Having been slightly shocked in May when National Grid announced , investors approached these interim results eager to discern that the cash was being put to good use. Management had previously explained that the capital would be invested in a £22bn five-year programme to help the UK government meet decarbonisation targets and to ensure security of supply to consumers.
So far this year, around £1.7bn has been spent, of which £1.1bn was in the UK, predominantly on transmission upgrades. The investment programme is being spearheaded by renewable energy after 5.9GW of new connections to the grid were signed for offshore windpower and 700MW for onshore. New generation sources accounted for 13.2GW of the total 28.7GW of new contracts signed. In addition to investment, proceeds of the rights issue helped reduce net debt by £2.9bn. But this didn’t stop net finance costs jumping by £70m to £574m as inflation affected the group’s index-linked debt, while £900m of cash was used to buy back debt securities and repay bank loans early.
Overall group operating profits were up 31 per cent to £1.51bn, driven by a doubling of profits in electricity distribution and generation to £360m. The sharp in increase in the division's profits was helped by the timing of certain revenues, the summer’s hot weather in the US and the outcome of two electricity charging cases in the US. Gas distribution profits also rose around 30 per cent, mainly due to a reversal of last year's under-recovery, lower bad debts and operating costs. Meanwhile, profits from the larger transmission business increased 13 per cent to £724m as the group changed its billing profile and experienced higher demand.
Stripping out exceptional items, group pre-tax profits increased 45 per cent to £938m. But finance director Steve Lucas noted that £200m of this was timing related and would not be repeated. Mr Lucas will retire from the group in December after 10 years in the role, and handed over to Andrew Bonfield earlier this month.
Investec Securities forecasts full-year adjusted pre-tax profits of £2.19bn and EPS of 45.7p (2010: £1.97bn, 49.7p).
National Grid (NG.) | ||||
|---|---|---|---|---|
| ORD PRICE: | 574p | MARKET VALUE: | £20.0bn | |
| TOUCH: | 574-575p | 12-MONTH HIGH: | 616p | LOW: 475p |
| DIVIDEND YIELD: | 6.9% | PE RATIO: | 12 | |
| NET ASSET VALUE: | 197p | NET DEBT: | £19.2bn | |
| Half-year to 30 Sep | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2009 | 6.04 | 944 | 24.4** | 11.9** |
| 2010 | 6.41 | 971 | 23.5 | 12.9 |
| % change | +6 | +3 | -4 | +8 |
Ex-div: 1 Dec Payment: 19 Jan *Includes intangible assets of £5.38bn, or 154p a share. **Adjusted for the rights issue in May 2010 | ||||
