Interim Results
Scottish & Southern Energy PLC
15 November 2000
Scottish and Southern Energy Plc
INTERIM ANNOUNCEMENT
Six months to 30th September 2000
'This is an excellent performance with pre-tax profit showing an 8.2% increase
and earnings per share up 10.9%. We are delighted with the progress we have
made in Scottish and Southern Energy and believe we can look forward with
confidence,' said Lord Wilson of Tillyorn, Chairman of Scottish and Southern
Energy.
HIGHLIGHTS
Financial
* Pre-tax profit up 8.2%
* Earnings per share up 10.9% to 19.4p
* Dividend up 8.4% to 9p
* Interest cover 6.7 times
Operational
* Significant savings from SSE integration already delivered
* Target savings increased from £95M to £120M
* A further £20M synergy savings from SWALEC identified
* Nearly 4 million electricity and 1 million gas customers following
SWALEC acquisition
* Best overall customer service performance of any REC
For further information please contact:
Carolyn McAdam, Scottish and Southern Energy 0870 900 0410
Debbie Smith, Scottish and Southern Energy 0870 900 0410
Andrew Dowler, Financial Dynamics 0207 831 3113
Overview
Scottish and Southern Energy can report an excellent performance during the
first six months of this year.
We are pleased to report significant success in a number of key areas:
* earnings per share are up 10.9% to 19.4p
* dividend growth of 8.4% well ahead of our target of at least 4% real
giving an interim dividend of 9p
* based on performance to date we have raised our merger synergy savings
target from £95M to £120M, a 26% increase
* the acquisition of SWALEC positioning us comfortably as the second
largest electricity supplier (nearly 4 million customers) and third
largest gas supplier (nearly 1 million customers) in the UK
* launch of a strategic partnership with BTopenworld, taking our energy and
retail appliance products into one of Europe's largest retail internet
portals.
Financial and Operating Review
Profit before tax has increased by 8.2% to £213.3M reflecting a 5.7% increase
in operating profits and lower interest charges. This is despite the impact
of the price reviews on Power Systems profits which reduced revenues by £30M
in the first six months giving an underlying growth in operating profit of
over 18%.
The interim dividend of 9p is up 8.4%, exceeding the commitment given in May
to deliver at least 4% real dividend growth.
Segmental Analysis of Operating Profit
First half First half % Change
2000/2001 1999/2000
£M £M
Power Systems
Scotland 54.5 44.8 21.7
England 77.5 100.9 (23.2)
Total 132.0 145.7 (9.4)
Generation & Supply
England & Wales 74.9 70.9 5.6
Scotland 22.1 9.4 135.1
Total 97.0 80.3 20.8
Other 20.1 9.6 109.4
Total 249.1 235.6 5.7
The segmental analysis of operating profit has been restated to be consistent
with the cost allocation applied by Ofgem during the last price control
reviews and also aligns with the Group's current recharge methodologies, as
applied in the March 2000 accounts.
Power Systems
Operating profit in Power Systems reduced by 9.4% to £132.0M. This was
primarily due to the price reductions resulting from the regulatory review.
Growth in units distributed, hydro benefit and further efficiency savings
helped mitigate this.
Controllable costs in Power Systems show an impressive reduction of 21% driven
by synergy savings. The additional synergy savings reinforce Scottish and
Southern Energy's position as the most efficient network operator in the UK.
Customer service standards have improved once again with network reliability
well ahead of target in both Scotland and England. We have also achieved a
further reduction in failures against Ofgem's guaranteed standards, with only
one failure in Scotland and three in England. As a result Scottish and
Southern Energy will once again have the best overall customer service
performance of any REC. This positions us well for the Regulator's new
financial incentive scheme for network performance.
Generation and Supply
Generation and Supply in England and Wales can report a 5.6% increase in
operating profit to £74.9M. Margins in retail supply have improved by almost
50%. An excellent 24% reduction in controllable costs, down £10.5M, plus the
contribution of Seabank are the two main drivers in offsetting the impact of
lower generation prices. For the first time this segment includes SWALEC
which for the full year will be earnings enhancing even after charging
goodwill.
Scottish and Southern Energy's gas business now has nearly 1 million customers
and will break even this year in line with our five year business model. We
are planning to transfer our gas customers onto our Customer Service (CS)
system in Spring next year. This will give further cost reductions next year.
In Scotland performance was strong with operating profit up by £12.7M to
£22.1M. Lower purchase costs from the long term nuclear contract,
efficiencies at Peterhead as a result of repowering and higher interconnector
profits due to higher pool prices have all played their part. Controllable
costs were down 14%. Considering the severe competition in Scotland, this is
a good result.
Following its repowering Peterhead Power Station has returned to full
commercial operation and has run at efficiencies of up to 57%. Importantly
the plant can ramp up and down at 57MW per minute. The full financial benefit
of this will become available once a UK wide trading market comes into
operation in 2002.
In advance of the introduction of the New Electricity Trading Arrangements
(NETA) Scottish and Southern Energy has continued to focus on developing the
flexibility of its generation portfolio. This will allow us to use this
capability in the critical balancing market. In England and Wales the Group
has 1,600MW, or 40% of its capacity, able to flex up and down at short notice
at speeds of 15MW per minute which is typically 20% to 30% better than coal
plant.
In energy supply, the acquisition of SWALEC has made a significant
contribution to our target of 4 to 5 million electricity and 1 million gas
customers. We now have nearly 4 million electricity and almost 1 million gas
customers and are the second largest electricity and third largest gas
supplier in the UK. The successful transfer of the Scottish Hydro-Electric
customers to our state of the art CS system has reduced costs to serve from
just under £65 per customer to below £25.
We will continue to promote our three strong regional brands Southern
Electric, Scottish Hydro-Electric and SWALEC.
SWALEC Acquisition
The acquisition of SWALEC from British Energy for £210M received clearance
from the Competition Commission in the first week of November. This works out
at about £180 per customer and supports our strategy to grow our mass market
supply business. Scottish and Southern Energy now has the lowest cost to
serve of any of our competitors in mass market supply. In view of this we are
confident that this acquisition will be earnings enhancing this year even
after charging goodwill. Following completion of our gas customer transfer in
Spring 2001, SWALEC's gas and electricity customers will be transferred onto
our CS system by Autumn 2001.
Other
Our other businesses increased their operating profit contribution to £20.5M.
Contracting, new connections, telecoms and retail have all made a positive
contribution to this.
Telecoms
Scottish and Southern Energy's £45M investment to install over 2,000kms of
fibre optic cable along its electricity network is ahead of schedule and is
planned to be completed three months early. We now expect to meet our sales
target for the first phase of this investment this year with turnover in
excess of £30M. Customers in the specialist business user market have already
been acquired including two university consortia in the south east of England.
In addition to fibre optic capacity the Group is now utilising its valuable
infrastructure base for the telecoms market. This includes our 250 radio
sites where a full installation service for telecoms masts is provided, as
well as 1,000 grid substations and 15,000 pylons. A significant percentage of
these will provide much needed space for mobile phone masts. We plan to
develop at least 800 of these. We have signed an agreement with Vodafone for
the use of our towers, and extended our existing arrangement with One2One.
e-commerce
Scottish and Southern Energy has further strengthened its e-commerce strategy
with the announcement on 7th November of an alliance with BTopenworld, BT's
new retail internet portal. We are the only group to offer energy in this way
to BT's 3.5 million internet customers and 20 million domestic customers.
They will benefit from a highly competitive price saving against their
existing energy provider. BT's customers will also be able to purchase over
1,000 electrical appliances at discounts of up to 20% against high street
prices from Scottish and Southern Energy's hienergyshop.co.uk.
The Group's move into financial services under the Simple2 brand has also made
good progress. The site was launched last month and is now operational. We
have already signed up a number of business customers with nearly 4,000
employees eligible for stakeholder pensions. Scottish Amicable is our first
product provider with Scottish Equitable, Friends Provident and Scottish
Widows following.
We remain on target with the development of phase 2 with mortgages available
early next year. Other financial products including term assurance and ISAs,
from a range of product providers, will follow during 2001 to create a virtual
financial supermarket.
Simple2 will be promoted actively to over 1 million business customers,
300,000 from Scottish and Southern Energy's customer base and another 750,000
through a link with BT who will promote stakeholder pensions to its business
customers through its wide range of routes to market.
Dividend
The Board has recommended a half year dividend of 9p per share, an increase of
8.4% on last year and well ahead of the target of at least 4% real growth
committed to earlier this year.
In the absence of unforeseen circumstances the Board intend to recommend
increasing the full year dividend by a similar amount and then grow the
dividend from this higher base level. The dividend policy going forward will
continue to be sustained real dividend growth with at least 4% real growth for
the next two years.
Balance Sheet and Cash Flow
Scottish and Southern Energy's balance sheet remains exceptionally strong.
Interest cover stands at 6.7x and we anticipate it will remain at this level
for the remainder of this year.
During the first six months of this year we saw a cash outflow of £192.2M
compared with a significant inflow last year. This was as a result of the
earlier payment of the final dividend for last year and the acquisition of
SWALEC.
Strategy and Outlook
We have demonstrated our success in integration, delivering synergy savings,
and more recently, acquisition through the purchase of SWALEC. We look
forward to using our core skills to develop our group further in two key
areas; management of assets and developing our customer business. Growth will
come from both internal investment and selective mergers and acquisitions.
In asset management we are considering actively the next phase of investment
in telecoms. In generation we will invest selectively in flexible peaking
plant. In electricity distribution we are making investments in private
networks but also see opportunities for growth by acquisition if the price is
right.
On the customer side we have now reset our targets for growth to 5 million
electricity and 2 million gas customers and as in the past this will be
through both organic growth and selective acquisition. We will continue to
look at new market opportunities to achieve leverage from our existing
customer base and as appropriate support this with investment.
Scottish and Southern Energy has once again shown that it can deliver strong
earnings growth within a regulated framework. This has allowed us to set out
a clear dividend policy from the higher base we have now set ourselves and
from which we are confident we can continue to grow.
For further information:
Carolyn McAdam, Scottish and Southern Energy 0870 900 0410
Debbie Smith, Scottish and Southern Energy 0870 900 0410
Andrew Dowler, Financial Dynamics 0207 831 3113
Scottish and Southern Energy has provided a dial-in facility for those unable
to attend the analysts' briefing.
The dial-in number is +44 (0) 20 8240 8245
The meeting will start at 9.00 a.m. UK time (10.00 a.m. Europe)
Participants should quote Scottish and Southern Energy and Jim Forbes as
chairman.
A replay will be available for 24 hours on:
+44 (0) 20 8288 4459
Access Code 644 632
PROFIT AND LOSS ACCOUNT
For the period 1 April 2000 to 30 September 2000
Year Half Year Half Year
to to to
31 March 30 Sept 30 Sept
2000 2000 1999
(audited) (unaudited) (unaudited)
£M Note £M £M
3,047.9 Total group turnover 4 1,497.3 1,324.8
550.0 Group operating profit 227.1 211.8
Share of operating profit in:
17.4 - Joint ventures 10.9 7.3
40.8 - Associates 11.1 16.5
608.2 Total operating profit 4 249.1 235.6
3.7 Income from fixed asset 1.9 3.4
investments
Net interest payable:
56.8 Group 21.6 29.2
5.0 Joint ventures 5.5 1.5
24.3 Associates 10.6 11.2
525.8 Profit on ordinary activities 213.3 197.1
before taxation
113.0 Taxation 3 46.9 44.3
412.8 Profit for the financial period 166.4 152.8
236.0 Dividends 5 77.2 72.6
176.8 Retained profit for the financial 89.2 80.2
period
47.5p Earnings per share - basic 6 19.4p 17.5p
47.4p - diluted 6 19.4p 17.4p
27.5p Dividend per ordinary share 5 9.0p 8.3p
BALANCE SHEET
At 30 September 2000
At 31 March At 30 Sept At 30 Sept
2000 2000 1999
(audited) (unaudited) (unaudited)
£M Note £M £M
3,670.5 Fixed assets 3,928.2 3,478.1
Current assets
43.1 Stocks 43.4 58.8
430.2 Debtors 570.0 282.2
46.9 Investments 29.8 74.0
10.6 Cash at bank and in hand 35.6 21.0
(1,192.3) Creditors - amounts falling due (1,441.5) (1,083.8)
within one year
(661.5) Net current liabilities (762.7) (647.8)
3,009.0 Total assets less current 3,165.5 2,830.3
liabilities
(1,138.4) Creditors - amounts falling due (1,224.0) (1,064.8)
after more than one year
(206.9) Provisions for liabilities and (195.9) (104.6)
charges
1,663.7 Net assets 1,745.6 1,660.9
428.8 Called up share capital 428.2 438.3
1,234.9 Reserves 1,317.4 1,222.6
1,663.7 Equity shareholders' funds 7 1,745.6 1,660.9
67.0% Gearing 75.3% 47.7%
CASH FLOW STATEMENT
For the period 1 April 2000 to 30 September 2000
Year Half Year Half Year
to to to
31 March 30 Sept 30 Sept
2000 2000 1999
(audited) (unaudited) (unaudited)
£M Note £M £M
833.0 Net cash inflow from operating 8 396.5 424.5
activities
16.9 Dividends from joint ventures, 9.1 14.5
associates and trade
investments
(52.6) Returns on investments and (21.9) (20.8)
servicing of finance
(82.6) Taxation (8.2) (16.8)
714.7 Free cash flow 375.5 401.4
(499.6) Capital expenditure and (146.1) (186.7)
financial investment
3.6 Acquisitions and disposals (257.0) 3.2
(228.9) Equity dividends paid (164.6) -
(10.2) Cash (outflow)/inflow before (192.2) 217.9
management of liquid resources
and financing
(19.1) Management of liquid resources 17.1 (46.2)
33.9 Financing 194.5 (157.3)
4.6 Increase in cash in the period 19.4 14.4
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
For the period 1 April 2000 to 30 September 2000
Year to Half Year Half Year
31 March to to
2000 30 Sept 30 Sept
(audited) 2000 1999
(unaudited) (unaudited)
£M £M £M
Profit for the financial period:
395.4 Group 164.0 142.0
7.9 Joint ventures 3.9 5.5
9.5 Associates (1.5) 5.3
412.8 Total recognised gains and losses 166.4 152.8
NOTES TO THE INTERIM ACCOUNTS
1. Basis of preparation
The interim report has been prepared on the basis of accounting policies
consistent with those set out in the annual report for the year ended 31 March
2000. The financial information in this report does not constitute statutory
accounts within the meaning of Section 240 of the Companies Act 1985. It is
unaudited but has been reviewed by the auditors. Figures for the year to 31
March 2000 included within this report are an abridged version of the full
accounts which carry an unqualified auditor's report and have been filed with
the Registrar of Companies.
2. Approval
The interim report for the six months ended 30 September 2000 was approved by
the directors on 15 November 2000.
3. Taxation
The corporation tax charge reflects the anticipated effective rate on profit
before taxation for the Group for the year ending 31 March 2001. The
anticipated effective rate for the Group is 22.0% (1999 - 22.5%).
4. Segmental Analysis
Year to Half Year Half Year
31 March to to
2000 30 Sept 30 Sept
(audited) 2000 1999
£M (unaudited) (unaudited)
£M £M
Turnover
224.0 Power Systems Scotland 101.9 97.6
415.3 England 160.9 196.2
639.3 262.8 293.8
657.6 Generation and Scotland 268.3 288.5
Supply
1,960.2 England and Wales 994.8 847.8
2,617.8 1,263.1 1,136.3
315.6 Other businesses 162.0 131.4
3,572.7 1,687.9 1,561.5
(524.8) Less inter (190.6) (236.7)
activity sales
3,047.9 1,497.3 1,324.8
Operating profit
91.3 Power Systems Scotland 54.5 44.8
234.4 England 77.5 100.9
325.7 132.0 145.7
71.9 Generation and Scotland 22.1 9.4
Supply
187.1 England and Wales 74.9 70.9
259.0 97.0 80.3
23.5 Other businesses 20.1 9.6
608.2 249.1 235.6
The comparative segmental analysis of operating profit has been restated to be
consistent with the basis of cost allocation applied by Ofgem during the price
control review and also align with the Group's current recharge methodologies,
as applied in the March 2000 accounts.
5. Dividends
The recommended interim dividend per ordinary share (net) of 9.0p (1999 -
8.3p) will be paid on 26 March 2001 to those shareholders on the Scottish and
Southern Energy plc register on 9 March 2001.
6. Earnings per Share
Year to Earnings Earnings Half Year Half Year
31 March to to to to
2000 30 Sept 30 Sept 30 Sept 30 Sept
(audited) 2000 1999 2000 1999
pence per (unaudited) (unaudited)
share £M £M pence per pence per
share share
47.5 Basic earnings per 166.4 152.8 19.4 17.5
share
47.4 Diluted earnings 166.4 152.8 19.4 17.4
per share
The basic earnings per share has been calculated by dividing earnings for
ordinary shareholders by the weighted average number of ordinary shares in
issue of 855.6M (1999 - 874.2M). The calculation for diluted earnings per
share reflects the dilutive effect of the conversion into ordinary shares of
the weighted average number of share options outstanding during the period.
The number of shares used for the diluted calculation to September was 857.8M
(1999 - 877.8M).
7. Reconciliation of Movement in Equity Shareholders' Funds
Year to Half Year Half Year
31 March to to
2000 30 Sept 30 Sept
(audited) 2000 1999
£M (unaudited) (unaudited)
£M £M
412.8 Profit for the financial period 166.4 152.8
(236.0) Dividends including non equity (77.2) (72.6)
176.8 Retained profit for the financial 89.2 80.2
period
6.6 New share capital subscribed 4.0 4.2
(96.2) Repurchase of ordinary share (11.3) -
capital for cancellation
87.2 Net addition in shareholders' 81.9 84.4
funds
1,576.5 Opening shareholders' funds 1,663.7 1,576.5
1,663.7 Closing shareholders' funds 1,745.6 1,660.9
8. Reconciliation of Operating Profit to Net Cash Flow from Operating
Activities
Year to Half Year Half Year
31 March to to
2000 30 Sept 30 Sept
(audited) 2000 1999
£M (unaudited) (unaudited)
£M £M
550.0 Operating profit 227.1 211.8
169.8 Depreciation, amortisation and 81.5 79.2
revaluation adjustments
(15.7) Customer contributions and capital (7.8) (7.8)
grants released
(0.4) (Increase) in stocks (0.3) (16.1)
(21.4) (Increase)/decrease in debtors (52.5) 142.8
101.2 Increase in creditors 159.9 36.3
51.9 Increase/(decrease) in provisions (11.0) (21.6)
(2.4) (Profit) on disposal of tangible (0.4) (0.1)
fixed assets
833.0 Net cash inflow from operating 396.5 424.5
activities
9. Reconciliation of Net Cash Flow to Movement in Net Debt
Year Half Year Half Year
to to to
31 March 30 Sept 30 Sept
2000 2000 1999
(audited) (unaudited) (unaudited)
£M £M £M
4.6 Increase in cash in the financial 19.4 14.4
period
(124.1) Net cash (inflow)/outflow from (111.3) 161.5
(increase)/decrease in debt and
lease financing
19.1 Net cash (inflow)/outflow from (107.4) 46.2
(increase)/decrease in liquid
resources
(100.4) Movement in net debt in the (199.3) 222.1
financial period
(1,014.4) Net debt at start of financial (1,114.8) (1,014.4)
period
(1,114.8) Net debt at end of financial period (1,314.1) (792.3)
10. Analysis of Net Debt
1 April Cash Flow 30 Sept
2000 (unaudited) 2000
(audited) £M (unaudited)
£M £M
Cash at bank and in hand 10.6 25.0 35.6
Overdrafts (0.9) (5.6) (6.5)
Other debt due within one year (365.5) (111.3) (476.8)
Net borrowings due within one year (355.8) (91.9) (447.7)
Net borrowings due after more than one (805.9) (90.3) (896.2)
year
Current asset investments 46.9 (17.1) 29.8
Net debt (1,114.8) (199.3) (1,314.1)
INDEPENDENT REVIEW REPORT BY KPMG AUDIT PLC TO SCOTTISH
AND SOUTHERN ENERGY PLC
Introduction
We have been instructed by the company to review the financial information set
out above and we have read the other information contained in the interim
report and considered whether it contains any apparent misstatements or
material inconsistencies with the financial information.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The Listing
Rules of the Financial Services Authority require that the accounting policies
and presentation applied to the interim figures should be consistent with
those applied in preparing the preceding annual accounts except where they are
to be changed in the next annual accounts in which case any changes, and the
reasons for them, are to be disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin
1999/4: Review of interim financial information issued by the Auditing
Practices Board. A review consists principally of making enquiries of group
management and applying analytical procedures to the financial information and
underlying financial data and, based thereon, assessing whether the accounting
policies and presentation have been consistently applied unless otherwise
disclosed. A review is substantially less in scope than an audit performed in
accordance with Auditing Standards and therefore provides a lower level of
assurance than an audit. Accordingly we do not express an audit opinion on
the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 September 2000.
KPMG Audit Plc
Chartered Accountants
Edinburgh
15 November 2000
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