Are profits at National Grid (LSE: NG.) distorted by unusual items?
Right now I'm trawling through the FTSE 100 (UKX) and double-checking for blue chips that may be flattering their profits.
You see, many companies these days report 'underlying' earnings, which are calculated by excluding costs the firm deems to be 'exceptional'. Trouble is, some companies are more cavalier than others when it comes to sweeping awkward expenses away from the headline figures.
Today I'm looking at National Grid (LSE: NG) (NYSE: NGG.US) to see if its reported earnings have been distorted significantly by exceptional, one-off or unusual items. I've extracted the following statistics courtesy of S&P Capital IQ:
|Year to 31 March||2008||2009||2010||2011||2012|
|Profit before unusual items (£m)||2,446||1,652||2,156||2,671||2,655|
|Restructuring charges (£m)||(133)||(192)||(16)||(56)||(35)|
|Gain on sale of investments (£m)||-||18||6||3||9|
|Other unusual items (£m)||(131)||(84)||47||6||(70)|
While annual figures can provide some insight into how a business has performed, I reckon looking back over several years provides a better view of possible problems in relation to one-off costs.
So between 2007 and 2011, my stats tell me National Grid reported cumulative profits before exceptional items and tax of £11.6 billion. However, aggregate exceptional costs came to £0.6 billion -- equivalent to a just 5% of cumulative 'underlying' profits.
National Grid gets a fairly clean bill of health from this quick analysis. As a utility share, that's not too surprising, as this type of business is often seen as steadier than most.
One-off items going through National Grid's accounts have generally been modest in amount, especially in the last three years. The fact that it has incurred restructuring charges every year is a small area of concern, though, and something shareholders will want to keep one eye on in future sets of results.
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> Stuart does not own any share mentioned in this article.