NATIONAL Grid Transco put investors on standby for an improvement in annual operating profits as it continued to benefit from merger savings.

The company, which joined forces with Transco owner Lattice in a £14bn tie-up in 2002, expects to beat the figure for last year of £2.19bn.

In a trading statement ahead of results on May 20, National Grid said the improvement had been achieved despite higher pension costs and a weaker US dollar.

National Grid owns and operates the high-voltage electricity transmission network in England and Wales, as well as Britain's natural gas transport system. It employs 17,000 of its 31,000 staff in the UK, with most of the remainder at its New York electricity business Niagara Mohawk.

As well as a strong operating performance, National Grid said lower interest rates and a weaker US dollar had helped push down interest costs, leading to strong growth in profits.

Earnings per share - at 28.3p last year - are likely to be substantially ahead of the 2003 figure and in line with market expectations of 34.4p