Preliminary results for the year ended 31 March 2005

• Good operating performance, especially in the US
  A year of significant strategic achievement
• Gas distribution network sales completion expected 1 June 2005
  Acquisition of Crown Castle UK - performance in line with expectations
• 20% increase in full year dividend
  Positive outlook for medium term growth through organic investment
  

Underlying business results exclude goodwill amortisation and exceptional items. For notes A, B and C - see REVIEW OF GROUP RESULTS below. * Statutory EPS last year included a 7.4p exceptional gain related to the Energis EPICs bond.

Sir John Parker, Chairman, said:

“Once again the Group has had a good year. This set of financial results demonstrates the strength of the Group’s strategy aimed at delivering premium returns. The business is performing well. Our safety record has improved on our already very high standards and we were pleased to be ranked 2nd in the prestigious Business in the Community’s 2004 Corporate Responsibility Index.

“Investment in our businesses, including acquisitions, has reached £3.0bn this year. Our organic and strategic investments are set to deliver further significant medium-term growth for shareholders. The process to obtain the final regulatory approvals required to complete the planned sales of four of our UK gas distribution networks is nearing completion, enabling us to return £2bn to shareholders.

"All of these achievements are to the credit of our management and employees.

“The Board is recommending a 28% increase in the final dividend, leading to a 20% increase in the full year dividend and an almost 40% increase in the last 2 years. Reflecting the Group’s financial strength and future prospects, we are also retaining our 7% per annum dividend growth target for the three years to March 2008.”

OVERVIEW

The Group’s strategy is based on driving strong operational performance, effective management of regulation and disciplined capital management. This strategy has delivered another good set of financial results, with underlying earnings per share increasing 6% since last year, resulting in a total increase of 32% since the merger of National Grid Group and Lattice Group.

Underlying operating profit on a constant currency basis was up 3%. This primarily reflected the increases in underlying operating profit from Transmission and US Distribution, and the contribution from Crown Castle UK. These factors have more than offset the expected reduction in profits from UK Gas Distribution, caused largely by the planned increase in expenditure in the iron mains replacement programme (£86m) and the year-on-year reduction in transportation prices.

The Group is making good progress towards obtaining the required regulatory approvals to complete the sales of four of its UK gas networks, which are now expected to complete on 1 June 2005. With cash proceeds of £5.8bn, the sales represent a major step in value creation. Completion will enable both a £2.0bn return of value to the Group’s shareholders and the repayment of around £2.3bn of debt.

The return of value will be by way of a B share scheme under which shareholders may opt to receive the return either as income or capital. It is planned that the Extraordinary General Meeting seeking shareholder approval for the B share scheme and the associated ordinary share capital consolidation will be held on the same day as the Annual General Meeting, 25 July 2005, with the return of value occurring during August.

REVIEW OF GROUP RESULTS

Turnover from continuing activities was £8.5bn, up £0.1bn, on a constant currency basis.

Underlying operating profit was £2,212m, up £64m from £2,148m, on a constant currency basis.

Despite the increases in interest rates during the year, the Group’s net interest expense decreased by £7m to £783m on a constant currency basis.

Underlying profit before tax was up 5% from £1,358m to £1,429m on a constant currency basis.

The tax charge on underlying profit for the year was £324m and includes a credit in respect of prior years of £30m. The effective tax rate on underlying profits before the prior year tax credit was 25% while the effective tax rate, including the credit in respect of prior years, was 23%.

The weaker US dollar reduced underlying operating profit by £65m but, the net exchange rate impact on underlying earnings, after interest, tax, and minority interests, was £21m.

Underlying earnings and underlying earnings per share were both up 6% from last year, underlying earnings to £1,106m, up from £1,039m last year, and underlying earnings per share to 35.9p, up from 33.9p last year.

There were net exceptional charges (including both operating and non-operating exceptional items) totalling £168m before tax, comprising:

• Restructuring costs of £210m (£158m after tax), primarily in UK gas distribution, relating to both planned cost reduction programmes and the gas distribution network sales process
  
• Environmental charges of £41m (£26m after tax)
  
• Gains on sales of tangible fixed assets and businesses of £83m (£82m after tax)
  

After exceptional items and goodwill amortisation, basic earnings per share were 29.5p, down from 35.0p last year, when the Group had a significant net exceptional gain arising from the settlement of the Energis-related EPICs bond, which enhanced last year’s earnings per share by 7.4p.

The Group generates strong cash flows and underlying cash flow from operations of £3.1bn was over £3bn for the third consecutive year since the completion of the merger between National Grid Group and Lattice Group.

The Group maintained its high levels of investment, with capital expenditure for the year of £1.4bn, including £187m relating to the Isle of Grain and Basslink projects. In addition, the Group invested £474m in replacement expenditure in UK gas distribution. With the Group’s acquisition of the UK operations of Crown Castle International Corp. of £1.1bn, total investment was £3.0bn for the year.

Group net debt was up £0.9bn to £13.5bn at 31 March 2005. This mainly reflects the £1.1bn acquisition of the UK operations of Crown Castle International Corp.

A final dividend of 15.2p per ordinary share ($1.3869 per American Depositary Share (ADS)) will be paid on 24 August 2005 to shareholders on the register as at 10 June 2005.

Note A: During 2004/05 the Group implemented FRS 20 (Share-based Payment). The figures for 2003/04 shown in the table have been restated for the impact of FRS 20.

Note B: “Underlying business results” represent the primary measures used by the Board and are presented before goodwill amortisation and exceptional items. The Board believes that exclusion of these items provides a better comparison of results from year to year as well as with other UK companies where it is customary to exclude goodwill amortisation. Unless otherwise stated, all financial commentaries in this announcement are on an “underlying business results” basis and are preceded by the word "underlying". Reconciliations of these measures to statutory measures are provided in the Group Profit & Loss Account, Notes 5(a) and 5(b), and the Group Cash Flow Statement.

Note C: “Constant currency basis” refers to the reporting of the actual current year results against the prior year analogous results which, in respect of any US$ currency denominated activity, have been retranslated using the average US$ exchange rate for the year ended 31 March 2005, which was $1.87 to £1.00. The average rate for the year ended 31 March 2004 was $1.68 to £1.00.

REVIEW OF OPERATIONS

TRANSMISSION

Underlying operating profit from UK electricity and gas transmission was up 7% at £809m compared with £759m last year. This reflected the beneficial timing impacts from the connections charging reform (“Plugs”) of £54m and the collection of the under-recovery of electricity transmission owner revenue of £26m. These increases were partially offset by pension deficit charges, higher by £11m, and incentive profits, lower by £16m, against the backdrop of tougher regulatory targets in both the electricity and gas system operator incentive schemes. Transmission operator controllable costs, which exclude increases in ongoing pension costs, were reduced by 1% in real terms during the year.

The British Electricity Transmission and Trading Arrangements were successfully introduced on 1 April 2005. These extend the Group’s System Operator role into Scotland. A new incentive scheme for network reliability was introduced on 1 January 2005, the initial period of which covers the 15 months through to 31 March 2006. Reliability performance since this scheme began has been encouraging.

The Group is working closely with Ofgem on the mini-review to extend the electricity transmission price control by one year to April 2007, with final proposals expected this autumn. It is anticipated that this review and the main 5-year review next year, will recognise the increased levels of investment that have already been committed and which will be necessary in the future on both asset replacement and new infrastructure. The Group also anticipates gas transmission investment rising sharply, with several major gas transmission pipelines over the next few years, reflecting required infrastructure changes as the UK increases imports of gas.

In the US, underlying operating profit from US electricity transmission was up £4m to £123m on a constant currency basis. This was primarily due to reduced costs.

The Group continues to support the recently created New England regional transmission organisation and has filed with FERC requesting an increased return on equity for both existing operations and new transmission investment. In April 2005, following a strategic review, GridAmerica announced that it would cease operations with effect from 1 November 2005. The Group will be looking to reapply the skills and knowledge brought to its participation in GridAmerica as it seeks to develop transmission interests in North America. GridAmerica contributed £2m of underlying operating profit during the year.

UK GAS DISTRIBUTION

Underlying operating profit from UK gas distribution was down £146m at £570m compared with £716m last year. Formula income declined £53m, primarily from reduced transportation prices, due to the timing of allowed revenue recoveries, exacerbated by a very mild winter. Revenues would have been some £70m higher if seasonal normal temperatures had occurred. The planned increase of replacement expenditure (repex), which is fully expensed, was £86m. The remainder of the year-on-year variance was due to a £17m increase in charges relating to gas commodity prices and a reduction in pension costs of £9m primarily due to deficit charges.

Further cost efficiencies have been achieved against the backdrop of substantial organisational change and the significant volume of work required to design and implement a new industry structure as a result of the planned network sales. Controllable costs, which exclude increases in ongoing pension costs and shrinkage gas commodity prices, decreased by 3% in real terms during the year and have now decreased 23% in real terms since March 2002.

The restructuring programme in the four retained networks is well advanced. This centralises many business processes on two key centres in the Midlands and is intended to facilitate improvements in efficiency and reduce controllable costs. This is particularly focused on bringing overheads into line with the smaller size of the retained business. The Group has also entered into 8-year alliances with key contractors to enhance the safe, efficient and sustainable delivery of the repex programme.

US DISTRIBUTION

The performance of US electricity and gas distribution was particularly strong. Underlying operating profit was up 15% at £374m on a constant currency basis compared with £325m last year.

Electricity delivery volumes increased 0.5% compared to the prior year. On a weather adjusted basis, total electricity delivery volumes increased by 1.4% and by 1.7% in the important domestic sales category, adding £17m to underlying operating profit. The year-on-year weather effect reduced underlying operating profit by some £9m, primarily due to a cooler than normal summer.

US controllable costs have been reduced by 20% in real terms since 2001/02, including a £35m reduction since last year, due primarily to staffing reductions and the improved management of bad debts.

Good progress has been made on implementing a new contract reached last autumn with the labour union in New York. Together with the 2003 agreement with the New England unions, this will enable the business to increase productivity still further through more efficient working practices alongside additional benefits in terms of safety and service standards.

The Group’s US operations generated very strong cash flow of £902m, almost £300m more than in 2003/04 due to lower pension and post retirement funding and the recovery of commodity costs.

WIRELESS INFRASTRUCTURE

Underlying operating profit for the Group’s Wireless Infrastructure business was up £40m at £46m due to the acquisition of the UK operations of Crown Castle International Corp. on 31 August 2004. The business is performing in line with the Group’s expectations and the integration with the Group’s existing business, Gridcom UK, is on schedule. More than half of the £18m annualised cash savings targeted for March 2006 have already been realised. With continued demand for new mobile tenancies and attractive prospects in broadcast, the business is on track to deliver strong profit growth.

OTHER ACTIVITIES

Underlying operating profit from the Group’s Other activities (including joint ventures), was up £66m at £169m compared with £103m last year. This reflects increased property stock sales by SecondSite, the elimination of losses at Fulcrum Connections and items relating to insurance. These were only partially offset by the expected impact of lower prices charged by the Group’s Metering business under new contracts signed with its gas supply customers.

The first phase of the Group’s Liquefied Natural Gas (LNG) import terminal at the Isle of Grain is targeted to commence commissioning next month. Cumulative investment has now reached £111m. In March, the Group announced a £355m investment to expand the terminal. This will see capacity triple by the end of 2008, providing around 12% of the UK’s expected annual gas demand. These investments are underpinned by 20-year contracts signed with BP, Centrica, Gaz de France and Sonatrach. Completion of the Group’s Basslink project in Australia, supported by a long term contract with Hydro Tasmania, has been delayed due to several transformers being damaged en route to Australia. Commissioning is now expected in the second quarter of 2006, but this delay will not impact the expected returns of the project.

INTERNATIONAL FINANCIAL REPORTING STANDARDS

These are the final set of results the Group will report under UK GAAP as next year’s results will be reported under International Financial Reporting Standards (IFRS). To aid understanding of the Group’s transition to IFRS, summary results under UK GAAP and IFRS are presented here. The IFRS figures are unaudited and may change as the Group finalises its analysis of the effects of IFRS.

The adoption of IFRS in the Group accounts represents an accounting change only, and will not affect the operations, cash flows or distributable reserves of the Group. Similarly, there will be no impact on the regulatory asset values or regulatory agreements of any of the Group’s businesses.

The Group has adopted IAS 39 (Financial Instruments: Recognition and Measurement) from 1 April 2005 and therefore, the results presented under IFRS do not include any effects of that standard.

As set out in the Group’s presentation and announcement earlier this year, the most significant impacts from the adoption of IFRS arise from the change in accounting treatments for repex and regulatory assets. Other key areas that are affected include the treatment of pensions and other post-retirement benefits, profits on disposals of properties, deferred taxation and goodwill. These adjustments would have resulted in a higher underlying operating profit than that reported under UK GAAP in 2004/05 by some £654m and higher underlying earnings per share by around 16.0p.

The underlying effective tax rate under IFRS in 2004/05 would have been 27%. Going forward, the increase in underlying pre-tax profit from IFRS and the change in the mix of Group pre-tax profits following the sales of the gas distribution networks will result in an increase to the Group’s underlying effective tax rate to around 30%. Draft legislation proposed by the UK government before the election but not due to be enacted until July may further impact the Group’s effective tax rate.

Further detail on the Group’s 2004/05 results under IFRS is included in appendix A to this release.

BOARD CHANGES

Following James Ross’s retirement on 21 October 2004, the Board is delighted to welcome John Allan, Chief Executive of Exel plc, who has been appointed to the Board as a Non-Executive Director with effect from 1 May 2005.

OUTLOOK AND DIVIDEND POLICY

The Board remains confident in the Group’s future prospects based upon the fundamental strengths of its businesses and the delivery of value from its strategy. The Group has strong medium term prospects with specific growth factors in each of the businesses, including revenue growth, capital investment opportunities and continued cost efficiencies. The Group will continue to maintain its disciplined approach to both organic and strategic investment.

With this confidence in future growth prospects, coupled with the Group’s strong financial position and the planned network sales, the Board is recommending a 28% increase in the final dividend to 15.2p per ordinary share, ($1.3869 per American Depositary Share (ADS)). The final dividend will be paid on 24 August 2005 to shareholders on the register as at 10 June 2005. Looking ahead, the Group retains its target to increase dividends per ordinary share expressed in sterling by 7% in each financial year up to 31 March 2008.

CONTACT DETAILS

National Grid Transco:

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

Live telephone coverage of the analyst presentation - password National Grid Transco

Telephone replay of the analyst presentation (available until 2 June 2005)

A live web cast of the presentation will also be available at www.ngtgroup.com

Photographs are available on www.newscast.co.uk

Cautionary statement

This announcement contains certain statements that are neither reported financial results nor other historical information. These statements are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Because these forward-looking statements are subject to assumptions, risks and uncertainties, actual future results may differ materially from those expressed in or implied by such statements. Many of these assumptions, risks and uncertainties relate to factors that are beyond National Grid Transco's ability to control or estimate precisely, such as delays in obtaining, or adverse conditions contained in, regulatory approvals, competition and industry restructuring, changes in economic conditions, currency fluctuations, changes in interest and tax rates, changes in energy market prices, changes in historical weather patterns, changes in laws, regulations or regulatory policies, developments in legal or public policy doctrines, the impact of changes to accounting standards, technological developments, the failure to retain key management, the availability of new acquisition opportunities or the timing and success of future acquisition opportunities. Other factors that could cause actual results to differ materially from those described in this announcement include the ability to continue to integrate the US and UK businesses acquired by or merged with National Grid Transco, the failure for any reason to achieve reductions in costs or to achieve operational efficiencies, unseasonable weather impacting on demand for electricity and gas, the behaviour of UK electricity market participants on system balancing, the timing of amendments in prices to shippers in the UK gas market, the performance of National Grid Transco's pension schemes and the regulatory treatment of pension costs, the impact of the separation and planned sales by National Grid Transco of four of its UK gas distribution networks and any adverse consequences arising from outages on or otherwise affecting energy networks owned and/or operated by National Grid Transco. For a more detailed description of these assumptions, risks and uncertainties, together with any other risk factors, please see National Grid Transco's filings with the US Securities and Exchange Commission (and in particular the "Risk Factors" and "Operating and Financial Review" sections in its most recent annual report on Form 20-F). Recipients are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this announcement. National Grid Transco does not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date of this announcement.