National Grid Plc (NGG, NG.L), an electricity and gas distribution company with operations in the UK and U.S., reported Thursday a surge in pre-tax profit for the first half, reflecting higher one-time items as well as lower operating costs, despite a decline in revenues. Further, the company said its current performance remains in line with expectations, and that its outlook for the full year 2010 remains strong. Reflecting the positive outlook, the company's Board approved an 8% increase in the interim dividend.
Six-month total pre-tax profit climbed 67% to GBP 944 million from GBP 564 million in the prior year period. The latest first-half results included exceptional items, remeasurements and stranded cost recoveries of GBP 295 million, compared to prior year's GBP 6 million. Excluding items, pre-tax profit for the six months rose 16% to GBP 649 million from GBP 558 million a year ago.
On an after-tax basis, profit for the period attributable to equity shareholders of the parent increased to GBP 696 million from GBP 423 million in the year-ago period. Earnings per share were 28.1 pence, up from 16.7 pence in the previous year.
Excluding prior year's discontinued operations, profit increased 71% to GBP 696 million or 28.1 pence per share from last year's GBP 406 million or 16.1 pence per share.
Exceptional items, remeasurements and stranded cost recoveries after taxation were GBP 142 million in the period, compared to loss of GBP 25 million a year ago.
Adjusted earnings from continuing operations grew 29% to GBP 554 million or 22.4 pence per share from GBP 431 million or 17.1 pence per share in the previous year.
National Grid said it has made a very good start to what is expected to be a strong financial year, despite the prevailing economic conditions, which have marginally affected the company's distribution businesses particularly in the US.
First-half revenues, meanwhile, fell to GBP 6.04 billion from GBP 6.07 billion in the previous year. In UK, revenues grew to GBP 2.695 billion from prior year's GBP 2.666 billion, while US revenues fell to GBP 3.349 billion from GBP 3.406 billion a year ago.
Operating profit climbed 49% to GBP 1.40 billion from GBP 943 million last year, and adjusted operating profit was GBP 1.15 billion, up 6% from GBP 1.08 billion a year earlier, primarily driven by good results in its Transmission and Electricity Distribution and Generation businesses, partially offset by timing related items in US Gas Distribution business.
The company noted that the operating profit performance in the first half reflected the expected seasonality in its US businesses.
Operating costs in the first half fell to GBP 4.65 billion from GBP 5.16 billion in the same period last year.
Segment-wise, Transmission Operations generated first-half revenues and other operating income of GBP 1.83 billion, down 8% from last year's GBP 1.98 billion, while operating profit grew 8% year-over-year to GBP 637 million.
Revenue and other operating income from Gas Distribution operations dropped 5% to GBP 1.77 billion from prior year's GBP 1.86 billion, and operating profit decreased 8% to GBP 253 million.
Electricity Distribution and Generation's first-half revenue and other operating income was GBP 1.95 billion, up 5% from GBP 1.85 billion a year ago, and operating profit climbed 31% to GBP 169 million.
During the period, non-regulated and other activities generated revenue and other operating income of GBP 382 million, 7% higher than last year, and the segmental operating profit grew 6% to GBP 90 million.
Commenting on the results, Steve Holliday, chief executive, said, "We have made good operational and financial progress against our priorities for this year and have delivered a very strong financial performance in the first half. Our pre-tax profits were up 16%, supported by lower financing costs, delivering higher operating cash flows. We have now filed or implemented new rate plans for over 60% of our US rate base and are on track to deliver this year's investment programme of £3.4bn, financed through internal cash flows and borrowings."
Looking ahead, National Grid said its current performance remains in line with expectations, and that it is well positioned to deliver another year of strong performance.
In an interview, Holliday said, "The outlook for the full year remains strong. We've set our interest bill for the full year. So we'll see those benefits for the full year. We've got some rate filings in the US that will come in the last quarter. And our businesses will continue to perform in line with our expectations."
The company continues to expect a strong performance from Transmission, and Electricity Distribution and Generation businesses. Further, Gas Distribution business is projected to benefit from increases in net revenues under the company's UK and US rate plans, but will be impacted by negative timing differences, resulting in lower segmental operating profit.
Holliday added, "As we look to the future our focused strategy is being confirmed by the changing energy landscape, which creates a number of organic growth opportunities for National Grid. With the right regulatory frameworks this will create significant value for our shareholders."
Further, National Grid said its Board of directors, reflecting the positive outlook for the year, approved an 8% increase in the interim dividend to 13.65 pence per ordinary share, or US$1.1480 per American Depositary Share, in line with its long term policy. The interim dividend is to be paid on January 20, 2010 to shareholders on the register as at December 4, 2009.
NGG closed Wednesday's regular trading session at $53.88, down $0.11 or 0.20%, on a volume of 84,430 shares. In the past 52 weeks, shares have been trading in a range of $36.64 to $54.39.
On the London Stock Exchange, NG.L is currently trading at 643.00 pence, up 3.00 pence or 0.47%, on a volume of 1.6 million shares.
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