London-based National Grid Group plc aims to build on its US electricity businesses and forecasts 5 per cent growth over the next five years, according to a statement issued with preliminary annual results today. The power and telecommunications group announced profits of £481.3 million – in line with analyst’s expectations.
National Grid already has extensive interests in the Northeast US. Contributions from New England Electric System and Eastern Utilities Associates, helped lift operating profits by 34 per cent to £732 million on turnover up from £1.6 bn to £3.8 bn. The company intends to complete the acquisition of New York State power company Niagara Mohawk by the end of this year, subject to regulatory approval. This will give National Grid a major presence in a region anticipating high electricity demand and pressure on the transmission and distribution system.
Group Chairman, James Ross predicted further growth this year along with improved quality of earnings through diversity and regulatory stability. “As a result, the Board has had no hesitation in confirming its target to raise dividends by 5 per cent in real terms each year for a further five years.” said Ross,
The focus of National Grid is now clearly outside of the UK. “A year ago, less than 3 per cent of National Grid’s electricity operating profits came from outside the UK,” said Ross. “Now it is 36 per cent, almost all from the US, where we are demonstrating our ability to secure higher returns and substantially greater regulatory certainty. This proportion is set to increase to some 60 per cent when our acquisition of Niagara Mohawk completes.”
An exceptional profit was reported arising from the reduction in the group’s interest in Energis – the telecommunications company. New group Chief Executive, Roger Urwin said, “Our financial results give us the flexibility to increase the cash element of the consideration for Niagara Mohawk from one third to at least 50 per cent”. He added, “Looking further ahead in the US, we see opportunities for more efficient management of transmission networks both within and beyond the northeast region.”
Profits from electricity activities masked worsening losses in worldwide telecoms ventures. National Grid has increased investment in this sector and believes that significant long-term potential exits in its portfolio.
Operating profits from UK interconnectors were down £3.8 million to £42.8 million reflecting reduced payments under a contract with EdF in France. This long-term contract has been replaced by a series of three-yearly, annual and daily auctions of interconnector capacity. Income is anticipated to reduce further under these new arrangements.
National Grid was formed as part of the deregulation and privatisation process that the UK began in 1989. The company now employs 3800 people and is responsible for the high voltage electricity transmission network in England and Wales.
In a separate announcement yesterday, National Grid invited bids for the construction of the world’s longest sub-sea electricity interconnector to run between the northeast and Norway. The joint venture with Statnett, the Norwegian state-owned grid operator is due to be started in 2002 at a cost of £400-500 million. The interconnector will have a capacity of 800-1300 MW and will be laid as a single cable. Chris Spencer, head of National Grid’s interconnector business said, “The two-way transfers between Britain and Norway should reduce peak prices in the UK and provide additional energy security for Norway.”
Dividends per share were increased 8.2 per cent to 15.08p reflecting the board’s confidence in the future financial strength and prospects.