Important Notice

This document 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. For a description of factors that could affect future results, reference should be made to the full Cautionary Statement on the back cover.

 

Vision, strategy and objectives

Our vision is the long term aspiration for National Grid – what we want to be in the future.		Vision We, at National Grid, will be the foremost international electricity and gas company, delivering unparalleled safety, reliability and efficiency, vital to the well-being of our customers and communities.
		We are committed to being an innovative leader in energy management and to safeguarding our global environment for future generations.
Our strategy and objectives are a medium term step in the journey towards the vision – what we are doing over the next few years.		Strategy and Company objectives We will build on our core UK and US, electricity and gas, regulated business base and financial discipline to deliver sustainable growth and superior financial performance.
		§   Driving improvements in our safety, customer and operational performance		§   Becoming more efficient through transforming our operating model and increasingly aligning our processes
		§   Delivering strong, sustainable regulatory and long-term contracts with good returns		§   Building trust, transparency and an inclusive and engaged workforce
		§   Modernising and extending our		§   Developing our talent, leadership skills and capabilities
		transmission and distribution networks §   Expanding our capabilities and identifying new financeable opportunities to grow		§   Positively shaping the energy and climate change agenda with our external stakeholders in both regions
		Responsibility Our strategy and Company objectives are underpinned by our commitment to corporate responsibility. We will operate to the highest standards of corporate governance and conduct our business in a lawful and ethical manner.

The vision, strategy and Company objectives flow down into every employee’s annual performance objectives – what we are doing now and how we ensure we achieve our strategy and vision.		Line of sight		Our strategy and Company objectives provide the basis for the annual priorities for each line of business and global function. These annual priorities form the basis of the objectives for the Executive Directors and flow down the organisation into the individual objectives for every manager and employee. Consequently the actions required to deliver the strategy are allocated and aligned with employee responsibilities. Our aim is that every employee is able to trace their objectives through to the Company’s objectives, strategy and vision.

 

 

 

New debt issuances		Employee engagement index		Employee survey response rate
During 2008/09, despite adverse conditions in the credit markets, we issued £4.9 billion of new long-term debt.		70%		91.8%
		2007/08: 60%		2007/08: 86.4%
Climate change		Percentage of ethnic minority employees		Percentage of female employees
During 2009/10, we will implement carbon budgets setting a maximum level of greenhouse gas emissions per business per financial year. We are targeting a 45% reduction in emissions by 2020 on the way to our goal of an 80% reduction by 2050.		13.2%		22.6%
		2007/08: 12.3%		2007/08: 22.5%
BITC platinum member		Lost time injury frequency rate ^		For more information visit: www.nationalgrid.com
We continue to enjoy external recognition of our responsible business approach. For the seventh consecutive year, we are a ‘platinum’ company in the Business in the Community corporate responsibility index.		0.25
		2007/08: 0.30
^   on a like-for-like basis, including KeySpan employees in both years

 

 

“Everything we do to fulfil our vision would be ineffective without the dedicated involvement of our employees, and they deserve our thanks and appreciation.”

The Board is proposing a recommended final dividend of		We are also targeting an increase of
23.00p		8%
2007/08: 21.30p		per annum from 2009/10 to 2011/12
Dividends per share
Pence
Over the past five years ordinary dividends per share have grown by 80.2%, from 19.78p for 2003/04 to 35.64p for 2008/09.

I am pleased to report another set of strong results for 2008/09. Financial markets the world over are in recession and many businesses are affected. However, we remain strong and our business is well funded. Further, management is focused on continuing to execute our clear strategy. We also have a new brand that revolves around ‘the power of action’. This will help drive everything we do to make a difference in how we operate our business. In the Chief Executive’s report, Steve Holliday will discuss how we are taking action continuously to improve our Company’s performance.

Board changes

This year saw Bob Catell retire as an Executive Director in March 2009. Bob will continue to serve as a Non-executive Director and Deputy Chairman of National Grid, as well as Non-executive Chairman of National Grid USA, until July 2009. His knowledge of the energy industry has been very helpful following the acquisition of KeySpan. He supported us on the journey to integrate successfully our US businesses and influenced how we take forward our relationships with customers, regulators and other stakeholders.

Dividend policy

We are recommending a dividend increase of 8% for 2008/09. Over the past five years, ordinary dividends have grown by more than 80%. In addition, subject to shareholder approval at the Annual General Meeting, we will offer ordinary shareholders the opportunity to increase their holding in National Grid through a scrip dividend.

Safety

Safety is paramount. This year, we continued our focus on process safety and on controls to manage the major hazards that arise from the delivery of electricity and the transportation and storage of natural gas. We also maintained our attention on the safety of our workforce and the public. As we are including former KeySpan incidents this year, the number of injuries resulting in lost time increased when compared to last year. However, when we incorporate the KeySpan injuries into last year’s figures, creating a like-for-like basis, the Company’s lost time injury rate shows real improvement. Our focus this coming year remains on process safety improvements, behavioural change initiatives, and the health and well-being of our employees.

Chairman’s awards

For the first time, this year we have expanded the Chairman’s awards categories to include community action, inclusion and diversity and customer service. We received nearly 200 nominations from across the Company that exemplified the things we do to put the power of action to work every day. The awards programme recognises the outstanding achievement of employees who go above and beyond their work requirements in the pursuit of excellence.

 

 

Young Offender Programme Ed, 26 – “My experience in prison was overwhelming and it made me vow to change my life. I was fortunately accepted into the Young Offender Programme and earned an NVQ qualification as a gas network operative. I’m very grateful to this programme because it turned my life around.”

Community

We have the distinction of being the first official partner to Special Olympics Great Britain (SOGB). Under a three year sponsorship, we have committed to provide funding and employee volunteers. Since 2007, we have been delivering on this pledge, and have established several employee led volunteer groups around the business. I am absolutely delighted that nearly 500 employees have registered their interest in supporting the organisation.

In the US, employees organised United Way campaigns at many Company locations to benefit local groups that work to resolve pressing community issues. They were very generous with their support and together we raised nearly $3.5 million (£2.3 million). We also donated $1 million (£650,000) to fuel assistance funds in New England and New York to assist those most in need during the winter heating season.

All these efforts continue to demonstrate our commitment to the communities we serve and the steps we take as a Company to have a positive impact on them.

As our corporate vision states, we are determined to be a Company that is known for being safe, reliable and efficient. We are also firmly committed to providing for the well-being of our customers and communities, and to safeguarding the global environment. Achieving our vision will create value for all our stakeholders and can only be done by conducting our business in a responsible manner. I am pleased to report that we won the 2008 Gas Industry Energy Efficiency Award for our affordable warmth programme in the UK. We were also awarded a ‘Big Tick’ in the prestigious Business in the Community Award for Excellence for our Warm Wales initiative. In the US, we won the Association of Energy Services Professionals, Outstanding Achievement in Energy Program Implementation Award for our energy efficiency programmes.

Young Offender Programme

I continue to be heartened by the progress of the Young Offender Programme that provides skills training and sustainable employment to young people nearing completion of their sentences. The programme has now been adopted across major industry sectors and is operational in more than 22 prisons in the UK. The output from the programme reduces re-offending from approximately 70% to 7% and rehabilitates the offenders into productive members of the community.

Inclusion and diversity

Everything we do to fulfil our vision would be ineffective without the dedicated involvement of our employees, and they deserve our thanks and appreciation. This is why we are actively seeking to develop their talent, leadership skills and capabilities, while exploring innovative ways to attract new employees as we continue to build a more inclusive and diverse workforce.

Following a review of inclusion and diversity throughout the Company, we have clarified our business case and recently launched our global inclusion charter. The charter explains what employees can expect from the Company, as well as what the Company expects from them. It builds on work in progress throughout the US and UK. For example, we held a global mobilising inclusion fortnight designed to help us move from awareness to action on our inclusion and diversity journey.

We want to be the employer of choice. We are fortunate to have a vibrant and growing array of employee networks, focused on gender, ethnicity, faith, disability, sexual orientation, families and new starters. They help us understand the different communities represented within our workforce, and provide support and information to our employees.

Board effectiveness

At this time of global economic turbulence there are many questions being rightfully raised about the governance and effectiveness of boards. Again this year, as discussed within the Corporate Governance section, we have carried out an in depth review of the Board’s effectiveness. We have produced, as we have done for several years, an action plan to ensure constant improvement. However, an overriding acid test question for a Chairman to answer is – does the Board have the breadth of skills and experience to address and challenge adequately the key business decisions and risks that confront it?

This and related questions have concerned us in our Nominations Committee over the past years as we have carefully recruited Non-executive and Executive Directors to build the Board we have today. I therefore believe that not only has the Board focused on good governance, but that we also have the right Board composition and that the Board works effectively, allowing us to respond to the challenges of these difficult times.

Outlook

The Board remains confident that we are well positioned to continue delivering strong performance. We have a business model that is focused on our core electricity and gas business, integrated across lines of business, and financially and operationally disciplined. While stock market sentiment will periodically fluctuate, our job inside the Company is to stay focused on delivering on our promises.

Sir John Parker
Chairman

 

 

 

“We continue to create a more focused
business and to run it in a more
integrated way.”

Planned investment in 2009/10		Response rate to our employee survey
£3.4bn		91.8%

I am pleased to be reporting to you on our 2008/09 results. In a very difficult economic climate, the robust nature of our strategy has been demonstrated by a very successful year for National Grid, reflected in a strong set of results. It is because of this performance that I am delighted to report that we have met our target to deliver 8% dividend growth.

At National Grid, we delivered on all fronts in 2008/09 – safety, reliability and financial – and ensured that we are well positioned for the future. The outlook for 2009/10 is very positive.

Financials

We have delivered another strong financial and operational performance this year. Cash generated from operations was more than £3.5 billion, revenue was more than £15.6 billion while adjusted operating profit and adjusted earnings per share (on a pro forma basis) were higher by 12% and 14% respectively. Our continuing objective is to deliver 8% per annum growth in our dividend until 2012 for our shareholders while also delivering gas and electricity to our customers in a safe, reliable and efficient manner.

When we acquired KeySpan in 2007, we promised a $100 million run rate in synergy savings by the end of this fiscal year. I am delighted to report that we have exceeded our promise. We have also issued £6 billion of debt between 1 January 2008 and 31 March 2009 and our overall effective interest rate has fallen.

Investing for growth

As I told you last year, a major part of our plans is to invest by growing our asset value at what is a record rate for National Grid. These investments, necessary for society, communities and customers are made in response to the changing energy requirements in our operating territories and the need to replace end of life assets. The returns on our investments are underpinned by our regulatory arrangements or by long-term contracts. During the last year, £3.2 billion has been invested across the Company. Going forward, we plan a similar level of investment each year until 2012.

Strategy

We continue to create a more focused business and to run it in a more integrated way. This year, we have re-articulated our strategy to give better clarity to our employees on the direction of our business. Our eight Company objectives provide the framework for the first step in achieving this clarity (see pages 10 to 15).

Our strategy sets out what we plan to achieve in the next three to five years; we want to build on our core UK and US, electricity and gas, regulated business base to deliver sustainable growth and superior financial performance. This year, we have also introduced a line of sight concept that should connect each employee with the strategic vision and overall objectives of our Company, allowing everyone to see how what they do contributes to the success of their team, their line of business and the Company.

 

 

US ice storm restoration We received the Emergency Recovery Award from the Edison Electric Institute for our work during the December ice storm that affected New England and upstate New York. The award recognises outstanding efforts in restoring electricity service disrupted by severe weather conditions or other natural events across the US.

Our operating model

We continue to believe that owning and operating complementary businesses in the UK and US provides us with a great opportunity to create value for our shareholders and superior service for our customers. Achieving this standardisation and applying our operating model will be an ongoing theme for the next few years and we have already made a good start.

As with nearly every business in this economic environment, controlling our costs over time is important to our success. We recognised early in these difficult economic times that changes in the way we operated our business were required and actively took steps to accelerate existing plans. Over the course of 2008/09, we have experienced normal employee turnover, but have not had significant redundancies in any part of our Company.

In October 2008, we announced our cumulative global procurement operating and capital expenditure savings target of between £170 and £350 million over a three year period. We were ahead of our annualised savings target in 2008/09 and now expect to be at the upper end of the range for the three year period.

Safety

The safety of our people, including our contractors and the communities we serve, will always be a priority for National Grid. However, it is with sadness that we have to report the death of three contractors and one member of the public as a direct result of our operations.

On a like-for-like basis, with the safety performance of KeySpan employees included in both years, I am pleased to report that this year we have seen a 10.8% reduction in employee lost time injuries compared with 2007/08 and an improvement in the injury frequency rate. During the year, we have targeted such improvements with further impetus on our trusted to work responsibly programme, together with a series of safety leadership workshops for directors, senior managers and safety representatives. Investigation and analysis continue to indicate that the majority of our lost time injuries are due to behavioural causes rather than inadequate procedures, working conditions or equipment. We have also introduced a health and well-being strategy in the year, helping our workforce to be fit and healthy, which I believe will deliver benefits for employees, the Company and wider society.

Climate change

Another area in which we have a long standing reputation is our commitment to the environment. As a company involved in the transmission and distribution of energy, we continue to work with governments and our regulators to ensure that we are part of the solution to the global issue of climate change. Our goal remains the same, an 80% reduction in greenhouse gas emissions by 2050; and we have recently set an interim target of 45% by 2020 to help measure our progress. During 2009/10, we will implement carbon budgets setting a maximum level of greenhouse emissions per business per financial year.

In view of our internal goals, National Grid has taken on a leadership and advocacy role in this and other related areas by working with governments in the UK and US with a focus on

expanded utilisation of energy efficiency, climate change legislation, expansion and efficient utilisation of transmission networks in connecting renewables, and renewable gas.

We remain focused on climate change and security of supply, and playing a leading role in addressing the longer term issues facing the energy industry. We continue to work closely with regulators and policy makers to deliver the energy networks of the future.

People and talent

One of my personal priorities is to ensure that National Grid is a place where our employees are able to perform and grow to the best of their potential. I have been very clear with our employees that, even in these times of economic uncertainty, we simply will not compromise on our promise to invest in people. This year, we introduced new programmes including inclusion and diversity training for our employees, a first line supervisor’s course and an inclusive leadership training workshop for senior managers to help us attain the high performance culture we are continually striving to achieve.

This year, I am pleased that we had a very positive response rate of 91.8% to the 2009 employee opinion survey. Also, our employee engagement index has increased from 60% to 70%. The results show improvement in our 2008 focus areas. While there are some areas of concern, we will continue to take targeted actions to ensure that we make National Grid a better place to work, and a stronger company for our customers and shareholders.

Along with all of the Executive team, I am immensely proud of our employees. Their dedication often goes unnoticed by the general public. Occasionally, usually in very challenging circumstances, such as the gas emergency in Rossendale in the UK or the ice storm in the US, which both occurred near Christmas, they come to the public’s attention for their incredible professionalism under very difficult conditions.

Looking forward

The next year will be busy as we continue to:

§		grow our business;
§		deliver our capital investment programme;
§		advance our leadership role in key UK and US policy areas, such as climate change, and begin to embed our carbon budgets;
§		grow awareness of our brand in the UK and US; and
§		invest in our people.

Steve Holliday
Chief Executive

 

 

Business overview

How we operate

Our principal operations are the ownership and operation of regulated electricity and gas infrastructure networks in the UK and the US, serving around 19 million consumers directly and many more indirectly.
 

 

Transmission

 

This year we have delivered more than £1.4 billion worth of electricity and gas projects to upgrade and reinforce ageing infrastructure and adapt our networks to cope with changing sources of energy.

Our fundamental priorities remain safety, reliability and efficiency. We have also created an enhanced line of sight from National Grid’s objectives to Transmission’s objectives and annual priorities.

We are focused on the long-term security of supply and environmental challenges arising from the transition to a low carbon economy and the decline of UK gas production from the North Sea.

Adjusted operating profit
£1,301m

Capital investment
£1,441m

Employees
3,874

UK energy transmitted
1,454 TWh

 

 

 

We continue to share best practice ideas between the UK and US to improve our operating model and make it more consistent.

In the UK, we are one year into the new price control period, which will bring considerable challenge and opportunity over the remaining four years as we look to become more efficient and effective.

Once again, we have achieved our objective to replace metallic main with plastic this year, totalling over 1,900 kilometres in the UK, and reduced the amount of cast iron and unprotected steel mains by 398 kilometres in the US, improving the safety and reliability of our networks.

Adjusted operating profit
£1,284m

Capital investment
£1,019m

Employees
9,534

Gas delivered
522 TWh

 

 

 

Our customers are at the heart of everything we do. We continue to invest in our distribution and generation systems creating sustained improvements in our system reliability.

We are focused on building a branded customer experience that demonstrates our commitment to our customers and educates them on the environmental impact they have. We believe that increased energy efficiency and deployment of smart technologies are the best ways to help our customers control their energy costs while addressing the effects of climate change.

We are seeking regulatory agreements that decouple our revenue from customer energy usage. With decoupling, we can enable increased energy efficiency for our customers without reducing our revenue stream.

Adjusted operating profit
£265m

Capital investment
£355m

Employees
7,950

Energy saved through energy efficiency measures
275 GWh

 

 

 

This year has seen further expansion activity at our liquefied natural gas (LNG) importation terminal on the Isle of Grain. Through the commissioning of phase II, the site now has annual import capacity of 9.9 million tonnes. We are continuing to invest in Grain LNG and by 2010, with the phase III expansion, it will have the capacity to import 14.8 million tonnes per annum, around 20% of the UK’s forecast gas demand.

During the year, approximately 645,000 new meters were installed by OnStream, our competitive metering business, comprising approximately 375,000 gas and 270,000 electricity meters.

We are undergoing a programme of land remediation at many of our brownfield sites, including legacy gas sites.

Adjusted operating profit
£65m

Capital investment
£427m

Employees
3,597^*

LNG imported to the
UK through Isle of Grain
(tonnes)
1,229,000

* Excluding shared
   services employees

 

 

 

 

Our vision

We, at National Grid, will be the foremost international electricity and gas company, delivering unparalleled safety, reliability and efficiency, vital to the well-being of our customers and communities.

We are committed to being an innovative leader in energy management and to safeguarding our global environment for future generations.

Our strategy

We will build on our core UK and US, electricity and gas, regulated business base and financial discipline to deliver sustainable growth and superior financial performance.

 

 

 

 

 

 

 

 

George Rose, Sir John Parker and Steve Holliday

Sir John Parker, Chairman

Sir John Parker became Chairman following the merger of National Grid Group plc and Lattice Group plc having been Chairman of Lattice Group plc since its demerger from BG Group plc in 2000. Sir John’s career has encompassed the engineering, shipbuilding and defence industries. He is Chair of the Non-executive Directors Committee – Bank of England, Deputy Chairman of DP World (Dubai), joint Chairman of Mondi plc, a Non-executive Director of Carnival plc and Carnival Corporation, Inc., and the European Aeronautic Defence and Space Company (EADS) and Chancellor of the University of Southampton. Sir John is a former Chairman of P&O Group and of RMC Group plc and a former Chairman and Chief Executive of Harland & Wolff plc and Babcock International Group PLC.

Steve Holliday, Chief Executive

Steve Holliday became Chief Executive of National Grid in January 2007 having joined National Grid Group plc as Group Director, UK and Europe in March 2001. Following the merger of National Grid Group plc and Lattice Group plc in October 2002, he was responsible for the electricity and gas transmission businesses. He was appointed as Group Director responsible for UK Gas Distribution and Business Services in April 2003. He was formerly an Executive Director of British Borneo Oil and Gas. Previously, he spent 19 years with the Exxon Group, where he held senior positions in the international gas business and managed major operational areas such as refining and shipping. He is a Non-executive Director of Marks and Spencer Group plc.

Bob Catell, Deputy Chairman

Bob Catell was appointed to the Board in September 2007 as an Executive Director and Deputy Chairman following the acquisition of KeySpan Corporation of which he was Chairman and Chief Executive Officer. He retired as an Executive Director of the Company on 31 March 2009 and will retire as a Non-executive and Deputy Chairman following the conclusion of the 2009 Annual General Meeting. He is a co-Chair of the Board of the Downtown Brooklyn Partnership and Immediate Past Chairman of the Long Island Association. He is an ex officio Director and Chairman Emeritus of The Partnership for New York City, Inc., past Chairman of the American Gas Association and the US Energy Association (USEA). He is a Vice Chairman of the US National Petroleum Council’s Natural Gas Committee and is on the Board of the Business Council of New York, Keyera Energy Management Ltd, Sovereign Bancorp Inc., Advisory Board and JP Morgan Chase Inc., Metropolitan Advisory Board.

Nick Winser and Steve Lucas

Steve Lucas, Finance Director

Steve Lucas has been Finance Director since October 2002 and is additionally responsible for Property and UK and US Shared Services. He joined the Board following the merger of National Grid Group plc and Lattice Group plc in October 2002. He had been Executive Director, Finance of Lattice Group plc since its demerger from BG Group plc. Previously, he was Treasurer of BG Group plc having joined British Gas plc in 1994. Prior to this he was with Shell International Petroleum Company for 11 years occupying a number of finance management positions and treasury roles including seven years in Africa and the Far East. Steve is also a Non-executive Director of Compass Group PLC.

Nick Winser, Executive Director

Nick Winser joined the Board in April 2003 as Executive Director responsible for Transmission. He was previously Chief Operating Officer of the US transmission business for National Grid Transco plc. He joined National Grid Company plc in 1993, becoming Director of Engineering in 2001. Prior to this, he had been with Powergen since 1991 as principal negotiator on commercial matters, having joined the Central Electricity Generating Board in 1983 where he served in a variety of technical engineering roles. He is a Non-executive Director of Kier Group PLC and co-Chair of the Energy Research Partnership.

Mark Fairbairn, Executive Director

Mark Fairbairn was appointed to the Board in January 2007 as Executive Director with responsibility for Gas Distribution. He joined National Grid in 1989 from BNFL. He was awarded the OBE in 2002 for his services to the electrical industry in respect of his leadership of the fundamental changes implemented for the introduction of the New Electrical Trading Arrangements (NETA). Previously Chief Operating Officer of the UK gas distribution business, he has played a key role in helping to restructure the UK gas distribution market through the gas networks sale and the creation of National Grid’s new gas distribution business.

Tom King, Executive Director

Tom King was appointed to the Board as Executive Director in August 2007 with responsibility for Electricity Distribution & Generation operations. Tom was President of PG&E Corporation and Chairman and CEO of Pacific Gas and Electric Company from 2003 to 2007. Before that, he served as Senior Vice President of PG&E Corporation, and as President of PG&E National Energy Group having joined PG&E Gas Transmission as President in 1998. Prior to PG&E, he served as President and Chief Operating Officer of Kinder Morgan Energy Partners and served for nine years in officer positions in Enron’s inter-state pipeline businesses.

 

 

Stephen Pettit, Linda Adamany and Ken Harvey

Philip Aiken, Helen Mahy and Bob Catell

Ken Harvey, Non-executive Director
and Senior Independent Director

Ken Harvey joined the Board following the merger of National Grid Group plc and Lattice Group plc, having been appointed to the Lattice Group plc board in September 2000. He was appointed Senior Independent Director in October 2004. He is Chairman of Pennon Group plc. A chartered engineer, Ken is a former Chairman and Chief Executive of Norweb plc, and a former Chairman of Comax Holdings Ltd, The Intercare Group plc and Beaufort International Group plc.

Linda Adamany, Non-executive Director

Linda Adamany joined the Board in November 2006. Until April 2008 she was Group Vice President, BP plc. Linda has over 25 years’ experience in the energy sector, having held various roles for BP in the UK and US, including Chief Executive of BP Shipping and Group Vice President and Commercial Director, BP Refining & Marketing.

Philip Aiken, Non-executive Director

Philip Aiken joined the Board in May 2008. He is Chairman of Robert Walters plc, a Non-executive and Senior Independent Director of Kazakhmys plc and senior advisor to Macquarie Capital (Europe) Limited. Philip was previously Group President of BHP Billiton’s Energy business, an Executive Director of BTR plc and held senior positions in BOC Group plc.

John Allan, Non-executive Director

John Allan joined the Board in May 2005. He retires as CFO of Deutsche Post on 30 June 2009, having been appointed to the Management Board following its acquisition of Exel plc in December 2005 where he had been Chief Executive since September 1994. He is Non-executive Director of ISS and will become Chairman of DSG International plc on 2 September 2009. John started his career in marketing, at Lever Brothers, moving to Bristol-Myers Company Ltd and then Fine Fare Ltd. He joined BET plc in 1985 and was appointed to the board in 1987. He is a member of the supervisory boards of both Lufthansa AG and Deutsche Postbank and a member of the University of Edinburgh Campaign Board. John was previously Chairman of Samsonite Corporation and a Non-executive Director of PHS Group plc, Wolseley plc, Hamleys plc and Connell plc.

Stephen Pettit, Non-executive Director

Stephen Pettit was appointed to the Board following the merger of National Grid Group plc and Lattice Group plc, having been appointed to the Lattice Group plc

Maria Richter and Mark Fairbairn

Tom King and John Allan

board in 2001. He is a Non-executive Director of Halma plc and is Chairman of ROK plc. Stephen is also a member of BT plc’s Equality of Access Board. He is a former Executive Director of Cable & Wireless plc. Before joining Cable & Wireless, he was Chief Executive, Petrochemicals at British Petroleum.

Maria Richter, Non-executive Director

Maria Richter was appointed to the Board in October 2003. Maria worked for Morgan Stanley between 1993 and 2002, most recently as Managing Director of its Corporate Finance Retail Group. Prior to this, she was Managing Director of Investment Banking in the Southern Cone of Latin America, and Executive Director and Head of Independent Power and Structured Finance Business. Previous appointments include Vice President of Independent Power Group for Salomon Brothers, and Vice President of Prudential Capital Corporation and Power Funding Associates. Maria is a Non-executive Director of Pro Mujer International, an international microfinance organisation, The Pantry, Inc., The Vitec Group plc and The Bessemer Group Inc.

George Rose, Non-executive Director

George Rose was appointed to the Board following the merger of National Grid Group plc and Lattice Group plc, having been appointed to the Lattice Group plc board in September 2000. He has been Finance Director of BAE Systems plc since 1998, having joined the company in 1992. He is a Non-executive Director of SAAB AB and a member of the Industrial Development Advisory Board. George is also a former Non-executive Director of Orange plc.

Helen Mahy, Company Secretary & General Counsel

Helen Mahy was appointed Company Secretary following the merger of National Grid Group plc and Lattice Group plc, having been Company Secretary at Lattice Group plc since March 2002. She was additionally appointed as General Counsel from October 2003. She is a barrister and an Associate of the Chartered Insurance Institute. Helen was appointed a Non-executive Director of Aga Rangemaster Group plc in March 2003.

Committee membership
A Audit
E Executive
F Finance
N Nominations
R Remuneration
R&R Risk & Responsibility
(ch) denotes Committee chairman

 

 

Financial performance

		2009				2008
Years ended 31 March		£m				£m
Revenue			15,624				11,423
Adjusted operating profit			2,915				2,595
Adjusted profit before taxation			1,770				1,829
Adjusted profit from continuing operations			1,253				1,250
Operating profit			2,623				2,964
Profit before taxation			1,394				2,182
Profit from continuing operations			922				1,575
Profit from discontinued operations			25				1,618
Profit for the year			947				3,193
Adjusted earnings per share			50.9p				47.8p
Earnings per share from continuing operations			37.4p				60.3p
Total earnings per share			38.5p				122.3p

Our financial statements are prepared in accordance with International Financial Reporting Standards (IFRS). In addition to customary subtotals in our income statement, we present adjusted profit measures, which exclude exceptional items, remeasurements and stranded cost recoveries, as these are our primary measures of business performance and assist in understanding changes between financial periods.

Revenue, operating costs and operating profit

The movements during the year in revenue and other operating income, operating costs and operating profit for our continuing operations compared with 2007/08 can be summarised as follows:

 

		Revenue
		and other
		operating				Operating				Operating
		income				costs				profit
		£m				£m				£m
2007/08 results			11,498				(8,534	)			2,964
Add back exceptional items and remeasurements			–				10				10
Deduct stranded cost recoveries			(382	)			3				(379	)
2007/08 adjusted results			11,116				(8,521	)			2,595
Exchange movements			1,947				(1,687	)			260
2007/08 constant currency results			13,063				(10,208	)			2,855
Transmission UK			561				(456	)			105
Transmission US			30				(22	)			8
Gas Distribution UK			77				–				77
Gas Distribution US			1,068				(968	)			100
Electricity Distribution & Generation US			454				(620	)			(166	)
Other activities			15				(79	)			(64	)
Sales between businesses			(16	)			16				–
2008/09 adjusted results			15,252				(12,337	)			2,915
Exceptional items and remeasurements			–				(718	)			(718	)
Stranded cost recoveries			435				(9	)			426
2008/09 results			15,687				(13,064	)			2,623

After taking account of exchange movements, the significant increase in revenues and costs during the year relate primarily to the first full year of contribution from KeySpan in 2008/09. KeySpan operations contributed £4,635 million of revenue and £4,084 million of operating costs excluding exceptional items, remeasurements and stranded cost recoveries in 2008/09 compared with £3,262 million and £2,782 million respectively in 2007/08, on a constant currency basis.

Apart from the impact of a full year contribution from KeySpan and currency movements, the other principal reasons for the increased revenue and operating costs were: in Transmission, higher UK regulated revenue and interconnector auction income; in Gas Distribution, increased allowed regulatory revenue and colder weather increasing revenue partially offset by higher bad debt exposure; and in Electricity Distribution & Generation, increased revenue, storm costs and depreciation.

Adjusted operating profit increased by £320 million in 2008/09 compared with 2007/08, comprising an increase of £60 million on a constant currency basis, and £260 million in exchange movements.

Net operating exceptional charges of £275 million in 2008/09 (2007/08: £242 million) primarily related to restructuring costs and increases in environmental provisions in the UK and US. Restructuring costs related to KeySpan integration, cost reduction programmes, transformation initiatives and restructuring of our LNG storage facilities.

Operating remeasurement losses of £443 million (2007/08: £232 million gains) related to changes in the value of commodity contracts in the US carried in the balance sheet at fair value largely arising from movements in energy prices. Stranded cost recoveries at £426 million were £47 million higher than in 2007/08.

Net finance costs

Net finance costs excluding exceptional items and remeasurements in 2008/09 increased by £380 million to £1,150 million compared with £770 million in 2007/08, principally as a consequence of higher levels of net debt during the year. Average net debt was higher during 2008/09 due to the KeySpan acquisition occurring part way through 2007/08, the funding of the capital expenditure programme in 2008/09, and exchange movements.

Financial remeasurements related to net losses on derivative financial instruments of £82 million (2007/08: £7 million) and financial commodity contract revaluations of £2 million (2007/08: £9 million).

Profit before taxation

During the year there was a 3% decrease in adjusted profit before tax from £1,829 million to £1,770 million and a 36% decrease in profit before tax from £2,182 million to £1,394 million.

Taxation

The tax charge of £517 million (2007/08: £579 million) excluding tax on exceptional items, remeasurements and stranded cost recoveries is equivalent to a rate of 29.2% of adjusted profit before taxation. The total tax charge of £472 million is equivalent to a rate of 33.9% of profit before taxation.

Earnings per share from continuing operations

Adjusted earnings per share from continuing operations increased 6% from 47.8p to 50.9p. Earnings per share from continuing operations decreased from 60.3p to 37.4p. These reflect the movement in profit and adjusted profit during the year and the reduction in shares as a result of the share repurchase programme in 2008/09. For earnings per share, the primary reason for the decrease is due to remeasurement losses.

 

 

 

Discontinued operations

During 2008/09 discontinued operations included the Ravenswood generation station, which was sold on 26 August 2008, KeySpan Communications, which was sold on 25 July 2008, and the KeySpan engineering companies, one of which was sold on 11 July 2008. Subsequent to the year end, two further engineering companies were sold.

Dividends

The total ordinary dividend for 2008/09 (including the proposed final dividend of 23.00 pence) amounts to 35.64 pence per ordinary share, which equates to approximately £867 million. This represents an increase of 8% over the previous year’s total ordinary dividend per share of 33.00 pence (£831 million). The above amounts exclude the £597 million returned in 2008/09 on repurchasing shares (2007/08: £1,516 million).

The proposed final dividend to shareholders for 2008/09 of 23.00 pence per share, amounting to approximately £560 million (assuming all amounts settled in cash), will be reported in the financial statements for the year ending 31 March 2010. This year, we are offering shareholders the option of a scrip dividend (subject to shareholder approval). Under this scheme, shareholders can opt to receive the final dividend in new ordinary shares rather than cash.

Dividend policy

Our target is to increase dividends by 8% each year until 31 March 2012.

Cash flow

Cash generated from continuing operations was £3,564 million in 2008/09, compared with £3,265 million in 2007/08. This includes net cash inflows for continuing operations relating to exceptional items and stranded cost recoveries of £228 million and £146 million in 2008/09 and 2007/08 respectively. After reflecting cash flows relating to discontinued operations and tax paid, net cash inflow from operating activities was £3,413 million, compared with £3,165 million in 2007/08.

Cash outflows from investing activities were £1,998 million in 2008/09 compared with an outflow of £3,023 million in 2007/08. This reflected £73 million spend on the acquisition of subsidiaries and other investments in 2008/09 (2007/08: £3,528 million spent, primarily relating to the KeySpan acquisition), purchases of property, plant and equipment of £3,107 million in 2008/09 (2007/08: £2,832 million), partially offset by net sales of financial investments of £99 million (2007/08: net sales of £45 million), cash inflows from discontinued operations of £1,049 million (2007/08: inflows of £3,050 million), and other cash inflows of £34 million (2007/08: inflows of £242 million).

Net cash used in financing activities of £877 million in 2008/09 compared with £1,592 million used in 2007/08. This included £627 million in 2008/09 and £1,498 million outflows in 2007/08 with respect to share repurchases. It also included £4,892 million raised from loans received compared with £1,568 million in 2007/08.

Net debt

Net debt increased by £5.1 billion from £17.6 billion at 31 March 2008 to £22.7 billion at 31 March 2009, primarily as a result of the foreign exchange impact due to the strengthening of the US dollar and the funding of our capital expenditure programme, partially offset by cash inflows from operations and disposal proceeds.

Net pension and other post-retirement obligations

At 31 March 2009, we had a net pension and other post-retirement obligations deficit of £2.8 billion (2008: £0.9 billion), consisting of plan assets of £15.5 billion (2008: £17.3 billion) offset by plan liabilities of £18.3 billion (2008: £18.2 billion). The principal movements in our net pensions obligation during the year arose as a result of actuarial losses on the value of plan assets reflecting the significant decline in global share indices. This was partially offset by actuarial gains on plan liabilities, primarily as a consequence of using higher discount rates.

In addition to ongoing employer contributions, we have agreed to make additional deficit contributions to our UK pension schemes expected to total £149 million in 2009/10, with the remaining deficit payable over the period up to 2017. In accordance with our funding policy for US pension and other post-retirement benefit plans, we expect to contribute approximately £445 million during 2009/10.

Treasury policy

Funding and treasury risk management for National Grid is carried out by the Treasury function under policies and guidelines approved by the Board. The Finance Committee of the Board is responsible for the regular review and monitoring of treasury activity and for the approval of specific transactions, the authority for which may be delegated. The primary objective of the Treasury function is to manage the funding and liquidity requirements of National Grid. A secondary objective is to manage the associated financial risks (in the form of interest rate risk and foreign exchange risk) to within acceptable boundaries. Our policies over the management of funding and liquidity and the main risks arising from our financing activities, including the use of financial derivatives, are agreed and reviewed by the Board and the Finance Committee. The Treasury function is not operated as a profit centre. Debt and treasury positions are managed in a non-speculative manner, such that all transactions in financial instruments or products are matched to an underlying current or anticipated business requirement.

Commodity derivatives entered into in respect of gas and electricity commodities are controlled by policy guidelines set by the Finance Committee and energy procurement risk management committee.

Going concern

Having made enquiries, the Directors consider that the Company and its subsidiary undertakings have adequate resources to continue in business for the foreseeable future and that it is therefore appropriate to adopt the going concern basis in preparing the consolidated and individual financial statements of the Company.

 

 

 

 

Performance summary:
Achievements and other performance measures

Delivering superior financial performance

Adjusted operating profit ‡ †		Interest cover †		Cash generated by
(£m)		Long-term target: range 3.0-3.5		continuing operations † (£m)

Driving improvements in our safety, customer and operational performance

Injuries to the public * (number) Target: zero		§    Electricity Distribution & Generation ranked in lower quartile for customer satisfaction in J.D. Power and Associates survey in the US §    Employee sickness absence rate was 3.06% in 2008/09, an increase from 2.46% in 2007/08

Modernising and extending our transmission and distribution networks

Total capital expenditure † (£m)		§    Phase II of Grain LNG commissioned in December 2008 §    Commencement of the New England East-West Solution (NEEWS) transmission project in the US

Becoming more efficient through transforming our operating model

§		Synergy savings of $74 million achieved in the year representing a run rate of $129 million at 31 March 2009
§		Phase II implementation of common ERP operating platform across UK businesses
§		Continuing restructuring plans in the US including consolidation of premises. Our new Reservoir Woods office in Waltham, Massachusetts is due for completion in spring 2009
§		Transformation of operations within the lines of business focused on projects that maximise tangible returns in the near term

Building trust, transparency and an inclusive and engaged workforce

Proportion of female employees (%)		Proportion of ethnic minority employees (%)		§    91.8% response rate in our employee survey (2007/08: 86.4%) §     73% (2007/08: 62%) of employees said that they would recommend National Grid as a place to work §     We launched our global inclusion charter that explains what employees can expect from the Company, as well as what National Grid expects from employees

Developing our talent, leadership skills and capabilities

§		Recruited a total of 272 advanced apprentices, foundation engineers and graduates in the UK
§		Launched workforce planning as a methodology to identify and proactively address the gaps both in people and skills necessary to deliver our strategy
§		Launched two new management development programmes

Positively shaping the energy and climate change agenda

Significant direct environmental incidents * (number) Target: zero		§    Steve Holliday member of the RPI-X@20 advisory panel looking at regulation and future energy challenges in the UK §    80% of employees working to certified ISO 14001 systems

‡		Adjusted operating profit excludes exceptional items, remeasurements and stranded cost recoveries
†		2007/08 includes continuing operations acquired with KeySpan for the period from 24 August 2007 to 31 March 2008 or as at 31 March 2008
*		2007/08 excludes KeySpan operations

National Grid plc Annual Review 2008/09     21

 

 

Chairman’s foreword

At this time of global economic turbulence there are many questions being rightfully raised about the governance and effectiveness of boards. Good corporate governance, using the Combined Code as a guide to the components of good practice, is an integral part of the Company’s drive to deliver unparalleled safety, reliability and efficiency, vital to the well-being of our customers and communities. Delivering sustainable value depends on the trust and confidence of all of our stakeholders, and this can only be earned by conducting our business responsibly. Good governance practices develop over time and we aim to be at the forefront of best practice in order to deliver the Company’s vision and, by doing so, promote the success of the business for the benefit of shareholders.

While I, with assistance from the Company Secretary & General Counsel, lead the governance process, it is a matter which is reserved to the whole Board for consideration and I believe that the Board considers such matters in a holistic manner rather than as a separate compliance exercise. By doing so, I believe that the Board and the Company are well placed to face the challenges arising from this current economic environment.

Again this year, we have carried out an in depth review of the Board’s effectiveness and have produced, as we have done for several years, an action plan to ensure constant improvement. However, an overriding acid test question for a Chairman to answer is – does the Board have the breadth of skills and experience to address and challenge adequately the key business decisions and risks that confront it? Related questions include: do the Non-executive Directors attend sufficient meetings and spend sufficient time overall on Company issues to fully understand the business and the risks it faces? Would each Non-executive Director be regarded as capable of challenging management and influencing outturns either in the Board or in its Committees? Would the Non-executive Directors as a body be capable of overturning proposals from the management which they did not consider were in the interests of shareholders or where they consider that the inherent risks were in excess of those assessed by management?

These questions have concerned us in our Nominations Committee over the past years as we have carefully recruited Non-executive and Executive Directors to build the Board we have today. I therefore believe we not only have the Board focused on good governance but we have the right Board composition and that the Board works effectively, allowing us to respond to the challenges of these difficult times.

Sir John Parker

Chairman

Governance framework

The Company is committed to operating our businesses in a sustainable and responsible manner. Our corporate governance framework forms an integral part of this approach in order to safeguard shareholder value. Our Company wide policies and procedures including risk management are considered as part of the overall governance of the business. In relation to the Combined Code on Corporate Governance as revised in 2006, (the Code), applicable to UK listed companies, the Board considers that it complied in full with the Code during the year. The Company also has regard to, and regularly reviews, developing corporate governance best practice including matters contained in the various investor guidelines.

We are pleased to present the Directors’ Remuneration Report for 2008/09. Our policy of relating pay to the performance of the Company continues to be a strong principle underlying the Remuneration Committee’s consideration of executive remuneration. We aim to ensure the Company continues to attract, motivate and retain high calibre individuals to deliver the highest possible performance for our shareholders.

We have made no changes to our arrangements this year and firmly believe the changes we have made over the last few years continue to provide an appropriate and balanced opportunity for executives. Our incentive plans remain aligned with the Company’s strategic objectives and our shareholders’ interests, while continuing to motivate and engage the team leading the Company to achieve stretching targets.

We believe salary levels and the mix between fixed and variable compensation continues to be appropriate, however, we shall continue to review the remuneration package on a regular basis to ensure it remains so.

Overall, Company performance has been strong for the last year and therefore Annual Performance Plan (bonus plan) awards to the Executive Directors and their teams reflect that strong performance.

In recognition of the external economic market conditions, the Executive Directors have decided voluntarily they will forego salary increases in June 2009. It is anticipated their salaries will next be reviewed in 2010.

Edward Astle left National Grid on 30 April 2008, following the sale of parts of the non-regulated portfolio, including National Grid Wireless which was sold for a price that was significantly in excess of market expectations at that time. Details of Edward’s leaving arrangements follow later in this report.

Bob Catell retired as an Executive Director on 31 March 2009 and became a Non-executive Director as well as being Deputy Chairman and Non-executive Chairman of National Grid USA, which will be effective until the conclusion of the Company’s Annual General Meeting on 27 July 2009 when Bob will leave the Company. Bob will not receive any payments on leaving, other than with respect to his contractual pension rights and an Annual Performance Plan award reflecting the performance year 2008/09 (details of this award can be found on page 25).

John Allan

Chairman of the Remuneration Committee

Role of the Remuneration Committee
and its terms of reference

The Remuneration Committee is responsible for developing Company policy regarding executive remuneration and for determining the remuneration of the Executive Directors and executives below Board level who report directly to the Chief Executive. It also monitors the remuneration of other senior employees of the Company and provides direction over the Company’s share plans. The Remuneration Committee operates within terms of reference agreed by the Board, which are available on our website or on request from the Company. The Board has accepted all the recommendations made by the Remuneration Committee during the year.

 

 

 

Remuneration policy

The Remuneration Committee determines remuneration policy and practices with the aim of attracting, motivating and retaining high calibre Executive Directors and other senior employees to deliver value for shareholders and high levels of customer service, safety and reliability in an efficient and responsible manner.

The Remuneration Committee sets remuneration policies and practices in line with best practice in the markets in which the Company operates. Remuneration policies are framed around the following key principles:

§		total rewards should be set at levels that are competitive in the relevant market;
§		a significant proportion of the Executive Directors’ total reward should be performance based. These incentives will be earned through the achievement of demanding targets for short-term business and individual performance as well as long-term shareholder value creation; and
§		incentive plans, performance measures and targets should be stretching and aligned as closely as possible with shareholders’ interests.

Executive Directors’ remuneration

Remuneration packages for Executive Directors consist of the following elements:

§		salary
§		Annual Performance Plan including the Deferred Share Plan;
§		long-term incentive, the Performance Share Plan;
§		all-employee share plans;
§		pension contributions; and
§		non-cash benefits.

Salaries are reviewed annually and targeted broadly at the median position against the relevant market. In determining the relevant market, the Remuneration Committee takes account of the regulated nature of the majority of the Company’s operating activities along with the size, complexity and international scope of the business. In setting individual salary levels, the Remuneration Committee takes into account business performance, the individual’s performance and experience in the role together with salary practices prevailing for other employees in the Company.

The Annual Performance Plan (bonus plan) is based on achievement of a combination of demanding Company, individual and, where applicable, divisional targets. The principal measures of Company performance are adjusted earnings per share (EPS), consolidated cash flow and return on equity. The main divisional measures are operating profit and line of business returns targets. Financial targets represent 70% of the plan. Individual targets representing 30% of the plan are set in relation to key operating and strategic objectives. The Remuneration Committee may use its discretion to reduce payments to take account of significant safety or service standard incidents; or to increase them in the event of exceptional value creation. The Remuneration Committee also has discretion to consider environmental, social and governance issues when determining payments to Executive Directors.

In 2008/09, the maximum opportunity under the Annual Performance Plan for Executive Directors was 150% of base salary, with 40% of the plan (60% of salary) being paid for target performance. One half of any award earned is automatically deferred into National Grid shares (ADSs for US-based Executive Directors) through the DSP. The shares are held in trust for three

years before release. For the 2007/08 award and onwards, the deferred shares may be forfeited if the Executive Director ceases employment during the three year holding period as a ‘bad leaver’, for example, resignation.

The Remuneration Committee believes that requiring Executive Directors to invest a substantial amount of their Annual Performance Plan award in National Grid shares ensures that Executive Directors share a significant level of personal risk with the Company’s shareholders. In line with current US market practice, US-based Executive Directors’ awards are pensionable.

Executive Directors receive an award over shares which will vest subject to the achievement of performance conditions set by the Remuneration Committee at the date of grant. The value of shares (ADSs for US-based Executive Directors) constituting an award for Executive Directors is 200% of salary.

Shares vest after three years, conditional upon the satisfaction of the relevant performance criteria. Vested shares must then be held for a further period (the retention period) after which they are released to the participant on the fourth anniversary of the date of grant.

Awards from 2005 onwards vest based on the Company’s TSR performance when compared to the FTSE 100 at the date of grant (50% of the award) and the annualised growth of the Company’s EPS (50% of the award). This approach will continue going forward. No shares will be released under the TSR part of the award if the Company’s TSR over the three year period, when ranked against that of the FTSE 100 comparator group, falls below the median. For TSR at the median, 30% of those shares will be released, 100% will be released where National Grid’s TSR performance is 7.5% above that of the median company in the FTSE 100. In calculating TSR, for all awards, it is assumed that dividends are reinvested.

The EPS measure is calculated by reference to National Grid’s real EPS growth. Where annualised EPS growth (on a continuing basis and excluding exceptional items, remeasurements and stranded costs) over the three year performance period exceeds the average annual increase in RPI (the general index of retail prices for all items) over the same period by 3% (threshold performance), 30% of the shares under the EPS part of the award will be released, 100% of the shares will be released where EPS growth exceeds RPI growth by 8%. For awards made prior to 2007, the upper target for EPS was 6%. For performance, under each measure, between threshold and the upper target, the number of shares released is calculated on a straight-line basis. No re-testing of performance is permitted for any of the PSP awards that do not vest after the three year performance period and any such awards lapse.

The upper targets for both the EPS and TSR performance criteria were reached for the 2005 award, which has resulted in 100% vesting. The shares from this award will be transferred to participants in July 2009, following the completion of the retention period. The Remuneration Committee agreed to pay a cash amount equivalent in value to the net dividends (after taxes, commissions and any other charges) that would be paid during the retention period in respect of the shares comprised in the vested award. These payments were made in August 2008 and February 2009, to align broadly with dividend payments to our shareholders.

 

 

As part of a contractual commitment made at the time of Tom King’s recruitment, Tom received a Special Retention Award in November 2007. The one-off award of National Grid ADSs was based on three times his salary on appointment and vests in equal tranches, over three years, on the anniversary of the award (November 2008 through to November 2010) subject to continued employment. There are no performance conditions attached to this award. Details of the vested ADSs representing the first tranche of this award can be found on page 25.

§		Sharesave: UK-based Executive Directors, are eligible to participate in HM Revenue & Customs approved all-employee Sharesave schemes.
§		Share Incentive Plan (SIP): UK-based Executive Directors are eligible to participate in the SIP.
§		US Incentive Thrift Plans: US-based Executive Directors are eligible to participate in the Thrift Plans, tax-advantaged savings plans (commonly referred to as 401(k) plans) provided for employees of National Grid’s US companies.
§		Employee Stock Purchase Plan (ESPP): US-based Executive Directors are eligible to participate in the ESPP. Eligible employees have the opportunity to purchase American Depository Shares (ADSs) on a monthly basis at a 10% discounted price, up to a maximum annual contribution of US$20,000.

The pension provisions for the UK-based Executive Directors are designed to provide a final salary pension benefit of one thirtieth of final salary at age 60 for each year of service subject to a maximum of two thirds of final salary, including any pension rights earned in previous employment. Life assurance provision of four times pensionable salary and a spouse’s pension equal to two thirds of the Executive Director’s pension are provided on death.

The current UK-based Executive Directors have elected to participate in the unfunded scheme in respect of any benefits in excess of the Lifetime Allowance or their Personal Lifetime Allowance. An appropriate provision in respect of the unfunded scheme has been made in the Company’s balance sheet. These Executive Directors can choose to cease accrual in the pension schemes and take a 30% cash allowance in lieu of pension.

US-based Executive Directors participate in a qualified pension plan and an executive supplemental retirement plan provided by National Grid’s US companies. These plans are non-contributory defined benefit arrangements. Benefits are calculated using a formula based on years of service and highest average compensation over five or three consecutive years. In line with many US plans, the calculation of benefits under the arrangements takes into account salary, Annual Performance Plan awards and incentive share awards (DSP) but not share options or PSP awards. The normal retirement age under the qualified pension plan is 65. The executive supplemental retirement plan provides unreduced pension benefits from age 55.

The Company provides competitive benefits to Executive Directors, such as a fully expensed car or a cash alternative in lieu of car, use of a driver when required, private medical insurance and life assurance. Business expenses incurred are reimbursed in such a way as to give rise to no benefit to the Executive Director.

Additional benefits may be purchased under the flexible benefits plan (the Plan). The Plan operates by way of salary sacrifice, that is, the participants’ salaries are reduced by the monetary value used to purchase benefits under the Plan. A number of Executive Directors participate in this Plan and details of the impact on their salaries are shown in Table 1 on page 25. Similar plans are offered to US-based employees. However, they are not salary sacrifice plans and therefore do not affect salary values. Both Tom King and Bob Catell (when an Executive Director) were participants in such plans during the year.

Share ownership guidelines

Executive Directors are required to build up and retain a shareholding representing at least 100% of annual salary.

Executive Directors’ service contracts

Service contracts for all Executive Directors provide for one year’s notice by either party.

Entitlement to payment of 12 months’ remuneration on early termination for Executive Directors is not automatic and is determined by the Remuneration Committee exercising its sole discretion, taking into account the circumstances of the termination. In determining any other such payments, the Remuneration Committee gives due regard to the comments and recommendations in the UK Listing Authority’s Listing Rules, the Combined Code on Corporate Governance, as revised in 2006; and other requirements of legislation, regulation and good governance.

The Remuneration Committee operates a policy of mitigation of losses in the event of an Executive Director’s employment being terminated by the Company. If this occurs, the departing Executive Director would normally be expected to mitigate any losses incurred as a result of the termination.

Non-executive Directors’ remuneration

Non-executive Directors’ fees are determined by the Executive Directors. Non-executive Directors’ remuneration comprises an annual fee (£45,000) and a fee for each Board meeting attended (£1,500) with a higher fee for meetings held outside the Non-executive Director’s country of residence (£4,000). An additional fee of £12,500 is payable for chairmanship of a board committee and for holding the position of Senior Independent Director. The Audit Committee chairman receives a chairmanship fee of £15,000 to recognise the additional responsibilities commensurate with this role. The Chairman is covered by the Company’s personal accident and private medical insurance schemes and the Company provides him with life assurance cover, a car (with driver when appropriate) and fuel expenses. Non-executive Directors do not participate in the annual bonus plan or in any long-term incentive plan, nor do they receive any pension benefits from the Company.

Non-executive Directors’ letters of appointment

The Chairman’s letter of appointment provides for a period of six months’ notice to give the Company reasonable security with regard to his service. The terms of engagement of Non-executive Directors other than the Chairman are also set out in letters of appointment. For all Non-executive Directors, their initial appointment and any subsequent reappointment is subject to election by shareholders.

 

 

 

																										Year ended
																										31 March
		Year ended 31 March 2009																							2008
						Annual				Benefits				Benefits
						Performance				in kind(ii)				in kind(ii)				Other
		Salary(i)				Plan (bonus)				(cash)				(non-cash)				emoluments				Total				Total
		£000s				£000s				£000s				£000s				£000s				£000s				£000s
Steve Holliday (iii) (iv) (v) (vi)			917				1,265				12				12				–				2,206				2,062
Steve Lucas (iii) (iv) (vi) (vii)			516				709				6				28				–				1,259				1,183
Nick Winser (iii) (iv) (vi)			459				620				–				17				–				1,096				963
Mark Fairbairn (iii) (iv) (vi) (vii)			458				598				8				25				–				1,089				1,010
Tom King (iii) (viii) (ix)			677				704				5				10				–				1,396				1,149
Edward Astle (iii) (x)			37				–				1				–				440				478				1,070
Bob Catell (iii) (viii) (xi) (xii)			825				1,090				6				28				–				1,949				818
Total			3,889				4,986				38				120				440				9,473				8,255

														Year ended
														31 March
		Year ended 31 March 2009											2008
						Other
		Fees				emoluments				Total				Total
		£000s				£000s				£000s				£000s
Sir John Parker (i)			542				62				604				559
Ken Harvey			83				–				83				79
Linda Adamany			75				–				75				77
Philip Aiken (ii)			59				–				59				n/a
John Allan			76				–				76				71
Stephen Pettit			84				–				84				79
Maria Richter			92				–				92				92
George Rose			84				–				84				82
Total			1,095				62				1,157				1,039

The graph opposite represents the comparative TSR performance of the Company from 31 March 2004 to 31 March 2009.

This graph represents the Company’s performance against the performance of the FTSE 100 index, which is considered suitable for this purpose as it is a broad equity market index of which National Grid is a constituent. This graph has been produced in accordance with the requirements of Schedule 7A to the Companies Act 1985.

In drawing this graph it has been assumed that all dividends have been reinvested. The TSR level shown at 31 March each year is the average of the closing daily TSR levels for the 30 day period up to and including that date.

TSR v FTSE 100

 

 

 

 

 

Summary consolidated income statement

for the years ended 31 March

		2009				2009				2008		*		2008		*
		£m				£m				£m				£m
Revenue							15,624								11,423
Other operating income							63								75
Operating costs							(13,064	)							(8,534	)
Operating profit
Before exceptional items, remeasurements
and stranded cost recoveries			2,915								2,595
Exceptional items, remeasurements
and stranded cost recoveries			(292	)							369
Total operating profit							2,623								2,964
Interest income and similar income							1,315								1,275
Interest expense and other finance costs
Before exceptional items
and remeasurements			(2,465	)							(2,045	)
Exceptional items and remeasurements			(84	)							(16	)
							(2,549	)							(2,061	)
Share of post-tax results of joint ventures							5								4
Profit before taxation
Before exceptional items, remeasurements
and stranded cost recoveries			1,770								1,829
Exceptional items, remeasurements
and stranded cost recoveries			(376	)							353
Total profit before taxation							1,394								2,182
Taxation
Before exceptional items, remeasurements
and stranded cost recoveries			(517	)							(579	)
Exceptional items, remeasurements
and stranded cost recoveries			45								(28	)
Total taxation							(472	)							(607	)
Profit from continuing operations after taxation
Before exceptional items, remeasurements
and stranded cost recoveries			1,253								1,250
Exceptional items, remeasurements
and stranded cost recoveries			(331	)							325
Profit for the year from continuing operations							922								1,575
Profit for the year from discontinued operations
Before exceptional items and remeasurements			9								28
Exceptional items and remeasurements			16								1,590
							25								1,618
Profit for the year							947								3,193
Attributable to:
Equity shareholders of the parent							944								3,190
Minority interests							3								3
							947								3,193
Earnings per share from continuing operations
Basic							37.4p								60.3p
Diluted							37.1p								59.9p
Earnings per share
Basic							38.5p								122.3p
Diluted							38.2p								121.6p
Dividends per ordinary share: paid during the year							33.94p								29.50p
Dividends per ordinary share: for the year(i)							35.64p								33.00p

 

 

 

 

Summary consolidated balance sheet

at 31 March

		2009				2008		*
		£m				£m
Non-current assets			37,712				30,830
Current assets			6,755				5,435
Assets of businesses held for sale			–				1,506
Total assets			44,467				37,771
Current liabilities			(7,026	)			(7,146	)
Non-current liabilities			(33,457	)			(25,188	)
Liabilities of businesses held for sale			–				(63	)
Total liabilities			(40,483	)			(32,397	)
Net assets			3,984				5,374
Equity
Shareholders’ equity			3,970				5,356
Minority interests			14				18
Total equity			3,984				5,374

Summary consolidated cash flow statement

for the years ended 31 March

		2009				2008
		£m				£m
Cash flows generated from continuing operations			3,564				3,265
Cash flows generated from discontinued operations			(8	)			10
Tax paid			(143	)			(110	)
Net cash inflow from operating activities			3,413				3,165
Net cash used in investing activities			(1,998	)			(3,023	)
Net cash inflow used in financing activities			(877	)			(1,592	)
Net increase/(decrease) in cash and cash equivalents			538				(1,450	)
Net debt			(22,673	)			(17,641	)

These summary consolidated financial statements were approved by the Board of Directors on 13 May 2009 and were signed on its behalf by:

Sir John Parker Chairman
Steve Lucas Finance Director

 

 

 

The summary consolidated financial statements represent an abridged version of the financial statements in the National Grid Annual Report and Accounts 2008/09, which are prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board and as adopted by the European Union (EU).

There have been no significant changes in accounting policies from those adopted in 2007/08. New standards and interpretations adopted during the year did not have a material impact on the reported results or financial position for 2008/09 or 2007/08.

We have examined the summary consolidated financial statements of National Grid plc, which comprise the summary consolidated income statement, summary consolidated balance sheet, summary consolidated cash flow statement and summary Directors’ Remuneration Report.

The Directors are responsible for preparing the summarised Annual Review in accordance with United Kingdom law.

Our responsibility is to report to you our opinion on the consistency of the summary consolidated financial statements within the summarised Annual Review with the full annual financial statements, the Directors’ Report and the Directors’ Remuneration Report, and its compliance with the relevant requirements of section 251 of the Companies Act 1985 and the regulations made thereunder.

We also read the other information contained in the summarised Annual Review and consider the implications for our statement if we become aware of any apparent misstatements or material inconsistencies with the summary consolidated financial statements.

This statement, including the opinion, has been prepared for, and only for, the Company’s members as a body in accordance with section 251 of the Companies Act 1985 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this statement is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

We conducted our work in accordance with Bulletin 1999/6, ‘The auditors’ statement on the summary financial statements’ issued by the Auditing Practices Board. Our report on the Company’s full annual financial statements describes the basis of our audit opinion on these financial statements and the Directors’ Remuneration Report.

In our opinion the summary consolidated financial statements are consistent with the full annual financial statements, the Directors’ Report and the Directors’ Remuneration Report of National Grid plc for the year ended 31 March 2009 and comply with the applicable requirements of section 251 of the Companies Act 1985, and the regulations made thereunder.

PricewaterhouseCoopers LLP

Chartered Accountants and Registered Auditors

London, 13 May 2009

 

 

 

Financial calendar

The following dates have been announced or are indicative of future dates:

3 June 2009		Ordinary shares go ex-dividend for 2008/09
5 June 2009		Record date for 2008/09 final dividend
22 July 2009		Scrip election date for 2008/09 final dividend*
27 July 2009		2009 Annual General Meeting and interim management statement
19 August 2009		2008/09 final dividend paid to qualifying ordinary shareholders
19 November 2009		2009/10 half-year results
2 December 2009		Ordinary shares go ex-dividend
4 December 2009		Record date for 2009/10 interim dividend
20 January 2010		2009/10 interim dividend paid to qualifying ordinary shareholders
Jan/Feb 2010		Interim management statement
May 2010		2009/10 preliminary results

Dividends

National Grid normally pays dividends twice each year, in accordance with the timetable above.

Subject to shareholder approval at the 2009 Annual General Meeting, National Grid will be offering an optional scrip dividend for the 2008/09 final dividend. The scrip dividend will replace the DRIP, which will be suspended indefinitely. A scrip dividend enables shareholders to receive new ordinary shares in National Grid instead of cash dividends. No dealing costs or stamp duty are incurred (ADR holders are subject to Stamp Duty Reserve Tax).

Shareholders who previously had a DRIP mandate will have to apply for a scrip mandate or alternatively receive a cash dividend. For further information on dividends including the proposed optional scrip dividend, please contact Capita Registrars or register electronically at www.nationalgrid.com/shareholders.

Website and electronic communications

Shareholder documents are now, following changes in company law and shareholder approval, primarily made available via the Company’s website at www.nationalgrid.com/investors unless a shareholder has requested to continue to receive paper copies of such documents. Shareholders can manage their shareholding online at www.nationalgrid.com/shareholders.

Shareholder Networking

National Grid operates a Shareholder Networking programme, the aim of which is to allow UK resident shareholders to gain a better understanding of the Company. The programme, which is normally run twice a year in June and during early December over two days, includes visits to operational sites and presentations by senior managers and employees. Participants also have the opportunity to meet and question Directors. The costs of the programme (including shareholder travel to and from the event) are paid for by National Grid.

If you would like to take part, please write to:

Shareholder Networking Organiser

National Grid House

Warwick Technology Park

Gallows Hill

Warwick CV34 6DA

Participants will be selected by ballot from those applying, with priority given to those who have not recently attended.

Share dealing, individual savings accounts (ISAs) and ShareGift

A share dealing service is available from Capita Registrars. For more information please call 0871 664 0445 (8am – 4.30pm) or visit www.capitadeal.com. Calls are charged at 10p per minute plus network extras. High street banks may also offer share dealing services. Corporate ISAs for National Grid shares are available from Stocktrade. For more information, call Stocktrade on 0131 240 0443 or write to Stocktrade, 81 George Street, Edinburgh EH2 3ES. If you hold only a few shares and feel that it is uneconomical or otherwise not worthwhile to sell them, you could consider donating your shares to ShareGift, an independent registered charity (no. 1052686) that provides a free service for shareholders wishing to give holdings of shares to benefit charitable causes. For more information please visit www.sharegift.org or call Capita Registrars.

These details are provided for information only and any action you take is at your own risk. If you have any doubt as to the action you should take, you are recommended to seek your own financial advice from your stockbroker, bank manager, accountant or other independent financial advisor authorised pursuant to the Financial Services and Markets Act 2000.

Capital Gains Tax (CGT)

CGT information relating to National Grid shares can be found on our website or obtained from Capita Registrars. Share prices on specific dates can be found at www.nationalgrid.com.

Shareholdings

The following graph shows the movement in National Grid’s share price during 2008/09. A graph showing total shareholder return over five years is available on page 25.

 

 

This document comprises our Annual Review for the year ended 31 March 2009. The full Annual Report and Accounts of National Grid for the same period is published as a separate document. The Directors’ Report on pages 100 and 101 and the Directors’ Remuneration Report on pages 102 to 112 of the Annual Report and Accounts and the Summary Directors’ Remuneration Report on pages 22 to 25 of the Annual Review have each been drawn up in accordance with the requirements of English law, and liability in respect thereof is also governed by English law. In particular, the liability of the Directors for these reports is solely to National Grid.

This document also 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. These statements include information with respect to our financial condition, our results of operations and businesses, strategy, plans and objectives. Words such as ‘anticipates’, ‘expects’, ‘intends’, ‘plans’, ‘believes’, ‘seeks’, ‘estimates’, ‘may’, ‘will’, ‘continue’, ‘project’ and similar expressions, as well as statements in the future tense, identify forward-looking statements. These forward-looking statements are not guarantees of our future performance and are subject to assumptions, risks and uncertainties

that could cause actual future results to differ materially from those expressed in or implied by such forward-looking statements. Many of these assumptions, risks and uncertainties relate to factors that are beyond our ability to control or estimate precisely, such as delays in obtaining, or adverse conditions contained in, regulatory approvals and contractual consents, unseasonable weather affecting the demand for electricity and gas, 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, the impact of changes to accounting standards, technological developments and the ability to access capital markets and other sources of credit in a timely manner or on acceptable terms, especially considering the recent deterioration of market conditions in the global economy and financial markets. Other factors that could cause actual results to differ materially from those described in this document include the ability to integrate the businesses relating to announced acquisitions with our existing business, to realise the expected synergies from such integration, the availability of new acquisition opportunities and the timing and success of future acquisition opportunities, the timing and success or other impact of the sales of our non-core businesses, the failure for any reason to achieve reductions in

costs or to achieve operational efficiencies, the failure to retain key management, 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 our pension schemes and the regulatory treatment of pension costs, and any adverse consequences arising from outages on or otherwise affecting energy networks, including gas pipelines, which we own or operate. For a more detailed description of some of these assumptions, risks and uncertainties, together with any other risk factors, please see our filings with and submissions to the US Securities and Exchange Commission (the ‘SEC’) (and in particular the ‘Risk Factors’ and ‘Operating and Financial Review’ sections in our most recent Annual Report on Form 20-F). Except as may be required by law or regulation, National Grid undertakes no obligation to update any of its forward-looking statements. The effects of these factors are difficult to predict. New factors emerge from time to time and we cannot assess the potential impact of any such factor on our activities or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement. The content of any website references herein do not form part of this document.

 

Performance Summary

Following the introduction of the Performance Summary, the vast majority of our shareholders have chosen to just receive the Performance Summary in paper format rather than the Annual Report or Annual Review. Alternatively, you may wish to receive documents electronically. To find out more about electronic communications, please visit www.nationalgrid.com/shareholders.

Shareholders may, however, also request a full copy of the Annual Report and Accounts, free of charge, from the Registrar.

Printed on revive 100 uncoated paper. This paper is made from 100% de-inked post consumer waste. It has been certified according to the rules of the Forest Stewardship Council (FSC) and it is produced at a mill that is certified to ISO 14001 environmental management standards. The mill uses pulps that are an elemental chlorine free (ECF) process and the inks used are all vegetable oil based.