Financial performance
Profit
Our objective is to drive continuous profit growth.
Our combined adjusted operating profit, excluding exceptional items, for Transmission in the UK and the US of £1,301 million is 10% higher than 2007/08 on a constant currency basis, which in turn was 10% higher than in 2006/07, also on a constant currency basis.
Financial results – Transmission UK
The results for the Transmission UK 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 and other operating income | 3,517 | 2,956 | 2,822 |
| Operating costs excluding exceptional items | (2,391) | (1,935) | (1,876) |
| Adjusted operating profit | 1,126 | 1,021 | 946 |
| Exceptional items | (63) | (8) | (10) |
| Operating profit | 1,063 | 1,013 | 936 |
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 | 2,956 | (1,943) | 1,013 |
| Add back exceptional items | – | 8 | 8 |
| 2007/08 adjusted results | 2,956 | (1,935) | 1,021 |
| Allowed revenues | 232 | – | 232 |
| Timing on recoveries | (20) | – | (20) |
| BSIS | 318 | (330) | (12) |
| French interconnector | 43 | (4) | 39 |
| Depreciation | – | 3 | 3 |
| Other | (12) | (125) | (137) |
| 2008/09 adjusted results | 3,517 | (2,391) | 1,126 |
| Exceptional items | – | (63) | (63) |
| 2008/09 results | 3,517 | (2,454) | 1,063 |
Revenue and other operating income increased by £561 million in 2008/09 compared with 2007/08, mainly driven by recovery of higher incentivised costs associated with balancing the electricity system (BSIS) and an increase in allowed revenues. French interconnector revenue was up £43 million due to higher capacity auction revenues. Other movements mainly comprise lower LNG storage auction income.
Operating costs, excluding exceptional items, increased by £456 million in 2008/09 compared with 2007/08. This was primarily due to higher incentivised BSIS costs relating to higher constraint, margin and energy balancing costs (largely covered by the revenue increase above). Higher other operating costs reflect an increase in gas shrinkage costs, due to higher energy prices, and higher pass-through costs.
The increase in UK adjusted operating profit in 2008/09 reflects the movements in revenue and operating costs, excluding exceptional items, as described above.
The £63 million exceptional charge in 2008/09 primarily consists of a £50 million charge relating to the restructuring of our LNG storage facilities.
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 | 2,822 | (1,886) | 936 |
| Add back exceptional items | – | 10 | 10 |
| 2006/07 adjusted results | 2,822 | (1,876) | 946 |
| Allowed revenues | 176 | – | 176 |
| Timing on recoveries | 10 | – | 10 |
| Lower French interconnector and LNG storage auctions | (62) | – | (62) |
| Depreciation and amortisation | – | (20) | (20) |
| Other | 10 | (39) | (29) |
| 2007/08 adjusted results | 2,956 | (1,935) | 1,021 |
| Exceptional items | – | (8) | (8) |
| 2007/08 results | 2,956 | (1,943) | 1,013 |
Revenue and other operating income increased by £134 million in 2007/08 compared with 2006/07. Allowed revenues increased by £176 million, driven by the five year transmission price controls that came into effect on 1 April 2007. As expected, revenues from our French interconnector and LNG storage businesses were lower in 2007/08, down by a combined £62 million on 2006/07, as demand for capacity returned closer to normal levels following the abnormal demand in 2006/07.
Operating costs, excluding exceptional items, increased by £59 million in 2007/08 compared with 2006/07. As expected, depreciation and amortisation increased by £20 million as a result of increasing capital investment. Other items increased costs by £39 million, principally because of higher pass-through costs and increased non-regulated activities, both recovered through revenue.
The £8 million exceptional charge in 2007/08 relates to costs incurred in establishing a shared services function in the UK and from the continuation of our review of business processes, compared with £10 million in 2006/07.
As a consequence, adjusted operating profit, excluding exceptional items, increased by £75 million in 2007/08 compared with 2006/07, while operating profit increased by £77 million.
Financial results – Transmission US
The average exchange rates used to translate the results of US operations during 2008/09, 2007/08 and 2006/07 were $1.54: £1, $2.01: £1 and $1.91: £1 respectively.
| Years ended 31 March | |||
|---|---|---|---|
| 2009 £m |
2008 £m |
2007 £m |
|
| Revenue | 420 | 299 | 270 |
| Operating costs excluding exceptional items | (245) | (171) | (162) |
| Adjusted operating profit | 175 | 128 | 108 |
| Exceptional items | (2) | (6) | (1) |
| Operating profit | 173 | 122 | 107 |
2008/09 compared with 2007/08
The principal movements between 2007/08 and 2008/09 can be summarised as follows:
| Revenue £m |
Operating costs £m |
Operating profit £m |
|
|---|---|---|---|
| 2007/08 results | 299 | (177) | 122 |
| Add back exceptional items | – | 6 | 6 |
| 2007/08 adjusted results | 299 | (171) | 128 |
| Exchange movements | 91 | (52) | 39 |
| 2007/08 constant currency results | 390 | (223) | 167 |
| Allowed revenues | 25 | – | 25 |
| Timing of recoveries | 4 | – | 4 |
| Other | 1 | (22) | (21) |
| 2008/09 adjusted results | 420 | (245) | 175 |
| Exceptional items | – | (2) | (2) |
| 2008/09 results | 420 | (247) | 173 |
Adjusted operating profit increased by £47 million in 2008/09, of which £39 million was caused by the movement in exchange rates when compared with 2007/08. On a constant currency basis, revenue and operating costs increased by £30 million and £22 million respectively, resulting in an £8 million, or 5%, increase in adjusted operating profit in 2008/09.
Allowed revenues increased by £25 million in 2008/09. This growth was in New England where we have seen the benefit of our investment in regional reliability projects coming through in higher sustainable revenue streams.
In addition, revenue was £4 million higher in 2008/09 because of the timing of recoveries under our New York rate plan.
Operating costs were £22 million higher, on a constant currency basis, in 2008/09 than in 2007/08 reflecting our commitment to improve the operational performance of the networks in both New England and New York. The majority of the increase was driven by reliability enhancements and maintenance programmes aimed at improving system reliability. In addition, both depreciation and property taxes have increased as a direct consequence of the growth in network capital investment brought into service.
The £2 million exceptional charge in 2008/09 relates to restructuring costs arising from the integration of the operations acquired with KeySpan.
2007/08 compared with 2006/07
The principal movements between 2006/07 and 2007/08 can be summarised as follows:
| Revenue £m |
Operating costs £m |
Operating profit £m |
|
|---|---|---|---|
| 2006/07 results | 270 | (163) | 107 |
| Add back exceptional items | – | 1 | 1 |
| 2006/07 adjusted results | 270 | (162) | 108 |
| Exchange movements | (13) | 8 | (5) |
| 2006/07 constant currency results | 257 | (154) | 103 |
| Allowed revenues | 27 | – | 27 |
| Timing on recoveries | 15 | – | 15 |
| Other | – | (17) | (17) |
| 2007/08 adjusted results | 299 | (171) | 128 |
| Exceptional items | – | (6) | (6) |
| 2007/08 results | 299 | (177) | 122 |
Revenue and operating costs decreased by £13 million and £8 million in 2007/08 respectively as a consequence of exchange rate movements when compared with 2006/07. On a constant currency basis revenue and operating costs increased by £42 million and £17 million respectively. This reflected an increase in allowed revenues of £27 million and £15 million arising from the timing of revenue recoveries, while operating costs increased by £17 million as a consequence of higher wages and other expenditure.
The £6 million exceptional charge in 2007/08 relates to the integration of the operations acquired with KeySpan, in particular costs arising from voluntary early redundancies, compared with £1 million incurred in 2006/07. As a consequence adjusted operating profit increased by £25 million in 2007/08 compared with 2006/07 on a constant currency basis and by £20 million in total. After reflecting exceptional items, operating profit was £15 million higher in 2007/08 than in 2006/07.