Questor share tip: National Grid still has income power This gives National Grid "the long-term framework and clarity to continue to invest for the future," according to Steve Holliday, chief executive. Questor thinks it also gives a much better framework for investor returns, too. The fall in reported pre-tax profits has to be looked at in this wider context. After adjusting for one-off items and timing differences, the adjusted operating profits were only 1pc lower than the same stage last year, at £1.57bn, leaving adjusted earnings per share largely flat at 20.4p. Digging beneath the surface of those profits, the UK performance was strong, with profits up in both the combined gas transmission and distribution business and the electricity transmission business. The US was held back by charges relating to payment processing problems, but these are expected to fall in the second half. With such a large asset base delivering steady revenue National Grid can fund a large debt burden, resulting in total borrowings of £26.5bn and net debt of £21.4bn at the end of September. The company's credit rating on this debt was affirmed recently by the rating agencies S&P and Moody's. This strong credit rating is essential to keep the cost of borrowing low. In the first half of the year National Grid incurred higher finance costs, up 9pc to £605m. However, this wasn't purely due to rising rates. It was also because of charges to arrange new debt issues and lower rates on cash balances. Andrew Bonfield, finance director, said he would expect these costs to be lower in the second half, which should bring down the effective interest rate from 5.3pc at the half-year stage, and boost the full-year results. With the regulatory background now more stable, and the borrowing rates low, National Grid has said it will spend £3.5bn on capital investment and deliver 6pc growth in the asset base. Growth in the asset base is crucial to support growth in the dividend, which is on a forecast yield of 5.6pc. Overall, with falling profits, it would be easy to say this was a poor set of results, but there were enough positives - both on the balance sheet and in terms of the regulatory outlook - to see through the first-half slide. The longer-term investment case is now well supported for this income-generating favourite.