Interim Results - Pre-tax Profit at £197.1m
Scottish & Southern Energy PLC
17 November 1999
Scottish and Southern Energy plc
A solid performance in the first half year results of the new Company
demonstrates that Scottish and Southern Energy has made a very good start to
the year: integration is making excellent progress; and shareholders can look
forward to earnings growth both from investments already committed and from
the synergy benefits of the merger at the end of last year. said Chairman,
Lord Wilson of Tillyorn.
Interim Results
Six months to 30th September 1999
HIGHLIGHTS
Financial
- Pre-tax profit at £197.1M
- Underlying pre-tax profit growth of 5%
- Earnings per share at 17.5p
- Dividend per share 8.3p, an increase of 7.8%
- Interest cover of 5.7 times
Operational
- Integration making excellent progress
- Controllable costs in core business down 5.7 %
- £86M spent and a further £23M investment committed in generation
- Over 600,000 new energy accounts
- Trial internet billing introduced for industrial and commercial
customers
Enquiries:
Scottish and Southern Energy 0171 831 3113 (17/11/99)
Jim Forbes, Chief Executive 01738 455111 (thereafter)
Ian Marchant, Finance Director
Carolyn McAdam, Director of Corporate Communications
Financial Dynamics 0171 831 3113
Andrew Dowler
OVERVIEW
Scottish and Southern Energy can report a solid set of results for the first
full half year for the new group. The company remains focused on maximising
shareholder value in a regulated environment and utilising its financial
strength to deliver further value.
Excellent progress has been made in a number of key areas, including:
- controllable costs in the core business down 5.7%;
- a further £23M committed to small scale generation;
- performance in the competitive market with over 600,000 new energy
accounts;
- trial internet billing introduced for industrial and commercial customers
- successful launch of RSPB Energy, another affinity marketing deal;
- integration making excellent progress, with all major business systems now
successfully migrated.
FINANCIAL AND OPERATING REVIEW
Scottish and Southern Energys operating profit was up 12.5% to £235.6M for the
half year to 30th September 1999. After adjusting for the Keadby outage
experienced last year and the penalties incurred for late market opening, the
underlying increase was 4.8%. This strong performance was driven by a 29.2%
increase in Generation and Supply while the regulated Power Systems business
shows growth of only 5% and 1.3% on an underlying basis.
Earnings per share have grown to 17.5p with an effective tax rate of 22.5%.
The interim dividend of 8.3p is up 7.8% on last year and remains in line with
the commitment made at the time of the merger.
Segmental analysis of Operating Profit
First First % % of
half half change Total
1999/00 1998/99
£M £M
Power Systems
Scotland 40.0 38.5 3.9 17.0
England 94.0 89.1 5.5 39.9
Total 127.6 5.0 56.9
134.0
Generation and Supply
Scotland 7.0 7.2 (2.8) 3.0
England and Wales 86.3 65.0 32.8 36.6
Total 93.3 72.2 29.2 39.6
Other businesses 8.3 9.6 (13.5) 3.5
Total 235.6 209.4 12.5
Power Systems
Operating profits in Power Systems increased by 5.0% to £134.0M when compared
with the same period last year. The underlying increase was 1.3%, or £1.7M
when the penalties for late market opening which were charged this time last
year, are excluded. The underlying increase in England was 2.1% while in
Scotland the figure fell marginally.
Units distributed have grown by 1.5% in England and Wales, while in Scotland
there was a slight decrease as a result of mild weather.
Customer Service has been a priority target during the integration process and
we have seen an improvement in Guaranteed Standards failures which reduced by
50% in Scotland and over 11% in England over the same period last year.
Customer minutes lost have fallen in Scotland, partly due to the capital
investment made over the last 4 1/2 years but also as a result of
improved operating practices and management focus. Network performance in
England, however, showed some decline due to increased lightning
activity and underground cable faults.
Generation and Supply
Generation and Supply in England and Wales demonstrated strong growth, with
operating profit of £86.3M, an increase of 32.8% on the previous year. This
performance was principally due to Keadby now being fully operational,
additional sales from power stations and commissioning income from Seabank.
In the first six months there has been significant competition in the mass
market. However efficient electricity purchasing almost fully offset the
financial impact of price reductions and modest customer losses.
The retail gas business is, as anticipated, reporting a small loss with
customer acquisition costs charged to the profit and loss account as incurred.
The business has around half a million customers and is still growing.
Competitive pressures have increased in the Scottish electricity markets and
operating profits decreased marginally. Volume and price reductions were
partially offset by improved interconnector profits.
We have continued our programme of investment in small scale generation with a
further £23M committed in the first six months of this year. This includes a
25MW black start facility at Keadby, a small scale combined heat and power
plant for Eli Lilly at Basingstoke, and for Londons new Excel Exhibition
Centre. This maintains our position as one of the top three players in the
small scale generation market.
Seabank 1 is still going through its final commissioning phase with a
completion date expected in the first half of 2000. Until then, it will run
as a merchant plant, when available. Overall, we expect the financial impact
this year to be broadly in line with a normal year of operation due to our
contractual arrangements with Siemens and Seabank Power Ltd.
Overall power station availability at 84%, has been higher in the first six
months of this year when compared with the same period last year. This is
largely as a result of the completion of the Keadby upgrade and improved
performance from the hydro assets which have been refurbished.
Scottish and Southern Energy has continued to perform well in the competitive
electricity and gas markets. It is enjoying one of the highest levels of
customer retention, while over 150,000 new electricity customers and almost
half a million gas customers have joined the Group.
We are now trialling internet billing with selected industrial and commercial
customers. This includes real time bill viewing, half hourly consumption data
and graphing, pool prices and triad and pool price warnings.
The company has launched a major new partnership with the RSPB, one of Europes
leading environmental organisation with over 1 million members in 600,000
households. RSPB Energy will offer its members a unique deal, electricity from
renewable sources without paying a premium and savings on gas. A fund will be
established which the RSPB can use to purchase sites for birds affected by
climate change and to encourage new renewable generation.
Retail
Our retail business has benefited significantly from the merger with access to
another 2.7M customers. Over 1,400 energy efficient appliances have been sold
to our customers in the south in the first six months of this year. An
ongoing programme of sales to these customers is now in place and a pilot
project looking at sales via the internet will be launched shortly.
Integration
We are very pleased with the progress we have made across all of our
operations and are delighted with the speed at which integration is being
delivered. In procurement we have achieved our savings target for the full
year in the first six months. This includes rationalisation of software
licences, economies of scale in purchasing plant and equipment, and the
concentration of activities in Perth onto a single site.
The last major integration project to be completed will be the migration of
Scottish customers to our new Customer Service system and this is well on
target for completion next spring.
We will also be continuing our drive to implement best practice across the
Group and to deliver significant benefits from this to our shareholders and
customers. We are particularly pleased that we have managed to improve our
customer service performance during this period of intense change. This is a
tremendous tribute to our staff and their commitment to delivering outstanding
customer service.
Year 2000
Scottish and Southern Energy has invested in a comprehensive and rigorous
Millennium Compliance Programme. All major compliance work has been
successfully completed and independent assessments on behalf of OFGEM, the
industry regulator have awarded us a 100 % blue rating. We have participated
in all the key industry and Government organisations planning for the
millennium including Action 2000, Y2k Utilities Group, Scottish Utilities
Forum, the Electricity Association Y2k Task Force and Impact. Having completed
the compliance phase, our focus moved this year to ensuring that we can deal
with any unforeseen circumstances.
Dividend
The Board has recommended a half year dividend of 8.3p per share, up by 7.8%
which is consistent with the commitment made at the time of the merger.
Balance Sheet and Cash Flow
Net debt at 30th September was £792.3M, a reduction of £222.1M from 31st March
1999. Gearing has therefore reduced to 47.7% from 64.3%.
Our balance sheet remains strong with interest cover at 5.7 times. Owing to
the seasonal nature of our cash flow, we anticipate that interest cover at the
year end will be broadly in line with last years level of 6.5 times.
Free cash flow has remained strong at £401.4M, an improvement of £118.2M,
compared to last year, as a result of improved profits and a reduction in
working capital.
Strategy and Outlook
Scottish and Southern Energy is looking forward to the regulatory clarity
which will emerge following the announcement of a package of price review
proposals at the beginning of December. The current proposals are tough and
there are a number of outstanding issues which we are still debating with the
Regulator.
The current focus of the group is in the UK as we believe there will be
significant opportunities for further growth. We will concentrate on our
recognised areas of core strengths, the most important of which is maximising
shareholder value in a regulatory environment. Alongside this our main focus
will be mass market supply, network management and generation assets.
Summary
Scottish and Southern Energy is reporting a solid underlying financial
performance for its first full half year. The management focus is to take the
group to the leading edge of operating efficiency in the UK and
internationally and we are confident that with our track record to date, as
well as the high quality and commitment of our staff, this will be achieved.
Our shareholders can look forward to earnings growth from already committed
investments and additional synergy benefits from the merger.
Scottish and Southern Energy plc
PROFIT AND LOSS ACCOUNT
For the period 1 April 1999 to 30 September 1999
Full Year Half Year Half Year
to to to
31 March 30 Sept 30 Sept
1999 1999 1998
(audited) (unaudited) (unaudited)
£M Note £M £M
2,809.2 Group turnover 6 1,324.8 1,248.4
356.9 Group operating profit 211.8 189.5
Share of operating profit in:
7.5 Joint ventures 7.3 2.0
47.0 Associates 16.5 17.9
411.4 Total operating profit 6 235.6 209.4
Income from fixed asset
1.1 investments 3.4 1.0
34.7 Merger expenses - -
Net interest payable:
54.9 Group 29.2 27.2
2.8 Joint ventures 1.5 0.9
26.8 Associates 11.2 13.0
Profit on ordinary activities
293.3 before taxation 197.1 169.3
87.0 Taxation 3 44.3 39.9
Profit for the financial
206.3 period 152.8 129.4
224.9 Dividends 7 72.6 67.4
Retained profit/(loss) for the
(18.6) financial period 80.2 62.0
23.6p Earnings per share - basic 8 17.5p 14.8p
41.1p - adjusted 8 17.5p 14.8p
23.5p - fully diluted 8 17.4p 14.8p
25.7p Dividend per ordinary share 7 8.3p 7.7p
Scottish and Southern Energy plc
BALANCE SHEET
At 30 September 1999
At 31 March At 30 Sept At 30 Sept
1999 1999 1998
(audited) (unaudited) (unaudited)
£M Note £M £M
3,378.4 Fixed assets 3,478.1 3,262.3
Current assets
42.7 Stocks 58.8 56.7
425.1 Debtors 282.2 421.0
27.8 Investments 74.0 105.3
14.6 Cash at bank and in hand 21.0 24.1
Creditors - amounts falling
(1,132.9) due within one year (1,083.8) (1,347.8)
(622.7) Net current liabilities (647.8) (740.7)
Total assets less current
2,755.7 liabilities 2,830.3 2,521.6
Creditors - amounts falling
(1,053.0) due after more than one year (1,064.8) (794.3)
Provisions for liabilities and
(126.2) charges (104.6) (70.6)
1,576.5 Net assets 1,660.9 1,656.7
437.9 Called up share capital 438.3 437.7
1,138.6 Reserves 1,222.6 1,219.0
1,576.5 Equity shareholders funds 9 1,660.9 1,656.7
64.3% Gearing 47.7% 41.9%
Scottish and Southern Energy plc
CASH FLOW STATEMENT
For the period 1 April 1999 to 30 September 1999
Full Year Half Year Half Year
to to to
31 March 30 Sept 30 Sept
1999 1999 1998
(audited) (unaudited) (unaudited)
£M Note £M £M
631.2 Net cash inflow from operating 10 424.5 307.5
activities
(34.7) Merger expenses - (1.4)
Dividends from joint ventures,
associates and trade
8.4 investments 14.5 6.2
Returns on investments and
(56.9) servicing of finance (20.8) (13.9)
(186.3) Taxation (16.8) (15.2)
361.7 Free cash flow 401.4 283.2
Capital expenditure and
(426.1) financial investment (186.7) (223.3)
(1.1) Acquisitions and disposals 3.2 -
(200.2) Equity dividends paid - -
Cash (outflow)/inflow before
management of liquid resources
(265.7) and financing 217.9 59.9
19.9 Management of liquid resources (46.2) (57.6)
225.9 Financing (157.3) (35.8)
Increase/(decrease) in cash in
(19.9) the period 14.4 (33.5)
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
For the period 1 April 1999 to 30 September 1999
Full Year Half Year Half Year
to to to
31 March 30 Sept 30 Sept
1999 1999 1998
(audited) (unaudited) (unaudited)
£M £M £M
Profit for the financial
period:
188.2 Group 142.0 125.2
3.8 Joint ventures 5.5 0.7
14.3 Associates 5.3 3.5
Total recognised gains and
losses relating to the
206.3 financial period 152.8 129.4
Prior year adjustments (note
(49.0) 4) - (49.0)
Total gains and losses
157.3 recognised 152.8 80.4
Scottish and Southern Energy plc
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
1999. The financial information contained 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 1999 included within this report are an abridged version of
the full accounts which carry an unqualified auditors report and which have
been filed with the Registrar of Companies.
2. Approval
The interim report for the six months ended 30 September 1999 was approved by
the directors on 17 November 1999.
3. Taxation
The corporation tax charge reflects the anticipated effective rate on profit
before taxation for the Group for the year ending 31 March 2000. The
anticipated effective rate for the Group is 22.5% (1998:23.6%).
4. Prior year adjustments
A full explanation of the prior year adjustments is included in note 2 on page
41 of the Annual Report and Accounts for the year ended 31 March 1999. As a
consequence of these changes Group shareholders funds at 1 April 1998 were
reduced as follows:
£M
FRS Provisions, Contingent Liabilities and Contingent Assets
12
Hydro civil maintenance costs now charged as depreciation
under renewals accounting 4.5
Provision is no longer made for self insurance claims in
advance of losses incurred (1.5)
FRS Tangible Fixed Assets
15
Revised distribution asset lives 44.1
Revaluation reserve eliminated as revalued buildings
restated to historic cost 1.9
49.0
The effect of this change in accounting policy has been to reduce operating
profit for the period to 30 September 1998 by £2.2M.
5. Exceptional items
The profit and loss account for the year to 31 March 1999 includes exceptional
operating costs in respect of the merger of £135.2M, merger expenses of £34.7M
and an exceptional tax credit of £17.4M.
Scottish and Southern Energy plc
NOTES TO THE INTERIM ACCOUNTS
6. Segmental Analysis
Full Year Half Year Half Year
to to to
31 March 30 Sept 30 Sept
1999 1999 1998
(audited) (unaudited) (unaudited)
£M £M £M
Turnover
216.6 Power Systems Scotland 97.6 98.3
387.7 England 196.2 178.8
604.3 293.8 277.1
Generation and Scotland
766.9 Supply 288.5 296.0
1,759.6 England and Wales 847.8 815.7
2,526.5 1,136.3 1,111.7
243.0 Other businesses 131.4 116.8
3,373.8 1,561.5 1,505.6
Less inter
(564.6) activity sales (236.7) (257.2)
2,809.2 1,324.8 1,248.4
Operating profit
44.8 Power Systems Scotland 40.0 38.5
187.9 England 94.0 89.1
232.7 134.0 127.6
Generation and Scotland
22.1 Supply 7.0 7.2
146.5 England and Wales 86.3 65.0
168.6 93.3 72.2
10.1 Other businesses 8.3 9.6
411.4 235.6 209.4
7. Dividends
Full Year Half Year Half Year
to to to
31 March 30 Sept 30 Sept
1999 1999 1998
(audited) (unaudited) (unaudited)
£M £M £M
224.8 Ordinary shares 72.6 67.3
0.1 Preference shares - 0.1
224.9 72.6 67.4
The recommended interim dividend per ordinary share (net) of 8.3p
(1998:7.7p) will be paid on 24 March 2000 to those shareholders on the
Scottish and Southern Energy plc register on 6 January 2000.
Scottish and Southern Energy plc
NOTES TO THE INTERIM ACCOUNTS
8. Earnings per Share
Full Year Half Year Half Year
to to to
31 March 30 Sept 30 Sept
1999 1999 1998
(audited) (unaudited) (unaudited)
pence per pence per pence per
share share share
23.6 Basic earnings per share 17.5 14.8
17.5 Exceptional items net of tax - -
41.1 Adjusted earnings per share 17.5 14.8
23.5 Diluted earnings per share 17.4 14.8
The basic earnings per ordinary share for the six months ended 30
September 1999 of 17.5p (1998: 14.8p) have been calculated by dividing
the profit for the half year attributable to ordinary shares of £152.8M
(1998: £129.3M) by the weighted average number of shares in issue of
874.2M (1998: 871.9M).
9. Reconciliation of Movement in Equity Shareholders Funds
Full Year Half Year Half Year
to to to
31 March 30 Sept 30 Sept
1999 1999 1998
(audited) (unaudited) (unaudited)
£M £M £M
206.3 Profit for the financial period 152.8 129.4
(224.9) Dividends including non equity (72.6) (67.4)
Retained profit/(loss) for the
(18.6) financial period 80.2 62.0
3.6 New share capital subscribed 4.2 3.2
10.7 Merger adjustment - 10.7
(0.9) Repayment of preference shares - (0.9)
(8.6) Conversion of preference shares - (8.6)
Net addition/(reduction) in
(13.8) shareholders funds 84.4 66.4
1,590.3 Opening shareholders funds 1,576.5 1,590.3
1,576.5 Closing shareholders funds 1,660.9 1,656.7
Scottish and Southern Energy plc
NOTES TO THE INTERIM ACCOUNTS
10. Reconciliation of Operating Profit to Net Cash Flow from Operating
Activities
Full Year Half Year Half Year
to to to
31 March 30 Sept 30 Sept
1999 1999 1998
(audited) (unaudited) (unaudited)
£M £M £M
Operating profit before exceptional
492.1 items 211.8 189.5
(135.2) Exceptional items - -
Depreciation, amortisation and
150.7 revaluation adjustments 79.2 72.6
Consumer contributions and capital
(14.1) grants released (7.8) (6.8)
1.7 (Increase)/decrease in stocks (16.1) (15.2)
(15.3) Decrease/(increase) in debtors 142.8 37.2
47.7 Increase in creditors 36.3 36.5
62.8 (Decrease)/increase in provisions (21.6) (2.5)
(Profit)/loss on disposal of
40.8 tangible fixed assets (0.1) (3.8)
Net cash inflow from operating
631.2 activities 424.5 307.5
11. Reconciliation of Net Cash Flow to Movement in Net Debt
Full Year Half Year Half Year
to to to
31 March 30 Sept 30 Sept
1999 1999 1998
(audited) (unaudited) (unaudited)
£M £M £M
Increase/(decrease) in cash in the
(19.9) financial period 14.4 (33.5)
Net cash outflow/(inflow) from
decrease/(increase) in debt and
(221.2) lease financing 161.5 40.2
Net cash outflow/(inflow) from
increase/(decrease) in liquid
(19.9) resources 46.2 57.6
3.6 Finance costs - -
Movement in net debt in the
(257.4) financial period 222.1 64.3
Net debt at start of financial
(757.0) period (1,014.4) (757.0)
(1,014.4) Net debt at end of financial period (792.3) (692.7)
12. Analysis of Net Debt
1 April Cash Flow 30 Sept
1999 (unaudited) 1999
(audited) £M (unaudited)
£M £M
Cash at bank and in hand 14.6 6.4 21.0
Overdrafts (9.5) 8.0 (1.5)
Other debt due within one year (341.3) 161.5 (179.8)
Net borrowings due within one year (336.2) 175.9 (160.3)
Net borrowings due after more than one
year (706.0) - (706.0)
Current asset investments 27.8 46.2 74.0
Net debt (1,014.4) 222.1 (792.3)
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 London Stock Exchange 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 1999.
KPMG Audit Plc
Chartered Accountants
Edinburgh
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