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Accompanying this Directors’ Report are an Operating and Financial Review (OFR), Corporate Governance section and Directors’ Remuneration Report. The OFR has been prepared in accordance with ‘Reporting Statement: Operating and Financial Review’, issued by the UK Accounting Standards Board, and the Directors therefore consider that this will fulfil the requirement for a Business Review. The OFR also includes information in respect of financial risks under the heading ‘Liquidity and treasury management’ and employee involvement and employment practices principally under About National Grid – Developing our people.
The Company’s principal activity is as the ultimate holding company of a group of companies involved in the transmission and distribution of energy, the provision of wireless infrastructure and other related businesses in related markets.
Biographical details of Directors serving as at the date of this report are included under Board of Directors. Details of the remuneration of all Directors serving during the period, along with information on shares held, are included in the Directors’ Remuneration Report .
The Company arranges Directors’ and Officers’ liability insurance cover, which the Board regards as appropriate and adequate. A qualifying third party indemnity provision was granted in favour of Directors of the Company in accordance with sections 309A-B of the Companies Act 1985 following changes in the Group’s memorandum and articles of association which were approved at the Company’s Annual General Meeting in 2005. Copies of individual Deeds of Indemnity are available for inspection by shareholders at the Company’s registered office at 1-3 Strand, London WC2N 5EH.
At no time during the year did any Director have any material interest in a contract within the Group, being a contract of any significance in relation to the Group’s business.
The Board has adopted a Code of Ethics for senior financial professionals. This code is available on the Group website at www.nationalgrid.com (where any amendments or waivers will also be posted). There were no amendments to, or waivers of, our Code of Ethics during the year.
An interim dividend of 10.2 pence per ordinary share ($0.8816 per American Depositary Share) was paid on 25 January 2006 to shareholders on the register on 2 December 2005. The Directors are recommending that a final dividend of 15.9 pence per ordinary share ($1.5115 per American Depositary Share) be paid on 23 August 2006 to shareholders on the register on 9 June 2006.
The Group made no political donations in the UK or European Union during the year (including donations as defined for the purposes of the Political Parties, Elections and Referendums Act 2000).
National Grid USA’s political action committees, funded entirely by voluntary employee contributions, gave $46,490 (£25,972) to US state and national political and campaign committees in 2005/06.
During 2005/06 the Group invested some £7.7 million (2004/05: £7.3 million) in support of community initiatives and relationships across its operations. The London Benchmarking Group model was used to assess this overall community investment. Within this figure, direct donations to charitable organisations amounted to £2.7 million in the UK (2004/05: £1.3 million) and £2.1 million ($3.8 million) in the US (2004/05: £1.8 million ($3.4 million)). In addition to our charitable donations, substantial financial support was provided for our Affordable Warmth Programme, education programme, university research and our ‘Young Offender Into Work Programme’.
Expenditure on research and development during the year was £7 million, compared with £9 million in 2004/05.
The Company has authority from shareholders to repurchase up to 10% of its own ordinary shares. This authority was not used during the year, nor in the period up to 17 May 2006. The Board intends to seek shareholder approval to renew the authority at this year’s Annual General Meeting.
Companies are permitted to hold repurchased shares as treasury shares rather than cancelling them. The Board has no current intention to hold repurchased shares as treasury shares, other than as required for employee share schemes.
During the year, the Company returned £2 billion of value to shareholders by way of a B share scheme. Shareholders received one B share for every existing ordinary share they held. Shareholders then had choices in respect of the B shares and the return of cash: (1) single B share dividend, (2) initial repurchase offer and (3) future repurchase offers. Details were set out in the Circular to Shareholders, dated 6 June 2005.
At the same time that the B shares were issued, the ordinary shares were consolidated to reflect the return of cash. Shareholders received 43 new ordinary shares (of 11 17/43 pence nominal value per share) for every 49 existing ordinary shares (of 10 pence nominal value per share).
Following the consolidation, shareholders may have ended up with fractional entitlements to a new ordinary share. These fractional entitlements were all aggregated and sold and the proceeds distributed pro rata to the relevant shareholders. Where an individual’s fractional entitlement was less than £1, this was not distributed but was retained by the Company. These retained fractional entitlements amounted to about £145,000 and will be donated to charities selected by the Company.
The elections were split as follows: 1,226,547 shareholders elected for the single B share dividend; 96,845 shareholders elected for the initial repurchase offer; and 50,753 shareholders elected to retain B shares.
Elections for the initial repurchase were received in relation to over 843,811,272 B shares, which were purchased at 65 pence per share, free of all dealing expenses and commissions, on 22 August 2005. National Grid purchased all of these B shares, which had initially been repurchased by JPMorgan Cazenove, for the same consideration. All the B shares repurchased were subsequently cancelled.
A second repurchase of B shares is due to take place on 8 August 2006. Details will be sent to shareholders who opted to retain B shares setting out what they should do to accept the offer. The offer will again be carried out by a broker and approval will be sought at the Annual General Meeting for the agreement to repurchase shares from the broker. The Company will also seek authority to renew its own authority to make market purchases of up to 10% of the remaining B shares.
In accordance with the Company’s articles the 2,162,099,630 unlisted deferred shares, which were created following the conversion of B shares upon the payment of the single B share dividend, were transferred to the Company for an aggregate 1 pence, following which all of the deferred shares were cancelled.
It is the Company’s policy to include in contracts, or other agreements, terms of payment with suppliers. Once agreed, the Company aims to abide by these terms of payment.
The average creditor payment period at 31 March 2006 for the Group’s principal operations in the UK was 20 days (28 days at 31 March 2005).
As at 17 May 2006, the Group has been notified of the following beneficial interests in 3% or more of its issued share capital:
| % of issued share capital | |
|---|---|
| The Capital Group Companies, Inc. | 5.86 |
| Barclays plc | 4.60 |
| Legal and General Investment Management Ltd | 4.21 |
| Credit Suisse First Boston group | 3.41 |
No further notifications have been received.
The Group facilitates share ownership among its UK employees by the operation of both sharesave and share incentive plans. In the US, employees are able to invest in the Group through employee incentive thrift plans.
In the UK, approximately 83% of employees participate in sharesave schemes. There are also about 3,000 participants in the current share incentive plan, holding shares purchased monthly. In the US, approximately 77% of employees held ADSs in the employee incentive thrift plans at 31 March 2006.
National Grid’s 2006 Annual General Meeting will be held on Monday 31 July 2006 at The ICC in Birmingham. Details are set out in a separate Notice of Annual General Meeting.
On 27 February 2006 National Grid announced its acquisition of KeySpan Corporation for approximately $7.3 billion (£4.2 billion) in cash (enterprise value approximately $11.8 billion (£6.8 billion)). The acquisition is subject to a number of consents and approvals. KeySpan is a major US energy delivery company. It is the largest distributor of natural gas in the northeastern US and the fifth largest in the US, with approximately 2.6 million customers in New York, Massachusetts and New Hampshire. It also operates an electricity transmission and distribution system serving approximately 1.1 million customers in New York, under a contract with the Long Island Power Authority. KeySpan also owns and operates 6.7 GW of generation capacity in New York. Its other assets include investments in natural gas pipeline and storage assets.
National Grid will seek shareholder approval for the acquisition at an Extraordinary General Meeting (EGM), which is expected to be held immediately after the Annual General Meeting. Separate documentation will be sent to shareholders about the EGM.
So far as the Directors in office at the date of the signing of this report are aware, there is no relevant audit information of which the auditors are unaware and each such Director has taken all reasonable steps to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information.
On behalf of the Board
Helen Mahy
Group Company Secretary and General Counsel
17 May 2006
National Grid plc, 1-3 Strand, London WC2N 5EH
Registered in England and Wales No. 4031152