Financial highlights

Commenting, James Ross, Chairman, said:

"National Grid's core electricity businesses are continuing to perform well and to deliver on our strategy, producing good growth in operating profit and strong cash flows.

"We have completed the review of our Latin American telecoms businesses. In Brazil, despite Intelig making good operational progress, finalisation of long term vendor financing has not proved possible. The general economic conditions in the region are also clearly not helpful, particularly for Silica Networks in Argentina. In view of this, we and our partners are seeking new strategic investors for Intelig and are pursuing a sale of Silica. In the meantime, we have taken a conservative view and have fully written-down the carrying value of our Latin American telecom investments.

"In the US we have filed a comprehensive rate settlement for Niagara Mohawk which provides benefits for both customers and shareholders. We expect to complete the acquisition early in the next calendar year and intend to fund 50 per cent of the acquisition cost with cash.

"With the acquisition of Niagara Mohawk, our total investment in the US since early 2000 will rise to some £9 billion. We are confident of earning a nominal pre-tax return of 10.5 per cent on our US business by March 2005, a level materially higher than we are expected to earn in the UK and accompanied by substantially longer term regulatory agreements.

The businesses continue to perform well and are on track to meet our expectations for the year. With the completion of the acquisition of Niagara Mohawk, our enlarged Group will be well-positioned to deliver growing earnings and cashflow that support our progressive dividend policy."

Unless otherwise indicated, profit numbers are stated before exceptional items and goodwill amortisation

GROUP RESULTS

Operating profit was up 6 per cent to £385 million in the first half, resulting from improved performance by the US distribution and transmission businesses and Intelig, partly offset by the expected reductions in stranded cost recovery and interconnectors.

Net interest increased £52 million to £153 million, mainly reflecting Intelig's higher interest costs (up £32 million), due to interest paid on vendor financing and exchange rate impacts on Intelig's US dollar-denominated debt. The first half of the last financial year included a £17 million benefit relating to closing out fixed interest rate swaps. Interest cover, excluding exceptionals, goodwill amortisation and the impact of exchangeable bonds, was 3.0 times.

Reflecting the increase in interest charges, profit before tax was £232 million, down from £261 million for the same period last year.

The tax charge for the period, including deferred tax and excluding exceptional items, was £24 million as compared to £92 million in the same period last year. The reduction reflects the adjustment to the prior period associated with the implementation of full provisioning for deferred tax (UK Financial Reporting Standard 19, "Deferred Tax") and the release of prior year tax provisions in this period. We estimate that the effective tax rate for the year ending 31 March 2002 will be 26 per cent, before exceptional items but after the release of prior year tax provisions.

Profit after tax and minority interests was £206 million, up from £166 million for the same period last year, with basic earnings per share rising 24 per cent to 13.9 pence.

Net after tax exceptional charges for the period were £282 million. These charges were largely the result of a £290 million charge taken to write down fully the carrying value of our Latin American telecoms investments and provide for all expected liabilities.

The Board has declared an interim dividend of 6.46 pence per share to be paid on 15 January 2002 to shareholders on the register at 30 November 2001. This is an increase of 6.8 per cent (5 per cent real) over the interim dividend last year, in line with our dividend policy.

ELECTRICITY

All of National Grid's electricity businesses performed in line with expectations.

In the UK, price-controlled turnover of £434 million was up 1 per cent from the same period last year reflecting the effect of the new price control regime which commenced on 1 April this year. Controllable costs have been reduced by 3 per cent in real terms over last year, and we remain confident of exceeding Ofgem's expectations of cost reductions over the period of the price control.

The implementation of the New Electricity Trading Arrangements (NETA) has been very successful. Our performance under the new Balancing Services Incentive Scheme (BSIS) is satisfactory with a £9 million contribution to operating profit for the first half of the year, approximately the same as the first half performance last year under the Transmission Services Scheme (TSS). Performance for the full year is difficult to predict and will depend upon the impact of the winter months on the balancing market.

Overall operating profit for the UK transmission business was £243 million, similar to the first six months of last year.

In line with our expectations, UK interconnector turnover was down 35 per cent to £28 million, due to the introduction of capacity auctions for the French interconnector for which there has been lower demand partially driven by reduced UK wholesale prices. Operating profit was £7 million, down from £23 million in the first six months of last year.

As well as providing core expertise and strong cashflow, the performance of our UK business strengthens the platform from which we are seeking opportunities among the evolving Regional Transmission Organisations (RTOs) in the US. Earlier this month we signed definitive agreements with the Alliance RTO to act as its managing member, which are being considered by the Federal Energy Regulatory Commission.

In the US, distribution operating profit was up 14 per cent to £83 million, reflecting higher deliveries and reduced controllable costs. Warm summer weather this year, combined with cool weather last year, resulted in distribution volumes up 3.7 per cent. We estimate the underlying volume growth to be up just over 1 per cent. Controllable costs are down 2 per cent in real terms on an annualised basis. We remain confident of meeting our target of a 30 per cent reduction in controllable costs by March 2004.

Contribution from US stranded cost recovery fell by 36 percent to £25 million, principally due to a one-off benefit of £12 million in the same period last year.

In the US, the nominal pre-tax return on investment for the six months ended 30 September 2001 was an annualised 9.3 per cent, on track to meet our 10.5 per cent target for the existing US business by March 2004.

NIAGARA MOHAWK ACQUISITION

The acquisition of Niagara Mohawk continues to progress well. National Grid and Niagara Mohawk filed a joint rate settlement with the New York Public Service Commission on 11 October, which is awaiting approval. Niagara Mohawk completed the sale of its nuclear facilities earlier this month. Following approval by New York, we will still require approval by the Securities and Exchange Commission, which we expect to receive in time to complete the transaction early in 2002.

The proposed ten-year rate plan offers immediate reductions of delivery rates for all customers, averaging 8 per cent, and freezes delivery charges going forward. It also provides attractive shareholder benefits through substantial incentives to reduce costs while improving service. Our integration planning for the acquisition is well advanced. We expect to meet the $190 million cost reduction target contained in the rate plan by the fourth year following completion, achieving half of the savings by the end of next financial year. As a result, we expect the acquisition to enhance earnings per share before exceptional items and after goodwill amortisation in the first full year and are confident that we will meet our additional objective of earning a nominal pre-tax return of 10.5 per cent on our expanded US business by the year ending March 2005.

Prior to completion, Niagara Mohawk shareholders will have the opportunity to make elections for cash or National Grid shares or a combination of both. We will fund 50 per cent of the acquisition cost with cash, subject to receipt of sufficient shareholder elections.

TELECOMS

We have completed the review of our Latin American telecom businesses that we announced in our trading statement on 4 October.

Intelig has continued to meet overall revenue and EBITDA targets with our share of operating loss for the period reduced to £22 million from £70 million for the same period last year. Intelig's performance satisfied the pre-conditions to completing permanent vendor financing, but the vendors have not provided the permanent financing facility.

As a consequence, the shareholders of Intelig (National Grid, Sprint, and France Telecom) have appointed advisors to seek new strategic investors. In the meantime, Intelig continues to be funded by the interim vendor financing, which has been rolled over, together with limited additional funds from shareholders and vendors.

Silica Networks, a carriers' carrier operating primarily in Argentina, has been affected by the general telecoms market downturn and the severe economic difficulties in that country. As a result, we and the other shareholders have cut costs, suspended further investment and are seeking a purchaser for the business.

Manquehue net, our joint venture with Williams and MetroGas in Santiago, Chile, has been impacted by the local economic downturn. Again, strong management action is being taken to reduce costs.

Given these difficulties, we have adopted a conservative approach with the full write down and provision for all expected liabilities totalling £290 million.

Energis, our associate, recently announced resilient first half results and reinforced its fully funded position with new bank facilities. Energis Polska, our joint venture in Poland with Energis, launched commercial operation in June 2001 and has won some significant corporate customers with its range of data and voice services.

Lastly, GridCom and NEESCom, our wholly-owned telecom businesses, continued to execute their business plans. GridCom won a significant contract with Hutchison to provide turnkey services in the UK.

Looking ahead, we continue to see telecoms as a complement to our electricity businesses but will focus on opportunities which are more closely related to our core infrastructure assets and capabilities.

OUTLOOK

The businesses continue to perform well and are on track to meet our expectations for the year. With the completion of the acquisition of Niagara Mohawk, our enlarged Group will be well-positioned to deliver growing earnings and cashflow that support our progressive dividend policy.

Presentations

An analyst presentation will be held at the City Presentation Centre, 4 Chiswell Street, London EC1Y 4UP at 9:00 am (UK time) today.

A press presentation will be held at the same address at 11:00 am (UK time) today.

Live coverage of the analyst presentation
 UK: +44 (0) 20 8515 2342 
 USA: +1 416 640 4127 

Telephone replay of the analyst presentation (available for 5 days)
 UK: +44 (0) 20 8797 2499 (pin 118188#)
 USA: +1 416 640 1917  (pin 152653#)

Website replay of the analyst presentation from around 4:00 pm (UK time) today on www.nationalgrid.com (available for 6 months)

Analyst teleconference at 3.00 pm UK time (10.00 am Eastern and 7.00 am Pacific)
 UK: +44 (0) 20 8781 0571 (quote National Grid) 
 USA: +1 303 267 1002 (quote National Grid)

Replay of the teleconference (available for 5 days)
 UK: +44 (0) 20 8288 4459 (pin 635322)
 USA: +1 303 804 1855 (pin 1340075)

Photographs are available at www.newscast.co.uk.