• underlying profit before tax up 14% to £1,416 million
• delivery of substantial cost savings
• strong underlying cashflow from operations of £3.1 billion
• net debt down to £12.6 billion
• recommended dividend for year up 15%; 7% pa growth targeted until March 2008

* “Business results” represent the primary measures used by management and are presented before goodwill amortisation and exceptional items. Management believes that exclusion of these items provides a better comparison of results. Unless otherwise stated, all financial commentaries in this Announcement are on a “business results basis” and are preceded by the prefix "underlying". Reconciliations of these measures to statutory measures are provided in the Group Profit & Loss Account, notes 5a and 5b and the Group Cash Flow Statement. Further detail is provided on our website (www.ngtgroup.com).

Expenditure on the replacement of UK gas mains (“repex”) of £388m in the year (£405m last year) is fully expensed for accounting purposes and is tax deductible. However, for regulatory purposes, half the costs are recovered in current revenues and half are added to the regulatory asset base. The effect of removing half of the repex, net of tax, from earnings is equivalent to increasing earnings per share by 4.4p and 4.6p for each of the annual results shown above, respectively.

Sir John Parker, Chairman, said:

“These excellent results demonstrate the successful delivery of our strategy and the quality of our operational performance in both the UK and US. We are delighted to deliver over £1 billion in earnings for the first time.

“Our strong financial performance has been matched by our endeavours to operate our business in a responsible manner and we were pleased to be ranked 1st in Business in the Community’s 2003 Corporate Responsibility Index.

“Safety and network reliability are, as always, top priorities, and we have invested over £1.8 billion this year in our networks. We have achieved further reductions in safety incidents across the Group, whilst maintaining high standards of service. The power cuts in London and the West Midlands last summer, which we very much regret, are isolated exceptions to an excellent performance, and we are continuing to work with Ofgem on their investigation. Despite these events, our UK electricity reliability performance remains at world class levels – delivering 99.9997% of the energy demanded during the year.

“The sales process for five of our gas distribution networks is proceeding well and we expect final bids this summer. As we made clear from the outset, we will sell no more than four networks and will only proceed if those sales maximise value.

“Our financial strength, as demonstrated by these results, combined with our confidence in the future prospects of our businesses enable the Board to recommend a 15% increase in the dividend this year and to target 7% per annum dividend growth for each of the next four years to March 2008.”

NATIONAL GRID TRANSCO plc

Turnover from continuing activities was broadly unchanged at £8.9 billion.

Underlying operating profits rose by 2% from £2,185m to £2,238m, equivalent to 4% at constant USD/GBP exchange rates. We have delivered significant reductions in controllable costs, improved the performance of Gridcom, and benefited from exiting a number of non-core businesses. A particularly strong operating performance and increased revenues in UK gas distribution more than offset the adverse impact of year to year weather patterns in the US, increased UK pensions costs, and lower profits from the recovery of US stranded costs.

Underlying net interest expense was £822m, down from £939m last year.

Underlying operating profit interest cover was 2.7 times, compared to 2.3 times last year. Interest cover, based on our statutory results was 2.7 times, compared to 1.7 times last year.

Underlying profit before tax was up 14% from £1,246m to £1,416m.

The tax charge on underlying profit for the year was £350m, representing an effective tax rate of 25%.

Underlying earnings were £1,064m, up from £870m last year. Underlying earnings per share were up 23% to 34.7p from 28.3p last year.

Expenditure on the replacement of old metallic gas mains in the UK (“repex”) totalled £388m in the year (£405m last year). For regulatory purposes, half the costs are recovered in current revenues and half are added to the regulatory asset base upon which we earn an allowed return. However, for accounting purposes repex is fully expensed and is tax deductible. In 2004, the effect of removing half of the repex, net of tax, from earnings is equivalent to increasing earnings per share by 4.4p.

Our businesses remain strongly cash generative, with underlying cashflow from operations for the year broadly unchanged at £3.1 billion.

Capital expenditure on continuing operations, including capitalised interest, was maintained at £1.5 billion and included £136m for investments in our Isle of Grain LNG and Basslink projects.

There were net exceptional gains (including both operating and non-operating exceptional items) totalling £45m before tax, comprising:

• A credit of £226m (before and after tax) representing the realisation of a deferred gain on Energis shares held to redeem the EPIC bond;
  
• Gains on sales of property and other tangible fixed assets of £96m (before and after tax);
  
• Restructuring costs of £249m (£170m after tax), including £100m for US distribution and transmission, £101m for UK distribution, £14m for UK transmission, and £34m for other businesses; and
  
• Recognition of additional UK environmental costs of £28m (before and after tax).

After exceptional gains and goodwill amortisation, basic earnings per share were 35.8p, up from 12.7p last year.

Group net debt was £12.6 billion at 31 March 2004, down £1.2 billion from last year, with the weaker US dollar and EPIC bond redemption contributing £0.7 billion and £0.2 billion respectively to the overall decrease.

REVIEW OF OPERATIONS

We have delivered our previously promised merger savings and each of our businesses has delivered improvements in operating efficiency, together resulting in substantial cost savings across the Group compared to last year.

The quality of our earnings is underpinned by the length and stability of regulatory frameworks in the US and the UK. In the UK, there have been a number of recent positive developments. Ofgem has confirmed that where additional capital expenditure is demonstrated to be efficiently incurred during the course of a price control period, this will be added to the regulatory asset base and be considered for a retroactive return allowance. In addition, Ofgem is moving to a rolling 5-year cost savings mechanism, aligning the gas and electricity transmission price control reviews in 2007, and moving the gas distribution review to 2008.

UK GAS DISTRIBUTION

Underlying operating profits from UK gas distribution increased from £554m to £729m, primarily as a result of a £103m reduction in controllable costs and an £84m increase in revenues, somewhat offset by a £23m increase in pension deficit accounting charges.

Over the past two years, the level of controllable costs within the business has been reduced by 20% in real terms, more than half way to our targeted reduction.

The sales process for five of our gas distribution networks is proceeding well and we expect final bids this summer. As we made clear from the outset, we will sell no more than four of our networks and will only proceed if those sales maximise value.

ELECTRICITY AND GAS TRANSMISSION

Underlying operating profit from UK electricity and gas transmission was £769m compared to £820m last year.

We had strong performance from the UK transmission business during the year and reduced controllable costs by 4% in real terms in line with our targets. The strength of our performance, however, was masked by the implementation of a charging reform (known as “Plugs”) which reduced underlying operating profit by £22m. This charge will be more than offset by increased operating profits arising from Plugs in future years. In addition, we incurred an increased depreciation charge of £27m. Despite tougher regulatory targets in both the electricity and the gas system operator (SO) incentive schemes, we delivered operating profits of £52m (down £8m from last year) from these.

In the US, our transmission business delivered underlying operating profits of £133m compared to £128m last year, with one-off benefits more than offsetting the impact of a weaker US dollar.

GridAmerica, the first multi-system independent transmission company in the US, added the operations of Ameren on 1 May 2004 to those already managed for FirstEnergy and Northern Indiana Public Service Company, having received regulatory approvals in March. Together, these assets comprise over 14,000 miles of transmission lines, serving an area almost as large as England and Wales. In addition, the FERC continues to take steps to encourage participation in Regional Transmission Organisations (RTOs) and has recently approved key elements of the New England RTO filing that we made last autumn.

US ELECTRICITY AND GAS DISTRIBUTION

Underlying operating profit from US electricity and gas distribution (excluding stranded cost recovery) was £363m this year, down from £401m last year.

Weather adjusted electricity distribution volumes were up 0.8% (including a 4.6% increase in the important domestic sales), contributing £22m to underlying operating profit, and controllable costs were reduced by a further £12m. Offsetting these benefits were the continued weakness of the dollar (£20m), a return to more normal weather (£27m) and the adverse impact of bad debt (£9m) and other one off items (£16m).

Savings from the integration of our operations in New York and New England continue to be delivered in line with our targets. Over the past two years, we have reduced controllable costs by 10% in real terms. Monthly costs as at March 2004 were running at an annualised reduction of 15%.

As expected, underlying operating profit from US stranded cost recovery declined from £170m to £134m, including a £8m decrease due to the weaker dollar.

OTHER BUSINESSES

Across our other businesses, underlying operating profit for the year was £110m as compared to £112m last year.

Gridcom has cut its costs in the UK while growing revenues in both the UK and US allowing it to deliver underlying operating profits of £6m, a £29m improvement on last year. The continued rapid expansion of the mobile telecoms industry should create significant opportunities for growth.

Our metering business delivered underlying operating profits of £81m, down £24m from last year. The key variances were an increase in the depreciation charge and start-up losses relating to our competitive metering business. Looking ahead, we have successfully secured long-term contracts including a new pricing structure with gas suppliers, covering substantially all of Transco’s domestic meters, to secure a long-term revenue stream.

Last year, we had the benefit of the £10m pension credit and an £8m greater contribution from our electricity joint ventures. Losses at Fulcrum connections were £13m greater than in the previous year. Discontinued businesses, including discontinued joint ventures, had no impact on underlying operating profits, after a loss of £46m in the previous year.

We continue to make good progress on construction of our LNG import terminal at the Isle of Grain and the Basslink project in Australia. As at 31 March 2004, we had invested almost half of our £410m investment programme for these projects which provide us with new growth opportunities in the area of infrastructure development. We expect to complete these projects during 2005.

PENSIONS

As announced at our half-year results, the actuarial valuation of the Lattice Group Pension Scheme as at 31 March 2003, covering current and former UK gas employees and other former Lattice businesses (the “Lattice Scheme”), has been completed. This valuation resulted in an actuarial deficit of £879m before tax (£615m after tax). Going forward, annual assessments of this scheme will be carried out. It has been agreed that funding of this deficit will be deferred until the results of the 2007 actuarial valuation are known. Meanwhile, the Company’s cash contributions for the ongoing cost of the Lattice Scheme are being made at a rate of some 22% of pensionable payroll.

A new SSAP 24 actuarial valuation for the Lattice Scheme resulted in a SSAP 24 charge of £144m, compared to £70m last year.

FRS 17 has not yet been implemented and the 2004 accounts have been prepared under SSAP 24. At 31 March 2004, the FRS 17 deficit (net of deferred tax) in respect of all our Group pension schemes was £1,563m, down from £2,262m at 31 March 2003.

MANAGEMENT CHANGES

As previously announced, Rick Sergel will retire as Group Director, US Distribution at our Annual General Meeting on 26 July 2004. Michael Jesanis, currently Chief Operating Officer of our US distribution business, will then join the NGT Board and assume Rick’s responsibilities.

OUTLOOK AND DIVIDEND POLICY

With our businesses performing well, we are confident of the future prospects for the Group.

This confidence and the Group’s solid financial position reflected in these results allows the Board to recommend a 15% increase in the full year dividend to 19.78p per ordinary share and to target an increase in dividends per ordinary share expressed in sterling of 7% in each financial year to 31 March 2008. A final dividend of 11.87p per ordinary share ($1.0500 per American Depositary Share (ADS)) will be paid on 23 August 2004 to shareholders on the register on 4 June 2004.

CONTACT DETAILS

National Grid Transco:

An analyst presentation will be held at Cazenove, 20 Moorgate, London EC2R 6DA at 8:45 am (UK time) today.

Live telephone coverage of analyst presentation - password National Grid Transco

Dial in number   +44 (0)20 7081 9429
US call in number   +1 800 897 3158

Telephone replay of the analyst presentation (available until 3 June 2004)

Dial in number   +44 (0)20 7081 9440
Account number   869448
Recording number    6542831

Live webcast of 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, 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 integrate the US and UK businesses acquired by or merged with National Grid Transco or to continue to realise the expected synergies from such integrations, 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 any potential separation and disposal by National Grid Transco of any UK gas distribution network(s) 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 United States 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 publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this announcement.