As you may be aware, Chris Hampson retires as a Non- Executive director from the close of these meetings. On behalf of all of the members of the Board I would like to thank him for his valued contribution and support during my time as Chairman of Lattice and also as a former Non-executive Director colleague at BG Group.

Let me now turn to the highlights of the past year or more and the prospects for the future, including our proposed merger of equals with National Grid.

Recent financial scandals, mainly in the United States, have led to widespread concerns about corporate governance and the transparency and integrity of company reporting.

There may be only a few rotten apples, but the overall effect is far more damaging because trust in the financial and commercial integrity of business is the essential basis for our complex, modern economies with their countless inter-dependencies.

Your Board take their responsibilities in this regard very seriously indeed. As providers of essential national infrastructure impacting on the economy, and the well-being and safety of people across the country, we have long been committed to the highest standards of openness and consistency in accounting for our actions, decisions and performance standards.

Indeed, to provide greater transparency and comparability for Transco's performance, we have moved the financial year-end to 31 March, which is why this year's AGM is taking place in July and covering the past 15 months. It is why we are amongst the leaders in providing extensive coverage of the Group's occupational health, safety and environmental performance and other aspects of corporate social responsibility in the expanded 'How we do business' section of the Annual Report. Equally, we want to be at the forefront of good practice in focusing on the report of the Remuneration Committee, and putting it to the vote later in the AGM.

Transco's RPI-X form of price regulation is a tough discipline, setting ever more demanding performance targets, but one of the virtues of this system from the point of view of all our stakeholders is that it requires transparency and financial integrity - what you see is always what you get; and, although hard-won, Transco's cash generation provides a very solid underpinning of the Group's commitments to its shareholders, providers of debt and other stakeholders.

This is reflected in the performance of Lattice shares since the demerger which created the Group in October 2000. Since then, our shares have outperformed the FTSE 100 index by over 50 per cent, currently standing over 50 per cent above it.

On that note, I will highlight four key aspects of the current Annual Report to Lattice shareholders :

• first, our continued success in maintaining the drive for performance, delivery and higher service standards - above all, those relating to safety;
• second, Transco's new five-year regulatory settlement which began this April;
• third, our innovative achievements as a responsible corporate citizen;
• and finally, the proposed merger of equals with National Grid and its prospective benefits.

First then, the Group-wide drive for delivery and performance improvement.

I stress that the improvement has been Group-wide, but nothing is more important than the safety, reliability and efficiency with which Transco provides the essential infrastructure for Britain's steadily growing gas industry - incidentally, the third largest gas market in the world, and the source of more than 40% of the country's primary energy.

Transco fulfilled its established mains replacement programme, taking over 2,300km of old iron gas mains out of use over the 15 months. Last September, the Health and Safety Executive laid down the requirement for an accelerated programme to replace all remaining iron mains within 30 metres of buildings, and Ofgem undertook to ensure that Transco would have sufficient resources to
deliver it efficiently. Under this, some 91,000 km of iron mains will be replaced over the next 30 years. To put this figure in context, 91,000 km is more than twice the circumference of the earth. Over the 5 years of its current regulatory cycle, Transco is aiming to exceed the target outputs from the £1.5 billion programme through improved network planning and long-term fixed price contracts.

During the past 15 months, all the emergency service standards set by our regulators were exceeded. Transco's gas emergency service attended to 1.67 million gas escapes. 98% of those still leaking were attended within one hour, and 99% of controlled gas escapes within two hours.

Transco is already achieving leading standards for its management of safety when tested against external benchmarks. Following a 34% reduction in the frequency of Lost Time injuries to employees in 2000, it delivered a further 25% reduction for 2001.

We continue to drive for improvement in consumer service standards. In the 15-month period, we answered over 8 million calls at Transco's Call Centres, 96% within 30 seconds. Results from an independent survey showed that 94% of people reporting a gas escape were either satisfied or very satisfied with the handling of their call.

Transco goes on improving its services to its gas shipper customers, exceeding the performance standards for 2001.

We continue to expand the network. During the past 15 months, over 250 km of major transmission pipelines were laid in 7 projects from Scotland and North West England to South Wales and East Anglia. We invested £170 million in the medium and low pressure system, connecting an additional 182,000 domestic and 16,000 non-domestic properties to the network.

My second highlight is the settlement with our economic regulator, Ofgem, for Transco's next 5-year regulatory cycle, and the restructuring needed to deliver it.

Last October's settlement is challenging, requiring Transco to achieve high levels of performance improvement and cost savings against a background of increasing public concern for safety and for the security of energy supplies.

Tough as the new targets are, we are confident that Transco's restructuring and other improvements will enable us to exceed them while maintaining the drive for continuous improvement in safety, reliability and service standards.

Most importantly, the settlement confirms Transco's Regulatory Value at some £13 billion and provides assurance on the future value of transportation assets on which Transco is entitled to earn a regulatory return. With Transco committed to invest at record levels over the next 5 years, its Regulatory Value after
depreciation and inflation is expected to grow to some £15 billion by 2007.

Transco's extensive restructuring programme has led to the creation of 9 network management businesses - one for National Transmission and Trading and eight
regional networks. We will retain all the benefits of focussed asset management, while greatly streamlining the overall framework of control and countrywide support activities, and ensuring overall consistency and operational integrity.

Regrettably, Transco's restructuring means job losses, mainly in management and staff grades. By the end of 2003, Transco will have nearly 2,400 fewer direct employees than in 2001. Wherever possible, the necessary manpower reductions are being achieved voluntarily and always with full consultation. On the other hand, we expect Transco's record levels of capital and replacement expenditure to create 3000 additional jobs with our contractors.

Next, let me turn to our achievements as a responsible corporate citizen.

As the provider of Britain's gas infrastructure, we recognise that the basis for value creation must be not just the integrity of our operations and the financial and commercial arrangements underpinning them, but also our performance in the field of corporate social responsibility.

Over the last 15 months, our achievements in this latter area have won increasing recognition. We came first in the pipeline subgroup of the 2001 Dow Jones Sustainability Index. We also achieved a listing in the new FTSE4Good Index and were rated joint first in the Business in the Environment index of Corporate Environmental Engagement.

Intelligent corporate citizenship is the driving force behind our commitment to playing a leading and innovative role in delivering both shareholder value and social value. This is spearheaded through the Lattice Foundation and through schemes such as Transco's Affordable Warmth programme - a key element in the Government's strategy for tackling fuel poverty.

Examples of some of the work of the Foundation featured in the video shown just before we started. Last year, three of the Foundation's flagship projects: Lattice CRED, Transco Green Futures and an innovative scheme in partnership with Reading Young Offenders Institution, received the prestigious awards from Business in the Community.

I am conscious that time is pressing, so, if you would like more information on the achievements of the Lattice Foundation, please take a brochure from the information desk outside this hall.

The last of my four highlights, the proposed merger with National Grid, is the subject of the Court Meeting and Extraordinary General Meeting later this afternoon.

The Board's acceptance of Transco's new price control, our confidence in Transco's plans to exceed its new regulatory targets, and the good progress made to date, have paved the way for this proposed merger of equals, which was announced 3 months ago.

The merger will create a leading international energy delivery company. It will bring together a unique combination of skills, experience and resources to create an enhanced operational and financial platform. This will enable significant value to be created for our shareholders through the pursuit of future growth opportunities in liberalising energy markets - notably those in the United States, and potentially Europe. The Merged Group will also be capable of delivering an improved service to our customers, while offering better
opportunities to our employees.

Lattice and National Grid have already obtained the majority of the required consents from the UK Government. Ofgem has advised the Office of Fair Trading that there are no competition issues meriting a reference to the Competition Commission, and on 2 July, clearance of the merger from the Secretary of State for Trade and Industry was obtained. Patricia Hewitt has also given her consent to the transaction in her capacity as holder of the Lattice special share.

As National Grid is a registered holding company under the US Public Utility Holding Company Act, certain regulatory approvals are also required in the US, including by the US Securities and Exchange Commission. At present, we still await these clearances, as well as agreement with Ofgem on any licence modifications or changes to the Articles of National Grid Transco which may be required.

A further requirement is that the merger of equals is approved by you - our shareholders - and so, today, we are seeking your approval of this merger and related matters. To this end, our Annual General Meeting will be immediately followed by a meeting, convened by the court and described as the Lattice Court Meeting, the purpose of which is to approve the Scheme of Arrangement by which the merger will be carried out. This will establish National Grid as the new parent company of Lattice Group plc. This will, in turn, be followed by an Extraordinary General Meeting which will seek your approval of a resolution to implement the Scheme and amend Lattice's articles.

Many recent transactions in the UK energy sector have involved overseas companies buying into the liberalised UK energy sector. In contrast, this is a merger of two major UK-based companies, each highly regarded for their unique technical and commercial capabilities at the heart of Britain's gas and electricity industries.

National Grid Transco will be the UK's largest utility company, the third largest in Europe, and one of the ten largest in the world with a market capitalisation of around £14 billion.

As a National Grid Transco shareholder, you will benefit from enhanced earnings per share (before exceptional items) in the first full financial year following completion of the merger; and from a progressive dividend policy. Here, the merged Group intends to adopt National Grid's existing dividend policy of aiming to increase dividends per share by 5% per annum in real terms for each year to 31.