FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
July 27, 2005
BRITISH ENERGY GROUP PLC
(Registrant's name)
Systems House
Alba Campus
Livingston
EH54 7EG
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F.
Form 20-F..X.. Form 40-F.....
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes ..... No ..X..
If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b):
Exhibit Index
The following document (bearing the exhibit number listed below) is furnished
herewith and is made a part of this Report pursuant to the General Instructions
for Form 6-K:
Exhibit Description
No. 1 RNS Announcement, re: Final Results 27 July, 2005
27 July 2005
British Energy Group plc
RESULTS FOR THE 2.5 MONTHS ENDED 31 MARCH 2005
Highlights
British Energy British Energy
Group plc (BEG) Limited (BE Ltd)
2.5 months to 9.5 months to
31 March 2005 14 January 2005*
Turnover (GBPm) 482 1,222
Operating costs before exceptional items (GBPm) 400 1,305
Operating profit/(loss) before exceptional items (GBPm) 82 (83)
Operating profit/(loss) after exceptional items (GBPm) 63 (143)
Group profit/(loss) on ordinary activities before tax (GBPm) 54 (357)
EBITDA - continuing activities (GBPm) 129 (24)
Cash and liquid funds (GBPm) 456 398
Net Debt (GBPm) 220 489
Realised price (GBP/MWh) 24.0 19.2
Operating unit cost (GBP/MWh) 19.5 21.3
Operating margin (GBP/MWh) 4.5 (2.1)
Earnings per share (p) 6.2 N/A
Output (TWh) 16.8 50.6
Nuclear 14.3 45.5
Coal 2.5 5.1
* BE Ltd results are presented on a pre-Restructured accounting basis and cannot
be compared with the results of BEG.
- Restructuring completed and shares in new parent company, British
Energy Group plc, listed on the London Stock Exchange on 17 January 2005.
- 2.5 month results for the new British Energy Group plc after
relisting show the Company returning to profitability.
- Trading Development Programme completed and foundations for our
Performance Improvement Programme (PiP) also completed. Investment phase of the
improvement programme commenced and is expected to complete in the year ending
March 2008.
- New management team in place and 415 new members of staff (net
increase of 181) as part of a programme to increase skills and train our
workforce. Marked improvement in certain safety and quality performance
indicators over the year.
- Nuclear output was 59.8 TWh down from 65.0 TWh in the prior year.
This was adversely affected by a number of significant unplanned outages
principally at our Heysham 1 and Hartlepool stations resulting in lost output
totalling 7.4 TWh.
- Results benefited from increasing electricity prices during the year.
- Total output was 17.4 TWh for the quarter ended 30 June 2005 (Nuclear
15.7 TWh, Coal 1.7 TWh).
- As at 30 June 2005, approximately three quarters of planned output for the
year ending 31 March 2006 fixed at an average contracted price of GBP29.8/ MWh.
- No dividend is proposed in respect of this period. The Board does not
expect to propose a dividend before the year ending March 2007. No cash sweep
was paid or payable in respect of the 2.5 months to 31 March 2005. The cash
sweep percentage was 64.99% at 31 March 2005.
- The Company intends to de-register from the U.S. Securities and
Exchange Commission.
Bill Coley, Chief Executive Officer said
"We are focused on investment to improve the output and reliability of our plant
and so improve our ability to capture the benefit of increased power prices. We
have a lot to achieve and we will not pursue short term gain at the expense of
our long term objective. I am determined that British Energy will become a world
class nuclear operator."
Explanatory notes
These results include the Financial Statements and Notes for British Energy
Group plc (the Company) for the period from its incorporation on 2 July 2004
until 31 March 2005 (the Financial Period). However, the Company did not trade
until the acquisition of British Energy Limited (formerly British Energy plc)
and its subsidiaries (the Acquired Group) on 14 January 2005 (the Restructuring
Effective Date or RED). Therefore, the results reflect the turnover and costs
of the Acquired Group from the Restructuring Effective Date to 31 March 2005
(the post-RED period). Where appropriate, we have given information relating to
the 12 month period to 31 March 2005 (the year). However, due to the different
basis of preparation of the Financial Statements of the Company and the Acquired
Group, it is not generally possible to provide directly comparable financial
information relating to the year for both companies. The addition of these
results for the pre-RED period and the post-RED period will not result in an
accurate or meaningful result for either the Company or the Acquired Group for
the year. However, to assist readers we have provided an annual equivalent in
certain of the tables below. The annual equivalent comprises of an adjusted 2.5
month result for British Energy Group plc which includes certain adjustments to
reverse the impact of accounting policies and the impact of the fair valuation
exercise, and the 9.5 months results for British Energy Limited adjusted for a
one-off charge related to AmerGen. The annual equivalent is unaudited and has
not been prepared on the basis of UK GAAP. The preliminary announcement does
not constitute statutory financial statements in accordance with the Companies
Act 1985. Statutory financial statements for the period ended 31 March 2005
have not been filed with the Registrar of Companies.
Due to the seasonality of our business, the results for the post-RED period
should not be taken as giving an accurate indication of what the Company's
results for future years might be. In reviewing these results, it is important
to note that, in general, output and prices tend to be higher in the third and
fourth quarters of the financial year.
The "prior year" or "prior period" refers to the consolidated results of British
Energy Ltd for the year ended 31 March 2004.
Annual Equivalent
Annual BE Ltd
Equivalent
FY 04
Total Output (TWh) 67.4 72.6
Nuclear 59.8 65.0
Coal 7.6 7.6
Realised Price (GBP/MWh) 20.4 16.9
Operating Unit Costs (GBP/MWh) before exceptional items 20.5 16.5
Operating Unit Margin (GBP/MWh) before exceptional items (0.1) 0.4
EBITDA Continuing activities (GBPm) before exceptional items 94 107
Further details of annual equivalent results are given in the financial review.
The Company expects the impact of accounting changes and the fair valuation
exercise completed at RED, excluding the NLF cash sweep and the impact of other
commercial arrangements due to the Restructuring, to increase EBITDA by around
GBP250m, increase EBIT by around GBP100m, cash flow GBPnil in the year to 31
March 2006.
Statutory Reporting
A summary of the statutory results is set out below:
Profit & Loss Summary BEG BE Ltd BE Ltd
2.5 Months 9.5 Months FY 04
GBPm GBPm GBPm
Turnover - continuing activities 482 1,222 1,516
Operating costs before exceptional items (400) (1,305) (1,459)
Operating profit/(loss) before exceptional items 82 (83) 57
Net exceptional operating (charges)/credit (19) (60) 283
Operating profit/(loss) after exceptional items - Continuing 63 (143) 340
activities
Profit/(loss) on ordinary activities before tax 54 (357) 232
The BEG operating result after exceptional operating charges of GBP19m was an
operating profit of GBP63m for the post-RED period. The BE Ltd operating results
after exceptional operating charges of GBP60m was an operating loss of GBP143m
for the pre-RED period and an operating profit of GBP340m for the prior year,
after exceptional operating credits of GBP283m. Exceptional items for BEG were
severance costs of GBP19m, while for the prior period they include a non-cash
accounting adjustment for the partial reversal of GBP295m of the write-down of
fixed assets following a further review of fixed assets carrying values.
EBITDA (notes 1, 2) Summary BEG BE Ltd BE Ltd
2.5 Months 9.5 Months FY 04
GBPm GBPm GBPm
Operating profit/(loss) before exceptional items 82 (83) 57
Add: Depreciation 41 59 50
Add: Amortisation 6 0 0
EBITDA - continuing activities 129 (24) 107
EBITDA was positive GBP129m in the post-RED period and negative GBP24m in the
pre-RED period.
Details of cash and net debt are summarised in the table below.
31 Mar 05 31 Mar 04
Cash Balances GBPm GBPm
Cash not used for collateral 240 276
Cash used for collateral 216 297
Total Cash 456 573
Total Debt (676) (883)
Net Debt 220 310
At RED, under the terms of the Restructuring, GBP700m of debt replaced the
historic debt of GBP883m, Power Purchase Agreements of GBP316m, the Eggborough
related interest rate swaps and the RBS letter of credit.
Output and Unit Costs BEG BE Ltd BE Ltd
2.5 Months 9.5 Months FY 04
Output (TWh)
Nuclear 14.3 45.5 65.0
Coal 2.5 5.1 7.6
Total Output 16.8 50.6 72.6
Realised price (GBP/MWh) 24.0 19.2 16.9
Total operating unit cost (GBP/MWh) - as reported 19.5 21.3 16.5
Margin(GBP/MWh) 4.5 (2.1) 0.4
Total operating unit cost excluding depreciation and 16.7 20.1 15.8
amortisation of goodwill (GBP/MWh)
(All numbers rounded)
Output for the year ended 31 March 2005 was 67.4 TWh and comprised output of
59.8 TWh from nuclear operations and 7.6 TWh from Eggborough. In the post-RED
period, output was 16.8 TWh in total with 14.3 TWh from nuclear operations and
2.5 TWh from Eggborough while the pre-RED period output was 50.6 TWh in total
and 45.5 TWh from nuclear operations and 5.1 TWh from Eggborough. In the prior
year output was 72.6 TWh comprising of 65.0 TWh from nuclear operations and 7.6
TWh from Eggborough. Output for the post-RED period was adversely affected by an
outage at Heysham 1 due to a turbine rotor failure totalling 0.8 TWh. Output for
the year was adversely affected by significant unplanned outages including
outages at Heysham 1 and Hartlepool stations totalling 7.4 TWh.
The realised price (which is calculated by dividing turnover, net of energy
supply costs, miscellaneous and exceptional income, by total output) for the
period was GBP24.0/MWh in the post-RED period and GBP19.2/MWh in the pre-RED
period compared with GBP16.9/MWh in the prior year reflecting the benefit of
increased power prices over the year.
Total operating unit costs excluding revalorisation (which is calculated by
dividing the total UK operating cost, net of the exceptional items and energy
supply costs, by total output), was GBP19.5/MWh for the post-RED period,
GBP21.3/MWh for the pre-RED period. This compares to GBP16.5/MWh for the prior
year, an increase of 18% for the post-RED period and an increase of 29% for the
pre-RED period. The increases are mainly due to the lower volumes on the largely
fixed cost base as well as the impact of certain cost increases for fuel,
pensions and depreciation.
Safe Harbour
This document contains certain "forward-looking" statements as defined in
Section 21E of the US Securities Exchange Act of 1934, including statements with
respect to British Energy's business plans, the performance of its stations,
electricity prices and other matters that are not historical facts concerning
the business operations, financial condition and results of operations of
British Energy. These forward-looking statements typically contain words such as
"intends", "expects", "anticipates", "estimates", "aim", "believe", "assume",
"should" and words of similar import, which are predictions of or indicate
future events or future trends. These forward-looking statements involve known
and unknown risks, uncertainties and other factors, which are in some cases
beyond the control of British Energy and may cause actual results or performance
to differ materially from those expressed or implied from such forward-looking
statements. British Energy has identified some important factors that may cause
such differences in its Form 20-F for the financial year ended 31 March 2004 and
in its Form 6-K in connection with the Restructuring dated 30 November 2004
which have been filed with the US Securities and Exchange Commission.
Due to the uncertainties and risks associated with these forward-looking
statements, which speak only as to the date hereof, we are claiming the benefit
of the safe harbour provision referred to above.
Management Presentation and Conference Call
Management will host a presentation at Barber Surgeons Hall, Monkwell Square,
London, EC2Y 5BD
for analysts, institutional investors and bondholders at 9.00am (UK time) today,
27 July 2005.
The presentation will be webcast (www.british-energy.com) and dial in facilities
can be accessed by dialling;
UK dial in: 0845 146 2004
International dial in: +44 (0) 1452 569 393
US dial in: 1 866 434 1089
Replay facility - 7 days, UK dial in: 0845 245 5205
UK International no: +44 (0) 1452 550 000
UK PIN (access) no: 7994907#
Management will host a further conference call for U.S. analysts, institutional
investors and bondholders at 2.00pm (UK time), 27 July 2005. The conference call
can be accessed by dialling;
International dial in: +44 (0) 1452 569 393
US dial in: 1 866 434 1089
For further information please contact:
John Searles, Investor Relations: 01506 408 715
Andrew Dowler, Media: 020 7831 3113
A copy of this release and a copy of the presentation in Pdf file format can be
found on the Company's web site at www.british-energy.com.
Notes:
1. EBITDA - is defined by the Company as earnings before
interest, taxes, depreciation, amortisation and related exceptional items. The
Company has included information concerning EBITDA because it believes that it
is used by certain investors as one measure of the Company's financial
performance. EBITDA is not a measure of financial performance under United
Kingdom Generally Accepted Accounting Principles and is not necessarily
comparable to similarly titled measures used by other companies. EBITDA should
not be construed as an alternative to operating income or to cash flows from
operating activities (as determined in accordance with United Kingdom Generally
Accepted Accounting Principles) as a measure of liquidity.
2. EBITDA - continuing activities for the pre-RED period and
FY 2003/04 include items of a capital nature charged to the profit and loss of
GBP66m and GBP70m respectively. Post-RED period is GBPNIL.
British Energy Group plc
Results for the 2.5 months ended 31 March 2005
Chairman's Statement
This has been a year of both exceptional challenges and very significant
achievement for British Energy.
Following completion of our Restructuring, which has been described as one of
the most complex in UK history, shares in the Group's new parent company,
British Energy Group plc, commenced trading on the London Stock Exchange on 17
January 2005.
Our financial results reflect the benefit of increasing prices for baseload
electricity, offset by the effects of certain historic power contracts and lower
than expected output, largely due to extended outages at Heysham 1 and
Hartlepool.
Our Trading Development Programme has been completed as have the first two
phases of PiP. We have recruited a new management team and re-organised the
business to focus on the long-term performance of our power stations.
PiP will remain our priority for the next few years as we implement the
investment phase of the programme to improve our power station reliability and
reinforce our profound commitment to the safe operation of our plant.
Over the year we have put considerable effort into improving our safety and
environmental performance. As a result, many of our key performance indicators
in these areas show improvement. Tragically, however, we have to report an
accident at Eggborough power station in July of this year, where one of our
contractors lost his life. The inquiry we have instigated has yet to report,
but we will ensure that any lessons learned from this sad accident are applied
across all of our stations in order to achieve a safer working environment.
We are focussed on securing life extensions for our nuclear power stations, if
this can be done safely. If achieved, life extensions will prolong our
stations' contribution to the UK's security and diversity of energy supply to
the benefit of our shareholders.
There has been some discussion recently regarding the prospect of replacing the
current fleet of nuclear power stations in the UK. This could improve the
diversity of the UK's energy supply and make an important contribution to the
reduction in CO2 emissions in order to meet the UK's commitments under the Kyoto
Protocol. Whilst we welcome any UK energy policy debate, these are issues for
the Government to decide. For our part, the focus is on improving the
reliability and performance of our existing stations and we must not let
ourselves be distracted by these wider issues.
Over the year there have been a number of changes to the Board and executive
management in order to create a strong team to drive changes through the
organisation. Having spent two years as a Non-Executive Director, Bill Coley
became Chief Executive in April following Mike Alexander's resignation. Bill
brings with him a wealth of experience from over thirty five years in the US
power industry, latterly as the President of Duke Power. I am confident Bill has
the right skills to lead us through the next stage of our development.
Stephen Billingham joined as Finance Director from WS Atkins where he was
Finance Director during its successful financial recovery. Stephen has held a
number of senior finance roles in major companies including BICC plc (now
Balfour Beatty plc) and Severn Trent plc.
David Pryde was appointed as an independent Non-Executive Director bringing with
him extensive trading and risk management experience, having held various
senior managerial positions in trading businesses at JP Morgan and Co Inc.
The appointment of Roy Anderson as Chief Nuclear Officer was confirmed in April
2005 following agreement from the Nuclear Installations Inspectorate (NII) to
the creation of this post.
Our executive management was further strengthened by the arrival of Peter
Wakefield as Safety and Technical Director in April 2005. Peter was previously
Generation Safety and Assurance Manager for Eskom in South Africa and has
extensive experience in the nuclear industry in all aspects of nuclear power
plants.
We have a talented team in place to take the organisation forward and I believe
that we are well placed to meet our goal of achieving world class nuclear
operations.
I hope you will be able to join us at our forthcoming annual general meeting.
The resolutions being considered this year ask shareholders to support the
Board's recommendation to seek to deregister from the US Securities and Exchange
Commission (SEC). SEC registration has a considerable annual cost implication
and takes up a great deal of management effort and, now that we have disposed of
our US stations and ceased to have an ADR listing, we think this would be better
spent improving our operational performance.
The resolutions to be considered will also include several changes to the
British Energy Group plc Long Term Deferred Bonus Plan (the LT plan) which the
Remuneration Committee believes are necessary to make it consistent with our
current business needs. The changes include a modification to the output
targets for the financial year ending 31 March 2006 to a range of 62 to 64 TWh.
These changes do not affect our expected average annual nuclear output over the
next two years which remains at 63 TWh.
Last year placed exceptional strains on everyone in British Energy. One way or
another, the Restructuring, the extended outages at Hartlepool and Heysham 1,
and the demanding trading conditions we faced during a difficult year engaged
every member of staff. That we came through the year in good order is a tribute
to the professionalism, commitment and sheer resilience of all concerned. On
behalf of all the members of the Board, I should like to pay tribute and give
our warmest thanks and appreciation to the entire British Energy team.
Adrian Montague, CBE
Chairman
Review of Operating Performance
Overview
With Restructuring behind us, the future at British Energy is one of challenges,
a defined path for improvement and a talented team to execute it.
This has been a testing year, with output well below the level we have the
potential to deliver. Nuclear output was adversely affected by unplanned
outages, the electricity market was volatile and we completed a lengthy
restructuring. The results reflect these events.
What we must do to make British Energy successful is clear.
We must: -
- achieve world class nuclear operations;
- improve our financial stability; and
- pursue life extensions for our stations.
These are not insignificant undertakings but we are committed to securing them.
We have achieved a great deal in the year. We completed our Trading Development
Programme and the first two phases of PiP.
We have reorganised the Company to focus on the system health of our stations,
and created an asset improvement division with skills in asset prioritisation,
engineering and project implementation. As a result, we are optimising
investment focused on maximising value but always keeping safety and
environmental performance as our fundamental priority.
We now have systems and information technology tools in place to enable us to
better manage the business risks associated with maximising the value we obtain
for our product. We are making greater use of financial products with the aim of
achieving price stability over a longer horizon.
We have received support from the World Association of Nuclear Operators (WANO)
and industry experts to assist in an asset condition survey and to identify and
implement the systems, process and human performance changes consistent with
other nuclear performance improvement programmes worldwide.
We are committed to being proactive in maintenance of our stations through new
station management structures, a new skills hiring programme and investing in
training and leadership development for our staff. The organisational changes
have been made. We have a new management team and 415 new members of staff (net
increase of 181) with further new recruits expected in the coming year.
Training and cultural change is and will continue to be an ongoing activity.
With these changes in place, we are integrating the processes and lessons
learned from PiP across the organisation in the coming year and they will become
part of business as usual.
We are already seeing signs of progress. For example, our non-outage defect
backlog has reduced by 55%.
One of our main operational challenges is to reduce the level of unplanned
losses. To that end, we have recently completed an asset prioritisation process
which will form the basis of the next stage of PiP. The investment phase, which
we commenced this year, is designed to improve plant reliability through
strategic investment. Investment will bring improvements but the full extent
will not be seen until completion of the investment phase in 2007/08.
Our plan for the year ending 31 March 2006 for investment in plant projects,
strategic spares, including costs associated with PiP, is unchanged at GBP230m
to GBP250m.
We will continue to pursue life extensions for our nuclear power stations. The
first of these decisions is with respect to Dungeness B. The technical and
commercial work is progressing well and a decision is expected to be made in the
autumn.
Nuclear output for the year was 59.8 TWh. This is below what our nuclear power
stations will be capable of delivering if PiP is delivered successfully and we
are dedicated to ensuring that it is.
We will not pursue short-term gain in output at the expense of completing the
investment required to make our plants perform reliably, in line with world
class operational performance. Accordingly, we expect the average annual
nuclear output over the next two years to be 63 TWh.
Nuclear output for the quarter ended 30 June 2005 was 15.7 TWh. Output from our
coal-fired plant was 1.7 TWh for the same period. Output for the quarter is in
line with plan.
The wholesale market forward price for baseload electricity has risen
significantly in recent months and continues to show considerable volatility. We
have benefited from the recent rise in power prices, however, contracts for the
remainder of our planned output for the current year are expected to fix
throughout the year and thus are subject to market movements in electricity
prices.
At 30 June 2005, we had fixed price contracts in place for approximately three
quarters of planned output for the year ending 31 March 2006 at an average
contract price of GBP29.8/MWh. This is discussed in more detail in the section
Power and Energy Trading - Outlook for 2005/06.
I am grateful to our stakeholders for their support and understanding during
this testing period for all concerned with the Company.
I am also immensely grateful to our dedicated staff who continue to demonstrate
their commitment to our Company and the enthusiasm and drive to achieve world
class nuclear operations.
Business Focus
We supply around one fifth of the UK's electricity requirements. We have eight
nuclear power stations. Seven are powered by Advanced Gas-cooled Reactors
(AGR), the eighth, is powered by the UK's sole Pressurised Water Reactor (PWR).
We also have one coal-fired power station which provides flexible generation.
Across the Group we employ around 5,400 staff. Our electricity is sold through
a number of routes including our direct supply business, which is now one of the
leading suppliers to the UK industrial and commercial sector.
World Class Nuclear Operations
During the year we continued to implement PiP with the aim of improving the
reliability of our nuclear power stations and reducing the level of unplanned
nuclear losses. The programme has six main areas: foundation (organisation,
people, leadership and culture change), training, human performance, equipment
reliability, management of work and operational focus. The focus for the past
year has been on improvements relating to people and processes in each of these
areas.
Over the year we have developed and implemented a new organisational structure.
We have also created assessment and development centres for senior staff and
introduced new station management structures. We have recruited 415 staff (a net
increase of 181) to enhance operational skills throughout the organisation.
Training is a key part of PiP and we have strengthened our processes as a
result.
Development of managers has continued through the provision of on-site coaching
support and the use of action learning groups. We have educated managers on how
to encourage positive behaviour, reinforce standards and expectations, and
promote the use of error reduction tools in order to ensure the best possible
performance from our staff. Managers are expected to spend time "in the field"
every week observing and coaching staff. This has had a positive effect on many
of our key performance indicators including lost time accidents, nuclear
reportable events and unplanned automatic reactor trips.
To address equipment reliability issues we have formed an Asset Planning and
Investment group (API). The API and associated processes will enable more
effective investment and support the planned increase in investment in our
plants. We are also creating System Health Departments at each station to
further address this issue.
We have also completed the roll out of a comprehensive Corrective Action
Programme (CAP) across the nuclear fleet. This programme enables identification
and rectification of issues concerning people, plant and processes and is
identified by many US nuclear plant operators as being a key factor in driving
performance improvement.
We have had significant success in establishing and embedding a consistent set
of processes relating to management of work in our nuclear power stations. As a
result, we have seen a significant reduction in our non-outage defect backlog,
beyond our stretch target for the year.
We have now started an effectiveness review process across all areas of PiP, to
ensure that the improvements introduced are effective and sustainable. Over the
coming year we will integrate the lessons learned from PiP into the line
organisation.
In recognition of the work carried out on change management, we were
short-listed for a Manufacturing Excellence Award from the Institute of
Mechanical Engineers.
Sizewell B hosted a follow-up review with WANO in June 2005 at which the WANO
team leaders indicated that the long standing trend in declining performance
levels at our nuclear power stations had been stopped and noted visible signs of
improvement in most areas of previous concern.
Financial Stability
Our ability to take advantage of market conditions is impacted by the
requirement to post collateral in the absence of an investment grade credit
rating. We expect this to improve as cash balances increase through time.
However, in the short-term, we aim to improve financial stability through
improved trading risk management and greater use of financial products to
minimise the impact of collateral requirements. No change in our credit rating
is expected in the near term. Any improvement will require us to demonstrate,
amongst other things, sustained reliability of our power stations over time.
Life Extensions
We are continuing to pursue life extensions for our nuclear power stations. This
will require technical and commercial evaluations and we expect to complete
these at least three years in advance of the planned decommissioning date for
each of our nuclear power stations. The work for Dungeness B is progressing well
and we expect to make a decision regarding its accounting life extension in the
autumn.
Nuclear Generation
Nuclear output for the post-RED trading period was 14.3 TWh. Nuclear output for
the year was 59.8 TWh against a revised target of 59.5 TWh, down from 65.0 TWh
in the previous year.
A requirement for significant additional work was identified during the
statutory outages on one reactor at each of Heysham 1 and Hartlepool. The
subsequent planned shutdown of the second reactor at Hartlepool and the
unplanned shutdown of Heysham 1's second reactor resulted in extended outages at
all four of these reactors. This was necessary to undertake not only planned
cast iron pipework replacement works but also the inspection of boiler closure
units and to address emergent fire and flood safety case requirements.
All four units returned to service at the end of December 2004, although a
subsequent turbine blade failure at Heysham 1 at the end of January resulted in
one unit being shut down until early April 2005 while repairs were carried out.
The resultant loss of output in the year from these unplanned outages was 7.4
TWh.
The year's best performing power station (by unit capability factor) was
Sizewell B with a total output of 9.1 TWh (a unit capability factor of 88%).
Hinkley Point had the highest output for the year with a total of 9.3 TWh (a
unit capability factor of 87%). The rolling three year performance achieved by
Dungeness B was its best ever.
We completed four statutory outages in the year with a further statutory outage
at Sizewell B commencing in March 2005 leading to a total loss of output from
statutory outages of 2.9 TWh. A further loss of output of 3.0 TWh was
attributable to refuelling. In addition to the loss of output from the
unplanned outages at Heysham 1 and Hartlepool described earlier, there were
further losses of potential generation from unplanned outages of 9.9 TWh. Of
these, some 6.5 TWh were due to outages of 14 days or less.
We plan to carry out six outages in the year ending 31 March 2006 including the
statutory outage at Sizewell B, which commenced in March 2005.
Recent Developments
During the statutory outage inspection at one unit at Heysham 1 in May 2005 we
identified a further issue relating to the potential for stress corrosion
cracking of primary "holding down" bolts (bolts).
We are carrying out work programmes to satisfy ourselves as to the integrity of
the bolts and we expect these to have been completed by the end of July 2005.
As a consequence, the return to service of the unit is expected to be delayed by
around a month. One unit at Hartlepool (which is of similar design) is
currently shut down for repair work to the generator transformer and the return
to service of this unit is expected to be delayed for a month for similar work
to be carried out.
We intend to inspect the integrity of the bolts at the other two units at
Heysham 1 and Hartlepool later this year.
As a result of the graphite brick inspections at Hartlepool we have increased
the frequency of our inspections of the graphite cores affected and are required
to undertake and develop further safety cases in conjunction with the NII.
In April 2005 we were advised of an incident at British Nuclear Group's (a
subsidiary of BNFL) (BNG) Thermal Oxide Reprocessing Plant which reprocesses
spent fuel from our AGR power stations. BNG have assured us that the necessary
steps will be taken to maintain continuity of AGR spent fuel receipts at
Sellafield.
Safety
Overview
We are continuing to maintain a high profile for safety and, together with the
protection of the environment, it will continue to be a fundamental priority of
the Company. The changes to our organisational structure are designed to enhance
accountability for every aspect of our safety performance.
Nuclear Safety
The International Nuclear Event Scale (INES) is the standard scale for
communicating the significance of nuclear safety events. In the year the number
of reportable events was 47, a significant decrease from the 77 in the previous
year. None of these events were rated higher than Level 1 - the lowest point of
the scale. Such events are classed as minor operating incidents with no impact
on staff or the general public. In addition to the role played by PiP, an
important contribution to this improvement has come from the completion of the
programme to implement new operating rules and instructions at our AGR power
stations through a procedure known as "Technical Specifications". This is the
approach in use at most high performing nuclear plant around the world.
Radiological Safety
The collective radiation dose to workers at our stations was 0.03 manSv/reactor
in the calendar year 2004, a decrease from the collective dose of 0.09 manSv/
reactor in the prior calendar year. This represents approximately
one-twenty-fifth of the worldwide median of the operators contributing to WANO
and places us within the top 10% of performers in this respect.
Industrial Safety
We encourage the reporting of accidents, including those where no injury
resulted.
We have put significant effort into improving the investigation and analysis of
all accidents to identify "root causes" and opportunities for improvement.
In order to ensure health and safety issues are raised and addressed we consult
regularly with our workforce and contractors. This is achieved through meetings
of the Health and Safety Committee both at corporate and site level, team safety
meetings, workforce questionnaires and observation tours.
During the year our accident frequency rate for nuclear generation was 0.22 per
200,000 man-hours of operation, a significant decrease from 0.53 per 200,000
man-hours in the previous year. There was also a reduction in lost-time
accidents involving either employees or contractors working on our nuclear sites
to 22, from 41 in the previous year.
We also saw a reduction in lost-time accidents at Eggborough involving either
staff or contractors from seven to four in the last year.
Environmental Performance
We have taken a number of steps during the year to improve our environmental
performance and regulatory compliance, including strengthening central and
station environmental organisation and embarking on a major programme of
improvements to procedures at our power stations.
All radioactive waste produced by power stations is highly regulated and
controlled so as to minimise discharges and ensure they remain within authorised
limits. During the course of the year none of our stations exceeded the
relevant Radioactive Substances Act authorised discharge limits and the highest
potential radiation dose to any member of the public from our stations remained
very low (at least 50 times less than the average UK dose from natural
radiation).
However, an event at Sizewell B in September 2004 resulted in the Environment
Agency issuing an enforcement notice under the Radioactive Substances Act 1993,
for failure to maintain and keep in good repair the system for discharging a
waste stream. This event did not result in an impact on the environment but did
indicate procedural shortfalls which we are now addressing. Using the
Environment Agency's classification scheme, there were no events within British
Energy during the year which could be classed as incidents resulting in actual
harm.
Power and Energy Trading
Market Conditions
Electricity prices in the UK wholesale market reached an all time high during
the year, driven up by high oil and gas prices and concerns in the market over
the ability of gas supplies to meet demand at peak times. Both spot and forward
power prices have also been very volatile throughout the year.
Gas prices continue to be a key influence on the electricity market. In autumn
2004, National Grid Transco highlighted a risk that there might be insufficient
gas to meet power station demand in the event of a cold winter. This contributed
to a sharp rise in gas and power prices for winter 2005 and 2006. Although
temperatures in winter 2004 were above long-term averages, relatively cold
weather at the end of February, coupled with reduced gas supply, triggered
exceptionally high spot prices for both gas and power. Worldwide demand for coal
has remained strong, keeping coal prices in the range $60-$80/tonne for delivery
to European ports.
The forward price for annual baseload electricity for 2005/06 delivery rose from
around GBP24.5/MWh in March 2004 to over GBP35.0/MWh by the end of March 2005,
an increase of over 40%. Concerns over a potential shortfall in winter peak gas
supply contributed to a rise in the price for delivery for the year from October
2005 to over GBP37.0/MWh in early October 2004. As at 30 June 2005, the price
for delivery from October 2005 had subsequently risen to over GBP49.0/MWh.
Trading Strategy
We have continued to follow a prudent trading strategy, in line with commitments
made in the prospectus we issued in November 2004 (the Prospectus), in order to
reduce the Group's exposure to potential falls in the market price of
electricity. Our routes to market include direct sales to industrial and
commercial customers, contracting in the wholesale market, together with sales
of balancing and ancillary services to National Grid Company.
Our contracted price position continues to include the impact of a number of
fixed and capped price contracts entered into at a time when significantly lower
market prices prevailed. The contract portfolio also includes profiled
contracts (both wholesale and direct sales) and therefore the contracted price
is not directly comparable to a baseload market price.
In a period of rising prices, selling forward generally results in a realised
price that is less than market out-turn prices. However, a proportion of our
output is contracted at variable prices and hence reflects out-turn prices. We
also take advantage of the differential between peak and baseload prices in
deciding when to operate our coal-fired plant.
Trading Development Programme
We have now completed our Trading Development Programme. We have developed
sophisticated plant performance and reliability models to assist in decisions
over the optimum running of our plant and improved risk monitoring policies and
procedures. We have also made major changes to develop communications and
interface arrangements between our generation, trading and direct supply
activities to enhance business performance.
Business Performance
Our realised price (which is calculated by dividing turnover, net of energy
supply costs and miscellaneous and exceptional income, by total output) for the
year was GBP20.4/MWh, an increase of approximately 20% compared with a realised
price of GBP16.9/MWh in 2003/04. We benefited from higher market prices,
however, this was offset by certain historic power contracts and the
consequences of a number of unplanned outages. Imbalance costs were incurred
together with market purchases at short notice and at higher prices to cover
lost generation from these unplanned outages.
Direct Sales to Customers
Volume equivalent to almost half of our generation was sold directly to
industrial and commercial customers in the year. Total direct sales for the year
were 31.4 TWh, up approximately 7% from 29.2 TWh in 2003/04. We now have over
2,000 customers and are supplying over 15,000 sites across Great Britain. We
have continued to hold number one ranking in the quarterly customer satisfaction
survey of industrial and commercial customers carried out by the Energy
Information Centre, a position we have now held for over five years. We also
regained the top ranking for customer satisfaction in Datamonitor's six-monthly
survey, reported in March 2005, against strong competition from other suppliers.
Our direct supply business was transferred to a new subsidiary company,
British Energy Direct Limited (BEDL), on 1 April 2005 fulfilling one of the
State Aid conditions. BEDL is licensed to supply non-domestic customers
throughout Great Britain.
Eggborough
Output from our coal-fired power station at Eggborough was 7.6 TWh during the
year, unchanged from the prior year. Eggborough is operated primarily as a
flexible mid-merit plant and its output level is influenced by a number of
factors including the market prices of coal, carbon and electricity.
Recently, evidence of turbine blade cracking was found in two units. With minor
repairs to one unit and modification of the second during the current outages,
these units should be returned to service shortly at slightly reduced output.
Inspection of the remaining similar turbine on a third unit should also be
completed shortly.
The capability has been developed at Eggborough for co-firing coal with various
forms of organic matter (biomass) which qualify for co-fired Renewable
Obligation Certificates (ROCs).
On 1 January 2005, the European Union's Emissions Trading Scheme (ETS) came into
effect. From that date, all installations included in the scheme must have a
permit to emit greenhouse gases and will be required to submit allowances on an
annual basis to cover their emissions of CO2. Initial allowances have been
allocated by the Government according to a National Allocation Plan which was
approved by the European Commission. In the National Allocation Plan published
by the Government and approved by the European Commission, Eggborough has been
granted an allocation of 4.54 million tonnes of CO2 allowances under the ETS for
each of the calendar years 2005, 2006 and 2007 equivalent to output of
approximately 5 TWh per annum. The cost of carbon is factored into our decisions
over the economic running of Eggborough.
Eggborough's future output will also be affected by the Large Combustion Plant
Directive (LCPD), which sets limits on the emissions of sulphur dioxide,
nitrogen oxides and particulates from fossil-fuel power stations from 2008.
Flue Gas Desulphurisation (FGD) equipment has been fitted to Units 3 and 4 at
Eggborough in order to comply with the requirements of the LCPD. A performance
problem emerged during commissioning tests on the FGD equipment in 2004.
Remedial works have now been completed and further tests are being carried out.
Units 1 and 2 have been opted out from the LCPD requirements subject to
resolution of certain issues of interpretation between the Government and the
European Commission. These include a question over whether a "plant" will be
treated as a whole power station or as individual generating units of which
Eggborough has four. The European Commission's decision may have an impact on
the future life of the station. As a result, the deadline for any decision to
reverse the LCPD opt out for Units 1 and 2 has been deferred by six months, to
31 December 2005.
Outlook for 2005/06
As at 30 June 2005, fixed price contracts were in place for approximately three
quarters of planned output for the year ending 31 March 2006 at an average
contracted price of GBP29.8/MWh. This price excludes the impact of higher prices
that might have been achieved as a result of running Eggborough to take
advantage of the differential between plan and baseload prices. This price also
excludes Balancing Services Use of System and other electricity market
participation charges of around GBP0.7/MWh, and market costs incurred through
output variation and unreliability expected to be around GBP1.0/MWh, and the
impact of capped price arrangements of approximately 5 TWh at around
GBP30.0/MWh. We intend to progressively close out our exposure to market prices
for 2005/06 and to build our hedge position for 2006/07 subject to limits on
trading collateral.
The market price of CO2 allowances has risen since the beginning of 2005, and
reached over EUR15/tonne of CO2 on 1 April 2005 and EUR25/tonne at 30 June 2005,
increasing the cost of marginal coal and gas generation.
Recent Developments
On 1 April 2005, the British Electricity Transmission and Trading Arrangements
(BETTA) were brought in to include Scotland in the existing market arrangements
for England and Wales. As a result our traded portfolio now includes output
from our two Scottish stations. The historic contractual arrangement for the
sale of our Scottish output, known as the Nuclear Energy Agreement, came to an
end when BETTA was implemented. Under BETTA, the National Grid Company has
responsibility for operating and balancing the transmission system across Great
Britain. Revised charging arrangements for access to the transmission network
were introduced at the same time.
In June 2005 the European Commission launched an inquiry into competition in gas
and electricity markets focusing on how prices are set. An interim report is
expected at the end of 2005 with the main results to follow in 2006.
Bill Coley
Chief Executive
Financial Review
Introduction
British Energy Group plc (BEG) acquired British Energy Limited (BE Ltd) and its
subsidiaries (the Acquired Group) on the Restructuring Effective Date (RED)
which was 14 January 2005. BEG was incorporated on 2 July 2004 and the results
presented in the financial statements cover the period from 2 July 2004 to 31
March 2005. Until RED, BEG did not trade and therefore the results are those of
the Acquired Group from RED to 31 March 2005.
To facilitate a degree of comparability an annual equivalent for the year ended
31 March 2005 has been derived drawing together turnover and certain cost
information from BEG and BE Ltd adjusted appropriately. This is set out in the
section entitled Annual Equivalent. All annual equivalent results are
unaudited.
Changes to the presentation and measurement of results
The Restructuring of the Group's debt and equity structure, and the changes to
the terms of the key contractual relationships, result in significant
differences in the basis of results presented for BEG when compared to the
results of BE Ltd.
The changes with the most significant impact fall in to the following principal
areas:
- Implementation of a debt for equity swap.
- Application of acquisition accounting method. This has required use of
Standard & Poor's Corporate Value Consulting to assist in completing an
exercise to fair value the various assets acquired as a result of
implementation of the Restructuring.
- Implementation of revised commercial terms for certain contracts with BNFL.
- Changes to certain accounting policies to reflect the new financial
structures and contracts. The most significant changes being full adoption
of FRS17 for measurement and presentation of liabilities for defined
benefit schemes, and accounting for the arrangements with the Nuclear
Liabilities Fund.
Revised nuclear liabilities funding arrangements
Under the new arrangements with the Secretary of State, the former Nuclear
Decommissioning Fund was enlarged into and renamed the Nuclear Liabilities Fund
(NLF), which will fund, subject to certain exceptions, the Group's qualifying
uncontracted nuclear liabilities and qualifying decommissioning costs. In
consideration for the assumption of these liabilities by the Secretary of State
and the NLF, British Energy Holdings plc issued GBP275m in New Bonds to the NLF
and undertook to effect further contributions, the most significant element
being the Cash Sweep Payment. The NLF has the right from time to time to
convert all or part of the Cash Sweep Payment into Convertible Shares. The
Group will continue to recognise nuclear liabilities on its balance sheet
pending their being discharged by payments received from the NLF.
The Government provides an indemnity to cover services for spent AGR fuel loaded
pre-Restructuring. A nuclear liabilities receivable is recognised in respect of
this indemnity. The Government also provides an indemnity to indemnify British
Energy against any future shortfall on NLF funding of qualifying uncontracted
nuclear liabilities (including PWR back-end fuel services) and qualifying
nuclear decommissioning costs. A NLF receivable asset is recognised representing
the aggregate value of the investments held by the Nuclear Liabilities Fund and
the Government indemnity. Both of these receivable amounts are stated in the
balance sheet at current price levels, and each year the financing charges in
the profit and loss account will include the revalorisation of these receivables
required to match the revalorisation of the nuclear liabilities.
The annual Cash Sweep Payment can only be determined after the end of the
financial year and is contingent as it is based on the cash generation in the
individual financial year. Therefore, it will only be recognised and provided
for when it becomes payable and will be recorded as an operating cost of the
applicable financial year.
Group Results
In the following discussion the "trading period" or "post-RED trading period"
refers to the period from 15 January 2005 to 31 March 2005.
The result of the post-RED trading period can be summarised as follows:
BEG
2.5m ended
31 March
2005
GBPm
Group turnover 482
Operating profit before exceptional items 82
Exceptional items (19)
Operating profit after exceptional items 63
Financing charges (9)
Profit before tax 54
The discussion below focuses primarily on the results of continuing activities
for the post-RED trading period before exceptional items.
Turnover
Group turnover from continuing activities comprised generation sales, direct
supply sales and miscellaneous income. BEG turnover for the post-RED trading
period was GBP482m.
The analysis of turnover for the period ended 31 March 2005 is as follows:
BEG
2.5m ended
31 March
2005
GBPm
Group turnover
Continuing activities - acquisition
- Wholesale generation sales 233
- Direct supply sales net of energy supply costs 170
- Turnover excluding energy supply costs and miscellaneous income 403
- Energy supply costs recharged to customers 73
- Miscellaneous income 6
Turnover 482
Output can be analysed as follows:
BEG
2.5m ended
31 March
2005
TWh
Nuclear 14.3
Eggborough 2.5
Total 16.8
Output was 16.8 TWh and comprised output of 14.3 TWh from nuclear operations and
2.5 TWh from Eggborough in the post-RED trading period.
The realised price (which is calculated by dividing turnover, net of energy
supply costs, miscellaneous and exceptional income, by total output) for the
post-RED trading period was GBP24.0/MWh. A discussion on the movement of prices
and the Company's strategy for trading is contained in the Power and Energy
Trading section.
Operating Costs
The BEG operating costs for continuing activities excluding exceptional items
were GBP400m in the post-RED trading period.
Total operating unit costs excluding revalorisation (which is calculated by
dividing the total operating cost, before exceptional items and energy supply
costs, by total output), was GBP19.5/MWh for the post-RED trading period. The
component elements of the operating costs are discussed below.
BEG
2.5m ended
31 March
2005
GBPm
Continuing activities excluding exceptional items:
Fuel costs 127
Materials and services 82
Staff costs 63
Depreciation charges 41
Goodwill amortisation 6
Other operating expense 8
Energy supply costs 73
Cash sweep payment -
Total operating costs excluding exceptional items 400
Exceptional operating costs - staff costs 19
Total operating costs including exceptional items 419
Fuel costs in total amounted to GBP127m for the post-RED trading period for BEG.
Nuclear fuel costs were GBP71m and coal costs were GBP56m. Coal costs include
costs of GBP10m attributable to carbon costs as well as other Eggborough fuel
costs.
The financial statements for the post-RED trading period have been prepared on
the basis of the revised BNFL contracts in respect of back end fuel costs which
became effective on completion of the Restructuring.
Materials and services costs comprise the operating expenses of the power
stations and support functions excluding fuel costs, staff costs and
depreciation. The BEG costs during the post-RED trading period were GBP82m. In
addition, there was capital investment expenditure in the post-RED trading
period of GBP35m which was capitalised.
Staff costs totalled GBP63m including pension costs under FRS17 of GBP9m for the
post-RED trading period.
Depreciation and amortisation charges were GBP47m for the post-RED trading
period. This comprised depreciation of GBP41m and goodwill amortisation of
GBP6m. Depreciation charges in the post-RED trading period reflect the result of
the significant increase in the value of opening fixed assets as a result of the
fair value exercise.
Energy supply costs mainly comprise the costs incurred for the use of the
distribution and transmission systems and are fully recovered through turnover.
The Group is required to purchase ROCs as part of the regulations governing
climate change. Total energy supply costs in the post-RED period were GBP73m.
Cash Sweep Payment
There was no Cash Sweep Payment due in respect of the post-RED trading period.
For further details see note 1(xi) of the financial statements.
Exceptional Items
In the post-RED period there was an exceptional charge in relation to severance
costs of GBP19m.
Operating Profit
The Group operating profit before exceptional items was GBP82m for the post-RED
trading period.
Financing Charges, Net Interest and Revalorisation
The total BEG financing charges for the post-RED trading period were GBP9m made
up of total revalorisation of GBP5m, net interest expense of GBP5m, and a GBP1m
net credit to financing charges for the pension liability.
The total financing charges are analysed below:
BEG
2.5m ended
31 March
2005
GBPm
Revalorisation of nuclear liabilities 50
Revalorisation of nuclear liabilities receivable and NLF receivable (50)
Revalorisation of fixed decommissioning obligation 3
Revalorisation of contracts provision 2
Total revalorisation 5
Net interest expense 5
Net credit to finance charge for pension liability (1)
Total financing charges 9
Revalorisation of nuclear liabilities arises because nuclear liabilities are
stated in the balance sheet at current price levels, discounted at 3% per annum
real from the eventual payment dates. The revalorisation charge is the
adjustment that results from restating these liabilities to take into account
the effect of inflation in the period and to remove the effect of the discount
for the period.
A revalorisation credit arises in respect of movements in the value of the
nuclear liabilities and NLF receivable to take account of the underlying
movement in nuclear liabilities, see note 1(xviii) to the financial statements.
Revalorisation charges arise in respect of the fixed decommissioning obligation
and the contracts provision to reflect the unwind of discount for the period.
The net BEG revalorisation charge for the post-RED trading period was GBP5m.The
weighted average of RPI and RPIX used to revalorise the Group's nuclear
liabilities in the post-RED trading period was 0.5%.
Taxation
There was a GBP19m taxation charge on ordinary activities for the post-RED
trading period. There is no current tax charge for the period as any taxable
profits are sheltered by tax losses brought forward. The tax charge for the
period comprises entirely of deferred tax.
A deferred tax asset of GBP450m was recognised at 31 March 2005. See note 22 to
the financial statements for further details.
Earnings per Share
The earnings per share in the post-RED trading period was 6.2p and 6.0p on a
fully diluted basis. The Cash Sweep conversion right is not considered to be
economically dilutive and therefore has been excluded from the diluted earnings
per share calculation. At 31 March 2005, the Cash Sweep percentage was 64.99%,
which if fully converted would equate to the issue of 1,042m further shares.
For further discussion of the effect of the Cash Sweep arrangements on earnings
per share see note 9 to the financial statements.
Research and Development
The Group supports primarily scientific and engineering research activities
directed toward securing further improvements in the reliability, performance
and safety of the generating business and related activities. For the post-RED
trading period, expenditure on research and development was GBP3m which is
included within material and services costs.
Review of Fixed Assets - Fair Values
As a result of the Restructuring the Group conducted an exercise to attribute a
fair value to all assets including the fixed assets of the Acquired Group.
The Company engaged Standard & Poor's Corporate Value Consulting, a division of
The McGraw-Hill Companies Inc, to assess the fair value of the assets acquired
as part of the Restructuring. The fair value of total assets was estimated by
assessing the cash flows of the Acquired Group, discounted using a weighted
average cost of capital. The derived value was then allocated across the
individual categories of assets acquired including fixed assets. The cash flow
projections were derived using a combination of short-term market estimates of
future electricity prices and the Company's view of longer term prices. The
Company's long-term views of prices were benchmarked against independent
estimates. In deriving the cash flows the Company used output projections
prepared and independently reviewed as part of the Company's listing process.
The valuation of fixed assets assumes that in an arms length transaction, a
willing buyer would have anticipated confirmation of an accounting life
extension for Dungeness B of five years on the basis of the accumulated
information available to the Company at RED. A decision on the Dungeness B
accounting life extension will be announced in the autumn. The net book value of
fixed assets at 31 March 2005 was GBP1,678m. Full detail is included in notes
10, 11 and 12 to the financial statements.
Net Assets
Group net assets including the retirement benefits liability were GBP1,615m at
31 March 2005.
Capital Expenditure
In the post-RED trading period fixed assets additions of GBP35m were
capitalised. This includes additions to strategic spares and statutory and
planned outage costs reflecting the revised accounting policies adopted by BEG.
These accounting policies are set out further in the financial statements.
Following the completion of the Restructuring and the fair value exercise, the
Directors have concluded that it is now possible to capitalise fixed asset
additions to the extent that it is possible to demonstrate that the capital
investment expenditure enhanced the value of the fixed assets.
Current Assets
Total current assets were GBP5,596m at 31 March 2005. The largest components of
this were the receivable after more than one year in respect of the NLF
receivable of GBP1,863m and nuclear liabilities receivable of GBP2,131m, as well
as GBP456m in cash and liquid funds.
Total stocks were GBP331m, comprising nuclear fuel stocks of GBP267m, coal
stocks of GBP14m and other stocks of GBP50m. Total debtors due within one year
were GBP469m.
Current Liabilities
Creditors due within one year (excluding borrowings) were GBP559m, largely
relating to trade creditors and accruals of GBP292m and the current portion of
nuclear and NLF liabilities of GBP201m.
Provisions
Provisions at 31 March 2005 of GBP2,150m comprised accrued nuclear liabilities
of GBP1,863m, a mark to market contract provision of GBP250m and other
provisions of GBP37m.
Pensions
The financial statements have been prepared on the basis of fully implementing
FRS17 - Retirement Benefits (FRS17) in respect of the defined benefit pensions
schemes. The FRS17 valuation is based on a valuation of assets and liabilities
at a particular point in time and does not necessarily take account of the
long-term nature of pension schemes. Movements in equity markets and bond yields
can create considerable volatility in the FRS17 valuation at different points in
time.
The net pension deficit for the UK Schemes under FRS17 reflected on the balance
sheet as at 31 March 2005 was GBP348m (GBP244m net of the related deferred tax
asset).
The Trustees of the Schemes follow an investment policy whereby a high
proportion of the Schemes' assets is invested in equities. One consequence of
this investment policy, and the methodology and assumptions used for determining
the Schemes' liabilities under FRS17, is that the difference between the market
value of the Schemes' assets and its FRS17 liabilities (i.e. its FRS17 "surplus"
or "deficit") is expected to be volatile. Indeed, the amount of any surplus or
deficit could change significantly over periods as short as a day (in the event
of significant market movements). The results reported should not, therefore, be
taken as an indication of the Schemes' financial position in accordance with
FRS17 on any date other than 31 March 2005.
The funding of the Pension Schemes is based on the results of three-yearly
valuations by independent actuaries rather than on the results of the FRS17
valuation. The latest valuation was carried out as at 31 March 2004 and the
actuarial deficit at that date was GBP385m. The Group will make additional
employer contributions of GBP19.0m, GBP19.5m and GBP20.0m in the years ended 31
March 2006, 2007 and 2008 respectively. Those additional contributions will rise
to GBP50.3m for the year ended 31 March 2009 and remain at that level until the
year ended 31 March 2017. The requirement for additional contributions will be
reviewed as part of the next three yearly valuation on 31 March 2007.
Total Recognised Gains and Losses
In addition to the profit after tax of GBP35m in the post-RED trading period,
total recognised gains and losses included an actuarial gain of GBP81m and a
deferred tax credit of GBP24m relating to the Group's pension schemes.
The actuarial gain of GBP81m mainly arises as a result of the revised financial
and demographic assumptions adopted as at 31 March 2005 compared to RED.
Liquidity and Capital Resources
Receivables Facility Agreement
On 25 August 2004 our subsidiary British Energy Generation Limited entered into
a receivables financing facility agreement with Barclays Bank PLC. This
contains detailed covenants for the benefit of the facility provider, which
mirror those under the New Bonds. In addition to these, the agreement also
contains a financial interest coverage covenant (assessed on a consolidated
group-wide basis) and covenants relating to the conduct of the electricity
supply business customary for a receivables facility. On 1 April 2005 this
facility was transferred to British Energy Direct Limited (BEDL) at the same
time as the direct supply business was transferred from British Energy
Generation Limited to BEDL. At 31 March 2005 and RED, the facility was undrawn.
Cash Flow
A reconciliation of profit after tax and exceptional items to earnings before
interest, tax, depreciation and amortisation (EBITDA) is shown in the following
table. EBITDA is a measure used internally by the Group. The EBITDA calculations
are shown for the total results and also to exclude exceptional items for the
continuing business. The EBITDA calculation for the continuing activities is
further reconciled to the operating cash flow from continuing activities and
then to the increase in cash and liquid funds.
EBITDA is defined by the Company as operating income before interest expense,
income taxes, depreciation and amortisation. The Company has included
information concerning EBITDA because it believes that it is used by certain
investors as one measure of the Company's financial performance. EBITDA is not a
measure of financial performance under United Kingdom Generally Accepted
Accounting Principles and is not necessarily comparable to similarly titled
measures used by other companies. EBITDA should not be construed as an
alternative to operating income or to cash flows from operating activities (as
determined in accordance with United Kingdom Generally Accepted Accounting
Principles) as a measure of liquidity.
BEG
2.5m ended
31 March
2005
GBPm
Profit after tax and exceptional items 35
Net interest expense 5
Total revalorisation 5
Net credit to financing charges for pension liability (1)
Tax 19
Goodwill amortisation 6
Depreciation charges 41
EBITDA 110
Exceptional charges 19
EBITDA - continuing activities before exceptional items 129
Regular contributions to NLF (5)
Movement in other provisions 19
Exceptional operating cash costs (15)
Working capital movements -
Operating cash flow from continuing activities 128
Capital expenditure less receipts from disposals (28)
Taxation paid/(received) -
Net acquisition/disposal of investments -
Net interest paid (9)
Repayment of borrowings (28)
Share issue expenses (10)
Increase in cash and liquid funds 53
The operating cash flow from continuing activities was GBP128m in the post-RED
trading period.
When adjusted for the capital expenditure, the taxation paid or received, the
net receipts from acquisition/disposal of investments, the net interest paid and
repayment of borrowings, the movement in cash and liquid funds was an increase
of GBP53m in the post-RED trading period.
Capital Resources
At 31 March 2005, total debt of GBP676m comprised:
- The Amended Credit Agreement, a long-term project finance loan, of GBP145m
secured on the assets of Eggborough Power Limited (EPL), a subsidiary company
that operates the Eggborough coal-fired power station. The loan bears interest
at a rate of 7.0%.
- An aggregate principal amount of GBP531m sterling denominated guaranteed
bonds due between 2005 and 2022. The bonds bear interest at a rate of 7.0%.
The long-term project finance loan is secured by a mortgage of shares in EPL, an
assignment of the EPL Share Purchase Agreement and Tax Deed of Covenant and a
debenture comprising fixed and floating charges over EPL assets.
Future Liquidity and Collateral
At 31 March 2005 the Group had cash and liquid resources, including amounts
posted as collateral, amounting to GBP456m, of which GBP216m was deposited as
collateral in support of trading activities.
The Group's main source of liquidity is its operating businesses. Cash
generation by the operating businesses is dependent upon the reliability of the
Company's power stations in producing electricity, the realised selling price
for electricity, operational risk and capital investment expenditure and
maintenance requirements.
Discussions were held with Fitch Ratings (Fitch), Moody's Investor Services
(Moody's) and Standard & Poor's Rating Services (S&P) (together "the Rating
Agencies") with regard to obtaining credit ratings for the GBP550m of New Bonds
issued to certain of our creditors and to the NLF upon completion of the
Restructuring pursuant of the terms announced on 1 October 2003.
Upon Restructuring, the Rating Agencies issued new ratings for the New Bonds as
follows:
Rating
Moody's Ba3
S&P BB
Fitch BB-
These ratings do not apply to the additional GBP150m of bond-equivalent payments
that were issued to our subsidiary, EPL, at the time of the Restructuring or the
Amended Credit Agreement. We maintain a close dialogue with the Rating
Agencies, including twice yearly meetings and attendance at investor
presentations.
Sub-investment grade credit rating has meant that the Group continues to provide
significant levels of collateral to counterparties in order to cover their
trading exposures, to maintain trading arrangements, thereby substantially
reducing the levels of cash resources available to the Group.
The Group's strategy for securing part of its income through fixed price
contracts means that in a volatile and rising electricity market the collateral
requirements are also volatile. The Group's ability to secure longer term
certainty on its income is limited by the amount of collateral and headroom
available to cover collateral volatility. The Group mitigates a certain amount
of this risk by selling electricity through a number of routes to market
including through its direct supply business (large industrial and commercial
customers) which does not require collateral and also through greater use of
financial products which provide electricity price protection but require less
collateral.
The Group's future liquidity will also be impacted by the additional employer
pension contributions set out in note 24 to the financial statements.
The Group has agreed to make certain payments to the NLF including the Cash
Sweep Payment. The Cash Sweep Payment will restrict future liquidity.
Related Parties
On 24 September 2004, the Office of National Statistics (ONS) announced its
provisional classification decision that, for the purposes of production of the
United Kingdom National Accounts by it (the National Accounts) British Energy
had been classified as being in the public sector. The ONS is responsible for
producing the National Accounts to describe activities in the national economy,
including transactions taking place between sectors of the economy and compiles
them in accordance with International Accounting Standards. In assessing the
status of British Energy as a public sector body, the ONS stated that it took
into account (amongst other things) the powers conferred on the Government as a
result of the Restructuring. The Company is required under the terms of its
arrangements with Government and the NLF to provide certain information. The
Company is also required under the terms of the Nuclear Liabilities Agreements,
amongst other things, to provide the Secretary of State with all the information
he would reasonably need to monitor the financial health of the Group (including
monthly cashflow information covering the period 18 months ahead) and to only
adopt trading policies which are prudent in light of the Group's ongoing
financial resources and obligations and to comply with such trading policies.
As a result of these requirements, the Company has agreed to provide the
Secretary of State and DTI with, amongst other things, periodic reports on its
business performance and strategic and business plans and for there to be
regular meetings and communication between the Secretary of State and senior
executives and the Board on a range of topics. Over time, the frequency and
content of reporting may be reviewed.
The National Audit Office (NAO) has independently concluded, on the basis of the
circumstances extant as at 21 September 2004, that British Energy should be
accounted for following the Restructuring Effective Date as a quasi-subsidiary
of the DTI.
The Company is a public limited company owned by our shareholders and operates
within an extensive contractual framework established as part of the
Restructuring. The most significant contract, in terms of the limitations it
places on our business, is the Contribution Agreement between the Secretary of
State and the Company. Within this contractual framework the Company is managed
independently by the Board which continues to direct the finances and operating
policies of the group and is subject to the normal private sector disciplines,
fiduciary duties and Companies Act requirements. We therefore consider that no
party is a controlling party under the terms of FRS8, Related Party Disclosures
(FRS8).
In the light of the level and type of interaction we have with the Government we
have concluded that for the purposes of FRS8 the Government constitutes a
related party. See note 36 to the financial statements for further details.
Post Balance Sheet Events
To meet the commitments made as part of the Restructuring the Group transferred
its Direct Supply Business from its subsidiary British Energy Generation Limited
to a new subsidiary BEDL on 1 April 2005.
On 1 July 2005, British Energy Generation (UK) Limited transferred most of its
trade and assets to British Energy Generation Limited again as a commitment made
as part of the Restructuring.
Contingent Liabilities
On 12 February 2004, the Company received a notice of warranty claims from the
consortium which purchased the Group's 82.4% interest in Bruce Power alleging
breach of certain warranties and representations relating to tax and to the
condition of certain plant at the Bruce power station.
The claim relating to the condition of the plant is based upon alleged erosion
of some of the steam generator support plates, through which boiler tubes pass,
which it is alleged resulted in an extended outage of one unit at the plant to
carry out repair works and loss of net revenues and costs of approximately
C$64.5m. The consortium also claims that the alleged erosion may reduce the
operating life of the unit and/or result in further repairs involving further
losses. The Company has rejected the claim and expects to defend it if it is
pursued further. In accordance with applicable accounting standards, no
provision has been made in the financial statements at 31 March 2005.
The principal tax claim relates to the treatment of expenditure at the Bruce
plant during the period of the Group's ownership that is currently being
considered by the Canadian tax authorities. The treatment proposed by the
Company could result in a rebate of a material amount of tax to the Group that
has not been recognised in the financial statements of the period. The
consortium claims that allowance of the expenditure for that period would cause
it to lose future deductions. The Company has rejected the claim and expects to
defend it if it is pursued further. On the basis of advice received, the Group
is confident that the amount of the claim should not, in any event, materially
exceed the amount of the rebate, and that the claim should have no material cash
flow impact on the Group.
Under the Bruce Power sale and purchase agreement with the consortium, C$20m is
retained in trust to meet any representation and warranty claims, and this may
be retained pending agreement or determination of the claims.
Further contingent liabilities of the Group are described in note 33 to the
financial statements for the period.
Dividend Policy
The Board intends to distribute to shareholders as much of the Group's available
cash flow as prudently possible, but not until the operational requirements of
the business permit. In addition, under the terms of the Restructuring, there
are certain restrictions on the Board's ability to pay dividends, including:
- the requirement to fund a cash reserve out of the Group's post-debt service
cash flow in order to support the Group's collateral and liquidity requirements
post-restructuring. The initial target amount for the cash reserve is GBP490m
plus the amount by which cash employed as collateral exceeds GBP200m (Target
Amount). There will be no distributions to shareholders until such times as the
cash reserve is at the required level. As a result of the requirements to fund
the cash reserve, the Board is not proposing a dividend in respect of the period
ended 31 March 2005 and does not expect to propose a dividend before the
financial year ending 31 March 2007;
- the terms of the Nuclear Liabilities Agreements entered into as part of the
Restructuring also require that once the cash reserve is funded to the Target
Amount, British Energy must make Cash Sweep Payments to the Nuclear Liabilities
Fund (NLF). The NLF Cash Sweep Payment was initially defined as 65% of the
movement in cash, cash equivalents and other liquid assets during the year after
adjusting for, among other things, certain payments made to the NLF or dividends
paid in the year. The requirement to make the NLF Cash Sweep Payment greatly
reduces the amount of cash available for distribution to shareholders;
- the terms of the new bonds issued as part of the Restructuring contain certain
covenants, including a restriction that allows British Energy to pay a dividend
only if no event of default has occurred; and
- the requirement for BEG to have distributable reserves.
Financial Instruments and Risk Management
Overview
The main financial risks faced are trading risks in respect of both price and
volume output on the sale of electricity. There is also an exposure to risks
associated with fluctuations in the equity markets through the Pension Schemes.
Policies have been instituted for managing each of these risks, which have been
approved by the Board of Directors. Each of these risks is discussed in more
detail below.
The Power and Energy Trading Division manage electricity trading risks. The
Power and Energy Trading Division operate within policies and procedures that
are approved by the Board and monitored by the Trading Risk Sub-Committee who
report to the Trading Review committee (a sub-committee of the Board).
Non-trading risks (i.e. cash resources, debt finance and financial risks) are
managed by the central treasury function (the Treasury Department). The Treasury
Department operates within policies and procedures approved by the Board. The
Treasury Department uses appropriate and available instruments, within specified
limits, to manage financial risk but is not permitted to take speculative, open
positions. Both the Treasury Department and the Power and Energy Trading
Division are subject to regular scrutiny from the Internal Audit Department.
Interest Rate Risk Management
The market value of debt varies with fluctuations in prevailing interest rates
in the United Kingdom.
The Group's borrowings are all at fixed rate but its cash deposits earn interest
at variable rates. The Group's policy is to minimise exposure to interest rate
risk and to seek to invest its surplus cash to achieve this purpose to the
extent it is possible.
At 31 March 2005 the Company had no interest related derivatives. Eggborough
related derivative agreements were cancelled at RED as part of the
Restructuring.
The total of investments in liquid funds and cash at bank amounted to GBP456m at
31 March 2005 and GBP398m at RED, and in each case had maturity dates due within
one year. Cash not immediately required for business purposes is invested in
fixed-rate term deposits and money market funds. At 31 March 2005 the term
deposits and money market funds not used to fund collateral were due to mature
or were available within one month and earned interest at an average rate of
4.77% (RED 4.67%). Term deposits, money market funds and bank balances at 31
March 2005 included GBP216m (RED GBP286m) of cash that had been deposited in
collateral bank accounts and earned interest at an average rate of 4.02% (RED
4.08%). Availability of this cash was, therefore, restricted over the periods of
the collateralised positions.
As the deposit terms were short-term, the carrying values at 31 March 2005 and
RED approximated to the fair market value.
Foreign Exchange Risk Management
The Group's policy is to hedge future foreign exchange risks to the extent that
such facilities are available to the Group.
There are potential future foreign currency receivables in respect of amounts
outstanding from the sale of Bruce Power. When these cash flows become more
certain in the future the Group will evaluate currency hedging opportunities,
balancing the cost and availability of entering into such transactions against
the underlying currency risk.
At 31 March 2005 and RED there were no foreign exchange contracts in place.
Electricity Trading Risk Management
Electricity trading activities relate principally to supporting the generation
business. The trading operations, therefore, act principally as wholesale
marketers rather than as pure financial traders, with the principal objective of
increasing the return on assets while hedging the market risk associated with
the output of the power stations.
Under BETTA, which took effect from 1 April 2005, any mismatch between actual
metered generation (or demand) and the notified contract position is settled
through the balancing mechanism at generally unfavourable prices. The Company
aims to sell all planned nuclear output forward and to minimise exposure to the
balancing mechanism.
The risks in the wholesale market are managed through a contracting strategy
that builds a portfolio of forward contracts of different lengths.
Whilst operating primarily as a flexible mid-merit plant, Eggborough provides a
flexible generation capability that fulfils three purposes designed to enhance
profitability. Firstly, it provides a means for compensating for unplanned lost
output from the Company's nuclear units at short notice; secondly it provides
the capability to adjust in a cost effective manner the Company's total
generation to meet the requirements of both wholesale and direct supply business
customers; and thirdly, it provides a capability that can be offered at short
notice to the system operator via the balancing mechanism.
The Company's policy is to manage credit exposure to trading and financial
counterparties within clearly defined limits. A sub-committee of the Board
strictly monitors electricity trading activities which are controlled through
delegated authorities and procedures, and which include specific criteria for
the management of counterparty credit exposures.
Equity Risk Management
The Group is exposed to equity risk through the Group's Pension Schemes. The
investment strategy of the Pension Schemes is currently under review with the
Pension Schemes Trustees. The existing policy is, subject to certain criteria
being met, to rebalance the investment portfolio towards investments, including
index-linked bonds and corporate bonds, which more closely match the Pension
Schemes' liabilities.
Following completion of the Restructuring, the Group's liabilities in respect of
the decommissioning of its stations are now governed by the terms of certain of
the restructuring agreements with Government relating to the establishment and
operation of the NLF. As a consequence, the Group's level of obligation for
decommissioning liabilities is pre-determined, and is not subject to
fluctuations in the values of assets held by the NLF.
The Group reported a net deficit of GBP244m (net of deferred tax of GBP104m) on
its employee Pension Schemes, on an FRS17 basis, in its financial statements at
31 March 2005. At that date the Pension Schemes' assets were valued at
GBP1,970m, of which GBP1,629m was held in equities and bonds. The level of
employer contributions to the Group Pension Schemes was formally confirmed
following the triennial actuarial valuation with an effective date of 31 March
2004.
The Group contributes 22.4% of pensionable salaries to the BEGG pension scheme
and 19.7% to the BECG pension scheme with effect from 1 April 2005.
Contributing members contribute 5% and 6% to the respective plans. Details of
the additional employer contributions are set out in note 24 to the financial
statements.
International Accounting Standards
The project undertaken to review the impact of International Accounting
Standards and International Financial Reporting Standards is continuing. This
will identify and implement the changes required in the Group's accounting
policies, information systems, management processes and financial reporting
activities. International Accounting Standards are required to be used in
preparing the consolidated financial statements from 1 April 2005 onwards.
It is the intention to report the implications of first time adoption in late
summer 2005.
ANNUAL EQUIVALENT
The consolidated results of BEG cannot be added to those of BE Ltd to present
results for a 12 month period as the results are not drawn up on a comparable
basis. To assist readers the table below summarises the performance for the
pre-RED and post-RED trading periods discussed above and describes the
significant adjustments required to reverse the impact of changes in accounting
policies and the impact of the fair value exercise. These results are not the
same as typical proforma results, are unaudited and not consistent with any
GAAP.
Following the acquisition of BE Ltd as part of the Restructuring BEG reviewed
the accounting policies adopted by BE Ltd and revised certain policies where BEG
considered it more appropriate with the transition to IFRS in mind. The key
changes in accounting policies are to capitalise fixed front and all back end
nuclear fuel costs into stock, to capitalise and subsequently amortise statutory
outage costs, reclassify strategic spares as fixed assets, to fully adopt FRS17
and discontinue the application of SSAP24 - Accounting for Pension Costs
(SSAP24) in relation to pension costs and cease to discount deferred tax. The
impact of these changes, as relevant, is incorporated in the table below to
present the results of the post-RED period using the same accounting policies as
the pre-RED period.
As a consequence of acquisition accounting, all assets of the Acquired Group
were restated at fair value at RED under FRS7 - Fair Values in Acquisition
Accounting (FRS7). The fair value adjustments set out in note 12 to the
financial statements partially unwind in the post-RED trading period. The fair
value adjustment unwind occurring within the post-RED trading period has been
reversed to calculate annual equivalents.
Principal adjustments
BEG Reversal Reversal of Adjusted Adjusted 12 Month BE Ltd
2.5m of changes fair value BEG 2.5m BE Ltd Annual Year
ended in adjustments ended 9.5m Equivalent ended
31 March accounting GBPm 31 March ended GBPm 31 March
2005 policies 2005 14 2004
GBPm GBPm GBPm January GBPm
2005*
GBPm
- Wholesale generation 233 - - 233 458 691 703
sales
- Direct supply 170 - - 170 511 681 522
- Miscellaneous income 6 - - 6 24 30 31
- Energy supply costs 73 - - 73 229 302 260
Turnover 482 - - 482 1,222 1,704 1,516
Operating Costs before
exceptional items
- Fuel costs (nuclear) (71) 7 - (64) (252) (316) (318)
- Fuel costs (coal) (56) - - (56) (91) (147) (95)
- Materials and (82) (8) (23) (113) (429) (542) (512)
services
- Staff costs (63) - - (63) (240) (303) (224)
- Depreciation charge (41) 12 14 (15) (59) (74) (50)
- Amortisation charge (6) - 6 - - - -
- Other operating (8) - 8 - - - -
expense
- Energy supply costs (73) - - (73) (229) (302) (260)
Total operating costs (400) 11 5 (384) (1,300) (1,684) (1,459)
before exceptional
items
Exceptional operating (19) - - (19) (60) (79) 283
items
Group operating profit/ 63 11 5 79 (138) (59) 340
(loss)
EBITDA continuing 129 (1) (15) 113 (19) 94 107
activities
*Adjusted for GBP5m one-time charge related to AmerGen.
Turnover
Annual equivalent turnover was GBP1,704m, an increase of GBP188m compared to the
prior year. The increase in turnover is attributable to increased prices and
growth in the energy supply costs recovered from customers offset by reduced
output.
Increased/(decreased) turnover: GBPm
- owing to decreased output (88)
- owing to increased electricity prices 235
- owing to increased energy supply costs 42
- due to a decrease in miscellaneous income (1)
188
Annual equivalent realised price (which is calculated by dividing turnover, net
of energy supply costs, miscellaneous and exceptional income, by total output)
was GBP20.4/MWh compared to GBP16.9/MWh in the prior year.
BEG BE Ltd BE Ltd
2.5m ended 9.5m ended Year ended Year ended
31 March 14 January 31 March 31 March
Output: 2005 2005 2005 2004
TWh TWh TWh TWh
Nuclear 14.3 45.5 59.8 65.0
Eggborough 2.5 5.1 7.6 7.6
Total 16.8 50.6 67.4 72.6
Output in the year ended 31 March 2005 was 59.8 TWh from nuclear operations
compared to 65.0 TWh in the prior year. Output from Eggborough was constant at
7.6 TWh in both years.
During the year, four outages were completed and the Sizewell B outage commenced
shortly before the year end resulting in a total loss of output of 2.9 TWh.
Refuelling resulted in a further loss of 3.0 TWh and the unplanned outages at
Heysham 1 and Hartlepool resulted in a loss of 7.4 TWh. There were further
unplanned outages resulting in a loss of 9.9 TWh, of which some 6.5 TWh was due
to outages of 14 days or less.
Operating Costs
Annual equivalent operating costs of continuing activities excluding exceptional
items and energy supply costs were GBP1,382m compared to GBP1,199m in the prior
year.
Annual equivalent operating unit cost excluding revalorisation was GBP20.5/MWh
compared to GBP16.5/MWh in the prior year. The cost base used for the annual
equivalent unit costs calculation includes all adjustments noted in the summary
above and described in further detail below.
Fuel costs
Total annual equivalent fuel costs amounted to GBP463m compared to GBP413m in
the prior year. Annual equivalent nuclear fuel costs were GBP316m compared to
GBP318m for the prior year, and annual equivalent coal costs were GBP147m
compared to GBP95m for the prior year. The decrease in the nuclear fuel costs of
GBP2m was due to reduced output that resulted in reduced costs of GBP25m which
was offset by other cost increases of GBP23m. The cost increase is comprised
primarily of the effect of inflation, the absence of electricity price related
rebate associated with the front end nuclear fuel costs of GBP3m, and
non-recurrence of annual credits arising from revisions to the back end nuclear
fuel costs associated with the final core provision for unburnt fuel at shutdown
included in the prior year of GBP12m. The GBP52m increase in coal costs relates
to increased coal prices and inclusion of ETS costs of GBP11m. Coal costs also
include the cost of other Eggborough fuel including biomass.
In calculating the annual equivalent nuclear fuel costs, adjustments of GBP7m
were made to reverse changes in accounting policy. The nuclear fuel costs for
the pre-RED period were prepared on the basis of the historic BNFL contracts and
for the post-RED trading period on the basis of the revised BNFL contracts.
Materials and services
Material and services costs comprise the operating expenses of the power
stations and support functions excluding fuel costs, staff costs and
depreciation.
The annual equivalent costs were GBP542m compared to GBP512m in the prior year
with the increase of GBP30m being due primarily to the work undertaken in the
year to address the various issues that emerged at the nuclear power stations.
Included in annual equivalent materials and services is expenditure of a capital
nature of GBP93m for the year compared to GBP90m in the prior year. Pre-RED
expenditure of a capital nature was expensed as operating costs because it was
not possible to demonstrate that this expenditure enhanced the value of the
Group after taking account of the fixed asset impairment reviews carried out in
the years ended 31 March 2003 and 2004. In calculating the annual equivalent
material and services costs the BEG result has been adjusted to expense capex of
GBP23m and to expense outage costs of GBP8m reflecting the change in accounting
policy to capitalise and subsequently amortise costs associated with statutory
outages.
Staff costs
Annual equivalent staff costs were GBP303m compared to GBP224m for the prior
year with the increase being primarily due to pension changes following the
revised assumptions being used under SSAP24 and FRS17 in the annual equivalent
numbers. Total annual equivalent pension costs for the year were GBP52m compared
to GBPnil. The balance of the increased cost of GBP27m relates to salary
inflation additional to staff levels and additional overtime as a result of the
extended outages at Heysham 1 and Hartlepool. The staff costs for the pre-RED
trading period were prepared on the basis of SSAP24 pension costs and for the
post-RED period FRS17 pension costs. No adjustment has been made in deriving the
annual equivalent staff costs.
Depreciation
Annual equivalent depreciation charges were GBP74m compared to GBP50m in the
prior year. This reflects the increase of GBP295m in the carrying value of fixed
assets as a result of the impairment review in the prior year. The GBP12m
adjustment in respect of accounting policies reverses the depreciation
associated with capitalised outage costs. The GBP14m adjustment reverses the
additional depreciation as a result of the increase in the fair value of fixed
assets of GBP817m.
In calculating the annual equivalent depreciation it was assumed that the
Restructuring had not occurred and all capex was written off in the year.
Amortisation
There was no annual equivalent amortisation as the goodwill arises as a result
of the Restructuring. The amortisation in the period of GBP6m is fully reversed.
Other Operating Expense
Other operating expense reflects the unwind of the out of the money contracts
recorded at RED. As the liability was recognised as a result of the fair value
exercise, the charge in the period of GBP8m has been fully reversed.
Energy Supply Costs
Energy supply costs mainly comprise the costs incurred for the use of the
distribution and transmission systems and are fully recovered through turnover.
This year energy supply costs also include costs related to meeting the cost of
compliance with the Renewables Obligation, which are also recovered through
turnover. The Group is required to comply with the Renewables Obligation as part
of the regulations governing climate change. Annual equivalent total energy
supply costs were GBP302m compared with GBP260m in the prior year, an increase
of GBP42m. This increase reflects the inclusion of Renewables Obligation
Certificates compliance costs and growth in the Direct Supply Business.
Cash
Cash and liquid funds at 31 March 2005 were GBP456m compared to GBP398m at RED,
GBP573m at 31 March 2004 and GBP333m at 31 March 2003. The movement in cash and
liquid funds is analysed as follows:
BEG BE Ltd BE Ltd
2.5m ended 9.5m ended Year ended
31 March 14 January 31 March
2005* 2005 2004
GBPm GBPm GBPm
Profit/(loss) after tax and exceptional items 35 (360) 234
Net interest expense (including exceptional items) 5 60 59
Total revalorisation (including exceptional items) 5 155 117
Net credit to finance charge for pension liability (1) - -
Tax (including exceptional items) 19 3 (2)
Goodwill amortisation 6 - -
Depreciation charges 41 59 50
Exceptional depreciation charges/(credits) due to - 3 (295)
impairment review/head office disposal
EBITDA 110 (80) 163
Gain on sale of businesses - (1) (47)
AmerGen profit - - (21)
Net exceptional charges other than depreciation, 19 57 12
interest, tax and revalorisation
EBITDA - continuing activities 129 (24) 107
Nuclear liabilities charged to operating costs N/A 104 130
Nuclear liabilities discharged N/A (122) (59)
Regular contributions to decommissioning fund (5) (15) (19)
Movement in other provisions 19 12 (3)
Exceptional operating cash costs (15) (29) (25)
Working capital movements - (45) 25
Operating cash flow from continuing activities 128 (119) 156
Capital expenditure less receipts from disposals (28) - -
Taxation paid - - (12)
Disposal of investments - 4 171
Net interest paid (9) (60) (75)
Repayment of borrowings (28) - -
Share issue expenses (10) - -
Increase/(decrease) in cash and liquid funds 53 (175) 240
* Unadjusted
Opening cash and cash equivalents 398 573 333
Movement in period 53 (175) 240
Cash reclassified from fixed asset investments at RED 5 - -
Closing cash and liquid funds 456 398 573
The movement in total cash and liquid funds in the post-RED trading period of
GBP58m includes GBP53m of cash and liquid funds generated in the post-RED
trading period and GBP5m of cash reclassified at RED from fixed asset
investments.
Investment Expenditure
Investment expenditure comprises investment in major plant projects, repairs and
strategic spares across the whole group which includes incremental PiP annual
expenditure cost. In the year ended 31 March 2005, investment expenditure was
GBP162m compared to GBP128m in the prior year. This reflects the additional
investment made over the last year including the cast iron replacement
programme.
Auditors' Remuneration
An analysis of the auditors' remuneration for the year ended 31 March 2005 is
provided below.
BEG BE Ltd 12 Month BE Ltd
2.5m ended 9.5m ended Annual Year
31 March 14 January Equivalent ended
2005 2005 31 March
2004
GBP000' GBP000's GBP000's GBP000's
Audit services
- Statutory 328 1,247 1,575 510
- Audit related regulatory reporting 1,157 745 1,902 258
Further assurance services
- Creditors long form report - 951 951 2,017
- Reporting accountant - listing - 2,320 2,320 1,208
- Review of accounting for Restructuring - 1,977 1,977 1,114
Taxation
- Tax services 24 281 305 510
Other
- Other non-audit services 235 344 579 80
Total 1,744 7,865 9,609 5,697
The fees associated with the audit for the period ended 31 March 2005 have been
allocated between the pre-RED and post-RED periods on a time apportionment
basis. Fees associated with the auditors' review of compliance with s404 of the
Sarbanes Oxley Act of 2002 have been allocated in full to the post-RED trading
period.
Subsequent Reporting
The next set of results that the Group will present will be for the quarter
ended 30 June 2005. These results will be drawn up under IFRS and will not be
comparable to the annual equivalents discussed above.
Stephen Billingham
Finance Director
Group Profit and Loss Account
for the period ended 31 March 2005
2 July
2004 to
Notes 31 March
2005
GBPm
Group turnover
Continuing activities - acquisition 2 482
Operating costs before exceptional items 3 (400)
Exceptional operating costs 3 (19)
Operating costs after exceptional items 3 (419)
Group operating profit:
Continuing activities - acquisition 63
Financing (charges)/credits:
Net revalorisation charges 6 (5)
Net interest payable and similar charges 6 (5)
Net credit to finance charge for pension liability 6 1
Profit on ordinary activities before taxation 54
Taxation on profit on ordinary activities 7 (19)
Profit for the period attributable to shareholders 26 35
Earnings per share (p):
Basic 9 6.2
Diluted 9 6.0
The Group Profit and Loss Account represents the results from the acquired
business for the period from 15 January 2005 to 31 March 2005.
The historical cost profit for the period is the same as reported above.
Statement of Total Recognised Gains and Losses
for the period ended 31 March 2005
2 July
2004 to
31 March
2005
Notes GBPm
Profit for the financial period 35
Actuarial gain 24 81
Taxation on actuarial gain 22 (24)
Total recognised gains for the period 92
The accompanying notes are an integral part of the financial statements.
Balance Sheets
as at 31 March 2005
Group Company
2005 2005
Notes GBPm GBPm
Fixed assets
Intangible assets 10 316 -
Tangible assets 11 1,678 -
1,994 -
Investments 12 - 1,536
1,994 1,536
Current assets
Stocks 13 331 -
Debtors: amounts falling due within one year 14 469 -
Debtors: amounts falling due after more than one year 15 4,340 -
Investments - liquid funds 29 221 -
Cash at bank 29 235 -
5,596 -
Creditors: amounts falling due within one year
- borrowings 17 (50) -
- other 16 (559) (10)
(609) (10)
Net current assets/(liabilities) 4,987 (10)
Total assets less current liabilities 6,981 1,526
Creditors: amounts falling due after more than one year
- borrowings 17 (626) -
- other 16 (2,341) -
Provisions for liabilities and charges 19 (2,150) -
Deferred income 23 (5) -
Net assets excluding retirement benefits liability 1,859 1,526
Retirement benefits - liability 24 (244) -
Net assets including retirement benefits liability 1,615 1,526
Capital and reserves
Called up equity share capital 25 56 56
Capital reserve 27 767 767
Warrant reserve 27 51 51
Profit and loss account 26 741 652
Total shareholders' funds (including non-equity 27 1,615 1,526
shareholders' interests)
The accompanying notes are an integral part of the financial statements.
The financial statements were approved by the Board of Directors on 27 July 2005
and signed on its behalf by:
Bill Coley Stephen Billingham
Chief Executive Finance Director
Group Cash Flow Statement
for the period ended 31 March 2005
2 July
2004 to
31 March
2005
Notes GBPm
Net cash inflow from operating activities 28 128
Interest paid (12)
Interest received 3
Returns on investments and servicing of finance (9)
Taxation 7 -
Receipt from disposal of property 7
Payments to acquire tangible fixed assets (35)
Capital expenditure and financial investment (28)
Net cash acquired with subsidiary undertaking 12 109
Costs associated with acquisition (10)
Costs associated with sale of investments (3)
Receipt from sale of own shares 3
Acquisitions and disposals 99
Net cash inflow before use of liquid resources and financing 190
Decrease in term deposits/bank balances 73
Management of liquid resources 30 73
Issue of shares 25 -
Repayment of amounts borrowed 30 (28)
Financing (28)
Increase in cash 29 235
The accompanying notes are an integral part of the financial statements.
The Group Cash Flow Statement represents the cash flows from the acquired
business for the period from 15 January 2005 to 31 March 2005, except the
financing category which, prior to the date of the acquisition, also reflects
the cash flows from the issue of equity by the Company following its
incorporation.
British Energy Group plc
Results for the 2.5 months ended 31 March 2005
Notes to the Financial Statements
for the period ended 31 March 2005
1. Accounting Policies
(i) Basis of Preparation
The financial statements are prepared under the historical cost convention and
in accordance with applicable accounting standards, except for the departure
noted below. References to "British Energy" or the Company are to British Energy
Group plc, the ultimate holding company of the Group. References to the "Group"
are to the Company and its subsidiaries.
Commodity trading contracts, where there is no associated physical delivery, are
marked to market using externally derived market prices. This is a departure
from the general provisions of Schedule 4 of the Companies Act 1985. An
explanation of this departure is given in note 1(xxii).
The preparation of financial statements in conformity with Generally Accepted
Accounting Principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results can differ from those estimates.
In accordance with FRS18 - Accounting Policies (FRS18) the Directors have
reviewed the Group's accounting policies and confirm that they are the most
appropriate. A number of the policies require the Group to use a variety of
estimation techniques. Significant factors considered when assessing the
carrying value of assets include future electricity prices, expected annual
output, expected station operating costs, remaining station lives and discount
rates. Estimates of output, costs and timing of associated cash flows as well as
the expected regulatory framework are key factors used to apply the stated
policies for long-term nuclear liabilities and decommissioning as discussed
further in note 1(xix) below.
The accounting policies being applied by British Energy Group plc are, in some
cases, different to those which were applied in the past by British Energy plc.
Note 12 to the financial statements provides detail on the re-alignment of those
former policies with those applied by British Energy Group plc.
(ii) Basis of Consolidation
The Group financial statements consolidate the financial statements of British
Energy Group plc and all its subsidiary undertakings. The Company was
incorporated on 2 July 2004. As a consequence of the Restructuring, under a
Scheme of Arrangement under Section 425 of the Companies Act 1985, the Company
acquired British Energy plc on 14 January 2005. The Restructuring has been
accounted for under the principles of acquisition accounting set out in FRS6 -
Acquisitions and Mergers (FRS6). The application of acquisition accounting
principles means that all the separate assets and liabilities of British Energy
plc have been recorded at fair value at the date of acquisition with goodwill
arising on the difference between net assets of the Acquired Group and the
acquisition consideration paid. Only the post acquisition results are included
in the Group Profit and Loss Account, Statement of Total Recognised Gains and
Losses, Group Cash Flow Statement and the accompanying Notes.
Inter-company profits, transactions and balances are eliminated on
consolidation.
(iii) Turnover
Turnover represents sales of electricity including energy supply costs recharged
to customers, net of electricity purchases, and sales of other related goods.
Turnover is shown net of value added tax and climate change levy.
Wholesale generation and direct supply sales are recognised on an accruals basis
with reference to meter readings or where required based on management's best
estimate of electricity supplied.
Turnover includes miscellaneous income that comprises mainly services to Magnox
in respect of shared sites and Renewable Obligation Certificates and Levy
Exemption Certificates income.
(iv) Fuel Costs - Nuclear Front End
Advanced Gas-cooled Reactors (AGR)
Front end fuel costs consist of the costs of procurement of uranium, conversion
and enrichment services and fuel element fabrication. Fabrication costs comprise
fixed and variable elements. All costs are capitalised into stock and charged to
the profit and loss account in proportion to the amount of fuel burnt.
Pressurised Water Reactor (PWR)
All front end fuel costs are variable and are charged to the profit and loss
account in proportion to the amount of fuel burnt.
(v) Fuel Costs - Nuclear Back End
AGR
Spent fuel extracted from the reactors is sent for reprocessing and/or long-term
storage and eventual disposal of resulting waste products. Back end fuel costs
comprise:-
(a) a cost per tonne of uranium in AGR fuel, in respect of amounts
payable on loading of fuel into any one of the AGR reactors.
(b) a rebate/surcharge against the cost mentioned in (a) above that is
dependent on the out-turn electricity price in the year.
The loading related cost and the rebate/surcharge is capitalised into stock and
charged to the profit and loss account in proportion to the amount of fuel
burnt.
PWR
Back end fuel costs are based on wet storage in station ponds followed by dry
storage and subsequent direct disposal of fuel. Back end fuel costs comprise the
estimated cost of this process at current prices discounted back to current
value. Back end fuel costs are capitalised into stock on loading and charged to
the profit and loss account in proportion to the amount of fuel burnt.
(vi) Unburnt Fuel at Shutdown
Due to the nature of the nuclear fuel process there will be some unburnt fuel in
the reactors at station closure. The costs of this unburnt fuel (final core) is
fully provided at the balance sheet date and any changes in the carrying value
of nuclear fuel attributed to the final core are charged to the profit and loss
account in the year.
(vii) Fuel Costs - Coal
Fuel costs for coal are determined on a weighted average cost basis. Fuel costs
for coal also include costs of emission allowances. The Group recognises
liabilities in respect of its obligations to deliver emission allowances to the
extent that the allowances to be delivered exceed those previously acquired by
the Group, either by allocation from the Government or a similar body or through
purchase. Any liabilities recognised are measured based on the current
estimates of the amounts that will be required to satisfy the net obligation.
(viii) Renewable Obligation Certificates
Annual commitments payable under Renewable Obligation Certificates are reflected
in the profit and loss account based on the volume of direct supply sales.
Acquired certificates are recognised as assets on purchase and are offset
against related obligation payments.
(ix) Research and Development
Research and development expenditure is charged to the profit and loss account
as incurred.
(x) Pensions and Other Post-retirement Benefits
The Group provides for pension costs in accordance with FRS17 - Retirement
Benefits (FRS17). Contributions to the Group's defined benefit pension schemes
are assessed by qualified actuaries. Pension plan assets are measured using
market values. Pension plan liabilities are measured using the projected unit
method and discounted at the current rate of return on a high quality corporate
bond of equivalent term and currency to the liability. Any increase in the
present value of the liabilities of the Group's defined benefit pension plans
expected to arise from employee service in the period is charged against
operating profit. The expected return on the plan's assets and the increase
during the period in the present value of the plan's liabilities arising from
the passage of time are included in other finance income. Actuarial gains and
losses are recognised immediately in the Statement of Total Recognised Gains and
Losses.
Certain additional unfunded retirement benefits are provided to eligible
employees. The cost of providing such benefits is charged against profits as
they accrue.
The capital cost of ex-gratia and supplementary pensions is charged to the
profit and loss account, to the extent that the arrangements are not covered by
the surplus in schemes, in the accounting period in which they are granted.
(xi) NLF Funding Arrangements
Under new arrangements with the Secretary of State, the former Nuclear
Decommissioning Fund was enlarged into and renamed the Nuclear Liabilities Fund
(NLF), which will fund, subject to certain exceptions, the Group's qualifying
uncontracted nuclear liabilities and qualifying decommissioning costs. To the
extent there is any surplus remaining in the NLF, this amount will be paid to
the Secretary of State. The Group is responsible for funding certain excluded or
disqualified liabilities and will, in certain circumstances, be required to
compensate or indemnify the NLF and the Secretary of State in relation to such
liabilities. The Group's obligations under these arrangements with the Secretary
of State are guaranteed by certain companies in the Group.
In consideration for the assumption of these liabilities by the Secretary of
State and the NLF, British Energy Holdings plc issued GBP275m in New Bonds to
the NLF. The Group will also now make the following payments to the NLF: (i) an
annual contribution (Cash Sweep Payment) initially equal to 65% of the British
Energy Group's adjusted net cash flow, adjusted for certain corporate actions
but never to exceed 65% (Cash Sweep Percentage) (ii) fixed decommissioning
contributions equal to GBP20m per annum (indexed to RPI but tapering off as the
nuclear power stations are currently scheduled to close); and (iii) GBP150,000
(indexed to RPI) for every tonne of uranium in PWR fuel loaded into the Sizewell
B reactor after the Restructuring Effective Date.
The NLF has the right from time to time to convert all or part of the Cash Sweep
Payment into convertible shares of the Company (the NLF Conversion Right). On a
full conversion, the NLF would hold up to 65% of the thereby enlarged equity
share capital of the Company. However, the terms of the Convertible Shares
include a limit on the voting rights attaching to such shares equal to a maximum
of 29.9% whilst held by the NLF. At the time of listing, the Secretary of State
confirmed that she had no current intention to direct the NLF to exercise the
NLF Conversion Right but reserved the right to do so.
The annual Cash Sweep Payment can only be determined after the end of the
financial year and is contingent based on cash generation in the year.
Therefore, it is only recognised and provided for when it becomes determinable
and not in any other interim financial periods. It will be recorded as an
operating cost of the applicable financial year. The annual Cash Sweep Payment
becomes payable twenty business days after publication of the report and
accounts.
The fixed decommissioning obligations of GBP20m per annum have been recorded as
a liability on the balance sheet at their discounted value and disclosed as the
NLF liability. The NLF liability is reduced as payments are made to the NLF.
Each year the financing charges in the profit and loss include the
revalorisation of NLF liabilities required to discharge one year's discount from
the liability.
PWR fuel loaded after Restructuring Effective Date will increase the qualifying
nuclear liability recognised for back end PWR fuel costs as set out in note 1(v)
and will increase the NLF receivable by a corresponding amount. The difference
between the payment of GBP150,000 (indexed to RPI) per tonne made to the NLF on
the loading of PWR fuel and the increase in the liability recognised, and
therefore the increase in the NLF receivable, is recorded as a back end fuel
cost or credit as appropriate in the year of loading.
(xii) Foreign Currencies
Transactions in foreign currencies are recorded at the rate of exchange at the
date of the transaction or, if hedged forward, at the rate of exchange under the
related forward currency contract. Assets and liabilities denominated in foreign
currencies are retranslated into Sterling at the rate of exchange ruling at the
date of the balance sheet or at the contracted rate if applicable. All
differences are taken to the profit and loss account.
(xiii) Goodwill
Goodwill arising on acquisitions represents the excess of the fair value of the
consideration at acquisition compared to the fair value of the identifiable net
assets acquired. Goodwill is capitalised as an intangible asset on the balance
sheet. The Directors have assessed its useful life to be twenty years and the
goodwill will be amortised in line with the remaining operating lives of the
stations over this period. It is reviewed for impairment at the end of the
first full financial year following the acquisition and in other periods if
events or changes in circumstances indicate that the carrying value may not be
recoverable.
(xiv) Operating Leases
Rentals payable under operating leases are charged to the profit and loss
account on a straight line basis over the lease term.
(xv) Tangible Fixed Assets and Depreciation
Fixed assets comprise assets acquired or constructed by the Group. Expenditure
of a capital nature incurred to improve operational performance or to improve
safety in order to meet increased regulatory standards is also capitalised.
Other expenditure, including that incurred on preliminary studies and on the
initiation of new technologies not yet adopted, is charged to the profit and
loss account as incurred.
Fixed assets (other than assets in the course of construction) are stated in the
balance sheet at cost, or fair value for assets acquired as a result of the
Restructuring, less accumulated depreciation. Accumulated depreciation includes
additional charges made where necessary to reflect impairment in value. Assets
in the course of construction are stated at cost and not depreciated until
brought into commission.
The carrying values of fixed assets are reviewed for impairment where there has
been a trigger event by assessing the present value of estimated future cash
flows and net realisable value compared with net book value. The calculation of
estimated future cash flows is based on the Directors' best estimates of future
prices, output and costs and is therefore subjective.
The charge for depreciation of fixed assets is based on the straight line method
so as to write-off the costs of assets, after taking into account provisions for
diminution in value, over their estimated useful lives.
The asset lives adopted are subject to regular review and for the period ended
31 March 2005 were:
AGR power stations 6 - 18 years
PWR power station 30 years
Coal power station 11 years
Other buildings 30 years
Other plant and equipment 18 months - 5 years
Overhaul costs, being the costs incurred in relation to statutory outages, are
capitalised (in other plant and equipment) and depreciated over the period until
the next statutory outage. For AGR power stations, this depreciation period is
three years and for the PWR power station is eighteen months.
Overhaul costs for planned outages at Eggborough are capitalised (in other plant
and equipment) and depreciated over the four year period until the next planned
outage.
Included within the power station categories are strategic spares, which are
carried at the lower of cost and net realisable value and depreciated over the
life of the asset to which they relate.
(xvi) Fixed Asset Investments
Investments in subsidiaries are initially recorded at the cost of shares
allotted. Fixed asset investments are stated at cost less provisions for
diminution in value. The carrying value of all fixed asset investments is
regularly assessed for permanent impairment and provision made, if appropriate.
(xvii) Stocks of Fuel and Stores
Stocks of fuel, stores and spares are valued at the lower of cost and net
realisable value. The nuclear fuel stock includes capitalised front end and
back end costs including the rebate/surcharge but is reduced by the provision
for unburnt fuel at shutdown (note 1 (vi)).
(xviii) NLF Receivable and Nuclear Liabilities Receivable
The Government indemnity is provided to indemnify any future shortfall on NLF
funding of qualifying uncontracted nuclear liabilities (including PWR back-end
fuel services) and qualifying nuclear decommissioning costs.
A NLF receivable asset is recognised representing the aggregate value of the
Nuclear Liabilities Fund and the Government indemnity (refer to note 15) such
that the receivable equals the present value of the associated qualifying
liabilities.
The Government indemnity is also provided to cover services for spent AGR fuel
loaded pre-Restructuring. A nuclear liabilities receivable is recognised in
respect of the indemnity (refer to note 15) such that the receivable equals the
present value of the associated qualifying liabilities.
The NLF receivable and the Nuclear liabilities receivables are stated in the
balance sheet at current price levels, discounted at a long-term real rate of
interest of 3% per annum to take account of the timing of payments. Each year
the financing charges in the profit and loss account include the revalorisation
of these receivables required to match the revalorisation of the nuclear
liabilities.
(xix) Nuclear Liabilities
Nuclear liabilities represent provision for the Group's liabilities in respect
of the costs of waste management of spent fuel and nuclear decommissioning. The
provisions represent the Directors' best estimates of the costs expected to be
incurred. They are calculated based on the latest technical evaluation of the
processes and methods likely to be used, and reflect current engineering
knowledge. The provisions are based on such commercial agreements as are
currently in place, and reflect the Directors' understanding of the current
Government policy and regulatory framework. The Directors carry out an in-depth
review of the adequacy of amounts provided on a five-yearly basis, and also
review the amounts provided for significant change during the intervening years.
Given that Government policy and the regulatory framework on which our
assumptions have been based may be expected to develop and that the Directors'
plans will be influenced by improvements in technology and experience gained
from decommissioning activities, liabilities and the resulting provisions are
likely to be adjusted.
In matching the costs of generating electricity against the income from sales,
accruals are made in respect of the following:
a) Fuel costs - back end
The treatment of back end fuel costs in the profit and loss account has been
dealt with in notes 1(v) and 1(vi). These nuclear liabilities cover reprocessing
and storage of spent nuclear fuel and the long-term storage, treatment and
eventual disposal of nuclear waste. They are based, as appropriate, on
contractual arrangements or the latest technical assessments of the processes
and methods likely to be used to deal with these obligations under the current
regulatory regime. Where accruals are based on contractual arrangements they are
included within creditors. Other accruals are based on long-term cost forecasts
which are reviewed regularly and adjusted where necessary, and are included
within provisions.
b) Decommissioning of nuclear power stations
The financial statements include provision for the full cost of
decommissioning the Group's nuclear power stations. Provision is made on the
basis of the latest technical assessments of the processes and methods likely to
be used for decommissioning under the current regulatory regime.
Accruals and provisions for back end fuel costs and decommissioning are
stated in the balance sheet at current price levels, discounted at a long-term
real rate of interest of 3% per annum to take account of the timing of payments.
Each year the financing charges in the profit and loss account include the
revalorisation of liabilities required to discharge one year's discount from
provisions made in prior years and restate these provisions to current price
levels.
(xx) Deferred Taxation
Deferred tax is recognised in respect of all timing differences that have
originated but not reversed at the balance sheet date where transactions or
events that result in an obligation to pay more, or a right to pay less, tax in
the future have occurred. Deferred tax is measured on an undiscounted basis at
the tax rates that are expected to apply in the periods in which the timing
differences reverse, based on tax rates and laws enacted or substantively
enacted at the balance sheet date. Deferred tax assets are recognised where it
is more likely than not that the assets will be realised.
(xxi) Liquid Funds
Cash which is placed on term deposits which mature more than one day after the
end of the financial year or invested in commercial paper, is classified under
current asset investments in the balance sheet and the movement in liquid funds
is disclosed under management of liquid resources in the cash flow statement.
(xxii) Financial Instruments and Derivatives
Debt instruments
All borrowings are stated at cost with issue costs being charged to the profit
and loss account on purchase. The interest payable on debt is charged to the
profit and loss account over the life of the borrowing. Premiums and discounts
arising on early repayment of borrowings are recognised in the profit and loss
account as incurred and received.
Commodity contracts
On 14 January 2005, as part of the acquisition, all power and coal contracts
were recorded at fair value on the balance sheet. As the contracts in existence
at 14 January 2005 are satisfied, the fair value recorded on Restructuring is
reflected through the profit and loss account as an other operating expense/
income.
For contracts entered into since 14 January 2005, where there is physical
delivery associated with power and coal commodity contracts they are accounted
for on an accruals basis following delivery of the commodity. Amounts payable or
receivable in respect of these contracts are recorded within trade creditors and
debtors respectively and recognised as turnover.
For contracts entered into since 14 January 2005, where there is no physical
delivery associated with these contracts, they are recorded at fair value on the
balance sheet. Where the instrument is for proprietary trading purposes, the
change in fair value is reflected through the profit and loss account as other
operating expense. This is not in accordance with the general provisions of
Schedule 4 of the Companies Act 1985, which requires that these contracts are
stated at the lower of cost and net realisable value or that, if revalued, any
revaluation difference be taken to a revaluation reserve. However, the Directors
consider that this departure is necessary in order that the financial statements
give a true and fair view of the results of the Group's trading activities.
Futures and power options
Power futures and options are undertaken for hedging and proprietary trading
purposes. Initial margins paid on entering power exchange contracts are recorded
on the balance sheet within restricted cash in 'Investment - liquid funds'
throughout the term of the contract. Where the instrument is a hedge, the daily
margin calls are initially reflected on the balance sheet and subsequently
reflected through the profit and loss account to match the recognition of the
hedged item. Premiums received and paid on wholesale generation contracts are
amortised over the period of the contracts and included within turnover.
2. Turnover, profit on ordinary activities before tax and net assets
The Group's activities consist principally of the generation and sale of
electricity from continuing activities acquired on 14 January 2005 based in the
United Kingdom.
Turnover, profit on ordinary activities before tax and net assets from the
United Kingdom are disclosed in the Group Profit and Loss Account and the Group
Balance Sheet.
The analysis of output that is unaudited for the period ended 31 March 2005 is
as follows:
2005
TWh
Output
- AGR nuclear power stations 12.3
- PWR nuclear power station 2.0
- Coal-fired power station 2.5
16.8
The analysis of turnover for the period ended 31 March 2005 is as follows:
2 July
2004 to
31 March
2005
GBPm
Group turnover
Continuing activities - acquisition
- Wholesale generation sales 233
- Direct supply sales net of energy supply costs 170
- Turnover excluding energy supply costs and miscellaneous income 403
- Energy supply costs recharged to customers 73
- Miscellaneous income 6
Turnover 482
3. Operating costs
2 July
2004 to
31 March
2005
GBPm
Continuing activities - acquisition
- Fuel costs 127
- Materials and services 82
- Staff costs (note 4) 82
- Depreciation charges (note 11) 41
- Goodwill amortisation (note 10) 6
- Other operating expense (note 21) 8
346
- Energy supply costs 73
Total operating costs 419
Included within staff costs were exceptional charges of GBP19m in respect of
severance.
2 July
2004 to
31 March
2005
GBPm
Operating costs are stated after charging:
- Research and development 3
- Operating lease costs - other 1
It is the Group's policy to engage the external auditors, PricewaterhouseCoopers
LLP, on assignments where their expertise and experience with the Group are
important, or where they win work on a competitive basis. An analysis of
auditors' remuneration which arose in the period from 15 January 2005 to 31
March 2005 is provided below:
2005
GBP000's
Audit services
- Statutory 328
- Audit related regulatory reporting 1,157
Taxation
- Tax services 24
Other
- Other non-audit services 235
Total 1,744
Statutory audit fees for British Energy Group plc were GBP5,000 which were borne
by its subsidiary British Energy Limited.
The fees associated with the statutory audit for the period have been allocated
on a time apportionment basis. Fees associated with the auditors' review of
compliance with s404 of the Sarbanes Oxley Act 2002 have been allocated in full
to the period and are disclosed in the category of audit related regulatory
reporting above.
4. Employee information
(i) Staff Costs
2 July
2004 to
31 March
2005
GBPm
Salaries 50
Social security costs 5
Pension costs (note 24) 9
Severance charges - exceptional 19
Amounts capitalised (1)
Total staff costs 82
Pensions costs relate entirely to the current service cost under FRS17.
Amounts capitalised are transferred to tangible assets and recorded within the
additions line of note 11.
(ii) Employee Numbers
2005
Number
Average number of employees during the period:
Continuing operations - acquisition 5,470
Average number of full-time equivalent employees by category during the period
were:
2005
Number
Power stations:
- nuclear 3,764
- coal-fired 259
Engineering, technical and corporate support 1,428
Total 5,451
5. Summary of Directors' emoluments
2 July
2004 to
31 March
2005
GBP'000
Total emoluments, including pension contributions:
As Directors 136
For management services:
- salaries and other benefits 240
- performance related bonuses 210
- pension costs 9
595
No Directors received emoluments from the Company in the period from
incorporation to 14 January 2005 and therefore the summary provided relates to
emoluments received by the Directors from the Company or its subsidiaries for
the period from 15 January 2005 to 31 March 2005.
6. Financing charges/(credits)
2 July
2004 to
31 March
2005
GBPm
Revalorisation charges:
Revalorisation of nuclear liabilities (note 20)
- changes in price levels 23
- discharge of discount for period 27
Revalorisation of nuclear liabilities receivable (29)
Revalorisation of NLF receivable (21)
Revalorisation of contracts provision (note 21) 2
Revalorisation of fixed decommissioning obligations 3
Net revalorisation charges 5
2 July
2004 to
31 March
2005
GBPm
Net interest:
Interest on loans:
- bonds 10
Interest receivable (5)
Net interest payable and similar charges 5
2 July
2004 to
31 March
2005
GBPm
Other:
Expected return on assets in the pension scheme (28)
Interest on pension scheme liabilities 27
Net credit to finance charge for pension liability (1)
7. Taxation
2 July
2004 to
31 March
2005
GBPm
Tax on profit on ordinary activities:
Deferred taxation 19
Tax on profit on ordinary activities 19
There is no UK current tax charge for the period ended 31 March 2005.
As set out in the Group Cash Flow Statement, no taxation was paid in the period.
A reconciliation of the effective tax rate for the current period tax charge is
set out below:
2 July
2004 to
31 March
2005
GBPm
Tax charge on Group profit at standard rate of 30% 16
Current period movement in deferred tax (19)
Expenses not deductible for tax purposes 3
Current tax charge for period -
8. Profit of the Company
The Group's results include a retained profit of GBPnil attributable to the
Company. The Company has distributable reserves at 31 March 2005 of GBP652m. As
permitted under Section 230 of the Companies Act 1985 the Company has not
published a separate profit and loss account.
9. Earnings per share
The basic earnings per share for the period has been calculated by dividing the
earnings on ordinary activities after taxation by the weighted average number of
ordinary shares in issue during the period. The diluted earnings per share
calculation is based on the weighted average of 560,728,509 ordinary shares in
issue together with the dilutive potential ordinary shares of 18,291,587 in
respect of Warrants. The effect of the Cash Sweep is not considered to be
dilutive. The adjustment mechanism for the Cash Sweep Percentage set out in the
Contribution Agreement is designed such that the shareholders' interest in the
Group after taking account of the Cash Sweep remains consistent. For example,
in the event that a Cash Sweep Payment is made without a corresponding dividend
then the Cash Sweep Percentage is diluted as if shareholders had reinvested a
corresponding amount as new equity in the Group.
2005 2005
Basic Diluted
Profit for the period (GBPm) 35 35
Weighted average share capital (number of shares) 560,728,509 579,020,096
10. Intangible fixed assets
Group Goodwill
GBPm
Cost
Arising on acquisition 322
As at 31 March 2005 322
Amortisation
Charge for the period 6
As at 31 March 2005 6
Net book value
As at 31 March 2005 316
Goodwill arising on acquisition is being amortised in line with the operating
lives of the stations over twenty years.
11. Tangible fixed assets
Power Other land Other Total
stations and plant GBPm
GBPm buildings and
GBPm equipment
Group GBPm
Cost
Acquired on 14 January 2005 1,548 46 97 1,691
Additions 19 - 16 35
Disposals - (7) - (7)
As at 31 March 2005 1,567 39 113 1,719
Depreciation
Charge for the period 28 - 13 41
As at 31 March 2005 28 - 13 41
Net book value
As at 31 March 2005 1,539 39 100 1,678
The tangible fixed assets acquired on 14 January 2005 were assigned fair values
as part of the acquisition. Details of the fair value exercise on acquisition
are given in note 12.
The net book value of tangible fixed assets includes the following amounts in
respect of freehold land and buildings:
2005
GBPm
Cost 39
Net book value 39
In light of the fair value exercise carried out as part of the acquisition (note
12) the Directors consider the book values of the fixed assets as at the balance
sheet date to be consistent with the economic values and net realisable values
of the Group's fixed assets.
The value of tangible fixed assets held by the Company is GBPnil.
12. Fixed asset investments
Company
2005
GBPm
Cost and net book value
Acquired on 14 January 2005 1,536
As at 31 March 2005 1,536
The Group has investments in its own shares through holdings held by British
Energy Employee Share Trust. The value of these investments is reflected
through the profit and loss account reserve.
Company investments relate wholly to investments in subsidiary undertakings.
Details of British Energy Group plc's principal subsidiary undertakings are as
follows:
Country of Class of Group Company Principal
registration share share- share- Activity
and operation holding holding
% %
Subsidiary undertakings
British Energy Holdings plc Scotland Ordinary 100 100 Holding company
British Energy Limited Scotland Ordinary 100 - Holding company
British Energy Generation Scotland Ordinary 100 - Generation and sale
(UK) Limited of electricity
British Energy Generation England and Ordinary 100 - Generation and sale
Limited Wales of electricity
British Energy Power & Energy Scotland Ordinary 100 - Energy trading
Trading Limited
Eggborough Power Limited England and Ordinary 100 - Generation and sale
Wales of electricity
The Directors consider that to give full particulars of all subsidiary
undertakings would lead to a statement of excessive length. A full list of
subsidiary undertakings will be annexed to the Company's next annual return.
Acquisition of British Energy plc
On 14 January 2005 British Energy Group plc acquired British Energy plc for a
consideration of GBP1,536m, satisfied by the issue of 561,016,515 ordinary
shares of GBP0.10 at GBP2.63 each and 29,298,286 warrants at GBP1.73 each and
costs associated with the acquisition of GBP10m. The Group has used acquisition
accounting methodology to account for the acquisition.
FRS7 - Fair values in acquisition accounting (FRS7) requires the fair value of
the share and warrant consideration for accounting purposes to be determined on
the date of acquisition and this is normally done at the market price on that
date. However, British Energy plc had de-listed on 21 October 2004 prior to
acquisition and therefore there is no available share price at the date of the
acquisition. The Directors considered the fair value of the share and warrant
consideration by reference to the market value of the New Shares and Warrants on
the first full day of trading on 17 January 2005 and determined that the closing
share price on that date fairly represented the value of the consideration.
The Group also conducted an exercise to attribute a fair value to all assets
including the fixed assets of the Acquired Group. The Company engaged Standard
& Poor's Corporate Value Consulting, a division of The McGraw-Hill Companies
Inc, to assess the fair value of the assets acquired as part of the
Restructuring.
The fair value of the total fixed assets was arrived at by assessing the cash
flows of the Acquired Group, discounted using a weighted average cost of
capital. The derived value was then allocated across the assets acquired
including fixed assets. The cash flows were derived using both market estimates
of future electricity prices and the Company's view of long-term prices. The
Directors have considered the impact on future prices of the increases in market
electricity prices which occurred in the past year, the outlook for coal and gas
fuel prices, potential for changes in generation capacity in the UK and the
potential effect on the market of changes in Government policy particularly in
the area of environmental legislation. The Company price projections were
benchmarked against independent estimates. The Company used output projections
prepared and independently reviewed in advance of the listing of the Company.
The outlook for electricity prices is the single most significant factor in the
assessment of fair values of fixed assets. The Directors have considered market
views on future prices of wholesale electricity and also commercially available
forecasts. Actual prices may differ from those in the forecast.
The fair value of fixed assets and liabilities assumes that a willing buyer,
willing seller would have assumed an accounting life extension for Dungeness B
of five years on the basis of information available to the Company at the
Restructuring Effective Date. A decision on the Dungeness B life extension will
be announced in the autumn. No other life extensions have been assumed.
Analysis of the acquisition of British Energy plc:
Net assets at date of Book Revaluations Accounting Other Fair
acquisition: value policy value to
of net alignments group
assets
acquired
GBPm GBPm GBPm GBPm GBPm
Fixed assets
Tangible assets 874 1. 344 13. 473 - 1,691
Other investments 5 - - 16. (5) -
879 344 473 (5) 1,691
Current assets
NLF receivable 499 2. 1,068 - 17. 275 1,842
Stocks 361 3. (66) 14. 59 - 354
Own shares 2 4. 4 - - 6
Debtors: amounts falling due 436 5. 185 15. (83) - 538
within one year
Debtors: amounts falling due - 5. 2,282 - - 2,282
after more than one year
Deferred taxation - 6. 488 15 (123) - 365
Investments - liquid funds 289 - - 16. 5 294
Cash at bank 109 - - - 109
1,696 3,961 (147) 280 5,790
Creditors: amounts falling due
within one year
Borrowings (249) - - 18. 221 (28)
Nuclear liabilities (626) 7 441 - - (185)
Other creditors (319) - - 19. 316 (3)
Accruals (158) 8 (19) - - (177)
Other (292) 1 - - (291)
(1,644) 423 - 537 (684)
Creditors: amounts falling due
after more than one year
Borrowings (638) - - 20. (38) (676)
Nuclear liabilities (1,905) 9 (377) - - (2,282)
NLF liabilities - 10 (212) - - (212)
Provisions for liabilities and
charges:
Nuclear liabilities (1,873) 9 31 - - (1,842)
Other (44) - - 21. 24 (20)
Deferred income - 11 (5) - - (5)
Mark to market provision for 8 12 (254) - - (246)
trading contracts
(4,452) (817) - (14) (5,283)
Post retirements benefits - - 15. (300) - (300)
liability net of deferred
taxation
Net (liabilities)/assets (3,521) 3,911 26 798 1,214
Goodwill arising on acquisition 322
Consideration paid 1,536
Satisfied by:
Fair value of shares issued 1,475
(note 25)
Fair value of warrants issued 51
(note 25)
Costs associated with the 10
acquisition
1,536
The fair values are provisional, as the Company is aware of changes that may
arise. The Quinquennial Review is scheduled to be completed in autumn 2005
which could impact the fair value of nuclear liabilities as estimated above but
would also have a corresponding impact on the quantum of the NLF receivable.
The Directors believe the fair values are based on the best information
currently available.
The revaluation adjustments are:
1. Tangible fixed assets have been increased to reflect the fair value
at date of acquisition of the nuclear fleet and Eggborough power station. The
assessment of fair value was conducted in conjunction with Standard & Poor's
Corporate Value Consulting.
2. The decommissioning fund has been revalued to bring its value into
line with the present value of qualifying nuclear liabilities and is now termed
the NLF receivable.
3. Stock has been revalued to reflect current market prices, in line
with the revised contractual arrangements.
4. The value of the shares held by the employee trusts have been
adjusted to reflect their fair value at the date of acquisition.
5. Incorporation of the Nuclear liabilities receivable, which will be
used to fund services for spent AGR fuel loaded pre-Restructuring.
6. Recognition of a deferred tax asset based on the closing balance
sheet at 14 January 2005 after the fair value adjustments have been
incorporated.
7. Nuclear liabilities have been adjusted to reflect the reduction in
amounts payable to BNFL under the revised terms that became effective on 14
January 2005.
8. Accrual for the current element of the GBP20m per annum payments due to the
NLF (NLF liability) and release of a fuel accrual not required under revised
commercial arrangements of GBP1m.
9. Adjustment to nuclear liabilities for spent fuel service costs
relating to moving from a burnt basis to a load basis together with impact of
revised commercial arrangements.
10. Accrual for element due greater than one year in respect of the GBP20m
per annum payment due to the NLF.
11. Options granted as part of the Restructuring related to Eggborough
have been recorded as deferred income.
12. Recognition of a provision for electricity and coal contracts in place
that are at under market value at the date of acquisition net of contracts in
place that are over market value at the date of acquisition.
The accounting policy alignments are:
13. Overhaul costs are capitalised and depreciated over the period until
the next statutory or planned outage and strategic spares are included with the
carrying value of fixed assets and depreciated over the life of the asset to
which they relate.
14. Strategic spares are now included within the carrying value of fixed
assets and not stock.
15. Accounting policy change to adopt FRS17, resulting in writing off the SSAP24
prepayment of GBP83m and recognising the pension liability of GBP428m under
FRS17 net of deferred tax of GBP128m. Additionally a deferred tax asset of GBP5m
has been recognised as a result of the change in policy to no longer discount
deferred taxation balances.
The other adjustments are:
16. Following completion of the Restructuring, cash balances held by
Lochside Insurance Limited (a subsidiary) are now classified as liquid funds.
Previously, Lochside Insurance Limited had been disclosed as a fixed asset
investment.
17. Bonds issued to NLF as part of Restructuring.
18. Cancellation of bonds and recognition of the element of New Bonds
issued on Restructuring repayable in under one year.
19. The reduction to creditors reflects the compromise of amounts owed
under trading contracts to Enron Capital & Trade Europe Finance LLC, Teesside
Power Limited and Total Gas & Power Limited.
20. Cancellation of bonds and recognition of the element of New Bonds
issued on Restructuring repayable in over one year.
21. The interest rate swap provision in respect of swap contracts that
were converted to loans on Restructuring.
From 1 April 2004 to 14 January 2005, the date of the acquisition, and for the
year ended 31 March 2004 the summarised profit and loss account of British
Energy Limited was as follows:
1 April Year ended
2004 to 31 March
14 January 2004
2005
GBPm GBPm
Group turnover 1,222 1,516
Operating costs before exceptional items (1,305) (1,459)
Exceptional operating items (60) 283
Operating costs after exceptional items (1,365) (1,176)
Group operating (loss)/profit (143) 340
Share of operating profit of discontinued joint venture - 21
Operating (loss)/profit: Group and share of discontinued joint (143) 361
venture
Exceptional gain on sale of joint venture and businesses 1 47
Financing (charges)/credits:
Revalorisation charges (174) (185)
Net interest (60) (64)
Exceptional revalorisation credits 19 68
Exceptional financing credits - 5
(Loss)/profit on ordinary activities before taxation (357) 232
Taxation on (loss)/profit on ordinary activities (3) 2
(Loss)/profit on ordinary activities after taxation (360) 234
From 1 April 2004 to 14 January 2005, the date of the acquisition, and for the
year ended 31 March 2004 the statement of total recognised gains and losses of
British Energy Limited was as follows:
1 April
2004 to Year ended
14 January 31 March
2005 2004
GBPm GBPm
(Loss)/profit for the period (360) 234
Translation differences on foreign currency net investments - (15)
Prior year adjustment (2) -
Total gains and losses recognised (362) 219
The prior year adjustment relates to the adoption of UITF Abstract 17 (revised
2003) (Employee Share Schemes) and UITF Abstract 38 (Accounting for ESOP Trusts)
which relate to the measurement of the Employee Share Scheme charge and the
presentation and disclosure of own shares held. The adoption of these new UITF
Abstracts represented a change in accounting policy.
The Group restated opening reserves to comply with the above UITF Abstracts so
that the profit and loss account reserve was decreased by GBP2m and other fixed
asset investments decreased by the same amount as at 1 April 2004. There was no
prior year profit and loss account effect.
The analysis of operating costs of British Energy Limited for the period from 1
April 2004 to 14 January 2005, and for the year ended 31 March 2004 is as
follows:
Operating costs
1 April
2004 to Year ended
14 January 31 March
2005 2004
GBPm GBPm
- Fuel costs 343 413
- Materials and services 434 512
- Staff costs 240 224
- Depreciation charges 59 50
1,076 1,199
Energy supply costs 229 260
Total operating costs before exceptional items 1,305 1,459
Exceptional operating items
- Materials and services 46 25
- Staff costs 11 -
- Depreciation charges/(credits) 3 (295)
- Amounts credited to non-operational assets - (13)
60 (283)
Operating costs after exceptional items 1,365 1,176
1 April Year ended
2004 to 31 March
14 January 2004
2005
GBPm GBPm
Analysis of exceptional operating items
Restructuring costs 46 43
Settlement of claim - (18)
Severance costs 11 -
Fixed asset write-up - (295)
Depreciation - corporate headquarters 3 -
UK decommissioning fund write-up - (13)
60 (283)
The exceptional materials and services costs relate to costs incurred on
advisory fees and other costs associated with Restructuring the Group's
activities amounting to GBP46m for the period to 14 January 2005. An exceptional
charge of GBP11m for the period to 14 January 2005 has been recorded for
severance costs in relation to the Group's restructuring. An exceptional
depreciation charge of GBP3m was recorded for the period to 14 January 2005 to
align the carrying value of the corporate headquarters at Peel Park, East
Kilbride, Scotland to its market value.
Exceptional operating credits amounting to GBP283m were reported for the year
ended 31 March 2004. These amounts are further explained as follows:
- charges incurred on advisory fees and other costs associated with the
Restructuring of the Group's activities of GBP43m;
- settlement of long standing disputes with Siemens Power Generation Limited
(Siemens) relating to work done since 1996 by the former Parsons business.
Under the terms of the settlement Siemens paid the Company approximately GBP18m;
- exceptional depreciation credit of GBP295m in respect of the reversal of
previous impairment losses in the carrying value of fixed assets following a
review of economic values and net realisable values of fixed assets; and
- the investments held within the UK decommissioning fund were written-up to
reflect an increase in market value, resulting in a reversal of the previous
write-down of GBP13m.
The analysis of staff costs for British Energy Limited for the period from 1
April 2004 to 14 January 2005 and for the year ended 31 March 2004 is as
follows:
Staff Costs
1 April
2004 to Year ended
14 January 31 March
2005 2004
GBPm GBPm
Salaries 180 208
Social security costs 20 19
Pension costs 43 -
Severance charges 11 2
Amounts capitalised (3) (5)
Total staff costs 251 224
In the period from 1 April 2004 to 14 January 2005 British Energy Limited
provided GBP11m in respect of severance costs in relation to the Group's
restructuring and GBP8m of this provision remains in the liabilities acquired by
British Energy Group plc.
13. Stocks
Group Company
2005 2005
GBPm GBPm
Unburnt nuclear fuel in reactors 1,002 -
Provision for unburnt fuel at station closure (812) -
Net unburnt nuclear fuel in reactors 190 -
Other nuclear fuel 77 -
Coal stocks 14 -
Stores 50 -
331 -
14. Debtors: amounts falling due within one year
Group Company
2005 2005
GBPm GBPm
Nuclear liabilities receivable 181 -
Trade debtors 250 -
Other debtors 19 -
Prepayments 19 -
469 -
The nuclear liabilities receivable represents amounts due within one year under
the historic BNFL contracts which are reimbursed by Government. This matches
the Nuclear liabilities included in creditors falling due within one year (note
16).
15. Debtors: amounts falling due after more than one year
Group Company
2005 2005
GBPm GBPm
Nuclear liabilities receivable 2,131 -
NLF receivable 1,863 -
Deferred tax (note 22) 346 -
4,340 -
The Nuclear liabilities receivable represents amounts due after more than one
year under the historic BNFL contracts which will be reimbursed by Government.
This matches the nuclear liabilities included in creditors falling due after
more than one year (note 16).
The NLF receivable asset in the balance sheet represents amounts that will be
reimbursed by the NLF equal to the qualifying nuclear liabilities recognised at
the balance sheet date. The balance recognised at 31 March 2005 is receivable
after more than one year and is restricted in its use. This matches the nuclear
liabilities provision (notes 19 and 20).
The deferred tax asset is anticipated to be fully recoverable within ten years.
16. Creditors
Group Company
2005 2005
GBPm GBPm
Amounts falling due within one year:
Nuclear liabilities (note 20) 181 -
NLF liabilities 20 -
Trade creditors 129 -
Retentions 6 -
Other taxes and social security 58 -
Other creditors 2 -
Accruals 163 -
Amounts due to subsidiary undertakings - 10
559 10
Other creditors: amounts falling due after more than one year
Nuclear liabilities (note 20) 2,131 -
NLF liabilities 210 -
2,341 -
The NLF liabilities accruals represent the Group's commitment to contribute GBP20m
per annum to the NLF (stated in March 2003 values and adjusted for RPI) tapering
off as the nuclear power stations are currently scheduled to close discounted at
3% real to its net present value.
17. Borrowings
The Group's borrowings at 31 March were as follows:
Group Company
2005 2005
GBPm GBPm
Long-term project finance loan - Sterling 145 -
Bonds - Sterling 531 -
676 -
The borrowings mature as follows:
Amounts falling due within one year 50 -
Amounts falling due after more than one year but not more than two 53 -
years
Amounts falling due after more than two years but not more than 183 -
five years
Amounts falling due in more than five years 390 -
676 -
Total debt of GBP676m comprised:
- a long-term project finance loan of GBP145m secured on the assets of
Eggborough Power Limited (EPL), a subsidiary company that operates the
Eggborough coal-fired power station. The loan bears interest at a rate of 7.0%.
- an aggregate principal amount of GBP531m sterling denominated guaranteed bonds
due between 2005 and 2022. The bonds bear interest at a rate of 7.0%.
The long-term project finance loan is secured by a mortgage of shares in EPL, an
assignment of the EPL Share Purchase Agreement and Tax Deed of Covenant and a
debenture comprising fixed and floating charges over EPL assets.
18. Financial instruments and derivatives
For details of the Group's objectives, policies and strategies in respect of
financial instruments and risk management refer to the Financial Instruments and
Risk Management section of the Financial Review.
Disclosures include short-term debtors and creditors and exclude commodity power
contracts.
(i) Interest rate risk profile of financial liabilities
The interest rate profile of financial liabilities of the Group as at 31 March
2005 was:
Total Floating Fixed Mixed Financial
GBPm rate rate Rate liabilities
financial financial financial on which
liabilities liabilities liabilities no interest
GBPm GBPm (see below) is paid
Currency GBPm GBPm
Sterling 3,609 - 676 - 2,933
Fixed rate Financial
financial liabilities
liabilities on which
no interest
is paid
Weighted Weighted Weighted
average average average
interest period for period
rate which the until
% rate is maturity
fixed Years
Currency Years
Sterling 7.0 7.4 10.6
(ii) Interest rate risk profile of financial assets
The Group held the following financial assets as at 31 March 2005:
Group
2005
GBPm
Assets held as part of the financing arrangements of the Group:
Short-term financial assets
Sterling 722
Non-sterling 3
725
Long-term financial assets
Sterling 4,175
4,900
Short-term financial assets comprise cash, investment in liquid funds and
debtors (excluding prepayments) all of which have maturity dates within one
year. Cash not immediately required for business purposes is invested in fixed
rate term deposits and money market funds. At 31 March 2005 the term deposits
and money market funds not used to provide collateral were due to mature or were
available within one month and earned interest at an average rate of 4.77%. The
balance of GBP216m, which was deposited in support of collateral requirements,
earned an average rate of 4.02%. Availability of the cash is restricted over the
periods of the collateralised positions.
Long-term financial assets comprise the NLF receivable and Nuclear liabilities
receivable.
(iii) Maturity profile of financial liabilities
2005
GBPm
Less than one year 512
Between one and two years 341
Between two and five years 816
Over five years 1,940
3,609
(iv) Fair values
Set out below is a comparison by category of book values and fair values of all
the Group's financial assets and financial liabilities as at 31 March 2005.
2005 2005
Book value Fair value
GBPm GBPm
Primary financial instruments held or issued to finance the
Group's operations:
Short-term assets 725 725
Short-term borrowings and current portion of long-term borrowings (388) (388)
Long-term assets 4,175 4,175
Long-term borrowings and liabilities (3,221) (3,220)
1,291 1,292
The fair value of the short-term assets approximates to book value due to their
short-term maturities.
Short-term borrowings comprise trade creditors and retentions. The book value of
these liabilities has been used to approximate fair value.
Long-term assets comprise the NLF receivable and Nuclear liabilities receivable.
The basis of valuation is referred to in notes 14 and 15 respectively.
Long-term borrowings and liabilities comprise the Group's nuclear liabilities,
mark to market provisions, other provisions and bonds. The book value has been
used to approximate fair value for all long-term liabilities other than the
long-term bonds where the quoted closing clean market price at the balance sheet
date has been used to determine the fair valuation.
19. Provisions for liabilities and charges
Group Company
2005 2005
GBPm GBPm
Nuclear liabilities (note 20) 1,863 -
Other provisions (note 21) 287 -
2,150 -
20. Nuclear liabilities
Back end Back end Decommissioning Group
fuel costs fuel costs GBPm 2005
contracted uncontracted Total
GBPm GBPm GBPm
Acquired on 14 January 2005 2,467 774 1,068 4,309
Charged to profit and loss account:
- revalorisation (note 6) 29 9 12 50
Payments in the period (184) - - (184)
As at 31 March 2005 2,312 783 1,080 4,175
The period end balances of nuclear liabilities are included in the balance sheet
as follows:
2005
GBPm
Creditors:
- amounts falling due within one year 181
- amounts falling due after more than one year 2,131
Provisions for liabilities and charges 1,863
4,175
Fuel costs - back end
Accruals for AGR spent fuel services relating to fuel loaded into reactors up to
Restructuring Effective Date (RED) are based on the terms of the Historic
Liability Funding Agreement (HLFA) with BNFL, or the Group's estimates where no
contracts exist. The pattern of payments within the HLFA were fixed (subject to
indexation by RPI) at RED and will be funded by Government under the Government
Indemnity. Provisions for services relating to the disposal of nuclear waste
and the storage and disposal of PWR spent fuel are based on cost estimates
derived from the latest technical assessments.
Decommissioning
The costs of decommissioning the power stations have been estimated on the basis
of on-going technical assessments of the processes and methods likely to be used
for decommissioning under the current regulatory regime. The estimates are
designed to reflect the costs of making the sites of the power stations
available for alternative use in accordance with the Group's decommissioning
strategy.
Projected payment details
Based on current estimates of station lives and lifetime output projections, the
following table shows, in current prices, the likely undiscounted payments, the
equivalent sums discounted at 3% real per annum to the balance sheet date and
the amounts accrued to date.
Back end Back end Group
fuel costs fuel costs 2005
contracted uncontracted Decommissioning Total
GBPbn GBPbn GBPbn GBPbn
Undiscounted 3.0 3.6 5.2 11.8
Discounted 2.3 0.9 1.1 4.3
Accrued to date 2.3 0.8 1.1 4.2
The differences between the undiscounted and discounted amounts reflect the fact
that the costs concerned will not fall due for payment for a number of years.
The differences between the discounted amounts and those accrued to date will be
charged to the profit and loss account over the remaining station lives since
they relate to future use of fuel.
Under the terms of the contracts with BNFL referred to above and in accordance
with the projected pattern of payments for decommissioning and other
liabilities, taking account of the decommissioning fund arrangements described
in note 1(xix), the undiscounted payments in current prices are expected to
become payable as follows:
Back end Back end Group
fuel costs fuel costs 2005
contracted uncontracted Decommissioning Total
GBPm GBPm GBPm GBPm
Within five years 934 54 - 988
6-10 years 920 99 340 1,359
11-25 years 1,139 338 591 2,068
26-50 years - 1,093 473 1,566
51 years and over - 2,061 3,777 5,838
2,993 3,645 5,181 11,819
21. Other provisions
Mark to Group
market 2005
provision Other Total
GBPm GBPm GBPm
Acquired on 14 January 2005 246 20 266
Arising during the period 10 19 29
Utilised in the period (8) (2) (10)
Revalorisation (note 6) 2 - 2
As at 31 March 2005 250 37 287
The mark to market provision relates to the net value of commodity contracts in
place under market value less contracts in place over market value.
Other provisions are made up of severance provisions, a provision for an onerous
lease, a provision for additional unfunded retirement benefits and a provision
for Eggborough site restoration costs.
22. Deferred taxation
Group Company
2005 2005
GBPm GBPm
Accelerated capital allowances 191 -
Other long-term timing differences (73) -
Short-term timing differences (179) -
Corporation tax losses (312) -
ACT receivable offset (77) -
Deferred tax asset (450) -
Acquired on 14 January 2005 (493) -
Profit and loss account 19 -
Statement of total recognised gains and losses 24 -
As at 31 March 2005 (450) -
Included in debtors: amounts falling due after more than one year (346) -
(note 15)
Included in retirement benefits (note 24) (104) -
(450) -
23. Deferred income
Group Company
2005 2005
GBPm GBPm
Acquired on 14 January 2005 and as at 31 March 2005 5 -
The deferred income recorded relates to consideration received for the two
options granted as part of the Restructuring that allow the participants in the
Eggborough project finance loan to acquire the Eggborough power station assets
or shares in Eggborough Power Limited, the company that owns the Eggborough
power station assets.
24. Post retirement benefit obligations
British Energy operates two separate pension arrangements in the UK within the
Electricity Supply Pension Scheme (ESPS), the British Energy Generation Group
(BEGG) for the majority of employees and the British Energy Combined Group
(BECG) for the employees at Eggborough Power Station. The ESPS is a defined
benefit scheme, which is externally funded and subject to triennial actuarial
valuation. Each pension group that participates in the ESPS is financially
independent from the other groups.
The most recent triennial valuations of the BEGG and BECG schemes were carried
out at 31 March 2004 by the independent ESPS actuary. The valuations for
accounting purposes have been carried out by a separate independent actuary
using the projected unit method.
British Energy contributed 17.1% to the BEGG pension scheme and 15.3% to the
BECG pension scheme for the period from 15 January 2005 to 31 March 2005.
Contributing members contribute 5% and 6% to the respective plans. Any
deficiency disclosed in the BEGG or BECG pension schemes following an actuarial
valuation has to be borne by British Energy.
The Group's pension costs for the period to 31 March 2005 were GBP9m. At 31
March 2005 there was GBP1m of contributions owed to the pension scheme included
in accruals.
The major assumptions used by the actuaries for the defined benefit plans were:
2005
% pa
Price inflation 2.75
Rate of general increase in salaries 4.25
Rate of increase of pensions in payment 2.75
Discount rate 5.50
The assets and liabilities of the schemes and the expected rates of return are:
Rate of 31 March
Return 2005
% GBPm
Equities 8.20 1,127
Bonds 4.70 502
Property 6.45 212
Hedge funds 6.70 85
Others 4.00 44
Total market value of plan assets 1,970
Present value of plan liabilities (2,318)
Pension liability before deferred tax (348)
Related deferred tax asset 104
Net pension liability (244)
The movement in the deficit during the period is analysed as follows:
2005
GBPm
Deficit acquired on 14 January 2005 (428)
Movement in period:
Current service cost (note 4) (9)
Other finance income (note 6) 1
Profit before tax impact (8)
Contributions 7
Actuarial return less expected return on post employment plan assets 2
Experience losses arising on plan liabilities (7)
Changes in assumptions (financial and demographic) 86
Variance between actuarial assumptions and actual experience 81
Deficit in the plan at 31 March 2005 (348)
From 1 April 2005 the rate of employer's regular contributions for future
service benefits under the Generation Group increased from 17.1% to 22.4%.
Additional employer contributions will be paid towards the Generation Group
funding deficiency totalling GBP19m for the year ending 31 March 2006,
GBP19.5m for the year ending 31 March 2007 and GBP20m for the year ending
31 March 2008. These additional contributions will rise to GBP50.3m for the
year ended 31 March 2009 and remain at that level until the year ended 31
March 2017. The requirement for additional contributions will be reviewed
as part of the next triennial valuation on 31 March 2007.
From 1 April 2005 the rate of employer's regular contributions for future
service benefits under the Combined Group increased from 15.3% to 19.7%. The
Group will also be making additional employer contributions towards the Combined
Group funding deficiency, having regard to appropriate funding advice.
The history of experience gains and losses is as follows:
2005
2005 As % of plan
(Gain)/ assets/
loss (liabilities)
GBPm
Statement of total recognised gains and losses
Actual return less expected return on post employment plan assets 2 -
Experience losses arising on plan liabilities (7) (1)
Changes in assumptions (financial and demographic) 86 4
Actuarial loss recognisable in statement of total recognised
gains and losses
before tax 81 3
Certain additional retirement benefits are provided to eligible employees.
These obligations are unfunded and the liability recorded at 31 March 2005 was
GBP2m and is included within other provisions (note 21).
25. Called up share capital
2005
GBPm
Authorised
2,800,000,000 ordinary shares of 10p each 280
2,000,000,000 convertible shares of 10p each 200
One special rights redeemable preference share of GBP1 -
480
Allotted, called up and fully paid
561,016,515 ordinary shares of 10p each listed at 17 January 2005 56
298,944 warrants exercised from 17 January 2005 to 31 March 2005 -
561,315,459 ordinary shares of 10p each as at 31 March 2005 56
Non equity shareholders' funds
One special rights redeemable preference share of GBP1 -
-
56
The Company was incorporated and registered in Scotland on 2 July 2004 as a
public company limited by shares under the Companies Act 1985 with the name
British Energy Group plc.
On incorporation, on 2 July 2004, the authorised share capital of the Company
was GBP50,000 divided into 50,000 ordinary shares with a nominal value of GBP1
each.
On 5 October 2004, a special resolution was adopted to increase the authorised
share capital of the Company to GBP50,000.20 by the creation of two ordinary
shares of GBP0.10 each. On the same day these shares were issued at par.
On 5 October 2004, a further special resolution was adopted reclassifying the
50,000 issued ordinary shares of GBP1 each as 50,000 non-voting ordinary shares
of GBP1 each. The 50,000 ordinary shares, which prior to their reclassification
as non-voting ordinary shares were held in trust for British Energy Limited,
were then transferred by the nominees to British Energy Limited.
On 22 December 2004, a special resolution was adopted to increase the authorised
share capital of the Company to GBP480,050,001 by the creation of an additional
2,799,999,998 ordinary shares of GBP0.10, by 2,000,000,000 convertible shares of
GBP0.10 each and 1 special rights redeemable preference share of GBP1.
On 14 January 2005, British Energy Group plc repurchased the 50,000 non-voting
ordinary shares of GBP1 each held by British Energy Limited at par, and on the
same day the shares were cancelled.
On 17 January 2005, 561,016,515 ordinary shares of GBP0.10 and 29,298,286
warrants of GBP0.98 were allotted in exchange for 620,362,444 ordinary shares of
44 28/43p each, and 80,908,247 'A' shares of 60p each in British Energy Limited
and for amounts owed to Significant Creditors and Bondholders. Additionally, 1
special rights redeemable preference share of GBP1 was allotted in exchange for
1 special rights redeemable preference share of GBP1 in British Energy Limited.
On 25 January 2005 the Court approved British Energy Group plc's special
resolution to eliminate available share premium of GBP737m.
Between 14 January 2005 and 31 March 2005, 298,944 warrants of GBP0.98 were
exercised in exchange for 298,944 ordinary shares of GBP0.10 each and cash of
GBP0.3m was received in respect of these warrants.
Special rights redeemable preference share of GBP1
The special rights redeemable preference share is redeemable at par at any time
after 30 September 2006 at the option of the Secretary of State, after
consulting the Company. This share, which may only be held by and transferred to
one or more of Her Majesty's Secretaries of State, another Minister of the
Crown, the Solicitor for the affairs of Her Majesty's Treasury or any other
person acting on behalf of the Crown, does not carry any rights to vote at
general meetings, but entitles the holder to attend and speak at such meetings.
The special share confers no rights to participate in the capital or profits of
the Company beyond its nominal value. The consent of the holder of the special
share is required for certain matters including the alteration or removal of the
provisions in the Company's articles of association relating to the special
share and to the limitations on shareholdings.
In addition, consent of the holder of the special share is required in relation
to, amongst others, certain amendments to the articles of association of British
Energy Holdings plc, British Energy Limited, British Energy Generation Limited
or British Energy Generation (UK) Limited, or a disposal by the Company of its
shares in these companies. However the holder of the special share will only be
entitled to withhold consent to such an amendment or disposal if, in the
holder's opinion, the matter in question would be contrary to the interests of
national security.
Convertible shares
The convertible shares may only be held by Nuclear Liabilities Fund Limited or
its successor in title, a Minister of the Crown, the Treasury, a department,
non-departmental body or other agency of the Crown, any body corporate
established by statute some or all of the members of which are appointed by a
Minister of the Crown or other UK government entity or any person directly or
indirectly wholly owned by, or held on trust for, the Secretary of State or
other Minister of the Crown.
Save in respect of voting rights, the convertible shares have the same rights,
are subject to the same restrictions and rank pari passu with the ordinary
shares of the Company in all respects. The number of votes that the holder of
the convertible shares is entitled to exercise in respect of its holding of
convertible shares is the lesser of: (i) 29.9% (and, for this purpose, taking
into account the voting rights attributable to any other ordinary shares held or
acquired by any person acting in concert with the holder); and (ii) the number
of convertible shares which the holder would otherwise be entitled to vote if
the convertible shares were ordinary shares. The convertible shares will convert
into ordinary shares of the Company automatically on transfer to a third party
by the holder but are not convertible at the election of the holder prior to
such transfer.
Share option schemes
Share options were granted in previous years by British Energy Limited. Legal
advice has been obtained to the effect that the changes in the corporate
structure of British Energy Group plc as a result of the Restructuring did not
trigger the early exercise provisions under these options. The Remuneration
Committee decided not to allow holders of options in British Energy Limited to
roll them over into options over shares in the Company. The options granted by
British Energy Limited are still capable of exercise, but immediately on
exercise the shares will be converted into shares in the Company in the ratio of
1:50. Accordingly the effective exercise price of the options is significantly
higher than the current share price and it is unlikely the options will be
exercised.
26. Profit and loss account
Group Company
2005 2005
GBPm GBPm
As at 2 July 2004 - -
Debt novation (85) (85)
Debit in respect of employee share schemes (6) -
Capital reduction 737 737
Profit for the period 35 -
Consideration received for the sale of own shares 3 -
Actuarial gain on retirement benefit liability 81 -
Tax on actuarial gain on retirement benefit liability (24) -
As at 31 March 2005 741 652
The Company has distributable reserves at 31 March 2005 of GBP652m.
27. Reconciliation of movement in shareholders' funds
Called up Share Other Warrant 2005
equity capital
share premium reserve reserve Profit and Total
capital loss
GBPm GBPm GBPm GBPm GBPm GBPm
Shareholders' funds on - - - - - -
incorporation
Arising on Restructuring 56 737 767 51 (85) 1,526
Debit in respect of employee - - - - (6) (6)
share schemes
Capital reduction - (737) - - 737 -
Profit for the period - - - - 35 35
Warrants exercised - - - - - -
Consideration received for the
sale of own shares - - - - 3 3
Actuarial gain on retirement - - - - 57 57
benefit liability net of
deferred tax thereon
As at 31 March 2005 56 - 767 51 741 1,615
The Restructuring involved Bondholders and the Significant Creditors
compromising their claims against the British Energy Group in exchange for,
amongst other things, the issue of New Bonds by British Energy Holdings plc (a
wholly owned subsidiary of the Company) and new ordinary shares of the Company.
In addition, Shareholders in British Energy plc were entitled to receive New
Shares and Warrants in the Company. The Warrants entitle the holder to
subscribe for ordinary New Shares in the Company within five years of the
Restructuring.
As part of the Restructuring, the amounts owed to Bondholders and Significant
Creditors were exchanged for New Bonds and a long-term project finance loan
(note 17). The other capital reserve was created on the issue of New Shares and
represents the excess of the legal liability foregone by the Significant
Creditors and Bondholders over the fair value of their claims. The other capital
reserve is not distributable.
As a consequence of the accounting treatment adopted for the Restructuring the
fair value of certain debts novated at the time of the Restructuring was less
than their original legal liability. The shares issued were recorded at the
original legal liability and the difference between this and the market value at
Restructuring resulted in a loss of GBP85m, which has been taken directly to
profit and loss reserves.
The share premium recorded represents the excess of the fair value of the shares
issued at Restructuring over their nominal value less the amount allocated to
other capital reserves as noted above. On 25 January 2005 the Court approved a
reduction of British Energy Group plc's share premium account from GBP737m to
GBPnil, thereby creating distributable reserves of GBP737m.
The warrant reserve was created at Restructuring and represents the fair value
of the Warrants issued at that date. As the Warrants are exercised this reserve
will be transferred to share capital and the share premium account.
28. Reconciliation of operating profit to operating net cash flows
Group
2 July
2004 to
31 March
2005
Total
GBPm
Operating profit 63
Depreciation and amortisation 47
Movement in other provisions 19
Regular contributions to NLF (5)
Decrease in stocks 23
Decrease in debtors 65
Decrease in creditors (84)
Net cash inflow from operating activities 128
29. Reconciliation of net cash flow to movement in net debt
2005
GBPm
Increase in cash in the period 235
Increase in liquid funds 221
Cash inflow from increase in debt (676)
Net debt at 31 March 2005 (220)
30. Analysis of net debt
As at Acquired Cash flow As at
2 July 31 March
2004 2005
GBPm GBPm GBPm GBPm
Cash at bank - 109 126 235
Term deposits/bank balances - 294 (73) 221
Debt - (704) 28 (676)
Net debt - (301) 81 (220)
Analysed in Balance Sheet
Cash at bank 235
Investments - liquid funds 221
Borrowings falling due within one year (50)
Borrowings falling due after more than one (626)
year
(220)
31. Major non-cash transactions
The consideration for the purchase of British Energy Limited comprised shares
and warrants. Further details of the acquisition are set out in note 12.
32. Contingent assets
In addition to the consideration payable by the consortium under the master
purchase agreement, up to a further C$100m was payable to British Energy
contingent upon the restart of two of the Bruce A units under a trust agreement
(the Trust Agreement) entered into on the same date. Had the first unit
restarted by 15 June 2003, C$50m would have been released to British Energy and
an additional C$50m would have been released to British Energy had the second
unit restarted by 1 August 2003. An amount of C$5m was to be deducted from the
C$50m payable in respect of each unit for its failure to restart by the
scheduled restart date or by the first day of each successive calendar month
following the scheduled restart date. The Group received C$20m on 22 March 2004
and C$10m on 25 May 2004 in partial consideration under the Trust Agreement.
British Energy commenced arbitration proceedings in Ontario against the Ontario
Provincial Government (the Province) in December 2004 seeking the payment of
additional consideration under the Trust Agreement on the basis that Bruce A
Units 3 and 4 restarted earlier than the dates claimed by the Province. No
additional amounts appear on our balance sheet at 31 March 2005 because of
uncertainties regarding their realisation. The amounts recoverable in respect of
the restarted units will be substantially lower than the maximum C$100m but the
amounts and timing of the payments have still to be confirmed.
33. Contingent liabilities
On 12 February, 2004 British Energy plc received a notice of warranty claims
from the consortium which purchased the Group's 82.4% interest in Bruce Power
alleging breach of certain warranties and representations relating to tax and to
the condition of certain plant at the Bruce Power Station.
The claim relating to the condition of the plant is based upon alleged erosion
of some of the steam generator support plates through which boiler tubes pass,
which it is alleged resulted in an extended outage of one unit at the plant to
carry out repair works and loss of revenues and costs of approximately C$64.5m.
The consortium also claims that the alleged erosion may reduce the operating
life of the unit and/or result in further repairs involving further losses.
British Energy has rejected the claim and expects to defend it if it is pursued
further.
The principal tax claim relates to the treatment of expenditure at the Bruce
Power Station during the period of the Company's ownership which is currently
being considered by the Canadian tax authorities. The treatment proposed by
British Energy could result in a rebate of a material amount of tax to the Group
which has not been recognised in the financial statements of the period. The
consortium claims that allowance of the expenditure for that period would cause
it to lose future deductions. British Energy has rejected the claim and expects
to defend it if it is pursued further. On the basis of advice received, the
Company is confident that the amount of the claim should not, in any event,
materially exceed the amount of the rebate, and that the claim should have no
material cash flow impact on the Group.
Under the agreement with the consortium, C$20m is retained in trust to meet any
representation and warranty claims, and this may be retained pending agreement
or determination of the claims.
The Group has given certain indemnities and guarantees in respect of the
disposal of its investment in AmerGen.
The Company has given certain indemnities and guarantees in respect of its
subsidiary undertakings. No losses are anticipated to arise under these
indemnities and guarantees, provided relevant subsidiary undertakings continue
on a going concern basis.
The Group is involved in a number of other claims and disputes arising in the
normal course of business which are not expected to have a material effect on
the Group's financial position.
34. Financial commitments
(i) Capital commitments
Group
2005
GBPm
Capital expenditure contracted but not provided 16
The Company has no capital commitments at 31 March 2005.
(ii) Analysis of annual commitments under operating leases
Group
2005
GBPm
Other operating leases expiring in:
Two to five years 3
The Company has no operating lease commitments at 31 March 2005.
(iii) Other contractual commitments
Under contractual arrangements, the Group has the following fuel commitments at
31 March 2005:
2006 2007 2008 2009 2010 Thereafter Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Commitments to purchase 198 95 70 63 73 818 1,317
in the year
At 31 March 2005, the estimated minimum commitment for the supply of coal was 4m
tonnes, which, at contract prices on 31 March 2005, equates to approximately
GBP162m.
The Company has no fuel or coal commitments at 31 March 2005.
In addition to the liabilities and provisions recognised and described in the
notes to the financial statements, the Group has provided certain guarantees and
commitments in respect of the extent of capital expenditure by Eggborough Power
Limited. The Group also enters into commitments to purchase and sell electricity
in the normal course of business.
The Group has a commitment to make the Cash Sweep Payment as described in note 1
(xi).
35. Post balance sheet events
To meet the commitments made as part of the Restructuring, the Group transferred
its Direct Supply Business from its subsidiary British Energy Generation Limited
to a new subsidiary British Energy Direct Limited with effect from 1 April 2005.
British Energy Generation (UK) Limited transferred its trade and assets to
British Energy Generation Limited again as a commitment made as part of the
Restructuring with effect from 1 July 2005.
36. Related parties
The Company is a public limited company owned by our shareholders and operates
within an extensive contractual framework established as part of the
Restructuring. The most significant contract, in terms of the limitations it
places on the business, is the Contribution Agreement between the Secretary of
State and the Company. Within this contractual framework, the Company is
managed independently by the Board which continues to direct the finances and
operating policies of the Group and is subject to the normal private sector
disciplines, fiduciary duties and Companies Act requirements. The Company
considers that no party is a controlling party under the terms of FRS8, Related
Party Disclosures.
The Group considers Her Majesty's Government (HMG) to be a related party due to
the significant influence exercised by HMG following the Group's Restructuring.
The following transactions took place during the period with HMG and sponsored
bodies under its control:
As part of the Restructuring arrangements which took place on 14 January 2005:
- HMG undertook to meet the Group's historic contracted nuclear liabilities to
British Nuclear Fuels Limited (BNFL), a government controlled body. This
undertaking resulted in an asset of GBP2,467m being recognised in the Group's
financial statements on 14 January 2005.
- The NLF, a government controlled company, was issued with Bonds of GBP275m by
British Energy Holdings plc as part of the Restructuring. Interest paid on these
bonds during the period amounted to GBP4m, and GBP9m of the bonds were repaid
during the period, leaving a balance of bonds payable to the NLF of GBP266m as
at 31 March 2005.
- The Group made regular decommissioning funding contributions to the NLF of
GBP5m during the period.
- The Group made payments to BNFL of GBP77m during the period in respect of
front and back end fuel costs. The Group also incurred interest costs of GBP1m
in respect of deferred payments and stock financing. The balance outstanding due
to BNFL at the end of the period was GBPnil. Amounts due to the Group by BNFL at
31 March 2005 under the Historic Liability Funding Agreement amounted to
GBP2,312m.
The Group has also had a number of material transactions in its normal course of
business with other sponsored bodies and departments of HMG including HM Revenue
and Customs and the UK Atomic Energy Authority.
The Group has identified certain transactions with Directors that require to be
disclosed as Related Party transactions.
A payroll systems error was identified and subsequently rectified during the
year ended 31 March 2004. As a result of this error, personal retirement benefit
contributions were not deducted in full from the salary of some higher paid
employees. Following detailed investigation, the individuals concerned,
including two directors of the Company, Mike Alexander and David Gilchrist were
granted up until 31 March 2008 by the company's Remuneration Committee to repay
the salary overpayments of GBP26,820 and GBP15,483 respectively. After further
consideration, the Company recognised that this extended time period might
constitute a breach of s330 of the Companies Act 1985 and, requested that all
outstanding amounts be repaid. Mike Alexander had repaid GBP13,600 up to the end
of July 2005. The balance will be recovered from him as part of any payment of
compensation for loss of office. David Gilchrist had repaid the full amount
overpaid by 31 March 2005.
Financial Summary
2 July
2004*
to 31
March 2005
GBPm
Results (excluding exceptional
items)
Turnover 482
Operating profit 82
Profit before tax 73
Profit 48
Operating cash flow (net of capital 93
expenditure)
Results (including exceptional
items)
Turnover 482
Operating profit 63
Profit before tax 54
Profit 35
Ordinary dividends -
Balance Sheet
Net assets 1,615
Net current assets 4,987
Nuclear liabilities (discounted) 4,175
Capital expenditure 35
Net debt 220
Ratios
Dividends per ordinary share (p/share) -
Earnings per share (p/share) 6.2
Dividend cover n/a
* The results are those of the Acquired Group from the date of acquisition, 14
January 2005.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: July 27, 2005 BRITISH ENERGY GROUP PLC
By:____John Searles____
Name: John Searles
Title: Director - Investor Relations