Financial performance
Profit
Our objective is to increase profits each year.
Adjusted operating profit was £166 million lower in 2008/09 than 2007/08 on a constant currency basis, a decrease of 39%, largely driven by higher storm costs resulting primarily from the December 2008 ice storm, higher purchased electricity costs and higher capital related costs associated with the increasing capital programme, partially offset by a full year of KeySpan results. Further information is included below.
Financial results
The results of the Electricity Distribution & Generation segment for the years ended 31 March 2009, 2008 and 2007 were as follows:
| Years ended 31 March | |||
|---|---|---|---|
| 2009 £m |
2008 £m |
2007 £m |
|
| Revenue excluding stranded cost recoveries | 4,537 | 3,126 | 3,004 |
| Operating costs excluding exceptional items and remeasurements | (4,272) | (2,796) | (2,640) |
| Adjusted operating profit | 265 | 330 | 364 |
| Exceptional items | (51) | (104) | (9) |
| Remeasurements | (109) | 91 | 81 |
| Stranded cost recoveries | 426 | 379 | 423 |
| Operating profit | 531 | 696 | 859 |
2008/09 compared with 2007/08
The principal movements between 2007/08 and 2008/09 can be summarised as follows:
| Revenue and other operating income £m |
Operating costs £m |
Operating profit £m |
|
|---|---|---|---|
| 2007/08 results | 3,508 | (2,812) | 696 |
| Add back exceptional items | – | 104 | 104 |
| Add back remeasurements | – | (91) | (91) |
| Add back stranded cost recoveries | (382) | 3 | (379) |
| 2007/08 adjusted results | 3,126 | (2,796) | 330 |
| Exchange movements | 957 | (856) | 101 |
| 2007/08 adjusted results at constant currency | 4,083 | (3,652) | 431 |
| Purchased electricity | 176 | (187) | (11) |
| Volume, price and weather | 6 | – | 6 |
| LIPA capital recovery | 74 | (74) | – |
| Generation | 124 | (114) | 10 |
| LIPA contribution | 77 | (65) | 12 |
| Bad debt expense | – | (14) | (14) |
| Storms | – | (74) | (74) |
| Other direct costs | – | (53) | (53) |
| Depreciation and amortisation | – | (10) | (10) |
| Other | (3) | (29) | (32) |
| 2008/09 adjusted results | 4,537 | (4,272) | 265 |
| Exceptional items | – | (51) | (51) |
| Remeasurements | – | (109) | (109) |
| Stranded cost recoveries | 435 | (9) | 426 |
| 2008/09 results | 4,972 | (4,441) | 531 |
Comparability of our financial results between 2008/09 and 2007/08 are affected by having a full year contribution from KeySpan operations in 2008/09 compared with a partial contribution in 2007/08 following the acquisition on 24 August 2007. In 2008/09, KeySpan operations contributed £662 million, £607 million and £55 million to revenue and other operating income (excluding stranded cost recoveries), adjusted operating costs and adjusted operating profit respectively, compared with £383 million, £350 million and £33 million in 2007/08 on a constant currency basis.
Excluding stranded cost recoveries, revenue increased by £454 million in 2008/09 on a constant currency basis as compared with 2007/08. This was primarily due to the recognition of higher LIPA capital recoveries, LIPA contribution and generation revenues reflecting the full year KeySpan contribution. LIPA capital recovery relates to assets which are owned by LIPA but are constructed on behalf of LIPA by National Grid. These costs are fully recoverable. LIPA also contributes under management contracts for the ongoing maintenance of these assets. The revenue and costs associated with this activity are included as part of the LIPA contribution movement. The generation business results also increased compared with 2007/08 reflecting a full year KeySpan contribution. Generation revenues further increased following the reset of generation capacity charges which were retrospectively applied to January 2008. There is a corresponding increase in costs to partly offset some of this benefit.
Revenues also increased compared with 2007/08 reflecting the pass-through of higher purchased electricity costs. These commodity costs are recovered in full from customers although the recovery of these costs can occur in more than one financial year resulting in a year-on-year operating profit impact.
Excluding stranded cost recoveries, operating costs increased by £620 million on a constant currency basis. This is primarily due to the higher costs associated with LIPA distribution and generation and purchased electricity as referred to above in addition to higher storm costs associated mainly with the December 2008 ice storm. A portion of storm costs incurred during 2008/09 will be recovered in future periods.
The £166 million decrease on a constant currency basis in adjusted operating profit from Electricity Distribution & Generation in 2008/09 compared with 2007/08 was primarily due to higher storm costs, higher capital related costs which impacted depreciation and other direct costs and higher purchased electricity partially offset by the benefits of a full year of KeySpan.
Exceptional costs for 2008/09 primarily relate to the electricity distribution operations transformation initiatives and merger related integration costs.
2007/08 compared with 2006/07
The principal movements between 2006/07 and 2007/08 can be summarised as follows:
| Revenue and other operating income £m |
Operating costs £m |
Operating profit £m |
|
|---|---|---|---|
| 2006/07 results | 3,430 | (2,571) | 859 |
| Add back exceptional items | – | 9 | 9 |
| Add back remeasurements | – | (81) | (81) |
| Add back stranded cost recoveries | (426) | 3 | (423) |
| 2006/07 adjusted results | 3,004 | (2,640) | 364 |
| Exchange movements | (150) | 132 | (18) |
| 2006/07 adjusted results at constant currency | 2,854 | (2,508) | 346 |
| Purchased electricity | (47) | 20 | (27) |
| Volumes, including weather | 17 | – | 17 |
| Depreciation and amortisation | – | (7) | (7) |
| Reliability enhancement | – | (13) | (13) |
| Bad debts | – | (17) | (17) |
| Storms | – | 33 | 33 |
| KeySpan acquisition | 293 | (268) | 25 |
| Other | 9 | (36) | (27) |
| 2007/08 adjusted results | 3,126 | (2,796) | 330 |
| Exceptional items | – | (104) | (104) |
| Remeasurements | – | 91 | 91 |
| Stranded cost recoveries | 382 | (3) | 379 |
| 2007/08 results | 3,508 | (2,812) | 696 |
Excluding stranded cost recoveries, revenue increased by £272 million in 2007/08 on a constant currency basis as compared with 2006/07. This was primarily due to the acquisition of KeySpan partially offset by lower purchased electricity costs. Commodity costs are recovered in full from customers although the recovery of these costs can occur in more than one financial year.
Excluding stranded cost recoveries, exceptional items and remeasurements, operating costs increased by £288 million in 2007/08 on a constant currency basis. This was primarily due to the acquisition of KeySpan and higher bad debt costs of £17 million. Investment in our reliability enhancement programme also increased in 2007/08. These items were partially offset by lower purchased electricity and other pass-through costs of £20 million, which are recovered from customers as described above, and storm costs which were £33 million lower in 2007/08. A portion of storm costs incurred in 2007/08 will be recovered in future periods.
The £16 million decrease on a constant currency basis in adjusted operating profit from Electricity Distribution & Generation in 2007/08 compared with 2006/07 was primarily due to higher bad debts and other expenses including an expected increase in our reliability enhancement spend, the timing of commodity cost recovery and the non-recurrence of one-off items incurred in 2006/07. These were partially offset by lower storm costs of £33 million, increased deliveries, including the effect of weather, of £17 million, and the acquisition of KeySpan.