Interim Results
Scottish & Southern Energy PLC
06 November 2003
N E W S R E L E A S E F R O M . . . .
Scottish and Southern Energy plc
6 November 2003
INTERIM RESULTS
for the six months to 30 September 2003
Chairman's Statement
'Scottish and Southern Energy's consistently stated objective is to deliver
sustained dividend growth through the effective management of established
businesses, supplemented by well-founded investment. The company has continued
to meet this objective. In particular:
• The Board is declaring a half-year dividend of 11.3p per share, an
increase of 7.6%. SSE's dividend grew by 36% between 1999 and 2003. This
increase in the interim dividend is again ahead of the target of at least 4%
real growth for each year to March 2005.
• An 11.7% increase in underlying profit before tax to £230.4m, has
helped offset the termination in November 2002 of the contract to supply power
to TXU. As a result, headline profit before tax has also risen by 1.0% to
£240.6m before goodwill and net finance income from pension assets.
• The programme of investment in renewable energy is continuing. A total
of 194MW of hydro-electric capacity has now been refurbished and the output from
it qualifies for Renewable Obligation Certificates (ROCs).
• The £242m deal to acquire 100% ownership of Medway Power, announced on
3 October 2003, means that the capacity of SSE's power stations is now 5,500MW.
The acquisition should enhance earnings, pre and post goodwill, in the first
year.
• The energy supply business now has a record 5.05 million customers,
having gained 200,000 customers in the six months to 30 September 2003.
• The £132 million acquisition of the Hornsea gas storage business on 30
September 2002 has been very successful. Consequently, SSE has entered into a
new agreement with Statoil (UK) to develop around 420 million cubic metres of
additional gas storage capacity at Aldbrough. SSE will invest £150 million in
the joint development and will own 280 million cubic metres of the capacity.
This represents good progress for SSE. Looking ahead, we will continue to focus
on our dividend growth through maintaining strong operational performance and
delivering our £1 billion programme of investment in renewable energy
generation, electricity networks and gas storage.'
Dr Bruce Farmer CBE
Chairman
Financial Overview
Note: This interim results statement describes profits and earnings before
goodwill, net finance income from pension assets ('FRS 17') and the impact of
deferred tax.
SSE has again achieved growth in pre-tax profit and earnings per share, and the
increase in the interim dividend is once more ahead of the target of 4% real
growth for 2004 and 2005.
As signalled in the Preliminary Results in May 2003, the scope for growth in
profit before tax in 2003/04 was significantly affected by the termination of
the contract under which SSE supplied power to TXU (see 'Generation and Supply'
below). Nevertheless, profit before tax, before goodwill and FRS 17, grew by
1.0% to £240.6m.
The most meaningful comparison of performance for the period to 30 September
2003 is, therefore, to set aside the exceptional effect of the termination of
the TXU contract (which contributed £32m to profit in the six months to 30
September 2002) and a large property disposal (which contributed £10.2m in the
six months to 30 September 2003 - see 'Other Businesses' below) and focus on
continuing business activities. On this basis, profit before tax increased by
11.7% to £230.4m in the six months to 30 September 2003.
2003 2002 Change
£m £m %
Headline Profit Before Tax 240.6 238.2 1.0
TXU contract - (32.0)
Property disposal (10.2)
Underlying Profit Before Tax 230.4 206.2 11.7
Before goodwill, the impact of deferred tax and net finance income from pension
assets, earnings per share increased by 1.9% to 21.5p. On an underlying basis,
excluding the effects of the TXU contract and the large property disposal,
earnings per share increased by 9.7% to 20.3p.
The Board is declaring an interim dividend of 11.3p per share, an increase of
7.6% on last year. This is again ahead of the target of 4% real growth for 2003
/04. SSE is confident it will achieve the enhanced dividend target announced in
May 2003 of at least 4% real growth for each of the years to March 2005, with
sustained real growth thereafter.
Against this background, SSE believes that the prospects for future growth are
good. Its key focus is the delivery of operational excellence and the ongoing
implementation of its £1 billion investment programme. This will generate
consistent, year-on-year real increases in the dividend payable to shareholders.
Power Systems
Operating profit in Power Systems rose by 2.4% to £143.8m. In Scotland, greater
income due to an increase in units distributed offset a reduction in the level
of metering activity in the first half of the year. Consequently, operating
profit rose by 0.4%. In England, there was a reduction in costs and an
improvement in both the mix and the number of units distributed. As a result,
operating profit rose by 3.8%.
SSE believes that its first corporate responsibility is to maintain safe
supplies of electricity and to restore them as quickly as possible when they are
interrupted. In the first half of the year, the time taken to respond to faults
has fallen by an average of 11%. Following its 'benchmark' performance, in
responding to the October 2002 storm in the south of England, SSE has made
further detailed preparations for handling the consequences of severe weather
events this autumn and winter.
SSE is actively and constructively engaged with Ofgem in the process for
determining price controls for the transmission and distribution networks for
2005 to 2010, although the process remains at a relatively early stage. It is,
however, encouraging that Ofgem has proposed a fixed retention period for
capital and operational expenditure efficiencies and has proposed guidelines for
dealing with the cost of pensions to network companies.
Ofgem has consistently acknowledged the need to provide appropriate investment
incentives for electricity network companies to meet the demands that will be
placed on them by renewable energy generation. Its new Chairman said last week
that ensuring there is investment to upgrade the network for renewables is one
of his first priorities. This is a particularly significant issue for SSE,
which owns and operates the networks in the north of the country, where most
renewable energy developments are planned.
SSE's environmental impact study of the proposed upgraded transmission line
between the Highlands and the central belt of Scotland is now well under way and
it intends to consult local communities on the proposed route over the next few
months. Subject to this, and to an appropriate level of return for the
investment being agreed by Ofgem, SSE expects to submit a planning application
for the upgrade in the middle of 2004. This is likely to need an investment of
around £200m.
More broadly, SSE is continuing to assess applications from renewable generators
throughout the Highlands and Islands for connections to its network, analyse
what additional investment in the network will be necessary and discuss the
issues with Ministers, officials and Ofgem. This work has underlined that
further significant transmission investment on the Scottish mainland of around
£300m is likely to be required over the next decade, in addition to the £200m
already earmarked. Additional investment of around £500m will also be necessary
if suitable connections are to be put in place for all three Scottish island
groups.
These potential investment opportunities, combined with its record of efficiency
and effective management of its electricity networks, mean SSE is able to take a
constructive and positive approach to the transmission and distribution price
control review process.
Generation and Supply
Operating profit in Generation and Supply rose by 15.8% to £88.lm, excluding the
effects of the termination of the 'in the money' contract to supply power to
TXU, which went into administration in November 2002. The contract contributed
£32m to operating profit in the six months to 30 September 2002. As stated in
the Preliminary Results in May 2003, this contribution to operating profit will
not be repeated in future years.
Under the terms of the contract with TXU, a claim for over £300m has been lodged
with the administrators. Although the process is inevitably long and complex,
SSE remains confident that it is well-placed relative to other creditors and
continues to believe that more than 50% of this claim will be settled.
• Generation
A proportion of the output of SSE's power stations is sold into the wholesale,
industrial and commercial markets and so it has benefited from the recovery in
wholesale electricity prices experienced during 2003. In addition, SSE's
flexible generation assets have continued to perform well in NETA (the New
Electricity Trading Arrangements), and £7m of operating profit can be attributed
to its successful participation in the balancing market, compared with £5m in
the same period last year. Good performance in NETA is also dependent on plant
reliability, and the number of unplanned outages at SSE's wholly-owned thermal
power stations fell by 50% in the first half of the year. SSE believes this is
market-leading performance. Results in Generation and Supply also benefited from
the revision of the terms of the Nuclear Energy Agreement (NEA) agreed in July
2002.
The results were, however, affected by a reduction in operating profit from
hydro generation of around £5m, due to a significant reduction in output during
the six months to 30 September, which was 38% below the previous year's. This
resulted from the exceptionally dry summer, which was in contrast to the very
wet spring and early summer in 2002. The level of winter rainfall, however, is
much more critical for hydro generation.
SSE announced on 3 October the acquisition of the balance of the equity
interests in Medway Power. The acquisition means that the capacity of SSE's
wholly-owned power stations and SSE's share of power station joint ventures is
now 5,500MW. This comprises gas-fired and renewable generation. The acquisition
is expected to be earnings enhancing, pre and post goodwill, in the first year
of ownership.
It enables SSE to add another modern, flexible and efficient power station to
its group of generation assets. SSE will also be able to secure significant
operational and financial synergies and optimise maintenance agreements. It will
be able to deploy fully the enlarged generation portfolio within NETA and take
advantage of its flexibility to perform with maximum effectiveness within both
the electricity balancing market and the gas wholesale market.
Looking ahead, SSE believes that this portfolio of gas-fired power stations,
which is the most thermally-efficient in the UK, and its position as the UK's
largest generator of electricity from renewable sources, should mean that it is
well-positioned for the introduction of the Emissions Trading Scheme in 2005.
This should further enhance the significant opportunities available to SSE in
the renewable energy field.
SSE's programme of investment in renewable energy has continued to progress.
The output of refurbished hydro-electric power stations with capacity of up to
20MW qualifies for Renewable Obligation Certificates (ROCs). In total, SSE has
391MW of hydro electric capacity in its sub-20MW stations. Of this, a total of
194MW was refurbished by 30 September 2003. The refurbishment of a further 77MW
of hydro capacity is expected to be completed by March 2004. The refurbishment
of all the sub-20MW hydro-electric stations should be completed by September
2005.
SSE's total output qualifying for ROCs, including wind energy, in the first half
of the year was 215,000MWh, compared with 56,000MWh in the previous year. This
output attracted a premium of over £40/MWh, which makes operating profit in
Generation and Supply more sensitive to the output of ROC-qualifying
electricity. Assuming average rainfall in the six months to March 2004, the
output from SSE's refurbished, ROC qualifying hydro electric stations and wind
farm in 2003/04 is expected to be almost one million MWh.
The construction of the new 3.5MW hydro scheme at Kingairloch is well under way,
and planning applications for 370MW of new renewable energy capacity, all of
which will qualify for ROCs, have been submitted to the planning authorities in
Scotland. This comprises 270MW of new wind energy and the new hydro electric
scheme near Loch Ness. It is currently intended that this scheme will have an
installed capacity of around 100MW, in order to maximise the economic value of
its output under the ROC scheme. In addition, SSE is undertaking detailed
environmental assessments on around 850MW of onshore wind capacity at other
sites with significant development potential.
The government has made it clear that the key to realising the full potential of
renewables is the development of new technologies. In line with this, SSE is
working with Talisman Energy, with the support of the DTI and the Scottish
Executive, on the possible development of the world's first deep water offshore
wind farm, linked to Talisman's existing Beatrice oilfield. In addition, SSE's
joint venture with The Weir Group, which has been established to invest in the
development of renewable power and generation control systems, including new
technologies for wave and tidal energy, expects to make its first investment
this year.
• Supply
SSE's energy supply business is now larger than ever before. It has grown from
4.55m customers at the end of 2001, when the full integration of its IT systems
was completed, to 5.05m at 30 September 2003 - a net gain of 500,000 customers
over the whole period. In the first six months of this year, there has been a
net gain of 200,000 customers. This includes a net gain of business customers
covering around 30,000 sites throughout Great Britain, with new customers
including Rolls Royce, T Mobile and Sheffield City Council. In total, SSE's
business customers now cover more than 320,000 sites throughout Great Britain.
A high standard of service is essential if growth in customer numbers is to be
sustained, and SSE has achieved a 10% reduction in the number of customer
complaints received in the six months to 30 September - despite its
significantly enlarged customer base. The leading independent study, by JD
Power, confirmed in October that SSE has the highest customer satisfaction among
UK energy suppliers in 2003, the second successive year in which this has been
achieved.
SSE believes that the combination of best-in-class customer service and the high
value of its regional brands mean the energy supply business can continue to
grow in the future. This growth can also be supplemented by partnership
arrangements with other organisations. In line with this, SSE has started a
programme with The Royal Bank of Scotland to offer 'Royalties' account holders
electricity and gas.
It is important, however, to maximise the value to be derived from the enlarged
customer base which has been built up over the last two years. This will be done
by further strengthening relationships with customers through development of the
core range of energy products and providing a range of relevant additional
services from other parts of SSE, such as domestic appliances and electrical
contracting services.
Contracting, Connections, Telecoms, Gas Storage and Other Businesses
Total operating profit from contracting, connections, telecommunications, gas
storage and other businesses increased by 8.7% to £37.3m, contributing 13.8% of
SSE's operating profit.
• Contracting and Connections
Contracting and Connections delivered operating profit of £22.0m, an increase of
10.0% on the previous year. The contracting business continues to focus on
maximising repeat business, with new contracts signed with existing customers
such as Astra Zeneca and BAE Systems, while developing new areas of business
opportunity. In line with this, it is working with the asset finance division
of The Royal Bank of Scotland, and has signed a £103m Private Finance Initiative
(PFI) contract with Stoke-on-Trent City Council to replace and maintain the
city's street lights for the next 25 years. The two companies are also the
preferred bidder for the £245m contract to replace and maintain street lights
for Newcastle City and North Tyneside Councils.
The Connections business has completed around 20,000 electrical connections in
the six months to 30 September, maintaining its emphasis on top quality customer
service. In addition, it is continuing to expand SSE's portfolio of out-of-area
networks with newly-agreed projects at locations ranging from Glasgow Harbour to
White City, London. The number of homes connected to its gas networks continues
to grow and has now reached 18,000.
• Telecoms
SSE's established telecoms business achieved an operating profit of £4.5m, up
from £4.3m in the previous year. Since April 2003, it has been combined with
Neoscorp Ltd (Neos), which was ranked as one of the fastest-growing companies in
the UK in 2002 and which was acquired for a net consideration of £9.7m. The
combined business achieved an operating profit of £0.9m, reflecting the fact
while Neos has a track record of growth, it is only now close to attaining
profitability.
Since April, the focus has been on completing the integration of the combined
telecoms business, to enable it to focus on managing its customer base of more
than 400 commercial and public sector customers and on generating new sales and
revenue. Integration is now largely completed, and the combined business is
well-placed to benefit from its core strengths, including the strong balance
sheet which customers now demand of telecoms providers. Already, the product
range acquired with Neos, featuring the UK's first Layer 2 MPLS Ethernet
network, has been successful in attracting more than 50 new customers in the
past six months.
• Gas Storage
Gas storage achieved an operating profit of £5.9m before goodwill in the six
months to 30 September. SSE has made a total operating profit before goodwill of
£11.5m from gas storage since the acquisition of SSE Hornsea for £132.7m on 30
September 2002. This is ahead of target and, as expected, the acquisition has
been earnings enhancing. Demand for gas storage services continues to be high
and, in a volatile gas market, SSE has entered into a number of new contracts to
provide storage at a higher value than the 'legacy' contracts they are
replacing.
At the Preliminary Results in May, SSE announced its intention to proceed with
the £120m development of an additional 170 million cubic metres of gas storage
at Aldbrough, for which planning permission has already been granted. Statoil
(UK) also has planning permission for the development of a gas storage facility
at an adjacent site.
The two companies have now signed a Memorandum of Understanding to develop a
combined gas storage facility featuring nine gas salt caverns with a total new
capacity of around 420 million cubic metres, of which SSE will have the
ownership interest in 280 million cubic metres. Subject to concluding the formal
Joint Venture agreement, SSE will manage the design and construction of the
facility and operate the facility on behalf of both parties. It will be the
largest onshore gas storage facility in the UK.
Proceeding with a development on this basis will require total investment by SSE
of around £150m. Compared with the approach proposed in May, it will give SSE
around 110 million cubic metres of extra storage for an investment of just £30m
more than originally planned. It will, therefore, secure for SSE a
significantly enhanced presence in the UK gas storage market.
• Corporate and Property Services
In addition to the above businesses, Corporate and Property Services contributed
£8.5m to operating profit. Furthermore, the successful programme of property
disposals continued and included profit from the sale of the Amersham Road site
in Reading for £10.2m.
Safety and the Environment
SSE aims to create value for shareholders by running the business in a way which
is safe and responsible. In the first half of the year, the number of lost time
and reportable accidents within the company was 7, compared with 10 in the same
period last year.
SSE published 14 environmental targets in its Environment Annual Report 2003,
and is on course to deliver enhanced environmental performance throughout its
activities in 2003/04. For example, it aims to reduce office paper usage by 30%
in the current financial year and, based on performance in the first six months,
expects to achieve this.
Cost Savings
SSE secured an additional £7m of cost savings in the first half of the year,
representing 5.3% of the overall total. This takes the annualised post-merger
cost savings to £171m, compared with an original target of £90m. Further cost
savings should be achieved in the second half of the year.
Group Capital Expenditure
Group investment and capital expenditure, excluding acquisitions, totalled
£125.7m during the first half of the year, compared with £114.7m in the same
period last year.
Capital expenditure in Power Systems was £65.6m, compared with £63.8m in the
previous year. Of this, £34.1m was invested in network refurbishment and £31.5m
on network expansion. There was also planned capital expenditure of £27.7m, at
Peterhead Power Station, in line with its long-term service agreement.
The other main feature of capital expenditure was investment of £18.2m for
growth in Generation, with the refurbishment work being carried out at
hydro-electric power stations (see 'Generation and Supply' above) and the
development of new hydro-electric and wind energy schemes - all of which will
lead to the generation of ROC-qualifying energy.
Within the overall total, capital expenditure for growth was £58.5m in the first
half of the year. This largely comprised network expansion and renewable
energy. Looking ahead, investment in renewables, including new developments,
will be a major feature of SSE's capital expenditure programme for the next few
years.
Interest
The net interest charge was £38.9m. The reduction of £6.1m reflects continuing
strong cash flow and lower interest rates. The average interest rate for SSE in
the first six months of the year was 6.02%, compared with 6.36% in the same
period last year. Underlying interest cover was 7.2 times, compared with 6.5
times the previous year.
Tax
The effective underlying current tax rate was 24%, compared with 23% in the same
period last year. As deferred tax liabilities are only a potential exposure,
discounting has been applied to reflect the long-term nature of the assets and
this impacts on both the profit and loss account and the balance sheet. The
headline tax charge is 26.2%, compared with 28.3% in the previous year. This
reflects a reduction in the discounted deferred tax rate, due to an increase in
discount rates applying to long-term liabilities. An additional discounted
liability of £5.2m has been recognised on the balance sheet as at 30 September
2003.
Cash Flow
In the six months to 30 September 2003, SSE's net debt increased by £23.3m to
£1,240.3m. This increase is more than accounted for by acquisitions, share buy
backs and capital expenditure for growth in renewable energy and expansion of
electricity networks totalling £70.5m. Underlying operational cash flow,
therefore, remains strong.
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 continues to
give it 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 30 September 2003, the FT-SE Index closed at
4,091. Consequently, a net pensions scheme liability of £146.3m is recognised in
the balance sheet. This compares with a net pensions scheme liability of £281.5m
on 31 March 2003.
Employer cash contributions to the Southern Electric scheme resumed in November
2002 and the obligation to make contributions to the Scottish Hydro-Electric
scheme resumed in April 2003.
Purchase of Own Shares
During the six months to 30 September, 380,000 of the Company's 50p ordinary
shares were purchased and cancelled, representing 0.04% of the called-up share
capital of the Company. The aggregate consideration was £2.3m and the average
price was 605p per share.
This is the fourth successive year in which shares have been purchased in this
way. Overall, almost 26 million shares have been purchased and cancelled,
representing 3.03% of the Company's called-up share capital. The Board of
Directors will continue to return value to shareholders through the purchase of
the Company's own shares when the conditions are appropriate.
Strategy and Outlook
SSE believes that the surest way of achieving its dividend targets is to
continue to manage its core businesses well, and this is typified by the growth
in the number of energy supply customers over the past two years.
Good management and a strong operational capability should be complemented by
well-founded investment in established areas of competence, and SSE has a
clearly-defined programme for this in renewable generation, electricity networks
and gas storage. The key priority now is to deliver this investment programme.
Over the past six months, SSE has continued to demonstrate its disciplined
approach to all activities, including acquisitions. If value for shareholders
cannot be achieved, it will not pursue transactions, as was demonstrated by
Midlands Electricity. Nevertheless, by maintaining financial discipline and a
strong balance sheet, it is possible to acquire value-adding assets in the UK,
as SSE Hornsea and Medway Power show, while avoiding dependence on merger and
acquisition activity. In all of this, the value achieved through share buy
backs remain the benchmark.
The key focus for SSE over the next 12-18 months is to maintain and develop its
operational capability while implementing its investment programme.
Investor Timetable
3 March 2004 Shares go ex-dividend
5 March 2004 Date for recording transfers to receive dividend
24 March 2004 Dividend payable
20 May 2004 Announcement of preliminary results
29 July 2004 Annual General Meeting
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
There will be an analysts' presentation starting at 09:00 GMT 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
Telephone conference call: 0845 146 2004 - call will be recorded and available
on 0845 245 5205 pin: 641693# for 48 hrs.
PROFIT AND LOSS ACCOUNT
For the period 1 April 2003 to 30 September 2003
Year to Note Half Year to Half Year to
31 March 2003 30 Sept. 2003 30 Sept. 2002
£m unaudited unaudited
£m £m
4,065.3 Total group turnover 5 1,963.5 1,822.1
604.2 Group operating profit 240.1 246.2
Share of operating profit in:
32.1 Joint ventures 14.7 15.7
35.2 Associates 7.8 15.2
671.5 Total operating profit 5 262.6 277.1
- Gain on disposal of property 5 10.2 -
0.9 Income from fixed asset investments 0.1 0.4
Net interest payable:
(60.8) Group (26.6) (29.7)
(12.6) Joint ventures (5.9) (6.5)
(15.7) Associates (6.4) (8.8)
32.7 Other finance income 1.2 16.5
616.0 Profit on ordinary activities before taxation 235.2 249.0
(170.0) Taxation 3 (61.7) (70.5)
446.0 Profit on ordinary activities after taxation 173.5 178.5
0.2 Equity minority interests in subsidiary - -
undertaking
446.2 Profit attributable to ordinary shareholders 173.5 178.5
(300.0) Dividends 6 (96.9) (90.2)
146.2 Retained profit 76.6 88.3
52.0p Earnings per share - basic 7 20.3p 20.8p
49.8p - adjusted 7 20.3p 18.5p
51.9p - diluted 7 20.2p 20.7p
35.0p Dividend per ordinary share 6 11.3p 10.5p
BALANCE SHEET
At 30 September 2003
At 31 March At 30 Sept. At 30 Sept.
2003 2003 2002
unaudited unaudited
£m Note £m £m
4,247.5 Fixed assets 4,292.8 4,221.5
Current assets
49.9 Stocks 54.9 65.2
601.3 Debtors 446.3 427.3
9.0 Investments 7.3 10.1
3.0 Cash at bank and in hand - 21.9
(1,142.6) Creditors - amounts falling due within one year (940.3) (1,039.0)
(479.4) Net current liabilities (431.8) (514.5)
3,768.1 Total assets less current liabilities 3,861.0 3,707.0
(1,428.4) Creditors - amounts falling due after more than one year (1,443.5) (1,408.2)
(576.4) Provisions for liabilities and charges (573.9) (575.6)
1,763.3 Net assets excluding pension asset/(liability) 1,843.6 1,723.2
- Pension asset 33.6 -
(281.5) Pension liability (179.9) (188.5)
1,481.8 Net assets including pension asset/(liability) 1,697.3 1,534.7
429.1 Called up share capital 428.9 430.1
1,052.9 Reserves 1,268.6 1,104.5
1,482.0 Total shareholders' funds 8 1,697.5 1,534.6
(0.2) Equity minority interests in subsidiary undertaking (0.2) 0.1
1,481.8 1,697.3 1,534.7
82.1% Gearing 73.1% 82.6%
CASH FLOW STATEMENT
For the period 1 April 2003 to 30 September 2003
Year to Half Year to Half Year to
31 March 30 Sept. 2003 30 Sept. 2002
2003 unaudited unaudited
£m Note £m £m
814.4 Net cash inflow from operating activities 9 434.4 439.4
17.7 Dividends from joint ventures, associates and trade 3.7 10.5
investments
(47.4) Returns on investments and servicing of finance (35.9) (28.9)
(148.1) Taxation (75.0) (64.6)
636.6 Free cash flow 327.2 356.4
(216.7) Capital expenditure and financial investment (130.5) (93.1)
(132.7) Acquisitions and disposals (9.7) (130.4)
(284.9) Equity dividends paid (210.0) (194.9)
2.3 Cash (outflow)/inflow before management of liquid (23.0) (62.0)
resources and financing
14.7 Management of liquid resources 1.7 13.6
(47.8) Financing 16.5 45.3
(30.8) Decrease in cash in the period (4.8) (3.1)
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
For the period 1 April 2003 to 30 September 2003
Year to Half Year to Half Year to
31 March 30 Sept. 2003 30 Sept.
2002
2003 unaudited
unaudited
£m £m £m
Profit for the financial period:
418.0 Group 166.8 169.1
14.7 Joint ventures 6.7 4.5
13.5 Associates - 4.9
446.2 Profit for the financial period: 173.5 178.5
(358.3) Actuarial gain / (loss) recognised in respect of pension 139.2 (260.7)
fund
87.9 Total recognised gains and losses relating to the financial 312.7 (82.2)
period
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
2003. 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 2003 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 2003 was approved by
the directors on 6 November 2003.
3. Taxation
The corporation tax charge reflects the anticipated effective rate on profit
before taxation for the Group for the year ending 31 March 2004. The anticipated
effective rate for the Group for the current year, after charging deferred tax,
is 26.2% (2003 - 27.6%).
4. Acquisition of subsidiary undertaking
On 1 April 2003, the Group acquired 100% of the issued share capital of Neoscorp
Limited. The fair value of the assets acquired and the final consideration paid
as included in these accounts are provisional.
5. Turnover and profit analysis
Year to Half Year to Half Year to
31 March 2003 30 Sept. 30 Sept.
2003 2002
£m
£m £m
Turnover
247.3 Power Systems Scotland 116.2 111.8
375.3 England 177.6 176.4
622.6 293.8 288.2
3,481.9 Generation and Supply 1,721.4 1,582.8
534.1 Other businesses 263.4 194.6
4,638.6 2,278.6 2,065.6
(573.3) Less inter activity sales (315.1) (243.5)
4,065.3 1,963.5 1,822.1
Operating profit
119.8 Power Systems Scotland 55.3 55.1
191.6 England 88.5 85.3
311.4 143.8 140.4
280.7 Generation and Supply 82.6 102.4
79.4 Other businesses 36.2 34.3
671.5 262.6 277.1
The gain on disposal of property relates to the sale of land and buildings at
Amersham Road, Reading.
6. Dividends
The interim dividend per ordinary share of 11.3p (2002 - 10.5p) will be paid on
24 March 2004 to those shareholders on the Scottish
and Southern Energy plc share register on 5 March 2004.
7. Earnings per Share
Year to Half Year to Half year to Half Year to Half Year to
31 March 30 Sept. 30 Sept. 30 Sept. 30 Sept
2003 2003 2002 2003 2002
Earnings per Earnings Earnings Earnings per Earnings per
share £m £m share share
Pence pence pence
52.0 Basic 173.5 178.5 20.3 20.8
Adjusted for:
1.6 amortisation of 6.6 5.7 0.7 0.7
goodwill
3.3 deferred tax 5.2 13.2 0.6 1.5
finance income from
net pension asset
(3.8) (1.2) (16.5) (0.1) (1.9)
53.1 184.1 180.9 21.5 21.1
(3.3) discontinued TXU - (22.4) - (2.6)
contract (net of tax)
- disposal of property (10.2) - (1.2) -
49.8 Adjusted 173.9 158.5 20.3 18.5
51.9 Diluted 173.5 178.5 20.2 20.7
The adjusted figures are before amortisation of goodwill, the charge for
deferred tax, finance income from net pension asset, the discontinued TXU
contract (net of tax) and the disposal of property.
The weighted average number of shares used in each calculation is as follows:
Sept. 2003 Sept. 2002
Number of shares Number of shares
(millions) (millions)
For basic and adjusted earnings per share 856.7 858.3
Effect of exercise of share options 1.6 2.2
For diluted earnings per share 858.3 860.5
8. Reconciliation of movement in equity shareholders' funds
Year to Half Year to Half Year to
31 March 2003 30 Sept. 30 Sept. 2002
2003
£m £m
£m
446.2 Profit for the period 173.5 178.5
(300.0) Dividends (96.9) (90.2)
146.2 Retained profit for the financial period 76.6 88.3
(358.3) Actuarial gain/(loss) recognised in respect of the pension 139.2 (260.7)
fund
(212.1) 215.8 (172.4)
6.1 New share capital subscribed 2.0 2.9
(18.1) Repurchase of ordinary share capital for cancellation (2.3) (2.0)
(224.1) Net addition to/(reduction) in shareholders' funds 215.5 (171.5)
1,706.1 Opening shareholders' funds 1,482.0 1,706.1
1,482.0 Closing shareholders' funds 1,697.5 1,534.6
9. Reconciliation of operating profit to net cash flow from operating
activities
Year to Half Year to Half Year to
31 March 30 Sept. 30 Sept. 2002
2003
2003 £m
£m
£m
604.2 Operating profit 240.1 246.2
15.6 FRS 17 pension charge 4.3 8.7
181.9 Depreciation, amortisation and revaluation adjustments 87.1 88.4
13.8 Amortisation of goodwill 6.6 5.7
(15.9) Customer contributions and capital grants released (8.0) (8.0)
5.2 (Increase)/Decrease in stocks (4.6) (10.1)
(23.7) Decrease/(Increase) in debtors 166.7 149.5
46.3 (Decrease)/Increase in creditors (46.4) (32.8)
(10.3) Decrease in provisions (10.5) (7.0)
(2.7) Profit on disposal of tangible fixed assets (0.9) (1.2)
814.4 Net cash inflow from operating activities 434.4 439.4
10. Reconciliation of net cash flow to movement in net debt
Year to Half Year to Half Year to
31 March 2003 30 Sept. 2003 30 Sept. 2002
£m £m £m
(30.8) (Decrease) in cash in the financial period (4.8) (3.1)
35.8 Net cash (inflow)/outflow from (increase)/decrease in debt (16.8) (44.4)
and lease financing
(14.7) Net cash (inflow) from (decrease) in liquid resources (1.7) (13.6)
(9.7) Movement in net debt in the financial period (23.3) (61.1)
(1,207.3) Net debt at start of financial period (1,217.0) (1,207.3)
(1,217.0) Net debt at end of financial period (1,240.3) (1,268.4)
11. Analysis of net debt
1 April 2003 Cash Flow 30 Sept. 2003
£m £m £m
Cash at bank and in hand 3.0 (3.0) -
Overdrafts (9.5) (1.8) (11.3)
Other debt due within one year (102.9) 5.9 (97.0)
Net borrowings due within one year (109.4) 1.1 (108.3)
Net borrowings due after more than one year (1,116.6) (22.7) (1,139.3)
Current asset investments 9.0 (1.7) 7.3
Net debt (1,217.0) (23.3) (1,240.3)
INDEPENDENT REVIEW REPORT BY KPMG AUDIT PLC TO SCOTTISH
AND SOUTHERN ENERGY PLC
Introduction
We have been engaged by the company to review the financial information set out
on pages 10 to 16 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.
This report is made solely to the company in accordance with the terms of our
engagement to assist the company in meeting the requirements of the Listing
Rules of the Financial Services Authority. Our review has been undertaken so
that we might state to the company those matters we are required to state to it
in this report and for no other purpose. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the company for
our review work, for this report, or for the conclusions we have reached.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which 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 for use in the United Kingdom. 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 2003.
KPMG Audit Plc
Chartered Accountants
Edinburgh
6 November 2003
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