National Grid revenue and profits power ahead

UTILITY National Grid has announced a 7% rise in its annual operating profit, with pre-tax profits increasing 12%.

The Warwickshire based power supplier reported an operating profit of £3.121bn in the year ending March, compared with £2.915bn in the previous year.

Pre-tax profit rose to £1.974bn, which compares with £1.770bn in 2009.

Earnings grew 13% to £1.418bn, compared with 2009’s £1.250bn and earnings per share rose 14% to 57.4p.

Net debt was reduced to £22.1bn at the end of March, which compares with £22.7bn at the same period last year. The company said this reflected the weakeness of the US dollar during the year.

Steve Holliday, National Grid chief executive, said: “We have delivered another year of strong operational and financial performance.  Our pre-tax profit increased by 12%, earnings per share increased by 14% and we are recommending an 8% increase in our full year dividend. 

“I am particularly pleased with our reliability performance in the UK and US.  We are delivering improvements in customer satisfaction in all of our businesses.”

He said the company was also making progress in its priority areas: ensuring appropriate regulatory arrangements, delivering investments and making further efficiencies. 

Mr Holliday said the run rate of synergy savings from KeySpan had now exceeded $150m.
 
“These excellent results clearly demonstrate that National Grid’s strategy continues to deliver.  Our performance in the first weeks of 2010/11 is encouraging and we are confident that this will be another year of growth,” he added.

The company also used today’s final results to announce a massive share placing. The intention is to raise around £3.2bn to fund future investment.

“We believe the rights issue will give us the scope and appropriate financial flexibility to deliver the group’s strategy,” said Mr Holliday.

The company has tried to make the rights issue as attractive as possible with the price announced representing a 43.7% discount on yesterday’s closing price.

The board is hopeful the issue will allow it to fund significant UK capital investment, which is forecast to total approximately £22bn over the next five years.

The additional financing will also protect the company’s single A credit ratings for its UK operating companies and strengthen its long-term competitive position.

“We are confident about the requirement for a step-up in UK investment. We have sized this rights issue at £3.2bn to ensure we will have the financial flexibility to meet our investment needs over the coming years, whilst maintaining our current single A credit ratings,” added Mr Holliday.

The rights issue is being underwritten by Morgan Stanley Securities, BofA Merrill Lynch and Deutsche Bank’s London branch.

In November 2006, National Grid set out its strategy to focus primarily on the transmission and distribution of electricity and gas in its chosen markets of the UK and United States.

It said it believed this strategy had maximised shareholder value by investing in organic growth, by continuing to deliver operating efficiencies and by maintaining an efficient capital structure.

Over the last five years, National Grid has invested over £14bn delivering a significant increase to its asset base.

The investment programme has been financed from internally generated cash flow and through the issue of debt – which it said demonstrated the strength of its business model.

Over the same period National Grid has returned more than £4bn of capital to shareholders, and increased the ordinary dividend by 62%.

“We believe our disciplined approach to investment delivers attractive, predictable and sustainable returns to investors,” it said.

In the UK, the focus is on investment to replace ageing assets and on major infrastructure reinforcement. In the US it is restoring baseline business performance by implementing new rate plans, strengthening its regulatory relationships and improving operating efficiency.

Consistent with this focus, it said its US investment strategy would be driven by its ability to earn long-term acceptable returns.
 
“National Grid’s core strategy remains unchanged as we position the group to respond to the ongoing developments in the UK energy landscape,” it said.

In outlook, it said it expected to see continued growth in 2010/11 across all our businesses. 

“We expect our financing costs in 2010/11 to continue to benefit from current low interest rates, although the pick up in inflation will impact index linked debt.  Our tax rate is expected to return to previous higher levels. 

“In 2010/11 we plan to invest around £3.9bn including joint ventures, supported by our current rate plans and long term contracts,”it said. 

It said it also believed the rights issue would give it the scope and appropriate financial flexibility to deliver its long-term strategy.