Final Results
Scottish & Southern Energy PLC
22 May 2003
FOR IMMEDIATE USE Ref: NR-3149 22 May 2003
PRELIMINARY RESULTS
for the year to 31 March 2003
FINANCIAL HEADLINES
• Pre-tax profit before goodwill up 5.5% to £629.8m
• Underlying pre-tax profit up 4.2% to £597.1m*
• Underlying earnings per share up 2.5% to 53.1p*
• Positive cash flow, before acquisitions and share buy-backs, of £135m
• Dividend per share up 8% to 35.0p
• Dividend target of at least 4% annual real growth extended to 2005
OPERATIONAL HEADLINES
• £19m (7%) additional cost savings achieved, exceeding target
• DTI praise for 'Benchmark' network performance
• Almost 200GWh of electricity qualified for renewable incentive
• 300,000 net supply customers gained since January 2002
• Expansion plans for gas storage business announced
• £1 billion investment programme under way
(*This preliminary results statement describes underlying profits and earnings,
which are stated before goodwill, net finance income from pension assets and the
impact of deferred tax).
Dr Bruce Farmer CBE, Chairman of Scottish and Southern Energy (SSE), said: 'SSE
continues to deliver very sound financial and operational performance. The
results for 2002/03 have been achieved in a challenging environment through a
strong focus on management of our core businesses. The development of SSE will
continue to be based on delivering solid, sustainable performance from these
activities, in which there are significant investment opportunities. We can
pursue these and the possible acquisition of Midlands Electricity due to our
balance sheet strength.'
Overview
Scottish and Southern Energy plc (SSE) delivered a very solid financial and
operational performance in 2002/03. As a utility company, SSE understands its
responsibility to deliver consistent, year-on-year increases in the dividend
payable to shareholders, supported by growth in earnings per share, while
ensuring excellence in customer service.
There were increases in profit before tax, earnings per share and the dividend
in 2002/03. A positive cash flow of £135m was achieved, excluding the
acquisition of the gas storage business at Hornsea and the ongoing share
buy-back programme. SSE continues to hold a AA-/Aa3 long-term credit rating,
which means it is able to take forward its well-developed plans for future
growth.
These plans include the £450m programme of investment in renewable energy
schemes, which is now well under way. SSE intends to add to this by investing
around £85m in a new large-scale hydro scheme. The need to ensure the
electricity network in the north of Scotland can accommodate renewable energy
schemes is expected to lead to the investment of £200m to redevelop the main
transmission lines. SSE also intends to build on the acquisition of the Hornsea
gas storage business, bought for £132.7m, by additional investment of around
£120m to develop a new gas storage facility at nearby Aldbrough.
Overall, SSE has in place a £1 billion investment programme, focused on its
energy and utility businesses and geared to delivering sustained shareholder
value in the years ahead. This investment programme would be complemented by
the potential acquisition of Midlands Electricity, which has been announced
today.
Power Systems
Operating profit in Power Systems rose by 2.4% to £311.4m. In Scotland, a
reduction in controllable costs, together with greater income due to the mix of
units distributed, led to an increase of 2.4% in operating profit. The network
performed better than ever before, with the average number of minutes of lost
supply per customer down to 87, compared with the target of 195 minutes set by
Ofgem under its Information and Incentives Programme (IIP).
In England, an improvement in both the mix and the number of units distributed
made a contribution to operating profit and the metering business also saw an
increase in income. As a result, operating profit rose by 2.4%. Controllable
costs in England increased slightly, reflecting the costs of handling the severe
storm in October 2002. The DTI commended SSE as a 'benchmark company' for its
performance in preparing for and responding to the storm. Excluding its effects,
the average number of minutes of lost supply per customer in the Southern
Electric area was 82, which compares favourably with Ofgem's IIP target.
Ofgem has committed to developing a framework, including adapting existing price
control arrangements, to provide appropriate investment incentives and rewards
to enable electricity network companies to meet the demands that will be placed
on them by investment in renewable energy generation. Major upgrades of the
electricity network in the north and west of the country could lead to a
significant increase in network companies' Regulated Asset Base (RAB).
SSE took part in a transmission operators' study that identified various stages
of upgrading work required to enable the network to cope with growing volumes of
renewable energy. It is undertaking an environmental impact study as the first
stage of the likely investment of £200m to rebuild the main transmission line
between the Highlands and the central belt of Scotland. Ofgem has confirmed that
it will take into consideration companies' expenditure on work being carried out
over the next two years to prepare the network for the increase in renewable
energy generation.
Over the next decade, further transmission investment on the Scottish mainland
of around £250m may be required, in addition to the £200m already earmarked.
Additional investment of over £250m may also be needed to provide suitable
connections from the three Scottish island groups. The distribution networks may
also require investment in support of renewable energy developments.
Such potential investment opportunities, combined with Ofgem's commitment to
ensuring that there are incentives for the economic and efficient management of
costs in electricity networks, mean SSE is well-placed for the forthcoming
transmission and distribution price control reviews.
Generation and Supply
Operating profit in Generation and Supply fell by 3.8% to £292.2m, principally
due to the impact of the failure of TXU Europe ('TXU'), which went into
administration on 19 November 2002. This resulted in the termination of a
14-year contract between SSE and TXU, originally entered into in 1997. Under it,
TXU was contracted to purchase the equivalent of 3.1TWh of electricity per annum
from SSE at a level significantly above current market prices. The contract also
hedged part of an onerous gas contract.
If the contract with TXU had remained in place, it would have been expected to
contribute £43m to operating profit in the full year to 31 March 2003. The
combination of the loss of the contract and accounting related to the TXU
administration reduced the contribution to operating profit by £8m to £35m. The
failure of TXU also reduced SSE's share of profits in Barking Power Ltd by £3m
to around £5m. While this overall profit of around £40m in 2002/03 will not be
repeated in future years, it will be partially offset by any recovery from the
administration process (see 'Balance Sheet' below).
Results were also affected by a reduction in operating profit from hydro
generation of around £10m, due to a significant reduction in output during the
year, which was 24% below the ten-year annual average. This was mainly due to
exceptionally low winter rainfall.
SSE's generation assets continued to perform well in the New Electricity Trading
Arrangements (NETA). These markets matured in the second year of operation,
allowing less scope for securing profit in the balancing market. As a result,
£13m of total operating profit can be attributed to SSE's effectiveness in the
balancing market, compared with £25m in the previous year.
The impact of low wholesale prices in England and Wales was largely offset by
the revision of the terms of the Nuclear Energy Agreement (NEA) agreed in July
2002. This means SSE is now able to purchase electricity from British Energy
under arrangements much more closely linked to market prices and terms of
baseload energy in England and Wales. This had a net beneficial impact of £18m
compared with 2001/02.
SSE's £450m investment programme in renewable energy schemes is now well under
way. A total of nine hydro-electric power stations, totalling 130MW in capacity,
have been refurbished and the output qualifying for Renewable Obligation
Certificates (ROCs) was nearly 200,000MWh in 2002/03. This output attracted a
premium of over £40/MWh. The programme is continuing, with a further 14
hydro-electric power stations, totalling 190MW in capacity, due to be completed
by the end of 2004. Based on average rainfall, the output from SSE's
refurbished, ROC-qualifying hydro-electric stations in 2003/04 is expected to be
around 1,000GWh.
SSE's first wind farm, at Tangy, became operational at the end of 2002. It
performed well in its first four months of operation. Planning applications for
250MW of new wind energy capacity are currently being submitted to the Scottish
Executive. SSE has also begun detailed environmental assessments on around 850MW
of onshore wind capacity at other sites with significant development potential.
In addition to the existing programme of investment in renewables, a planning
application has just been submitted to the Scottish Executive in respect of a
new 50MW+ hydro scheme near Loch Ness, the output of which will qualify for
ROCs. If approved, it will be the most efficient hydro scheme in the UK in terms
of water utilisation. It will require investment of around £85m and is expected
to begin generating electricity from 2008. Planning permission has been received
for, and work has started on, the development of a 3.5MW hydro scheme at
Kingairloch, which will lead to an investment of £5m.
SSE has also established a joint venture with The Weir Group which will invest
in the development of renewable power and generation control systems, including
new technologies for wave and tidal energy.
The growth in supply customer numbers, which followed the full integration of
SSE's supply business IT systems at the end of 2001, has continued. Since then,
there has been a net gain of nearly 300,000 customers, including around 250,000
gained in the year to 31 March 2003. SSE has maintained the fastest organic
growth of any supply business in the UK. This includes a significant gain in the
number of business customers, which now cover nearly 300,000 sites throughout
Great Britain, through focusing on multi-site contracts. SSE now has 4.85m
energy supply customers, which is more than ever before.
The value inherent in the Southern Electric, SWALEC and Scottish Hydro-Electric
brands is illustrated by their success in retaining and attracting a higher than
average number of domestic customers in their traditional areas.
A high standard of service is a key differentiator in a highly-competitive
market such as energy supply. SSE is the subject of a much lower than average
number of complaints to energywatch about direct selling, transfers, accounts
and billing. The leading independent survey, by JD Power, confirmed that SSE has
the joint highest customer satisfaction among UK energy suppliers. Building on
this, the service operations have been re-shaped to take advantage of contacts
with energy supply customers to promote a more value-added offering. This
includes providing low cost white goods through the retail business, new tariff
packages and loyalty rewards such as Air Miles. As a result of this, during 2002
/03, the proportion of new accounts gained through customer service operations
doubled.
In order to continue to offer attractive value as an energy supplier, SSE is
broadening its customer proposition with the launch of a low cost telephone call
charge offering. This offer has already been trialled, and will be made
available to all customers over the next few months. The key aim is to support
the energy supply business, and it should also make a modest contribution to
operating profit.
Contracting, Connections, Telecoms, Gas Storage and Other Businesses
Total operating profit from contracting, connections, telecommunications, gas
storage and other businesses increased by 16.2% to £81.7m, contributing 11.9% of
SSE's operating profit. The following are the main businesses:
• Contracting and Connections delivered operating profit of £44.9m, an
increase of 14.5% on the previous year, due to a combination of lower overheads
and increased turnover. Sales effort has been concentrated on further developing
existing customer relationships and growing key business areas such as street
lighting. In Connections, the focus has been on providing a high quality of
service to developers while expanding the offering to include gas pipelines.
• Telecoms achieved an operating profit of £12m, a decrease of 24% on the
previous year, due primarily to the absence of one-off capacity sales in 2002/
03. SSE purchased Neoscorp Ltd for £13.4m in April 2003. Its combination with
the existing telecoms business gives SSE a bigger, UK-wide network and a larger
customer base. The enlarged telecoms business has the financial strength and a
flexible range of services to meet customers' needs as the market develops and
grows. It is presently undertaking technical and commercial pilots of powerline
carrier technology, which uses electricity networks to deliver broadband
communications.
• Gas Storage achieved an operating profit of £5.6m in the six months
from its acquisition on 30 September 2002 and, as expected, was earnings
enhancing in the first six months of ownership.
There was record demand for the SSE Hornsea gas storage facility during the 2002
/03 winter. Its importance should increase further as gas trading arrangements
are reformed and the UK becomes increasingly dependent on gas imports.
Consequently, SSE has decided to proceed with an additional investment of around
£120m to develop a new gas storage facility at the nearby Aldbrough site, for
which full planning permission has already been granted. This will give SSE an
additional 170 million cubic metres of gas storage, the first part of which is
expected to become available in 2006. It will also have a very fast injection
capability, meaning customers' stocks of gas can be cycled rapidly as and when
the need arises.
Cost Savings
SSE secured an additional £19m of cost savings in 2002/03, representing a
further 7% compared with the previous year. This takes the annualised
post-merger cost saving to £164m, compared with an original target of £90m.
Since SSE was formed at the end of 1998, total cumulative cost savings of £429m
have been achieved. Looking ahead, there remains scope for cost savings to be
secured, although the rate is likely to slow compared with previous years.
Group Capital Expenditure
Group investment and capital expenditure, excluding acquisitions, totalled
£251.9m during the year to 31 March 2003, compared with £278.1m in the previous
year, reflecting partly the completion of the investment programmes in thermal
generation and in the telecommunications infrastructure. In addition, capital
expenditure in Power Systems was £143.7m, compared with £161.2m in the previous
year. Nevertheless, investment in strengthening the electricity networks will
continue in line with plans for the five-year price review period. The main
increase was in Generation, with the refurbishment work being carried out at
nine hydro-electric power stations and the construction of the wind farm at
Tangy.
Interest
The net interest charge was £89.1m. The reduction of £17.6m reflects continuing
strong cash flow, lower interest rates and reduced interest charges following
the repayment in March 2002 of the 10.25% Southern Electric £150m Bond, which
was replaced with lower-cost long-term funding.
The average interest rate for the Group was 5.98% in 2002/03, compared with
6.40% in the previous year. Underlying interest cover for the year was 8.1
times, compared with 6.7 times the previous year.
Tax
SSE's effective underlying current tax rate was 23%, compared with 22% in the
previous year. As deferred tax liabilities are only a potential exposure,
discounting has been applied to reflect the long-term nature of assets and this
impacts on both the profit and loss account and the balance sheet.
The headline tax charge is 27.6%, compared with 26.4% in the previous year, and
an additional discounted liability of £28.3m at 31 March 2003 has been
recognised on the balance sheet.
Earnings per share
Earnings per share before goodwill, the impact of FRS 19 and net finance income
from pensions schemes increased by 2.5% to 53.1p. Earnings per share have grown
from 41.1p in 1999, when SSE first reported results, to 53.1p, an increase of
29%. Headline earnings per share increased by 3.3% to 52.0p.
Dividend
The Board has recommended a final dividend of 24.5p, making a full-year dividend
of 35p, up from 32.4p last year, an increase of 8%. This is ahead of the target
of 4% real growth for 2002/03, and represents the third successive year in which
the target has been exceeded. The dividend per share has increased from 25.7p in
1999, when SSE first reported results, to 35p in 2003, an increase of 36% and a
compound annual growth rate of 8%.
In line with the established policy, the target dividend increase for 2003/04 is
at least 4% above inflation. In view of the continued strength of the business
and the Board's confidence in the growth plans, the target of at least 4% real
growth in the dividend has been extended to 2004/05.
Cash Flow
During the year to 31 March 2003, SSE achieved a positive cash flow of £135m,
before the acquisition of SSE Hornsea for £132.7m and the ongoing programme of
share buy-backs. This reflects strong underlying operational cash flow, which
benefited during the year from reduced capital expenditure and the continued
improvement in the management of energy debt.
Balance Sheet
SSE continues to maintain one of the strongest balance sheets in the global
utility sector, holding a AA-/Aa3 long-term credit rating. This gives the Group
significant competitive advantage in terms of cost of funding and supporting new
developments.
FRS 17 was adopted in full for 2001/02 for the treatment of pension scheme
assets, liabilities and costs. At 31 March 2003, the FT-SE Index closed at
3,613. Consequently, a net pensions scheme liability of £281.5m is recognised in
the balance sheet. The recent recovery in share values suggests that the
liability has reduced by around 25%.
Employer cash contributions to the Southern Electric Scheme resumed in November
2002 and contributions to the Scottish Hydro-Electric Scheme are expected to
resume some time this year.
Under the terms of the contract with TXU Trading (see above under 'Generation
and Supply'), a claim for over £300m has been lodged with the administrators.
SSE is confident that it is well-placed relative to other creditors and believes
that more than 50% of this claim will be settled. After reflecting the
accounting for the onerous gas provision and the estimated recovery of
outstanding debts due by TXU Trading, the Group has a debtor of £48m. Any
recovery from the administration will be firstly offset against this debtor, and
any balance presented as a credit to the profit and loss account.
Purchase of Own Shares
During the year, 2,990,945 of the Company's 50p ordinary shares were purchased
and cancelled, representing 0.3% of the called-up share capital of the Company.
The aggregate consideration was £18.1m and the average price was 601p per share.
This is the fourth successive year in which shares have been purchased in this
way. Overall 2.9% of the Company's original called-up share capital has been
purchased and cancelled. The Board of SSE will continue to return value through
the purchase of the Company's own shares when the conditions are right.
Strategy and Outlook
The future development of SSE will continue to be based on its core strengths
and, in particular, on the delivery of solid, sustainable performance in the
established operations of generation, supply, power systems and other related
businesses. There are significant investment opportunities in these established
businesses, and SSE's financial strength means it is able to pursue those which
are expected to deliver shareholder value.
There also remain opportunities in the UK energy market, which can be integrated
into existing operations, can create shareholder value and beat the share buy
back benchmark. The possible purchase of Midlands Electricity meets these
criteria. There are other smaller opportunities which will continue to be
considered. Nevertheless, discipline is the watchword in this area.
Going forward, it is the effective management of the core businesses which will
deliver the real and sustained dividend growth to which we are committed in the
years ahead.
- ENDS -
For further information please contact:
Scottish and Southern Energy plc
Alan Young - Director of Corporate Communications + 44 (0)870 900 0410
Denis Kerby - Investor and Media Relations Manager + 44 (0)870 900 0410
Financial Dynamics
Andrew Dowler + 44 (0)20 7831 3113
Fiona Meiklejohn + 44 (0)20 7831 3113
There will be an analysts presentation starting at 08.30 (British Summer Time)
at the offices of Financial Dynamics, Holborn Gate, 26 Southampton Buildings,
London WC2A 1PB.
Webcast facility: This is available by going to: www.scottish-southern.co.uk
Group Profit and Loss Account
for the year ended 31 March 2003
Total Total
2003 2002
Note £m £m
Turnover
Group and share of joint ventures 4,113.6 4,056.5
Less: share of joint ventures 48.3 50.9
______________ ________
Group turnover 3 4,065.3 4,005.6
Cost of sales (3,089.2) (2,989.2)
______________ ________
Gross profit 976.1 1,016.4
Distribution costs (238.8) (225.8)
Administrative costs (133.1) (188.6)
______________ ________
Operating profit
Group 604.2 602.0
Share of joint ventures 32.1 28.8
Share of associates 35.2 35.7
______________ ________
Total operating profit 3 671.5 666.5
Income from fixed asset investments 0.9 1.6
Net interest payable and similar charges 4
Group (60.8) (74.2)
Joint ventures (12.6) (13.2)
Associates (15.7) (19.3)
Other finance Income 5 32.7 24.3
______________ ________
Profit on ordinary activities before taxation 616.0 585.7
Taxation 6 (170.0) (154.6)
______________ ________
Profit on ordinary activities after taxation 446.0 431.1
Equity minority interests in subsidiary undertaking 0.2 0.5
______________ ________
Profit attributable to ordinary shareholders 446.2 431.6
Dividends 7 (300.0) (278.5)
______________ ________
Retained profit for the financial year 146.2 153.1
______________ ________
Earnings per share (p) 8
- basic 52.0 50.3
______________ ________
- adjusted basic 53.1 51.8
______________ ________
- diluted 51.9 50.2
______________ ________
Balance Sheets
as at 31 March 2003
Group Company
2003 2002 2003 2002
Note £m £m £m £m
Fixed Assets
Intangible assets 257.3 211.9 - -
Tangible assets 3,757.8 3,609.2 - -
Investments in subsidiaries - - 777.9 832.1
Investments in joint ventures
Share of gross assets 199.5 209.7 - -
Share of gross liabilities (20.4) (19.3) - -
_______ ______ ________ _______
179.1 190.4 - -
Investments in associates 53.1 45.9 - -
Other investments 0.2 0.2 - -
_______ ______ ________ _______
232.4 236.5 - -
_______ ______ ________ _______
4,247.5 4,057.6 777.9 832.1
_______ ______ ________ _______
Current Assets
Stocks 49.9 54.6 - -
Debtors 601.3 577.0 2,812.9 2,987.1
Investments 9.0 23.7 - -
Cash at bank and in hand 3.0 25.0 1.0 1.9
_______ ______ ________ _______
663.2 680.3 2,813.9 2,989.0
_______ ______ ________ _______
Creditors: amounts falling due
within one year 1,142.6 1,153.7 1,648.7 1,693.7
_______ ______ ________ _______
Net current (liabilities) / assets (479.4) (473.4) 1,165.2 1,295.3
_______ ______ ________ _______
Total assets less current liabilities 3,768.1 3,584.2 1,943.1 2,127.4
_______ ______ ________ _______
Creditors: amounts falling due
after more than one year 1,428.4 1,392.4 684.4 684.0
Provisions for liabilities and charges
Deferred taxation 462.2 427.3 - -
Other provisions 9 114.2 122.6 - -
_______ ______ ________ _______
Net assets excluding pension asset / (liability) 1,763.3 1,641.9 1,258.7 1,443.4
_______ ______ ________ _______
Pension asset 5 - 79.8 - 79.8
Pension liability 5 (281.5) (15.4) (65.2) -
_______ ______ ________ _______
Net assets including pension asset / (liability) 1,481.8 1,706.3 1,193.5 1,523.2
_______ ______ ________ _______
Capital and reserves
Called up share capital 429.1 430.1 429.1 430.1
Share premium account 66.5 60.9 66.5 60.9
Capital redemption reserve 12.8 11.3 12.8 11.3
Profit and loss account 973.6 1,203.8 685.1 1,020.9
_______ ______ ________ _______
Total shareholders' funds 1,482.0 1,706.1 1,193.5 1,523.2
Equity minority interests in subsidiary undertaking (0.2) 0.2 - -
_______ ______ ________ _______
1,481.8 1,706.3 1,193.5 1,523.2
_______ ______ ________ _______
These Accounts were approved by the Board of Directors on 21 May 2003 and signed
on their behalf by:
Gregor Alexander, Finance Director Dr Bruce Farmer CBE, Chairman
Group Cash Flow Statement
for the year ended 31 March 2003
2003 2002
Note £m £m
Net cash inflow from operating activities 10 814.4 816.6
Dividends received from joint ventures and associates 17.7 16.1
Returns on investments and servicing of finance (47.4) (67.7)
Taxation (148.1) (127.8)
___________ ________
Free cash flow 636.6 637.2
Capital expenditure and financial investment (216.7) (264.8)
Acquisitions and disposals (132.7) 20.0
Equity dividends paid (284.9) (263.4)
___________ ________
Net cash outflow before management of liquid resources and financing 2.3 129.0
Management of liquid resources 14.7 7.6
Financing (47.8) (139.6)
___________ ________
(Decrease) in cash in the year (30.8) (3.0)
___________ ________
Notes to the Group Cash Flow Statement
Reconciliation of net cash flow to movement in net debt
2003 2002
£m £m
(Decrease) in cash in the year (30.8) (3.0)
Cash inflow from decrease in debt and lease financing 35.8 147.0
Cash (inflow) from decrease in liquid resources (14.7) (7.6)
___________ ________
Movement in net debt in the year (9.7) 136.4
Net debt at 1 April (1,207.3) (1,343.7)
___________ ________
Net debt at 31 March (1,217.0) (1,207.3)
___________ ________
Analysis of net debt As at Decrease (Increase)/ As at
1 April 2002 in cash decrease 31 March 2003
£m £m in debt £m
£m
Cash at bank and in hand 25.0 (22.0) - 3.0
Overdrafts (0.7) (8.8) - (9.5)
Other debt due within one year (184.6) - 81.7 (102.9)
_________ ________ _________ _________
Net borrowings due within one year (160.3) (30.8) 81.7 (109.4)
Net borrowings due after more than one year (1,070.7) - (45.9) (1,116.6)
Current asset investments 23.7 - (14.7) 9.0
_________ ________ _________ _________
Net debt (1,207.3) (30.8) 21.1 (1,217.0)
_________ ________ _________ _________
Group Statement of Total Recognised Gains and Losses
for the year ended 31 March 2003
2003 2002
£m £m
Profit for the financial year
Group 418.0 410.3
Share of joint ventures 14.7 11.5
Share of associates 13.5 9.8
_________ _______________
Profit for the financial year 446.2 431.6
Actuarial loss recognised in respect of pension fund (358.3) (110.6)
_________ _______________
Total recognised gains and losses 87.9 321.0
Prior year adjustment for implementation of FRS19 'Deferred tax' - (351.7)
Prior year adjustment for implementation of FRS17 'Retirement Benefits' - 175.0
_________ _______________
Total gains and losses recognised since last annual report 87.9 144.3
_________ _______________
Group Reconciliation of Movement in Shareholders' Funds
as at 31 March 2003
2003 2002
£m £m
Total recognised gains and losses relating to the financial year 87.9 321.0
Dividends (300.0) (278.5)
_________ _______________
(212.1) 42.5
New share capital subscribed 6.1 12.6
Premium on issue of shares to Quest - 1.2
Contribution to Quest - (1.3)
Repurchase of ordinary share capital for cancellation (18.1) (5.1)
_________ _______________
Net addition to shareholders' funds (224.1) 49.9
Opening shareholder's funds 1,706.1 1,656.2
_________ _______________
Closing shareholders' funds 1,482.0 1,706.1
_________ _______________
Notes on the Financial Statements
1. Financial Statements
The financial information set out in this announcement does not constitute the
Group's Statutory Accounts for the years ended 31 March 2003 or 2002 but is
derived from those Accounts. Statutory Accounts for 2001/02 have been delivered
to the Registrar of Companies, and those for 2002/03 will be delivered following
the Company's Annual General Meeting on 24 July 2003. The Auditors have
reported on those Accounts and their reports were unqualified and did not
contain statements under section 237(2) or (3) of the Companies Act 1985. This
Preliminary Announcement was approved by the Board on 21 May 2003.
2. Basis of consolidation
The Group Accounts consolidate the Accounts of Scottish and Southern Energy plc
and its subsidiary undertakings together with the Group's share of the results
and net assets of its joint ventures and associates.
The results of subsidiary undertakings acquired or sold are consolidated from
the date of acquisition, using the acquisition method of accounting. The results
of joint ventures and associates are included using the equity method of
accounting.
3. Segmental analysis
All turnover and profit before taxation arise from operations within Great
Britain and Ireland and relate to continuing operations.
The Group's principal business is the generation, distribution and supply of
electricity and sale of gas in Great Britain and Ireland and the transmission of
electricity in the north of Scotland. Analysis of turnover and operating profit
by activity is provided below:
Turnover
Total Internal External
turnover turnover turnover
2003 2002 2003 2002 2003 2002
£m £m £m £m £m £m
Power Systems
Scotland 247.3 243.2 183.2 186.4 64.1 56.8
England 375.3 363.8 188.2 190.5 187.1 173.3
________ _______ ________ _______ ________ _______
622.6 607.0 371.4 376.9 251.2 230.1
________ _______ ________ _______ ________ _______
Generation and Supply 3,481.9 3,430.4 11.4 3.5 3,470.5 3,426.9
________ _______ ________ _______ ________ _______
Other Businesses 534.1 566.6 190.5 218.0 343.6 348.6
________ _______ ________ _______ ________ _______
4,638.6 4,604.0 573.3 598.4 4,065.3 4,005.6
________ _______ ________ _______ ________ _______
Notes on the Financial Statements
Operating Profit
2003 2002
£m £m
Power Systems
Scotland 119.8 117.0
England 191.6 187.1
_________ __________
311.4 304.1
_________ __________
Generation and Supply 280.7 292.1
_________ __________
Other Businesses 79.4 70.3
_________ __________
671.5 666.5
_________ __________
The total operating profits relating to joint ventures of £32.1m (2002 - £28.8m)
and associates of £35.2m (2002 - £35.7m) are included in Generation and Supply.
Income and costs have been allocated specifically to the activity to which they
relate wherever possible. Certain costs have been apportioned or recharged
between businesses.
4. Net interest payable
Group Joint Ventures Associates
2003 2002 2003 2002 2003 2002
£m £m £m £m £m £m
Interest receivable:
Interest from short-term deposits 1.9 2.1 - - - -
Other interest receivable 18.4 15.2 0.4 0.7 1.7 2.0
________ _______ _______ _______ ________ _______
20.3 17.3 0.4 0.7 1.7 2.0
________ _______ _______ _______ ________ _______
Interest payable and similar charges:
Bank loans and overdrafts 22.3 31.3 - - 16.0 19.9
Other loans 47.4 51.5 13.0 13.9 1.4 1.4
Other financing charges 6.4 2.0 - - - -
Amortisation of discount 6.4 6.9 - - - -
________ _______ _______ _______ ________ _______
82.5 91.7 13.0 13.9 17.4 21.3
Interest capitalised (1.4) (0.2) - - - -
________ _______ _______ _______ ________ _______
81.1 91.5 13.0 13.9 17.4 21.3
________ _______ _______ _______ ________ _______
Net interest payable 60.8 74.2 12.6 13.2 15.7 19.3
________ _______ _______ _______ ________ _______
Notes on the Financial Statements
5. Pensions
Value at Value at
31 March 31 March
2003 2002
£m £m
Total market value of schemes' assets 1,271.1 1,683.0
Present value of schemes' liabilities (1,673.3) (1,591.0)
_________ ________
(Deficit)/surplus in the scheme (402.2) 92.0
Deferred tax thereon 120.7 (27.6)
_________ ________
Net pension (liability)/asset (281.5) 64.4
_________ ________
Movements in surplus during the year 2003 2002
£m £m
Total gross surplus at beginning of the year 92.0 250.0
Movement in year:
Current service costs (19.3) (19.0)
Curtailment costs charged to reorganisation provision (1.0) (5.3)
Other finance income 32.7 24.3
_________ ________
12.4 -
_________ ________
Actual return less expected return on pension scheme assets (464.7) (132.0)
Experience gain arising on pension scheme liabilities 3.0 7.0
Adjustment to irrecoverable surplus - 66.0
Changes in financial assumptions underlying pension scheme liabilities (44.9) (99.0)
_________ ________
Variance between pension fund actuarial assumptions and actual experience (506.6) (158.0)
_________ ________
Total gross (deficit)/surplus in scheme at end of the year (402.2) 92.0
_________ ________
6. Taxation
Analysis of charge in the year
2003 2002
£m £m
Current tax:
UK Corporation tax on profits of the year 148.6 143.4
Adjustments in respect of previous years (17.7) (24.8)
Joint ventures 4.8 4.1
Associates 6.0 6.3
Total current tax 141.7 129.0
Deferred tax:
Origination and reversal of timing differences 26.8 28.1
Increase in discount (2.6) (2.5)
Adjustments in respect of prior year 4.1 -
Total deferred tax 28.3 25.6
________ ___________
Tax on profit on ordinary activities 170.0 154.6
________ ___________
Notes on the Financial Statements
7. Dividends
2003 2002
£m £m
Dividends on ordinary shares:
Interim of 10.5p (2002-9.7p) 90.1 83.7
Proposed final of 24.5p (2002-22.7p) * 209.9 194.8
________ ___________
300.0 278.5
________ ___________
* Payable on 26 September 2003 to shareholders on the register at close of
business on 5 September 2003.
8. Earnings per share
2003 2002 2003 Earnings 2002
Earnings Earnings per Share Earnings
£m £m pence Per Share
pence
Basic 446.2 431.6 52.0 50.3
________ _______ _________ _________
Adjusted - amortisation of goodwill 13.8 11.5 1.6 1.3
- deferred tax 28.3 25.6 3.3 3.0
- finance income (32.7) (24.3) (3.8) (2.8)
________ _______ _________ _________
Adjusted basic 455.6 444.4 53.1 51.8
________ _______ _________ _________
Diluted 446.2 431.6 51.9 50.2
________ _______ _________ _________
The weighted average number of shares used in each
calculation is as follows:
2003 2002
Number of Number of
shares shares
(millions) (millions)
For basic and adjusted earnings per share 858.4 857.4
Effect of exercise of share options 1.6 2.2
_________ _________
For diluted earnings per share 860.0 859.6
_________ _________
Notes on the Financial Statements
9. Group Provisions for liabilities and charges
Onerous
Energy
Restructure Contracts Other Total
£m £m £m £m
At 1 April 2002 27.9 80.0 14.7 122.6
Profit and loss account - 10.0 1.9 11.9
Acquired during the year - - 3.0 3.0
Utilised during the year (12.2) (10.1) (1.0) (23.3)
___________ _________ _________ _________
At 31 March 2003 15.7 79.9 18.6 114.2
___________ _________ _________ _________
The restructure provision is in relation to expected costs associated with the
continuing rationalisation of the business. The costs mainly comprise employee
related costs, principally redundancy and early retirement costs. The majority
of the expenditure is expected to be incurred in the next two years.
The onerous energy contracts provision relates to the present value of out of
money purchase contracts and will be utilised over a maximum period to 2011 when
the contracts terminate. Other provisions include insurance/warranty claims and
the costs of various committed expenditures relating to hydro civil assets.
These are expected to be incurred over the next two years.
10. Reconciliation of operating profit to operating cash flows
2003 2002
£m £m
Operating profit 604.2 602.0
FRS 17 pension charge 15.6 19.0
Depreciation 181.9 186.3
Amortisation of goodwill 13.8 11.5
Customer contributions and capital grants released (15.9) (15.9)
(Profit) on disposal of tangible fixed assets (2.7) (1.6)
Increase in working capital and provisions 17.5 15.3
________ ________
Net cash inflow from operating activities 814.4 816.6
________ ________
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