SECURITIES AND EXCHANGE COMMISSIONS
WASHINGTON, DC 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15a-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the month of May 2002
SCOTTISH POWER PLC
(Translation of Registrant's Name Into English)
CORPORATE OFFICE, 1 ATLANTIC QUAY,
GLASGOW, G2 8SP
(Address of Principal Executive Offices)
(Indicate by check mark whether the registrant files or will file annual
reports under cover of 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): 82-_____.)
FORM 6-K: TABLE OF CONTENTS
1. 2001/2002 preliminary results including fourth quarter results to 31 March
2002.
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.
/s/ Scottish Power plc
---------------------------
(Registrant)
Date May 1, 2002 By: /s/ Alan McCulloch
----------------- ---------------------------
Alan McCulloch
Assistant Company Secretary
2001/02 PRELIMINARY RESULTS including Fourth Quarter Results to 31 March 2002
Summary
.. Second half earnings per share* 45% higher than previous year
.. Good recovery underway, particularly driven by improved US performance
.. Full year profit before tax* (Pounds)567 million, down (Pounds)61 million
.. Exceptional items of (Pounds)1.3 billion including goodwill write back of
(Pounds)753 million
.. A firm programme for continuing improvement in operational performance
.. Disposals completed: clear strategy to become a leading international
energy company
Chief Executive's Statement:
Ian Russell, Chief Executive of ScottishPower, said, "The past year has been
difficult for ScottishPower, but results through the second half of the year
showed continuing improvement and earnings per share were 45% higher than those
in the second half of the previous year. This was due to much improved
operational performance in our US and Infrastructure businesses. The total
dividend per share** for the year to March 2002 is up 5% to 27.34p and in March
2002 we announced the dividend policy with effect from the year ending March
2004. In addition, we have redefined our company as an international energy
business through a series of disposals in line with the strategic aim we set out
twelve months ago.
The UK electricity market remains very challenging, but we are making good
progress in developing our energy trading expertise and improving our costs to
serve in the UK Division. Our cost cutting programmes in Infrastructure
continue to drive us closer to our target of meeting the regulator's efficiency
frontier. Our focus on PacifiCorp's management priorities has delivered much
better third and fourth quarter results. Overall we believe that these actions
position the group well for a good recovery, particularly in the US.
Having completed our strategic disposals, ScottishPower's strategy is now to
become a leading international energy company. We manage regulated and
competitive businesses in the UK and the US to serve electricity and gas
customers. We invest only in businesses where we can deploy proven skills and
strong local market knowledge.
Our regulated businesses seek to provide a base for steady growth, by consistent
investment and by driving our performance with excellent operational and
regulatory management. In competitive activities where we have knowledge and
skill advantages, we seek to enhance margins through the integration of
generation, trading and customer services, underpinned by best in class
operations.
We have made a good start to the current year and believe that our management
focus and renewed, strong commitment to leading operational performance, will
drive the sustained creation of shareholder value. The Board also believes that
this focus and commitment will enable it to take advantage of the opportunities
to create shareholder value that will, over time, arise from the changing
structure of our industry in the UK, the rest of Europe and the US."
* Before goodwill amortisation and exceptional items
** Dividends per ADS will be confirmed in a separate announcement today.
For further information:
Dominic Fry Group Director Corporate Communications 020 7651 2000
Colin McSeveny Group Media Relations Manager 020 7651 2000
Andrew Jamieson Head of Investor Relations 020 7651 2000
1
SECTION 1 - OVERVIEW OF 2001/02 PRELIMINARY RESULTS
All figures below are before the impact of goodwill amortisation and exceptional
items unless otherwise stated. "Quarter" relates to the three months to 31
March 2002 unless otherwise stated.
Results in 2001/02 were significantly different between the first and second
halves of the year. The financial performance of ScottishPower was affected in
the first half by excess power costs experienced in the US as a consequence of
the California power crisis, resulting in additional costs of $300 million in
the second quarter. Beginning in the third quarter, however, we began to see a
recovery in financial and operating performance that has continued through to
the conclusion of the year.
Turnover of (Pounds)6.31 billion was slightly below last year's (Pounds)6.35
billion, reflecting the exit from our UK Appliance Retailing operations.
Operating profit of (Pounds)944 million was (Pounds)26 million less than
operating profit in 2000/01, primarily because of tough UK energy market
conditions. Earnings per share were 26.12 pence in 2001/02, compared to 27.86
pence a year ago due to lower UK Division profit and increased interest charges.
The process that began in early 2001 to reshape the company included the sale
and closure of the UK Appliance Retailing business, the demerger of Thus and the
sale of Southern Water. These three businesses are now reported as discontinued
operations within our financial results for the full year. Together with
exceptional reorganisation costs of (Pounds)19 million, these changes resulted
in exceptional charges of (Pounds)1.33 billion (before interest and tax) in the
year, including (Pounds)1,187 million in respect of Southern Water (including
goodwill write back of (Pounds)738 million), and (Pounds)120 million in relation
to disposal and closure of UK Appliance Retailing (including (Pounds)15 million
of goodwill write back).
ScottishPower's second half performance was led by the improvement in the US
Division, as a result of lower power costs, increased regulatory revenues and
continued progress in delivering Transition Plan cost savings ahead of target.
Cost savings in the Infrastructure Division also remain on track, and the
flexibility of the UK generation plant helped deliver value during the year
under the new trading arrangements.
We announced in March 2002 our dividend policy to apply with effect from the
year ending March 2004. We reaffirmed our stated aim of growing dividends by 5%
per annum nominal for the period to March 2003. Thereafter, the Board intends
to adopt a dividend policy that reflects both the reduced proportion of the
group's profit derived from UK regulated infrastructure businesses and the need
to balance future investment with an appropriate dividend return for
shareholders. Accordingly, with effect from the year ending March 2004, we
intend to target dividend cover, based on earnings before goodwill and
exceptional items, in the range of 1.5-2.0 times, and ideally towards the middle
of that range. We intend to grow dividends broadly in line with earnings
thereafter.
2
SECTION 2 - FINANCIAL REVIEW
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Q4 Q4 Year Year
00/01 01/02 00/01 01/02
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1,780.0 1,537.3 Turnover ((Pounds) million) 6,349.3 6,314.1
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273.0 362.6 Operating profit ((Pounds) million)* 970.2 944.1
------------------------------------------------------------------------------
- (1,206.0) Exceptionals (before interest & tax) (120.7) (1,326.1)
((Pounds) million)
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187.2 267.6 Profit before tax ((Pounds) million)* 628.0 567.1
------------------------------------------------------------------------------
7.86 11.99 Earnings per share (pence)* 27.86 26.12
------------------------------------------------------------------------------
6.51 6.835 Dividends per share (pence)** 26.04 27.34
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* Before goodwill amortisation and exceptional items
** Cash dividends, excluding "dividend in specie". The ADS dividend rate will be
confirmed in a separate announcement today.
Fourth Quarter to 31 March 2002
-------------------------------
Group turnover for the fourth quarter fell by (Pounds)243 million to
(Pounds)1,537 million with turnover in our continuing operations decreasing by
(Pounds)143 million to (Pounds)1,393 million. US Division turnover decreased by
(Pounds)148 million to (Pounds)698 million for the quarter as a result of
reductions in wholesale power prices. UK Division turnover improved by
(Pounds)1 million to (Pounds)625 million in the quarter compared to the
equivalent period last year, due to growth in wholesale revenues offset by lower
electricity retail sales. Turnover within Power Systems rose by (Pounds)4
million to (Pounds)70 million reflecting higher regulatory revenues.
Discontinued operations' turnover decreased by (Pounds)100 million to
(Pounds)145 million during the quarter principally as a result of the exit from
our UK Appliance Retailing business completed in the third quarter.
Group operating profit in the fourth quarter increased by (Pounds)90 million
(33%) to (Pounds)363 million as a result of improved performance particularly in
the US. In our continuing operations, we achieved profit growth of (Pounds)93
million to (Pounds)324 million, with the US contributing an additional
(Pounds)102 million of profit reflecting regulatory rate increases, lower power
costs and the impact of the Hunter plant outage on the fourth quarter last year.
Operating profit for the fourth quarter in the UK Division was (Pounds)55
million, a fall of (Pounds)7 million on the equivalent period last year,
primarily due to the challenging trading conditions experienced in the UK
wholesale electricity market. In the Infrastructure Division, Power Systems
reported a fall of (Pounds)2 million in operating profit to (Pounds)101 million
for the quarter due to higher rates and depreciation. Operating profit for our
discontinued operations decreased by (Pounds)3 million to (Pounds)39 million,
due to higher Thus losses.
Exceptional items of (Pounds)1,206 million (before interest and tax) were
recognised in the fourth quarter. This includes an exceptional charge of
(Pounds)1,187 million arising on the sale of Southern Water, comprising a
(Pounds)449 million provision for loss on disposal, including expenses, and a
non-cash (Pounds)738 million write back of goodwill. As goodwill was written
off to reserves at the time Southern Water was acquired, recognising this charge
in the profit and loss account has had no impact on reported net assets. The
exceptional
3
operating charges of (Pounds)19 million relate to costs associated with our
recent UK organisational and manpower review to lower headcount by approximately
500 comprising call centre, operations and support staff. There were no
exceptional items in the fourth quarter of 2000/01.
Net debt increased in the quarter from (Pounds)6,172 million at December 2001 to
(Pounds)6,208 million at 31 March 2002. The movement in net debt for the
quarter decreased from (Pounds)540 million last year to (Pounds)36 million this
year, a quarter-on-quarter improvement of (Pounds)504 million. Last year's
fourth quarter outflows included the adverse cash impact of high power prices in
the western US and (Pounds)228 million in respect of the acquisition of Rye
House power station. Significant cash improvements achieved this quarter were
due to improved operational cash flows in the UK businesses, lower taxation
payments and favourable exchange rate movements. Since the year end net debt
has reduced by approximately (Pounds)2 billion following the sale of Southern
Water.
Earnings per share for the quarter, compared to last year, increased by 4.13
pence (53%) to 11.99 pence, as a result of the improved performance in the US.
The fourth quarter results for last year reflected the high power prices in the
western US and the adverse impact of the Hunter plant outage. For our
continuing operations there are no material non-recurring items in operating
income or costs in the results before exceptional items of this fourth quarter.
Year to 31 March 2002
---------------------
Group turnover for the year to 31 March 2002, decreased by (Pounds)35 million to
(Pounds)6,314 million. Continuing operations' turnover increased by (Pounds)113
million to (Pounds)5,523 million, with the US Division contributing revenues of
(Pounds)3,154 million, a rise of (Pounds)31 million on the prior year due to
increased unregulated revenues in PacifiCorp Power Marketing Inc. (PPM) of
(Pounds)173 million, rate increases in PacifiCorp and foreign exchange benefits,
offset by significant reductions in wholesale market prices. Turnover in the UK
Division rose by (Pounds)58 million to (Pounds)2,121 million due to higher gas
retail and wholesale revenues and increased output from new generating plant,
partially offset by lower electricity retail sales due to lower volumes and
prices. Power Systems' turnover was (Pounds)248 million, an increase of
(Pounds)24 million on last year due to higher regulatory sales volumes and
prices. Turnover in our discontinued operations fell by (Pounds)148 million to
(Pounds)791 million due to our exit from UK Appliance Retailing, which resulted
in lower group revenues year on year of (Pounds)185 million, offset in part by
year-on-year revenue growth by Southern Water of (Pounds)7 million and Thus of
(Pounds)30 million.
Group operating profit for the year to 31 March 2002 reduced by (Pounds)26
million to (Pounds)944 million, with operating profit from continuing operations
falling by (Pounds)15 million to (Pounds)801 million. The challenging
conditions experienced in the UK energy market and the price premium currently
being borne under the Nuclear Energy Agreement (NEA) resulted in a fall of
(Pounds)44 million in the UK Division's profit. However, this was substantially
offset by the benefits derived from the operating cost saving programme within
Power Systems, where operating profit increased by (Pounds)14 million in the
year, and by the recovery in PacifiCorp's operating profit in the US. The US
Division reported year-on-year profit improvement of (Pounds)16 million after
incurring some $300 million of additional excess net
4
power costs earlier this year as a result of the unprecedented fall in
wholesale price levels in the western US market. Depreciation for the year for
continuing activities increased by (Pounds)47 million to (Pounds)409 million,
reflecting our recent capital investment in new generation in the US and last
year's acquisition of Rye House power station in the UK. Operating profit for
our discontinued operations decreased by (Pounds)11 million to (Pounds)144
million, as a result of a (Pounds)5 million fall in Southern Water's profit to
(Pounds)216 million and an increase in Thus losses of (Pounds)6 million, which
contributed an operating loss of (Pounds)64 million for the year to 19 March
2002, the date of the demerger. Depreciation for the year for discontinued
activities increased from (Pounds)118 million to (Pounds)146 million.
Exceptional items of (Pounds)1,326 million (before interest and tax) have been
recognised in the year to 31 March 2002. These exceptional items relate to the
disposal of Southern Water and UK reorganisation costs recognised in the fourth
quarter, further details of which are given above, and a charge of (Pounds)120
million associated with our disposal of and withdrawal from UK Appliance
Retailing which was recognised in the first quarter. An exceptional charge of
(Pounds)121 million was incurred last year in respect of the costs of
implementing the PacifiCorp Transition Plan.
Profit before tax for the full year fell by (Pounds)61 million to (Pounds)567
million. The tax charge for the year was (Pounds)122 million before taking
account of tax relief of (Pounds)39 million relating to exceptional charges.
The corresponding amounts for 2000/01 were (Pounds)141 million and (Pounds)46
million respectively. The effective rate of tax on profit before exceptional
items and the amortisation of goodwill was 21.5% (2000/01: 22.5%). The rate
benefited by the release of provisions made in prior years, following agreement
with the tax authorities on the treatment of specific items and, although
corporate tax rates in the US are higher than those in the UK, the financial
structure of the group results in a reduction in the amount of overseas tax
payable.
Net debt increased in the year by (Pounds)923 million to (Pounds)6,208 million
at 31 March 2002. Free cash flow for the year was (Pounds)786 million compared
to (Pounds)888 million for the same period last year. The reduction of
(Pounds)102 million is attributable to lower operating cash flows partly offset
by lower taxation payments. The group invested (Pounds)1,228 million in capital
projects, an increase of (Pounds)132 million on the previous year. This
included (Pounds)254 million invested in new generation plant in the UK and US
Divisions, (Pounds)136 million invested in expansion of our electricity networks
in the US and Power Systems, and (Pounds)355 million spent on network system
maintenance and generation plant refurbishment throughout the group. A further
(Pounds)267 million was invested in Southern Water and (Pounds)78 million in
Thus. Gearing (net debt/shareholders' funds) increased to 131% from 90% at 31
March 2001. Due to the timing of the completion of the Southern Water disposal,
the year end debt position does not include the (Pounds)2.05 billion gross
proceeds, including debt assumed by the purchaser, as a result of the sale. The
cash consideration which was received during April 2002, has been used to reduce
group net debt and results in pro forma gearing at 31 March 2002 of 89%.
Looking ahead to next year's cash flow, in addition to the proceeds received
from the Southern Water disposal, the group is focused on reducing the cash
outflow through profit growth and reduced capital expenditure.
5
The net interest charge for the year to 31 March 2002, excluding exceptional
interest, increased by (Pounds)46 million to (Pounds)379 million as a result of
the higher debt levels in the UK and US, partly offset by lower interest rates
in the UK. The exceptional interest charge of (Pounds)31 million principally
relates to costs associated with restructuring the debt portfolio, as a
consequence of the sale of Southern Water. Consolidated interest cover reduced
from 3.0 times for the year to 31 March 2001 to 2.5 times for the year to 31
March 2002.
Group earnings per share increased by 45% to 22.59 pence for the second half
compared to last year, mainly as a result of the improved performance in the US.
For the full year earnings per share were 26.12 pence compared with 27.86 pence
last year, due to lower UK divisional profit and higher interest charges.
Dividends for the year included a 'dividend in specie' of (Pounds)437 million
arising on the demerger of Thus. The fourth quarter cash dividend of 6.835 pence
per share brings ordinary dividends for the full year to 27.34 pence per share,
consistent with our stated aim of 5% annual increase in dividends to March 2003.
The ADS dividend rate will be confirmed in a separate announcement today.
SECTION 3 - BUSINESS REVIEW
US DIVISION
-----------
The US Division comprises PacifiCorp, our regulated utility business, and our
competitive business PacifiCorp Power Marketing Inc.
The US Division reported operating profit of (Pounds)168 million for the fourth
quarter, an improvement of (Pounds)102 million (152%) on the equivalent period
last year. Last year's fourth quarter results included the impact of the Hunter
plant outage and significantly reduced hydro availability resulting in
additional excess net power costs. For the full year, the US Division's
operating profit increased by (Pounds)16 million to (Pounds)367 million. In the
second half of the year there was a (Pounds)326 million improvement in the US
operating profit compared to the first half of the year. This is as a result of
lower power costs, regulatory rate increases and continued progress with the
Transition Plan, offset in part by planned additional costs on strategic
projects, risk mitigation and from new investment activities.
PacifiCorp
PacifiCorp operates in six western US states as one of the three-largest
regulated western electric utilities, serving 1.5 million customers. The company
is focused on improving its financial performance and customer service, as well
as returning to among the best in class regulated electric utilities in the US.
To achieve these strategic goals, the company is concentrating on achieving its
target return on equity of approximately 11% by 2004/05, through the regulatory
recovery of costs incurred on behalf of customers, general rate cases and
through improving operating efficiencies system-wide by the Transition Plan
initiated in May 2000.
6
PacifiCorp operates a relatively balanced system, meeting between 80-90% of its
power needs with a combination of its own generation and with long-term purchase
agreements, with the remainder of the company's requirements being met through a
variety of physical and financial market approaches. PacifiCorp has a good
balance of coal and gas-fired generation, hydro and wind, enabling us to respond
quickly to markets. The company has some 8 GW of generating plant, producing
typically some 57 TWh and purchases some 13 TWh under both long-term and short-
term contracts. PacifiCorp has customer demand across retail and wholesale
markets of around 70 TWh. Going forward, the company's strategy is to reduce
exposure to wholesale markets.
After 18 months of high prices and volatility, the wholesale power and natural
gas markets in the western US have returned to more normal levels. After 10-12
months of flat or reduced load demand, indicators are that economic recovery is
beginning in the US. In addition, regional hydro-electric availability and
precipitation levels have also returned to more normal ranges compared to
conditions a year ago.
Each state regulatory commission establishes its own rate of return on equity
for the company. Returns for PacifiCorp to 30 September 2001, being the last
reportable period, were approximately half the current target level of
approximately 11% due to the impact of power costs, regulatory disallowances,
and other costs, leaving significant room for improvement and growth.
Under UK GAAP, all of PacifiCorp's net power costs are charged to the profit and
loss account when incurred. The regulatory recovery of the excess power costs
charged to the profit and loss account in the second quarter will be recognised
under UK GAAP when billed to customers.
PacifiCorp continues to seek regulatory recovery for costs incurred on behalf of
customers. Filings include general rate cases, deferred accounting requests, and
other filings as needed. Details of expected hearing dates for these and other
regulatory actions are set out in an appendix to this announcement.
Revenues during the year benefited from regulatory rate increases of $91 million
from general rate cases concluded, the full year effect of which will increase
revenues by $125 million in the next financial year. Going forward, general rate
case filings of $16 million in California and $14.2 million in Oregon remain
open. An order in the Oregon case is expected by June 2002. The California
Public Utility Commission has not yet initiated PacifiCorp's filing. In
addition, PacifiCorp will receive a $1.8 million increase on 1 January 2003 as
part of a Washington rate plan. Finally, the company is scheduled to file a
general rate case in Wyoming in early May 2002 to recover $31 million in base
rates.
At the end of March 2002, amounts held in deferred accounts under US GAAP for
excess net power costs and associated carrying charges totaled $392 million.
These costs have been fully expensed under UK GAAP. At the end of the fourth
quarter, recovery has been requested on $308.5 million, which includes $22.8
million awarded in Oregon and currently open recovery amounts totaling $285.7
million, plus ongoing carrying charges. This includes an order anticipated in
early May 2002 on a $147 million
7
stipulation in Utah to resolve outstanding power cost issues related to the
Hunter power station outage and summer 2001 excess net power costs. PacifiCorp
also expects to file a request in Wyoming in early May to recover approximately
$91 million in deferred excess net power costs in addition to the general rate
request mentioned above. Recovery, in most cases, is expected to occur over 2-4
years. The benefit to revenues in the next financial year resulting from these
recoveries and other orders expected to be concluded early in the first quarter
of 2002/03, is anticipated to be approximately $100 million.
Good progress continues to be made with the PacifiCorp Transition Plan, with
cumulative year-two cost savings achieved of $117 million, ahead of $113 million
in the plan for 2001/02. The operating cost savings target for the Plan remains
as announced in 2000: $300 million of savings by 2004/05. These savings are
being achieved through a wide range of initiatives including fuel savings,
service centre consolidations and improved procurement practices. For example,
more than 20 operations centres have been closed to date to improve operating
efficiencies, management layers have been significantly reduced, and engineering
and administrative functions have been consolidated.
Customer service remains another key area of operational focus for PacifiCorp.
The company made significant progress in 2001/02 in delivering improved service
levels among regional utilities based on independent surveys as measured by J.D.
Power and other sources. Call centre performance was significantly improved,
with 80% of calls being answered within 20 seconds and customer complaints to
regulators significantly lower over the past three years. A further independent
customer survey of large industrial customers demonstrated that more than three
out of every four customers were very satisfied with the company.
PacifiCorp continues to aim for best-in-class performance and our merger goal of
becoming a top 10 US utility by 2004/05, based on various operating and
financial performance metrics. PacifiCorp remains one of the lowest-cost
operators with one of the highest generation plant availability levels in the
western US. For example, in 2001/02 the company maintained plant availability of
87%, ahead of the regional average of 84%. In delivering one of our merger
commitments, a further 50 MW of regulated wind power has been installed in
Wyoming, adding to our portfolio of renewable resources.
As one of the 20 largest coal producers in the US, PacifiCorp has the third
lowest cost of delivered coal of $0.81 per million btu for utilities using more
than 10 million tons per year. The company currently produces 33% of its own
coal needs and purchases the remaining 67%. Through timely procurement,
PacifiCorp has achieved significant fuel savings as part of the Transition Plan.
To ensure necessary investments are made for infrastructure development,
operations and maintenance, capital expenditure is underway to accommodate
system growth and reliability. Out of a total of $531 million spent in the year
to March 2002, $45 million
8
was on new generation, $129 million on system growth, $279 million on
maintenance of assets and $78 million on other capital projects including
information technology.
In response to a changing environment, however, PacifiCorp spent $25 million on
risk mitigation measures, including physical, hydro and temperature related
hedges, which have reduced our commodity risk exposure. In addition, the company
is making investments in new generation such as the Gadsby gas-fired units in
Utah to offset summer peak loads. We expect to make further investments to
improve operational reliability and security of supply of existing plants next
year.
Capital expenditure and the related cost of capital charge are included in the
capital base on which PacifiCorp is allowed to earn a return on equity through
general rate cases. The outlook for capital expenditure for the year to March
2003 is forecast to be approximately $580 million with new generation ($30
million), system growth ($130 million), maintenance ($350 million) and other
capital projects ($70 million).
In other strategic and regulatory matters, PacifiCorp has initiated a
collaborative process in each of the six states it serves to investigate the
challenges faced by PacifiCorp as a multi-state utility, using a Multi State
Process (MSP). The MSP is a process by which solutions - including the company's
proposed Strategic Restructuring Plan (SRP) - will be developed and reviewed by
interested parties from across the company's service territory. If adopted by
the states, the MSP should provide solutions to non-recovery of prudently
incurred costs not currently captured by the states because of different cost
allocation methodologies. In addition, MSP will seek to assure full recovery of
prudent new generation investment.
Current regulatory disallowances, including the impact of different allocation
methodologies, are approximately $100 million per annum and actions are being
carried out to reduce unrecoverable costs or obtain recovery. In addition, a
time lag may exist with costs expected to be recovered at a later date.
PacifiCorp has implemented initiatives to improve our recording of the prudency
of net power cost purchases and investments and other costs on behalf of
customers. This documentation and consultation with states should result in a
higher proportion of allowable costs in the future.
To plan generation and infrastructure investments more effectively in the
future, we are seeking agreement with regulators on forecast demands and
required generation capacity over a 20-year time horizon through the Integrated
Resource Plan. The plan is due for filing by December 2002. An integrated
approach to resource planning between the company and states is needed due to
the large capital investments potentially required to serve customers over this
time period.
The company's participation in a Regional Transmission Organization (RTO) took a
further step in March with a filing to the US Federal Energy Regulatory
Commission on the proposal to form RTO West. Under the proposal, regional
transmission lines would function as a common carrier of wholesale electricity
and enable simplified transmission services throughout the Northwest region of
the US and Canada. RTO West is not scheduled to begin operations until about
2005. The benefits of the RTO are expected to be enhanced system reliability and
improved market efficiency.
9
In Oregon, implementation of Senate Bill 1149, the state's electricity
restructuring legislation for small industrial and residential customers, was
started on 1 March 2002. Due to the upheaval in the western US market over the
past 18 months, only a handful of customers elected to change suppliers although
they will have another opportunity to choose a market provider at the end of the
calendar year 2002. Costs incurred for Senate Bill 1149 totaling $18.3 million
are being recovered over five years, with future expenses also to be filed for
recovery.
PacifiCorp Power Marketing, Inc.
PacifiCorp Power Marketing, Inc. (PPM), our competitive US business, which
commenced substantive operations during 2001, is growing systematically around a
strategy of thermal / renewable generation and gas storage / hub services. PPM
optimises portfolio returns through an integration of assets, trading and
commercial development, taking a regional approach to growth.
PPM continues to develop generating assets and supply arrangements to be backed
by long-term origination sales contracts, and has a pipeline of new
opportunities in development. The company is currently targeting 15-20 renewable
development projects, principally wind power, in 10 states across the western
and mid-western US over the next five years. During the past year, PPM has
developed a strong trading and risk management capability, positioning itself
for the future. PPM's trading capability enables it to minimise the risk
associated with managing its portfolio and to maximise the margins from the
options available within its portfolio of assets and long-term origination
agreements. Rather than attempting to create value through speculative
approaches the company trades to protect and enhance the value of its existing
portfolio.
We intend to grow PPM by developing opportunities within thermal generation,
renewable generation and gas storage and hub services that provide the greatest
risk-adjusted rate of return for ScottishPower. Although it is currently a small
but growing part of the company, over the long-term we are targeting PPM to be a
significant value business.
PPM has created a balanced business portfolio, investing in projects with
trading flexibility, expansion capability and arbitrage opportunities. PPM has
two signature power generation projects. The combined cycle gas turbine facility
owned by the City of Klamath Falls and the Stateline windfarm which, together
with other supply and development arrangements, represent 800 MW of capacity.
Through its origination business, PPM has sold the equivalent amount of power
forward through long-term contracts. In addition, PPM recently acquired a 40%
interest in a gas storage and hub services business in Alberta, Canada and is
now one of the operators of the facility.
The California Department of Water Resources, (CDWR), is the agency that
negotiated power contracts in 2001 on behalf of the state's investor-owned
utilities. In 2001 CDWR and PPM signed a 10-year power supply agreement. The
state is challenging substantially all of the contracts CDWR signed in 2001 as
too expensive or representing too much volume. In our view, PPM has a valid and
legally binding contract, yet has been working with state energy officials to
find a resolution that meets the needs of all
10
parties. PPM has seven major contracts with five customers, CDWR, Sacramento
Municipal Utility District, Snohomish Public Utility District, Seattle City
Light and Bonneville Power Administration.
We expect PPM to be profitable in 2002/03 by virtue of its generation supply and
long-term sale portfolio, and that it will grow as we focus on developing new
supply and sale arrangements and sites to create future opportunities. Capital
expenditure in 2002/03 is not expected to be extensive, with much of the
activity oriented toward arranging renewable supply along with early phase
development of gas storage facilities. PPM is driven toward developing
opportunities within its business strategy that provide the greatest shareholder
value.
UK DIVISION
In the UK Division, our strategy is to grow sales, optimise costs and enhance
margins through the integration of generation assets, trading activities, and
energy retailing to customers. This involves a focus on improving profitability
in highly competitive wholesale and retail markets, on investing selectively in
growth areas such as renewables generation, and on growing our customer numbers
and delivering excellence in customer service.
This focus on energy has resulted in significant transformation and change for
the Division. During the year we exited the financial services market and
disposed of our UK Appliance Retailing business with minimal disruption, leaving
ourselves free to concentrate on a new integrated structure for generation,
trading and energy retail.
As a result of price pressure on generation margins across the industry and
increased investment in customer acquisitions, operating profit for the UK
Division decreased by (Pounds)7 million to (Pounds)55 million in the fourth
quarter. Operating profit for the full year fell by (Pounds)44 million to
(Pounds)79 million, due to the impact of falling wholesale market prices and the
burden of the NEA. The results for the year also include the New Electricity
Trading Arrangements (NETA) system error of (Pounds)10 million reported in the
first quarter, offset by positive contributions from Rye House power station and
growth in electricity and gas retail margins.
Wholesale electricity prices in England & Wales have fallen by approximately 18%
since March 2001, to levels that we believe will not sustain investment in new
thermal generating plant. The wholesale electricity price in Scotland is
directly linked to that in England & Wales. Prices may recover to some extent as
market participants mothball capacity, but we expect prices across the UK to
remain under pressure for the next few years until the present overhang of
generating capacity is reduced.
Generally lower electricity prices heighten the significant burden of the NEA on
our Scottish business. In April 2001 we filed with the Court of Session our
dispute with British Energy (BE) that seeks either a resolution of an agreed
price for power from BE under the NEA, now that there is no longer a reference
"Pool" price under NETA, or alternatively a declaration that the NEA is no
longer capable of operating. In December
11
an interim order decreed that an appropriate amount from the monthly BE invoices
be paid by ScottishPower into an escrow account in lieu of paying BE until the
dispute is resolved. BE appealed that order and a ruling was issued in April
2002 in BE's favour. This ruling does not impact on the proceedings dealing with
the principal dispute between ScottishPower and BE. The court hearings with
respect to the dispute are expected to begin in August 2002.
While falling wholesale prices have constrained the profitability of the UK
Division as a whole, retail electricity margins have seen improvement. Retail
gas margins have also delivered a strong performance during the year, increasing
by (Pounds)9 million from last year. This gas margin improvement is mostly as a
result of higher sales volume (8%), due to the successful retention of our
customer base and slightly higher revenue following the domestic gas price
increase in February 2002. We expect the UK gas prices to be increasingly linked
to Europe through the interconnector to Zeebrugge, Belgium. European prices are
currently linked to oil and we see no change to that until the advent of greater
European market liberalisation.
Despite the tough underlying market conditions, UK Trading has made a
contribution of over (Pounds)20 million in the year, including market-leading
performance in the balancing mechanism, arbitrage gains and by optimisation of
gas trading activities. Renegotiating the Rye House gas contract has
significantly reduced gas purchase costs and enabled effective arbitrage and
flexing of the Rye House plant.
During the year the UK Division traded 41.9 TWh of power, market share 12%,
(37.6 TWh, market share 11% last year) and 1.7 billion therms of gas, market
share 5% (1.0 billion therms, market share 3% last year). Generation output and
purchases for the retail energy business were traded in order to hedge risk,
protecting overall margins from wholesale price pressure and optimise daily
demand requirements. Trading operates within strict risk limits and received
Financial Services Authority authorisation during the year to trade in a range
of energy products.
UK Division has a good balance of coal and gas-fired generation, hydro, wind and
pumped storage plant, enabling us to respond quickly to market opportunities. We
have some 5 GW of generating plant, generating typically some 20 TWh and
purchase 14 TWh of British Energy's Scottish output. We have customer demand
across retail and wholesale markets of around 33 TWh.
Exports to England & Wales continued at a high level, with available generation
capacity on the interconnector at 91%. Exports to Northern Ireland commenced on
1 January 2002 and are expected to be about 1.7 TWh on a full year basis.
During the year we have made improvements to the operating performance of our
generation assets and our plant is now amongst the most flexible in the UK. At
the 2,400 MW coal fired power station at Longannet, despatch accuracy improved
30% and notice of load change is down to two minutes, leading to a fourfold
increase in our ability to meet frequency response requirements. A 3%
improvement in efficiency was also made at the station.
12
Meeting customers' expectations on service is a challenge faced by the whole
sector. We are determined to improve the experience of dealing with
ScottishPower and have migrated all our domestic customers onto a single IT and
billing platform during the year. This temporarily interrupted service standards
(within our expectations) but these are now restored and we are seeing a
significant reduction in billing problems. In the light of this, we were pleased
to receive an award from J.D. Power, recognising us as the best company for
customer satisfaction in the domestic gas market. This enhanced reputation is
feeding through into sales performance.
Against a background of declining customer numbers for many companies, we have
successfully held our numbers at 3.5 million, comprising 2.6 million electricity
customers and 0.9 million gas customers. Retention rates are broadly in line
with the industry average of 67% (source, Ofgem January 2002) but customer
losses are on a declining trend compared to April 2001 and churn has reduced by
over four percentage points for both gas and electricity over the year.
According to Ofgem, ScottishPower is the third ranked gas / electricity brand in
the UK, despite having avoided expensive national television campaigns,
concentrating on a successful winback campaign in our historic home areas and
emphasising our "cheaper than British Gas" price positioning for dual fuel.
ScottishPower is the UK's second largest generator of wind power and we have
plans to achieve 10% of our generation from renewable sources by 2010, in line
with government targets. During the year we commissioned a 30 MW wind farm at
Beinn an Tuirc, bringing our total capacity in UK and Ireland to 128 MW. We have
submitted planning applications for a further 294 MW of wind power, including
what will be Europe's largest on shore wind farm, south west of Glasgow. We have
a further 250 MW under assessment at five UK sites, one of which is offshore.
Indications are that Renewables Obligation Certificates are being offered at
around 4.5p/kWh, a 50% premium to the buy-out price, reflecting the shortage of
renewable output. ScottishPower is well placed to benefit from its early mover
position in this segment of the market.
We are seeking planning permission for a major gas storage facility in Cheshire,
to add to our Hatfield Moors facility. We expect greater demand for storage
services as the UK becomes more dependent on imported gas in the middle of the
decade and inter-connector capacity becomes a constraint.
In 2001/02, the UK Division capital expenditure was (Pounds)104 million with
(Pounds)75 million targeted at growing our renewables business and maintaining
our generating assets and (Pounds)29 million invested in improving business
processes. We invested (Pounds)12 million in our Beinn an Tuirc wind farm and
(Pounds)38 million in our existing generating plant, including the first phase
of refurbishment of our hydro and pumped storage plant. Going forward, the
capital programme will focus on developing renewable generation and extending
the life of our coal-fired plant, subject to an acceptable outlook for wholesale
prices.
We intend to build on the advantage of our single billing system with a
programme of customer service process improvements to drive out more cost
efficiencies and have
13
recently announced a manpower reduction of approximately 500 in the UK Division.
Our aim is to be best in class at delivering cost efficient, high quality
customer service.
All final price controls on electricity and gas customers in the UK have now
been removed, completing the process of de-regulation started in 1990. This has
been made possible by the establishment of vigorous competition in energy supply
across all customer types and all locations throughout Great Britain, and
enables the energy supply market to operate on the same basis as other retail
markets. Legislation to extend the new England & Wales electricity trading
arrangements into Scotland through British Electricity Trading and Transmission
Arrangements (BETTA) has been confirmed with a target implementation date of
April 2004. We support a system that will enable all generators and suppliers to
compete on the same basis across the country and will also facilitate the
dismantling of the remaining differences between the Scottish market and the
rest of Great Britain, in particular the NEA, and the other restructuring
contracts put in place at the time of privatisation.
ScottishPower is contributing to the consultation on the Government's Energy
Policy Review and is taking significant initiatives in the key areas of energy
efficiency and renewables. ScottishPower is also actively identifying the
reinforcement to the UK transmission infrastructure required to encourage
development of renewable energy, in Scotland and elsewhere, to meet the
environmental targets set by the Government and Scottish Executive.
INFRASTRUCTURE DIVISON
The Infrastructure Division reported operating profit of (Pounds)159 million for
the fourth quarter, an increase of (Pounds)5 million on the equivalent period
last year, primarily as a result of higher profits in Southern Water, which is
now reported as a discontinued operation. For the full year to 31 March 2002,
the Division's operating profit were (Pounds)571 million, reflecting a year-on-
year increase of (Pounds)8 million. Power Systems' profit improved by (Pounds)14
million to (Pounds)355 million for the year, as it continued to deliver
financial upsides from its restructuring programme, with operating cost
reductions of (Pounds)39 million achieved during the year. These have mitigated
in full the impact of regulatory price reductions experienced during the first
half of the year and a gain on business disposals reported within last year's
results. Southern Water's operating profit for the full year fell by (Pounds)5
million as a result of new capital obligation costs and increased depreciation
charges, offset in part by (Pounds)11 million of cost savings.
Power Systems
In Power Systems we have just completed the second year of the current five-year
regulatory contract which is based on a pre-tax real return of 6.5% on allowed
investments in our network. Our strategy is to outperform targeted operating
costs and to achieve better than planned outputs from our capital expenditure,
while maintaining a high standard of customer service. Beyond that, value to our
shareholders is maximised by investing consistently in the business, and
minimising our own cost of capital. Strong
14
levels of capital investment not only renew the network but also maintain the
value of the Regulated Asset Base which underpins the future value of the
business.
As a long-term business we must also look beyond the current regulatory
contract. By meeting our various cost saving commitments, we expect our cost
base in 2002/03 to be at or near the UK frontier. Our intention is to use this
to enable a smooth pathway into the next period. In addition, external
indications are that the environment for infrastructure investment is improving
as government interest in renewables grows, and we expect to be well positioned
in our Scottish and Manweb areas and to take advantage of increased investment
opportunities emerging as a result.
We remain firmly on target to deliver (Pounds)75 million of cash cost savings by
2003, having achieved (Pounds)70 million to date, and the increased commercial
focus that has arisen from the business change has identified a further
(Pounds)33 million benefit to Power Systems by 2004, as previously announced.
The implementation of the asset manager / service provider structure has
delivered significant savings through a wide range of initiatives that have
brought a sharper commercial focus to contract management, greater network
operational efficiency, stronger procurement practices, engineering innovation
and staff reductions.
The structure enabled us to meet effectively the requirements of the Utilities
Act 2000 to adopt new legal entities and organisational arrangements. A joint
venture, Core Utility Solutions Limited, between ScottishPower and Alfred
McAlpine was established on 27 February 2002 with plans to take advantage of
growing opportunities in the new connections market. From an initial regional
base, we expect the business to grow quickly to become a UK-wide multi-utility
service provider.
Consistent with our strategy, our business continues to invest in networks,
improving customer service and network reliability. The (Pounds)168 million
spent rebuilding, refurbishing and connecting new customers also contributes to
a continually growing Regulated Asset Base.
The business continues to build on substantial upgrading in the Scottish Borders
area over the past four years through its latest initiative which will include
the installation of more than 200 miles of new network and the latest in
protection and control systems. The (Pounds)11 million investment over two years
will significantly reduce the number of major faults and the amount of time it
will take to restore supplies. The project is scheduled for completion in March
2004.
Full completion of the upgrade to the England-Scotland Interconnector to 2,200
MW is expected to be completed in May 2002. Full 2,200 MW capability cannot be
attained until National Grid Company completes the reinforcement of its
transmission system in North Yorkshire. This reinforcement has been further
delayed due to the foot and mouth disease outbreak with completion now planned
for October 2003. Nevertheless the upgrade works did help increase the average
yearly Interconnector capability from 1,357 MW in 2000/01 to 1,480 MW in 2001/02
with capabilities of over 2,000 MW being achieved on certain days over the
winter period.
15
The completion by ScottishPower last September of the 64 km overhead line from
Ayr to Ballantrae allowed commercial operation of the Scotland-Northern Ireland
Interconnector to commence on schedule on 1 January 2002 despite onerous winter
working conditions and land access problems caused by foot and mouth disease.
Customer Service Guaranteed Standard failures are down 39% in 2001/02 due to the
improved operational focus on fault restoration where failures against
"restoring network faults within 18 hours" dropped from 317 (2000/01) to 117
(2001/02). Underlying system performance during 2001/02 improved during the year
with customer interruptions (CI) down by 18% in Scotland, 8% in Manweb and
customer minutes lost (CML) down by 14% in Scotland and 7% in Manweb. This
continues the downward trend for CI and CML year on year. The headline figures
were higher due to the impact of three short but severe weather events in each
operating area.
Ofgem introduced the Information and Incentives Project (IIP) from 1 April 2002.
This project is an incentive scheme designed to improve the quality of service
delivered to customers, particularly reducing the number and duration of
interruptions to customer supplies and improving the quality of telephone
response. Distribution companies can be penalised up to 2% of their annual
allowed revenue for failure to meet pre-specified targets for the number and
duration of interruptions to supply and if the quality of their telephone
response is below the average for the industry as a whole. Companies also have
the opportunity of earning additional revenue in the final year, 2004/05, of the
incentive scheme if they exceed their targets, depending on their rate of
improvement.
Our objective is to invest the (Pounds)2.30 per customer per annum allowed in
the current price control period to deliver the most effective improvements in
overall customer interruptions.
We anticipate the underlying performance of our system will generally be better
than that required by the IIP targets. We would hope therefore to avoid
penalties; however, the possibility of weather related events mean that
achievement of IIP targets every year cannot be guaranteed and therefore the
risk of penalty payments remains.
Overall, our commitment to efficient operational practices and investment
combine to outperform the regulatory rate of return and position us well for the
forthcoming regulatory reviews.
Southern Water
We announced in March 2001 that we would seek greater value for shareholders
from Southern Water by refinancing or selling the business. At a time when many
prevailing share prices for UK water companies do not reflect their full
regulatory asset values, we completed the successful sale of Southern Water to
First Aqua in April 2002 for (Pounds)2.05 billion, including debt assumed by the
purchaser, closely reflecting its regulatory asset value. The sale gives greater
returns than the refinancing package proposed in November 2001, raising
(Pounds)300 million more proceeds, and is considerably better than offers for
the sale of the business received last year.
16
In December 2001, OFWAT commented that Southern Water was the only water company
to be ranked as an A for operational cost efficiency in both water and waste
water services, having been ranked poorly as D and E respectively when acquired
by ScottishPower in 1996. The value realised for Southern Water reflects this
high efficiency and the excellence in customer standards during ownership by
ScottishPower. This illustrates our key skills in infrastructure asset
management.
OTHER DISCONTINUED ACTIVITIES
UK APPLIANCE RETAILING
The decision to withdraw from the loss making UK Appliance Retailing business
was announced in June 2001, with the disposal of part of the business to
Powerhouse Retail finalised in October 2001 and the closure of the remaining
operations now complete. An exceptional charge of (Pounds)120 million was
recognised in the first quarter following this decision. UK Appliance
Retailing's operating losses of (Pounds)9 million for the year are disclosed
within discontinued operations.
THUS
The demerger of Thus successfully completed on 19 March 2002. The financial
results of the group include the results of Thus up to this date, which are
included within discontinued operations.
Thus contributed an operating loss of (Pounds)64 million, an increase of
(Pounds)6 million on last year. Despite overcapacity and falling demand
depressing the wholesale telecoms sector in general, Thus continued to deliver
strong growth in EBITDA, which improved from negative (Pounds)21 million for the
prior financial year, to positive (Pounds)2 million for the period up to
demerger.
ENVIRONMENTAL RESPONSIBILITY
ScottishPower seeks to adopt a responsible approach to environmental governance
across the range of our activities. Recognition of the soundness of our approach
via external benchmarks is an important part of the process. We were placed at
the top of the 2001/02 FT/BiE Survey of Corporate Environment Engagement and our
Corporate Environment Report won the ACCA Reporting Award.
Shifting towards more sustainable energy supplies is critical to the reduction
of long-term environmental risk. In our vision, we set out our aim of moving to
become a leading renewables operator. We will do this by working with customers
to promote energy efficiency, increasing choice through green products linked to
renewables, ensuring security of supply, investing where possible in cleaner and
more efficient forms of generation, and achieving lower emissions across our
portfolio. We have made considerable strides in bringing on line new wind plant
in the UK and US and aim to add a further 1,000 MW over the next few years. Our
green energy offerings in the UK and
17
US have become market leaders. This together with the commissioning of new gas
fired plant in the US and major initiatives on energy efficiency in the US and
UK have taken us a considerable way towards our long-term sustainability vision.
HEALTH AND SAFETY
Over the last few years, our focus on safety policies and procedures has
resulted in a significant reduction in lost time accidents. In the year to 31
December 2001 we were awarded 14 gold medals and 1 silver medal by ROSPA. In
addition we were recognised by the Health and Safety Executive for our
participation in the European Week of Safety.
DIVIDEND TIMETABLE
Key dates for the fourth quarter dividend for both ordinary and American
Depositary Shares are as follows:
8 May 2002 Shares go ex-dividend
10 May 2002 Last date for registering transfers to receive fourth quarter
dividend
14 June 2002 Fourth quarter dividend payable
18
APPENDIX - RECENT US RATE FILINGS AND SCHEDULE DATES
General Filings
Since the half-year, filings totalling $53.8 million have been requested in
Oregon ($34.3 million), Washington ($3.5 million) and California ($16.0
million), comprising the following:
.. Oregon
On 31 December 2001 PacifiCorp filed for a $34.3 million price increase with the
Oregon Public Utility Commission to reset rates to reflect future power costs.
The level requested by the company was later amended to $25 million to reflect a
return of wholesale power prices to more historic levels in the latter half of
2002. A settlement agreement (stipulation) between the company and interested
parties was filed on 29 March 2002 and calls for a one-time net increase of
$14.2 million to Oregon revenue requirement, effective from 1 June 2002.
.. Washington
As part of a five-year rate plan, a $3.5 million permanent rate increase was
approved by the Washington Utilities and Transportation Commission and became
effective on 1 January 2002.
.. California
PacifiCorp filed a $16 million general rate case on 21 December 2001 with the
California Public Utility Commission and has asked for a final decision by late
summer 2002. PacifiCorp remains engaged in efforts to sell its California
service territory to Nor-Cal Electric Authority.
Other General Filing
In addition, in early May, PacifiCorp is expected to file a general rate case in
Wyoming for $31 million, as well as for deferred amounts related to excess net
power costs.
19
Deferred Excess Power Costs & Other Deferred Costs
Under US GAAP, excess net power costs, where approved by regulators, are
initially deferred as regulatory assets and recovery is sought through rate
filings. Allowable excess net power costs are only charged to income under US
GAAP when regulatory mechanisms for recovery have been established. There is
therefore a time lag between the recognition of allowable excess power costs
under UK GAAP compared to US GAAP which will benefit future UK GAAP reported
earnings.
---------------------------------------------------------------------------------------------------------------------------
At 31 March 2002
Currently Deferral not 31 Mar
Recovery Open Amounts not granted or 2002
Awarded Recovery yet recovered non deferred Amounts
$m 31 Mar 2002 Requests or requested costs Deferred
--------------------- ----------- ----------- ------------- ------------- --------
Deferred Excess Power Costs
Oregon 22.8 113.7 (1) 18.3 - 154.8
Utah - 147.0 71.8 (109.7) (2) 109.1
Wyoming - - 91.0 - 91.0
Idaho - 25.0 12.4 - 37.4
California - - - - -
Washington - - - - -
----------- ----------- ------------- ------------- --------
Subtotal 22.8 285.7 193.5 (109.7) 392.3
Other Deferred Costs
All States - Trail Mountain
(investment & mine closure costs) - 45.8 - (45.8) (3) -
Oregon
(SB 1149 costs) 18.3 - 4.3 - 22.6
Washington
(DSM cost recovery) 3.2 - - (3.2) -
----------- ----------- ------------- ------------- --------
Total 44.3 331.5 197.8 (158.7) 414.9
(1) Of the $136.5 million total request made, $22.8 million has already been
approved, resulting in a currently net open request of $113.7 million.
(2) Excess power costs incurred in Summer 2001 for which the Utah PSC has not
yet granted deferral authority.
(3) Permission to defer these costs is pending in all states.
--------------------------------------------------------------------------------
At 31 March 2002, PacifiCorp had $415 million of amounts deferred, including
amounts requested in recent filings of $376 million, which consists of $44
million previously awarded and $332 million of currently open recovery requests.
20
In Oregon, PacifiCorp has deferred $155 million including carrying charges, net
of costs recovered through amortisation. As part of a settlement agreement with
the OPUC staff and intervenors, PacifiCorp has requested recovery of $137
million of this amount. An order is expected in this case by June 2002. This is
not part of the Oregon stipulation discussed previously in "general filings."
In Utah, the Public Service Commission ("UPSC") is considering a settlement
among PacifiCorp, utility regulators and consumer groups totalling approximately
$147 million that would resolve outstanding power cost issues related to the
Hunter power station outage and summer 2001 excess net power costs. The two
major regulatory filings made by PacifiCorp in Utah totalled $205 million.
PacifiCorp anticipates a commission order on the stipulation in early May 2002.
The Wyoming Public Service Commission granted PacifiCorp's request of 21
November 2001 to withdraw its application for approval to pass on approximately
$13 million of excess net power costs, and instead to include the request in a
general rate case that was scheduled to be filed in early May 2002. This action
will allow the company to consolidate into the general rate case a request for
all the deferred excess net power costs. These costs total approximately $91
million, including the Hunter plant outage-related costs, for which recovery is
being sought. The May general rate case is expected to request $31 million of
permanent rate relief.
In Idaho, PacifiCorp made a request to the Idaho Public Utilities Commission on
7 January 2002 to recover extraordinary power costs amounting to $38 million
through a temporary 24-month customer surcharge. A stipulated agreement between
the company, commission staff and interested parties for PacifiCorp to recover
$25 million was filed on 10 April 2002, with a hearing and commission order
expected in May 2002. The settlement proposes an effective date of 15 May 2002.
In Washington, PacifiCorp filed for a $3.7 million increase on 15 January 2002
to recover increased expenditures for energy efficiency programs. The request
was approved and went into effect on 16 February 2002. At the end of the
collection period, an estimated $3.2 million is due to be recovered.
Other Filings
PacifiCorp has filed applications in Utah, Wyoming, Oregon, and Idaho for the
deferral and amortisation of the costs associated with the closure of the Trail
Mountain mine in Utah totaling approximately $46 million. The applications are
in various stages of review and approval by regulators.
PacifiCorp has also filed for power cost adjustment mechanisms (PCAMs) in Utah,
Idaho, Oregon, and California to help moderate fluctuations in wholesale
electric prices and volume volatility. In Utah, to settle outstanding historical
excess power cost issues, PacifiCorp and the regulator have agreed not to pursue
the PCAM until the first quarter of calendar 2004, subject to certain
extraordinary events and conditions. PCAMs are proceeding in all states in which
PacifiCorp operates as part of the integrated resource planning process. Also, a
request to defer any summer 2002 excess power costs in Washington was filed on 5
April 2002. Under these mechanisms, if granted by the
21
commissions, all or part of actual power costs above or below the level in rates
will be shared with customers.
SAFE HARBOR
Cautionary Statement Regarding Forward Looking Statements
Certain statements contained herein are forward looking statements that are
subject to risks and uncertainties. These include statements concerning our
expectations and other statements that are not historical facts. In particular,
the statements regarding our expected dividend policy; the amount, effect and
timing of regulatory rate filings and increases in the US; our capital
expenditure plans and forecasts; our expectations for growth and profitability
of PacifiCorp Power Marketing; the effect of wholesale electricity prices on
investment in new generating plant; the increasing link between the UK gas
market and Europe and the link between European gas prices to oil; the demand
for gas storage services in the UK; our plans for the development of renewable
generation; our Infrastructure Division cost base being at or near the UK
'frontier'; that we will be well positioned in our Scottish and Manweb areas to
take advantage or increased investment opportunities; our growth expectations
for Core Utility Solutions; our expectation that our customer service
performance will be better than required by the IIP targets; are subject to
various uncertainties or changes depending upon a number of factors, including,
but not limited to changes in the wholesale price for energy, particularly
natural gas and electricity; our ability to effectively and efficiently operate
our generation facilities; unexpected generation outages; unfavorable weather
conditions that reduce demand for power or hydroelectric capacity; adverse
economic conditions that decrease electricity consumption; and unexpected
regulatory or legislative changes or developments affecting rates, generation
costs and environmental standards. ScottishPower undertakes no obligation to
revise these forward-looking statements to reflect events or circumstances after
the date hereof. We desire to qualify these statements for the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995.
22
Group Profit and Loss Account
for the three months ended 31 March 2002
Three months ended 31 March 2002
Except Except
-ional -ional
item- item-
conti Total discon Total
Contin- -nuing conti Discon -tinued discon
uing operat -nuing -tinued operat -tinued
operat- -ions operat operat -ions operat
ions (Note 3) -ions -ions (Note 3) -ions Total
2002 2002 2002 2002 2002 2002 2002
Notes (Pounds) m (Pounds) m (Pounds) m (Pounds) m (Pounds) m (Pounds) m (Pounds) m
Turnover:
group and
share of
joint
ventures
and
associates 1,399.8 - 1,399.8 144.6 - 144.6 1,544.4
Less: share
of turnover
in joint
ventures (6.9) - (6.9) - - - (6.9)
Less: share
of turnover
in
associates (0.2) - (0.2) - - - (0.2)
------- ------ ------- ------ ------ ------ -------
Group
turnover 2 1,392.7 - 1,392.7 144.6 - 144.6 1,537.3
Cost of
sales (844.3) - (844.3) (82.9) - (82.9) (927.2)
------- ------ ------- ------ ------ ------ -------
Gross profit 548.4 - 548.4 61.7 - 61.7 610.1
Transmission
and
distribution
costs (108.0) - (108.0) (7.4) - (7.4) (115.4)
Administrative
expenses
(including
goodwill
amortisation) (177.3) (18.5) (195.8) (17.7) - (17.7) (213.5)
Other operating
income 24.1 - 24.1 1.4 - 1.4 25.5
------- ------ ------- ------ ------ ------ -------
Operating profit
before
goodwill
amortisation 324.0 (18.5) 305.5 38.6 - 38.6 344.1
Goodwill
amortisation (36.8) - (36.8) (0.6) - (0.6) (37.4)
------- ------ ------- ------ ------ ------ -------
Operating
profit 2 287.2 (18.5) 268.7 38.0 - 38.0 306.7
Share
of operating
profit
in joint
ventures 1.4 - 1.4 - - - 1.4
Share
of operating
profit
in
associates 0.2 - 0.2 - - - 0.2
------- ------ ------- ------ ------ ------ -------
288.8 (18.5) 270.3 38.0 - 38.0 308.3
Provision
for loss
on disposal
of Southern
Water before
goodwill
write back - - - - (449.3) (449.3) (449.3)
Goodwill
write back - - - - (738.2) (738.2) (738.2)
----- ---- ----- ---- --------- -------- --------
Provision
for loss
on disposal
of
Southern
Water - - - - (1,187.5) (1,187.5) (1,187.5)
----- ---- ----- ---- --------- -------- --------
Profit/(loss)
on ordinary
activities
before
interest 288.8 (18.5) 270.3 38.0 (1,187.5) (1,149.5) (879.2)
----- ---- ----- ---- --------- --------
Net interest
and similar
charges
- Group before
exceptional
interest and
similar charges (95.6)
- Exceptional
interest and
similar charges (30.8)
- Joint ventures (1.0)
--------
(127.4)
--------
Loss on
ordinary
activities
before goodwill
amortisation
and taxation (969.2)
Goodwill
amortisation (37.4)
--------
Loss on
ordinary
activities
before taxation (1,006.6)
Taxation
- Group before
tax on exceptional
items (57.5)
- Tax on
exceptional
items 17.8
-Joint ventures (0.1)
--------
4 (39.8)
--------
Loss after
taxation (1,046.4)
Minority
interests 10.8
--------
Loss for
the period (1,035.6)
Dividends
- Cash 6 (126.1)
- Dividend in
specie on
demerger
of Thus 6 (436.6)
--------
(562.7)
--------
Loss retained (1,598.3)
--------
Loss
per ordinary
share 5 (56.24)p
Adjusting items
- exceptional
items 66.20p
- goodwill
amortisation 2.03p
-------
Earnings
per ordinary
share
before
exceptional
items and
goodwill
amortisation 5 11.99p
-------
Diluted
loss per
ordinary
share 5 (56.13)p
Adjusting items
- exceptional
items 66.07p
- goodwill
amortisation 2.03p
-------
Diluted
earnings per
ordinary share
before
exceptional
items and
goodwill
amortisation 5 11.97p
-------
Cash dividend
per ordinary
share 6 6.835p
-------
Group Profit and Loss Account
for the three months ended 31 March 2001
Three months ended 31 March 2001
Total Total
contin discon
-uing -tinued
operat operat
-ions -ions Total
2001 2001 2001
Notes (Pounds)m (Pounds)m (Pounds)m
Turnover:
group and share of
joint ventures 1,540.3 244.4 1,784.7
Less: share
of turnover
in joint ventures (4.7) - (4.7)
---------- ------ ---------
Group turnover 2 1,535.6 244.4 1,780.0
Cost of sales (1,092.4) (166.6) (1,259.0)
---------- ------ ---------
Gross profit 443.2 77.8 521.0
Transmission
and distribution
costs (124.2) (7.9) (132.1)
Administrative
expenses
(including goodwill
amortisation) (136.9) (30.7) (167.6)
Other
operating income 14.2 1.8 16.0
---------- ------ ---------
Operating profit
before goodwill
amortisation 231.4 41.6 273.0
Goodwill amortisation (35.1) (0.6) (35.7)
------ ------ ------
Operating profit 2 196.3 41.0 237.3
Share of operating
loss in joint ventures (3.9) - (3.9)
------ ------ ------
Profit on ordinary
activities before
interest 192.4 41.0 233.4
------ ------
Net interest and
similar charges
-Group (80.5)
-Joint ventures (1.4)
------
(81.9)
------
Profit on ordinary
activities before
goodwill amortisation
and taxation 187.2
Goodwill amortisation (35.7)
------
Profit on ordinary
activities before
taxation 151.5
Taxation
- Group (45.7)
- Joint ventures (1.1)
------
4 (46.8)
------
Profit after taxation 104.7
Minority interests 3.6
------
Profit for the period 108.3
Dividends 6 (119.4)
------
Loss retained (11.1)
------
Earnings per ordinary
share 5 5.91p
Adjusting item
- goodwill amortisation 1.95p
------
Earnings per ordinary
share before
goodwill
amortisation 5 7.86p
------
Diluted earnings per
ordinary share 5 5.89p
Adjusting item
- goodwill amortisation 1.94p
------
Diluted earnings per
ordinary share
before
goodwill
amortisation 5 7.83p
------
Cash dividend per
ordinary share 6 6.51p
------
Group Profit and Loss Account
for the year ended 31 March 2002
Year ended 31 March 2002
Except Except
-ional -ional
item- items-
conti Total discon- Total
Contin- -nuing conti Discon tinued discon
uing operat -nuing -tinued operat -tinued
operat- -ions operat operat -ions operat
ions (Note 3) -ions -ions (Note 3) -ions Total
2002 2002 2002 2002 2002 2002 2002
Notes (Pounds)m (Pounds)m (Pounds)m (Pounds)m (Pounds)m (Pounds)m (Pounds)m
Turnover:
group and
share
of joint
ventures
and associates 5,545.9 - 5,545.9 791.3 - 791.3 6,337.2
Less: share
of turnover
in joint
ventures (22.6) - (22.6) - - - (22.6)
Less: share
of turnover
in associates (0.5) - (0.5) - - - (0.5)
------- ----- ------- ----- ----- ----- -------
Group
turnover 2 5,522.8 - 5,522.8 791.3 - 791.3 6,314.1
Cost of
sales (3,920.0) - (3,920.0) (490.8) - (490.8) (4,410.8)
------- ----- ------- ----- ----- ----- -------
Gross profit 1,602.8 - 1,602.8 300.5 - 300.5 1,903.3
Transmission
and
distribution
costs (479.3) - (479.3) (33.3) - (33.3) (512.6)
Administrative
expenses
(including
goodwill
amortisation) (533.8) (18.5) (552.3) (142.8) - (142.8) (695.1)
Other operating
income 64.2 - 64.2 3.6 - 3.6 67.8
Utilisation of
Appliance
Retailing
disposal
provision - - - 13.2 - 13.2 13.2
------- ----- ------- ----- ----- ----- -------
Operating profit
before goodwill
amortisation 800.5 (18.5) 782.0 143.6 - 143.6 925.6
Goodwill
amortisation (146.6) - (146.6) (2.4) - (2.4) (149.0)
------- ----- ------- ----- ----- ----- -------
Operating
profit 2 653.9 (18.5) 635.4 141.2 - 141.2 776.6
Share of
operating
profit in
joint ventures 2.2 - 2.2 - - - 2.2
Share of
operating
profit in
associates 0.2 - 0.2 - - - 0.2
------- ----- ------- ----- ----- ----- -------
656.3 (18.5) 637.8 141.2 - 141.2 779.0
Loss on disposal
of and
withdrawal
from
Appliance
Retailing
before
goodwill
write back - - - - (105.0) (105.0) (105.0)
Goodwill
write back - - - - (15.1) (15.1) (15.1)
------- ----- ------- ----- ----- ----- -------
Loss on
disposal
of and
withdrawal
from
Appliance
Retailing - - - - (120.1) (120.1) (120.1)
---- ----- ------ ----- -------- -------- --------
Provision
for loss
on disposal
of Southern
Water before
goodwill
write back - - - - (449.3) (449.3) (449.3)
Goodwill
write back - - - - (738.2) (738.2) (738.2)
---- ----- ------ ----- -------- -------- --------
Provision
for loss
on disposal
of Southern
Water - - - - (1,187.5) (1,187.5) (1,187.5)
---- ----- ------ ----- -------- -------- --------
Profit/(loss)
on ordinary
activities
before
interest 656.3 (18.5) 637.8 141.2 (1,307.6) (1,166.4) (528.6)
---- ----- ------ ----- -------- -------- --------
Net interest
and similar charges
-Group before
exceptional
interest and
similar charges (373.2)
- Exceptional
interest and
similar charges (30.8)
-Joint ventures (6.2)
--------
(410.2)
Loss on ordinary
activities before
goodwill amortisation
and taxation (789.8)
Goodwill amortisation (149.0)
--------
Loss on ordinary
activities before
taxation (938.8)
Taxation
- Group before tax
on exceptional
items (123.1)
-Tax on exceptional
items 38.8
-Joint ventures 1.1
--------
4 (83.2)
Loss after
taxation (1,022.0)
Minority interests 34.9
--------
Loss for the financial year (987.1)
Dividends
- Cash 6 (503.5)
- Dividend in
specie on
demerger of Thus 6 (436.6)
--------
(940.1)
--------
Loss retained (1,927.2)
--------
Loss per ordinary
share 5 (53.71)p
Adjusting items
- exceptional items 71.72p
- goodwill amortisation 8.11p
--------
Earnings per ordinary
share before
exceptional items
and goodwill
amortisation 5 26.12p
--------
Diluted loss per
ordinary share 5 (53.64)p
Adjusting items
- exceptional items 71.63p
- goodwill amortisation 8.10p
--------
Diluted earnings per
ordinary share
before exceptional
items and goodwill
amortisation 5 26.09p
--------
Cash dividends per
ordinary share 6 27.34p
--------
Group Profit and Loss Account
for the year ended 31 March 2001
Year ended 31 March 2001
Except-
ional
item-
conti Total Total
Contin- -nuing conti discon
uing operat -nuing -tinued
operat- -ions operat operat
ions (Note 3) -ions -ions Total
2001 2001 2001 2001 2001
Notes (Pounds m) (Pounds m) (Pounds m) (Pounds m) (Pounds m)
Turnover:
group and share of
joint ventures
and associates 5,421.9 - 5,421.9 939.5 6,361.4
Less: share
of turnover
in joint ventures (11.7) - (11.7) - (11.7)
Less: share
of turnover
in associates (0.4) - (0.4) - (0.4)
-------- ----- -------- ------ --------
Group turnover 2 5,409.8 - 5,409.8 939.5 6,349.3
Cost of sales (3,837.0) (62.1) (3,899.1) (570.4) (4,469.5)
-------- ----- -------- ------ --------
Gross profit 1,572.8 (62.1) 1,510.7 369.1 1,879.8
Transmission
and distribution
costs (483.2) (45.1) (528.3) (38.4) (566.7)
Administrative
expenses
(including
goodwill
amortisation) (446.1) (13.5) (459.6) (182.0) (641.6)
Other
operating income 46.6 - 46.6 3.8 50.4
-------- ----- -------- ------ --------
Operating profit
before goodwill
amortisation 815.3 (120.7) 694.6 154.9 849.5
Goodwill amortisation (125.2) - (125.2) (2.4) (127.6)
-------- ----- -------- ------ --------
Operating profit 2 690.1 (120.7) 569.4 152.5 721.9
Share of operating
loss in joint ventures (9.4) - (9.4) - (9.4)
Share of operating
profit in associates 0.1 - 0.1 - 0.1
------ ------ ------ ----- ------
Profit on ordinary
activities before
interest 680.8 (120.7) 560.1 152.5 712.6
------ ------ ------ -----
Net interest and
similar charges
-Group (330.0)
-Joint ventures (2.9)
------
(332.9)
------
Profit on ordinary
activities before
goodwill amortisation
and taxation 507.3
Goodwill amortisation (127.6)
------
Profit on ordinary
activities before
taxation 379.7
Taxation ------
- Group before tax
on exceptional item (139.2)
- Tax on exceptional
item 45.9
- Joint ventures (1.9)
------
4 (95.2)
Profit after taxation 284.5
Minority interests 23.0
------
Profit for the financial year 307.5
Dividends 6 (477.3)
------
Loss retained (169.8)
------
Earnings per ordinary
share 5 16.80p
Adjusting items
- exceptional item 4.09p
- goodwill amortisation 6.97p
-------
Earnings per ordinary
share before
exceptional item
and goodwill
amortisation 5 27.86p
-------
Diluted earnings per
ordinary share 5 16.74p
Adjusting items
- exceptional item 4.07p
- goodwill amortisation 6.94p
-------
Diluted earnings per
ordinary share
before exceptional
item and goodwill
amortisation 5 27.75p
-------
Cash dividends per
ordinary share 6 26.04p
-------
Statement of Total Recognised Gains and Losses
for the year ended 31 March 2002
Year ended 31 March
2002 2001
(Pounds)m (Pounds)m
(Loss)/profit for the financial year (987.1) 307.5
Exchange movement on translation
of overseas results and net assets (4.2) 493.1
Currency translation differences on
foreign currency hedging (19.5) -
Unrealised gains on fixed asset disposals 4.9 -
------------------------------------------------------ -------- --------
Total recognised gains and losses for
the financial year (1,005.9) 800.6
------------------------------------------------------ -------- --------
Note of Historical Cost Profits and Losses
for the year ended 31 March 2002
Year ended 31 March
2002 2001
(Pounds)m (Pounds)m
(Loss)/profit on ordinary activities
before taxation (938.8) 379.7
Differences between historical cost
depreciation charge and actual
depreciation charge for the year
calculated on the revalued
amount of fixed assets 3.4 3.4
Fixed asset revaluation
gains realised on disposal 168.2 -
------------------------------------------------------ -------- --------
Historical cost (loss)/profit on
ordinary activities before taxation (767.2) 383.1
------------------------------------------------------ -------- --------
Historical cost loss retained for
the financial year after taxation,
minority interest and dividends (1,755.6) (166.4)
------------------------------------------------------ -------- --------
Reconciliation of Movements in Shareholders' Funds
for the year ended 31 March 2002
Year ended 31 March
2002 2001
(Pounds)m (Pounds)m
(Loss)/profit for the financial year (987.1) 307.5
Dividends(including dividend in specie) (940.1) (477.3)
------------------------------------------------------ -------- --------
Loss retained (1,927.2) (169.8)
Exchange movement on translation of overseas
results and net assets (4.2) 493.1
Currency translation differences on
foreign currency hedging (19.5) -
Unrealised gains on fixed asset disposals 4.9 -
Share capital issued 16.2 6.6
Goodwill realised on disposals 753.3 -
Goodwill realised on demerger of Thus 14.7 -
------------------------------------------------------ -------- --------
Net movement in shareholders' funds (1,161.8) 329.9
Opening shareholders' funds 5,893.2 5,563.3
------------------------------------------------------ -------- --------
Closing shareholders' funds 4,731.4 5,893.2
------------------------------------------------------ -------- --------
Group Cash Flow Statement
for the year ended 31 March 2002
Year ended 31 March
2002 2001
Notes (Pounds)m (Pounds)m
Cash inflow from operating activities 7 1,248.4 1,411.6
Dividends received from
joint ventures 0.3 2.1
Returns on investments and
servicing of finance (377.8) (373.5)
Taxation (85.0) (152.6)
------------------------------------------------------ -------- --------
Free cash flow 785.9 887.6
Capital expenditure and
financial investment (1,148.3) (1,081.4)
------------------------------------------------------ -------- --------
Cash flow before acquisitions
and disposals (362.4) (193.8)
Acquisitions and disposals 150.0 482.9
Equity dividends paid (496.8) (471.3)
------------------------------------------------------ -------- --------
Cash outflow before use of
liquid resources and financing (709.2) (182.2)
Management of liquid resources 8 (38.7) (11.9)
Financing
-Issue of ordinary share capital 16.2 6.6
-Redemption of preferred stock of PacifiCorp (69.5) -
-Increase in debt 8 982.4 189.5
------------------------------------------------------ -------- --------
929.1 196.1
------------------------------------------------------ -------- --------
Increase in cash in year 8 181.2 2.0
------------------------------------------------------ -------- --------
Free cash flow represents cash flow from operating activities after adjusting
for dividends received from joint ventures, returns on investments and servicing
of finance and taxation.
Reconciliation of Net Cash Flow to Movement in Net Debt
for the year ended 31 March 2002
Year ended 31 March
2002 2001
Note (Pounds)m (Pounds)m
Increase in cash in year 181.2 2.0
Cash inflow from increase
in debt (982.4) (189.5)
Cash outflow from movement
in liquid resources 38.7 11.9
------------------------------------------------------ -------- -------
Change in net debt resulting
from cash flows (762.5) (175.6)
Net funds disposed (46.9) -
Exchange (6.3) (264.7)
Other non-cash movements (107.6) (3.3)
------------------------------------------------------ ------- -------
Movement in net debt in year (923.3) (443.6)
Net debt at end of previous year (5,285.1) (4,841.5)
------------------------------------------------------ ------- -------
Net debt at end of year 8 (6,208.4) (5,285.1)
------------------------------------------------------ ------- -------
Group Balance Sheet
as at 31 March 2002
2002 2001
Notes (Pounds)m (Pounds)m
Fixed assets
Intangible assets - goodwill 2,658.9 2,840.8
Tangible assets 11,652.3 11,920.8
Investments
-Investments in joint ventures:
Share of gross assets 119.3 118.4
Share of gross liabilities (82.4) (74.6)
-------- --------
36.9 43.8
-Investments in associates 5.2 5.0
-Other investments 223.5 247.5
-------- --------
265.6 296.3
-------- --------
14,576.8 15,057.9
-------- --------
Current assets
Stocks 167.0 215.1
Debtors
-Gross debtors 1,448.2 1,758.2
-Less non-recourse financing (257.4) (285.7)
-------- --------
1,190.8 1,472.5
Short-term bank and other deposits 380.8 230.2
-------- --------
1,738.6 1,917.8
-------- --------
Creditors: amounts falling due
within one year
Loans and other borrowings (1,226.8) (627.9)
Other creditors (1,951.9) (2,375.9)
-------- --------
(3,178.7) (3,003.8)
-------- --------
Net current liabilities (1,440.1) (1,086.0)
-------- --------
Total assets less current liabilities 13,136.7 13,971.9
Creditors: amounts falling due after
more than one year
Loans and other borrowings (5,362.4) (4,887.4)
-------- --------
Provisions for liabilities and charges
-Deferred tax (1,691.2) (1,625.3)
-Other provisions (713.8) (778.7)
-------- --------
(2,405.0) (2,404.0)
Deferred income (551.2) (501.5)
-------- --------
Net assets 2 4,818.1 6,179.0
-------- --------
Called up share capital 926.3 924.5
Share premium 9 2,254.1 3,739.7
Revaluation reserve 45.5 217.1
Capital redemption reserve 18.3 18.3
Merger reserve 406.4 406.4
Profit and loss account 9 1,080.8 587.2
-------- --------
Equity shareholders' funds 4,731.4 5,893.2
Minority interests (including non-equity) 86.7 285.8
-------- --------
Capital employed 4,818.1 6,179.0
-------- --------
Net asset value per ordinary share 5 254.8p 318.7p
-------- --------
Notes to the Preliminary Statement and quarterly Accounts
for the year ended 31 March 2002
1 Basis of preparation
(a) The financial information included within this Preliminary Statement has
been prepared on the basis of accounting policies consistent with those set out
in the Directors' Report and Accounts for the year ended 31 March 2001.
(b) The information shown for the years ended 31 March 2002 and 31 March 2001
does not constitute statutory Accounts within the meaning of Section 240 of the
Companies Act 1985 and has been extracted from the full Accounts for the years
ended 31 March 2002 and 31 March 2001 respectively. The reports of the auditors
on those Accounts were unqualified and did not contain a Statement under either
Section 237(2) or Section 237(3) of the Companies Act 1985. The Accounts for the
year ended 31 March 2001 have been filed with the Registrar of Companies. The
Accounts for the year ended 31 March 2002 will be delivered to the Registrar of
Companies in due course. The information shown in respect of the three months
ended 31 March 2002 and 31 March 2001 is unaudited.
(c) The relevant exchange rates applied in the preparation of the Preliminary
Statement and quarterly Accounts are detailed in Note 13.
(d) The financial information on pages x to x was approved by the Board on 1
May 2002.
2 Segmental information
(a) Turnover by segment
Three months ended 31 March
Total Inter-segment External
turnover turnover turnover
2002 2001 2002 2001 2002 2001
Notes (Pounds)m (Pounds)m (Pounds)m (Pounds)m (Pounds)m (Pounds)m
United
Kingdom
UK Division-
Generation,
Trading
and Supply (i) 635.3 634.6 10.2 10.8 625.1 623.8
Infrastructure
Division-
Power
Systems (i) 177.6 182.1 107.5 116.0 70.1 66.1
------ ------ ------ ------ ------- -------
United Kingdom
total-
continuing
operations 695.2 689.9
United States
- continuing
operations
US Division-
PacifiCorp 697.5 845.7 - - 697.5 845.7
------ ------ ------ ------ ------- -------
Total
continuing
operations 1,392.7 1,535.6
------- -------
United Kingdom-
discontinued
operations
Infrastructure
Division-
Southern
Water (i) 109.4 108.3 - - 109.4 108.3
Thus (ii) 41.7 70.1 6.5 12.4 35.2 57.7
Appliance
Retailing (i) - 80.6 - 2.2 - 78.4
------ ------ ------ ------ ------- -------
United Kingdom
total-
discontinued
operations 144.6 244.4
------- -------
Total (iii) 1,537.3 1,780.0
------- -------
Year ended 31 March
Total Inter-segment External
turnover turnover turnover
2002 2001 2002 2001 2002 2001
Notes (Pounds)m (Pounds)m (Pounds)m (Pounds)m (Pounds)m (Pounds)m
United
Kingdom
UK Division-
Generation,
Trading
and Supply (i) 2,160.7 2,099.1 39.3 35.3 2,121.4 2,063.8
Infrastructure
Division-
Power
Systems (i) 646.6 666.3 399.0 442.6 247.6 223.7
------- ------- ------- ------- ------- -------
United Kingdom
total-
continuing
operations 2,369.0 2,287.5
------- -------
United
States-
continuing
operations
US Division-
PacifiCorp 3,153.8 3,122.3 - - 3,153.8 3,122.3
------- ------- ------- ------- ------- -------
Total
continuing
operations 5,522.8 5,409.8
------- -------
United
Kingdom-
discontinued
operations
Infrastructure
Division-
Southern
Water (i) 430.6 422.9 0.7 0.5 429.9 422.4
Thus (ii) 257.8 233.8 28.7 34.4 229.1 199.4
Appliance
Retailing (i) 133.9 325.4 1.6 7.7 132.3 317.7
------- ------- ------- ------- ------- -------
United
Kingdom total-
discontinued
operations 791.3 939.5
------- -------
Total (iii) 6,314.1 6,349.3
------- -------
(b) Operating profit/(loss) by segment
Three months ended 31 March
Before
goodwill
amortis-
ation and Before
except Goodwill Except goodwill Goodwill-
-ional amortis- -ional amortis- amortis-
item ation item ation ation
2002 2002 2002 2002 2001 2001 2001
Notes (Pounds)m (Pounds)m (Pounds)m (Pounds)m (Pounds)m (Pounds)m (Pounds)m
United
Kingdom
UK Division-
Generation,
Trading
and Supply (i) 55.2 (1.3) (18.5) 35.4 62.4 (0.4) 62.0
Infrastructure
Division-
Power
Systems (i) 100.5 - - 100.5 102.3 - 102.3
------ ------ ----- ----- ----- ----- -----
United Kingdom
total-
continuing
operations 155.7 (1.3) (18.5) 135.9 164.7 (0.4) 164.3
------ ------ ----- ----- ----- ----- -----
United
States-
continuing
operations
US Division-
PacifiCorp 168.3 (35.5) - 132.8 66.7 (34.7) 32.0
------ ------ ----- ----- ----- ----- -----
Total
continuing
operations 324.0 (36.8) (18.5) 268.7 231.4 (35.1) 196.3
------ ------ ----- ----- ----- ----- -----
United Kingdom-
discontinued
operations
Infrastructure
Division-
Southern
Water (i) 58.9 - - 58.9 52.3 - 52.3
Thus (ii) (20.3) (0.6) - (20.9) (8.5) (0.6) (9.1)
Appliance
Retailing (i) - - - - (2.2) - (2.2)
------ ------ ----- ----- ----- ----- -----
United Kingdom
total-
discontinued
operations 38.6 (0.6) - 38.0 41.6 (0.6) 41.0
------ ------ ----- ----- ----- ----- -----
Total 362.6 (37.4) (18.5) 306.7 273.0 (35.7) 237.3
------ ------ ------ ------ ------ ----- -----
Year ended 31 March
Before Before
goodwill goodwill
amortis- amortis-
ation ation
and and
except Goodwill Except except- Goodwill Except-
-ional amortis- -ional ional amortis- ional
item ation item item ation item
2002 2002 2002 2002 2001 2001 2001 2001
Notes (Pounds m) (Pounds m) (Pounds m) (Pounds m) (Pounds m) (Pounds m) (Pounds m) (Pounds m)
United
Kingdom
UK Division-
Generation,
Trading
and Supply (i) 78.7 (4.9) (18.5) 55.3 122.7 (0.4) - 122.3
Infrastructure
Division-
Power
Systems (i) 354.9 - - 354.9 341.3 - - 341.3
------ ------ ------ ------ ------ ----- ------ -----
United
Kingdom
total-
continuing
operations 433.6 (4.9) (18.5) 410.2 464.0 (0.4) - 463.6
-------- ------- ------- ------- ------- ------ ------- -------
United
States-
continuing
operations
US Division-
PacifiCorp 366.9 (141.7) - 225.2 351.3 (124.8) (120.7) 105.8
-------- ------- ------- ------- ------- ------ ------- -------
Total
continuing
operations 800.5 (146.6) (18.5) 635.4 815.3 (125.2) (120.7) 569.4
-------- ------- ------- ------- ------- ------ ------- -------
United Kingdom-
discontinued
operations
Infrastructure
Division-
Southern
Water (i) 216.3 - - 216.3 221.6 - - 221.6
Thus (ii) (63.7) (2.4) - (66.1) (58.0) (2.4) - (60.4)
Appliance
Retailing (i) (9.0) - - (9.0) (8.7) - - (8.7)
-------- ------- ------- ------- ------- ------ ------- -------
United Kingdom
total-
discontinued
operations 143.6 (2.4) - 141.2 154.9 (2.4) - 152.5
-------- ------- ------- ------- ------- ------ ------- -------
Total 944.1 (149.0) (18.5) 776.6 970.2 (127.6) (120.7) 721.9
-------- ------- ------- ------- ------- ------ ------- -------
(c) Net assets by segment
31 March 31 March
2002 2001
Notes (Pounds m) (Pounds m)
United Kingdom
UK Division-
Generation, Trading and
Supply (i),(iv) 873.4 691.2
Infrastructure
Division-
Power Systems (i),(iv) 2,070.7 1,979.0
-------- --------
United Kingdom total-
continuing operations 2,944.1 2,670.2
------- -------
United States-
continuing
operations
US Division-
PacifiCorp 7,776.0 7,778.7
-------- --------
Total continuing operations 10,720.1 10,448.9
-------- --------
United Kingdom-
discontinued
operations
Infrastructure
Division-
Southern Water (i),(iv) 2,347.6 2,590.4
Thus (ii),(iv) - 459.3
Appliance Retailing (i),(iv) - 55.6
-------- --------
United Kingdom
total-
discontinued
operations 2,347.6 3,105.3
-------- --------
Unallocated net liabilities (iv),(v) (8,249.6) (7,375.2)
-------- --------
Total 4,818.1 6,179.0
-------- --------
(i) The group's business segments have been defined on a consistent basis with
previous quarters in the current financial year, resulting in a change in the
definition of the segments presented in the prior year's Preliminary Statement.
The former Generation Wholesale and Energy Supply segments have been combined
and the former Other segment (other than Appliance Retailing) has been absorbed
into the new UK business segments. Prior year comparatives have been restated
accordingly. The previously reported turnover, operating profit and net assets
of the Other segment have been allocated as follows:
Three months ended Year ended 31 March
31 March 2001 31 March 2001 2001
External Operating External Operating Net
turnover loss turnover profit assets
(Pounds) m (Pounds) m (Pounds) m (Pounds) m (Pounds) m
United Kingdom
UK Division-
Generation,
Trading
and Supply 34.8 (3.0) 79.9 (6.3) 27.9
Infrastructure
Division
Power Systems 0.6 0.6 11.1 17.1 2.3
Southern Water - - 0.8 0.4 1.5
Appliance
Retailing 78.4 (2.2) 317.7 (8.7) 55.6
----- ----- ----- ----- -----
Other total 113.8 (4.6) 409.5 2.5 87.3
----- ----- ----- ----- -----
(ii) The segment previously described as 'Telecoms' has been redesignated
'Thus' as historical data for this segment no longer includes data relating to
other telecoms operations disposed in prior years.
(iii) In the segmental analysis turnover is shown by geographical origin.
Turnover analysed by geographical destination is not materially different.
(iv) As required by the Utilities Act 2000, the group implemented a new legal
entity structure for certain of its UK businesses to give effect to business
separation. Following the creation of this new legal structure on 1 October
2001, the directors reviewed the group's segments and concluded that no changes
were required to the business segments disclosed above. However, they also
reviewed the items to be included within each segment's net assets, particularly
in relation to intra-group balances. The net assets by segment figures above
have been presented on this revised basis and comparative figures have been
restated accordingly.
(v) Unallocated net liabilities include net debt, dividends payable, tax
liabilities and investments.
3 Exceptional items
Three months ended Year ended
31 March 31 March
2002 2001 2002 2001
Notes (Pounds) m (Pounds) m (Pounds) m (Pounds) m
(a) Recognised in arriving at operating profit
Continuing operations
Reorganisation costs (i),(iv) (18.5) - (18.5) (120.7)
------- ----- ------- --------
(18.5) - (18.5) (120.7)
------- ------ ------- -------
(b) Recognised after operating profit
Discontinued operations
Loss on disposal of
and withdrawal
from Appliance Retailing (ii) - - (120.1) -
Provision for loss
on disposal
of Southern Water
before goodwill
write back (iii) (449.3) - (449.3) -
Goodwill write back
relating to
Southern Water (iii) (738.2) - (738.2) -
------- ----- ------- -------
(1,187.5) - (1,307.6) -
------- ----- ------- --------
Total exceptional items
before interest and
taxation (1,206.0) - (1,326.1) (120.7)
Restructuring of
debt portfolio (iii) (30.8) - (30.8) -
Tax on exceptional items 17.8 - 38.8 45.9
------- ----- ------- --------
Total exceptional
items(net of tax) (1,219.0) - (1,318.1) (74.8)
------- ----- ------- --------
Year ended 31 March 2002
(i) An exceptional charge of (Pounds) 18.5 million was incurred relating to
reorganisation costs for the UK Division - Generation, Trading and Supply and
primarily represents severance and related costs.
(ii) An exceptional charge of (Pounds) 120.1 million relates to the loss on
disposal of and withdrawal from the group's Appliance Retailing operations.
This charge includes (Pounds) 15.1 million of goodwill previously written off
to reserves. The pre-goodwill loss of (Pounds) 105.0 million comprises asset
impairments of (Pounds) 54.2 million and provisions for trading losses and
closure costs of (Pounds) 50.8 million, of which (Pounds) 43.5 million had
been incurred by 31 March 2002.
(iii) On 23 April 2002, the group completed the sale of Aspen 4 Limited (the
holding company of Southern Water plc) to First Aqua Limited for a total
consideration, before expenses, of (Pounds) 2.05 billion including repayment
and acquisition of intra-group non-trading indebtedness and assumption by
First Aqua Limited of Southern Water's non-trading debt due to third parties.
An exceptional charge of (Pounds) 1,187.5 million relates to the provision for
the loss on disposal of the group's Southern Water business. This charge
includes (Pounds) 738.2 million of goodwill previously written off to
reserves. Net exceptional finance costs of (Pounds) 30.8 million were incurred
comprising hedging and debt redemption costs associated with the proposed
refinancing of Southern Water and the restructuring of the group's debt
portfolio in anticipation of the disposal of Southern Water.
Year ended 31 March 2001
(iv) The charge of (Pounds) 120.7 million related to the cost of the
Transition Plan for PacifiCorp announced on 4 May 2000 and primarily
represented severance and related costs for approximately 1,600 employees.
4 Taxation
The charge for taxation, including deferred tax, for the year ended 31 March
2002 reflects the effective rate for the year ending 31 March 2002 of 21.5%
(2001 22.5%)on the profit before goodwill amortisation, exceptional items and
taxation as detailed below:
Three months ended Year ended
31 March 31 March
2002 2001 2002 2001
(Pounds)m (Pounds)m (Pounds)m (Pounds)m
(Loss)/profit on ordinary
activities before taxation (1,006.6) 151.5 (938.8) 379.7
Adjusting items
-exceptional items
before taxation 1,236.8 - 1,356.9 120.7
-goodwill amortisation 37.4 35.7 149.0 127.6
------- ------ ------- ------
Profit on ordinary
activities before
exceptional items,
goodwill amortisation
and taxation 267.6 187.2 567.1 628.0
------- ------ ------- ------
5 (Loss)/earnings and net asset value per ordinary share
(a) (Loss)/earnings per ordinary share have been calculated for all periods by
dividing the (loss)/profit for the period by the weighted average number of
ordinary shares in issue during the period, based on the following information:
Three months ended Year ended
31 March 31 March
2002 2001 2002 2001
(Loss)/profit for the period
((Pounds) million) (1,035.6) 108.3 (987.1) 307.5
Basic weighted average
share capital
(number of shares, million) 1,841.5 1,832.3 1,837.8 1,830.3
Diluted weighted average
share capital
(number of shares, million) 1,844.9 1,837.3 1,840.1 1,837.4
------- ------ ------- ------
The difference between the basic and the diluted weighted average share capital
is wholly attributable to outstanding share options and shares held in trust for
the group's Employee Share Ownership Plan. These share options are dilutive by
reference to continuing operations and accordingly a diluted EPS has been
calculated which has the impact of reducing the net (loss)/earnings per ordinary
share.
(b) The calculation of (loss)/earnings per ordinary share, on a basis which
excludes exceptional items and goodwill amortisation, is based on the following
adjusted earnings:
Three months ended Year ended
31 March 31 March
2002 2001 2002 2001
(Pounds)m (Pounds)m (Pounds)m (Pounds)m
(Loss)/profit for the period (1,035.6) 108.3 (987.1) 307.5
Adjusting items
- exceptional items
(net of attributable taxation) 1,219.0 - 1,318.1 74.8
- goodwill amortisation 37.4 35.7 149.0 127.6
------- ------ ------- ------
Adjusted earnings 220.8 144.0 480.0 509.9
------- ------ ------- ------
Adjusted earnings per share has been presented in addition to earnings per share
calculated in accordance with FRS 14 in order that more meaningful comparisons
of financial performance can be made.
(c) Net asset value per ordinary share has been calculated based on the
following net assets and the number of shares in issue at the end of the
respective financial years (after adjusting for the effect of shares held in
trust for the group's Sharesave Schemes and Employee Share Ownership Plan):
31 March 31 March
2002 2001
Net assets (as adjusted)((Pounds) million) 4,692.5 5,841.9
Number of ordinary shares in issue
at the year end (as adjusted)
(number of shares, million) 1,841.9 1,833.0
------- -------
6 Dividends
(a) Cash dividends
2002 2001
pence pence
per per
ordi- ordi-
nary nary 2002 2001
share share (Pounds)m (Pounds)m
First interim dividend paid 6.835 6.51 125.4 119.1
Second interim dividend paid 6.835 6.51 125.9 119.3
Third interim dividend paid 6.835 6.51 126.1 119.5
Final dividend 6.835 6.51 126.1 119.4
----- ----- ----- -----
Total cash dividends 27.34 26.04 503.5 477.3
----- ----- ----- -----
(b) Dividend in specie on demerger of Thus
2002 2001
(Pounds)m (Pounds)m
Demerger dividend 436.6 -
----- -----
The demerger of Thus was recorded in the group Accounts at the book value of the
net assets which were deconsolidated, (Pounds)421.9 million, together with
(Pounds)14.7 million of related goodwill which had previously been written off
to reserves, giving a dividend in specie of (Pounds)436.6 million.
The demerger of Thus was recorded in the individual company Accounts of Scottish
Power plc at the book value of the cost of investment in the ordinary and
preference shares of Thus, giving a dividend in specie of (Pounds)396.3 million.
7 Reconciliation of operating profit to net cash inflow from operating
activities
Year ended
31 March
2002 2001
(Pounds)m (Pounds)m
Operating profit 776.6 721.9
Depreciation and amortisation 717.0 607.9
Profit on sale of tangible fixed assets
and disposal of businesses (7.7) (19.9)
Release of deferred income (17.8) (15.1)
Movements in provisions for
liabilities and charges (93.6) 57.5
Decrease/(increase) in stocks 10.4 (13.3)
Decrease/(increase) in debtors 58.4 (137.2)
(Decrease)/increase in creditors (194.9) 209.8
------- -------
Net cash inflow from operating activities 1,248.4 1,411.6
------- -------
8 Analysis of net debt
Disposal
(excl. Other
At cash & non- At 31
1 April Cash over- cash March
2001 flow drafts) Exchange changes 2002
(Pounds)m (Pounds)m (Pounds)m (Pounds)m (Pounds)m (Pounds)m
Cash at bank 139.7 163.4 - (0.3) - 302.8
Overdrafts (52.5) 17.8 - 0.1 - (34.6)
------
181.2
Debt due after 1 year (4,868.3) (364.7) - (3.7) (106.3) (5,343.0)
Debt due within 1 year (575.4) (617.4) 4.4 (2.5) (1.3) (1,192.2)
Finance leases (19.1) (0.3) - - - (19.4)
------
(982.4)
Other deposits 90.5 38.7 (51.3) 0.1 - 78.0
-------- ------ ----- ----- ------ --------
Total (5,285.1) (762.5) (46.9) (6.3) (107.6) (6,208.4)
-------- ------ ----- ----- ------ --------
'Other non-cash changes' to net debt represents amortisation of finance costs of
(Pounds)1.5 million, finance costs of (Pounds)5.6 million representing the
effects of the RPI on bonds carrying an RPI coupon and the recognition of the
share of debt in joint arrangements of (Pounds)100.5 million.
9 Share premium reduction
The company applied to the Court of Session ('the Court') to approve a reduction
in the share premium account which had previously been approved by the company's
shareholders at an Extraordinary General Meeting on 21 January 2002. On 5 March
2002, the Court approved the reduction of the company's share premium account by
(Pounds)1,500 million. This amount has been transferred to the company's profit
and loss account reserve.
10 Southern Water Services Limited - Preliminary results for the year ended 31
March 2002
This note is included to comply with assurances given to OFWAT at the time of
the acquisition of Southern Water plc to supply financial information for
Southern Water Services Limited, the regulated business.
Year ended
31 March
Notes 2002 2001
Summarised Profit and Loss Account (a) (Pounds)m (Pounds)m
Company turnover from continuing operations 429.9 421.6
-------- --------
Profit on ordinary activities before
exceptional item 212.8 219.7
Exceptional item (9.6) -
-------- --------
Profit on ordinary activities before interest 203.2 219.7
Net interest payable (71.9) (66.3)
-------- --------
Profit on ordinary activities before taxation 131.3 153.4
Taxation (38.3) (26.7)
-------- --------
Profit after taxation 93.0 126.7
Dividends - (47.8)
-------- --------
Profit retained 93.0 78.9
-------- --------
Earnings per share ((Pounds) per ordinary share) (b) 1,660.7 2,262.5
-------- --------
Dividend per share ((Pounds) per ordinary share) (c) - 852.8
-------- --------
31 31
March March
Note 2002 2001
Summarised Balance Sheet (a) (Pounds)m (Pounds)m
Fixed assets 2,504.8 2,340.6
Net current liabilities (823.6) (618.3)
Creditors: amounts falling
due after more than one year
Loans and other borrowings (482.1) (637.9)
Provisions for liabilities
and charges
- Deferred tax (352.1) (331.7)
- Other (3.1) (3.1)
Deferred income (37.4) (36.1)
-------- --------
Net assets 806.5 713.5
-------- --------
Share capital 0.1 0.1
Share premium account
and reserves 806.4 713.4
-------- --------
Capital employed 806.5 713.5
-------- --------
Year ended
31 March
2002 2001
Summarised Cash Flow Statement (Pounds)m (Pounds)m
Cash inflow from operating activities 199.4 336.8
Net dividends and interest (90.5) (114.5)
Ordinary taxation (32.7) (50.9)
-------- --------
Free cash flow 76.2 171.4
Capital expenditure (256.8) (285.8)
Other items 4.5 4.1
-------- --------
Net cash outflow before financing (176.1) (110.3)
-------- --------
Financing
New loans 182.8 125.3
Repayment of loans (14.4) (11.8)
-------- --------
Net cash inflow from financing 168.4 113.5
-------- --------
(Decrease)/increase in cash (7.7) 3.2
-------- --------
(a) Disclosure of information
The summarised profit and loss account and balance sheet for Southern Water
Services Limited have been prepared on the same basis as those for the Scottish
Power plc Accounts as disclosed in Note 1.
(b) Earnings per ordinary share
Earnings per ordinary share have been calculated by dividing the profit for the
financial year by the weighted average number of ordinary shares in issue during
the financial year, based on the following information:
Year ended
31 March
2002 2001
Profit for the year((Pounds) million) 93.0 126.7
Weighted average share capital
(number of shares, million) 0.056 0.056
------ ------
(c) Dividends per ordinary share
2002 2001
pounds pounds
per per
ordi- ordi-
nary nary 2002 2001
share share (Pounds)m (Pounds)m
Interim dividend paid - 284.3 - 15.9
Proposed final dividend - 568.5 - 31.9
------ ------ ------ ------
Total dividends - 852.8 - 47.8
------ ------ ------ ------
No dividend was declared in 2001/02.
11 Summary of differences between UK and US Generally Accepted Accounting
Principles ('GAAP')
The consolidated Accounts of the group are prepared in accordance with UK GAAP
which differs in certain significant respects from US GAAP. The effect of the US
GAAP adjustments to (loss)/profit for the financial year and equity
shareholders' funds are set out in the tables below.
(a) Reconciliation of (loss)/profit for the financial year to US GAAP:
Year ended
31 March
2002 2001
(Pounds)m (Pounds)m
(Loss)/profit for the financial year
under UK GAAP (987.1) 307.5
US GAAP adjustments:
Amortisation of goodwill (23.5) (35.9)
Disposal of businesses 279.1 -
US regulatory assets 95.3 73.8
Pensions 40.0 95.5
Impairment on demerger of Thus (243.7) -
Depreciation on
revaluation uplift 3.4 3.4
Decommissioning and mine
reclamation liabilities (21.8) (32.3)
PacifiCorp Transition Plan costs (29.9) 108.2
FAS 133 adjustment 144.5 -
Other (17.7) (0.4)
Re-classification as
extraordinary item 12.0 -
------ -----
(749.4) 519.8
Deferred tax effect of
US GAAP adjustments (67.6) (133.0)
------ -----
(817.0) 386.8
Extraordinary item (net of tax) (8.4) -
------ -----
(Loss) /profit for the financial
year under US GAAP before
cumulative adjustment for FAS 133 (825.4) 386.8
Cumulative adjustment for FAS 133 (61.6) -
------ -----
(Loss)/profit for the financial year
under US GAAP (887.0) 386.8
------ -----
(Loss)/earnings per share under US GAAP (44.91)p 21.13p
------ -----
Diluted (loss)/ earnings per share under US GAAP (44.91)p 21.05p
------ -----
(Loss)/earnings per share under US GAAP have been calculated before the
cumulative adjustment for FAS 133.
As permitted under UK GAAP, (loss)/earnings per share have been presented
including and excluding the impact of exceptional items and goodwill
amortisation to provide an additional measure of underlying performance. In
accordance with US GAAP, (loss)/earnings per share have been presented above
based on US GAAP earnings, without adjustments for the impact of exceptional
items and goodwill amortisation. Such additional measures of underlying
performance are not permitted under US GAAP. The inclusion of exceptional items
in the determination of earnings per share in accordance with US GAAP decreased
earnings by (Pounds)1,039.0 million or 56.53 pence per share for the year ended
31 March 2002. The inclusion of goodwill amortisation decreased earnings by
(Pounds)172.5 million or 9.39 pence per share for the year ended 31 March 2002
and by (Pounds)163.5 million or 8.93 pence per share for the year ended 31 March
2001.
(b)Effect on equity shareholders' funds of differences between UK GAAP and US
GAAP:
31 31
March March
2002 2001
(Pounds)m (Pounds)m
Equity shareholders' funds under UK GAAP 4,731.4 5,893.2
US GAAP adjustments:
Goodwill 572.3 1,349.9
Business combinations (174.2) (188.7)
Amortisation of goodwill (84.2) (172.7)
ESOP shares held in trust (38.9) (51.1)
US regulatory assets 1,042.8 661.2
Pensions 222.9 245.0
Cash dividends 126.1 119.4
Revaluation of fixed assets (54.0) (229.0)
Depreciation on revaluation uplift 8.5 11.9
Decommissioning and mine
reclamation liabilities 60.7 82.5
PacifiCorp Transition Plan costs 86.9 117.2
FAS 133 adjustment (308.2) -
Other (3.4) 12.1
Deferred tax:
Effect of US GAAP adjustments (316.9) (351.0)
Effect of differences in methodology (21.3) (37.0)
------- -------
Equity shareholders' funds under US GAAP 5,850.5 7,462.9
------- -------
FAS 133 'Accounting for Derivative Instruments and Hedging Activities' was
effective for the group from 1 April 2001. The statement establishes accounting
and reporting standards that require every derivative instrument be recorded on
the balance sheet as either an asset or liability measured at fair value.
Changes in the derivative's fair value will be recognised concurrently in
earnings unless specific hedge accounting criteria are met.
The effect of adopting FAS 133 on earnings and equity shareholders' funds is
included in the UK GAAP to US GAAP reconciliations as shown above. The total FAS
133 adjustment included within equity shareholders' funds of (Pounds)308.2
million at 31 March 2002 is offset by (Pounds)328.9 million included within US
regulatory assets relating to PacifiCorp's regulated activities which have been
deferred as a regulatory asset under FAS 71 on the basis of approvals received
from Public Utility Commissions to adopt this accounting treatment.
12 Contingent liabilities
Thus Flotation
In November 1999, the group floated a minority stake in its internet and
telecommunications business, Thus plc. This gave rise to a contingent liability
to corporation tax on chargeable gains, estimated at amounts up to (Pounds)570
million.
On 19 March 2002, the group demerged its residual holding in Thus Group plc (the
new holding company of Thus plc). The charge referred to above could still
arise, in certain circumstances, before 19 March 2007. Members of the
ScottishPower group have agreed to indemnify Thus Group plc for any such
liability, except in circumstances arising without the consent of the
ScottishPower group.
Legal Proceedings
The group's businesses are parties to various legal claims, actions and
complaints, certain of which involve material amounts. Although the group is
unable to predict with certainty whether or not it will ultimately be successful
in these legal proceedings or, if not, what the impact might be, the directors
currently believe that disposition of these matters will not have a materially
adverse effect on the group's consolidated Accounts.
13 Exchange rates
The exchange rates applied in the preparation of the Preliminary Statement and
quarterly Accounts were as follows:
Year ended
31 March
2002 2001
Average rate for quarters ending
30 June $1.42/(Pounds) $1.53/(Pounds)
30 September $1.44/(Pounds) $1.48/(Pounds)
31 December $1.44/(Pounds) $1.45/(Pounds)
31 March $1.43/(Pounds) $1.46/(Pounds)
------ ------
Closing rate as at 31 March $1.42/(Pounds) $1.42/(Pounds)
------ ------