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Non–regulated Businesses and other

Performance during the year

Performance during the year

Descriptions of our progress against our overall objectives in the areas of performance, growth, talent, relationships (including customer service) and responsibility are set out in Key performance indicators and Performance during the year. We include below further information specific to Non-regulated Businesses and other operations with respect to our performance, growth and customer service objectives.

Performance

Our progress against our principal performance objectives during the year included the following:

Safety	There was an increase in the total number of employee lost time injuries in Non-regulated Businesses and other operations to 15 in 2006/07 compared with 12 in 2005/06 and 10 in 2004/05.
Reliability	Our Non-regulated Businesses and other operations operated reliably throughout the year.
Efficiency	Our Non-regulated Businesses and other operations operated efficiently during the year.
Financial performance	The financial performance of our Non-regulated Businesses and other operations improved during the year. However, this was more than offset by the impact of changes in corporate insurance costs and poorer performance from Fulcrum Connections. Further information on financial performance is included under financial results below.

Growth

Investment

During the year ended 31 March 2007, we invested £258 million in our Non-regulated Businesses and other operations, £21 million lower than capital expenditure in 2005/06.

Capital expenditure in our property business was £47 million lower, principally as a result of the £42 million purchase of National Grid House in Warwick in 2005/06. In addition, capital expenditure on the Grain LNG import terminal was £42 million lower as 2005/06 saw the completion of Phase I of the terminal. These reductions were partially offset by an increase of £37 million in our metering businesses.

Capital expenditure in 2005/06 amounted to £279 million compared with £165 million in 2004/05. This reflected an increase of £85 million invested in Grain LNG, a net increase of £19 million in our metering businesses and £42 million from the purchase of National Grid House in Warwick, partially offset by a reduction of £16 million in other property capital expenditure and £16 million in other activities.

In July 2005, Grain LNG commenced commercial operations for the first phase. Grain LNG's second phase of development was announced in March 2005 and is expected to be completed by the end of 2008. This next phase will increase the facility's capacity to import and process LNG from 3.3 million tonnes per year up to 9.8 million tonnes per year, representing around 12% of anticipated annual UK gas demand in 2008/09. Cumulative investment has now reached £319 million out of an expected total spend of around £522 million on Phases I and II.

Further investment of £310 million in a third phase was confirmed in May 2007. This is expected to increase the capacity available at the terminal to 14.8 million tonnes, equivalent to around 20% of anticipated UK gas demand for 2010/11. Long-term contracts have been signed with E.On, Iberdrola and Centrica for the capacity and a contract has been awarded to construct a second unloading jetty, an additional 190,000 cubic metre LNG storage tank and associated processing equipment required for the additional capacity.

Both National Grid Metering and OnStream are investing in technology such as smart metering and automated meter reading systems in response to customer requirements.

We have entered into a joint venture with the owner and operator of the Dutch electricity transmission network, TenneT Holding, to construct the BritNed electricity interconnector between the UK and the Netherlands. Subject to final negotiations with suppliers and BritNed receiving an exemption from the regulators, National Grid will invest around £200 million in this project, which will make an important contribution to the UK's security of supply when it is commissioned towards the end of 2010.

Financial results

The results for Non-regulated Businesses and other operations for the years ended 31 March 2007, 2006 and 2005 were as follows:

Years ended 31 March	2007 £m	2006 £m	2005 £m
Revenue	567	701	734
Other operating income	71	74	67
Operating costs excluding exceptional items and remeasurements	(505)	(625)	(649)
Adjusted operating profit	133	150	152
Exceptional items	(1)	18	(33)
Operating profit	132	168	119

2006/07 compared with 2005/06

The principal movements between 2005/06 and 2006/07 can be summarised as follows:

	Revenue and other operating income £m	Operating costs £m	Operating profit £m
2005/06 results	775	(607)	168
Add back 2005/06 exceptional items	-	(18)	(18)
2005/06 adjusted results	775	(625)	150
Metering	19	(13)	6
Property	(20)	18	(2)
Grain LNG	11	(8)	3
Fulcrum Connections	(134)	125	(9)
Insurance and other	(13)	(2)	(15)
2006/07 adjusted results	638	(505)	133
2006/07 exceptional items	-	(1)	(1)
2006/07 results	638	(506)	132

Revenue and other operating income from Non-regulated Businesses and other operations reduced from £775 million in 2005/06 to £638 million in 2006/07. The principal reason for this fall has been £134 million lower revenue at Fulcrum Connections, reflecting the full year impact of the loss of business from the four regional gas distribution networks disposed of in 2005/06. Revenue and other operating income was £20 million lower in our property business, reflecting the impact of the revised planning guidance for development of sites in close proximity to hazardous installations issued by the HSE. Partially offsetting these reductions, revenue was £19 million higher in our metering businesses, reflecting growth in OnStream, and revenue and other operating income at Grain LNG was £11 million higher, reflecting the first full year of Phase I operations.

Operating costs excluding exceptional items were £120 million lower in 2006/07 compared with 2005/06. Within Fulcrum Connections, operating costs were £125 million lower as a result of the loss of business from the disposed gas networks. Operating costs were also £18 million lower in our property business due to the expected reduction in stock sales. These decreases were partially offset by operating cost increases in our metering and Grain LNG businesses of £13 million and £8 million respectively as a result of the increased volumes in these businesses.

The exceptional item of £1 million in 2006/07 relates to the Non-regulated Businesses and other operations' share of restructuring costs incurred during the year.

2005/06 compared with 2004/05

The principal movements between 2004/05 and 2005/06 can be summarised as follows:

	Revenue and other operating income £m	Operating costs £m	Operating profit £m
2004/05 results	801	(682)	119
Add back 2004/05 exceptional items	-	33	33
2004/05 adjusted results	801	(649)	152
Metering	(10)	38	28
Property	(4)	(10)	(14)
Grain LNG	27	(16)	11
Insurance and other	(39)	12	(27)
2005/06 adjusted results	775	(625)	150
2005/06 exceptional items	-	18	18
2005/06 results	775	(607)	168

Revenue and other operating income from Non-regulated Businesses and other operations fell from £801 million in 2004/05 to £775 million in 2005/06, primarily due to a reduction in corporate insurance activities of £15 million, reduced revenue from Fulcrum Connections of £10 million due to the loss of business as a result of the gas network sales during 2005, a £10 million reduction from our metering businesses, where reductions at National Grid Metering were partially offset by revenue growth in OnStream, and reductions in the mix of properties sold resulting in £4 million lower revenues at Property. The decreases were partially offset by an increase in revenue from Grain LNG following its successful commissioning in July 2005.

Operating costs excluding exceptional items reduced by £24 million to £625 million in 2005/06. The lower costs for metering are linked to the reduction in revenues along with further cost savings arising from operational efficiencies. In addition, operating costs at Fulcrum Connections were lower as a result of the disposal of gas distribution networks in the year. These were partially offset by an increase in costs at Grain LNG.

Exceptional items explain the difference between adjusted operating profit and operating profit. The favourable movement in 2005/06 relates to the gain on sale of Energis Polska and the reversal of a previous impairment in Copperbelt Energy Corporation.

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