National Grid profits steady as it makes ‘significant progress’ on gas network spin-off

National Grid profits remained largely steady in the six months to the end of September, as it made “significant progress” on the spin-off of its gas distribution business.

Adjusted operating profits were up 1 per cent in the first half of the financial year at £1,851 million, while adjusted pre-tax profits were down by 1 per cent when compared to the same period last year at £1,359 million.

However, the figures benefitted from the timing of transactions and the movements in exchanges rates, which boosted its adjusted operating profits by £135 million and £43 million respectively. The earnings were down by 6 per cent once the timings of transactions were taken into account and by 9 per cent when also reported on a constant currency basis.

The regulated business in the UK accounted for £1,259 million of the group’s adjusted operating profits. Earnings from the UK electricity transmission division were up by 14 per cent at £697 million, while profits from the gas distribution division were down 6 per cent at £403 million and profits from the gas transmission division were unchanged at £159 million.

Earnings from the group’s ‘other activities’ were down by 45 per cent at £157 million. National Grid said this was mainly due to decreased revenues from its interconnector between France and the UK, which returned to “more normal levels of profitability” following bumper earnings last year.

The group’s unadjusted pre-tax profits were down 64 per cent at £485 million. Among the adjustments was a £0.7 billion write-down relating to the refinancing of its regulated divisions in the UK after the group bought back “higher cost” sterling bonds with a face value of £1.9 billion at a “fair market value of £2.8 billion”. It also issued a new £3 billion sterling bond as its “successfully undertook significant debt financing” to “support the sale” of its gas distribution division.

The firm said “significant progress” has been made in separating off the business from the rest of the group and noted the transfer of the gas distribution transporter licence to National Grid Gas Distribution Limited on 1 October. The sale, which was announced in November last year, is still on track to be completed in early 2017.

Funding for the new entity is “substantially complete” and it is expected to be leveraged at 65 per cent “in line with the regulatory assumption”. “Overall, the liability management exercise is value positive for the group, with the new lower cost debt expected to be reflected in the valuation for the gas distribution business”, National Grid added.  

Despite making significantly lower profits from its US businesses (adjusted operating profit: £435 million) the group actually invested more in its stateside activities (£1,039 million) over the six-month period than in the UK (£970 million). 

Chief executive John Pettigrew said: “We have delivered good results and made significant progress on key priorities while continuing to deliver a safe and reliable service to our customers in the UK and the US. First half earnings per share were in line with a strong prior year, with our regulated businesses delivering a solid performance.”

He continued: “In the UK the proposed sale of our gas distribution business is on track with separation activity in the final stages. Looking further out we are focused on evolving National Grid to enable us to play a leading role in shaping the future of energy networks.”

Analysts from banking firm Citi commented: “We do not see a material impact from today’s numbers on National Grid’s shares, although given the weak National Grid share price recently, the small beat versus consensus could provide support for the shares in the short term.”

National Grid reportedly began the process of auctioning off its gas distribution networks in August and in September it was reported that two Chinese investors were mulling bids.