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National Grid: H1 results
National Grid reported a 6% increase in operating profits for the half year to September 2005 driven by a strong performance in UK gas distribution. Operating profit from the continuing UK gas distribution business rose 21% at £94m, mainly due to cost control, with operating expenditure (excluding shrinkage) reduced by £19m.
A better overall operational performance driven by volume growth in the US, favourable results from UK capacity auctions and favourable weather conditions was offset by higher energy costs, higher UK taxes and a weaker US dollar.
Operating profit increased by 7% (excluding the impact of exchange rate changes) to £1,091m and pre-tax profits rose11% to £776m for the half year. The weaker US dollar is estimated to have reduced operating profit by £13m. The disposal of parts of the network (four UK gas distribution networks were sold for £5.8bn in cash in June) enabled the company to pare down debt resulting in a 5% decline in net finance costs (from £334m to £317m). Net debt stood at £11.1bn compared with £14bn at the start of the year.
Cashflows were healthy with operating cash flow from continuing operations up 32% to £1.3bn.
The company says future growth is dependent on further efficiency gains, volume growth in the US and the returns on planned investment in its current businesses. The Group’s total annual investment is projected to grow from £1.5bn to £2bn in the current year and remain at that level in the medium term.
Prospects look good, the share trades at 550p, on a prospective PE (2006 earnings) of 11.8x within the sector range with a yield of 4.9%.
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