National Grid Transco, the owner and operator of the electricity and gas supplier, told investors yesterday it would exceed the cost savings target of £100m set when the company was created.
The chief executive, Roger Urwin, revealing the merged group's half-year results, said operating profits were up 36 per cent to £802m and profits before tax, exceptionals and goodwill were up 24 per cent to £339m. The group's cash flow has increased 42 per cent to £1.2bn.
National Grid Transco (NGT) was formed from the £11.5bn acquisition of Lattice, the gas distribution network owner, by National Grid, the electricity supplier. The merger was completed last month and Mr Urwin said it had gone so smoothly, the £100m target would be surpassed by the end of 2004.
Cutting costs helped the company outperform in a market that is subject to strict regulations. Analysts at JP Morgan believe the group can improve its cost savings by £30m more than the original target, and believe even this could be a conservative estimate. "NGT continues to offer high yet regulated and defensive earnings growth and we believe it should trade at a premium to the sector, rather than the current discount of 5 per cent," Caroline Randall at JP Morgan said. "By any standards this is a good set of results that give a clear picture of the value created in the mergers," Mr Urwin said.
"Because of the seasonal nature of our business, it is important to look ahead and all our businesses are trading in line with expectations," he added.
Mr Urwin said the group had suffered from a warm spring that had hampered demand in the Transco division, where operating profits fell by £15m to £178m. The group receives 80 per cent of its revenues from the second half of the year. Estimates for its full-year profits are put at over £2bn, with cash flows rising to £3bn. Shares in NGT rose 2 per cent to close at 440.5p yesterday.
The group had less positive news on its pension funds, which have not escaped the falls in stock market values.
Lattice's pension fund has moved to a £669m deficit at the end of October from a £261m surplus at the end of March. The deficit in the National Grid fund has widened to £202m from £36m.
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