10.1%12.9%Group RoE (nominal)

3.1%

13,27249%

(12,918)26,190

17

5,798214

18,2871,715

5730

1,376(279)

1,4242004/05

(10,850)(10,186)Opening net debt50%48%Gearing

10,95711,227Group equity value

3.1%3.4%US inflation rate

512Joint ventures21,80721,413Group enterprise value

(254)(293)IFRS US stranded costs (after tax)

1,3963,850IFRS statutory net income

673315Indexation of RAV0(43)Sold networks

Depreciation1,1461,075IFRS income excluding US stranded costs

5,7125,944US invested capital (excluding Stranded)192186Other UK transmission

14,35013,503UK RAV1,5451,130Adjusted Group PAT

2006/072005/06Group RoE

Source: NG plc Stat accounts and National Grid estimates

UK operational returnHigh level calculation

5.05% vanilla returnPre tax cost of debt / post tax cost of equity and 60% gearing

Invested CapitalOpening UK RAV

IFRS Operating Profit after cash tax adjusted forRegulatory depreciation

REPEX capitalisation

Pensions deficit payments revenues, costs and tax effects

Cash tax – to put it on the basis of Ofgem’s assumed capital structure

UK Electricity transmission returnDetailed Calculation

564483538IFRS Operating Profit (adjusted)

60%60%60%Notional Gearing

---TIRG5,7595,3515,189Total RV4.7%4.5%5.2%Real Vanilla Return

5,6485,1975,042Opening TO RV111154147Opening SO RV

243260201Accounting depreciationDepreciation

(420)(390)(366)Regulatory depreciation

223207201Ofgem assumed Interest

(15)(9)(19)Non Operational capex000Quasi Capex

269240269Vanilla Return(86)

00

3874

(124)

3550

(165)

(8)546

2004/05

00Pensions Allowances00Pensions Tax Adjusted

(104)(104)Cash Tax Charge

144122Actual Interest2425Interest Adjusted

(10)(9)Corporate recharges and other574492IFRS Operating Profit

00Pensions Deficit Revenue

(177)(130)Depreciation Adjustment

Capital Structure Adjustment(128)(129)Current Tax Charge

Less Cash Tax373344Regulatory Operating Profit

2006/072005/06Electricity Transmission

Source: NGET Stat accounts and National Grid estimates

UK Gas transmission and distribution returnDetailed Calculation

(1)(2)(4)Environmental charge

5.5%6.3%6.4%Real Vanilla Return60%60%60%Notional Gearing

8,5918,1527,969Total RV666448GAS SO RAV

259261256Accounting depreciation

Regulatory vs Accounting Capex

2,7592,4882,424GAS TO RAV

3(40)(68)Cash Tax Charge468514513Vanilla Return

5,7665,6005,498Gas Distribution RAV


Depreciation666723733IFRS Operating Profit (adjusted)

(321)(305)(290)Regulatory depreciation

Less Cash Tax

000Non Operational capex(117)(104)(97)Ofgem replacement expenditure – REPEX (50%)

365439Interest Adjusted177308

(107)

58100

(118)(21)

(34)

45692

2004/05

332315Ofgem assumed Interest211135Actual Interest

(33)(94)Current Tax ChargeCapital Structure Adjustment

(19)(8)Corporate Centre recharges and other686733IFRS Operating Profit – statutory accounts

(21)(21)Capitalised contributions released

(62)(44)Depreciation Adjustment

465554Regulatory Operating Profit00Pensions Deficit Revenue00Pensions

(138)(125)Total Repex adjustment

2006/072005/06Gas Transmission and Distribution

Source: National Grid Gas Regulatory accounts and National Grid estimatesNote: only 4 DNs in 2004/5 and 2005/6

UK Gas transmission returnDetailed Calculation

7.6%Real Vanilla Return60%Notional Gearing

2,825Total RV66GAS SO RAV



2,759GAS TO RAV

(35)Cash Tax Charge216Vanilla Return

0Gas Distribution RAV


Depreciation273IFRS Operation Profit (adjusted)

(114)Regulatory depreciation

Less Cash Tax

0Non Operational capex0Ofgem replacement expenditure – REPEX (50%)

15Interest Adjusted


(50)Current Tax ChargeCapital Structure Adjustment

(5)Corporate Centre recharges and other277IFRS Operating Profit

0Capitalised contributions released

(22)Depreciation Adjustment

251Regulatory Operating Profit0Pensions Deficit Revenue0Pensions0Total Repex adjustment

2006/07Gas Transmission

Source: National Grid estimates

UK Gas distribution returnDetailed Calculation

4.4%Real Vanilla Return60%Notional Gearing

5,766Total RV0GAS SO RAV



0GAS TO RAV

37Cash Tax Charge252Vanilla Return

5,766Gas Distribution RAV


Depreciation393IFRS Operation Profit (adjusted)

(207)Regulatory depreciation

Less Cash Tax

0Non Operational capex(117)Ofgem replacement expenditure – REPEX (50%)

20Interest Adjusted


17Current Tax ChargeCapital Structure Adjustment

(16)Corporate Centre recharges and other409IFRS Operating Profit

(21)Capitalised contributions released

(40)Depreciation Adjustment

215Regulatory Operating Profit0Pensions Deficit Revenue0Pensions

(138)Total Repex adjustment

2006/07Gas distribution

Source: National Grid estimates

Financial Performance – Regulated BusinessesNiagara Mohawk

Source: Niagara Mohawk report of earnings filings* In $ms

10.5%293

28

18

46

9.48%265

2,797

6,041

Oct 04

7065Earned savings (pre tax)

2725Tax

4340Earned savings (post tax)

2,9722,941Common equity

6,2966,232Rate base

245285Net income – excluding earned savings

8.24%9.70%Regulatory RoE (excluding earned savings)

9.6%11.0%Regulatory RoE (including earned savings)288325Net income – including earned savings

Oct 06Oct 05NIMO – combined*

Financial Performance – Regulated BusinessesMassachusetts Distribution

Source: Massachusetts Electric Company annual regulatory returns filing* In $ms

154180176Pre tax operating income

12.6%

78-5

-53

136

-40

6171,218

Dec 04

-32-42Imputed interest @ capital structure

122138Imputed taxable income

-48-54Tax rate @ 39.23%

1,3181,269Rate base

10.5%12.3%Regulatory RoE

667642Common equity @ 50.6%

7079Net income-4-5Imputed preferred dividend

Dec 06Dec 05Massachusetts Distribution*

Financial Performance – Regulated BusinessesNew England Power

Source: FERC Form 1 and National Grid estimates* In $ms

12.8%9.5%12.4%Regulatory RoE10.30%

89

712

Mar 04/05760790Common equity

9775Net income

10.90%10.60%Allowed RoE

Mar 06/07Mar 05/06New England Power*

NG Prelim Results Presentation FINAL PRINT (returns updated)/media/Files/N/... · £480m £527m 2006 2007 Gas distribution Operating profit Impact of warm weather and higher prices

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