FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
June 03, 2003
BRITISH ENERGY PLC
(Registrant's name)
3 Redwood Crescent
Peel Park
East Kilbride G74 5PR
Scotland
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F.
Form 20-F..X.. Form 40-F.....
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes ..... No ..X..
If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b):
Exhibit Index
The following document (bearing the exhibit number listed below) is furnished
herewith and is made a part of this Report pursuant to the General Instructions
for Form 6-K:
Exhibit Description
No. 1 RNS Announcement, re: Final Results dated 03 June 2003
Exhibit No.1
3 June 2003
BRITISH ENERGY PLC
2002/2003 PRELIMINARY RESULTS - PART 1
The following summary of key points must be viewed in the context of the
Company's proposed restructuring, which is outlined in the enclosed Chairman's
Statement.
- Loss before tax of GBP(4,292)m, after exceptionals of
GBP(4,162)m, compared with a loss of GBP(493)m in 2001/2. Loss before
exceptionals and tax of GBP(130)m compared with a profit of GBP42m in 2001/2.
- Exceptionals principally represent write-downs in generation
plant, being GBP(3,587)m for nuclear assets and a further GBP(151)m write-down
in the value of Eggborough. There were also write-downs of decommissioning
funds and shares in employee trusts as well as provisions for slow moving
stocks, interest rate swaps, onerous electricity contracts and restructuring
costs.
- In view of the Company's financial condition, no dividend is
proposed. The Board does not expect to declare or propose any dividend on the
ordinary or A shares prior to the completion of the restructuring.
- UK business incurred a business performance loss before tax of
GBP(274)m, including group interest charges, (total loss after exceptionals was
GBP (4,353)m) compared with a business performance loss before tax of GBP(41)m
in 2001 /2 (total loss after exceptionals was GBP(576m)), owing to UK output
being reduced by 5.2TWh and a further decline in UK power prices.
- Total business performance contribution of GBP144m
(pre-minorities) from our North American activities (total contribution after
exceptionals was GBP61m), compared with a business performance (and total)
contribution of GBP83m (pre-minorities) in 2001/2, including Bruce Power
contribution of GBP97m (pre-minorities) for the 101/2 month period up to the
date of its disposal in February.
- Cash consideration of C$627m (GBP250m) (excluding C$51m in
respect of capital payments made by British Energy to Bruce Power at closing)
received up to the year end for the disposal of our interest in Bruce Power out
of a maximum of C$770m. A further C$20m (GBP8m) was received after the year end
in respect of cash held in an escrow account in respect of a potential pension
fund adjustment.
- The UK Government's White Paper emphasised the importance of
environmental factors and combating climate change in future energy policy, and
made it clear that the Government intends to "keep the door open" for nuclear
power, and will review the prospects for nuclear power in four years' time.
- Adrian Montague was appointed Chairman with effect from 28
November 2002. Mike Alexander was appointed Chief Executive Officer with effect
from 1 March 2003.
- Under the revised Nuclear Energy Agreement, which received
regulatory approval in November 2002, prices received for output from our
Scottish stations will be linked to the England and Wales power prices until
the earlier of 2006 or the implementation of BETTA. British Energy released
GBP41m as exceptional income in respect of the adjustments to the long-term
contract.
- Under FRS 17, there was a deficit of GBP352m in respect of the
Company's pension funds at 31 March 2003. The next actuarial valuation to
assess funding and contribution levels is due to take place as at 31 March 2004.
The Company is keeping pensions issues under close review.
- In relation to the proposed restructuring, since the year end,
revised contracts with BNFL for front-end and back-end AGR fuel services have
been signed, giving effect to the non-binding heads of terms agreed with BNFL on
28 November 2002. These agreements are conditional upon the successful
completion of the restructuring. We also sold the majority of our uranics stock
to BNFL for GBP50m.
- On 14 February 2003, we announced the completion of our
disposal of our interest in Bruce Power and that we had reached binding
standstill agreements and non-binding agreement to the restructuring proposals
with certain of our significant creditors and BNFL. Also in February we
announced a major electricity supply contract for 38TWh over four years.
- On 7 March 2003, the Government submitted the restructuring
plan to the European Commission for its approval under State Aid rules, and also
extended its credit facility to British Energy at a reduced amount of GBP200m up
to September 2004 or the time at which restructuring is completed, whichever is
the sooner.
- The formal standstill agreements with significant creditors and
BNFL, and the amendments to the bonds agreed in March 2003, have meant that
principal amounts due under the bonds and the Eggborough finance agreements were
not repaid and termination payments under certain onerous contracts have not
been made. This has allowed the Company to build up its cash reserves.
- Significant progress has been made but the proposed
restructuring remains subject to a large number of significant uncertainties.
If, for any reason, British Energy is unable to implement the restructuring, it
may be unable to meet its financial obligations as they fall due, in which case
it may have to take appropriate insolvency proceedings. If British Energy were
to commence insolvency proceedings, distributions, if any, to unsecured
creditors may represent only a small fraction of their unsecured liabilities,
and it is highly unlikely that there would be any return to shareholders. Even
if the restructuring is completed, the return, if any, for shareholders will
represent a very significant dilution of their existing interests.
- Looking to the future, nuclear safety remains our number one
priority. We must maintain high standards of safety while ensuring that we
deliver reliable output and reduce our exposure to fluctuations in UK power
prices.
FURTHER INFORMATION
Contacts
Investor Relations Paul Heward 01355 262201
Media Enquiries Andrew Dowler 020 7831 3113
Find this News Release on our web site: www.british-energy.com
FINANCIAL OVERVIEW
This summary sets out the Company's financial information on a
"pre-restructured" going concern basis.
2003 2003 2003 2002 2002 2002
Total Exceptional Business Business Exceptional Total
GBPm Items Performance Performance Items GBPm
GBPm GBPm GBPm GBPm
Turnover 1,903 41 1,862 2,049 - 2,049
Operating (loss)/ (3,802) (3,906) 104 231 (512) (281)
profit
(Loss)/profit (4,292) (4,162) (130) 42 (535) (493)
before tax
Net operating 54 155
cashflow
Net cash /(debt) (550) (859)
The going concern basis assumes that the Company will continue in operational
existence for the foreseeable future. The validity of this assumption depends on
the continued support of the Secretary of State for Trade and Industry and the
group's significant creditors, and the successful completion of long-term
financial restructuring, failing which the Company may have to take appropriate
insolvency proceedings. Therefore, adjustments may have to be made to reduce the
balance sheet values of assets to their recoverable amounts, to provide for
further liabilities that might arise, and to re-classify fixed assets and
long-term liabilities as current assets and liabilities.
STATEMENT BY ADRIAN MONTAGUE, CHAIRMAN
The past year has been traumatic for British Energy and its stakeholders. The
combination of high fixed costs for our nuclear stations and a steep decline in
power prices without the counterbalance of owning a retail supply business,
together with a high level of unscheduled outages and a bleak outlook for future
power prices, has resulted in terrible damage to our Company. As a result I have
to report a loss before tax of GBP(4,292)m. This includes a GBP(3,738)m
write-down in the value of our UK power stations.
In view of the Company's financial situation, no final dividend is proposed. The
Board does not expect to declare or propose any dividend on the ordinary or 'A'
shares prior to the completion of the restructuring.
Since 5 September 2002, when the Board sought financial assistance from the
Government, the Company has been working with the Government, its significant
creditors and BNFL, to agree a restructuring plan to achieve the long-term
financial viability of British Energy.
We announced the principles of a restructuring plan on 28 November 2002, the
same day as I became Chairman of British Energy. Since then, significant
progress has been made in pursuit of the plan, although much work still remains
to be done to secure a successful restructuring.
The Restructuring: What Has Happened to Date?
At last year's AGM, my predecessor, Robin Jeffrey, outlined the tough commercial
conditions prevailing in the UK electricity market, and referred to the
significant fall in wholesale power prices that had occurred in the preceding
two years. Following the gas circulator problems at Torness on 12 August 2002,
British Energy revised its UK nuclear output forecast for the year to 31 March
2003 down to 63 TWh compared with the originally planned generation of 67.5 TWh.
This revision was due mainly to this major unplanned outage at Torness together
with other unplanned outages at Heysham 2 and Dungeness B.
For some time, British Energy had been seeking to renegotiate its fuel contracts
with BNFL, and thereby secure a significant reduction in its fixed cost base. On
3 September 2002, BNFL delivered its final proposal to British Energy, but the
terms proposed fell short of those which the Company required. In any event,
having reviewed the longer-term prospects of the group, including future market
prices and trading conditions, the Board concluded that it should not draw down
on existing undrawn loan facilities, and decided that there was no alternative
but to seek support from the Government.
On 5 September 2002, the Company announced that it had entered into discussions
with the Government to seek immediate financial support and to enable a
longer-term restructuring to take place. As a result of these discussions, on 9
September 2002, the Government provided British Energy with a credit facility
for up to GBP410m for three weeks. This was to provide working capital for
immediate requirements and to allow the Company to stabilise its trading
position in the UK and North America.
On 26 September 2002, the Government agreed a revised credit facility of up to
GBP650m running until 29 November 2002, to permit the development of proposals
for a solvent restructuring.
On 28 November 2002, the Company reached agreement with the Government and BNFL
on the principles of a restructuring plan intended to achieve long-term
financial viability and the credit facility was extended until March 2003. The
principles for restructuring included:
* Amending and extending the BNFL contracts for front-end and
back-end related fuel services for our AGR stations.
* Establishing a new Nuclear Liabilities Fund (NLF) for
uncontracted nuclear liabilities and decommissioning costs, to which British
Energy would make ongoing contributions.
* British Energy making contributions to the NLF including 65% of
the group's consolidated net cash flow after tax, financing costs and the
funding of cash reserves of up to GBP490m.
* The Government funding liabilities relating to historic spent
fuel and any shortfall in the NLF.
* Compromising the existing claims of significant creditors, in
exchange for new bonds and new ordinary shares.
* British Energy disposing of its interests in Bruce Power and
AmerGen.
* Implementation of a new trading strategy to hedge the majority
of British Energy's output.
As a result of these proposals, ordinary trade creditors and employees are
expected to be paid in full as the relevant amounts fall due. However, the
return, if any, for shareholders of British Energy will represent a very
significant dilution of their existing interests.
In particular, the plan addressed some of the main underlying causes of British
Energy's difficulties through:
* The reduction of its exposure to wholesale electricity prices through
the renegotiation of its contracts with BNFL and the implementation of the new
trading strategy.
* The reduction of fixed and variable costs as a result of new pricing
arrangements for the front-end and back-end treatment of fuel for the AGRs under
the revised contracts with BNFL.
* The reduction and de-risking of its exposure to UK nuclear
liabilities through the new arrangements with the Government and the proposed
NLF.
* The restructuring of its indebtedness, and of certain onerous
contracts.
We have made encouraging progress in implementing the restructuring plan. The
Company has completed the disposal of its interest in Bruce Power. We have also
agreed revised front-end and back-end fuel contracts with BNFL and the sale,
also to BNFL, of GBP50m of our uranics stocks. In addition, we have concluded
binding standstill agreements and reached non-binding agreement to the
restructuring proposals with the relevant creditors including revised
arrangements for Eggborough. In February 2003, we announced a major electricity
supply contract for 38TWh of output over four years and, since the year end,
have agreed further long-term electricity contracts, giving us greater certainty
of income.
On 7 March 2003, the Government submitted the restructuring plan to the European
Commission for its approval under State Aid rules, and also extended its credit
facility to British Energy at a reduced amount of up to GBP200m up to September
2004 or the time at which restructuring is completed, whichever is the sooner.
The Secretary of State is entitled to cancel the facility at any time, if in her
opinion, the restructuring cannot be implemented in the manner or timescales
envisaged.
Remaining Steps
Notwithstanding this encouraging progress, we still have a long way to go before
the success of the restructuring is assured.
We have yet to complete the sale of our 50% interest in AmerGen, the value of
which is a key component of the restructuring. In September 2002, British Energy
and Exelon announced their intentions to sell AmerGen but, as we announced on 7
March, these plans did not attract suitable offers. Independently from Exelon,
we are now focusing our efforts on realising the value of our investment, as
soon as is practicable. Discussions with potential purchasers are ongoing.
Until an acceptable transaction is agreed, British Energy will continue to play
a full part in the AmerGen joint venture.
We also require the formal agreement of the significant creditors and the
Government to the restructuring proposals. The standstill arrangements are
terminable if, amongst other things, this agreement has not been obtained by the
end of September 2003.
The Government must obtain the approval of the European Commission for the
assistance it will provide as part of the restructuring plan. We do not expect a
decision on our restructuring plan to be reached by the European Commission
until summer 2004.
Finally, the detailed terms of the restructuring remain to be finalised and will
need to be discussed and agreed with the regulators and the Inland Revenue and
approved by shareholders (where required).
The Board's View
If the restructuring is implemented, the return, if any, to existing
shareholders will represent a very significant dilution of their existing
interests. However, the Board continues to believe that the proposed
restructuring is in the best interests of the Company and is working hard to
ensure that all the necessary conditions are met. It must be recognised that the
restructuring remains subject to a large number of significant uncertainties and
if, for any reason, the restructuring cannot proceed, the Board may still have
to seek the protection of administration. In this case, the distribution to
unsecured creditors may represent only a small fraction of their unsecured
liabilities and it is highly unlikely that there will be any return to
shareholders.
Energy Review
In March 2003, the Government issued its long-awaited White Paper on future UK
energy policy. The White Paper places environmental concerns at the centre of
its proposals and accepts the Royal Commission's recommendation of a 60%
reduction in greenhouse gases by around 2050. As the single largest contributor
to the UK's efforts to mitigate the effect of climate change for many years to
come, British Energy will continue to support the Government's efforts in this
area.
The White Paper also made it clear that the Government intends to "keep the door
open" for nuclear power and will review the prospects for nuclear generation in
four years' time. In the meantime we must improve performance and make a renewed
commercial and technical success of our existing UK nuclear fleet.
Strategic Focus and Board Changes
Safety, as always, remains our number one priority and, together with the
Government, we regard safety and security of supply as being the fundamental
drivers behind the restructuring. As a result of these restructuring proposals,
the strategic focus of British Energy has moved back to the UK where our
emphasis will be on securing safe, reliable nuclear generation. At the same
time, the commercial risk profile of the Company must change fundamentally. We
will achieve this through the maintenance of diverse channels to market, the
revised BNFL contracts, the new funding arrangements for nuclear liabilities and
our efforts to reduce exposure to UK power prices.
In this difficult year there have been changes to the composition of the Board.
I became Chairman on 28 November 2002. Having worked closely with the Government
and Whitehall in recent years, I have a good deal of experience of complex
restructurings, most recently at Network Rail where I remain Deputy Chairman.
Mike Alexander joined us as Chief Executive on 1 March, from Centrica, where he
had been Chief Operating Officer. Mike is a strong manager, with wide experience
of the UK energy market. Together, we make a good team.
The move from the Company's previous Executive Chairmanship to a separate
Chairman and Chief Executive will contribute to good governance. I believe that
Mike's and my own skills are complementary, and that together with the rest of
the management team we are well equipped to steer British Energy through the
period of retrenchment leading up to restructuring and beyond.
There have also been a number of changes among the Independent Directors during
the year. Most recently we have made two new appointments to the Board. William
Coley and Pascal Colombani joined the Board as Independent Directors on 1 June.
Bill Coley, former CEO of Duke Power and Pascal Colombani, a nuclear physicist,
who was President of the Commissariat a l'Energie Atomique in France. Their
experience will reinforce the Board's nuclear credentials as we focus on the
performance and reliability of the UK nuclear fleet.
Finally, I would like to thank all of our staff and congratulate them on their
continued professionalism and hard work during difficult times. Whenever I visit
one of our power stations, I am impressed by the dedication and commitment to
safe, reliable nuclear power shown at all levels in the organisation. With our
staff support, I am sure we will meet our immediate challenge of enhancing the
Company's performance.
REVIEW OF OPERATING PERFORMANCE
BY MIKE ALEXANDER, CHIEF EXECUTIVE OFFICER
Any commentary on British Energy's performance in the year ended 31 March 2003
is overshadowed by the events in September and the restructuring, as described
in the Chairman's Statement. I joined British Energy on 1 March 2003 and am very
conscious of the huge impact the year's events have had on our staff, our
creditors and not least our shareholders. However, the restructuring plan, if it
is fully approved, offers us an opportunity to demonstrate that we can deliver
first class performance from our generating assets and that our nuclear power
stations have a crucial role to play in the UK's electricity generation mix. Our
challenge will be to focus on future performance, delivering improved and
reliable output from our stations and restoring our profitability.
The key figures in the results were the business performance loss before tax of
GBP(130)m and the exceptionals of GBP(4,162)m leading to an overall loss of
GBP(4,292) m. Details of the exceptional items are covered elsewhere but their
scale reflects the extremely tough market conditions within the UK where power
prices remained at low levels. The loss before tax was compounded by a reduction
of 3.8 TWh in UK nuclear output and a 10% reduction in achieved prices.
Operating income also reduced following the sale of our interest in Bruce Power
in February 2003.
UK Nuclear Generation
The total UK nuclear output fell to 63.8 TWh in 2002/3, compared with the output
of 67.6 TWh in the previous year. The major setback was at Torness, which
experienced extended outages on each of its 2 reactors due to gas circulator
problems. This cost us some 4 TWh in lost output. The lost income and repair
costs were offset, in part, by insurance recoveries of some GBP15m. Following
the resolution of these problems, both reactors were returned to service by
December 2002 and since then the plant has been operating well. Technical
problems were also experienced at Dungeness B and Heysham 2, which contributed
to the lower overall output. There were, however, strong performances at other
stations notably Hartlepool and Hunterston B.
UK nuclear cost per unit, excluding revalorisation, rose 5% to GBP17.60/MWh as
compared to GBP16.70/MWh in 2001/2. When the revised BNFL arrangements which
underpin our cost improvement strategy are fully implemented, nuclear front and
back-end fuel costs will be significantly reduced. In addition these contracts
provide a hedge against market prices for a significant proportion of our output
and simplify our AGR fuel procurement activities.
It is clear that the greatest risk to achieving our UK nuclear generation target
is the level of unplanned generation losses. For this reason we have launched a
number of programmes that will tackle the root causes of under performance and
reduce losses to competitive levels.
Following reviews by the World Association of Nuclear Operators (WANO), we are
implementing programmes to improve the reliability of our operations and to
standardise practices across our power stations and central support functions.
Key areas for improvement include eliminating human performance errors and
improving plant reliability - known to be the two major causes of generation
losses. We are investing some GBP31m in improvements to plant condition - of
which half will be invested at Hinkley Point B and Dungeness B to improve their
long term reliability. We are refocusing our training programme to emphasise
human performance.
We are also well advanced in the deployment of a new works management system to
improve the planning and allocation of maintenance work at our stations. This is
an important tool to increase productivity and reliability. By the end of the
year we had successfully implemented the system at the majority of our sites and
look forward to the expected operational benefits such as improved scheduled
maintenance and reductions in unplanned downtime and operational safety issues.
Power and Energy Trading
Trading conditions for generators in the United Kingdom electricity markets
continued to be difficult. The price for baseload power for generators in the
England and Wales spot market averaged GBP15.48/MWh, down 10% on 2001/2. Prices
have remained at low levels, below cost for a range of producers, as the
generation sector continues to experience intense competitive pressure.
Overall our achieved price fell 10%, from GBP20.40/MWh to GBP18.30/MWh,
reflecting the ongoing market price weakness. This compared with total UK
generation costs of GBP21.70/MWh (including nuclear, Eggborough and corporate
overheads plus revalorisation) as compared to GBP20.30/MWh in 2001/2. We managed
our risk exposure by continuing to seek diverse channels to market and making
best use of the flexibility of our coal-fired plant. Our direct sales business
increased its volume by over 20% to 22.5 TWh and continues to be highly rated
for the quality of its customer service. Eggborough, our 2000MW coal-fired
station, generated 5.7TWh in the year. Work is proceeding to fit Flue Gas
Desulphurisation (FGD) to two of its four units which will allow continued
operation using a variety of coals whilst still complying with stricter limits
on sulphur emissions.
Regulatory changes are a feature of the developing electricity market. Ofgem
have proposed a major reform to NETA to expand its coverage to include the whole
of Great Britain and change the basis for charging for access to and losses on
the transmission and distribution networks. Draft legislation to implement BETTA
was published in January 2002 and the target date for implementation of the
change is currently October 2004. British Energy continues to work closely with
Ofgem and the UK Government to ensure that the changes are the minimum necessary
to create a single GB market and that they do not create disproportionate costs
or penalties for existing generators.
Agreement was reached in July 2002 with Scottish Power and Scottish & Southern
Energy on a revised pricing formula under the Nuclear Energy Agreement (NEA),
following the introduction of the New Electricity Trading Arrangements (NETA) in
2001. The revised contract, which received regulatory approval in November 2002,
will run until 1 April 2006, or the introduction of BETTA, whichever is the
earlier. Purchases under the revised contract will be much more closely linked
to England and Wales wholesale market prices and terms. Under the revised
agreement, British Energy received a one-off settlement from Scottish Power and
Scottish & Southern Energy has subsequently released GBP41m as exceptional
income in respect of the adjustments to the long term contract.
In parallel with the restructuring, British Energy has developed a new trading
strategy, aimed at reducing the market price risk facing the business by
securing more fixed price sales of output for the medium term. In implementing
this, we announced a major new contract in February, covering 38TWh of output
over four years from April 2003. Over 50% of this is at fixed prices, with the
remainder linked to future electricity market prices. The possibilities for
further medium term contracts which reduce market price exposure continue to be
explored in both the wholesale market and direct sales business. The suite of
new arrangements with BNFL, which, with the exception of the agreement to sell
some GBP50m of our uranics stocks, are subject to completion of restructuring,
will provide a partial hedge against market price on some 40% of our total
output.
North America
British Energy's recent financial difficulties have resulted in dramatic changes
for the group's interests in North America. As a key element of the proposed
restructuring we sold our interest in Bruce Power, and announced plans to
dispose of AmerGen, our 50/50 joint venture with Exelon Corporation.
Bruce Power had performed well since its acquisition in May 2001. In the period
from 1 April 2002 to 14 February 2003, Bruce B generated 19.2 TWh, a load factor
of 79%. The profit contribution from Bruce Power for the period to 14 February
2003 was GBP97m before minorities.
The terms of the disposal of Bruce Power were negotiated in very difficult
circumstances. At an EGM on 10 February 2003, our shareholders approved the
disposal, which was completed on 14 February 2003. The purchaser of our interest
was a consortium consisting of Cameco Corporation (an existing partner in Bruce
Power), BPC Generation Infrastructure Trust and TransCanada PipeLines Limited.
The Power Workers' Union and The Society of Energy Professionals also acquired a
further combined 2.6% interest to add to their existing 2.6% interest.
At completion of the disposal, we received initial consideration of C$627
million (GBP250 million) after minor closing adjustments, and a payment of C$51
million (GBP20 million) in recognition of earlier capital contributions paid by
the Company to Bruce Power.
Since the year-end, we have received a further C$20 million that had been held
in an escrow account following closing in respect of a potential pension fund
adjustment. The cash received to date represents a loss of GBP(35)m. However, in
addition, British Energy expects to receive up to:
* C$100 million, contingent on the restart of two of the reactors at
Bruce A. If the restart of the two reactors is delayed beyond 15 June and 1
August respectively, the consideration of C$50m per reactor reduces on a sliding
scale falling to zero after 9 months delay and amounts not paid to British
Energy are paid instead to the Province of Ontario. The current restart
programme is on track to bring both reactors back ahead of these due dates,
although there is little margin for slippage.
* C$20 million, which will be held in an escrow account to cover claims
made up to February 2005 in respect of representations and warranties.
In addition, C$80m is held in an escrow account to cover the estimated
outstanding tax liabilities of the Bruce Power group. In the event that the sums
held back to satisfy the tax liability are insufficient, British Energy would be
required to repay the amount of such excess to the purchasing consortium.
Conversely, British Energy will be refunded any balance remaining after
settlement of the tax liability.
The proceeds of the disposal were used to pay down loans under the Government
credit facility and to support our working capital and trading collateral
requirements.
During the year ended 31 March 2003, profit before tax and exceptionals for our
50% share of AmerGen increased by GBP6m to GBP47m. Total output for the year was
20.2 TWh, an average load factor of 95%. The total capacity of the AmerGen fleet
was increased following the upgrading in Clinton's capacity in spring 2002 to
1017 MWe.
By summer 2002, despite the successful performance of the AmerGen business,
British Energy and its co-partner Exelon Corporation decided that there was
limited scope to grow AmerGen due to the changes in the overall market for
nuclear plant. In September 2002, British Energy and Exelon announced their
intentions to sell AmerGen but, as we announced on 7 March 2003, these plans did
not attract suitable offers. Independently from Exelon, we are now focusing our
efforts on realising the value of our investment, as soon as is practicable.
Discussions with potential purchasers are ongoing
Current Trading and Outlook
Market conditions within the UK remain extremely challenging and have adversely
impacted both British Energy and other players in the generation market, as has
been well publicised over the last twelve months. To ensure robustness against
changing market prices, we have sold forward the bulk of our projected output
for 2003/4 but, as a result of the current UK market conditions, we are
anticipating a further decline in our UK achieved price of around 7%. British
Energy has continued to utilise diverse channels to market, including direct
sales to industrial and commercial customers and structured wholesale trades, to
mitigate price risk.
In addition to the savings from the revised BNFL fuel contracts, British Energy
is looking to achieve further savings through a review of its cost base in all
areas of its business. Our target is to reduce our annual cost base by some
GBP25m in 2003/4 with a further GBP25m being sought in 2004/5.
On output, our UK nuclear plants have achieved a total output of 11.5TWh up to
the end of May, in the financial year 2003/4. This is slightly ahead of 2002/ 3,
and ahead of our run rate to hit the 2003/4 target of 67TWh. Within the rest of
the group, Eggborough provided important flexibility to the Company's nuclear
portfolio, generating 0.7TWh. In the United States, AmerGen's three stations
performed well, generating an estimated total output of 3.3TWh.
Looking to the future, nuclear safety remains our number one priority. We have a
major responsibility in this area. We must maintain high standards of safety
whilst ensuring that we deliver reliable output, consistently meeting our
targets from cost-efficient operations and achieving world-class operational
standards. This will be demanding but I expect that British Energy can re-emerge
as an effective participant in the UK electricity market which is able to
generate electricity at a price customers are willing to pay.
Our staff have worked hard over the past year to meet challenging goals and to
recover from the adverse market and technical issues that the Chairman referred
to. It is their efforts, skills and attention to detail which are so important
for our recovery. Despite the disappointments of the past year, and the
continuing need for change, I am confident that everyone at British Energy
wishes to demonstrate their capability and restore the reputation of the
Company.
GROUP FINANCIAL SUMMARY
The accounts for the year ended 31 March 2003 are dominated by the effect of
exceptional items. Due to their size, the Group Financial Summary addresses the
exceptional items first and then the "business performance" figures which
exclude exceptional items.
The financial year ended March 2003 has been the most difficult in the history
of British Energy. The combination of dramatic reductions in electricity prices
in the UK market, a high fixed cost base and a failure to renegotiate its fuel
contracts with BNFL precipitated a financial crisis in the group. These factors
lay behind the Board's decision to seek assistance from the UK Government on 5
September 2002 and have since culminated in a restructuring process outlined in
the Chairman's Statement.
British Energy made a loss before tax after exceptional items of GBP(4,292)m,
compared with a loss of GBP(493)m in the previous year. The group's financial
statements have been drawn up on a non- restructured basis, as this represents
the legal position of the group pending completion of the restructuring by
September 2004.
However, this Statement includes an unaudited pro forma net asset statement to
illustrate the financial effects of the restructuring as if it were implemented
at 31 March 2003.
Exceptional Items
The 2003 results include exceptional items amounting to GBP(4,162)m before tax,
analysed as follows:
GBPm
Write-down of fixed asset carrying values (3,738)
UK decommissioning fund (124)
AmerGen decommissioning fund (48)
Write-down of own shares held (102)
Slow moving stocks (57)
Provision for interest swaps (56)
Restructuring costs (35)
Loss on sale of investments in Bruce Power and Huron Wind (35)
Write-off of capitalised borrowing costs (6)
Onerous trading contracts (2)
Nuclear Energy Agreement 41
Total exceptional Items (4,162)
Write-down of fixed asset carrying values
Due to the substantial reductions in UK electricity prices, we have written down
the value of all our generation assets by a total amount of GBP(3,738)m. This
included a write-down of GBP(3,587)m for our nuclear generation assets and a
further write-down of GBP(151)m for our Eggborough coal-fired plant.
Write-down of UK decommissioning fund
The market value of the UK decommissioning fund has fallen to GBP334m following
the fall in the value of the equity markets, compared to a value of GBP458m
based on revalorising the open balance sheet at 1 April 2002. An exceptional
charge of GBP(124)m has been required to restate the balance sheet value to
market value.
Write-down of AmerGen decommissioning fund
The market value of the AmerGen decommissioning fund has also fallen and an
exceptional charge of GBP(48)m has been required for British Energy's share of
the adjustment required to restate the balance sheet value to market value.
Write-down of own shares held
The value of British Energy shares held in trust to cover employee share options
was written down by GBP(102)m to GBP2m to reflect market value, based on market
prices of 3.75p and 3.0p for the Company's Ordinary and 'A' shares respectively.
Slow moving stocks
The group is implementing new fleet-wide work management practices and has
carried out a detailed review of slow moving stocks and has made a provision of
GBP(57)m for stock obsolescence.
Provision for interest swaps
An interest rate swap provision has been created amounting to GBP(56)m in
respect of interest rate swap contracts which are no longer effective as hedges
and are no longer required by the group.
Restructuring Costs
A charge of GBP(35)m has been made in respect of advisory and other costs
associated with the Company's restructuring.
Loss on sale of investments in Bruce Power and Huron Wind
The accounts record a loss on the disposal of Bruce Power and Huron Wind
amounting to GBP(35)m. The calculation of the loss on disposal incorporates
receipt of the C$20m retention relating to pensions, but does not take into
account retentions of C$120m.
Write-off of capitalised borrowing costs
We have written-off GBP6m of debt arrangement costs, which relate to borrowings
which are now part of the financial restructuring. These costs had been
capitalised and were being amortised over the duration of the borrowings.
Onerous trading contracts
The group has certain pre-NETA electricity trading contracts with Enron Capital
& Trade Europe Finance LLC ("Enron"), Teesside Power Limited ("TPL") and
TotalFinaElf Gas and Power Limited ("TFE"). As a result of the terms inherent in
these contracts and the Directors' view of future market prices the contracts
are considered to be onerous. The Enron and TFE contracts were terminated during
the year, thus giving rise to claims for certain amounts which became payable.
The accounts reflect the claimed amounts which have been agreed in principle
with Enron, TPL and TFE for the purposes of the restructuring. An exceptional
charge of GBP2m has been made in the year to make further provision for these
long term trading contracts.
Nuclear Energy Agreement
The Company has agreed revised terms for the electricity supply agreement with
Scottish Power and Scottish & Southern Energy. Under the terms of the agreement,
which has now had regulatory approval, the Company is in a position to release a
balance of GBP41m in respect of cash previously received.
BUSINESS PERFORMANCE RESULTS
This summary is based on "business performance" figures which exclude
exceptional items (as described in Note 1 to the accounts). Loss before tax was
GBP(130)m compared to a profit before tax last year of GBP42m. The main changes
are highlighted below:
GBPm GBPm
2001/2 Profit Before Tax 42
Lower UK electricity prices (111)
Lower UK output (net of effect on fuel costs) (81)
Increased UK misc. income 15
Increased UK energy supply costs (13)
Lower UK operating costs (excluding output related 18
savings)
Total decrease in UK operating profit (172)
Increase in Bruce Power operating profit (primarily due to 45
higher prices and lower costs)
Increased contribution from AmerGen 6
Increased group net interest charges (6)
Increased revalorisation charges (45)
2002/3 Loss Before Tax (130)
Debt
At 31 March 2003, net debt was GBP(550)m, compared with GBP(859)m last year. The
reduction was primarily due to the impact of the standstill arrangements and the
disposal of our interest in Bruce Power.
Taxation
There was a tax charge of GBP(2)m for the year, compared with GBP(81)m last
year. As for the previous year, the tax figures were adversely affected by
relatively high marginal tax rates in North America.
Other Accounting Issues
Pensions
The accounts include disclosures required under the transitional requirements of
FRS17, the UK accounting standard dealing with retirement benefits. The UK
Accounting Standards Board has postponed full implementation of FRS17, following
the decision by the International Accounting Standards Board to review IAS19,
the relevant international accounting standard. Full implementation of FRS17 is
unlikely to be required until 2005 at the earliest and the content of FRS17 may
change following the review of IAS19.
The FRS17 valuation is based on a snapshot of assets and liabilities at a
particular point in time and does not necessarily take account of the long term
nature of pension schemes. Movements in equity markets and bond yields can
create considerable volatility in the FRS17 valuation at different points in
time.
Under FRS17, the net pension deficit was GBP352m for the UK schemes as at 31
March 2003, compared to a surplus of GBP43m one year earlier. The deficit
reflects in particular the decline in equity markets over the last year.
The funding of the pension schemes is based on the results of three-yearly
valuations by independent actuaries rather than on the results of the FRS17
valuation. The next actuarial valuation is scheduled to take place as at 31
March 2004. During the year, the actuary of the British Energy Generation Group
Scheme (the main UK pension scheme) carried out an interim review of scheme
assets and liabilities in order to assess the appropriateness of the continued
use of the surplus that arose at the 31 March 2001 valuation. As a result of
that review, the employer's contributions to that scheme were increased from 10%
to 17.1% from 1 November 2002. The employer's contributions to the British
Energy Combined Group Scheme (the smaller UK pension scheme) had been increased
from 12% to 15.3% from 1 April 2002.
We recognise that the funding of pension schemes is a matter of concern to
scheme members, to shareholders and to our other stakeholders. We will keep the
funding issues under close review in the coming year.
The Group balance sheet reported at 31 March 2003 does not include the FRS 17
deficit.
Pro forma asset statement
The accounts include an unaudited pro forma net asset statement to illustrate
the financial impacts of the restructuring, as if they were implemented at 31
March 2003.
Contingent Liabilities
The accounts include extensive disclosures of contingent liabilities as set out
in Note 31.
INDEPENDENT AUDITORS' REPORT
The independent auditors' report on the financial statements for the year ended
31 March 2003 was not qualified, but contained an explanatory paragraph in
respect of a fundamental uncertainty as follows:
"In forming our opinion we have considered the adequacy of the disclosures made
in note 1 concerning the preparation of the financial statements on the going
concern basis. The validity of this depends on the continuation of the financial
assistance from the Secretary of State for Trade and Industry and the Group's
significant creditors and the successful completion of financial restructuring.
In view of the significance of the uncertainty concerning the continuation of
financial assistance from the Secretary of State for Trade and Industry and the
Group's significant creditors and the successful completion of financial
restructuring we consider that it should be drawn to your attention but our
opinion is not qualified in this respect."
UNAUDITED PRO FORMA GROUP NET ASSET STATEMENT AS AT 31 MARCH 2003
(i) Basis of Preparation
The Group balance sheet drawn up at 31 March 2003 does not reflect the terms of
the proposed restructuring as the restructuring has not been finalised.
Set out below is an unaudited pro forma statement of the consolidated net assets
of the British Energy Group, which has been prepared on the basis of the notes
set out below for the purpose of illustrating the effect of the proposed
restructuring of British Energy plc as if they had taken place on 31 March 2003.
This statement has been prepared for illustrative purposes only and does not,
because of its nature, give a true or complete picture of the financial position
of British Energy.
No adjustments have been made to take account of trading or changes in the
financial position of British Energy after 31 March 2003.
The pro forma statement of net assets has been based on the audited consolidated
balance sheet of British Energy as at 31 March 2003, included in the
consolidated financial statements of the Group, after making the adjustments
required in respect of steps 1 to 4 below.
The terms and conditions, especially with respect to the methodology of the
restructuring and amongst other matters, the treatment of Eggborough, have only
been agreed in principle with the relevant parties and are not contractually
binding. The restructuring is subject to a large number of significant
uncertainties, the implications of which are set out elsewhere in this report.
Restructuring negotiations continue and the pro forma net asset statement may
require to be adjusted should the final restructuring terms and conditions
differ from those currently proposed.
(ii) The Unaudited Effects of Restructuring on the Group's Net
Assets as at 31 March 2003
Group Group
net assets net assets
pre-restructuring Step 1 Step 2 Step 3 Step 4 post-restructuring
GBPm GBPm GBPm GBPm GBPm GBPm
Tangible fixed assets 686 (138) - - - 548
Investments 77 - - - - 77
Goodwill - - - - - -
Fixed Assets 763 (138) - - - 625
Current Assets
Decommissioning Fund/
HMG indemnity 334 - - 3,865 - 4,199
Stocks 360 - - - - 360
Debtors 387 - - - - 387
Investments 246 - - - - 246
Cash at bank / cash 87 - - - - 87
reserve
1,414 - - 3,865 - 5,279
Creditors <1 year (1,033) - 179 - 316 (538)
Bonds and bank loans (152) - - - 152 -
(1,185) - 179 - 468 (538)
Net Current Assets 229 - 179 3,865 468 4,741
Nuclear liabilities -
creditors >1 year
(1,909) - (360) - - (2,269)
Bonds and loans (731) - - (275) 306 (700)
Cash reserves due to - - - (216) - (216)
NLF
Working capital due to - - - (17) - (17)
NLF
Other long term - - - - - -
creditors
(2,640) - (360) (508) 306 (3,202)
Provisions (1,735) - (81) - - (1,816)
Net (liabilities)/ (3,383) (138) (262) 3,357 774 348
assets
General
The accounting for restructuring is expected to follow the principles of
acquisition accounting due to the significance of the change in ownership of the
Group. This will result in significant changes to the share capital and reserves
structure of the Group, as well as the need to fair value the assets and
liabilities.
As stated in note 25 to the financial statements, the most recent formal
triennial actuarial valuations of the Group's pension schemes were carried out
as at 31 March 2001. The next formal actuarial valuation is due to be carried
out as at 31 March 2004. Accordingly, in the absence of a formal actuarial
valuation as at 31 March 2003 the pro forma net asset statement does not include
any adjustment to reflect the fair value of the pension scheme assets and
liabilities as at that date. The balance sheet on restructuring is expected to
include the fair value of the pension scheme assets and liabilities following
the next formal actuarial valuation.
UNAUDITED PRO FORMA GROUP NET ASSET STATEMENT AS AT 31 MARCH 2003 (Continued)
(ii) The Unaudited Effects of Restructuring on the Group's Net
Assets as at 31 March 2003 (continued)
General (continued)
The carrying value of AmerGen of GBP71m included in the pro forma net asset
statement is based on that included in the audited group financial statements as
at 31 March 2003. As disclosed elsewhere in the Annual Report, the Directors are
currently in negotiations with various parties to dispose of their investment in
AmerGen. Accordingly, the investment has not been fair valued in the pro forma
net asset statement pending conclusion of these negotiations.
The Directors have assumed that the market value of new shares is equal to the
fair value of the net assets and, therefore, no goodwill arises. If that market
value is different to fair value, however, then positive or negative goodwill
will arise when restructuring is effected. In any event the market value of the
new shares and the fair value of net assets on completion of the restructuring
may be different from the pro forma net assets as at 31 March 2003.
Step 1 - Revaluation of fixed assets
Fixed assets employed across the fleet of UK nuclear power stations have been
fair valued based on continued operation assuming a discount rate of 10% applied
to projected cash flows, taking account of the new BNFL contracts and the NLF
funding arrangements including the cash sweep mechanism described below. The
carrying value of fixed assets has been reduced by GBP138m following these steps
as the cash sweep mechanism is expected to have a negative impact on cash flows.
There is no deferred tax liability as at 31 March 2003 following the asset write
down. No deferred tax asset is recognised as its recoverability in the
foreseeable future is considered by management to be uncertain.
Step 2 - New BNFL Contracts
The provision for nuclear liabilities will be based on the revised contractual
arrangements. Creditors have been adjusted to reflect amounts compromised under
the standstill and restructuring agreements, together with a rescheduling of the
payment terms under the historic BNFL contracts.
A consequence of the new arrangement is that BE now recognises liabilities under
historic contracts for spent fuel services costs related to all fuel loaded
before the effective restructuring date. Accordingly nuclear liabilities have
been increased as BE previously provided for these liabilities as the fuel was
consumed. Adjustment has, therefore, been made in respect of contracted and
uncontracted liabilities for the cost of spent fuel services for unburnt fuel in
the reactor as at 31 March 2003.
Under the proposed new BNFL contracts, ownership of the AGR fuel loaded after
the restructuring date reverts to BNFL and so BE no longer bears storage,
reprocessing and disposal costs. Going forward, BE's AGR back-end fuel costs for
these services will be GBP150,000 (adjusted for RPI) per tonne of AGR fuel
loaded. In addition, BE will make further annual payments which include a rebate
and surcharge mechanism based on the out-turn of output and electricity market
prices in that year.
Step 3 - NLF and HMG Indemnity Arrangements
HMG has provided an indemnity to fund services for spent AGR fuel loaded
pre-restructuring and any future shortfall on NLF funding of uncontracted
liabilities (including PWR spent fuel services) and decommissioning costs. This
shortfall will represent the difference between the discounted provision for
nuclear liabilities less the market value of the NLF at the balance sheet date.
The adjustment to the decommissioning fund/HMG indemnity of GBP3,865m represents
the shortfall as at 31 March 2003.
The NLF will initially be comprised of the assets in the current decommissioning
fund together with GBP275m of new bonds issued to the fund on restructuring.
Post restructuring the Group will contribute GBP20m per annum (adjusted for RPI)
tapering off as stations close, GBP150,000 per tonne (adjusted for RPI) of PWR
fuel loaded as well as a 65% cash sweep.
The cash sweep is initially defined as 65% of the movement in cash and cash
equivalents during the year after adjusting for, among other things, any
payments made to the NLF or dividends paid in the year. In restricted
circumstances BE is permitted to carry forward cash from one year to the next
(thereby reducing the NLF cash sweep payment for the first year) where certain
significant committed future cash outflows are expected.
Post restructuring the Group will be entitled to retain a minimum amount of cash
in reserve, initially set at a target of GBP490m, which can be adjusted for any
incremental collateral requirements, prior to the proposed NLF cash sweep taking
effect, to support collateral and liquidity requirements post restructuring. A
provision of GBP216m has been created for cash reserves due to the NLF,
representing 65% of the Group's cash and liquid funds balance at 31 March 2003.
An additional provision of GBP17m has been created for net working capital
balances as at 31 March 2003. The cash sweep mechanism will have an impact on
future dividend policy.
New legislation, the Electricity (Miscellaneous Provisions) Act, was enacted on
8 May 2003. One of the objectives of the legislation was to avoid British Energy
incurring a tax charge as a result of the new HMG indemnity arrangements
otherwise the level of state aid would require to be correspondingly higher.
Step 4 - New Bonds Issued
The GBP700m balance for bonds and loans upon restructuring represents GBP550m of
new bonds together with GBP150m due through the planned revision to the capacity
and tolling agreement between BEPET and EPL to fund repayments under the
Eggborough bank loans. The adjustments represent the difference between the
carrying value of liabilities pre-restructuring and the amounts for which they
are compromised by the significant creditors under the terms of the
restructuring which is assumed to have no tax consequences. The new bonds will
be issued, together with some equity, in return for the significant creditors
and BNFL agreeing to compromise the amounts owing to them.
FURTHER INFORMATION
Contacts
Investor Relations Paul Heward 01355 262201
Media Enquiries Andrew Dowler 020 7831 3113
Find this News Release on our web site: www.british-energy.com
Information Regarding Forward-Looking Statements
This report contains certain "forward-looking" statements as defined in Section
21E of the United States Securities Exchange Act 1934. Such forward-looking
statements include, among others, statements concerning the anticipated
development of the UK electricity industry, the future development of regulation
of the UK electricity industry, the effect of these developments on our
business, financial condition or results of operations, our proposed
restructuring, our expectations as to the growth of our business, our
expectations with regard to our future investments in energy related projects in
the UK and internationally and other statements of expectation, belief, future
plans and condition and results of operations. These forward-looking statements
involve known and unknown risks, uncertainties and other factors which are in
some cases beyond our control and may cause our actual results or performance to
differ materially from those expressed or implied by such forward-looking
statements. Due to the uncertainties and risks associated with these
forward-looking statements, which speak only as of the date hereof, we are
claiming the benefit of the safe harbour provision referred to above.
British Energy plc Preliminary Results Part 2
British Energy plc
Group Profit and Loss Account for the year ended 31 March 2003
2003 2002
2003 Exceptional Business Business Exceptional 2002
Notes Total Items Performance Performance Items Total
GBPm GBPm GBPm GBPm GBPm GBPm
Turnover:
Group and share of joint 2,115 41 2,074 2,259 - 2,259
venture
Less:
Share of turnover in joint (212) - (212) (210) - (210)
venture
Turnover: -
Continuing activities 1,528 41 1,487 1,701 - 1,701
Discontinued activities 375 - 375 348 - 348
Turnover: 3 1,903 41 1,862 2,049 - 2,049
Operating costs 4 (5,705) (3,947) (1,758) (1,818) (512) (2,330)
Group operating (loss)/profit:
Continuing activities (3,899) (3,906) 7 179 (512) (333)
Discontinued activities 97 - 97 52 - 52
Group operating (loss)/profit (3,802) (3,906) 104 231 (512) (281)
Share of operating profit of
joint venture 43 - 43 37 - 37
Operating (loss)/profit:
Group and share of joint (3,759) (3,906) 147 268 (512) (244)
venture
(Loss)/profit on sale of 5 (35) (35) - - 4 4
business
Financing charges
- revalorisation 6 (364) (159) (205) (160) (27) (187)
- interest payable and similar 6 (134) (62) (72) (66) - (66)
charges
(Loss)/profit on ordinary (4,292) (4,162) (130) 42 (535) (493)
activities before taxation
Taxation on (loss)/profit on
ordinary activities 7 378 370 8 (52) 56 4
Share of taxation for joint (10) - (10) (29) - (29)
venture
Loss on ordinary activities
after taxation (3,924) (3,792) (132) (39) (479) (518)
Minority interest (17) (9)
Loss attributable to (3,941) (527)
shareholders
Dividends
- annual 9 - (48)
- non-equity 9 - (2)
Loss for the financial year (3,941) (577)
Loss per share (p)
- basic 10 (654.7) (24.8) (8.4) (88.5)
Dividends per share (p)
- annual 9 - 8.0
- non-equity 9 - 2.3
Other gains and losses for the years are set out in the Statement of Total
Recognised Gains and Losses. Notes 1 to 33 form part of these financial
statements.
British Energy plc
Balance Sheet as at 31 March 2003
Group Company
Notes 2003 2002 2003 2002
GBPm GBPm GBPm GBPm
Fixed Assets
Tangible assets 11 686 4,714 - 39
Interest in joint venture:
- share of gross assets 477 544 - -
- share of gross liabilities (406) (457) - -
12 71 87 - -
Other investments 12 6 108 14 19
763 4,909 14 58
Current assets
Decommissioning fund 13 334 411 - -
Stocks 14 360 514 - -
Debtors: amounts falling due within one year 331 412 85 2,517
Debtors: amounts falling due after more than one 56 320 - -
year
15 387 732 85 2,517
Investments - liquid funds 29 246 209 210 179
Cash at bank 29 87 - 83 -
1,414 1,866 378 2,696
Creditors: amounts falling due within one year
- borrowings 17 (152) (153) (110) (116)
- other 16 (1,033) (822) (3,742) (49)
(1,185) (975) (3,852) (165)
Net current assets / (liabilities) 229 891 (3,474) 2,531
Total assets less current liabilities 992 5,800 (3,460) 2,589
Creditors: amounts falling due after more than
one year
- borrowings 17 (731) (915) (298) (298)
- other 16 (1,909) (1,858) - -
Provisions for liabilities and charges 19 (1,735) (2,400) (9) -
Net (liabilities)/assets (3,383) 627 (3,767) 2,291
Capital and reserves
Called up equity share capital 24 277 277 277 277
Share premium 76 76 76 76
Capital redemption reserve 350 350 350 350
Profit and loss account 25 (4,179) (213) (4,563) 1,495
Equity shareholders' interests 26 (3,476) 490 (3,860) 2,198
Non-equity shareholders' funds 24 93 93 93 93
Minority interests - 44 - -
(3,383) 627 (3,767) 2,291
The financial statements were approved by the Board of Directors on 2 June 2003
and signed on its behalf by:
Adrian Montague Keith Lough
Chairman Finance Director
Notes 1 to 33 form part of these financial statements.
British Energy plc
Group Cash Flow Statement for the year ended 31 March 2003
2003 2002
Notes Total Total
GBPm GBPm
Net cash inflow from operating activities 27 336 380
Interest paid (91) (62)
Interest received 9 13
Fees paid - (2)
Dividends paid on non-equity shares (2) (2)
Returns on investments and servicing of finance (84) (53)
Taxation received 3 4
Payments to acquire tangible fixed assets (282) (225)
Receipts from sale of financial investments - 38
Capital expenditure and financial investment (282) (187)
Investment in Canada - (129)
Receipts from sale of Canadian investment 262 -
Acquisitions and disposals 262 (129)
Equity dividends paid (31) (46)
(Increase)/decrease in term deposits (37) 18
Management of liquid resources 29 (37) 18
Minority funding of Bruce Power 12 4
Repayment of amounts borrowed net of new loans (92) 9
Financing (80) 13
Movement in cash 29 87 -
Notes 1 to 33 form part of these financial statements.
British Energy plc
Statement of Total Recognised Gains and Losses
for the year ended 31 March 2003
Notes 2003 2002
GBPm GBPm
Loss for the financial year (3,941) (527)
Translation differences on foreign currency net investments 26 (25) (8)
Total recognised losses for the year (3,966) (535)
Prior year adjustments in respect of accounting policy changes:
- deferred tax - (130)
Total recognised losses since last annual report (3,966) (665)
1. BASIS OF PREPARATION
(i) Introduction
The Group accounts are a consolidation of the financial statements of the
Company and all its subsidiary undertakings, and are drawn up on a
non-restructured basis, i.e. on the basis of contracts and agreements in place
at 31 March 2003.
On 14 February 2003, the Group disposed of its stake in Bruce Power and Huron
Wind therefore their results up to the point of disposal have been classified as
discontinued operations. All other activities of the Group have been shown as
continuing activities.
To assist shareholders to compare the underlying financial performance of the
Group, "business performance" profit and loss account figures are shown which
exclude exceptional items.
(ii) Principles underlying going concern assumption
Having reviewed the longer-term prospects of the business, on 5 September 2002
the Directors of British Energy announced that they had no alternative but to
seek financial support from the UK Government. On 9 September 2002 the UK
Government granted the Company a credit facility of up to GBP410m to provide
working capital for British Energy's immediate requirements and to allow British
Energy to stabilise its trading position in the UK and North America. On 26
September 2002 British Energy announced that the UK Government had agreed to
extend a revised facility for up to GBP650m until 29 November 2002 to give the
Company sufficient opportunity to develop a restructuring plan.
On 28 November 2002 British Energy announced that the facility agreement had
been further extended until 9 March 2003.
On 7 March 2003 British Energy announced that the UK Government had agreed to
extend the facility, which will now mature on the earlier of 30 September 2004
or the date on which the restructuring plan, as outlined below, becomes
effective and which was reduced from GBP650m to GBP200m to provide working
capital for the business and collateral to support UK trading operations. HMG is
entitled to require immediate repayment of the facility if, in the opinion of
the Secretary of State for Trade and Industry, the restructuring cannot be
implemented in the manner envisaged. The facility agreement is cross-guaranteed
by the principal Group subsidiaries (excluding Eggborough Power (Holdings)
Limited and Eggborough Power Limited) and is secured by, among other things,
fixed and floating charges and/or share pledges granted by those subsidiaries.
The facility agreement also contains a requirement to provide further security
as required by the Secretary of State for Trade and Industry provided that the
creation of such security would not cause a material default under any contract
to which any member of the Group is a party or is a breach of law.
On 14 February 2003 British Energy announced that it had entered into binding
standstill agreements and had reached a non-binding agreement on the principles
of the Company's restructuring with certain of the bondholders, the steering
committee of the Eggborough bank syndicate, The Royal Bank of Scotland plc as
provider of a letter of credit to the Eggborough banks, Teesside Power Limited,
TotalFinaElf and Enron Capital & Trade Europe Finance LLC.
The significant creditors and BNFL agreed with British Energy that they would
not take any steps to initiate any administration proceedings or demand or
accelerate any amounts due and payable by British Energy during the period
commencing on 14 February 2003 and ending on the earliest of 30 September 2004
or a termination event or the completion of the restructuring.
Under the standstill agreements certain significant creditors are paid interest
but not principal in respect of any claims against the British Energy Group. The
standstill agreements contain certain covenants for the benefit of the
significant creditors and BNFL (including the bondholders who have signed the
bondholders' standstill agreement). For example, during the standstill period,
British Energy has undertaken that it will not, without the unanimous consent of
the significant creditors and BNFL, make any acquisition or disposal greater
than GBP5 million (except for the sale of Bruce Power and AmerGen) and it will
not issue equity or pay any dividends.
BNFL or any of the significant creditors may terminate the standstill agreement
following the occurrence of a termination event. The termination events include
certain insolvency events affecting the Company, British Energy Generation
Limited, British Energy Generation (UK) Limited, British Energy Power & Energy
Trading Limited or Eggborough Power Limited, acceleration of the repayment terms
of the Facility, the required approvals under the standstill agreement not being
obtained within the time scales envisaged, any of the British Energy companies
failing to discharge certain continuing obligations and definitive documentation
not having been executed by 30 September 2003.
1. BASIS OF PREPARATION (Continued)
(ii) Principles underlying going concern assumption (continued)
The principal features of the proposed restructuring include:
* the amendment and extension of the BNFL contracts for front-end and
back-end related fuel services for the Group's AGR stations announced on 16 May
2003 and the implementation of a new trading strategy
* establishing a new Nuclear Liabilities Fund ("NLF") for uncontracted
nuclear liabilities and decommissioning costs to which British Energy would make
initial and ongoing contributions
* the Government funding liabilities relating to historic spent fuel
and any shortfall in the NLF
* compromising the existing claims of significant creditors in exchange
for new bonds and new ordinary shares and settling new off-take arrangements for
Eggborough
* British Energy disposing of its interests in AmerGen as well as Bruce
Power.
The financial statements have been prepared on a going concern basis in
accordance with FRS18, because the entity has not been liquidated nor is it
ceasing to trade and the Directors are currently seeking an alternative to
liquidating the Company or ceasing to trade. The going concern basis assumes
that the Company will continue in operational existence for the foreseeable
future. The validity of this assumption depends on continuation of financial
assistance from the Secretary of State for Trade and Industry and the Group's
significant creditors, and the successful completion of the proposed
restructuring.
The terms of the proposed restructuring will need to be agreed definitively with
the significant creditors whose entitlements are to be compromised and will need
to be approved by, inter alia, the Secretary of State, existing shareholders
(where required), the Inland Revenue and the European Commission (under state
aid rules) prior to being finally implemented. If such agreements with creditors
cannot be reached, the standstill arrangements are terminated, the required
approvals are not forthcoming, the assumptions underlying the restructuring
proposals are not fulfilled, the UK Government credit facility is not maintained
or the conditions to the restructuring are not satisfied or waived, in each case
within the time scales envisaged, the Company may be unable to meet its
financial obligations, in which case the Company could no longer be considered
to be a going concern.
If for any reason British Energy is unable to implement the restructuring and
ceases to be a going concern, adjustments may have to be made to reduce the
monetary values of assets to the recoverable amounts, to provide for further
liabilities that might arise and to reclassify the fixed assets and long term
liabilities as current assets and liabilities.
2. ACCOUNTING POLICIES
(i) Basis of Accounting
The financial statements are prepared under the historical cost convention and
in accordance with applicable accounting standards, except for the departures
noted below.
Certain energy trading financial derivatives and open positions on physical
energy trading contracts are marked to market using externally derived market
prices. This is a departure from the general provisions of Schedule 4 of the
Companies Act 1985. An explanation of this departure is given in note 2(xviii).
The income recognised by the Group in respect of the long-term rate of return of
the decommissioning fund is unrealised and its recognition is a departure from
one of the accounting principles set out in Schedule 4 of the Companies Act
1985. An explanation of this departure is given in note 2 (xvi).
The preparation of accounts in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the accounts and the
reported amounts of revenues and expenses during the reporting period. Actual
results can differ from those estimates.
In accordance with FRS18 the Directors have reviewed the Group's accounting
policies and confirm that they continue to be the most appropriate. A number of
the policies require the Group to use a variety of estimation techniques.
Significant factors considered when assessing the carrying value of assets
include future prices, expected annual output, remaining station lives and
discount rates. Estimates of output, costs and timing of associated cash flows
as well as the expected regulatory framework are key factors used to apply the
stated policies for long-term nuclear liabilities and decommissioning as
discussed further in note 2 (xv) below.
The effect of the proposed restructuring of the Company, as noted above, will be
significant and will result in, among other matters, the reassessment of
estimates and assumptions which have been used to prepare these financial
statements. In particular, the calculation of the carrying value of the nuclear
stations will be reassessed on the basis of the new contracts with BNFL, the
contribution of 65% of cash flow to the Nuclear Liabilities Fund and the likely
review of the risk discount rate applied to the future cash flows.
(ii) Basis of Consolidation
The Group financial statements consolidate the financial statements of British
Energy and all its subsidiary undertakings. Inter-company profits, transactions
and balances are eliminated on consolidation.
2. ACCOUNTING POLICIES (continued)
(iii) Turnover
Turnover represents amounts receivable for sales of electricity and sales of
other related goods, net of value added tax. Sales are recognised on an accruals
basis, with reference to meter readings. Turnover includes estimates of selling
prices for electricity generated in the year.
(iv) Fuel Costs - Nuclear Front End
Advanced Gas Cooled Reactors ("AGR")
Front end fuel costs consist of the costs of procurement of uranium, conversion
and enrichment services and fuel element fabrication. Fabrication costs comprise
fixed and variable elements. The fixed element is charged to the profit and loss
account as incurred and the variable element, other than for unburnt fuel at
shutdown, is charged to the profit and loss account in proportion to the amount
of fuel burnt.
Pressurised Water Reactor ("PWR")
All front end fuel costs are variable and, other than for unburnt fuel at
shutdown, are charged to the profit and loss account in proportion to the amount
of fuel burnt.
Bruce Power
Front end fuel costs are recognised when fuel is loaded into the reactor. The
reactors are continually reloaded and as such this method closely reflects fuel
burnt. British Energy disposed of its interest in Bruce Power on 14 February
2003.
(v) Fuel Costs - Nuclear Back End
AGR
Spent fuel extracted from the reactors is sent for reprocessing and/or long-term
storage and eventual disposal of resulting waste products. Back end fuel costs
comprise the estimated cost of this process at current prices discounted back to
current value in respect of both the amount of irradiated fuel burnt during the
year and an appropriate proportion of unburnt fuel which will remain in the
reactors at the end of their lives. All back end fuel costs, other than for
unburnt fuel at shutdown, are charged to the profit and loss account in
proportion to the amount of fuel burnt.
PWR
Back end fuel costs are based on wet storage in station ponds followed by dry
storage and subsequent direct disposal of fuel. Back end fuel costs comprise the
estimated cost of this process at current prices discounted back to current
value. All back end fuel costs, other than for unburnt fuel at shutdown, are
charged to the profit and loss account in proportion to the amount of fuel
burnt.
Bruce Power
Under the terms of the Bruce Power lease the responsibility for spent fuel,
waste and decommissioning remains with Ontario Power Generation Inc. British
Energy disposed of its interest in Bruce Power on 14 February 2003.
(vi) Unburnt Fuel at Shutdown
Due to the nature of the nuclear fuel process there will be some unburnt fuel in
the reactors at station closure. The front end and back end costs of this fuel
are charged to the profit and loss account over the estimated useful life of
each nuclear station on a straight line basis.
(vii) Fuel Costs - Coal
Fuel costs for coal are determined on a weighted average cost basis.
(viii) Research and Development
Research and development expenditure is charged to the profit and loss account
as incurred.
(ix) Pensions and Other Post Retirement Benefits
The Group continues to provide for UK pension costs in accordance with SSAP24.
Contributions to the Group's defined benefit pension schemes are assessed by
qualified actuaries and are charged to the profit and loss account so as to
spread the cost of pensions over employees' working lives with the Group. The
capital cost of ex gratia and supplementary pensions is charged to the profit
and loss account, to the extent that the arrangements are not covered by the
surplus in schemes, in the accounting period in which they are granted.
Differences between the amounts funded and the amounts charged to the profit and
loss account are included in the balance sheet.
In Canada, the charges for pensions and other post retirement benefits were
determined annually by actuaries on the basis of management estimates. These
costs consisted of current service costs, interest and adjustments arising from
plan amendments, changes in assumptions, and experience gains or losses, which
were amortised on a straight line basis over the expected average remaining
service life of the employees covered by the plan. Costs were recorded in the
year in which employees rendered services. British Energy disposed of its
interests in Canada on 14 February 2003.
2. ACCOUNTING POLICIES (Continued)
(x) Foreign currencies
Transactions in foreign currencies are recorded at the rate of exchange at the
date of the transaction or, if hedged forward, at the rate of exchange under the
related forward currency contract. Assets and liabilities denominated in foreign
currencies are translated into Sterling at the rate of exchange ruling at the
date of the balance sheet. All differences are taken to the profit and loss
account.
Differences on foreign exchange arising from the re-translation of the opening
net investment in, and results of, subsidiary and associated undertakings and
joint ventures are taken to reserves and, where appropriate, are matched with
differences arising on the translation of related foreign currency borrowings.
Any differences are reported in the Statement of Total Recognised Gains and
Losses.
(xi) Tangible Fixed Assets and Depreciation, including
Decommissioning Costs
Fixed assets comprise assets acquired or constructed by the Group. Expenditure
of a capital nature incurred to improve operational performance, to improve
safety or in order to meet increased regulatory standards is also capitalised.
Interest on major capital projects is included in the cost of the fixed asset
from the date of cash settlement until the date of commissioning. Other
expenditure, including that incurred on preliminary studies and on the
initiation of new technologies not yet adopted, is charged to the profit and
loss account as incurred.
Fixed assets (other than assets in the course of construction) are stated in the
balance sheet at cost less accumulated depreciation. Accumulated depreciation
includes additional charges made where necessary to reflect impairment in value.
Assets in the course of construction are stated at cost and not depreciated
until brought into commission.
The carrying values of fixed assets are reviewed for impairment by assessing the
present value of estimated future cash flows and net realisable value compared
with net book value. The calculation of estimated future cash flows is based on
the Directors' best estimates of future prices, output and costs and is
therefore subjective.
The charge for depreciation of fixed assets is based on the straight line method
so as to write off the costs of assets, after taking into account provisions for
diminution in value, over their estimated useful lives.
The asset lives adopted are subject to regular review and for the year ended 31
March 2003 were:
AGR power stations 25-35 years
PWR power station 40 years
Bruce power station assets 18 years
Coal power station 20 years
Other buildings 40 years
Other assets 5 years
The estimated costs for decommissioning the Group's nuclear power stations are
capitalised as part of the cost of construction and are depreciated over the
same lives as the stations. These estimated costs are discounted having regard
to the timescale whereby work will take place over many years after station
closure. The estimated costs include the demolition and site clearance of the
stations' radioactive facilities and the management of waste.
(xii) Fixed Asset Investments
Investments in subsidiaries are initially recorded at the nominal value of
shares allotted. Fixed asset investments are stated at cost less amortisation or
provisions for diminution in value. The Group's interest in joint ventures is
stated at cost plus the Group's share of retained earnings. The carrying value
of all fixed asset investments is regularly assessed for permanent impairment
and provision made, if appropriate.
Own shares purchased in respect of the Employee Share Option and ShareSave
Option Schemes are held at cost less charges to write down the shares to the
option exercise prices over the minimum lives of the options. The carrying value
of all own share investments is regularly assessed for permanent impairment and
provision made if appropriate. The Group has taken advantage of the exemption
under UITF17 in respect of Save As You Earn Share Schemes.
(xiii) Stocks of Fuel, Stores and Spares
Stocks of fuel, stores and spares are valued at the lower of cost and net
realisable value. The nuclear fuel stock is reduced by the provision for unburnt
fuel at shutdown (note 2 (vi)). Strategic spares are amortised over the life of
the asset to which they relate.
(xiv) Deferred Taxation
The Group makes full provision for deferred tax on all temporary timing
differences which arise between its taxable profits and results as stated in the
financial statements. The full amount of the provision is discounted using a
discount rate similar to the current post tax rates of return on UK treasury
gilts. The unwinding of one year's worth of discount is included in the tax
charge for the year. Deferred tax assets are recognised in the accounts to the
extent to which they are considered to be recoverable in the foreseeable future.
2. ACCOUNTING POLICIES (continued)
(xv) Nuclear Liabilities
Nuclear liabilities represent provision for the Group's liabilities in respect
of the costs of waste management of spent fuel and nuclear decommissioning. The
provisions represent the Directors' best estimates of the costs expected to be
incurred. They are calculated based on the latest technical evaluation of the
processes and methods likely to be used, and reflect current engineering
knowledge. The provisions are based on such commercial agreements as are
currently in place, and reflect the Directors' understanding of the current
government policy and regulatory framework. The Directors carry out an in-depth
review of the adequacy of amounts provisioned on a five yearly basis, and also
review the amounts provided for significant change during the intervening years.
Given that government policy and the regulatory framework on which our
assumptions have been based may be expected to develop and that the Directors'
plans will be influenced by improvements in technology and experience gained
from decommissioning activities, liabilities and the resulting provisions are
likely to be adjusted.
In matching the costs of generating electricity against the income from sales,
accruals are made in respect of the following:
a) Fuel costs - back end
The treatment of back end fuel costs in the profit and loss account has been
dealt with in notes 2(v) and (vi). These accruals cover reprocessing and storage
of spent nuclear fuel and the long-term storage, treatment and eventual disposal
of nuclear waste. They are based, as appropriate, on contractual arrangements or
the latest technical assessments of the processes and methods likely to be used
to deal with these obligations under the current regulatory regime. Where
accruals are based on contractual arrangements they are included within
creditors. Other accruals are based on long-term cost forecasts which are
reviewed regularly and adjusted where necessary, and are included within
provisions.
b) Decommissioning of nuclear power stations
The financial statements include provision for the full cost of decommissioning
the Group's nuclear power stations. Provision is made on the basis of the latest
technical assessments of the processes and methods likely to be used for
decommissioning under the current regulatory regime. The provision established
at the commencement of a power station's operating life is capitalised as part
of the costs of the station.
Accruals and provisions for back end fuel costs and decommissioning are stated
in the balance sheet at current price levels, discounted at a long-term real
rate of interest of 3% per annum to take account of the timing of payments. Each
year the financing charges in the profit and loss account include the
revalorisation of liabilities required to discharge one year's discount from
provisions made in prior years and restate these provisions to current price
levels.
(xvi) Decommissioning Fund
The Group makes contributions into an independently administered fund to cover
all costs of decommissioning its UK nuclear power stations, except de-fuelling
costs. The Group's annual contributions to the fund are assessed by qualified
actuaries, taking into account the amount and timing and expected
decommissioning costs and the periods until station closures. The value of the
asset in the balance sheet represents the contributions made by the Group,
together with an estimated actuarially determined long-term rate of return on
the fund. The change in value arising from applying the estimated long-term rate
of return is taken to the profit and loss account and disclosed as part of
revalorisation.
The revalorisation of the decommissioning fund, which has been taken through the
profit and loss account, is not a realised profit for the purposes of the
Companies Act 1985 because the income is unrealised until the Group receives the
related cash from the fund to reimburse decommissioning expenditure. The
inclusion of this profit in the profit and loss account is a departure from the
requirements of the Companies Act 1985. Revalorisation of the accrued
decommissioning provision is charged to the profit and loss account each year
and accordingly, in the opinion of the Directors, it is necessary to include the
estimated annual long-term rate of return of the fund in the Group's profit and
loss account in order for the financial statements to give a true and fair view.
In the event that the net realisable value as indicated by the market value of
the fund is lower than the value determined under the accounting policy set out
above, the lower value is included in the Group accounts.
The effect of the departure for the UK fund is to increase the loss before tax
by GBP82m (2002: GBP4m) and to increase the reported result before exceptional
items for the year by GBP29m (2002: increase in profit GBP23m). There is no
impact on the net assets at 31 March 2003 as the fund has been restated at
market value (2002 net assets were GBP82m higher due to this departure). There
are no tax consequences of this departure.
The effect of the departure for the AmerGen Fund is to reduce the AmerGen result
before tax by GBP28m and to increase the reported profit before exceptional
items for the year by GBP20m. There is no impact on net assets as the AmerGen
Fund has been restated at market value.
(xvii) Liquid Funds
Cash which is placed on term deposits which mature more than one day after the
end of the financial year or invested in commercial paper, is classified under
current asset investments in the balance sheet and the movement in liquid funds
is disclosed under management of liquid resources in the cash flow statement.
2. ACCOUNTING POLICIES (Continued)
(xviii) Financial Instruments and Derivatives
Financial instruments and derivatives are used to hedge interest rate, foreign
exchange and trading risks.
Energy trading financial derivatives, renewable obligation certificates and open
positions on physical energy trading contracts are marked to market using
externally derived market prices and subsequent movements in the fair value
reflected through the profit and loss account. This is not in accordance with
the general provisions of Schedule 4 of the Companies Act 1985, which requires
that these contracts be stated at the lower of cost and net realisable value or
that, if revalued, any revaluation difference be taken to a revaluation reserve.
However, the Directors consider that these requirements would fail to provide a
true and fair view of the results for the year since the marketability of energy
trading contracts enables decisions to be taken continually on whether to hold
or sell them. Accordingly the measurement of profit in any period is properly
made by reference to market values. The effect of the departure on the financial
statements is to reduce the loss for the year by GBP5m (2002: nil) and increase
the net assets at 31 March 2003 by GBP5m (2002: nil).
Amounts payable or receivable in respect of interest rate swaps and forward rate
agreements are recognised as adjustments to the net interest charge over the
term of the contracts. Where derivatives used to manage interest rate risk or to
hedge other anticipated cash flows are terminated before the underlying debt
matures or the hedged transaction occurs, the resulting gain or loss is
recognised on a basis that matches the timing and accounting treatment of the
underlying debt or hedged transaction. When an anticipated transaction is no
longer likely to occur, any deferred gain or loss that has arisen on the related
derivative is recognised in the profit and loss account, together with any gain
or loss on the terminated item.
Profits and losses on financial instruments and derivatives are reported in the
profit and loss account in the period to which underlying hedging transactions
are completed. In the event that a financial instrument no longer forms part of
the Group's physical trading portfolio, the value of the instrument is estimated
using discounted future cash flows, and provisions made if required. Short-term
debtors and creditors have been excluded from the disclosures made under FRS13 -
'Derivatives and other financial instruments'.
(xix) Goodwill
Goodwill arising on acquisitions represents the excess of the fair value of the
consideration at acquisition compared to the fair value of the identifiable net
assets acquired. Goodwill is capitalised as an intangible asset on the balance
sheet and amortised on a straight line basis over its estimated useful life.
(xx) Joint Ventures
The Group's share of the results of joint ventures is included in the
consolidated financial statements based on the latest audited accounts of the
joint ventures, except where the accounting reference date is not coterminous
with the parent company, in which case management accounts are used adjusted to
comply with British Energy accounting policies.
(xxi) Operating Lease
The Group entered into an operating lease with Ontario Power Generation Inc
(OPG) to lease the Bruce nuclear plant in Ontario, Canada until 2018. Under the
terms of the agreement a significant initial payment was made. This
consideration plus related transaction costs attributed to the operating lease
prepayment, was amortised on a straight-line basis over the expected period of
the lease. Other costs of the Bruce lease were charged to the profit and loss
account in accordance with the rental schedule which is included in the lease
agreement. The Group disposed of its investments in Bruce Power and Huron Wind
on 14 February 2003. The results of Bruce Power are classified as a discontinued
activity for the purpose of this report.
3. TURNOVER, OPERATING PROFIT AND NET ASSETS
(i) Turnover
2003 2002
Output
- United Kingdom 69.5 74.7
- Canada 19.2 20.5
88.7 95.2
Continuing activities GBPm GBPm
United Kingdom
- Wholesale generation 852 1,162
- Direct supply 603 522
- Exceptional income 41 -
- Miscellaneous income 32 17
1,528 1,701
Discontinued activities
Canada 375 348
Turnover 1,903 2,049
3. TURNOVER, OPERATING PROFIT AND NET ASSETS (Continued)
(i) Turnover (continued)
The Company has agreed revised terms for the Nuclear Energy Agreement ('NEA')
with Scottish Power and Scottish and Southern Energy. Under the terms of the
revised agreement, which has now had regulatory approval, the Company is in a
position to release as income a balance of GBP41m in respect of cash amounts
previously received. This release has been treated as an exceptional item as it
does not relate to current year trading.
Turnover from discontinued activities in Canada in 2002 and 2003 represent the
sales by Bruce Power which was acquired on 12 May 2001 and sold on 14 February
2003.
The turnover, operating profits and net assets of the Group's joint venture,
AmerGen, relate entirely to activities in the United States of America.
(ii) Operating Profit
A geographical analysis of operating profit before exceptional items is as
follows:
2003 2002
GBPm GBPm
United Kingdom 7 189
Canada 97 42
104 231
All exceptional items applicable to operating profits relate to the United
Kingdom.
(iii) Net Liabilities/Assets
A geographical analysis of the Group's net (liabilities)/assets is as follows:
2003 2002
GBPm GBPm
United Kingdom (3,454) 388
Canada - 158
United States 71 81
(3,383) 627
4. OPERATING COSTS
2003 2003 2002 2002
2003 Exceptional Business Business Exceptional 2002
Total Items Performance Performance Items Total
GBPm GBPm GBPm GBPm GBPm GBPm
Continuing Activities
Fuel 371 - 371 467 - 467
Materials and 519 94 425 395 209 604
services
Staff costs 227 - 227 209 3 212
Depreciation 4,011 3,738 273 280 300 580
5,128 3,832 1,296 1,351 512 1,863
Amounts written off
non-operational
assets 115 115 - - - -
Energy supply costs 184 - 184 171 - 171
5,427 3,947 1,480 1,522 512 2,034
Discontinued
Activities
Fuel 17 - 17 23 - 23
Materials and 143 - 143 149 - 149
services
Staff costs 111 - 111 119 - 119
Depreciation 7 - 7 5 - 5
278 - 278 296 - 296
Total operating costs 5,705 3,947 1,758 1,818 512 2,330
2003 2002
GBPm GBPm
Analysis of exceptional items
Restructuring costs 35 -
Stock obsolescence 57 -
Staff costs - 3
Onerous trading contracts 2 209
Fixed asset write down (note 11) 3,738 300
Investments in own shares write down (note 12) 102 -
UK decommissioning fund write down (note 13) 13 -
3,947 512
4. OPERATING COSTS (Continued)
There were exceptional materials and services costs of GBP35m in respect of
costs incurred on advisory fees and other costs associated with re-structuring
the Group's activities. An exceptional charge of GBP57m has been recorded for
stock obsolescence following an extensive review of slow moving stores and
spares conducted during the year.
During the year the Group had certain pre-NETA electricity trading contracts
with Enron Capital & Trade Europe Finance LLC ("Enron"), Teesside Power Limited
("TPL") and TotalFinaElf Gas and Power Limited ("TFE"). As a result of the terms
inherent in these contracts and the Directors' view of future market prices, the
contracts are considered to be onerous. The Enron and TFE contracts were
terminated during the year thus giving rise to claims for certain amounts which
became payable. These accounts reflect the claim amounts which have been agreed
in principle with Enron, TPL and TFE for the purposes of the restructuring. An
exceptional charge of GBP2m has been made in the year to make further provision
for these long-term trading contracts.
The Directors have reviewed the economic values and net realisable values of the
Group's fixed assets and compared them to their book value. As a result of this
review, the carrying value of fixed assets has been written down by GBP3,738m.
The carrying value of the nuclear stations has been calculated by discounting
the expected future cash flows from continued use of the assets, having made
appropriate assumptions regarding future operating performance. The valuation of
Eggborough is based on an assessment of net realisable value.
The electricity price assumptions are a very significant component of the asset
value calculation. The Directors have considered the market's views on future
prices of wholesale electricity and also the forecasts specifically commissioned
for the Company. They have considered the potential for rationalisation of
generation capacity in the UK and the potential effect on the market of changes
in Government policy on renewables generation. In determining the price
assumptions the Directors have also taken account of the effect on the market as
a result of the dramatic fall in prices over the last two years and have taken a
cautious view on there being a significant recovery in prices. As market prices
are outside the Directors' control actual prices may differ from those forecast.
In future years the Directors will review the economic assumptions underlying
the calculation of fixed asset carrying values, in line with the requirements of
FRS11, and make revisions as appropriate.
The 2001/02 results reported exceptional operating costs amounting to GBP512m,
as follows:
* a GBP209m provision in respect of the onerous pre-NETA contracts with
Enron, TPL and TFE;
* a charge of GBP3m for share option costs charged to staff costs; and
* an asset write-down of GBP300m in respect of the Eggborough Power
Station.
2003 2002
GBPm GBPm
Operating costs are stated after charging:
- research and development 15 16
- operating lease costs - Bruce 70 38
It is the Group's policy to engage PricewaterhouseCoopers LLP on assignments
where their expertise and experience with the Group are important, or where they
win work on a competitive basis. An analysis of auditors' remuneration on a
world-wide basis is provided below:
2003 2002
GBP000's % GBP000's %
Services as auditors 595 19 358 16
Due diligence 35 1 189 9
Tax services 331 11 1,249 57
Other non-audit services 509 17 387 18
Restructuring advice (including asset disposals) 1,608 52 - -
Total 3,078 100 2,183 100
Statutory audit fees for British Energy plc were GBP60,000 (2002: GBP45,000).
5. (LOSS)/PROFIT ON SALE OF BUSINESS
On 14 February 2003 the Group completed the sale of its 82.4% interest in Bruce
Power Limited Partnership ("Bruce Power") and 50% share in Huron Wind Limited
Partnership to a Canadian consortium led by Cameco Corporation, TransCanada and
BPC Generation Infrastructure Trust.
5. (LOSS)/PROFIT ON SALE OF BUSINESS (Continued)
The Group received initial consideration of C$678m upon financial close on 14
February 2003, together with a C$20m retention initially held in escrow pending
confirmation of the pension deficit which was subsequently received in April
2003. In addition, there are certain amounts held in escrow which the Group may
be entitled to receive pending satisfaction of various conditions related to the
disposal. These amounts, which have not been recognised in these accounts, are:
- C$100m, contingent on the restart of two Bruce A units, with C$50m to
be released provided the first unit restarts by 15 June 2003 and an additional
C$50m if the second unit restarts by 1 August 2003. If the units do not restart
on the specified dates then the contingent amounts released for each unit will
be reduced by C$5m and such payment is reduced by a further C$5m if that unit is
not restarted on or before the first day of each successive calendar month
following the scheduled restart date.
- C$20m, which is held in escrow from closing to cover any successful
claims in respect of representations and warranties until any claims made
against British Energy and British Energy International Holdings which are made
within two years from the date of closing are resolved.
A further C$80m is held in an escrow account to cover the estimated outstanding
tax liabilities of the Bruce Group. In the event that the sums held back to
satisfy the tax liability are insufficient, then British Energy would be
required to repay the amount of such excess to the Bruce Power consortium.
Conversely, British Energy will be refunded any balance remaining after
settlement of the tax liability.
The loss arising from the disposal and cash consideration which have been
recognised in these accounts are analysed as follows:
GBPm
Net assets sold:
Tangible fixed assets 303
Investment in joint venture and associates 4
Stocks 37
Debtors 313
Cash at bank 4
Borrowings (92)
Creditors and provisions (192)
Net assets disposed 377
Minority interests (68)
Net assets disposed less minorities 309
Accounted for by:
Cash consideration net of transaction costs 266
Contingent consideration received post year end on determination of pension deficit 8
Loss on disposal - exceptional item (35)
Cash flows:
Cash consideration net of transaction costs received in 2002/03 266
Less: cash held by disposed subsidiary (4)
Net cash inflow 262
The disposal of the Group's interest in Humber Power Limited
resulted in an exceptional profit of GBP4m in 2002.
6. FINANCING CHARGES/(CREDITS)
2003 2002
GBPm GBPm
Revalorisation of nuclear liabilities (note 20)
- changes in price levels 117 65
- discharge of one year's discount 111 110
228 175
Revalorisation of other provisions 10 12
Revalorisation of decommissioning fund (note 13) (29) (23)
Share of revalorisation of joint venture (4) (4)
Revalorisation charge before exceptional items 205 160
Exceptional item (see below) 159 27
Revalorisation charge 364 187
6. FINANCING CHARGES/(CREDITS) (Continued)
2003 2002
Interest: GBPm GBPm
Interest on loans repayable within five years:
- bank 11 27
- other 24 27
Interest on loans repayable in five years or more:
- bank 38 20
- other 8 8
Exceptional item - interest rate swaps 56 -
Exceptional item - borrowing costs 6 -
Interest receivable (9) (16)
Interest payable and similar charges 134 66
At 31 March 2003 the market value of the UK decommissioning fund at GBP334m was
lower than the value of GBP458m that would have been derived from revalorising
the amounts contributed. As a result an exceptional charge of GBP124m has been
recognised to record the fund at market value of which GBP111m relates to the
write-off of previous revalorisation and GBP13m has been classified as a write
off of non-operational assets. The UK Decommissioning Fund was also written down
by GBP27m in the 2001/02 accounts, to reflect a lower market value at 31 March
2002.
The market value of the decommissioning fund of AmerGen is also lower than the
value that would have been derived from revalorising the amounts contributed.
The British Energy share of the adjustment required to restate the value of the
fund to market value is GBP48m, all of which relates to previous revalorisation.
The total exceptional charge relating to the two funds amounts to GBP159m.
An exceptional charge of GBP56m has been recognised for interest rate swaps. The
basis of the provision is discussed in note 21. In addition, an exceptional
charge of GBP6m has been recorded for the write off of borrowing costs which had
previously been capitalised and were being amortised over the expected duration
of the loan financing the acquisition of the Eggborough power station.
7. TAXATION ON (LOSS)/PROFIT ON ORDINARY ACTIVITIES
2003 2002
GBPm GBPm
UK corporation tax - prior year - (11)
Deferred taxation on business performance loss before tax (40) 34
Unwinding of discount 14 14
Credit for the year on business performance loss (note 22) (26) 48
Exceptional deferred tax credit (370) (56)
Deferred tax credit for the year (396) (8)
Foreign tax - current year 18 15
(378) (4)
The deferred tax exceptional credit in 2002/03 arises mainly as a result of the
write down of fixed asset carrying values.
A reconciliation of the effective tax rate for the current year tax charge,
which solely comprises foreign tax is set out below.
2003
Tax Terms
GBPm Percentage
Tax credit on loss at standard rate of 30% (1,288) 30%
Deferred tax:
Current year movement 396 -9%
Impact of discounting 619 -14%
Deferred tax asset not recognised (note 22) 150 -4%
Total deferred tax pre discounting 1,165 -27%
Expenses not deductible for tax purposes 140 -3%
Loss on sale of investment not allowable 11 0%
(Lower)/higher tax rates on overseas earnings (6) 0%
Minority interests (4) 0%
Current tax charge for year 18 0%
The Group's joint venture, AmerGen, is not a tax paying entity. The share of
taxation for the joint venture represents the Group's liability for its share of
AmerGen's taxable profits.
8. LOSS OF THE COMPANY
The Group's results include a loss of GBP6,058m (2002: loss of GBP310m)
attributable to the Company, inclusive of a provision of GBP5,909m made in the
current year for bad and doubtful inter-company debtors which is eliminated on
consolidation. The Company did not have any distributable reserves at 31 March
2003 (2002: GBP491m). As permitted under Section 230 of the Companies Act 1985
the Company has not published a separate profit and loss account.
9. DIVIDENDS
2003 2002 2003 2002
p per p per
share share GBPm GBPm
Annual dividend per ordinary share:
- interim paid - 2.7 - 16
- final proposed - 5.3 - 32
Total annual - 8.0 - 48
Non-equity dividend - 2.3 - 2
10. EARNINGS PER SHARE
The basic total earnings per share and basic business performance earnings per
share for the year have been calculated on the basis of the loss on ordinary
activities after taxation, minority interests and non-equity dividends of
GBP3,941m (2002: loss GBP529m) for the total figures and a loss of GBP149m
(2002: loss GBP50m) for the business performance figures; and by reference to a
weighted average of 602 million ordinary shares (2002: 598 million ordinary
shares).
A reconciliation of total earnings per share to business performance earnings
per share (which exclude exceptional items) is set out below for information.
2003 2002
Loss Basic loss Loss Basic
attributable to per share attributable to
shareholders shareholders loss per
share
GBPm p/share GBPm p/share
Total (3,941) (654.7) (529) (88.5)
Adjusted for exceptional items:
- turnover (41) (6.8) - -
- operating costs/(credits) 3,947 655.6 512 85.7
- (profit)/loss on disposal 35 5.8 (4) (0.7)
- revalorisation 159 26.4 27 4.5
- interest payable and other
finance charges 62 10.3 - -
Taxation on exceptional items (370) (61.4) (56) (9.4)
Business performance (post
minorities) (149) (24.8) (50) (8.4)
11. TANGIBLE FIXED ASSETS
Other land Other plant
Power and and
Group stations buildings equipment Total
GBPm GBPm GBPm GBPm
Cost
As at 1 April 2002 10,793 47 408 11,248
Foreign exchange (9) - (1) (10)
Additions 258 - 35 293
Disposal of Bruce Power and Huron Wind (295) - (8) (303)
As at 31 March 2003 10,747 47 434 11,228
Depreciation
As at 1 April 2002 6,275 24 235 6,534
Exceptional asset write down 3,594 - 144 3,738
Charge for the year 247 - 33 280
Disposal of Bruce Power and Huron Wind (8) - (2) (10)
As at 31 March 2003 10,108 24 410 10,542
Net book value
As at 31 March 2003 639 23 24 686
As at 31 March 2002 4,518 23 173 4,714
11. TANGIBLE FIXED ASSETS (Continued)
The net book value of tangible fixed assets includes the following amounts in
respect of freehold land and buildings:
2003 2002
GBPm GBPm
Cost 2,245 2,223
Net Book Value 107 1,120
The Directors have reviewed the economic values and net realisable values of the
Group's fixed assets and compared them to their book value. A discount rate of
15% was applied to the economic value review. As a result of this review, the
value of its fixed assets has been reduced by GBP3,738m. The background to the
review is discussed more fully in note 4.
Plant and
Company equipment
GBPm
Cost
As at 1 April 2002 150
Additions 6
As at 31 March 2003 156
Depreciation
As at 1 April 2002 111
Exceptional asset write down 31
Charge for the year 14
As at 31 March 2003 156
Net book value
As at 31March 2003 -
As at 31 March 2002 39
12. FIXED ASSET INVESTMENTS
AmerGen
Joint Loans Own Other
Group venture to Nirex shares Investments Total
GBPm GBPm GBPm GBPm GBPm
Cost/carrying value
As at 1 April 2002 87 37 140 4 268
Foreign exchange (11) - - - (11)
Share of retained profits 43 - - - 43
As at 31 March 2003 119 37 140 4 300
Provision for diminution
in value
As at 1 April 2002 - 37 36 - 73
Charge for the year:
- exceptional items 48 - 102 - 150
As at 31 March 2003 48 37 138 - 223
Net book value
As at 31 March 2003 71 - 2 4 77
As at 31 March 2002 87 - 104 4 195
The Group is engaged in a sale process to dispose of its investment in AmerGen
as required by the conditions attaching to the UK Government credit facility
agreement. The investment has been classified as a fixed asset investment as the
Group has not yet entered into an agreement for its disposal.
An analysis of British Energy's share of the aggregate net assets of the AmerGen
joint venture is set out below.
2003 2002
GBPm GBPm
Negative goodwill (7) (14)
Tangible assets 144 107
Stocks 10 52
Cash 6 2
Decommissioning fund 306 378
Debtors 18 19
Creditors (51) (67)
Decommissioning liabilities (321) (340)
Loan notes (34) (50)
Net assets 71 87
12. FIXED ASSET INVESTMENTS (Continued)
Negative goodwill relates to AmerGen's acquisition of Oyster Creek nuclear power
station in August 2000.
The market value of the AmerGen decommissioning fund has fallen following the
fall in the value of the equity markets. An exceptional charge of GBP48m has
been recorded for British Energy's share of the adjustment required to restate
the balance sheet value to market value.
Loans have been made to United Kingdom Nirex Limited to fund development
expenditure for building an intermediate level nuclear waste repository. These
loans have been fully provided for in the Group's financial statements.
At 31 March 2003 British Energy Employee Share Trust held 21,734,839 ordinary
shares at an average cost of GBP4.68 for a total consideration of GBP101m. These
shares were held at cost less charges to write down the shares to the exercise
price of the share options over the minimum life of the options.
At 31 March 2003 the Qualifying Employee Shareholders' Trust held 5,292,103
ordinary shares at a cost of GBP5.32 per share (GBP28m) and 19,165,471 'A'
shares at a cost of 60p per share (GBP11m). These shares were held at cost less
charges to write down the shares to the exercise price over the minimum life of
the options.
The market value of the shares held by the employee trusts at 31 March 2003 was
GBP2m, compared to a book value of GBP104m. As the long term prospects of the
Company have deteriorated considerably the Directors consider it appropriate to
recognise a permanent diminution in the value of the shares held in employee
trusts. As a result an exceptional charge of GBP102m has been recognised within
' Amounts written off non-operational assets'.
Subsidiary Other
Company undertakings Investments Total
GBPm GBPm GBPm
Cost
As at 1 April 2002 19 - 19
Transferred to Group undertaking 5 - 5
As at 31 March 2003 14 - 14
Details of British Energy's principal subsidiary undertakings and other holdings
of more than 10% are as follows:
Country of Group Company
registration Class of share- Share- Principal
and operation share holding holding activity
% %
Subsidiary undertakings
British Energy Generation Generation and sale of
(UK) Limited Scotland Ordinary 100 100 electricity
British Energy Generation England and Generation and sale of
Limited Wales Ordinary 100 - electricity
British Energy Power &
Energy Trading Limited Scotland Ordinary 100 100 Energy trading
England and Generation and sale of
Wales electricity
Eggborough Power Limited Ordinary 100 -
Lochside Insurance Guernsey Ordinary 100 100 Insurance
Limited
British Energy US
Holdings Inc USA Ordinary 100 - Holding Company
British Energy Holdings
Limited Canada Ordinary 100 - Holding Company
Other holdings of more than 10 per cent
Generation and sale of
AmerGen Energy LLC USA Ordinary 50 - electricity
United Kingdom Nirex England and Disposal of nuclear
Limited Wales waste
Ordinary 10.8 -
Included in the Group accounts are the assets of the British Energy Employee
Share Trust and the assets of the British Energy Qualifying Employee Share
Trust, which are trusts set up to hold shares purchased on behalf of the Group's
employees under the Employee Share Scheme and the British Energy ShareSave
Scheme respectively.
The accounting reference dates of AmerGen Energy LLC and British Energy US
Holdings Inc are both 31 December.
13. UK DECOMMISSIONING FUND
Group
GBPm
As at 1 April 2002 411
Regular contributions 18
Revalorisation (note 6) 29
458
Less exceptional items to write down to market value (124)
As at 31 March 2003 334
The decommissioning fund asset in the balance sheet normally represents the
contributions made by the Group, together with an estimated actuarially
determined long-term post-tax real rate of return on the fund of 3.5% per annum.
The change in value arising from applying the estimated long-term rate of return
is taken to the profit and loss account as a revalorisation credit. The
decommissioning fund asset is receivable after more than one year.
At 31 March 2003 the market value of the decommissioning fund's investments was
GBP334m (market value 2002: GBP411m). As a result of the market value being
lower than the balance sheet carrying value an exceptional charge of GBP124m has
been recognised in the accounts to restate the decommissioning fund receivable
to market value. Of this charge GBP111m represents the write down of previous
revalorisation and has been treated as an exceptional financing charge. The
balance of GBP13m has been included in 'Amounts written off non-operational
assets' and classified as an operating cost.
14. STOCKS
Group
2003 2002
GBPm GBPm
Unburnt nuclear fuel in reactors 469 451
Provision for unburnt fuel at station closure (272) (266)
Net unburnt nuclear fuel in reactors 197 185
Other nuclear fuel 74 152
Coal stocks 14 15
Stores 75 162
360 514
15. DEBTORS
Group Company
2003 2002 2003 2002
GBPm GBPm GBPm GBPm
Trade debtors 226 294 3 5
Other debtors 89 158 - 76
Operating lease prepayment - 176 - -
Prepayments 72 104 1 3
Amounts due from subsidiary undertakings - - 81 2,433
387 732 85 2,517
Included within the Company's amount due from subsidiary undertakings is GBP81m
(2002: GBP67m) which was denominated in foreign currencies and translated at the
year-end exchange rate, and a provision for bad and doubtful debts of GBP6,209m
relating to amounts due from UK subsidiaries.
GBP56m of Group debtors fall due in more than one year (2002: GBP320m).
16. CREDITORS
Group Company
2003 2002 2003 2002
GBPm GBPm GBPm GBPm
Amounts falling due within one year:
Nuclear liabilities (note 20) 355 224 - -
Trade creditors 198 285 - -
Retentions 5 4 - -
Other taxes and social security 9 21 - -
Other creditors 326 72 1 -
Accruals 140 182 20 15
Proposed dividends - 34 - 34
Amounts due to subsidiary undertakings - - 3,721 -
1,033 822 3,742 49
Other creditors: amounts falling due after more
than one year
Nuclear liabilities (note 20) 1,909 1,858
16. CREDITORS (Continued
Other creditors includes GBP316m in respect of claims relating to onerous
trading contracts. These contracts are pre-NETA electricity trading contracts
with Enron Capital & Trade Europe Finance LLC ("Enron"), Teesside Power Limited
("TPL ") and TotalFinaElf Gas and Power Limited ("TFE"). The Enron and TFE
contracts were terminated during the year, which gave rise to claims for certain
amounts which have become payable. Interest is payable on standstill balances at
a rate of 6%, other than the bonds and the amounts due to the Eggborough banks
which continue under their original terms. These accounts reflect the claim
amounts which have been agreed in principle with Enron, TPL and TFE for the
purposes of the proposed restructuring of the Group.
17. BORROWINGS
(i) Summary
The Group's borrowings at 31 March 2003 were as follows:
Group Company
2003 2002 2003 2002
GBPm GBPm GBPm GBPm
Long term project finance loan - Sterling 475 508 - -
Bonds - Sterling 408 408 408 408
Short term - US dollar - 6 - 6
Long term - Canadian dollar - 42 - -
Long term OPG loan - Canadian dollar - 104 - -
883 1,068 408 414
The long-term project finance loan is secured on the assets of Eggborough Power
Limited (EPL). Amounts owed by EPL to the lenders are not guaranteed by British
Energy plc (BE) but BE guarantees the payment of amounts by British Energy Power
& Energy Trading Limited (BEPET) to EPL. The contractual amounts payable by
BEPET are calculated so as to cover EPL's borrowing requirements and operating
costs. BE also provides a subordinated loan facility to EPL. The final
instalment of loan principal will be repaid in 2011. The loan currently bears
interest at LIBOR plus 1.25%. It is proposed that these arrangements will be
restructured as part of the proposed restructuring of the Group.
The remainder of the Group's borrowings are unsecured. The interest rate coupons
on the bonds are as follows:
2003
Coupon rate Principal
% GBPm
Bond 2003 5.949 110
Bond 2006 6.077 163
Bond 2016 6.202 135
408
The March 2003 bond has not been repaid as scheduled. It is proposed that claims
of bondholders will be restructured as part of the restructuring of the Group.
(ii) Risk Profile
The interest rate risk profile of the Group's borrowings is as follows:
Weighted Weighted 2003 2002
average average
Interest period for
rate which the Floating Fixed
rate is fixed rate rate Total Total
% Years GBPm GBPm GBPm GBPm
Sterling 6.41 5.8 - 883 883 916
Canadian dollar - - - - - 146
US dollar - - - - - 6
At 31 March 2003 - 883 883 1,068
At 31 March 2003, the effect of the Group's interest rate contracts is to
classify GBP475m (2002: GBP508m) of borrowings as fixed rate in the above table.
17. BORROWINGS (continued)
(iii) Fair Values
The fair values of the Group's borrowing at 31 March 2003 are as follows:
2003 2002
Book value Fair value Book value Fair value
GBPm GBPm GBPm GBPm
Long term project finance loan - 475 150 508 508
Sterling
Bonds - Sterling 408 171 408 388
Short term - US dollar - - 6 6
Long term - Canadian dollar - - 42 42
Long term OPG loan - Canadian dollar - - 104 104
883 321 1,068 1,048
The fair value of long-term bonds reflect their market value as at 31 March
2003.
There is no open market information available for the long term project finance
loan, the value of which has been severely affected by the financial
restructuring of the Group. Therefore, the fair value which has been attributed
to the loan has been based on the Directors' best estimate of the net realisable
value of the Eggborough Station upon which this debt is secured.
(iv) Maturity of borrowings
2003 2002
GBPm GBPm
Less than one year 152 153
Between one and two years 45 41
Between two and five years 319 410
Over five years 367 464
883 1,068
The analysis of maturity of borrowings has been prepared based on the dates when
the borrowings mature under the existing contractual arrangements. However, the
standstill arrangements which have been put in place have the effect of
deferring the payments of certain amounts due until the Bonds and Eggborough
project finance loan are replaced as part of the restructuring of the Group or
earlier termination of the standstill. The maturity profile of borrowings is
likely to change upon completion of the restructuring.
(v) Borrowing facilities
At 31 March 2003 the Group had the following borrowing facilities excluding the
bonds.
Drawn Undrawn Total Expiry
GBPm GBPm GBPm Date
Long term project finance loan 475 - 475 2011
Credit facility with UK Government - 200 200 2004
Totals 475 200 675
18. FINANCIAL INSTRUMENTS AND DERIVATIVES
A summary of derivative financial instruments at 31 March 2003 is set out below.
2003 2002
Contract Contract
principal principal
amounts Carrying Fair amounts Carrying Fair
value value value value
GBPm GBPm GBPm GBPm GBPm GBPm
Foreign exchange forward contracts - - - 5 - 1
Interest rate contracts 498 (56) (56) 518 - (29)
The Group uses interest rate contracts to manage exposure to interest rate
fluctuations.
The Group has reduced exposure to foreign currency exchange rate movements
following the disposal of its investments in Bruce Power and Huron Wind. There
are potential future foreign currency receivables in respect of the retentions
outstanding from the sale of Bruce Power and the potential sale of AmerGen. When
these cash flows become more certain in the future, the Group will evaluate
currency hedging opportunities, balancing the cost and availability of entering
into such transactions against the underlying currency risk.
18. FINANCIAL INSTRUMENTS AND DERIVATIVES (Continued)
A summary table of the net losses on derivative instruments is set out below.
2003 2002
Unrecognised Deferred Unrecognised Deferred
GBPm GBPm GBPm GBPm
Net losses on derivative
instruments at 1 April 2002 (28) (10) (30) (20)
Net losses arising in previous
period included in current period
profit and loss account 28 8 - 5
Net losses arising before 1 April
2002 not included in current period
profit and loss account - (2) (30) (15)
Net gains/(losses) arising in
current period not included in
current period profit and loss
account - - 2 5
Net losses on hedges at 31 March
2003 - (2) (28) (10)
Of which:
Net losses expected to be included
in 2003/04 profit and loss account - (2)
Net losses expected to be included
in profit and loss accounts beyond
2003/04 - -
19. PROVISIONS FOR LIABILITIES AND CHARGES
Group
2003 2002
GBPm GBPm
Nuclear liabilities (note 20) 1,673 1,637
Other provisions (note 21) 62 349
Deferred taxation (note 22) - 414
1,735 2,400
20. NUCLEAR LIABILITIES
Back end Back end
fuel costs fuel costs Decomm- 2003 2002
contracted uncontracted issioning Total Total
GBPm GBPm GBPm GBPm GBPm
As at 1 April 2002 2,082 702 935 3,719 3,728
Charged/(credited) to
profit and loss account:
- operating costs 72 33 - 105 148
- revalorisation (note 6) 126 41 61 228 175
- reclassifications 97 (97) - - -
Payments in the year (114) (1) - (115) (332)
As at 31 March 2003 2,263 678 996 3,937 3,719
The year-end balances of nuclear liabilities are included in the balance sheet
as follows:
2003 2002
GBPm GBPm
Creditors:
- amounts falling due within one year 355 224
- amounts falling due after more than one year 1,909 1,858
Provisions for liabilities and charges 1,673 1,637
3,937 3,719
Fuel costs - back end
Accruals for AGR fuel services relating to spent AGR fuel are based on the terms
of contracts with BNFL (dated 30 March 1995 and 3 June 1997), most of which
include fixed prices subject to indexation, or the Group's estimates where no
contracts exist. Provisions for services relating to the disposal of nuclear
waste and the storage and disposal of PWR spent fuel are based on cost estimates
derived from the latest technical assessments.
20. NUCLEAR LIABILITIES (Continued)
Decommissioning
The costs of decommissioning the power stations have been estimated on the basis
of technical assessments of the processes and methods likely to be used for
decommissioning under the current regulatory regime. The estimates are designed
to reflect the costs of making the sites of the power stations available for
alternative use in accordance with the Group's decommissioning strategy.
Projected payment details
Based on current estimates of station lives and lifetime output projections, the
following table shows, in current prices, the likely undiscounted payments, the
equivalent sums discounted at 3% per annum to the balance sheet date and the
amounts accrued to date.
Back end Back end Group Group
fuel costs fuel costs Decomm- 2003 2002
contracted uncontracted issioning Total Total
GBPbn GBPbn GBPbn GBPbn GBPbn
Undiscounted 5.1 4.6 5.0 14.7 14.1
Discounted 3.3 1.0 1.0 5.3 5.2
Accrued to date 2.2 0.7 1.0 3.9 3.7
The differences between the undiscounted and discounted amounts reflect the fact
that the costs concerned will not fall due for payment for a number of years.
The differences between the discounted amounts and those accrued to date will be
charged to the profit and loss account over the remaining station lives since
they relate to future use of fuel.
Under the terms of the contracts with BNFL referred to above and in accordance
with the projected pattern of payments for decommissioning and other
liabilities, taking account of the decommissioning fund arrangements described
in note 2(xvi) the undiscounted payments in current prices are expected to
become payable as follows:
Back end Back end Group Group
fuel costs fuel costs Decomm- 2003 2002
contracted uncontracted issioning Total Total
GBPm GBPm GBPm GBPm GBPm
Within five years 1,181 30 92 1,303 1,308
6 - 10 years 1,063 101 227 1,391 1,411
11 - 25 years 1,629 410 336 2,375 2,683
26 - 50 years 708 1,082 55 1,845 1,188
51 years and over 487 3,002 - 3,489 3,436
5,068 4,625 710 10,403 10,026
21. OTHER PROVISIONS
Eggborough Interest Onerous
trading
site rate contracts 2003
restoration swaps Restructuring Total
GBPm GBPm GBPm GBPm GBPm
As at 1 April 2002 - - 344 5 349
Provided in year 3 56 2 3 64
Revalorisation - - 10 - 10
Utilised in the year - - (40) (5) (45)
Reclassified as other - - (316) - (316)
creditors
As at 31 March 2003 3 56 - 3 62
The interest rate swaps provision is in respect of swap contracts which were put
in place to hedge interest rate risk. The Directors have reviewed the necessity
for these swaps in the context of the financial restructuring of the Group and
have concluded that the swaps are no longer effective as hedges, thereby
necessitating the creation of a provision of GBP56m, Company GBP9m, being the
out of the money element.
22. DEFERRED TAXATION
2003 2002
GBPm GBPm
Accelerated capital allowances (56) 1,020
Other long-term timing differences (64) (63)
Short-term timing differences 20 41
Corporation tax losses (262) (189)
ACT recoverable offset - (76)
Undiscounted (asset)/provision for deferred tax (362) 733
Discount 212 (319)
De-recognition of asset 150 -
Discounted provision for deferred tax - 414
Group
2003
GBPm
As at 1 April 2002 414
Release of provision set up on acquisition of Bruce Power assets (18)
Credit on exceptional items (520)
De-recognition of asset exceptional item 150
Credit for the year on business performance loss (note 7) (26)
As at 31 March 2003 -
The Company does not have a deferred tax liability at 31 March 2003 (2002:
GBPnil).
23. POST RETIREMENT BENEFIT OBLIGATIONS
UK Pension Schemes
British Energy operates two separate pension arrangements in the UK within the
Electricity Supply Pension Scheme (ESPS), the British Energy Generation Group
(BEGG) for the majority of employees and the British Energy Combined Group
(BECG) for the employees at Eggborough Power Station. The ESPS is a defined
benefit scheme, which is externally funded and subject to triennial actuarial
valuation. Each pension group that participates in the ESPS is financially
independent from the other groups.
The most recent triennial valuations of the BEGG and BECG schemes were carried
out at 31 March 2001 by the independent ESPS actuary. The valuations for
accounting purposes have been carried out by a separate independent actuary
using the projected unit method. The principal assumptions adopted for both
these accounts valuations were that, over the long term, the investment rate of
return would be 6% per annum for benefits already accrued, and 6.5% for the
return achieved on future contributions. The rate of salary increase would be 4%
per annum and the rate of pension increase would be 2.5% per annum. Assets were
taken at market value. At the date of the valuation, the combined market value
of assets of both schemes was GBP1,944m. This represents 119% of the benefits
that had accrued to members after allowing for expected future increases in
earnings.
British Energy contributed 10% to the BEGG and 15.3% to the BECG for the period
from 1 April 2002 to 31 October 2002. The BEGG contribution was increased to
17.1% from 1 November 2002. Contributing members contribute 5% and 6% to the
respective plans. Any deficiency disclosed in the BEGG or BECG following an
actuarial valuation has to be made good by British Energy.
The Group's UK pension costs for the year to 31 March 2003 were GBP6m net of
surplus amortisation (2002: GBP1m). At that date there was a SSAP24 prepayment
of GBP72m (2002: GBP50m) in the UK.
Bruce Power Pension Scheme
Bruce Power Inc provides pensions, group life insurance and health care benefits
for retirees in Canada. Pensions are provided through the Bruce Power Pension
Plan, which is a defined benefit scheme and is externally funded and subject to
triennial actuarial valuations. Members of the plan contribute on average 5% of
their salaries to the scheme. Bruce Power contributed the balance of the cost of
providing the pension.
Bruce Power also operates a supplemental retirement pension plan which provides
additional pensions to some retirees. This plan is not funded. Retiree group
life insurance and health care benefits are also not pre-funded.
The Group's Bruce Power related pension costs for the period of ownership from 1
April 2002 to 14 February 2003 were GBP12m (2002: GBP10m).
23. POST RETIREMENT BENEFIT OBLIGATIONS (continued)
FRS17 Disclosures
The Group has not implemented FRS17 'Retirement benefits' in the accounts for
the year ended 31 March 2003. The disclosures required under the transitional
arrangements for UK and Canadian plans within FRS 17 as advised by the Company's
actuaries are, however, set out below.
(i) UK Pension Schemes
a) Major assumptions for significant defined benefit schemes:
2003 2002
% pa % pa
Price inflation 2.25 2.75
Rate of general increase in salaries 3.75 4.25
Rate of increase of pensions in payment* 2.25 2.75
Rate of increase of deferred pensions* 2.25 2.75
Discount rate 5.50 6.0
* in excess of Guaranteed Minimum Pension (GMP) element
b) Impact of full compliance with FRS17 if the consolidated financial
statements had been drawn up on the basis of the assumptions above:
2003
(Gain)/Loss
GBPm
Operating Profit
Current service cost 32
Past service cost 13
Total charge to operating profits 45
Finance income
Expected return on assets in the pension scheme (132)
Interest on pension scheme liabilities 107
Net credit to finance income (25)
Total P&L charge before tax 20
Consolidated statement of total recognised gains and losses
Actual return less expected return on post employment plan assets 410
As % of plan assets at end of year 27%
Experience losses arising on plan liabilities (3)
As % of plan liabilities at end of year -
Changes in assumptions (financial & demographic) -
Actuarial loss recognisable in consolidated statement of total recognised gains
and losses (before tax) 407
As % of plan liabilities at end of year 22%
2003 2002
GBPm GBPm
Balance sheet impact
The fair value of plan assets at 31 March 1,525 1,842
The present value of plan liabilities at 31 March (1,877) (1,799)
Net pension (deficit)/asset (352) 43
Other non-pension post retirement benefits - -
Related deferred tax liability - -
Net (deficit)/asset for post retirement benefits net of tax (352) 43
No deferred tax asset is recognisable on the pension deficit in 2003, based on
application of the deferred tax accounting policy set out in note 2 (xiv).
23. POST RETIREMENT BENEFIT OBLIGATIONS (continued)
(i) UK Pension Schemes (continued)
c) Movement in plan surplus during the year:
2003
GBPm
Surplus in plan at beginning of the year 43
Contributions paid 31
Current service cost (32)
Past service cost (12)
Other finance income 25
Actuarial loss (407)
Deficit in the plan at the end of the year (352)
d) Assets in the plan together with expected long-term rate of return:
Value at Value at
Rate of 31 March Rate of 31 March
return
2003 Return 2002
% GBPm % GBPm
Equities 8.5 878 8.0 1,248
Bonds 4.5 438 5.3 412
Property 6.5 183 6.7 175
Others 3.75 26 4.75 7
1,525 1,842
(ii) Bruce Power Pension Scheme
a) Major assumptions for significant defined benefit scheme:
2003 2002
% pa % pa
Price inflation 2.75 2.75
Rate of general increase in salaries 3.75 3.75
Rate of increase of pensions in payment 2.75 2.75
Discount rate 7.0 7.0
b) Impact of full compliance with FRS17 if the consolidated financial
statements had been drawn up on basis of the assumptions above:
2003
(Gain)/Loss
GBPm
Operating Profit
Current service cost 15
Past service cost -
Total charge to operating profits 15
Gain on settlements - disposal of Bruce Power (103)
Finance income
Expected return on assets in the pension scheme (26)
Interest on pension scheme liabilities 26
Net credit to finance income -
Total P&L (credit)/charge before tax (88)
Consolidated statement of total recognised gains and losses
Actual return less expected return on post employment plan assets 50
Experience gains and losses arising on plan liabilities -
Changes in assumptions (financial & demographic) 2
Foreign exchange adjustments (4)
Actuarial loss recognisable in consolidated statement of total recognised gains and
losses (before tax) 48
23. POST RETIREMENT BENEFIT OBLIGATIONS (continued)
(ii) Bruce Power Pension Scheme (continued)
2003 2002
GBPm GBPm
Balance sheet impact
The fair value of plan assets at 31 March - 422
The present value of plan liabilities at 31 March - (396)
Net pension (deficit)/asset - 26
Other non-pension post retirement benefits - (64)
Related deferred tax liability - (2)
Net deficit for post retirement benefits net of tax - (40)
c) Movement in plan surplus during the year:
2003
GBPm
Deficit in plan at beginning of the year (38)
Contributions paid -
Current service cost (15)
Past service cost -
Gain on settlement 103
Foreign exchange 2
Other finance income -
Actuarial loss (52)
Deficit in the plan at the end of the year -
d) Assets in the plan together with expected long-term rate of return
Value at Value at
Rate of 31 March Rate of 31 March
Return 2003 Return 2002
% GBPm % GBPm
Equities - - 8.5 255
Bonds - - 6.0 151
Property - - - -
Others - - 5.0 16
- 422
24. CALLED UP SHARE CAPITAL
2003 2002
GBPm GBPm
Authorised
991,679,020 ordinary shares of 4428/43p each 443 443
720,339,029 'A' Shares of 60p each 432 432
One special right redeemable preference share of GBP1 - -
875 875
Allotted, called up and fully paid
620,362,444 ordinary shares of 4428/43p each 277 277
80,908,247 'A' shares of 60p each 48 48
74,752,351 deferred 'A' shares of 60p each 45 45
One special rights redeemable preference share of GBP1 - -
370 370
Special rights redeemable preference share of GBP1
The special rights redeemable preference share is redeemable at par at any time
after 30 September 2006 at the option of the Secretary of State, after
consulting the Company. This share, which may only be held by a Minister of the
Crown or other person acting on behalf of HM Government, does not carry any
rights to vote at general meetings, but entitles the holder to attend and speak
at such meetings. The special share confers no right to participate in the
capital or profits of the Company beyond its nominal value. Certain matters, in
particular, the alteration of specific sections of the Articles of Association
of the Company (including the Article relating to limitations that prevent a
person having the right to have an interest in 15% or more of the voting share
capital), require the prior written consent of the holder of the special share.
24. CALLED UP SHARE CAPITAL (Continued)
'A' Shares and deferred shares
The 'A' shares are traded on the London Stock Exchange and at 31 March 2003 had
a market value of 3p (2002: 51p). The deferred shares have a GBPnil fair value
at 31 March 2003 (2002: GBPnil).
The 'A' shares and deferred shares do not carry any rights to receive notice of,
attend, speak or vote at any general meeting, unless in the case of 'A' shares
the meeting is due to consider a resolution for the winding up of the Company,
or the continuing dividend remains unpaid six months or more after it fell due.
On a winding up of the Company, the 'A' shares have preferential rights over the
ordinary shares in respect of the distribution of capital. The 'A' shares confer
no rights to participate in the capital or profits of the Company beyond their
nominal value. The deferred shares do not confer any rights to participate in
the capital or profits of the Company, including on a winding up of the Company.
25. PROFIT AND LOSS ACCOUNT
Group Company
2003 2002 2003 2002
GBPm GBPm GBPm GBPm
As at 1 April 2002 (213) 372 1,495 1,855
Loss for the year (3,941) (577) (6,058) (360)
Foreign currency translation adjustments (25) (8) - -
As at 31 March 2003 (4,179) (213) (4,563) 1,495
The Company did not have distributable reserves at 31 March 2003
(2002: GBP491m).
26. RECONCILIATION OF MOVEMENT IN EQUITY SHAREHOLDERS' FUNDS
Group
2003 2002
GBPm GBPm
As at 1 April 2002 490 1,075
Loss for the financial year (3,941) (527)
Ordinary dividend - (48)
Foreign currency translation adjustments (25) (8)
Non-equity dividend - (2)
As at 31 March 2003 (3,476) 490
27. RECONCILIATION OF OPERATING PROFIT TO OPERATING NET CASH FLOWS
Group
2003 2002
Continuing Discontinued
Activities Activities Total Total
GBPm GBPm GBPm
Operating (loss)/profit including exceptional
items
(3,899) 97 (3,802) (281)
Operating exceptional items 3,906 - 3,906 512
Business performance operating profit 7 97 104 231
Depreciation charges (includes lease
amortisation) 274 13 287 285
Nuclear liabilities charged to operating costs 105 - 105 156
Nuclear liabilities discharged (115) - (115) (332)
Other provisions discharged (45) - (45) (43)
Regular contributions to decommissioning fund (18) - (18) (18)
Decrease/(increase) in stocks 72 (12) 60 66
Decrease/(increase) in debtors 12 (30) (18) (117)
Decrease/(increase) in creditors (48) 24 (24) 152
Net cash inflow from operating activities 244 92 336 380
Payments to acquire tangible fixed assets (112) (170) (282) (225)
Net cash inflow from operating activities net
of capital expenditure 132 (78) 54 155
28. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN FUNDS
2003
GBPm
Increase in cash in the year 87
Increase in liquid resources 37
Decrease in debt 185
Decrease in net debt in the year 309
Net debt at 1 April 2002 (859)
Net debt at 31 March 2003 (550)
29. ANALYSIS OF NET DEBT
Term Debt due in Debt due
deposits/ less than after more
Cash at bank one year than one
bank balances year Net debt
GBPm GBPm GBPm GBPm
Net debt at 1 April 2002 - 209 (153) (915) (859)
Disposal of Bruce Power debt - - - 93 93
Cash flows 87 37 1 91 216
Net debt at 31 March 2003 87 246 (152) (731) (550)
Cash not immediately required for business purposes is invested in fixed rate
term deposits. At 31 March 2003, these term deposits were due to mature within
one month and earned interest at an average rate of 3.7%. Term deposits and bank
balances at 31 March 2003 include GBP209m of cash which has been deposited in
collateral bank accounts for trading purposes, availability of this cash is
therefore restricted over the period of the collateralised position.
30. CONTINGENT ASSETS
The Group has not recognised certain cash retentions in respect of the disposal
of Bruce Power as an asset in its balance sheet at 31 March 2003, because of
uncertainties regarding their realisation. The conditions attached to these
retentions are described more fully in note 5.
31. CONTINGENT LIABILITIES
These accounts are drawn up on a going concern basis, the basis of which is
explained more fully in note 1 to these accounts. This note describes the
contingent liabilities which are applicable to the Group and the Company.
The Group has been provided with a financing facility by the Secretary of State
for Trade and Industry, (the "Secretary of State") as described in note 1 to
these accounts. As at 31 March 2003 the Group had drawn down no cash drawings
and had not utilised collateral available under the financing facility to
support trading operations in the UK.
The following security has been granted for obligations under the financing
facility made available by the Secretary of State for Trade and Industry:
- An all monies debenture creating fixed security (by way of assignment
and/or fixed charge) over certain intra-group receivables, and special accounts
and a floating charge between the Secretary of State and certain Group
companies.
- Fixed charges in relation to the UK nuclear power stations.
- Pledge and mortgage of shares in certain Group subsidiaries in favour
of the Secretary of State.
- Pledge agreement between British Energy US Holdings Inc and the
Secretary of State over certain membership interests in British Energy US
Investments LLC and certain limited partnership interests in British Energy LP.
Amounts owing by Eggborough Power Limited ("EPL") to the Eggborough bank
syndicate are not guaranteed by the Company. However, the Company guarantees the
payment of amounts by British Energy Power & Energy Trading Limited to EPL,
calculated to cover EPL's borrowing and operating costs. In addition the Company
also provides a subordinated loan facility to EPL.
The Group has entered into formal standstill agreements with certain significant
creditors and BNFL and it has also reached non-binding agreement in principle
regarding the recognition, compromise and allocation of certain claims under the
terms of the restructuring as announced on 28 November 2002. However, while the
Directors believe that the amounts of the agreed claims currently reflect the
amounts legally claimable, in the event of restructuring not being completed
then different amounts may be calculated as being claimable.
On 25 September 2002 the Nuclear Generation Decommissioning Fund Limited (the
"Fund") served a default notice relating to the solvency of the Company, British
Energy Generation Limited and British Energy Generation (UK) Limited. Unless the
default is cured to the satisfaction of the Fund, or waived, the Fund has the
right to require accelerated payment of all of the contributions due to the Fund
prior to the next quinquennial review in Autumn 2005. Annual payments are in the
region of GBP18m. The Fund has agreed not to take enforcement action without
further notice while the Group progresses satisfactorily toward achieving
restructuring.
31. CONTINGENT LIABILITIES (Continued)
The Directors understand that AES and Greenpeace have lodged an appeal in the
Court of First Instance in Luxembourg against the EU approval of HMG's decision
to grant rescue aid to the Group. The Directors also understand that other
parties may take similar action.
The Group has given certain indemnities and guarantees in respect of the
disposal of its investment in Bruce Power. The Group does not currently
anticipate any losses will arise in connection with them.
The Group is involved in a number of other claims and disputes arising in the
normal course of business which are not expected to have a material effect on
the Group's financial position.
The Company has given certain indemnities and guarantees in respect of its
subsidiary undertakings. No losses are anticipated to arise under these
indemnities and guarantees, provided relevant subsidiary undertakings continue
as going concerns.
32. FINANCIAL COMMITMENTS
2003 2002
GBPm GBPm
Capital expenditure contracted but not provided 40 93
In addition to the reprocessing commitments there are commitments at 31 March
2003 for nuclear fuel purchase totalling GBP583m, at current prices, over the
next 10 years. These commitments may be subject to change in the future as the
Group's contractual terms with BNFL are expected to be amended in the event of
the successful completion of the restructuring proposals.
In addition to the liabilities and provisions recognised and described in the
notes to the financial statements the Group has provided certain guarantees and
commitments in respect of the extent of capital expenditure by Eggborough Power
Limited and AmerGen. The Group also enters into commitments to purchase and sell
electricity in the normal course of business.
33. POST BALANCE SHEET EVENTS
In April 2003 the Group received payment of C$20m in respect of a pension
related cash retention which formed part of the disposal proceeds of its
investment in Bruce Power. The receipt of this cash has been recognised in the
accounts to 31 March 2003 as being part of the disposal proceeds of Bruce Power
as described more fully in note 5.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: JUne 03, 2003 BRITISH ENERGY PLC
By:____Paul Heward____
Name: Paul Heward
Title: Director - Investor Relations